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California governor unveils record $213 billion budget but says recession could hit coffers by $70 billion

Key Points
  • California Gov. Gavin Newsom, in his revised state budget, proposes a record $213.5 billion spending plan for the next fiscal year — that's a 2% increase over his January budget.
  • But the Democratic governor cautions about an inevitable recession and estimates the next downturn could result in a $70 billion hit to California's coffers.
  • Newsom's budget for fiscal 2019-20 retains funding to expand health care for undocumented immigrants up to age 26.
Gov. Gavin Newsom gestures towards a chart with proposed funding to deal with California homelessness as he discusses his revised state budget during a news conference Thursday, May 9, 2019, in Sacramento, Calif.
Rich Pedroncelli | AP

LOS ANGELES — California Gov. Gavin Newsom, in his revised state budget released Thursday, proposed a record-$213.5 billion spending plan for the next fiscal year — a 2% increase over his January budget.

The budget includes money to fund health care for undocumented immigrants, as well as $1.75 billion to help boost housing production statewide and $1 billion to fight homelessness. The proposal also includes an additional $1.2 billion deposit into the state's so-called rainy day fund, bringing the reserve to $16.5 billion in fiscal 2019-20.

However, the Democratic governor said the state must still prepare for an inevitable recession. He estimated the next downturn could result in a $70 billion, three-year hit in revenues.

Looming recession

"What we all need to remind folks of, that we're modeling in the future prospects of a recession — a recession that's more modest than 2007, but a little bit more intense than the 2001 recession," Newsom told reporters.

He added that the current economic expansion is 10 years old and "we're feeling anxiety."

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Specifically, Newsom said the financial markets this week have led to some concern about the outlook.

"We are being thoughtful about that, and judicious in terms of our budgeting and our planning strategies," the governor said. "The headwinds are real."

Back in January, Newsom unveiled his first state budget as governor and expressed similar concern about the economic outlook. His predecessor, Gov. Jerry Brown, took office in 2011 when the Golden State was still recovering from a recession and faced a deficit of about $27 billion.

Newsom said the revised budget sets aside $15 billion for "building budgetary resiliency" as well as to pay down the state's unfunded liabilities, or $1.4 billion higher than was proposed in January. It includes $4.5 billion to eliminate budgetary debts and $4.8 billion to pay down unfunded retirement liabilities.

Meantime, the budget for the fiscal year starting in July also retains funding proposed in January to expand the state's Medi-Cal coverage program for 19- to 25-year-olds, regardless of immigration status. The governor's January plan estimated the cost of expanding health care to cover undocumented immigrants would run about $260 million.

Housing crisis

Also, Newsom's budget plan continues the $1.75 billion investment he announced in January to increase housing production, but the revision refocuses $500 million on programs "to remove barriers to building mixed-income housing," the governor's office said in a release.

The governor is also seeking to double the spending on the homeless crisis.

According to Newsom's revised budget, the state plans to spend $1 billion on programs for the homeless — up from $500 million in the January plan. He said $650 million of the funding would go to local governments for homelessness emergency aid.

While California makes up about 12% of the total U.S. population, the state has about one-quarter of the country's homeless people. The lack of affordable housing in the state has been blamed for contributing to the crisis.

"This homeless issue is out of control," said Newsom. "This homeless issue, like the housing issue, is a crisis. It is a stain on the state of California. This homeless issue is, rightfully, top of mind for people all across the state."

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