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IN THIS ISSUE – “Something’s Got to Give In this Budget”
Assemblymember Chris Ward on disagreeing with Governor over where to cut
- Governor & Progressive Legislators Remain at Odds Over Budget Cuts…
- …So Senate & Assembly Leaders Float a Counter Proposal
- Lawmakers to Craft Climate & Education Bonds Next Week
- Let’s Make a Deal Time in the Capitol – Budget, Ballot Initiatives, Bills
- Legislative Analyst Warns of Future Deficits
- Utility District Sues City Over Bottled Water Plant
Capitol News & Notes (CN&N) curates California policy, legislative and regulatory insights from dozens of media and official sources for the past week. Please feel free to forward this unique client service.
FOR THE WEEK ENDING MAY 31, 2024
Governor & Progressive Legislators Remain at Odds Over Budget Cuts…
Sacramento Bee
Assembly Democrats are at odds with California Gov. Gavin Newsom on a handful of big issues — including proposed cuts to Medi-Cal provider rate increases and tax deduction suspensions — as lawmakers negotiate a budget to close an estimated $45 billion deficit.
The Legislature must pass a spending plan by June 15 for lawmakers to receive their paychecks. That means Newsom, Assembly Speaker Robert Rivas, D-Hollister, and Senate President Pro Tem Mike McGuire, D-Healdsburg, will need to reach a deal soon. Rivas, McGuire and Newsom administration officials are not talking publicly about any deals.
But some lawmakers and budget subcommittee chairs have been more open about their feelings toward Newsom’s proposed budget.
Newsom’s revised budget, which he presented earlier in the month, cuts $6.7 billion in Medi-Cal provider rate increases that were planned for January 2025. The rate hikes were to come from higher taxes on managed care organizations, or insurers, that lawmakers approved last year and in March.
The MCO tax allows California to draw down additional federal money to help fund Medi-Cal, the state’s version of the Medicaid program that provides health insurance for low-income residents.
Assemblywoman Akilah Weber, D-San Diego, who chairs the Assembly Budget Subcommittee on Health, said during a May 15 meeting that some lawmakers took “very hard votes” last year and in March on MCO tax increases and now “are quite upset and feel like this process has not been very honest.”
Weber asked for solutions from Department of Finance representatives who presented the changes. She said hospitals and clinics are losing services and labor and delivery units and pediatric wards are closing.
“So, we know it’s happening,” Weber said. “This was one part of the solution to that issue, and we’re taking that away.”
The governor’s revised budget would suspend a net operating loss tax deduction for businesses with California income of more than $1 million during tax years 2025, 2026 and 2027.
It would also cap businesses’ tax credit usage at $5 million per company. Assemblyman Chris Ward, D-San Diego, during a May 16 meeting of the Assembly Budget Subcommittee on State Administration, expressed concerns about suspending the credits.
He said the deduction suspension “solves something in the short run,” but it “creates, I think, incredible uncertainty for the business community that translates into potential impact for future economic opportunity, which itself is going to generate tax base for future years as well.”
Ward expressed similar concerns about the tax credit cap. “Something’s got to give, of course, in this budget,” he said. “And a broad brush sort of overture — that we’re going to suspend all of these credits — I worry might be a little bit of penny wise, pound foolish.”
Newsom wants to cut $260 million in Homeless Housing, Assistance and Prevention, or HHAP, grant program money promised to cities and counties to help address homelessness.
His revised budget also does not contain money for a sixth round of the program, worrying local leaders who have come to rely on the funding to pay for shelters and other services.
Fullerton Assemblywoman Sharon Quirk-Silva, a Democrat who chairs the Assembly Budget Subcommittee on State Administration, said HHAP is among the housing programs she and her colleagues are working to protect.
Progressive Assembly members are pushing Newsom to close more prisons, as the independent Legislative Analyst’s Office has suggested. The LAO in February said closing five additional prisons would save California $1 billion per year.
Newsom’s administration has moved to close three prisons and end a lease with a private prison company on an additional facility, according to the California Department of Corrections and Rehabilitation.
