California lawmakers vote to reduce deficit by $17 billion, but harder choices lie ahead

SACRAMENTO, Calif. (AP) — California lawmakers don’t know for sure how big their budget deficit is, but on Thursday they decided it’s big enough to go ahead and reduce spending by about $17 billion.

The vote represents a preemptive strike from Democratic Gov. Gavin Newsom, who is trying to get ahead of a stubborn shortfall that has been increasing every month and will likely extend into next year and beyond — when the second-term governor could be eyeing a campaign for the White House.

The true size of the deficit has been difficult to pin down. In January, Newsom insisted it was about $38 billion. But the nonpartisan Legislative Analyst’s Office said it was actually $58 billion because Newsom didn’t include some reductions in public education spending. Then in February — after state revenues continued to come in below expectations — the LAO revised its estimate to as much as $73 billion.

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State budgets across the country have tightened as economic growth has slowed and states have exhausted the billions of dollars in aid from the federal government during the coronavirus pandemic. The problem is more pronounced in California, where the budget is easily the largest in the country — and in fact the state’s economy is bigger than most countries.

The deficit could be a liability to Newsom, particularly as he steps into his role as a top surrogate of President Joe Biden’s reelection campaign. Newsom and his allies in the state Legislature have been doing everything possible to reduce the deficit. For instance in December, the governor ordered state agencies to immediately cut costs. And last month, Newsom signed a law raising a tax on companies that manage California’s Medicaid program, raising another $1.5 billion.

Newsom won’t announce an updated deficit number until next month, after Californians have filed their tax returns and state officials have a better idea of how much money they have. Thursday’s vote in the state Legislature means Newsom can announce a number that will be much smaller than it would have been. The $17 billion in reductions lawmakers approved Thursday, combined with the anticipated withdrawal of about $13 billion from the state’s various savings accounts, means Newsom can already count on reducing about $30 billion of the shortfall.

“The reality is that even with the deal, the state still faces a deficit of tens of billions of dollars,” said Chris Hoene, executive director of the California Budget and Policy Center. “They’ve left a lot of hard stuff on the table to be resolved over the next two months.”

There were no headline-grabbing cuts in the reductions lawmakers approved on Thursday. Despite California’s recent budget woes, the Democrats in charge have refused to raise income taxes or impose steep cuts to the most expensive programs, including health care and public education.

Instead, most of the savings comes from either cancelling or delaying spending that was approved in previous years but hasn’t yet been spent. It also relies on a number of accounting tricks to make the shortfall appear smaller, including shifting paychecks for state workers by one day from June 30 to July 1 so the state can count $1.6 billion in salaries for the next fiscal year.

Republicans have long assailed this strategy, arguing that Democrats are just pushing spending into the future in the hopes the deficit will be temporary and revenues will recover quickly. Both the LAO and the Newsom administration have projected multibillion-dollar budget deficits not just this year, but also for next year and the year after that.

“This is really crisis budgeting with optimism,” said Republican state Sen. Roger Niello.

Democratic leaders don’t look at it that way. For much of the past decade, California lawmakers have enjoyed strong surpluses that have enabled a vast expansion of government services. That includes paying for free lunches for all public school students and making all low-income adults eligible for government-funded health insurance regardless of their immigration status.

By delaying spending and shifting expenses to other funds, Democrats say they are protecting essential programs from budget cuts for as long as possible.

“We’re trying to make thoughtful choices here,” said Jesse Gabriel, a Democrat and chair of the Assembly Budget Committee. “One of the worst outcomes here would be to make a cut to a critical program that serves our most vulnerable folks and to later realize that you didn’t need to make that cut.”

Click here to read the full article in AP News

Newsom, lawmakers agree to first $17 billion in cuts

Gov. Gavin Newsom and leaders of the Senate and Assembly announced an agreement Thursday to cut $17 billion from the state budget in April, providing the first details of their plan to begin to tackle California’s massive deficit.

The plan calls for delaying $1 billion in grant funding for transit and intercity rail projects, saving $762.5 million by pausing hiring for open state jobs and pulling back $500 million from a program to help districts pay for K-12 building projects, among other proposals to trim the shortfall now before additional cuts are made this summer.

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“We are able to meet this challenge thanks to our responsible fiscal stewardship over the past years, including record budget reserves of close to $38 billion,” Newsom said in a statement. “There is still work to do as we finalize the budget and I look forward to the work ahead together to continue building the California of the future.”

The agreement marks a redo of a fumbled budget announcement made last month when Newsom and legislative leaders heralded a premature deal without disclosing an exact amount of funding they intended to cut or detailing a single program that would be affected.

Lawmakers and the governor are scrambling to reduce California’s budget deficit, which Newsom estimated at $37.9 billion in January, before the fiscal forecast is updated in the coming weeks to likely show California in an even deeper budget hole. Estimates from the Legislative Analyst’s Office have suggested the deficit next year could be nearly twice as high as Newsom’s forecast.

