Obstacles loom for Newsom, Fed relief
Democratic-led House passes $3 trillion relief bill that already faces White House opposition
As California stares down a coronavirus-fueled $54 billion deficit, the life preserver Gov. Gavin Newsom needs to help keep his state budget afloat is encountering choppy waters.
Under Newsom’s May budget revision released Thursday, about $14 billion of the shortfall would be handled with “trigger cuts” that would slash funding to state-funded schools and colleges, parks, courts, environmental conservation programs and an array of safety-net services for children and seniors. But those cuts could be avoided through another trigger: A hoped-for federal windfall for states that the House passed 208-199 Friday night but that still has imposing obstacles to overcome before anyone gets any money.
In a move that punctuates the urgency of the situation, Newsom on Friday took the rare step of dispensing with his daily weekday news briefing — heavily relied on across California for the latest news in the state’s fight against the virus and the gradual reopening of the economy — to discuss with state legislative leaders how to have a balanced budget by the end of June.
Figures compiled by the Bay Area News Group showed that more than 76,000 people have contracted the novel coronavirus in California through Friday, a one-day increase of more than 1,500. The number of deaths from the virus has now topped 3,100.
As Newsom pitched his revised budget to state lawmakers, the House passed the sweeping legislation, dubbed the “Heroes Act” and totaling some $3 trillion in aid, including $500 billion to state governments.
“A crisis of this magnitude requires bold legislative actions, and this bill will provide relief for
American workers, families, students, small businesses, and healthcare systems,” Rep. Zoe Lofgren, D-San Jose, said in a statement.
But the White House Office of Management and Budget raised a number of concerns about the Health and Economic Recovery Omnibus Emergency Solutions Act and said it would recommend a veto of the bill as drafted.
“This legislation,” the office said in a memorandum, “is more concerned with delivering on longstanding partisan and ideological wishlists than with enhancing the ability of our Nation to deal with the public health and economic challenges we face.”
Among the concerns the White House outlined were that the bill “would provide a windfall to wealthy taxpayers in high-tax states” and “raise taxes on struggling small businesses by limiting deductibility of losses.”
The White House also objected to a proposed $25 billion “bailout” of the U.S. Postal Service without requiring “much-needed longterm reforms” and criticized vote-by-mail “election mandates” it said would encroach upon state election authority and “invite voter fraud.”
One thing the administration did not balk at was the $3 trillion price tag, coming on the heels of $2.5 trillion in aid approved in March as part of the CARES Act. Many economists agree that austerity should be shelved to ensure there’s an economy left to rebuild.
Alan J. Auerbach, an economics professor at UC Berkeley and director of its Burch Center for Tax Policy and Public Finance, said global investors still see the U.S. dollar as sound. He noted that Japan has an even higher debt level than the U.S. and has shown similar resiliency, while countries such as Venezuela whose economies do not inspire confidence have been rocked with runaway inflation.
“In the world of economists, I’m someone who’s pretty concerned about government debt and fiscal trajectory. But this is not the time to be focused on that,” Auerbach said. “If we destroy the economy, then dealing with the federal budget is going to be the least of our concerns.”
That next round of federal aid can’t come soon enough, especially for the state agencies facing drastic cuts if no help comes from Washington.
The University of California and California State University systems, and the California Community Colleges — already struggling with how to continue instruction amid the pandemic — are each set to absorb 10% funding reductions that can be “triggered off” with federal relief dollars. The same goes for much of the K-12 system.
Some areas were left relatively unscathed: State corrections got a 0.7% haircut from its $13.4 billion budget from last year. Newsom did announce plans to close one state prison in the 202122 fiscal year and begin the closure of another prison the following year, drawing wide praise from criminaljustice reform advocates.
Newsom also outlined plans for the state to cease housing new juvenile inmates as part of a broader goal to shift responsibility for juvenile detention and rehabilitation to state health services and county probation departments. But that plan may be in doubt.
“This structure and the resources provided are simply not enough to make this work,” Brian Richart, president of the Chief Probation Officers of California, said in a statement.
Amid the budgetary pain, Newsom’s spending plan did elicit some sighs of relief, if only because things weren’t as bad as some thought they were going to be.
The new budget proposal eliminated the ambitious $750 million state fund for homeless housing and services the governor had proposed in January but articulated plans to replace it dollar-for-dollar with existing federal funds to buy hotels and motels across California that are being used as temporary homeless housing during the pandemic.
Newsom also retained his plan to finance affordable housing construction with $500 million in lowincome housing tax credits.
But he proposed a cut of $565 million for mixed-income developments, infill infrastructure grants and other housing programs.