California faced a big drop in state income after the pandemic. Now, they have a plan to close a huge $47 billion gap. This deal sets up a nearly $300 billion budget for the next year, marking a big step in managing the state’s money.
Negotiations Under Pressure: Finishing Just in Time
The budget deal, which was hard for California’s Democratic leaders, was finalized just before the deadline. After weeks of talks, lawmakers agreed on a plan. They will use reserves, delay raising the minimum wage for health workers, pause some business tax breaks, and cut or delay billions in spending.
“This deal sets the state on a path for long-term financial stability — fixing the current problem and making the budget stronger for the future,” said Governor Gavin Newsom.
A Mix of Steps to Fix a Huge Budget Gap
California’s $297.9 billion budget starts on July 1 and includes a general fund of $211.5 billion. To cover the $46.8 billion gap, lawmakers agreed on many steps, including $17 billion in cuts made earlier this year. They will take about $5 billion from the reserves now, and another $7 billion next year.
Key Reductions and Pauses in the Budget
- Job Cuts: The state will cut about 10,000 unfilled jobs.
- Business Tax Breaks: Some tax breaks for businesses will be paused this year.
- Prison Budget: The prison budget will face deeper cuts to avoid reducing help for homelessness, child care, and other services.
- Scholarships: A popular scholarship for middle-income students will be cut in mid-2025.
- Minimum Wage Delays: The planned raise of the minimum wage to $25 for health workers will be delayed. This affects workers in state hospitals and clinics.
Managing Financial Ups and Downs in California
California’s money swings a lot because it relies on income and capital gains taxes. When rich people make more money, the state gets more taxes. But when the stock market or economy is bad, the state gets less money. To handle this, the state is working to keep its finances steady through reforms and savings.
History of Budget Ups and Downs
The budget problems come from several causes. In 2021, a strong stock market led to a big surplus. But in 2022, the market went down, and higher interest rates hurt the economy. Also, winter storms delayed tax filings, making it hard to know how much money the state would get. As a result, tax receipts were 22% lower than expected, causing a big budget gap.
Changes for a More Stable Financial Future
The new budget includes plans to better handle future problems. By planning for two years instead of one, lawmakers can address potential gaps early. There is also a promise to save more money to help during tough times. A new rule will prevent spending projected surpluses until the money is actually received.
Looking Ahead: Bonds and Future Investments
State lawmakers are thinking about putting bond issues on the November ballot. These bonds, if approved by voters, would let the state borrow money for climate, housing, and school projects. However, public support for more bonds is unclear, as a bond measure for mental health and homelessness only narrowly passed earlier this year.
California’s new budget deal is a smart move to fix current money problems and plan for the future. With careful planning and a focus on saving, the state aims to handle its finances better.