Lower than expected revenues, delayed tax deadlines and overspending based on inaccurate budget projections created California’s grim financial picture. The state budget relies heavily on capital gains taxes paid by California’s highest earners, making state revenues subject to volatility in the stock market.

Republicans have criticized the lack of transparency in state budget negotiations and contend Democrats created the fiscal crisis by continuing to fund expensive programs, such as the expansion of Medi-Cal to all low-income immigrants, even as state revenues drop.

Assembly Republican Leader James Gallagher (R-Yuba City) called the budget deal “a swing and a miss from Democrats.”

The first round of cuts could be voted on as early as next Thursday.

Democrats also agreed to pull $12.2 billion from state reserve accounts to cover the shortfall when the final budget is approved later on. The early cuts combined with the planned dip into the reserves will trim $29.5 billion off the deficit.

“We are all committed to delivering an on-time balanced budget, and this early action agreement is a critical first step to shrink the state’s shortfall,” said Senate President Pro Tem Mike McGuire (D-Healdsburg).

Because the shortfall this year is so large, Newsom has urged the Legislature to take “early action” to begin to whittle away at the deficit now, long before the June 15 deadline to pass a budget.

The cuts Democrats agreed to make this month are largely considered the easier choices, allowing them to focus on tougher deliberations that will come later on this spring. Reducing the deficit before Newsom unveils his revised budget proposal in May could also lessen the public perception of the state’s fiscal woes by trimming the deficit figure before it is expected to grow.

The struggle to reach a consensus up until this point foreshadows the difficult work ahead in May and June for a Legislature and governor with little experience leading through a fiscal crisis as they weigh challenging choices that affect millions of Californians.

The agreement announced Thursday largely mirrors a plan the Senate put forward weeks ago to “shrink the shortfall” by $17 billion, which aligned with many of Newsom’s proposals to begin to offset the deficit.

The Assembly, where Democrats hold 62 of 80 seats under a new speaker, took a little longer to reach a consensus. This week, the lower house said it pushed back on some of the governor’s proposed cuts to housing and homelessness programs, which were ultimately left out of the early action deal. At the Assembly’s urging, the agreement also authorizes the administration to pause one-time spending from previous budget years that has not yet been dispersed.

Assembly Speaker Robert Rivas (D-Hollister) said his chamber’s approach was the “right way to come at closing such a massive shortfall” and that he expects Newsom “to deliver challenging budget proposals next month to reduce the deficit in the long-term.”

The agreement, according to Newsom and legislative leaders, includes:

Saving $762.5 million by declining to fill vacant state positions.

Cutting $500 million from the School Facility Aid Program, which funds K-12 building projects.

Click here to read the full article in the LA Times

Walters: Newsom, legislators opt for gimmicks and wishful thinking to close California’s budget deficit

Gov. Gavin Newsom and his fellow Democrats in the Legislature spent their way into a massive state budget deficit by assuming that a one-time surge in revenues would become a permanent cornucopia of money to expand medical and social services.

As revenues flattened, particularly all-important personal income taxes, the gap between income and outgo could no longer be ignored. In January, Newsom pegged the deficit at $38 billion as he proposed a 2024-25 budget.

The Legislature’s budget analyst, Gabe Petek, calculated that the real deficit over the remainder of the current fiscal year and through 2024-25 is many billions of dollars higherperhaps as much as $70 billion, and warned legislators that the state faces annual deficits in the $30 billion range for the remaining three years of Newsom’s governorship.

“The state faces significant operating deficits in the coming years, which are the result of lower revenue estimates, as well as increased cost pressures,” Petek said in his analysis of Newsom’s budget. “These deficits are somewhat compounded by the governor’s budget proposals to delay spending to future years and add billions in new discretionary proposals. State revenues in the out-years would need to exceed the administration’s forecast by roughly $50 billion per year in order to sustain the spending proposed by the governor’s budget.”

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So far, Newsom and legislative leaders are ignoring Petek’s advice and are using wishful thinking, accounting gimmicks and borrowed money to fashion a budget they will portray as balanced, but would, as Petek says, make the state’s fiscal predicament even worse in future years.

The duplicity begins with assuming that the deficit is billions of dollars smaller than Petek’s estimate. It continues with an agreement to enact “budget solutions worth $12 to $18 billion to address the shortfall” this spring.

Those “solutions” are laid out in Newsom’s budget and a “Shrink the Shortfall” proposal from state Senate leaders. They consist largely of temporarily suspending some of the appropriations in the 2023-24 budget that was adopted last June, shifting some spending from the general fund into special funds, borrowing from various pots of money and tapping into reserves.

Newsom termed it “a balanced approach that will take a significant chunk out of the projected shortfall.”

They are the sort of things that California’s politicians have embraced during previous budget crises to avoid either concrete reductions of spending or new taxes, akin to financially stressed families running up their credit cards, stiffing some creditors and tapping relatives for loans.

