California Legislature Opens 2024 Session: Here’s What’s on the Agenda for the New Year

BY JEANNE KUANG AND SAMEEA KAMAL, CalMatters

California lawmakers gaveled in Jan. 3 for the 2024 legislative session with plenty to do, but scant cash to go around—and protesters supporting a ceasefire in Gaza prompting a quick adjournment.

“It’s going to require us to make some tough choices. But that’s what government is about—making tough choices. Our top priority is going to be to protect vulnerable communities.”

ASSEMBLYMEMBER JESSE GABRIEL (D-ENCINO)

Health care, housing, schools and environmental programs will jockey for lawmakers’ attention—and state money—as they face the prospect of plugging a $68 billion hole in the budget for 2024-25. Legislative budget analysts have identified $10 billion in cuts in one-time spending and dipping into $24 billion in reserves.

Assemblymember Jesse Gabriel, an Encino Democrat who just took over as chairperson of the budget committee, said the deficit is likely to impact everything the Legislature does this year.

“It’s going to require us to make some tough choices. But that’s what government is about—making tough choices,” he told CalMatters. “Our top priority is going to be to protect vulnerable communities.”

That includes social services and classroom funding, as well as protecting recent investments in climate and homelessness programs, he said.

Senate Budget Chairperson Nancy Skinner, an Oakland Democrat, said her goal is to avoid cuts that “will create harm for people,” and instead modify new programs that haven’t started yet. Delaying planned new spending was one of the strategies the state employed to close a more than $30 billion deficit last year; it’s unclear whether that will be enough this year.

Gov. Gavin Newsom will help frame the debate when he unveils his initial budget proposal next week. He rebuffed a Dec. 14 call from Assembly Republicans to call a special session focused on the budget deficit, or to take further actions other than some spending freezes. His Department of Finance spokesperson H.D. Palmer declined to comment.

The deficit is partly a consequence of California’s progressive tax system that relies heavily on the incomes and capital gains of very wealthy residents—producing revenues that infamously seesaw alongside the booms and busts of the stock market. 

Outgoing Senate President Pro Tem Toni Atkins, a San Diego Democrat, said she expects Newsom’s administration to both delay programs and propose cuts, and has told colleagues not to expect any new spending.

“That is pretty much the mood of the moment,” she said. “Be prepared for the worst, and understand we’re not going to be talking about any new expenditures, and we may have to really slow down some rolling out of resources for programs.”

The deficit is partly a consequence of California’s progressive tax system that relies heavily on the incomes and capital gains of very wealthy residents—producing revenues that infamously seesaw alongside the booms and busts of the stock market.

When the incomes of the rich soared amid low interest rates during the pandemic, taxes on their earnings and federal COVID-19 aid filled the state’s coffers with a nearly $100 billion surplus. Then interest rate hikes slowed down the housing market and investments in the tech sector. That, combined with delayed tax filings caused by last year’s winter storms, has prompted revenues now to come in short.

This year’s projection by the nonpartisan Legislative Analyst’s Office is the state’s largest deficit to date, though not by its percentage of the overall budget. And the state is in better shape to handle it than during the Great Recession, having put billions of dollars into reserves since then. 

The situation is likely to prompt some discussion of whether to stabilize the state’s revenue sources. In the past, proposals to bring in revenue through taxing business services have been seen as too politically unpopular.

“We need structural tax reform,” Sen. Scott Wiener, a San Francisco Democrat, wrote on social media. “We need to broaden out our tax base to make it more stable.”

Wiener, through a spokesperson, declined to comment on whether he will introduce legislation to do so.

Such a proposal, Atkins said, would be unlikely to go anywhere, “even though we all think there should be a different” system. She said the state’s creation of a rainy day fund after the Great Recession will be enough to “manage through this deficit,” leaving lawmakers less incentive to back any new taxes or changes to the tax structure.

Budget cuts are also likely to pit parts of the Legislature’s Democratic supermajority—and the interest groups they represent that rely on state funding—against each other. For some Republicans, it’s already an opportunity to float cuts to programs they oppose.

“I’m not optimistic that it gets done,” she said. “If California doesn’t withstand this crisis, then I would say there’s the leverage to do something.”

Gabriel said that he would consider all the options for addressing the shortfall, although he hadn’t heard any serious conversations around raising taxes.

“Certainly, that’s something that some people may propose and want to talk about,” he said. “But I think the first step here is to try to understand how we can address the current shortfall with reserves and with some of the other options we have at our disposal.”

Budget cuts are also likely to pit parts of the Legislature’s Democratic supermajority—and the interest groups they represent that rely on state funding—against each other. For some Republicans, it’s already an opportunity to float cuts to programs they oppose. 

Assemblymember Bill Essayli, a Riverside Republican, introduced a bill today to roll back funding for California’s expansion of Medi-Cal to low-income undocumented immigrants, citing the deficit.

The expansion went into its final phase (immigrants aged 26-49) this month at a cost of $1.2 billion this year, estimated to grow to nearly $3 billion in the upcoming fiscal year. California years ago expanded Medi-Cal coverage for undocumented children and last year did so for seniors; Essayli’s bill would cut “all taxpayer funding” for the program’s coverage of undocumented immigrants. Newsom, though, told reporters in Southern California that he’s “committed” to the expansion.

Health spending is also expected to rise with the introduction of phased minimum wage hikes for health care workers, prompting the state to pick up some of the increases for workers in the University of California and state hospital systems, as well as increased costs in public health care. 

But there’s far more than the budget before lawmakers. Some other pressing issues:

Read more of “What you need to know about the California Legislature’s 2024 session” at CalMatters.org.

CalMatters is a nonprofit, nonpartisan media venture explaining California policies and politics.