DON’T COUNT ON CONGRESS FOR STATE RELIEF
The economic and health impacts of the novel coronavirus pandemic on the state budget are going to touch every Californian, directly or indirectly, in coming months, in unprecedented, almost unbelievable ways. The extent became clearer Thursday when Gov. Gavin Newsom announced that the state faced a $54 billion budget deficit from now until June 30, 2021 — with $41 billion due to declining revenue and $13 billion due to new expenses in health care and other safety-net programs. The $54 billion is nearly 25% of the $222 billion state budget Newsom unveiled in January. With revenues from personal income taxes, sales taxes and corporate taxes each expected to fall at least 23%, the mood this week in the Capitol was grim, if not desperate.
Luckily, lawmakers need only look at recent history for guidance. Just 12 years ago, then-gov. Arnold Schwarzenegger and the state Legislature dealt with a budget cut of nearly 20% when revenue shrank during the Great Recession. After Schwarzenegger, the austerity continued in 2011 under thengov. Jerry Brown, who focused like a laser on eliminating the $30 billion-plus “wall of debt” he inherited due to previous state leaders’ decisions to borrow funds from other state accounts to cover deficits. Brown did such a masterful job he left Newsom a rainy-day fund that topped $17 billion in January.
How? From his first budget in his second goaround as governor, Brown’s priority was sparing K-12 schools as much as possible. Public schools took less of a hit than the UC and CSU systems and community colleges. Given the potential of the pandemic to further worsen the extreme income inequality in California, this still seems like it should be the top priority for state lawmakers. This is especially so given the difficulties that students from poor families have faced in adjusting to “distance learning” and acquiring needed technology since regular classrooms closed in March.
Yes, one reason the state was able to rebound from the Great Recession so quickly was the Silicon
Valley boom generating so much new revenue.
But apart from public education, Brown was also the most tightfisted governor in decades. He won approval of cuts in some welfare programs. And he frowned not just on new programs but on increased spending in existing programs. Brown also often opposed new taxes and regulations that could impede economic growth.
Newsom has gone a different route. His proposed 2020-21 budget released in January sought sizable increases in spending on education, health care and social services. Now he likely will be forced to make cuts in all of these areas. A Calmatters analysis published Thursday also raised the possibility of major cuts in homeless funding for big cities and for lowincome housing as well. The current governor needs to be as adroit at budget triage as the last one.
The wild card, as Newsom mentioned Thursday, is how much more assistance the federal government will provide to states. Since a $2.2 trillion pandemic relief law that included $150 billion for state and local governments was enacted March 27, attempts by House Democrats to provide up to $1 trillion in relief to reeling states have faced strong opposition from some Republicans. Senate Majority Leader Mitch Mcconnell, R-kentucky, has said federal relief should not be used to pay for generous “blue state” government pensions and that states should consider filing for bankruptcy to escape their obligations. Given that many experts don’t think that states can declare bankruptcy — and given that Kentucky has the most underfunded state pensions in the nation, according to research by The Pew Charitable Trusts — Mcconnell’s remarks seem more pointedly partisan than thoughtful.
Still, with California’s own underfunded pension systems, if Republicans in Washington, D.C., balk at additional federal help, state leaders shouldn’t wait on it. With a constitutional requirement to pass a balanced state budget by June 15, they need to start making some brutally difficult decisions — quickly.