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Gavin Newsom Looks to Spend and Save in First Budget Proposal

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Gov. Gavin Newsom unveils his first state budget proposal in Sacramento on Jan. 10, 2019.  (Marisa Lagos/KQED)

Paying down debt and pension liabilities. Saving for a rainy day.

And, funneling billions into programs aimed at closing the state's income inequality gap through an earned income tax credit, universal preschool, increased school funding and shelters for the homeless.

Gov. Gavin Newsom unveiled his first budget Thursday, seeking to strike a balance between his predecessor's circumspect approach and the bold vision he promised on the campaign trail with the more than $21 billion surplus his administration is projecting. He spent nearly two hours detailing the $209 billion spending plan to a room packed with reporters, politicians and staffers.

"The message we are advancing here is discipline," Newsom said, "building a strong foundation on which everything else can be built."

So while Newsom will put $13.6 billion toward eliminating debt, building the state's so-called rainy day fund and paying down unfunded pension liabilities, he also wants to expand the earned income tax credit for working families; start building a universal preschool system; increase overall education spending; and make two years of community college free.


In a nod to the recent wildfires that have decimated California communities, Newsom also is proposing hundreds of millions in new spending on emergency response and preparedness, including new technology for Cal Fire and $60 million to start upgrading the state's antiquated 911 system.

Newsom seemed acutely aware of the oft-repeated recession warnings from his predecessor, Jerry Brown, insisting that he is balancing the potential for a recession while also building the foundation for the ambitious programs he aims to create as California governor.

"We are assuming continued economic expansion — I know that sends shivers up some people's spines," he said, adding that he knows Brown often warned that "the next governor will be standing on a fiscal cliff. That might be true."

But, he said, his administration is assuming only a 3.2 percent economic growth rate — not the 5 percent that's been assumed in recent years.

The budget — which Newsom said he crafted with input from legislative leaders — was largely met with praise from Democrats and outside interest groups. Even Republican lawmakers seemed pleasantly surprised, including Assembly Budget Committee Vice Chair Jay Obernolte, R-Hesperia.

“I tell you what, I was very impressed with Gov. Newsom," he said, calling out Newsom's focus on paying down debt. "It was very clear that he’s been involved and engaged with the entire budget process. He was knowledgeable about budget issues. He’s clearly a smart guy.”

A Focus on Kids

Newsom is making education — from birth through college — a key focus, proposing initiatives to help working families and parents who are still working to get an education, as well as unveiling a statewide version of the college savings accounts he championed as mayor of San Francisco.

Newsom’s K-12 budget is almost $81 million — up from $47.3 million eight years ago during the depth of the recession.

In addition to increasing per pupil spending to $16,857 next fiscal year, the governor wants to help local school districts by giving them a one-time infusion of $3 billion to help pay for mounting retirement obligations. His office said the money will help save local education agencies $6.9 billion over the next three decades.

But he’s also focusing on preschool and higher education. Among those proposals: a one-time $750 million appropriation to help school districts improve facilities so they can offer full-day kindergarten classes; $125 million to help provide full-day, year-round state preschool to low-income 4-year-olds; and $500 million to expand subsidized child care facilities and help educate child care providers.

Newsom also is ordering his administration to create a longer-term plan for providing universal preschool in California.

And, he's proposing adding more than $1 billion to University of California and California State University systems, a bump he said should keep tuition flat for students. Included in that money is $15 million for a one-time boost to UC extension centers that help people finish a college degree.

“At the UC, since 2000, 60,000 people have ... dropped out, and never got their bachelor degrees,” he said. “I want to go after them.”

And, he is proposing a second free year of community college tuition.

Newsom is also looking to make things easier for parents — he wants to increase state higher education grants for low-income parents from around $1,600 to $6,000 a year, and is putting $50 million into a pilot program to increase access to college savings accounts. As mayor of San Francisco, he helped institute a program that seeds every kindergarten student with $50; the accounts have  grown to $3.5 million in savings for students over eight years.

"Even a small amount of money, a couple hundred dollars, increases likelihood that a child goes to college," Newsom said. "When we did this in San Francisco they said it couldn't be done ... we are going to build this throughout the rest of the state."

Health Care for Middle-Class Families and Undocumented Immigrants

Newsom’s budget dedicates $158.6 billion to health and human services, with the bulk of that going to the Medi-Cal program for low-income Californians. He set aside $260 million specifically to expand Medi-Cal coverage to undocumented young adults ages 19 through 25 — undocumented children are already covered in California. Undocumented immigrants are ineligible for these benefits under the federal Affordable Care Act, so the full cost of their care is carried by the state.

