Governor, Legislators Strike New California Budget Deal: Here's What You Need to Know

BY SAMEEA KAMAL AND ALEXEI KOSEFF, CalMatters

Just in time for the start of a new fiscal year July 1, Gov. Gavin Newsom and legislative leaders announced Monday night that they have reached a deal on the state budget—a $310 billion spending plan that they say protects core programs and covers a $30 billion-plus deficit without dipping into key reserves. 

Despite largely agreeing on the overall structure for weeks, budget negotiations were delayed by the governor’s demands to include a sweeping infrastructure proposal that many lawmakers resisted. The final compromise narrows the types of projects that can take advantage of an expedited approval of permits, leaving out a contentious proposed water conveyance tunnel under the Sacramento-San Joaquin River Delta. 

“We are accelerating our global leadership on climate by fast-tracking the clean energy projects that will create cleaner air for generations to come,” Newsom said in a statement.

If all goes to plan, the main budget bill will be approved by both the Assembly and Senate today and signed by Newsom soon after.

Senate President Pro Tem Toni Atkins, a San Diego Democrat, said she was “heartened” that the leaders agreed on the infrastructure package, and “in a way that focuses on equity by laying the groundwork to ensure that our most vulnerable communities will be hired first on impactful state infrastructure projects.” 

The governor and legislative leaders also touted that they were able to preserve money for education and social service programs, and increase money for childcare providers.

Newsom also noted that the budget includes accountability measures for transit and homelessness, and tax credits for some industries.

“This is a budget for the future,” said Assembly Speaker Anthony Rendon, a Lakewood Democrat who is scheduled to hand over the speaker’s gavel to Assemblymember Robert Rivas, a Salinas Democrat, on Friday under a negotiated transition.

If all goes to plan, the main budget bill will be approved by both the Assembly and Senate today and signed by Newsom soon after. The Legislature began publishing a series of budget-related bills—reflecting agreements in specific policy areas — online Saturday morning to fulfill a requirement that they be available for public review for 72 hours before any votes.

Democratic lawmakers already passed a budget, reflecting their own priorities, on June 15 in order to meet a constitutional deadline. That kicked off a 12-day window for Newsom to sign or veto the bill, increasing pressure on the two sides to reach a deal by Tuesday.

This year’s negotiations were more fraught due to a $31.5 billion deficit, a sharp contrast with record budget surpluses the last two years. The deficit is the result of a downturn in the stock market — a volatile but significant source of California’s state revenues because of its reliance on income taxes, especially those of high earners. Bracing for potential further revenue declines, the budget deal allows the governor to delay, with notification to the Legislature, one-time spending commitments before March 1.

The budget process this year was also made more complicated when many Californians were granted until October, instead of April, to file income tax returns because of storm-related disaster declarations, which made it hard to pin down a precise figure on the state’s revenue. 

Add to that Newsom’s insistence that legislators approve his recent proposal to overhaul the permitting process for major infrastructure projects by changing the landmark California Environmental Quality Act, a move that some housing advocates and developers have demanded for years. 

The governor wanted a package of 11 measures, alongside the main budget bill, that aim to streamline the permitting process among federal, state and local governments; limit the time courts have to hear challenges on environmental reviews; and increase funding to state agencies.

Lawmakers pushed to consider the plan outside of the budget process so they would have more time to review its potential effects and to exempt the proposed Delta tunnel from the changes. That contentious $16 billion project would send water from the Sacramento-San Joaquin Delta south to 27 million people and 750,000 acres of farmland. 

Here are some other highlights of the deal—how much the state plans to invest in other key policy areas that have been sticking points since Newsom kicked off the budget process in January with his initial proposal. 

Social Services and the Safety Net

Low-income families who receive state subsidies to pay for child care would see a near-elimination of copayments known as “family fees” under the budget bills that are part of the Legislature’s agreement with Newsom. 

The fees, which can be hundreds of dollars a month for families, have been waived throughout the pandemic but were set to return at the end of September. Under the tentative agreement, families would not have to pay more than 1% of their incomes toward the fees. 

