Governor Newsom Introduces Proposed California Budget for 2024-25

This week, Governor Newsom presented his proposed $291.5 billion budget, which includes $223.6 billion from the General Fund. The Budget anticipates a $37.9 billion budget shortfall,[1] for which the Governor points to a decline in stock market returns in 2022 and a delay in income tax collections, following an IRS extension (impacting the May revision from the current year budget), as the major causes. Additionally, the volatility in the financial markets has had a major impact. The reductions in these “Big three” revenue sources for California are projected to reduce the General Fund revenue by $42.9 billion as compared to the 2023-24 budget year.[2]

Table 1

The Governor has proposed a series of actions to remedy the anticipated $37.9 billion shortfall as follows:

  • Withdrawing funds from state reserves of $13.1 billion:[3]
    • 12.2 billion from the Rainy-Day Fund
    • $900 million from the Safety Net Reserve Fund
    • $5.7 billion borrowing from the Proposition 98 reserve fund
  • Reductions of $11.9 billion:
    • Climate: $2.9 billion
    • Housing: $1.2 billion
    • State vacant position sweep: $762.5 million
    • School facilities: $500 million
    • Student Housing Revolving Loan Program: $494 million
    • Legislative request: $350 million (including signed legislation from 2023)
    • Middle class school program: $289 million
    • UCLA Centers: $300 million
  • Internal borrowing and new revenues of $5.7 billion:
    • $3.8 billion increase to managed care organization tax support for Medi-Cal
    • $300 million conforming to Tax Cuts and Jobs Act net operating loss limitation
  • Funding delays of $5.1 billion:
    • Transit and intercity rail: $1 billion
    • $613 million DDS service provider rate reform
    • $550 million preschool, TK and Kindergarten facilities grant
    • $400 million clean energy investment plan
    • $235 million behavioral health bridge housing program
    • $175 million vulnerable community toxic clean up
  • Fund shifts of $3.4 billion:
    • From General fund to the greenhouse gas reduction fund (GGRF): $1.8 billion
    • From General fund to Proposition 2 debt repayment funding: $1.3 billion
    • From General fund to unemployment insurance interest payments: $100 million
  • Deferrals of $2.1 billion:
    • June to July Payroll deferral $1.6 billion
    • UC and CSU deferrals $499 billion

In the Governor’s press avail, he noted his top budget priorities include homelessness, mental health, public safety, climate, education and economic development. Below are the key priorities from Governor Newsom’s proposed Budget for the 2024-2025 fiscal year:

Education

K-12 Education—The State of California provides funding and support to 58 county offices of education, 1,000 local school districts, and roughly 1,300 charter schools. Prop 98 is the voter-approved initiative that sets minimum funding levels for K-12 schools and community colleges. Governor Newsom’s proposed 2024-25 Budget allocates $109.1 billion in Prop 98 spending for K-14 education. This comes out to $17,653 in per-pupil spending from Prop 98. Additional funding includes $7.9 billion for pandemic learning recovery; $5.4 billion for learning loss mitigation; $4.7 billion for student behavioral health; $4 billion for before and after school funding; and $500 million for zero-emission school buses.

Higher Education—The Governor’s budget $44.8 billion (roughly half of which is derived from the General Fund) for higher education segments and the CA Student Aid Commission activities. The Governor is proposing to convene state and regional partners to develop a Master Plan for Career Education, scheduled to be completed in Winter of 2024. Following budget constraints, the budget proposes to delay compacts with both the University of CA and CA State University systems and planned investments related to student housing[4], undergraduate enrollment, graduate medical education, and capital outlay. This decision would also defer the 5% base increase in funding approved in the 2023-24 state budget. With respect to the state community college system, the budget proposes a $69.1 million increase to Prop 98 funds, a COLA adjustment to the funding formula and one-time increases of $60 million for nursing support programs, and $9.3 million ongoing for COLA increases to select categorical programs in adult education. Finally, regarding student aid, the Governor’s budget proposes a total of $3.3 billion, $2.5 billion of which is for the Cal Grant program.

Climate, Natural Resources, and the Environment

Transportation—The Governor’s budget proposes to retain $13.6 billion of the 2022 budget resources for transportation (with a $200 million reduction). These reductions are found in the Active Transportation Program, a shift of $529 million to the GGRF for transit and rail project competitive grants, and a delay of $1 billion in the transit and rail project formula grants.

