SACRAMENTO, Calif. (CN) — California lawmakers and Governor Gavin Newsom have reached an agreement on the second-largest state budget in history just days before the start of the fiscal year, ending an ordeal that has been fraught with tension over a ballooning revenue shortfall.
Assemblymember Phil Ting, a Democrat from San Francisco, said in a hearing on the budget Monday night that the $310.8 billion budget includes $226 billion in general fund spending. It leaves the state with a projected $37.8 billion in reserves — including $22 billion in the state’s Rainy Day Fund.
The budget summary is not yet live on the state's website.
Newsom offered a slimmer budget proposal — $297 billion — this past January, projecting a revenue shortfall of $22.5 billion. The Legislative Analyst's Office said in fall 2022 that the state must address declining revenue attributed to inflation.
By the time the governor handed the Legislature his revised proposal in May, that shortfall estimate had reached $31.5 billion. However, his proposal for 2023-2024 grew to $306 billion, with a $223.6 general fund and $35.6 billion in total budgetary reserves, $7.4 billion in funding delays and $5.7 billion in reductions. Last year’s budget was $308 billion on a $72.4 billion surplus.
Newsom blamed part of the shortfall on the federal debt ceiling crisis and an authorized filing delay for taxpayers affected by this winter's storms. About $42 billion is expected to be counted when taxes finally come due in October.
The governor has faced pressure to address the statewide homelessness crisis and preserve funding to bail out the state’s public transportation systems. Transit agencies recently sounded the alarm that services would soon be cut as the steep ridership decline since the Covid-19 pandemic continued.
Lawmakers in their proposal had approved Assembly Bill 101, which called for holding more than $26 billion in the general reserve. They recommended restoring the $2 billion proposed transit capital, and allowing the fund to be used flexibly for either capital or operations.
The budget deal announced Monday night increases that fund to $5.1 billion. Funding for transit agencies includes $1.1 billion in new spending, rejecting some cuts in the governor’s May proposal. It establishes a Transit Transformation Task Force to ensure that agencies improve services and increase ridership.
Instead of raising income taxes, lawmakers agreed to impose a new tax on private managed care organizations that contract with the state to administer Medicaid benefits. The tax could generate about $32 billion over the next four years.
Republicans in both houses voiced opposition to the Democratic majority's budget, saying that with income taxes not due until October the state cannot know how much tax revenue will be available.
Assemblymember James Gallagher, the Republican caucus leader from Marysville, blasted the deal Monday night in multiple Twitter posts.
“Bailing out transit without any real accountability is not a victory, it’s a recipe for disaster,” Gallagher said. “Same movie we have seen with (the) governor’s homelessness policy. No thanks.”
But Newsom touted the deal and defended the money for transit agencies.
“In the face of continued global economic uncertainty, this budget increases our fiscal discipline by growing our budget reserves to a record $38 billion, while preserving historic investments in public education, health care, climate and public safety,” Newsom said. “We’ve attached new accountability measures for transit and homelessness investments. And we are accelerating our global leadership on climate by fast-tracking the clean energy projects that will create cleaner air for generations to come.”
Multiple lawmakers have signaled their frustration with the budget process, going back and forth with the governor over his proposed “trailer bills” which have an expedited process to move past typical regulatory votes. But state Senate President pro Tempore Toni Atkins, a Democrat from San Diego, said the completed budget represents hard work to make a deal before the fiscal year starts Friday.
“In good years, we buckled down so that in tough years like this one, we could meet our needs,” Atkins said. “That pragmatic approach works for household budgeting, and it works for state budgeting. I’m also heartened that we were able to reach agreement on the infrastructure package, and in particular that we were able to do so 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.
Assembly Speaker Anthony Rendon, a Democrat from Lakewood, called the deal "a budget for the future."
“The Assembly has consistently fought for early childhood education and I’m proud that this budget includes up to $2.83 billion in one-time funds for child care reimbursement increases, all while protecting budget reserves of $37.8 billion.”
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