Governor Gavin Newsom announced his proposed $297 billion state budget on Tuesday. Although the state is forecasting a shortfall of $22.5 billion in fiscal year 2023-24, the Governor’s proposed budget does not contain deep cuts to ongoing programs. In a win for cities, the budget does not include any mention of redirecting city funds to help address state budget shortfalls. The League of California Cities urged the Governor to protect city revenues in a letter late last year.
The Governor’s proposed budget upholds commitments made in last year’s 2022 Budget Act to invest an additional $1 billion to fund a fifth round of Homeless Housing, Assistance and Prevention grants for fiscal year 2023-24. However, the budget does not include any new, ongoing funding for cities to address the housing supply and homelessness as requested by Cal Cities.
The state’s fiscal forecast will be updated in May in time for the Governor’s revised budget proposal. Global economic forces and further changes to federal monetary policy in response to inflationary pressures may result in additional cuts to state spending or the restoration of reduced investments.
Cal Cities will continue to call on the Governor and lawmakers to invest in programs that advance shared city and state priorities.
Read Cal Cities Executive Director and CEO Carolyn Coleman’s statement in response to the budget proposal, and Cal Cities’ analysis of the budget below.
The Governor’s budget proposal maintains funding commitments from prior budgets for homelessness. While Cal Cities is pleased that homelessness funding was not cut, additional funding is needed to match the scale of this crisis. The proposed budget also details new accountability measures for local government for homelessness funding by prioritizing spending on specific programs and requiring adherence to state housing laws.
- Homelessness Funding: Maintains $3.4 billion to address homelessness as committed in prior budgets. This includes $400 million for the third round of encampment resolution grants and $1 billion for the fifth round of Homeless Housing, Assistance and Prevention (HHAP) grants.
- Homelessness Funding Accountability and Transparency: Proposes statutory changes to the HHAP program to prioritize spending on activities such as encampment resolution, Homekey operating sustainability, and Community Assistance, Recovery and Empowerment (CARE) Act housing supports. This focus may also be accompanied by expanded housing streamlining provisions.
- Homelessness Funding Eligibility: Seeks to condition eligibility for any future homeless-related grants and competitive programs through the Business, Consumer Services and Housing Agency and the Health and Human Services Agency, on compliance with state housing law.
- CARE Act Funding: Maintains $88.3 million for county start-up and state implementation of the CARE Act and proposes additional funding for local assistance ongoing costs, including $16.5 million in 2023-24, $66.5 million in 2024-25, $108.5 million in 2025-26, and annually thereafter to support estimated county behavioral health department costs for the CARE Act.
- Behavioral Health
- Delays $250 million General Fund out of a total of $1.5 billion General Fund to 2024-25 for the Behavioral Health Bridge Housing Program.
- Delays $480.7 million General Fund to $240.4 million in 2024-25 and $240.3 million in 2025-26 for the final round of behavioral health continuum infrastructure capacity grants.
- Delays $130 million General Fund for the California 25×25 Community Health Worker Initiative Grant program to $65 million in 2024-25 and 2025-26.
- Maintains $1 billion to the Department of Health Care Access and Information to strengthen and expand the state’s health and human services workforce to increase nurses, community health workers, and social workers, as well as support new individuals coming into the workforce in behavioral health.
- Parks and Open Space: Cuts the Statewide Parks Program by 40% with a $150 million reduction for the Statewide Parks Program across 2022-23, 2023-24, and 2024-25. If there is sufficient General Fund in January 2024, this reduction will be restored.
- Libraries: Delays investment of $100 million in 2023-24 to support local library infrastructure projects to the 2024-25 ($33 million), 2025-26 ($33 million), and 2026-27 ($34 million) fiscal years.
Housing, Community, and Economic Development
The Governor’s proposed budget does not contain any additional funding to help address the housing crisis gripping the state. Instead, it focuses heavily on implementing recently approved housing laws, providing local governments with technical assistance, encouraging regional collaboration, and holding cities and counties accountable when violating state housing laws.
Cal Cities will double down on its call on the Governor and Legislature to provide an ongoing funding source to address the housing and homelessness crisis. Uncertain fiscal times present difficult decisions and demand bold action to ensure that everyone has a place to call home.
Below is a breakdown of the major program cuts proposed in the state budget.
- Dream For All Program: The 2022 Budget Act included $500 million one-time General Fund to the California Housing Finance Agency to provide shared-appreciation loans to help low- and moderate-income first-time homebuyers achieve homeownership. The Budget reduces this to $300 million General Fund in 2023-24.
- CalHome Program: The 2022 Budget Act included $100 million one-time General Fund for 2023-24 to the Department of Housing and Community Development to provide local agencies and nonprofits with grants to assist low- and very-low-income first-time homebuyers with housing assistance, counseling, and technical assistance. The budget proposes to remove this funding.
