Buoyed by another massive surplus, Gov. Gavin Newsom on Monday unveiled a wide-ranging $286 billion spending proposal for 2022-23, prioritizing more money to fight COVID-19 and tackle climate change, homelessness, the rising cost of living and other issues that plague the Golden State.
The state is so flush with cash, with a surplus projected at more than $45 billion, the governor will be faced with a little-known provision that may force California to do something else with its bounty in the coming year: Give state taxpayers some of their money back.
At a marathon news conference Monday, laden with slides, Newsom kicked off the state’s annual six months of budget negotiations with a positive note about California’s finances after another strong year for stocks and a record housing market that stuffed the state’s coffers.
“I’m optimistic about the future,” said Newsom, who warned that the state’s financial picture could change and priorities could shift as the pandemic rages into its third year.
Newsom demurred when asked whether the state would send some of its surplus back to taxpayers in the form of more stimulus checks.
“That’s an open-ended question,” he said, adding that the state’s projected surplus — which the state’s Legislative Analyst’s Office tabbed at $31 billion last fall — could shift significantly in the coming months. But, he said, “there likely will be substantial contributions back to taxpayers.”
Under California law, Newsom may have little choice. The voter-approved Gann limit is a spending cap that sets a limit on the amount of money the state can spend, although there are ways to restructure a budget to avoid triggering the limit. Right now, Newsom’s team thinks the state could exceed the limit by more than $2 billion.
With schools struggling to rebound after a devastating year of online learning, the 2022-23 budget proposal calls for $70.5 billion on K-12 education and another $21.8 billion on higher education.
Perhaps Newsom’s most urgent priority is a $2.7 billion COVID-19 response package aimed, in part, at expanding testing capacity and bringing in more medical workers as the state heads into its third year of the ongoing pandemic. Unlike his other budget proposals, Newsom wants lawmakers to green light spending some of that money soon, as the state faces an ongoing surge of the highly infectious omicron variant.
The budget also aims to address more long-standing problems, including climate-related issues such as wildfires and drought. It calls for an additional $1.2 billion to boost forest management and $750 million to round out last year’s $5.2 billion water package to help residents, farmers and wildlife respond to the historic drought. Long-term, the budget proposes spending $6.1 billion in 2022 and 2023 for incentives to expand electric vehicles, trucks and buses, along with building charging stations and creating programs to encourage in-state manufacturing.
In 2020, Newsom announced that California would become the first state in the nation to ban the sale of new passenger vehicles that run on gasoline, starting in 2035, as a key effort to reduce climate change. Newsom also proposed Monday spending $4.2 billion on the controversial high-speed rail project and $3.7 billion on regional and local transit and rail programs, like light rail, ferries and bike lanes.
“The governor has shown that California takes the climate crisis seriously,” said Victoria Rome, government affairs director for the Natural Resources Defense Council.
Although Republican leaders had hoped Newsom would devote some of the state’s surplus to building new reservoirs amid the current drought, he did not.
“On the surface, there are certainly things to like in this proposal; funding for clean water, wildfire prevention and homelessness are all worthy goals,” said Assembly Republican Leader Marie Waldron, R-Escondido. “But look at the details and you’ll see that much of this spending isn’t going to transformative projects to improve the lives of Californians … Returning humans to the moon will be quicker and cheaper than California’s attempt to build a railroad from San Francisco to L.A.”
Newsom acknowledged that the state needs to do far more to adequately address homelessness and clean up encampments.
While this year’s proposed budget doesn’t invest in the fight against homelessness at the same eye-popping level as last year, Newsom on Monday signaled his intent to increase funding in several key areas.
The governor wants to spend $1.5 billion over the next two years to expand housing for people with behavioral health conditions. Another $500 million would be used to clear homeless encampments and house their occupants.
The proposal builds on the $12 billion he allocated to combating homelessness in 2021. The state is in the process of spending that money on projects such as Homekey, which helps convert hotels and other buildings into homeless housing.
Michael Lane, state policy director at SPUR, a Bay Area public policy think tank, said Newsom’s proposals are in line with what he expected, given that the state has a smaller surplus this year than in 2021, when the figure topped $75 billion.
“There’s some caution there,” he said, “but even in that context, these are bold and unprecedented investments, certainly.”
Newsom also proposed spending $1 billion over two years to accelerate housing production in downtown areas, including money to help cities pay for roads, utilities and other infrastructure needed to support developments. Another $1 billion would go toward affordable housing, through low-income housing tax credits and other investments.
“It’s the exact kind of financing we need right now to move projects that are in the pipeline and get them built to be able to house folks at rates that they can afford,” Lane said.
On health care, another focus of the budget proposal, Newsom said California could become the first state to achieve universal health coverage for low-income residents, regardless of immigration status or age. But he largely sidestepped questions about a proposal to implement single-payer health care in the state.
The budget blueprint also includes $255 million in grants to local law enforcement, calling for the creation of a new smash-and-grab enforcement unit to combat organized retail crime and grants for impacted small businesses. Newsom also called for a new statewide team to investigate and prosecute criminals and a new statewide gun buyback program.
