Big cuts planned to close deficit

Newsom budget hits hard at schools, public services

SACRAMENTO — California would scale back public services, temporarily limit corporate tax credits, slash state workers’ pay and borrow from special funds to close a $54 billion deficit that has opened up during the coronavirus pandemic, under a revised budget plan Gov. Gavin Newsom unveiled Thursday.

Schools would be hit hard by required funding cuts and the state would forgo new health services that it hoped to provide for homeless and disabled Californians. More than $6 billion in proposed spending increases would be canceled, including an expansion of the state’s health care program for the poor to undocumented immigrants over age 65 and additional support for University of California and California State University.

The $203 billion proposal is nearly 9% smaller than the

plan Newsom laid out in January, which would have been a record $222 billion budget with an estimated $6 billion surplus. That plan evaporated with the coronavirus pandemic, as the economy withered under a prolonged statewide stayathome order. Finance officials project the unemployment rate will reach nearly 25% in the coming months.

The governor’s revised plan relies on tapping cash reserves and on hopes that the federal government will supply aid to minimize reductions. Without more money from Washington, an additional $14 billion in cuts would be triggered, including 10% funding reductions to universities and to public employee compensation.

At a news conference Thursday, Newsom pleaded with Congress to pass a nearly $1 trillion bailout for states and local governments that has been proposed by House Speaker Nancy Pelosi.

“This pandemic is bigger than any one state,” he said. “The magnitude of what we’ve been asked to do is very, very significant, and that’s why the federal government is so important.”

An expected $41 billion decline in state tax revenue would leave public schools facing a $15 billion shortfall next year under a constitutionally mandated funding formula. Newsom proposed to offset some of that loss by raising new revenues and giving schools a supplemental budget appropriation of up to $13 billion over the next three years.

By temporarily suspending writeoffs of net operating losses and limiting tax credits for corporations to an annual maximum of $5 million, state finance officials estimate California can raise an additional $4.4 billion next year from corporate tax filers and nearly $5 billion in the two years after that.

Newsom also wants to redirect $2.3 billion intended to help pay down unfunded pension liabilities to the state public employee and teacher retirement systems, using it instead to help shore up publicschool and community college budgets over the next two years.

“It will communicate very clearly — it should — to these districts that these cuts are not permanent,” Newsom said. He argued that would make it easier for them to figure out how balance their own budgets over the long term.

Assembly Speaker Anthony Rendon, DLakewood (Los Angeles County), said he supported the governor’s approach of trying to protect education funding as much as possible.

“What we learned from folks who were here during the last economic downturn is how important it is to invest in things that pay off in the long run,” Rendon said.

But the state’s largest teachers union, the California Teachers Association, said deep cuts would get in the way of a safe return to classrooms after widespread closures prompted by the coronavirus. It called for the passage of a November ballot initiative that would raise billions of dollars by hiking commerical property taxes. Newsom declined Thursday to endorse the measure.

The governor’s budget proposes to use more than $4 billion in federal stimulus money to run summer school programs to address achievement gaps widened by early school closures this year. It would direct $50 million to small business assistance and waive the $800 minimum franchise tax for new businesses in an effort to spur job recovery. The state would spend a $331 million financial settlement with big banks from the foreclosure crisis a decade ago, primarily for mortgage assistance for struggling homeowners.

California is sitting on about $16 billion in a rainyday fund that was created by thenGov. Jerry Brown and the Legislature in 2014. The governor and lawmakers can tap into that account by declaring a fiscal emergency, and Newsom proposes to use nearly half of it next year.

The state will try to negotiate a 10% pay cut with goverment workers through collective bargaining this summer, which could reduce costs by $2.8 billion. Newsom said he and his staff would take the pay cuts.

Public employee union leaders, however, said they would try to negotiate alternatives that would reduce the financial impact on their members.

“We’re going to be looking for you for ideas for cost savings that we can then put forward and try to whittle this down,” Yvonne Walker, president of SEIU Local 1000, said in a Facebook video to union members Wednesday evening.

After a soaring economy gave Newsom wide latitude during his first year in office to set California on a path to the liberal agenda he outlined during his 2018 campaign, the governor now faces tough choices that require him to temporarily abandon key policy goals and disappoint allies.

His budget proposal does maintain a minimum wage increase in 2021, a progressive priority that business groups have asked him to suspend to ease their economic recovery.

Newsom would pay for an expected expansion of the MediCal rolls by reducing reimbursement rates for doctors participating in the state’s health care program for the poor. Physician groups spent millions in 2016 to pass a tobacco tax that would pay for those rate increases.

A multibilliondollar redesign of affordable housing and preventive care services for homeless people, a major goal that the governor proposed in January, is off the table. Newsom would instead use $750 million in federal stimulus funds to buy hotels and motels where homeless people have been housed during the coronavirus pandemic.

Negotiations will take place over the next month with legislators, who must pass a balanced budget by June 15 or forgo their pay. Further adjustments could be made after that deadline.

State Senate leaders proposed a massive economic relief package of their own on Tuesday. It included creating a $25 billion economic recovery fund by encouraging Californians to prepay their future state income taxes, and a program to avert mass evictions by giving landlords tax credits to forgive the rent of tenants who cannot pay.

Sen. Holly Mitchell, a Los Angeles Democrat who chairs the budget committee, said proposed cuts to environmental protection programs and the curtailing of health care for undocumented immigrant seniors would be bitter pills to swallow. She said the federal government has “foundational role to play to help states and local governments across this country.”

Republican lawmakers said Newsom was relying on financial gimmicks, including borrowing $4 billion from special funds, to balance the budget and urged him to move more swiftly to reopen the state’s economy. But even Assembly Republican leader Marie Waldron of Escondido (San Diego County) said the state would have to rely in part on federal help to avoid drastic cuts.

“If we can get employees back to work safely, receive some help from the federal government and make government more efficient to withstand future downturns, we will be able to protect jobs and public health and put California back on a path to prosperity that works for everyone,” Waldron said in a statement.

Assemblyman Phil Ting, the San Francisco Democrat who chairs the budget committee, said that while more federal funding is critical, California must have a “Plan B” and look for potential new sources of revenue to avoid relying on the Trump administration for relief.

“We’re not going to be doing things that we’re proud of,” Ting said. “But we’ve got to do our job.”