Covid Response the Top Priority in Massive $227 Billion California Budget

The enormous spending plan includes multibillion-dollar life lines for businesses and residents whose finances have been shattered by the coronavirus pandemic.

California Gov. Gavin Newsom. (AP Photo/Rich Pedroncelli, File)

SACRAMENTO, Calif. (CN) — Taking advantage of an unexpected windfall spurred by overperforming tax receipts at the tail end of 2020, California Governor Gavin Newsom released a budget proposal Friday chalked with billions for the state’s Covid-19 response and school reopenings.

The $227 billion plan includes $164.5 billion in general fund spending, up from $202 billion and $134 billion, respectively, in the current budget. Newsom’s third budget proposal dedicates $14 billion to fight the pandemic and resurrect shattered businesses and low-income workers, as well as record K-12 education spending.

From a nearly empty auditorium in downtown Sacramento, Newsom told a select group of reporters the state’s finances may have done a 180 over the last year, but its progressive values haven’t.

“My, has so much changed,” Newsom said. “The numbers changed dramatically, a $60 billion swing, but our values did not change.”

On the strength of a booming economy that produced over 115 straight months of jobs expansion, a jubilant Newsom spent hours last January regaling reporters with items from an ambitious $222 billion budget. The budget, which would have been the largest in state history, was dotted with progressive items including billions to expand health care to homeless and undocumented Californians, as well as a proposal to ask voters to take out a $4 billion bond to fight climate change.

The plans were short-lived however, as the coronavirus soon invaded the West Coast and caused the wholescale shutdown of the state economy. In a matter of months Newsom and his advisers went from plotting ways to spend a $5.6 billion surplus to bracing for an estimated $41 billion drop in revenue.

“Numbers like this haven’t been felt like this since the Great Depression,” Newsom said this past May, amid an estimated 18% statewide unemployment rate.

Forced back to the drawing board, Newsom and Democratic lawmakers eventually compromised on a $202 billion spending bill that relied on deferring payments meant for schools and pulling from the state’s rainy day fund to patch the dried-up tax revenues.  They cast the plan, which included major cuts to social programs, the judiciary and state worker salaries, as “pragmatic” and a boost for Main Street. 

Meanwhile state Republicans, who held 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.

The watered-down, pandemic-altered budget stood as a stark reminder of just how volatile California’s finances and budget negotiations can be.

But as the pandemic stretched into the fall, it became apparent Newsom’s advisers and the Legislature overshot the scope of the deficit.

Once the initial statewide lockdown was eased businesses quickly reopened, workers returned as did customers’ spending habits. By November, tax receipts had outpaced the budget’s projections by over $11 billion, spurring experts to predict the state would have a massive one-time $26 billion haul for the 2021-22 budget.

Newsom relayed his vision for the windfall on Friday, calling for billions to reopen schools, prop up small businesses and fight climate change.  

The plan includes $2 billion in incentives meant to spur schools to resume in-person classes over the next few months, with a specific focus on elementary schools and districts serving underprivileged students. 

The Democratic governor also wants lawmakers to approve a $4.5 billion economic recovery plan that includes $1.5 billion for clean energy transportation, $575 million for small businesses and nearly $800 million toward job creation. He’s also requesting $300 million to boost the state’s Covid-19 vaccination effort along with a $4.1 billion environmental spending plan.   

Of the $4.4 billion earmarked for immediate Covid-19 relief, $2 billion would be spent on testing, $473 million for contact testing and $372 million for vaccines. Newsom said the key to California’s recovery is figuring out a way to speed up the statewide vaccination effort that has stalled in the early stages.

“Our focus on a budget is the reality of getting out of the freezers and administering into peoples’ arms these vaccines. We must do that in order to safely reopen for in-person instruction, as well as businesses large and small all across the state of California,” Newsom said.

To cover the rash of new spending, Newsom wants to pull a total of $34 billion from the discretionary windfall and state reserves. While the plan assumes a $15 billion surplus in the coming fiscal year, Newsom projects expenditures to quickly outpace tax revenue and that the state could plunge into a $11 billion hole by 2024-25.

