Facing an estimated $54.3 billion budget deficit because of the coronavirus, California lawmakers on Monday approved a state spending plan that rejects most of Gov. Gavin Newsom’s proposed cuts to public education and health care with the hope that Congress will send the state more money by Oct. 1 to cover the shortfall.
But the budget likely won’t become law because it does not have the backing of Newsom, who has the power to sign, veto or alter whatever the Legislature sends him.
Lawmakers passed a budget anyway to make sure they met a constitutional deadline and will continue to be paid. Legislative leaders will continue to negotiate with the Newsom administration to reach an agreement before the start of the new fiscal year on July 1.
“While there will be changes to reflect the final agreement, we will not deviate from the principles we have outlined in this budget,” Senate President Pro Tempore Toni Atkins said.
Budget negotiations progressed on Monday when Newsom backed off some of his proposed cuts. Newsom had recommended making fewer low-income older adults eligible for government-funded health insurance to save nearly $68 million. He had also proposed 10% cuts to all child care programs that allow low-income parents to go to work.
Newsom agreed to drop those cuts, according to a senior administration official who spoke on condition of anonymity because they weren’t authorized to discuss publicly ongoing negotiations with Legislative leaders. Newsom’s concessions were signs budget talks are progressing, but many issues remain before the two sides can reach an agreement.
“I’m very pleased at the conversations we’ve been having,” Newsom said during a news conference on Monday. “I’m not going to say anything publicly that puts any of those conversations at risk.”
California’s budget problem is the same issue plaguing other states. Newsom ordered most people to stay at home for nearly three months to slow the spread of the coronavirus. That forced many businesses to close and more than 6 million Californians to file for unemployment benefits.
The state has already delayed its tax filing deadline to July 15, making it harder for state officials to know for sure how much money they will have to spend. The Newsom administration predicts state revenues will drop by $41 billion. The rest of the $54 billion deficit comes from the billions of dollars the state spent purchasing protective gear for health care workers and securing extra hospital beds to prepare for a potential surge in patients that never happened.
Plus, the state is preparing to pay for the many more people expected to sign up for government services like Medicaid and other safety net programs because of the economic downturn.
“In this budget there are a lot of things that we are assuming, but I can’t really say we know for certain what will happen,” said Phil Ting, a Democrat from San Francisco and chairman of the Assembly Budget Committee.
Newsom’s spending plan would cover the deficit by making billions of dollars in cuts to items such as public schools and health care services. The Legislature’s plan would cover the deficit by borrowing more from some of the state’s restricted funds, taking more money from the state’s savings accounts and delaying billions of dollars in payments to public schools. That means school districts could go ahead and spend the money and the state would pay them back later.
Both plans would eliminate cuts if Congress sends the state more money. But the Legislature’s plan gives Congress until Oct. 1 to send the money, while Newsom has a deadline of July 1.
In a separate vote on Monday, the Legislature approved Newsom’s proposal to temporarily raise taxes on some businesses to generate an extra $4.4 billion to help cover the shortfall. The changes will stop businesses with more than $1 million in revenue from claiming losses as a tax deduction for the next three years and limits how many tax credits businesses can claim.
“We have no idea where the rest of this budget is going to go. Yet we’re voting for more revenue to start the whole debate,” Republican state Sen. Jim Nielsen said. “My fear is, as usual, that will be revenue that goes down a dark hole (and) in another year we’ll be on the precipice of another deficit.”