On Sept. 14, 2021, California will hold a recall election which will determine whether or not Governor Gavin Newsom will be removed from office before his term is up.
One of the biggest issues of this recall election is Newsom’s handling of the California economy, especially during the COVID-19 pandemic. Newsom acted very aggressively against COVID-19 by issuing a stay-at-home order for Californians and shutting down non-essential businesses. There has been fierce debate about whether shutting down California was effective or necessary, with supporters of the recall saying that California’s small businesses suffered under Newsom.
It is undeniable that California’s economy has been negatively affected by the pandemic. Critics assert that Newsom’s policies have led to increased homelessness, loss of small businesses and jobs, and more. But what does the data tell us about how Newsom handled the economy?
One indicator we can use to measure the overall health of the economy is economic output, also known as GDP. After Newsom came into office, California’s GDP grew by 3.38% between 2018 and 2019. Despite having some of the nation’s most strict COVID-19 restrictions, California’s economy shrunk by 2.8% in 2020. By contrast, the country’s economy as a whole, with looser restrictions, shrank by 3.5%, according to the U.S. Bureau of Economic Analysis.
Since the global economy was severely impacted by COVID-19, the fact that economic output in California dropped should not be a surprise. It is more useful to compare California’s performance to other states.
According to a forecast put out by the UCLA Anderson School, California is expected to lead the U.S. in a post COVID economic rebound, which has begun to come true during summer 2021 as unemployment rates have dropped.
California has benefitted from an unexpected budget surplus, thanks to the dramatic recovery of the stock market after March 2020. Revenue from capital gains taxes, which are taxes on profits from stock investments, helped reverse California’s budgetary fortunes. In fact, California expects a roughly $15 billion budget surplus in the next fiscal year, which runs from July 2021 through June 2022. California also benefited from larger-than-expected federal government spending, thanks to President Joe Biden’s $1.9 trillion American Rescue Plan.
Newsom wasted no time putting this fortunate surplus to good use. Newsom in his budget proposal included $100 billion in poverty-targeting initiatives including $600 checks to those who make $75,000 or less, $12 billion to fight homelessness, paying $2 billion of utilities debt for residents, universal pre-kindergarten, and $6 billion for public broadband infrastructure.
Newsom also proposed adding $1.5 billion to a program that gives up to $25,000 grants to small businesses that they do not have to pay back, and so much more. This came on top of Newsom’s efforts in 2019 to double the size of California’s Earned Income Tax Credit, which sends cash to low-wage workers.
California continues to struggle with housing affordability and homelessness. These problems existed before Newsom’s term and will likely continue with the next governor.
However, when looking specifically at how the state has performed during Newsom’s term, it appears that California continues to outperform the U.S. as a whole, economically, and has been less affected overall by COVID-19 than the rest of the nation.