On the menu today: President Trump is adding his signature to the U.S. dollar. Also, a long, numbers-heavy look at the assertion going viral that the state government of California is “functionally bankrupt.” In what probably counts for optimism, I would argue the outlook for California’s budget in the coming years is bad — really bad — but not quite apocalyptic this-will-tear-apart-the-country bad. Read on.
When We Said, ‘Trump Should Sign the Bill,’ We Meant Something Different
Look at it this way; at least President Trump isn’t putting his face on American currency:
In honor of the 250th anniversary of the United States of America, President Donald J. Trump’s signature will appear on future U.S. paper currency along with the Secretary of the Treasury, marking the first time in history for a sitting president.
“Under President Trump’s leadership, we are on a path toward unprecedented economic growth, lasting dollar dominance, and fiscal strength and stability,” said Secretary of the Treasury Scott Bessent. “There is no more powerful way to recognize the historic achievements of our great country and President Donald J. Trump than U.S dollar bills bearing his name, and it is only appropriate that this historic currency be issued at the Semiquincentennial.” . . .
U.S. Treasurer Brandon Beach said, “The President’s mark on history as the architect of America’s Golden Age economic revival is undeniable. Printing his signature on the American currency is not only appropriate, but also well deserved.”
How are you enjoying the “Golden Age economic revival” so far? A few days ago, Jason Furman, chairman of the White House Council of Economic Advisers in Obama’s second term, wrote a New York Times column that was guaranteed to irritate everyone with a strong partisan interest, looking at the economic numbers and pointing out that the first year under Trump’s second term wasn’t all that different from the last year under President Biden:
The economy over the last year has looked a lot as it did in 2024. I don’t expect it to change because of the latest disappointing numbers on jobs, fluctuations in the gross domestic product or the start of the Iran war, either.
Just about every significant economic variable was similar across the two years, often well within the range of measurement error: G.D.P. growth, the unemployment rate, the employment rate for prime-age workers, inflation, real wage growth, productivity growth, the budget deficit, the trade deficit, stock-market gains and mortgage rates. The one indicator that changed meaningfully was job growth, which slowed sharply in 2025, but the unemployment rate didn’t get much higher — reflecting the fact that fewer people needed jobs, either because they had already found them or because immigration inflows fell drastically.
If the U.S. dollar could survive Jack Lew’s signature, which looked like either a row of Cheerios or the squiggle you draw when you’re not sure the pen is working, it can survive this.
With that said, if I were adding my name to the U.S. currency, I would not want to enact any policies that would exacerbate inflation and made the currency less valuable.
As I observed at the start of the Three Martini Lunch podcast earlier this week, nobody voted for Trump for president because they wanted a new White House ballroom or to rename the Kennedy Center. Nobody voted for Abigail Spanberger because they wanted to pay personal property tax on their chainsaws. And nobody voted for Chuck Schumer because they wanted a new record for the longest TSA lines at airports. We have a governing class that goes on and on about how they’re “dedicated to public service,” and then turns around and does whatever it wants, without regard for the impact it has on the rest of the country.
California’s Ticking Time Bomb of State Employee Pensions
This X post, featuring an interview with David Friedberg, CEO and co-founder of The Climate Corporation caught my eye; apparently it caught a lot of people’s eyes, with more than 2 million views.
Friedberg contends:
California is functionally bankrupt. People don’t realize how screwed California is. And I worry that if California falls, so does the union. This is because for California to get rescued would be a big cost to red states, and I think it creates in the years ahead a lot of tension. . . .
California has a public pension system, and that public pension system retirees have paid into it and they get some benefits out, and the amount that they’re owed back out is somewhere between $250 billion to $1 trillion more than has been paid in.
If it was the federal government, it would be like, ‘Okay, we’ll just print more money.’ California doesn’t have the ability to print money, so California has to pay this out, and you can’t restructure retirement benefits.
There is a Supreme Court case in California that said that once an employee has been offered retirement benefits, even if they’re currently an employee, you can never restructure their retirement benefits.
It has to stay forever, and the state cannot declare bankruptcy. There’s no way for the state to functionally declare bankruptcy. There’s no law to allow it. No state has ever declared bankruptcy, and the retirement benefits sit senior to the bonds in California.
So, you have to pay out the retirement benefits before you pay out all the bond holders that have loaned California the money that they use to run all their programs and services.
Pardon, as a whole lot of numbers follow.
First, there is a tiny bit of good news in terms of the state tax revenues in the current fiscal year:
Nine months into the 2025-26 fiscal year, state tax revenues are running several billion dollars ahead of projections in the budget that Gov. Gavin Newsom signed last June.
That’s a bit of good news, because the budget had a hefty gap between projected general fund income and outgo, a continuation of what budget officials call a “structural deficit” that has plagued recent budgets.
