Newsom's budget proposal maintains most funding commitments, with housing and climate among the exceptions

Jan 10, 2024

By Cal Cities Staff

If there are two things Gov. Gavin Newsom wants everyone to take away from this year's $291.5 billion budget proposal, it's "accountability and stretching those tax dollars." The proposal avoids deep cuts to most programs through a combination of reductions, borrowing, delays, deferrals, and shifts. Climate change and housing received the largest cuts, with existing spending largely maintained in other areas.

Newsom also said the magic word: ongoing. Last week, the League of California Cities called on lawmakers to honor previous funding commitments and create an ongoing funding stream to increase affordable housing and reduce homelessness. Although the latter was noticeably absent, Newsom did not claw back any current commitments on homelessness and acknowledged that conversations about ongoing funding are in play. He also underscored the need for strong state-local partnerships.

"We welcome the Governor’s commitment to working closely with the Legislature on additional, ongoing funding to support local governments’ response to the homelessness crisis," said Carolyn Coleman, Cal Cities executive director and CEO. "However, we can’t afford to defer or delay the urgent need to put a roof over the heads of all Californians. That’s why we are concerned about the roughly $1 billion in proposed cuts to key housing programs."

The budget proposal is the first step in a lengthy series of negotiations over many months. Complicating this year's negotiations is what the Newsom Administration attributed to a difference in opinion about the state’s short-term economic outlook. The Governor is projecting a $38 billion deficit — far less than the Legislative Analysts Office (LAO) predicted.

For its part, the LAO told KCRA reporter Ashley Zavala that while they are “generally in agreement.” However, given that both offices are talking about predicted revenues, “both are almost certain to be wrong to some extent.”

Keep reading for an analysis of major funding cuts, allocations, and policy proposals.

-Brian Hendershot, Cal Cities Advocate managing editor

Revenue and Taxation

Unsurprisingly, the Governor spent the lion’s share of his presentation on the budget deficit. Last year’s budget forecasted a $14 billion deficit for fiscal year 2024-25. In December, the LAO reported that revenues were well below prior estimates, leading to a long-term budget deficit projection of $68 billion.

The Governor’s January budget proposal falls in between those numbers, with Newsom predicting a $37.86 billion shortfall. According to the Governor, this difference boils down to Prop. 98 savings, workload reductions, new revenues, and “less pessimism” about the near future.

This substantial budget deficit is mostly due to extraordinary prior-year revenue shortfalls. The federal government extended tax filing deadlines multiple times last year in response to extreme winter storms, and California followed suit. As a result, the complete picture of 2022-23 tax collections became clear only after the fiscal year closed and the previous year’s budget had passed.

The Governor’s proposed budget draws $13.1 billion from the state’s reserve accounts, which the Administration described as an appropriate tool to help balance the deficit. The rest of the shortfall is balanced with $8.5 billion in reductions, $5.7 billion in internal borrowing, $5.1 billion in delays, $3.4 billion in fund shifts, and $2.1 billion in deferrals. The Governor’s proposed budget maintains $18.4 billion in budgetary reserves.

This is just the opening salvo in the budget debate. While the current proposal avoids any raids on city coffers, Cal Cities will fight any attempt to backfill the state’s budget using local revenue streams that provide essential local services.

- Ben Triffo, legislative affairs lobbyist

Environmental Quality

If there is one clear loser from Gov. Gavin Newsom’s budget proposal, it’s climate programs. Although the proposed budget maintains noteworthy investments, it also contains substantial reductions and shifts in funding that will impact cities.

The budget still maintains 89% of the $54 billion ($48.3 billion) dedicated over five years. However, this proposal increases that timeline to seven years. The proposal also includes $2.9 billion in reductions, $1.9 billion in delays of expenditures to future years, and $1.8 billion in shifts to other funds (primarily the Greenhouse Gas Reduction Fund) for climate-related programs.

These cuts are worrying. Throughout the state, cities are working hard to mitigate and prepare for the impacts of climate change, which are occurring at greater magnitudes and frequencies. The state needs to accelerate its efforts to prepare, not pull back — especially in vulnerable and under-resourced communities.

Below is a breakdown of the major program adjustments proposed in the state budget.

