By ADAM BEAM
In a display of fiscal responsibility, California Gov. Gavin Newsom and the Democratic-controlled state Legislature have reached an agreement on a budget plan to allocate $310.8 billion over the next year. This plan effectively addresses a budget deficit of nearly $32 billion without depleting the state’s savings.
Despite experiencing surplus budgets exceeding $100 billion in recent years, California faced financial challenges due to a slowdown in revenues, driven by rising inflation and a struggling stock market. Being heavily dependent on taxes paid by wealthy individuals, the state was more susceptible to economic fluctuations compared to others. The Newsom administration estimated a spending-revenue gap of over $30 billion last month.
Through a combination of spending cuts, delayed expenses, and fund reallocations, the proposed budget aims to cover the deficit by reducing spending by roughly $8 billion. Additionally, $6.1 billion will be borrowed, and a record-breaking $37.8 billion will be set aside for reserves. This budget fosters fiscal discipline while ensuring vital investments in public education, healthcare, climate initiatives, and public safety, according to Governor Newsom.
Republicans, however, deemed the budget plan unsustainable, warning of projected multi-billion dollar deficits in the coming years. Their concerns were further amplified by the scheduled increase in the state’s gas tax, linked to inflation. Despite repeated attempts by Republicans to halt these increases, they were unsuccessful.
Initial negotiations on the budget faced a setback as Governor Newsom sought significant changes to the state’s building and permitting process. This move aimed to accelerate crucial construction projects, including expanding energy capacity and upgrading aging water infrastructure. Yet, lawmakers from the Central Valley raised concerns that Newsom was exploiting the proposal to advance a long-delayed project for a water tunnel to Southern California. Eventually, Newsom secured most of the desired changes, ensuring they would not benefit the tunnel project.
Recognizing the struggles faced by public transit agencies amid the pandemic-induced decline in ridership, the budget provides a lifeline by allowing these agencies to utilize $5.1 billion in funding over the next three years for operations. Nevertheless, lawmakers representing the San Francisco Bay area expressed dissatisfaction, claiming that the allocated funds were insufficient to prevent severe service reductions. As a response, they introduced legislation proposing toll increases on seven state-owned bridges, projected to generate $180 million in revenue over five years.
The budget does not impose income tax hikes to bridge the deficit. However, it introduces a new tax on managed care organizations, generating an estimated $32 billion over four years. Some of this revenue will be directed towards increasing payments to doctors treating Medicaid patients. Moreover, $150 million in loans will be offered to at-risk hospitals, in addition to the previously approved $150 million.
Senate President Pro Tempore Toni Atkins emphasized the pragmatic approach adopted in household budgeting to navigate through difficult times. This approach has proven effective in managing state finances.
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