SACRAMENTO, Calif. (CN) --- California is so flush with cash thanks to overperforming tax collections and billions in federal Covid-19 aid, state officials are on the verge of doing the unthinkable: returning money to taxpayers and helping pay their bills.
Locked in budget negotiations with lawmakers while simultaneously fighting to keep his job, Governor Gavin Newsom on Monday proposed $600 stimulus checks for most California taxpayers in what he calls the “biggest state tax rebate in American history.” To go along with direct cash payments, Newsom said the state should take advantage of an estimated $75 billion budget surplus by covering billions of unpaid rent and utility bills.
“The middle class has been hurt hard by this pandemic, they’ve been squeezed across the spectrum,” Newsom told reporters. “We recognize the importance of continuing to make sure we’re there for all Californians.”
Coined the “California Comeback Plan,” Newsom intends to fund stimulus checks for two-thirds of taxpayers by prying nearly $12 billion from the state’s coffers. While the state is currently offering one-time $600 payments to nearly 6 million low-income workers under a deal approved last February, Newsom wants lawmakers to expand eligibility to the middle class or those making less than $75,000.
The cash payments are the chief piece of an overarching $100 billion recovery plan the Democratic governor is unveiling in stages this week. He says finding the cash to cover the middle class and low-income relief won’t be hard to do.
During a press conference in Oakland, Newsom dropped a bombshell revelation: his analysts believe the state’s surplus --- pegged around $15 billion last January --- is in fact closer to $76 billion. Furthermore, the state has an additional $26 billion in federal pandemic relief to pass around.
Unlike other states, Newsom claimed California is planning to divvy support to struggling residents and estimated the state stimulus could trickle down to 80% of the state’s taxpayers.
“$12 billion in direct tax rebates, that’s the largest year-over-year tax rebate that’s ever been provided in any state in American history,” he boasted.
Of the estimated $75 billion surplus, Newsom says the state has around $38 billion at its discretion after covering statutory obligations for education.
With a constitutional budget deadline just over a month away, Newsom and the Legislature are going back and forth on how to spend the avalanche of tax revenue pouring in.
Continuing a robust trend, personal income, corporate and sales tax revenues exceeded projections in March by 30%, or $2.5 billion. For the 2020-21 fiscal year, California has collected $16.7 billion more than projected.
The rosy figures have elected officials jockeying for social programs like fighting homelessness and broader health care for undocumented immigrants. But financial analysts warn the state could be constitutionally required to send out taxpayer rebates for the first time since the 1980s.
Under a voter-approved law that caps state government spending, if revenues exceed the limit for two straight years the state must split the excess amount between schools and taxpayers. Experts say while statewide unemployment remains among the highest in the country, income growth among the state’s richest continues to skyrocket and drive income taxes.
Asked whether the $600 checks were the state’s way of complying with the so-called “Gann Limit," Newsom said the relief was unrelated and well above what the rule calls for.
Monday’s stimulus checks and the overarching $100 billion plan figure to be a chief component of the revised budget proposal Newsom is expected to release on Friday.
Regardless of the final product Newsom and lawmakers submit by the June 15 deadline, the 2021-22 budget will be a sharp contrast to the current model crafted last summer during the height of the pandemic.
Instead of an ambitious spending budget full of new spending, Newsom was forced to come to terms with a jarring $54 billion deficit.
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 critics reacted to Monday’s announcement by accusing him of trying to “buy votes” ahead of a statewide recall election that will likely take place this fall.
Republican businessman John Cox, who lost to Newsom in 2018 by a landslide but is running again in the recall, said the governor should be pushing for permanent changes to the tax system and not one-time payments.
“Californians can't be bought. Now is when we should be making big changes that will shake up Sacramento, lower taxes and make California permanently more affordable,” Cox said in a statement.
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