California Budget Hole Even Deeper Than Predicted, Newsom Says

California Gov. Gavin Newsom (D.) (Getty Images)
May 12, 2023

California's budget deficit has swelled by nearly $10 billion so far this year, Gov. Gavin Newsom (D.) said Friday as he unveiled a revised $306 billion state budget proposal.

The projected shortfall has reached almost $31.5 billion, Newsom reported, up from $22.5 billion when he first proposed the budget in January. Newsom warned that even a mild economic recession could bring an additional $40 billion hit. He blamed the state's progressive tax system, which leans heavily on the richest Californians, for the dramatic decline in fortunes since a year ago, when he touted a $97.5 billion budget surplus.

"We have one of the most volatile tax structures because of the overreliance, or the disproportionate reliance, on a very small subset of tax filers," Newsom said.

The bleak numbers come as wealthy Californians have been leaving the state en masse, according to IRS and U.S. Census data, resulting in a loss of nearly $30 billion in taxable revenue in 2021 alone. Newsom plans to handle the crunch primarily with cuts to state agencies, budgetary tricks of moving money around, and program funding delays. He dismissed Democratic lawmakers' calls for tax hikes as not being "the right thing to do," adding that it's also not "the right time."

Newsom's budget would cut funding from nearly every agency and from infrastructure like water storage. That's despite criticisms that the drought-weary state wasn't prepared to save epic rainfall from this year's storms. Only K-12 public schools and health care agencies would see overall funding boosts, including more than $5 billion to try to make up for the learning losses from Democrats' longest-in-the-nation classroom closures during the pandemic. Health care spending increases would come primarily from the drying up of pandemic-era federal Medicaid funds and extending coverage to illegal immigrants.

The governor also earmarked more than $4 billion for the state's beleaguered high-speed rail project, the price tag for which has risen to nearly $130 billion with completion nowhere in sight.

Newsom condemned "profligacy" and urged greater fiscal prudence and belt-tightening.

"We tend to write checks that we can't keep and then we let people down," he said. "It's better to be honest with folks on what we think we can do and what we can't do."

After offering that advice, Newsom continued to refuse to endorse any specific provisions of an $800 billion plan for paying reparations to black residents, which was approved last week by a commission he launched two years ago at a cost of $2.5 million. The governor deferred to the commission's final recommendations, due to the legislature next month, saying he will "assess where to go from there."

"I have a lot of thoughts," he said.

California Republicans blasted Newsom's proposed budget as a product of his failed leadership. Party chairwoman Jessica Millan said the bloated deficit "should be a wakeup call to all Democrats that after years of increased spending, they should have better results to point to than an outrageous cost of living, surging crime, rampant homelessness, a fentanyl crisis, failing schools, and inadequate water storage."