In response to an anticipated $46.8 billion budget shortfall, California lawmakers approved a budget on Wednesday that reduces spending and temporarily raises taxes on certain corporations.
The most populous state in the union has been forced to scale down or postpone some of its progressive measures for the second year in a row, which were bolstered by record-breaking surpluses during the COVID-19 pandemic.
Just two years ago, state legislators led by Democrats, including Governor Gavin Newsom, were touting surpluses exceeding $100 billion. These were the result of a progressive tax code that drew substantial revenue from the state’s wealthiest citizens and hundreds of billions of dollars in federal COVID-19 aid.
After a seven-month extension of the tax filing deadline, the Newsom administration made a grave error in estimating the state’s revenue for the previous year.
There was a $32 billion deficit last year. This year’s deficit increased to $46.8 billion, with additional shortfalls expected in the future.
Due to California’s reliance on its wealthiest taxpayers, the state’s budget has always been subject to significant revenue fluctuations. However, Newsom has been preparing for a potential presidential run in the future and has been selected as one of the leading surrogates for President Joe Biden’s reelection campaign; these shortfalls have come at an inopportune time for him.
The budget includes a commitment from Newsom and legislators to amend the state constitution in the upcoming years to allow California to set aside additional funds for future deficits.
Democratic Assemblymember David Alvarez stated, “California needs fiscal reform to prevent these wild swings in revenue that cause us to make really difficult decisions.”
Newsom’s plan to balance the budget includes nearly 10% cuts to almost all state departments and the elimination of thousands of open public employee positions.
However, significant additions, such as providing free school lunches for all students and granting government-funded health insurance to all low-income individuals regardless of immigration status, have been preserved.
Regarding the budget, Newsom stated during his Tuesday State of the State speech, “In California, you don’t have to be profligate to be progressive. We know how to protect working families, kids, and the state’s most vulnerable citizens while maintaining budget balances.”
Republicans claimed they were excluded from budget discussions. They objected to the three-year tax increase on firms, which will affect those with annual sales of at least $1 million and generate an additional $5 billion in revenue for the state next year.
The budget is the result of a compromise that included concessions and wins for both legislative leaders and Newsom. As part of a proposal to extend the life of the state’s only remaining nuclear power plant, the Legislature agreed to lend $400 million to Pacific Gas & Electric. Additionally, Newsom agreed to rescind some of his most contentious cuts to social services initiatives, including funding caregivers for certain Medicaid-eligible disabled immigrants.
The budget allocates $136 billion, or roughly $24,000 per student, for public education in the upcoming year. To save public schools from the proposed $8 billion funding cut, lawmakers withdrew an equivalent amount from reserves.
