California Lawmakers Unveil Spending Plans for Massive Surplus

In a counter-proposal, the Democratic-controlled Legislature pressed Governor Gavin Newsom to divvy billions more toward fighting climate change and wildfires, as well as new housing for students and subsidized health care for undocumented residents.

The California Capitol building in Sacramento. (Courthouse News photo / William Dotinga)

SACRAMENTO, Calif. (CN) — Plans for California’s skyrocketing tax revenues came into focus Tuesday as Democratic lawmakers unveiled their “historic” vision for the state’s next budget.

Though the total spending mirrors Governor Gavin Newsom’s May budget proposal, the Legislature’s plan includes more money for big-ticket items like climate change, wildfire prevention, affordable housing and expanded health care coverage for undocumented residents.  

Budget talks are officially in the closing stages as the Legislature and Newsom have two weeks to craft a final deal.

Key lawmakers in the state Senate and Assembly said it was easy to find “common ground” in crafting a “once-in-a-generation” budget and added there was plenty of time for further talks with Newsom.

“We are very aligned in the issues we are pursuing,” said Assemblyman Phil Ting, chair of the Assembly Budget Committee. “I anticipate we’re going to be able to figure out many of the details and come to an agreement.”

Both Newsom and the Legislature are proposing a record $267 billion 2020-2021 budget that includes direct stimulus checks for most taxpayers and is loaded with relief for small businesses and schools. But there are notable differences in the flush spending plans, mainly the matter of just how much money there will be to go around in the coming months and years.

According to a fact sheet provided to reporters Tuesday, lawmakers will press Newsom for an extra $2.4 billion to fight climate change as well a $292 million increase for wildfire prevention. They also want to create a $4 billion fund to prop student housing at state universities and appropriate $7 billion to improve broadband internet infrastructure.

While the sides agree California’s coffers are bursting at the seams, lawmakers are more bullish than the governor as to whether the booming tax collections will continue.

The Legislature’s version uses revenue estimates from the state’s Legislative Analyst’s Office that are higher than those from Newsom’s financial advisers. Lawmakers argue the analyst’s projections have been more accurate in recent years than the Department of Finance’s and raised the possibility that actual tax revenue in the coming years might “significantly exceed” the method used for Tuesday’s deal.

Lawmakers’ optimistic outlook is largely the result of the continued torrid pace of statewide tax collections.

For example, last month’s income tax haul was 29% higher than May 2020, while income collections for the current fiscal year are 12% above the same stretch last year. According to the analyst’s office, California’s economy continues to capitalize on its richest workers and stock holders despite sustained high unemployment due to the pandemic.

Like Newsom, lawmakers also want to restore painful cuts handed down to the judicial branch last year.

The Legislature’s version calls for $200 million in general fund spending to re-open courthouses and erase case pandemic-induced backlogs accrued within the state’s 58 trial courts. In addition, the plan calls for a $200 million “Access to Justice” package featuring money for legal aid, collaborative courts, law libraries as well as more court reporters and interpreters.

Meanwhile, education also figures to benefit significantly as lawmakers want to earmark a record $96 billion for the K-12 system. The plan also includes $1.1 billion above the governor’s proposal to boost reimbursement rates for child care and preschool providers, $455 million to improve child care facilities and a $885 million boost for special education.

“We focus on reopening schools in the fall — not only reopening but making sure they have the record level of resources needed to help with learning loss,” added Ting during a call with reporters. 

Both Newsom and the Legislature are proposing billions to create hundreds of thousands of new subsidized child care slots along with plans to adopt universal transitional kindergarten over the next five years.

The parties plan to fund the array of new spending items via an estimated $76 billion windfall that is the result of the state’s volatile tax scheme.

Unemployment may have spiked to record highs, but even the pandemic couldn’t slow down the state’s richest taxpayers. A booming stock market padded the portfolios of California’s countless millionaires and billionaires and ultimately spurred the tax windfall propping the budget proposals.  

Under state law, lawmakers must approve a budget via majority vote by June 15 and Newsom is required to sign a final product by June 30. Governors can issue line-item vetoes but the Legislature can override them through two-thirds vote in each house.   

The state Senate and Assembly will release and discuss their full budget proposal Wednesday during a pair of committee hearings.

Whether the Legislature can secure any of its key demands in the final budget remains to be seen, as over the last few weeks Newsom has been strutting his recovery blueprint during numerous press conferences up and down the Golden State.

Facing a recall later this year, Newsom has called his plan “transformative” and wants to spend $100 billion on his own comeback plan.

Asked whether Democrats are wary of pressing back on the budget considering the pending recall, Senate Budget Committee chair Nancy Skinner acknowledged a “difference in architecture” but like Ting reiterated the bulk of the Legislature’s plan lines up with Newsom’s.

“It’s historic in size and it makes bold transformative investments,” said Skinner, D-Berkeley. “We obviously incorporate much of the good work of the governor’s May revise.”

Among other notable differences in Tuesday’s pitch:

$2 billion to brace small businesses from future payroll tax hikes if the state is unable to pay back billions in federal unemployment loans taken out during the pandemic

$1.3 billion to expand Medi-Cal eligibility to all Californians over the age of 50, regardless of immigration status

$300 million in one-time spending for food banks still struggling to satisfy increased demand amid the pandemic

$211 million in general fund spending on programs to prevent gun violence

$1.75 billion to spur affordable housing

$390 million for libraries and $250 for park improvement projects.

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