New California State budget proposal includes major cuts to housing and homelessness programs
Summary
Here is a summary of the key points about California's revised budget proposal from the various sources provided:Governor Newsom released his revised budget proposal in May to address a projected $45 billion deficit over two years. This includes the $27.6 billion deficit for the 2024-25 fiscal year plus $17.3 billion in early budget cuts agreed to in April.
To close the gap, the governor proposes around $32-33 billion in spending cuts, deferrals, delays, fund shifts, and revenue-related solutions. This includes:
- - $19 billion in one-time cuts and
- - $14 billion in ongoing reductions across 260 programs
- - Major cuts to
- housing,
- homelessness,
- education,
- social services, and
- transportation
- - Eliminating vacant state worker positions and cutting government operations
- - Withdrawing from reserves and shifting funds to generate savings
- - Homeless services and transitional-age youth programs
- - Services for crime survivors like counseling, shelters, and hotlines
- - Transit projects and operations
- - K-12 and higher education funding
- - Child care, CalWORKS, and public health programs
The legislature has until June 15 to pass a balanced budget. The LAO recommends the legislature focus on the long-term outlook, maintain reserves, maximize one-time cuts, limit new spending, and control ongoing costs to lessen the need for more drastic measures in future years when budget balancing tools are more limited. However, advocates are concerned the proposed cuts threaten critical programs and will be harmful.
New budget proposal includes major cuts to housing and homelessness programs | Cal Cities
The impact of this devastating disinvestment will be “felt for years to come” says Cal Cities executive director and CEO
By Cal Cities Staff
Gov. Gavin Newsom characterized his May budget proposal as a "return to normalization" and a focus on core services. Yet, there should be nothing normal about making cuts to programs that help California's most vulnerable residents. Like many people, the Governor and lawmakers are looking for ways to close a budget shortfall — $26.7 billion according to the May Revision. Yet despite this deficit, they have billions of dollars to spend.
“The decision to not invest in another round of HHAP funding poses a devastating threat to homelessness programs statewide and puts at risk the health and safety of thousands of unhoused residents,” said Cal Cities Executive Director and CEO Carolyn Coleman. “Not only does the proposal eliminate one-time funding to address homelessness, but it also ignores the growing consensus around the need for ongoing funding to address this decades-in-the-making crisis.”
The May Revision includes several painful cuts, most notably to major homelessness and housing programs. The Governor also proposed reductions to some hard-fought broadband victories, along with some creative accounting maneuvers that would shift or delay spending in key climate and transportation programs. Investments in public safety programs are largely maintained.
The proposal would draw down $13.1 billion in reserves over two years and implement $3 billion in workplace "efficiencies" in state agencies to close the rest of the deficit, for a total balanced budget of $288 billion. Crucially, the current proposal avoids any redirection of city funds to address the state’s budget shortfalls.
In addition to castigating cities while ignoring the state's own shortcomings — more on that below — the Governor took the opportunity to highlight some potential policy changes. This includes reforms to address revenue volatility and the state's exploding wildfire insurance crisis.
Keep reading for an analysis of major funding cuts, allocations, and policy proposals.
- Brian Hendershot, Cal Cities Advocate managing editor, with contributions by Waleed Hojeij, legislative affairs analyst
Revenue and Taxation
In early January, the Governor unveiled $38 billion in possible reductions, borrowing, delays, deferrals, and shifts, as well as $13.1 billion in reserve spending to close the budget deficit. This projection was at odds with the independent Legislative Analyst’s Office’s $73 billion shortfall projection. Then in April, he struck an agreement with lawmakers that addressed $17 billion of the deficit to secure more time for negotiations later in the year.
Unfortunately, tax collections and General Fund sales taxes came in below forecasts. This led many to anticipate that revenue forecasts would be revised down, increasing the budget deficit. The Governor’s May Revision seemingly validated those predictions, with the budget reduced to $288 billion, down from $291.5 billion in January.
The May Revision addresses what is now an approximately $27.6 billion deficit for the current fiscal year, an increase of $7 billion from January. The Governor attributed the increase to California’s volatile revenue system, which depends on high-income earners and stock market gains. The May Revision also anticipates a near $30 billion deficit for 2025-26.
