SACRAMENTO — The big state budget bet that California officials made this summer appears to have gone bust after President Trump declared Tuesday he was ending talks with congressional Democrats on another coronavirus stimulus bill before the election.
Billions of dollars in funding cuts that Gov. Gavin Newsom and lawmakers hoped they would be able to reverse this fall will now likely remain in effect, at least for several more months.
That is bad news for California’s public universities, courts, schools and government employees. They collectively lost about $11 billion in the state budget that took effect July 1, though the state established a mechanism for reversing those reductions if the federal government provided a bailout by Oct. 15.
Through halting negotiations on a coronavirus package over the past week, House Speaker Nancy Pelosi, D-San Francisco, and Treasury Secretary Steve Mnuchin remained far apart on a dollar figure, particularly for state and local funding. But Newsom had continued to hold out hope they would reach a deal before Oct. 15, telling reporters Monday that “I believe the strategy is still one that will bear fruit.”
Then Trump tweeted Tuesday that Pelosi was “not negotiating in good faith” and he had “instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”
Pelosi replied that “today, once again, President Trump showed his true colors: putting himself first at the expense of the country, with the full complicity of the GOP members of Congress.
“Walking away from coronavirus talks demonstrates that President Trump is unwilling to crush the virus,” Pelosi said in a statement.
The California agencies left in the lurch by the breakdown have laid off employees, reduced hours of operation and made other preparations since the cuts were handed down in July. But some, waiting to see whether their funding might be restored, held off on the most sweeping changes. Now, even more workers could lose their jobs or see their pay slashed.
“We’re sort of trying to have the worst-case scenario plans ready to roll,” Chad Finke, court executive officer for the Alameda County Superior Court, said before Trump broke off the talks. “Everyone is watching Washington to see, are they going to pull a rabbit out of a hat?”
The state cut $200 million from the judiciary budget in June, but hoped to restore $150 million if it received aid from Washington by Oct. 15. Most of the cuts, about $177 million, are for trial courts.
Alameda County Superior Court, which typically has an annual budget around $92 million, received $7 million less from the state this year, according to Finke.
Since nearly the entire court budget goes to staff pay and benefits, Finke said, “the only way to deal with that is through personnel.” The court has instituted a hiring freeze, and close to 120 positions out of about 650 are now vacant. Half the remaining staff is furloughed every other Friday.
Without aid from the federal government, Finke said, “we may wind up having to do more.” That could mean additional furloughs, reduced hours or even layoffs, which would result in slower filing times for paperwork and delayed court hearings.
“COVID has already imposed a backlog on the courts, and this is making it worse,” he said.
Facing a $16 million budget cut, Santa Clara County laid off more than 50 clerks and other court staff this summer, while also furloughing many employees two days a month. The San Mateo County Superior Court, which lost $4.5 million, cut 20 positions in August, implemented one furlough day a month, froze hiring and slashed its public hours in half. To deal with a $4.6 million funding cut, San Francisco is not replacing court employees who resign or retire.
Assemblyman Phil Ting, the San Francisco Democrat who chairs the Assembly Budget Committee, said lawmakers targeted the cuts at the agencies they felt could most withstand them or had other ways to bring in revenue, like tuition and fees. The state maintained spending on health care and social services programs, even as it closed a $54.3 billion deficit.
“We tried to protect the most vulnerable and struggling Californians,” Ting said.
Without a federal bailout, he added, deeper cuts are likely in 2021.
This year, the state will sustain $250 million in reductions to affordable housing grants, $250 million in funding decreases to county health and social services programs, and $90 million in cuts to special education teacher scholarships.
The state also negotiated $2.8 billion in pay reductions with its unionized workforce. Those are now likely to stand.
The single biggest hit is $6.6 billion for K-12 schools and community colleges that lawmakers deferred to future years. That delayed funding is on top of $5.9 billion in deferrals handed down to districts regardless of whether more federal aid becomes available. Districts are less likely to feel immediate pain, however, because they can borrow against that money or tap into their savings, with the state promising to pay them back later.
About $66 million of the $272 million that Oakland Unified School District is supposed to receive from the state, and $97 million of the $492 million for San Francisco Unified School District, has been deferred, according to district representatives. That’s far more than they have in reserves, and both districts anticipate short-term borrowing to cover their bills in the spring.
Also at stake is nearly $1 billion for the University of California and California State University that the state budget made dependent on federal aid. Each university system is now operating with about $300 million less from the state than it did last year. Both have taken steps to close the gap, such as freezing hiring and raises, eliminating nonessential travel, shifting meetings to a virtual format and temporarily reducing pay for top officials.
Toni Molle, a spokeswoman for CSU, said the 23-campus system is tapping into emergency reserves as a “bridge” to minimize layoffs and other permanent cuts.
Many campuses have already adopted a reduced budget, rather than waiting to see what Congress does. San Francisco State, which lost $22 million from the state, said last month that it would lay off 131 staffers — though no faculty — by early November, a move that employees are protesting.
Dan Mogulof, a spokesman for UC Berkeley, said the university has experienced huge losses and costs associated with the coronavirus, including a $108 million hit to housing and dining revenue since March, and $20 million spent on testing. But aside from a few dozen temporary layoffs, he said, officials have been able to plug the gap with a hiring freeze, forgoing merit raises and short-term borrowing.
Not receiving any more money from Congress will set UC Berkeley back another $40 million to $50 million and change that equation. Mogulof said it could push the operating deficit to as much as $200 million this year.
“We’re revisiting our budget assumptions all the time,” he said. “We’re trying not to do things prematurely, especially those that could cause permanent damage, because this is a temporary predicament.”