Gov. Gavin Newsom shares plan to offset state’s $45B deficit
Faced with a $44.9 billion budget deficit, Gov. Gavin Newsom described a plan to shrink the size of state government and slow his progressive policy agenda by eliminating 10,000 vacant state jobs and pausing an expansion of subsidized childcare, among dozens of other cuts.
Newsom’s revised $288 billion budget proposal, announced Friday, projected California’s deficit to be $7 billion more than the shortfall his administration projected in January. The grim forecast was driven by lower than expected state revenues, continuing a pendulum swing from the fiscal boom of the COVID-19 pandemic.
“These are things we worked closely with the Legislature to advance,” Newsom said of the cuts. “None of this is the kind of work you enjoy doing, but you’ve got to do it. We have to be responsible. We have to be accountable.”
Newsom’s plan to close the deficit relies on $17.3 billion in savings from budget cuts he and lawmakers agreed to in April and using $4.2 billion from the state’s rainy day fund and budget reserves for the upcoming fiscal year. The proposed spending reductions Newsom touched on Friday also reverse and slash an additional $8.2 billion in funding, including money he had set aside for some of his marquee progressive policies in 2024-25.
The governor’s revised budget proposal, which includes updated revenue projections after the state income tax filing deadline, typically jump-starts negotiations with Democratic leaders in the Senate and Assembly over a final fiscal plan for the upcoming year. The state Constitution requires lawmakers to approve the state budget by June 15.
An ‘incomplete’ plan
The governor’s budget plan released Friday was incomplete compared to prior years. The administration provided only a 50-page summary of his proposal, a truncated proposal compared to the detailed, 260page spending plan Newsom released in January.
Newsom’s budget news conference was originally scheduled for next Tuesday, the deadline for the governor to share his revised budget with the state Legislature. But Newsom is flying to Rome to speak at a climate conference at the Vatican that day and bumped his presentation up to Friday.
The change left the state Department of Finance, the fiscal arm of his administration, short on time to finalize a full budget summary, and additional documents, said H.D. Palmer, a spokesperson for the Finance Department. More information, his aides said, will be made available when additional documents are made public on Tuesday.
How bad is the budget problem?
Newsom cast California’s current financial situation as a return to normal after the federal government provided trillions of dollars in funding to individuals, families, businesses and state governments during the COVID-19 pandemic, payouts that resulted in a historic surplus in California.
But those flush times did not last, and poor revenue forecasts in recent years have also deepened the state’s fiscal troubles.
Newsom’s estimate of a $100-billion surplus two years ago ended up far too rosy, and revenue in subsequent years also fell short of projections. A decision by the federal government to delay the 2022 federal income tax deadline from April to November due to winter storms complicated California’s ability to project revenues last year.
Newsom said his plan not only solves the budget deficit for the current and upcoming years, but also begins to make a dent in potential shortfalls through the end of his second term as governor in 2027. The administration proposed additional cuts, reductions and delays to solve an estimated $28.4 billion deficit in 2025-2026.
The governor said his strategy relies on delaying, diverting and cutting funding for new programs that haven’t started. He said he was careful to avoid taking away funding from existing programs already serving residents.
But that doesn’t mean his plan won’t affect millions of Californians who rely on government safetynet programs, as well as state workers.
Why does the deficit number keep changing?
In January, the Newsom administration predicted that California would have a $37.9-billion deficit to reckon with in the budget that lawmakers adopt in June.
Newsom and leaders of the Senate and Assembly reached an early agreement in April on $17.3 billion in reductions though most of those changes will not be passed into law until next month. Lawmakers passed a budget trailer bill that lowers unspent funding allocations in 2022-23 and 202324 by $1.6 billion last month.
The deficit number Newsom presented Friday subtracts the $17.3 billion in cuts agreed to earlier from the $37.9-billion deficit estimate from January.
Revenues have fallen short of expectations since January, deepening the budget problem by $7 billion
Newsom is projecting a shortfall of $27.6 billion in 2024-25, but California is making cuts and reductions to solve a total budget deficit of $44.9 billion this year.
What does Newsom want to cut?
The April agreement between lawmakers and the governor included $762 million in savings by pausing hiring for vacant state jobs. Newsom’s updated proposal permanently deletes 10,000 open positions, which unions viewed as a potentially better option than furloughs or delaying planned salary increases to save money.
Newsom’s proposal includes savings from the deactivation of 46 housing units at 13 state prisons, which would save $80.6 million. This comes as California’s prison population has declined by nearly 25% since 2019 and as the state prepares for the closure of its third prison, which Newsom said is now planned to close as early as November, five months ahead of schedule.
Under Proposition 98, California has a minimum funding guarantee for schools and community colleges. Newsom is proposing an unusual maneuver to go back and lower the funding requirement for 2022-23 to reflect the lower-than-expected state revenues that came in late last year. The change could ultimately reduce funding for schools by tens of billions of dollars in future years and launch a monumental fight over education funding at the state Capitol.
Newsom’s plan proposes cuts that could be felt by California’s college and preschool students. He wants to reduce the Middle Class Scholarship program by $510 million and cut $550 million from a program that helps build and upgrade facilities for children in preschool and transitional kindergarten over the next two budget years.
Newsom called a decision to pause $1.4 billion planned to expand child-care availability over two years “difficult,” but a necessary trade off in order to pay child-care workers higher wages.