The State Of California: Fixing The Massive Budget Shortfall

Doug Sovern
May 07, 2020 - 4:17 pm

    Gov. Gavin Newsom announced Thursday that the state is facing a shortfall of more than $54 billion, specifically because of the COVID-19 crisis.

    How will California cope?

    The COVID-19 pandemic has dealt a major blow to California’s finances, with a deficit projected over $54 billion, which is an almost $80 billion swing in the wrong direction from where we were just three months ago. The state is looking at 18% unemployment, the public schools could be cut by $18 billion. Gov. Newsom made it clear California can’t go it alone this time, and he will be looking to Washington and the Trump administration for help.

    "But this is bigger than all of us and we really need the federal government to do more," Gov. Newsom explained.

    Shared responsibility sounds like budget cuts, maybe some increases in taxes and fees, and yes, more money from the federal government. The governor will outline his specific plans next Thursday, when he releases the May budget revision.

    One of the state lawmakers who will be deeply involved in this process is Assemblymember Phil Ting of San Francisco, who chairs the Assembly Budget Committee. He joined KCBS Radio's "The State Of California" to discuss.

    How do you begin to tackle a $54 billion budget shortfall?

    One point the governor brought up, which is really important, is looking at the federal government for help. Already we’re going to be getting a certain number of expenses, in the billions, reimbursed by FEMA as well as we got billions of dollars from the CARES Act. We could go a long way to getting more help from the federal government if they actually decide to help us and many other states out. We’re all of the same. It’s not just states, it’s cities and counties in this very tough time. But even with federal government help, we’re probably going to be looking at shared responsibilities which could mean potential budget cuts and some different ways to increase revenue. I know that the governor had put Assemblymember (Adam) Gray’s vaping tax proposal in the budget in January and if it stays in that could be one of the ways to bring in a little bit of money.

    How do you make sure kids are taken care of as K-12 schools face additional cuts?

    I think that’s a great question. Part of that will go back to my colleagues, but also to the voters. People have to realize that nobody likes tax increases, but the question is (whether) they want $18 billion to get cut from schools or would they prefer to see and increase in taxes or potentially look at doing some bonds. That’s another proposal we’re looking at. I think everything is on the table. When we have a $54 billion hole, you have to look at everything.

    Do you think California voters will actually be open to raising taxes?

    We’re still grappling with this pandemic. When we went into recess in March, we have a surplus. When we came back six weeks later, we have a deficit. We are looking at a variety of options. That definitely will be a question that we’re going to be looking at. If we decide to go that route, that will definitely be something that we ask to see some polling data to see how voters are feeling. We know voters are feeling like they’re in a very tough situation. Again, none of these are good choices.

    Are you saying you’d want the voters to decide whether we raise taxes?

    We haven’t even begun to discuss as a caucus. We have to weigh all our options. We didn’t have to go to the voters (when Gov. Jerry Brown famously asked voters to decide on a tax increase), the legislature could have done that. Gov. Brown decided that was the approach he wanted to take and in talking with my colleagues and Gov. Newsom whether we’d go that route, or maybe we decide we can’t get revenue passed, we can’t get a bond passed we can’t get taxes passed, then we’re just going to have to go the shared responsibility route.

    Are you concerned about how big the $54 billion deficit could balloon to?

    Absolutely. We don’t know how long we’re going to be have to stay at home for. We don’t know how long before things return to "normal," normal being how things were like in January. Without a vaccine, without herd immunity, without contact tracing and testing, we don’t know when restaurants can fully open, when movie theaters can fully open. We really don’t know how long this could go on for.

    What about the push for more affordable housing and addressing the homelessness crisis?

    I think there was money in the emergency response (fund) for COVID-19 for homelessness, we appropriated $150 billion of that. Much of that will get reimbursed by FEMA. I think we will be taking a look at other things we do in terms of grappling with this emergency that could potentially get reimbursed by the federal government. So maybe we’ll see more of that approach in the budget other than the "go-it-alone," "we’re picking up the full tab," just because we don’t have the ability to do that. We already had done almost $2 billion towards homelessness and affordable housing. Some of that money hasn’t already been spent yet because it just takes time to move and it takes time to go build that housing. So hopefully, during this pandemic we can get some of that housing built.

    What are some other areas where you could raise taxes, fees and generate revenue?

    We just have to look at everything. It’s just not clear. I know that people aren’t in the mood to have that discussion. We’re asked to make a choice between two tough choices, so we’ll be looking at all of those things, we’ll be looking towards the governor to see what he proposes in his May revised (budget). He’s going to propose a balanced budget. We’ll see how he does it.