Spending has persistently outstripped revenues, with the difference bridged by a variety of on- and off-book loans, accounting gimmicks and raids on emergency reserves totaling $125 billion so far, according to Gabe Petek, the Legislature’s budget analyst. . . .
Newsom has promised that when the budget is revised in May, it will not only close its latest gap but end the deficit cycle that otherwise would continue indefinitely, according to Petek and Newsom’s budget writers.
Like many states, California is technically required to have a “balanced budget,” but the state legislature is only required to enact a state general fund budget that is balanced for a single fiscal year. “There is no firm constitutional requirement to address a ‘midyear’ budget shortfall during the fiscal year after passage of the budget in June and the start of that fiscal year on July 1. Generally, it is up to the Legislature whether or not to respond to such midyear shortfalls.”
The state’s progressive Democrats are already complaining that Newsom’s last budget as governor is going to leave county and local governments underfunded.
Keep in mind, the state has quite a few dollars stashed away in a variety of rainy-day funds:
As of November 30, 2025, according to State Controller’s Office data, the General Fund’s cash balance was $11.6 billion, the SFEU’s cash balance was $3.5 billion, the BSA rainy day fund held $11.2 billion, and other accessible state accounts — principally the state’s many special funds — collectively held balances of more than $70 billion.
This is without the “billionaire tax” that progressives want to enact and that Newsom opposes (although apparently, the governor isn’t opposing it as strongly as he could).
That’s the good news. The bad news is that as more state employees retire, the amount of retirement benefits that need to be paid out will increase. From the good folks over at the Reason Foundation, back in December:
California’s public pension plans are taking on more risk than other pension systems while generating relatively poor investment return results, a new Reason Foundation report finds. The California Public Employees’ Retirement System, CalPERS, and California State Teachers’ Retirement System, CalSTRS, are the nation’s two largest government-run pension funds, overseeing $558 billion and $382 billion in assets, respectively.
As it stands, California’s state and local governments have the most public pension debt in the country, with total unfunded pension liabilities of more than $265 billion, according to a new report from the Reason Foundation. That’s over $6,000 in pension debt for every state resident. CalPERS has $166 billion in debt, and CalSTRS has $39 billion in unfunded liabilities. . . .
Over the past 20 years, CalPERS achieved an average return of 6.8 percent, and CalSTRS achieved 7.6 percent, both of which are far below the S&P 500 average of 10.4 percent for the period.
(Investment returns of 6.8 percent? What did they invest in, Beanie Babies?)
The Reason Foundation’s analysis of the numbers does indicate that the state’s total unfunded pension liabilities are now at the low end of the range that Friedberg offered, “more than $265 billion.”
Now, Friedman’s characterization that state employee retirement benefits can never be restructured is generally true, but there are a few rare exceptions. From back in 2020:
The California Supreme Court recently upheld, for the first time, unilateral state reductions to pension calculations without a corresponding off-set for employees, despite the “California Rule.” The “California Rule” generally prohibits public employers from making detrimental changes to a public retirement plan unless the employer provides the plan members some off-set that keeps the retirement benefits, more or less, unchanged. Obviously, the California Rule is a major protection for public employees’ retirement benefits, but it can also be an impediment to pension system reforms.
So, the outlook for California’s budget in the coming years is bad — really bad — but not quite apocalyptic this-will-tear-apart-the-country bad.
For starters, a federal government bailout of California would be an extremely unpopular heavy lift, even under a President Newsom and with a Democratic Congress. Yes, we’ve seen Democratic administrations run up the national debt and throw gobs of money at blue states, but 49 other states would object to a specific rescue of California. Every state has the problem of public debt, including red ones.
When Biden signed the American Rescue Plan in the spring of 2021, the U.S. national debt was about $28 trillion. Today, just five years later, we are knocking on the door of $39 trillion. If a Democratic president and Congress decided to borrow a massive amount of money to bail out California and let’s say a bunch of other blue states, the bond market vigilantes would likely reappear.
Newsom’s forthcoming budget will have to at least go through the motions of addressing hard fiscal realities. It is extremely likely California will use money from the rainy-day funds, concluding that these are indeed rainy days. That 2020 California Supreme Court decision may well be the camel’s nose in the tent in making changes to the state’s public sector pension systems that the unions don’t like. The state government has options, they’re just deeply unappealing options.
By the way, the state’s impending fiscal train wreck seems much more relevant to discussing Gavin Newsom as a presidential candidate than the fact that he’s “ridiculously good looking” as Katie Couric informs us.
ADDENDUM: Easter is a little more than a week away, so this is the last Jim-written Morning Jolt until April 6. Next week you’ll be in the excellent hands of . . . Noah? Audrey? Whoever it is, they’ll do fine. As is tradition, if you are driving today, please get out of the left lane southbound on I-95 from northern Virginia to the southern tip of South Carolina.