Gov. Newsom submits revised budget plan with huge surplus

By Katy Murphy and John Woolfolk

SACRAMENTO —  California is in the money, thanks to a flurry of tech IPOs expected to raise some $700 million in new tax revenue.

But underlying the rosy state budget plan with a record $21.5 billion surplus that Gov. Gavin Newsom unveiled Thursday glares a sobering paradox: Many of the state’s families are barely getting by.

“The affordability crisis families face in this state is very real,” Newsom said, “and that’s why this budget tackles those challenges head-on by focusing on housing, health care, early childhood and higher education.”

The governor’s plan would offer more money for schools, child care, affordable housing, emergency homeless services and the expansion of Medi-Cal availability to young undocumented adults, among other programs, while shoring up budget reserves and paying down some of the state’s sizable pension debt.With so many new money at his disposal, it was an easy budget to deliver. And California’s new governor was clearly reveling in the annual May ritual as he unhurriedly made his way through his presentation, citing obscure dollar amounts, programs and bill numbers from memory and giving shout-outs to lawmakers who have championed some of the priorities that appear in his plan.

The $147 billion general fund has swelled by $3 billion since just January. In recent months, a string of Silicon Valley companies, including Lyft and Pinterest, have gone public; Uber is expected to follow suit Friday, pumping more capital gains into the state’s coffers.

Still, Newsom said the state is preparing for the economy to slow, with revenues projected to be $1.6 billion lower in 2022-23 compared to the forecast in January.

“The headwinds are real,” he said.

The new budget blueprint, which takes into account April tax receipts, updated spending figures and the latest economic forecasts, kicks off a month of negotiations leading up to the Legislature’s June 15 deadline for passing a budget bill.

Some of the plan’s highlights include:

•$15 billion for budget reserves and debt repayment;

•$1.75 billion to boost housing production through tax credits, a plan with new incentives for cities;

•$1 billion in emergency homeless services and aid to low-wage workers;

•Two years of free community college tuition for first-time, full-time students;

•More money for public universities: $240 million in new ongoing funding for the University of California, and $300 million for California State University, in addition to a one-time infusion of $153 million for UC and $264 million for CSU;

•Adding $692 billion in ongoing money for special education, an increase of 21 percent;

•More than $800 million for wildfire prevention.

Earlier in the week, Newsom appeared with his wife, Jennifer Siebel Newsom, to preview what he is calling his “parents agenda.” That includes a temporary exemption for sales taxes on tampons and diapers, increasing the state tax credit for low-income families with young children to $1,000, expanding subsidized child care slots and adding two weeks of paid family leave — for each parent of a newborn — to the current six.

Housing is another key focus for the governor. In January, Newsom proposed $1.75 billion in one-time expenditures — far more than his predecessor, Gov. Jerry Brown — to spur the development of new homes, including those for low- and middle-income families.

On Thursday, Newsom said he adjusted that plan to allow cities and counties to use some of the funds on basic infrastructure — a concern, he said, that surfaced in meetings with local government officials.

“Almost to a T they said, ‘We can’t afford the water hookups. We can’t afford the sidewalks. We can’t afford the lighting. We can’t afford the sewage. We can’t afford the infrastructure to build the houses on,’” he said.The governor also spoke unflinchingly about homelessness in California, where one in four of the nation’s homeless live.

“This homeless issue is out of control,” he said. “This homeless issue, like the housing issue, is a crisis. It is a stain on the state of California.”

With summer fire season coming up, and numerous major recent fires caused by power lines, Newsom announced $75 million in additional funding to address utilities temporarily turning off electricity in rural areas at high risk of fires and strong winds. The money, he said would be used to pay for alert systems, portable generators and other related expenses.

Fire experts say the practice, which has become more common in the San Diego area and which PG&E has said it will expand, is a smart way to reduce fires. But it also presents serious problems, particularly for people who rely on home medical equipment.

“I’m worried about it, we’re all worried about it for the elderly,” Newsom said. “We could see people’s power shut off not for a day but for a week.”

Newsom’s revised budget contains $251 million in additional spending from the state’s cap-and-trade permit auction program to fund programs that replace old diesel school buses, trucks and farm equipment with cleaner alternatives; along with other programs that encourage transit-oriented development and which provide incentives for farmers to capture carbon in their soils.

On water issues, Newsom provided a strong defense of his plan to negotiate a new tax this year with state lawmakers, perhaps $1 a month, on Californians’ water bills. Such a tax, which is opposed by many city water agencies and which would require a two-thirds vote in Sacramento, would raise roughly $100 million a year to rebuild the failing water systems of 1 million Californians, many of them poor families in the Central Valley and the Mojave Desert whose failing wells and water systems do not provide safe drinking water.

While Democratic lawmakers praised the governor’s new plan, it was met with some skepticism from the Legislature’s small Republican minority, whose support will not be crucial to the budget’s passage. Senate Republican Leader Shannon Grove, R-Bakersfield, said the budget had simply grown too big. Assemblyman Jay Obernolte, R-Hesperia, said he was pleased to see money for 25 new superior court judgeships but worried about the long-term ramifications of expanding child care and child tax credits.

“These are easy things to approve of when you have a $21 billion budget surplus,” Obernolte said. “But unfortunately that’s exactly the kind of spending that increases budgetary pressure in future years, because it’s very hard to walk back expansion of those programs.”

Reporter Paul Rogers contributed to this story.