Coronavirus triggers California’s worst budget deficit

The California government faces a $ 54.3 billion budget deficit until next summer, according to an analysis released Thursday by Governor Gavin Newsom’s advisers, marking the largest projected fiscal hole in the country’s history and increasing the likelihood of cutting deep spending or substantial new tax revenues to produce the difference.

This estimate explains the rapid erosion of tax revenues and the increasing need for health programs and human services. While measuring the gap between income and expenditure based on projections made by Newsom in January rather than existing funds, the valuation still reflects the country’s record-breaking economic collapse, created in just a few weeks by the fast-moving COVID. Pandemic.

“This is a global pandemic,” Newsom said. “And no economy in the whole world has been substantially, at least, immune.”

The Newsom budget team estimates a decline in tax revenues of $ 41.2 billion compared to their estimates only from four months ago. Most of that – $ 32.2 billion – will occur in the fiscal year that starts in July. This year’s tax revenue, according to the report, is expected to miss $ 9.7 billion, even though most of the state’s budget year has passed when the virus becomes an immediate concern in March.

In total, the projected deficit represents 37% of general funding disbursements approved by lawmakers last year. This shortfall is equivalent to three years of state funding for the University of California and Cal State University systems combined.

“When you look at the numbers, they should get your attention,” Newsom said Wednesday as the midday event provided an update on the coronavirus crisis.
When tax revenues plummet, government spending is projected to skyrocket. The fiscal report released Thursday assumes about $ 13 billion in higher state costs due to the pandemic, with a combined $ 7 billion in higher than expected caseloads for programs such as Medi-Cal, which provides free health care, and CalWorks , state welfare assistance program. A total of $ 6 billion in expenditure was assumed as a result of COVID-19 countries’ responses.

Democratic legislative leaders tend to ask for more to help citizens who are most in need. Assemblyman Phil Ting (D-San Francisco), chairman of the Assembly’s Budget Committee, said he would support the extension of state-funded unemployment benefits that could last until 2021. The aim, he said, was to keep the Californians from having to depend on various programs other social services.

“Although we will have a short-term budget, it will have far greater budget benefits,” Ting said.

The decision to release initial horrific estimates – Newsom will not present the revised state spending plan to the Legislature for another week – is likely to be driven by a desire to calibrate the hopes of lawmakers and interest groups about what lies ahead.

“This will be some difficult decisions. But we will work smarter and more strategically and recognize the fundamental role of government at a time like this, “said state Senator Holly Mitchell (D-Los Angeles), chairman of the Senate Budget Committee.

Responses by government officials must come quickly. The Legislature will have less than a month to consider and propose changes to the Newsom budget before the constitutional deadline of June 15 to finalize a plan. But for most of the year, the blueprint could require major revisions. Revenue collection will take longer than usual, because millions of California taxpayers take advantage of a 90-day delay in filing income tax returns and paying what is owed.

Therefore, additional budgetary measures may be needed at the end of the summer before the Legislature delays right before Labor Day.

“I think this budget can be a place for conversation that they will discuss later this summer,” said Chris Hoene, executive director of the California Budget and Policy Center, a nonprofit organization that advocates programs to help low-income residents.

The impact on K-12 education funds can be very severe. Schools receive about 40% of the country’s general funding income and, under a complex set of constitutional formulas, can see their minimum funding cuts of more than $ 18 billion based on Newsom’s administrative analysis.

“This is a very scary number,” said Kevin Gordon, a veteran education lobbyist. “The allowable deduction will issue a school budget,” Gordon said.

And that reduction could occur because state officials are asking schools to do more to help children, especially those from low-income families, when it comes to distance learning and providing food.

In January, with the economy still developing, Newsom proposed a $ 222.2 billion budget plan that projects upticks in spending on K-12 schools and health care programs. But the plan, introduced less than eight weeks before the governor declared a state of emergency to combat the corona virus, assumed a steady growth in personal income of 4% a year and continued low unemployment.

Those hopes have vanished. The state has processed more than 4.2 million jobless claims since mid-March, almost equivalent to all jobs in Los Angeles County. The Newsom administration estimates that nearly 478,000 jobless claims have been filed in just the past week. The state received approval this week for a $ 8 billion loan from the federal government to cover the increase in benefit costs.

The role of the federal government in sustaining California’s finances and dozens of other states looks great. House Speaker Nancy Pelosi (D-San Francisco) and other congressional Democrats have suggested subsidies to state and local governments of as much as $ 1 trillion. Meanwhile, many of California’s direct coronavirus costs can be reimbursed by the Federal Emergency Management Agency.

On Thursday, Newsom said additional assistance to local and state governments was essential to provide the funds needed for emergency workers which became increasingly vital as the pandemic continued.

“We must recognize that this moment requires a historic partnership effort, not only between the governor and the legislature, but between the state and our federal government,” he said on Thursday.

The projected $ 54.3 billion deficit is the largest estimate since the $ 40 billion deficit was predicted by the government at that time. Arnold Schwarzenegger during the Great Recession in January 2009. In 2011, at that time -Government. Jerry Brown said the country looked at the 27 billion dollar fiscal hole. Newsom’s analysis noted that the projected deficit in the past was not only smaller in total dollars, but also a smaller percentage of public funds than what MPs faced this year.

Sharp increases in employment and tax revenues erased red ink in the past, with some money set aside in cash reserves. California voters increased the maximum deposit amount in the state’s “rainy day” fund in 2014.

The efforts of state lawmakers, led by Newsom and Brown, to put cash into the reserve fund can help soften the blow. The Office of the Independent Legislative Analyst estimated last month that total state cash reserves were around $ 17.5 billion – money that could provide protection, but only under a string of stringent conditions.

However, the state has other resources that can be used – including billions of dollars in special funds and other accounts that can be accessed temporarily – that California leaders did not have in the previous recession.

“They are not in a good position, because of previous fiscal management, to overcome the deficit,” Newsom said in comparing the past fiscal crisis with this one. “And I think this is a long way to say this, we will get through this.”