Governor’s May Revise: Everything Old is New Again

Gov. Gavin Newsom released his May Revise budget plan on Thursday – a dramatically different budget from his January plan that anticipated a $5.6 billion surplus.  California now faces a $54.3 billion deficit.

In a press conference that lasted more than an hour (brief for Newsom), I was reminded of the famous song from “All the Jazz” – “Everything Old is New Again.”

Newsom spoke about paying down what former Gov. Jerry Brown infamously called the “wall of debt” – or the fund shifts, internal borrowing and other budget gimmicks relied upon during much of the 2000’s to avoid making tough budget choices.   But then he turned around and proposed billions in new internal borrowing and fund transfers.

He talked about the wisdom of having a rainy day fund reserve and using the current $16.2 billion in proceeds to reduce the severity of proposed cuts over three years.  Ironically, the rainy day fund was long a priority of Republicans fought by Democrats, becoming reality in 2014 thanks to the leadership of former Assembly GOP Leader Connie Conway.

Newsom resurrected the concept of budget “trigger cuts” – proposed cuts to popular programs that would disappear if the state received an infusion of cash.  In this case, $14 billion in cuts would disappear if President Trump agrees to sign the so-called HEROES Act proposed by Speaker Pelosi featuring a $1 trillion bailout for state governments.

Several years ago, former Gov. Jerry Brown employed a similar strategy, proposing “trigger cuts” that would go away if Californians passed massive tax increase (Prop. 30).  In this case, Newsom is setting up Trump to blame for these potential cuts.  If Trump rejects the Pelosi plan – as is likely – look for Newsom to shift course and channel Brown in pressuring Californians to approve a big tax hike to avoid these cuts.

Now things shift to the Legislature, where Assembly budget subcommittee hearings begin this week.  Legislative Democrats have different priorities from Newsom.

Senate President Pro Tem Toni Atkins, D-San Diego, and Budget Committee Chair Holly Mitchell, D-Los Angeles, revealed their own budget approach last week, identifying $94.8 billion in “potential available solutions” over two fiscal years, such as receiving between $33 billion and $66 billion from the federal government.  Don’t count on that.

A just released report from the Tax Foundation on the HEROES Act estimates that California state government could receive roughly $20 billion in “guaranteed” aid.  Factoring in funding that would be allocated based on the number of COVID-19 cases and unemployment claims, and California could get roughly $27 billion more.

But this is all fantasy.  Pelosi’s partisan bill will surely not become law, though Republicans may agree to some increased money for states.

“We must do all we can to help heal our economy, while ensuring that our solutions do not create further harm,” Atkins said in a statement.

Their plan includes a scheme to prevent renters from being evicted through a new tax credit for landlords, and a $25 billion “Economic Recovery Fund” that would be generated through a prepayment of future taxes.  The money could be used for, among other things, “green economy investments” and “infrastructure project acceleration” – perhaps high-speed rail.

Atkins also said that Senate Democrats are aiming to “not increasing broad-based taxes for middle-class Californians.”

Assembly Democrats may have another idea.  Assembly Budget Committee Chair Phil Ting, D-San Francisco, said in a recent statement that, “revenue options and expenditure reductions will be explored at the same time” – putting them at odds with their fellow Democrats.  In a memo, Assembly Democrats said they anticipate releasing their own budget plan by May 29.

Originally, lawmakers and the Governor anticipated passing a “baseline” or placeholder budget in June, then enacting a significant revision after the July 15 tax deadline.  All sides now agree that the gravity of the state’s fiscal situation requires tough decisions to be made now.

This will mean a lot of backroom discussions at the Capitol in the first half of June to reconcile their different priorities as lawmakers race to meet the June 15 constitutional budget deadline – and, of course, keep their paychecks coming.

Republican San Diego Mayor Kevin Faulconer, perhaps said it best, tweeting, “Checks from Washington won’t solve this.  Tax increases won’t solve this.  The only long-term way to fund our schools and balance the budget is to let people safely work and earn a paycheck again.”

Tim Anaya is the Pacific Research Institute’s senior director of communications and the Sacramento office.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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