Will Gov. Newsom Fumble That Sweet, Sweet $97.5B Budget Surplus?

Thanks to the magic of capital gains taxes, California’s flush with cash. But it’s unclear if Newsom will learn from the mistakes of the past

California taxpayers—mostly the wealthy ones—have handed Gov. Gavin Newsom one of the sweetest gifts he could wish for in the form of a budget surplus of nearly $100 billion, news of which the Democrat announced just weeks before voting begins in the primary for his job. 

On Friday, Newsom announced a record-setting $300 billion budget for the upcoming fiscal year. It seems that California collected a $55 billion surplus in taxes over the January prediction; this has left the state with a revised $97.5 billion estimated surplus, the governor told the gathered press in Sacramento.

“No other state in American history has ever experienced a surplus as large as this,” Newsom said on Friday. 

The Democrat is seeking his second term this year after he faced down and won a bitter recall election just nine months ago. Now, he’s outlined a bevy of issues he plans to address for Californians. Easing the pain of inflation, healthcare subsidies for middle and low-income residents, a stimulus to counter soaring gas prices, addressing the ongoing drought and wildfires, and making the state a safe haven for abortion care are some of the top matters on his agenda. 

The budget earmarks $18.1 billion in relief to ease inflation for residents. If you own a car in the state, you’ll see $400 cash payments under Newsom’s proposal; this eats up 60 percent of that allocation. But this has not sat well with much of the state legislature. Other proposals have been made to base relief on adjusted gross income, so the carless are not left out of the bonanza. 

Also included in the revised budget are new proposals on rental assistance for low-income Californians and cash stipends of $1,500 each for hospital and nursing home workers. 

One notable but still pretty vaguely fleshed-out proposal in the budget revision is new funding for a program for the unhoused and mentally unstable. The Community Assistance, Recovery and Empowerment Court proposal envisions a new treatment program for thousands of Californians experiencing psychiatric conditions, such as schizophrenia; the CARES plan is designed to provide support and housing for these Californians as they work to stabilize.

While this all may seem like a big old ray of sunshine amid a week of otherwise dismal news from the financial and crypto markets, such a surplus may in fact signal dark days to come. These extra billions came mostly from taxes paid on the investment earnings of the wealthiest in the state. If you’re old enough, you might recall that the last time the state took this much from capital gains was in the late 90s—just before the dot com bubble exploded. This resulted in California’s long-lasting budget deficit, which stretched on for a decade.

Perhaps this time, California’s leaders and lawmakers will show they learned from its recent history; Newsom assured listeners today that he and his camp are “deeply mindful of that” and focusing on the short-term. 

The new budget will take effect on July 1. Until then, the governor’s proposals will have to be approved by California’s Democrat-led legislature. If he skates through the June primary, voters will decide whether or not to grant Newsom a second term on Nov. 8. 

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