His revised budget would deactivate 46 prison housing units with 4,600 beds, resulting in $80.6 million in savings. The LAO reported prisons will operate with 15,000 empty beds during the 2024-2025 fiscal year, reaching 19,000 by 2028.
https://www.sacbee.com/news/politics-government/capitol-alert/article288730585.html#storylink=cpy
…So Senate & Assembly Leaders Float a Counter Proposal
CalMatters
Amid ongoing budget negotiations, legislative leaders released their counter proposal to a recent plan by Gov. Gavin Newsom to close California’s projected multibillion-dollar deficit.
The legislative proposal rejects some of the major spending cuts that Newsom is seeking, including to college scholarships for middle-income students, public health programs, subsidized child care slots and housing development, while pushing for more substantial reductions to prison funding.
But it aligns with the governor’s approach of minimizing the use of reserve accounts next year, as California faces a revenue shortfall that is expected to continue for several more years beyond that, and suggests doubling the size of the state’s rainy-day fund over time.
The legislative plan, an agreement between Democratic leaders in the Senate and Assembly, also endorses Newsom’s ideas of creating a temporary holding account for future projected budget surpluses until the money actually materializes.
The Legislature has a few weeks left to reach a deal with Newsom, as it approaches a June 15 deadline to pass a balanced budget or lose its pay and the July 1 start of the fiscal year. After lawmakers and the governor took early action last month, finance officials project the remaining shortfall to be more than $27 billion next year.
Assembly Speaker Robert Rivas, a Salinas Democrat, said in a statement that the Legislature’s proposal is “focused on preserving programs that matter most to Californians: lowering the cost of living, expanding affordable housing access and sustaining public services.”
Legislative Plan:
Lawmakers to Craft Climate & Education Bonds Next Week
Sacramento Bee
California lawmakers are poised to ask voters for billions of dollars in bond money to fund two priorities: school facilities and climate change initiatives, a legislator said. Assemblyman Al Muratsuchi, D-Torrance, said Thursday that lawmakers next week will begin negotiating with Gov. Gavin Newsom to place the two bonds on the November ballot.
The governor, Assembly Speaker Robert Rivas, D-Hollister, and Senate President Pro Tem Mike McGuire, D-Healdsburg, face a June 27 deadline to qualify measures for the general election. Rivas and McGuire did not respond to requests for comment by deadline.
“It is my understanding that the Assembly and Senate leadership have determined that the school bond and the climate bonds are going to be the top legislative priorities as far as bond measures are concerned,” Muratsuchi said.
Sen. Ben Allen, D-Santa Monica, and Assemblyman Eduardo Garcia, D-Coachella, both authored bills that would turn into bond measures asking voters for more than $15 billion to fund programs around water quality and conservation, flood management, wildfire prevention, clean energy projects and more.
Bond measures would need to first win legislative approval, then win a majority of voters in November.
A decision to push these bonds would end a bond scramble that engaged lawmakers since last year. They put forward many proposals the Legislature could have advanced to voters, including bonds to combat fentanyl addiction and build housing.
But Rivas and others have signaled for months that leaders would need to be selective about the bonds that move forward and the amount of money they seek from Californians.
Toward the end of last year’s legislative session, the Senate and Assembly Rules committees announced they were making all 2024 bond measures two-year bills, halting their progress through the Capitol for the year.
Legislative leaders made that move to clear the March primary ballot for Newsom’s Proposition 1, a $6.4 billion mental health care bond that voters barely approved.
Bonds are often regarded as attractive ways to win approval for popular projects without having an large, immediate impact on the state budget.
The state is grappling with an estimated $45 billion deficit, which could make bonds more politically appealing.
Muratsuchi authored Assembly Bill 247, a $14 billion bond to fund construction and modernization projects for kindergarten through community college facilities. The assemblyman said he expects his bond to end up “in the neighborhood of $10 to $12 billion.”
https://www.sacbee.com/news/politics-government/capitol-alert/article288891744.html#storylink=cpy
Let’s Make a Deal Time in the Capitol – Budget, Ballot Initiatives, Bills
CalMatters commentary by Dan Walters
It’s time for the folks in California’s Capitol to play let’s-make-a-deal – or actually, many deals.