The move is largely symbolic. Health advocates and some state lawmakers have been pushing for coverage of all undocumented adults, which carries an estimated cost of $3 billion.

“But the symbolism here is quite important,” said Larry Levitt, senior vice president for health reform at the Kaiser Family Foundation. “There could not be a starker contrast between what the governor is trying to do and the immigration debate going on nationally. So it’s an important symbolic move, but it’s not going to solve the problem.”

The governor is also contradicting Congress and the White House by calling for the reinstatement of a state-level individual mandate — a requirement that all Californians carry health coverage or pay a penalty. Congress eliminated the federal penalty in its 2017 tax bill, at the president's urging.

"With all due respect to the president of the United States, he's wrong," Newsom said. "I think California is right."

Newsom plans to use the revenues raised from the fines people pay here — about $500 million — to extend financial assistance to middle-income families to help pay their monthly premiums on health plans bought through Covered California, the state’s Affordable Care Act marketplace. Right now a person who earns $50,000 a year, or 400 percent above the poverty level, gets no financial help. But under Newsom's plan, individuals who earn up to $72,000, will now get a subsidy.

This “is a real recognition that [for] many Californians, in particular those that live in the Bay Area and Northern California, the arbitrary line of 400 percent of poverty and after which you get no financial help, doesn’t recognize the real struggles that many Californians have paying for health care,” said Peter Lee, executive director of Covered California. “The governor is the first person in the nation to give a concrete proposal to address the issues of real middle-class Californians that are struggling today.”

Health plans are currently on sale through Covered California until Jan. 15.

Transportation Funds Are Tied to Housing'

Newsom proposed an additional $1.75 billion in funding for housing, directed toward both local governments and developers of affordable homes, as well as $500 million in one-time funds to help communities build emergency homeless shelters and navigation centers.

"Our housing issue is a poverty issue in the state," he said. "Unless we are serious about this, the state will continue to lose the middle class and the California Dream will be limited."

But perhaps more significant than any new expenditure was Newsom’s threat to withhold future transportation funds from local governments who don’t meet state housing goals.

“We’re going to give (the Department of Housing and Community Development) some more teeth,” Newsom said.

The idea would be phased in over multiple years, and Newsom proposed $750 million for grants to cities and counties to help plan for new development.

“This is controversial, but no one should be surprised,” Newsom said, given his campaign promises to incentivize housing production.

The budget proposal delivered on another oft-cited campaign promise: the expansion of the state’s affordable housing tax credit for developers to $500 million, more than five times the current limit.

Another campaign promise around housing, bringing back redevelopment agencies, was scaled down in Newsom’s initial spending plan.

Before they were ended in 2011, the agencies allowed local property tax dollars to be siphoned off from schools and public safety, and instead spent on affordable housing and infrastructure.

“Bringing back redevelopment, I looked at it,” Newsom said. “We’re putting more money [toward housing] now than when we killed redevelopment,” referring to new bond and tax money allocated toward affordable housing in recent years. “And we’re doing it in a way that doesn’t take money from the education system.”

Strengthening the Safety Net

On the campaign trail, Newsom made the state's wealth gap a big issue, and his budget includes several proposals to help close that divide. Chief among them: a more than doubling of the fund, from around $400 million to $1 billion, that pays for the tax credit working families can qualify for. That increase will mean more money for families with kids under 6, and more access for people who make up to $15 an hour.

Newsom also said he wants to increase CalWORKs grants — the state's welfare-to-work program — by 13 percent starting in October, a jump that will increase maximum monthly grants by $103 to $888.

"I am sick of the scapegoating of this program and I will defend it," Newsom vowed.

Strengthening California's Emergency System

Just two days after Newsom was elected, the state's worst fire on record broke out in Butte County, leveling almost 14,000 homes and killing 86 people. Newsom is making emergency response and prevention a cornerstone of this budget, proposing more than $400 million in new spending on firefighting, forest management, improving the 911 system and helping local governments prepare better for disasters.

The governor is also proposing three years of assistance to communities that have been decimated by fires, to help with lost property tax revenues and with debris removal.

Newsom declined to answer questions about the state's troubled utility, Pacific Gas & Electric, noting that anything he said could impact the financial markets.


"I want to be cautious here — it is remarkable, every utterance of a governor on this topic has an impact on the market," he said, adding that he has been huddling with senior staff on the issue and plans to make an announcement on his proposals for dealing with PG&E in the next "few" days.

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