Historic state budget blueprint faces crucial hurdles
Gov. Gavin Newsom is proposing a multi-billion-dollar package of monetary goodies for Californians, but how much of it will become reality is now up to legislators.
The clock ticks: Lawmakers have less than a month to approve the 2022-23 budget, an unprecedented, nearly $300 billion document, and send it to Gov. Gavin Newsom, who will then act on it by July 1, the start of the new fiscal year.
The money would be used to offset record high gas prices, which soared above $6 for the first time this week.
Despite the pandemic, an uncertain economy, spiraling home prices, a number of fiscal scandals and concerns for the future, California reported nearly $100 billion in additional revenues, much of it in the form of taxes paid by millionaires and billionaires.
“There have been so many hurt by the pandemic in California, with whole sectors cut down or scaled back—and at the same time, the wealthiest have not only survived but thrived,” Anthony Wright, the executive director of Health Access California, told Fast Company.
Included in the governor’s proposal are $400 payments to owners of registered vehicles — up to two. The money would be used to offset record high gas prices, which soared above $6 for the first time this week. Three months of free public transportation would also be included at a cost of $750 million.
The vehicle payments drew immediate fire.
“Specifically, the administration proposes to move forward with a proposal to provide rebates to households based on vehicle registration — knowing it will exclude many Californians who need help and include wealthy Californians who do not need the aid — that only reinforces California’s widening income and wealth gap,” noted an analysis by the nonpartisan California Budget and Policy Research Center.
By law, about half of the surplus must be spent on education.
The spending proposals are contained in the “May Revise,” the traditional updating of the governor’s budget that was first unveiled in January. The governor’s draft budget is submitted to the Legislature in January, but the May Revise includes the latest tax revenue figures through the April 15 and serves as the basis of the new spending plan.
Newsom’s plans are fueled by the enormous $97.4 billion state budget surplus – a sum higher than the entire budgets of some states.
By law, about half of the surplus must be spent on education. In addition to the auto payments, the remaining $49 billion would go to a variety of needs, including $11.5 billion for tax refunds to help address inflation, $2.7 billion for emergency rental assistance, $37 billion for infrastructure and $2.3 billion for the fight against the COVID pandemic.
“The state would very likely face a significant budget problem next year, which could require reductions to programs.” — Legislative Analyst
Amid the potential spending is a wild card: The Gann Limit, named after an author of California’s property tax-cutting Proposition 13, was approved by voters to curtail state spending. The Legislative Analyst, the Legislature’s nonpartisan fiscal adviser, says the state may be $25 billion over the limit through the next budget year, which means some money may be required to be returned to taxpayers.
“The Governor’s May Revision does not have a plan to address this roughly $25 billion requirement,” the Legislative Analyst’s Office wrote in a report released Monday. “As a result, the state would very likely face a significant budget problem next year, which could require reductions to programs.”
The LAO added: If the Legislature adopts the Governor’s budget proposals and the economy continues to grow, the state would not have surpluses large enough to pay for large and growing SAL requirements in future years. If the economy does not continue to grow, the state would face budget problems due to revenue shortfalls.”
“We know how to work together to present Newsom with a budget he can be proud to sign by the constitutional deadline.” — Anthony Rendon
Legislators have until June 15 to review the governor’s proposals and pass a state budget. Generally, the spending plan is spread across multiple bills, including “trailer bills,” or smaller appropriations that can be passed after the June 15 deadline. The governor must sign a budget by June 30.
Assembly Speaker Anthony Rendon had a bland and cautious response to the governor’s spending plans.
“We know how to work together to present Newsom with a budget he can be proud to sign by the constitutional deadline,” Rendon said in a statement.
“The budget proposals revealed by Governor Newsom this week have been encouraging,” state Senate President Pro Tem Toni Atkins said in a statement released with Sen. Nancy Skinner, chair of the Senate Budget and Fiscal Feview Committee.
“Newsom specializes in grand announcements and flashy sounding proposals, but he rarely follows through…” — James Gallagher
“The bottom line is, California will have another responsible, on-time budget that provides immediate and long-term benefits to all Californians, and maintains our state’s overall financial strength in case of potential downturns in the future,” the two added.
Republican legislative leaders were not charitable.
“Newsom specializes in grand announcements and flashy sounding proposals, but he rarely follows through with effective solutions that actually help California families,” GOP Assembly leader James Gallagher from Chico said in a statement. “The Governor may not want to acknowledge it, but California is in crisis and his budget is unsustainable.”
Democratic lawmakers want to give $200 to Californians below a certain income level. Republicans argue that Newsom should instead suspend the state’s highest-in-the nation gas tax for one year. They’ve also asked him to increase a tax credit for renters and offer new tax credits to students.
“Eat your heart out, Texas
“Senate Republicans believe there is a better way to invest in the state,” said Sen. Rosilicie Ochoa Bogh of Yucaipa.
The strategic question now faced by politicians is whether increasing the tax credit for renters and new tax credits for students carries the political wallop as receipt of $400 in the mail.
During his detailed and generally upbeat two-hour news conference to unveil his spending plans, Newsom took some digs at rival states.
For instance, he pushed a revision of the state’s business relocation tax credit program to provide “additional consideration” for businesses relocating from states with anti-abortion and “anti-LGBTQ+” laws.
The governor encouraged businesses to come to California, where, he said, the “values that you express in your public documents are actually reflected in terms of the work we do as a state.”
“Eat your heart out, Texas,” he said.
The governor’s original budget proposal, unveiled in January, totaled $286.4 billion, nine percent higher than the previous budget, which was itself a record.
That January budget unveiling was intended to continue “building on the state’s ongoing work to confront California’s greatest existential threats, bolster our economic growth, and make historic investments in California’s future.,” the governor’s office said.
“We appreciate the Governor calling attention to the cost pressures facing all Californians, including small business employers. Like all Californians, employers are very concerned about inflation as well as the spiraling costs of housing, energy, water and food,” California Chamber of Commerce President and CEO Jennifer Barrera said in a statement.
“CalChamber urges elected leaders to offset additional costs on employers, including paying down the Unemployment Insurance Fund debt,” she added.
Expect cries of fiscal anguish, arithmetic and budgetary arcana to be in the news for at least the next several weeks.
Want to see more stories like this? Sign up for The Roundup, the free daily newsletter about California politics from the editors of Capitol Weekly. Stay up to date on the news you need to know.
Sign up below, then look for a confirmation email in your inbox.