Gov. Gavin Newsom released his proposed fiscal year (FY) 2024-25 budget last week. Total expenditures will be nearly $291 billion, of which $208.7 billion will be the General Fund accounts. This is about $22.2 billion less than is available for the current fiscal year, which ends June 30.
Throughout his news conference, Newsom stressed that this proposal will be adjusted in May and still must be reviewed and enacted by the Legislature before a final budget is implemented.
“We begin a process, a process of engagement, a two-way conversation with more information. That is why we have the May revision,” he said. While the approved budget will be largely the same, many of the details may change from what he was presented in his January preliminary proposal.
“Cautious and mindful — that’s the phrase that we need to keep at the forefront as we look at our state revenues and spending, legislation, and how we approach this fiscal year,” said Senate President Pro Tempore Toni G. Atkins (D-San Diego District 39). “I’m appreciative that the Governor’s January budget proposal is guided by that thinking as well.”
Deficit
The General Fund total includes a $37.9 billion deficit, which will be covered in a variety of ways, according to Newsom.
The primary source will be $18.8 billion from existing budget reserves and borrowing. Another $11.9 billion will be attained through reductions and funding shifts. The final $7.9 billion will be provided by delayed or deferred funding.
During his discussion of the deficit level, Newsom took issue with prior news reports emphasizing that the deficit would be significantly larger. In December, the Legislative Analyst’s Office reported a projected deficit of $68 million for FY 2024-25.
When revenue is projected to decline, the Administration and Legislature will quickly take actions to mitigate the possible deficit. But “Mother Nature” and the federal government interceded, creating a unique situation for California’s fiscal officials in 2023.
While Internal Revenue Service’s (IRS) merciful actions to extend tax deadlines helped individual taxpayers, the consequence — a good estimate or an actual figure of tax revenue — was not available until more than four months into FY 2023-24. And capital gains were down significantly last year.
Normally, revenue projections for the upcoming FY can be adjusted in May before the new FY begins on July 1. However, in 2023, the wicked late winter and early spring storms caused problems. The IRS deferred federal tax payments from April to October and then until the middle of November.
“All of this uncertainty happened because we experienced something we never experienced in the modern history of this State,” Newsom said. “We didn’t collect taxes in the spring of last year.”
When the state finally saw that tax receipts were significantly lower than expected, Newsom took action as early as December to trim and to control spending through the remainder of this fiscal year.
Sen. Roger Niello (R-Fair Oaks District 6), vice chair of the Senate Budget and Fiscal Review Committee, said in his statement, “Today the governor had his usual surplus of words to weave his way through a deficit of dollars. I’m glad that he listened to our warnings to take early action, but he could have heeded warnings and taken more caution last year. The question will be whether the governor’s lower deficit number or the nonpartisan estimate is accurate.”
“The silver lining here is that California is far better equipped to tackle this challenge than it was heading into the Great Recession, courtesy of a decade of prudent budgeting and savings in the state’s rainy day funds,” opined the California Budget and Policy Center.
Budget priorities
Although the FY 2024-25 budget is about 10% less than the current year budget, Newsom stressed that vital priorities were still being funded.
The first area he addressed was the homeless crisis. The proposed budget includes more than $15.3 billion for programs and activities that will tackle this problem. This includes nearly $3.3 billion in housing assistance and prevention grants.
This, however, exemplifies an area of funding that the governor wants to have further discussions with the Legislature before a final funding level is agreed upon.
“… the Governor’s Budget defers all new, discretionary spending discussions to this spring, for discussion with the Legislature, based on actual revenues,” the Governor’s State Budget Summary stated. “As part of the spring budget process, the Administration will commit to working closely with the Legislature on additional funding to support local governments’ response to the homeless crisis.”
Newsom is continuing his commitment to improve behavioral health opportunities for Californians — young and old. The FY 2024-25 budget includes $8.7 billion for these purposes. About $292 million is in the budget for the new Community Assistance, Recovery and Empowerment or CARE court system. Riverside County’s has already begun to act.
“Gov. Newsom’s proposed 2024-25 budget protects key programs that affect children’s health and well-being. As a state, we should always prioritize the needs of children, especially children and families of color who face generational disinvestment. This is even more important in tough economic times,” said Mayra E. Alvarez, president of The Children’s Partnership.
Overall public safety is another priority in the budget. Nearly $400 million will be allocated to mitigate and to reduce the problem of organized retail theft, Newsom said, of which more than half will be directed to local police agencies.
Illegal drugs, particularly opioids and fentanyl, continue to be a concern for law enforcement. The budget has $88 million for interdiction and enforcement. Another $157 million will be spent on distribution of naloxone.
Education, always an important government activity, continues to be a priority for Newsom. Based on Proposition 98 criteria, $17,653 will be allocated per California pupil. That’s an $8 decrease from the FY 2023-24 level of $17,661, according to Newsom. He noted that this is twice the funding level from 12 years ago. Total student funding will be more than $23,500 per pupil.
Before and afterschool programs and summer school program funding will be about $4 billion. And pursuant to the recently approved Prop. 28, $931 million will be allocated to art, music and instructional grants.
The state budget proposal included $48.3 billion for climate and environmental programs. Also, Newsom said there will be another $10 billion available from federal funding. Much of this funding will help expand the infrastructure for clean energy and water and transportation.