With scarcely two weeks remaining until the June 15 constitutional deadline for passing a new state budget and less than a month for ballot measures to be finalized for the November election, there are dozens, or even hundreds, of individual issues to be resolved.
Most are to be found in the much-revised 2024-25 budget that Gov. Gavin Newsom unveiled earlier this month.
Acknowledging that the budget had a substantially bigger deficit than he declared in January, Newsom set aside his original strategy of using state reserves and paper maneuvers to avoid major spending reductions. The revised version reduces reliance on reserves and makes billions of dollars in real reductions.
Last week, the Legislature’s budget analyst, Gabe Petek, gave a qualified thumbs-up to the revision for its more realistic approach, even though he still has some differences with the administration on revenue estimates and multi-year deficit projections.
“The May revision puts the state on better fiscal footing and makes substantial progress toward structural balance,” Petek’s office said in an analysis.
Petek had been especially critical of Newsom’s approach to the budget’s largest single item, financial support for public schools, saying it would create problems in future years. The politically powerful California Teachers Association disliked it as well, and aired video ads criticizing it as a major reduction in school support.
The union’s pressure campaign apparently worked because Politico reported Tuesday that Newsom had cut a deal with CTA based on a promise to increase school support by $5.5 billion in future years.
So that’s apparently one deal done. But as Newsom negotiates with legislators on a budget to enact by June 15 – which may not be the final version – he still faces demands from dozens of interests affected by spending cuts that they be rescinded.
Just one of many examples occurred Tuesday, when a coalition of health care and civil rights groups staged a press conference to denounce the revised budget’s elimination of home care services for 1,500 elderly or disabled undocumented immigrants to save $94.7 million.
“It is unacceptable to balance the state’s budget on the backs of the poorest and most vulnerable Californians,” the coalition declared. “Rather than eliminating programs that impact the state’s poorest residents, the advocates will urge the Legislature to consider more progressive solutions to ensure California has the resources needed to care for the most vulnerable Californians.”
Multiply that criticism by 100 or more and it’s the kind of pressure being placed on Newsom and a left-leaning Legislature.
However, the harsh fact is that Newsom faced what he said was a $44.9 billion deficit, mostly because general fund revenues have fallen very short of the $200-plus billion per year that Newsom’s previous budgets had assumed. A chart in the budget pegs the shortfall at $165.1 billion over the four fiscal years beginning in 2022-23 and ending in 2025-26.
As Newsom, legislative leaders and interest groups dicker over the budget, they are also working on potential deals to short-circuit battles over ballot measures.
They are waiting to see whether the state Supreme Court will accept pleas from Newsom and legislative leaders to block a measure that would sharply increase restrictions on new taxes. They are also trying to work out a legislative package on crime that would assuage backers of a ballot measure to overhaul Proposition 47, a 2014 measure that reduced certain criminal penalties.
If there’s a deal before June 27, the pending November measure would be dropped.
Legislative Analyst Warns of Future Deficits
Sacramento Bee
The Legislative Analyst’s Office is cautioning lawmakers that savings from a cut to state operations proposed by Gov. Gavin Newsom may not materialize and that would pose a larger deficit in the next budget year.
In his budget revisions earlier this month, Newsom proposed trimming state operations — cuts to nearly all department budgets — by nearly 8% to save approximately $3 billion a year to deal with an estimated $45 billion budget deficit. In addition the administration wants to achieve $762.5 million in savings by eliminating 10,000 now-vacant state jobs.
The cuts to state operations would build on a December budget letter Newsom’s Department of Finance sent to all state departments and agencies that enacted a current year budget freeze in anticipation of the looming deficit.
The freeze, among other items, included prohibiting departments from entering into new contracts or agreements, halting discretionary and non-essential IT purchases, unless related to a critical security needs, and canceling non-essential travel.
The administration plans to build on the savings generated from December directive after the final budget is approved by working with state departments and agencies. These reductions in state operations, the governor noted in his budget revision, could include personnel, operating costs and contracting.
However, the precise contours of those reductions will not be known until the final budget is approved, points out H.D. Palmer, a Department of Finance spokesman.
With budget negotiations now ongoing, the Legislature may not agree with Newsom’s Department of Finance exercising the administration’s authority to decide on the cuts in the various state departments and agencies.
