California surplus expected to hit record $97 billion under Newsom’s budget plan

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The California government’s surplus is expected to reach $97.5 billion by next summer under the budget plan unveiled Friday by Governor Gavin Newsom, an estimate that eclipses previous projections and comes amid fears that the rising inflation and obscure spending rules only throw state finances into disarray. in the near future.

“No other state in American history has ever had such a large surplus,” Newsom said at a news conference in Sacramento.

The new budget plan estimates total spending in the fiscal year that begins in July at $300.6 billion, an increase of $14 billion from what Newsom proposed to lawmakers just four months ago. . The governor’s plan asks lawmakers to spend billions on a series of new items: an inflation-fighting program for Californians, more money to deal with dangerous drought and wildfire conditions , subsidies for low- and middle-income health care plans and the highest per-pupil levels of school funding in state history.

Public spending on the scale envisioned by Newsom would be made possible, in large part, by the remarkable investment income of California’s wealthiest taxpayers.

The governor’s new budget, a revision of the plan he proposed in January, underscores the outsized role that taxes paid on capital gains have on state finances. Those dollars represent a higher percentage of personal income taxes collected than at any time since 1999 — which Newsom’s budget says happened just before the collapse of the dot-com industry in the US. state, an implosion that helped trigger massive state budget deficits for much of the decade that followed.

“For those who are worried about it, they are right to be worried about it. We are keenly aware of that,” Newsom said offering what he insisted was a prudent plan. focused on short-term spending proposals.

Compared to Newsom’s January plan, the most notable change reflects new concerns about the impact of rising inflation. The governor’s budget provides $18.1 billion in short-term relief, with more than 60% of the money to be distributed as $400 cash payments to Californians who own a vehicle.

But this effort found little support in the Legislative Assembly since it was first announced by Newsom in March. Instead, Democratic legislative leaders have called for a plan to distribute relief funds based on adjusted gross income, not whether someone owns a car. Resolving the disagreement over who gets the money will likely be a key part of private negotiations between Newsom and the Legislative Assembly in the coming weeks.

The governor’s inflation-fighting plan also includes money to help struggling tenants who have applied for a state rental assistance program by March 31. Some low-income residents would also be eligible for help paying utility bills and free public transit rides under Newsom’s budget plan. .

Californians who work in hospitals and skilled nursing facilities could receive cash benefits of $1,500 per person under the budget’s inflation-fighting program — or, if the employer provides counterpart, up to $2,000 per worker.

Newsom’s budget overview did not explicitly outline the chances of a sharp reversal in fortunes in the years to come – even though the financial warning signs have been visible for months. In the spring, the Independent Office of the Legislative Analyst reported that a simulation of 10,000 possible state revenue scenarios resulted in shortfalls 95% of the time.

No issue is more important, analysts said, than the puzzling outcome of how new tax revenues are to be treated under a spending limit enshrined in the California Constitution — a 1979 amendment approved by voters that triggers mandatory education spending and tax refunds when cash receipts breach a predetermined cap. Newsom’s new budget foresees no such problems in the near term, proposing spending in areas that are not accounted for in the cap.

Lawmakers, who successfully defused the spending cap problem last year with a short-term fix, have come up with their own workaround for this year. But there is a growing consensus in the state Capitol that the 1979 law must be formally amended by a ballot measure sent to voters in 2024.

The government’s spending plan also reflects the changing political climate. Newsom is asking lawmakers to set aside $125 million for expanded access to abortion services, an effort that kicked into high gear nearly two weeks ago after a draft opinion from the United States Supreme Court to overturn Roe v. Wade. The revised budget plans to spend $40 million in public funds to subsidize abortion-related resources for low-income women, including those who can travel to California from other states.

Not all of the spending decisions contemplated by Newsom’s budget are fully fleshed out.

The revised plan includes few details on the cost of fully implementing the governor’s sweeping proposal to provide court-ordered treatment to homeless people with serious mental health and behavioral health issues. The so-called Community Assistance, Recovery and Empowerment Court would create a new civil justice treatment program for some 7,000 to 12,000 Californians with psychiatric disorders such as schizophrenia who need treatment and shelter to stabilize.

For up to two years, a CARE plan would help connect participants to medication and a variety of mental health services, as well as a housing plan, public defender and personal attorney.

Newsom proposed new funding for the State Department of Aging and $39.5 million for the Judiciary to conduct CARE court hearings and provide other related services. But there is no clear idea of ​​what the state might have to pay for the services that would be provided by county governments.

Since January, lawmakers have held dozens of public hearings to review the governor’s initial budget plan and consider changes. Last month, state Senate Democrats took advantage of the debate over mitigating rising inflation and gas prices to also propose sweeping increases in funding for social services and record cash reserves for general government needs as well as for schools and so-called safety net programs.

Although lawmakers have passed budgets on time for the past decade, the process in recent years has dragged on well past the June 15 constitutional deadline. The governor and Democratic leaders in these cases quickly agreed on a broad framework — to meet the official end date and ensure legislative salaries aren’t lost.

But officials then spent days, if not weeks, haggling over the fine print, eventually laying out the details in supplemental budget bills approved by the Legislative Assembly through votes in early summer.

This story originally appeared in Los Angeles Times.

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