Economic uncertainty at the state and national level is prompting him to keep a tighter hold on spending. Meanwhile, state financial experts are preparing for a time when the Golden State does not have a nearly $100 billion surplus.
Analysts are already seeing signs this may happen sooner rather than later. Tax revenue is coming in under forecast, mostly due to lower personal income tax receipts, according to the September state economic update.
“The governor is wanting to make progress on those areas that he believes are the right economic and public policy and social policy for California going forward,” said H.D. Palmer, a Department of Finance spokesman. “At the same time, he is extremely mindful of the fact that our fortunes can change rather rapidly.”
The United States and California are dealing with an inflationary economy still reeling from the COVID-19 pandemic, higher interest rates and international crises like the Russian invasion of Ukraine.
This is a strategy Newsom’s predecessor, former Gov. Jerry Brown, employed to get the state back on track following budget deadlocks and the Great Recession. He had a reputation for vetoing or discouraging proposals that would create ongoing budget commitments.
Newsom has been more willing to spend where Brown resisted, such as expansion of Medi-Cal coverage for undocumented adults and universal preschool. The governor has even put forward his own long-term spending items, most notably the mental health court system he signed into law this month.
Newsom has also been bolstered by significant reserves the state did not enjoy in the early 2000s. In May, Newsom projected the state would accumulate $37.1 billion in reserves, giving his administration a cushion against a downturn.
Even so, Newsom has begun vetoing bills on issues he has strongly supported, such as reproductive healthcare expansion and all-day kindergarten.
Many of those veto messages have contained the same two paragraphs:
“With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined when it comes to spending, particularly spending that is ongoing,” Newsom wrote. “We must prioritize existing obligations and priorities, including education, health care, public safety and safety-net programs.
“The Legislature sent measures with potential costs of well over $20 billion in one-time spending commitments and more than $10 billion in ongoing commitments not accounted for in the state budget,” he continued. “Bills with significant fiscal impact, such as this measure, should be considered and accounted for as part of the annual budget process. For these reasons, I cannot sign this bill.”
On Sept. 22, Newsom vetoed a bill from Assemblywoman Cristina Garcia, D- Bell Gardens, that would have directed the California Health and Human Services Agency to create a pilot program improving reproductive healthcare services at primary care clinics in five counties.
His message said the 2022 budget already included more than $200 million to “protect the right to safe and accessible reproductive health care.”
“This investment includes resources to reimburse clinics for uncompensated care, provide equity and infrastructure payments for clinic abortion providers, and support reproductive health workforce,” he said.
On Sunday, Newsom vetoed a bill from Assemblyman Kevin McCarty, D- Sacramento, to require all California school districts to offer at least one all-day kindergarten class at each school.
“I appreciate the author’s intent and his advocacy for early education, however, this bill will create ongoing and one-time costs in the hundreds of millions of dollars to support school facilities and operational costs,” the veto message said.
McCarty told The Sacramento Bee he was hopeful Newsom would sign his bill. He and his staff considered it a “tweener” bill in terms of whether it would have a fiscal impact, because schools receive the same amount of state funding for kindergarten regardless of whether classes are all-day or half-day.
School districts have said creating more classrooms and upgrading facilities would be the most significant costs associated with lengthening kindergarten programs, McCarty said. As Newsom mentioned, the state has spent hundreds of millions of dollars providing grants to make those upgrades possible.
“We’re not certain what the problem is with school districts, because they’re saying they can’t afford it (because of) facilities, and we have leftover money for facilities,” McCarty said. “So we’ll go back again and put more money in that facilities pot, and hopefully that’s an answer that they’re looking for.”
Although California may need to spend prudently moving forward, Palmer and Assembly Budget Committee Chair Phil Ting, D- San Francisco, said the state will be able to meet its financial commitments.
Ting said state leaders will need to take into consideration reduced federal funding, because California will no longer be receiving the COVID cash allocated during the pandemic.
“We’ve been anticipating less revenue for for quite a while,” Ting said. “It just means less one-time spending, it means that we remain committed to our ongoing programs. And it also also means we’re putting our one-time investments to work ... because, again, the one-time investments, many of them were multi-year investments.”
Ting said those multi-year investments in infrastructure, transportation and clean energy would help provide jobs for years to come, supporting the state’s workforce.
Palmer also pointed out that some new ongoing programs include a provision that would delay their implementation if state leaders determine there is not enough money to pay for them. Increased CalWORKs payments, Medi-Cal expansion and income tax credits for union members are among the policies that would be affected by reduced revenues.
In addition, the state has a considerable amount of money in its rainy day fund, Palmer said, which it could use if the governor declares a fiscal emergency. In May, Newsom projected the state had $23.3 billion in this pot of money.
Ultimately, Palmer said, the vetoes are a continuation of the fiscal policy Newsom has been laying out since the spring.
“There are many cases where he will indicate that he is supportive of the policy goals that a particular bill may put forward,” Palmer said.
“But the costs associated with them, given the risk of revenue and the concerns that we may have to turn around and reduce new programs ... outweigh the risk of going forward at that particular time.”
©2022 The Sacramento Bee. Distributed by Tribune Content Agency, LLC.
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