SACRAMENTO, Calif. (CN) – Taking a cue from his predecessor Jerry Brown, California Gov. Gavin Newsom said Thursday that despite exploding tax collections and billions in reserves, his administration is preparing for “uncertain economic headwinds” by stashing cash in his proposed budget.
“We’re preparing for a very different climate, and we’ve never been more prepared as a state for entering into that climate,” Newsom said while outlining his revised budget plan.
With his first budget, Newsom seeks to avoid new permanent obligations in favor of one-time funding to hire and train new teachers, increase tax breaks for working families and putting billions toward new housing and homelessness.
The revised budget also calls for record-high education funding and over $15 billion dedicated to paying down debt and stocking the state’s rainy-day fund to its constitutional maximum.
Total spending is up slightly from the preliminary budget unveiled in January, with $147 billion of the $213 billion total going toward the general fund. Both figures would be the largest in state history, and are up from $144 billion and $209 in the January blueprint.
The revision signals the beginning of month-long budget negotiations with the Democratic-controlled Legislature. Lawmakers must approve their plan by majority vote and send it to Newsom by June 15. Newsom then has until June 30 to make final touches to the plan, which takes effect July 1.
As was common during the last few years of Brown’s term, the state collected billions more than expected in corporate and income taxes during the critical accounting month of April. The $3.2 billion spring tax windfall caused Newsom’s finance department to slightly increase its prediction for the state’s surplus.
Newsom’s January proposal was based off an estimated $21 billion surplus, while Thursday’s updated version pegs it at a record $21.5 billion. Most of the additional revenue would be spent on constitutionally required obligations like education and debt payments. The estimated surplus is larger than the general funds of many states.
As Newsom indicated earlier this week, the proposal includes several tax breaks for women and working families. The updated budget calls for eliminating sales tax on diapers and feminine hygiene products for two years, extending paid family leave beginning in 2020 and a “cost of living refund” that will bump a current $200 child tax credit for low-income families to $1,000.
Newsom is touting the tax breaks and subsidized child care items as part of his administration’s “parents agenda.”
“We are building the architecture for a new master plan in California, but it’s a master plan for early learning and for child care,” Newsom said. “It’s long overdue; we have one for higher education, we need one for early education.”
Schools and teachers are big winners in Newsom’s latest plan, with a record $81 billion toward K-12 and community colleges.
The budget includes $692 million for special education – $119 million more than the January proposal – and two years of free community college. If enacted, the budget would provide a $5,000 increase in per-pupil spending from 2012 levels and $89 million in student loan relief for newly credentialed teachers.
Excluding debt payments and reserve contributions, 45% of the proposed budget goes toward education.
After meeting with local officials and the mayors of California’s largest cities over the last several months, Newsom has decided to dip into the reserves and dole out billions for housing and homelessness.
Newsom wants to give $650 million to local governments for homelessness programs and spend $1.75 billion to increase housing production.
Last year California only added 77,000 housing units, a number Newsom called “deplorable.”
“This homeless issue like the housing issue is a crisis, it is a stain on the state of California,” Newsom said.
Newsom’s proposal will certainly be tweaked over the next month, but he is sending it to a friendly Legislature with a Democratic supermajority that is unlikely to pick major fights on his first budget.
Assemblyman Phil Ting, chair of the Assembly Budget Committee, said he was overall pleased with the governor’s latest proposal.
“While there are still some existing differences between our proposals and his, I am confident we will reconcile them and deliver a balanced, on-time budget by June 15,” the San Francisco Democrat said in a statement.
Republicans were also restrained in their criticisms of the proposal. State Sen. Patricia Bates, R-Orange County, said that while she disagrees with Newsom’s support for withholding transportation dollars from cities that don’t meet housing goals, she can get behind some of the budget items.
“The governor’s revised budget does include some priorities that are worthy of support, such as helping low-income families, building the state’s rainy-day fund, and expending voter-approved funds to modernize schools. Making these priorities a reality will help all Californians,” Bates said in a statement.
The proposal continues the trend set by Brown of funneling money to the rainy-day reserves. Newsom wants to take $5.7 billion from the surplus and send it to the fund that voters passed in 2014 to ward against recessions.
Brown commonly warned of upcoming recessions during his final years in office, and Newsom clearly took heed.
Newsom’s May revision plans for slower growth and potential recession by setting sunset dates of 2022 for many spending programs and includes $4.8 billion to pay down unfunded pension liabilities. He says the state is better prepared to handle a moderate recession than ever before.
“We need to have a structurally balanced budget because we are entering the end of the beginning of a new phase of economic reality and the headwinds are real,” Newsom said.
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