Only $8.5 Billion Cut From California’s Proposed 2024-2025 Budget

Governor Gavin Newsom released his preliminary 2024-2025 state budget on Wednesday, with the total budget amount going down from  $330 billion to $291.5 billion. However, in addition to not completely covering the LAO expected deficit of $68 billion, with Governor Newsom claiming that the state will see a lot more in revenues in the coming months compared to the LAO prediction, the new budget failed to make cuts in areas where there had been widely expected to see cuts, such as education.

Instead, total budget cuts will only amount to a total of $8.5 billion, with $3 billion of that amount coming from climate programs and another $1.2 billion from housing programs. While some of the lost budget also comes from $5.7 billion in internal borrowing or $5.1 billion program funding being delayed by several years, a huge amount, $13 billion, will come from the state’s reserves, which had been slowly built up in the past few years in case of such a shortfall occurring.

“Thanks to the record reserves we have built up and a commitment to fiscal discipline over the years, our state is in a strong position to close this shortfall while protecting key priorities and programs that millions of Californians rely on,” said Newsom in a statement on Wednesday. “This balanced budget plan keeps California on firm economic footing while continuing our work to tackle homelessness, keep communities safe, expand access to high-quality education, overhaul behavioral health care and fight climate change. I look forward to partnering with the Legislature to meet this moment with a balanced approach that meets the needs of Californians and safeguards our state’s future.”

“We’re just a little less pessimistic [than the LAO report]. All of this uncertainty happened because we experienced something we’ve never experienced in modern history: The state didn’t collect taxes in April of last year.”

Many praised Newsom on Wednesday for not introducing large cuts to social programs, which he had largely been expected to in areas such as transit, education, and public health.

“We were looking at major cuts to Spanish language classes, art, music, and other areas if we saw even a slight dip in funding from the state this year,” said one LA school official to the Globe on Wednesday. “Now, this isn’t the official budget, but with how much is staying in education, we don’t need to make those choices now. The worry is if, by July, those projections don’t hold up and are closer to that $68 billion figure after all. Or if the rest of the legislature adds in cuts.”

“You know, teach salaries are going up, school costs are going up, and this is absolutely the worst time to even think about state funding cuts. If the Governor’s programs hold, we may have a fighting chance. Otherwise, there will be some futures out there not being so bright, especially for Spanish-language students struggling to learn English.”

Newsom and the new budget

As California state law says that a balanced budget needs to be passed, a lot is hinging on the Governor’s income figures holding up amidst a rising stock market, and not being closer to the levels seen in the LAO report. Also worrisome is what next year may bring, as there will be only $18.4 billion in budgetary reserves total under the preliminary Newsom budget, with $11.1 billion of that being in the rainy day fund.

“The state new these deficits were coming, but instead put less than $40 billion in funds to reserves,” added accountant Lee Greenman, a California-based accountant who helps city and other regional entities fix budget problems, on Wednesday. “Instead they put a lot of money into programs just because they had a big surplus. Now look, those programs are being majorly delayed or having their funding suddenly stopped. And they keep having things added, like healthcare being extended to all illegal immigrants.

“And if Newsom’s prediction proves to be too optimistic later on in the year, we’re looking at an even worse situation than now. He shouldn’t be gambling the state like this. He should have bit the bullet now, reduced the budget even further, and, worst case, bring back that money should things even out next year. Newsom is playing the voter game still when he needs to be making these hard calls instead.”

Assemblywoman Diane Dixon (R-Newport Beach) added, “The Legislative Analyst’s Office (LAO) projected California would face a budget deficit of $68 billion this year. The Governor stands by his $37.9 billion deficit. The LAO is known for its objectivity and accuracy. California will now need to make multi-billion dollar spending reductions. No fiscally, well-managed entity should tap into rainy day reserves to accomplish a balanced budget unless there is an emergency.”

“The State does not excel at balanced budgets. It is vital that we cut back spending on non-core programs and stop funding cost prohibitive mandates. In September, the supermajority and the Governor partnered on implementing mandated wage increases for public health care workers without knowing the true cost impacts of the $4 billion policy. Today, the Governor proposed the Legislature act to make the policy subject to available General Fund dollars. I will keep a close eye on this, as well as other areas, to cut non-core spending during budget negotiations. It is time to be fiscally responsible.”

More on the Governor’s proposed budget is due to come out later this year, including the revised budget proposal in May.