Gov. Gavin Newsom said Friday that California’s budget deficit has grown to almost $32 billion. He also announced a plan that would cover the loss this year but could leave the state with deficits in the billions of dollars in the future.
Newsom, a Democrat who is in his second term, didn’t suggest any big tax hikes for individuals or cuts to spending on the state’s most important programs, like public education, health care, and helping people who are homeless.
His plan would cut spending by about $10.6 billion, which is about $1 billion more than what he proposed in January. The rest of the gap would be paid for by borrowing money, putting off some spending, and moving other costs to other sources.
The tweet below verifies the news:
“This was not an easy budget, but I hope you can see that we will do our best to hold the line and help the most vulnerable and needy people while still being wise,” Newsom said.
California, unlike the federal government, must pass a balanced budget every year. This means that the state’s income and spending must be the same. This year, Newsom’s budget is in the black. But it would force the state to spend more money than it is expected to have in the future. Under Newsom’s plan, the debt would be $5 billion next year and $14 billion by 2027.
“It is financially irresponsible for the Governor to keep spending more than he takes in, which will lead to structural deficits in the coming years,” said Assemblymember Vince Fong, a Republican from Bakersfield and vice chair of the Assembly Budget Committee.
California has a tax system that depends on rich people and is called “progressive.” This means that about half of the state’s money comes from just 1% of the population. When the economy is doing well, rich people pay more in taxes, which can lead to a quick rise in money coming in. When the economy is bad, they pay less, and sales can drop just as quickly.
Because of this, Newsom said that it is normal for budgets to be out of balance in the future, especially in hard times. He also said that the Democrats, who run the state government, have learned how to take advantage of the unstable tax system.
With Newsom’s plan, California would have $37.2 billion in different savings accounts. This money, he said, could be used to balance future budgets.
“A progressive tax system lets us save billions and billions of dollars for just this moment,” Newsom said.
Predicting how much money California will have this year is especially hard because a series of strong storms that caused a lot of damage forced state officials to push back the tax due for almost all residents from April to October. Newsom said that he hopes the state will get around $42 billion in October, but he doesn’t know for sure.
“I want all $42 billion and more,” said Newsom. “I want to be taken by surprise.”
Even though the governor’s proposed cuts are small, they are still likely to affect many core services.
Newsom’s budget includes $3.7 billion for different programs to get homeless people off the streets and into shelters. However, he wants to cut some spending on housing, even though there is a serious lack of it.
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The Governor Wants to Cut Spending by About $700 Million
The governor wants to cut or delay spending by about $700 million by delaying money for programs that help nonprofits turn foreclosed properties into affordable housing and by taking back money that was supposed to be used to turn business and industrial buildings into housing.
“It’s disappointing that the governor isn’t doing more to fight California’s worsening housing crisis,” said Michelle Pariset, director of legislative affairs for Public Advocates, a nonprofit law company and advocacy group. “Until we deal with the housing problems in our communities on a large scale, more and more of our neighbors will be struggling, getting kicked out of their homes, and being forced to live on the streets.”
The Democratic-controlled Legislature must first agree to Newsom’s spending plan. Since he took office in 2019, Newsom’s biggest budget fights with lawmakers have been about how to spend record-breaking surpluses, and agreeing on cuts could be harder.
Last year, Newsom agreed to an increase of a program that helps pay for child care for low-income families. This would help an extra 20,000 families. But now he wants to put that money off for a year, saying that the state is having trouble filling the childcare places it already has.
Some Democratic politicians were upset by this. They said the problem is that there aren’t enough people working in child care. Monday, Democrats in the Assembly suggested spending an extra $1 billion to raise the pay of these workers. On Friday, Speaker Anthony Rendon said that improving child care will be a top priority.
Rendon said, “Improving the cost of child care is good for both kids and the economy.”
Newsom’s budget would also protect spending on other important things, like making more people eligible for Medicaid, which is a government-funded healthcare program for low-income and disabled people.
“We appreciate the continued commitment to improving and expanding Medicaid,” said Anthony Wright, executive director of the advocacy group Health Access California. “Medicaid is a lifeline for 15 million Californians, or more than a third of the state.”
Some state hospitals that might have to close would get a $150 million loan from the budget.
It would also bring back a tax that was supposed to end in 2022 on managed care organizations, which are private companies that work with the state to handle Medicaid benefits. This is expected to bring the state an extra $19.5 billion by 2026.
Newsom said he wants to use some of that money to increase how much Medicaid pays for care, which would help hospitals and other providers.
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