Governor Newsom Introduces Proposed California Budget for 2022-23

This morning, Governor Gavin Newsom presented the California Blueprint, his proposed $286.4 billion budget for the 2022-23 fiscal year, of which $213.1 billion is from the General Fund. The Governor’s plan builds on last year’s California Comeback Plan and continues to pay down long-term retirement debts while also prioritizing one-time spending over ongoing spending, allocating 86 percent of discretionary general funds to one-time spending. According to the Governor’s press release, the Blueprint “provides a model for the entire country of how we can continue providing short-term relief while investing in longer-term solutions that will benefit workers, businesses and families for years to come.”

The Budget reflects $34.6 billion in budgetary reserves. These reserves include: $20.9 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies; $9.7 billion in the Public School System Stabilization Account; $900 million in the Safety Net Reserve; and $3.1 billion in the state’s operating reserve. The Rainy Day Fund is now at its constitutional maximum (10 percent of General Fund revenues) requiring $2.4 billion to be dedicated for infrastructure investments in 2022-23.

The Budget projects the State Appropriations Limit or “Gann Limit” will likely be exceeded in the 2020-21 and 2021-22 fiscal years. Any funds above this limit are constitutionally required to be allocated evenly between schools and a tax refund. An updated calculation of this limit, and proposals to address it, will be included in the May Revision.

During the four-hour press conference, Governor Newsom highlighted five priorities: COVID-19, climate change, homelessness, inequality, and keeping our streets safe. Below are key takeaways from the Governor’s proposal.

I. Fighting COVID with Science

Since the 2021 Budget Act, there have been significant developments in the response to the COVID-19 Pandemic, including the approval of vaccines for children, booster shots, and increased availability of testing options and locations. However, given the current surge in cases, current-year costs are projected to exceed amounts authorized in the 2021 Budget. To maintain and expand these mitigation efforts, the Administration is seeking early action by the Legislature to allocate $1.4 billion to continue critical efforts to slow community transmission and save lives. These funds will increase vaccination rates, expand testing, and support hospital surge staffing.

The 2021 Budget Act provided $1.7 billion to various departments to continue COVID-19 response activities. However, the extent and duration of direct response activities have exceeded earlier assumptions. Specifically, direct response cost estimates for 2021-22 have grown to $3.2 billion, or $1.4 billion above the level authorized in the 2021 Budget Act, with 2022-23 costs now estimated at approximately $1.3 billion. (These amounts are inclusive of the vaccine, testing, and other costs described in this chapter.) The following chart summarizes the activities requiring additional funding in 2021-22 and proposed funding levels for 2022-23.

Table 1

The total direct COVID-19 emergency response costs incurred in the 2019-20 and 2020-21 fiscal years are approximately $9.5 billion. From 2019-20 through 2022-23, direct emergency response costs are estimated to be $13.9 billion. The Administration will reassess direct response cost estimates as a part of the May Revision.

Federal Relief
To address the direct and indirect effects of COVID-19, the federal government enacted six stimulus bills (not including the Infrastructure Investment and Jobs Act). Together, these funds are helping pay for emergency response, testing and contact tracing, health care, and vaccinations. Combined with direct payments and other assistance to individuals and families, hospitals and medical providers, businesses, higher education institutions and college students, local housing authorities, airports, farmers, and local government, California has received more than $657 billion from federal legislation.

Coronavirus State Fiscal Recovery Funds
California received $27 billion in State Fiscal Recovery Funds (SFRF) from the American Rescue Plan Act of 2021. States that lost revenue due to the pandemic, as calculated pursuant to interim U.S. Treasury regulations, are permitted to use an amount of SFRF equivalent to their lost revenue to fund government services. In the 2021 Budget Act, Finance estimated the state’s revenue loss to be $9.2 billion. The Department of Finance re-evaluated the methodology to calculate California’s revenue loss and now estimates the revenue loss to be $11.2 billion.

To maximize funding flexibility and streamline federal reporting activities, the Administration proposes shifting $1.8 billion of programs funded by the SFRF to either the General Fund or other state funds. This proposal results in no net General Fund costs, since this shift would be offset with a like amount of savings resulting from the additional $2 billion in revenue replacement funding.

II. Combating the Climate Crisis

Building on the state’s history of climate leadership and the $15 billion in climate resilience investments in the 2021 Budget Act, the Budget includes an additional $22.5 billion one-time from various fund sources over five years to advance the state’s Climate and Opportunity Budget and provide equitable climate solutions to prepare and protect communities.

Zero-Emission Vehicle (ZEV) Acceleration
The Budget invests an additional $6.1 billion ($3.5 billion General Fund, $1.5 billion Proposition 98, $676 million Greenhouse Gas Reduction Fund, and $383 million Federal Funds) one-time over five years, with a focus on California’s most impacted communities, bringing the total investment to $10 billion over six years to decarbonize California and improve public health.

Table 2

Transportation
Alongside the investments in zero-emission vehicles and infrastructure, the Budget includes $9.1 billion one-time General Fund and Bond funds over two years for transportation programs and projects.

