Governor Newsom’s Proposed January 2024-2025 Budget

Statement from Pete Manzo, President & CEO, United Ways of California

Wednesday, January 10, 2024

Today Governor Newsom presented a 2024-25 Budget Proposal which underscores notable budget challenges for California in the year ahead. Despite the state’s current budget deficit, our economic climate is strong, and we have numerous resources to address these challenges and protect the meaningful progress we have made for Californians — particularly for our community members who continue to struggle to make ends meet. The state’s total proposed investment is $291.5 billion, and the estimated deficit, now at $37.86 billion, is fortunately significantly lower than previously projected by the Legislative Analyst Office. Our economy is clearly showing signs of recovery and growth at a more rapid pace than previously anticipated. This outlook, paired with decreasing inflation rates and robust state savings designed to help address deficits, gives us reason to be hopeful that California can weather this fiscal challenge and quickly refocus back on investing in policies that work best for all Californians.

We are thrilled that Governor Newsom specifically highlighted the impact of the state’s continued commitment to refundable tax credits like the California Earned Income Tax Credit and the Young Child Tax Credit as critical to our state’s “economic dominance.” We only have to look at the decrease in child poverty rates due to the temporarily expanded federal Child Tax Credit during the Pandemic — and conversely the negative results of its expiration — to understand the direct critical benefit investments in tax credits make for California’s families.

As we note in our latest Real Cost Measure study, one in three households in California (34%, over 3.7 million) do not earn enough to afford a decent standard of living. Further, of those struggling households, 97% have at least one working adult. We cannot deny that Californians are doing what they can to build a better future for themselves, their families, and their communities. It is now the responsibility of policymakers to ensure that the state meets our residents where they are with policies and investments that we know work. Governor Newsom’s commitment to targeted tax credits for families with low incomes remains a nation-leading investment, and we enthusiastically look forward to what more we can do as a state to bolster programs that put cash into household budgets.

Protecting previous investments in education, health, and social services will be critical as we continue to prioritize the well-being of our California families. We are deeply appreciative of the Governor’s efforts to maintain the recent expansion of Medi-Cal coverage, making California the first state in the nation to provide coverage to all Californians, regardless of immigration status. The California United Way Network has long championed this policy expansion, and we’re proud that Medi-Cal will remain accessible to all.

Governor Newsom’s budget proposal also seeks to protect investments in:

• Community Schools: Maintaining the $4.1 billion investment through 2031 for this potentially transformative program.
• Broadband Infrastructure: Proposing an additional $8.2 million for various K-12 broadband programs to promote connectivity for students.
• Housing and Homelessness: With a continued focus on accountability in state housing proposals, the budget maintains its multi-year commitments of $3.3 billion for Homeless, Housing, Assistance & Prevention Grants (HHAP); as well as $2.8 billion for Project Homekey.

In times of budget deficits and economic uncertainties, California must ensure that we do not undo the hard work and investments we have made in policies and programs that uplift our most vulnerable communities. Fortunately, California possesses a robust rainy day fund to help with difficult budget scenarios such as the one we are currently facing, and the Governor is proposing withdrawing $13.1 billion from the budget stabilization and safety net reserve accounts. To prevent future budget cuts, the Administration is looking to delay several proposed investments from the 2023-24 budget as well as pausing new investments. While we understand the need to balance the budget, we urge the Newsom Administration and Legislature to consider investments that strengthen vital partnerships with community-based organizations with trusted relationships with Californians. Specifically, we urge the state to establish a formal partnership with the network of 211 Information and Referral programs and commit to finding ways to build out this critical infrastructure to continue meeting the evolving needs of Californians 24/7. Additionally, we urge the state to establish a program that strengthens the effectiveness of our federal housing voucher programs, while increasing accountability measures to ensure more community members can find and secure attainable housing.

We also urge Governor Newsom and the Legislature to make budget and policy decisions that take into account how households are doing economically, based on the real costs of living informed by localized data, similar to what United Ways of California produces via the Real Cost Measure. This will help craft equity-based investments that demonstrate the greatest impact for Californians across the state.

In alignment with our commitment to uplifting Californians across the state, the California United Way network looks forward to a legislative and budget process in 2024 that protects the progress we have made together and centers the needs and voices of our diverse communities.

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Executive Summary

On January 10, 2024, Governor Newsom unveiled his 2024-2025 proposed budget, outlining his Administration’s priorities for the $291.5 billion budget. Largely as a result of continued revenue decline from personal income taxes in 2022‑23, the state is beginning another year in a budget deficit. California now faces an estimated budget shortfall of $37.86 billion in the 2024-25 fiscal year. Thanks to years of planning and budget resilience built into previous fiscal year actions, the state remains in a good position to weather this deficit.

