Please ensure Javascript is enabled for purposes of website accessibility
Walters: No Federal Bailout for California Budget
dan_walters
By Dan Walters, CalMatters Commentary
Published 4 years ago on
December 22, 2020

Share

California’s fiscal squeeze tightened up Sunday when congressional leaders reached agreement on a $900 billion COVID-19 relief package that did not include direct aid to state and local governments.

It means that Gov. Gavin Newsom faces fewer choices in fashioning a 2021-22 fiscal year budget that he must propose to legislators by Jan. 10 and that California cities struggling with budget deficits won’t be getting help from Washington.

Dan Walters

Opinion

For the last six months, ever since the state passed its current budget, Newsom and legislative leaders have been crossing their fingers that a second relief package from Washington would offset the contingent spending cuts and off-budget borrowing they used to make it balance on paper.

The hoped-for but elusive number was $14 billion. However, Newsom, et al, have since gotten some good news from California taxpayers. Administration forecasts that revenues would plummet into the abyss as pandemic-spawned recession struck the state proved to be too pessimistic.

All-important income taxes have held up unexpectedly well because affluent Californians, who provide the bulk of income taxes, have largely maintained their income streams by shifting to home work while their stock market holdings have soared in value.

Steadier-than-expected income taxes, coupled with the spending cuts made in June, are producing a one-time $26 billion windfall for the state, according to Gabe Petek, the Legislature’s budget analyst. However, with economic recovery slowing due to new pandemic shutdowns, administration officials see a somewhat lower windfall.

Whatever its size, the windfall potentially offsets the lack of a new federal bailout, but also creates its own dilemma.

Should the extra money be socked away to guard against projected deficits in the future or be spent on education, health care and safety net services that were cut in vain hopes of more federal aid?

Advocates for those services, including legislative leaders, tend toward a spend-it-now approach, but were they to prevail and the projected deficits became reality, the political onus would fall on Newsom.

Newsom Is Caught in the Middle of the Great Tax Debate

An unspoken, but very real, aspect to the situation is that many liberal groups and allied Democratic legislators want the state to raise taxes on corporations and/or the wealthiest Californians not only to fill current holes but to permanently increase spending on education, health care, homelessness and social services.

Tax increase advocates contend that the pandemic has widened California’s already immense gaps of wealth and income that should be narrowed by spending more on programs to assist those on the lower rungs of the economic ladder.

Newsom is caught in the middle of the great tax debate. He supported Proposition 15, the unsuccessful effort to raise taxes on commercial property, but in doing so, threw cold water on calls for new taxes on income or wealth.

Newsom clearly fears that the threat of such levies would drive the wealthy, who supply most of the state’s revenues, to flee the state. That fear was underscored this month when Elon Musk, the billionaire founder of Tesla, declared that he was personally moving to Texas, which has no income tax, and increasing Tesla’s presence in that state.

Newsom’s 2021-22 budget will probably take a middle-of-the-road course — spending some but not all of the windfall, setting aside demands for new taxes and once again hoping that when Joe Biden becomes president, an aid package for state and local governments will be fashioned.

“Those fiscal pressures are still going to be there next month, when a new Congress and a new administration take office,” H.D. Palmer, the spokesman for Newsom’s budget office, said after the aid package was announced on Sunday.

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.

[activecampaign form=19]

RELATED TOPICS:

DON'T MISS

What Are Fresno Real Estate Experts Predicting for 2025 and Beyond?

UP NEXT

Millions of Americans Like Trump Better in Theory Than in Practice

Inside Trump’s Extraordinary Turnaround on Immigration Raids

2 hours ago

Trump Approval Steady at 42%, Support Weakens for His Immigration Policy, Reuters/Ipsos Poll Finds

2 hours ago

Madera County Wildfire Prompts Evacuation Warnings, Road Closures

A wildfire burning near Raymond Road and Avenue 16 in Madera County has prompted evacuation warnings and road closures, authorities said Mon...

20 minutes ago

A wildfire near Raymond Road and Avenue 16 in Madera County has prompted evacuation warnings and road closures as officials urge residents to prepare to leave if threatened on Monday, June 16, 2025. (Madera County SO)
20 minutes ago

Madera County Wildfire Prompts Evacuation Warnings, Road Closures

Sanger police are searching for Kaylani Thompson, 17, who went missing Saturday, June 14, 2025, after leaving her home and was last seen getting into a white sedan. (Sanger PD)
33 minutes ago

Sanger Police Seek Public’s Help to Find Missing Teen

A view of the cityscape in the aftermath of Israeli strikes, in Tehran, Iran, June 16, 2025. Majid Asgaripour/WANA (West Asia News Agency) via REUTERS
46 minutes ago

Trump Says Everyone Should Immediately Evacuate Tehran

2 hours ago

Inside Trump’s Extraordinary Turnaround on Immigration Raids

President Donald Trump speaks at the White House in Washington, D.C., U.S., June 12, 2025. (Reuters File)
2 hours ago

Trump Approval Steady at 42%, Support Weakens for His Immigration Policy, Reuters/Ipsos Poll Finds

A person was rescued from a Fresno canal Monday, June 16, 2025, near Dakota and Ninth Street, marking the third such incident in recent days, officials said. (Fresno FD)
2 hours ago

Person Rescued from Fresno Canal, Third Incident in Recent Days

2 hours ago

Arias Dodges Questions About His False Fresno ICE Raid Claim

4 hours ago

Iranian State TV Halts Live Broadcast After Israeli Strike

Help continue the work that gets you the news that matters most.

Search

Send this to a friend