Significant investments include:

  • Active Transportation—$750 million General Fund for projects to transform the state’s active transportation networks, improve equity, and support carbon-free transportation options, including funding for: Active Transportation Program projects, the Reconnecting Communities: Highways to Boulevards Pilot Program, and bicycle and pedestrian safety projects.
  • High-Speed Rail and Transit—$4.2 billion Proposition 1A bond funds for High-Speed Rail, $3.25 billion General Fund for statewide, regional and local transit and rail projects, and $500 million General Fund for high-priority rail safety improvements.
  • Climate Adaptation—$400 million General Fund for climate adaptation projects that support climate resiliency and reduce infrastructure risk.

Clean Energy
To address the scale and urgency of California’s changing energy needs, the Budget includes $2 billion ($2.035 billion General Fund over two years, $1.5 million Energy Resources Programs Account in 2022-23, $2.6 million Public Utilities Commission Utilities Reimbursement Account ongoing) for a Clean Energy Investment Plan and to spur additional innovation and deployment of clean energy technologies in the energy system.

Significant investments include:

  • Industrial Decarbonization—$210 million General Fund over two years to accelerate industrial sector decarbonization.
  • Food Production Investment—$85 million General Fund in 2022-23 to accelerate the adoption of energy technologies at California food production facilities. Grants will be provided to California food producers to install energy efficiency and renewable energy technologies that reduce operating costs, as well as climate emissions.
  • Offshore Wind Infrastructure—$45 million General Fund in 2022-23 to create the Offshore Wind Energy Deployment Facility Improvement Program, which will invest in activities to advance the capabilities of deploying offshore wind energy in federal waters off California in the areas of facility planning and development.
  • Oroville Pump Storage—$240 million General Fund over two years to build a temperature management project to address temperature issues at the Oroville Dam, allowing a pump-storage project to operate at greater capacity for the benefit of the statewide electrical grid.

Wildfire and Forest Resilience
The 2021 early action package and 2021 Budget Act included a combined $1.5 billion one-time investment to restore the state’s wildfire resilience by increasing the pace and scale of forest and fuel management practices. The Budget includes an additional $1.2 billion ($800 million General Fund and $400 million Greenhouse Gas Reduction Fund) one-time over two years for a total $2.7 billion investment over four years for a comprehensive wildfire and forest resilience strategy to advance critical investments in forest health and fire protection to continue to reduce the risk of catastrophic wildfires. This includes funding to support resilient forest and landscapes; wildfire fuel breaks; community hardening; regional and tribal capacity; science-based management; and economic development of the forest sector.

Drought Resilience and Response
The 2021 Budget included a historic investment of $5.2 billion over three years to advance water resilience and drought response. This investment provides immediate assistance to struggling communities and prepares for more severe, climate-induced drought and flood conditions in the long term. The Budget builds on this investment by including an additional $750 million one-time General Fund to support drought resilience and response.

Significant investments include:

  • Water Conservation Programs—$180 million for grants to large urban and small water suppliers to improve water efficiency, address leaks, reduce demand, provide water use efficiency-related mapping and training, support turf replacement, and maintain a drought vulnerability tool.
  • Urban and Small Community Drought Relief—$145 million for local emergency drought assistance and grants to local water agencies facing loss of water supplies.
  • Fish and Wildlife Protection—$75 million to mitigate immediate drought damage to fish and wildlife resources and build resilience of natural systems.
  • Multi-benefit Land Repurposing—$40 million to increase regional capacity to repurpose irrigated agricultural land to reduce reliance on groundwater while providing community health, economic well-being, water supply, habitat, renewable energy, and climate benefits.
  • Groundwater Recharge—$30 million to provide grants to water districts to fund planning, engineering, water availability analyses, and construction for groundwater recharge projects.
  • On-Farm Water Conservation—$20 million to bolster the State Water Efficiency and Enhancement Program, which provides grants to implement irrigation systems that save water on agricultural operations.
  • Technical Assistance and Drought Relief for Small Farmers—$10 million to provide mobile irrigation labs, land use mapping and imagery, irrigation education, and direct assistance to small farmers and ranchers who have experienced water cost increases of more than 50 percent.
  • Drought Contingency—$250 million as a drought contingency set aside to be allocated as part of the spring budget process, when additional water data will be available to inform additional drought needs

Climate Smart Agriculture
The 2021 Budget Act included $1.1 billion ($863 million General Fund and $238 million special funds) one-time over two years in climate smart agriculture investments that support the agriculture sector and create a healthy, resilient, and equitable food system by supporting long-term sustainability and resilience and addressing economic recovery and high-road job growth.

The Budget includes $417 million associated with the second year of these investments to provide critical support for farmers and ranchers.

