Legislative Democrats Enact Their State Budget Plan – How Will Newsom Respond?

Legislative Democrats Enact Their State Budget Plan – How Will Newsom Respond?

On Wednesday, Legislative Democrats announced a budget “deal” amongst themselves, passing their own 2021-22 state budget plan.  Now the ball is in Gov. Gavin Newsom’s court to reach agreement on a final budget before the June 15 constitutional deadline.

While the Los Angeles Times notes that “the $267 billion legislative plan largely aligns with Newsom’s proposal,” there are some key differences.

“I’d say that we restructured a few things,” Senate Budget Committee chair Nancy Skinner, D-Berkeley, told the Times.  That’s an understatement.

One big difference involved revenue estimates.  Legislative Democrats rely on rosier estimates from the nonpartisan Legislative Analyst’s office, which at $186.4 billion are $7 billion higher than Newsom’s estimates.

“By (the) 2024-25 (fiscal year), the (Legislative Analyst’s office) initial forecast is approximately $20 billion above the Administration’s May Revision forecast of $187 billion,” the Senate Budget and Fiscal Review Committee notes.

In other words, this is a green light for Legislative Democrats to spend even more than Gov. Newsom’s “historic, transformational budget.”

This includes, according to the Sacramento Bee, “$1 billion more than Newsom slated for state-funded child care and preschool providers” and “an even larger $400 million expansion for public health (budgets).”

“Newsom proposed expanding eligibility for the state’s Medi-Cal program to undocumented people over age 60,” the Bee reports, but “lawmakers’ proposal would drop that threshold to 50.”

And, as CalMatters notes, “the Legislature allocates $1 billion in annual funding for cities and counties to address homelessness over the next four years,” which Newsom’s budget doesn’t include.

Another difference is, as the LA Times characterizes, a move to “rethink Newsom’s plans for almost one-fourth of the $27 billion in federal funds the state is slated to receive under the relief law approved this year by Congress and President Biden.” Legislative Democrats want to use this maneuver to pay off additional public school pension debt.

Congressional Republicans warned during the recent Congressional stimulus debates that federal stimulus dollars would – in this case indirectly – go to bailout broken state public employee pension funds rather than help Americans who were truly in need.

As the Orange County Register editorial board put it earlier this year, “the federal bailout for local and state governments is not a direct cash infusion for any pension fund . . . (but) if federal taxpayers help them pay for some other expenses, they indirectly are helping them sustain their bad pension decisions.”

The big question for Newsom is whether he’ll go along with the Legislature’s more generous spending plan.  Department of Finance spokesperson H.D. Palmer told the Bee that Newsom’s team is wary of using higher revenue projections, “given the high amount of economic uncertainty as the country emerges from the Covid-19 downturn.”

Expect Newsom to split the difference in reaching a final budget agreement.  This will inevitably involve him reneging on his budget philosophy by spending one-time money on new, ongoing spending.  While we can afford it in year with a $75.7 billion budget surplus, deficits are just around the corner.

As the Associated Press reports, Newsom had to change some of his initial budget plans when the feds disallowed his original plan to spend stimulus dollars for childcare, which “means that the state’s projected deficit at the end of 2024-2025 will be $1 billion instead of $500 million.”  Embracing Legislative Democrats’ new ongoing spending plans will surely raise that figure higher.

Skinner pushed back on criticism about lawmakers blowing up future deficits in their plan, saying that “(if) we have to cut it back, then so be it.”

Of course, that will never happen.  If the state faces an economic downturn and rising deficits, Skinner and her colleagues will surely demand tax increases, rather than cutting their own unsustainable spending.  That’s the real story of this year’s budget – record spending that inevitably puts us on the path to higher taxes when the good times end.

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

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