The California State Senate rejected Governor Gavin Newsom’s proposed budget cuts to sectors like education and health care Thursday, instead seeking to draw down more reserves, raise taxes on certain industries and borrow against the future to make up an estimated $54 billion shortfall.

“I hope the proposal the Senate puts forward has a positive impact, particularly when it comes to addressing the budget shortfall that does not make conditions worse for our vulnerable California residents,” said state Senator Holly Mitchell, a Democrat from Los Angeles County, during a seven-hour meeting of the Senate Budget and Fiscal Review Committee.

Mitchell and other leading Democrats made it clear Newsom will have to negotiate with them as it relates to getting a budget passed by the swiftly approaching June 15 deadline. The Democrats dominate both houses.

The Golden State was expecting a large surplus as recently as January, but the Covid-19 pandemic and the ensuing lockdown policies ground the economy to a halt and punched a huge hole in the state’s budget.

One of the major points of contention between Newsom and Senate Democrats related to health care funding for undocumented senior residents. Called the SEED Initiative, Newsom withdrew the health care spending plan from his May revise.

The senators heard more than three hours of public testimony on Thursday, with several urging the senators to retain funding for the SEED Initiative.

The Senate passed a budget plan that restores the program but also delays it until 2022. Newsom also called for cuts to various programs associated with K-12 education and community colleges, a proposal that Democrats balked at during the budget committee meeting.

Instead, the Senate proposed deferring approximately $9 billion in payments to schools around the state for at least one year, allowing the schools to borrow while sparing the state coffers.

The Senate also proposed raising taxes on the companies that carry out the state’s Medicaid program, raising about $1 billion.

State Senator Jim Nielsen, the ranking Republican on the committee, said the state needs to prepare for a more comprehensive approach to tackling the budget shortfall.

“We need to think about the more structural changes required to get us back on a sound footing with the economy,” he said.

While the budget committee got underway, two lawmakers proposed legalizing gambling in California as a means of capturing more revenue to address shortfalls on that side of the ledger.

State Senator Bill Dodd and Assemblymember Adam Gray, both Democrats, unveiled their plan to allow legalized betting in the Golden State as a means to enhance revenues as well as protect gamblers and provide greater transparency and accountability to an industry that currently operates in the shadows.

Like many of you, I’m not a gambler but I see how important this is for the well-being of California,” Dodd said. “Even if you don’t bet there is good reason to support this bill, revenue from sports wagering will help us avoid teacher layoffs and painful cuts. At the same time, it will allow us to regulate a practice that happens anyway.”

The two lawmakers said they would introduce a bill into committees next Tuesday.

While the Senate passed its preferred budget on Thursday, there is about two weeks’ worth of work that remains for all parties. The Assembly has yet to put forth its proposal. Once all three proposals are out there, the horsetrading among the Democrats will commence as the fiscal year is set to begin on July 1.