California Gov. Gavin Newsom said “no” to revenue anticipation notes and a tax increase, but “yes” to climate and mental health bond proposals in the May budget revisions he presented Friday.
Newsom stressed emphatically that the state has no plans to issue revenue anticipation notes despite expectations that $49 billion in anticipated revenues won’t come in until October.
A decision by the state and federal government to allow Californians in counties impacted by winter storms flooding — that’s 55 out of the 58 counties — to delay income tax filing until October is pushing that revenue out several months beyond the normal income tax windfall.
Newsom outlined what he said was a $306.5 billion “balanced budget,” though the revenue shortfall has grown by $9.3 billion to $31.5 billion since he introduced his proposed budget in January.
The “May revise” usually ushers in weeks of intense negotiations with lawmakers leading up to their June 15 deadline for budget passage, ahead of the governor’s final signing deadline on July 1.
Newsom suggested that revenue anticipation notes is a bad word to him after how they were misused in the years leading up to the Great Recession.
“We still have a cash cushion of $109 billion dollars, so we don’t anticipate having to resort to internal borrowing,” Joe Stephenshaw, director of the Department of Finance, said during the press conference.
Newsom said he has no plans to tap the $22.5 billion in reserves to close the gap, though he did shift $450 million from the state’s safety net reserve to offset costs associated with the Medi-Cal state Medicaid program and Calworks welfare program.
He also won’t support a plan by Senate Democrats to increase taxes on about 2,500 of the state’s largest corporations and defer an existing tax credit for companies that post a net operating loss. He said it was the wrong time to add to companies’ burdens and said he isn’t willing to do anything that might hurt the state’s ability to compete with other states for large employers.
“The governor’s proposal misses an opportunity to consider additional revenues, as outlined in the state Senate’s budget plan, to make the ongoing investments we know Californians want and need,” Chris Hoene, executive director of the California Budget & Policy Center, said. “The Senate’s proposal for a graduated corporate tax should be taken seriously by any state leader committed to a more fair tax system and prioritizing the California people over large and profitable corporations.”
Though he has yet to sign legislation for a $150 million emergency loan fund for troubled hospitals, Newsom said he plans to within the next few days.
His budget proposal would also shift some spending planned as cash for University of California and California State University projects to revenue bonds, a move he already announced in January. He wants to also renew a tax on managed care programs to support Medi-Cal while continuing plans to reduce increases for climate and transportation programs.
The governor also moved $125 million in the budget that was slated for drought contingency to contribute an additional $170 million to alleviate flooding that continues to cause problems in the Central Valley.
“This was not an easy budget, but we tried to do our best to hold the line and take care of the most vulnerable, and most needy, but still maintain prudence,” Newsom said.
He added he has been mindful of people’s concerns about the budget’s impact on fundamental core issues like education, housing for homeless people, healthcare, mental health, climate policy and public safety, plus economic development and jobs.
“We are not modeling a recession this year, but we are pulling up the understanding that even a mild recession would cause a $20 billion hit to the next fiscal year, and a moderate recession has a projected impact of $40 billion,” Newsom said.
“That is an uncertainty we need to take seriously when it comes to macroeconomic headwinds,” he said. “We are walking into a budget season where we need to maintain prudence.”
He also said he supports proposals for both a mental health services bond and a climate bond, but added he doesn’t currently have amounts for either of those.
Over the next several days, he said he will also introduce what he called the Rebuilding California Plan that envisions $180 billion in infrastructure investments over the next 10 years. Spending would target clean energy, roads, bridges, public transit, and water storage. The plan would outline reforms to the permitting process that would make construction of the projects possible, he said.
“We will never advance our transition to clean energy in time unless we are able to advance these projects,” Newsom said.