In the context of zero emission vehicles, the Governor’s budget proposes $38.1 million in General Fund reductions, a shift of $475.3 million in resources from the GGRF, and $600 million in budget delays. Namely, fund reductions are for the Drayage Truck and Infrastructure Pilot Project, zero emission manufacturing grants and the emerging opportunity funds. Some of those General fund budget cuts are supplemented by resources in the GGRF, specifically, $218 million for zero emission vehicle fueling infrastructure grants, $157 million for drayage trucks and infrastructure, $28 million for transit buses and $71 million for clean trucks, buses and off-road equipment.

Infrastructure—The budget proposes adjustments to infrastructure financing of transportation projects, namely a $1.1 billion General Fund reduction with a partial offset by GGRF. Remaining funds include: $7.7 billion for high priority transit and rail infrastructure projects; $4.2 billion for the high-speed rail to build out the Central Valley segment from Madera to Bakersfield; $1.4 billion for Active Transportation; $1.2 billion for goods movement rail and roadway expansion and zero emission modernization; $350 million for grade separation projects and $1.1 billion for zero emission transit capital. Reductions include generally, Active Transportation, transit and intercity rail, highways to boulevards, $100 million from the 2021-22 budget for port and freight infrastructure and $96 million in reduction for the Port of Oakland improvements.

Wildfire and Forest Management—The Governor’s budget proposes to reduce prior year funds committed for wildfire and forest management by $100 million. Most of these reductions will be in limited-term projects such as the biomass to hydrogen/biofuel pilot, forest legacy, prescribed fire and hand crew resources, and conservancy projects. The budget also proposes a fund shift of $162.5 million from the General Fund to GGRF for direct fuels treatment programs and fire prevention grants. As an outlier, the Governor’s budget proposes new resources and positions for CalFire staffing, $18.7 million for the acquisition of a new training center, reconfiguration of fire-retardant loading pits at the Ramona Air Attack base, new Heli tack and air base resources and $87.8 million for relocation of fire facilities in northern California.

Water—The Governor’s budget retains $7.3 billion of the $8.7 billion committed over several years in the 2021 and 2022 budgets for drought response. The reductions include $798 million less in General Fund resources and a $100 million delay in other funds. The budget also includes $159 million in new investments on flood protection, levee repair and $65.2 million for Salton Sea restoration. Flood protection resources include $33 million for urban flood risk reduction projects, $31.3 million for multi-benefit flood risk reduction projects in the Central Valley and $29.6 million for storm damage at state owned delta property and flood facilities. Budget reductions include $88 million less for watershed climate resilience programs at DWR and the Wildlife Conservation Board, $174.4 million reduction and $100 million delay for water recycling and groundwater cleanup, $71.6 million reduction in PFAS support, $50 million reduction in dam safety investments and a shift of $20.6 million in funds for the State Water Efficiency and Enhancement Program (SWEEP) from the General Fund to GGRF. It also includes a reduction of $12.9 million from prior year funding for small farm drought relief funds at Go Biz, $6.75 million for forecasted reservoir and snow survey and $6 million for on-farm water use and agricultural technical assistance. With respect to water quality, the proposed budget includes $6.1 million from the Waste Discharge Permit Fund in the current budget year and $7 million ongoing for the State and regional water boards for water quality activities.

“Nature-Based Solutions”—The Governor’s budget proposes to reduce resources to nature-based solutions by $15 million in General Funds, namely Redondo Beach wetland restoration and resource conservation investment strategies.

Extreme Heat—The budget proposes to reduce prior year funding for extreme heat activities by approximately $260 million, including a $40 million reduction for the extreme heat and community resilience program, a shift of urban greening resources from General Fund to GGRF and $15.6 million for enhanced protections for vulnerable populations to the Labor and Workforce Development Fund.

Resilience—The Governor’s budget proposes to reduce funds for regional climate resilience, collaboratives and the climate adaptation and resilience planning grant from prior years by $40 million. Likewise, resources for coastal resilience from prior year budgets of $1.3 billion over multiple years is proposed to be reduced by $452 million in General Funds and $36.8 million in fund shifts. These changes include $220 million in reductions for sea level rise activities, $171 million in coastal protection and adaptation grants, a shift of $36.8 million in SB 1 funds from the General Fund to GGRF and reduction of $25 million, and a reversion of $35 million from the General Fund to the Ocean Protection Council resources for ocean protection funding.

