Evelyn Reynolds

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    ‘There Are No Good Options’: The U.S. Is Running Out of Money

    Treasury is running out of cash, leaving little time to resolve a debt ceiling standoff that could result in default.President Biden and Speaker Kevin McCarthy will meet on Tuesday afternoon to discuss budget priorities and raising the debt limit at a precarious moment: The United States is quickly running out of cash to pay its bills.Lawmakers have less than a month to pass legislation to increase or suspend the debt ceiling, which caps the amount of money the government can borrow. The United States reached its statutory $31.4 trillion debt limit on Jan. 19, and the Treasury Department estimates that the accounting maneuvers it has been employing to prop up its cash reserves could be exhausted as soon as June 1.If the debt ceiling is not raised before the government runs out of cash — what is known as the X-date — it could be unable to pay all its bills on time, including military salaries, payments to bondholders and Social Security checks. Barring a solution, millions of Americans could stop receiving government benefits, stock markets could plunge, and a constitutional crisis could ensue.The Bipartisan Policy Center, a think tank that tracks the nation’s cash reserves, warned on Tuesday that the X-date was likely to be between early June and early August. It said that economic risks would start to surge before the money ran out and that meeting the nation’s financial obligations would soon become increasingly difficult.“The coming weeks are critical for assessing the strength of government cash flows,” said Shai Akabas, the director of economic policy at the Bipartisan Policy Center. “If a solution is not reached before June, policymakers may be playing daily Russian roulette with the full faith and credit of the United States, risking financial disaster for their constituents and the country.”A default could come sooner than expected because tax revenues have been trickling into the government’s coffers this spring. The sluggish pace is due in part to a decision by the Internal Revenue Service to give taxpayers in states that were affected by severe weather more time to file their 2022 taxes.The brinkmanship has renewed questions about how the federal government might try to prioritize certain payments if it does run out of cash, whether Mr. Biden could ignore the debt limit entirely and order the Treasury Department to continue borrowing, and if far-fetched ideas such as minting a $1 trillion coin could in fact be viable.Treasury Secretary Janet L. Yellen said on Monday that if the debt limit was not raised, then Mr. Biden would have to decide how to proceed.“I would say that if Congress doesn’t raise the debt ceiling, the president will have to make some decisions about what to do with the resources that we do have,” Ms. Yellen said on CNBC. “And there are a variety of different options, but there are no good options.”She added that failing to raise or suspend the debt limit would be an “economic catastrophe” and assailed Republicans for holding the economy hostage.“It’s a gun to the head of the American people and the American economy,” Ms. Yellen said.Mr. Biden and Mr. McCarthy will be joined by Senator Chuck Schumer of New York, the majority leader, and Senator Mitch McConnell of Kentucky, the minority leader. Ms. Yellen is traveling to Japan on Tuesday for a gathering of finance ministers of the Group of 7 nations and will not be participating in the meeting at the White House.The Biden administration and lawmakers are under growing pressure from business groups to find a way to avoid a default.“A default would deliver a severe blow to the economy, leading to widespread job losses, decimated retirement savings and higher borrowing costs for families, businesses and the government,” said Joshua Bolten, the chief executive of the Business Roundtable. “Failing to raise the debt limit would also threaten the U.S. dollar’s central role in the global financial system to the benefit of China.”He added: “Securing a bipartisan path forward to raise the debt ceiling could not be more urgent.” More

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    Biden and McCarthy to Discuss Debt Limit as a Possible Default Looms