The budget bills also include funding to raise pay for child care providers, who have demanded an immediate 25% increase in reimbursement rates (amounting to $1 billion a year) and a long-term plan to overhaul how those rates are calculated. 

But how the funding gets doled out—whether the funding is a permanent raise or a temporary stipend—remains a sticking point between Newsom’s administration and the child care providers’ union. The parties are still bargaining a new labor contract for providers days before the current one expires.

The agreement kills a proposal to create an unemployment insurance program for undocumented workers, who are ineligible for jobless benefits. 

In addition to other funds intended to help communities across the state recover from this year’s storms and flooding, the budget plan would provide direct relief to the towns of Planada and Pajaro. Both towns were partially under water after the winter storms. Now they are slated to receive $20 million each to help residents recover, regardless of their citizenship or legal status.

The agreement kills a proposal to create an unemployment insurance program for undocumented workers, who are ineligible for jobless benefits. Advocates had hoped to start a pilot program; then pushed instead for a working group to study the issue. Neither got the administration’s agreement in the budget.

The tentative agreement also includes $500 million to make permanent a temporary 10% increase in welfare benefits for recipients of CalWorks, the state’s cash aid program. But lawmakers couldn’t reach an agreement with Newsom’s administration on an Assembly proposal to loosen work requirements and lessen financial penalties for recipients, which could have weakened the ties between welfare and work and focused more on supportive social services that could help a family in crisis.

The Legislature did get its way in the agreement by rejecting a Newsom proposal to use half of the state’s $900 million in reserves for social safety net programs, with lawmakers reasoning the reserves should be saved for worse budget years. 

— Jeanne Kuang and Nicole Foy

A Hit on Climate Programs

California’s efforts to battle climate change — particularly programs to help switch to zero-emission vehicles and clean energy — appear poised to take a substantial hit in the budget agreement between Newsom and the Legislature.

Based on the June 15 budget approved by the Legislature, an estimated $5 billion, or 9 percent, will be cut out of $54 billion in climate climate projects established in the 2021 and 2022 budgets. The Legislature and the governor were still working out final details.

Newsom has said his budget proposals give priority “to communities that face disproportionate harm from pollution and the climate crisis.” But environmentalists say the reductions will keep California from meeting its targets for cutting greenhouse gas emissions and other air pollutants.

“These climate budget rollbacks undercut our state’s ability to meet our climate goals—pure and simple,” Mary Creasman, chief executive of the advocacy group California Environmental Voters, said in a statement. “The climate crisis isn’t taking a break in 2023, that much is clear, and neither can our climate action.”

Senate leaders in April proposed restoring some of the climate cuts but the governor’s office rejected that plan because it depended largely on tax increases and suspending corporate tax credits.

The $5 billion would be less than the $6 billion reduction that Newsom originally proposed in January. But environmentalists said even some of the wins will have mixed results.

For instance, regional transit agencies will be able to use money slated for clean energy infrastructure and the purchase of zero-emission buses for operations, Pew said.

Given how central a role public transportation plays in meeting greenhouse gas targets, the tradeoff was necessary, Pew said. The cuts do, however, endanger the state’s potential to electrify more buses.

“These climate budget rollbacks undercut our state’s ability to meet our climate goals—pure and simple,” Mary Creasman of California Environmental Voters said. “The climate crisis isn’t taking a break in 2023, and neither can our climate action.”

“We love electric buses and want to see more of them and want to electrify the entire fleet but there is not much point to running electric buses if you don’t have a transit system,” Pew said.  “It hurts to have to make that tradeoff, but from my perspective it is an acceptable one to make in this budget situation.”

To make up for the cuts, Newsom has said he is seeking federal climate funding from the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. He also has asked the Legislature to seek voters’ approval of a climate bond, ranging from $6 to $16 billion.

— Alejandro Lazo

A Mixed Bag for K-12 Education

The budget includes a historic, 8.22% cost-of-living adjustment for California’s public schools. The total Proposition 98 funding for the 2023-24 fiscal year will be $108.3 billion. But the governor and the Legislature also agreed to some hefty cuts.

