SACRAMENTO >> Staring down a bear of a budget deficit last January, Gov. Gavin Newsom came up with a program to shrink California’s deficit.
But as of January, the Fiscal Year 2024/25 deficit stood at $44.9 billion. Newsom’s plan includes eliminating 10,000 vacant state jobs and placing a hold on an expansion of subsidized childcare and other cuts, noted Niesha Fritz, communications director for Sen. Pro Tem Mike Mcguire. A series of public hearings took place at the capital in the weeks of May 13-17 and extended to May 20-30.
Last week Senate Pro Tem Mike McGuire and Assembly Speaker Robert Rivas spoke on ways to tackle the deficit. In an email Nick Miller, Communications director for Assembly Speaker Rivas noted the speaker aimed negotiations on preserving programs that matter the most to state residents, lowering the cost of living, expanding affordable housing access, while sustaining public services. “The legislature’s budget plan restores funding to build more homes, supports k-12 classrooms and rejects many of the cuts that impact our most vulnerable residents,” Rivas said.
Niecha Fritz in an email to the Record-Bee, noted, current negotiations make necessary decisions, meeting the needs of this critical time. “It maintains our commitment to strong public schools, investing in needed resources in homelessness and workforce housing, health care access, resources to keep our communities fire safe, key climate investments and more,” said McGuire. “I’m grateful for the partnership of Speaker Rivas, and the hard work of our budget chair.”
Fritz also relayed a series of tweets from Pro Tem McGuire regarding deficit reduction efforts. McGuire said, “The budget includes more than $29 billion in solutions, in addition to the $17.3 billion approved last month as part of the early action plan. And it provides a balanced spending plan for the 2024-25 and 2025-26 Fiscal Years.
Meanwhile, Assemblyman Jesse Gabriel, (D-46th), chair of the Budget Committee said, the Governor’s revised budget proposal would: cut significantly into undisbursed one-time funding appropriated in recent years, reduce state administrative costs, cut planned Medi-Cal provider rate increases planned for next year and other health and human services programs, and reduce further planned expenditures on housing and homelessness programs, reduce the proposed reliance on state rainy day funds for the 2024-25 fiscal year from $12.2 billion to $3.3 billion.
His office supported the January Budget proposal, to shift Proposition 98 costs from the 2022-23 Budget Act, above the revised constitutional guarantee calculation, to the 2025-26, 2026- 27, and 2027-28 fiscal years. This cost shift is estimated at $8.8 billion.
There are multiple ways to estimate the size of the state’s deficit for reference purposes, Gabriel’s Committee said. Yet the Newsom Administration estimates that the deficit, at $45 billion in January shrunk by $17.3 billion due to actions already approved by the Legislature in the “early action” Assembly Budget Committee in May and April. With the state’s major tax revenue projections across the 2022-23, 2023-24, and 2024-25 now lowered by $10.5 billion in the Newsom’s May Revision, the 2024 deficit grows by a net amount of $7 billion. The May Revision estimates the state must now address a $27.6 billion deficit this year, and likely deficits of around $30 billion per year beginning in 2025.
However, the Legislative Analyst’s Office (LAO) likely will report a larger 2024 deficit estimate, mainly because it classifies a major Proposition 98 proposal as a “policy change” needed to balance the budget, rather than a “baseline” budget policy consistent with existing law and standard practice, Gabriel’s office noted. In addition, the LAO’s most recent revenue estimates for 2022-23, 2023-24, and 2024-25 are somewhere around $10 billion lower than those in the May Revision.
The LAO is a nonpartisan fiscal policy advisor and published comments on the May Revision on May 17, 2024. They said the following:
The Governor cites a budget problem of $27 billion. Based on the administration’s revenue estimates and proposals, we (LAO) estimate a larger deficit than this—$55 billion. The difference is attributable to what our offices consider to be current law, particularly for school and community college spending. While we would maintain that our approach more accurately reflects current law, these scoring differences do not reflect substantive differences in our views of the state’s fiscal position.
The governor’s May Revision primarily solves the budget problem by adjusting spending. Spending-related solutions (including both school and community college spending and other spending) represent nearly 90 percent of the total solutions. The Governor, reduces the state’s reliance on reserves—using only $4 billion in reserve withdrawals to cover the deficit, significantly less than the $13 billion previously proposed .
In the final budget deliberations, we suggest four revisions. First, with decline in prior-year revenues, the Legislature must decide how to address prior-year funding for schools and community colleges. Second, the Governor proposes ongoing spending reductions totaling $8 billion within a few years, which involve trade-offs and reductions to core service levels. Third, we suggest the Legislature consider if particular proposals raise serious concerns. For example, two proposals raise our concerns: suspension of net operating loss (NOL) deductions and unallocated state operations reductions. Finally, given that our revenue figure is below the governor’s, we suggest the Legislature consider whether or not it is comfortable with this downside risk to the state’s budget picture.