The Governor again proposed balancing the budget through $15.2 billion in reductions (mostly undisbursed one-time appropriations), along with expansion pauses and shifts, borrowing, and workplace efficiencies. The budget would draw $13.1 billion from reserves over the next two years to close the rest.
He also floated a new “excess revenue investment capture account” to address future revenue volatility. The account would capture excess revenues above historical trends and limit the spending of the funds until they materialize. He also mentioned the need for structural tax reform but was scant on details.
The May Revision assumes steady but slowing economic growth. It does not anticipate a recession. However, the state is seeing an increase in unemployment and stubbornly high inflation. Inflation has cooled since its peak, but it is still higher than the Federal Reserve’s target rate. Although the Fed’s efforts to lower inflation through rate hikes could cool the economy, they also raise the odds of a recession. If that happens, the budget shortfall could drastically increase in future fiscal years.
- Ben Triffo, legislative affairs lobbyist
Public Safety
The January budget included key investments aimed at reducing fentanyl trafficking and retail theft. During the press conference, the Governor said that he is “holding the line” on crime, maintaining California Highway Patrol retail theft operations, and working in partnership with the National Guard to stop fentanyl at the border.
The Governor said he expects to propose trailer bill language to address home insurance companies hiking prices, leaving the state, or refusing to write new policies. He wants to fast-track the Insurance Commissioner’s rate ruling to stabilize the market.
Below is a breakdown of the major reductions — mostly to state and county programs — and policies announced in the Governor’s May Revise.
- Trial Court Operations: Reduces $97 million ongoing, consistent with a reduction to state operations.
- State Prison Housing Unit Deactivations: Reduce $80.6 million ongoing to reflect the deactivation of 46 housing units across 13 prisons, totaling approximately 4,600 beds.
- Peace Officer Training Reduction: Reduce $8.5 million in 2023-24, $13.8 million in 2024-25, and $22.6 million ongoing to reflect a reduction in annual training for correctional officers and a discontinuation of the California Reality Based Training Center.
- Parole Data Study: Reduce $6 million one-time for a study on parole data and outcomes.
- Post Release Community Supervision: Reduce $4.4 million one-time in 2024-25 to eliminate funding provided to county probation departments for the temporary increase in offenders released from prison to Post Release Community Supervision under Proposition 57.
- Adult Reentry Grant: Reduce $54.1 million in 2023-24 and $57 million one-time in outyears to proposed delays in the Governor’s January budget. The grant provides competitive funds to community-based organizations to deliver services that help formerly incarcerated individuals reenter communities.
- Jolena Voorhis, legislative affairs lobbyist
Community Services
The Governor's May Revision does not include new funding for reducing homelessness, despite a growing coalition led by local governments calling for ongoing funding. In fact, it goes a step further by eliminating key funding promised in previous years. While the Governor continues to blame local governments for the continued rise in homelessness, a recent state audit expressed significant concerns about the state’s strategy for collecting data and evaluating the success of its own programs.
In response to concerns about the lack of new funding, the Governor pointed to the recently passed Proposition 1. It provides $6.38 billion in bond funding for behavioral health housing. While these funds are a significant step forward in addressing homelessness, they are limited to housing people struggling with mental health and substance use. This leaves a huge gap in the state’s ability to meet the diverse needs of California’s homeless residents.
A survey by Cal Cities underscores why ongoing funding is essential to helping people experiencing homelessness. Eighty-five percent of surveyed cities have started programs to prevent and reduce homelessness. Over 90% of them worry about their ability to provide those services in the long run. Cities agreed that the lack of ongoing funding is the top barrier to reducing homelessness. Over eight in 10 cities say inconsistent state funding harms their ability to effectively serve unhoused residents.
Below is a breakdown of major cuts announced in the Governor’s May budget.
- Homeless Housing, Assistance, and Prevention (HHAP): The May Revise does not include any new funding for round six of the program or a commitment to fund it on an ongoing basis. It also eliminates nearly $300 million in previously budgeted HHAP bonus funds, which are awarded to recipients if they can meet specified performance metrics.