Agriculture—The Governor’s budget proposes to decrease prior year funding for agricultural investments by $79 million in General Fund and fund shifts of $24 million. This includes a reduction in nutrition incentive program funds of $33.2 million, a shift of $24 million for livestock methane reduction from General Fund to GGRF, a reduction of enteric methane incentives from $25 million to $2 million, a reduction of $14.4 million in the Farm to Community Food Hub program and a reduction of $8.5 million for the Healthy Refrigeration Grant programs.

The Governor’s budget provides $22.1 million in General Fund in 2023-24 (current budget year) to respond to exotic fruit fly infestation and destruction and $22.7 million in General Fund resources in 2023-24 (current budget year) to repair flood damage to the CAFS laboratory in Tulare County.

Energy—The proposed budget proposes a reduction of 2023 budget resources by $944 million, $419 million in General Fund reductions, $144 million in fund shifts and $505 million in delayed funding. More specific reductions and fund shifts include: a $20 million General Fund reduction of capacity building grants at the California Public Utilities Commission (CPUC), $40 million for the Carbon Removal Project at the California Energy Commission (CEC), $238 million for equitable building decarbonization at the CEC, $22 million for the industrial decarbonization program, $35 million for the hydrogen grant program, and a reduction of $18.8 million General Fund for the Food Production Investment Program at the CEC. Fund shifts proposed include $56.9 million to GGRF for incentives for long duration storage. Funding delays are proposed as $55 million for the Electricity Supply Reliability Reserve Fund Program, $50 million for the Distributed Electricity Backup Assets Program, $200 million for the residential solar and storage program, $200 million of the Oroville Pump Storage project, $400 million for the clean energy reliability investment plan and $150 million for land conservation near Diablo Canyon.

Other Climate Investments—The Governor’s budget also proposes the following reductions in climate related programs, including $475 million for the climate innovation program, $200 million for infill infrastructure grants at Housing and Community Development, $15 million for the low carbon economy grant program, $6.7 million in the compost permitting pilot and $6.4 million in the electric home program at the CEC. Fund shifts proposed $50 million from the General Fund to GGRF for the Oil and Gas Well capping program and a delay of $40 million for goods movement workforce training facilities.

Pest Management—The Governor’s budget proposes a $33.3 million increase in the Department of Pesticide Regulation’s mill assessment, to be phased in over three years. $8.6 million would be for enforcement, monitoring, evaluation, risk assessment and regulations; $6.1 million for Agricultural Commissioner training and local engagement, and $17.9 million for accelerated pesticide evaluation, registration timelines, alternatives research and general administrative support. The Governor is proposing to reduce General Fund resources to DPR for the statewide notification program from $10 million to $7.3 million.

CEQA—Following trailer bill legislation governing CEQA streamlining, the Governor’s budget includes $2.3 million ongoing General Fund to implement the newly adopted provisions in the Public Resources Code for certain infrastructure and environmental leadership development projects.

Health and Human Services

The Governor’s Budget includes $253.4 billion ($73.9 billion General Fund) for all health and human services programs in 2024-25. These funds will implement the State’s Master Plan for aging, address homeless, expand subsidized childcare, improve behavioral health, and continue the expansion of Medi-Cal to all income eligible Californians. Some of the proposed expenditures include $151 million for Naloxone distribution; $4 million to make test strips widely available; and $3 million to provide overdose medication for middle and high schools.

Reduction and Adjustments—To make up for the shortfall, numerous HHS programs are subject to budget reductions and deferments. Programs proposed to receive reduced or delayed funding include: The Behavioral Health Continuum Infrastructure Program; Employment Services Intensive Case Management; Housing for Foster Youth in Supervised Independent Living Placements; Family Urgent Response System; Los Angeles County Child Welfare Services Public Health Nursing Program; Preschool Inclusion Grants; Home Safe Program; Bringing Families Home Program; and the Health and Human Services Innovation Accelerator Initiative.