    The president will host the House speaker and other congressional leaders at the White House on Tuesday to discuss their impasse over the debt ceiling and spending cuts.WASHINGTON — President Biden will meet with Speaker Kevin McCarthy at the White House on Tuesday in a critical face-to-face confrontation that will frame their showdown over the federal debt and spending in the weeks before the nation is set to default on its obligations for the first time in history.With the American and perhaps the global economy hanging in the balance, the meeting will be the first sit-down session between the Democratic president and Republican speaker since February. But even the terms of the discussion are in dispute: Mr. McCarthy insists the president negotiate a debt ceiling deal with him, while Mr. Biden insists the meeting will just be an opportunity to tell the speaker that there will be no negotiations over the limit.The meeting in the Oval Office will feature Mr. Biden, Mr. McCarthy and three other congressional leaders: Representative Hakeem Jeffries of New York, the Democratic leader in the House, and Senators Chuck Schumer of New York and Mitch McConnell of Kentucky, the Democratic and Republican leaders in the Senate. But Mr. Biden and Mr. McCarthy are the key players, locked in a political game of chicken to see who will blink first on raising the debt ceiling.With the federal government expected to default on its debt as soon as June 1 without an agreement, Mr. McCarthy and his Republican caucus have refused to raise the debt ceiling without commitments to major spending cuts. Mr. Biden has said he would discuss ways to reduce the deficit but has refused to link any spending decisions to the debt ceiling increase, arguing that Congress should simply raise the ceiling as it has for generations to pay for spending already approved.Karine Jean-Pierre, the White House press secretary, repeatedly referred to Mr. Biden’s meeting with Mr. McCarthy on Tuesday as a “conversation” rather than negotiations.Pete Marovich for The New York Times“We should not have House Republicans manufacturing a crisis on something that has been done 78 times since 1960,” Karine Jean-Pierre, the White House press secretary, said on Monday. “This is their constitutional duty. Congress must act. That’s what the president is going to make very clear with the leaders tomorrow.”The meeting that Mr. Biden has called, she added, will not involve any haggling over the debt ceiling. “I wouldn’t call it ‘debt ceiling negotiations,’” she said in reply to a reporter who used that phrase. “I would call it a conversation.” In fact, she was so intent on calling it a “conversation” that she used the word to describe the meeting 15 times during her briefing.Neither side expects any breakthrough at the session, scheduled for 4 p.m., but instead the leaders plan to use it to emphasize their positions in the dispute, in effect setting the parameters for the debate that will play out over the next few weeks. In recent years, such standoffs have not been resolved until the final hours and days before a deadline — or the deadline is extended.Mr. Biden has indicated that he is willing to have a separate discussion with Mr. McCarthy and the Republicans over spending that is not directly linked to the debt ceiling legislation. White House officials said the president plans to push Republicans to consider the tax increases and prescription drug savings he laid out in his most recent budget, which would reduce deficits by an estimated $3 trillion over 10 years, as part of a larger package to reduce debt accumulation over time.He is likely to challenge Republicans in Tuesday’s meeting to be more specific in the spending they would cut. He has hammered them for more than a week over the potential consequences — like reduced funding for veterans’ health services — that could result from the discretionary spending caps they included in a debt ceiling bill that passed the House late last month.Republicans have bristled at the president’s attacks on their legislation, calling them misleading. But they noted that unlike the Democrats, they at least have passed a measure to raise the debt ceiling, albeit conditioned on spending cuts. They argued that Mr. Biden and his Democratic allies have to come to the table with a counterproposal. Otherwise, they maintain, it would be the Democrats, not the Republicans, who failed to raise the debt ceiling, leading to a possible default.“They have to now step up and act like responsible leaders,” Representative Jodey C. Arrington, a Republican from Texas and the chairman of the House Budget Committee, said on CNBC on Monday. “We’ve done that, and we have set that example, and we have placed in their hands a list of proposals that we have gotten consensus on. It’s their time to respond, and the American people expect them to.” More

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    Worries linger about financial stability following bank rescue, Fed report shows

    The Federal Reserve issued its periodic report on the nation’s financial and economic health, a survey showing the biggest fears about current conditions.
    Respondents cited “persistent inflation and tighter monetary policy, banking-sector stress, commercial and residential real estate and geopolitical tensions.”
    Several sectors were identified as having elevated potential for trouble. They include money market funds, stablecoins and hedge funds, particularly larger firms.

    The Federal Reserve in Washington, D.C.
    Wysiati | E+ | Getty Images

    Banking system pressures, real estate stress and persistent inflation top worries about financial stability, though the system overall remains stable, the Federal Reserve said in a report Monday.
    The central bank issued its periodic report on the nation’s financial and economic health, a survey of market experts, economists, academics and others that showed the biggest fears about current conditions.

