Budget whiplash: California faces $25 billion deficit

Your guide to California policy and politics
Emily Hoeven BY Emily Hoeven November 17, 2022
Presented by Dairy Cares, Climate-Smart Agricultural Partnership, Southern California Gas Company and Earthjustice

Budget whiplash: California faces $25 billion deficit

$25 billion.

That’s the estimated deficit Gov. Gavin Newsom and state lawmakers will confront when crafting a budget for the upcoming fiscal year, the Legislature’s nonpartisan fiscal advisor announced Wednesday.

The projection marks a stunning reversal from back-to-back years of unprecedented prosperity: The budget for California’s current fiscal year clocked in at a whopping $308 billion, fueled by a record $97 billion surplus that was by itself enough to treat every state resident to a $7,500 vacation. The year before, Newsom and lawmakers approved what was at the time a record-busting $263 billion budget that included a $76 billion surplus.

Although the outlook is sobering — not since the Great Recession have California’s revenue estimates been so weak, according to the Legislative Analyst’s Office — it could be worse, in ways both good and bad.

  • The good news: California “is in its best-ever position to manage a downturn, by having built strong reserves and focusing on one-time commitments” rather than ongoing spending in the last two budgets, H.D. Palmer, spokesperson for the California Department of Finance, said in a statement. Indeed, Newsom has for months been sounding the alarm about lower-than-expected revenues, vetoing bills that he said would have cost taxpayers billions of dollars. And due to legislative Democrats’ “responsible approach, we are confident that we can protect our progress and craft a state budget without ongoing cuts to schools and other core programs or taxing middle class families,” Democratic Senate President Pro Tem Toni Atkins of San Diego said in a statement. (GOP lawmakers had a different assessment: “Democrats overtaxed Californians and grew government while ignoring investments in critical infrastructure like new water storage,” Assembly Republican Leader James Gallagher of Yuba City said in a statement.)
  • The bad news: The Legislative Analyst’s fiscal outlook doesn’t take into account soaring inflation rates or the increasingly likely possibility of a recession. Due to inflation, “the actual costs to maintain the state’s service level are higher than what our outlook reflects,” the analyst’s office wrote. The estimated $25 billion deficit thus “understates the actual budget problem in inflation-adjusted terms.” And, if a recession were to hit, it would result “in much more significant revenue declines,” meaning California could bring in $30 to $50 billion less than expected in the budget window.

A lot could change between now and January — when Newsom will unveil his budget proposal for the fiscal year beginning in July — and between now and May, when Newsom will release a revised proposal following negotiations with lawmakers. They must reach a spending deal by June 15.

But what is clear is that the budget will pose political challenges for Newsom — who has not yet had to govern during a budget deficit — and for California’s newly elected lawmakers, who are set to be sworn into office on Dec. 5.

For one thing, a massive deficit could complicate Newsom’s efforts to levy a new tax on oil and gas companies. And for another, Newsom and lawmakers could be forced to slash, delay or downsize programs they’ve touted as signature achievements.

One program it might make sense to delay: Newsom’s $500 million plan to clean up homeless encampments, Legislative Analyst Gabe Petek said.

  • Petek: “That’s a very good example of the type of pause we had in mind.”

But that may not go over too well with Newsom, who is under pressure to make a dent in California’s growing homelessness crisis — a problem he’s tied to the fate of the Democratic Party — and who is set to meet with local leaders on Friday to push them to develop more ambitious plans to reduce the number of people living on the streets. 


1 Why does California’s vote count take so long?

Election workers sort ballots at the Sacramento County voter registration and elections office in Sacramento on Nov. 8, 2022. Photo by Rahul Lal, CalMatters
Election workers sort ballots at the Sacramento County voter registration and elections office on Nov. 8, 2022. Photo by Rahul Lal, CalMatters

Republicans secured a majority in the U.S. House of Representatives on Wednesday — and it was, as some had predicted, a California race that put them over the finish line. The Associated Press called the 27th District in northern Los Angeles County for incumbent GOP Rep. Mike Garcia, whose Democratic opponent, Christy Smith, all but conceded the race on Sunday and laid the blame for her loss at the feet of her own party. Also Wednesday, Rep. Karen Bass became the first woman to be elected mayor of Los Angeles, after the Associated Press declared her victory over billionaire businessman Rick Caruso.

The announcements came more than a week after Californians finished casting ballots in the Nov. 8 election, reviving questions about why the Golden State takes so long to count votes. While some conservatives have suggested that Democrats are leveraging the protracted process to compromise election integrity, state lawmakers and elections officials say the extended count is a feature, not a bug, of California’s election system, which prioritizes enfranchisement. It’s also a result of residents shifting in recent years to overwhelmingly voting by mail, CalMatters’ Alexei Koseff and Sameea Kamal report.

  • Democratic state Sen. Steve Glazer of Orinda, who leads his chamber’s elections committee: “Democracies are not meant to be efficient. They’re built on a foundation that every person’s vote matters. … Is there a way to make it faster? Yes, there is. Is it worth the price, the cost?”
  • Tommy Gong, deputy county clerk-recorder for Contra Costa County: “If that was a desire to be able to certify quicker, it would need to really be looked at holistically. By doing things quicker, you certainly could be looking for ways to cut corners that could start chipping away at the integrity of the elections.”