Distressed Hospital Loan Program—The budget maintains $300 million in General Fund expenditure authority from 2022-23 and 2023-24 to administer the Distressed Hospital Loan Program, which provides interest free loans to not-for-profit and public hospitals in significant financial distress, or to governmental entities representing a closed hospital, to prevent the closure or facilitate reopening of those hospitals.

Managed Care Organization Tax—California utilizes federal law that allows the state to tax managed care plans (MCOs) and use the revenue to draw down federal matching funds to support the Medi-Cal program. Between 2023 and 2026 the MCO tax is expected to generate $19.4 billion in revenue. As a result of the budget shortfall, California will ask the federal government for a waiver to increase the tax to generate an additional $1.5 billion to support Medi-Cal. The Governor’s budget also proposes $8 billion to allow for Medi-Cal provider rate increases.

Cal WORKS—The California Work Opportunity and Responsibility to Kids program (CalWORKs) is the State’s version of the federal Temporary Assistance for Needy Families program and provides welfare-to-work services for families. The proposed budget assumes $9.4 billion in expenditures and that 350,000 families per month will utilize the program. This cost will be shared by state, local and federal funds.

In Home Supportive Services—The IHSS program provides personal care services for low-income individuals with disabilities at their personal residence. The program is designed to keep individuals in their homes and prevent more costly institutionalization. The Governor’s proposed budget includes $24.3 billion ($9 billion General Fund) for the IHSS for 2024-25. The average monthly caseload is expected to be just under 700,000 recipients.

SSI—Supplemental Security Income (SSI) is a federal program that provides monthly payments to people with limited income and few resources. SSI is for people 65 or older, as well as people of any age, including children who are blind or have disabilities. The proposed budget includes $3.7 billion from the General Fund and a 3.2% cost of living adjustment to bring the maximum benefit to $1,183 per month for individuals and $2,023 per month for couples.

Youth Programs—The Governor’s proposed budget includes $2.1 billion to fund 146,000 new subsidized childcare slots expected to be filled by 2024-25. The Governor is proposing $9.5 million be spent to support the recruitment of youth wellness coaches and $12 million to assist with automation of the foster care system.

Developmental Services—The proposed budget includes $6.6 billion ($4.6 billion General Fund) for childcare development programs. These programs include Migrant Childcare, Childcare for Children for Severe Disabilities, the Emergency Childcare Bridge Program and Childcare Planning Councils.

Housing and Homelessness

Budget Reductions—The Governor’s Budget includes over $1.2 billion in General Fund reductions over the multiyear period for various housing programs. Reductions include $300 million for Regional Early Action Planning Grants 2.0 (REAP 2.0), $250 million for the Multifamily Housing Program, $247.5 million for the Foreclosure Intervention Housing Preservation Program, $200 million for the Infill Infrastructure Grant program, $152.5 million for Cal Home, $50 million for Veteran Housing and Homeless Prevention Program, and $13.7 million for Housing Navigators.

Homeless Assistance—The budget maintains $3.4 billion General Fund appropriated in 2023-24. The budget includes transitioning some homelessness grant programs from the California Interagency Council on Homelessness to the Department of Housing and Community Development.[5] The budget also proposes to maintain $400 million from the 2023-24 budget for a third round of encampment resolution grants. It does however propose to delay $260 million in funding for the Homeless Housing, Assistance, and Prevention (HHAP) grants and reduce funds for HHAP administrative aides by $100 million. The Governor proposes to defer all new funding for homelessness until this Spring. The Governor’s budget also proposes a delay for the behavioral health continuum infrastructure program ($140.4), the bringing families home program ($80 million), the Home Safe program ($65 million) and the Housing and Disability Advocacy Program ($50 million) to future budget years.

Public Safety

The Governor’s Budget maintains $1.1 billion in prior year public safety investments, including $140 million from the 2021-22 budget to assist nonprofits that assist in hate-motivated violence, and proposes new investments. The investments include: $373.5 million over four years to combat organized retail theft and other crimes, $200 million for California Violence Intervention and Prevention (Cal VIP) Program, $15 million in Raising Awareness on Gun Violence retraining orders, $75 million to increase support for Local Law Enforcement Mutual Aid, $15 million for California Internet Crimes Against Children Task Force, and $65 million for Officer Wellness and Training.

