California Governor Newsom unveils budget deficit plan – NBC Los Angeles

California faces a projected $22.5 billion budget shortfall for the coming fiscal year, Gov. Gavin Newsom announced Tuesday, just days into his second term. That’s a sharp turnaround from last year’s $98 billion surplus.

The deficit, while unsurprising, could signal the end of a decade of economic growth in the country’s most populous state.

Newsom, a Democrat, proposes to fill the hole by delaying spending in some areas and changing how others are funded. Its budget appears to avoid major cuts to all major programs.

Among his maneuvers to deal with the deficit: he will shift $4.3 billion in spending on zero-emission vehicles from the general fund funded by state taxpayers to a special fund paid by polluters. It also delays $3.1 billion in climate and transport funding by one year.

The state still has about $35.6 billion in reserves.

Newsom stressed that the state will continue its significant spending on public and higher education, climate change, health care, and drought and wildfire response.

“We deliver on our promises,” Newsom said.

Newsom’s presentation offers a first look at his spending and political priorities as he launches his second term, but it’s not the final word on how the state will distribute the money. He will reassess state finances in May after tax revenues come in, and he will sign off on a final budget in June.

Newsom has been warning of a potential budget shortfall for more than a year, and the Office of the Legislative Analyst said last November the shortfall could be around $25 billion.

In September, Newsom publicly chastised lawmakers for sending him dozens of bills that, when added together, would have enabled billions in new spending. Newsom vetoed those bills, saying it “made it clear that we are seeing economic headwinds.”

Facing a deficit will be a change of pace for the state, where spending has more than doubled in the 10 years since the last recession. Authorities have launched a dizzying array of new programs and services, including pledging to pay for all 4-year-olds to attend kindergarten and agreeing to cover the health expenses of all low-income immigrants who live in the country without legal permission.

The money is mostly coming from a booming stock market that has kicked off a parade of California-based tech companies. These companies – including Uber, Airbnb, Lyft and Pinterest – have made many people very rich, creating a new class of millionaires and billionaires in a state with a progressive tax code where nearly half of all income taxes come from the top 1% of employees.

Since then, numerous economic factors – led by runaway inflation, supply chain disruptions and Russia’s invasion of Ukraine – have had a crippling effect on the economy. The S&P 500, a key indicator of the health of US stock markets, has fallen more than 18% since its peak in late 2021.

The rich don’t make as much money, so they pay less tax in the state of California. So far this year, California’s tax revenue has been $4.6 billion below expectations, not including some one-time corporate tax payments that state officials say they can’t count on. .

Money from capital gains taxes is expected to make up about 5.5% of state revenue, up from 9.75% last year, Newsom said.

Still, California appears to be well positioned to weather an economic downturn. Of the $131 billion in general fund surpluses the state has had over the past four years, the bulk – about $80 billion – has paid for things that don’t require ongoing funding, like building projects. According to the Office of the Legislative Analyst, only $10 billion of overspending paid for outstanding commitments.

Additionally, the state has $37.2 billion stored in its various savings accounts, which alone would be more than enough to cover a $25 billion deficit. Constitutional limits prevent lawmakers from draining reserves to cover a deficit. And unlike the federal government, California’s budget must be balanced. Newsom and lawmakers will have to tighten state spending to cover all the shortfall — something Senate Budget Committee Chair Nancy Skinner said is doable.

“We’ve funded things at record highs, and a lot of the programs we’ve funded haven’t even started yet, so we still have room to make some adjustments if needed,” she said, adding : “I am very optimistic because we are in good shape.

Assemblyman Phil Ting, a Democrat from San Francisco and chairman of the Assembly Budget Committee, said he thought the deficit could be easily managed by state officials, saying it thought the state was on the verge of a “softer landing” than it did at the start of the last recession in the late 2000s.

“What we’re expecting (Tuesday) is a vision of how we protect all the amazing things we’ve funded,” Ting said. “Things are definitely slowing down.”

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