New California Budget Contains Multiple Cuts
Getty Images
California has boasted of having a budget surplus since its slow recovery from the Great Recession. Governor Gavin Newsom crowed of a budget surplus of $6 billion. Despite the state's homelessness crisis and growing housing problem, the success of Silicon Valley and cessation of the financial drought have led many to call California a great success story, an example of how a state could utilize strict budget controls to recover from such a devastating economic blast. The previous governor Jerry Brown had also been known for his stringent control of the state's budget to promote financial resurgence. Under those measures, Newsom pursued more liberal policies and promised to spend more on education, child care and housing.
Under Newsom, California was one of the first states to initiate a quarantine and shutdown, amid the coronavirus pandemic. London Breed, the mayor of San Francisco, was also one of the first state officials to shutdown her city –– and despite a few other states reopening, the state of California, along with the majority of its counties and cities, have announced that they would remain on lockdown.
Economists and epidemiologists have agreed that to solve the economic problems caused by the coronavirus, the health crisis needs to be addressed first. However, by remaining shut down, California and the rest of the U.S., continue to face a severe economic crisis. In response to the pandemic, Congress has approved a vast amount of grants, loans and stimulus packages. Economists also predicted that the U.S. Treasury Department will borrow over $4.5 trillion to give families a temporary form of universal basic income. Across the U.S., states that include California, have also acted to mitigate the most detrimental economic and health ramifications of the coronavirus.
There were already concerns by some budget hawks that Newsom’s policies were already unaffordable. These plans have been mostly put on hold so money can be diverted towards both the health and economic crisis brought on by the pandemic. This is projected to result in a $203.3 billion budget with a $54.3 billion deficit. This is going to be a higher deficit than the ones face by Gov.’s Arnold Schawarzenegger and Jerry Brown during the height of the Great Recession. The higher deficits would erase most of Brown's economic gains, and would also signal upcoming budget slashes –– under the plan, Brown's surpluses would disappear, and most of Newsom's policy proposals that addressed the state's most pressing issues, like the homelessness problem, would have to be paused or even canceled.
Newsom has also warned that the balanced budget and surplus that California worked so hard to manifest would be undone due to the pandemic and the surfacing blows to the economy. The $6 billion surpluses that he had crowed about earlier this year vanished in the face of spending on pandemic readiness, financial relief and the loss of tax revenue. Newsom's office has projected that businesses will continue to remain closed and jobs will continue to furlough and layoff employers. The office also predicted that there would be 18% unemployment, a 21% drop in new housing permits and a 9% drop decline in personal income.
In addition, the California public school system would lose around $10.6 billion in California's minimum public school guarantee while the University of California and California State University systems would have their budget slashed by millions. Other cuts include $740 million in state community college funds. The initial budget cuts in education were forecast to be around $19 billion. Analysts had initially predicted that additional cuts would be made to other programs like housing, child care and Medi-Cal.
The cuts to housing and childcare are concerning because Newsom had revolved his entire gubernatorial race around them. More Californians continue to become reliant on Medi-Cal as the pandemic persists and job losses surge. This means that either the pay of doctors who see Medi-Cal patients would have to be reduced or some programs would no longer be able to be covered under the program like dental. The measures follow Medi-Cal's recent start in covering podiatry, optometry, audiology, speech therapy and other fields. Since hearing aids and eyeglasses are not required by the federal government, analysts predict that these would have been the first programs to be dropped from Medi-Cal. Instead the budget raised funding for preschools, homeless aid and even medical programs for seniors. However, the wages and pensions of civil servants and government workers dropped. $2.4 billion for the state’s largest pension plans, CalPRS and CalSTRS, were cut alongside 10% of the wages of the 240,000 government workers and civil servants. The largest union of government workers, the Service Employees International Union (SEIU) Local 1000, has criticized this and argued that this would lead to two furlough days per month.
The mayors of San Francisco and Los Angeles have called for additional taxes to offset the cuts. Regardless of increases in taxes, the budget has already gone to the California Legislature where state legislators will jockey to fund personal pet projects. The lawmakers? will have until June 15 to agree to a balanced budget. Regardless of how much relief is available and possible, the current deficit is three times higher than the available rainy day fund that the state has amassed over time tantamount to approximately 37% of the general fund. Newsom said that he believes that additional federal funding could mitigate some of the harsher effects of the budget cuts.
"My optimism is conditioned on this — more federal support. We're seeing economic numbers, unemployment numbers, more acute than anything we've seen in modern times," Newsom said. "We need the federal government to recognize this. We really need the federal government to do more."
"Federal government, we need you," the governor continued.
"These cuts can be negated, they can be dismissed with your support."
