The uptick has buoyed hopes within the Capitol that California’s chronic budget deficits might disappear if the revenue surge continues. That would spare Newsom and legislators from having to dream up more accounting gimmicks, deferrals and loans to cover the gap between income and outgo.

However, the Legislature’s fiscal advisor, Legislative Analyst Gabe Petek, threw cold water on those rosy scenarios Wednesday. He sees recent revenue gains as a spike driven by an artificial intelligence boomlet in Silicon Valley that’s likely to implode, as have previous tech-related bubbles.

“With so much exuberance surrounding AI, it now appears time to take seriously the notion that the stock market has become overheated,” Petek says in his annual fiscal overview, which predates the governor’s introduction of a new budget. “History suggests that the stock market is prone to overreact to major technological advances, even if the technology itself turns out to be revolutionary.”

Instead of savoring a surge in revenues that would erase what officials are calling a “structural deficit” that is somewhere in the $10-20 billion range, officials should anticipate a larger gap, Petek says.

“Under our revenue and spending estimates, the Legislature faces an almost $18 billion budget problem in 2026‑27,” Petek says. “This is about $5 billion larger than the budget problem anticipated by the administration in June, despite improvements in revenue.”

The analyst notes that California’s constitution requires the state put money toward public schools and reserves, which will “almost entirely offset revenue gains,” and toward other spending that’s running about $6 billion over the current budget’s estimates.

“Starting in 2027‑28, we estimate structural deficits to grow to about $35 billion annually due to spending growth continuing to outstrip revenue growth,” Petek says.

It should be noted, not for the first time, that California’s chronic deficit is not caused by an economic downturn, which has occurred in the past, but rather by an enormous error by Newsom and his budget advisors three years ago.

In 2022, they projected a permanent increase in revenues, based on a one-time spike, leading Newsom to declare a $97.5 billion budget surplus, boasting “No other state in American history has ever experienced a surplus as large as this.”

Confident that the money would be there, Newsom and lawmakers fattened up the spending side of the budget, only to learn that the supposed surplus was based on what was later acknowledged to be a $165 billion overstatement of revenues over four years.

Ever since, revenues have failed to cover the elevated spending, and Newsom and lawmakers have covered the gaps with the aforementioned gimmicks. They have incurred more than $20 billion in internal loans from special funds that must be repaid. They also have drawn down reserves that were supposed to cover genuine emergencies, not political shortsightedness.

Newsom and his staff are now in the final throes of drafting an initial 2026-27 budget that will be his last as governor and will be unveiled in January. The question is whether he will face the fiscal music and finally write a truly balanced budget or employ more short-term fixes and dump the problem on his successor.

That would mean either making real cuts in spending or raising taxes, both of which would take some courage. The past has not been encouraging.

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Those are among the hundreds of proposals California lawmakers swiftly rejected Friday under the banner of cost savings, as they cited the state’s $12 billion budget deficit — a worsening figure due to the threat of unprecedented federal funding cuts and California’s ballooning spending on health care for low-income residents. 

“We are in (a) very difficult budget environment this year, so consequently many good bills are going to fall by the wayside today,” said Assembly Appropriations Committee Chair Buffy Wicks, an Oakland Democrat, before beginning that chamber’s hearing. 

“We are not in a year where we can be expanding programs, developing new offices, new agencies, new departments, and expanding our footprints.”

The Friday procedure is known as the “suspense file” — the state Legislature’s most secretive and fast-paced biannual hearing, where the chairs of the Assembly and Senate Appropriations committees quickly shoot down pricey proposals with little explanation, often acting more aggressively during years of budget woes. 

The suspense files are where the appropriations committees send bills that would cost the state at least $50,000 in the Senate and $150,000 in the Assembly. The process was originally a way for lawmakers to consider policy proposals that cost the state money together by balancing them against each other. 

But the well-accepted open secret in Sacramento is that it’s also an opportunity for lawmakers to quietly kill controversial bills, appease powerful special interests or just winnow down the number of bills they’ll have to debate on the floor. Lawmakers decide ahead of time, in secret, whether to pass the bills to the full Senate or Assembly, or to withhold them. The public hearings are a rapid-fire announcement of the decisions.

On Friday, the Senate Appropriations Committee axed 29% of the 432 bills on its list, although it kept a handful of those alive to work on next year. That’s more aggressive trimming than the committee did last May. 

“The state is facing a significant budget deficit and with that in mind, the committee had to make difficult choices on a number of bills to reduce costs,” said Senate Appropriations Chairperson Anna Caballero, a Merced Democrat, before the hearing. She opened the hearing with a defense of the arcane proceedings, explaining that the results would be posted online, but rushed out to catch a flight after the meeting without discussing her approach with reporters. 

The Assembly Appropriations Committee killed 35% of the 666 measures on its suspense file, similar to last year. Lawmakers had been warned to keep the cost of their proposals down, Wicks said. 

“We stressed heavily to members as they were putting together their legislative package this year to be very mindful of cost,” she told reporters.

