Newsom, California Lawmakers Reach Deal on Covid-Ravaged Budget

California Gov. Gavin Newsom takes off his face mask before news conference after meeting leaders of the African-American community in Sacramento, Calif., on June 1. (AP Photo/Rich Pedroncelli, Pool, File)

SACRAMENTO, Calif. (CN) — Capping a hectic stretch of budget negotiations shortened and complicated by the coronavirus pandemic, California Governor Gavin Newsom announced a deal with lawmakers Monday to patch the state’s shattered finances.

“The Covid-19 global pandemic has caused a sudden and dramatic change in our nation’s and state’s economic outlook — and has had a cascading effect on our state budget,” Newsom said in a joint statement with the leaders of the state Senate and Assembly. “In the face of these challenges, we have agreed on a budget that is balanced, responsible and protects core services — education, health care, social safety net and emergency preparedness and response. This budget also invests in California small businesses harmed by the pandemic.”

The announcement comes one week after the Legislature sent the Democratic governor a placeholder budget in order to meet a constitutional deadline. Lawmakers defended their version as more compassionate and flexible than Newsom’s.

Newsom proposed a revised budget in May that called for 10% pay cuts for state workers along with across-the-board cuts in areas like education and social programs.

The lawmakers’ version varied widely from Newsom’s proposal as they hoped to fill a predicted $54 billion deficit with less severe cuts and heavier reliance on payment deferrals and state reserves.

During an hour-long press conference Monday, Newsom spent much of the time talking about the state’s spiking Covid-19 cases and offered few details on the budget agreement. What little information the governor did part with focused on how the state would mitigate education cuts by deferring state payments and working to steer more federal relief toward schools. 

Newsom noted the budget deal does not include many of the “historic investments” included in his January blueprint but said nonetheless he’s figured out a way to make sure teachers remain employed in the coming school year.

“We have provisions against teacher layoffs; that is good news, that was a foundational importance we all care deeply about,” Newsom said. 

Four hours after the deal was announced, Republican Assemblyman James Gallagher said like reporters, he’s also seeking more information.

“To the reporters wondering what’s in the budget…don’t worry, you’re not alone. Republicans in the Legislature have no idea either. Excited to read your news reports (at some point) to find out,” Gallagher tweeted. “Can’t wait to vote on it so we can see what’s in it.”

A legislative source told Courthouse News the deal is likely to include $150 million in cuts to the judiciary that would be restored if more federal pandemic funds are approved. The source, speaking on condition of anonymity, also said the proposal to expand subsidized health care to undocumented residents over the age of 65 is being halted but will be a priority during next year’s budget negotiations.

A budget outline provided by another legislative staffer states lawmakers have secured $300 million in additional homelessness funding and negotiated to spare cuts to various social programs, such as developmental disabilities and senior health care services, that were included in Newsom’s May revision. The budget will consist of nearly 20 total bills and will be heard by a budget committee on Wednesday.

Monday’s deal is a shell of the ambitious spending plan Newsom introduced on a January morning when most of the world had never heard the word “Covid-19.”

With no reason to assume the state’s $3 trillion economy would be on the brink of collapse, Newsom at the time called for expanding the state’s role in attacking a number of vexing issues, including wildfires, the housing shortage, and the ever-escalating homelessness crisis. He also included money to expand medical coverage to undocumented immigrants, over $500 million to help for a minimum wage increase and asked voters to pass a $4 billion bond to fight climate change.

Five months later, the budget-busting pandemic and an monthslong statewide lockdown have combined to torch Newsom’s vision, halt 118 months of consecutive job growth and jeopardize the record surplus Newsom inherited in 2019.

“To be clear, this budget required some tough decisions and more work remains ahead. But they were necessary steps for keeping California on firm fiscal footing while we continue to meet the Covid-19 challenge, protect vital services and our most vulnerable communities, and build a strong fiscal bridge to a safe, speedy economic resurgence,” said Newsom.

The crafting of recent budgets had been relatively undramatic thanks to voters’ decision to lower the threshold for passing a bill from two thirds to simple majority in 2010, along with the continued dominance over state politics by the Democratic Party. For example, Newsom’s predecessor Governor Jerry Brown negotiated multiple budgets during his last term with Democratic supermajorities in both the Assembly and state Senate — and also managed healthy surpluses.

While Newsom, also a Democrat, has been afforded the same supermajority luxury during his first two years, he’s been dealt a sharp economic downturn and a Legislature determined to protect social programs and education spending.

In January, Newsom’s office was predicting another year of healthy tax returns and his first draft assumed a $5.6 billion surplus. But with the state and country suddenly mired in recession, Newsom issued a revised budget two months ago that included $14 billion in proposed cuts, including a potential for a 19% decrease in K-12 funding.

Newsom acknowledged the cuts would be devastating for schools already struggling to comply with new social distancing requirements, but claimed they could be avoided if Congress and President Donald Trump sent the state more pandemic relief.

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

Lawmakers contended the draconian cuts could be avoided and their plan banked on more federal assistance arriving by October.

They also proposed protecting education funding by deferring payments and instead allow schools to dip into reserves or borrow to backfill the money. In exchange, the state would make up the delayed payments in coming fiscal years, a method deployed during the Great Recession. Lawmakers also pushed back on the sweeping pay cuts for state workers and called for raising taxes on companies that carry out the state’s Medicaid program.

The governor, Senate President Toni Atkins and Assembly Speaker Anthony Rendon didn’t immediately provide any details regarding the deal. Newsom has until the end of the month to make any additional changes and ink the 2020-2021 spending plan.

Newsom dodged various questions from reporters seeking concrete budget information, saying only that more details would be provided in the coming “hours and days.” He concluded by noting the shrouded plan won’t pull the state out of the throes of the recession immediately.

“This is a multiyear framework, we’re not solving for everything in one calendar year,” said the former San Francisco mayor. “We have a lot of work to do over the next few years.”

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