Governor and legislative leaders agree on 2024 budget plan
19 budget-related bills are expected for legislative action in the coming week
Update: budget bills and analyses began to be posted on June 23, as described in a separate post here.
Governor Newsom, Senate President pro Tempore Mike McGuire, and Speaker Robert Rivas have announced their agreement on a proposed 2024-25 California state budget plan. Budget committee hearings and legislative votes on 19 budget-related bills are expected on or before Thursday, June 27, 2024. (Three budget-related bills already passed the Legislature, including AB 107, the Budget Act of 2024.) SB/AB 108, one of the upcoming budget-related bills, is a “budget bill jr.” to amend AB 107 to implement parts of the new budget agreement.
The budget-related bills expected to emerge in print today (June 22) and tomorrow (June 23) are as follows:
SB/AB 108: Amendments to 2024 Budget Act (“Budget Bill Jr.”)
SB/AB 109: Amendments to 2023 Budget Act (“Budget Bill Jr.”)
SB/AB 153: K-12 Education
SB/AB 155: Higher Education
SB/AB 156: Resources
SB/AB 159: Health
SB/AB 160: MCO Taxes
SB/AB 161: Human Services
SB/AB 162: Developmental Services
SB/AB 163: Child Care
SB/AB 164: General Government
SB/AB 166: Housing
SB/AB 168: Public Safety
SB/AB 169: Juvenile Justice
SB/AB 170: Courts
SB/AB 171: Labor
SB/AB 173: Transportation
SB/AB 174: CEQA Exemptions: State Capitol Annex and Native Fish/Wildlife
SB/AB 175: Revenue and Taxation
Posted at the Senate Budget and Fiscal Review Committee website is a Senate summary.
Below is the introduction to the upcoming Assembly Budget Committee Floor Report on the budget package.
Reserves and Early Actions Help Address Projected Deficit. Under the leadership of the Legislature and Governor Newsom, California’s state budget reserves have grown to record levels. Through the 2023 state budget, despite addressing a budget deficit, state leaders maintained the voter-approved rainy day fund—the key tool in combatting tax revenue volatility—at $22 billion, or just over 10% of state General Fund tax revenues. As of May 31, 2024, state treasury “borrowable” cash balances (essentially the state’s available “cash on hand”) totaled $102 billion: about 40 times their level during the worst days of the 2009 state cash crisis.
Since the pandemic, revenue growth has lagged prior projections. In 2023, drops in the stock market and the technology sector and an unprecedented 10-month delay in tax payments by many high-income taxpayers hurt state finances. Actions are required to address this year’s projected General Fund deficit, including ongoing cuts in state operations, cuts and delays in planned one-time state spending, shifts of General Fund spending to other state funds, revenue increases, and use of the state’s ample reserves. In the May Revision, the administration pegged the 2024 deficit at $28 billion after taking into account $17 billion of “early action” budget-balancing measures agreed by the Legislature and the Governor in April 2024. May 2024 monthly tax collections were much stronger than projections, but the state budget plan still reflects the May Revision revenue estimates.
The State Budget Plan “Big Picture.” The 2024-25 state budget plan, reflecting recent negotiations between the Governor and legislative leaders, closes the remaining $28 billion projected budget shortfall. The budget plan includes $211.5 billion of General Fund spending, $86.4 billion of spending from other state funds, and $153 billion from federal funds flowing through the state treasury. A three-year suspension of medium-sized and large businesses’ use of net operating loss (NOL) deductions and tax credits starts in 2024, one year earlier than the Governor’s May Revision proposal. The budget plan also reflects other proposed business tax measures proposed by the Governor, as passed by the Legislature on June 13, 2024 in SB 167. This allows for more school funding and restoration of various proposed cuts to social services and housing programs during the current budget cycle. For the first time, businesses—especially technology businesses—will have greater assurances of being able to benefit from foregone tax credits after a suspension via a new, limited option to receive refunds for that purpose in the state tax code.
Aims to Balance This Year’s Budget and Next Year’s Too. The plan balances the state budget for both 2024-25 and 2025-26 under the administration’s current revenue and spending projections. The plan accomplishes this while using only about half of the rainy day fund—leaving about $11 billion on hand for possible budget challenges after 2025-26. This is consistent with Governor Newsom’s prudent May Revision goals, as well as the legislative budget plan passed on June 13. It is unusual, in deficit periods, for California to balance its budget over a two-year time frame.
