By Soumya Karlamangla
New York Times
Over the past several months, Californians have been getting paid. Checks ranging from $600 to $1,100 have landed in the mailboxes and bank accounts of roughly two-thirds of state residents, part of a program known as the Golden State Stimulus.
You may have thought, as I initially did, that these payments were simply another form of COVID-19 relief. But because of an arcane California law, the state was required to send us this money — with or without the pandemic.
In 2022, the same law is expected to kick in again. That means that in all likelihood, more money is headed our way soon.
How we got here
To begin, a brief history: Californians revolted against taxes in the late 1970s.
Voters passed Proposition 13, a landmark measure that limited property tax increases, in 1978. The next year, Paul Gann, one of the proposition’s co-sponsors, suggested another tax break.
Gann proposed implementing a cap on state spending: If California’s expenditures neared a certain threshold (calculated by adjusting 1979 levels for population growth and inflation), the state would have to return funds to taxpayers in the form of a rebate.
Voters in 1979 overwhelmingly approved the measure, known as the “Gann limit,” and later amended the law to allow some of the excess revenue to also go toward funding education.
Why California has so much money
That brings us to today. Millions of Californians have lost work during the pandemic — the state’s unemployment rate is tied for highest in the nation — and a third of households here do not earn enough to meet the true cost of living in this pricey state.
But our state government has been raking in the cash. California has a record $76 billion budget surplus for the current fiscal year and is projecting $31 billion in excess revenues for the fiscal year that begins in July.
Nationwide, lower-income adults have been hit especially hard by the COVID-19 economic crunch, while wealthier Americans have been left largely unscathed. That trend holds in California, where we also tax our wealthy at very high rates.
“What makes the situation unique in California is that we have this inordinate wealth and income inequality,” said Chris Hoene, executive director of the California Budget and Policy Center. “And then we have a tax structure designed to actually produce revenue from that.”
In late 2020, Gov. Gavin Newsom was planning for the fiscal year that would begin in July 2021. Projections showed that the state could soar past the Gann limit by billions of dollars.
Under state law, the governor was not required to act on the limit for another two years. But Newsom was facing the prospect of a recall election in the fall.
So in January, Newsom announced the Golden State Stimulus, what he called the largest state tax rebate in U.S. history. A few months later, the state began distributing roughly $12 billion among Californians who make $75,000 or less annually.
Now, the state’s Legislative Analyst’s Office predicts that California will have a $31 billion surplus for the budget year that begins July 1, 2022. Exactly how Newsom will avoid crossing the Gann limit this time around will not become clear until he releases his budget proposal in January.
While the Golden State Stimulus helped the Californians most affected by the pandemic, some have said it unfairly excluded the very people who contributed the most to the state’s revenue. But Newsom has recently hinted that he plans to take his cues from this year’s plan.
“I’m very proud of the historic tax rebate,” Newsom said during a news conference last month. “And I look forward to making the decision that I think is in the best interests of 40 million Californians.”
This article originally appeared in The New York Times.