SACRAMENTO, Calif. (AP) – California Gov. Gavin Newsom’s office says the state faces a $2.9 billion budget deficit this year, an amount far less than legislative budget analysts had estimated.
The deficit, though small, could still require cuts and mean the Democratic governor has no money to push new programs in his final year in office.
This is the fourth year in a row that the nation’s most populous state has faced a multibillion-dollar budget deficit. The decline this year comes despite rising revenue from stock market gains and investments in artificial intelligence.
Newsom’s office outlined a $349 billion budget, though his proposal for how to spend all that money is far from final. Lawmakers and Democratic governors will spend the next several months fighting and negotiating over priorities — and cuts. Last year, Democrats faced a $12 billion deficit and had to scale back their ambitious program to provide free health care to immigrants without legal status.
“This budget is really focused on making sure we have a sustainable fiscal plan going forward,” Finance Director Joe Stephenshaw said at Friday’s briefing.
This year, they will face a $1.4 billion shortfall in federal funding after new federal policy changes to health care and food assistance programs for low-income people. Lawmakers have repeatedly said California is not in a position to repay that money. The budget does not fully address the federal funding deficit.
Newsom will try to preserve some of the progressive policies that have defined his tenure as he runs for president. But lawmakers should consider the structural deficit, which could reach $22 billion next year. Newsom cannot seek a third term and will leave office in January.
Continuous loss
In November, the nonpartisan Legislative Analyst’s Office projected that California would face an $18 billion shortfall this year. Their estimates and Newsom’s sometimes differ.
Newsom’s administration said some of the deficit was offset by the state raking in billions of dollars in higher-than-expected revenue.
Still, state Comptroller Malia Cohen warned lawmakers this week that the state is spending about $6 billion more than expected in the first six months of the fiscal year. She urged them to take a “disciplined approach”.
Republican lawmakers say the problem is nothing new. They have little say in the budget process because Democrats hold supermajorities in both chambers.
“California families must balance their budgets and make tough choices. State government must be held to the same standards,” said Republican state Sen. Tony Strickland.
Democratic lawmakers said they are committed to addressing the deficit.
“In these times of uncertainty, we must craft a responsible budget that prioritizes the safety and financial stability of California families,” state Senate President Pro Tempore Monique Limon said in a statement.
Education
Newsom said in his State of the State address Thursday that his budget would include “the most significant investment” in public education.
He plans to fully fund transitional kindergarten programs for all students, spend more than $27,000 per student next year and provide $1 billion to high-needs schools. Based on a complex set of formulas, approximately 40% 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 was not immediately clear whether Newsom would ask voters to approve the change.
Housing and homelessness
He does not propose 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 worry that the lack of new funding will hurt efforts to reduce homelessness. The programs are working, said Graham Knauss, CEO of the California State Association of Counties, pointing to the 9% drop in uninsured homelessness that Newsom touted earlier this week.
“Then it doesn’t make sense to stop the most successful program doing that,” he said Friday.
reserve
Newsom also calls for the state to rebuild its reserves after withdrawing nearly $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 fund for financial emergencies and $4.1 billion into a school reserve fund.
He also wants the state to spend $3 billion to pay off the debt.
Other offers
The budget proposal includes $200 million to create a rebate program to make it more affordable to buy an electric car.
The money comes from revenue generated by the state’s cap-and-trade program and the Air Pollution Control Fund. The goal is to backfill federal tax incentives for electric vehicles cut by Trump’s massive tax and spending cut bill.
Newsom wants to give more money to the state Department of Justice to help the state fight the Trump administration’s agenda. California has filed 50 lawsuits against the administration since last year.
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Associated Press writer Sophie Austin contributed to this report.
