California’s budget surplus has more than doubled since January to a staggering $68 billion, Senate Democrats said Thursday, prompting a flurry of new spending proposals from lawmakers that include giving $8 billion back to taxpayers in a move that highlights a disagreement with Gov. Gavin Newsom.
While the pandemic had prompted warnings of multibillion-dollar budget deficits in most states, those fears did not happen as tax revenues across the country increased despite coronavirus-related shutdowns on businesses that caused millions to lose their jobs.
This revenue whiplash was most pronounced in California, the nation’s most populous state that is home to Silicon Valley and many billionaires. Newsom warned the state would have a $54 billion deficit in 2020 after he issued the nation’s first statewide stay-at-home order. Instead, revenues rose sharply as wealthy people — who pay much higher taxes in California — got richer throughout the pandemic.
Last year, California’s budget included a $47 billion surplus, which was a record at the time. Thursday’s new estimate — based on preliminary numbers from the nonpartisan Legislative Analyst’s Office — confirms California is on track to blow by that number this year.
The $68 billion surplus in California’s general fund would be more than double the $29 billion figure Newsom announced in January. In addition, California is projected to have a $37 billion surplus that must be spent on education — an increase from the $16.1 billion Newsom announced in January. The Newsom administration will update its budget proposal by May 15.
Thursday, Democrats — who have a majority of seats in the state Legislature — announced how they would spend that money. Their plan confirms most of what Newsom announced in January, with some new proposals.
One of the biggest additions is a plan to send $200 checks to every taxpayer who makes less than $125,000 per year, or $250,000 per year for couples who file joint returns. The plan would also guarantee $200 checks for every dependent, meaning a family of five would get $1,000.
That proposal puts Democrats at odds with Newsom, who wants to send checks as large as $800 to people who own cars in California to help offset record-high gas prices. Newsom says his plan will cost about $9 billion.
Both Newsom and Democratic lawmakers have said they want to get this money to taxpayers as soon as possible. But so far, they haven’t been able to agree on how to do it. In general, Democratic lawmakers say they don’t like Newsom’s plan because the money would only go to people who own cars. Newsom’s plan also includes $750 million to give people free rides on public transit for three months.
“We stand ready to act as soon as the Governor joins us in supporting a plan that provides stronger relief for California families,” the Legislature’s top two leaders, Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon, said in a joint statement earlier this week.
California’s gas tax increases slightly each year because of inflation. The tax is scheduled to increase about 3 cents per gallon on July 1. Newsom had proposed a bill that would halt that increase this year, which must pass before Sunday to have enough time to take effect. But Democratic leaders in the state Legislature never called it for a vote.
Republicans, meanwhile, want to temporarily suspend the state’s gas tax, which at 51.1 cents per gallon is the second-highest in the country. Thursday, a small group of Republican and Democratic lawmakers revealed a plan that would suspend the entire gas tax for a year, while ordering that the savings be passed on to drivers instead of oil companies. But legislative leaders have already said they won’t do that, a sign the proposal likely doesn’t have the support to pass.
Beyond help for individuals, the proposal from Senate Democrats would also give billions of dollars in aid to small businesses. Businesses pay a tax that pays for people’s unemployment benefits when they lose their job. But so many people lost their jobs during the pandemic that the fund ran out of money. California had to borrow money from the federal government, which businesses must pay back.
Senate Democrats want to give rebates to businesses with 250 employees or fewer, which would offset some of those taxes. In addition, Democrats want to give about $500 million in grants to businesses with 150 employees or fewer to help pay for a new law that requires them to give workers up to two weeks of paid sick leave because of the coronavirus.
The plan wouldn’t just spend money. It would also put more money into the state’s savings accounts, bringing the state’s reserves to a total of $43.1 billion — the most ever.
Atkins, the Senate president pro tempore, said the plan is “doubling down on our priorities” by “reinvesting California’s wealth in those who need it most, especially struggling families and small businesses.”
The plan would spend another $3 billion to fight homelessness, or $1 billion more than Newsom proposed in January. Senate Republicans have asked for a $10 billion “Mental Health Infrastructure Fund” to help pay for care of the state’s homeless population, which includes many people with mental illnesses. But Republicans only control nine of the Senate’s 40 seats, meaning they can’t pass their budget priorities on their own.
“We’ve ignored the mental health and substance abuse treatment needs of far too many Californians for far too long, mostly because we have failed to invest in the facilities and workforce necessary to provide the needed help,” Republican Sen. Patricia Bates said last week.
The proposal from Senate Democrats only represents one side of budget negotiations. Any budget proposal must also be approved by the Democratic-controlled state Assembly and Newsom.