“As painful as the state’s budget may be, personal budgets are even more devastating. … You’ve exhausted your savings; your credit has been completely destroyed; you are desperate to get a sense of not only your fate but our collective future,” he said at a May 14 press conference to announce his revised budget.
More than 4.6 million Californians have applied for unemployment insurance benefits since March 12, Newsom said.
The plan to balance the 2020–21 budget would mean draining the state’s $16.2 billion “rainy day” reserve fund over the next three years and “revenue acceleration strategies,” which don’t rule out tax increases. The strategies include canceling tax breaks and imposing new fees.
It would also mean a 10 percent budget cut for state employee salaries. Newsom said he will also take a cut to his own salary.
One of the hardest-hit areas is education spending. Funding for kindergarten through 12th grade and community colleges (K–14) was slashed $13.5 billion. Higher education funding was cut about $18.4 billion, by more than 10 percent compared to the January budget.
Newsom said funding for CalWorks and Medi-Cal will remain at current levels.
The original $222.2 billion proposal in January had projected a $5.6 billion surplus, and by March, revenues were running $1.35 billion above projections. It had called for substantial increases in spending on education, health care, and social services, which have now been scrapped.
“Not surprisingly, our sales tax revenue projections are taking the biggest hit [with] consumers obviously not able to make the kind of purchases they once were—only essential,” he said.
The greatest drop in state revenue is from lost sales taxes as a result of the statewide shutdown. Projected sales tax revenue is down 27.2 percent, followed by personal income tax at 25.5 percent, and corporate tax at 25.5 percent.
Praise of HEROES Act
Newsom urged Congress to pass a $3 trillion spending plan touted by House Speaker Nancy Pelosi (D-Calif.) and other Democrats in the chamber. The Helping Emergency Responders Overcome Emergency Situations (HEROES) Act would include $1 trillion for state and local governments nationwide.
He repeatedly praised Pelosi and the HEROES Act, suggesting much of the state’s pain could be avoided if Congress passes the bill.
But Senate Republicans have said the proposal doesn’t stand a chance of passing.
“It’s got so much unrelated to the coronavirus, it’s dead on arrival here in terms of a viable idea,” Sen. Lindsey Graham (R-S.C.) told reporters on Capitol Hill on May 12.
The measure has been criticized, for example, for including a requirement that banking regulators must issue an annual “diversity and inclusion report.” It also has faced pushback over provisions related to election methods and for not requiring a Social Security number to apply, potentially opening the relief to non-citizens.
“Everything is negotiated. I am not naive about that,” Newsom said. But he maintains that “the HEROES Act is the best way forward.”
“We need you. These cuts can be negated; they can be dismissed with your support. … Let’s support what Nancy Pelosi is doing, and if we do, it will soften the blow.”
Alluding to a recently formed Western states pact of blue states, Newsom said, “It’s not just California” that is demanding more money from the feds.
“The federal government has a moral and ethical and economic obligation to help support the states,” he said. “After all, what is the point of government, if not to protect people, their safety and the well-being of citizens?”
State Officials Respond
“The governor’s May Revise explores many tough choices and is a good starting point for our budget discussions,” state Assemblyman Phil Ting (D-San Francisco), chair of the Assembly Budget Committee and vice chairman of the Joint Legislative Budget Committee, said at a press conference.
Ting cautioned against mass layoffs, which he warned could force more Californians to become homeless and create a larger permanent welfare caseload.
“Before this pandemic, with most Californians working, we knew many families were unable to save even $400,” he said.
“California must focus its fiscal resources to ensure those families are housed and economically stable,” Ting said. “If we are asking people to stay at home, we must commit to keeping a roof over their heads.”
He has his eye on the corrections and prison budget as a way to cut spending; he supports the idea of closing two state prisons, he said.
“The only real solution to California’s budget challenge is to get Californians back to work—responsibly—in accordance with local public health guidelines,” State Sen. Jim Nielsen (R-Tehama), vice chairman of the Senate Budget and Fiscal Review Committee, said in a statement.
“Relying on federal bailouts is not a budget solution,” he said. “And tax increases would deepen this economic slowdown.”
He urged the state to distribute federal money already provided by the CARES Act, especially to small communities.
Assembly Republican Leader Marie Waldron (R-Escondido) said in a statement, “The best way to fix this budget crisis is by helping people get back to work safely.”
Assemblyman Kevin Kiley (R-Rocklin) told The Epoch Times that raising taxes is “probably not the best approach right now.”
“Folks are really struggling to get by, and we need to be pulling the levers that will lead to economic recovery, economic growth, and opportunity,” Kiley said.
The state is constitutionally required to get a balanced budget to the governor’s desk by June 15, and enacted by July 1.
Update: A previous version of this article stated that state employee wage cuts could be across-the-board. The Service Employees International Union is working with the governor to determine how to distribute the 10 percent payroll reduction, and does not expect it to be an across-the-board cut. The Epoch Times regrets the error.