SACRAMENTO, Calif. — On Wednesday morning, Governor Gavin Newsom will unveil his budget proposal for the 2024-25 fiscal year, which begins in July.
It will be the first full glimpse at his plan to address an estimated, record-breaking $68 billion budget deficit.
That estimate came from the Legislative Analyst’s Office (LAO), which is the California Legislature’s nonpartisan fiscal and policy advisor. The LAO released that budget deficit estimate in a report last month. It cited tax receipts that were lower than expected, with victims of severe winter storms given a tax filing extension until October.
“We will have different numbers when the governor comes out with his budget,” said H.D. Palmer, spokesperson for the California Department of Finance.
He said there is a significant problem to solve, but the actual deficit is much less than $68 billion.
“We do have a substantial amount of reserves that have been set aside from dealing with this type of situation, the largest on record, the highest level of combined reserves the state has ever had," he added.
In order to tap into the nearly $24 billion in reserve funds, the governor would need to declare a fiscal budget emergency, something the LAO says he should do.
Assembly Republicans agree, sending Newsom a letter this week urging him to declare a budget emergency and call for a special session to address the issue.
Reserves alone wouldn’t solve the problem however. Already, Governor Newsom has put a pause on all non-essential spending, including on fleet vehicles and non-essential travel.
“We may have to pull back on some one-time expenditures that we can't sustain right now,” Palmer said. “We will be looking to see where we can make those types of adjustments, those types of savings while maintaining the core programs that are essential for Californians and maintaining the progress that we have made in critical areas such as education, such as housing, such as homelessness and in the climate as well.”
Republican state lawmakers are also urging spending cuts. State Senator Roger Niello (R-Fair Oaks) is vice chair of the Senate Budget and Fiscal Review Committee. In a recorded video statement, he blasted lawmakers’ spending in recent years as unsustainable.
“Despite having a substantial surplus of $100 billion just two years ago, there wasn’t enough caution among state lawmakers. Reckless spending inflated the state’s budget to unprecedented levels, something that was never sustainable in the event of an economic downturn,” Niello said. “We need to reduce the amount of money we’re spending and ensure the efficiency of every dollar spent, while minimizing potential cuts in critical areas such as education, health and public safety.”
The LAO report offers several suggestions, even saying, “in facing budget problems of similar magnitudes, the state in the past has made reductions to employee compensation and lowered spending on higher education and the judicial branch.”
But nothing will be decided or set in stone anytime soon. Exactly where to cut spending will be something state lawmakers on both sides of the aisle hammer out in coming months.
Wednesday's unveiling of the governor’s budget proposal is just the beginning. This kicks off five months of revisions and hearings by committees and subcommittees.
The LAO will come out with an analysis of the budget bill, with recommended changes—usually by February and then the Senate and Assembly budget committees will conduct hearings. There’s a revised budget due in May, and – ultimately - California’s Constitution requires state lawmakers to pass the budget by June 15.
Bottom line: what the Governor presents Wednesday will go through a lot of changes before it becomes final in about five months.
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