Newsom is trying to close the $37.9 billion deficit by cutting spending and using reserves
The numbers
Mr. Newsom said his Finance Department, working with updated revenue figures, had determined that lawmakers would need to offset a $37.9 billion deficit for the budget year that begins July 1, which is significantly lower than the $68 billion deficit that the impartial state banks had. budget analyst had predicted.
To accomplish that, the governor proposed covering nearly $19 billion of the deficit with reserves, cutting nearly $12 billion from planned spending and deferring just over $7 billion in spending commitments to the next budget year.
Why it matters
California has the largest population in the country, at 39 million, and its budget decisions affect nearly every aspect of life in the state, including public schools, highways and the social safety net.
The state’s Democratic leaders are regularly judged on their spending choices, not just by California voters, and Mr. Newsom has positioned himself as a defender of Democratic values ahead of the 2024 presidential election.
For most of Mr. Newsom’s term, California has spent heavily on social programs while running an enviable budget surplus. But the state’s revenue collections are subject to wide swings because California relies heavily on taxing capital gains, property and the personal income of high earners.
Revenues lagged last year as high interest rates slowed growth in key economic sectors, deterring home sales and investment in startups and raising financing costs for companies. California also faced the unusual challenge of passing a budget in June without a clear revenue picture because taxpayers were allowed to delay their filings until late fall.
California isn’t the only state tightening its belt in the post-pandemic economy. Arizona lawmakers are facing a deficit, partly due to an ambitious tax cut, Maryland lawmakers are working to make up for the loss of federal funding for the pandemic, and slowing economic growth has disappeared New York lawmakers to address a $4.3 billion budget deficit.
What happens now
In California, the governor’s $291.5 billion spending proposal goes to the Legislature, which is dominated by his party. Mr. Newsom has asked lawmakers to maintain most of the priorities he has put forward since his election in 2018, including an ambitious Medicaid expansion that would extend health insurance to all low-income adults regardless of immigration status.
Modest proposed cuts would mainly target climate and housing programs. The governor also indicated he would like to delay a planned minimum wage increase for health care workers to $25 an hour if revenues fell below a certain threshold.
At the national level, California’s finances are already political grist and will very likely remain so. On Wednesday, Mr. Newsom strayed from his budget presentation to denounce the editorial staff of The Wall Street Journal implying that he might consider closing the state’s budget deficit with a wealth tax.
The governor rejected the idea outright Wednesday, as he has repeatedly done before. He then called the editorial “a broken clock” and part of a “shameful” false narrative that Republicans have “put forward again and again” to harm his state.