California is awash in tax revenue and budget reflects it


SACRAMENTO, Calif. (AP) — California Gov. Gavin Newsom on Friday proposed a $268 billion state budget that is one-third larger than the state’s current spending plan, fueled by surging state tax revenues and federal stimulus money.

He said the windfall that produced a $76 billion surplus provides a chance for the most populous state to come “roaring back” from a year mired in the pandemic — to not just recover but to improve basic infrastructure and social programs while rewarding poor and middle-class residents with cash payments.

The first-term Democrat called his spending plan an “unprecedented generational and transformational budget.” He said the state’s nearly 40 million residents showed remarkable resiliency during the pandemic and that “set the state up for not just a comeback, but an extraordinary decade, arguably century ahead.”

The timing couldn’t be better for Newsom, who is likely to face a recall in the fall that’s fueled by criticism of his handling of the coronavirus. He spent the last four days touting elements of the budget ahead of him revealing the full plan on Friday.

His proposed budget includes $35 million over five years to pay for “universal basic income pilot programs.” It’s built on the idea of giving lower-income people a set amount of money each month to ease the stresses of poverty that make it harder for people to find full-time jobs and stay healthy. Critics say free money provides a disincentive to work.

He also included money to give Medicaid benefits to people 60 and older living in the country illegally. California already pays for health care for children and adults up to age 26 in that immigration category.

Newsom said he wants to spend $11 billion to build what his office termed “a modernized transportation system for the next century.” That includes not only repairing decayed roads and bridges, but more spending for the state’s troubled bullet train, other public transportation, the state’s ocean ports, and projects around the 2028 Summer Olympics in Los Angeles.

His proposal is driven by more than $100 billion in surplus funds, a combination of surging state tax revenues and $27 billion in federal stimulus money. The surplus is part of $267.8 billion in proposed general spending and other special and bond funds, up $46 billion just since his initial January budget and $66 billion over current spending.

The contrast from one year ago as the pandemic throttled the state’s economy couldn’t be more striking. Then, Newsom proposed what officials expected to be a deficit-choked plan that increased taxes on businesses, slashed public education spending and cut the salaries of more than 233,000 state workers.

California’s budget bonanza is an apt reflection of the pandemic, an unpredictable roller coaster that often left officials in the nation’s most populous state baffled about what was coming next.

While millions of low-wage earners lost their jobs and struggled to navigate the state’s overwhelmed unemployment benefits system, most middle and, especially, high-income earners worked from home and kept paying taxes.

California relies heavily on the wealthiest taxpayers, who generally did well during the pandemic. That greatly boosted state revenues and provided a budget surplus.

Newsom heralded the surplus, and the economy that underlies it, as a rebuke of recent criticism of the state’s purported decline — a theme pushed in recent days by news of the state’s first recorded population decline and loss of a congressional seat due to reapportionment.

Speaking at a virtual breakfast on Thursday hosted by the California Chamber of Commerce, Newsom compared California to the New York Yankees, the Major League Baseball team people love to hate because of the team’s historic success.

“Don’t believe all those headlines of people that have been trying to take us down for decades,” Newsom said. “Someone described it like hating on the Yankees or something. That’s the sort of attitude people have about California.”

Newsom has already said what he wants to do with some of the state’s extra money, as he toured the state this week for a series of announcements designed to get maximum media exposure leading up to Friday.

His plan includes a tax rebate for 11 million people who would get direct payments of up to $1,100. He also set aside $7.2 billion to pay off people’s outstanding rent and utility bills.

There’s $6 billion on water and drought issues, $8.75 billion to create 46,000 housing units for the homeless and plan to have all 4-year-olds in California could go to kindergarten for free, while also pledging $5 billion to create after-school and summer school programs for districts with high concentrations of underprivileged students.


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