Bracing Californians for the historic impact of the coronavirus on the state’s budget, Gov. Gavin Newsom threatened billions of dollars in cuts from education to safety-net programs Thursday unless the federal government provides states with more funds to balance their budgets.
In a revision of his January budget proposal reflecting the stark reversal of fortune for a state that was riding high on a surging economy, Newsom outlined several steps to close a staggering $54.3 billion budget chasm caused by plummeting revenues and soaring costs from the coronavirus pandemic.
“Just like that — almost a blink of an eye — we’re in a completely different position, not just in the state of California but the entire nation,” Newsom said.
California faced its growing budget dilemma on a day the state topped 3,000 deaths and closed in on 75,000 cases as the coronavirus pandemic continued its deadly toll. More than 4.6 million Californians have now filed for unemployment since March when Newsom gave his statewide stay-home order.
With so many Californians without jobs, the state expects income tax revenues to plummet $33 billion through next year and sales tax to drop another $10 billion. That’s forcing Newsom to tap $8 billion from California’s Rainy Day and Safety Net reserve funds and cancel planned program expansions and extra payments to shore up underfunded pensions.
The single biggest step toward closing the gap — $14 billion worth — would come from cuts to K12 schools and colleges and to state employee compensation that would be “triggered” if the federal government doesn’t provide additional aid beyond the $2 trillion stimulus in March.
“The federal government has a moral and ethical and economic obligation to help the states,” Newsom said.
On Monday, California joined officials in Oregon, Nevada, Washington and Colorado seeking a combined $1 trillion in aid. House Democrats proposed a $3 trillion package Tuesday that includes $500 billion in state aid. The Sacramento Bee reported Thursday that California could see $51 billion of that.
But approval is uncertain, as Senate Republicans have questioned the massive spending, which comes just two months after the $2 trillion federal stimulus bill.
Newsom’s proposal to close the monumental budget gap also includes:
- $10.4 billion from budget maneuvering, including borrowing and transferring from special funds earmarked for specific programs.
- $8.4 billion from canceling new spending that Newsom proposed in January, such as expanding health care eligibility and extra payments to shore up the state’s employee pension plans.
- $8.3 billion in federal stimulus and other pandemic aid, including $4.4 billion for schools to run summer school and other programs to cover learning lost from statewide school closures.
- $4.4 billion from new revenues, including temporarily capping the amount of credits a taxpayer can use in any given tax year.
Overall, Newsom on Thursday shrank the budget he proposed in January by $19 billion to $203.3 billion in a revision that immediately sent a chill through officials who run the state’s schools, parks, prisons and social service programs.
Without more federal aid, schools would see an immediate $1.9 billion drop in funding that was expected this year and an additional $6.5 billion hit next year. Chris Funk, superintendent of East Side Union High School District in San Jose, said his district will have to borrow just to make payroll the rest of this school year.
The University of California and California State University systems would see 10 percent cuts without a federal bailout.
CSU Chancellor Timothy P. White, who oversees the 23 state universities that will be hit with $398 million in cuts, said in a statement Thursday that while the revised budget was expected, “it is indeed daunting.”
State prisons would see a $93 million cut amounting to a 0.7% reduction regardless of federal aid. State parks would see a $30 million cut and the Department of Fish and Wildlife a $33 million cut without federal aid.
Medi-Cal, California’s statewide health insurance program for low-income individuals, escaped massive cuts but did not emerge entirely intact. Newsom shelved plans to expand programs, including the extension of care to undocumented immigrant adults. Further cuts — including partial rollbacks of dental and vision services for adults — would come without federal aid.
Newsom made no mention during his lengthy speech Thursday of the issue that’s been one of his top priorities — homelessness. His revised budget cuts to the ambitious $750 million state fund for homeless housing and services he proposed in January. The governor also abandoned his earlier proposal to beef up Medi-Cal to better treat mental illness among those experiencing homelessness.
Despite the sting of Thursday’s news, everyone knew what was coming. Last week, Newsom’s finance department said revenues have fallen by $41.2 billion from businesses being unable to operate and soaring unemployment, while costs for COVID-19 and health and human services have soared $13.1 billion.
Service Employees International Union Local 1000, the state’s largest employee union, said it was told to expect 10 percent pay cuts. Newsom said he and his staff would not be spared either.
Reform California Chairman Carl DeMaio, a former San Diego city councilman, said Thursday that state workers are still overpaid and urged Newsom to cut spending on pension spiking, High Speed Rail and benefits for noncitizens.
But many, such as Anthony Wright, executive director of Health Access, lamented the timing of such deep cuts: “These proposed cuts will cut access to care for millions of Californians when what we actually need is more investment in health care to get out of this crisis.”
Staff writers Julia Prodis Sulek, Maggie Angst, Robert Salonga, Joseph Geha, Marisa Kendall, Jon Kawamoto, Nico Savidge and Amanda Heidt contributed.
