Deal or no deal: How will Newsom react to the Legislature’s budget agreement?

Cities scored several wins last week in the Legislature’s preliminary budget, including an extra $1 billion for one of the state's biggest homeless programs. However, it is unclear what the final budget will actually look like. There are major differences between the legislative proposal and Gov. Gavin Newsom’s May Revision. 

Lawmakers are trying to figure out how to plug a somewhat unexpected $31.5 billion budget deficit. California's tax system relies heavily on personal income taxes from high-income residents, making it extremely vulnerable to stock market downturns. Californians also tapped into social safety net programs more than expected.

Most Californians have until October to file their taxes, which could create even larger revenue fluctuations and potentially, a mid-year budget revision.  

Legislators want to close the shortfall by delaying, reducing, cutting, and reallocating previous appropriations and shifting general fund cash to bonds for certain projects. Their proposal contains zero ongoing cuts to core city programs and does not redirect city funds to address the budget deficit. That alone is a win in the current budget climate. 

So how did cities fare overall? Mostly well, with one caveat. The budget proposal contains an extra $1 billion in funding for the Homeless Housing, Assistance and Prevention grant program. This positive development both recognizes the important role cities have in reducing homelessness and provides certainty for local partners beyond the 2023-24 budget year.  

However, it does not contain ongoing funding to help cities increase affordable housing and prevent and reduce homelessness. Short-term funding makes it difficult for cities — especially smaller and mid-sized cities — to develop the ambitious plans needed to reverse California's decades-in-the-making crises. We know from previous economic downturns that now is the time to invest in social safety programs. If not, more Californians will become homeless.  

This year’s other big budget battle is going off the rails. The Legislature restored $1.1 billion in their budget proposal for public transportation, citing the fiscal cliff facing major transit agencies and the need to meet climate goals. Transit agencies could spend some of that funding on zero-emission buses. 

Last month, the Governor rolled out a suite of budget trailer bills and an executive order designed to combat climate change with big infrastructure projects. Budget trailer bills bypass most of the normal legislative process.

The proposals collectively seek to streamline permitting, cut red tape, reduce time-consuming litigation, and make other changes that could speed up projects by years.

It has become the most contentious part of the budget with lawmakers noting they were not given enough time to analyze the proposals. Many have questioned why the bills must be passed now instead of through the regular and more deliberative legislative process for policy issues that concludes in September.

So, what’s next? The Governor must sign the budget by July 1. He can “blue pencil” (reduce or eliminate) any appropriation in the budget. Lawmakers can override any blue-penciled item with a two-thirds vote of both houses.

Legislative leaders say a deal is within reach, but the details are scant. Based on previous years, budget negotiations will likely continue until Sept. 14 through trailer bills and an additional budget bill.