Water and Drought Resilience: Reduces funding by $1.4 billion from $8.7 billion in the previous budget to $7.3 billion committed over multiple years. The largest reversion is the $88.4 million General Fund and a reduction of $350 million over the next two years for various watershed climate resilience programs.
Coastal Resilience: Reduces funding for coastal resilience by $640 million — from $1.3 billion over multiple years in the previous budget to $660 million over multiple years. The largest reduction is a reversion of $220.9 million for Sea Level Rise activities.
Energy: $944 million in reductions and $505 million in delays across funding for various energy-related programs. The budget maintains approximately $6.6 billion of the previously planned energy investments, including the proposed $1 billion for the Clean Energy Reliability Investment Plan. However, approximately $400 million will be delayed this year, with the remaining amount set to be pushed back beginning in 2025-26 and continuing over the next three years.
Climate Innovation: A reduction of the planned investment of $475 million General Fund in the Climate Innovation Program beginning in 2024-25.
Extreme Heat: Maintains 56% of the total funds allocated in the previous year for extreme heat, down to $364 million. As in the last budget, the Extreme Heat and Community Resilience Program had the largest reductions, with a net reduction of $40.1 million this year.
Forests and Wildfires: Maintains most of the previously available $2.8 billion in funding from last year, with a reversion of $100.7 million General Fund for various wildfire programs and an increased funding timeline from 4 years to 5 years. The largest reductions were to the Biomass to Hydrogen/Biofuels pilot ($43.5 million), Conservancy Project Implementation in High-Risk Regions ($27.7 million), and the Home Hardening Pilot ($12 million).
Flood Relief: $93.9 million one-time from the General Fund to support critical flood safety efforts. The budget also includes $159.1 million in new investments to support flood protection, levee repair, and the Salton Sea restoration.

- Zack Cefalu, legislative affairs analyst

Public Safety

Many cities have seen a significant increase in retail theft, organized retail theft, and smash and grabs. The Governor’s proposed budget maintains existing efforts to reverse this trend, for a total of $373.5 million over four years starting in 2022-2023. This includes resources for the California Highway Patrol’s retail theft task forces and local law enforcement.

Other notable budget proposals include more funding to combat fentanyl, as well as some delays in programs and changes to various fire protection programs. Below is a breakdown of major allocations, reductions, and policies announced in the Governor’s January budget:

Retail Theft: While not specifically listed in the proposed budget, the Governor did reference his legislative proposals to address retail theft.
Fentanyl/Opioids: An increase of $30 million General Fund to further expand the California Military Department’s existing drug interdiction efforts to prevent drug trafficking by transnational criminal organizations throughout the state, with a particular focus on helping federal, state, local, and tribal law enforcement agencies.
Cannabis: A proposed budgetary loan of $100 million from the Cannabis Tax Fund to the General Fund with funding not currently used for operational or programmatic purposes.
Wildfires: Reversion of $100.7 million General Fund in various wildfire programs. (See the Environmental Quality section for more information.)
Corrections Officers: The proposed budget includes $9.6 million General Fund savings in 2024-25, increasing to $11.1 million ongoing. This reflects a reduction in administrative workload and positions associated with the four prison closures proposed in 2023-24.

Other Public Safety Proposals:

Adult Reentry Grant: A one-year pause of $57 million General Fund for the Adult Reentry Grant in 2024-25, with the 2024-25 funding reallocated across three years beginning in 2025-26 at $19 million each year.
Firearm Relinquishment Programs: Two General Fund reductions for programs that would otherwise have been administered in the current year: $21 million for the Office of Emergency Services Gun Buyback Program and $20 million (of the $40 million appropriated) for the Judicial Council Firearm Relinquishment Grant Program.
Public Safety Radio Modernization: An increase of $6.4 million State Emergency Telephone Number Account to fund an additional 12 positions to continue implementing the California Radio Interoperable System, a statewide public safety radio system that dramatically improves interoperability.

- Jolena Voorhis, legislative affairs lobbyist

Community Services

Cities can breathe a sigh of relief — for now — when it comes to homelessness funding commitments made in prior budgets. However, while the budget does not propose cuts to these critical programs, it also does not include any new funding allocations. And as in previous years, Newsom reiterated his focus on working with the Legislature to increase oversight and accountability for how local governments utilize state homelessness funding.

Earlier this year, Cal Cities called on the state to both honor previous funding commitments and create an ongoing, $3 billion funding stream to increase affordable housing and reduce homelessness. The Newsom Administration did commit to working closely with lawmakers on additional funding to support local governments’ response to the homeless crisis. Cal Cities will continue advocating for ongoing funding while emphasizing that accountability without support to expand or develop cities’ capacity will not create meaningful change.

Below is a breakdown of major allocations, reductions, and policies announced in the Governor’s January budget.