Corrections and Rehabilitation—The Governor’s budget includes $14.5 billion to support the work of CDCR, $4.1 million of which is for health care services for incarcerated individuals. The budget includes $11.4 million in General Fund for rehabilitation and reentry, a redirection of $16.4 million from new community correctional reentry centers to support the existing centers, and $2.3 million to support increased contracts for 11 parole reentry programs and day reporting centers. The budget proposes to maintain $270 million from prior budget years for the Integrated Substance Use Disorder Treatment (ISUDT) program and provide $208.8 million one-time for juvenile justice realignment block grants.[6] The budget also provides $113 million for County probation departments and a reversion to the previous methodology for calculating incentive payments to counties going forward.

To manage budget constraints, the Governor notes significant cost savings from year-over-year state managed facility closures and Proposition 47, however, does suggest several cost savings measures. This includes a $100 million in loans from the Cannabis Fund for the Board of State and Community Corrections, a delay of $57 million for the Adult reentry grants, a $9 million reduction in the Cal VIP program, $41 million from various gun buy back programs, $40 million from the public defender pilot program, and $8 million from the Community corrections partnership plan. The budget proposes a $15 million reduction in baseline administrative fees for CDCR and a $38.8 million reduction in COVID 19 Prevention and Response funds.

Labor

The Governor’s budget includes significant new resources for efforts underway at the Labor and Workforce Development Agency. The adjustments include $331 million one-time funding ($231 million General Fund) to pay the annual interest payment on the state’s Unemployment Insurance loan balance. It also includes one time funding of $326 million for the development of EDD Next which modernizes EDD’s benefit system, $12.3 million for the Workers’ Compensation Revolving Fund, $25 million for Cal OSHA’s and DIR’s IT system, and $8.3 million for DIR and the Agricultural Labor Relations Board to educate employees on workplace rights. The Governor’s budget, however, proposes to reduce General Fund resources and delay funds from 2022 by $874 million. Reductions are in the High Road Training Partnership program, displaced oil and gas worker pilot, emergency medical technician training, low carbon economy program and the women in construction unit. Delays include the CA Jobs First fund, healthcare workforce investments, apprenticeship innovation funds, goods movement workforce training facilities, and the youth apprenticeship program.

Following the passage of SB 525 (Durazo, Chapter 890) in 2023, which established a $25 minimum wage for health care employees, the Governor has proposed pursuing legislation to create an annual trigger for implementation, meaning that minimum wage increases are subject to General Fund revenues.

General Government

Cal Competes—The budget proposes to provide a total of $60 million in General Fund to extend the Cal Competes program one year and recapitalize the infrastructure state revolving fund at iBank.

Cannabis—Proposition 64, which was the enabling initiative legalizing cannabis and established a governance structure, is prescriptive regarding the distribution of licensing and tax revenues. The budget proposes to reorganize tax revenues to be distributed as 60% education, prevention, and youth substance disorders, 20% environmental remediation and 20% public safety activities. The budget also proposes to borrow $100 million from the Cannabis Tax Fund for criminal justice initiatives and the judicial branch.

Broadband—The budget proposes $1.5 billion in General Fund over two years ($250 million in 2025-26 and $1.25 billion in 2025-26) for the California Department of Technology to complete the development of the state’s middle-mile network. The Governor also proposes to delay $100 million in General Fund for last mile infrastructure grants and a reduction of $250 million General Fund for the Broadband Loan Loss reserve fund.

Collective Bargaining—The Governor’s budget includes an additional $1.3 billion for increased employee compensation, health care costs and retiree benefits. These costs include increases in benefits and salaries because of revised collective bargaining agreements. The state does propose to eliminate the telework stipend, defer payroll costs from June to July 2025 and sweep vacant positions.

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[1] The Legislative Analysts’ Office (LAO) had projected a budget deficit of $68 billion.
[2] Big three sources include: personal income tax, sales tax and corporation tax.
[3] The remaining balance of the state’s reserves include: $11.9 billion (Rainy Day Fund), $3.9 billion (Proposition 98 reserve fund or Public-School Stabilization Account), and $3.4 billion (Special Fund for Economic Uncertainty).
[4] This includes suspending funding for the Student Housing Revolving Loan Fund Program which was previously appropriated $300 million for 2024-25 and $194 million in 2023-2024.
[5] Per AB 129, Chapter 40, Statutes of 2023.
[6] Established pursuant to SB 823, Chapter 337, Statutes of 2020.

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