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SACRAMENTO, Calif. (AP) — California has a huge budget problem that could force thorny decisions from Democratic leaders who enjoyed a more than $100 billion surplus just three years ago.
This is the second year in a row the nation’s most populous state is facing a multibillion-dollar shortfall. State revenues have continued to fall amid increasing inflation and a slowdown in the state’s usually robust technology industry.
Democratic Gov. Gavin Newsom on Friday announced his plan to address the deficit in the state’s budget. The release of his plan kicks off a budget negotiation marathon with Democratic lawmakers, who hold supermajorities in both chambers.
Newsom and lawmakers have until June 15 to pass a budget, or lawmakers don’t get paid.
HOW BIG IS THE BUDGET?
Newsom proposed a $288 billion spending plan on Friday for the fiscal year that starts July 1. That is well below the nearly $311 billion budget he signed into law last year. But it is still by far the largest of any state in the country. New York recently passed a $237 billion budget, and Texas and Florida spend far less annually.
WHAT ABOUT THE DEFICIT?
It’s complicated. Newsom announced on Friday a $26.7 billion deficit, but it’s really closer to $45 billion. That’s because Newsom didn’t include roughly $17.3 billion worth of actions he and lawmakers already agreed on. Those included a cut of $3.6 billion in primarily one-time funding to some school, welfare and climate programs. The plan also delays and defers about $5.2 billion in spending for various programs, including $1 billion to fund rail and public transit systems.
WHY DOES THE DEFICIT MATTER?
California’s constitution requires lawmakers and the governor to balance the budget — meaning the state can’t spend more money than it has. That means they have to either find more money by raising taxes, which Newsom doesn’t want to do, or find ways to cut, shift or delay spending. Newsom’s proposal focuses mostly on cuts, but it will also dip into reserve funding.
WHAT ARE THOSE CUTS?
Newsom proposed cuts across 260 state programs. Here are some of the highlights:
1. Eliminating 10,000 vacant state worker jobs for a saving of $762 million. Newsom didn’t immediately provide a list of all the jobs.
2. Clawing back $6.7 billion previously set aside to pay doctors more to see poor patients and immigrants.
3. Shaving off nearly 8% in operating costs to almost all state agencies through actions like getting rid of landlines in state offices and evaluating printing needs.
4. Cutting $2 billion from broadband initiatives to pursue cheaper options
5. Closing housing units with 4,600 beds across 13 state prisons to save $81 million.
6. Reducing funding for homelessness and housing initiatives by nearly $1.2 billion, including $474 million from an anti-foreclosure program to preserve existing affordable housing.
7. Reducing $500 million in water storage funding. He didn’t offer specifics on how that would be applied.
8. Shutting down an in-home service care program that serves 14,000 low-income, undocumented immigrants with disabilities for a savings of $94.7 million
9. Cutting roughly $2 billion from six education programs, including $550 million from an initiative to upgrade preschool and kindergarten facilities and $510 million in scholarships for middle class college students pursuing a teaching credential.
10. Eliminating $352.5 million in funding for state and local public health and $189.4 million from mental health services fund.
HOW ABOUT TAX INCREASES?
Newsom has repeatedly said he could balance the budget without raising taxes. But his proposal calls for the suspension of the widely used net operating loss tax deduction for businesses the following fiscal year, which some are seeing as a tax increase.
He is also increasing the tax on managed care organizations, the private companies that contract with the state to provide Medicaid benefits.
FAQs
SACRAMENTO, Calif. (AP) — Gov. Gavin Newsom on Saturday signed California's budget to close an estimated $46.8 billion deficit through $16 billion in spending cuts and temporarily raising taxes on some businesses.
Is the state of California in debt? ›
In the fiscal year of 2022, California's state debt stood at about 145.03 billion U.S. dollars. Comparatively, the state's debt was 57.17 billion U.S. dollars in 2000. The national debt of the United Stated can be found here.
Does the California budget have to be balanced? ›
The budget must be balanced: Estimated revenues (as determined by the governor) must meet or exceed the governor's proposed spending. The governor must release the May Revision on or before May 14. The Legislature must pass a budget bill for the upcoming fiscal year by midnight on June 15.
