Gov. Gavin Newsom agreed Monday to largely abandon the far-reaching spending reductions he proposed as necessary without new federal coronavirus relief funds, striking a budget pact with leaders of the California Legislature that relies on a more optimistic economic outlook as the basis for fewer spending cuts and protection of public school funding.

The compromise, announced in a brief statement released by Newsom and Democratic legislative leaders, came one week after legislators passed a placeholder budget that met a constitutional deadline, avoiding the forfeiture of their pay. Formal approval of the full deal with the governor isn’t expected until later this week.

“The COVID-19 global pandemic has caused a sudden and dramatic change in our nation’s and state’s economic outlook — and has had a cascading effect on our state budget,” the statement said. “In the face of these challenges, we have agreed on a budget that is balanced, responsible and protects core services — education, health care, social safety net and emergency preparedness and response.

No topic was more contentious than Newsom’s original plan to cut $14 billion in spending, a downsizing only to be reversed if Congress and President Trump provide new coronavirus assistance to states in early summer. The governor’s effort would have cut spending on 89 different state programs. About $8 billion of the cuts would have come from funding for K-12 schools and community colleges.

Lawmakers flatly rejected Newsom’s cut to schools and a wide array of social services, insisting the state should extend the deadline for new federal money until the end of September before finding an additional $14 billion in budget savings.

The final agreement, outlined for The Times by legislative sources who asked to speak on background, relies on a hybrid approach. Spending cuts linked to future federal funds will be made immediately, as Newsom had wanted. But the agreed-upon cuts are far more limited, with key portions of the projected deficit erased by both using part of the state’s historically large cash reserves. The agreement, the sources said, also assumes tax revenues will be better than expected — reducing additional cuts by about $1 billion.


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