California Governor Gavin Newsom signed California’s budget on Saturday, aiming to close a staggering $46.8 billion deficit with $16 billion in spending cuts and a temporary tax hike on certain businesses.
The budget passed on Wednesday after negotiations between Newsom and legislative leaders, where both sides made concessions. For the second consecutive year, progressive policies, previously fueled by pandemic-induced surpluses, were scaled back or delayed.
“This is a responsible budget that prepares for the future while investing in foundational programs that benefit millions of Californians every day,” Newsom stated. He praised the budget’s careful stewardship over recent years, claiming it allows for continued investment in housing, homelessness, education, healthcare, and other priorities.
Initially, the deficit was $32 billion in 2023 but has since grown, with future deficits expected in the nation’s most populous state. The signing comes just two years after Newsom and Democratic lawmakers celebrated over $100 billion in surpluses, bolstered by federal COVID-19 aid and a progressive tax code that extracted substantial revenue from the state’s wealthiest residents.
However, these revenue spikes were short-lived. Inflation has slowed the economy, contributing to rising unemployment and a slowdown in the tech industry, which has been a significant growth driver for the state. Additionally, the Newsom administration significantly miscalculated last year’s revenue following a seven-month delay in the tax filing deadline.
California’s budget has historically fluctuated due to its reliance on wealthy taxpayers. Yet, these deficits come at an inopportune time for Newsom, who is building a national profile ahead of a possible presidential run and has been chosen as a key surrogate for President Joe Biden’s campaign.
The budget includes an agreement between Newsom and lawmakers to attempt a constitutional change, allowing California to save more funds for future shortfalls.
Republicans, however, were excluded from these negotiations. They criticized the tax hike on businesses, which targets companies with at least $1 million in revenue and will last for three years, generating over $5 billion for the state next year. Additionally, Republicans condemned the Democrats for cuts to social safety net programs, arguing that these decisions negatively impact the state’s most vulnerable residents.
