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California Legislature rejects many of Gov. Gavin Newsom's budget cuts as negotiations continue

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California Legislature rejects many of Gov. Gavin Newsom's budget cuts as negotiations continue
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California Legislature rejects many of Gov. Gavin Newsom's budget cuts as negotiations continue

2024-06-14 06:53 Last Updated At:07:00

SACRAMENTO, Calif. (AP) — The California Legislature on Thursday rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help address an estimated $45 billion deficit while preserving spending on many social safety net programs.

The budget lawmakers approved is not the state's final spending plan. Newsom and legislative leaders are still negotiating how to fix the shortfall before the start of the new fiscal year on July 1. But lawmakers had to pass a balanced budget by Saturday or else they would forfeit their six-figure salaries — a rule voters approved in 2010 to prevent the types of budget stalemates that had delayed negotiations in the past.

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Child care workers and their supporters hold a candlelight vigil against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11,2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

SACRAMENTO, Calif. (AP) — The California Legislature on Thursday rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help address an estimated $45 billion deficit while preserving spending on many social safety net programs.

Members of the Service Employees International Union and their supporters rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs.(AP Photo/Rich Pedroncelli)

Members of the Service Employees International Union and their supporters rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs.(AP Photo/Rich Pedroncelli)

Child care workers and their supporters hold a candlelight vigil against proposed budget cuts to state provided social safety net programs, at the Capitol in Sacramento, Calif., Tuesday, June 11,2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Child care workers and their supporters hold a candlelight vigil against proposed budget cuts to state provided social safety net programs, at the Capitol in Sacramento, Calif., Tuesday, June 11,2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Maria Grijaiva, front, joins other supporters of the Service Employees International Union at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Maria Grijaiva, front, joins other supporters of the Service Employees International Union at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Melissa Lamattina, a home support service worker, left and Patricia Moran, a child care provider, right, join others at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Melissa Lamattina, a home support service worker, left and Patricia Moran, a child care provider, right, join others at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

That is why Thursday's vote was not really a public rebuke of Newsom, a Democrat who for the most part has had a good relationship with a Legislature dominated by members of his own party. Instead, the vote highlights the differences between Newsom, a second-term governor who many believe holds presidential aspirations, and a liberal state Legislature that is often more willing to take risks.

While Newsom's budget proposal preserved most of the state's major assistance programs, he included a number of smaller cuts that angered his Democratic allies. He proposed to stop paying for in-home caretakers for some disabled immigrants on Medicaid. He wants to eliminate a program that helps provide housing for families with incomes less than $13,000 per year. And he suggested delaying a rate increase for organizations that care for people with intellectual disabilities.

To reject these cuts, lawmakers needed to find more money. They found it by taking one of Newsom's ideas and making it happen faster.

Newsom proposed temporarily stopping some businesses from deducting financial losses from their state taxable income, thus increasing their tax bill. It has become a common way to increase revenue during budget shortfalls. The Legislature chose to do this, too, but their plan would start the tax increase one year earlier. That generated an extra $5 billion in revenue compared with Newsom’s plan.

Lawmakers also found large budget cuts in other places. They want to cut $1 billion out of the state's prison budget, arguing the money isn't needed now that the prison population is about half of what it was two decades ago. And they want to cancel a $400 million loan to PG&E that would help extend the life of the Diablo Canyon nuclear power plant.

Those are just some of the disagreements that the Newsom administration and lawmakers must resolve by the end of the month. On Thursday, both sides indicated they have made good progress. Senate President Pro Tempore Mike McGuire said lawmakers could be voting on a final budget deal by the end of next week.

“I firmly believe the final budget that we’re going to have in front of us here next week will follow the same framework that’s in front of this body here today,” he said.

One major issue that has yet to be addressed by either side is what to do about a minimum wage increase for health care workers that is scheduled to start on July 1. Newsom signed a law last year that would eventually raise health care workers' minimum wage to $25 per hour over the next decade.

The wage increase is expected to cost the state hundreds of millions of dollars in increased wages for some state workers and increased payments in the state's Medicaid program, according to an analysis by the University of California-Berkeley Labor Center. Newsom has said he wants to delay the minimum wage increase, but he so far has been unable to get an agreement from the state Legislature.

Republicans, who don't have enough numbers to sway policy decisions and say they were left out of the budget negotiations with Democrats, criticized the Legislature's spending plan as unsustainable.

Republican Assemblymember Heath Flora said raising taxes on businesses to help close the deficit would be “an economy killer," adding “our citizens are not here to provide overdraft protections.”

“We can't continue to make up the lie that tax increases are a solution to bad management,” he said.

Democratic state Sen. Scott Wiener defended the tax proposal, noting it was just seven years ago that Congress slashed the federal corporate tax rate by 40%.

“All we are asking here during a difficult budget year is to be part of the solution,” Wiener said. “This is a very reasonable approach.”