This newly proposed budget is just the first step toward the final 2024-2025 budget for the state. The Legislature has until June to negotiate and approve the final budget before the Governor signs it into law by June 30th, 2024.

The Governor plans to address California’s current $37.86 billion shortfall through the following mechanisms:

• Funding Delays & Deferrals: $7.2 billion – The budget delays funding for several items and spreads it across multiple years without reducing the total amount. (Funding delays will be noted as [DELAYED] in the summary below)
• Reductions & Fund Shifts: $11.9 billion- The budget reduces spending for various items included in the 2023 Budget Act. (Reductions will be noted as [REDUCTION] in the summary below). The budget also shifts certain projects for years that are further out.
• Limited Revenue Generation & Borrowing: $5.7 billion – These funds derive support from revenue sources and borrow internally from special funds.

Despite the budget shortfall, there are also various new proposed investments, as well as an increase in existing programs and services, which will be noted as an [INVESTMENT].

Delayed Implementation of 2023 Enacted Legislation

The budget shortfall will mean that some enacted pieces of legislation will see delayed implementation. These are bills that passed the legislature, received the governor’s signature, and thus have been enacted into law. This maneuver allows the Governor to invest funds into critical parts of the state’s budget without affecting any existing programs or services.

SB 525 (2023, Healthcare Worker Minimum Wage)

Increases the minimum wage incrementally to $25 an hour for specified health care workers, will become law effective June 1, 2024. Given the overall economic and General Fund revenue outlook and the significant fiscal impact of SB 525 on the state, the Administration is seeking early action in January by the Legislature to add an annual “trigger” to make the minimum wage increases subject to General Fund revenue availability, clarify the exemption for state facilities, and make other implementation clarifications.

Media Round-Up and Legislative Leadership Statements

• Senate Pro Tem Atkins & Senator Skinner: Senate Leader Atkins, Budget Chair Skinner Issue Statement on Governor Newsom’s January Budget Proposal
• Assembly Speaker Rivas & Assemblymember Gabriel: Speaker Rivas, Budget Chair Gabriel Issue Statement on Governor Newsom’s January Budget Proposal | Speaker of the Assembly Robert Rivas
• Assembly Republican Leader Gallagher: Gallagher Responds to Newsom Budget Proposal
• Senate Minority Leader Jones & Senator Niello: Senate Republicans to Governor Newsom: California Needs Fiscal Responsibility
• CalMatters: State budget: Newsom unveils his plan, The biggest losers in Gov. Newsom’s budget
• Los Angeles Times: How Newsom plans to fix California’s projected $37.9-billion budget deficit
• SacBee: Gavin Newsom reveals plan to fix California spending deficit. What’s in his $291 billion budget
• SF Chronicle: Gavin Newsom unveils $291B California budget plan with $37.9B deficit
• KCRA: California governor wants reserves and cuts to fix nearly $38B deficit, mostly sparing schools

Materials/Sources

This document is intended to summarize key elements of the budget proposal that are relevant to the California United Way Network and is produced by referencing the Governor’s 2024-25 Proposed Budget Summary, the 2024-25 Proposed Budget Detail Materials, his statements and slides during the press event, as well as media coverage of the same content. Any content or quotes from media coverage are attributed to the appropriate outlet and reporter. All other content is produced by UWCA staff.

General Overview

Economic Outlook

Policy Area Investments

Education

The Budget includes total funding of $126.8 billion for all K-12 education programs, a decrease of nearly $11.3 billion over a three-year period starting from 2023. K-12 per-pupil funding totals $17,653 Proposition 98 General Fund and $23,519 per pupil when accounting for all funding sources.

