From a week ago, May 23, 2025: California lawmakers reject hundreds of bills in rapid-fire hearings. Link here.
Tax credits for the parents of young children. A state-funded scientific research institute. Exempting service workers’ tips from state income tax.
Those are among the hundreds of proposals California lawmakers swiftly rejected Friday under the banner of cost savings, as they cited the state’s $12 billion budget deficit — a worsening figure due to the threat of unprecedented federal funding cuts and California’s ballooning spending on health care for low-income residents.
May 29, 2025: to put the California budget in perspective, one needs to know this --
May 29, 2025: update.
Newsom’s new proposal. Many story lines.
Newsom’s proposals are draconian, to say the least. It suggests the adults in the room have finally gotten Newsom’s attention. And it’s very, very unlikely that the Trump administration will bail Newsom out.
March 20, 2025: link here.
Biggest economic story on my mind right now? California's budget. By this summer, this may be the #1 financial story among states. California has very little wiggle room. It already has highest tax rates; highest energy costs; highest Medicaid (Medi-Cal) costs. And an unfriendly administration.
California has taken these steps to balance the budget:
- first, unprecedented, Governor Newsom proposed a two-year budget instead of the usual one-year budget which allows him to forecast rosy tax receipts two years out to cover the huge unexpected deficit now being forecast;
- to get to a balanced budget, even with that sleight of hand(s), Governor Newsom told the state lawmakers last week that the state needed a $3.4 billion loan to make "critical payments for Medi-Cal," as California calls Medicaid;
- well, that turned out to be a bit of smoke and mirrors; if he got the loan inserted into the spending bill, it would be easy to simply raise that loan to the amount really needed; and,
- that came this week -- it turns out the state needs $6.2 billion for "critical Medi-Cal. payments.
Governor Newsom is blaming it on two things:
- high prescription costs; and,
- uninsured illegal immigrants
The "high prescription costs" is bogus. That's been a problem for decades. Nothing new here.
The problem is really about uninsured illegal immigrants -- 12 million of them, most of whom come first to Texas, and then spread out to friendly states (such as California) / sanctuary cities (such as San Francisco and Los Angeles). And, yes, uninsured illegal immigrants are prescribed high-cost pharmaceuticals just as those high-cost pharmaceuticals are prescribed for insured folks.
To me, it doesn't matter. I have no dog in this fight. I don't live in California.
But I find it fascinating to see how Governor Newsom gets out of this one.
Population of California: 40 million.
Medi-Cal critical payments loan: $6.2 billion.
$6.2 billion / 16 million households = $400 / household. Or about $1 / day / household. Easily manageable.
Warren Buffett's company holds about $350 billion in cash. $6.2 billion / $350 billion = 1.8%.
By the way, on another note, there is an obvious way to end that phenomenon of sanctuary cities.
Health insurance: Medicaid provides health insurance to more than 72 million Americans with limited incomes and funds long-term care for some seniors. In California, nearly 15 million people — more than a third of residents — are enrolled in Medi-Cal, the state’s version of the program. About two-thirds of funding for state Medicaid programs is federal.
I'm having trouble with this one. The Los Angeles Times seems to imply that this is a good news story. You decide. I'm perplexed. According to The Los Angeles Times, one in three Californians in now covered by Medi-Cal:
The state's health plan for the poor, known as Medi-Cal, now covers 12.7 million people, 1 of every 3 Californians.
If Medi-Cal were a state of its own, it would be the nation's seventh-biggest by population; its $91-billion budget would be the country's fourth-largest, trailing only those of California, New York and Texas.
Expanding Medi-Cal was a key part of the Affordable Care Act, the national law that overhauled the healthcare system and required nearly all Americans to have insurance starting in 2014. Under the law, Medi-Cal — historically a health program for poor families and the disabled — was opened to all low-income Californians starting two years ago, with the federal government paying for those new enrollments.
Though a surprise, the high Medi-Cal enrollment is generally hailed as a success.
California's uninsured population has been cut in half since Obamacare, in large part because so many Californians signed up for Medi-Cal, which is free for beneficiaries.
The question California officials now face is how — and on days with a gloomier economic outlook, if — the massive health program can be sustained. Already, Medi-Cal is seen by many as underfunded, with patients struggling to find doctors and sometimes receiving low quality of care. A group of activists and others recently filed a federal civil rights complaint alleging that Latinos are being denied access to healthcare because the program does not pay doctors enough.
The Affordable Care Act allowed states to open up Medicaid to anyone making less than 138% of the federal poverty level — for a single person, a couple or a four-person family, that means an annual income of less than $16,243, $21,983 and $33,465, respectively.
In California, officials predicted that fewer than 1.5 million people would have enrolled by now. Instead, more than 4 million Californians have signed up.
In California, state officials are discussing how they'll afford the program next year. Gov. Jerry Brown called a special legislative session this year to address funding for Medi-Cal.
Much, much more at the link. The federal government pays for 95 - 100% of the cost. The state pays for 0 - 5% of the cost. A pretty good deal for the state of California. For now.
One can assume not every Californian that qualifies has actually enrolled with Medi-Cal. Could as many as one-half of Californians qualify for "free" healthcare? If so, that's a very, very scary thought. I doubt undocumented immigrants are signing up in large numbers.