First off is the $200 million decrease to the Arts, Music, Instructional Materials Discretionary Block Grant. Despite its name, school districts were allowed to use this money on everything from facilities to salaries. In January, Newsom proposed slashing $1.8 billion, but his office ultimately agreed to go with the Legislature’s smaller cut.

The governor and Legislature also met in the middle to reduce the Learning Recovery Block Grant by $1.6 billion, leaving $6.3 billion available to districts for helping students recover from pandemic-era learning loss.

In a big win for dyslexia advocates, the budget includes $1 million for the California Department of Education to form an independent task force that would compile a list of screening tools used to test students for difficulties with reading. California is currently one of 10 states that doesn’t screen all students for dyslexia, despite having a governor who’s been outspoken about his past struggles with the learning disability. 

The $1 million is just the beginning. Districts will be required to screen all students starting in the 2025-26 school year, using one of the tools approved by the task force. Advocates, including classroom teachers, say it’s long overdue.

The budget also includes a $300 million “equity multiplier” allocated for schools with the highest concentrations of “socioeconomically disadvantaged” students, which includes students from low-income households, students experiencing homelessness and students whose parents did not graduate high school. 

The state will also require districts receiving equity-multiplier funding to create plans to support student groups who performed lowest on one or more of the categories included in the California School Dashboard, which tracks suspension rates, test scores, chronic absenteeism and graduation rates.This component of the equity multiplier was not in Newsom’s original proposal and suggests concessions to advocates for Black students who had fought for all of this money to go to Black students, who are the lowest-performing on standardized tests throughout California.

— Joe Hong

More In-State Slots at UC, CSU

More admissions letters for California undergraduates, a fulfilled promise to increase state support for public universities, vows to further grow the state’s financial aid program for the middle class, and expanded affordable student housing are the key features in the deal crafted by the Legislature and Newsom.

The University of California will need to enroll 7,800 more in-state undergraduates this fall and be expected to educate another 8,800 California students by 2026. 

The budget deal fulfills Newsom’s promise that state funding for the UC and CSU grow by 5 percent each. It won’t be enough money to address the CSU’s revelation that they take in far less revenue than they need. 

The move doubles down on the state’s commitment to maintain access to the selective public institution. Part of the plan includes giving the UC to enroll fewer 900 out-of-state students, who pay three times as much in tuition, to make way for an equal number of California residents. 

Under the same deal, the California State University system is expected to grow its in-state undergraduate enrollment by 4,000 students for the coming academic year and add another 20,000 seats by 2025. 

While the budget deal fulfills Newsom’s ongoing promise that state funding for the UC and CSU grow by 5 percent each it won’t be enough money to address the CSU’s recent revelation that they take in far less revenue than they need to support their students. 

The Middle Class Scholarship is also set to get a previously promised $227 million this fall, which should net most in-state UC and CSU undergraduate students several hundred more dollars toward their education this fall. 

The deal so far also ensures $2.2 billion in affordable student housing grants is on the way — enough for at least 11,000 beds. The UC, CSU and community colleges were going to receive state funding directly, but will now be expected to issue bonds that the state will pay off. The funding switch shouldn’t slow down campus construction, an analyst at Newsom’s Department of Finance told CalMatters. 

Finally, the three systems will gain access this year to another $200 million in zero-interest loans to build student and staff housing — part of a revised plan to ultimately receive $1.7 billion in state loans by 2028, short of the original $1.8 billion by 2024-25 promised last year. 

— Mikhail Zinshteyn

Fixing a Typo on Community College Funding

In addition to a financing change for student housing — instead of cash financing, community colleges will have to issue bonds, which will free up more money this year — the budget deal fixed the governor’s prior typo: All colleges — not just Los Angeles — will see new funding for LGBTQ students. 

The deal also includes new reporting requirements about CalFresh in an effort to promote more collaboration between county agencies and the UC, CSU, and community college administrators who sign students up for food benefits. The requirements come after a change from the federal government has put some students in jeopardy of losing their benefits.

