How Gavin Newsom plans to close California’s huge budget gap during coronavirus pandemic

Gov. Gavin Newsom discusses his revised state budget proposal during a news conference at the CalFire/Cameron Park Fire Station in Cameron Park, May 13, 2020.

Gov. Gavin Newsom discusses his revised state budget proposal during a news conference at the CalFire/Cameron Park Fire Station in Cameron Park, May 13, 2020.Photo: Rich Pedroncelli, AP

By Alexei Koseff

SACRAMENTO — California would scale back public services, temporarily limit corporate tax credits, slash state workers’ pay and borrow from special funds to close a $54 billion deficit that has opened up during the coronavirus pandemic, under a revised budget plan Gov. Gavin Newsom unveiled Thursday.

Schools would be hit hard by required funding cuts and the state would forgo new health services that it hoped to provide for homeless and disabled Californians. More than $6 billion in proposed spending increases would be canceled, including an expansion of the state’s health care program for the poor to undocumented immigrants over age 65 and additional support for University of California and California State University.

The $203 billion proposal is nearly 9% smaller than the plan Newsom laid out in January, which would have been a record $222 billion budget with an estimated $6 billion surplus. That plan evaporated with the coronavirus pandemic, as the economy withered under a prolonged statewide stay-at-home order. Finance officials project the unemployment rate will reach nearly 25% in the coming months.

The governor’s revised plan relies on tapping cash reserves and on hopes that the federal government will supply aid to minimize reductions. Without more money from Washington, an additional $14 billion in cuts would be triggered, including 10% funding reductions to universities and to public employee compensation.

At a news conference Thursday, Newsom pleaded with Congress to pass a nearly $1 trillion bailout for states and local governments that has been proposed by House Speaker Nancy Pelosi.

“This pandemic is bigger than any one state,” he said. “The magnitude of what we’ve been asked to do is very, very significant, and that’s why the federal government is so important.”

An expected $41 billion decline in state tax revenue would leave public schools facing a $15 billion shortfall next year under a constitutionally mandated funding formula. Newsom proposed to offset some of that loss by raising new revenues and giving schools a supplemental budget appropriation of up to $13 billion over the next three years.

By temporarily suspending write-offs of net operating losses and limiting tax credits for corporations to an annual maximum of $5 million, state finance officials estimate California can raise an additional $4.4 billion next year from corporate tax filers and nearly $5 billion in the two years after that.

Newsom also wants to redirect $2.3 billion intended to help pay down unfunded pension liabilities to the state public employee and teacher retirement systems, using it instead to help shore up public-school and community college budgets over the next two years.

“It will communicate very clearly — it should — to these districts that these cuts are not permanent,” Newsom said. He argued that would make it easier for them to figure out how balance their own budgets over the long term.

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