COVID-Challenged California State Budget Outlook

This year opened with a robust financial outlook for the state of California. In January, the budget surplus was expected to come in at $6 billion. In early March, it was projected the state would reach an historical cash reserve of $21 billion by next summer. Then, COVID-19 happened and a new reality emerged.

In the usual course of things, the traditional May budget revisions by the Governor’s Office would have reflected increased funding and new appropriations for the Governor’s policy priorities. Instead, come May, the state was faced with a budget deficit of $54.3 billion. According to the Governor’s June budget summary, in a matter of four months, the state’s economy took a swing of $60 billion caused by the COVID-19 induced recession. The state has endured significant economic downturns in the recent past but none like what the COVID health crisis unleashed, giving lawmakers very little time or options for corrective measures.

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At the time of the “May Revise,” the Governor proposed significant cuts and reaching consensus with state legislators on a final budget bill was not easy as legislators rejected the bulk of proposed cuts and instead proposed “trigger solutions.” While negotiations spared K-12 education and health programs from budget reductions, deep cuts were sustained to the courts and the state’s public university systems.

Meeting the state’s constitutional obligation to enact a balanced budget, on June 29th, Governor Newsom signed the 2020 Budget Act — a $202.1 billion state spending plan reached through a combination of using previous reserves, available federal funds, temporary revenues, internal borrowing, and deferred payments. Of note, the budget includes an $11 billion spending cut that would be “triggered’ should the state not receive the additional $14 billion it has identified as needed from federal fiscal relief legislation by an October 15 deadline.

Without the additional fiscal assistance by the federal government to help offset the hit to state budgets due to the health crisis, California is looking at decreasing state employee salaries by up to 10 percent, resulting in furloughs, layoffs, and a $602 million cut to the Cal State and UC systems.

As of this printing, Congress has yet to vote on a fourth COVID fiscal relief bill package.   

Gabriela Villanueva is CAP’s Government & External Affairs Specialist. Questions or comments related to this article should be directed to gvillanueva@CAPphysicians.com.