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California budget deficit balloons to $32 billion


$10 billion more than previously predicted

California’s budget deficit has grown to nearly $32 billion, Gov. Gavin Newsom announced on May 12, saying the state’s challenges are partly due to high federal inflation rates and the state’s decision to let some people delay filing their taxes after winter storms.

That’s about $10 billion more than Newsom predicted in January, when he offered his first budget proposal.

He’s now detailing his latest proposal for state spending in the fiscal year that starts July 1. The state’s total budget is about $306 billion, which is far larger than any other state budget.

California is one of the only states to have a shortfall this year. That’s mostly because its progressive tax code relies on wealthy taxpayers whose income is closely tied to the performance of the stock market.

In January, Newsom proposed a number of ideas to cover the deficit, including $9.6 billion in spending cuts.

His latest proposal adds another $1.1 billion in spending cuts and up to $3.9 billion more if revenues don’t improve.

He’s making up the rest of the deficit by shifting expenses, taking some money from the state’s safety net reserve and borrowing.

“We are walking into a budget where we need to maintain our prudence,” Newsom said.

The deficit is small compared to the cash crunch that the state faced during the last recession.

But the challenge for Newsom will be persuading lawmakers to spending cuts who are not accustomed to enacting them.

Since taking office in 2019, Newsom’s biggest budget fights with the Democratic-controlled state Legislature is how to spend California’s record-breaking surpluses. Agreeing on what to cut could be much more difficult.

Newsom’s plan in January was to cut money for flood protection projects, delaying an expansion of a subsidized child care program and canceling a $500 million plan to help small businesses pay higher tax rates associated with some state debt.

On May 11, Newsom announced that he was restoring money previously cut from flood protection projects, plus introducing another $250 million in new spending, which includes raising a levee to protect the Central Valley community of Corcoran.

It’s not yet clear if he can or will relent on his other proposed cuts. Newsom signed off on an expansion of a subsidized child care program last year that would pay to help an extra 20,000 families.

But because of the deficit, Newsom proposed delaying that funding for one year. He argued that the state was having trouble filling the childcare slots it already had.

That angered some Democratic lawmakers, who said the reason the state was having trouble filling its childcare slots is because there aren’t enough childcare workers.

On May 8, Democrats in the Assembly proposed $1 billion in new spending to increase the pay of childcare workers.

“Now, we just need to put a little pressure on the governor to make sure he’s on board,” Assembly Majority Leader Eloise Gomez-Reyes said late last week.