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California's $100 billion surplus: What to know about Newsom's spending plan

Gov. Gavin Newsom discusses the state's zero emission and climate goals at a news conference in the parking lot outside of the Ford Greenfield Labs in Palo Alto on Jan. 26, 2022. Photo by Magali Gauthier.

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"Simply without precedent."

Gov. Gavin Newsom is a man of many superlatives, but even he seemed to struggle Friday to adequately describe just how much extra cash the state of California will have to spend in the coming year's budget: $97.5 billion.

In a press conference in Sacramento, Newsom unveiled his latest record spending proposal for the coming fiscal year. Riding a superheating economy and drawing disproportionately from the state's highest earners, the state is now projected to have a surplus bigger than California — or any state — has ever had, and significantly more than the $76 billion that the governor predicted in January.

Roughly half of the surplus is required by law to be spent on education.

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That leaves "only" roughly $49 billion in discretionary money, and the governor wants to reserve 99% of that for one-time spending: $18.1 billion to provide financial relief for Californians buffeted by inflation, plus $37 billion for infrastructure investments, including $5.6 billion for education facility upgrades, and an extra $2.3 billion for the ongoing fight against COVID-19.

A few of the other big numbers that Newsom mentioned Friday:

• $128.3 billion in education spending, from transitional kindergarten through high school, a record-breaking sum that works out to $22,850 per student.

• Another $23 billion will be parked into the state's rainy day fund, to be drawn upon the next time the economy slows

• $2.5 billion for housing, including $500 million to fund the conversion of vacant malls and storefronts into homes

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• An extra $3.4 billion to pay down state employee retirement debt

The massive windfall that the state is sitting on, coupled with the state's progressive tax system is a sign of "the concentration of wealth and success in the hands of a few that are enjoying abundance in historic and unprecedented ways," Newsom said. "I am proud of California's progressive tax system…and we're the beneficiary of that."

Now the ball is in the state Legislature's court as lawmakers decide where they agree with the governor and which priorities they want to haggle over before the June 15 deadline to pass a final, balanced budget for the fiscal year that starts July 1.

Friday's "May revise" rollout is part of the annual call-and-response between the governor's office and the Legislature over how to spend your tax dollars. Each year, the governor sets the negotiations in motion in January with a preliminary budget proposal. This year, Newsom's proffer included a record surge in K-12 education spending, along with multi-billion dollar proposals to ramp up the state's wildfire prevention projects, convert more vacant hotels into housing for the homeless and open up Medi-Cal, the state's health insurance program for the poor, to all undocumented immigrants.

What Newsom unveiled Friday is a retake on that earlier budget blueprint, but freshened up with new estimates of the state's fiscal future. Tack on the extra surplus money and you end up with a new record-high total: $300.7 billion.

When discussing money on the scale of the California state budget, it's easy to lose perspective. But to be clear, even by Golden State standards, that is an astounding amount of money.

What a difference two years makes. In May 2020, with the state still weathering the first surge of COVID-19, the governor's Department of Finance projected a $54 billion deficit and a year of Great Depression-level unemployment rates. Neither came to pass, just the opposite: Boosted by rosy economic conditions for the state's highest earners and a massive influx of cash from the federal government, state coffers have been overflowing for the last two years.

For the governor and Democratic leadership in the Assembly and Senate, having to divvy up billions of new dollars during an election year is a good problem to have. But on financial aid to struggling families, the scale of the state's drought response, what to do about the sky-high price of gasoline and other pressing policy conundrums, not everyone is on the same page.

Assembly Speaker Anthony Rendon kept his cards close to his chest in a statement, simply heralding his Democratic "teammates" in the Senate. "We know how to work together to present Governor Gavin Newsom with a budget he can be proud to sign by the constitutional deadline," he said.

The Republican minority in the Legislature is so diminished that Democrats don't need their support to pass a budget. But that isn't stopping GOP lawmakers from weighing in, if only to provide voters with a clear contrast as Election Day approaches.

"Newsom specializes in grand announcements and flashy sounding proposals, but he rarely follows through with effective solutions that actually help California families," GOP Assembly leader James Gallagher from Chico said in a statement. "As Californians struggle to fill their tank and put food on the table, Democrats fail to provide any real solutions to cut costs."

Here are other highlights from the governor's latest spending plan:

Cash for Californians

If the average Californian hears anything about Friday's announcement it's probably this: The governor wants to send $400 to most of the state's car owners.

That's been the governor's idea to help drivers bear the cost of historically elevated gas prices. In the face of pushback from environmentalists, he also wants to throw in $750 million to entice transit agencies to make bus and rail travel free for three months. And lest he be accused to throwing money at those who don't need it, the proposal is limited to drivers whose car are worth under an unspecified cap.