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    “Frequently cited topics in this survey included persistent inflation and tighter monetary policy, banking-sector stress, commercial and residential real estate and geopolitical tensions,” the report stated.
    The Fed last published its Financial Stability Report in November 2022 before the implosion about two months ago of several prominent midsize banks, including Silicon Valley Bank, an important funding source for technology companies.
    In response to the crisis, the Fed implemented several emergency funding measures it said have helped stabilize the system.
    “Overall, the banking sector remained resilient, with substantial loss-absorbing capacity,” the report stated. “Policy interventions by the Federal Reserve and other agencies helped mitigate these strains and limit the potential for further stress.”
    Several sectors were identified as having elevated potential for trouble.

    These sectors include money market funds, stablecoins and hedge funds, particularly larger firms. However, the report also notes leverage is generally low across household and business debt, including commercial real estate, a potential trouble spot for the economy.
    The report was released on the same day the Fed’s survey of senior loan officers at banks said they see tighter lending standards and lower demand ahead.
    Among the lending officers’ concerns were deposit outflows, a weakening economy and bank liquidity. Commercial and industrial loans were cited as particular point of stress, as was commercial real estate.
    However, the stability report noted bank capital ratios are around what would be considered normal while leverage was mostly lower. The bank did highlight leverage at nonbank financial institutions such as hedge funds.
    “Actions taken by the official sector reassured depositors, and the broad banking system remained sound and resilient. For the banking system as a whole, aggregate bank capital levels were ample,” the report said.
    The Fed added it is prepared to take whatever measures are necessary to keep the system stable. More

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    Financial Stability Experts at the Fed Turn a Wary Eye on Commercial Real Estate

    A financial stability report from the Federal Reserve flagged concerns tied to rising interest rates, including in commercial real estate.Federal Reserve financial stability experts are on the lookout for weaknesses after a year of rising interest rates — and as they survey the potential risks confronting the system, they are increasingly watching office loans and other commercial real estate borrowing.Fed officials have lifted borrowing costs rapidly over the past year — to just above 5 percent from near-zero in early 2022 — to cool rapid inflation by slowing the economy. So far, the fallout from that abrupt change has been most obvious in the banking sector. A series of high-profile banks have collapsed or faced turmoil in recent weeks partly because they were poorly prepared for heftier borrowing costs.But Fed staff members and market experts whom they survey cited commercial real estate as another area worth watching in the central bank’s twice-annual Financial Stability Report, which was released Monday.The jump in interest rates over the past year “increases the risk” that commercial borrowers will not be able to refinance their loans when the loans reach the end of their term, Fed staff wrote in the report, noting that commercial real estate values remain “elevated.”“The magnitude of a correction in property values could be sizable and therefore could lead to credit losses by holders of C.R.E. debt,” the report said — noting that many of those holders are banks, and particularly smaller banks.“The Federal Reserve has increased monitoring of the performance of C.R.E. loans and expanded examination procedures for banks with significant C.R.E. concentration risk,” the report said.The Fed’s comments on commercial real estate amounted to muted watchfulness rather than a full-throated warning — but they come at a time when many investors and economists are closely monitoring the sector. The outlook for office buildings in downtown areas, where workers have not fully returned after a shift to remote work that began during the coronavirus pandemic, has emerged as a particular concern on Wall Street.The report included a survey of 25 professionals at broker-dealers, investment funds, research and advisory organizations, and universities, and those respondents ranked commercial real estate as their fourth-biggest financial stability concern — behind risks from interest rate increases, banking sector stress, and U.S.-China tensions, but ahead of Russia’s war in Ukraine and an impending fight in Congress about raising the debt limit.“Many contacts saw real estate as a possible trigger for systemic risk, particularly in the commercial sector, where respondents highlighted concerns over higher interest rates, valuations and shifts in end-user demand,” the report said.The Fed’s stability report also focused on risks to the economy that might come from the recent banking sector turmoil, which many officials are worried might prompt banks to pull back when it comes to lending. A Fed survey of bank loan officers released on Monday showed that demand for many types of loans has fallen in recent months, and it is becoming gradually harder to borrow.Worries could “lead banks and other financial institutions to further contract the supply of credit to the economy,” the Fed report said. “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity.”And if banks pull back in a dramatic way, it could have knock-on effects, the Fed report warned.“With a decline in profits of nonfinancial businesses, financial stress and defaults at some firms could increase,” the report said, especially because companies are very indebted — which puts them on dicier footing if business goes badly. More

