California Lawmakers Send $202 Billion Covid-Era Budget to Newsom’s Desk

The California Capitol building.

SACRAMENTO, Calif. (CN) — Democratic lawmakers on Friday sent California Governor Gavin Newsom a budget that replaces education and social services funding depleted by the pandemic by pulling billions from the state’s once-healthy reserves, slashing state workers’ pay and halting business tax breaks.

Approved on party-line votes in both the Democratic-controlled state Senate and Assembly, the proposal now goes to Newsom. The governor has until July 1 to sign or make changes to the $202 billion blueprint intended to patch the state’s record deficit. 

Assembly Democrats who voted for the budget and the related trailer bills cast the package as a reasoned, compassionate approach and a win for schoolchildren and the state’s vulnerable populations. 

“With this budget we could have done something that was better for Wall Street, but in the end we wanted to make sure the money got to Main Street,” said Phil Ting, chair of the Assembly Budget Committee. 

The spending plan amends the placeholder version lawmakers approved to maintain their paychecks and caps a hectic stretch of negotiations between the Legislature and the Democratic governor as how to best fend off an estimated $54 billion shortfall.

Rather than across-the-board cuts Newsom called for in May, Friday’s version fills the mammoth gap by deferring state funding intended for schools to future years and allowing districts to dip into their own reserves or borrow for the 2020-2021 session. While funding for K-12 and community colleges won’t be reduced, public universities and colleges stand to lose nearly $1 billion.

Lawmakers also hope to raise over $4 billion in new taxes by suspending a popular program allowing qualifying businesses to claim net operating losses.  The agreement additionally slashes, $150 million for the judiciary budget and nearly $3 billion in delayed raises or salary reductions for state employees. The closure of two yet to-be-determined prisons are also outlined in the spending plan. 

The budget includes a provision that allows for most the cuts to be restored if additional pandemic relief is approved this summer by the federal government.

The Senate passed the main budget bill late Thursday, 29-10. Senate President Toni Atkins called the plan “pragmatic” and said lawmakers were able to craft it thanks to wise budgeting decisions made during the last several years when the state’s finances were in healthy shape.

“This budget reflects compromise on all sides, but protects critical priorities, such as education and health and human services programs, while maintaining significant reserves,” said Atkins, D-San Diego.

Like most states, California fell off a fiscal cliff due to efforts taken to stem the spread of Covid-19. The rapid job losses and mandated business closures have taken a major toll on the state’s main sources of revenue in corporate, sales and personal income taxes.

“Numbers like this haven’t been felt like this since the Great Depression,” Newsom said in May of spiking unemployment and tax revenue decreases.

To shield what his office believes is a record-high $54 billion hole, Newsom initially proposed cutting billions to social programs and education if federal funding didn’t come by July. The proposal assumed a 22% drop in revenue compared to the rough draft he introduced in January before most Californians had never heard the word “Covid-19.”

But the governor’s proposal drew immediate criticism within his own party as two weeks later the Democratic-controlled state Senate responded with a vastly different spending plan.

Lawmakers’ counteroffer delayed cuts until Oct. 1 and included new spending on a variety of social and anti-homelessness programs. Their bargaining over the last two weeks appears to have paid off, as the bill headed to Newsom’s desk is similar to the placeholder passed on June 15.

The 2020-21 budget includes $300 million for cities to fight homelessness along with $550 million to bolster ongoing efforts to lease hotel rooms for homeless people. Meanwhile the state will reinstate a $330 million homeowner mortgage relief program it nixed during the last recession, after a state appeals court in 2019 found the money was “unlawfully diverted.”

San Jose Mayor Sam Liccardo, chair of the state’s Big City Mayors Coalition, praised Newsom and lawmakers for “approving a budget that demonstrates their commitment to partner with our cities to confront the urgent needs of our unhoused residents.”

Programs benefitting seniors and the state’s disabled residents are spared in the latest deal and will be paid for in part by dipping into the state’s coffers. On Thursday, Newsom declared a budget emergency to clear the way for lawmakers to take $8 billion from the state’s rainy-day reserves.

“We had to bridge two versions,” said Assemblyman Kevin McCarty, D-Sacramento. “The governor’s May revise would have been a disaster for us reopening our state.”

The state’s minority party united against the budget package and claimed they were left out of negotiations. Republicans, who hold less than a third of seats in both the Senate and Assembly, warned the budget was built on flimsy ground and would bite taxpayers down the line.

“This budget is still structurally irresponsible and it’s something that we’re going to have to deal with on Main Street as well as Wall Street in the future,” said Jay Obernolte, Republican and vice chair of the Assembly Budget Committee. “I know that cuts are painful to make, but our failure to make those difficult decisions this year will have dire consequences in future years.” 

Assembly Democrats carried the main budget bill and approved it by a 57-16 margin, without a single Republican yes vote. More than a dozen remaining so-called “trailer bills” were scheduled to be voted on late Friday.

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