The nonpartisan Legislative Analyst’s Office also warned that a recession may be on the horizon within two years, and urged the governor and Legislature to add to reserves.įor the governor and Democratic leadership in the Assembly and Senate, having to divvy up billions of new dollars during an election year is a good problem to have. And capital gains as a percentage of personal income is the highest since 1999, just before the dot.com bust. Still, Newsom and the Legislature’s budget staff add a note of caution: The war in Ukraine, rising inflation and higher interest rates are increasing uncertainty. Neither came to pass, just the opposite: Boosted by rosy economic conditions for the state’s highest earners and a massive influx of cash from the federal government, state coffers have been overflowing for the last two years. In May 2020, with the state still weathering the first surge of COVID-19, the governor’s Department of Finance projected a $54 billion deficit and a year of Great Depression-level unemployment rates. But to be clear, even by Golden State standards, that is an astounding amount of money. When discussing money on the scale of the California state budget, it’s easy to lose perspective. Tack on the extra surplus money and you end up with a new record-high total: $300.7 billion. What Newsom unveiled today is a retake on that earlier budget blueprint, but freshened up with new estimates of the state’s fiscal future. This year, Newsom’s proffer included a record surge in K-12 education spending, along with multi-billion dollar proposals to ramp up the state’s wildfire prevention projects, convert more vacant hotels into housing for the homeless and open up Medi-Cal, the state’s health insurance program for the poor, to all undocumented immigrants. Each year, the governor sets the negotiations in motion in January with a preliminary budget proposal. Today’s “May revise” rollout is part of the annual call-and-response between the governor’s office and the Legislature over how to spend your tax dollars. Now the ball is in the state Legislature’s court as key lawmakers in the Assembly and the state Senate decide where they agree with the governor and which priorities they want to haggle over before the June 15 deadline to pass a final, balanced budget for the fiscal year that starts July 1. “I am proud of California’s progressive tax system…and we’re the beneficiary of that.” The massive windfall that the state is sitting on, coupled with the state’s progressive tax system is a sign of “the concentration of wealth and success in the hands of a few that are enjoying abundance in historic and unprecedented ways,” Newsom said.
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