Significant investments include:

  • Funding Agricultural Replacement Measures for Emission Reductions Program (FARMER)—$150 million to provide funding that supports the replacement of equipment used in agricultural operations.
  • Healthy Soils Program—$85 million to provide grants for on-farm conservation management practices designed to sequester carbon within the soil.
  • Livestock Methane Reduction—$48 million for livestock methane reduction programs.
  • Climate Catalyst Fund—$25 million to support Climate Smart Agriculture loans.
  • Technical Assistance and Conservation Management Plans—$22 million to fund technical assistance grants for the development of conservation plans, carbon sequestration plans, and transition to organic plans to focus on carbon and water actions.
  • Pollinator Habitat Program—$15 million for implementation of pollinator habitat and forage on working lands in partnership with private landowners and federal, state, and local entities.

Circular Economy
The 2021 Budget Act included $270 million ($130 million General Fund and $140 million special funds) one-time over two years to support a circular economy that recognizes waste as a resource. The Budget includes $65 million associated with the second year of these investments to support implementation of goals to reduce short-lived climate pollutants, including advancing organic waste infrastructure, edible food recovery, and non-organic waste recycling.

III. Safe and Sustainable Pest Management

The Budget includes $882,000 from the Department of Pesticide Regulation Fund to investigate and enforce pesticide residue and use violations, as well as statutory changes to better achieve compliance with regulatory requirements and local implementation of statewide pesticide use enforcement priorities.

IV. Confronting Homelessness

The 2021 Budget Act included $12 billion over two years to address homelessness—creating new units and treatment beds for individuals exiting homelessness and supporting local government efforts. The Budget proposes an additional $2 billion over the next two years to expand access to housing for vulnerable populations with complex behavioral health conditions and people living in encampments and complements the funding included in the 2021 Budget.

Significant investments include:

  • $1.5 billion will focus on fast solutions to get people off the streets and into behavioral health shelter/treatment. Funding will be administered through DHCS’ Behavioral Health Continuum Infrastructure Program and can be used to purchase and install tiny homes and to provide time-limited operational supports in these tiny homes or in other bridge housing settings including existing assisted living settings.
  • $500 million one-time General Fund to deploy a substantially expanded program for jurisdictions to invest in short- and long-term rehousing strategies for people experiencing homelessness in encampments around the state.
  • $10.6 million General Fund annually for three years to continue the Returning Home Well Program, which provides transitional housing services to individuals who would otherwise be at risk of being unhoused at the time of their release.

V. Universal Healthcare

Over the last decade, the Medi-Cal program has significantly expanded and changed, due in large part to the implementation of the federal Patient Protection and Affordable Care Act and California’s expansions of Medi-Cal coverage to children, young adults, and older adults 50 and over regardless of immigration status. The Budget builds on those expansions and includes $819.3 million ($613.5 million General Fund) in 2023-24 and $2.7 billion ($2.2 billion General Fund) annually at full implementation, inclusive of In-Home Supportive Services (IHSS) costs, to expand full-scope eligibility to all income-eligible adults aged 26 through 49 regardless of immigration status. Beginning no sooner than January 1, 2024, Medi-Cal will be available to all income-eligible Californians.

VI. Housing

The Budget proposes $1 billion one-time General Fund over two years, primarily focused on accelerated development in downtown-oriented areas across California. In addition to another allocation of $500 million in Low-Income Housing Tax Credits, the Budget also includes an additional $500 million one-time General Fund over two years to increase affordable housing options and help local governments meet their Regional Housing Needs Allocation (RHNA) goals.

VII. Supply Chain Resilience and Port Infrastructure Investments

The Budget proposes $2.3 billion for supply chain investments, including $1.2 billion for port, freight, and goods movement infrastructure and $1.1 billion for other related areas such as workforce training and ZEV equipment and infrastructure related to the supply chain. This funding will improve supply chain resiliency and will be used to leverage federal funding. This can also support the U.S. Department of Transportation federal financing Emerging Projects Agreement with the California State Transportation Agency (CalSTA) and other discretionary programs made available through the Infrastructure Investment and Jobs Act (IIJA), in a manner consistent with the Climate Action Plan for Transportation Infrastructure (CAPTI) goals. This proposal includes the following General Fund investments:

  • Port Infrastructure and Goods Movement—$1.2 billion for port-related high-priority projects that increase goods movement capacity on rail and roadways serving ports and at port terminals, including railyard expansions, new bridges, and zero-emission modernization projects.
  • Zero-Emission Equipment and Infrastructure—$875 million for zero-emission port equipment, short-haul (drayage) trucks, and infrastructure.
  • Workforce Training—$110 million for a training campus, to support workforce resilience in the face of supply chain disruption and accelerate the deployment of zero emission equipment and technologies.
  • Commercial Driver’s Licenses—$40 million to enhance California’s capacity to issue Commercial Driver’s Licenses.
  • Operational and Process Improvements—$30 million for the Governor’s Office of Business and Economic Development to provide funding for operational and process improvements at the ports. This could include enhancing the movement of goods and improving data interconnectivity between the ports to enable efficient cargo movement, reduce congestion, and create opportunities to increase cargo volume by promoting and building supply chain efficiency.

Now that the Budget has been introduced, the Legislature will begin holding committee hearings on the items proposed in anticipation of the May Revision. The Legislature will then have until June 15 to finalize the Budget and send it to the Governor for his signature. View Update

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