— Adam Echelman

Status Quo on Homelessness

The proposed budget also allocates funding to one of the state’s most pressing problems—its massive homelessness crisis. It pours $1 billion into round five of the state’s Homeless Housing, Assistance and Prevention program, which doles out money local officials can use for housing, outreach at encampments, emergency shelters and more. 

This marks the third year in a row the program would receive $1 billion from the state budget. Collectively, the state has allocated nearly $21 billion to housing and homelessness since the 2018-19 fiscal year, according to the Legislative Analyst’s Office.

But this year’s figure is sure to disappoint homeless advocates and local government leaders who wanted more from the Newsom administration. 

With an estimated 171,521 unhoused residents, California is home to nearly one-third of the country’s entire homeless population. And local leaders and activists say Newsom’s current approach—handing out one-time grants every year instead of guaranteed ongoing funding—is hampering their efforts to make a dent in the problem. The League of California Cities, which asked for a guaranteed $3 billion a year, earlier this month said it’s “incredibly disappointed” in the budget’s lack of ongoing funding. 

— Marisa Kendall

New Money for Down Payments

In the final hours of negotiations, a few big-ticket spending programs on housing were saved from the chopping block. 

Earlier this year, the governor proposed closing the deficit in part by clawing back funds set aside for a downpayment assistance program. The California “Dream For All” program was open for just 11 days this spring buyers hoovered up its initial $300 million allocation. But over Newsom’s earlier objections, the fund will be reinflated with another $200 million. 

The final budget also restores $50 million each for two grant programs—one to help homeowners get started on building secondary units and another for first-time homebuyers. 

And the city of Fresno will be getting $250 million to update and revitalize its downtown infrastructure, but over three years, and not all at once as Newsom initially proposed.

But budgets aren’t just about spending money. Sometimes they’re used to make—or, in this case, underscore—policy.

The governor proposed closing the deficit by clawing back funds set aside for a downpayment assistance program. Over Newsom’s earlier objections, the fund will be reinflated with another $200 million. 

Case in point: The city of Santa Ana was called out in all but name in the final budget.

Just last week, the Orange County city opted to exempt vast swaths from two state laws designed to make it easier for developers to convert old strip malls, parking lots and defunct office buildings near public transit into new apartments. The Legislature passed the streamlining bills last year and they are set to go into effect on July 1.

On June 20, the Santa Ana City Council exempted more than 600 parcels, instead putting forward alternative sites for fast-tracked development. That was over the objections of state housing regulators, who questioned whether the new proposed sites would actually allow for enough new housing to make up for the exempted parcels.

The resolution in Santa Ana passed easily, so any disagreement the state still has may have to be resolved in court. But if any other cities are planning to try the same maneuver, California’s budget-making legislators are one step ahead of them. 

Call it the city of Santa Ana honorary anti-loophole amendment: The budget now stresses that if a city exempts a commercial parcel from fast-tracked conversion, it has to make up for it by fast-tracking permitting at an alternative site that realistically could provide just as much housing, if not more.

— Ben Christopher

A Big Deal for Medi-Cal

The final budget deal provides more detail on how the state will use revenue from its Managed Care Organization tax, levied on Medi-Cal and commercial health insurance plans and that helps the state receive matching federal dollars. (Health plans agree to this tax because they are eventually paid back.) 

This MCO tax is set to generate $19.4 billion for the state from April 2023 through the end of 2026. About $11 billion of that will be used in part to boost pay for Medi-Cal providers, who have long criticized the state for its low reimbursement rates that they say limits the number of low-income people they can serve. The rest will be used to help cover shortfalls in the upcoming and future state budgets. 