Homelessness:

Maintains $3.4 billion General Fund in 2023-24 to address homelessness, as committed to in prior budgets. This includes:
- $400 million for a third round of encampment resolution grants.
- $1 billion for a fifth round of Homeless Housing, Assistance, and Prevention grants.
Transitions several homelessness grant programs from the California Interagency Council on Homelessness to the Department of Housing and Community Development. This was detailed in last year’s housing budget trailer bill, AB 129 (Committee on Budget).

Behavioral Health:

Delays $140.4 million General Fund from 2024-25 to 2025-26, for a total of $380.7 million for the final round of grants for the Behavioral Health Continuum Infrastructure Program.
Delays $80 million General Fund for the Bringing Families Home Program to 2025-26.
Delays $65 million General Fund for the Home Safe Program to 2025-26.
Delays $50 million General Fund for the Housing and Disability Advocacy Program to 2025-26.
Delays $235 million General Fund for the Behavioral Health Bridge Housing originally planned for 2024-25 to 2025-26.

Child Care:

Maintains funding for subsidized child care slots and includes $2.1 billion to fund roughly 146,000 new slots expected to be filled by 2024-25, with the goal of creating over 200,000 new slots by 2026-27.

Parks and Open Space:

Reduces funding for Outdoor Equity Grants by $25 million General Fund while also maintaining the $90 million General Fund previously allocated for this program.

Libraries:

Pulls back $131.3 million one-time General Fund for the Local Library Infrastructure Grant Program and proposes to forgo planned one-time General Fund investments of $33 million in 2024-25, $33 million in 2025-26, and $34 million in 2026-27.
Pulls back $34 million of the $35 million provided to expand statewide library broadband services in isolated and under-served communities.

- Caroline Grinder, legislative affairs lobbyist

Housing, Community, and Economic Development

The budget proposal contains several concerning cuts to key housing programs. However, the Governor is optimistic that the state can secure additional federal funding, streamline planning processes, and develop strategies for housing construction and adaptive reuse in infill areas to make up for lost funding. The over $1.7 billion in cuts over the multiyear period include:

Regional Early Action Planning Grants 2.0 (REAP 2.0): A reversion of $300 million.
Multifamily Housing Program: A reversion of $250 million, which leaves $75 million for 2023-24.
Foreclosure Intervention Housing Preservation Program: A reduction of $247.5 million, which leaves $85 million in 2024-25, $100 million in 2025-26, and $62.5 million in 2026-27.
Infill Infrastructure Grant Program: A reversion of $200 million, which leaves $25 million in 2023-24.
CalHome Program: A reversion of $152.5 million.
Veteran Housing and Homelessness Prevention Program: A reversion of $50 million
Housing Navigators: A reduction of $13.7 million.
California Student Housing Revolving Loan Fund Program: A reduction of $494 million total. This is a pullback of $300 million for each year from 2024-29 and a reversion of $194 million for 2023-24.

Cal Cities’ estimated housing cuts, which include reductions for the student housing program, are almost $500 million higher than the Department of Finance’s. There could also be delays in certain programs that impact local housing projects and incentives.

In terms of economic development, the Governor’s budget aims to alleviate concerns about a near-term recession. The budget projects modest wage growth, personal income growth, historically low interest rates, and increased residential building permits in 2024. Some notable economic development allocations include:

California Competes Program: Commits $60 million to extend the California Competes grant program for one additional year.
Recapitalization of the Infrastructure State Revolving Fund: A one-time increase of $50 million to recapitalize the Infrastructure State Revolving Fund at the California Infrastructure and Economic Development Bank (IBank).

Additional economic development allocations are in the Governance, Transparency, and Labor Relations section.

- Waleed Hojeij, legislative affairs analyst

Transportation, Communications, and Public Works

Using a combination of shifting and delaying funds, the Governor’s budget proposal upholds many previous transportation commitments to the tune of $13.6 billion. This includes $791 million in funds shifted from the Greenhouse Gas Reduction Fund and $3.1 billion in delays across various programs. The proposed budget also maintains $10 billion — extended over seven years — in investments to further the transition to zero-emission vehicles.

Other notable highlights include $54.3 million General Fund in Capital Outlay costs for various flood management system projects in the Central Valley, including $31.3 million for Systemwide Flood Risk Reduction projects and $23 million for the Urban Flood Risk Reduction Program.

Below is a breakdown of major allocations and reductions announced in the Governor’s January budget.

