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Gavin Newsom releases $288 billion revised budget for California. How he tackled the big deficit

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California Gov. Gavin Newsom on Friday unveiled his revised $288 billion budget proposal with a $28 billion deficit that will require tough budget cutsand a potentially bruising battle to enact them.

The governor’s proposed budget would cut one-time spending by $19.1 billion and ongoing spending by $13.7 billion through fiscal year 2025-2026, according to the fact sheet. It would enact a nearly 8% cut to state operations, eliminating 10,000 unfilled positions.

The sheet said the governor plans to balance the budget by “getting state spending under control — cutting costs, not proposing new taxes.” He also wants to do this by “reducing reliance on the state’s ‘Rainy Day’ reserves this year.”

The true deficit number may actually be closer to $45 billion, as the administration subtracted a $17.3 billion package of budget fixes Newsom, Assembly Speaker Robert Rivas, D-Hollister, and Senate President Pro Tem Mike McGuire, D-Healdsburg, agreed to in April.

The administration acknowledged it had cut the $17.3 billion from the overall shortfall number in a fact sheet released just before the governor’s press conference Friday.

It was immediately unclear how exactly the administration calculated the deficit, aside from subtracting the legislative agreement.

Newsom pegged the spending gap at $38 billion in January, although the independent Legislative Analyst’s Office later suggested it could be as high as $73 billion.

California’s fiscal year-over-year revenues were $5.8 billion or 4% below Department of Finance forecasts as of March, indicating the overall deficit likely grew.

Budget-watchers had predicted Newsom’s strategy in advance, suggesting he may present a rosier shortfall number by incorporating a handful of previously planned fixes.

The governor’s revised budget announcement kicks off a month of negotiations involving his administration, Assembly Speaker Robert Rivas, D-Hollister, and Senate President Pro Tem Mike McGuire, D-Healdsburg.

The Legislature must pass a budget by June 15 for lawmakers to continue getting paid. The new fiscal year begins on July 1, meaning Newsom has to sign budget legislation by the end of the month.

Just two years ago, the governor was celebrating a budget with a large surplus. This allowed him to invest in a series of bigger policy initiatives, including transitional kindergarten, or pre-kindergarten, Medi-Cal coverage for undocumented immigrants and CARE Court to compel treatment for the seriously mentally ill.

The state in January enacted the final piece of its expansion of Medi-Cal — California’s version of the federal Medicaid program — allowing all those who income-quality to enroll, regardless of immigration status.

But the post-COVID-19 pandemic economy hit California hard. That’s because the state is heavily dependent on its highest-income earners due to its graduated tax structure, the tourist industry was hit hard and supply chains were disrupted.

Federal efforts toeaseinflation by raising interest rates have cooled industries sensitive to rate hikes. This has affected some activities, such as home buying and startup and tech investing.

Also hamstringing the state’s efforts to gauge the government’s economic condition, those involved in crafting the state’s 2023-2024 budget were unable to get the most accurate picture of the state’s finances until November, long after lawmakers and the governor had agreed to a spending plan.

The delay was caused by a large number of Californians who could delay filing their 2023 taxes until November due to deferrals the IRS granted to those affected by winter storms. The situation helped complicate the state’s financial outlook heading into 2024.

Newsom in 2023 and in January committed to some cuts while preserving his major initiatives and social safety net programs.

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