In January, the state anticipated a $5.6 billion surplus over the next budget year, following about a decade of economic growth after the Great Recession. And then the coronavirus outbreak scrambled that rosy outlook, effectively shutting down California's economy and hobbling tax revenues.
Newsom has since declared his January budget proposal “no longer operable.” That version contained ambitious new programs to improve health care, address homelessness and reduce greenhouse gases — backed by a good amount of cash in state coffers.
Now, experts say he’ll have to pivot to a different kind of executive role to staunch the fiscal bleeding.
Mark Baldassare, president of the Public Policy Institute of California, didn’t sugar coat it: “There are going to be budget cuts, and it’s going to be painful.”
“This is where the work of the governor and Legislature gets very difficult,” he said. “This is where the approval ratings suffer.”
The governor plans to release his revised budget Thursday at noon during his regular COVID-19 briefing.
“I’ll be laying out our strategy, our options,” Newsom said Wednesday. “Our values will not change. The numbers have drastically changed.”
Soon after the pandemic hit, the Department of Finance asked state agencies to begin identifying possible cuts within their own budgets. But until Newsom releases his revised budget, lawmakers aren’t offering specifics about what areas could see cuts.
“Given the size of the hole, it looks like we'll probably have to do a combination of trying to find more revenue as well as cutting expenses,” said Asm. Phil Ting, D-San Francisco, who is also vice chairman of the Joint Legislative Budget Committee.
Raising taxes or putting a bond to voters are the most obvious ways to bring in more revenue, but both could be deeply unpopular during a recession, according to Baldassare. Proposals to raise taxes in the budget need a two-thirds majority to pass.
Ting acknowledged it’s just one of the many hard decisions lawmakers will have to face in the coming weeks.
“It’s not a good idea in a recession to cut education, either, but we're going to have to come and make some tough choices,” he said, adding that “everything’s on the table right now.”
Ting says the Legislature will meet the June 15 deadline to pass a budget. But because of delayed tax deadlines, lawmakers will continue finessing the details into August or September.
What’s also unclear is whether the federal government will step in to help California and other states weather their budget storms. Newsom has called for $1 trillion in aid to states and local governments facing steep budget cuts during the crisis.
A relief package unveiled by House Democrats on Tuesday includes close to that amount in aid to states, cities and counties, but the GOP Senators have signaled the proposal would be dead on arrival there.
That uncertainty presents “one of the biggest challenges” right now, says PPIC’s Baldassare.
“At this point, the governor and Legislature don’t know to what degree the federal government is going to be a partner in helping the state through this coming tough budget year,” he said.
Still, California is relying on some disaster reimbursements from the Federal Emergency Management Agency. Ting says the $54 billion deficit projected by the Newsom administration did not account for those payments.
“So, we really are looking at more of a $45 billion figure,” he said.
The deficit could put a pause on efforts to insure all Californians, including a January promise to expand Medi-Cal to undocumented seniors. Newsom could also lower how much the state pays doctors treating Medi-Cal payments, and eliminate some benefits such as dental care.
“With high levels of unemployment, there’s higher demand for Medicaid, and the governor would be wise to maintain that program as much as possible,”said Janet Coffman, a health policy expert at the University of California, San Francisco. “But the deficit is so large that it’s possible we’ll see a return to some of the things that happened to Medi-Cal during the great recession.”
Senate Democrats painted a more optimistic budget outlook earlier this week, when they pledged to avoid middle-class tax hikes and major spending cuts.
Those options “may pencil out on some temporary spreadsheet, but actually cause more economic damage and prolong our budget struggle,” said Senate President Pro Tem Toni Atkins, D-San Diego.
Sen. Holly Mitchell, D-Los Angeles, who chairs the Joint Legislative Budget Committee, said lawmakers have identified about $100 billion in “ways in which we can stem the tide.” About $41 billion would come from “tapping into reserves, spending reductions, internal loans and deferrals,” she said.
“Our goal will be to keep the budget balanced. Fortunately, we are entering this recession with a decade of responsible budgeting,” Mitchell said.
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