California’s new budget covers $32 billion deficit while extending tax credits for film industry

SACRAMENTO, Calif. (AP) — California lawmakers approved a $310.8 billion budget on Tuesday that closes a nearly $32 billion budget deficit while also extending a lucrative tax break for the state’s iconic film and television industry.

The nation’s most populous state has had combined budget surpluses of well over $100 billion in the past few years, enabling the Democrats in charge to greatly expand government.

But this year, revenues slowed as inflation soared and the stock market struggled. California gets most of its revenue from taxes paid by the wealthy, making it more vulnerable to changes in the economy than other states. Last month, the administration of Democratic Gov. Gavin Newsom estimated the state’s spending would exceed revenues by over $30 billion.

The budget approved by lawmakers covers that deficit by cutting some spending — about $8 billion — while delaying other spending and shifting some expenses to other funds. The plan would borrow $6.1 billion and would set aside $37.8 billion in reserves, the most ever. Newsom has said he will sign it into law.

Despite the deficit, lawmakers agreed to extend tax credits for movie and television productions that film in the state. Those credits will reduce state revenues by up to $330 million per year. The big change is that those tax credits will be refundable. That means if a movie studio has credits that are worth more than what it owes in taxes, the state will pay the studio the difference in cash.

“It’s real hard to justify doing this when we’re not doing that for a lot of people who are struggling in California,” Republican Assembly Leader James Gallagher said.

Others said the improved tax credits are needed as California faces competition from other states seeking to lure TV and movie productions out of California, which has long been synonymous with the glamor of Hollywood.

“It’s something I know people can argue over whether it benefits California or not, but it is iconic and it creates jobs,” Senate President Pro Tempore Toni Atkins said.

California’s budget reflects the partisan divisions that permeate the country’s politics. Democrats praised the budget for avoiding painful cuts to health care and public education programs, two of the biggest areas of state spending. But Republicans criticized the budget as unsustainable. Republican Assemblymember Vince Fong noted the budget Democrats approved on Tuesday assumes much higher tax revenues than the projections from the nonpartisan Legislative Analyst’s Office.

“If revenues come closer to the independent legislative analyst’s projections and if a recession occurs, not only will the deficits be larger, they will consume most, if not all, of our reserves,” Fong said.

The budget is a complex array of nearly two dozen bills that include much more than just spending decisions. It includes protections for the Joshua tree, a native desert plant at the center of a long debate about how to safeguard it from threats driven by climate change without adding unnecessary roadblocks to housing and solar development projects in areas where the tree grows.

The state will charge a fee to developers who remove the trees, pledging to use the money to conserve the species. Chuck Bonham, director of the California Department of Fish and Wildlife, called the bill an “innovative approach” to balancing tree preservation and development efforts.

But Assemblymember Tom Lackey, a Republican representing Palmdale, a Southern California city in the Mojave Desert where many of the trees grow, worried the bill will hinder housing development in his district.

“There’s never been a bill that’s more impactful to my desert community than this one,” Lackey said.

The budget includes a lifeline for public transit agencies struggling to survive following steep declines in riders during the coronavirus pandemic. It allows transit agencies to use some of the $5.1 billion in funding over the next three years for operations.

Still, some San Francisco Bay-area lawmakers said the spending wasn’t enough to forestall painful service cuts over the next few years. On Monday, they proposed legislation that would increase tolls on seven state-owned bridges — including the San Francisco-Oakland Bay Bridge — by $1.50 over the next five years.

Civil liberties groups were upset that the budget allows state officials to withhold some records related to investigations of police misconduct until 2027, a delay the Commission on Peace Officer Standards and Training said was necessary as it prepares to handle an estimated 3,400 cases each year.

Lawmakers agreed to impose a new tax on the private companies that contract with the state to administer Medicaid benefits. The tax will bring in an estimated $32 billion over the next four years, with some of the money going to doctors while other funding will go to rural hospitals struggling to avoid bankruptcy.

“This will fundamentally help us change how we do health care,” Democratic state Sen. Anna Caballero said.

The budget includes more than $2.8 billion to increase pay for state-subsidized child care workers. But it delays until next year funding for an additional 20,000 slots in the state’s subsidized child care program for low-income families.

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Associated Press writer Sophie Austin contributed to this report. Austin is a corps member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues. Follow Austin on Twitter: @sophieadanna