Consider what happened four years ago, when Gov. Gavin Newsom announced that California was sitting on a jaw-dropping $97.5 billion surplus, boasting that no state in U.S. history had ever seen a windfall that large. Lawmakers wasted no time ramping up spending based on that figure. The problem: that number never actually showed up anywhere in the real budget documents, and it turned out to be the product of a stunning $165 billion miscalculation in revenue projections.

By the time the error came to light, the spending commitments were already locked in, setting the stage for the string of multibillion-dollar deficits California has faced ever since. One of those costly decisions — extending Medi-Cal coverage to immigrants without legal status — ended up costing $6.2 billion more than budget planners had estimated, forcing the state to scale back benefits.

Despite these blind spots, the budget isn’t entirely useless as a research tool. Buried within its lengthy technical schedules is a wealth of hard data for anyone willing to dig. These supplemental documents show, for instance, that California currently employs 482,088 people, carries $73 billion in outstanding bond debt, and collects $328.4 billion annually from a long list of taxes and fees.

One especially revealing chart tracks state revenue and spending trends going back to 1975. For decades, the size of California’s government — its budget and workforce — grew roughly in step with the state’s population and personal income. That pattern broke down after Newsom took office in 2019.

Since then, the state has added roughly 100,000 employees to its payroll, a one-third increase relative to population growth. General fund spending, meanwhile, jumped from 7.9% of the state’s total personal income in 2019-20 to a record 9.58% in 2023-24 — the highest level recorded since the state began tracking the measure five decades ago. It has since eased slightly to 9.42%, but remains historically elevated.

That spending trajectory helps explain why Newsom is expected to hand his successor a budget that, regardless of how it’s described publicly, remains structurally out of balance. State projections show deficits persisting through the next governor’s entire first term, even under the unlikely scenario that spending stays flat.

For those wanting an even more rigorous look at California’s finances, there’s another resource: the state controller’s Annual Comprehensive Financial Report, a dense 372-page document submitted annually to the federal government. Unlike the budget, these figures are independently audited and considered far more reliable.

State Controller Malia Cohen released the 2024-25 report in May — two months past the federal filing deadline, but a notable improvement nonetheless. California hadn’t managed to file this report on time since 2018, largely due to years of struggles with FI$Cal, the state’s troubled financial management system that arrived late, ran wildly over budget and for years failed to produce trustworthy numbers.

The comprehensive report paints a far larger financial picture than the budget alone, covering 201 state agencies and programs. It shows $595.5 billion in total revenue and $582.5 billion in spending — about 66% more than the $351.7 billion reflected in the current state budget.

Among the report’s more sobering findings: California is carrying $176.5 billion in unfunded liabilities tied to state employee pensions and retiree health benefits. The document also offers detailed breakdowns of taxable sales, personal income trends and other economic indicators that shape state revenue.

One chart takes on new relevance amid the ongoing debate over Proposition 40, the ballot measure that would impose a wealth tax on California’s roughly 200 billionaires. Critics of the measure warn it could push high-net-worth residents to relocate out of state.

A chart on page 322 underscores just how much is at stake: it confirms that the state’s top 1% of earners — about 175,000 taxpayers — generate nearly half of all personal income tax revenue collected by California, a reminder of how heavily the state depends on its wealthiest residents to keep government running.

Original source: CalMatters

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SANTA FE, N.M. (AP) — Government budgets are booming in New Mexico: Teacher salaries are up, residents can go to an in-state college tuition-free, moms will get medical care for a year after childbirth, and criminal justice initiatives are being funded to reduce urban violence.

The reason behind the spending spree — oil. New Mexico is the No. 2 crude oil producer among U.S. states and the top recipient of U.S. disbursements for fossil fuel production on federal land. But a budget flush with petroleum cash has a side effect: It also puts the spotlight on how difficult it is to turn state rhetoric on tackling climate change into reality.

State governments in the nation’s top regions for producing oil, natural gas and coal have by far the highest per-capita reliance on fossil fuels — led by Wyoming, North Dakota, Alaska and New Mexico. The revenue bankrolls essential public services, from highway maintenance to prisons. In Carlsbad, New Mexico, oil infrastructure property taxes are underwriting a high school performing arts center, expanded sports facilities and elementary school renovations.

None of that would be possible without oil revenue, said schools superintendent Gerry Washburn.

“We can’t slow down in that area and what we do to fund schools until we have a legitimate replacement” for oil and natural gas income, he said. “Whether you’re in the middle of the oil patch or in an area with no oil and gas drilling going on, those policies are going to impact revenue in every school district in the state.”

Federal, state and local governments receive an estimated $138 billion a year from the fossil fuel industry, according to a study from the Washington-based nonpartisan economics group Resources for the Future, which does not advocate on energy policies. That’s equivalent to the annual state spending of New York and Texas combined.

