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Newsom’s Budget Fine-Tunes a Balancing Act

By Paul Rosenberg, Senior Editor

With his “May Revise,” Gov. Gavin Newsome doubled down on two contrasting features of his initial budget proposal unveiled in January: the fiscal caution he shares with his predecessor, Jerry Brown, on the one hand and his commitment to significant policy shifts—most notably on housing and homelessness, family policy, and healthcare—on the other.

Newsom also devoted considerable attention to fine-tuning specifics—such as reallocating $500 million in local incentive funds for housing production to the Infill Infrastructure Grant Program administered by the Department of Housing and Community Development, supporting the development of higher-density and mixed-income housing in infill locations. The aim is to address multiple needs simultaneously in a synergistic manner—getting more bang for the buck as a result. An added $10 million to support college students who are homeless or housing insecure is another example of this approach.

The revised budget has grown to $213.5 billion from $209 billion in January, but in the spirit of fiscal caution, Newsom said most of the increased revenues are already constitutionally obligated—either to reserves and debt repayment, or to schools.

Newsom is devoting another $1.2 billion dollars to rainy day reserve funds, while also paying off the remainder of budgetary debts and deferrals left over from the Great Recession. This comes in the face of Newsom’s budget staff projections that a modest recession could cost the state $70 billion over three years.

“We have a record amount of rainy day reserves and a record amount of resiliency. We have well over $30 billion-plus to weather a major storm and I would argue we have much more than that,” Newsom said.

On the other hand,  Newsom has increased funding for a range of homeless initiatives—most notably, adding $150 million to the $500 million previously devoted to local governments for emergency aid — for a total that’s now $1 billion higher than Brown’s last budget. He’s accelerated his push to expand paid family leave toward an eventual target of six months, and he’s introduced a “Parents Agenda” family policy package — a sales tax and use exemption for diapers and menstrual products, increased child care and an increase in state Earned Income Tax Credit for children younger than the age of 6 — which he rolled out in advance of the budget.

“The cost crisis is the foundational economic and quality of life challenge that California families face,” Newsom said at the time. “As anyone who takes care of kids can tell you — these costs add up. From diapers to child care, raising kids is expensive wherever you live. But when you factor in the cost of living here in California, it is close to impossible.”

When he unveiled his budget, Newsom spelled out how he saw the connection between the two contrasting aspects of Brown-like caution and his policy initiatives — especially regarding families.

“We’ve got dozens and dozens of [billions in] reserves, Newsom said. “We’ve got [rainy day reserve] accounts that have never been flush. We are in a very different place [than before the last recession], but it’s not good enough. I hope I’m back next year saying we’re going to get another 10-ish billion dollars into those reserves and then I feel like we can weather that $70 billion storm and be in a place where we’re not cutting programs that disproportionately impact women and children.”

On healthcare and family policy, in particular, Newsom’s stated goals are transformational,  including the goal of universal healthcare, while his means are incrementalist.  California’s current state provision—six weeks—is something, but far below the international average. Newsom’s goal of six months, announced in his January budget message, would at least make us respectable. But it’s an incrementalist path forward all the way.

Still, Newsom is making progress. The May Revise would extend paid leave to eight weeks, effective July 1, 2020, and it affirms a plan to convene a task force in the near future, to develop recommendations on how to expand the program. Those recommendations would be due in November, with an eye toward including them in the 2020-21 budget.

There was also a $54.2 million investment in CalWORKs Stage 1 child care funding, to allow uninterrupted child care for eligible children, a new allocation of $80.5 million in Proposition 64 revenue to child care and a doubling of the proposed tax credit for families with children younger than the age of 6, from $500—when it was introduced in January—to $1,000 now.

Both houses of the state legislature are working on their versions of the budget, with some pushing for more spending of the surplus that’s now on hand. The deadline for passing the budget is June 15. Whatever the final results may be, the overall tone set by Newsom seems almost certain to prevail.

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