SACRAMENTO – California and its state-sponsored programs are entering a period of volatile financial uncertainty, driven largely by events in Washington and on Wall Street.
Gov’s budget officer. Gavin Newsom warned on Friday that the spiraling money related to the growth of intelligence will be offset by increased spending and reductions in federal funds. The result: a $3 billion federal deficit for the next fiscal year despite no new spending plans.
The Newsom administration on Friday released its proposed $348.9 billion budget for the fiscal year that begins July 1, officially launching discussions with the Legislature about spending priorities and policy goals.
“This budget reflects both confidence and caution,” Newsom said in a statement. “California’s economy is strong, revenue is exceeding expectations, and our fiscal position is stable thanks to years of prudent fiscal management — but we remain disciplined and focused on driving progress, not overextending it.”
Newsom’s proposed budget did not include funding to reverse major cuts to Medicaid and other social assistance programs by President Trump and the Republican-led Congress, changes that are expected to lead to millions of low-income Californians losing health care coverage and other benefits.
“If the state doesn’t stand up, communities across California will collapse,” the California State Assn. Counties CEO Graham Knaus in a statement.
The governor is expected to revise the plan in May using revised revenue estimates after the income tax filing deadline, when lawmakers need to approve a final budget on June 15.
Newsom did not attend Friday’s budget presentation, which was unusual, choosing instead to have California Finance Director Joe Stephenshaw questions about the governor’s spending plan.
“Without significant increases in spending, there are also no significant reductions or reductions in budget programs,” said Stephenshaw, noting that the proposal is a work in progress.
California has an unusually volatile revenue system – one that relies heavily on personal income taxes from high-income residents who benefit from their income rising and falling sharply in the stock market.
Heading into state budget talks, many expected to see a significant tightening of the belt after the non-partisan Legislative Auditor’s Office warned in November that California was facing a budget shortfall of nearly $18 billion. The governor’s office and the Department of Finance do not always agree on, or use, LAO rates.
On Friday, Newsom’s administration said it was projecting a much smaller deficit — about $3 billion — after receiving higher revenue for the next three fiscal years than last year’s forecast. The gap between the governor’s estimate and the LAO’s prediction shows a different assumption about the risk: LAO proved that there is a possibility of a big drop in the stock markets.
“We don’t do that,” Stephenshaw said.