- Accessory Dwelling Unit Program: The 2022 Budget Act included $50 million one-time General Fund for the California Housing Finance Agency’s Accessory Dwelling Unit program. The budget proposes to remove this funding.
Below is a breakdown of the major program adjustments proposed in the state budget.
- Water and Electricity Bill Relief: Shifts $400 million from the state arrearage support program to the General Fund effectively winding down this program.
- Residential Solar Subsidy: Reduces funds significantly for the residential solar and storage program while maintaining 70% of funds available to support low-income utility customers.
- Wildfire Response: Maintains nearly all fire prevention funds. There is a reduction of $10 million for defensible space inspections and monitoring. Workforce training funds in this space are largely maintained.
- Extreme Heat: Maintains 70-85% of total funds made available in prior years, but significantly cuts programs of importance to cities. Adjustments include a nearly 40% cut to the extreme heat and community resilience program and a reduction of $100 million from the Urban Greening Program.
- Coastal Resilience: Reduces 40% of funding to coastal resilience funding contingent on budget conditions. Significant adjustments include cuts to the Coastal Commission programs of $175 million in 2022-23 and $297 million in 2023-24.
- Organic Waste: Maintains the $180 million for SB 1383 (Statutes of 2016) implementation that Cal Cities successfully fought for in 2022. The budget maintains 95% of funds available to support the implementation of short-lived climate pollutant strategies and organic waste infrastructure.
Revenue and Taxation
- Film and Television Tax Credit Program: Continues the program with additional investments starting in fiscal year 2025-26 for five subsequent years, allocating $330 million in tax credits annually.
- IBank’s Small Business Finance Center: Reduces funding for the center and the California Rebuilding Fund by $50 million.
- California Competes Program: Maintains $120 million included in the 2022 Budget Act for the 2023-24 fiscal year for a third year of the grant program (an extension of the California Competes Tax Credit program).
- New Employment Credit: Eliminates the geographic restrictions of the state’s existing credit for qualifying semiconductor manufacturing and research and development firms.
- Student Loan Debt Forgiveness: Exempts student loan debt forgiven under the 2022 federal student loan debt relief plan from state income taxation.
- Non-Grantor Trusts: Proposes requiring net income derived from incomplete non-grantor trusts be subject to California income tax if the grantor of the trust is a California resident, resulting in tax revenues of $30 million in 2023-24 and $17 million annually thereafter.
Transportation, Communications, and Public Works
- Zero-Emission Vehicles: Reduces $2.5 billion General Fund across various zero-emission vehicle programs, which are partially offset by approximately $1.4 billion in fund shifts to the Greenhouse Gas Reduction Fund.
- Transit Intercity Rail Capital Program: Reduces $2 billion over three years to transit infrastructure funding.
- Active Transportation Program: Reduces $200 million from the program while allowing the program to sustain full programming capacity approved for the 2023 programming cycle.
- Last-Mile Infrastructure Grants: Defers $550 million at the California Public Utilities Commission for grants in 2023-24 to future years ($200 million in 2024-25, $200 million in 2025-26, and $150 million in 2026-27).
- Loan Loss Reserve Fund: Defers $175 million from 2022-23 and $400 million from 2023-24 from the California Public Utilities Commission to future years ($300 million in 2024-25 and $275 million in 2025-26).
- Drought and Flood Response: The proposed budget also includes new investments to support the state’s drought response, accelerate the implementation of the state’s water supply strategy, and increase flood preparedness and response, including:
- Urban Flood Risk Reduction: Provides $135.5 million General Fund over two years to support local agencies working to reduce urban flood risk.
- 2023 Drought Contingency: Sets aside $125 million General Fund to be allocated as part of the spring budget process when additional water data is available to inform future drought needs.
- Delta Levees: Allocates $40.6 million General Fund for ongoing delta projects that reduce the risk of levee failure and flooding, provide habitat benefits, and reduce the risk of saltwater intrusion contaminating water supplies.
- Central Valley Flood Protection: Provides $25 million General Fund to support projects that will reduce the risk of flooding for Central Valley communities while contributing to ecosystem restoration and agricultural sustainability.
Governance, Transparency, and Labor Relations
- Pandemic Response: Proposes $176.6 million General Fund to continue the state’s efforts to protect the public’s health against COVID-19 and maintain related information technology systems, including the California COVID-19 Reporting System for laboratory data management and CalCONNECT for case and outbreak investigation.
- COVID-19 Workforce Outreach Program: Eliminates $25 million in 2023-2024 for the program to partner with organizations to perform COVID-19 outreach and education to workers and employers in high-risk industries.
- Unfunded Pension Liabilities: Provides $8.5 billion ($4.7 billion General Fund) for the statutorily required annual state contribution to CalPERS for state pension costs based on the CalPERS actuarial valuation projected contribution rates as of June 30, 2021. This is $255 million higher than the 2022 Budget Act due to payroll growth and the normal progression of amortization bases, including the 7.4% investment loss in 2021-22.
