California Coronavirus Update: Gov. Gavin Newsom Says Unemployment Will Hit 18% Amid Massive Budget Deficit

Tom Tapp
·5 min read

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At his Thursday press conference, California Governor Gavin Newsom confirmed the state is facing the one of the worst budget deficits in its history. Possibly even harder to hear for the many Californians thrown out of work by the coronavirus: State projections show unemployment hitting 18 percent.

Newsom says the unemployment numbers will create hardships “more acute than anything we’ve seen in modern times.” As he did yesterday, he called on the federal government to step in and aid the state. “We really need the federal government to do more,” he said.

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An unemployment rate of 18 percent would be much higher than during the peak of the Great Recession — which was 12.3 percent — or at any time since the end of WWII, according to MarketWatch.

For comparison, says MarketWatch, the peak U.S. unemployment rate during The Great Depression was 25 percent.

In its January projections, the state pegged unemployment this year at 4.4 percent and a state budget surplus of $6.8 billion. That seems like a long time ago today.

As for the deficit, it is projected to be $54.3 billion, plummeting from that $6 billion surplus the state projected just 90 days ago. The $54.3 billion estimate is a jump from the roughly $35 billion deficit that a legislative analyst presented to lawmakers last month.

The California Department of Finance calls this economic interruption “unprecedented in modern history.” See its May budget update here.

Some specifics:

California personal income, projected to grow by 4 percent in January’s budget, is now projected to fall by nearly 9 percent on an annual basis in 2020.

Permits for new housing construction, a key economic indicator, are forecast to drop by more than 21 percent this year.

The California Department of Finance projects that General Fund revenues will decline by $41.2 billion from January projections. Adding health and human services expenditures of $7.1 billion and $6 billion in other mostly COVID-related expenses results in an overall budget deficit of approximately $54.3 billion,.

Of that deficit, $13.4 billion occurs in the current year and $40.9 billion is in the next budget year, which begins in July. This overall deficit is equal to nearly 37 percent of General Fund spending authorized in the 2019 Budget Act.

Under Proposition 98’s constitutional calculation, state funding for K-12 schools and community colleges must be cut by $18.3 billion.

PREVIOUSLY, WEDNESDAY 12:30 PM: California Governor Gavin Newsom delivered a sobering economic appraisal at his daily coronavirus press conference on Wednesday.

After revealing an unprecedented spike in unemployment claims, he said, “You’ll see these numbers translating into unemployment rates that will be rather jaw-dropping.”

Newsom then predicted these rates will be seen not only in California, but across the country.

The state’s revised budget comes out on May 14, so specific unemployment numbers will be released then.

Newsom called the rise in unemployment claims “without precedent in our state’s history,” noting that 4.2 million people have now applied for Public Unemployment Assistance and $10.6 billion in aid has already been distributed.

The spike in claims, Newsom said, has resulted in a massive $2 billion being distributed since Sunday.

“You’ll see these numbers reflected in budgets” both state and local, said the governor, before adding that, at the state and local levels “revenues are just falling off a cliff.” Newsom said those drops have happened “in just weeks, not months.”

Any recovery, said the governor, “will take a lot longer than people are saying.”

“We’ve never experienced anything like this in our lifetime,” he went on grimly. “This is Depression-era numbers in terms of the unemployment across the country — not just in the state.”

“Just do the math on the number of Californians who have filed for unemployment just since March 12,” urged the governor. “We had record low unemployment in January, record surplus, and you’re gonna see a budget [on May 14] that comes out tens of billions of dollars short of where it needs to be.”

How bad has it been nationally? According to the New York Times on Wednesday, U.S. payrolls reportedly plummeted by 20 million jobs in April 2020. Government numbers coming Friday, reports the paper, will reveal the losses were even worse than that. According to NYT, those figures “will undoubtedly show that job losses in April were the worst ever.”

As for California, “Ww are accountable to balance our budget,” said Newsom, noting the state cannot just print money. “We can’t do this without the Federal Government.”

“We really need leadership at the federal level,” said the Governor, “to provide the magnitude of support” that will match the crisis.

Newsom predicted that the road to economic recovery will be long and will be measured in years, not months.

“I’m not of this opinion,” said the governor, “that this [drop in economic activity] is a quick V and we’re going to come back in a few months. The next few years, we’re going to have to work through these challenges.”

In closing, said Newsom, “We have our work cut out for us.”

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