AFTER BIG SURPLUSES, CALIFORNIA FACES DEFICIT
SACRAMENTO, Calif. — From a budget perspective, the first four years of California Gov. Gavin Newsom’s time in office has been a fairy tale: A seemingly endless flow of money that paid to enact some of the country’s most progressive policies while acting as a bulwark against a tide of conservative rulings on abortion and guns from the U.S. Supreme Court.
But just days into his second term, that dream appeared to be ending. Last week, Newsom announced California likely won’t collect enough money in taxes to pay for all of its obligations, leaving a $22.5 billion hole in its budget.
The deficit was not a surprise. Newsom and the state’s budget writers have been signaling for well over a year that California was sailing into economic headwinds. The news on Tuesday was Newsom offering his first plan of what to do about it.
Notably, Newsom chose not to dip into the state’s $35.6 billion savings account. And he proposed no significant cuts to major programs and services, including vowing to protect programs that pay for all 4-year-olds to go to kindergarten and cover the health expenses for low-income immigrants living in the country without legal permission.
Instead, Newsom plans to delay some spending while shifting some expenses to other funding sources outside of the state’s general fund. He has proposed $9.6 billion in cuts, including canceling a planned $750 million payment on a federal loan the state took to cover unemployment benefits for people who lost their job during the pandemic.
Whether that plan holds will depend on what the state’s finances look like after April 15, when most residents file their state tax returns. California doesn’t have to approve a spending plan until the end of June.
“We have a wait-and-see approach in this budget,” Newsom said.
But Newsom appeared somewhat pessimistic about the future as he scaled back some of his ambitious climate proposals, cutting his much heralded five-year, $54 billion investment to $48 billion.
The deficit is a sharp turnaround from the previous year, when the state had a surplus of around $100 billion. That money mostly came from a soaring stock market that made lots of Californians very rich, who then paid taxes on that new wealth.