Gov. Gavin Newsom spent this week crisscrossing California, detailing how he wants to spend the state’s staggering $75.7 billion surplus, a tour that culminated in Sacramento on Friday, where he announced a record $267.8 billion state spending plan.
During a briefing that lasted more than two hours, Newsom touted what he described as a "historic, unprecedented, generational and transformational budget."
"I expect optimism in our future," Newsom said. "We're not going to stand still, we're coming roaring back."
Among the major items the governor is putting before lawmakers in the legally mandated May revision of his 2021-22 budget proposal: $12 billion in direct payments to low- and middle-income Californians; $12 billion to get unhoused Californians into homes; $20 billion to help close equity gaps in the state’s education system; and billions more for small business grants, drought relief and other state programs.
All of that is part of Newsom’s $100 billion pandemic recovery plan — funded by the state's massive budget surplus and the $27 billion in new funding from the federal government’s latest coronavirus spending bill. The governor also announced a plan to sock away nearly $16 billion in the state's rainy day fund.
Just one year ago, as COVID-19 ravaged local economies, California was projecting deep deficits. But things look much rosier now: Despite the pandemic-induced recession and deep financial challenges many low-income families continue to face, the state is in excellent fiscal shape — largely because of California’s progressive tax structure.
Half of California's income-tax revenue comes from its top 1% of earners, and capital gains are taxed at the same level as income, which means the soaring stock market has pumped billions of dollars into state coffers.
For Newsom, who is facing a recall election later this year, the surplus is welcome news. While former Gov. Gray Davis faced a budget shortfall in the months leading up to his recall in 2003, Newsom is likely to head into the fall promoting investments on an array of Democratic priorities.
Republican leaders in the Legislature, however, have said the historic surplus exposes the burdensome tax rates on the state's residents.
"This budget will do some temporary good, but it fails to seriously address any of the long-term structural problems facing the state," said state Assembly Minority Leader Marie Waldron, R-Escondido. "It does nothing to lower the cost of living for hard-working Californians."
Here’s what Newsom is proposing to do with the surplus:
After authorizing $600 checks to low-income Californians earlier this year, Newsom is proposing an expansion of the “Golden State Stimulus” program to taxpayers making up to $75,000, with an extra $500 for filers with children.
"No state, including this state, has ever rebated more direct dollars back into the pockets of taxpayers earning up to $75,000," Newsom said.
In response, Republicans running to replace Newsom in the recall election have spent the week calling for cuts to the state’s income tax rates, a change that would bring ongoing relief to taxpayers, but also result in a permanent loss in state revenue.
“We need to do more than simply send people a one-time check,” said Kevin Faulconer, the former mayor of San Diego, during a campaign stop in Emeryville on Wednesday. “We need permanent, lasting reform."
The biggest winners in any budget windfall are California's K-12 schools and community colleges, which are guaranteed roughly 40% of the state’s general fund.
If Newsom's budget is approved, state spending on education would top $93 billion this year, an amount larger than the entire general fund of the budget signed by former Gov. Jerry Brown a decade ago. Per-pupil state spending, meanwhile, would soar to double what it was a decade ago — to nearly $14,000. And with federal funds taken into account, that figure would rise to roughly $20,000 per pupil.
"We want to make public schools essential," Newsom said. "We want to make our public education system enriching."
The governor is also asking the Legislature to sign off on a permanent expansion of transitional kindergarten for 4-year-olds in the state.
The plan, which would phase in over the next few years, would ultimately enroll 250,000 children by 2024. Currently, just over a third of the state’s 4-year-olds — some 91,000 students — qualify for the state’s transitional kindergarten program.
And after more than a year of distance learning for most California students, Newsom is also advocating to restore classroom learning as the default for the school year starting this fall.
"We want kids back in person this fall full time," Newsom said, adding that his budget will make that "a requirement."
But in a nod to the many parents who are hesitant to send their children back to the classroom, the governor is also pitching a transformation of the state's independent study program, one that was initially created for anomalous circumstances, such as child actors, athletes or those with unique health issues.
Under Newsom's plan, districts who choose to offer independent study would have to provide an enhanced curriculum and access to technology, as well as "track and record daily student participation and interaction with teachers."
But the hybrid learning environment employed by some districts this fall that has required teachers and students to simultaneously juggle virtual and in-person lessons would come to an end.
In higher education, Newsom is vowing to spend more than $1 billion to restore cuts made in last year's budget to the University of California and California State University systems, while also boosting ongoing spending.
Newsom's plan calls for the state's public higher education systems to receive billions more in one-time assistance from the budget and federal aid. His budget would also fund the creation of California's third Cal Poly campus, slated for Humboldt County.
When many homeless shelters limited capacity at the onset of the pandemic, the Newsom administration leveraged federal relief money to turn motels and hotels into supportive housing units, ultimately creating about 6,000 new units of housing for some 8,200 people.
But with an estimated 161,000 Californians still experiencing homelessness, Newsom wants to spend $7 billion to expand his Project Homekey program, which he called "a historic effort to procure units and transition people off the street, sidewalks and shelters."
In all, the governor wants to spend $12 billion to tackle homelessness. Newsom says the investments, along with spending on building new affordable housing, could get more than 65,000 Californians off the streets.
"This is not a modest commitment to address the issue of homelessness in the state," Newsom said. "This is simply without precedent."
Like the stimulus checks, Newsom’s proposed spending on homelessness would not be ongoing — it would take place over the course of the next two budget years.
Some Democratic legislators have proposed a longer-term investment into homeless housing and services over the next five years.
Newsom’s plan also includes billions of dollars to slow both the immediate and long-term threats of climate change.
The governor is proposing $2 billion in emergency preparedness measures aimed at protecting the public from the negative effects of wildfires. This would include the hiring of extra firefighters and the purchase of new airplanes and helicopters. It would also include an investment in forest management projects like vegetation thinning and prescribed burns.
Newsom is also proposing $11.8 billion to address the long-term threats that warming temperatures pose. That package includes $3.2 billion to fast-track the state’s goal of 5 million zero-emission vehicles on the road by 2030. It also includes $912 million to help the state meet its clean energy goals.
And, as the state faces down another drought, Newsom's proposal includes $5.1 billion for drought support, water supply enhancement and natural landscape projects, as well as $1 billion in direct aid for Californians who have overdue water bills.
KQED climate reporter Ezra David Romero contributed to this report.
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