Gavin Newsom reveals California’s budget deficit is $10 billion higher than forecast

California Governor Gavin Newsom has said the state’s budget deficit is expected to reach nearly $32 billion, almost $10 billion more than he predicted in January.

Newsom on Friday unveiled his revised budget plan for the fiscal year beginning July 1, proposing a plan to cover the deficit while the state may be left with billions of dollars in deficits in the future.

“This has not been an easy budget, but I hope we will try to do our best to hold the line and take care of the most vulnerable and most needy, but still remain cautious,” Newsom said.

To cover the projected deficit, Newsom proposed a combination of modest spending cuts, increased borrowing and a plan to shift some spending to future fiscal years, creating an annual deficit of $14 billion by 2027.

Republicans in the state legislature rejected Newsom’s plan, with GOP assembly leader James Gallagher saying in a statement: “His drought program cuts are dangerous, his ‘fiscal gimmicks’ are short-sighted, and his words about good governance and efficiency are backfired. an empty promise. . Californians deserve better’

The projected deficit of $31.5 billion would be California’s first budget deficit since Newsom took office in 2019, following several years of booming surpluses as tax revenues soared.

California has a progressive tax system that relies heavily on wealthy people and taxes investment gains as regular income, meaning it gets about half of its income from just 1 percent of the population.

When the economy is good and the stock market is rising, the wealthy pay more taxes and revenues can rise quickly. When the economy goes bad, they pay less and revenues can plummet just as hard.

Newsom, a Democrat in his second term, did not propose major tax increases for individuals or cuts to the state’s major programs, including those that affect public education, health care and homelessness.

His plan would cut spending by about $10.6 billion — about $1 billion more than what he proposed in January — while the rest of the shortfall would be covered by a combination of borrowing and deferring some spending, while other spending is postponed. other sources would be shifted.

Unlike the federal government, California must pass a balanced budget each year, meaning the state’s revenues and expenses must be the same. Newsom’s budget is balanced this year.

But in the future, it would force the state to spend more money than expected. According to Newsom’s plan, the deficit would reach $5 billion next year and rise to $14 billion by 2027.

“The fact that the governor continues to overspend to create structural deficits in years to come is fiscally irresponsible,” said Councilman Vince Fong, a Bakersfield Republican who serves as vice chair of the assembly’s budget committee.

Newsom said it’s common for future budgets to be unbalanced, especially during lean years.

He also said Democrats, who control the state government, have learned to use the unstable tax system to their advantage. Newsom’s plan would leave California with $37.2 billion in various savings accounts, money he said could be used to balance future budgets.

“A progressive tax system allows us to pile up billions and billions of dollars for this very moment,” Newsom said.

Predicting how much money California will have this year is especially tricky after a series of severe and damaging storms prompted state officials to extend the normal April tax filing deadline to October for nearly all residents.

Newsom said he hopes the state will raise somewhere close to an estimated $42 billion in October, but he’s not sure.

“I want all $42 billion and more,” Newsom said. “I want to be surprised.”

While the budget cuts proposed by the governor are minor, they will likely still impact multiple core programs.

Newsom’s budget includes $3.7 billion for various programs aimed at getting the homeless off the streets and sheltered, but he wants to cut some housing spending even if there is a severe shortage.

The governor has proposed about $700 million in spending cuts or deferrals by deferring money to programs that help nonprofits convert foreclosed properties into affordable housing and reclaim money earmarked to convert commercial and industrial buildings in homes.

“It’s disappointing that the governor isn’t taking bigger steps to combat California’s worsening housing crisis,” said Michelle Pariset, director of legislative affairs for Public Advocates, a nonprofit law firm and advocacy group.

“Until we address housing issues in our communities on the scale of the problem, we will see more and more of our neighbors struggling, displaced and homeless.”

Newsom’s budget proposal must first be approved by the democratically controlled legislature.

Since taking office in 2019, Newsom’s biggest budget squabbles with lawmakers have been over spending record surpluses, and agreeing on cuts could prove more difficult.

Newsom last year signed an extension to a subsidized childcare program that would help an additional 20,000 families. But he’s now proposing to delay that funding for a year, saying the state is struggling to fill existing childcare spots.

That angered some Democratic lawmakers, who said the problem is that there aren’t enough childcare providers.

On Monday, Assembly Democrats proposed $1 billion in new spending to raise wages for those workers, and on Friday, Speaker Anthony Rendon said boosting childcare will be a priority.

“Improving childcare rates helps children and the economy,” Rendon said.

Newsom’s budget would also protect spending in other priority areas, such as expanding eligibility for Medicaid, the government-funded health insurance program for the poor and disabled.

“We appreciate the continued commitment to improving and expanding[Medicaid]a lifeline for 15 million Californians, more than one-third of the state,” said Anthony Wright, executive director of the advocacy group Health Access California.

The budget would lend $150 million to some public hospitals at risk of closing.

And it would reinstate a tax that expires in 2022 on managed healthcare organizations, private companies that contract with the state to manage Medicaid benefits, generating an estimated $19.5 billion in additional revenue for the state by 2026.

Newsom said he wants to use some of that money to increase how much Medicaid pays for care, benefiting hospitals and other providers.