Despite all that, there's some distance between this proposal and the Legislature's, where Democratic leaders want to send cash rebates to Californians making less than $250,000, car owners or not. And it's even further still from the GOP plan, which is simply to suspend the state gas tax.

"I have all the confidence in the world we'll be able to square those modest differences and we'll come around to a number and a strategy that's in the best interests of Californians," Newsom said.

Friday's announcement also answered another big question left unaddressed by the January proposal: Will an obscure amendment inserted into the California Constitution in 1979 compel the state to reroute some of the state's extra cash back to taxpayers?

The answer, at least for now, appears to be no.

The constitutional provision in question, the Gann Limit, was approved by voters during the heyday of the state's conservative "tax revolt" and capped per-person state spending to its 1978 level, after adjusting for inflation. Anything left over has to be sent back to taxpayers and school districts. With the state's coffers as full as they are, the January budget blueprint projected that the state would breach the cap.

But with more spending on exempt types of expenditure, including infrastructure, the current plan is now $2.6 billion below that ceiling.

'Eat your heart out, Texas'

Budgets, as the cliche goes, are statements of values. Newsom clearly values decrying the state of Texas and its right-wing government.

Among the policies-cum-anti-Texas-digs that Newsom rolled out Friday were a revision of the state's business relocation tax credit program to provide "additional consideration" for businesses relocating from states with anti-abortion and "anti-LGBTQ+" laws.

The context, only barely unspoken, is that Texas has recently passed a law that effectively bans most abortions and introduced a policy that treats gender-confirming care for transgender kids as child abuse.

Newsom's budget plan also include an additional $125 million to expand access to abortions and fund research into reproductive health.

"I do want to make a deep point here: California is a pro-life state," Newsom said, appropriating a term used by the anti-abortion movement to tout his proposed spending on expanded preschool, health insurance access and gun-violence reduction programs.

He also chided Arizona, Florida and Texas for having COVID death rates higher than California's: "There are a lot of folks out there that are pro- conception to birth but that fall wholly short of being pro-life."

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Email Ben Christopher at [email protected] CalMatters reporter Grace Gedye contributed to this story.

CalMatters.org is a nonprofit, nonpartisan media venture explaining California's policies and politics. Read more state news from CalMatters here.

Follow Palo Alto Online and the Palo Alto Weekly on Twitter @paloaltoweekly, Facebook and on Instagram @paloaltoonline for breaking news, local events, photos, videos and more.

California's $100 billion surplus: What to know about Newsom's spending plan

by Ben Christopher / CalMatters

Uploaded: Fri, May 13, 2022, 1:39 pm
Updated: Sun, May 15, 2022, 6:31 pm

\

"Simply without precedent."

Gov. Gavin Newsom is a man of many superlatives, but even he seemed to struggle Friday to adequately describe just how much extra cash the state of California will have to spend in the coming year's budget: $97.5 billion.

In a press conference in Sacramento, Newsom unveiled his latest record spending proposal for the coming fiscal year. Riding a superheating economy and drawing disproportionately from the state's highest earners, the state is now projected to have a surplus bigger than California — or any state — has ever had, and significantly more than the $76 billion that the governor predicted in January.

Roughly half of the surplus is required by law to be spent on education.

That leaves "only" roughly $49 billion in discretionary money, and the governor wants to reserve 99% of that for one-time spending: $18.1 billion to provide financial relief for Californians buffeted by inflation, plus $37 billion for infrastructure investments, including $5.6 billion for education facility upgrades, and an extra $2.3 billion for the ongoing fight against COVID-19.

A few of the other big numbers that Newsom mentioned Friday:

• $128.3 billion in education spending, from transitional kindergarten through high school, a record-breaking sum that works out to $22,850 per student.

• Another $23 billion will be parked into the state's rainy day fund, to be drawn upon the next time the economy slows

• $2.5 billion for housing, including $500 million to fund the conversion of vacant malls and storefronts into homes

• An extra $3.4 billion to pay down state employee retirement debt

The massive windfall that the state is sitting on, coupled with the state's progressive tax system is a sign of "the concentration of wealth and success in the hands of a few that are enjoying abundance in historic and unprecedented ways," Newsom said. "I am proud of California's progressive tax system…and we're the beneficiary of that."

Now the ball is in the state Legislature's court as lawmakers decide where they agree with the governor and which priorities they want to haggle over before the June 15 deadline to pass a final, balanced budget for the fiscal year that starts July 1.

