California Tells Agencies Not to Expect Full Funding Next Year

(Bloomberg) -- California is telling its departments and agencies not to expect funding for new initiatives next year as it gears for the hit of the coronavirus pandemic to state revenue.

Governor Gavin Newsom’s administration is in the midst of updating its proposed budget for the year that begins in July. While in recent years the budget revision has resulted in new programs being added compared with the initial spending plan presented in January, the administration is warning in letters to department heads Tuesday that it’s evaluating requests with the minimum needed to maintain services and meet mandates as the baseline.

The only exception is for measures needed to respond to the virus outbreak, which prompted the governor last week to order the state’s 40 million residents to stay home except for essential activities.

“Despite the sustained efforts, the virus continues to spread and is impacting nearly all sectors of California’s economy. Among these impacts is a severe drop in economic activity, with corresponding negative effects on anticipated revenues,” Newsom’s finance department said in the letter. “The impact on revenues could be immediate, affecting the 19-20 fiscal year, and will certainly produce impacts for the upcoming 2020-21 fiscal year and beyond.”

The letter added that “agencies and departments should have no expectation of full funding for either new or existing proposals and adjustments.”

California’s budget will likely have to make up for several billion dollars of capital gains income given that officials in January had assumed the S&P 500 at 3,120, Gabriel Petek, the state’s nonpartisan legislative analyst, warned last week. Capital gains accounts for about 10% of the state’s annual revenue this year.

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