“The risks to the budget we face include stock market volatility, uncertainty around federal policy and tariffs, which could have some impact on California,” said Finance Director Joe Stephenshaw.
California Department of Finance
The devastating fires affecting Los Angeles took center stage Friday when California’s finance director presented Gov. Gavin Newsom’s proposed $322.2 billion budget.
Joe Stephenshaw reported the state will head into budget talks with a slight $363 million surplus after revenues for the primary half of fiscal 12 months 2024-25, which began July 1, got here in $16.5 billion higher than expected.
Newsom, who often publicizes the budget in person, has remained within the state to assist local officials manage the impact of the devastating wildfires in and around Los Angeles. He didn’t take part in the budget presentation.
Stephenshaw began Friday’s press conference by saying: “The governor’s total focus now could be on the communities and residents impacted by the devastating fires in Los Angeles.”
In previous years when local governments were hit by reduced taxes from the lack of homes and the resultant reduction in assessed property values when homes were lost, lawmakers have provided funding to cities to make up the difference.
Those kinds of selections shall be as much as lawmakers as budget talks move forward, he said.
Newsom’s proposed a $322.2 billion budget features a $228.9 billion general fund, $16.9 billion in reserves and no plans to boost taxes.
The proposed budget pencils out “due to a stronger economy, stock market, and money receipts,” Newsom said at a press briefing Monday.
Last 12 months, the state headed into budget talks with a $45 billion deficit.
Stephenshaw cited the two-year budget framework Newsom utilized in structuring last 12 months’s budget, together with the revenue windfall, for the state’s improved fiscal condition.
The governor has proposed laws as a part of the budget that might reform Proposition 2, which created a situation where 10% of revenues go into the rainy day fund every year. The governor wants that increased to twenty%.
Allocations to the rainy day fund are currently included as an expenditure and thus fall under the cap on how much money the state can “spend” before it has to return money to taxpayers.
One other difference between this 12 months and last 12 months’s budget is the governor proposed allocating $1 billion more for the special fund for economic uncertainties for a complete of $4.5 billion. That’s money designated to take care of situations like natural disasters, Stephenshaw said.
The budget is growing only barely by $1.2 billion to account for the state’s revenue volatility, because a disproportionate amount of its income taxes comes from its wealthier residents, who receive income from capital gains, up when the stock market does well and down when it doesn’t, Stephenshaw said.
“There are very limited latest commitments within the budget,” he said.
The governor made the choice to eliminate plans to chop administrative positions from either the California Department of Forestry and Fire Protection or the California Highway Patrol, before the fires broke out.
A call was made last 12 months to chop 10,000 vacant positions to shut the deficit, but as an alternative the state only reduced positions by 6,500 to avoid wasting $1.2 billion over the present 12 months’s budget and the 2025-25 fiscal 12 months, in response to budget documents.
The budget allocates $2.7 billion for climate-related projects of the $10 billion statewide climate bond measure approved by voters in November. Of that $1.5 billion shall be for forest resilience projects.
“This plan will speed up projects and programs that construct water and wildfire resilience, with as much as two‑thirds of those investments delivering on California’s nature‑based solution climate targets, increasing the health of natural systems and their ability to soak up more carbon than they release,” in response to the budget document.
The budget also features a wildfire income exclusion to supply tax relief for wildfire victims from 2025 through 2029, Stephenshaw said.
From the $10 billion statewide bond measure voters in November approved for K-14 education construction projects, the governor has allocated $1.5 billion for modernization and latest construction and $51.5 million for community colleges, he said.
The budget would double funding for CalFire to $1.3 billion and would add 2,400 latest firefighters.
The budget also takes under consideration uncertainties around federal funding, Stephenshaw said.
“The risks to the budget we face include stock market volatility, uncertainty around federal policy and tariffs, which could have some impact on California,” he said. “We also recognize we could face additional tax delays as a result of disasters going forward.”
He noted a part of the explanation the state ended up with such a steep deficit last 12 months, is because income tax deadlines for many of California had been delayed to match IRS deadlines prolonged after the state was hit by floods.
“There’s a federal emergency declaration for the Los Angeles fires,” Stephenshaw said. “That’s going to trigger some tax filing delay from the IRS. We aren’t anticipating any others at this point.”
Still, Los Angeles County, with 10 million residents, represents greater than 1 / 4 of California’s population.
“I look ahead to the May Revise once we may have a fuller picture of the state’s funds and know the total extent of injury from the devastating fires within the Los Angeles area,” State Treasurer Fiona Ma said in a prepared statement. “I also remain hopeful that the ultimate budget will proceed to speculate in our state’s housing, education, and environmental goals as we rebuild.”