Does California have a budget deficit in 2024? ›
By addressing the shortfall for this budget year — and next year — the Governor is eliminating the 2024-25 deficit and eliminating a projected deficit for the 2025-26 budget year that is $27.6 billion (after taking an early budget action) and $28.4 billion respectively.
Is California in trouble financially? ›
Under current law and policy, we estimate the state faces a budget problem of $68 billion. Figure 3 reflects the budget problem in the 2024‑25 ending balance in the Special Fund for Economic Uncertainties. The budget problem is the net effect of the following factors: State Anticipated a Deficit of Around $14 Billion.
Which state has the highest debt? ›
U.S. state and local government outstanding debt 2021, by state. In 2021, the federal state of California had about 541.24 billion U.S. dollars of debt outstanding, the most out of any state. New York, Texas, Illinois, and Florida rounded out the top five states with the most debt outstanding in 2021.
Which state has the highest budget deficit? ›
For the second year in a row, California had a deficit to close; its $298 billion spending plan for fiscal 2025 is $12 billion less than the fiscal 2024 budget.
Which U.S. state has the least debt? ›
The lowest-liability states—Arizona, Idaho, Nebraska, Tennessee, Utah, Wisconsin, and Wyoming—owe less than 3 percent of GDP. The highest-liability states—Connecticut, Hawaii, Illinois, New Jersey, and Vermont—owe more than 20 percent of GDP.
What city is most in debt in USA? ›
How financially stable is California? ›
TIA's Taxpayer Burden™ measurement incorporates both assets and liabilities, not just pension debt. California only has $250.9 billion of assets available to pay bills totaling $491.5 billion. Because California doesn't have enough money to pay its bills, it has a -$240.6 billion financial hole.
Every U.S. state other than Vermont has some form of balanced budget provision that applies to its operating budget. The precise form of this provision varies from state to state.
Who is responsible for California state budget? ›
The Director of Finance, as the chief financial advisor to the Governor, directs the effort for preparation of the Governor's Budget. Under the policy direction of the Governor, the Director of Finance issues instructions and guidelines for budget preparation to agencies and departments.
How much money is missing from the California budget? ›
How did state leaders close the budget shortfall? State leaders closed a roughly $47 billion General Fund shortfall across the three-year “budget window” (fiscal years 2022-23 through 2024-25) using a broad array of budget tools. The “solutions” in the 2024-25 budget package include: $16 billion in spending reductions.
What programs are being cut in California? ›
California will make widespread cuts to state government operations, prisons, housing programs and health care workforce development in order to maintain its social safety net as it moves to close a multibillion-dollar budget deficit.
What has Gavin Newsom done in California? ›
In 2005, Newsom pushed for a state law to allow California communities to create policy restricting certain breeds of dogs. In 2007, he signed the law establishing Healthy San Francisco to provide city residents with universal health care, the first city in the nation to do so.
Does California state budget have a surplus? ›
California's budget went from an assumed $98 billion surplus, in which there was so much cash in state coffers that Gov. Gavin Newsom was giving away $50,000 to randomly selected individuals to get a COVID-19 vaccine, to a projected $73 billion deficit in only about two years.
What is California's current budget? ›
Governor Gavin Newsom signed the state's fiscal 2025 budget into law on June 29. The budget provides for total state expenditures (excluding federal funds) of $297.9 billion for fiscal 2025. This includes $211.5 billion in general fund spending, a 5.2 percent decline from fiscal 2024.
What is the largest expense in the California state budget? ›
California's largest spending areas per capita were public welfare ($3,870) and elementary and secondary education ($2,527).
What is the budget for California 2024-25? ›
On June 29th 2024, Governor Newsom and the California Legislature reached an agreement on the Budget Act of 2024. [i] The Budget Act aims to address the budget deficit of $46.8 billion and includes total expenditures of $297.9. billion in 2024-25, with $211.5 billion from the General Fund (GF).