Furthermore, “We think there is a high risk that the level of savings assumed” from the proposed reduction measures “will not fully materialize in 2024-25,” the Legislative Analyst’s Office says in its new budget and policy post.
“To the extent that savings do not materialize, this proposal would create a larger future budget challenge.”
Newsom’s Department of Finance responded that if the Legislature disagrees with the administration’s proposal, lawmakers would then need to come up with an alternative way to generate the $3 billion in savings the administration expects from trims it wants to work out directly with various departments in the future.
“If the Legislature rejects the governor’s proposal, they’ll have to find $3 billion (in) offsetting savings to make that decision net out,” Palmer said. The proposed cuts to operations and the estimated annual savings to the budget do not necessarily equate to cutting more staff, Palmer added, although in some departments that may happen even as other areas within those same departments may see in increase in staffing depending on priorities and how to best achieve “operational efficiencies.” In another analysis, the Legislative Analyst’s Office estimated last week that the administration is addressing a larger budget gap than what it reported in its recently revised spending plan and contends with a $55 billion shortfall for the upcoming fiscal year, which beings July 1. Overall, the analysis said the governor’s new plan “improves the fiscal health of the state in a number of ways.”
Palmer said the proposed reductions are necessary “as part of the overall plan to close the (budget) shortfall – while at the same time encouraging departments to operate more efficiently in a way that will maintain core operations of state government.
“We’d note that the proposal recognizes and makes exceptions for specific categories – such as agencies that have 24-hour care or operational requirements, as an example,” Palmer added.
State operations costs have seen significant growth in the last five years, ballooning from $44 billion when the Budget Act was passed in 2019 to a peak of $68 billion in 2021; in 2022 and 2023 those operation costs were over $51 billion.
The administration notes that its proposed reductions acknowledge that the growth in recent years isn’t sustainable for the state’s ongoing budget. In the coming weeks, the Department of Finance will continue to evaluate the areas where savings can be achieved.
“However, until the Budget Act is passed by the Legislature and approved by the governor, the administration can’t definitively determine all areas for operational efficiencies, since these efficiencies have to take into consideration the full scope of the Budget Act in its final form,” Palmer said in an email.
The LAO urged lawmakers to be skeptical that the administration’s proposed state cuts would not affect the service levels at the departments impacted. “It seems highly unlikely to us that permanently reducing roughly $1 in every $10 spent on state operations would have no effect on services,” the analysis notes.
While Newsom is proposing cuts to state operations expenditures, his revised budget also proposes increases to implement already enacted legislation and other new activities, the LAO says, adding that the “incongruity … is difficult to reconcile.
“Money is fungible. If the Legislature were to approve both the unallocated reductions and the proposed budget augmentations to fund new activities, what assurances can the administration provide that the newly approved funding and position authority would be used to implement the new activities and not, instead, used to backfill reductions established” by the cuts, the analysis notes.
https://www.sacbee.com/news/politics-government/capitol-alert/article288660975.html#storylink=cpy
Utility District Sues City Over Bottled Water Plant
Bakersfield Californian
Concerns over how a newly built water bottling plant will impact an already over-drafted aquifer prompted the Southern San Joaquin Municipal Utility District to sue the city of Delano last month.
The district is asking that approvals for the Niagara water bottling plant be set aside and, ultimately, that a permanent injunction be granted to bar the plant from operating.
The lawsuit, filed April 22, alleges Delano did not conduct appropriate environmental reviews under the California Environmental Quality Act and that it didn’t hold a public hearing before approving the Niagara plant, which is already hiring employees and hosting community events.
It’s unclear exactly when the plant was approved, but a will-serve letter for the plant’s connection to Delano’s water system was issued Aug. 30, 2022.
Roland Gross, general manager of the utility district, which also acts as the area’s groundwater sustainability agency, or GSA, declined to comment for this story. A call to Delano Mayor Joe Alindajao was not returned.
The lawsuit states the plant is expected to pull 1,792 acre-feet per year from the aquifer and export it out of the subbasin without providing any new water to make up for that loss. It also states the Delano was supposed to develop a groundwater plan in concert with the GSA per a 2017 memorandum of understanding.