California Gov. Gavin Newsom released a state budget proposal Thursday that seemingly does it all — boosts spending toward his ambitious campaign promises and sets aside significant contributions toward debts and savings.
It appears he can have his cake and eat it too because he's projecting a massive $21.5 billion surplus — far beyond anything the state has seen in nearly 20 years — as California collects more in taxes than predicted and growth slows for Medi-Cal, which provides health care for low-income people.
The anticipated surplus is well over the roughly $15 billion predicted by the non-partisan legislative analyst's office.
Even as Newsom spoke, though, the state controller delivered a reality check: Revenue in December was abysmal, nearly $5 billion below assumptions.
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Newsom's proposed $144 billion general fund budget serves as his opening pitch in negotiations with state lawmakers who by law must approve a spending plan by June 15.
Newsom's plan would raise spending 4 percent for the year beginning July 1 while devoting $13.6 billion to build the state's reserves, pay down debt and take a bite out of the growing liability for retiree pensions and health coverage.
"The message we are advancing here is discipline, building a strong foundation on which everything else can be built," Newsom said.
He announced big new investments for schools, colleges, housing, health care and welfare. He also hinted at big proposals to come, from ending the juvenile justice system "as we know it" to requiring that "corporate California steps up and helps us on the housing front." He also teased a restructuring of the state's high-speed rail project.
Democrats and a wide range of liberal interest groups praised the ambitious proposals in Newsom's first budget.
Sen. Hannah-Beth Jackson, a Democrat from Santa Barbara, called it a "visionary yet prudent approach to addressing some of the major challenges facing California working families and our communities."
Even Republicans found things to like, including rainy-day savings and wildfire prevention money. But many noted that spending is still growing and worry that Newsom isn't doing enough to prepare for an inevitable recession.
"We must remember that creating new programs that would only have to be cut in a recession would be foolish," said Assemblyman Jay Olbernolte, the top Republican on the budget committee.
State Controller Betty Yee said December's disappointing revenue figure may be attributed to delayed end-of-year tax filings due to changes in federal policies, and some of the shortfall may be made up in January. She said California collected less than half its projected sales tax revenue last month.
Newsom said the December figures came in too late for him to update his projections, noting he'll provide a revised revenue estimate and spending proposal in May.
Newsom, who took office Monday, began his remarks by noting he'd be longer-winded than his predecessor, Jerry Brown, who preferred to touch on highlights and answer a few questions during his twice-yearly budget presentations.
Newsom delivered a 45-minute, program-by-program outline of his budget in an auditorium packed with reporters, aides, elected officials and others before taking questions for another 45 minutes as he paced the stage.
He emphasized the need to pay off debts accumulated over the years. He also wants to make a $3 billion, one-time payment to California's teacher pension fund on behalf of schools to help districts that are seeing more of their budgets eaten up by pension obligations.
That was on top of $1.8 billion he wants to spend paying down the state's share of teacher pensions, and $3 billion to pay down liabilities for state workers.
The billions of dollars for pensions would reduce future costs since the money would be invested and grow over time, Newsom said. But it would make only a dent in the $257 billion unfunded liability for retiree pensions and health benefits.
Newsom has made early childhood education a central focus of his new administration. His budget proposes $750 million for kindergarten programs and $500 million for early child care infrastructure. He also wants to boost a tax credit for families by more than half-a-billion dollars and expand access to the credit to 400,000 more low-income workers.
Newsom brands his education focus as "cradle to career," and his budget proposed $1.4 billion in fresh spending for higher education. About $400 million would be for community colleges. Newsom wants those schools to use the money to make the second year of school tuition free, although it already is for many low-income students.
Housing, too, is a major focus in Newsom's budget. California is experiencing a major affordable housing crisis, with prices and rents rapidly rising while the number of available homes remains far below the need.
Newsom's pledging $1.75 billion toward the crisis, saying he's "not playing small ball." He wants to take a carrot-and-stick approach to incentivize communities to build more homeless shelters and housing, and he proposes threatening transportation money if local governments don't meet their goals. That proposal may be controversial in the Legislature.
On top of his general fund budget, Newsom proposed $65 billion in spending from special funds, which are dedicated for specific purposes, and bonds, bringing his total budget to just over $209 billion. The federal government chips in roughly another $100 billion, much of which goes to Medi-Cal.