Governor Gavin Newsom on Thursday laid out some grim financial realities for the state as it faces far less revenue and far higher expenses in 2020 due to the coronavirus pandemic. Saying that President Trump could solve California's deficit with a "stroke of the pen," Newsom said that without federal help the state will need to cut pay for some 2.3 million state employees.
The next step will be negotiating with state workers' unions to hammer out the details of the cuts, which may involve furlough days or other arrangements. The pay cuts would begin as of July 1.
"Negotiations will commence or continue with the state’s collective bargaining units to achieve reduced pay of approximately 10 percent,” says a press release. "The May Revision includes a provision to impose reductions if the state cannot reach an agreement. In addition, nearly all state operations will be reduced over the next two years, and nonessential contracts, purchases and travel have already been suspended."
As KCRA reports, the state is projecting a shortfall this year of $54.3 billion without any cuts. In order to cover the deficit, Newsom is proposing canceling a new program that would have provided health insurance to undocumented residents over the age of 65, and canceling plans to expand Medicaid in the state.
All told, the proposal kills off $6.1 billion in program expansions, and uses all $16 billion of the state's "rainy day fund" over the next three years. It will also limit the amount of tax credits a taxpayer can use in a single year to $5 million.
Referring to past fiscal crises, Newsom said, "We are entering into this time of uncertainty in a much better place than we entered into it in 2003 or 2009. Despite the headwinds of a $54.3 billion shortfall that we are entrusted to balance in the current fiscal year and into the next budget year, to advance not only an effort to balance the budget, but also to balance our principles and to advance our values."
The four "core California values" he said would be protected in the budget revision are public education, public health, public safety, and aid for those most impacted by the pandemic, as KPIX reports. He said the jobless rate was poised to be far larger this year than it was during the Great Recession in 2009, with 4.6 million state residents having filed for unemployment since mid-March.
"As painful as the state’s budget may be, the personal budgets for so many of you watching are even more devastating,” Newsom said in his daily live address. "You’ve devastated your savings, your credit is completely destroyed, you are desperate to get a sense of not only your fate, but our collective future."
He added, "These are not normal numbers, even in a state so familiar with the vagaries of revenue, the increases and declines because the volatility of our tax system. These are simply without precedent in modern times."
Noting that it might "cold comfort" for most Californians listening, he explained that this $54 billion budget shortfall isn't the biggest in California history — the shortfall in 2009 was 58 percent, and this one is looking to be around 37 percent. In January, the state was projecting a $6 billion budget surplus this year, even with program expansions — and Newsom says that the state is entering this crisis with a much more ample general fund and reserve than it's had previously.
In a Facebook video, one union leader, SEIU Local 1000 President Yvonne Walker said, "So, here's our choice. We can choose to say, 'OK, we'll take the 10%. Do whatever you want.' I will tell you exactly what it will be: It'll be two furlough days [per month]. Or, we can call the bargaining team together and we can figure out the equivalent of what that 10% represents and try to negotiate something that, yeah, there might be a little pain involved, but it won't be the same two furlough days and how you think about it."
As KCRA notes, the deadline to pass an operating budget is approaching in about 30 days, June 15. Lawmakers can now review the proposed budget, and if they fail to pass it, they will forfeit their own pay.
Newsom called on President Trump to pass the HEROES Act, which is the latest $3 trillion stimulus bill in Congress. The bill provides $500 billion in direct assistance to states to mitigate pandemic impacts, as well as another round of stimulus payments to citizens, student loan forgiveness of $10,000 per borrower to be paid in monthly installments through September 2021, a $200 billion fund for hazard-pay bonuses for essential workers, and a $25 billion bailout for the U.S. Postal Service.