California lawmakers said Monday they have been able to bridge what appeared to be deep differences on the 2020-21 state budget in order to reach an agreement.
The Legislature approved a proposed budget June 14 that was vastly different from the revised budget released by Gov. Gavin Newsom in May.
The budget agreement protects core services — such as education, health care, social safety net and emergency preparedness and response — and also invests in small businesses harmed by the pandemic, lawmakers said.
“The size and scope of the pandemic and the accompanying economic crisis have been unprecedented — leaving California to make hard choices and figure out how to sustain critical services with much less,” Newsom, Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon said in a joint statement.
The state began the year with $20 billion in reserves and now faces a $54.3 billion deficit, according to the governor's estimates.
The biggest sticking point in the budget was how to view promised money from the federal government to backfill pandemic-driven losses. The governor proposed to make cuts now and restore budget items if the federal government came through.
Lenders are cautioning not only that second-quarter provisions might exceed the spike seen earlier this year, but also that credit costs could be elevated into 2021 if the economic slowdown drags on or fears of a second coronavirus wave are borne out.
The acting head of the agency says it cannot continue relying on web-based exams put in place during the coronavirus and will start sending staff into banks.
The immediate lockdown of the nation’s economy in response to attempts to flatten the coronavirus infection curve has had a widespread impact on the revenues of all businesses, particularly small ones that are more susceptible to economic disruptions.
The Legislature wanted to lessen proposed cuts particularly to K-12 education and safety net programs, and make cuts later in the year if promised federal funding didn’t arrive.
The delay of the state income tax deadline to July, to match the federal delay, has also made it difficult for the state to make accurate revenue forecasts. Typically by May, the state — heavily dependent on income taxes and capital gains — has a clear picture what those numbers are. An August revision to the budget may occur once tax receipts are received in July.
Newsom largely agreed to abandon the steep cuts he proposed in his revised budget, to align with the Legislature’s more optimistic view, according to the Los Angeles Times, which cited unnamed sources providing details on the agreement not expected to be formally released until later this week. The revenue forecast also estimates $1 billion more in revenues than did the previous forecast.
Newsom wouldn't provide many details during a press call following his daily weekday public update on the pandemic.
“We have made compromises across the budget,” Newsom said. “We will be putting out more details in coming weeks, and months. This is a multi-year framework, we aren’t solving for everything in one calendar month. We have a lot of work to do over the next several years.”
A number of things were done to help mitigate education cuts in the agreement, Newsom said.
“We are working to get a lot of the federal funding coming through the CARES Act into the K-14 system [which includes community colleges],” Newsom said. “I think a lot of the anxiety in the schools will be mitigated. We have provisions against teacher layoffs, so that is good.”
His original proposal would have slashed $14 billion from the $222.2 billion budget. About $8 billion of the cuts would have hit K-12 schools and community colleges.
School districts would have had to use cash reserves or debt funding to cover about $12.5 billion in expenses that the state would normally cover under the governor's May revisions. The state used similar deferrals in the aftermath of the 2008 recession.
Analysts have generally viewed California state finances as relatively well positioned to weather the pandemic-induced recession.
The state has retained its ratings and across-the-board stable outlooks. California is rated AA, Aa2 and AA-minus by Fitch Ratings, Moody’s Investors Service and S&P Global Ratings, respectively, after two upgrades during 2019.