California governor looks to plug $54 billion budget hole

Gov. Gavin Newsom proposes a $144 million budget in 2019

California Gov. Gavin Newsom is expected to reveal his plan Thursday for plugging an estimated $54.3 billion, coronavirus-created hole in the state budget.

Four months ago, Newsom revealed a $222.2 billion spending plan that included a nearly $6 billion surplus and a host of new programs, including starting the state’s own prescription drug label and giving taxpayer-funded health care to low-income senior citizens living in the country illegally.

But that all changed on March 19, when Newsom issued a mandatory, statewide stay-at-home order to slow the spread of the new coronavirus. The order closed schools and most businesses, prompting more than 4.5 million people to file for unemployment benefits. With so many people out of work, state tax collections have plummeted.

Budget problems are not new for California, having spent much of the last decade navigating through multi-billion deficits in the wake of the Great Recession.

But it is a first for Newsom, who had a historic $21 billion surplus when he took office in 2019. He won praise from key constituencies for paying off the state’s lingering recession-era debts and handing out first-in-the nation subsidies to help middle-income earners pay their monthly health insurance premiums.

Now, Newsom has to decide what to cut.

“My history with government is it does a really good job of expanding and it does an awful job of contracting,” said Republican state Sen. John Moorlach, who was the Orange County treasurer-tax collector in the aftermath of the county’s bankruptcy in the mid-1990s.

Lawmakers must pass an operating budget by June 15. If they don’t, they forfeit their pay. But lawmakers could amend the state spending plan after that date.

On Wednesday, Newsom said his revised budget will include more than $200 million to increase the state’s preparations for looming wildfires and other disasters. That includes hiring 600 firefighters who will help make up for the loss of dozens of inmate firefighters who were paroled early to ease the risk of coronavirus outbreaks in state prisons.

It includes money for the state’s Public Utilities Commission to hire more than 100 people for a new wildfire safety division to oversee Pacific Gas and Electric and other power companies whose equipment can spark fires and who have increasingly turned out the lights to prevent ignitions during dry windstorms.

Newsom also wants to spend $50 million in grants to local governments to help prepare for those power shutoffs.

The governor has not said how he will make up the revenue shortfall, but he has repeatedly noted that California is in a better position to deal with it than before the last recession. Back then, the state had no reserves and had to make deep cuts to state services.

This time, California has at least $16 billion in its “rainy day fund.” The money isn’t enough to cover the shortfall, but it cushions the blow.

State Sen. Holly Mitchell, a Democrat from Los Angeles and the chair of the Budget and Fiscal Review Committee, said lawmakers have identified $94 billion in savings over the next two years. About $41 billion comes from reserves, spending cuts, internal loans and deferring some costs to future years.

The rest would come from the federal government, including a $33 billion request that Congress has not yet approved. State Senate President Pro Tempore Toni Atkins vowed earlier this week to avoid “major ongoing program cuts or broad middle-class tax increases,” saying they may help in the short term but “cause more economic damage and prolong our budget struggles.”

“Our budget approach seeks to avoid becoming part of the economic problem,” she said.

The state Assembly’s leaders have made no such promises. Assembly Budget Committee Chair Phil Ting has said the chamber is considering all options, including tax increases. A memo from the Assembly Budget Committee this week said they expect “to make difficult decisions to ensure California’s budget is balanced.”