Facing $54B shortfall, Newsom proposes using reserves, making deep cuts

SACRAMENTO, Calif. - Facing bleak conditions, Gov. Gavin Newsom on Thursday took an optimistic tone while revealing his plan for plugging an estimated $54.3 billion coronavirus-created hole in California's budget by drawing into state reserves and making unwanted cuts. 

The $203 billion budget proposed Thursday is about a 5% decrease from the current year’s.

Newsom says some of the most damaging reductions could be eased federal government steps up and pitches in. 

"What is the point of government if not to protect its people?" Newsom said. "The enormity of the task at hand cannot just be borne by a state. The federal government has a moral and economic obligation to help the states.”

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Newsom spoke, without notes, for just shy of an hour about his desire to protect the state's four core values: Public education, public health, public safety and people hardest hit by COVID-19, including the 4.6 million Californians who have filed for unemployment since March. 

But protecting these core values will be more than challenging. 

The unemployment figures caused by people staying home and not working because of coronavirus will likely peak at 24.5%.

"These are not normal numbers," he said. 

So, how can California's ledgers return to normal as cities, counties and the state are getting hammered by budget shortfalls caused by the economic shutdown?

Newsom harkened to the wisdom of past politicians, including former Gov. Jerry Brown, who had the foresight to save and pay down the state's "wall of debt."

Luckily, Newsom said, because of this financial foresight, the state has money stashed away for just this type of emergency. 

The governor proposed spending the state's entire "rainy day" fund of $16.2 billion over the next three years. In addition, he said the state could draw into two more reserve funds as well. In all, the money from these funds would be  $8.8 billion - 16% of the shortfall.

California governor looks to plug $54 billion budget hole

The federal government CARES Act money will also be able to contribute another 15%, he said.  And three other categories could also get California to a balanced budget, Newsom said. 

Of course, Newsom noted that making cuts is almost inevitable. 

Slashing programs could get California 26% further to on the way to setting the books straight, though Newsom said he is loathe to do that. 

"Nothing breaks my heart more than making budget cuts," he said. "There's a human being behind every single number." 

For example, public education would likely be taking a 13% cut.  Two prisons will be closed, and some inmate rehabilitation programs will not occur. A $30 million cut is being proposed to state parks. An idea to offer MediCal to older undocumented immigrants, which would have cost $112 million, won't be going forward.

And he also proposed a 10% pay cut for state employees, including himself and his administration.

He was clear on some areas that would not face the chopping block. Those include keeping special education intact and he promised there would be no significant cuts to those on welfare.  

Newsom also used his platform to make a strong plea to lawmakers on the national level. 

"These cuts can be avoided," he said. "What is the point of government if not to protect its people? The enormity of the task at hand cannot just be borne by a state. The federal government has a moral and economic obligation to help the states.”

He said if House Speaker Nancy Pelosis's $3 trillion HEROES Act is passed, these cuts likely won't have to be made. 

The House is expected to vote on the $3 trillion proposal on Friday, although it is considered dead on arrival in the Republican-controlled Senate.

“The president of the United States, with a stroke of a pen, can avert massive California budget cuts," he said. 

This story was reported in Oakland, Calif.