- Behavioral Health: Includes numerous cuts to several behavioral health programs, including:
- Eliminating $450.7 million in one-time funds from the last round of the Behavioral Health Continuum Infrastructure Program.
- Reducing $132.5 million in 2024-25 and $207.5 million in 2025-26 for the Behavioral Health Bridge Housing Program.
- Reducing $72.3 million one-time in 2023-24, $348.6 million in 2024-25, and $5 million in 2025-26 for school-linked health partnerships and capacity grants provided through the Children and Youth Behavioral Health Initiative.
- Outdoor Access: Includes a
one-time reduction of $50 million in 2023-24 for outdoor environmental
education and access programs administered through the Outdoor Equity
Grants Program.
- Caroline Grinder, legislative affairs lobbyist
Housing, Community, and Economic Development
Earlier this year, the Governor announced $1.7 billion in cuts to key housing programs that cities rely on to increase affordable housing in their communities. Fast forward to May and continued calls from Cal Cities and its allies to bolster — or even maintain — existing funding levels for affordable housing proved unsuccessful. The Governor on Friday announced even deeper cuts to these programs, including eliminating key funding sources for affordable housing.
Below is a breakdown of major reductions announced in his May proposal.
- Multi-Family Housing Program: In January, the Governor’s budget proposed eliminating $250 million from the program and leaving $75 million for the 2024-2025 budget year. In May, he proposed eliminating the remaining funds from this year’s budget.
- Adaptive Reuse Program: The Governor announced the elimination of the $127.5 million program established in the 2023-2024 budget.
- Foreclosure Intervention Housing Preservation Program: The Governor announced he was eliminating both the $236.5 million in last year’s budget for this program, in addition to the $237.5 million proposed in January, resulting in a complete elimination of the program.
- Brady Guertin, legislative affairs lobbyist
Environmental Quality
In January, the Governor announced significant cuts and delays to climate investments — roughly 11% of a historic $54 billion dedicated over 5 years. The May Revise continues that trend but with proposed shifts and reductions in much smaller magnitudes. However, these cuts are still significant. The changes would impact several programs that address climate change impacts in vulnerable communities.
The Governor cited two funding sources — recent federal climate investments upwards of $15.9 billion and legislatively proposed climate bonds — as an offset to state climate cuts. The two bonds, AB 1567 (Garcia) and SB 867 (Allen), are currently hovering around the $15 billion mark. Gov. Newsom noted he will continue to partner with the Legislature on this issue while staying mindful of the long-term cost of financing bond measures.
Below is a summary of natural resources and climate proposals in the Governor’s May budget.
- Cap and Trade Fund Shifts: The May Revise proposes to shift $1.7 billion in 2024-25 from the General Fund to the Greenhouse Gas Reduction Fund for various climate programs. It would also shift $3.6 billion over the next five years from the General Fund to the Greenhouse Gas Reduction Fund, impacting transit programs, clean energy programs, zero-emission vehicle programs, and nature-based solutions programs.
- Outdoor Equity Grants: Approximately $50 million one-time in 2023-24 would be reduced for outdoor environmental education and access programs administered through the Outdoor Equity Grants Program. Roughly $40 million is already committed for this program.
- Vulnerable Community Toxic Clean-up: Approximately $136 million in reductions for 2023-24 (and $268.5 million over four years) for the Department of Toxic Substances Control’s Cleanup in Vulnerable Communities Initiative Program. The May Revision maintains $65 million (and $107.5 million over three years) for the program through a fund shift to the Greenhouse Gas Reduction Fund.
- Habitat Conservation Fund: The May Revise reverts $45 million one-time in 2023-24 and reduces $20 million ongoing, starting in 2024-25, by accelerating the sunset date for the Habitat Conservation Fund, details of which are forthcoming. It is currently scheduled to sunset in 2030.
- Water Storage: Notably, the Governor proposed $500 million of one-time funding in cuts in 2025-26 for water storage facilities. Proposition 1 of 2014 dedicated $2.7 billion for investments in water storage projects, and significant funding is still available for this purpose.
