[Source: The Los Angeles Times] California’s government faces a $54.3-billion budget deficit through next summer according to an analysis released Thursday by advisors to Gov. Gavin Newsom, the deepest projected fiscal hole in state history.
The estimate accounts for both an alarming erosion of tax revenues and a growing need for health and human services programs. While it measures the gap between revenues and expenditures based on projections made by Newsom in January rather than existing funds, the assessment nonetheless reflects a record-shattering collapse of the state’s economy, one created in just a matter of weeks by the fast-moving COVID-19 pandemic.
“The COVID-19 pandemic has caused enormous hardship for families, businesses and governments across the world, the United States and California,” states the analysis released by the California Department of Finance. “It has endangered health, stressed the healthcare system, and caused devastating losses in family and business income.”
Newsom’s budget team forecasts a $41.2-billion drop in tax revenues compared to their estimates from just four months ago. Most of that — $32.2 billion — would appear in the fiscal year that begins in July. Current year tax revenues, according to the report, are expected to miss the mark by $9.7 billion, even though most of the state’s budget year had already passed by the time the virus became an immediate concern in March.
Expenses are also projected to skyrocket. The fiscal report released Thursday assumes some $13 billion in higher state costs due to the pandemic, with a combined $7 billion in higher-than-expected caseloads for programs such as Medi-Cal, which provides free healthcare, and CalWorks, the state’s welfare assistance program. As much as $6 billion in expenses are assumed to be the result of the state’s COVID-19 response.
The decision to release the dire estimate early — Newsom won’t present his revised state spending plan to the Legislature for another week — was likely prompted by a desire to calibrate the expectations of lawmakers and interest groups about what lies ahead. Lawmakers and a variety of state Capitol insiders were briefed about the projection on Wednesday, and many who reviewed the deficit projection predicted a bleak road ahead.
“It’s a really frightening number,” said Kevin Gordon, a veteran education lobbyist.
The impact on K-12 education funding could be especially severe. Schools receive roughly 40% of the state’s general fund revenues and, under a series of complicated constitutional formulas, could see their minimum funding cut by more than $18 billion under the Newsom administration analysis.
“The cuts allowed would eviscerate school budgets,” Gordon said.
And the reductions could come as state officials are asking schools to do more to help children, especially those from low-income families, when it comes to distance learning and provided meals.
In January, with the economy still expanding, Newsom’s proposed a $222.2-billion budget plan that projected upticks in spending on K-12 schools and healthcare programs. But that plan, introduced less than eight weeks before the governor declared a state of emergency to combat the coronavirus crisis, assumed a steady growth in personal income of 4% a year and continued low unemployment.
Those expectations have vanished. The state has processed more than 4.2 million unemployment claims since mid-March, nearly equivalent to all of the jobs in Los Angeles County. The Newsom administration estimates almost 478,000 jobless claims were filed in just the past week. The state received approval this week for an $8-billion loan from the federal government to cover the rising cost of those benefits.
The projected $54.3-billion shortfall is the largest such estimate since the $40-billion deficit predicted by then-Gov. Arnold Schwarzenegger during the Great Recession in January 2009. In 2011, then-Gov. Jerry Brown said the state stared down a $27-billion fiscal hole. The Newsom analysis notes that projected deficits of the past may have been smaller from a total dollar amount, but also constituted a smaller percentage of the general fund than what lawmakers face this year.
A steady uptick in jobs and tax revenues erased the red ink of the past, with some of the money set aside in cash reserves. California voters boosted the maximum size of deposits in the state’s “rainy day” fund in 2014.
The efforts by state lawmakers, led by Newsom and Brown, to sock cash into that reserve fund could help soften the blow. The independent Legislative Analyst’s Office estimated last month that the state’s cash reserves total around $17.5 billion — money that could provide a cushion, but only under a series of strict conditions.
Lawmakers are also hoping that the crushing weight of a historic deficit will be alleviated by the federal government. Many of California’s emergency coronavirus expenses could be reimbursed by the Federal Emergency Management Agency. In addition, the stimulus effort signed into law by President Trump provided $9.5 billion in relief to the state budget, with an additional $5.8 billion sent directly to California’s largest local governments.
On Tuesday, Newsom said he hoped federal officials would do much more.
“I imagine we would be front and center in that consideration,” he said of additional federal help.
Source: The Los Angeles Times
May 7, 2020