- Non-Traditional Apprenticeships: Removes $40 million from the Department of Industrial Relations to expand nontraditional apprenticeships, reducing the total three-year investment to $135 million. If there is sufficient General Fund in January 2024, this reduction will be restored.
- Skilled Trade Careers: Pauses funding in 2023-24 and 2024-25 for the Department of Industrial Relations to promote and support women and nonbinary individuals in skilled trade careers. Resumes funding of $15 million General Fund ongoing in 2025-26. If there is sufficient General Fund in January 2024, this pause will be removed.
- Targeted Emergency Medical Technicians: Removes $20 million ($10 million in each 2023-24 and 2024-25) at the Employment Development Department to provide targeted emergency medical technician training, reducing the total three-year investment to $40 million. If there is sufficient General Fund in January 2024, this reduction will be restored.
- Career Pathways: Removes $20 million ($10 million in each 2023-24 and 2024-25) to the California Workforce Development Board to invest in career pathway programs at community colleges, reducing the total three-year investment to $40 million. If there is sufficient General Fund in January 2024, this reduction will be restored.
- Unemployment Insurance: Removes the $750 million one-time General Fund payment planned for 2023-24 to pay down a portion of the state’s approximately $18 billion Unemployment Insurance Trust Fund debt. Provides $279 million one-time General Fund to pay the annual interest payment on the state’s Unemployment Insurance loan balance.
- Wage Claims: Proposes $11.7 million and 42 positions in 2023-24 and $6.5 million special funds ongoing for the Department of Industrial Relations to address wage claim processing times.
- Case Management: Proposes $21.1 million special funds in 2023-24 for the Department of Industrial Relations to support the replacement of the Division of Workers’ Compensation’s electronic case management and document storage system.
- Office of Data and Innovation: Invests $17.3 million ongoing General Fund and 65 positions from the Government Operations Agency to improve the efficiency and effectiveness of services delivered to Californians by providing process improvement and data solutions that are easy to use.
- Fentanyl Response: Proposes $79 million for the Naloxone Distribution Project to increase distribution to first responders, law enforcement, community-based organizations, and county agencies.
- Fentanyl Grants: Proposes $10 million for grants to increase local efforts in education, testing, recovery, and support services to implement Chapter 783, Statutes of 2022 (AB 2365).
- Fentanyl Test Strips: Proposes $4 million to support innovative approaches to make fentanyl test strips and naloxone more widely available.
- Fentanyl Impacts on Youth: $3.5 million ongoing to provide all middle and high school sites with at least two doses of naloxone hydrochloride or another medication to reverse an opioid overdose on campus.
- Planned Prison Closures: California Department of Corrections and Rehabilitation facility closures throughout the state will result in $150 million in ongoing General Fund savings. This will impact employment opportunities within impacted cities. These facilities include:
- Chuckawalla Valley State Prison in Blythe — March 2025
- California City Correctional Facility — March 2024
- Deactivation of specified facilities within six prisons by the end of 2023
- California Rehabilitation Center — Norco
- California Institution for Men — Chino
- California Correctional Institution — Tehachapi
- Pelican Bay State Prison — Crescent City
- California Men’s Colony — San Luis Obispo
- Folsom Women’s Facility — Folsom
- Cannabis Tax: In exchange for the elimination of the cannabis cultivation tax, the Governor committed to maintaining a baseline of approximately $670 million to fund Proposition 64 programs. To meet this requirement, the Budget includes $95.4 million General Fund in 2023-24 to backfill the estimated decline in revenues to fund the prescribed programs:
- Youth: Education, prevention, and treatment of youth substance use disorders and school retention — 60% ($401.8 million)
- Environmental Impacts: Cleanup, remediation, and enforcement of environmental impacts created by illegal cannabis cultivation — 20% ($133.9 million)
- Miscellaneous: Public safety-related activities — 20% ($133.9 million)
- Cannabis Local Assistance Grants: $83.9 million allocated to the Board of State and Community Corrections to award grants to local governments to assist with law enforcement, fire protection, or other local programs addressing public health and safety associated with cannabis regulation.
- Water Quality Impacts from Cannabis: $6.4 million and $5.7 million in other special funds to continue the State Water Resources Control Board’s statutorily mandated efforts to address water quality and instream flow-related impacts from cannabis cultivation through enforcement against illegal cultivation.
- Cannabis Enforcement: $8 million to continue the Department of Fish and Wildlife’s Cannabis Regulatory and Enforcement Program. $1.9 million to establish a permanent Department of Cannabis Control Enforcement District Office in Fresno to further the enforcement activities of the department in the Central Valley. $10 million to the California Department of Tax and Fee Administration to support its cannabis tax enforcement program.