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California has $21 billion in 'rainy day' fund; coronavirus threatens to wipe it out

John Myers, Los Angeles Times on

Published in News & Features

SACRAMENTO, Calif. -- For more than six years, through two governors and hundreds of lawmakers' votes, California's state government slowly built the largest cash reserve in its history -- projected to total $21 billion by next summer.

But there are growing fears that the fast-moving crisis sparked by the coronavirus pandemic could force it to be spent in a matter of months.

A number of the state's most experienced budget watchers now expect that California might need to use the entire cash surplus, and possibly much more money, to prop up vital government services that could be severely underfunded by a quickly collapsing economy.

"This is a sudden downturn unlike anything we've seen," said Gabriel Petek, the state's legislative analyst. "We're kind of flying blind at this point."

Few states bear more scars from crushing budget deficits of the past than California. Three significant economic downturns over the past quarter-century triggered sharp drops in tax revenue, two of which occurred in a single decade. The resulting events were historic: state government paymasters issued IOUs, vital services and school functions were slashed and angry voters removed Gov. Gray Davis from office in a 2003 special election.

But each prior collapse in government funding was a relatively slow-moving disaster. Even the global recession that began in 2008, generally seen as the most quickly unfolding crisis, gave lawmakers time to take corrective measures.

 

Early indications are they will have to act much more quickly to address the COVID-19 emergency -- assuming that health concerns eventually lessen and allow legislators to return to Sacramento. And as financial markets shrink and jobless claims grow, the state's budget situation could deteriorate much faster.

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"I don't think people in California or the country have fully come to grips with the situation that we're in," said Assemblyman Phil Ting, a San Francisco Democrat, chairman of the lower house's budget committee.

On Tuesday, advisers to Gov. Gavin Newsom took the first steps toward creating a triage plan. State agencies were told to assume no funding will exist for proposals they already had in the works, let alone new ideas. And legislators were told the administration will be unable to submit its expected April 1 updates on government revenue and expenses.

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