Calif Gov. Newsom unveils record $209 billion budget, urges Silicon Valley to aid in housing crisis

Key Points
  • California Gov. Gavin Newsom on Thursday unveiled a record-setting $209 billion state budget in the upcoming fiscal year, representing an $8 billion increase from his predecessor's plan.
  • The plan by the Democratic governor proposes general fund spending of about $144 billion, up nearly 4 percent from the previous year's plan by former Gov. Jerry Brown.
  • The new governor also expressed concern about the economic outlook and detailed plans to sock away more money for an inevitable recession.
  • Newsom also said he wants "corporate California," including in Silicon Valley, to do more to help ease the state's housing crisis.
Gavin Newsom
Digital First Media | The Mercury News | Getty Images

LOS ANGELES — Just four days after taking the oath of office, California Gov. Gavin Newsom unveiled a record-setting $209 billion budget for fiscal 2019-20.

Yet he also expressed concern about the economy and detailed plans to sock away more money to prepare for an inevitable recession. The new governor also said he wants corporations in the state, including in Silicon Valley, to do more to help ease California's housing crisis.

"I'm concerned about what's on the horizon," Newsom told reporters in announcing his first state budget plan Thursday. "We recognize the prevailing winds, the global economy that is contracting, interest rates that are rising, the volatility that exists not only in our body politic but our stock market, and the anxiety many of us are feeling around this moment."

The $209 billion state budget unveiled by the Democratic governor represents an increase of about $8 billion from the final plan presented by his predecessor, Jerry Brown. The plan for the fiscal year starting July 1, 2019 proposes general fund spending of about $144 billion, a rise of nearly 4 percent from the previous year's plan enacted last spring by Brown.

The budget sets aside $13.6 billion for "building budgetary resiliency" as well as to pay down some of the state's unfunded pension liabilities. That includes $4.8 billion to build reserves, bringing the state's so-called rainy day fund to more than $15 billion this year and nearly $20 billion over four years.

According to the proposed plan, more than 40 percent of the total budget is for K-12 education and nearly 12 percent for higher education. About 21 percent is for health-related programs and another 7 percent for human services programs.

At the same time, the governor proposes significant investment to address the state's chronic affordable housing problem.

"A lack of affordable housing directly contributes to the increased homelessness seen across the state," according to the budget document.

Newsom's budget proposes $500 million for local governments to build emergency shelters and so-called navigation centers, where homeless can get special access to mental health counseling and other support services. The governor also seeks about $500 million for a "moderate-income housing program."

The governor said he wants "corporate California," including Silicon Valley, to be part of the solution on housing.

"I want to see the Valley step up and match our contributions," said Newsom. "The workforce housing issues have been exacerbated by the success of a lot of these companies."

Added Newsom, "I do not begrudge other people's success, but that success has created burdens and stress. And we are doing our part, and I will be asking them to do their part to amplify our efforts, to match those efforts and to increase our capacity to deliver."

In all, Newsom's budget requests a $7.7 billion in investment to address homelessness and housing statewide.

About 81 percent of the 2019-20 state budget goes to education, health and human services. It includes more spending in childhood education as Newsom had earlier pledged. The budget also includes more money for emergency readiness, response and recovery.

The state's 40th governor also set aside funding to create a new "working families tax credit" by more than doubling the size of the state's earned income tax credit to $1 billion.

Newsom's plan assumes that the state will continue to experience economic expansion. However, it includes a more moderate outlook on the tax revenues due to "trepidation and anxiety" about an inevitable downturn, according to the governor.

As a result, the plan forecasts that through the fiscal 2022-23 period the state's three largest general fund revenues — led by personal income taxes — will average 3.2 percent year-over-year growth, a modest slowdown from the 5 percent growth before.

The governor said experts looked at what a possible recession might mean for California and concluded that an economic downturn likely would be "a little longer than the 2001 recession but certainly shorter than the 2007 recession." He went on to say such a downturn could potentially result in a $70 billion hit to the state's general fund over a three-year period.

California is known for having a volatile tax system due to a heavy reliance on personal income taxes from the rich. The top 1 percent of personal income tax earners — roughly 164,000 tax returns — generate about half of the state income tax in California.

A large chunk of the income from the wealthy comes from capital gains and stock options from companies in tech and other industries, meaning that even small changes in the financial markets can cause big swings either way in terms of the state's collected revenues.

Meantime, state Controller Betty Yee announced on Thursday that December revenues for the state fell $4.82 billion short of projections.

The dip in December follows the sharp drop in the stock market last year. That said, Yee indicated the shortfall in revenue "could be partly due to lags in taxpayer filings at the end of the tax year as a result of federal tax deduction changes."

Also, revenues in the first six months of the current fiscal year are running 4.4 percent below expectations, according to the controller.

"With our economy continuing to hover on the brink of a downturn, I applaud Governor Newsom's budget planning with an eye toward building a strong foundation of long-term cost savings and fiscal discipline," the controller said in a release.