What California needs to move forward economically – it doesn’t start with austerity

Californians recently learned of alarming estimates of the state’s budget shortfall as a result of the economic effects of the COVID-19 pandemic. 

Gov. Gavin Newsom announced that the state faces a $54 billion budget shortfall for the current and next fiscal years – a 37% decrease from the current state funding level. This stark news comes just ahead of his revised 2020-21 budget proposal.

We can’t ignore how quickly COVID-19 has changed California’s fiscal outlook. Nor can we look away from the high price Californians are paying as they shoulder the economic impact of this crisis. 

The sudden and widespread job and income losses due to the necessary stay-at-home orders have left millions of Californians – especially black, Latinx and undocumented Californians, as well as low-income households – struggling to pay rent and buy groceries.

As our leaders look to their own budgets, fiscal austerity measures are likely to be on the table – cutting vital programs and services, crippling their ability to respond to the public health and economic implications of COVID-19, and furloughing public employees, including many who are essential. 

This should be alarming for Californians. Drastic austerity measures could endanger the public health response to the COVID-19 pandemic and increase the intensity of the economic downturn. Worse, they would likely prolong the impacts of the crisis and make it harder for Californians and their governments to regain their financial footing. What’s more, austerity measures would exacerbate income inequality and systemic inequities that permanently leave people of color, undocumented residents and households with low-incomes locked out of our state’s prosperity. 

As state and local leaders weigh the choices ahead, comparisons will be made to the Great Recession, primarily due to the scale of the state’s revenue losses. But the comparison stops there. This is a fundamentally different and unprecedented recession. It was not brought on by a correction in financial or housing markets. Rather, this economic crisis was sparked by a very sudden public health pandemic that shut down major portions of the economy overnight and significantly altered people’s behavior in a matter of days. 

Why does this matter? Because it means government responses also must be quick and significant to address the crisis. 

The clearest path forward requires two coordinated efforts. 

First, we must improve the public health response to mitigate the immediate crisis – which requires significant public investment. 

Second, we must provide assistance to the organizations, people and families that have been economically harmed by the crisis to help them not just survive but recover. This also requires significant public investment. 

The path to a shorter recession and a quicker recovery – where everyone is better off sooner – requires all levels of government to keep as much funding as possible in the economy now, and do everything within their powers to counteract the intensity of the crisis. 

And while state and local governments are required by law to balance their budgets, cuts to vital public supports should not be the first or only path chosen by our state’s leaders. In addition to making an urgent case for additional federal fiscal relief, policymakers should use rainy day funds, raise taxes and borrow appropriately to minimize cuts to services that Californians need now more than ever.

Californians need all of our leaders to do everything possible to inject funding, resources and energy into attacking these public health and economic crises. Doing what Californians need now will mean making some difficult choices so that the state can provide and maintain targeted assistance to the individuals, families and organizations most affected by the crisis. We are living in anything but usual times that require extraordinary responses.

Those decisions will be big and daunting for our leaders, but they are our best shot at bending the curve of this downturn in a direction that will improve the state’s revenue outlook and benefit all Californians as quickly as possible.

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Chris Hoene is the executive director of the California Budget & Policy Center, a public policy think tank, choene@calbudgetcenter.org. He wrote this commentary for CalMatters.