CA Senate plan to make up for $54.3B budget deficit would reject most of Newsom’s cuts

California
Gov. Newsom unveils his revised budget plan on May 14, 2020. (Pool)

Gov. Newsom unveils his revised budget plan on May 14, 2020. (Pool)

Democrats in the California Senate on Thursday rejected most of Gov. Gavin Newsom’s proposed budget cuts to public education and health care programs, instead endorsing a plan that would cover the state’s estimated $54.3 billion deficit by taking more money from reserves and delaying billions of dollars in payments to schools for at least a year.

Newsom’s plan, revealed earlier this month, would impose billions of dollars in permanent cuts to K-12 public schools and community colleges — but only if Congress does not send the state more money by July 1 to help weather the economic downturn caused by the coronavirus. Education officials have warned those cuts would force districts to lay off teachers and would likely delay many schools from reopening in the fall.

The Senate’s plan rejects those cuts. Instead, lawmakers would delay about $9 billion in payments to public schools for one year. That means school districts could go ahead and spend the money by borrowing or tapping their savings accounts and the state would pay them back later.

The state has delayed payments to school districts during past recessions, but never this much at once. Former Gov. Jerry Brown delayed $10 billion in public education payments over several years before paying it all back. The Senate’s plan would defer almost all of that in just a year.

“It’s scary,” said Kevin Gordon, a lobbyist who represents many of the state’s public school districts. “But I think the consequences of these very deep cuts to schools are scarier.”

It’s unclear how the Legislature would pay the districts back next year, when the state could have an even worse budget deficit. The nonpartisan Legislative Analyst’s Office predicts the state will have budget deficits through at least 2024 because of the economic fallout from the coronavirus pandemic.

“The word ‘deferrals’ is a euphemism for ‘accounting trickery,’” said Jon Coupal, president of the fiscally conservative Howard Jarvis Taxpayers Association. “It’s the kind of accounting that puts private sector corporate employees in jail. I don’t think it’s good policy.”

Education funding is one of many contentious issues that Newsom, a Democrat, must negotiate with the Democratic-controlled state Legislature as they head toward a June 15 deadline to pass an operating budget for the fiscal year that begins July 1.

In January, California was expecting a multi-billion-dollar budget surplus as the state boasted a record 10 consecutive years of job growth in the nation’s most populous state. All of that changed in March when the coronavirus hobbled the nation’s economy and sent California’s tax collections plummeting.

Now state officials are trying to find billions of dollars in cuts to make up for the lost revenue.

Adding to the financial woes, more than 5.4 million Californians have filed for unemployment benefits and are signing up for government-funded health insurance and other assistance programs — adding billions of dollars in new expenses to the state’s budget.

Newsom has pleaded with the federal government to send the state more money to prevent the most painful cuts to state services. His plan would cancel $15 billion in budget cuts if Congress approves additional aid by July 1.

But the Senate’s cuts would not take effect until Oct. 1, giving Congress more time to act.

State Sen. Holly Mitchell, a Democrat from Los Angeles and chair of the Senate Budget and Fiscal Review Committee, said lawmakers wrote their spending plan “in a manner that does not make conditions worse for our vulnerable California residents.”

That’s why they rejected Newsom proposals that would have made fewer older adults eligible for government-funded health insurance and eliminated $119 million in spending to keep people out of nursing homes.

Plus, the Senate’s proposal restores a plan to make low-income adults 65 and older who are living in the country illegally eligible for government-funded health insurance — but it would not start until 2022. The state already offers government-funded health insurance to children and adults up to age 25 who are living in the country illegally.

To pay for all this, the Senate’s plan would increase a tax on the companies that manage the state’s Medicaid program that would generate an extra $1 billion. But that would only happen if Congress does not approve additional aid for the state.

Plus, the Senate thinks Newsom overestimated how much it will cost to pay for all of the new people signing up for state assistance programs — a difference of about $3.6 billion.

Republican Sen. Jim Nielsen worried the plan only delays some of the state’s expenses, urging lawmakers to consider “the structural changes that are going to be required for us to get back on sound footing, no matter what happens with the economy.”

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