Gov. Gavin Newsom and legislative leaders announced this week that they have a deal on a new state budget to take effect on July 1.
Facing the COVID-19 pandemic and the resulting economic plunge, they said, “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.”
It’s not only the fourth 2020-21 budget that Newsom, et al, have drafted so far, but it’s dead certain not to be the last because it’s far from balanced.
Newsom began the year by proposing an expansive budget, spending billions of extra dollars that a vibrant economy was generating and boasting, “California is showing the nation and the world what big-hearted, effective governance looks like.”
Just a few weeks later, the pandemic struck and Newsom ordered a semi-shutdown of the economy to curb the spread of the coronavirus. He threw out his January budget and ever since he and legislators have jousted over how to handle a deficit projected at $54 billion over several years.
In May, Newsom proposed a much-revised budget that slashed social safety net and education spending, temporarily raised some business taxes and tapped into the state’s rainy day reserve while pleading with President Donald Trump and Congress for a multi-billion-dollar bailout.
Newsom Gave Much More Ground Than Legislative Leaders
Newsom said that many cuts would be automatically rescinded if the feds provided the $14 billion he wanted, but that grated on legislators and their constituent groups. The Legislature passed a budget that maintained the status quo on spending, assumed the federal aid would be forthcoming and promised, more or less, to make cuts in the fall if needed.
In this week’s budget deal, Newsom gave much more ground than legislative leaders. The year’s fourth budget restores much of the safety net spending that Newsom wanted to cut, taps more deeply into reserves, assumes — as if by magic — an additional billion dollars in revenue, and lubricates everything with $12-plus billion in school aid deferrals.
Deferrals are a way of borrowing money to cover deficits. Schools are authorized to spend as if the state money is forthcoming, but must use their own reserves, or loans, for cash flow, with promises that the state will make up the shortfalls in the future.
There is, however, a big catch to the new budget’s promise that schools will eventually be made whole — a provision, demanded by school unions, that bars any education layoffs.
The new budget also contains assumptions, or hopes, that more federal aid will be appropriated, but leaves uncertainty on what would happen if there’s no bailout.
A Big Tax Increase Could Make It Onto the Capitol’s Agenda
Having promised that the health, welfare and education programs would continue with minimal, if any, reductions, it would be extremely difficult, politically, for Newsom and legislators to make spending cuts midway through the fiscal year.
It’s no secret that many Democratic legislators want a multi-billion-dollar tax increase of some kind to not only fill the budget’s hole but continue the expansions that Newsom first proposed in January, such as additional health care coverage for undocumented immigrants and child care.
Commit to Equity, a newly formed coalition of unions and other pro-spending groups, is beating the drums for more taxes, saying, “Californians are struggling under the pressures of COVID-19, recession, racism, and inequality. Yet, this budget agreement asks nothing of privileged billionaires or corporations that pay less in taxes than a generation ago.”
If more federal aid isn’t forthcoming and the day of reckoning draws near, a big tax increase could make it onto the Capitol’s agenda.
CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.