The state’s fiscal future is anything but certain: As federal threats loom, Gov. Gavin Newsom earlier this month rolled out a $322 billion spending plan that included significant cuts to Medi-Cal, the state’s health care system for low-income Californians, and a 3% cut to public universities. 

Health care expansions on the chopping block

On Friday, some Assembly measures that would have expanded health care services for Californians met their fate. That includes Wicks’ own proposal seeking federal approval to qualify some housing services as Medi-Cal benefits, a $40 million endeavor that Newsom previously vetoed. The committee also killed a proposal to allow more Medi-Cal enrollees to receive home-based care and another that would have allowed higher-earning immigrants in the country illegally to purchase insurance plans on Covered California, the state-run health care marketplace.

In the Senate, lawmakers shelved a proposal by Sen. Catherine Blakespear to impose campaign contribution limits on candidates for judicial office and school board races, which the influential California Teachers Association opposed. They axed Sen. Henry Stern’s proposal to expand the state’s contentious new mental health program CARE Courts to include defendants with bipolar disorder I, and Sen. Marie Alvarado-Gil’s bill to address mountain lion interactions that has pitted rural communities against animal rights and wildlife conservation advocates. 

The Senate Appropriations Committee also killed two Republican tough-on-crime proposals, showing the limits of Democrats’ recent shift slightly rightward on crime. Until Friday, it had been surprisingly smooth sailing this year for Senate Minority Leader Brian Jones’ bill to block sex offenders from being released from prison through the state’s elderly parole program, and Sen. Kelly Seyarto’s bill to increase penalties for selling or giving fentanyl to minors.

The law enforcement-backed bills were opposed by criminal justice reform advocates, who still hold sway with the majority party and often argue it would be too costly for the state to imprison more people. 

In a statement, Jones, a San Diego Republican, called the suspense file process “anti-democratic” and accused Democrats of “silencing the voices of victims and the public.”

Some measures are now postponed until next year. That includes two Assembly measures seeking tighter regulations on ticket sales for sports and musical events, amid fierce opposition from ticketing platforms such as Stubhub and from local chambers of commerce. The measures would restrict when those platforms can resell tickets, strengthen the disclosure of ticket information and require venues to accept proof of purchase as tickets. 

Assm. Isaac Bryan, a Culver City Democrat who authored one of the measures, said Wicks never articulated her concerns with his proposal, even though Wicks told reporters Friday her staff had been in touch with Bryan’s office. “There was never an attempt to discuss the bill,” which led him to believe her concerns had been alleviated, Bryan said in a statement. 

Lawmakers also pushed off some issues to be debated further during budget negotiations between the Legislature and Newsom. That process will accelerate in the coming weeks before a mid-June deadline to pass a balanced budget. 

Newsom’s film tax credit pushed to budget talk

They stripped out language in both Assembly and Senate bills to more than double the state’s film tax credit to $750 million. Newsom has pushed hard for the tax credit expansion to help the ailing Los Angeles industry and keep production in state, and he’s included the money in his budget proposals which lawmakers will debate separately. 

Assemblymember Rick Zbur, a Los Angeles Democrat who authored the Assembly version of the measure, said the committee move was merely a technical one to separate budget allocations from policy changes. 

“The increase in the size of the program will happen in the budget,” Zbur said. “I’m not that nervous about it.”

But to others, the move indicated that some lawmakers remain skeptical of spending so much on the program. Sen. Ben Allen, an El Segundo Democrat who sponsored the Senate bill to boost the tax credits, said he was “certainly disappointed.”

“It’s something we are going to push back against as budget negotiations begin to heat up,” he said in a statement.

An ambitious and highly technical proposal by Sen. Scott Wiener reining in the landmark California Environmental Quality Act to make it harder for opponents of development to sue to block housing projects also will be debated in the budget process.

In the Senate Appropriations Committee, lawmakers passed the bill but Caballero said they would continue negotiating it to help the state meet its housing needs “without compromising environmental protections.”

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A new program created by California’s consumer protection agency aims to provide free, personalized help for Golden State borrowers struggling to navigate the complex, byzantine student loan system.

The Student Loan Empowerment Network is designed to provide financial coaching and assistance for borrowers, including help securing income-based repayment plans and federal student loan forgiveness for those working in public service jobs.

“The student loan system is fraught with systemic issues that make it practically difficult, if not impossible, for people to get the rights and benefits they’re supposed to be entitled to under the law,” said Suzanne Martindale, the senior deputy commissioner for consumer financial protection at the California Department of Financial Protection and Innovation.

Martindale said in many cases, borrowers might be eligible for some form of loan relief, but don’t know how to access it because “the information hasn’t been clear, because the goalposts keep changing, because the loan servicers can’t seem to give you an accurate answer.”

“People need somewhere to go to get accurate, fair information, working with someone who cares about their best financial interests,” Martindale said.

Borrowers who want help from the program can fill out an intake form at studentloanhelp.dfpi.ca.gov or call (888) 774-2227.