2022 Election

Latest coverage of the 2022 general election in California

2 Inside California’s revised climate change strategy

Vapor is released into the sky at a refinery in Wilmington on March 24, 2012. Photo by Bret Hartman, Reuters
Vapor is released into the sky at an oil refinery in Wilmington. Photo by Bret Hartman, Reuters

Is the highly anticipated final draft of California’s strategy for battling climate change — which state air regulators unveiled Wednesday ahead of a scheduled Dec. 15 vote — a pipe dream or a world-leading plan for achieving a carbon-neutral future?

Well, as CalMatters’ Nadia Lopez reports, it depends on whom you ask: Newsom described it as “the most ambitious set of climate goals of any jurisdiction in the world” that will “spur an economic transformation akin to the industrial revolution.” Danny Cullenward, a climate economist who advises the state air board and Legislature, labeled it an “aspirational document … filled with bureaucratic doublespeak.” And Baani Behniwal of The Climate Center said that even after bolder commitments and more aggressive goals were added to the plan, “it still falls short of what’s required for a climate-safe future” and includes provisions that prop up the oil and gas industry.

So how exactly does California propose to achieve net-zero carbon emissions by 2045, how realistic is its plan, why are some environmental groups concerned about it and how much would it cost? Nadia has all the details.

3 Are Hispanic Serving Institutions living up to their name?

"La Memoria de la Tierra,” a mural by Judith Baca on the north side of Ackerman Union building at UCLA in Los Angeles on Nov. 9, 2022. Pablo Unzueta for CalMatters
“La Memoria de la Tierra,” a mural by Judith Baca, on the north side of Ackerman Union building at UCLA on Nov. 9, 2022. Photo by Pablo Unzueta for CalMatters

California has the most Hispanic Serving Institutions among its colleges of any state — 174, including 21 of 23 California State University campuses and five of the nine University of California campuses. But how well are HSIs — where almost 90% of the state’s Latino undergraduates are enrolled — actually serving students?

It’s a mixed bag, Megan Tagami and Matthew Reagan report for the CalMatters College Journalism Network.

HSI status is purely numbers-based: Colleges must enroll an undergraduate population that is at least 25% Hispanic and have a high proportion of low-income students. Doing so can lead to lots of federal money — but universities aren’t required to use those grants on projects that specifically benefit Latino students.   

This has raised concerns for some advocates and students, who say a divide has emerged between universities that simply enroll high numbers of Latinos and those that intentionally serve that population.

  • Melissa Bardo, the associate director of policy and government relations at Education Trust West: “Until Latinx students are thriving on your campus, you may be a HSI, but you’re not a true Hispanic or Latinx serving institution.”

An update: As part of its reporting on efforts to start tribal colleges in California, the College Journalism Network last August profiled a college succeeding in enrolling Native American students. But the California Indian Nations College in Palm Desert faced a funding shortage that threatened its survival. 

Wednesday, Democratic Assemblymembers James Ramos of Highland and Eduardo Garcia of Coachella joined students and administrators to celebrate $5 million in this year’s state budget to help the college pursue federal accreditation, which would make it eligible for federal and state grants.


CalMatters Commentary

CalMatters columnist Dan Walters: California water officials seeking “voluntary agreements” to enhance water flows through the Sacramento-San Joaquin Delta have achieved a new breakthrough.

Karen Bass victory is a referendum on division: By electing Bass as the next mayor of Los Angeles, voters affirmed the importance of coalition-building and community and rejected Caruso’s $100 million attempt to buy his way into office, argues Julio Esperias, communications manager for Community Coalition.

How California is fighting disinformation: As schools ramp up efforts to teach media literacy, a new state law requires social media companies to disclose how they police hate speech and misinformation, writes Huda Aljord, a teacher at Riverside City College.


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UC Irvine professor spent $400,000 of state funds on cameras used for Instagram posts. // Los Angeles Times

San Jose State University announces new president, Cynthia Teniente-Matson. // Mercury News

New CalPERS rule limits how long retirees can work while drawing a pension. // Sacramento Bee

Newsom asked cities to set targets for reducing homelessness. Sacramento’s goal? A 71% spike. // Sacramento Bee

Data shows one promising sign that San Francisco’s homelessness crisis is improving. // San Francisco Chronicle

How did George Gascón end up launching a criminal probe sparked by far-right election conspiracy theories? // Los Angeles Times

The California Republican Party isn’t endorsing Trump. But many loyalists remain. // San Francisco Chronicle

Vehicle hits 25 LA County sheriff’s academy recruits on run; 5 critically injured. // Associated Press

Worker has died after carbon dioxide leak at LAX, family says. // Los Angeles Times

Imports into Southern California’s ports plunged 26% in October. // Wall Street Journal

Marin County mandates all-electric new residential and commercial construction. // Marin Independent Journal

Caltrain’s electrified trains are here. Can the agency keep them running? // Mercury News

Southern California sees gusts over 80 mph, fire risk as Santa Ana winds roar. // Washington Post

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