California Gov. Gavin Newsom on Monday will tell everyone how he wants to spend more than $200 billion of taxpayer money over the next year as he presents the first version of his annual budget proposal to the state Legislature.
The Democratic governor’s budget proposal is the first step in the complex process of spending the hundreds of billions of dollars in taxes Californians and businesses pay each year.
Newsom sometimes gives multiple previews of what’s in his plan before his presentation. This year, he has pledged to spend $300 million on boosting law enforcement efforts to combat retail theft and another $2.7 billion to spend on things like coronavirus testing and hospital staffing. But that’s only a tiny fraction of the state’s budget, which last year surpassed $260 billion. Newsom has said little about what else he wants to do.
But one thing is certain: California has plenty of money. In November, the nonpartisan Legislative Analyst’s Office predicted California would have at least a $31 billion surplus this year. Newsom’s budget proposal will likely show a much bigger surplus because his administration often uses a different definition of what counts as a surplus.
Regardless, it’s a lot of money. And it’s a long way from the gloom of 2020, when Newsom and state lawmakers cut spending, raised taxes and pulled money from the state’s savings accounts to cover what they feared would be a pandemic-fueled $54 billion deficit.
That deficit never happened. Instead, state revenues soared like never before. In September, collections from the state’s three largest taxes—personal income, sales and corporation—were 40% higher than September 2020 and nearly 60% higher than September 2019, before the pandemic hit, according to the Legislative Analyst’s Office.
The revenue surge is despite California consistently having one of the highest unemployment rates in the country for much of last year. A big reason for that is the state has a lot of rich people whose assets have continued to climb in value.
Last fall, stock prices were worth more than double what they were at their pandemic low point. California has also seen a lot of private companies go public by selling shares on the stock market, providing a windfall to people who own or work for those companies. Those people then must pay capital gains taxes that in California, unlike most other states, are taxed the same as income.
It all adds up to a lot of money in taxes, which the government gets to spend. Last year, Newsom and the state Legislature gave billions of dollars back to some lower-income taxpayers as stimulus checks. He could want to do that again this year.
Newsom has also promised to substantially increase spending on infrastructure, including things like roads and bridges. These types of projects are good ways to spend surplus money—which is only available for one year—because they don’t have recurring costs that must be funded every year. Another advantage is infrastructure spending does not count toward the state’s constitutionally-set spending limit, meaning it can offset other spending to help lawmakers stay under that cap.
Nationally, people will be watching closely to see how Newsom wants to spend money to increase access to abortion. The U.S. Supreme Court is considering whether to overturn or significantly weaken Roe v. Wade, the landmark decision that forbids states from outlawing abortion. If that happens, as many as two dozen other states could pass laws outlawing or restricting access to abortion.
Last year, Newsom convened a group of more than 40 abortion providers and advocacy groups to ask for their ideas on what to do should that happen. In December, the group released 45 recommendations. They include spending money to help clinics hire more workers and funding to reimburse abortion providers for patients who can’t afford to pay—including those who travel to California from other states.
In an interview with The Associated Press last month, Newsom indicated some of the report’s recommendations will be included in his budget proposal.
Democrats control a majority of seats in the state Legislature, meaning they can pass the budget without Republican votes. Newsom’s budget proposal will change as he negotiates with Democratic leaders, but for the most part both sides share the same goals.
Republicans, meanwhile, are urging Newsom and Democrats to do things like suspend taxes on gasoline and cars to lower the cost of living in California. They also want Newsom to spend nearly $3.3 billion on water storage projects amid a severe drought impacting the western U.S.
“California is heading into its third year of bone-dry conditions. There must be a sense of urgency,” wrote Assemblyman Vince Fong and state Sen. Jim Nielsen, both top Republicans on their respective legislative budget committees.
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