California has so much money it could send some back to taxpayers, Gavin Newsom says

California has so much money it might have to give some back to taxpayers.

The state is on pace to hit a spending cap voters adopted in 1979 when state politics were dominated by a taxpayer revolt, Gov. Gavin Newsom said Friday as he unveiled his $227 billion 2021-22 spending plan.

The cap, known as the Gann limit in honor of taxpayer watchdog Paul Gann, aims to restrict per capita government spending to 1978-79 levels. Voters passed it just after they adopted Proposition 13, the landmark law that restricts California property tax increases.

If the state exceeds the Gann limit, the government must send rebates to taxpayers.

California has not sent money back to taxpayers because of the Gann limit since 1986, when taxpayers received $1.1 billion in rebates.

Taxpayer watchdogs in recent years have charged that former Gov. Jerry Brown should have doled out rebates as recently as 2017 during the state’s economic recovery. He budgeted spending in such a way that the state avoided the Gann limit, according to a report from the Legislative Analyst’s Office.

Newsom’s budget projects the state would exceed the limit by $102 million. Half of the money would go to schools, and half would go back to taxpayers if the trends hold, according to his budget proposal.

It’s a sharp turn from last year’s budget, when Newsom took steps to close what he projected as a $54 billion deficit brought on by the coronavirus outbreak.

California’s finances were stronger than he anticipated then because wealthy households largely have not been set back by the pandemic, and they pay the lion’s share of state taxes.

As a result, his office now projects the state will collect a $15 billion surplus in the next budget year.

“We are on a much better fiscal footing than anyone could have imagined even a few months ago,” Newsom said.

Nationally, Democrats and Newsom have argued that states need more financial support from the federal government during the coronavirus pandemic. States anticipate receiving even more funds as Democrats prepare to pass another stimulus proposal under the incoming Biden administration.

Newsom’s announcement Friday marked the beginning of the state budget process. He’ll update his proposal in May, and state lawmakers must approve a budget to send him in June.

Sophia Bollag of The Sacramento Bee Capitol Bureau contributed to this report.

This story was originally published January 8, 2021 at 12:58 PM with the headline "California has so much money it could send some back to taxpayers, Gavin Newsom says."