Friday's "May revise" rollout is part of the annual call-and-response between the governor's office and the Legislature over how to spend your tax dollars. Each year, the governor sets the negotiations in motion in January with a preliminary budget proposal. This year, Newsom's proffer included a record surge in K-12 education spending, along with multi-billion dollar proposals to ramp up the state's wildfire prevention projects, convert more vacant hotels into housing for the homeless and open up Medi-Cal, the state's health insurance program for the poor, to all undocumented immigrants.

What Newsom unveiled Friday is a retake on that earlier budget blueprint, but freshened up with new estimates of the state's fiscal future. Tack on the extra surplus money and you end up with a new record-high total: $300.7 billion.

When discussing money on the scale of the California state budget, it's easy to lose perspective. But to be clear, even by Golden State standards, that is an astounding amount of money.

What a difference two years makes. In May 2020, with the state still weathering the first surge of COVID-19, the governor's Department of Finance projected a $54 billion deficit and a year of Great Depression-level unemployment rates. Neither came to pass, just the opposite: Boosted by rosy economic conditions for the state's highest earners and a massive influx of cash from the federal government, state coffers have been overflowing for the last two years.

For the governor and Democratic leadership in the Assembly and Senate, having to divvy up billions of new dollars during an election year is a good problem to have. But on financial aid to struggling families, the scale of the state's drought response, what to do about the sky-high price of gasoline and other pressing policy conundrums, not everyone is on the same page.

Assembly Speaker Anthony Rendon kept his cards close to his chest in a statement, simply heralding his Democratic "teammates" in the Senate. "We know how to work together to present Governor Gavin Newsom with a budget he can be proud to sign by the constitutional deadline," he said.

The Republican minority in the Legislature is so diminished that Democrats don't need their support to pass a budget. But that isn't stopping GOP lawmakers from weighing in, if only to provide voters with a clear contrast as Election Day approaches.

"Newsom specializes in grand announcements and flashy sounding proposals, but he rarely follows through with effective solutions that actually help California families," GOP Assembly leader James Gallagher from Chico said in a statement. "As Californians struggle to fill their tank and put food on the table, Democrats fail to provide any real solutions to cut costs."

Here are other highlights from the governor's latest spending plan:

If the average Californian hears anything about Friday's announcement it's probably this: The governor wants to send $400 to most of the state's car owners.

That's been the governor's idea to help drivers bear the cost of historically elevated gas prices. In the face of pushback from environmentalists, he also wants to throw in $750 million to entice transit agencies to make bus and rail travel free for three months. And lest he be accused to throwing money at those who don't need it, the proposal is limited to drivers whose car are worth under an unspecified cap.

Despite all that, there's some distance between this proposal and the Legislature's, where Democratic leaders want to send cash rebates to Californians making less than $250,000, car owners or not. And it's even further still from the GOP plan, which is simply to suspend the state gas tax.

"I have all the confidence in the world we'll be able to square those modest differences and we'll come around to a number and a strategy that's in the best interests of Californians," Newsom said.

Friday's announcement also answered another big question left unaddressed by the January proposal: Will an obscure amendment inserted into the California Constitution in 1979 compel the state to reroute some of the state's extra cash back to taxpayers?

The answer, at least for now, appears to be no.

The constitutional provision in question, the Gann Limit, was approved by voters during the heyday of the state's conservative "tax revolt" and capped per-person state spending to its 1978 level, after adjusting for inflation. Anything left over has to be sent back to taxpayers and school districts. With the state's coffers as full as they are, the January budget blueprint projected that the state would breach the cap.

But with more spending on exempt types of expenditure, including infrastructure, the current plan is now $2.6 billion below that ceiling.

Budgets, as the cliche goes, are statements of values. Newsom clearly values decrying the state of Texas and its right-wing government.

Among the policies-cum-anti-Texas-digs that Newsom rolled out Friday were a revision of the state's business relocation tax credit program to provide "additional consideration" for businesses relocating from states with anti-abortion and "anti-LGBTQ+" laws.

The context, only barely unspoken, is that Texas has recently passed a law that effectively bans most abortions and introduced a policy that treats gender-confirming care for transgender kids as child abuse.

Newsom's budget plan also include an additional $125 million to expand access to abortions and fund research into reproductive health.

"I do want to make a deep point here: California is a pro-life state," Newsom said, appropriating a term used by the anti-abortion movement to tout his proposed spending on expanded preschool, health insurance access and gun-violence reduction programs.

He also chided Arizona, Florida and Texas for having COVID death rates higher than California's: "There are a lot of folks out there that are pro- conception to birth but that fall wholly short of being pro-life."

Email Ben Christopher at [email protected] CalMatters reporter Grace Gedye contributed to this story.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California's policies and politics.

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