- Air Pollution Control Fund Loan: A budgetary loan of $300 million is provided from the fund balance of the Air Pollution Control Fund to the General Fund.
- Melissa Sparks-Kranz, legislative affairs lobbyist
Governance, Transparency, and Labor Relations
The Governor’s May Revise includes “efficiencies,” such as reductions to state operations, and cuts to economic development, workforce, and apprenticeship programs. Some notable changes include:
- Ongoing Reductions to State Operations and Elimination of Vacant Positions: The May Revise reduces state operations by approximately 7.95%, starting in 2024-25, to nearly all department budgets. This involves all categories, including personnel, operating costs, and contracting. The May Revise also eliminates approximately 10,000 unfilled state positions starting in 2025-26 and ongoing.
- Reduction of Economic Development and Apprenticeship Programs: The May Revise reduces $150 million for the California Jobs First Program, an interagency partnership that supports resilient, equitable, and sustainable regional economies. The May Revise also eliminates the Women in Construction Program by cutting $10 million on an ongoing basis, in addition to the $5 million ongoing reduction proposed in the Governor’s budget.
- Johnnie Pina, legislative affairs lobbyist
Transportation, Communications, and Public Works
The Governor’s May Revise proposes a combination of fiscal maneuvers — including spending reductions, shifts, and delaying funds — to move $3.6 billion from the General Fund to the Greenhouse Gas Reduction Fund. This would impact transit programs, clean energy programs, zero-emission vehicle programs, and nature-based solutions programs.
The May Revise maintains the Formula Transit and Intercity Rail Capital Program ($4 billion) and the Zero Emission Transit Capital Program ($1.1 billion) funding levels. The May Revision also reduces $148 million not used for awarded projects from the Competitive Transit and Intercity Rail Capital Program and maintains 96% of the Competitive Transit and Intercity Rail Capital Program ($3.5 billion of the originally planned $3.65 billion).
Below is a breakdown of major reductions and shifts announced in the Governor’s May Revision.
- Transit: Shifts $555.1 million from the General Fund to the Greenhouse Gas Reduction Fund above what was proposed in the Governor's budget, for a total of $1.3 billion in proposed fund shifts for transit.
- Active Transportation Program: Reduces $300 million in 2025-26 and $99 million in 2026-27 for funds appropriated for active transportation.
- ZEV Fueling Infrastructure: Shifts $475 million from Cap and Trade intended to support zero-emission vehicles.
- Broadband: Proposes a $2 billion clawback of investments that would increase access to broadband internet. This would be achieved by authorizing the Department of Finance to override Middle Mile Broadband Initiative investments, eliminating $700 million from the committed $750 million from the loan loss revenue account, and delaying $200 million from 2025-26 to 2027-28 for Last Mile investments.
- Damon Conklin, legislative affairs lobbyist
Next steps
This
is just the next step in the budget negotiation dance. Lawmakers must
approve the state budget by June 15. However, the exact details of the
budget are often hammered out in budget trailer bills throughout the
year. To learn how you can make your voice heard, contact your regional public affairs manager.
Hundreds of millions in reductions to homelessness programs. A pause in billions for subsidized child care. A $510 million reduction to the Middle Class Scholarship program. And $300 million in annual reductions to public health funding.
Those are just a handful of the proposed budget cuts across 260 state programs in California Gov. Gavin Newsom’s latest $288 billion budget proposal, commonly referred to as the “May Revise,” which he announced Friday, May 10.
But what do those numbers mean for Orange County agencies and programs that rely on state funding?
While these cuts aren’t set — Newsom and the state legislature have until June 15 to work out final details — California faces a budget deficit of approximately $45 billion.
“It’s definitely a very tough budget with serious reductions and delays,” said Assemblymember Sharon Quirk-Silva, D-Fullerton, who chairs the Budget Subcommittee on State Administration. “We had already predicted that there would be many cuts in many areas, but we see dramatic cuts in housing, homelessness, cuts in education, programs that will be eliminated, programs that will be delayed.”
