California Democratic leaders have reached an agreement on a plan to address the state’s $17.3 billion budget shortfall through a combination of spending cuts, delays, and deferrals. Governor Gavin Newsom, who had previously enjoyed surplus budgets during the pandemic, is now facing significant deficits due to the economic impact of COVID-19. Last year, Newsom and lawmakers were able to avoid major spending cuts, but this year’s deficit could be as large as $73 billion.
In January, Newsom proposed tapping reserves and cutting spending to address the deficit. The new agreement with Democratic lawmakers includes cuts to primarily one-time funding for schools, welfare, and climate programs, as well as delays and deferrals in spending for various programs. Lawmakers also passed legislation to increase the state’s tax on managed care health plans, which will generate additional revenue. The plan does not touch major spending commitments, such as free health insurance for low-income adults.
Despite challenges, Newsom remains optimistic about California’s fiscal future, citing responsible fiscal stewardship in recent years that has built up record budget reserves. Lawmakers are expected to vote on the new budget plan next week, paving the way for further negotiations before the June deadline. While Democratic leaders see the agreement as a critical step towards addressing the budget shortfall, Republican lawmakers have criticized the plan, claiming they were shut out of the conversation.
California law requires the state to pass a balanced budget, meaning it cannot spend more money than it has. Newsom will present his revised budget proposal in May, and lawmakers have until June 15 to pass the budget. Despite the challenges posed by the deficit, Democratic leaders are committed to delivering an on-time balanced budget and are working together to build a sustainable financial future for California.
