California is ready to weather the looming recession — and a more than $20 billion budget shortfall — without shirking its commitments in the crucial areas of education, homelessness and fighting wildfires and the drought, Gov. Gavin Newsom attempted to reassure Californians on Tuesday as he unveiled his proposed $297 billion budget.
Newsom’s presentation was decidedly more somber than those of last year and the year before, when California enjoyed massive surpluses that allowed Newsom to send checks directly to residents, while also pouring one-time funds into everything from climate change to homelessness. This year, the governor wants to balance the budget largely by cutting funds for climate and transportation — and hopefully making up for those slices with federal funding. He also proposed delaying some funding commitments and borrowing, but stopped short of tapping into the state’s more than $22 billion in rainy day funds.
“We’re keeping our promises,” Newsom said. “I want folks to know that regardless of this modest shortfall, we’ll continue to make unprecedented investments in transforming public education and higher education…addressing this homeless crisis straight on, no cuts in that space, housing affordability – continue the progress we’ve made.”
In November, the state’s fiscal analyst delivered the grim news that California would face a projected $24 billion shortfall this year — a dizzying turnaround after last year’s unprecedented $100 billion surplus. Newsom’s estimate is slightly rosier — he predicts a $22.5 billion deficit.
With the entire country struggling on the brink of a recession amid soaring inflation and skyrocketing interest rates, it comes as no surprise that California will have to tighten its belt this year. Newsom has long been warning a downturn is on the horizon. But the deficit, which comes as the governor is emerging as a rising star on the national stage and sparking rumors of presidential ambitions, are likely to taint his political profile. And those budget woes will follow him throughout his next four years in office. The state is expected to face a $17 billion deficit next year, and shortfalls will continue at least through the 2026-27 fiscal year, according to the state’s Legislative Analyst’s Office.
Last year’s $300 billion budget sent out tax refund checks directly to Californians, invested in new programs to stem homelessness and climate change, and funded infrastructure projects. Nearly all of the funds were one-time allocations. That decision frustrated housing and homeless services providers because it precluded them from planning for long-term solutions. But Newsom argued it was prudent, as it set the state up to weather an economic downturn.
Unveiling his budget proposal is one of Newsom’s first actions since starting his second term as governor. After leading a march through Sacramento to the capitol building Friday, he used his inaugural address to launch several barbs at Republicans — proclaiming “the battle lines are drawn.”
Tuesday’s presentation marks the start of a lengthy budget process. The governor will revise his budget proposal in May based on the latest economic conditions, at which point the legislature will make its changes. Newsom will sign a final version this summer.
This is a developing story. Check back for updates.