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    Fed report shows banks worried about conditions ahead, with focus on slowing economy and deposit outflows

    Tumult in mid-sized institutions caused banks to tighten lending standards both to households and businesses, potentially posing a threat to U.S. economic growth, according to a Federal Reserve report Monday.
    The Fed’s quarterly Senior Loan Officer Opinion survey said requirements got tougher for commercial and industrial loans as well as for many household-debt instruments such as mortgages, home equity lines of credit and credit cards.

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    The loan officers further said they expect troubles to persist over the next year, owing largely to diminished expectations for economic growth as well as fears over deposit outflows and reduced risk tolerance.
    Asked their expectations for the next year, respondents gave a fairly gloomy outlook of what’s ahead.
    “Banks reported expecting to tighten standards across all loan categories,” the report said. “Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023.”
    At the same time, the survey showed that demand weakened across most categories.
    In particular, the report showed “tighter standards and weaker demand” for commercial and industrial loans, an important bellwether for economic growth. Those conditions were seen across all business sizes.

    Also, the report showed the same conditions across commercial real estate categories.
    “There has been an ongoing tightening of lending conditions. And that is part of part of the process by which monetary policy works,” Treasury Secretary Janet Yellen told CNBC’s Sarah Eisen in response to a question about the report in a Monday “Closing Bell” interview. “The Fed is aware that tightening of credit conditions is something that will tend to slow the economy somewhat. And I believe they are taking this into account in deciding on appropriate policy.”
    The survey was being closely watched on Wall Street to gauge the fallout from troubles in the banking industry that accelerated in early March.
    That’s when regulators shuttered Silicon Valley Bank and Signature Bank following a run on deposits spurred by a loss of confidence that the institutions would have the liquidity to meet their obligations.
    Since then, JPMorgan has taken over First Republic Bank following similar troubles at that firm, and UBS bought rival Credit Suisse after the latter needed rescuing.
    Even with the banking troubles, the central bank last week decided to raise interest rates for the 10th time since March 2022. Policymakers already had seen the SLOOS report before their meeting concluded Wednesday, and Fed Chair Jerome Powell said conditions are about as expected considering what has happened in the sector.
    “The SLOOS is broadly consistent when you see it with how we and others have been thinking about the situation and what we’re seeing from other sources,” Powell told reporters. “Banking data will show that lending has continued to grow, but the pace has been slowing really since the second half of last year.”
    At the March meeting, the Fed’s own economists warned that a shallow recession was likely later in the year because of the tightening standards resulting from the banking problems. More

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    Outlook for household spending slumped in April, New York Fed survey shows

    The Survey of Consumer Expectations for April showed that the outlook for spending fell by half a percentage point to an annual rate of 5.2%, the lowest since September 2021.
    Respondents expect an inflation rate of about 4.4% in the next 12 months, down half a percentage point from March.

    People walk in front of a store along the Magnificent Mile shopping district on March 15, 2023 in Chicago, Illinois.
    Scott Olson | Getty Images

    Household spending is expected to decrease significantly over the next year, according to a New York Federal Reserve survey released Monday that reflects downbeat consumer sentiment as well as a potential slowdown for inflation.
    The central bank Survey of Consumer Expectations for April showed that the outlook for spending fell by half a percentage point to an annual rate of 5.2%, the lowest level since September 2021.

    That came with a corresponding decline of 0.3 percentage point in the overall outlook for inflation over the next year. Respondents expect an inflation rate of about 4.4% in the next 12 months, still well above the three-year outlook for 2.9% and the five-year view of 2.6%.
    All of those levels are still above the Fed’s 2% inflation target, though they are drifting closer to the goal.
    The survey’s results come less than a week after the Fed approved its 10th consecutive interest rate hike since March 2022. That took the benchmark fed funds rate to a target range of 5% to 5.25%, the highest level since August 2007.
    Along with the rate hike, Fed officials hinted that this month’s increase could be the last for a while as they assess the impact of all the preceding monetary policy tightening.
    Consumers expect to see gas prices climb by 5.1% over the next year, a half-point increase from the March survey. Food prices are projected to rise by 5.8%, a 0.1 percentage point decline from the previous month. The outlook for college costs dropped sharply, falling to an expected increase of 7.8% that was 1.1 percentage points lower than March.