Sounding like his predecessor Jerry Brown, Newsom warned lawmakers to be prudent during negotiations as the state’s financial future is tough to project and murky at best. He reiterated it was a particularly bad idea to jumpstart new permanent spending programs — like subsidized health care for older undocumented residents — during a recession and global pandemic.

“It’s very, very, very tenuous on the basis of all the macroeconomic headwinds, on the basis of this recent surge of Covid-19 and the reality of uncertainty that mark this moment not just in American history, but world history,” he continued during an over 2-hour press conference.

Public education bore the brunt of last year’s cuts, but the latest version restores nearly two-thirds of the deferrals taken to balance the budget. At $90 billion, Newsom claims K-14 education spending will reach a new record high and greatly exceed the minimum amount required by state law. 

The funding boost proposes $400 million toward student mental health programs, $250 million to boost transitional kindergarten options and $545 million for special education for infants, toddler and preschoolers.

In wake of a devastating season that featured several of the largest wildfires in state history and a record 4.3 million acres burned, the governor is proposing another batch of expensive firefighting equipment. The budget includes $2.9 billion for Cal Fire along with $143 million to hire new fire crews, air tankers, helicopters and radar equipment.

While Newsom wants several items relating to pandemic relief approved in the next several weeks, including $600 stimulus checks for tax filers making under $30,000, Friday’s blueprint is just the opening salvo in budget negotiations with the Democratic-controlled Legislature.

The main budget bill will next be introduced in the Assembly and state Senate along with a variety of trailer or implementation bills. The nonpartisan Legislative Analyst’s Office will then issue a series of reports to guide lawmakers’ budget committee hearings, and the governor traditionally comes back with a revised proposal in May.

Lawmakers have until June 15 to pass a budget by majority vote and send it to Newsom, who holds line-item veto power but can’t increase appropriations above what is approved by the Legislature. In 2011, during the fallout from the Great Recession, then-Governor Brown famously vetoed an entire budget proposal hours after lawmakers gave it the green light. 

After an often-delayed and truncated 2020 session, the Legislature is scheduled to reconvene in Sacramento and begin taking up the budget next week.

State Democrats cast Newsom’s plan as a “thoughtful foundation” to launch budget talks. 

“Despite the tough year we just had, responsible budgeting has left us in a good position to invest in what’s most important to Californians,” said state Senator Bill Dodd, D-Napa. “Right now, that means supporting a robust public health system faced with an unprecedented challenge and help for small businesses struggling to hang on.”

Republicans, who have largely been shut out of the state’s budgeting process following voters’ approval of a 2010 initiative that changed the legislative requirement for approving budgets from a two-thirds vote to a simple majority, were predictably less enthusiastic.

Assembly Budget Committee vice chair Vince Fong, R-Bakersfield, said the budget will fail families and do little to stem many of the state’s most embarrassing problems, such as homelessness, power shutoffs and its troubled unemployment department.   

“California is facing crisis after crisis. We are in a results-oriented business and under that criteria, the governor is failing — that reality does not change no matter how many new programs and taskforces are created in his budget,” Fong said. “Adding more bureaucracy only fuels the frustrations and anxieties of everyday Californians.

Other notable line items include:

$500 million to spur housing development on brownfield land or formerly contaminated sites and $300 million for toxic site cleanups,

$183 million for flood management and levee repairs and $100 million to revive overdrafted groundwater basins in the Central Valley,

$170 million for the Air Resources Board to help farmers replace old equipment with newer, lower-emission options,

$13 billion toward the Department of Corrections and Rehabilitation, which is expected to close a prison by September,

$1.2 billion to support minimum wage increases, and

$750 million to facilitate the purchase and transition of unused motels and other vacant buildings into housing for the homeless.

“We are in a much better fiscal footing than anyone could have imagined even a few months ago,” Newsom concluded.

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