California Democratic leaders have reached an agreement on a plan to address the state’s $17.3 billion budget shortfall, which has been exacerbated by the impact of the COVID-19 pandemic. Governor Gavin Newsom, who previously had surplus budgets, is facing a significant deficit due to the economic downturn. Last year, the state was able to avoid major spending cuts by borrowing and deferring expenses, but this year’s deficit could reach as high as $73 billion. The governor has proposed tapping into reserves and cutting spending to address the shortfall.
The new agreement with Democratic lawmakers includes $3.6 billion in cuts to school, welfare, and climate programs, as well as delays and deferrals of $5.2 billion in spending for various programs. It also authorizes Newsom to freeze additional one-time funding included in the budget for the past three years. Lawmakers passed legislation to increase the state’s tax on managed care health plans, which is expected to generate $3.8 billion in revenue. The plan does not impact major spending commitments such as free health insurance for low-income adults.
Governor Newsom praised the agreement as a result of responsible fiscal stewardship and record budget reserves of close to $38 billion. Lawmakers are expected to vote on the new budget plan next week, with more negotiations to follow before the June deadline. Democratic leaders emphasized their commitment to delivering an on-time balanced budget and called the agreement a critical first step in addressing the state’s shortfall. However, Republican lawmakers criticized the plan, stating that they were shut out of the conversation and had no input into the agreement.
Unlike the federal government, California law requires the state to pass a balanced budget, meaning it cannot spend more money than it has. Newsom will present his revised budget proposal in May, and lawmakers have until June 15 to pass the budget. The plan aims to address the significant deficit facing the state and ensure that essential programs and services are maintained despite the economic challenges brought on by the pandemic. The governor and Democratic leaders are working together to navigate the financial difficulties and build a strong future for California.