Borrowers will be connected with a financial counseling agency or legal aid agency. In Los Angeles, those include Public Counsel, the Legal Aid Foundation of Los Angeles and the Koreatown Youth & Community Center.

The program will offer a mix of webinars and financial coaching sessions. Some borrowers with “very complex legal issues” may require one-on-one help, including those who have older private loans from defunct issuers, or have been in default on their loans, Martindale said.

Gov. Gavin Newsom’s 2022-2023 budget set aside $7.25 million for the student loan assistance and education program and $2.25 million for a statewide marketing campaign.

The organizations working on the loan program will be required to track the number of people who switch to income-based payment plans, document their employment for public service loan forgiveness and have their loans discharged, Martindale said.

Helping Californians reduce their loan burdens using publicly available programs can have a major economic benefit for the state, she said. She said she hopes the program becomes a permanent fixture in the state, although the looming shortfall makes that less certain.

After the pandemic-era freeze on student debt expired last year, about 40% of borrowers with federal student loans missed their first monthly payment last fall, according to federal data.

Borrowers who are delinquent on their federal loans won’t be reported to credit bureaus until Sept. 30 of this year, but in the meantime, interest continues to accrue.

The post Overwhelmed by student loans? A free new California program can help you appeared first on The Hemet & San Jacinto Chronicle.

Last month the Democrat unveiled his budget for the next fiscal year, admitting that ‘difficult decisions’ are needed to address the state’s deficit – including a 1.6 percent reduction in the state’s Department of Justice’s overall funding.

The proposed budget includes a $97 million cut to trial court operations, $10 million to the Department of Justice’s Division of Law Enforcement and over $80 million to the Department of Corrections and Rehabilitation, as reported by Fox News.

Newsom’s plan comes as major national stores and local businesses in California say they continue to face rampant theft. Videos of large-scale thefts, in which groups of individuals brazenly rush into stores and take goods in plain sight, have often gone viral.

Crime data shows the San Francisco Bay Area and Los Angeles saw a steady increase in shoplifting between 2021 and 2022. Across the state, shoplifting rates rose during the same time period but were still lower than the pre-pandemic levels in 2019, while commercial burglaries and robberies have become more prevalent in urban counties.

Meanwhile homelessness jumped 6 percent to more than 180,000 people in California last year, federal data show. And since 2013, the numbers have exploded by 53 percent with the state accounting for a third of America’s entire homeless population.

The state’s criminal justice record which saw the number of violent crimes jump by 27 percent between 2013 and 2022, and pickpocketing more than double.

This is the second year in a row the nation’s most populous state is facing a multibillion-dollar shortfall. State revenues have continued to fall amid increasing inflation and a slowdown in the state’s usually robust technology industry.

Officially, Newsom said the state’s deficit is $27.6 billion. But really, it’s closer to $45 billion when including previous spending reductions that Newsom and the state Legislature agreed to in March.

Including reductions in public education spending, which Newsom has not included, the deficit would be even billions of dollars more, according to recent analysis by the nonpartisan Legislative Analyst’s Office.

A spokesperson for Newsom told Fox News in a statement: ‘The budget proposes numerous ways to make government more efficient and reduce costs for taxpayers, including cuts on inmate spending.

‘Since Governor Newsom took office in 2019, the state has made record investments in law enforcement, including $1.1 billion to tackle crime, support police, and hold criminals accountable.’

So far, Newsom has not gutted some of his splashiest policy advancements, including free kindergarten for all 4-year-olds and free health insurance for all low-income adults regardless of their immigration status.

But as Friday’s proposal showed, Newsom is willing to chip away at some of those promises to balance the budget.

While Newsom has not taken away health insurance from anyone, he proposed the state stop paying for health care workers to care for some 14,000 disabled immigrants in their home. That would save the state $94.7 million. While he hasn’t pulled back the state’s commitment to expanded kindergarten, he proposed eliminating $550 million that would have helped school districts build the facilities they need to teach all of those extra students.

After promising to pay for child care for another 146,000 children from low-income families, Newsom on Friday proposed pausing that expansion at 119,000. And after promising to boost how much money doctor’s get to treat Medicaid patients, Newsom on Friday proposed canceling $6.7 billion that had been set aside to do that.

In total, Newsom is proposing $32.8 billion in cuts over two years, including eliminating 10,000 unfilled state jobs and an 8 percent cut to state operations — including things like eliminating landlines. He promised there would be no layoffs, furloughs or salary cuts for the state’s more than 221,000 state workers.

The size of the deficit is important as it will shape the national perspectives of Newsom, who is a top surrogate for President Joe Biden’s reelection campaign and who is widely believed to harbor presidential aspirations of his own.

Newsom has spent much of his time in office basking in the glow of historic budget surpluses that allowed him to greatly expand state spending. But back-to-back budget deficits — with more on the horizon — are testing California’s commitment to those increases.

Newsom had enjoyed unprecedented surplus budgets of more than $100 billion throughout the COVID-19 pandemic. But the past two years have saddled him with a pair of multibillion-dollar deficits, a less-welcome position for a governor seen as a potential future Democratic presidential candidate.

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