California Lawmakers Pass Budget That Depends on Federal Aid

(Bloomberg) -- California’s legislature passed a $143 billion general-fund budget for the next fiscal year that counts on federal aid before triggering spending cuts, a rejection of Governor Gavin Newsom’s proposal to slash services ahead of more money from Washington.

The bill was approved 61 to 13 in the Assembly and 29 to 11 in the Senate Monday. Both chambers are controlled by Democrats.

State lawmakers are required by a constitutional amendment to pass a budget by June 15 or forfeit their pay. The bill they approved is a placeholder of sorts for the fiscal year beginning July 1 as they said they will continue to negotiate with Newsom and can make changes later in the summer. Newsom has veto power over spending.

California is grappling with a $13.4 billion budget shortfall this year and $40.9 billion in the next as pandemic-related shutdowns slam the economy of the most populous U.S. state. In just two months California lost more jobs than it did through the Great Recession. Its leaders are faced with balancing the books while trying to minimize the burden on residents who now desperately need services.

“Californians today need help more than ever. We shouldn’t as an institution or a state retreat,” said Phil Ting, the Democratic chair of the Assembly’s budget committee, before the vote. “We have to go help. This is the right budget for this time.”

State and local government officials across the country are urging President Donald Trump and Congress to help ease the crippling economic losses. A Democrat-backed bill that would give states and cities more than $1 trillion has stalled in Congress.

Newsom said talks with state lawmakers have continued.

“We are making real progress,” he told reporters Monday, adding that he is still holding out hope that Trump and Republicans who control the U.S. Senate will advance another rescue package soon.

Newsom, a Democrat, said in May that money would reverse the need for around $14 billion in cuts. Those include reducing pay for all state workers by 10% as well as less money for education and safety-net programs such as health care for low-income residents.

But Democratic leaders of both legislative chambers took a different approach: the budget passed Monday counts on $14 billion in additional federal aid and only triggers cuts in October if it doesn’t materialize. Their plan, if Congress fails to act, relies on measures such as deferring payments and moving the June payroll date for state workers into the next fiscal year.

Benefiting the state is its record $16 billion rainy-day account, which while far short of closing the budget shortfall, can still help defer some painful decisions.

“The state’s reserves give them some time to decide on spending cuts,” said Dora Lee, director of research at Belle Haven Investments.

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