Capitol Alert

Gavin Newsom’s California budget spends big and saves more in ‘extraordinary moment’

America’s long economic expansion is still filling California tax coffers, enabling Gov. Gavin Newsom to spend more money on homeless aid and emergency preparation while setting aside billions of dollars in reserves for the day the boom finally ends.

Newsom on Thursday released his revised 2019-20 budget proposal. It accounts for even higher revenue than he projected in January, giving him room to propose a $213.5 billion budget.

The updated plan builds on the $209 billion budget the governor laid out in January. It keeps in place spending to expand health coverage for undocumented immigrants and $1.75 billion to spur housing construction.

The budget also puts the state on track to place $16.5 billion in its so-called rainy day fund by next summer, and Newsom stressed the state would have even more money socked away in other reserves to help it manage a downturn when it comes.

“We need to have a structurally balanced budget because we are entering the end of the beginning of a new phase of economic reality,” Newsom said. “The headwinds are real.”

Even with that caution, Newsom has ample money to spend on shoring up the state’s safety net, including adding two weeks to the state’s paid family leave, doubling his proposed tax credit for families with young children, and spending $1 billion to help homeless people.

Democrats applauded the proposal, especially Newsom’s plans to pay down certain debts ahead of schedule and to continue saving money in reserves. In the past, recessions have prompted to lawmakers to slash social services that Democrats value.

“By saving prudently, we build a stronger foundation on which we can support vital safety net and school programs in good times and bad,” Assembly Speaker Anthony Rendon said in a statement. “This way, we can avoid cutting those programs short when times are tough and when they are most necessary.”

Newsom and his team are predicting a $21.5 billion surplus, up from the $21 billion they projected in January. The flush funds show that “California is at an extraordinary moment in its fiscal history,” Legislative Analyst Gabriel Petek wrote in April.

‘These episodes don’t last forever’

The current economic expansion dates to 2009 and is among the longest periods of growth in U.S. history. Newsom’s budget does not predict when the growth will end, but it notes, “history shows that these episodes do not last forever.”

Newsom is still advocating for a handful of new taxes and fees, including a fine on Californians who don’t buy health insurance and higher taxes to clean up drinking water in communities with unhealthy water sources, proposals that have drawn rebuke from Republicans.

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Although Assembly Budget Committee Vice Chair Jay Obernolte said there’s “plenty to like” in the budget, the governor’s plan to increase taxes despite a record surplus “defies logic.”

“We certainly need to fix our water infrastructure and upgrade our 911 system, but we can easily do that without taking more from Californians who have already been taxed to the breaking point,” the Big Bear Republican said in a statement.

The budget includes $81.1 billion for education spending, most of which is required by the state constitution. It also adds $150 million for teacher retirement plans, adding to the $7.8 billion in supplemental payments to California pension funds that Newsom requested in January.

That money could offset some expected rate increases that would be handed down to California school districts, which have been struggling with rising pension costs.

‘A stain on the state of California’

Newsom’s revised proposal also adds an $150 million in grants for communities to build programs that help the homeless, setting aside a total of $650 million for those efforts. It has extra money that would help the homeless through college programs, workforce grants and mental health resources.

Newsom characterized the issue as a “crisis” in the state, which is home to a quarter of the nation’s homeless population.

“It is a stain on the state of California,” Newsom said. “This homeless issue is rightfully top of mind for people all across this state. They’re outraged by it. They’re disgusted by it.”

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Sacramento Mayor Darrell Steinberg leads a group of mayors that successfully pushed Newsom to increase funding for communities to help the homeless. The city could receive more than $10 million directly from the new proposed budget, which is almost twice as much as last year, Steinberg said, which will help it open more large homeless shelters with services to move people to housing.

“The skeptics always ask, ‘how are you going to fund these triage shelters,’” Steinberg said. “This is part of the answer.”

Newsom’s updated budget also adds $130 million for child care — mostly from taxes raised on legal marijuana sales — and doubles a proposed tax credit for families with children under 6 from $500 to $1,000.

He and the Legislature have a little more than a month to reach a new spending deal. Newsom indicated he’s open to negotiate on some of the most controversial elements of his plan, notably his proposed water tax, and encouraged lawmakers to bring him different ideas.

“You’ve got better ideas? I’m all ears,” he said, addressing the Legislature during his Thursday announcement. “Let’s get something good done that represents the best of this state.”

Hannah Wiley and Theresa Clift contributed to this report.

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Sophia Bollag covers California politics and government. Before joining The Bee, she reported in Sacramento for the Associated Press and the Los Angeles Times. She grew up in California and is a graduate of Northwestern University.
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