Newsom, Legislature get a $17 billion jump on California budget deficit

Gov. Gavin Newsom addresses the media during a press conference unveiling his 2024-25 January budget proposal at the Secretary of State Auditorium in Sacramento on Jan. 10, 2024. (Photo by Miguel Gutierrez Jr., CalMatters)

Not filling open positions in state government, cutting welfare programs that serve tens of thousands of families, delaying funding for public transit — these are some of the first steps that California officials plan to take to deal with a looming multibillion-dollar budget deficit.

Facing a shortfall estimated at somewhere between $38 billion and $73 billion next year, Gov. Gavin Newsom and legislative leaders announced today an “early action” plan to tackle part of that gap before the regular budget process later this spring.

The $17.3 billion package includes some program cuts, but mostly relies on new revenue, internal borrowing and funding delays and shifts for savings. It is expected to come up for a vote in the Legislature next week.

“I thank our legislative leaders for their partnership in taking this major step to address the shortfall with a balanced approach that meets the needs of Californians and maintains a strong fiscal foundation for the state’s future,” Newsom, who has been calling for early budget action since January, said in a statement.

Newsom, Senate President Pro Tem Mike McGuire of Santa Rosa and Assembly Speaker Robert Rivas of Salinas, all Democrats, signaled two weeks ago that they planned to take this step, but continued to negotiate the details. Cuts to housing and homeless programs that Assembly Democrats objected to were recently removed.

Among the major proposals are a nearly $4 billion expansion of a tax on health insurance plans that allows the state to draw matching federal funds; delaying $1 billion for transit infrastructure and $550 million for preschool, transitional kindergarten and full-day kindergarten facilities; shifting $1.8 billion of cap-and-trade revenue, intended to reduce greenhouse gas emissions, to backfill other programs; and leaving vacant state jobs, an expected savings of more than $760 million, while deferring another $1.6 billion in pay.

The strategy faces criticism from Republicans, who called it “gimmicky,” though they do not have the votes to block the plan, which requires only a simple majority.

“This deal is a swing and a miss from Democrats. California’s budget has major league problems and Newsom is proposing JV solutions,” Assembly Republican Leader James Gallagher of Chico said in a statement. “With a $73 billion deficit, this gimmicky agreement is not the homerun Gavin thinks it is.”

Under the early action plan, a school facilities program and several climate initiatives will be cut, as will about $337 million in remaining funding for two welfare services that subsidize employment and that provide cash assistance, transitional housing and counseling to families in crisis.

It also includes language to freeze one-time funding from past years and an agreement to tap into half of the state’s reserves in the upcoming budget.

“We are all committed to delivering an on-time balanced budget and this early action agreement is a critical first step to shrink the state’s shortfall,” McGuire said in a statement.

They are far from finished. Next up, Newsom will present his revised budget proposal in May. That will kick off a month of deliberation with the Legislature, which must pass a balanced budget by June 15 or forgo its pay.

“We expect the Governor to deliver challenging budget proposals next month to reduce the deficit in the long-term, and we’ll consider them carefully,” Rivas said in a statement. “Together, we can deliver real solutions for hard-working Californians.”

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