Were California experiencing only as temporary gap due to recession, a case could be made for a jerry-rigged budget to minimize impacts on those who depend on money flowing from Sacramento. However, the state faces what budget mavens call a “structural deficit,” meaning there is a fundamental imbalance disconnected from the state’s overall economy.

The deficit is born of Newsom’s 2022 declaration that the state was enjoying a $97.5 billion surplus, thanks largely to a $54.8 billion projected uptick in revenues. “No other state in American history has ever experienced a surplus as large as this,” Newsom bragged.

Click here to read the full article in CalMatters

Newsom and Democrats announce a plan to reduce the enormous budget deficit. How? TBD

With a budget deficit of at least $38 billion hanging over their heads, Gov. Gavin Newsom and Democratic leaders of the state Senate and Assembly announced an agreement on Wednesday to take action in April to begin to dramatically reduce California’s historic shortfall.

The problem: Democrats at the state Capitol couldn’t actually agree on an amount — offering only a range of $12 billion to $18 billion — or explain what, exactly, they plan to cut.

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Those details, the governor’s office said, will be discussed and shared next month.

The head-scratching announcement of a plan to have a plan comes as pressure mounts on Democrats over the looming fiscal crisis.

Newsom has urged the Legislature to take “early action” to begin to whittle away at the deficit now — well before the June deadline to pass a budget — by clawing back unspent funding, delaying programs and reducing planned spending. The cuts currently under discussion are largely considered the easier choices, with the hope of freeing up Democrats to focus on tougher deliberations that will come later this spring when the full scope of the budget hole becomes clearer.

The Senate unveiled its own plan last week to slice off $17 billion from the deficit with early cuts, which include delaying and pulling back more than $1 billion to expand early education classrooms and support school facilities. But the Assembly, where Democrats hold 62 of 80 seats under a new speaker who has promised to give his members more input on big decisions, has been slower to rally behind a plan.

The struggle to reach a real consensus on the early cuts speaks to the challenge ahead as Democrats embark on a process to correct what could be the largest fiscal deficit the state government has ever experienced. Some estimates suggest the shortfall could be nearly twice as much as Newsom’s estimates, which will force lawmakers to make difficult choices in May and June about programs that affect millions of Californians.

Democrats often pass an initial budget by the June 15 mandate required by state law and revise it again before the fiscal plan takes effect on July 15.

“In some ways, I think this forces an earlier reckoning of the reality of what they’re going to have to actually vote on,” said Rob Stutzman, a longtime GOP strategist who worked for Gov. Arnold Schwarzenegger. “And they’re going to wholly own it.”

Whereas Republicans shared the pain during the budget crisis in Schwarzenegger’s era, now Democrats control the governor’s office and both houses of the Legislature by wide margins.

Only a handful of lawmakers have experience in office during the prior budget crisis, and Newsom has never been forced to make cuts of this magnitude.

His call to shave the deficit early has been met with mixed responses from the Legislature, prompting Newsom to come to the Capitol this week for meetings with Democrats in the Senate and the Assembly leader in hopes of reaching an agreement before they leave Sacramento for spring break on Thursday. Lawmakers are expected to pass one of Newsom’s major budget proposals before the recess, a tax increase on managed-care organizations that allows the state to draw more federal funds for healthcare.

In a statement included in the announcement of the agreement, California Senate President Pro Tem Mike McGuire (D-Healdsburg) said the Senate is ready to move quickly on tough budget decisions.

“The deficit is serious and it’s grown by billions since January, which is why we must move with speed to shrink the shortfall immediately,” McGuire said.

The Senate’s plan to cut $17 billion, coupled with a desire to tap $12.2 billion from the rainy day fund, could leave lawmakers with $29 billion less to offset in June.

Newsom’s Department of Finance has said the governor’s administration backs the Senate’s package. But the Assembly has yet to detail how it wants to move forward.

Click here to read the full article in the LA Times

California lawmakers face a ballooning budget deficit

The biggest challenge facing lawmakers and Gov. Gavin Newsom is the state budget deficit — and it just got bigger.

Today, the Legislative Analyst’s Office projected the shortfall as $15 billion higher, or $73 billion.

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The analyst’s office had pegged the 2024-25 deficit at $58 billion in January, using Newsom’s revenue estimates when he presented his initial budget proposal of $292 billion. 

On Friday, Newsom’s Department of Finance reported that preliminary General Fund cash receipts in January were $5 billion below (or nearly 20%) the governor’s budget forecast. Unless state tax revenues pick up significantly, the bigger number will make it more difficult to balance the state budget just through dipping into reserves and targeted spending cuts. 

But exactly how the state can dig its way out — at least in the Assembly — remains to be seen. Speaker Robert Rivas told reporters today that the budget has been at the forefront of conversations among Assembly Democrats and that he is very concerned with the growing deficit.

He praised the governor’s commitment to preserving classroom funding, and said he didn’t see a way to avoid dipping into the state’s reserves, as the governor’s January budget plan proposed — though the speaker urged a prudent approach to using rainy day savings in case the budget picture worsens in future years. 

