For the seventh time in eight years, California’s government is poised to collect a sizable cash surplus under projections in the $222.2-billion state budget Gov. Gavin Newsom submitted to the Legislature on Friday — a remarkable streak even in the face of steadily higher spending, most notably on K-12 education and healthcare for low-income residents.
Those programs would remain the focus of government growth under the plan unveiled by Newsom. Elsewhere, he urged lawmakers to limit their requests for more spending in light of expectations that the state and national economies will grow more slowly in the immediate future.
But the budget crafted by Newsom is hardly cautious. Although it seeks limited growth in long-term commitments, the governor proposes to expand state government’s reach into policy areas that have historically been the purview of local and federal government. Those include new efforts to combat a worsening homelessness crisis, lower the cost of prescription drugs and better protect the rights of California consumers.
“I’m very proud to be a Californian. I’m proud of this state,” Newsom said. “And I’m proud of the budget that we are presenting today, but I am not naive about the areas where we’re falling short.”
Whether Newsom’s fellow Democrats in the Legislature will agree to his approach is unclear. So, too, is whether the governor might soften his stance on year-over-year spending once a final budget is enacted in June. In 2019, his first year in office, Newsom signed a budget that boosted ongoing state expenditures by $4 billion. The independent Legislative Analyst’s Office has since estimated those pledges will cost close to $6 billion a year once fully implemented, with some spending increases to take effect this spring.
Last month, legislative analysts recommended a cautious budget that would add no more than $1 billion in new, permanent expenditures. Newsom’s budget reflects $153 billion in new spending from the general fund, the state’s primary bank account. The vast majority of projected windfall revenue would be stashed away in California’s so-called rainy day fund. By summer 2021, the reserve account would grow to an estimated $18 billion — more backup budget cash than at any other time in the state’s history.
The detailed spending plan offers some limited versions of Democratic priorities. Most notable is Newsom’s decision to support coverage in the state’s Medi-Cal program for all residents over the age of 65, regardless of immigration status. The $80.5-million expansion of the healthcare program, in which eligibility is tied to income, builds on last year’s decision to fully cover teens and young adults in the U.S. illegally. But the change won’t take effect until 2021 and the governor has yet to embrace coverage for all immigrant adults, an idea with estimated annual costs as high as $1 billion.
Some of the most ambitious proposals were unveiled in the days leading up to Friday’s formal submission of a spending plan for the fiscal year that begins in July. Those efforts include more than $1.4 billion to shelter and offer healthcare to California’s homeless population, with more than half of the money to be offered as direct cash subsidies to local services. While lawmakers are expected to agree to the extra money, other parts of Newsom’s new homelessness plan could be a tougher sell — most notably, his proposal to revamp rules governing mental healthcare spending funded by a tax on millionaires that was imposed by voters in 2004.
The governor has also asked the Legislature to sign off on a first-in-the-nation proposal to market and sell generic prescription drugs to the state’s residents under a government-run operation. The effort comes on the heels of Newsom’s push last year to harness the purchasing power of state and local agencies in hopes of lowering costs paid by taxpayers.
Newsom’s new budget also proposes the creation of a state-run consumer protection agency, one that would monitor the business practices of financial institutions and also oversee debt collection companies. The effort is largely in response to the diminished activity of the federal government’s consumer watchdog operations under President Trump.
The consumer oversight and drug pricing efforts are the budget plan’s most striking proposals to continue a three-year effort by state lawmakers to position California as a policy and political counterweight to Trump. Taken as a whole, the effort has produced an agenda to either defy or ignore what happens in Washington and stretch the boundaries of what any single state can do on its own.
Last year, Newsom and Democratic legislators signed off on a state mandate to purchase health insurance after Republicans in Washington effectively repealed the national requirement under the Affordable Care Act. Californians who fail to get insured would have to pay a fine when filing their state tax returns in 2021 — at least $2,000 for a family of four, state officials said on Thursday.
Legislators will begin a detailed review of Newsom’s budget later this month. Broad policy discussions on spending priorities generally dominate the winter and spring months in Sacramento, with detailed budget negotiations occurring after April tax revenues are collected. By law, the Legislature must send a completed fiscal plan to Newsom no later than June 15.