Newsom Floats $100 Billion Recovery Plan in Pre-Recall Budget

California Governor Gavin Newsom, battling an effort to oust him in a recall election, proposed a 19% increase in spending for the next fiscal year as he seeks to plow an unprecedented tax windfall back into the economy.

His $196.8 billion budget includes $600 checks to low- and middle-income residents, money to help renters in some of the country’s most expensive housing markets and funds to tackle a surge in homelessness in Los Angeles and San Francisco, where the proliferation of sprawling camps have become a top issue for voters. With federal stimulus dollars added to the windfall, schools, transportation and emergency preparedness initiatives would all see spending increases. Pay cuts and salary freezes for state employees would end.

“This budget is not just going to set this state up for a comeback, but a remarkable decade and century ahead,” Newsom said during a briefing Friday in Sacramento.

The governor’s budget is heavy on help for the state’s lower-income residents, tapping a massive $75.7 billion operating surplus over the past year coupled with federal stimulus aid to pay for a $100 billion economic recovery plan. Investing in his base’s priorities will help Newsom as he fights a likely recall election in the fall in which several Republicans, including the former Olympic star Caitlyn Jenner, have announced they will run.

Read more: Newsom Wields $100 Billion Kitty as He Fights California Recall

Reserves of around $24 billion are at a record high, the Democrat said during the briefing. The budget also calls for $3.4 billion next year to pay down retirement liabilities.

With a progressive tax system that rakes in more revenue when the income of the highest earners rises, California has collected more than it expected from its wealthiest residents. That group has reaped the benefits of rising stock prices and stable employment even as lower-income workers lost their jobs in the pandemic. The top 1% of earners pay nearly half of personal income-tax collections.

Indeed, personal income-tax wage withholding receipts increased by 7.4% year-over-year despite the pandemic, easily topping the 5.6% rate the administration expected in January. Much of the excess stemmed from a surge in financial assets that will push capital gains realizations to a record $210 billion this year.

Read more: California’s Remarkable Fortunes Follow Tough Reforms: Joe Mysak

Of the $75.7 billion surplus, Newsom and legislators can chose how to spend about $38 billion since the remainder is already earmarked. The legislature must approve the budget by June 15.

Newsom’s spending plans include:

  • $15 billion for kindergarten to grade 12 schools
  • $12 billion to address homelessness
  • $11 billion for transportation
  • $8 billion in new direct cash payments to residents
  • $5.2 billion for renter assistance
  • $3.5 billion for affordable housing
  • $2 billion to cover overdue water and utility bills
  • $2 billion for emergency preparedness

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