Here are several ways the governor’s proposed budget cuts could affect Orange County.
Homelessness
Newsom proposed major cuts to the state’s homelessness programs, including a one-time $260 million cut from the Homeless Housing, Assistance and Prevention (HHAP) program — supplemental funds that were set to be released to cities and counties this year and next year.
Established in 2019, the grant, which is California’s main source of homeless funding, provides cities and counties money to address local needs related to homelessness.
The proposed cut comes at a time when homelessness in Orange County is up 28% since 2022.
“HHAP dollars for us have been really, really important,” said Tim Shaw, chair of the Orange County Continuum of Care board. “The main attribute to these dollars that are so important to the system is their flexibility, the ability to be innovative in the use of these dollars.”
Unlike much state funding that is tied to a specific cause, HHAP money can go toward a wide array of needs, including, but not limited to, rapid rehousing, interim housing, street outreach, a homeless management information system and administrative costs.
Shaw said HHAP, among other things, has funded emergency shelters, homelessness prevention programs and rapid rehousing programs for families in Orange County and also made sure Project Homekey projects got off the ground in Anaheim and Huntington Beach.
“When you look at the breadth of types of initiatives and needs that we’ve met with HHAP, taking them out of the system is catastrophic,” he said.
Slimmer HHAP funding also means less support for transitional-age youth who are homeless or are at risk, said Shauntina Sorrells, chief program officer at the Samueli Foundation. HHAP is the main funding source from the state dedicated to transitional-age youth, she added.
In Orange County, the rate of homelessness among transitional-age youth has gone up 31% since 2022.
“Anytime we have the potential for instability, not only is that impacting the workers, but also the end-user, the people they are trying to help,” said Becks Heyhoe, executive director of United to End Homelessness. “It impacts their ability to deliver services and impact the quality of service for the end-user.”
Services that support crime survivors
Hundreds of thousands of people who have experienced domestic and sexual violence, child abuse, human trafficking and other crimes in California are at risk of losing out on vital services due to a projected 44.7% loss in federal Victims of Crimes Act (VOCA) funding to the state.
In Orange County, those cuts are likely to affect the thousands of survivors who receive assistance ranging from counseling, emergency shelters and therapy to rape crisis/sexual assault centers, crisis hotlines, legal therapy and community crisis response.
Anti-violence programs statewide, including Laura’s House and Waymakers in Orange County, have implored the state to backfill $200 million, but there is no reference to any victim services backfill in the summary of the budget proposal.
For Laura’s House, the counseling department will take the hardest hit due to cuts to VOCA funding, said Lia Chacon, the group’s legal advocacy director.
“Last year, we provided services to 702 survivors and with the cut, it would impact anywhere from 300 to 400 survivors for counseling alone,” she said. “Survivors are not only the adults that we service, but also their children. It impacts the entire family.”
Lita Mercado, chief program officer of Waymakers’ victim assistance programs, said “preparing for a 44.7% cut is an impossible task.”
The organization served more than 20,000 direct victims of crime last year, Mercado said, including at Cook’s Corner following a mass shooting there last August. Waymakers provided on-scene support, making sure victims got connected to the resources they need and gave support to families during death notifications.
“With that cut, there will be no on-call staff for any of those victims,” she said.
Mercado said Waymakers will most likely rely on law enforcement at the scene to inform victims about the resources available to them, and then rely on those victims to call them.
“To expect that victims will have the presence of mind to do that is irresponsible,” she said. “All of that proactive work that we do would be completely eliminated. A VOCA cut of 44.7% not only reduces my staff in half, but I don’t even think I can articulate what that means for underserved populations and our ethnic communities who already have access issues.”
Workers have already been alerted that staff cuts may happen, and Waymakers has started contemplating starting waitlists for clients and operating on an appointment-only basis, Mercado said.
Transportation
While transportation agencies dodged direct cuts in the revised budget, the $17.3 billion in cuts in the early action budget package Newsom and legislative leaders agreed to in April delays $1 billion in grant funding for transit and intercity rail projects.
