California will use surplus cash, delay school funds in $202.1-billion budget sent to Newsom

SACRAMENTO —  California lawmakers sent a $202.1-billion state budget to Gov. Gavin Newsom on Friday, a spending plan crafted to erase a historic deficit triggered by the coronavirus crisis that relies heavily on cash reserves and a multiyear payment plan to meet funding obligations to public schools.

The final votes in the Assembly came after passage by the state Senate on Thursday night, reflecting the agreement reached between Democratic legislative leaders and the governor earlier in the week. Newsom is expected to sign the budget bills into law as soon as Monday and beat the deadline for the start of the state’s new fiscal year on Wednesday.

“We’re in the midst of a global crisis and a pandemic,” Assemblyman Kevin McCarty (D-Sacramento) said. “And the choices we have to make here are not perfect.”

The budget cuts $13 billion in state government spending from the previous year’s level, almost exactly as much in cuts as proposed by Newsom in the plan he presented to legislators last month. But it differs from Newsom’s effort in how those savings are achieved — relying on fewer spending cuts, more delayed payments to schools and optimistic projections of future tax revenues, and health and human services program costs.

“We have been able to arrive at an agreement that is pragmatic and balanced, thanks in large part not to decisions we’re making right now, but [to] the responsible budgeting decisions that we’ve made over the past decade,” Senate President Pro Tem Toni Atkins (D-San Diego) said on Thursday.

Those decisions made in the past — setting aside billions in tax revenues — swelled the size of the state’s cash reserve fund. The budget for the coming fiscal year uses almost half of the $16-billion fund and anticipates withdrawing close to $5 billion more over the next two budget years, leaving the main reserve fund’s balance at $2.9 billion by the early summer of 2023.

An additional $450 million will be withdrawn from a second reserve, one earmarked for health and welfare costs during an economic downturn. State expenses to combat the COVID-19 pandemic would be covered by another $716 million in available cash.

Even so, the budget makes hundreds of millions of dollars in cuts to higher education, court operations and housing grants. State workers will be furloughed for up to two days a month, part of an almost $2.9-billion cut to employee compensation. A number of planned expansions and changes to state healthcare services were scrapped. The budget leaves out the expansion of Medi-Cal to those 65 and older who lack legal immigration status, a key priority of some Democratic lawmakers.

The decision to impose delays of 12 months or longer on some of the state’s funding for K-12 schools and community colleges resulted in the single largest solution to a deficit Newsom estimated this spring at $54.3 billion. Lawmakers agreed to defer $12.5 billion in school funds that would otherwise have been required to be paid in the fiscal year that ends next week, or the 2020-2021 year. Many school districts will have to find some other way of securing the missing money in the intervening period, usually done by tapping their own cash reserves or borrowing, with the state agreeing to repay those funds in the future.

But the cuts, lawmakers said, could have been worse. In all, fewer state programs will see cuts linked to future federal coronavirus assistance than Newsom originally envisioned. The budget lists $11 billion in spending reductions being made now, which can be reversed if sufficient money is sent to California by Congress and President Trump in early fall. That would mean more funding for education, housing and county government services.

“We must urge the federal government to develop meaningful aid for state and local programs,” Assembly Speaker Anthony Rendon (D-Lakewood) said on Friday.

Democrats praised the limited number of spending increases contained in the budget as key to protecting the state’s most vulnerable residents during the recession. Those boosts include extending California’s tax credit for low-income earners without a Social Security number and with children younger than 6, which would provide extra cash to some residents without legal immigration status.

Republicans said too many of the solutions in the final agreement — one they complained they had not seen until a deal was struck privately among Democrats — are short-term fixes that don’t provide enough structural balance for state finances.

“I know the cuts are painful to make,” Assemblyman Jay Obernolte (R-Big Bear Lake) said. “But our failure to make those difficult decisions this year is going to have dire consequences for us in future years.”

The state’s annual budget is written in a series of legislative bills, most of which will be on Newsom’s desk by the weekend. Over the course of the last quarter-century, an increasing number of those bills have enacted policies that might have only a thin nexus to the government services and revenues for the coming year. Most are rarely seen before being published, as required by law, 72 hours before a final legislative vote.

One such provision in a public safety budget bill led to a lengthy debate on Thursday night in the Senate: an expanded definition of what constitutes an assault-style weapon in California. The bill’s language was tailored to include a specific weapon sold by a Nevada gun manufacturer that is not marketed as a rifle, shotgun or pistol and therefore not subject to the state’s existing restrictions.

The company, Franklin Armory, describes the “Title 1” weapon on its website as a “long gun for the Golden State” and one available to gun owners who live anyplace “where the modern sporting rifle is neutered beyond comprehension.”

State Sen. Brian Jones (R-Santee) said the gun ban should have been fully vetted by a legislative policy committee so that “there is a legitimate conversation” that “gives the public the opportunity to voice their opinion on this type of issue.”

That drew a sharp response from state Sen. Nancy Skinner (D-Berkeley), who chairs the Senate Public Safety Committee.

“What this does is enables us to keep catching up with these manufacturers who are constantly trying to circumvent California’s [assault weapon] law,” she said. “Every single vote in a budget, whether it is dollars or words, is a policy act.”

Others raised concerns with the public safety budget bill’s changes in prison sentencing, which includes redefining “elderly parole” as beginning in some cases at age 50 instead of 60.

On Friday, however, the Assembly refused to take up the bill and sent it back to the Senate. Some lawmakers expressed concern about a provision giving judges new discretion in handling some misdemeanor offenses. The Assembly’s decision leaves all of the bill’s public safety proposals in limbo.

The package of budget bills, expected to be in place in time to keep state government operations flowing seamlessly, is unlikely to be the final word from lawmakers on addressing California’s coronavirus-weakened economy. One key factor in every year’s budget deliberations in Sacramento — personal income tax receipts paid by April 15 — remains a mystery.

Newsom cited the burdens of the public health crisis when he extended the deadline for taxpayers until July 15, meaning a significant component of the state’s revenue outlook could lead to additional budget actions before the Legislature adjourns for the year in early September.