“We are very concerned about short-term fixes for long-term problems,” said Rivas, who took over as speaker last summer, just days after the Legislature and Newsom reached a deal on the 2023-24 budget that covered a $30 billion deficit after two years of record surpluses.  

“Clearly, we need to prioritize oversight and curb spending and our investments,” Rivas added.

In the coming weeks, Rivas’ plan calls for an oversight budget subcommittee he formed in December to review the state’s spending on housing, he said. 

Click here to read the full article in CalMatters

Walters: Newsom budgets have a lousy track record forecasting California’s tax revenues

A review of recent state budgets and Gov. Gavin Newsom’s newly released 2024-25 budget proposal reveals truly monumental errors in revenue estimates by his fiscal advisors, particularly personal income taxes.

Photo by Miguel Gutierrez Jr., CalMatters

The stark differences between estimates and reality, if continued, will affect the state budget’s solvency for at least the remaining years of Newsom’s governorship.

Newsom’s latest budget acknowledges that income taxes, which are mostly paid by those in upper income brackets, are $44 billion less than previously projected for the three-year “budget window” from 2022-23 through 2024-25. But the shortfall is actually billions of dollars more.

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When Newsom and the Legislature enacted a 2022-23 budget in June 2022, it assumed that income taxes would bring in $129 billion. Later, that projection dropped to $122.8 billion and Newsom’s latest budget set it even lower at $101.8 billion, as state officials close the books on that fiscal year.

The 2023-24 budget adopted last year projected $118.2 billion in income tax revenues, but it’s since been revised to $113.8 billion. And Newsom’s newest budget assumes that income taxes will bring in $114.7 billion for the fiscal year 2024-25, a $4 billion drop from last year’s assumption.

Over the three-year period, Newsom pegs the revenue shortfall at $44 billion, but it’s more likely $51 billion if one begins with the original numbers from 2022-23 – when Newsom famously bragged about the state’s having a $98 billion surplus.

“No other state in American history has ever experienced a surplus as large as this,” Newsom said as he unveiled a $300-plus billion budget that the Legislature eagerly adopted with a few tweaks.

Newsom’s budget for 2024-25 assumes that the freefall in income tax receipts will end and revenues will actually pick up a bit next year. However, the Legislature’s budget analyst, Gabe Petek sees continued revenue weakness and pegs the three-year shortfall at $58 billion. Their differing projections are the main reason their estimates of the overall budget deficit are $30 billion apart.

Although Newsom’s budget was unveiled just two weeks ago, income taxes – the largest single source of state revenue – are already falling behind. So far in January they are running $3 billion behind the new budget’s assumption.

This is no small matter. Newsom will revise his budget in May, and he and the Legislature will enact a budget in June that will be based on a revenue figure of some kind. Legislators will be tempted to adopt a rosy figure from Newsom rather than Petek’s lower number to minimize how much spending must be reduced to close the gap. It will particularly affect state support for K-12 schools, the state’s largest single budget obligation, which is largely determined by a revenue-based formula.

However, if the Legislature does go for a higher revenue number, as it has it years past, and it proves to be as off the mark as other recent estimates have been, the effect will be traumatic for programs that depend on state financing.

Newsom blames the seven-month delay in the deadline for filing 2022 income tax returns, from April 2023 to November, for masking the sharp drop in revenue, and that contributed to the huge disparity. However, he and the Legislature could – and should – have been much more conservative in their guesswork.

Click here to read the full article in CalMatters

As California closes prisons, the cost of locking someone up hits new record at $132,860

The cost of imprisoning one person in California has increased by more than 90% in the past decade, reaching a record-breaking $132,860 annually, according to state finance documents.

Photo by Larry Valenzuela, CalMatters/CatchLight Local

That’s nearly twice as expensive as the annual undergraduate tuition — $66,640 — at the University of Southern California, the most costly private university in the state.

California’s spending per inmate jumped steeply during the COVID-19 pandemic and it continued to increase despite recent cost-cutting moves, including Gov. Gavin Newsom’s recent move to close three state prisons. 

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It’s propelled by lucrative employee compensation deals and costly mandates to improve health care behind bars, according to fiscal analyses by the nonpartisan Legislative Analyst’s Office. Newsom’s most recent budget proposal includes $18.1 billion for the Department of Corrections and Rehabilitation, up from $15.7 billion when he took office in 2019.

Some lawmakers and advocates have argued California should focus on rehabilitation and shut down additional prisons to save money in the face of what the governor’s office projects to be a $38 billion deficit. 

Last year, the Legislative Analyst’s Office suggested the state could close as many as five more state prisons because of California’s declining inmate population.

That would stand to save upwards of $1 billion in operating costs, and even more money on unfunded capital improvement projects, the report said.

Newsom’s three closures and the cancellation of a contract for a fourth privately run prison save the state an estimated $667 million over the next year, according to the Department of Finance, but the savings are not enough to offset increased operational and employee costs. 

