California lawmakers want to restore governor’s deficit-reducing cuts

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The major sticking points between what California lawmakers want and cuts proposed in Gov. Gavin Newsom’s May budget revisions are starting to arise with just over two weeks to go before lawmakers’ June 15 deadline to submit a budget to the governor.

Assembly Speaker Robert Rivas, D-Hollister, and Senate President pro Tempore Mike McGuire, D-Sonoma County, released their joint legislative budget proposal Wednesday afternoon.

They said in a joint statement that they have aligned on several budget priorities, including plans to restore funding to build housing and reject many social service cuts made in the governor’s budget.

“The Assembly came to these negotiations focused on preserving programs that matter most to Californians,” said speaker Robert Rivas, D-Hollister.

Assembly Democratic Caucus

Their proposal would spend $1.9 billion more on K-12 education than in the governor’s proposed budget, but still manage to tap nearly half a billion less from the state’s reserve funds. They added that they are weighing the changes made to Newsom’s educational proposal as a result of an agreement he reached with educators on Monday.

“Fixing California’s deficit means making tough choices, so the Assembly came to these negotiations focused on preserving programs that matter most to Californians: lowering the cost of living, expanding affordable housing access and sustaining public services,” Rivas said.

“The Legislature’s budget plan restores funding to build more homes, supports K-12 classrooms and rejects many of the cuts that impact our most vulnerable residents,” Rivas said.

They also announced they are negotiating with the governor on a proposal that would increase the state’s rainy day fund from 10% to 20% of the state budget to deal with the state’s sometimes sharp revenue swings from year-to-year.

The plan would exclude deposits into the Rainy Day Fund from the Gann Limit, a constitutional appropriation limit on state spending.

The lawmakers say their plan would allow money to be put into reserves instead of allocated under the Gann Limit rules.

They also want to create a surplus temporary holding account, where money would sit until the actual surplus materializes, so they aren’t spending money they don’t have.

Newsom proposed cuts to 260 different programs in his May budget revisions to shave down the remaining $28.6 billion of the $44.9 billion estimated deficit to arrive at a $288.1 billion balanced budget. He and lawmakers made an early stab at closing the gap in April approving $17.3 billion in cuts.

Newsom also announced cuts that would affect the fiscal year 2025-26 budget in anticipation of closing the $28.4 billion gap expected during that budget cycle.

Cuts to education, healthcare and local funding for homelessness have generated the most criticism from stakeholders in the days since Newsom presented his budget revisions on May 17.

“There is a lot of angst over some of these proposals,” Legislative Analyst Gabriel Petek said Friday during an online briefing conducted by the National Association of Municipal Analysts. But the LAO’s advice to lawmakers is “if they can try to hold on to the general architectural features, it will put the state in a better position.”

“The overall May revise package puts the state into a better position than it was before,” Petek said.

The LAO was particularly laudatory of the governor’s decision to cut $11 billion in spending on items that were floated as one-time spending during the two budget surplus years prior to fiscal 2023.

“One-time spending was proposed in the surplus years, because it’s not going into program augmentation,” Petek said. “I think doing that now is following through on it.”

Lawmakers’ proposed budget would take $5.3 billion from reserves in fiscal 2024-25, compared to $4.2 billion proposed by Newsom, and take $7.4 billion in reserves in fiscal 2025-26 compared to the governor’s plan to spend $8.9 billion of reserves in that budget cycle.

The lawmakers’ proposal would use the same $12.2 billion from the rainy day fund, but take $450 million less from the safety net reserve.

It would also use $2 billion less of the Proposition 98 Rainy Day Fund.

Newsom’s proposal draws down the entire nearly $10 billion in the Proposition 98 reserve fund for pre-K-12 schools and community colleges. Prop. 98 is a 1988 constitutional amendment that establishes an annual minimum funding level for K-14 education.

Newsom already made a concession to educators on Monday after the California Teachers Association began airing online and television ads last week criticizing cuts to the education budget.

The plan he outlined in his May budget revisions would have lowered the amount guaranteed to schools by nearly $12 billion over two years. The new deal alters the calculus on the Proposition 98 guarantee to add $5.5 billion over the next three fiscal years.

It would use $8.4 billion in Proposition 98 reserves, including $2.6 billion to pay off 2022-23 deferrals.

“This agreement is a smart and balanced policy solution that incorporates feedback from California’s educators,” Newsom said in a statement. “Working together, we are protecting California’s students, families, and educators and putting the state on a fiscally sound and sustainable path.”

There is a lot of angst over some of the governor’s proposed cuts, Legislative Analyst Gabriel Petek said. But his advice to lawmakers is “if they can try to hold on to the general architectural features (of the governor’s proposed budget) it will put the state in a better position.”

Legislative Analyst’s Office

David Goldberg, CTA’s president, called the agreement “a critical step forward for California’s schools and communities.”

“It ensures that students, educators and families aren’t impacted by cuts to the classroom and includes protection against additional layoffs of educators,” Goldberg said.

The agreement is “fiscally neutral” over the budget period, Goldberg said, because it will not negatively impact other areas of the budget such as healthcare and social services.

“As we grapple with a massive deficit in our state, it’s vital for allies to work together to protect fundamental public services that our communities deserve,” Goldberg said.

Prop. 98 requires the state to fund K-12 schools and community colleges at a minimum percentage of the state’s general fund budget each year.

The state overpaid its Proposition 98 funding percentage in fiscal 2023 when projected revenues failed to materialize. Rather than clawing back the $8 billion overpayment, the governor had proposed providing lower funding levels to schools in the fiscal 2024-25 and fiscal 2025-25 budgets.

The agreement reintroduces funding deferrals, an accounting maneuver the state used in the aftermath of the 2008 global financial crisis to shift spending to future years, rather than suspending funding. It reflects a $2.4 billion budget year deferral, which based on current Department of Finance projections could be retired in 2025-26, according to details of the agreement provided by DOF spokesman H.D. Palmer.

It also enables the state to maintain school funding in the event of a future economic downturn using deferrals, provides statutory flexibility to avoid future disputes by including statute to address situations in which significant tax revenue is not available to determine the Proposition 98 minimum guarantee and provides stability for schools both in the short and long term, Palmer said.

Despite the agreement, the union plans to continue airing the ads while it lobbies lawmakers “to protect public school funding in the budget,” Goldberg said.

A coalition of 13 mayors in the state’s largest cities have protested elimination of $260 million in funding to the Homeless Housing Assistance and Prevention Program, which offers grants to cities.

The mayors released a report in April saying funding from the program has created 15,722 emergency shelter beds, served 149,851 people and 42,215 people were placed in housing.

“Without HHAP, homeless shelters will be shuttered, safe parking lots will close, outreach workers will be gone and unsafe and unsanitary tent encampments will proliferate on our sidewalks and in our parks,” San Diego Mayor Todd Gloria, chair of the coalition, said during the May 22 press conference.

Both Newsom in his May revise and Petek during his briefing Friday noted that the Newsom administration is the first one to dedicate state funding of any significance to solving the housing crisis, as the onus had largely been on local governments previously. Newsom added during his May 15 revision briefing that his focus this year will be on more accountability as to how well the money already dispersed is being used.

The lawmakers’ proposal would provide $1 billion to round 6 of HHAP, plus the $500 million for the low income housing tax credit program, also in the governor’s budget. It would also reject cuts to the multifamily housing, regional early action planning REAP 2.0 and housing navigation and maintenance program.

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