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California Legislature approves budget that reduces spending to address $46.8 billion deficit
SACRAMENTO, Calif. (AP) — California lawmakers approved a budget Wednesday that cuts spending and temporarily raises taxes on some businesses to close an estimated $46.8 billion budget deficit.
It’s the second year in a row that the nation’s most populous state has been forced to scale back or delay some of its progressive policies that were fueled by record surpluses during the COVID-19 pandemic.
It was just two years ago that Governor Gavin Newsom and his Democratic colleagues in the state Legislature bragging about surpluses totaling more than $100 billion, the product of hundreds of billions of dollars in federal COVID-19 aid and a progressive tax code that produced a windfall for the state’s wealthiest residents.
Those revenue spikes didn’t last as inflation slowed the state’s economy, contributing to a rising unemployment rate and a slowdown in the tech industry that had driven much of the state’s growth. The Newsom administration then miscalculated how much money the state would have last year after a seven-month delay in the tax filing deadline.
Last year’s deficit was around US$32 billion. This year’s deficit has risen to $46.8 billion — with more deficits projected in the future.
California’s budget has historically been prone to large swings in revenue, given the dependence on its richest taxpayers. But those shortfalls have come at a bad time for Newsom, who has been building his national profile ahead of a possible presidential run one day and has been touted as a top surrogate for President Joe Biden’s reelection campaign.
The budget includes an agreement under which Newsom and lawmakers will try to change the state constitution in the coming years to allow California to put more money into reserve to prepare for future shortfalls.
“California needs tax reform to avoid these wild swings in revenue that make us make really difficult decisions,” said Democratic Rep. David Alvarez.
Newsom’s plan to balance the budget includes a nearly 10% cut to nearly every state department, including eliminating thousands of vacant state employee positions.
Many previous promises have been paused or postponed. Two years ago, lawmakers pledged to help pay for child care expenses for a over 200,000 families until 2026. This budget delays that promise to 2028, with the caveat that this will only happen if money is available to do so.
A promise to raise pay for workers who help people with developmental disabilities find jobs has been delayed by six months — which advocates say will cost them an estimated $500 million in lost revenue.
And a promise made last year to raise the minimum wage for healthcare workers this summer was postponed until January at the latest.
Other major expansions were protected, including making all low-income adults eligible for government-funded health insurance regardless of your immigration status and doing free school lunches for all students.
“In California, you don’t have to be wasteful to be progressive,” Newsom said of the budget during his State of State Address on Tuesday. “We understand how to balance budgets while protecting working families, children and the most vulnerable people in this state.”
Republicans said they were left out of budget negotiations. They criticized the corporate tax hike, which applies to companies with at least $1 million in revenue and will last for three years, bringing more than $5 billion in extra revenue to the state next year. And they criticized Democrats for some cuts to some social safety net programs.
“We are seeing what I can only characterize as cruel cuts to those who are suffering the most. We can do a lot better than that,” said Republican Rep. Jim Patterson.
The budget represents a compromise between Newsom and legislative leaders in which both sides made gains and concessions. The Legislature agreed to Pacific Gas & Electric $400 million loan as part of a plan to extend the life of the state’s only remaining nuclear power plant. And Newsom agreed to abandon some of his most controversial cuts to social services programs, including agreeing to pay for people to care for some immigrants with disabilities who are on Medicaid.
The budget spends $136 billion on public education next year, or about $24,000 per student. Lawmakers agreed to cut spending on public schools by about $8 billion, but took an equal amount from reserves to protect schools from those spending cuts. The complex maneuver ensures that districts will have more money in future years. rejecting one of Newsom’s previous proposals.
“Since the beginning of this year, we have been committed to a budget that protects classroom funding and invests in our greatest resources, our children,” said Democratic Assemblymember Jesse Gabriel.
Newsom is expected to sign the budget into law in the coming days.