Zero emission vehicle funding
But the state’s efforts to transition California’s car and trucks to zero emission vehicles (ZEV) will slow down as result of the projected deficit. There will be funding delays, funding shifts and some cuts in the ZEV programs. For example, a $38.1 million reduction in the General Fund will affect drayage trucks and infrastructure pilot projects, and ZEV manufacturing grants. And Newsom proposes a delay of $600 million in the Greenhouse Gas Reduction Fund from 2024-25 to 2027-28. This will affect many programs, including Clean Cars 4 All and other equity projects, ZEV fueling infrastructure grants, equitable at-home charging and others.
“It is our leaders’ job to figure out how we fund the transition to clean energy and resilience now. In this tight economic moment, we hoped for a more courageous proposal including solutions like a robust climate bond and ending corporate handouts,” said Mary Creasman, chief executive officer of the California Environmental Voters. “We can’t backslide or slow down while the climate crisis speeds up. We need our state leadership to do more, not less.”
In a separate press release following Newsom’s budget presentation, the California Sierra Club expressed the following, “Governor Gavin Newsom released his 2024-2025 state budget proposal, which delays and reduces investment in building decarbonization, transportation, and water resiliency funding, but preserves important funding for climate initiatives and eliminates some oil and gas subsidies, which will help the state achieve its land and water preservation goals and transition away from reliance on fossil fuels.”
Forestry
Wildfire and forest resilience has a funding level of $2.7 billion. “We’re not cutting it,” Newsom said. He was particularly proud of his ability to obtain seven new C-130 firefighting aircraft from the federal government.
“We’ll get them all operating,” he promised.
The largest increase ($198 million) in the Department of Forestry and Fire Protection budget is funding for the recently approved switch from a 72-hour workweek to a 66-hour workweek beginning Nov. 1, 2024. This also will fund a staffing increase of 338 firefighters.
Over the next few years, both initiatives will receive $770 million and a staff increase totaling 2,457 employees. This is the result of the 2022 Memorandum of Understanding between Cal Fire Local 2881 and the state.
Health care minimum wage increase
However, wage increases for health care workers — public and private sector — may temporarily be in jeopardy. Senate Bill 525 raises the pay for various health care workers beginning June 1, 2024. There will be a rising scale of hourly wages for health care workers. Starting June 1, health care workers must be paid at least $18 per hour, with minimum wages being set slightly higher in some circumstances, such as for employees in more populous counties.
But the budget problem is a fiscal concern causing Newsom to reconsider the implementation date. Although he signed SB 525 in October, his budget proposal wants the Legislature to allow a delay in these increases. “Given the overall economic and General Fund revenue outlook and the significant fiscal impact of SB 525 on the state, the Administration is seeking early action in January by the Legislature to add an annual ‘trigger’ to make the minimum wage increases subject to General Fund revenue availability, clarify the exemption for state facilities, and make other implementation clarifications,” the governor’s Budget Summary revealed.
In December, in anticipation of this possibility, SEIU-United Healthcare Workers West President Dave Regan issued the following statement, “California’s healthcare worker minimum wage law addresses critical staffing shortages by helping to retain existing healthcare workers and attract new caregivers to the industry. The state needs to hold fast to its commitment to invest in its healthcare workers and solve the staffing crisis in our hospitals, clinics, and medical centers.
“The impact of the new healthcare minimum wage on the state budget has been severely overstated. As part of a compromise among healthcare stakeholders, the minimum wage will be gradually phased in over the next few years. In addition, a UC Berkeley Labor Center report states that the impact on the California budget will be partially or fully offset by low-paid workers no longer relying on Medi-Cal for their healthcare coverage,” Regan noted.
Legislators’ comments
The chair of the Senate Budget and Fiscal Review Committee, Sen. Nancy Skinner (D-Berkeley District 9), said in a news release, “Balancing the state budget this year will be a challenge, but it is a challenge we are prepared for. The Senate Budget Committee looks forward to fully examining the Governor’s January proposal over the coming months, attentive to budget realities.”
Assembly members had comments about the budget, too. “California’s revenue situation is uncertain and can change quickly, so we must be prepared for ongoing challenges,” said Assembly Speaker Robert Rivas (D-Salinas).
Budget Chair Jesse Gabriel (D-Encino District 46) also issued a statement, “The Assembly will carefully examine the Governor’s budget — including key investments in housing, education, and climate — while remaining vigilant about potential shifts in revenue.”
A nonpartisan and outside view was expressed by the California Budget and Policy Center: “Despite the budget shortfall, California is home to great wealth. Governor Newsom’s resistance to raising revenue and making the state’s tax system more fair poses a risk of additional cuts to essential services like health care, education, poverty reduction programs, climate resilience, and public transportation, making it even harder for Californians who are already struggling to get by.
“In addition to responsibly drawing down budget reserves and reducing unallocated one-time and temporary spending, policymakers can increase state revenues by eliminating costly tax breaks to ensure profitable corporations and the wealthy pay their fair share in taxes. Even temporary suspensions of certain tax breaks could play a crucial role in ensuring a fair distribution of our state’s wealth and help leaders address the shortfall,” the center concluded in its post news conference release.
