On May 13, Gov. Gavin Newsom released his revised fiscal year (FY) 2022-23 budget. For the first time, the state budget exceeded $300 billion. His January proposed budget was $286.5 million. Total expenditures approach $227.4 billion and revenues are forecast to be $222.6 billion.
The estimated $15.4 billion surplus from FY 2021-22 plus new revenues is expected to result in a year-end balance of $7.7 billion.
Also, the state’s “Rainy Day Fund” will be $23.3 billion, which Newsom said reaches the 10% cap of the General Fund revenues. Another $13.8 billion is available in the Public School System Stabilization, Safety Net and Operational reserves.
Although stock market conditions and the overall economy have fallen since January, tax revenues from 2021 continued to grow. The overall state surplus is $97.5 billion. The state’s press release with the revised budget said, “The governor’s proposal ensures that this year’s spending will not hamstring future budgets, calling for $37.1 billion in reserves including $23.3 billion for the state’s Rainy Day Fund, and spends 94 percent of surplus revenues on onetime expenditures.”
As part of his revised budget, Newsom included his $18.1 billion inflation relief proposal. He described this as putting money “back into the pockets of Californians.” This includes $11.5 billion to taxpayers because of the rising cost of gasoline for vehicles. Also included in this package are funds to reduce public transit costs, emergency rental assistance help, aid to help pay utility bills, health premium assistance under Covered California, and funds for hospital and skilled nursing home staff.
Newsom and the legislature have not agreed on the method to compensate Californians for the recent explosion of gas prices. As of Sunday, May 22, the average price throughout the state was $6.067 and the Riverside County average was $5.990.
Funding for climate change projects and programs totals nearly $47.1 billion, of which about a third is this fiscal year and $32 billion is proposed for FY 2022-23. This includes another $9.5 billion in the May revision. In his presentation, Newsom compared California’s effort over two years to slightly more than the whole federal budget for this purpose in one year.
This includes money for drought relief and water projects, wildfire and forest protection and energy, which includes investments in solar, fuel cells, other technologies, as well as creating a power reserve of 5,000 megawatts. The May revision adds $8 billion to the energy programs.
The Wildfire and Forest Protection funding proposed for next fiscal year amounts to $2.1 billion. This will add funds for combating wildfires and protecting California forests to reduce the threat of fire. These projects include forest thinning, prescribed burns, grazing, reforestation, fuelbreaks and new technology to detect wildfires early by creating an Office of Wildfire Technology. “People come from around the world to learn about our best practices,” Newsom said proudly. “… we know we need to do more in terms of innovation and technology.”
Nearly $250 million is planned for new firefighting equipment such as helitankers, engines, bulldozers and Fire Hawks. The May revision adds another $230 million, mostly for firefighting staffing, including air attack crews.
The governor also added funds to confront homelessness and the mental health crisis, and for infrastructure including broadband. The May revision includes $660 million for public safety, including $262 million to establish the Fentanyl Enforcement Program as part of efforts to quell the opioid crisis, and $30 million to protect children who are victims of sex trafficking and fund the Internet Crimes Against Children Task Force.
Newsom has spoken strongly for his critical priorities, especially the Reproductive Health Package. There is $125 million for it in the budget, of which $57 million was added in his May revision.
The budget press release identified those increases: “… $40 million for grants to reproductive health care providers to offset the cost of providing care to low- and moderate-income individuals who do not have health care coverage for abortion care services, $15 million for grants to community-based reproductive health, rights, and justice organizations to conduct medically accurate and culturally competent outreach and education on sexual health and reproductive health issues, $1 million to develop and maintain a website that provides accurate and updated information to the public on the right to abortion under state law, information about reproductive health care providers, and options for coverage for reproductive health services, including state-funded coverage and programs, and $1 million for research regarding the unmet needs for access to reproductive health care services.”
The unprecedented revenue growth has the Legislative Analyst’s Office (LAO) worried. The increasing revenue poses two concerns.
State laws and constitution actually limit the atate’s capabilities for building and using surpluses. LAO says the state is approaching these limits, but the governor’s proposal does not adequately prepare for this possibility.
Secondly, LAO fears that a recession may be in the future. “Past experience does not guarantee that we are heading for a recession. In our assessment, however, the risk of a recession is high enough to warrant a downward adjustment to our revenue outlook. As a result, we forecast stagnant revenues in the out-years. The administration, in contrast, anticipates somewhat more growth,” LAO wrote in its review of the May revision.
Projecting the economy, especially years in advance, is risky. Just two years ago, the governor and legislature had forecast a major deficit for the past fiscal year, nearly $30 million difference.
“Doing everything we can to future-proof California,” the governor said in his conclusion.