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When The Next Recession Hits, Can California Count On Washington?

When the next pullback hits, California may have to fight off red ink without a historically crucial ally: Washington, D.C.

Show transcript

Speaker 1: 00:00 On the eve of the May revise. Californians are anticipating very good news about the state budget. Governor Newsome will release his updated budget proposal tomorrow, which apparently includes a hefty revenue surplus, but there are voices warning against US spending free for all in Sacramento. In fact, the longer the state's economic expansion continues, the more likely a recession is around the corner. And California may not be as prepared for a downturn. As many expect. Joining me is reporter Judy Lynn, who covers the economy for cal matters. Judy, welcome to the program. Thank you for having me. Can you give us an overview of this state's finances right now? How's California's fiscal health? It's extraordinary. Um, in July we will hit the longest economic expansion in, in state record. Um, and our finances are better than they have been in decades. Uh, not only do we have a rainy, rainy day fund, um, that's about 10% of the budget.

Speaker 1: 01:05 We have billions more on top of it as a surplus. So we're in really great shape. So the things are so good. Why are we even thinking about a recession? Well. So a lot of, um, the staff that are up here in Sacramento, they came from, they, they grew up in a sense, um, during the great recession and even going back to 2000 ones, uh, uh, post nine 11 recession. So there's deep experience and knowledge in Sacramento and a lot of Newsome staff that he ended up taking on. And, and um, he, his advisors are telling him that we need to proceed with caution because a lot of California's money that's coming in, a lot of this is one time funds from capital gains, especially the stock market and the performance of the rich. Now, during the last recession, the great recession that you just mentioned, California got a big boost with funds from the federal government.

Speaker 1: 02:08 How much did Washington help in the last recession? It's in the tens of billions of dollars. If you think about how much a Washington sent to states and in particular California to backfill its Medicaid program, which is known as medic cow. Um, you saw re you may recall a shovel ready projects to help, uh, build, put infrastructure in place and put people back to work. Um, there all sorts of things like that. Um, and even in the classrooms, you know, if you think about just funding for states to help keep teachers in the classrooms and, and think of how much worse it would have been without this money. And some of your, uh, the people who have been here in California may remember that there were as many as 30,000 pink slips during the depths of the recession handed out. And is there speculation now that things would be different with federal aid?

Speaker 1: 03:04 In other words, it wouldn't be as much of it the next time around. Yeah. So the legislature's budget analyst, he's um, his name is Gabriel pedic and he comes from the SNP analyst world and he joined in February and he gives a macro view of things and says that the state may not be able to count on DC at the next recession. One because, uh, the, the federal deficit is high. I'm at in India, in Washington, DC. You know, as a national debt load, it's growing. Um, you know, we may, we may choose, Congress may choose or be unwilling to take on more. Um, and then on a second level he talks about the federal reserves ability to affect the markets is interest rates are so low right now. And so those are some of the macro considerations to think about. Um, and that he's advising La lawmakers as they proceed on the new budget.

Speaker 1: 04:04 How about all those lawsuits that California has filed against the Trump administration? Yes. Yeah. There are other things that play too. There's the, um, affordable care act challenge. And then there's also the census question about a citizenship. Um, that is a concern for the state's finance director, Kelly Bosler. She mentioned that there is concerned that if people don't, uh, fill out their census, that affects how much the state gets in draws from Washington. So those, those again have, have rippling effects on state finances. So in a recession, which state programs would be hardest hit? So from the federal level, it's going to be healthcare. It's, it's mostly, um, the, it's, it's mostly Medicaid for the poor, just by virtue of how much a support the federal government gives to states to expand healthcare. And then beyond that, you also see impacts to food program, food assistance programs, um, well, uh, grants for working parents in California.

Speaker 1: 05:19 It's known as a calworks, um, those, uh, dollars would be reduced and, and it's not clear if the state can a backfill or, or, you know, meet all the demand on its own. Now under governor Jerry Brown, California started planning ahead with a sizable rainy day fund. Is Governor Newson committed to adding to that fund? Yes, very much so. So we are, we are filling up our day rainy day fund. It's a, it's a requirement of roughly about 10% of the general fund. In addition, there's another safety net reserve that's being pushed by lawmakers and, and Newsome. And this money is being set aside for in an effect essentially at an additional reserve, uh, for when the, when hard times hit that uh, the state can tap that money and use it to keep safety. That program's going on. Another note, governor Newsome announced yesterday that he supports ending state taxes on diapers and tampons.

Speaker 1: 06:30 I had of his may revise announcement tomorrow. Any other idea that we can expect to hear from the governor are expecting good numbers. We think that the $21 billion plus surplus will probably materialize just because the, the tax revenue figures that have been coming in, especially from tax filings and April, have been coming in very robustly. Um, we expect him to stick to his course of a three pronged approach for savings, paying down debt and putting money aside for the rainy day. Um, but he definitely has been out front in pushing a parent's agenda. He wants to expand parental leave, he to hope eventually six months. Um, that's three months, uh, for each working parent, but he's going to start with that by expanding the current six weeks, leave to eight weeks. And that will start in July. I've been speaking with reporter Judy Lynn, who covers the economy for cal matters and Judy, thank you. Thank you.

Speaker 2: 07:40 Okay.

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Maureen Cavanaugh and Jade Hindmon host KPBS Midday Edition, a daily radio news magazine keeping San Diego in the know on everything from politics to the arts.