California Gov. Gavin Newsom detailed plans to rein in his progressive policy agenda to offset an estimated $31.5 billion budget deficit for the state during a Friday presentation explaining his revised spending proposal.

The state expects tax collections in the coming fiscal year to fall short of money allocated to programs essential to millions of Californians.

a lot of

its selection programs.

The governor’s proposal includes shifting funding to bonds, tapping $450 million from the state’s safety net reserve and renewing a tax on managed care programs to support Medi-Cal, while moving forward with plans to increase climate-related increases. and transportation programs.

The projections indicate that the generosity of Newsom’s first term is over and to what extent he should now retire

and in the coming years

could have implications for Democrats in the state legislature and its own political legacy.

This has not been an easy budget, but I hope you see that we did our best to hold the line and take care of the most vulnerable and most needy, but still remain cautious,” said Newsom.

“I am well aware of how concerned people have been about the impact on these basic core issues: education, housing for the homeless, healthcare, mental health, climate policy, public safety in general, and of course the issues of economic development, jobs, workforce development,” said Newsom.

As expected, the gap in the state budget widened following January estimates of a $22.5 billion deficit and marks a dramatic turn from last summer, when Newsom issued a $100

-billionB

surplus.

Newsom and Democrats anticipated the possibility of a budget deficit and have been cautious in recent years

well usually

avoiding setting up expensive new programs or rights, and

other

instead placed most of the excess revenue in the budget for one-off funding allocations.

The governors

rated

$306.5 billion

be able to

The budget proposal largely calls for the state to cut funding increases for programs, with little to no calls for immediate reductions below current investment levels for programs and services.

The plan calls for shifting climate change spending to a bond, tapping $450 million in safety net reserves and relying on a tax on managed care organizations to support Medi-Cal.

Why are budget protections so uncertain this year?

Unlike in previous years, more uncertainty looms over California’s financial situation at this point in the budget process, raising the possibility of budget cuts.

The federal

and states

government

sand the state

extended income tax filing deadlines from April to October

for most Californians

this year, slowing down the state’s ability to get a more concrete picture of

his state

earnings above estimates through this fall. in California,

residents of

55 of the 58 counties representing about 99% of the population are allowed to file late without consequences.

Newsom said the state plans to defer cash receipts will total about $42 billion.

The federal government is also on the verge of defaulting on its debts, adding to uncertainty.

How did the state go so drastically from too much money to too little?

California’s state budget relies heavily on income tax revenues paid by the highest earners and

is therefore

subject to the ebb and flow of capital gains in the stock market, bonuses to executives and IPOs IPOs as companies begin to sell stock to investors.

Chris Thornberg, an economist and founder of Beacon Economics in Los Angeles, said the shortfall was predictable and caused by politicians themselves.

Federal COVID-19 stimulus funding artificially inflated state income taxes higher than ever before, resulting in the record surplus. And what goes up

,

must come down, he said.

Newsom said during his presentation that capital gains will account for 11.3% of personal income in California by 2021.

“If capital markets were rising at a nice steady pace year-over-year, this wouldn’t happen, but it’s not happening,” he said. “They rise up and then collapse again.”

It would have been prudent to set aside the surplus and not spend it rather than spend the money on one-time programs, Thornberg said.

Newsom has repeatedly emphasized his decision to limit most new spending to one-time funds, a strategy

that too

prevent

S

creating new permanent demands on the state budget as revenues decline

ped

.

But even temporary programs can be costly. The governor and lawmakers have provided $9.2 billion in gas rebates to 32 million Californians since they approved the payments in a budget agreement last June.

Thornberg said the state has seen the same kind of revenue rise and fall twice over the past quarter century, in the late 1990s and mid-2000s.

“Both times the state was hit with a $30 billion shortfall because of this,” Thornberg said. “It was perfectly clear what happened this time and they all acted like it wasn’t a big deal, and here we go again.”

Does this mean we are in a recession?

the

American economyUnited States

is not in recession, a fact that Thornberg says protects the state from free-falling into a larger fiscal crisis.

California’s unemployment rate remained at a low 4.4% in March, its most recent month

for which figures are available

available. Jerry Nickelsburg, director of the UCLA Anderson Forecast and professor of economics, said job numbers also hit an all-time high that month.

“The data tells us

is

That, sector by sector, California should outperform the US in the coming years, and that California has been growing faster than the US for decades,” Nickelsburg said. a drop in 2023, that it would be milder in California than in the US”

Whether a recession is on the horizon remains an open question, Nickelsburg said.

The kind of imbalances that normally cause a recession, such as too many houses being built or too many cars for sale, do not exist at the moment. But the delayed impact of previous rate hikes has yet to materialize in full, and the Federal Reserve could continue to raise rates, he said.

Thornberg was more optimistic.

“The reality is the economy is fine,” Thornberg said. “Consumers still have tons of money. There are no foreclosures. The housing market, while overpriced, is solid. There are no bad debts. The whole thing is overblown.”

What’s next?

A governor’s May revised budget proposal traditionally serves as a catalyst for intensified spending negotiations with the legislature. Lawmakers have until June 15 to approve a

stands

budget for the following financial year.

The two sides already disagree on how to proceed.

The state senate introduced a plan late last month to offset the budget deficit by raising taxes on about 2,500 of the largest companies operating in the state and reducing an existing

net operating loss

tax credit for businesses

resulting in a net operating loss

. Senate budget

Commission

Chair Nancy Skinner (D-Berkeley) said the proposal would reverse some of the Trump-era corporate tax cuts. She estimated the change could bring in $7 billion in year one and $6 billion each

next

year.

Newsom’s office responded with a firm “no.”

The Newsom administration cannot support the new tax increases and massive current spending proposed by the Senate,” Anthony York, the governor’s communications adviser, said in a statement. made to help the most vulnerable as we put our state on sound fiscal footing.

In January, Newsom proposed cutting funding increases for climate change programs and transportation and delaying investments for 20,000 new childcare slots.

Instead, Assembly Speaker Anthony Rendon (D-Lakewood) has proposed

That

the state is diving into its rainy day fund, which he says is made for this kind of situation.

So far, Newsom has refused to tap the $23.3 billion

rainy day

fund

or other bills that include the state’s $37.2 billion in budget reserves

given the economic uncertainty across the country and the potential need for those funds later in the event of a recession.

Newsom’s budget plan suggests the revenue decline through 2026-27 could be another $100 billion.