Governor Newsom’s Budget Deficit Has Climbed To $31.5 Billion

Governor Gavin Newsom announced Friday that the state’s budget deficit has ballooned by $9 billion, going from the initial January estimate of $22.5 billon to $31.5 billion, leading to more major cuts being implemented next fiscal year.

LIVE NOW: Governor @GavinNewsom releases his May Revision budget. https://t.co/hHAaQAWTUt

— Office of the Governor of California (@CAgovernor) May 12, 2023

In total, the state budget is now looking to be around $306 billion, up from an estimated $297 billion in January. While Gavin Newsom proposed many major cuts at the beginning of the year, multiple factors quickly made the situation worse and called for more. Initially, big cuts had been planned for state flood prevention programs, as the state was in a major drought and those funds would not be needed. However, record rain and snowfall throughout the state in the first three months of 2023 quickly quashed those plans, with more money actually being poured into those programs because of the resulting floods and poor winter conditions.

The storms also dealt the state a major funding delay, as the state allowed most residents to pay taxes later in the year from due to problems associated with the storms and subsequent flooding. While this will help the 2024-2025 fiscal year, it also means that  billions less would be going into the state this coming year, as the deadline is now in October rather than the usual April.

As around half of California’s income comes from the top 1% of earners as well as major businesses in the state. Higher federal inflation rates, a chaotic stock market, and many wealthier Californians leaving the state also came together and added to the increased deficit.

With an even larger deficit looming, Newsom announced plans for major cuts to the budget on Friday, in addition to moving around expenses, using emergency funds, and increasing the amount borrowed. While not specifically mentioned by Newsom on Friday, recent decisions, such as not supporting cash payments in possible reparations and rolling back on previous state commitments on environmental funding, are likely tied to Newsom’s increased frugality because of the increased deficit.

“We are walking into a budget where we need to maintain our prudence,” Newsom said on Friday. “We have a $31.5 billion challenge, which is well within the margin of expectation and well within our capacity to address.”

For the last few years, California coming back from the COVID-19 pandemic brought in tens of billions of “surplus cash,” including one year seeing a record $97.5 billion. However, much of this was spent on stimulus funding for residents and other one-time spending projects, including major homeless initiatives. Now stuck with an even larger deficit than originally planned, Newsom also showed where major cuts would likely be happening.

Most surprising was his reversal on climate and energy projects, with Newsom, saying that $6 billion will be cut in the coming year. If approved by the Legislature, it would amount to a 11% cut in climate-related programs. This would include a $1.1 billion cut to electric vehicle transitioning programs. Environmental groups quickly went after Newsom on Friday, seeing these cuts as something of a betrayal.

Major cuts, funding halts on the horizon

“While we’re grateful to Governor Newsom for avoiding further cuts to climate and clean energy investments, California has major challenges ahead,” said Nicole Rivera, Government Affairs Director for The Climate Center, in a statement. “Winter storms and flooding cost the state billions of dollars this year and an El Niño system is expected to bring record-breaking heat and deadly wildfires this summer and fall. We’re in a climate emergency and we need to do everything we can to prepare, not slash funding for programs designed to keep Californians safe from climate extremes.”

“We urge Governor Newsom and the legislature to find ways to close the deficit without cutting $6 billion in climate investments. It is encouraging that state leaders are exploring a climate bond to generate revenue. We hope they will also commit to eliminating the millions of dollars in subsidies and tax breaks for fossil fuel corporations. Governor Newsom and state lawmakers have a choice to make ​​— hold fossil fuel corporations accountable for the mess they made or pay the price in lives in dollars for years to come.”

Other cuts include temporarily delaying subsidized child care program expansions, funds for small businesses to help with lingering debt, further cuts to education by reducing arts funding, and ending middle class tax refund and low-income utility assistance programs early. While other solutions have been proposed, such as increased taxes on corporations, Newsom has shut them down, favoring the cut and increased bond plan to keep the state afloat for a year.

“We had a $54 billion deficit in 2020, huge surpluses in 2021 and 2022, and now are back down to a big deficit,” explained accountant Lee Greenman, a California-based accountant who helps city and other regional entities fix budget problems, to the Globe on Friday. “It’s crazy. And the state doesn’t think long-term. For cities, mot have a rule of thumb to put surplus money away during good times to help out during the leaner years or to avoid having to go to residents to pass some emergency measures in November.”

“The state, wow, they just see a surplus and decide to just spend it rather than save it for times just like this. It’s not that sustainable. Yet they continue to do so. But they’ve chased out many wealthy people, raised taxes, put a squeeze on businesses, drastically increased spending, then thought it was a good idea to just give a stimulus. And that’s only some of the things. All of it added up to something bad happening, and, well, here we are.”

“The state really needs to look over it’s finances and cut back on things like welfare and other areas where there is still fat to trim.”

Newsom and the legislature will now spend the next month going over a possible budget for 2023-2024. The new budget needs to be passed by June 15th, with the fiscal year to begin on July 1st.