The governor has released his revised budget plan; it’s bleak. California faces a massive deficit, up to $54 billion. Further, the COVID-19 recession has resulted in more than 4 million unemployment claims being filed since mid-March, the unemployment rate is now projected to be 18 percent for the year, and there is a $41 billion drop in revenues compared to January’s forecast.
According to the nonpartisan Legislative Analyst’s Office, the budget deficits will extend beyond the health crisis, persisting through mid-2024. Over that multiyear period, the LAO projects annual deficits ranging from $64 billion to $126 billion.
Our economy is in shambles with lives and livelihoods lost. Nothing is more critical than protecting the health and safety of our residents, preserving education, and helping employers rehire and maintain employment for California’s workers. So the governor is right to focus on those most essential priorities — public health, safety and education, and supporting workers and businesses, particularly those hurt by the COVID-19 pandemic.
I am also encouraged the governor recognizes that difficult choices must be made sooner rather than later — he is proposing to cancel the new programs he proposed in January and reduce spending included in last year’s budget. These are tough but necessary steps.
The good news is that we have over $15 billion set aside in a “rainy day fund” that will help cover part of the deficit. Republicans fought hard to create that fund for years, negotiating repeatedly with Democrats to gain support for it. Our work finally paid off in 2014, and as we now see, having emergency savings put aside to help in bad times is common sense.
However, several things in the revised budget raise concern. First, while additional federal assistance can help cover some of the deficit, expecting Uncle Sam to come to the rescue is wishful thinking. The governor says he has built in triggers to make cuts if federal bailout funds do not materialize, but we would be better off considering the federal funds a godsend if and when they arrive. Operating on that assumption is the financially wise move; it will force us to bring spending back in line with existing revenues, protecting us and making our economy stronger in the end.
Even with all the recent years of record-high revenue growth, state spending increased so much, so fast that the state was already on the verge of deficits, even before COVID-19.
Second, raising taxes at this time makes no sense when many families and businesses have significantly less income to live with. Raising taxes will only deepen the economic slowdown and push even more Californians and businesses toward bankruptcy.
That also is why the final budget must help support a safe reopening of the state’s entire economy. Workers and businesses cannot earn income and pay taxes if our economy continues to be in an induced coma.
Third, the budget still includes more than $20 million to enforce Assembly Bill 5, which will further hurt workers who wish to remain independent. Instead, we must fix AB 5’s job-killing flaws and make the law fair for all, rather than creating more winners and losers.
Californians have reduced their own budgets out of necessity; the state must do the same. Eliminating a $54 billion deficit is painful but doable. Now, every aspect of spending must be scrutinized; any projects not focusing on core issues — such as high-speed rail — must be suspended or scrapped.
Democrats and Republicans must work together to use California’s rainy day fund prudently and reduce spending in a way that will have the least negative impact on Californians. Failure to do so will only worsen and prolong the painful budget deficit we are now seeing.