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California governor’s budget booms despite pandemic problems

January 8, 2021 GMT
California Gov. Gavin Newsom outlines his 2021-2022 state budget proposal during a news conference in Sacramento, Calif., Friday, Jan. 8, 2021. Newsom's budget will include at least $2 billion to help schools with testing, increased ventilation and personal protective equipment. (AP Photo/Rich Pedroncelli, Pool)
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California Gov. Gavin Newsom outlines his 2021-2022 state budget proposal during a news conference in Sacramento, Calif., Friday, Jan. 8, 2021. Newsom's budget will include at least $2 billion to help schools with testing, increased ventilation and personal protective equipment. (AP Photo/Rich Pedroncelli, Pool)
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California Gov. Gavin Newsom outlines his 2021-2022 state budget proposal during a news conference in Sacramento, Calif., Friday, Jan. 8, 2021. Newsom's budget will include at least $2 billion to help schools with testing, increased ventilation and personal protective equipment. (AP Photo/Rich Pedroncelli, Pool)

SACRAMENTO, Calif. (AP) — California is again swimming in money.

Ten months into a pandemic that has overwhelmed hospitals and prompted government shutdowns that left millions of people out of work and forced many small businesses to close, California Gov. Gavin Newsom on Friday revealed the most expensive budget in state history — a $227 billion spending plan highlighted by a $15 billion one-time surplus.

How is it possible?

“Folks at the top are doing pretty damn well,” Newsom said.

The Democratic governor and state lawmakers passed a budget last year with deep spending cuts to cover what they expected to be a $54.3 billion pandemic-induced shortfall. That estimate was wrong, Department of Finance Director Keely Bosler said, as the recession was not as deep as they had anticipated — mostly because wealthy people’s income soared on the back of a surging stock market.

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Californians made a record $185 billion in capital gains income — money earned from the sale of assets like stocks, land or a business — resulting in $18.5 billion in tax revenue for the state.

The result is a budget plan that would spend $25 billion more than last year. The growth is so large that it triggered a little-known law that requires the state to refund taxpayers if spending exceeds a certain limit. Newsom said California is just barely over that limit — meaning taxpayers would get about $1.27 per person — but it symbolizes the remarkable turnaround from dire budget warnings less than a year ago.

“Who would have thought?” Newsom said.

It wasn’t all good news. Newsom projects the state’s expenses will grow faster than its revenue, resulting in a projected $7.6 billion deficit by 2023 that could grow to more than $11 billion by 2025.

California’s reserves dipped to $11.3 billion last year after Newsom and state lawmakers pulled $8.3 billion from the state’s savings accounts to balance their budget. This year, Newsom projects the state’s reserves will balloon to $22 billion, helping cover any future deficits.

And even more money is coming, Newsom said. California expects to get more than $100 billion from the federal government from the latest stimulus package Congress approved last month. Most of that money — $42.4 billion — will go directly to individuals in the form of stimulus checks and unemployment benefits. A total of $50 billion of it will go to businesses and transportation.

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Republican Sen. Melissa Melendez slammed Newsom’s plan for its lack of details.

“This budget provides no reopening plan nor the necessary relief for small businesses; it provides no successful roadmap to alleviate the growing housing, homelessness and mental health crises; and it provides no actionable help to the millions of school aged children who are falling behind academically,” she said in a statement.

California’s good fortune means Newsom can reverse some of the most drastic cuts from last year, including delaying a scheduled $1.2 billion cut to health care providers and temporarily halting suspensions of Medicaid benefits. As part of $90 billion in education funding, the budget pays down much of a $12.9 billion debt to public school districts that threatened to force districts to borrow money or dip into their reserves.

But Newsom did not propose expanding government-funded health insurance coverage to those 65 and older who are living in the country illegally, as some Democratic allies have sought. It led some advocates to renew their call for a “wealth tax” targeting the state’s richest.

“We ask our state leaders to think bigger and bolder about how to increase revenues for our state, including ideas to increase taxes on the richest Californians,” said Anthony Wright, executive director of Health Access California, a consumer health care advocacy group.

But Newsom rejected that, saying those new taxes “are not part of the conversation.”

California’s success has not benefited everyone. While people with annual salaries of $60,000 or more have continued to work from home, the employment rate for people who make less than $27,000 a year has dropped nearly 27% since January, according to data from Opportunity Insights at Harvard University. California has paid more than $112 billion in unemployment benefits since March.

Speaking to reporters for more than two hours on Friday, Newsom said he understands that reality. Of the projected $15 billion surplus — money that will only be available this year — Newsom said he wants to spend $6.3 billion of it on housing, homelessness, economic recovery and vaccine delivery.

That includes sending $600 checks to roughly 4 million people who make $30,000 per year or less and $575 million for grants to small businesses.

But Republicans criticized his $4 billion economic recovery package because it includes $1.5 billion to help people purchase electric cars and install the charging stations necessary to use them.

“There are millions of people hurting right now, and they can’t afford a shiny new electric car. They can barely keep the cars they’ve got,” Republican Assemblyman Jim Patterson said.

The one-time windfall forecast is smaller than the $26 billion projected by the nonpartisan Legislative Analyst’s Office in November. The Department of Finance said the difference is because the the analyst’s office did not account for some emergency pandemic spending and because the governor put an extra $4.5 billion more into the state’s reserves.

State lawmakers have until June 15 to review the governor’s proposal, make changes to it and vote on it. Newsom is asking lawmakers to quickly approve money for pandemic relief and schools.

Leaders in the Democratic-controlled Legislature have pledged to act quickly, but it’s unclear when that could happen. The Legislature is scheduled to reconvene on Monday.

Assembly Speaker Anthony Rendon said lawmakers would “build on the Governor’s proposals” for reopening schools. He said the state must use its resources to “help more quickly those who are unable to pay their rents.”

Senate President Pro Tempore Toni Atkins called Newsom’s budget “a responsible proposal,” but she signaled she will look for more help for people with lower incomes.

“Those of wealth are doing better than ever, but our low-income families are struggling through no fault of their own,” Atkins said.

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Associated Press writers Don Thompson and Kathleen Ronayne also contributed to this story.