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California in the red: Newsom announces $32 billion budget deficit

The governor of 'the world's fifth largest economy' acknowledges that the state presents "greater risks (...) that could change its fiscal trajectory in the short term."

Gavin Newsom, gobernador de California.

Voz Media (Cordon Press - Canva)

Published by
Verónica Silveri Pazos

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California Governor Gavin Newsom announced that the state's budget deficit increased to nearly $32 billion.The Golden State thus becomes one of the few states in the red this year:

While the May revision does not forecast a recession, it recognizes increased risks to the budget since January that could significantly change the state's near-term fiscal trajectory.

The governor blamed high federal interest rates and the decision - by his own Administration - to allow some people to delay (until October) their tax filing after the winter storms.

California has the largest budget in the nation ($306 billion).

The governor is wrong about the figures

In January, Newsom had forecast that the deficit would be close to $22.5 billion. However, it got the calculations wrong by almost +$10 billion.

Despite this, the governor proposed a number of ideas to cover it. Among them: cutting $9.6 billion from his state's climate change green agenda programs and delaying the expansion of a child care plan subsidized by his Administration. He also wants to cancel a $500 million small business assistance plan.

His latest proposal includes cutting another $1 billion by recouping unspent money from other programs put in place in his tenure, including those designed to provide tax refunds and help people with their utility bills. According to Newsom:

This was not an easy budget, but I hope you will see that we will do our best to hold the line and take care of the most vulnerable and needy, while remaining prudent.

The governor still has to reach an agreement with legislators in order to carry out the spending plan that will take effect on July 1. Many of them do not agree with their measures. Republican Congressman James Gallagher noted:

His cuts to drought programs are dangerous, his 'fiscal gimmicks' are short-sighted and his talk of good governance and efficiency is another empty promise. Californians deserve better.

California, a state sustained by the wealthy

California already requires wealthier individuals to contribute more to the state by paying a greater amount of taxes than they would normally pay elsewhere in the nation.

However, Democrats in the state Senate want to raise taxes on 2,500 of the largest companies so that they can reduce taxes (by 25%) on other small companies.

Newsom distances himself from payments to black residents

The budget shortfall announcement comes nearly a week after a committee established by the same governor recommended millions of dollars in "reparations" payments to the black residents for being victims of slavery, which was never legal in the state. This could cost the state billions if approved by the legislature.

Shortly after the committee approved the plan, Newsom distanced himself from the idea of making the payments, without giving a definite answer as to whether he would have their support.

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