Global Courant 2023-05-12 17:49:39
Governor Gavin Newsom is likely to announce that California, one of the few states running a deficit this year, may incur another $5 billion in losses after reporting a $22.5 billion budget deficit. payments after a series of powerful and damaging winter storms. To cut spending, Newsom proposed delaying funding for a subsidized childcare program, drawing the ire of California Democratic lawmakers.
Governor Gavin Newsom is expected to announce an even bigger budget deficit on Friday than the $22.5 billion gap he faced in January. tax payments.
California is one of the few states with a deficit this year, largely because its progressive tax code relies on wealthy taxpayers whose income is closely tied to stock market performance.
The shortfall is small compared to the cash crisis the state faced during the last recession. But the challenge for Newsom will be to persuade lawmakers to cuts unaccustomed to implementing them.
CA LIKELY TO END A FLOW OF ANNUAL SURPLUS WITH A $25B DEFICIT NEXT YEAR
Since taking office in 2019, Newsom’s biggest budget battle with the Democratic-controlled state legislature has been how California’s record surpluses should be spent. Agreeing on what to cut can be much more difficult.
Newsom’s plan in January was to cut money for flood protection projects, delay an expansion of a subsidized childcare program and cancel a $500 million plan to help small businesses pay higher tax rates related to a part of the national debt.
On Thursday, Newsom announced he was recovering money previously cut from flood protection projects, plus another $250 million in new spending, including raising a levee to protect the Central Valley community of Corcoran.
It is not yet clear whether he can or will give in to his other proposed cuts. Newsom last year signed an extension to a subsidized childcare program that would help an additional 20,000 families. But because of the shortfall, Newsom proposed delaying that funding for a year. He argued that the state was struggling to fill available child care places.
California Assembly Majority Leader Eloise Gomez Reyes, left, and Democratic Assembly member Cecilia Aguiar-Curry, right, march in Sacramento, California, May 10, 2023, with supporters of state-subsidized childcare programs. Governor Gavin Newsom, who proposed delaying funding for subsidized childcare slots, will announce his updated budget plan on May 12, 2023. (AP Photo/Adam Beam)
That angered some Democratic lawmakers, who said the reason the state was struggling to fill childcare places is because there aren’t enough childcare workers. On Monday, Democrats in the General Assembly proposed $1 billion in new spending to raise childcare workers’ wages.
“Now we just need to put a little bit of pressure on the governor to make sure he’s on board,” Assembly Majority Leader Eloise Gomez-Reyes said Wednesday during a speech to a gathering of parents and child caregivers at the Capitol. .
It’s not just childcare, though. Democrats in the state Senate want to raise taxes on 2,500 of the largest companies so they can cut taxes on most other companies by about 25% — a plan Newsom said he opposes. And environmental groups want Newsom to reverse his planned $6 billion cuts on some of his climate proposals.
CALIFORNIA faces a budget deficit despite a surplus of nearly $100 billion last fiscal year
But recovering from those cuts can be difficult. The situation has only gotten worse since Newsom first announced the shortfall in January. California tax collections have continued to fall and are $4.6 billion lower than what the governor’s office had expected. The impartial Legislative Analyst’s Office says they expect the deficit to be about $5 billion larger.
Then there’s the weather. Since January, California has been hit by about a dozen atmospheric rivers — intense storms that bring heavy rain and snow. The storms caused so much damage across the state that officials decided to give people more time to pay their taxes — extending the deadline from April to October.
That’s now a problem for Newsom and the state legislature, which must approve a budget before the start of the new fiscal year on July 1. Delayed tax collection means they have to make a plan without knowing how much money they have to spend.
The last time this happened was at the start of the coronavirus pandemic in 2020, when taxpayers had extra time to file their tax returns. Newsom and state lawmakers assumed the worst, passing a budget that cut spending to cover a $54 billion deficit. But that shortfall never materialized because the impact of the pandemic on state revenues turned out to be less damaging than expected.
This time, California’s deficit appears to be real. California’s legislature taxes the wealthy more than other states. About half of the state’s money comes from just 1% of earners. That means the state is vulnerable to large swings in the stock market, the source of wealth for most wealthy people.
The stock market has fallen because the federal government raised interest rates to fight inflation.
The downturn has had the biggest impact on California’s massive technology industry, as companies like Google, Facebook and PayPal laid off thousands of workers. Earlier this year, Silicon Valley Bank — one of the country’s largest financial institutions, whose clients came primarily from the tech industry — filed for bankruptcy and was bought by North Carolina-based First Citizens Bank.