In the 2023-24 budget, specifically, the state will receive $4.4 billion from the MCO tax, of which $3.4 billion will go to the General Fund. The remaining $1 billion will go toward:

• Increasing reimbursements for Medi-Cal providers in primary care, maternity care and non-specialty mental health starting in 2024. This group will see a new Medi-Cal reimbursement floor—87.5 percent of what Medicare, the federal health insurance program for seniors and people with disabilities, pays for the same services. In Medi-Cal, some of these services are currently reimbursed at 60% of what Medicare pays;
• $50 million to help rural hospitals come into compliance with the state’s seismic mandate, due in 2030; 
• $150 million to the distressed hospital loan program for public and nonprofit hospitals in financial trouble, bringing the total available for that purpose to $300 million; 
• $75 million to the University of California to expand its graduate medical education program, in an attempt to produce more physicians. 

The newly minted deal also directs the state to increase reimbursement for other types of Medi-Cal providers and services in future budgets. Among providers and services to be included: specialists, women health providers, hospital emergency services, ground emergency transport services, and behavioral health in long-term care settings. The deal also fast tracks how quickly these other providers can see their payment boosts—now a five-year timeline. Newsom’s budget in May proposed an 8-to-10-year period. 

“It’s hard to overstate how big this is for patients,” said Dustin Corcoran, CEO for the California Medical Association, a group involved in these negotiations. “We want to get to a place of equity in health care, and equity in health care means everybody has access to a physician and needed services. This agreement puts us a long way down the road to accomplishing that.”

— Ana B. Ibarra

A Consumer Win on Covered California

Health care watchdogs scored another win in this year’s budget, successfully negotiating ongoing investment in the state’s Covered California cost-sharing reserve after months of pressure from consumer advocates and legislators. Advocates and lawmakers were miffed when Newsom’s January and May budget proposals moved more than $333 million from the reserve into the General Fund and grew increasingly frustrated upon learning that the state failed to invest a cumulative $1 billion to lower out-of-pocket health insurance costs.

In 2020, Newsom proposed and lawmakers approved a polarizing tax penalty on Californians without health insurance to help fund a cost-sharing program for people insured through Covered California, the state’s version of the Affordable Care Act Marketplace. The penalty generates more than $300 million annually, but has only been used to lower costs once.

The deal this year ensures that the penalty money goes directly into a cost-sharing reserve fund instead of the General Fund. It does approve a $600 million loan to the General Fund to help address the state’s $31.5 billion shortfall, but it commits $82.5 million to lowering health insurance costs over the next year and $165 million annually. The $600 million will be repaid in fiscal year 2025-26. 

— Kristen Hwang

Lawmakers Want More Answers on Prison Closures

California lawmakers want to close prisons, but first they want an answer: Which ones need the costliest upgrades?

That question has lingered ever since a declining inmate population led Gov. Newsom to begin shutting down prisons three years ago. More closures likely are in the works because of the state’s tightening budget and still-falling inmate numbers.

Assembly Budget Committee Chairperson Phil Ting, a San Francisco Democrat, said in February that the California Department of Corrections and Rehabilitation has been unwilling to turn over “the most basic information” about prison infrastructure needs. 

If he had that, Ting said, Newsom and legislators could direct the closure of the facilities with the most expensive needs rather than spend heavily on repairs to prisons bound for shutdowns.

Now, legislators are trying to force answers from the corrections department in a public safety spending bill attached to the budget. The language in the bill requires the agency to assess housing by mid-November and also to show its work by providing its methodology and the underlying data. 

The budget bill declares the Legislature’s intent to close more prisons, but it does not commit to a number. The Legislative Analyst’s Office reported earlier this year that the state can close nine prisons and eight yards, including the four facilities already tabbed for closure by Newsom. 

The cost of operating prisons varies by institution, but the closure of a prison in Tracy last year is projected to save the state about $150 million a year. 

Determining infrastructure needs can help the state avoid spending money on prisons it no longer needs, like the $31 million the state spent on a health care facility at a California City prison in 2021 just months before the state announced its closure. 

The California prison towns losing their largest employers have tried two tactics to keep the prisons open. In Susanville, the city sued the state to prevent the closure of the California Correctional Center.  The city ultimately lost that battle. 

The city of Blythe chose a different tack, launching a public relations blitz they hope will stave off the closure of Chuckwalla Valley State Prison. 

