With cash rolling in from a projected $45.7 billion budget surplus, California Governor Gavin Newsom proposed a spending plan designed to address a paradox of the most-populous U.S. state: It’s thriving financially, yet beset with systemic challenges that threaten its long-term growth.
The Democrat aims to tackle the “existential threats” of Covid-19, climate change, homelessness, the wealth divide and public safety with a record $213 billion budget for the coming fiscal year. The plan unveiled Monday, which still must be approved by legislators, proposes a tenfold increase -- to $500 million -- to clean up homeless encampments, for example, which the governor called the state’s “most vexing and serious issue.”
California is home to the world’s fifth-largest economy and remains a leader in progressive causes such as banning internal combustion engines in new cars by 2035. Yet it continues to lurch from crisis to crisis, including wildfires, crime, port congestion and now an omicron variant surge, despite some of the toughest virus-mitigation standards in the nation.
Some of the state’s most pressing problems, like a shrinking population and high cost of living, can’t really be solved by the budget alone. Others like homelessness received increased funding, but that money pales against the scope of the problem, with an estimated 161,500 unhoused people across the state as of 2020.
To some, the spending plan is a step in the right direction, addressing California’s income inequality by offering tax credits to low-income workers, additional funding for pre-kindergarten classes and universal health care even for undocumented residents.
“I think the governor has proposed a good starting point for making a series of one-time and ongoing investments in the major challenges facing the state,” said Chris Hoene, executive director of the nonprofit California Budget and Policy Center, which focuses on policies impacting the economic and social well-being of residents with low and middle incomes.
Others see a recurring issue with Newsom’s administration, hopping on issues that are trending with voters, but rarely solving problems over the long term. “They sell the sizzle,” said David McCuan, chair of the political science department at Sonoma State University. “Actually delivering, they don’t have those kind of successes.”
California’s population declined for the first time in history in 2020 and the state lost a congressional seat last year. A number of high-profile companies have relocated their headquarters, including Hewlett-Packard Enterprise Co., Oracle Corp. and Tesla Inc., in part because of the cost of living.
But the economy is still strong, with gross domestic product rising 21% in the five years ended December 2020 and tax receipts coming in well above plan, thanks to the state’s dependence on high-income earners. Of the $45.7 billion surplus, $20.6 billion can be used for discretionary purposes.
The governor, running for a second term this year, proposed hundreds of millions of dollars in grants and tax breaks for small businesses while continuing to spend heavily to promote California’s tourism economy. He also pledged $3 billion over two years to pay down the state’s unemployment fund debt. In recognition of pocketbook issues that are hitting the less wealthy harder, Newsom announced he’d scrap an inflation-indexed hike in the gasoline tax for the fiscal year.
While not directly addressing corporate departures, he proposed $250 million in incentives annually for three years for qualified companies headquartered in California that are investing in research to mitigate climate change.