Newsom's Revised Budget Cancels $6 Billion in Planned Program Expansions

Gov. Gavin Newsom unveiled a revised state budget Thursday that reflects the economic devastation wrought by the COVID-19 pandemic, shaving $19 billion off the January spending plan he released when state coffers were brimming with money.

Newsom proposed canceling $6.1 billion in program expansions from his original budget, asking state workers to take a 10% pay cut and ordering state agencies to shave 5% off spending in general. The budget also proposes deep cuts to virtually all state programs.

“This is no normal year. And this no ordinary May Revision,” Newsom noted in his message to the Legislature.

The revised plan reflects a 22% drop in revenue and calls for general fund spending of $133.9 billion, down from $153 billion in January. The total state budget is pegged at $203 billion, a $19 billion drop from just four months ago.

The cuts are part of a plan to cover a $54.3 billion budget deficit caused by plummeting state revenues after a mandatory, statewide stay-at-home order forced most businesses to close and put more than 4.7 million people out of work.

Newsom proposed to fill that hole through a combination of cuts, tax increases, canceled spending, internal borrowing and tapping state reserves. He also proposed a 10% pay cut for all state workers, including  himself.

“Nothing breaks my heart more than having to make budget cuts,” he said. “There’s a human being behind every single number.”

Under Newsom’s proposal, K-12 education would take a major hit, with a $6.9 billion reduction in general fund dollars, a 12% decrease from last year.  Newsom said he aimed to soften the blow with around $6 billion in federal CARES Act (Coronavirus Aid, Relief, and Economic Security) funding, in part to address “learning loss” from COVID-19 related school closures.

Newsom also called on the federal government to step up and help support the states, saying Congress and the Trump administration have a “moral, ethical and economic obligation to help support the states” by supporting the so-called HEROES (Health and Economic Recovery Omnibus Emergency Solutions) Act proposed by House Speaker Nancy Pelosi.

“Help support America and Americans. The HEROES Act is the best approach,” he said.

“As someone who came to the Legislature while California was still struggling in the Great Recession, I know how important it is during this current budget emergency that we build on lessons learned and avoid mistakes of the past,” said state Senate President Pro Tem Toni Atkins, D-San Diego. She said the governor’s revised budget presented “a challenging path ahead — but a path made more manageable by the decade of responsible budgeting and sound fiscal practices we put in place.”

State Sen. Pat Bates, R-Laguna Niguel, said she approves of the governor’s focus on public health, public safety and education. But she criticized his reliance on federal money.

“While additional federal assistance can help cover some of the deficit, expecting Uncle Sam to come to the rescue is wishful thinking,” Bates said.

The plan is a first crack at dealing with a more than $54 billion, two-year deficit the governor’s Department of Finance is projecting. The Legislature must pass the 2020-21 budget by June 15 to meet a constitutional deadline, but will likely have to revise it again after income tax revenues are paid in mid-July. The greatest share of state revenue comes from personal income taxes.

While presenting his revised May budget proposal today, Newsom acknowledged the havoc the pandemic has wreaked on the state’s finances.

The nonpartisan Legislative Analyst’s Office largely agrees with the Newsom administration’s projections. In its Spring Fiscal Outlook report, the LAO said the state can expect budget deficits until at least the 2023-2024 fiscal year, with shortfalls up to $126 billion in some scenarios. It recommends a combination of approaches to address the budget problem, including tapping reserves, making budget cuts, finding new sources of revenues and shifting costs around.

The state Assembly is already preparing to take quick action. Assembly Budget Committee Chair Phil Ting, D-San Francisco, initially said he had anticipated passing a budget that continues the funding currently in place until tax revenues come in. But in a recent memo, he said the Legislature has to act sooner.

“We cannot afford to delay action and will need to make difficult decisions in the coming month,” Ting wrote. “We expect that on June 15, the Assembly will have to make difficult decisions to ensure California’s budget is balanced.”

The current budget situation is a dramatic swing from January when Newsom’s administration was projecting a $6 billion surplus. The governor was proposing substantial spending on housing and extending Medi-Cal to income-eligible undocumented seniors 65 and older. He had proposed increasing state-funded preschool slots and creating a new Department of Early Childhood Development. Much of that may be put on hold as the state grapples with its new budget reality.

Softening the blow somewhat will be the estimated $16 billion in the state’s Budget Stabilization Account, commonly called the “rainy day fund,” which remains untapped. It’s unclear whether the state can legally use some of those funds in the current fiscal year, which ends June 30.

This is a breaking story and will be updated.