A rift over closing the budget deficit

As the COVID-19 pandemic alters life in California in ways never before seen, one impact is on the annual ritual of fashioning a state budget.

With just a few days remaining until the June 15 constitutional deadline for enacting a 2020-21 budget, Gov. Gavin Newsom and his fellow Democrats in the Legislature are engaged in a fairly cordial debate over closing a deficit that Newsom pegs at $54 billion.

It’s essentially a conflict over how much direct relief, if any, California can expect from President Donald Trump and Congress to cover about $15 billion of the deficit that would remain after other actions have been taken.

Newsom had proposed a $222 billion budget in January and then discarded it after the pandemic struck. He ordered a widespread shutdown affecting economic and personal behavior to deal with it, thus triggering a recession that erased millions of jobs in just a few weeks.

In May, Newsom proposed a revision to his budget proposal that would cut spending to $202 billion and cover the remainder of the gap with some new revenues, some borrowing and some accounting maneuvers. He said $15 billion in cuts, mostly to K-12 education and colleges, would be automatically restored if the state received the federal aid that a $1 trillion House-passed relief bill promised.

Clearly, he intended that cutting the most popular segments of the budget would help spur federal action. It was, however, too much for legislators to digest as they were hit with pleas from hundreds of advocates for services targeted in Newsom’s budget.

The Senate’s Democratic leaders proposed, and the Assembly’s leadership later supported, a 180-degree shift from Newsom’s proposal. It would essentially retain the spending he cut on the assumption that Uncle Sam will cough up the additional relief, and make reductions in the fall if the money doesn’t materialize.

“Our economy has been pummeled by COVID-19, but thanks to a decade of pragmatic budgeting, we can avoid draconian cuts to education and critical programs, or broad middle-class tax increases,” Senate President Pro Tem Toni Atkins said in a statement. “Californians are counting on us to make the right call at the right time.”

Of course, there’s another option — raising taxes. In fact, tax increases of some kind have been used in every major budget crisis of the past half-century.

Both Newsom’s budget and the Legislature’s count on more than $4 billion from cutting back, but not eliminating, a couple of corporate tax breaks, but that’s pocket lint if the deficit is, as both budgets assume, $54 billion. There’s a lot of sentiment among Democratic legislators for a bigger tax increase of some kind, but there’s also concern that if enacted, it could backfire politically if seen as a drag on an already battered economy.

A new statewide poll by the Public Policy Institute of California, released last week, bolsters that concern.

“Asked whether Governor Newsom should have included tax increases in his budget plan, only one-third of Californians (32% adults, 34% likely voters) say he should have,” PPIC said. “Solid majorities (60% of both adults and likely voters) say that tax increases should not have been included. Across partisan groups, Democrats (43%) are much more likely than independents (29%) and Republicans (14%) to say tax increases should have been included.”

The only certainties are that a budget deal of some kind will be made by June 15, to protect legislators from losing their salaries, and that whatever they enact will be changed repeatedly over the next year as circumstances evolve.