The California Correctional Peace Officers Association, which represents 26,000 prison guards, last summer negotiated a contract with successive 3% raises and other perks that will cost the state roughly $1 billion over the next three years. The prison doctors’ union, which represents 1,700 employees, also negotiated a two-year contract with a combined 5.5% general salary increase and a range of other incentives. The Newsom administration estimates it will cost $234 million over three years.

But Newsom, at least for now, is not recommending any additional prison closures.  Instead, his state budget proposal recommends keeping prisons open with fewer inmates in them to provide more space for rehabilitative programs.

“The administration is not currently proposing any additional prison closures,” H.D. Palmer, spokesperson for the Department of Finance, said in a statement. “We remain committed to meeting the needs of staff and the incarcerated population while right-sizing California’s prison system as the prison population declines over time, and to addressing space needs as the state transforms the carceral system to one more focused on rehabilitation.”

Opponents of mass incarceration say the administration’s argument for keeping empty prison beds open doesn’t align with how the money is spent.

“This is a cash grab by (the corrections department),” said Brian Kaneda, deputy director of the prison abolitionist group Californians United for a Responsible Budget. Newsom has touted transforming San Quentin State Prison into a rehabilitation center, but advocates like Kaneda and state advisory groups say the plan is vague.

Rehabilitation costs, which currently include prisoner education and activities, only make up a fraction of total correctional spending — roughly 3% — over the past decade, according to state budget documents.

In a written statement, the corrections department said its spending plan “judiciously uses taxpayer dollars in a manner that balances the need for cost-efficiency while maximizing public safety, the wellbeing of incarcerated people and successful rehabilitation.”

Costs in California prisons

The actual cost to house a prisoner is much closer to $15,000, said Caitlin O’Neil, a criminal justice analyst for the nonpartisan Legislative Analyst’s Office. Direct costs include things such as food and clothing while the remaining 91% of spending per prisoner comes from fixed costs like salaries and facility upkeep

She found that compensation for employees at the corrections department increased by 43% between 2010 and 2019 — from $110,000 to $158,000 — nearly triple the rate of inflation.

Last summer, the state prison guard contract included $10,000 bonuses for officers at certain prisons and a new guaranteed 401k contribution in addition to regular pension benefits.

The state’s current savings from prison closures, about $200 million per facility, is not nearly enough to offset those pay and benefits boosts.

“We would have to close one or more prisons per year just to offset employee compensation increases that happen regularly,” O’Neil said.

The peace officers’ union did not respond to requests for comment. Prison labor advocates often argue that jobs are dangerous and difficult to staff, warranting high compensation benefits.

The union can be a force in the Capitol. It has contributed $2.2 million to the campaigns of current state legislators and it gave $1.75 million to help Newsom defeat a 2021 recall campaign. It also recently contributed $1 million to support Proposition 1, the measure Newsom placed on the March ballot to build housing and treatment facilities for people with serious mental health conditions.

Despite a precipitous decline in prison populations, corrections spending has remained relatively stable. In 2018, the average daily prison population topped 120,000 compared to a projected 90,240 people in 2024. That’s a 25% decrease. In contrast, correctional spending as a share of the total state budget has barely dropped in the same time period from 7% to 6%.

What should be good news to opponents of mass incarceration — decreasing populations — has not resulted in a leaner criminal justice system. 

“If you have $700 million in annual savings from prison closure, but you’re spending hundreds of millions of dollars on new prison infrastructure and giving prison guards a billion dollar raise (over three years), that starts to show why the math isn’t mathing,” Kaneda said.

But wholesale cuts to correctional spending don’t necessarily always equate to better prison conditions, said John Pfaff, a law professor at Fordham University.

“If you don’t cut (budgets) carefully, that makes prisons worse places to be. It makes them more dangerous, more traumatic,” Pfaff said. “I say that as someone who is not a fan at all of prisons as a general institution.”

Prison medical costs soar

Medical care is one area of increased spending where the state, under court order, is trying to improve prison conditions.

The average cost per person for medical care has more than doubled in the past 10 years, and total health care spending by the corrections department has increased by about 67%. Although the recent prison closures have cut about 2,700 correctional positions, medical spending has eaten up those savings.

Click here to read the full article in CalMatters

Voters say California’s budget deficit is an ‘extremely serious’ problem, poll finds

Half of California registered voters consider the state budget deficit an “extremely serious” problem, and 57% believe the state is headed in the wrong direction, according to a new UC Berkeley Institute of Governmental Studies poll co-sponsored by the Los Angeles Times.

California Gov. Gavin Newsom discusses his proposed state budget for the 2024-2025 fiscal year in Sacramento.

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California Gov. Gavin Newsom discusses his proposed state budget for the 2024-2025 fiscal year in Sacramento.
 (Rich Pedroncelli / Associated Press)

The survey was conducted days before Gov. Gavin Newsom unveiled an outline of his $291.5-billion spending plan for the next fiscal year and plans to address the $37.9-billion deficit projected by his administration. However grim, Newsom’s shortfall estimate is rosier than a December projection from the Legislative Analyst’s Office of a $68-billion budget hole.

