California faces $54.3 billion deficit, 18 percent unemployment, Newsom’s office projects
The sudden recession brought by the new coronavirus is expected to drive California into a $54.3 billion deficit over the next year and send the state’s unemployment rate well above its peak in the Great Recession, according to a memo released by Gov. Gavin Newsom’s office Thursday.
The revenue estimates show Newsom’s first detailed look at how his office anticipates the coronavirus outbreak to affect state spending. It’s a stark contrast to January, when his office in a $222 billion budget proposal projected the state would accumulate a $5.6 billion surplus and add to its reserves through July 2021.
Newsom disclosed the memo ahead of releasing his revised budget proposal, which is due May 14. He has been urging the federal government to send more money to states. Without federal assistance, the state must make substantial cuts in its 2020-21 budget, the Democratic governor has said.
More than 4.2 million people have filed for unemployment since mid-March, when Newsom handed down a stay-at-home order that shut down much of the state’s economy to slow the spread of the coronavirus.
Newsom’s Finance Department estimates that the state’s unemployment rate will rise to 18 percent. It was 3.9 percent earlier this year, and its peak in the Great Recession was 12 percent.
The job losses have disproportionately hit low-wage jobs, the department says, widening the gap between the rich and the poor. The department estimates personal income will drop by nearly 9 percent and housing construction permits will drop more than 21 percent.
“California began 2020 with a strong bill of financial health—a strong economy, historic reserves, and a structurally balanced budget,” according to the bulletin. “The rapid onset of the COVID-19 pandemic has had an immediate and severe impact on the global, national, and state economies... The May Revision economic forecast reflects that COVID-19 impacts will continue to cause economic losses in 2020.”
Newsom’s office expects revenue to the state general fund — which supports education, public safety, prisons and many social services —to fall by $41.2 billion below his January budget proposal.
That would put California’s total general refund revenue under $100 billion, which is about what the state collected in its 2012-13 budget year.
Aside from falling tax revenue, Newsom’s office expects the coronavirus to trigger more spending on certain emergency and safety net programs. That spending could top $13 billion, according to the Finance Department.
Newsom described his January budget proposal as an example of what “big-hearted, effective governance looks like.” He had proposed new spending on homelessness, teacher training, an effort to curb prescription drug prices and an expansion of health care for undocumented seniors.
In Newsom’s January budget proposal, California public schools and community colleges were expected to receive $84 billion through a funding formula determined by the 1988 law known as Proposition 98. Newsom’s administration described the number as an “all-time high” in guaranteed funding for California schools.
His office in the new memo projects guaranteed school funding to fall $18.3 billion below the earlier estimate.
California lawmakers by law must pass a state budget by June 15. Newsom extended state tax filing deadlines to July 15 because of the coronavirus outbreak. Several lawmakers have said they might pass a baseline budget by the June deadline and consider amending the spending plan in August when they have a clearer picture of tax revenue.
Editor’s note: This story has been corrected to reflect that the governor’s Department of Finance is projecting a $54.3 billion deficit, not a $53.4 billion deficit.
This story was originally published May 7, 2020 at 8:00 AM with the headline "California faces $54.3 billion deficit, 18 percent unemployment, Newsom’s office projects."