California Legislature Passes Budget Slashing Spending to Tackle $46.8B Deficit

California legislators passed a budget on Wednesday that aims to address a significant budget deficit of $46.8 billion by reducing spending and implementing temporary tax increases on certain businesses. This marks the second consecutive year that California, the most populous state in the nation, has had to scale back its progressive policies due to financial constraints resulting from the COVID-19 pandemic.

Just a couple of years ago, Governor Gavin Newsom and his Democratic colleagues in the state Legislature celebrated surpluses exceeding $100 billion, fueled by federal COVID-19 aid and a progressive tax system that generated substantial revenue from the state’s wealthiest individuals. However, these surpluses were short-lived as inflation dampened the state’s economic growth, leading to a rise in unemployment and a slowdown in the tech sector, a key driver of California’s economy.

Last year, the state faced a $32 billion deficit, which has now escalated to $46.8 billion this year, with more deficits anticipated in the future. California’s budget has historically been susceptible to significant revenue fluctuations, given its dependence on high-income taxpayers. These deficits come at an inconvenient time for Newsom, who has been elevating his national profile in preparation for a potential presidential run and serving as a prominent surrogate for President Joe Biden’s reelection campaign.

The budget agreement includes a provision for Newsom and lawmakers to seek changes to the state constitution in the future, allowing California to build up reserves to mitigate future financial shortfalls. Democratic Assemblymember David Alvarez emphasized the need for fiscal reform to prevent erratic revenue swings that necessitate tough decision-making.

Newsom’s budget-balancing strategy involves nearly a 10% reduction in funding for most state departments, including the elimination of numerous vacant state worker positions. Several previously made commitments, such as expanding child care assistance and increasing wages for workers aiding individuals with developmental disabilities, have been postponed or deferred. Despite these setbacks, certain expansions, such as providing government-funded health insurance to all low-income adults and offering free school lunches to all students, have been upheld in the budget.