“This is our plan to get California not only back on its feet, but [to get] California roaring back, once again, to its rightful status as the most essential and dominant state [and] one of the most essential modern economies anywhere in the world.” – Governor Gavin Newsom
New Budget Based on Record Revenue Growth
Relying on a “once in a lifetime” surge of $65 billion or more in state revenues and an estimated $25 billion in new federal COVID-19 relief funds, Governor Gavin Newsom is proposing a revised state budget for FY 2021–22 that includes $40 billion more in spending than he put forward just four months ago when he first proposed a budget for 2021–22.
Newsom presented his updated budget on Friday, May 14, 2021, following a weeklong series of events where he expressed fiscal optimism and highlighted new policies intended to signal his confidence that California is already on the path to recovery from the COVID-19-induced recession that stalled the state’s robust economic growth in 2020.
The primary sources of the state’s unprecedented revenue growth are the capital gains realized from investments by wealthy Californians who pay most of the state’s personal income taxes and corporate tax revenues from those companies that thrived during the nation’s stay-at-home orders over the past year.
California Comeback Plan
The Governor’s “California Comeback Plan” proposes to spend $100 billion to “hit fast forward on our state’s recovery by directly confronting California’s most stubborn challenges.” Newsom identifies these challenges as:
- Providing immediate relief for those hit hardest by the pandemic
- Confronting the homelessness and housing affordability crisis
- Transforming public schools into gateways for opportunity
- Building infrastructure for the next century
- Combating wildfires and tackling climate change
The plan must be approved by the legislature to take effect, and there is no doubt that it will pass largely as proposed given the Democrats’ supermajority control in each house.
“Thank goodness California is in the position to make transformative investments to end family homelessness, lift those hurt by the pandemic and properly fund our schools. Governor Newsom’s proposed budget does that and more, and complements the state Senate’s priorities. Let the negotiations begin.” – Sen. Nancy Skinner, D-Berkeley
This Is Not a Time for "Small Ball"
Governor Newsom’s California Comeback Plan is the centerpiece of a $267.8 billion budget proposal that reflects his view that the state’s COVID-19 recovery requires “a historic, transformational budget.”
Given the state’s strong cash position, the Governor is proposing stimulus checks for millions of low-income Californians as well as college savings accounts for eligible children and an additional round of grants of up to $25,000 for businesses set back by COVID-19. He also is including substantial infrastructure investments to modernize the state’s roads and bridges, additional investments for safe drinking water and to advance long-duration energy storage, and significant resources to expand broadband access. His budget also calls for billions in spending for workforce development and substantial regional job creation to focus on the transition from petroleum to a net-zero carbon economy.
For public education, Newsom’s budget would increase overall K–12 spending to the highest level in California history, with per-pupil expenditures rising to more than $14,000 annually; create a new statewide transitional kindergarten program; and expand child care resources for working parents. The University of California and California State University systems would each receive a $300 million increase.
His budget would also expand eligibility for Medi-Cal to include undocumented Californians over age 60. Although a major step toward providing “Medi-Cal for All,” the proposed expansion does not cover many younger undocumented adults, which is likely to be a point of contention between the Governor and the legislature as the final budget is negotiated.
Newsom’s revised budget also proposes to pay back and increase the state’s financial reserves by putting a record $24.4 billion into state reserve accounts, including the constitutionally mandated Rainy Day Fund. The Governor’s proposal to make a record investment in the state’s reserves while also carrying out record spending reflects his particular brand of progressive politics: Be willing to spend big to overcome society’s greatest ills, but keep something in the bank for the ills you can’t see coming.
The Budget and the Recall
This historic budget proposal could not come at a more consequential time for the Governor, as his view as to what is best for the state will be on the ballot this fall when he faces a recall election and then again in 2022 when he campaigns for reelection.