Facing California’s Big Deficit, Newsom Proposes Billions in Cuts in Revised Budget

Facing California’s Big Deficit, Newsom Proposes Billions in Cuts in Revised Budget

California Gov. Gavin Newsom announces billions of dollars in spending cuts during his May budget revision press conference at the Capitol in Sacramento on May 10, 2024. (Travis Gillmore/The Epoch Times)

Travis Gillmore

Travis Gillmore

5/10/2024

Updated: 5/12/2024

California Gov. Gavin Newsom presented a revised budget for the upcoming 2024-25 fiscal year May 10 including about $32.8 billion in spending cuts spread across the next two years after state revenues failed to meet expectations.
The governor suggested the deficit is $27.6 billion, though that figure was calculated by subtracting $17.3 billion in solutions included in a “budget bill junior” signed into law in April.
The new budget—known as the May Revision—includes about $15.3 billion in other changes, including funding for schools.
The California state legislative offices in Sacramento, Calif., on Aug. 29, 2023. (John Fredricks/The Epoch Times)

The California state legislative offices in Sacramento, Calif., on Aug. 29, 2023. (John Fredricks/The Epoch Times)

Uncertainty about how large the deficit is has persisted since January, when the governor indicated it was $38 billion, while the nonpartisan Legislative Analyst’s Office estimated a $73 billion shortfall in February.
A difference of about $13 billion in revenue forecasts between the state’s Department of Finance and the analyst’s office accounts for part of the discrepancy, the governor said.
“They will have, and they continue to have, their point of view,” Mr. Newsom said in response to a question from The Epoch Times referring to the analyst’s office.
The Legislature will stand by the budget projections provided by the governor today, according to a recently released summary from the Assembly.
“These ‘headline deficit’ figures are a reference point only,” Democratic members from the state Assembly wrote May 10. “They do not affect the actual budget balancing process in and of themselves.”
To balance the budget, cuts of $19.1 billion in one-time spending are proposed, in addition to $13.7 billion in ongoing spending through the 2025-26 fiscal year.
Such represents an 8 percent cut to state operations and eliminates about 10,000 unfilled positions.
No new taxes are proposed, and no state worker furloughs are included in the governor’s plan, though it calls for a reduction in “all categories” of state government, including contracting, operating costs, and personnel. Such actions will be defined this fall, according to the revision document.
Reductions will affect 260 programs statewide, with some eliminations and significant pullbacks across all aspects of government.
Cuts to education spending amount to more than $2 billion, including reductions of middle class scholarships, so-called learning-aligned employment—in which the state partners with employers to offer college students an opportunity to defray tuition costs by earning money—school facilities repairs and upgrades, and preschool and kindergarten grant programs, among others.
Health and human services programs would be cut by billions of dollars over the next three fiscal years, with funding pulled from the state’s healthcare workforce, children and youth behavioral health, public health, and other programs.
Such also includes $6.7 billion in reductions in planned Medi-Cal provider rate increases.
Additionally, 46 housing units across 13 prisons will be deactivated, saving about $80.6 million annually.
Some programs will be eliminated, including, among others, the foreclosure intervention housing preservation and adaptive reuse programs, again saving $236.5 million and $127.5 million respectively. The former sought to provide grants to eligible borrowers to acquire properties in danger of foreclosure and the latter was used to repurpose empty and obsolete buildings into housing units.
The governor expressed concern about cuts to programs championed by his administration, including those regarding climate, housing, and education.
“Is this what I want to do? No,” Mr. Newsom said during the press conference. “It’s math, it’s being mature.”
The governor also proposes tapping $13.1 billion in state reserves over the next two fiscal years.
Critics took exception to the timing of the presentation in relation to the governor’s planned trip to the Vatican May 15 through May 17 for a climate summit considering the state’s financial situation.
Some, who continue to rely on the analysts’ office regarding the amount of the deficit, also suggested spending needs to be reined in to create a sustainable future.
“Awfully convenient timing for the governor to dump his bad news about California’s $73 billion budget deficit on a Friday afternoon, only to swiftly jet out of the country next week and avoid accountability for his years of reckless spending,” Senate Minority Leader Brian W. Jones said in a Republican Caucus press release after the governor’s release of the revision. “Now is not the time for a luxurious European vacation. We need the governor and the legislature to enact quickly a spending plan that addresses Democrats’ years of overspending.”
A fellow colleague agreed and said that while the plan included some much-needed cuts, the state needs to further rein in spending and rely less on accounting tricks to balance the budget.
“The use of gimmicks continues,” Sen. Roger Niello told The Epoch Times. “The budget maker has to make the painful and difficult decisions, and the larger the deficit, the more painful and difficult the decisions that you have to make.”
He said the proposal is all too similar to past decisions made by the governor.
“It’s more of the same,” Mr. Niello said. “I could quote Yogi Berra and say, ‘It’s deja vu all over again.’”
California State Sen. Roger Niello, vice chair of the Senate Budget and Fiscal Review Committee, asks questions during a meeting in Sacramento, Calif., on Jan. 23, 2024. (Travis Gillmore/The Epoch Times)

California State Sen. Roger Niello, vice chair of the Senate Budget and Fiscal Review Committee, asks questions during a meeting in Sacramento, Calif., on Jan. 23, 2024. (Travis Gillmore/The Epoch Times)

Regarding the cause of the deficit following a record $100 billion surplus two years ago, the governor pointed to about 93 percent of the money going toward one-time spending outlays and said the state’s subsequent drop in revenues sharply affected its finances.
Carryover of losses in 2023 from the stock market downturn in 2022 was blamed for the approximately 22 percent drop in key tax receipts, including personal income and corporate taxes.
While he said he anticipated those losses, the state did not envision bad weather that delayed the receipt of revenue from taxpayers.
“You had massive volatility,” Mr. Newsom told The Epoch Times. “We anticipated that shortfall, but what we didn’t anticipate was these rain bombs in January, February, and March; these atmospheric rivers that led to a federal declaration ... where we couldn’t get our taxes on time.”
The Internal Revenue Service’s decision to extend tax deadlines in 2023 from April until November—following winter storms which impacted the state—further contributed to the problem because the deficit was not identified in time to be addressed in the 2023-24 fiscal year budget, he said.
“This blackout period beguiled everybody,” Mr. Newsom said.
The Legislature will now consider the plan, with a deadline of June 15 to approve a balanced budget, and the governor must sign it by July 1 when the next fiscal year begins.
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Travis Gillmore

Travis Gillmore

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Travis Gillmore is an avid reader and journalism connoisseur based in California covering finance, politics, the State Capitol, and breaking news for The Epoch Times.

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