California will run a budget deficit of $ 54.3 billion due to the economic devastation caused by the coronavirus, Governor Gavin Newsom’s administration announced Thursday, a surprising reversal for a state that had a surplus of $ 21 billion a year ago.
The state has been under a mandatory stay-at-home order since mid-March, forcing non-essential businesses to close and prompting more than 4 million Californians to apply for unemployment benefits. After posting record low unemployment of 3.9% earlier in the year, the Newsom administration now predicts an unemployment rate of 18% for the nation’s most populous state, 46% more than the heyday of the Great Recession makes a decade.
Newsom hinted at the bleak numbers on Wednesday when he called the unemployment figures “Depression-era numbers.”
“These numbers are amazing,” Newsom said. “I just hope that people are preparing … for the effort that we all need to engage together to relax and get back on our feet.”
It is still unclear which state programs will be reduced or to what extent. Newsom plans to reveal its new spending proposal next week. But the revenue deficit means that the level of funding required by the state for public schools and community colleges will drop by $ 18.3 billion.
Virus-induced business closings, unemployed workers, and craters in the restaurant, tourism, and entertainment industries have resulted in a staggering loss of tax revenue for California. The Newsom administration projects that personal income will drop close to 9% for the state’s nearly 40 million residents, while new home construction permits, a key measure of the economy’s health, will drop more than 21% .
After facing budget deficits of more than $ 40 billion after the Great Recession, California lawmakers have been saving money for the next economic downturn to try to avoid a repeat of cuts to state services. Over the past 10 years, the state has had an unprecedented streak of economic growth, adding more than 3.4 million new jobs.
That led to increased state spending and a huge budget surplus in recent years, bringing the state’s “rainy day fund” to more than $ 16 billion. But the projected budget deficit announced Thursday is almost three and a half times that number. dispel any notion of rapid recovery once state coronavirus restrictions are lifted.
Newsom’s management estimates that state general fund revenue will decrease by $ 41.2 billion compared to the $ 222.2 billion spending proposal that Newsom unveiled in January. Additionally, California must pay an additional $ 7.1 billion to increase enrollment in some social safety net programs, including Medicaid, the joint federal and state health insurance program for the poor and disabled.
Another $ 6 billion in anticipated emergency spending on the coronavirus for things like protective gear, hotel rooms for the homeless, and cash payments for low-income adults living in the country illegally push the projected deficit to more than $ 50 billion.
Meanwhile, lawmakers are already being asked to rescue the state’s essential industries. California hospitals say they have lost up to $ 14 billion by postponing elective surgeries and other procedures to accommodate an anticipated increase in coronavirus cases that never occurred. On Monday, the California Hospital Association asked lawmakers for more than $ 1 billion in aid.
Local governments, reeling from the disappearance of sales and hotel tax revenue as millions of people stay inside, are also asking billions for help from lawmakers.
California is now online to receive more than $ 26 billion in federal aid for the coronavirus, according to an analysis by the Office of the Nonpartisan Legislative Analyst. But in a memorandum released Thursday, the Newsom administration says the state’s bleak financial outlook “underscores the need for more federal stimulus to help state and local governments.”
“The next few years we will have to overcome these challenges,” Newsom said on Wednesday. “But we will work through them. And we will come out on the other side.”