Newsom, Lawmakers reveal $17 Billion California Budget Cut amid Massive Deficit

Sacramento, CA: On Thursday, California Gov. Gavin Newsom and Senate and Assembly leaders revealed a plan to cut $17 billion from the state budget in April to start addressing the state’s huge debt.

The plan proposes delaying $1 billion in grant funding for transit and intercity rail projects, pausing hiring for open state jobs, and withdrawing $500 million from a program to help districts pay for K-12 building projects to reduce the shortfall before summer cuts.

“We are able to meet this challenge thanks to our responsible fiscal stewardship over the past years, including record budget reserves of close to $38 billion,” Newsom added. “There is still work to do as we finalize the budget, and I look forward to working together to build the California of the future.”

The agreement follows last month’s budget announcement by Newsom and legislative leaders, who announced a premature pact without specifying how much funding would be slashed or which program would be affected.

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The governor and lawmakers are scrambling to cut California’s budget deficit, which Newsom projected at $37.9 billion in January before the fiscal outlook is updated in the coming weeks to likely reflect a larger budget hole. According to Legislative Analyst’s Office estimates, next year’s deficit could be nearly twice Newsom’s.

California suffered from lower revenues, missed tax deadlines, and overspending due to faulty budget estimates. California’s top incomes pay capital gains taxes, rendering state revenues vulnerable to stock market volatility.

Republicans say state budget negotiations are opaque and that Democrats caused the budgetary problem by funding expensive programs like Medi-Cal for all low-income immigrants when state revenues fell.

Assembly Republican Leader James Gallagher (R-Yuba City) branded the budget pact “a swing and a miss from Democrats.”

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Democrats also agreed to use $12.2 billion from state reserve accounts to fill the difference when the final budget is approved. Early cuts and projected reserve withdrawals will reduce the deficit by $29.5 billion.

Newsom has encouraged the Legislature to take “early action” to reduce the deficit before the June 15 budget deadline due to the significant gap this year.

Democrats chose lighter cuts this month, leaving them to focus on harsher decisions later this spring. Preventing the deficit from growing before Newsom’s updated budget proposal in May may also reduce public perception of the state’s budgetary troubles.

The failure to find an agreement so far foreshadows the arduous job ahead in May and June for a Legislature and governor with limited fiscal crisis experience as they contemplate critical choices that affect millions of Californians.

The accord unveiled Thursday substantially matched a Senate plan released weeks ago to “shrink the shortfall” by $17 billion, which aligned with many of Newsom’s deficit-reduction measures.

The Assembly, where Democrats command 62 of 80 seats under a new speaker, took longer to agree. The lower chamber resisted some of the governor’s housing and homelessness program cuts, which were excluded from the early action pact, this week. The agreement also allows the government to freeze undistributed one-time spending from previous budget years at the Assembly’s request.

Assembly Speaker Robert Rivas (D-Hollister) considered his chamber’s approach the “right way to come at closing such a massive shortfall” and expected Newsom “to deliver challenging budget proposals next month to reduce the deficit in the long-term.”