Governor Newsom Proposing Balanced Budget Rather than Expected Deficit
Print this Article | Send to Colleague
The current economic downturn due to the COVID-19 pandemic is like nothing we have experienced in modern times. The economic pain has disproportionately impacted public-facing businesses and their workers, along with small business owners statewide. Surprisingly, however, much of the California economy has been spared due to the ability of workers to telecommute or to continue on the job utilizing safety protocols. Further, a buoyant stock market and surprisingly strong real estate market created capital gains revenues double the amount forecast in 2020.
As a result, rather than managing a $54 billion deficit, Governor Newsom is proposing a $227 billion balanced budget with no new tax increases and $34 billion in reserves and surpluses, which provides record levels of public school funds, increases spending on higher education without any tuition increases and expands the social safety net.
The Governor’s top priority is addressing the pandemic and its economic consequences. He will ask the Legislature to urgently approve this month spending authority to provide immediate relief for struggling individuals, businesses and students, including:
• A $600 stimulus payment to two million low-income workers ($2.4 billion).
• $575 million in grants to small businesses and nonprofits, on top of an earlier-approved $500 million small business grant program.
• Relief from state fees for businesses affected by shutdowns, such as restaurants and public-facing services ($70 million).
• Safe reopening of elementary schools, beginning in February ($2 billion).
The budget proposal also includes money to improve vaccine distribution and expand testing and tracing.
The Governor also intends to accelerate economic recovery and job creation by providing additional support and incentives for business retention and relief, including:
• Adding $180 million over two years to the California Competes economic development tax credit, plus another one-time $250 million for special economic development grants under this program.
• Extending Main Street Small Business Tax Credit ($100 million).
• Mitigating the state and local tax (SALT) deduction limitation for S-corporation shareholders.
• The California Dream Fund to seed entrepreneurship and small business creation in underserved communities ($35 million).
• Additional funds to provide small business and disaster loan guarantees ($50 million to be leveraged to provide $250 million in loans), the Small Business Finance Center of the Infrastructure Bank ($50 million) and for the California Rebuilding Fund ($12.5 million).
• Expanded sales tax exclusions to promote innovation and meet the state’s climate goals ($100 million).
The Governor remains committed to banning the sale of internal combustion automobiles in the state by 2035. He has proposed $1.5 billion to achieve the state’s zero-emission vehicle goals, including securitizing up to $1 billion to accelerate the pace and scale of the infrastructure needed to support zero-emission vehicles. These funds will be generated from future cap-and-trade revenues.
The budget also includes $1 billion for forest management and fire prevention strategies to further address California’s notorious vulnerability to catastrophic wildfires. Elements of this plan will include better forest management to improve forest health, more fire breaks and home hardening, and increasing the number of fire suppression crews and aircraft.
The CLFP staff will be tracking the Legislative Budget Committees as they deliberate on these critical issues in 2021.
Written by CLFP Government Affairs Director Trudi Hughes.
