California Gov. Gavin Newsom speaks during the U.S. – China High-Level Event on Subnational Climate Action in Berkeley, California, United States on May 29, 2024.
The California Legislature on Thursday rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help address an estimated $45 billion deficit while preserving spending on many social safety net programs.
The budget lawmakers approved is not the state's final spending plan. Newsom and legislative leaders are still negotiating how to fix the shortfall before the start of the new fiscal year on July 1. But lawmakers had to pass a balanced budget by Saturday or else they would forfeit their six-figure salaries — a rule voters approved in 2010 to prevent the types of budget stalemates that had delayed negotiations in the past.
That is why Thursday's vote was not really a public rebuke of Newsom, a Democrat who for the most part has had a good relationship with a Legislature dominated by members of his own party. Instead, the vote highlights the differences between Newsom, a second-term governor who many believe holds presidential aspirations, and a liberal state Legislature that is often more willing to take risks.
While Newsom's budget proposal preserved most of the state's major assistance programs, he included a number of smaller cuts that angered his Democratic allies. He proposed to stop paying for in-home caretakers for some disabled immigrants on Medicaid. He wants to eliminate a program that helps provide housing for families with incomes less than $13,000 per year. And he suggested delaying a rate increase for organizations that care for people with intellectual disabilities.
To reject these cuts, lawmakers needed to find more money. They found it by taking one of Newsom's ideas and making it happen faster.
Newsom proposed temporarily stopping some businesses from deducting financial losses from their state taxable income, thus increasing their tax bill. It has become a common way to increase revenue during budget shortfalls. The Legislature chose to do this, too, but their plan would start the tax increase one year earlier. That generated an extra $5 billion in revenue compared with Newsom’s plan.
Lawmakers also found large budget cuts in other places. They want to cut $1 billion out of the state's prison budget, arguing the money isn't needed now that the prison population is about half of what it was two decades ago. And they want to cancel a $400 million loan to PG&E that would help extend the life of the Diablo Canyon nuclear power plant.
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Those are just some of the disagreements that the Newsom administration and lawmakers must resolve by the end of the month. On Thursday, both sides indicated they have made good progress. Senate President Pro Tempore Mike McGuire said lawmakers could be voting on a final budget deal by the end of next week.
“I firmly believe the final budget that we’re going to have in front of us here next week will follow the same framework that’s in front of this body here today,” he said.
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One major issue that has yet to be addressed by either side is what to do about a minimum wage increase for health care workers that is scheduled to start on July 1. Newsom signed a law last year that would eventually raise health care workers' minimum wage to $25 per hour over the next decade.
The wage increase is expected to cost the state hundreds of millions of dollars in increased wages for some state workers and increased payments in the state's Medicaid program, according to an analysis by the University of California-Berkeley Labor Center. Newsom has said he wants to delay the minimum wage increase, but he so far has been unable to get an agreement from the state Legislature.
Republicans, who don't have enough numbers to sway policy decisions and say they were left out of the budget negotiations with Democrats, criticized the Legislature's spending plan as unsustainable.
Republican Assemblymember Heath Flora said raising taxes on businesses to help close the deficit would be “an economy killer," adding “our citizens are not here to provide overdraft protections.”
“We can't continue to make up the lie that tax increases are a solution to bad management,” he said.
Democratic state Sen. Scott Wiener defended the tax proposal, noting it was just seven years ago that Congress slashed the federal corporate tax rate by 40%.
“All we are asking here during a difficult budget year is to be part of the solution,” Wiener said. “This is a very reasonable approach.”
