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Historic California budget moves toward finish line, features many one-time investments

In May, Governor Gavin Newsom released a revised budget of nearly $300 billion, the largest budget in the history of California and the largest surplus the legislative and state has ever had to work with, at $97.5 billion.

SACRAMENTO, Calif. (CN) — With only a couple of days to go before a budget must be passed, members of the California State Assembly Budget Committee met on Monday to ask questions about the budget to the legislative staff, members of the California Department of Finance and the Legislative Analyst’s Office in an effort to pass the budget before the statutory deadline by midnight on Wednesday.

In May, Governor Gavin Newsom released a revised budget of nearly $300 billion, the largest budget in the history of California and the largest surplus the legislative and state has ever had to work with, at $97.5 billion. A portion of the surplus is already allocated to K-12 education under rules established through Proposition 98, which was passed by California voters in 1988; making the discretionary surplus closer to $49.2 billion.

Under the proposed budget from the California Legislature, the difference between the two sides is not that far apart with many members of the committee concerned about making too many one-time investments and not focusing enough on ongoing projects.

Kevin McCarty, a Democrat from Sacramento, said he wanted to make sure that the budget this year is focused less on making one-time investments in staff and more focused on providing a steady source of funding for school districts to hire teachers, staff and support professionals.

“Our districts already have a record surplus, so much so that some districts are having to spend some of that surplus. The state already has record surplus. Some districts are not able to use the one-time money and instead want consistent ongoing revenue, which makes it easier to hire staff if they know the money will be there,” said McCarty.

Vince Fong, a Republican from Bakersfield, and vice-chair of the committee, raised a number of concerns about the budget from Newsom and the differences with the budget drafted by the California Legislature namely over two topics — unemployment insurance relief and relief for Californians at the gas pumps.

Fong noted that the plan submitted by Newsom would pay down some of the liability California owes to the federal government for unemployment insurance. California took out a loan with the federal government at the beginning of Covid to help meet the costs of rising unemployment. Under the proposal from Newsom, the state would pay $3 billion of that liability back over the next two years, while the proposal from the Legislature would instead provide relief to businesses for the first 250 employees in California on their unemployment insurance costs.

The Legislative Analyst Office noted that paying down the debt, while making sure it is paid off earlier than scheduled, would not have the immediate impact of lowering the costs for businesses in California; while the proposal from the Legislature would provide immediate relief but not pay down the liability quicker.

With gas prices increasing, there is disagreement in the proposed budget over how to deliver relief to Californians at the pump and the most efficient way to go about doing that.

Under the proposal from Newsom, the Department of Motor Vehicles would partner with a third-party vendor, which would then mail a debit card to everyone who has a vehicle registered with the DMV.

“Issuing debit cards to Californians is not a fair and equitable way to distribute relief to Californians who are suffering from high gas prices and rising inflation,” said Alex Lee, a Democrat from Fremont.

Lee said the proposal from the Legislature, which would be a combination of cutting the gas tax and tax credits when individuals file for taxes, would be a more fair and equitable way to provide relief to all Californians and not just focus on those who drive vehicles. Fong questioned which would be faster to deliver relief to Californians — a debit card through a vendor or cutting gas taxes now. The Legislative Analyst Office said either way would take some time to get up and running and there is the question of how quickly California can find a vendor to issue the debit cards.

Fong expressed disbelief that the Newsom is not anticipating spending money on the proposed Sites Reservoir until 2025. Approximately $500 million has been allocated in the budget for that project but California does not anticipate spending that money over the next couple of years.

“You are telling me that in a drought year that we are not going to be spending this $500 million, specifically on the Sites Reservoir until 2025?” asked Fong.

The Department of Finance noted that work has taken place behind the scenes related to administrative work and permitting process to help speed along the project, but acknowledged that spending on the reservoir would not take place until the 2025 budget year. There is an additional $5 billion for water projects throughout the state, but details on how that money will be spent will not be known until later.

With such a large general fund budget at nearly $236 billion including over $10 billion for support for families impacted by Covid, $40 billion for infrastructure improvements and over $37 billion in reserves heading into the next fiscal year, which the state is anticipating that economic headwinds could lead to less revenue, both branches of the California government are nearing agreement on the largest budget in the history of California.

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