California Lawmakers Demand More Say on Covid Spending

Screenshot of a California budget roundtable featuring lawmakers Phil Ting, D-San Francisco, Jay Obernolte, R-Hesperia, Assembly staffers and California Legislative Analyst Gabe Petek.

(CN) — Gearing up for a marathon budget review before they pass the state budget by June 15, California legislators and the state’s legislative analyst said Monday during a virtual town hall they want more transparency in how Governor Gavin Newsom is allocating state dollars to fight Covid-19.

Legislative Analyst Gabriel Petek said Newsom’s budget last week, which projected a $54 billion shortfall due to the Covid-19 pandemic, included solutions like reducing spending, increasing revenues, and using federal CARES Act funds to help the state cover pandemic-related costs.

But Petek said lawmakers need more details on how Newsom has allocated $8.6 billion in state funds to address the pandemic thus far.

“We think there could be better transparency and disclosure to the Legislature about what the plans for the spending are, the department it is going to and more time for the Legislature to review these proposals,” Petek said.

“While it was appropriate to give a fair amount of latitude to the administration before the Legislature went on a recess in order to practice safe social distancing that was recommended, at this point it seems less clear to us there’s the same argument for that kind of autonomy for the administration, so that will be an important part of the budget negotiations,” he added.

While Petek noted Federal Emergency Management Agency matching funds would offset the majority of state spending on Covid-19, with net costs to the state expected to be around $2.1 billion, he noted state revenues had fallen at the same time there is “upward pressure” on state costs to address the pandemic.

“We think the governor has proposed a generally well-balanced mix of solutions. The combination of solutions are very similar to the approach we suggested, but the weight of the different components of the solution may not align with legislative priorities. Now is the time the Legislature can re-assert some of its priorities in shaping the budget as we go forward,” Petek added.

He said revenue solutions by Newsom primarily accelerate, rather than increase revenues permanently and rely on the “notoriously difficult to predict” corporation tax.  Petek also said corporation tax revenue estimates from Newsom’s office were higher than what the Legislative Analyst’s Office would estimate.

Some budget cuts were “well targeted,” Petek said, but he pointed out blunt cuts, including 10% across the board cuts in some areas, could use a “surgical approach.”

Assemblyman Jay Obernolte, R-Hesperia, vice chair of the Assembly Budget Committee, said it is unlikely California will have more clarity on possible federal contributions by the time legislators have to approve a budget.

“We have to assume the federal government has done what it is going to do,” Obernolte said.

Newsom and other Western governors from Oregon, Washington state, Nevada, and Colorado said last week they need $1 trillion in federal money to weather the economic impact of the coronavirus on the west coast.

Obernolte said he did not agree with Newsom’s proposed borrowing of $10 billion from encumbered funds since the state will have to pay them back with interest.

“I think it’s important we face this head-on and not just kick the can down the road,” Obernolte said.

“We’re going to have to be mindful of what cuts we should and shouldn’t make,” he added, suggesting Newsom’s plan to close a veterans’ home in Barstow to save $400,000 would “make 200 veterans homeless” and was not an appropriate cost-savings measure.

Assemblyman Phil Ting, D-San Francisco, chair of the committee, asked Petek if the state can act to avoid the longer “L-shaped” recession anticipated in Newsom’s budget, and move to a shorter “U-shaped” recession, where meaningful economic recovery would begin over the summer.

“Should we be more concerned about our balance sheet or should we take on more debt to help small businesses and people who were laid off?” Ting asked.

Petek said the ability for California’s economy to bounce back following the pandemic depends on the state’s response to fighting the disease. Petek’s office projected a slightly rosier outlook than Newsom’s office, anticipating the state’s budget deficit could fall between $18 billion and $31 billion.

“Of course, the economy will depend to a very significant degree on the course of the virus itself, people’s response to the virus and whether they feel comfortable resuming their prior level of economic activity,” Petek said.

Ting pointed to the significant cuts Newsom proposed making to K-12 education in suggesting “we need to figure out a balance” to avoid laying off teachers, nurses or social workers.

“We have to be fiscally prudent, but I’m concerned about making sure we aren’t cutting too much,” Ting said.       

Obernolte said legislators will likely decide budget priorities on the floor since the pandemic forced them to recess.

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