A new infusion of federal aid looks increasingly unlikely to materialize in the coming weeks, dimming hopes that California will restore billions of dollars state leaders trimmed from the budget as part of an agreement with Gov. Gavin Newsom.
The final budget deal included more than $11 billion in cuts and deferrals that would be restored if the state receives $14 billion in federal Covid-19 relief by Oct. 15. The budget assumed the state would receive at least $2 billion from Congress through a new stimulus package.
But with less than three weeks to go, no such aid deal is in sight.
What’s at stake: On the list of potential restorations is $150 million for the courts; nearly $1 billion for public higher education; and $1.9 billion in compensation for state workers, many of whom have taken furlough days beginning July 1 as part of collective bargaining agreements. (Those agreements, however, give the state’s finance director, Keely Bosler, “sole discretion” over whether and when to end the furloughs and other compensation reductions, according to a recent Legislative Analyst’s Office analysis.)
If $14 billion comes, though, the state would restore a total of about $4.6 billion in cuts and replace $6.6 billion in deferred school payments with cash this fiscal year, according to the plan. If Congress ships states a smaller federal aid package, California would add back a proportional share of the funds it cut and delayed.
The cuts are already making their mark. The California State University system has slowed hiring and eliminated non-essential travel systemwide, while some campuses have drawn down reserves and trimmed management-level staffing, though layoffs are “an option of last resort,” said spokesperson Mike Uhlenkamp.
The good news: Tax receipts were better than expected this summer, despite high unemployment and shuttered businesses. In fact, the state took in $5.7 billion more than expected in the Budget Act through August, with personal income tax revenues surpassing forecasts.
The LAO writes that one likely explanation might be that “higher-wage workers, who pay a large share of withholding, have faced considerably fewer job losses than lower-wage workers.”
But that total also reflects some pre-pandemic earnings, as the tax deadline for 2019 was extended from April 15 to July 15, two weeks into current fiscal year.
What’s next: Assembly Budget Chair Phil Ting (D-San Francisco) said he did not anticipate the Legislature taking further action this year on the budget and has not heard anything about the governor calling a special session. He said he is still holding out for Congress to strike a deal to help states and local governments.
“Fourteen billion is quite a lot — it’s really only the federal government that can assist us,” he said. “Until we hit that deadline, I’m still hopeful.”