— Nigel Duara

A Lifeline for Public Transit

The governor and legislators hashed out a plan to help public transit agencies still reeling from plummeting ridership during the pandemic. While Newsom’s May budget proposal failed to provide any assistance for transit agencies facing a “fiscal cliff,” and delayed $2 billion in construction projects, the Legislature rejected that move and proposed an additional $1.1 billion over the next three years from the state’s cap-and-trade funds. 

The deal includes a total of $5.1 billion over four years—restoring the full $4 billion for construction and adding the $1.1 billion from cap-and-trade—with complete flexibility for agencies to use the money for operations as well as construction, subject to accountability measures and state oversight. 

But that money only gets transit agencies through the next few years. To supplement funding for Bay Area transit agencies, Sen. Scott Wiener announced Monday a coalition of Bay Area lawmakers to co-author Senate Bill 532, which would increase tolls on seven Bay Area bridges for five years by $1.50. That would yield about $180 million annually, most of which would be required to be used for maintaining current service levels, while 10 percent could go toward improvements. The bill would also give counties and transit agencies time to organize regional bond measures. (That coalition doesn’t include Sen. Steve Glazer, a fellow Democrat from Orinda, who opposes further investment in Bay Area transit until more oversight is in place). 

— Sameea Kamal

A Boost for CalFresh 

While pandemic-era food assistance programs have been winding down, demand for assistance at food banks is rising. The Legislature’s spending plan included $35 million for the California Nutrition Incentive Program, which helps participants in the state’s CalFresh program buy healthy food from farmers’ markets. 

The agreement with the governor preserves that spending, and also includes the Legislature’s line items for $9.9 million in one-time money for a CalFresh fruit and vegetable pilot program, plus $3 million to extend a clean drinking water program. 

The Legislature’s plan included $35 million which helps participants in the state’s CalFresh program buy healthy food from farmers’ markets. The agreement with the governor preserves that spending.

Minehana Forman, the director of Market Match, said she’s thrilled the money for the program is in the budget, and said it will keep it going through 2028 and will also bring in federal dollars.

The deal also includes $915,000 to start launching a test program to increase the monthly minimum CalFresh benefit from $23 to $50. Spending for that program would rise to $15 million in 2024-25. That’s a far cry, however, from the original proposal for a statewide program costing $95 million, or even a slimmed-down $30 million version the Legislature passed.

— Rya Jetha

After ‘Rust’ Tragedy, New Movie Safety Rules 

When actor Alec Baldwin discharged a gun while practicing on the set of a Western movie, killing the cinematographer and wounding the director, it prompted questions like “How could this happen?” and “Why would a gun capable of killing people end up on a movie set?”

In the wake of the incident, the Legislature considered two bills in 2022 aimed at gun safety on movie sets, but neither of them passed, which lawmakers attributed to a lack of consensus within Hollywood about what to do. 

But this year, some safety measures are tucked into the budget via a tax credit for movie studios. Since 2009, California has had a tax credit specifically for the film industry, with the goal of countering other states’ efforts to lure productions—and all the jobs and spending that come with them—away from Hollywood. 

In this year’s budget agreement, that tax credit was revamped. Starting in 2025, any film industry employer that receives the credit would also have to hire or assign a safety advisor to perform a risk assessment and be present during production. Among other provisions, productions would have to conduct daily safety meetings and those with firearms would need to have a prop master or armorer with a permit from the California Department of Justice.

The tax credit would also be refundable starting in 2025, meaning film studios that receive a large credit but have a small tax bill will be able to get cash back. That’s a change the film industry has been lobbying for. The credit would have incentives and requirements aimed at increasing diversity in the film industry workforce. 

A little less than half of all film industry jobs in the country are located in and around Los Angeles, according to state analysts, a slight decline from a decade ago.

— Grace Gedye 

The article titled "What you need to know on the California budget deal" appeared first at CalMatters here: https://calmatters.org/politics/2023/06/california-budget-deal-what-you-need-to-know/

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