Updated 6:08 p.m.
Facing a landmark budget shortfall amid a historic pandemic that’s left millions of Californians jobless and many more sheltering in their homes for weeks, Gov. Gavin Newsom proposed a fiscal path forward on Thursday with his annual “May Revise” budget.
It attempts to balance a projected $54 billion deficit, but schools, homelessess and health care will see less money for programs.
"Nothing breaks my heart more than budget cuts,” said Newsom at a press conference. “There’s a human being behind every single number.”
Major Changes From January
The revised budget comes in about $19 billion lower than the one the governor proposed in January. It eliminates many of the new programs proposed five months ago, and includes looming cuts that will hang over existing government operations and could affect public schools’ capacity to serve students during the crisis.
Newsom says its focus is preserving programs and investment in four areas: public health, safety and education, and also people impacted the most by the pandemic.
The state’s “rainy day” fund, which has grown to more than $16 billion, is expected to be drained over the next three years.
Cuts to existing state government programs and operations would offset 26% of the projected budget, according to Newsom. This includes deferring payments to state worker retirement plans and also wage decreases to public employees.
Many of the cuts hinge on whether or not the Trump administration offers California additional federal assistance.
“If the federal government does what it must do under the circumstances to help states large and small all across the nation, that these cuts would go away,” Newsom said.
Specifically, he encouraged Congress to pass The HEROES Act, introduced by Democrats in the U.S. House of Representatives, which would allocate nearly $1 trillion for states and cities. If that money does not come through, Newsom said automatic cuts would be triggered.
Lawmakers in California on both sides of the aisle recognized that navigating the revenue shortfall is a challenging, unenviable position.
Democratic Assemblyman Phil Ting emphasized the importance of helping people most in need, such as residents who are jobless or unsheltered.
“If we don’t help those families, they may become homeless,” Ting said. “They may permanently become a caseload on Medi-Cal, on CalWorks, on CalFresh. … Let’s try to help them out.”
Republicans did note that Newsom’s choices were tough, but that he should be pulling money from programs like high-speed rail and enforcement of Assembly Bill 5, the state's new worker reclassification law.
And the governor should not look to the Trump administration for more help.
“One thing that I have some apprehension about would be depending too much on the federal government,” said Republican state Sen. Jim Nielsen. “In fact, the federal government has already directed money to California … and the state has not apportioned that money out at this point.”
Trying To Avoid An 'Education Crisis'
Schools and community colleges also face a significant drop in funding — $19 billion compared with Newsom’s January plan.
“But I want you to know that we are not just going to roll-over and accept $19 billion in cuts to public education,” he said.
But the governor hopes to offset a large portion of that decline with a mix of temporary revenue hikes and federal money to avoid what he described as an “education crisis.”
He also said he’ll use $4.4 billion in discretionary funds from the federal CARES Act toward K-12 schools.
But even by closing the gap, the budget calls for eliminating numerous education funding proposals made in January, such as hundreds of millions of dollars in grants for educator workforce development and community schools.
Jeff Freitas, president of the California Federation of Teachers, which represents 120,000 teachers in the state, says the proposed cuts would make it “highly difficult for us to reopen” K-12 schools this fall.
He says schools’ needs are vast: more testing for staff and students, better contact-tracing capacity in communities, additional social-distancing resources, more personal-protective equipment and even cleaning supplies.
“There are many more things that we need to add, not subtract, in re-opening our schools,” he said.
Overall, Newsom said “the current projected investment” in K-12 schools and community colleges is down 13 percent from last year’s budget and even more from the $84 billion proposed in January.
Cuts To Medi-Cal
In the area of public health, Newsom is proposing cuts to Medi-Cal, while also trying to compensate clinics and hospitals for lost revenue and bolster health departments in their fight against COVID-19.
The January proposal to expand Medi-Cal to undocumented seniors has been withdrawn. The expansion would have cost roughly $113 million.
Oville Thomas with the California Immigrant Policy Center was part of a coalition of organizations asking for the change.
“We wanted to get this done last year. And if we had, then we’d have a whole population that would be able to see a doctor last year,” he said.
He added that the community anticipated a need for care for undocumented seniors.
“We foresaw something happening to where there would be a crisis, and preventive treatments would lead to better results,” Thomas said.
"But since they didn’t have access to that care, they’re out there without any opportunities, and COVID is going to affect them that much greater.
There are $5.3 billion federal dollars for hospitals and clinics that lost revenue while preparing for a COVID-19 surge and canceling non-emergency procedures. Hospital groups asked for an additional $4 billion in state spending, but it wasn't included.
Homelessness Projects On Hold
Funding for the state’s unsheltered population is also in flux.
Earlier this year, Newsom made homelessness his office’s No. 1 priority. But a key, $1.4 billion piece of his plan is on the chopping block.
Called “CalAIM,” the $695 million new program would have expanded Medi-Cal by including funding for renter support services for people who are unsheltered or at risk of homelessness.
Newsom says the program is on hold right now, although it could be salvaged if the federal government allocates additional relief money for states.
The revised budget instead proposes using $750 million in federal funding from the CARES Act to purchase hotels and motels that have been leased by counties, with state assistance, to house and isolate unsheltered and vulnerable populations during the coronavirus outbreak. The budget portrays the purchase as “leveraging federal funds” for the pandemic response “to create a permanent solution.”
The state is also encouraging cities and counties to use federal emergency funds to address homelessness — but the spending must be tied to coronavirus response. The state is supplementing the federal funds with $450 million to cities who did not receive assistance. That funding is contingent on adherence to federal guidance and California’s stay-at-home orders.
Newsom also stated a “desire” to do more to help jobless residents with unemployment insurance benefits and Pandemic Unemployment Assistance.
“The reality, at the end of the day, is we need to do more to help individuals who are struggling and in need,” Newsom said.
Clarification: This story has been updated to make clear that $5.3 billion for hospitals and clinics that lost revenue is from federal sources.
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