Protects and Strengthens Classroom Funding. Consistent with Governor Newsom’s recent modified school funding proposal, the 2024-25 state budget package protects classroom funding, despite recent ups and downs in state revenues. TK-12 spending is estimated at $136 billion in 2024-25 from all funding sources, with per pupil funding growing to over $24,000 from all sources, including about $18,400 per student from Proposition 98 sources. With suspension of the 2023-24 Proposition 98 guarantee, school funding receives constitutional protection for needed growth in the coming years, despite recent ups and downs of state revenues.
Preserves Key Social Services and Housing Programs. In recent weeks, the Legislature signaled that it was important to protect key social services and housing programs from significant cuts. The Governor and the Legislature now agree on a path to achieve those goals within the context of a balanced budget in 2024-25 and 2025-26. The budget plan rejects most cuts to core programs, including CalWORKs, foster care, and In Home Supportive Services. Funding is restored to the Multifamily Housing Program and the Regional Early Action Planning 2.0 Program, and $1 billion (one-time General Fund support) is provided in 2024-25 for the next round of the local Homeless Housing, Assistance and Prevention (HHAP) Grant Program. Funds are provided for the Low Income Housing Tax Credit program. A six-month delay in rate increases for developmental services is included in the plan, in lieu of the one-year delay proposed in the May Revision. The 2021-22 state budget set a goal of 200,000 more subsidized child care slots, which this budget aims to reach by 2028, although expansion above the currently funded 130,000 level will be subject to appropriation based on the condition of the budget over the next few years. The budget also includes an Assembly funding priority: $9 million of one-time state funding to continue and expand support for local diaper and wipe distribution.
Ongoing Reductions to Prison Costs. The budget plan includes $750 million of reductions to the Department of Corrections and Rehabilitation (CDCR) budget over the three-year “budget window” (2022-23, 2023-24, and 2024-25), along with ongoing reductions of about $560 million per year. The budget adopts the Governor’s proposal to deactivate 46 housing units across 13 prisons, totaling about 4,600 beds, for $82 million of annual cost savings, as well as various health care, maintenance, and operational savings proposed by the administration or the Legislature. In addition, the administration’s statewide operations cuts, including reduction of prior budget allocations linked to now-vacant positions, are slated to cut nearly $400 million on an annual basis from the CDCR budget. The budget bill, as amended, states the intent of the Legislature to protect rehabilitative, reentry, and family connections programs. It includes a requirement for CDCR, in implementing statewide operations cuts, to first consider changes other than those that could affect rehabilitative, reentry, or family connection programs that do not otherwise violate a court order or jeopardize the health and safety of incarcerated persons, staff, or the public.
Resources and Transportation. The state budget plan largely maintains the level of climate and transportation spending as the Governor’s proposed budget and preserves roughly $45 billion of the original $54 billion climate package. This is possible largely by adopting a 5-year Greenhouse Gas Reduction Fund plan that shifts $5.2 billion from the General Fund to the Greenhouse Gas Reduction Fund. Key legislative priorities were preserved in part, including funding for sustainable agriculture, water recycling, active transportation, equitable building decarbonization, offshore wind infrastructure, and extreme heat and community resilience. This is on top of historic investments in sea level rise and ocean protection, wildfire prevention, electric vehicles, and public transportation.
Health Care. The budget plan retains most of the state’s recently public health investments and preserves funding for the Indian Health Program, free clinics, and acupuncture benefits in Medi-Cal. The budget includes targeted rate increases for family planning, emergency physicians, and emergency transportation effective January 1, 2025, as well as additional rate increases for primary care, obstetric care, private duty nurses, and specific other rates, effective January 1, 2026. Adjustments are made to previous legislation regarding minimum wage increases for health care workers.
University Budgets. Both the University of California and California State University will receive 5 percent ongoing base increases in 2024-25, allowing campuses to accommodate California enrollment growth this fall. Both segments will receive a small one-time cut in 2024-25, and they face deferred funding in 2025-26. This structure allows both segments more time to adjust to lower-than-expected funding in the future.