The cashflow is dominated by gasoline and diesel retail taxes in every state, but energy-producing states have the deepest dependence on fossil fuel income through a gamut of taxes, royalties, lease sales and fees. Because that revenue helps pay for government services, they tend to tax residents less, said Daniel Raimi, a fellow at Resources for the Future, and co-author of the study.

“That’s a really challenging dynamic if you think about a shift away from fossil fuels,” he said. “They’re going to be faced with the question: Do we raise our taxes on our residents or do we reduce the level of services we provide?”

In New Mexico, oil and gas account for 42% of state government income, a share that is rising amid the war in Ukraine and record-setting oil production in the Permian Basin that stretches across southeastern New Mexico and western Texas. Additional oil income flows to a new interest-bearing trust for early childhood education.

Soaring fossil fuel industry profits also allowed the Democratic-controlled New Mexico Legislature to try to tackle the highest-in-the-nation unemployment rate and persistently high poverty. Lawmakers provided $1.1 billion in tax relief and direct payments of up to $1,500 per household to offset inflation.

At the same time, legislators balked this year at climate initiatives that might restrain petroleum production. They rejected a bill to limit climate-warming pollution in the production and distribution of transportation fuels, a step taken by West Coast states. New Mexico also shunned a state constitutional amendment for the right to clean air.

Democratic Gov. Michelle Lujan Grisham, up for reelection in November, said her administration is working to contain oilfield methane pollution and diversify the economy. New mandates call for electricity production from solar, wind and other renewable sources. But she has cautioned the federal government against significant restrictions on oil exploration and production, still the lifeblood of the state budget.

“We can work very effectively with oil and gas producers to both meet clean energy standards … while still managing pretty incredible exploration of fossil fuels to meet the current energy demands of the world,” the governor said in April.

Preserving income from oil, natural gas or coal production while acting on climate change can be especially tricky in blue states where Democrats often campaign on tackling global warming.

Colorado’s Democratic Gov. Jared Polis is pursuing an ambitious clean-energy plan while trying to preserve $1 billion in annual oil and gas production tax revenue. To justify air pollution restrictions, Polis has cited real-time evidence of climate change, drought and fire.

But Polis, a wealthy tech entrepreneur, last year threatened to veto a proposal that might impose per-ton emission fees on polluters. William Toor, executive director of the governor’s Colorado Energy Office, said the state’s not targeting fossil fuel production — only the industry’s emissions.

On Colorado’s northeastern plains, Weld County Commission Chairman Scott James said state regulations stifle new drilling needed to support production and government revenue, especially for schools. The county is centered on a vast oil field stretching from the Denver area into Wyoming and Nebraska.

“I agree with the overall mission of reducing greenhouse gas, but there’s an environment that exists at the state Legislature that we must electrify everything, we must mandate it, we must do it now,” James said. “And these technologies are not yet ready for prime time. We simply don’t have the capacity to do it.”

Rural and economically isolated communities could find it hardest to adapt to a low-carbon economy, said Montana-based Headwaters Economics researcher and economist Kristin Smith, who studies public finances in North Dakota’s Bakken oil region. She anticipates “very hard decisions” about cutting areas like public health care and policing.

Some major petroleum producing states are forging ahead with their climate agendas.

Pennsylvania in April became the first major fossil-fuel state to adopt a carbon-pricing policy, joining an 11-state regional consortium that sets a price and declining limits on carbon dioxide emissions from power plants.

Democratic Gov. Tom Wolf’s initiative comes without approval from the Republican-controlled Legislature in the nation’s No. 2 state for natural gas production — and a major exporter of gas-generated electricity. A per-well drilling fee on the state’s booming Marcellus Shale gas industry has rained cash on rural counties and municipalities for nearly a decade.

South of Pittsburgh, Washington County reaped over $100 million in the past decade. That’s equivalent to $500 per resident — a “game changer,” said county board chairwoman Diana Irey Vaughan. The windfall paid for park and bridge improvements, among others.

Democratic state Rep. Greg Vitali, an advocate for stronger climate change action, said local governments relying on gas drilling money will simply have to use traditional tools such as property taxes to get by.

Republican-dominated Wyoming, the top coal production state, has bold goals to reduce greenhouse emissions to less than zero even while fossil fuels account for over half its revenue.

That vision relies on eventually capturing carbon dioxide from coal- and gas-fired power plants and pumping it underground, possibly to increase oil production in aging fields in the middle of the state. Wyoming leaders are also looking to alternative fuels like hydrogen and nuclear power, using reactors that produce less waste.

Meanwhile, a decade of declining coal demand has sapped government income. Republican Gov. Mark Gordon in March signed a coal tax reduction, forgoing about $9 million annually to help the coal industry stay economically viable.

The state — one of only two with no taxes on individual income, corporate income or gross receipts — must confront its dependence on fossil fuel money eventually, said Jennifer Lowe, executive director of the Equality State Policy Center, a government watchdog group.

“At some point, there’s going to have to be a come-to-Jesus moment,” Lowe said.

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