Child care workers and their supporters hold a candlelight vigil against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11,2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Child care workers and their supporters hold a candlelight vigil against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11,2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Members of the Service Employees International Union and their supporters rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs.(AP Photo/Rich Pedroncelli)

Members of the Service Employees International Union and their supporters rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs.(AP Photo/Rich Pedroncelli)

Child care workers and their supporters hold a candlelight vigil against proposed budget cuts to state provided social safety net programs, at the Capitol in Sacramento, Calif., Tuesday, June 11,2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Child care workers and their supporters hold a candlelight vigil against proposed budget cuts to state provided social safety net programs, at the Capitol in Sacramento, Calif., Tuesday, June 11,2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Maria Grijaiva, front, joins other supporters of the Service Employees International Union at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Maria Grijaiva, front, joins other supporters of the Service Employees International Union at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Melissa Lamattina, a home support service worker, left and Patricia Moran, a child care provider, right, join others at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

Melissa Lamattina, a home support service worker, left and Patricia Moran, a child care provider, right, join others at a rally against proposed budget cuts to state provided social safety net programs, in Sacramento, Calif., Tuesday, June 11, 2024. The California Legislature on Thursday, June 13, rejected many of Gov. Gavin Newsom's most difficult budget cuts, choosing instead to speed-up a temporary tax increase on some businesses to help pay off an estimated $45 billion deficit while preserving spending on many social safety net programs. (AP Photo/Rich Pedroncelli)

BUENOS AIRES, Argentina (AP) — A closely watched measure of inflation in Argentina was stronger than the libertarian government of President Javier Milei would have hoped on Friday, as the official statistics agency reported prices edging up in June and breaking a months-long streak of declines.

Argentina's consumer price index rose 4.6% in June, slightly up from the rate of 4.2% in May, ending a five-month trend of cooling inflation that experts had attributed to a deepening recession brought about by Milei's harsh austerity. The International Monetary Fund predicts a 2.8% contraction this year.

President Milei has touted the falling prices over recent months as a victory in his fight against Argentina’s worst economic crisis in over two decades.

After Milei took office in December, monthly inflation peaked at 25%. But the price drop since hasn't offered much relief to ordinary Argentines as Milei presses on with a radical economic overhaul that involves slashing generous energy subsidies, scrapping price controls and devaluing the Argentine peso.

“The world that the government lives in, with all these numbers saying the economy is great, it's a fantasy,” said 34-year-old taxi driver Jose Rafael in Buenos Aires. “In the real world, this economy makes it really hard to feed my son.”

Friday’s government report showed Argentina’s annual inflation slowing a bit to just over 271% — still among the highest rates in the world.

Surging electricity and gas prices accounted for most of June's inflationary spike, the statistics agency said. Argentines have reported eye-watering utility bills after years of paying highly subsidized rates under left-leaning governments.

In stark contrast to Milei's program, those past Peronist administrations fixed prices and printed billions of dollars’ worth of pesos to fund a large deficit — fueling chronically high inflation.

Under Milei, Argentina's energy ministry reported in June that low-income households that previously paid just 5% of the real cost of electricity have started paying a third of it while middle-income households now cover at least half following Milei's removal of subsidies.

The government has also capped electricity consumption to qualify for subsidies, squeezing families as a cold front sweeps Argentina during the Southern Hemisphere’s winter.

The country's cost of living surged nearly 80% in the first five months of 2024 compared to the same period last year, the report also said. Prices in Buenos Aires shops and restaurants have reached levels comparable to the United States, even as the country offers just a fraction of the wages.

In another warning sign, the peso fell Friday to another record low against the dollar, hitting 1,500 on the black market and capping another week of volatility after holding steady in the first few months of the year.

The steep fall in Argentina’s currency means the closely watched gap between the black market rate and the official exchange rate, currently 919 pesos to the dollar, has widened to over 60%. That complicates Milei's goal of eventually lifting Argentina's strict currency controls to restore investor confidence.

Milei wants the IMF — to which Argentina already owes a staggering $44 billion — to step in with a new loan to support his plans to remove capital controls, which cause major distortions in Argentina’s economy.

But as uncertainty remains over the future of Milei's economic program, the IMF dampened expectations of a new deal on Thursday.

“The staff will engage in discussions on a possible new arrangement as we would with any IMF member," the fund's spokesperson, Julie Kozack, told reporters when asked about the state of negotiations. "At this stage, there is no specific timeline for those discussions.”

FILE - Argentine President Javier Milei walks arm-in-arm with Vice President Victoria Villarruel during Independence Day celebrations, in Buenos Aires, Argentina, July 9, 2024. Argentina's consumer price index report released Friday, July 12, 2024, showed Argentina’s annual inflation slowing a bit to just over 271% — still among the highest rates in the world. (AP Photo/Natacha Pisarenko, File)

FILE - Argentine President Javier Milei walks arm-in-arm with Vice President Victoria Villarruel during Independence Day celebrations, in Buenos Aires, Argentina, July 9, 2024. Argentina's consumer price index report released Friday, July 12, 2024, showed Argentina’s annual inflation slowing a bit to just over 271% — still among the highest rates in the world. (AP Photo/Natacha Pisarenko, File)

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