    The median outlook for earnings growth was unchanged at 3%, though the employment outlook worsened. The likelihood that the unemployment rate will be higher a year from now increased to 41.8%, a 1.1 percentage point increase. The jobless rate for April fell Friday to 3.4%, tied for the lowest since May 1969.
    Elsewhere in the survey, the one-year outlook for home price appreciation rose to 2.5%, the highest since July 2022 and a 0.7 percentage point increase from March. More

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    In Debt Limit Talks, Biden and Republicans Start Far Apart

    As the president prepares to meet with Speaker Kevin McCarthy this week, his budget shares little common ground with spending and tax proposals from House Republicans.President Biden is set to welcome Speaker Kevin McCarthy and other top congressional leaders to the White House on Tuesday for a pivotal round of discussions about the nation’s taxes, spending and debt as a potentially catastrophic government default rapidly approaches.The talks come just weeks before the United States is expected to run out of cash to pay its bills unless the nation’s borrowing cap is lifted. Like previous moments of brinkmanship, the discussions have echoes of 2011 and 2013, when congressional Republicans refused to raise the debt ceiling unless a Democratic president agreed to curb federal spending and reduce budget deficits. The same dynamic is at play now, but with a crucial difference: The parties share almost no common ground on tax and spending proposals that are meant to reduce the growth of the nation’s $31.4 trillion debt.The meeting is not expected to produce anything close to final agreement on a fiscal plan that could include raising the debt limit. But even small points of consensus could be hard to come by.Mr. Biden wants to expand federal spending and reduce future debt, largely by raising taxes on high earners and large companies. Republicans have passed a bill to cut federal discretionary spending — a category that includes national parks, education and more — and cancel tax breaks for certain low-emission energy sources that were part of Mr. Biden’s signature climate law. Republicans have promised to extend the 2017 tax cuts that were approved by President Donald J. Trump and are set to expire at the end of 2025.While both sides say they want to reduce the nation’s future debt burden, there is almost no overlap in how they aim to achieve that outcome. The only point of agreement so far is on the one thing Mr. Biden and Mr. McCarthy consider off limits in budget talks: Social Security and Medicare, the primary sources of projected federal spending growth in the decades to come.The gulf on fiscal issues is one of several complicating factors in discussions over the debt limit, which the government technically hit earlier this year. Officials have been employing what are essentially accounting maneuvers to keep paying all the government’s bills on time without going over the current $31.4 trillion limit. But Janet L. Yellen, the Treasury secretary, warned in a letter last week that those efforts will no longer be possible as soon as June 1, risking a debt default that economists warn could spawn a financial crisis and recession.We Hit the Debt Limit. What Happens Now?Lawmakers will need to reach a bipartisan agreement to lift the debt limit. The longer it takes, the more turmoil there could be for the United States and the global economy.Mr. Biden has refused to negotiate directly over the limit, saying Republicans must vote to raise it without conditions, given that it simply allows the government to pay for spending that lawmakers in both parties have already approved. But he invited Mr. McCarthy and other congressional leaders to come to the White House on Tuesday for what he called a separate negotiation on fiscal policy — even though it is effectively linked to the debt limit drama.Republicans say they will not raise the limit without significant curbs in spending. That is the same position they took in 2011 and 2013, under President Barack Obama, when Mr. Biden was vice president. They did not make similar demands to raise the limit when they controlled Congress at the start of Mr. Trump’s term and Republican votes helped to effectively raise the limit.In 2011, Mr. Obama entered debt limit negotiations with a set of proposed spending cuts. They included a five-year freeze on discretionary spending not related to national security, a separate freeze on federal workers’ salaries for two years and the elimination of an air-to-air missile program and a fighting vehicle for the Marine Corps. Republicans countered with a budget that featured deep cuts to federal health care spending, privatizing Medicare for future beneficiaries and new tax cuts.Republicans ultimately agreed to raise the debt limit in exchange for budget changes centered on caps on discretionary spending — essentially modifying and expanding the spending freeze Mr. Obama had proposed in his budget.Unlike Mr. Obama more than a decade ago, Mr. Biden has never agreed with Republicans’ argument that federal spending has grown too large. He has proposed to scale back the growth in government debt, but his aides reject the Republican contention that the current path of the debt poses a significant threat to economic growth.Mr. Biden’s most recent budget included $3 trillion in proposals to reduce future deficits. The savings would come largely from tax increases on the wealthy and big corporations, along with cutting government spending on health care by broadening Medicare’s ability to negotiate prescription drug prices.Republicans have rejected all the tax increases and criticized Mr. Biden earlier this year for not proposing to spend even more on the military than he already did.House Republicans have not put forth or passed a budget. The bill they passed last month would raise the debt limit by $1.5 trillion or through March 2024, whichever came first. It would reduce future deficits by nearly $5 trillion, largely by freezing certain federal spending for a decade, according to the nonpartisan Congressional Budget Office.It also included new supports for fossil fuels, a rollback of Mr. Biden’s climate change agenda and an end to the president’s attempt to cancel student loan debt for most borrowers, which appears likely to be struck down by the Supreme Court regardless.Neither side has found anything to like in the other’s starting position. Republicans “didn’t produce a budget,” Representative Hakeem Jeffries of New York, the Democratic leader, who will join Mr. McCarthy at the White House meeting, told NBC News on Sunday. “What they did was produce a ransom note.”Representative Jodey C. Arrington of Texas, the chairman of the Budget Committee, countered that Mr. Biden would have to relent and negotiate with Republicans.Mr. Biden “has negotiated, as vice president and as a senator, debt ceiling increases, with common-sense spending controls and fiscal reforms,” Mr. Arrington told Fox News on Sunday. “And we’re just asking him to be a responsible leader and do that again.” More