The anticipated funding being delayed is an integral part of Orange County Transportation Authority’s annual budget, said OCTA spokesperson Eric Carpenter.
“Our budget relies on receiving these funds as planned,” he added.
This year, OCTA’s anticipated state funding through the TIRCP (Transit and Intercity Rail Capital Program) and the ZETCP (Zero-Emission Transit Capital Program) is approximately $182 million. Delaying those funds would hinder OCTA’s ability to fund Metrolink rail service in Orange County, Carpenter said, and redirecting other funding to cover operational shortfalls could also limit OCTA’s ability to invest in transit projects including the future operation of OC Streetcar between Santa Ana and Garden Grove.
“From the funding sources that now may be delayed, we have $39 million planned for OC Bus and $26 million for Metrolink rail operations,” he said. “That’s a more than $65 million shortfall.”
K-12 education
Adding onto a cut of roughly $500 million from a K-12 program to help districts pay for building projects as well as the delay of $550 million from a similar program for preschool, transitional kindergarten and full-day kindergarten projects, Newsom proposed revising downward the method for calculating educational funding under Proposition 98, which “sets aside a minimum amount of funding for schools and community colleges,” according to the Legislative Analyst’s Office.
Lowering the funding requirement will potentially lead to smaller budgets for school districts and charter schools, said Ramon Miramontes, deputy superintendent of the Orange County Department of Education.
And coupled with a minimal cost-of-living adjustment, Newsom’s proposal will likely make it more difficult for schools to handle rising costs while addressing chronic absenteeism and declining enrollment, he added.
“School districts and charter schools … will be faced with difficult decisions in the months and years ahead. Active engagement from families and community members is crucial to ensure that resources are allocated in ways that truly reflect the needs, values and priorities of each community,” Miramontes said.
Ryan Burris, spokesperson of Capistrano Unified, which is the largest school district in Orange County, said the district is “wary of novel approaches that could impact future state funding for public school students.”
Postsecondary education
UC and CSU students will also be affected by potential cuts. In the early action budget package, Newsom and state legislators agreed to defer almost $500 million in funding by one year to UCs and CSUs, and, in the May Revise, Newsom proposed slashing $510 million in ongoing support for the Middle Class Scholarship.
Some schools have reported they have already started making cuts, including putting in place a hiring freeze.
While UC Irvine does not currently have a hiring freeze, according to university spokesperson Tom Vasich, the school is facing a “projected structural deficit,” meaning that its annual revenue is being outpaced by its operating expenses.
The school has started identifying areas where spending could be cut, including by reducing off-campus leases and reducing the budget across all schools and divisions within the university.
Social services, public health and child care
Newsom proposed more than $170 million in reductions to two CalWORKs programs: one that provides home visiting services to pregnant women, caretakers and parents and another that offers mental health and substance abuse services.
While the summary of the most recent budget proposal doesn’t specify cuts to other CalWORKs programs, Jamie Cargo, spokesperson of the OC Social Services Agency, said the agency is keeping an eye on cuts to several programs Newsom proposed in January that help families stabilize and prevents them from entering the child welfare system.
One is the family stabilization program, which includes mental health, domestic abuse and substance abuse support, as well as housing assistance.
From fiscal year 2020-2021 to January 2024, the program supported and served 4,508 adults and 7,563 children in Orange County, according to Cargo.
“Family stabilization also assists children and families through Family Resource Centers, providing additional assistance, such as food distribution and gift cards for obtaining gas and other basic needs, and hygiene products,” she said.
The OC Health Care Agency will also be affected by fewer state dollars — Newsom proposed eliminating $52.5 million this year and slashing $300 million annually in state and local public health funding.
In Orange County, that would result in a nearly $13 million elimination of funding in 2024-2025, said agency director Veronica Kelley.
The OC Health Care Agency is “completing a full impact analysis, including the review of mandated and core functions, programming needs and staffing models,” Kelley said.
Funding for child care, while not being taken away, will see a pause in $1.4 billion “until fiscal conditions allow for resuming the expansion,” Newsom said, although he did not specify exactly when that would be.