Major Cuts to State Government Operations. The budget plan accepts the Governor’s ambitious proposal to cut 7.95% from departments’ General Fund state operations budgets and a sweep of funding associated with many vacant positions (but now generally used for other state operations). These generally ongoing reductions collectively total about 10% of General Fund state operations costs and about $3 billion of 2024-25 savings, including savings in the CDCR budget described above. The budget specifies that these reductions do not affect existing state employee labor agreements or collective bargaining rights.
Reparations Implementation Funding. The budget provides $12 million for 2024-25 to begin to implement reparations legislation that may be enacted into law. Based on future enacted legislation, the Director of Finance may augment one or more departmental items in the budget with such funding.
Artificial Intelligence in State Government. The budget contains provisions requiring consultation between the legislative and executive branches on artificial intelligence (AI) activities in state government. The budget provides that if added budget resources are needed to implement or procure certain generative AI projects, the Government Operations Agency shall support departmental efforts to submit requests for added resources in the annual budget process. The budget clarifies requirements for treatment of personal information in state AI projects and notes that the Legislature and executive branch may modify or extend these provisions for future fiscal years.
Prudence Required for Future Years. While the budget plan aims to balance the 2024-25 and 2025-26 budgets, projected budget deficits remain in future years, albeit much less than estimated in the Governor’s January budget proposal. (For example, the General Fund’s projected operating deficit in 2026-27 is $14 billion under this budget package, versus $30 billion in the Governor’s January proposal.) Accordingly, while recent stock market growth promises stronger tax collections this year, prudence will be required for the foreseeable future, including continuing efforts to improve accountability and efficiency of state expenditures. To further bolster state budget resiliency, the Assembly plans to work with the Senate and the Governor in the coming weeks to:
Approve a new temporary holding account for projected surpluses, to ensure that a portion of future large surpluses are held on hand for at least a year in order to have greater certainty about budgetary conditions.
Place a constitutional amendment on a future state ballot to expand the maximum size of the rainy day fund and exclude certain deposits to state reserves from the 1979 state appropriation limit
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More Information on School Funding. The budget package includes a modified version of the amended Proposition 98 school funding proposal announced by the Governor on May 28. Given the recent ups and downs of state revenues and spending, the state budget cannot currently cover all Proposition 98 obligations over the two-year period beginning in 2022-23. The budget plan reflects a version of the Governor’s May 28 proposal—itself, a modified version of a January Governor’s proposal—to accrue $6.2 billion of funds previously appropriated to school districts for 2022-23 over several years beginning in 2026-27—that is, those funds will be accounted for in the General Fund accounting ledgers over several future years, instead of in 2022-23.
In addition, SB 154 will suspend Proposition 98 in 2023-24 at a reduced level, with state and local Proposition 98 funds at $98.5 billion ($3 billion below the level in the May Revision). With the suspension, over $8 billion of “maintenance factor” is created—a constitutional requirement to return school and community college spending to levels they would have reached without the suspension in the coming years. In effect, schools and community colleges will get a higher percentage of future revenue growth than normal until the maintenance factor is paid and built back into the Proposition 98 base. Use of $8.4 billion from the Proposition 98 reserve—created with passage of Proposition 2 (ACAX2 1) of 2014—helps protect classroom funding despite the proposed suspension.
In the budget plan, with more revenues, school funding is higher in 2024-25 with Proposition 98, consisting of General Fund and local property taxes, funded at the minimum guarantee level of $115 billion ($6 billion more than in the May Revision). Over $4 billion of the maintenance factor would be paid and built back into the Proposition 98 base in 2024-25, according to current estimates. Consistent with the Governor’s amended Proposition 98 school funding proposal, the plan uses Legislative Analyst’s Office property tax estimates. The budget package leaves about $1.1 billion in the Proposition 98 reserve in 2024-25—more than in the May Revision.
The budget package includes layoff protections for certificated and classified school staff for the upcoming school year. Specifically, it provides a one-year freeze on local education agencies’ ability to terminate permanent and probationary certificated and classified employees between budget enactment and August 15th of that budget year if the Local Control Funding Formula cost-of-living adjustment is less than 2%.