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    California Panel Calls for Billions in Reparations for Black Residents

    A task force recommended that legislators enact a sweeping program to compensate for the economic harm from racism in the state’s history.A California panel approved recommendations on Saturday that could mean hundreds of billions of dollars in payments to Black residents to address past injustices. The proposals to state legislators are the nation’s most sweeping effort to devise a program of reparations.The nine-member Reparations Task Force, whose work is being closely monitored by politicians, historians and economists across the country, produced a detailed plan for how restitution should be handled to address a myriad of racist harms, including housing discrimination, mass incarceration and unequal access to health care.Created through a bill signed into law by Gov. Gavin Newsom in the wake of the nationwide racial justice protests after the murder of George Floyd in 2020, the panel has spent more than a year conducting research and holding listening sessions from the Bay Area to San Diego.It will be up to legislators to weigh the recommendations and decide whether to forge them into law, a political and fiscal challenge that has yet to be reckoned with.The task force’s final report, which is to be sent to lawmakers in Sacramento before a July 1 deadline, includes projected restitution estimates calculated by several economists working with the task force.One such estimate laid out in the report determined that to address the harms from redlining by banks, which disqualified people in Black neighborhoods from taking out mortgages and owning homes, eligible Black Californians should receive up to $148,099. That estimate is based on a figure of $3,366 for each year they lived in California from the early 1930s to the late 1970s, when federal redlining was most prevalent.To address the impact of overpolicing and mass incarceration, the report estimates, each eligible person would receive $115,260, or about $2,352 for each year of residency in California from 1971 to 2020, during the decades-long war on drugs.In theory, a lifelong state resident who is 71 years old, the average life expectancy, could be eligible for roughly $1.2 million in total compensation for housing discrimination, mass incarceration and additional harms outlined in the report.All of these estimates, the report notes, are preliminary and would require additional research from lawmakers to hash out specifics. The costs to the state were not outlined in the report, but totals from harms associated with housing and mass incarceration could exceed $500 billion, based on estimates from economists.While the panel members considered various methods for distributing reparations — some favored tuition or housing grants and others preferred direct cash payments — they ultimately recommended the direct payments.“The initial down payment is the beginning of a process of addressing historical injustices,” the report reads, “not the end of it.“Kamilah Moore, the chair, and Amos Brown, the vice chair, at the task force meeting on Saturday.Jason Henry for The New York TimesLast year, the task force, which is made up of elected officials, academics and lawyers, decided on the eligibility criteria, determining that any descendant of enslaved African Americans or of a “free Black person living in the United States prior to the end of the 19th century” should receive reparations.Still, on Saturday, there was sometimes contentious debate over clearly expressing the criteria in certain sections of the report — particularly regarding compensation.Should lawmakers pass legislation for payments, the panel suggested that a state agency be created to process claims and render payments, with elderly individuals getting priority. Nearly 6.5 percent of California residents, roughly 2.5 million, identify as Black or African American.