Newsom proposes $209B budget
Proposal includes boost to schools, fire prevention; addresses housing needs, paying down debts
California’s projected budget surplus has soared to a record $21.5 billion, Gov. Gavin Newsom announced Thursday during his first state budget proposal in which he finally put dollar signs behind some of the soaring rhetoric that defined his campaign and inauguration.
Now that he’s governor, what does he plan do with those billions?
In a packed news conference that lasted nearly two hours, Newsom proposed using nearly half of the windfall to pay down the state’s debts and pension obligations and add to its reserves while using the rest to shore up funding for the state’s public colleges and universities, early childhood education, housing production, homeless services and other programs for the poor.
A strong budget is also good news for K-12 schools and community colleges, which would receive $80.7 billion — a new high — based on current projections, according to the state’s constitutionally guaranteed funding for schools.
“These dollars attach to real people and real people’s lives,” said the new governor as he introduced a $209 billion budget proposal, including $144 billion for the general fund. With California’s economy still strong, the state ended up with a record surplus largely because it spent less than
expected on health care for the poor.
Some of the plan’s highlights included:
• $3 billion in pension relief to school districts, many of which are struggling to meet their required contributions to employees’ retirement funds.
• A one-time, $750 million grant to encourage all school districts to offer fullday kindergarten.
• A $500 million onetime commitment to expand child care services.
• A $1.4 billion boost for higher education to support increased enrollment, a tuition freeze and a second year of free tuition at community colleges.
• $305 million in additional funding to thin forests, cut fuel breaks, fund controlled burns and other methods of reducing fire risk.
• A doubling of the state’s Earned Income Tax Credit, renamed a “Working Fam- ilies Tax Credit,” to $1 billion. It will help poor families with young children by providing a $500 credit for 400,000 additional families.
• Nearly $200 million in general-fund dollars to expand Medi- Cal availability to about 138,000 undocumented immigrants ages 19 through 25.
• $500 million for shelter expansions and other homeless services.
But along with the spending list, Newsom also echoed some of the fiscal caution of his predecessor, former Gov. Jerry Brown, noting concern about an eventual economic downturn that he said could cost the general fund $70 billion over three years. He stressed that more than 86 percent of his proposed new spending is one-time, rather than an ongoing funding commitment, and he projected a balanced budget over the next four years.
“To make the California Dream available to all, our state must be fiscally sound,” Newsom said in his budget proposal. “This bud- get lays a strong financial foundation for our state by eliminating debts, expanding the rainy- day fund and paying down our unfunded liabilities.”
Apart from the marked difference in style — the slides, the lengthy exchange with reporters, the larger auditorium — the substance of Newsom’s budget presentation also invited comparisons to Brown.
While Brown vetoed a bill to expand state taxcredit incentives for housing construction, Newsom enters office with his own proposal to direct $500 million into such affordablehousing incentives and another $500 million to a loan program for low- and middle-income housing development — in addition to grants aimed at nudging local governments to encourage more housing construction.
Newsom on Thursday also threatened to withhold certain transportation dollars from cities that fail to meet their housing goals and challenged Silicon Valley companies to help pay for sorely needed workforce housing.
“It signals that this is a governor who gets that the state has to play a central role in fixing the housing market — that it won’t get fixed without the state,” said Matt Schwarz, president and CEO of the California Housing Partnership Corp., a San Francisco-based affordable housing nonprofit created by the Legislature three decades ago.
The January budget proposal required in state law is the first step of a monthslong negotiation between the governor’s office and the state Legislature that culminates in mid-June. Newsom’s proposal isn’t expected to meet much resistance in the overwhelmingly Democratic Legislature.
Republican Assemblyman Jay Obernolte of San Bernardino County said he expected broad bipartisan support for the governor’s early childhood education push.
Other Republican lawmakers urged more frugality. Assemblyman Vince Fong, R-Kern County, said in a statement that Newsom’s budget amounted to an $8 billion spending increase, and urged devoting more toward budget reserves, paying off debt and infrastructure. “Californians across our state understand that we must live within our means yet the governor’s proposed budget continues to spend public dollars at a recordsetting level,” he said.
While Newsom’s plan would chip away at the pension funding gap, the scope of the problem is daunting. The budget acknowledges a total of nearly $257 billion in unfunded pension and retiree health care commitments. The main pension fund for state employees, CalPERS, is short $58.8 billion while the CalSTRS pension fund for school employees is short almost $103.5 billion — of which the state obligation is $35.3 billion.
On wildfires, Newsom’s budget also proposed for the state to cover property tax losses in areas of Butte, Lake, Los Angeles, Orange, Riverside, Shasta and Siskiyou counties that were devastated by fires between 2015 and 2018.
Newsom’s proposed budget doesn’t touch either of two controversial construction projects that Brown championed — a high-speed train connecting San Francisco to Los Angeles or the Sacramento- San Joaquin River Delta tunnels plan to help deliver water from Northern California’s reservoirs to the south.
But Newsom suggested changes are coming. He said that he will offer more details soon in a five-year capital plan that his staff is putting together. On highspeed rail, he said, “I pledge more transparency and accountability.” And he hinted he may be willing to scale back the $17 billion tunnels project that is still not fully funded and faces years of lawsuits from environmentalists.
“I am committed to looking at this with a fresh set of eyes,” he said.
Gov. Gavin Newsom presents his first state budget during a news conference Thursday in Sacramento.