STATE BUDGET:
Newsom Proposes $209 Billion Budget

Governor Gavin Newsom on January 10 unveiled his $209 billion state budget proposal for the 2019-20 fiscal year, and said he will be “stubborn” about limiting ongoing spending.

Total spending in the new governor’s budget (including general fund, special funds and bond funds) is 3.7 percent higher than in the current state budget. The proposed $144.2 billion in general fund spending represents a $5.5 billion, or 4 percent, increase over current general fund spending.

“We look forward to working with Governor Newsom and the Legislature to advance positive change while also making sure that California is on solid fiscal ground,” CalTax President Rob Gutierrez said. “Economic growth has fueled the impressive growth in state and local revenue, and continued growth must be a priority.”

The governor’s proposed spending includes new funding for fighting homelessness – an effort that will include enhancing services offered at shelters, along with the naming of a “homeless czar” in the near future, Newsom said. Homelessness is a statewide crisis, the governor said, and more funds must be dedicated to helping the “139,000 souls who are out on the damn streets and sidewalks of this state.”

To support these spending increases, the budget projects that general fund revenue will increase 3.4 percent, or approximately $4.7 billion over the current fiscal year’s revenue. In the three primary general fund revenue sources, personal income taxes are projected to increase 2.9 percent, corporation taxes 6.4 percent, and sales/use taxes 4.5 percent.

The revenue estimates are based on a projected growth rate of 3.2 percent, which Newsom said was more modest than the typical 5 percent growth projections. This reflects “trepidation and anxiety” about the possibility of an economic downturn, Newsom said during his press conference in an auditorium at the Secretary of State’s Office. The trepidation also is reflected by the fact that 86.4 percent of the new spending is for one-time expenses, Newsom said.

As the budget was being released, State Controller Betty Yee reported that state revenue in December fell short of assumptions in the 2018-19 budget by $4.82 billion, leaving the state $2.54 billion (4.4 percent) short of the revenue projection for the first half of the fiscal year.

The budget includes a transfer of $1.8 billion to the constitutionally established budget reserve fund, bringing the total the Budget Stability Account to $15.3 billion for 2019-20. Additionally, the budget includes $700 million for the Safety Net Reserve for health and human services programs and $2.3 billion in the special fund for economic uncertainties.

The proposed budget does not include any major changes to the state’s tax structure or to the State Board of Equalization, but does include some proposals for additional tax revenue, including an unspecified tax on water users to fund programs to clean contaminated water systems in low-income areas, and a federal tax conformity package.

According to the Governor’s Budget Summary, the conformity items will relate to “capital gains deferrals and exclusions for Opportunity Zones; and limitations on fringe benefit deductions, like-kind exchanges, and losses for non-corporate taxpayers; among others.” The changes are projected to raise approximately $1 billion that would be used to more than double the existing Earned Income Tax Credit, which would be renamed the Working Families Tax Credit.

The water provisions related to the proposed creation of a special fund, the Safe and Affordable Drinking Water Fund, to provide safe and affordable drinking water to disadvantaged communities funded by a tax on water, fertilizer and dairy. This proposed tax is said to be consistent with the framework of last year’s SB 623, which died in the Legislature.

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