“This is about closing the income and racial wealth gap in this country, and this is a step,” Gary Hoover, an economics professor at Tulane University who has studied reparations, said in an interview. “Wealth is sticky and is able to be transferred from generations. Reparations can close that stickiness.”In voting on its final report on Saturday on the Oakland campus of Mills College at Northeastern University, the panel also suggested that state legislators draw up a formal apology to Black residents. A preliminary report made public last year, outlined how enslaved Black people were forced to California during the Gold Rush era and how, in the 1950s and 1960s, racially restrictive covenants and redlining segregated Black Californians in many of the state’s largest cities.In emotional testimony for much of the past year, Black residents have stood before the panel often revealing personal stories of racial discrimination, lack of resources in communities because of redlining and trauma that has had negative effects on health and well-being.While the task force marked the first such effort by a state, a similar measure aimed at creating a commission to explore reparations has stalled in Congress for decades.Representative Barbara Lee speaking during the task force meeting on Saturday.Jason Henry for The New York TimesIn brief remarks before the panel on Saturday, Representative Barbara Lee, a Democrat whose district spans Oakland, lauded the work members have done.“California is leading on this issue,” said Ms. Lee, who is running for the U.S. Senate. “It’s a model for other states in search of reparative damage, realistic avenues for addressing the need for reparations.”The median wealth of Black households in the United States is $24,100, compared with $188,200 for white households, according to the most recent Federal Reserve Board Survey of Consumer Finances. In California, a recent report from the nonpartisan Public Policy Institute of California found for every $1 earned by white families, Black families earn 60 cents — the result of disparities in, among other things, education, and discrimination in the labor market.Assemblyman Reggie Jones-Sawyer, who is one of two state lawmakers on the panel, said he had spoken with Mr. Newsom in recent weeks and expressed optimism that legislation would be approved based on the panel’s report.“The reality is Black Californians have suffered, and continue to suffer, from institutional laws and policies within our state’s political, social, and economic landscape that have negated Blacks from achieving life, liberty and the pursuit of happiness for generations,” said Mr. Jones-Sawyer, who represents a Los Angeles district. “This really is a trial against America’s original sin, slavery, and the repercussions it caused and the lingering effects in modern society.”Mr. Jones-Sawyer said he expected to present some form of legislation early next year.But the efforts and support for racial justice that followed Mr. Floyd’s death are now confronted with an economy that is shadowed by fears of a recession. In January, Mr. Newsom announced that the state faced a $22.5 billion deficit in the 2023-24 fiscal year, a turnaround from a $100 billion surplus a year ago.Nationwide, opinions on reparations are sharply divided by race. Last fall, a survey from the Pew Research Center found that 77 percent of Black Americans say the descendants of people enslaved in the United States should be repaid in some way, while 18 percent of white Americans say the same. Democrats were even split on the issue, with 49 percent opposed and 48 percent in support. Other polls on the issue have found similar splits.Even so, cities across the country have moved forward with reparations proposals. In 2021, officials in Evanston, Ill., a Chicago suburb, approved $10 million in reparations in the form of housing grants.More recently, the San Francisco Board of Supervisors has expressed support for reparations that could offer several million dollars. And in nearby Hayward, Calif., city officials are hearing proposals for reparations for land taken from Black and Latino families in the 1960s.Kamilah Moore, a lawyer who is chair of the California task force, said she was confident that the Legislature would “respect the task force’s official role as a legislative advisory body and work in good faith to turn our final proposals into legislation.”“It will soon be in their hands to act,” Ms. Moore said. More