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Financial Expert: Painful Cuts To California Budget Resemble Depression-Era Numbers

SACRAMENTO (CBS13) — Governor Newsom announced billions in budget cuts Thursday in an effort to tackle a $54 billion deficit in the state budget.

"You've exhausted your savings, your credit has been completely destroyed," Governor Gavin Newsom speaking directly to those impacted by the May budget revise.

He says it is a clear reminder of how much has changed in just eight weeks. Before COVID-19, there was a $6 billion surplus and a $21 billion reserve. Now months into the pandemic, California is in a $54 billion deficit.

"We talk in terms of that Great Recession, we talk about unemployment peaking in the third quarter in 2010 with 2.2 million people, we've now seen 4.6 million Californians since March 12th who have filed for unemployment," Newsom said.

Sacramento State financial expert Dr. Sanjay Varshnay says those unemployment numbers take us back to depression-era statistics.

"At the peak of the Great Depression, era unemployment stood at 25% nationally. We are already at 14.7% within a month," Varshnay said.

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Governor Newsom says the state is better positioned now than in 2008 because of that substantial reserve or "rainy day fund." But, Dr. Varshnay says otherwise.

"The situation now is actually worse than 2008-2009 for the speed with which things are happening. Our stock market crashed within 16 days, and in 2008-2009 it took almost two years," he said.

In 2008, California Governor Arnold Schwarzenegger imposed a 10% pay cut via furloughs over 17 months to all state workers.

"None of us in state government will be immune," said Newsom.

Now, state employees will see the same fate, something the union plans to fight.

Yvonne Walker with SEIU Local 1000 said, "We want people to have the opportunity to have a good life and live in sustainable communities."

The plan leaves nearly no program unscathed from cuts, including massive cuts to K-12 education and community college. It sets the state up for even deeper cuts if the federal government fails to provide billions of dollars in pandemic assistance.

"These cuts would be triggered and the language in our budget directly triggers the elimination of these cuts," said Newsom.

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