Facing a $44.9 billion budget deficit, Governor Gavin Newsom attempted to slow his progressive policy agenda by shrinking the size of state government and eliminating 10,000 vacant state jobs and halting the expansion of subsidized childcare along with dozens of other cuts. Described the plan.
Newsom’s revised $288 billion budget proposal announced Friday projects California’s deficit to be $7 billion larger than the shortfall his administration projected in January. The dire forecast was due to the state’s lower than expected revenues, which continue to swing the pendulum from the fiscal blow of the COVID-19 pandemic.
“These are things we worked closely with the legislature to advance,” Newsom said of the cuts. “None of this is work you enjoy doing, but you have to do it. We have to be responsible. We have to be accountable.”
Newsom’s plan to close the deficit relies on $17.3 billion in savings from budget cuts he and lawmakers agreed to in April and $4.2 billion from the state’s rainy day fund and budget reserves for the upcoming fiscal year. Dollars were used. Newsom on Friday also reversed proposed spending cuts and cut an additional $8.2 billion in funding, including money he had set aside for some of his key progressive policies in 2024-25.
The governor’s revised budget proposal, which includes updated revenue projections after the state income tax filing deadline, typically begins negotiations with Democratic leaders in the Senate and Assembly on a final fiscal plan for the upcoming year. According to the state constitution, lawmakers have to approve the state budget by June 15.
An ‘incomplete’ plan
The governor’s budget plan released Friday was incomplete compared to previous years. The administration provided only a 50-page summary of their proposal, a smaller proposal than the detailed, 260-page spending plan Newsom released in January.
Newsom’s budget news conference was originally scheduled for next Tuesday, which was the deadline for the governor to share his revised budget with the state Legislature. But Newsom is flying to Rome that day to speak at a climate conference at the Vatican and has moved up his presentation to Friday.
Finance Department spokesman HD Palmer said the change left his administration’s fiscal arm, the State Finance Department, short of time to finalize a full budget summary and additional documents. His aides said more information would be provided when additional documents were made public on Tuesday.
“The only difference this year is that the governor moved the press conference,” Palmer said. “This is their May amendment. This is his press conference. “He can do that whenever he wants and we will do whatever we need to do to prepare for that press conference.”
How serious is the budget problem?
Newsom saw California’s current fiscal situation as a return to normalcy, after the federal government provided trillions of dollars of funding to individuals, families, businesses and state governments during the COVID-19 pandemic, resulting in California’s historic surplus .
But those bad times didn’t last, and poor revenue forecasts in recent years have deepened the state’s financial problems.
Newsom’s $100 billion surplus forecast two years ago was too disappointing, and revenues in subsequent years also fell short of estimates. The federal government’s decision to delay the 2022 federal income tax deadline from April to November due to winter storms complicated California’s ability to project revenue last year.
Newsom said his plan not only resolves the budget deficit for the current and upcoming years, but also begins to make a dent in potential shortfalls by the end of his second term as governor in 2027. The administration has proposed additional cuts, reductions and delays as a solution. Projected deficit of $28.4 billion in 2025–2026.
The governor said his strategy relies on delaying, diverting, and cutting funding for new programs that have not started. He said he was careful to avoid taking away funding from existing programs already serving residents.
But that doesn’t mean his plan won’t affect millions of Californians who rely on government safety-net programs, as well as state employees.
Why does the deficit figure keep changing?
In January, the Newsom administration predicted that California would face a $37.9 billion deficit in the budget to be adopted by lawmakers in June.
Newsom and Senate and Assembly leaders reached a preliminary agreement on $17.3 billion in cuts in April, though most of those changes will not be passed into law until next month. Lawmakers passed a budget trailer bill last month that reduces unspent funding allocations by $1.6 billion in 2022-23 and 2023-24.
The deficit figure presented by Newsom on Friday reduces the previously agreed-upon $17.3 billion cut from January’s $37.9 billion deficit estimate.
Revenues have fallen short of expectations since January, exacerbating the budget problem by $7 billion
Newsom is projecting a $27.6 billion shortfall in 2024-25, but California is slashing and slashing to solve a budget deficit totaling $44.9 billion this year.
What does Newsom want to cut?
The agreement reached in April between lawmakers and the governor included $762 million in savings by freezing hiring for vacant state jobs. Newsom’s updated proposal permanently eliminates 10,000 open positions, which unions saw as a potentially better option than furloughs or delaying planned pay increases to save money.
Newsom’s proposal includes savings from decommissioning 46 housing units at 13 state prisons, which would save $80.6 million. It comes as California’s prison population has declined by nearly 25% since 2019 and the state prepares to close its third prison, which Newsom said is now five months ahead of schedule. The plan is to close in early November.
Under Proposition 98, there is a guaranteed minimum amount of funding for schools and community colleges in California. Newsom is proposing an unusual maneuver to reduce the funding requirement for 2022-23 and go back to reflect lower-than-expected state revenues late last year. The change could ultimately reduce funding for schools by tens of billions of dollars in future years and trigger a major battle over education funding at the state Capitol.
Newsom’s plan proposes cuts that could be felt by California’s college and preschool students. He wants to cut $510 million from the Middle Class Scholarship Program and $550 million from a program that helps build and upgrade facilities for children in preschool and transitional kindergarten over the next two budget years.
Newsom called the decision to halt a planned $1.4 billion over two years to expand child-care availability “difficult” but a necessary compromise to pay higher wages to child-care workers.
Sacramento bureau chief Laurel Rosenhall contributed to this report.
