SACRAMENTO, Calif. (AP) — California’s Legislature on Thursday rejected many of Gov. Gavin Newsom’s most arduous budget cuts, opting instead for an accelerated transient tax raise on some businesses to offset an estimated $45 billion budget deficit while maintaining spending on many social safety net programs.
Thursday’s vote was not really a public rebuff for Newsom, a Democrat who has largely been on good terms with a legislature dominated by members of his own party. Lawmakers had to pass a balanced budget before Saturday to continue to be paid while negotiations on a final budget continue.
Instead, the legislature’s proposal outlines the differences between Newsom, a second-term governor who many believe has presidential ambitions, and a liberal state legislature that is often more willing to take risks.
While Newsom’s budget proposal keeps most of the major federal assistance programs, it includes a number of smaller cuts that have angered his Democratic allies. For example, he proposes eliminating the cost of home care for some disabled immigrants who live on Medicaid; he wants to eliminate a program that provides housing for families earning less than $13,000 a year; and he proposes delaying a fee raise for organizations that care for people with intellectual disabilities.
To reject those cuts, lawmakers had to find more money. They found it by taking one of Newsom’s ideas and implementing it more quickly.
Newsom proposed temporarily prohibiting some businesses from deducting financial losses from their state taxable income, which would raise their tax burden. This has become a common method of raising revenue during budget shortfalls. Lawmakers also chose this approach, but their plan called for the tax raise to take effect a year earlier. This resulted in $5 billion in additional revenue compared to Newsom’s plan.
Lawmakers have also had to make major budget cuts elsewhere. They want to cut $1 billion from the state’s prison budget, since the prison population is now half what it was 20 years ago, and they want to eliminate a $400 million loan to PG&E to facilitate extend the life of the Diablo Canyon nuclear power plant.
One key issue that still needs to be resolved by both sides is what to do with the minimum wage raise for health care workers that is set to take effect on July 1. Newsom signed a law last year that would raise the minimum wage for health care workers to $25 an hour over the next decade.
The wage hike is expected to cost the state hundreds of millions of dollars in higher wages for some state employees and higher payments in the state’s Medicaid program, according to an analysis by the University of California-Berkeley’s Labor Center. Newsom has said he wants to delay the minimum wage raise but has so far been unable to reach an agreement with the state legislature.
Republicans, who lack enough votes to influence policy decisions and have been sidelined in budget negotiations with Democrats, criticized the House budget plan as unsustainable. Republican Sen. Kelly Seyarto accused Democrats of “divesting” from the state’s prison system “instead of fixing it and creating a system that works for all of us.” And Republican Sen. Roger Niello said it was hazardous for Democrats to assume the state will raise more revenue next year than the Legislative Analyst’s Office had forecast.
“One of the easiest ways to balance a public budget is to simply assume higher revenues and you don’t have to deal with it until the end of the year,” he said. “This budget is nominally balanced. But it’s not sustainable.”
Democratic Senator Scott Wiener said the legislature’s budget is a plan “we can all be proud of.” He defended the prison budget cuts, saying, “It’s absolutely absurd that we’ve reduced our prison population by 50% and yet we’re spending more on prisons.”
“We can take responsibility for crimes committed without returning to mass incarceration,” he said.