Transit and Rail: Delays $1 billion of formula Transit and Intercity Rail Capital Program grant funding from 2024-25 to 2025-26 budget, leaving $1 billion for this program in 2024-25.
High-Speed Rail: $4.2 billion Proposition 1A for the HSR Authority to continue building the 119-mile Central Valley Segment from Madera to just north of Bakersfield.
Infrastructure: $1.2 billion for projects that improve goods movement on rail and roadways at port terminals, including railyard expansions, new bridges, and zero-emission modernization projects.
Active Transportation Program: $200 million reduction, leaving the program with $850 million for clean transportation and mobility programs, such as pedestrian and bicycle pathways.
ZEV Fueling Infrastructure: Delays $45 million from the General Fund for grants intended to support zero-emission vehicles.

- Damon Conklin, legislative affairs lobbyist

Governance, Transparency, and Labor Relations

The Governor’s budget contains investments aimed at improving worker health and safety programs, unemployment, paid family leave, and workers’ compensation wait times. While the budget largely maintains workforce investments, it does propose several reductions and delays in funding for workforce training and apprenticeships.

Below are some related highlights proposed in the Governor’s January budget.

Information Technology System Upgrades and Modernizations

Unemployment Insurance Trust Fund Loan Interest: $331 million one-time funding ($231 million General Fund) to pay the annual interest payment on the state’s Unemployment Insurance loan balance.
EDDNext: $326.8 million one-time in 2024-25 ($163.4 million General Fund) to continue the planning and development of EDDNext, for the third year of a five-year plan to modernize the Employment Development Department (EDD).
Division of Workers’ Compensation: An increase of $12.3 million Workers’ Compensation Administration Revolving Fund and 71 positions phased in over three years for the Department of Industrial Relations to address increasing workload and reduce hearing wait times.
Workers’ Compensation Appeals Board: An increase of $2.8 million Workers’ Compensation Administration Revolving Fund and 13 positions phased in over three years to reduce the backlog at the Workers’ Compensation Appeals Board.
Cal/OSHA Data Modernization: An increase of $25.2 million Labor and Workforce Development Fund one-time for the Department of Industrial Relations to continue the Cal/OSHA data modernization information technology project to upgrade outdated systems and processes.
Electronic Adjudication Management System: An increase of $22.1 million Workers Compensation Administration Revolving Fund one-time for the Department of Industrial Relations to continue the Electronic Adjudication Management System.
Rural Strategic Engagement Program: An increase of approximately $8.3 million Labor and Workforce Development Fund annually for three years for the Department of Industrial Relations and the Agricultural Labor Relations Board to educate rural workers on workplace rights.

Workforce

California Jobs First (formerly the Community Economic Resilience Fund): A delay of $300 million General Fund for California Jobs First, an inter-agency partnership between the Labor and Workforce Development Agency, the Office of Planning and Research, and the Governor’s Office of Business and Economic Development to support resilient, equitable, and sustainable regional economies. The budget includes $100 million General Fund annually in 2024-25 through 2026-27 for this program.
High Road Training Partnerships: A reduction of $45 million General Fund in 2023-24 for the High Road Training Partnerships program at the California Workforce Development Board. The budget maintains $90 million over two years for this program.
Apprenticeship Innovation Fund: A delay of $40 million General Fund to 2025-26 and 2026-27 ($20 million each year) for the Apprenticeship Innovation Fund at the Department of Industrial Relations.
California Youth Apprenticeship Program: A delay of $25 million General Fund to 2025-26 for the California Youth Apprenticeship Program at the Department of Industrial Relations.
Emergency Medical Technician Training: A reduction of $10 million General Fund for the Emergency Medical Technician training program at EDD. The budget maintains $30 million General Fund for this program over two years.
Women in Construction Unit: A reduction of $5 million General Fund ongoing for the Women in Construction Unit at the Department of Industrial Relations. The budget maintains $10 million General Fund ongoing for this program.
Labor and Workforce Development Fund Loan: A budgetary loan of $125 million from the Labor and Workforce Development Fund to the General Fund is proposed from resources not currently projected for operational or programmatic purposes.

State Unfunded Pension Liability

State Employees’ Retirement Contributions: $6.9 billion ($3.5 billion General Fund) for the statutorily required annual state contribution to CalPERS for state pension costs in 2024-25.

- Johnnie Pina, legislative affairs lobbyist

Next steps

It will be several months before the budget is completely ironed out. Newsom has already signaled that many options are still on the table, including more cuts. Indeed, the numbers will likely shift again in his May proposal after Californians file their taxes.

Regardless of what happens, lawmakers must pass a balanced budget by June 15.