Infrastructure must wait as Newsom updates California budget plan


First-year California Gov. Gavin Newsom’s May revision to his proposed budget left infrastructure watchers waiting.

Newsom said it could be another week before he releases his five-year infrastructure plan.

“We are preparing for a different economic climate and we have never been more prepared, but it is not good enough. I hope I am back next January saying we are adding another $10 billion to reserves,” California Gov. Gavin Newsom said.

Bloomberg News

“I was going to introduce the five-year infrastructure plan today,” Newsom said Thursday at a press conference to release the new budget plan. “The first reason, I held off is because the broadband plan was not impressive and needs to be tweaked. I also didn’t want the infrastructure plan to get lost, because it deserves its own focus.”

In releasing his state budget, Newsom insisted that state government can both be fiscally responsible and tackle homelessness and poverty.

The revised budget adds $4.5 billion in new spending for a total budget of $213.5 billion including doubling spending to alleviate homelessness to $1 billion. It puts $1.7 billion total into creating more affordable housing.

“Our homeless issues are a stain on the state of California,” Newsom said. “People are outraged and disgusted by it and wondering what is going on in Sacramento.”

On Tuesday, he announced his “parents’ agenda” that included eliminating sales tax for two years on tampons and diapers. He also wants to extend the state’s parental leave program by two weeks to eight weeks.

His budget benefits from a forecasted $21 billion budget surplus. The increased revenues triggers, what Newsom said, was the first-ever payment of $389 million into a special cash reserve fund for schools and community colleges to be used during an economic downturn.

“The governor’s May Revision demonstrates resilience and foresight with a disciplined focus on the use of one-time revenue by providing historic-level funding for education and elevating the urgency of tackling homelessness,” Controller Betty Yee said in a statement.

Though the May revise was seen as an opportunity for Newsom to break away from former Gov. Jerry Brown’s policies, like his predecessor, Newsom cautioned that legislators need to exercise fiscal prudence. Newsom served as lieutenant governor under Brown, also a Democrat.

Brown, who came to office in the wake of the 2008 recession, campaigned on reducing what he called a “wall of debt,” of bonds to fund operations and various budget deferrals. The bonds were defeased during the Brown administration. He also slowed issuance of state general obligation debt for school construction partly suggesting the state should be less involved.

The revision report notes that growth in California’s gross domestic product continues to outpace the nation as whole, but that this growth takes place against a backdrop of increasing risks.

The International Monetary Fund recently projected that 70% of the world’s economy would see a slowing of growth in 2019 and the Federal Reserve also projects slower U.S. growth, Newsom said.

The revision projects short-term revenues of $3.2 billion above January’s projections, but adds that most of the increased revenues are constitutionally obligated to reserves, debt payment and schools. As a result, the budget surplus remains relatively unchanged.

“We have $20 billion to weather the storm,” Newsom said. “We are preparing for a different economic climate and we have never been more prepared, but it is not good enough. I hope I am back next January saying we are adding another $10 billion to reserves.”

Republicans, who don’t have a lot of pull in the majority Democrat state, criticized Newsom’s proposal for a surcharge on water bills to pay for clean drinking water.

“The Governor’s desire for new taxes despite an estimated $21.5 billion budget surplus is unfortunate, unhelpful, and unnecessary,” said Sen. Patricia Bates, R-Laguna Niguel, chair of the Senate Republican caucus. “For example, adding another tax to water bills increases the cost-of-living for families facing poverty.

She also called Newsom’s threat to withhold gas tax dollars from local governments that don’t increase affordable housing “bait-and-switch.”

“However, the Governor’s revised budget does include some priorities that are worthy of support, such as helping low-income families, building the state’s rainy day fund, and expending voter-approved funds to modernize schools.” Bates said.

The Legislature has until June 15 to deliver a budget back to Newsom for review.

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