“Voters are concerned about it, and they’re going to hold it against the governor and the Legislature to do something about it,” said Mark DiCamillo, director of the Berkeley poll and a longtime California pollster.

The state budget relies heavily on capital gains taxes paid by California’s highest earners, making state revenues prone to volatility in the stock market.

Lower-than-expected revenues, delayed tax deadlines and overspending based on inaccurate budget projections created California’s grim financial picture.

The governor’s proposed solution includes declaring a budget emergency to dip into the state’s rainy day reserves; cutting $8.5 billion in spending from programs that support climate change efforts, housing and other services; and reconsidering a minimum wage increase for healthcare workers.

When asked how they think California should offset the deficit, a majority of voters, 51%, support cuts to government services, and 35% want to use the rainy day fund. Among less popular savings measures, 17% of voters want to borrow from special funds.

The governor and voters appear in agreement in their opposition to raising taxes, which only 13% backed in the Berkeley poll.

California Assembly member Alex Lee (D-San Jose) has proposed raising taxes under his proposed Wealth Tax Act, which would impose a 1.5% tax on net worth above $1 billion in 2024 and 2025; and a 1% tax on net worth exceeding $50 million and an additional 0.5% tax on net worth over $1 billion as of 2026.

The governor has repeatedly rejected the idea of raising state taxes to offset the deficit.

Support for taxes on the wealthy have laid the foundation for California’s progressive tax structure, which leads to the state’s wild revenue swings, DiCamillo said.

Newsom’s 46% approval rating in the January poll remains largely unchanged from late October when voters gave him historic low marks. The latest poll found that 47% disapprove of his job performance as governor. Newsom terms out of office in 2026, so he doesn’t have a reelection to worry about.

The shortfall creates a new political dilemma for Newsom as he’s forced to make difficult spending decisions during budget negotiations with lawmakers over the next few months that could frustrate his allies and voters.

Environmental groups pushed back on the governor’s nearly $3 billion in proposed cuts for climate change programs. Other groups, such as the County Welfare Directors Assn., were concerned about reductions in funding for social services.

Overall, voters demonstrated little confidence in the direction of the state: 57% said California is headed the wrong way and only one-third said things are going right, the poll found.

Click here to read the full article in the LA Times

Legislature’s analyst gives mixed review of Newsom budget

Gov. Gavin Newsom’s recipe for digging the state out of a multi-billion dollar budget hole has “strengths and weaknesses” while his revenue projections are “plausible, but optimistic,” the nonpartisan analyst’s office representing the Legislature said today.

Gov. Gavin Newsom addresses the media during a press conference unveiling his 2024-25 January budget proposal at the Secretary of State Auditorium in Sacramento on Jan. 10, 2024. Photo by Miguel Gutierrez Jr., CalMatters

The size of the budget deficit is up for debate: Newsom put the number at $38 billion while the analyst’s office says Newsom’s own math suggests the hole is deeper — $58 billion — for the 2024-25 fiscal year, which starts July 1.

Worse, both the governor and Legislative Analyst’s Office predict large deficits of about $30 billion annually through 2027-28. But while California has large reserves and a number of spending plans that don’t affect the state’s core social and public services, “future deficits are likely to require more difficult decisions, like ongoing spending cuts and revenue increases,” the analyst’s office said in its initial review of Newsom’s $291.5 billion spending plan.

Newsom so far has balked at raising taxes on the super wealthy, bristling at the suggestion during his budget press conference on Wednesday. His fellow Democrats in the Legislature are split. One progressive lawmaker sought again to pass a wealth tax for Californians with net assets of at least $50 million, but a committee chairperson shelved that proposal. 

In a statement responding to the analyst’s report, a Newsom spokesperson said today that it “outlines one perspective on California’s budget shortfall and revenue projections.”

“The state can produce a prudent, balanced budget that preserves key investments for education, public safety, addressing homelessness, mental health care reform, climate action, and other priorities without a ‘wealth tax’ or any other broad-based revenue increases,” said Brandon Richards, the spokesperson. 

Fueling the Legislative Analyst’s Office’s worry is disagreement with Newsom over just how much more tax revenue the state can collect. Last fiscal year state tax collections fell 20%. Newsom’s 2024-25 proposed budget projects an 8% increase in 2023-24, the current budget year. “Halfway through the current year, we are yet to see clear signs of such a rebound,” the analyst’s office wrote. And while the stock market is experiencing a rebound — a vital source for state revenues — it can just as quickly reserve course.

The analyst’s office writes Newsom is right to pull $13 billion from the state’s reserves. Doing so leaves about $11 billion in California’s rainy day fund; leaving a sizable chunk of cash in reserves is “prudent given the continued budget problems likely for future years,” the office wrote. For Newsom to legally raid the rainy day fund, he’d have to declare a “budget emergency” — a move the analyst’s office said would be justified.

