California faces a projected $68 billion budget deficit that will require spending cuts and dips into reserve funds, forcing Gov. Gavin Newsom (D-CA) and state Democrats to make major changes next year.
While the nonpartisan Legislative Analyst’s Office released Thursday's report before Newsom needs to finalize his January budget proposal, the pressure is on for the governor and Democrats who are hoping to wield political power in California ahead of the 2024 election and looking toward 2028.
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A hit to a rumored presidential plan
Newsom has emerged as the Democratic Party’s contender-in-waiting, fighting off speculation that he’s running a stealthy presidential campaign while adding to rumors by engaging in high-profile rivalries and signing ambitious legislation.
While speaking during the nationally televised debate with Gov. Ron DeSantis (R-FL) last week, Newsom said California “has no peers,” boasting of its booming economy.
“California dominates. It’s the size of 21 state populations combined. It’s the fifth largest economy in the world. We dominate, number one manufacturing state,” Newsom said, while DeSantis ripped into the state’s taxes and regulation, saying “it is not a good climate for business.”
But days later, the state finance officials released figures showing a shaky economy, with tax revenues expected to come in at $58 billion below assumptions in multiyear budgets.
Key policy changes
The analyst office listed a number of options the California legislature could take to ease the deficit, including tapping into $24 billion in reserves. However, the state will need to also cut into services the Democratic Party prizes.
“The state’s reserves are unlikely to be sufficient to cover the state’s multiyear deficits — which average $30 billion per year under our estimates,” the report reads. “These deficits likely necessitate ongoing spending reductions, revenue increases, or both.”
The LAO recommended spending cuts on schools and community colleges, which could save the state an estimated $17 billion. Reducing “one‑time spending” could also give the state “at least an additional $10 billion.”
However, significant cuts to various education programs and schooling could fare poorly for Democrats, who pride California on having some of the finest systems of public higher education.
Newsom’s budget approved this summer avoided cuts to healthcare and public education programs, categories the state spends the most on, after education affiliates called for more action.
California School Boards Association President Susan Markarian praised Newsom for funding learning recovery and the cost-of-living adjustment but said, “It’s unfortunate that the governor elected to cut the arts, music and instructional block grant by $1.2 billion.”
Various programs in school districts and community colleges across the state would likely see cuts to curb the deficit in the coming years.
Passing down the problem
The LAO predicts the state is looking at continuing $30 billion annual deficits, presenting problems down the line for Newsom’s successor and the California legislature. Newsom’s term ends in 2027, and leaving the governorship in budget distress would likely not bode well if he decides to launch a presidential bid for 2028.
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Key programs and policies — education, infrastructure projects, and more — that Newsom has focused on since taking office, widely supported by Democrats in the state, may need to be scaled back.
“Our economy is still good, but what we need to do is be incredibly cautious here,” Senate President Pro Tempore Toni Atkins told Politico. “We are in a deficit, and therefore, new programs, new spending — in fact, existing spending — we’re going to have to slow down over time.”