California budget — from boom to bust and back to boom


Six months ago Gov. Gavin Newsom was bemoaning the reversal of the Golden State’s fortunes as his stay-home order to slow spread of the deadly coronavirus had helped turn a projected $5.6 billion surplus into a $54.3 billion shortfall.

Although the pandemic crisis is far worse than it was then, with hospitals stretched to the breaking point to care for those critically ill with COVID-19, the state’s coffers not only didn’t drain as expected but are again overflowing with millions of extra dollars.

Newsom said Friday the state now has a $15 billion surplus, and expects to have a record $22 billion in reserves.

“My, has so much changed,” Newsom said. “We are in a much better position than anyone could have imagined eight months ago.

The projected surplus however is followed in subsequent years by anticipated annual deficits of around $10 billion over the following three years. It’s also less than the $26 billion the Legislative Analyst’s Office had estimated in November.

“Our future is very, very, very tenuous,” Newsom said. “So prudence, fiscal discipline, maintaining those frameworks is I think what this moment calls for.”

The $227.2 billion fiscal blueprint includes what Newsom referred to as a $5 billion “immediate action plan”:

  • $2.4 in a Golden State Stimulus, including $600 in direct payments to an estimated 4 million low-income Californians to help them with rent, child care, avoiding eviction, including extending an eviction moratorium.
  • $2 billion already announced to help school districts reopen classrooms to students to help with virus testing, decontamination, physical distancing and other associated costs.
  • $575 million in small business grants, and $71 million in fee waivers for small businesses.

The budget also calls for:

  • $85.8 billion for schools, which Newsom called the “highest investment per pupil the state has ever advanced,” and said it is $3.8 billion more than what schools are guaranteed through Proposition 98. It includes $4.6 billion to extend learning time in summer school, $250 million for teacher training and recruitment and $300 million for education programs for infants, toddlers, preschoolers.
  • $3 billion for transit and $1.5 billion for electric vehicle infrastructure.
  • $1.16B for cities and counties to deal with homelessness and $1.75 billion for housing, which could go toward purchasing motels and hotels, mental health housing and dedicated housing for vulnerable seniors.
  • $1.1B for Medi-Cal, the sCAtate’s version of the federal Medicaid program for the poor, including a transformation to target those with complex health needs that drive costs.
  • $786 million in new money the University of California and California State University systems, with a promise of no tuition or fee increases.
  • $1 billion for wildfire resiliency and emergency response, including $143.3 million for more fire crews, $48 million for new helicopters and air tankers, $17.3 million for an earthquake early warning system, and $39 million for LIDAR remote fire sensing.

The budget assumes $6.7 billion in anticipated federal support from the coronavirus relief package recently approved by Congress, though Newsom stressed his office did not have the details when his budget went to press.

Republican leaders, whose party holds too few seats in the Legislature to hold much sway over the final budget to be approved in June, urged the Governor to not only devote some of the money to his effort to reopen schools, but to help students with mental health needs from the isolation of online “distance learning.”

Republicans also said 10% of the windfall should go toward helping businesses that have suffered from the stay-home orders, and that other funds should be spent fixing problems with the state’s Employment Development Department, which handles unemployment benefits.

“Over the past ten months, the Governor’s shutdowns and COVID-19 challenges have made it difficult for millions of Californians,” said Senate Republican Leader Shannon Grove (R-Bakersfield) and Senator Jim Nielsen (R-Tehama), vice chair of the Senate Budget and Fiscal Review Committee, in a joint statement before the budget announcement.

They said more than 19,000 small businesses have already closed their doors for good and with them are countless families who depended on that income to pay for food, housing and other necessities.

The embattled department has suspended payments for more than 1 million unemployment claims in response to widening fraud woes, a fresh blow to California workers who lost their jobs amid coronavirus-linked business shutdowns.

The projected shortfall last May was nearly as much as the $57.1 billion California had spent the year before on K-12 schools and community colleges, and approached the $60 billion shortfall faced in 2009 with the Great Recession.

The projected deficit included a $41.2 billion drop in revenue and $7.1 billion in increased health services costs for dealing with the virus pandemic.

The single biggest step toward closing the projected gap was $14 billion worth in potential cuts to K12 schools and colleges and to state employee compensation that would be “triggered” if the federal government didn’t provide additional aid beyond the $2 trillion stimulus last March. But Newsom agreed to avoid teacher layoffs in the final budget approved last June.

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