$97.5 billion surplus for California
Newsom says figures are `simply without precedent'
State coffers are once again overflowing amid 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 a $76 billion estimate in January — in a second straight year of booming budgets. A large chunk of this surplus is mandated towards education and other spending categories, while lawmakers have discretion over about $49.2 billion, Newsom said.
The overflowing budget is buoyed by a trend ac
celerated by the pandemic as economic gains enjoyed by California's wealthiest residents translate 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 press conference. “No other state in American history has ever experienced a surplus as large as this.”
Despite the rosy outlook, Newsom argued that California needs to ready itself for a stock market bust by putting $23.3 billion in rainy day fund deposits and using the vast majority of the surplus on one-time spending. He compared the state's current budgetary situation to the bubble before the dotcom crash and said the recent market downturn is cause for concern.
“You remember 19992000, what happened?” said Newsom as he pointed out the high share of capital gains revenue fueling the government's budgetary largess. “We are deeply mindful of that.”
The largest single spending category is a recordbreaking $128 billion on public schools and young students, including transitional kindergarten classrooms to those beyond 12th grade. The $9 billion dollar bump over Newsom's January figure equals a recordbreaking $22,850 in perstudent funding.
The investment is a win for public schools across the state as school leaders and education policy experts call for relief amid plummeting enrollment and soaring chronic absenteeism in some regions.
Billions more would go to infrastructure projects, building tiny homes to address the homelessness crisis, and expanding state health insurance to undocumented immigrants.
There is also $125 million to strengthen abortion access amid concerns over the future of Roe vs. Wade, $5 million to establish the state's first new state park in 13 years and $12 million to help California's indigenous tribes locate missing people.
California's budget boom is so large that the governor is also contending with a 1979 spending cap that requires Sacramento to divvy some 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 financial relief payments to Californians who own a vehicle, totaling $11.5 billion in cash back.
The budget unveiled Friday is Newsom's latest salvo as he negotiates with Democratic leadership in the Senate on how best to spend the taxpayer money and channel funds back to people struggling with surging inflation and the country's highest gas prices. State lawmakers have until June 15 to pass a budget.
As the Legislature has a supermajority of Democrats and Newsom is the leader of the party, most of his plans are expected to become law, although there are key divisions over the governor's financial relief plan.
In a short statement, Assembly Speaker Anthony Rendon said leadership “work together to present Gov. Gavin Newsom with a budget he can be proud to sign by the constitutional deadline.”
One of the most hotly watched aspects of the governor's budget is his plan to send money back to Californians in what the governor billed as an $18.1 billion “inflation relief fund.”
The centerpiece of Newsom's financial relief plan is a contentious proposal linking money to vehicle ownership with $400 payments per car, capped at $800. Democratic leadership in the Legislature wants to target $200 checks to people at certain income levels with an additional $200 for each dependent.
Newsom has faced criticism for the plan, which will return money back to millionaires alongside people struggling to fill up their gas tanks but does not include people without cars. His plan will also return money back to electric vehicle owners spared the pang of rising fuel costs. Environmentalists also contend 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 low-income residents. “It basically means a lot of people who could really use some cash aid right now will be excluded from it.”
Newsom said Friday he is “not ideological” on the inflation relief plan and signaled
that he may compromise with the Legislature even though he believes the Democratic leadership's plan will delay money back into next year due to bureaucratic discrepancies between the two proposals.
In a statement, State Senator Scott Wilk, leader of the Republican minority, reiterated calls to suspend the state's 51 cent gas tax, calling it the “quickest way to give families immediate relief.” Democratic party leadership has opposed a tax holiday saying it would upend transportation funding.
Newsom also seeks 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.
The latest budget also takes aim at the wildfire season amid a historic drought and looming fire season. Newsom's original budget in January proposed $22.5 billion over five years to boost wildfire resilience, drought, renewable energy and climate change programs. The new budget adds an additional $9.5 billion.
That money 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. An additional $1.6 billion would go toward drought response programs.
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.”
But he added that there may be a shortfall “in the worst-worst case scenario.”