SACRAMENTO, Calif. (AP) — California Gov. Gavin Newsom’s office said the state faces a $2.9 billion budget shortfall this year, significantly less than legislative budget analysts had estimated.
The deficit, though small, could still require cuts and means the Democratic governor has no money to push for new programs in his final year in office.
It’s the fourth year in a row that the nation’s most populous state has faced a billion-dollar budget deficit. This year’s shortfall comes despite rising revenues fueled by stock gains and investments in artificial intelligence.
Newsom’s office has outlined a whopping $349 billion budget, though his proposal for how to spend all that money is far from final. Lawmakers and the Democratic governor will spend the next few months fighting and negotiating priorities — and cuts. Last year, Democrats were forced to scrap their ambitious program to provide free health care to undocumented immigrants in the face of a $12 billion shortfall.
“This budget is really about making sure we have a sustainable fiscal plan going forward,” Chief Financial Officer Joe Stephenshaw said during a conference call Friday.
This year, they will also face a loss of $1.4 billion in federal funding after new federal policy changes to low-income food and health assistance programs. Lawmakers have said repeatedly that California is not in a position to match that money. The budget does not fully address the loss of federal funding.
Newsom will try to salvage some of the progressive policies that defined his tenure as he considers a presidential run. But lawmakers must consider the looming structural deficit, which could climb to $22 billion next year. Newsom cannot seek a third term and will leave office in January.
Current deficit
The nonpartisan Legislative Analyst’s Office in November estimated that California would face an $18 billion shortfall this year. Their estimate and Newsom’s sometimes differ.
The Newsom administration said some of the shortfall was made up recently after the state collected billions of dollars more in revenue than expected.
Still, state Comptroller Malia Cohen warned lawmakers this week that the state is already spending nearly $6 billion more than expected six months into the fiscal year. She urged them to take “a disciplined approach”.
Republican lawmakers said the issue is nothing new. They have little say in the budget process because Democrats hold supermajorities in both chambers.
“California families have to balance their budgets and make tough choices. State government should be held to the same standards,” said Republican state Sen. Tony Strickland.
Democratic lawmakers said they were committed to addressing the deficits.
“In these uncertain times, we must craft a responsible budget that prioritizes the safety and fiscal stability of California families,” Senate President Pro Tempore Monique Limón said in a statement.
Education
Newsom, during his State of the State address on Thursday, said his budget would include “the most significant investments” in public education.
He plans to fully fund transitional kindergarten programs for all students, spend more than $27,000 per student next year and give $1 billion to high-need schools. Based on a complex set of formulas, about 40 percent of the state budget is required by California law to go to schools each year.
Newsom also proposed moving the Department of Education into the executive branch. The state superintendent of public instruction is an elected position, and it’s not immediately clear whether Newsom will ask voters to approve the change.
Housing and Homelessness
He is not proposing any new funding for local governments to address homelessness. Last year, Newsom and lawmakers agreed to set aside $500 million for local programs, but it’s not guaranteed.
County officials fear the lack of new funding will hurt efforts to reduce homelessness. The programs are working, said Association of States Counties CEO Graham Knaus, pointing to a 9 percent drop in homelessness that Newsom touted earlier this week.
“It wouldn’t make sense to stop the most successful program that does that,” he said Friday.
reserves
Newsom is also calling for the state to rebuild its reserves after withdrawing about $12 billion over the past two years to address budget problems.
He wants to put about $3 billion into the state’s rainy day fund, $4.5 billion into a special economic emergency fund and $4.1 billion into school reserve funds.
He also wants the state to use $3 billion to pay down the debt.
Other proposals
The budget proposal includes $200 million to create a rebate program to make buying an electric car more affordable.
The money comes from revenue generated by the state’s cap-and-trade program and an air pollution regulatory fund. The goal is to supplement federal tax incentives for electric vehicles that have been cut due to Trump’s massive taxes and spending cuts.
Newsom also wants to give more money to the state Department of Justice to help the state fight the Trump administration’s agenda. California has sued the administration more than 50 times since last year.
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Associated Press writer Sophie Austin contributed to this report.