Budget Surplus Gives Boost to Gavin Newsom Ahead of Recall

California could have as much as $16.7 billion more in revenue than what was predicted in January. Some of the surplus may be sent back to taxpayers in refunds, helping the governor’s chances in the recall election.

(TNS) — Drought and dry wildfire conditions. A pandemic. A recall election with a panoply of ambitious would-be adversaries.

Gov. Gavin Newsom has a lot of problems.

Money isn't one of them.

This week he's expected to release a revised state budget proposal that's so flush with revenue he'll be obliged by law to send some of it back to taxpayers in the form of refunds.

It's a far cry from the budget he presented a year ago that slashed public employee salaries, cut spending on universities and delayed billions of dollars worth of projects to shore up what was expected to be a severe recession.

The economic pain from the coronavirus pandemic wasn't as bad as Newsom thought, at least not for the well-off Californians whose income tax fuels the state general fund. He conceded as much in January with a $227 billion budget outline for the upcoming fiscal year that anticipated a $15 billion surplus and called for billions of dollars more for emergency spending related to COVID-19.

Now tax revenue is rolling in $16.7 billion above Newsom's rosy January projections, presenting opportunities for him to score big wins with important allies and secure political capital for himself as he prepares to face a recall.

"Politically, at this point, everything is about the recall for Newsom," said Michael Shires, an associate professor at the Pepperdine School of Public Policy.

Democratic consultant Garry South, who managed former Gov. Gray Davis' gubernatorial campaigns, said the surplus is a "huge advantage" to Newsom ahead of a recall. Davis, by contrast, came into office with a budget shortfall, and spent the months before his recall election grappling with Republican legislators over a budget deal.

Newsom won't have the same problem, South said. Not only do Republicans hold fewer seats in the Legislature, lawmakers no longer need a two-thirds majority to pass a budget by the state's June 15 deadline like they did during Davis' tenure.

"This thing will be passed and signed by the governor long before the recall ever comes along, because the Republicans don't have the power in the Legislature, like they did in 2002 and 2003 to drag this process out," he said.

Here are some of proposals Newsom could use to help Californians still struggling with the pandemic.

Give Money Away

Newsom and California lawmakers earlier this year approved a Golden State Stimulus program, sending checks of up to $1,200 to hundreds of thousands of lower-income households and undocumented residents to help them weather the pandemic.

Newsom and Democrats could do even more. Assembly Budget Committee Chairman Phil Ting, D- San Francisco, said in late April that Democrats would like to see more stimulus money sent to Californians in need.

Other taxpayers stand to get a refund, too.

Newsom in January telegraphed the likelihood that Californians could get a little money back from Sacramento this year under a 1979 state spending cap that on only one previous occasion resulted in taxpayers receiving refunds.

Earlier this year Newsom said California was on track to exceed the spending cap by about $100 million. That number could grow because of the state's surging tax revenue.

Spend to Open Schools

Some of the harshest criticism Newsom has received during the pandemic comes from parents who are desperate for students to return to the classroom five days a week. Newsom and the Legislature already offered $2 billion in incentives to get classrooms open last month, but the governor hasn't ordered to schools to open.

Schools last year were asked to put off payments and several programs went without cost of living adjustments. This year, schools expect Newsom to restore the cuts made during the pandemic, as well as invest in long-term spending.

Newsom is likely to propose a slate of one-time initiatives for education, said Kevin Gordon, president of Capitol Advisors Group, a lobbying firm that represents hundreds of districts around the state.added.

The real question will be around Proposition 98 funding, which requires the state maintain a certain level of funding for public education.

Last year, Newsom raised Prop. 98 funding above its constitutional minimum. Districts want to see the governor commit to long-term funding increases in addition to restoring cost of living adjustments and paying down deferrals from last year.

That's not a stretch for the Democratic governor, Gordon said.

"The governor has the advantage of both satisfying an electorate in the context of a recall election, and doing what is his instinct anyway," he said.

Health Care for Undocumented

California has expanded Medi-Cal coverage for undocumented children and young adults up to the age of 25. Now, amid a pandemic that has disproportionately devastated Latino communities, advocates say it's time to include coverage for undocumented adults and seniors.

Providing Medi-Cal coverage to undocumented adults over the age of 25 would cost the state an estimated $2.6 billion a year, according to a 2020 estimates by the Legislative Analyst's Office.

Before the pandemic, Newsom moved to expand Medi-Cal to undocumented seniors ages 65 and over. The governor canceled that proposal when COVID-19 sent the economy spiraling last year. Some version of it could return.

The Legislative Analyst's Office estimates that providing Medi-Cal coverage to just undocumented seniors would cost the state about $250 million.

"We're in an unprecedented situation where we actually have resources to find robust and bold ideas that can correct failed systems. This includes expanding healthcare coverage to people irrespective of their immigration status and irrespective of their age," said Sonja Diaz, founding executive director of the UCLA Latino Policy & Politics Initiative.

Republicans with little power to disrupt Newsom's plans are warning about the long-term risk of a spending binge, particularly for ongoing expenses like health care.

"Within two years, we can go from a surplus to colossally in the hole," said Sen. Jim Nielsen, R- Tehama. "The record shows that it is folly to go on a big spending spree when you have some extra money, which you can be assured is is not forever money."

End Public Employee Pay Cuts

Newsom and state lawmakers last year demanded that California state workers accept pay cuts as the state braced for a recession. Unions made deals for cuts that reduce most state workers' pay by 9.23 percent while giving them two flexible days off each month.

Public employees want their pay restored now that they see the recession did not fall the way Newsom projected.

Newsom could do even more for public employees because of a provision in the $1.9 trillion coronavirus relief law that President Joe Biden signed in March. It funds bonuses of up to $25,000 to essential workers.

Those bonuses, and restoring state worker cuts, could be critical for Newsom as he faces a recall.

"Expect public employee unions to be at the top of his list," Shires said. "He counts on their manpower as foot soldiers in the upcoming election battle."

(c)2021 The Sacramento Bee (Sacramento, Calif.) Distributed by Tribune Content Agency, LLC.
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