Updated 5:45 p.m.
Gov. Gavin Newsom unveiled an updated $213 billion state budget on Thursday that continues to pay down debt, pad the state’s “rainy day” reserve fund and boost homelessness and education spending.
The plan is a $4.5 billion jump over Newsom’s January budget, made possible by increased state revenue estimates. But despite $3 billion in higher revenues, the governor’s $21.5 billion projected surplus remains unchanged.
Under the updated budget, the voter-mandated rainy day fund would grow to $16.5 billion, up $1.2 billion from January.
Newsom’s plan follows former Gov. Jerry Brown’s pattern of putting away billions of dollars in reserves, which is constitutionally mandated after voters approved Proposition 2 in 2018, while making large investments in early childhood development, K-12 and higher education, health care and emergency readiness.
He said the state is bracing for an eventual economic downturn.
“We are preparing for a very different [economic] climate and we’ve never been more prepared as a state for entering into that climate,” Newsom told reporters during a news conference at the Capitol. “For those who say it’s not enough, do some more research because it’s a lot more than it appears. It’s a lot more than a $16.5 [billion] in a rainy day reserve. That’s not the only reserve we have.”
The governor says California’s strong economy has handed the state its $21 billion budget surplus on top of what he projects will be $30 billion in reserves by the end of next fiscal year.
That likely won’t be enough to withstand the next recession, he added; it could create a $40 billion budget challenge spread across three years.
The general fund portion of Newsom’s budget is $147 billion, up $3 billion from January. The state has more discretion over how to use this money than the rest of the budget.
Under the governor’s updated spending plan, known around the Capitol as the “May Revise,” higher education would receive more than $100 million in additional funds, with the bulk going to the community college system for workforce and technical education programs.
K-12 education would receive $81.1 billion in state-mandated Proposition 98 funding, up slightly from $80.7 billion in January. Newsom described this as “the highest investment in K-12 education” in state history, adding that K-12 funding represents 45 percent of the budget.
Republican lawmakers, including state Sen. Patricia Bates of Orange County, criticized Newsom’s proposed tax increases.
“The Governor’s desire for new taxes despite an estimated $21.5 billion budget surplus is unfortunate, unhelpful, and unnecessary. For example, adding another tax to water bills increases the cost-of-living for families facing poverty,” Bates wrote in a statement.
Republican Assemblyman Jay Obernolte of Big Bear in San Bernardino County said expanding programs with one-time spending sets up the state for failure when a recession hits.
“It’s very difficult to expand an existing program in a way that lets you contract that program in future years if you need to,” he said.
Republicans also criticized the $5 billion increase in overall spending from January’s proposed budget.
But it wasn’t all criticism from Republicans. They expressed support for $30 million for new county judges and additional funding for people with developmental disabilities, as well as Newsom's proposals to expand the child tax credit and invest in early childhood education.
And some Democrats found areas to criticize. For example, Asm. Jose Medina of Riverside criticized a proposed rollback of one of the state’s many college financial aid programs.
Newsom took great pains to acknowledge two crises facing California: homelessness, which he called “a stain on the state of California,” and housing.
“We only built 77,000 housing units last year, which is deplorable,” he said.
His revised spending plan would redirect $500 million to construct roads, water and sewage at infill development sites where housing can’t be built until that infrastructure is paid for.
And he wants to set aside $1 billion to address homelessness. That’s up from the $625 million in the governor’s earlier spending plan.
It would allocate $650 million to local governments for homelessness emergency aid, $150 million to address the shortage of mental health professionals, $40 million for student rapid rehousing and basic needs initiatives for the state’s UC and Cal State systems, among other funding plans.
Lawmakers must send the governor a final spending plan by June 15 for the state’s new fiscal year, which begins on July 1.