California Gov. Gavin Newsom says he is going back to the drawing board for his budget proposal, abandoning the $222 billion plan he laid out in January as the coronavirus pandemic hammers the state’s economy.
“The January budget is no longer operable,” Newsom said during a news conference Thursday. “The world has radically changed since the January budget was proposed, so everything is on the table.”
Californians have filed 1.9 million unemployment insurance claims since March 12, he said.
Soaring unemployment, delayed tax deadlines and a floundering stock market all spell disaster for the state’s revenues, which rely heavily on taxes on the wealthy.
In the 2017 tax year, the wealthiest 1.5 percent of Californians — people earning more than $500,000 — paid 51 percent of the state’s total income tax, according to the Franchise Tax Board. Collectively, that group of taxpayers paid about $41 billion in tax.
Tax revenue from capital gains also could plummet in a recession. In 2007, California collected $10.9 billion in taxes from investment gains. That sum crashed to $2.3 billion in 2009, when the state was mired in recession.
In 2017, California collected $14.1 billion from taxes on capital gains, according to state budget documents.
Relief efforts will take a bite out of the budget, too.
The state is draining its reserve accounts to buy medical equipment and supplies to fight the virus, which causes COVID-19 respiratory illness. In January, Newsom’s office predicted the state would have $21 billion in its reserve accounts by the end of next fiscal year, but that number will certainly be lower now.
Last month, lawmakers and Newsom approved $1.1 billion in emergency coronavirus relief, which Newsom is spending on food assistance programs and cash aid for needy families with children.
Newsom’s January plan for the 2020-21 budget would have boosted school funding, revamped the state’s health program for the poor and steered more funding to help get homeless people off the streets. It included $900 million in new spending to reduce the state’s teacher shortage, $750 million in homeless aid, and funding to let undocumented immigrants over age 65 to enroll in state health insurance.
It’s unclear what, if any, of those proposals will remain when Newsom unveils a revised budget plan, which is due in May.
“We should be prepared for substantial adjustments,” Newsom said.