“For Orange County residents, the pause may exacerbate already-existing challenges in finding and affording child care,” said Kimberly Goll, president and chief executive officer of First 5, which oversees allocation of Prop. 10 tobacco tax funds in Orange County for services to children ages 0 to 5 and their families.
In 2020, an analysis commissioned by First 5 revealed that the county suffered from a profound shortfall in affordable, licensed child care even before the pandemic.
Goverenor Newsom's Revised California Budget - massive cuts
Epoch Times Video Transcript
Governor Newsom just released his May revision of the budget proposal that he revealed in January. There's been a lot of uncertainty this year as to the depth of the deficit. The governor initially told us it was somewhere closer to $38 billion, while the Legislative Analyst's Office (LAO) countered based on their projections that it was approximately $73 billion.
With the governor's revised budget, he's now saying that we're facing about a $27.6 billion deficit, but this is after subtracting $17.3 billion in an early action budget plan that was signed into law on April 15th. So if we combine these two numbers, we're closer to about a $45 billion deficit.
The governor explained that the difference between the Department of Finance's forecast and the LAO's forecast is essentially a difference of opinions in terms of revenue and Prop 98 school funding, which involves a complex calculation. We're likely somewhere between the governor's estimate of a $45 billion deficit and the LAO's estimate of a $73 billion deficit.
The governor has put forth a combination of spending cuts, deferrals, delays and what critics call accounting tricks, totaling a little over $32-33 billion in reductions. He has shifted his strategy to look at this as a two-year budget window, covering fiscal years 2024-25 and 2025-26, because of projected deficits moving forward of approximately $56 billion according to his calculations. The proposed cuts include:
- $19 billion in one-time spending cuts
- Nearly $14 billion in ongoing spending cuts
- Reductions to about 260 programs across core services like climate, housing, education
- 8% cut in government operations to save upwards of $5 billion
- Not filling 10,000 vacant state worker positions to save $800 million
- Cuts to CDCR, public health, and nearly every state agency
- $500 million cut to a middle class scholarship program
- $1.5 billion in cuts to student aid
- Hundreds of millions cut from school facilities grants for preschool/kindergarten
- $80.6 million per year cut from prisons by deactivating some yards
- Some cuts to homeless spending and bonuses
The governor was adamant about no new taxes, though limiting a net operating loss tax credit for corporations could generate revenue. The legislature may counter with tax increase proposals to help balance the budget.
Revenues dropped significantly, by about 7.3%, due to volatility in the stock market and capital gains taxes. The governor is also clawing back $19.1 billion promised in prior years but not yet spent.
The legislature has until June 15 to pass a balanced budget in order to get paid. The governor has until July 1 to sign it into law. The budget bill may also include language to expedite regulatory changes to address challenges in the home and property insurance market in California.
LAO Overview
The Legislative Analyst's Office (LAO) presented an overview of the Governor's proposed 2024-25 budget to the Senate Committee on Budget and Fiscal Review on January 23, 2024. Key points include:
1. The state faces a significant budget problem, with the LAO estimating the Governor addressed a $58 billion shortfall, about $10 billion lower than their earlier Fiscal Outlook estimate. The main difference is the LAO believes the administration's revenue forecast is optimistic.
2. The state has tools to address the problem this year, including large reserves and reducible one-time spending. However, the LAO projects ongoing structural deficits around $30 billion annually from 2025-26 through 2027-28, when the state will have fewer tools to balance the budget.
3. To address the $58 billion shortfall, the Governor proposes a mix of school/community college spending reductions, reserve withdrawals, cost shifts, delays, fund shifts, reversions, and other spending and revenue-related solutions.
4. The LAO generally finds the proposed reserve withdrawals reasonable, but notes the administration lacks a plan for implementing some school and community college spending reductions. The other spending solutions are warranted but may pose challenges.
5. The LAO recommends the Legislature craft this year's budget with a focus on the future, including planning for lower revenues, maintaining reserve withdrawals, maximizing one-time spending cuts, setting a high bar for new proposals, and containing ongoing service levels. This can help mitigate the need for more painful ongoing cuts or tax increases in the coming years.
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