With a budget that asks lawmakers to allocate billions of dollars for new items, the state’s surplus is expected to grow to a historic $97 billion under Governor Gavin Newsom’s plan. Newsom’s proposal includes an inflation relief package for Californians, more money to fight wildfires and drought, and the highest per-student school funding ever. The state’s budget also reflects the outsized role played by capital features taxes, which have made up a greater percentage of private income tax collections since 1999 – before the dot-com collapse and massive state budget deficits throughout the past decade.
While the Gavin Newsom administration cites several factors for the projected surplus, one is a lack of certainty in the economy. It cites the war in Ukraine and issues with the supply chain. It also points to recent Federal Reserve action against inflation, and projects a decline in capital gains revenue of 22% for the year. It also proposes spending an additional $18.1 billion on non-recurring expenses, such as roads and education.
In a recent financial review released by Governor Gavin Newsom, the state faced an unprecedented $97.5 billion deficit in 2019. The warning signs were obvious, however. The Office of Independent Legislative Analysts said simulated revenue scenarios involving education spending and cash receipts were 91 percent short of the projected surplus. It is unclear if the new budget projects will pose a problem in the near term, though.
The state’s budget surplus will likely be another record. The governor’s proposal could be up to $68 billion, a big jump from the $29.6 billion announced in January. The proposed budget will cover the health care costs of low-income immigrants and other low-income residents, making it the state’s largest in history. With that money, the governor can propose a number of new programs.
Governor Gavin Newsom wants to funnel $2.7 billion in rental assistance to 300,000 families. He also wants to increase hospital workers’ hazard pay to $1,500. And he wants to fund free public transportation for three months. The budget also includes $9.5 billion for drought relief and wildfire relief. If these measures become law, California’s surplus will surpass the federal limit for both.
The projected $97.5 billion budget surplus is large compared to many other states. In fact, nearly half of the surplus is already designated for education. The rest is available for one-time expenditures, with the governor aiming to reserve 99% of discretionary money for such purposes. For example, the governor wants to invest $37 billion in infrastructure, including $5.6 billion to upgrade schools. That’s an unprecedented amount of money for education.
The Governor’s budget includes $5 billion for energy production and the creation of a strategic energy reserve. A megawatt is equal to 750 to 1,000 homes. Newsom is also planning to keep the Diablo Canyon nuclear facility and some gas-fired power plants running past 2025. The budget will need to pass through the Legislature before going into effect. There are many more things to come.