California Lawmakers Plan Budget That Rejects Governor’s Cuts

(Bloomberg) -- California's legislative leaders said they've reached agreement on a budget framework that rejects much of the deep cuts Governor Gavin Newsom proposed to fill a looming $54 billion shortfall brought on by the coronavirus pandemic and instead counts on more financial aid from the federal government.

The proposal by Democrats who control both chambers of the legislature relies on California getting about $14 billion more in federal funding than Newsom assumed. It would trigger cuts in October if Congress fails to pass another rescue package.

The framework puts off about $8 billion in cuts to schools the governor said were required under spending formulas and leaves the state with about $8 billion in reserves. Newsom, also a Democrat, offered a May proposal that called for about $14 billion in cuts and a trigger to reverse those reductions if Congress provided additional funds.

“The key budget goal is preserving programs serving those who are most vulnerable,” Assembly Speaker Anthony Rendon said in a statement Wednesday. “Nevertheless, all the budget plans being discussed acknowledge the possibility that more difficult cuts will be necessary, due to Covid spending needs and weak revenues. This will be especially true if Washington, D.C., doesn't step up.”

The agreement between both chambers comes less than two weeks before lawmakers must approve a budget for the fiscal year that begins July 1 and send it to Newsom. It sets the stage for a row between lawmakers and the governor, who has resisted their push to spend more of the state's surplus since he took office in January 2019. Before the virus struck, he proposed a budget that would have swelled savings to more than $17 billion.

The sudden and dramatic deficit -- equivalent to roughly one-third of the state's annual general-fund spending -- was a significant blow to California after it spent years building up reserves. Since 2011, the state has raised taxes and resisted wide-scale spending increases after facing crippling deficits in the previous decade that at one point led officials to issue IOUs to pay bills.

If triggered, the legislative plan would defer a $1.3 billion payment to the California Public Employee Retirement System, push a state worker pay day into the following fiscal year and put off much of the cuts to education through internal borrowing and spending of reserve funds.

“With today's progress in the Legislature, we'll continue our discussions to achieve an on-time agreement that balances the budget, reduces the structural deficit, sets the stage for recovery, and advances our efforts for federal support to maintain core services,” H.D. Palmer, Newsom's budget spokesman, said in an email.