However, Newsom’s plan to also pull $900 million from another reserve account may not be consistent with legislative intent, the office wrote. This is a fund meant to support health insurance and cash aid programs for low-income residents. The office wrote that “economic conditions likely do not yet match what the Legislature envisioned when it created the reserve.” 

The office recommends that Newsom and Legislature make more cuts to existing short-term programs that aren’t part of the state’s core, ongoing educational or social service commitments. Doing so may mean pulling less money from reserves to have more emergency cash on hand for future deficits.

The swirl of competing assessments and early prognostications is par for the course for a budget process that lasts at least through June and often spills into September. The analyst’s office, the state’s main check on the governor’s state-spending math, plans several more detailed reviews of Newsom’s plan as legislative budget committees hold dozens of public hearings assessing the governor’s proposals. 

Newsom will release a revision to his 2024-25 spending plan in May, after the state sees just how much it collected from taxpayers in April to better forecast its revenue picture. By early June, the lawmakers will propose their own budget for 2024-25, setting in motion a furious few weeks of negotiations between Newsom and the Legislature to finalize a budget plan by around June 27.

Legislative Republicans have criticized Newsom’s plan as based on gimmicks and accounting tricks. Today, Sen. Roger Niello, vice chairperson of the Senate budget committee, posted on social media that he puts “much more faith in this analysis than the Governor’s proposal.” 

Leaders of the Democratic supermajority, who can pass a budget without any Republican votes, have been generally supportive of the Democratic governor’s proposals, however. 

Some complicated math

Even though Newsom said his plan solves a $38 billion budget shortfall for the coming year, the analyst’s office said the governor’s proposal actually covers closer to $58 billion, underscoring the difficulty in arriving at a precise estimate of how deeply buried the state is fiscally.

That’s a point Richards reiterated in his response today, adding that “the budget is often subject to wild swings in revenue year to year — why the Governor has called for reforming how the state captures future surpluses for our reserves.”

A major difference between Newsom’s numbers and those of the analyst’s office? The governor’s proposal didn’t count $15 billion in funding reductions to K-12 education and community colleges as actual reductions in his $38 billion tally, the analyst’s office wrote.

Factor in some other changes in spending in Newsom’s proposal that should have been considered part of the deficit picture, and the analyst’s office says Newsom’s team is dealing with a $58 billion budget problem. This revises the analyst’s office’s December estimate of California’s fiscal woes, when it said the state had to shore up a $68 billion budget hole. 

What does this mean for students, teachers and parents? That’s hard to assess. State budgets reflect a three-year window. The analyst’s office said most of the education-related reductions in Newsom’s plan from this week apply to the 2022-23 year — $8 billion.

But the analyst’s office said Newsom’s team “has not explained how its proposal could achieve $8 billion in savings, given the administration also indicates the proposal would not impact school and community college budgets,” it wrote. “The Legislature will need significantly more information before it can assess the proposal — including its potential effects on the state budget after 2024‑25.”

Click here to read the full article in CalMatters

Newsom unveils plan to cut California climate funding 

Three years ago, Gov. Gavin Newsom sensed an opportunity as California emerged from the pandemic with record budget surpluses after a series of calamitous wildfires and drought years.

A flooded road just east of Highway 43 on March 20, 2023. Photo by Larry Valenzuela, CalMatters/CatchLight Local

The governor set aside a bigger chunk of the surplus billions for two consecutive years to combat climate change — an issue close to the heart of many Democratic voters — and then, facing deficits, had to cut it back last year, to $52.3 billion.

But today, Newsom proposed scaling climate funding back by about 7% compared to last year’s budget, to $48.3 billion, while spreading that money out over seven years, up from six last year. The cuts, unveiled in the first draft of his new budget, follow last year’s 3% cut to climate programs, and triggered criticism today from environmental groups.

California programs to tackle and adapt to the changing climate include a vast array of programs, including subsidies for electric cars, funds for making the coast more resilient, programs to prepare for wildfires and secure water supplies, and efforts to build solar and wind projects.

Newsom’s proposal offers a look at how viable the state’s commitments to tackling climate change will be as the state’s historic surpluses turn to deficits. Newsom, in a budget presentation in Sacramento, detailed a preliminary budget meant to fill what his administration said was a huge, $37.9 billion projected statewide budget hole.

“We can’t backslide or slow down while the climate crisis speeds up. We need our state leadership to do more, not less.”MARY CREASMAN, CALIFORNIA ENVIRONMENTAL VOTERS

Newsom said some of the climate cuts would be buttressed by more than $10 billion in federal money from the Biden administration. He said his budget still included “unprecedented commitments on climate that actually will grow because of the support of the federal government.”

The governor’s proposal delayed $600 million in spending on zero emission cars and trucks by three years, including to the electric car rebate program, the Clean Cars 4 All program aimed at getting more lower-income Californians to purchase zero emissions cars. Also delayed by three years is money to build charging stations. An ambitious transition to electric cars is considered critical to meeting the state’s zero-carbon mandate to slash climate-warming greenhouse gases.

