Newsom: Surplus soars to $97.5B
$300.7B budget plan includes education and infrastructure spending, taxpayer inflation relief
State coffers are overflowing with an unprecedented budget surplus as Gov. Gavin Newsom on Friday unveiled a massive $300.7 billion spending package that funnels billions in cash payments to vehicle owners and hospital workers while dramatically boosting spending on education, infrastructure and wildfire resilience.
During his highly anticipated May budget revision, Newsom said the state's surplus ballooned to $97.5 billion — far higher than his $76 billion January estimate. A large chunk of this surplus is mandated toward education and other spending categories, while lawmakers have discretion over about $49.2 billion, some of which will be given back to taxpayers, Newsom said.
The bountiful budget is buoyed by a trend accelerated during the pandemic: Economic gains enjoyed by California's wealthiest residents translated into unusually high tax revenue for the Golden State. In the 2021 tax year, residents will report a staggering $291 billion in investment profits, according to the revised budget estimate.
“It's simply without precedent,” Newsom said during a two-hour news conference. “No other state in American history has ever experienced a surplus as large as this.”
But despite the rosy outlook, Newsom argued that California needs to ready itself for a stock market bust by putting $23.3 billion in a rainy day fund and using the vast majority of the surplus on one-time spending. He compared the state's current budget situation to the bubble before the dot-com crash and said the recent stock market downturn is cause for concern.
“You remember 19992000, what happened?” asked Newsom as he pointed out the high share of capital gains revenue fueling the state's largesse. “We are deeply mindful of that.”
The largest single spending category is a recordbreaking $128 billion for public schools, from transitional kindergarten classrooms all the way through college. The $9 billion dollar bump over Newsom's January figure translates to $22,850 in per-student TK-12 funding, the highest in state history.
The investment is a win for public schools as educators seek relief amid plummeting enrollment numbers and soaring chronic absenteeism in some regions.
State Superintendent of of Public Instruction Tony Thurmond said the money “lifts up the most critical needs” of students and schools after two years of the pandemic.
California's budget boom is so large that the governor must contend with a 1979 spending cap that requires Sacramento to divvy some of the surpluses between taxpayer givebacks and spending on select categories, including education and infrastructure. Newsom said his budget avoids hitting the limit by moving money to exempt spending categories, including $400 gas relief payments to Californians who own a vehicle, totaling $11.5 billion in cash back.
The revised budget is Newsom's latest salvo as he negotiates with Democratic leadership in the Senate on how best to spend the surplus and channel funds back to people struggling with rising prices for consumer goods. State lawmakers have until June 15 to pass a budget.
In a short statement, Assembly Speaker Anthony Rendon said leadership will “work together to present Governor Gavin Newsom with a budget he can be proud to sign by the constitutional deadline.”
Under Newsom's plan, billions more would go to infrastructure projects, building tiny homes to address the homelessness crisis, and expanding state health insurance to undocumented immigrants.
Ray Bramson, chief operating officer of Santa Clara County nonprofit Destination: Home, said he's “really pleased” to see the continued investment in housing and homeless services.
“We're seeing more and more homes for people, both temporary and permanent, coming online a lot faster than we have in the past,” he said. But he cautioned that while tiny homes and other temporary options are part of the solution, the state can't lose sight of the long-term goal — more permanent housing.
The budget includes $125 million to strengthen abortion access amid concerns over the future of Roe v. Wade, $12 million to help California's Indigenous tribes locate missing people, and $5 million to establish California's first new state park in 13 years on a sprawling former ranch in Stanislaus County.
Because the Legislature has a supermajority of Democrats, most of Newsom's plans are expected to become law, although there are divisions. A key sticking point is Newsom's plan to send money back to Californians as part of a $18.1 billion “inflation relief fund.”
The centerpiece is a contentious gas price relief proposal that gives money only to those who own vehicles. Democratic leadership in the Legislature wants to target $200 checks to people at certain income levels with an additional $200 for each dependent, but Newsom said that would mean a delay in getting the money in taxpayer's hands.
Environmentalists also contend that the plan flies in the face of California's goal to get gas-guzzling vehicles off the road.
“Honestly, I'm perplexed about why they seem to be sticking to this idea,” said Chris Hoene, research director at the California Budget & Policy Center, an organization advocating for lowincome residents. “It basically means a lot of people who could really use some cash aid right now will be excluded from it.”
Newsom is also seeking to funnel $2.7 billion in rental assistance to an estimated 300,000 families, give every hospital worker up to $1,500 in hazard pay, and fund three months of free public transit as part of the financial relief package.
The governor is also taking aim at drought and wildfire, with a $9.5 billion increase over the $22.5 billion already proposed.
That includes $5.2 billion in a major push to avoid blackouts in the coming years. It would create a “Strategic Electricity Reliability Reserve” that would spend money to keep open older power plants, expand state incentives for new power plants and battery storage projects, and bring online more temporary diesel and natural gas generators. Another $1.6 billion in new drought funding is proposed for grants to reduce water consumption, but Newsom did not devote money this year to building new reservoirs.
Asked if he could guarantee there won't be blackouts this summer, Newsom said, “We are going to do everything in our power to make sure that doesn't happen.”