Governor Suggests Budget Strategy Focused on Spending Cuts Without Raising Broad-Based Taxes

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The Governor’s Proposed Budget: A Problem, Not a Crisis

Governor Gavin Newsom’s proposed state budget has been met with both concern and relief. While it does address the projected $37.8 billion deficit, it does so without major disruptions to state programs or new general tax increases. This is a problem, but not a crisis.

The budget challenge, as the Governor calls it, is a result of projected spending exceeding projected revenues. To close this gap, the Governor has proposed reducing earlier spending increases, delaying promised increases, tapping into rainy day reserves, and implementing some targeted tax increases.

This announcement has shed a more optimistic light on the state’s finances compared to an earlier report by the Legislative Analyst, which estimated the budget deficit to be around $68 billion.

Staying the Course

The Governor’s plan is to stay the course and tighten the state’s belt, rather than resorting to drastic measures such as massive cuts, crippling tax increases, or budget gimmicks. He has put this year’s problem into perspective, stating that it only amounts to 19% of general revenues. This is significantly lower than past budget crises, such as the 46.5% of revenues in 2009-10 and over 52% in 2003-04.

Furthermore, the Administration projects that revenues and transfers for the 2024-25 budget will be $18 billion higher than the current year, and general tax collections will be $50 billion higher in 2024 compared to the pre-pandemic year of 2019.

Making Tough Decisions

In the face of an imbalance between revenues and costs, Governor Newsom is making tough decisions on spending cuts, pausing funding for future projects, and prioritizing critical areas. This approach is similar to what private sector businesses do in similar situations.

The Governor’s budget focuses on investments that will help California’s economy succeed, such as infrastructure, education, homelessness response, and combatting retail and property crimes. It is also worth noting that the Governor has made it clear that a wealth tax in California is off the table.

Key Elements of the Budget

The key elements of the budget plan include:

– Reducing current or anticipated programs by $8.5 billion, primarily in climate change programs, housing, and state operations. The Administration will also delay implementation of new programs created by recent legislation until updated revenue estimates are available in May.

– Delaying and spreading out currently programmed spending, mostly for infrastructure or recent initiatives that are ramping up. This amounts to over $5 billion in solutions.

– Utilizing $13 billion in rainy day reserves.

– Implementing about $400 million in targeted tax increases, which only make up about 1% of the budget solutions.

In conclusion, while the Governor’s proposed budget does present a problem, it is not a crisis. By making tough decisions and prioritizing critical areas, the state can maintain its trajectory of spending without major disruptions. The Governor’s focus on investments that will help the economy succeed is a step in the right direction. 

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