“These delays suggest a bumpy road ahead for an equitable ZEV transition amid a deficit,” Jamie Pew, climate policy advisor with the nonprofit group NextGen, wrote in an email to CalMatters.

The governor’s proposal is the first step in a months-long negotiation with the Legislature that will include his revised plan in May and a June 15 legislative deadline. 

Lauren Sanchez, the governor’s senior climate advisor, called the state’s $48.3 billion climate budget “a world-leading figure that exceeds many nations’” investments.

“In the face of a $37.9 billion budget deficit, the governor’s budget protects 89% of our original $54 billion climate budget,” she said. “The year ahead will be crucial, and our climate commitment will continue to make the state resilient.”

But climate groups criticized Newsom’s proposal, saying cutting back on state spending now would cost the state more down the line.

“We can’t backslide or slow down while the climate crisis speeds up. We need our state leadership to do more, not less,” said Mary Creasman, chief executive of California Environmental Voters in a statement. “We look forward to working with the governor and Legislature to make 2024 a year of innovative and courageous climate leadership.”

Newsom’s proposal included $2.9 billion in climate program cuts, $1.9 billion in spending delays and $1.8 billion shifts in funding from spending general fund dollars to other sources of revenue.

Most of the shift will be made to the state’s Greenhouse Gas Reduction Fund, which is paid for by the controversial cap-and-trade carbon market, in which oil refineries, power plants and manufacturers pay for their excess carbon dioxide emissions. Last quarter’s auction brought in $1.4 billion.

The plan pauses spending on staff costs to implement two climate laws signed last year that required large corporations to disclose greenhouse gas emissions and financial risks from climate change. Newsom, when he signed the bills last year, said he might seek delays in their implementation.

Out of a $10 billion package to encourage adoption of zero emission cars and trucks, the governor proposed $38.1 million in cuts and replaced $475.3 million in general fund dollars with money from the greenhouse gas fund.

Yana Garcia, Newsom’s secretary for environmental protection, said in a press conference today that “we’re moving swiftly to meet and surpass California’s ambitious climate goals,” pointing to the state achieving its clean car and truck goals two years ahead of schedule.

“In the face of a $37.9 billion budget deficit, the governor’s budget protects 89% of our original $54 billion climate budget. (It’s) a world-leading figure that exceeds many nations.”LAUREN SANCHEZ, THE GOVERNOR’S SENIOR CLIMATE ADVISOR

Last year, Newsom left funds for the transition to electric vehicles largely in place, though he made $910 million meant for zero emissions transit available to support public transit agencies.

Newsom’s transportation secretary, Toks Omishakin, said today that “while the budget proposal for transportation contains significant funding shifts and delays, we’re able to maintain roughly 99% of funding in the governor’s historic clean transportation infrastructure package.”

Cuts to coastal, water programs, too

This year’s proposal also would make some cuts and delays in clean energy, as well as wildfire and forest resilience, water recycling and other programs. The 2021 and 2022 budgets included $2.8 billion for forest and wildfire resilience; the new proposal maintains $2.7 billion of that over five years.

Funding for coastal resilience programs was cut in half, from $1.3 billion to $660 million, reducing money set aside to protect communities and infrastructure against sea level rise, coastal protection work and the state’s Ocean Protection Council budget for safeguarding coastal waters.

While noting the cuts, Resource Secretary Wade Crowfoot told reporters that funds for assisting local communities in preparing sea level rise planning documents remained intact.

Mark Gold, formerly Newsom’s deputy secretary for oceans and coastal policy, said it was a bad day for climate programs.

“Coastal funding got devastated,” said Gold, who is now with the environmental group Natural Resources Defense Council. “We talk about how important it is for California to be a global climate leader, but the budget does not back up those statements at all, especially when it comes to the coast.”

Organizations that advocate for water safety and affordability applauded Newsom for preserving funding for drinking water programs, but raised concerns about his proposal to cut more than $100 million from a program aimed at addressing forever chemical contamination, which have been linked to serious health effects. 

Water recycling, too, would see cuts under Newsom’s proposal, despite his emphasis on water recycling in his August 2022 strategy to bolster the state’s water supply for a hotter, drier future. 

Though Newsom called for keeping $348 million previously set aside for water recycling and groundwater cleanup, he proposed returning about $174.4 million of unspent money to the general fund and delaying another $100 million until the budget year beginning July 2025.

This follows a $278 million cut for water recycling and groundwater cleanup in the 2023–2024 spending plan, as well.

Rachel Ehlers, a deputy legislative analyst covering environment and transportation, said one critical question will be how quickly programs are using the money they have received.

“How are we doing on getting that money out the door? On getting it in the hands of consumers looking to buy vehicles? To entities who are building the charging infrastructure?” she said. “And how quickly are we spending that money? … That’s going to be a key question.”

Click here to read the full article in CalMatters