• Proposition 98 – The Budget includes total funding of $109.1 billion for Prop 98, which serves all K-14 education programs. This represents a decrease of approximately $11.3 billion relative to the 2023 Budget Act. [REDUCTION]
  • Learning Loss Flexibility
    • The Budget proposes statutory changes to allow LEAs to provide attendance recovery opportunities to students to make up lost instructional time, thereby offsetting student absences, and mitigating learning loss and chronic absenteeism, as well as related fiscal impacts. Specifically, the proposed statutory changes would:
      • Allow LEAs to add attendance recovery time to the attendance data submitted to the Department of Education, both for funding purposes and chronic absenteeism. Attendance recovery programs can take the form of Saturday school, intersessional school, or before/after school, and would be exempt from minimum day requirements.
      • Require LEAs to provide students with access to remote instruction or support to enroll at a neighboring LEA for emergencies lasting 5 or more days.
      • Encourage LEAs to provide hybrid or remote learning opportunities to students who are unable to attend school.
      • $6 million one-time funds to (1) Research existing and develop new models of hybrid and remote learning to support students’ attendance and (2) Investigate local student information systems to identify opportunities and make recommendations to allow LEAs to report individual student absence data to the state in a manner that allows for, at a minimum, local and statewide disaggregation of absences related to emergency events that prevent students from attending school. [INVESTMENT]
  • Early Childhood Education
    • California State Preschool: To support reimbursement rate increases previously supported by available one-time federal stimulus funding, the Budget includes $53.7 million General Fund. [INVESTMENT]
    • Cradle-to-Career Data System: An increase of $5 million ongoing Proposition 98 General Fund to support the California College Guidance Initiative. [INVESTMENT]
    • Facilities Grant Program: To address the projected budget shortfall, the Budget adjusts a planned 2024-25 investment for the SFP from $875 million to $375 million one-time General Fund. [REDUCTION]
      • To address the projected budget shortfall, the Budget also delays the 2024-25 planned $550 million Full Day Kindergarten Program investment to 2025-26. [DELAYED]
    • Literacy: The 2023 Budget required LEAs to begin screening students in kindergarten through second grade for risk of reading difficulties, including dyslexia, by the 2025-26 school year. To support training for educators to administer literacy screenings, the Budget proposes $25 million ongoing Proposition 98 General Fund through the K-12 Mandate Block Grant. [INVESTMENT]
  • K-12
    • Local Control Funding Formula: The Budget includes an LCFF cost-of-living adjustment of 0.76%. This will result in a decrease of roughly $1.4 billion in discretionary funds for LEAs. However, to fully fund the LCFF, the Budget proposes withdrawing approximately $2.8 billion from the PSSSA to support ongoing LCFF costs in 2023-24.
    • 2025 Mathematics Framework: The State Board of Education adopted a new Mathematics Framework in 2023. To assist educators in teaching mathematics aligned to this new framework, the Budget proposes $20 million one-time Proposition 98 General Fund to provide training for mathematics coaches and leaders who can in turn provide training and support to math teachers to deliver high-quality instruction. [INVESTMENT]
    • Nutrition: An increase of $122.2 million ongoing Proposition 98 General Fund to fully fund the universal school meals program in 2024-25. Over 845 million meals are projected to be served through this program in 2024-25. [INVESTMENT]
    • Broadband Infrastructure Grant: An increase of $5 million one-time non-Proposition 98 General Fund to extend the program through 2029. The initial funding for this program was one-time through June 30, 2024. In addition to providing fiber broadband connectivity to the most poorly connected school sites, this funding would also be available for joint projects connecting schools, local libraries, and telehealth providers to high-speed fiber broadband. [INVESTMENT]
    • K-12 High Speed Network: An increase of $3.2 million ongoing Proposition 98 General Fund to support the K-12 High Speed Network program. [INVESTMENT]
    • Inclusive College Technical Assistance Center: An increase of $2 million ongoing Proposition 98 General Fund [INVESTMENT] to establish a Technical Assistance Center to:
      • Assist LEAs with the development and submittal of federal comprehensive transition and postsecondary program applications, so that students can apply for the Free Application for Federal Student Aid.
      • Facilitate collaboration between LEAs and institutions of Higher Education to support students, including those with intellectual disabilities, and their parents to plan for postsecondary transition.
      • Assist LEAs with the identification of potential funding sources and student financial assistance opportunities.
    • Homeless Education Technical Assistance Centers: An increase of $1.5 million ongoing Proposition 98 General Fund to maintain support for Homeless Education Technical Assistance Centers. This funding would continue the momentum of increasing homeless youth identification, which is essential to providing the necessary support to improve outcomes. [INVESTMENT]
  • Higher Education: The Budget proposes total funding of $44.8 billion for the three higher education segments and the California Student Aid Commission, representing an approximate $500 million increase from the previous year.
    • Student Housing: To address the projected budget shortfall, the Budget proposes suspending funding for the California Student Housing Revolving Loan Fund Program, which includes pulling back $300 million one-time General Fund previously intended to be appropriated. [REDUCTION]
    • University of California:
      • Compact Deferral: A one-time deferral of approximately $227.8 million General Fund, which represents the 2024-25 5% General Fund resource adjustment pursuant to the Compact. [DELAYED]
      • Resident Undergraduate Enrollment Growth Deferral: A one-time deferral of approximately $31 million General Fund, to offset revenue reductions associated with the replacement of 902 nonresident undergraduate students enrolled at three campuses with an equivalent number of California resident undergraduate students at these campuses. [DELAYED]
      • Adjustment in Capital Outlay Support: The Budget proposes to forgo a planned investment of $300 million one-time General Fund support for the construction of an Institute for Immunology and Immunotherapy at UC Los Angeles. This adjustment was made because the project shifted away from the construction of a new facility to the acquisition and updating of an existing facility. [REDUCTION]
    • California State University:
      • Compact Deferral: A one-time deferral of approximately $240.2 million General Fund, which represents the 2024-25 5% General Fund resource adjustment pursuant to the Compact. [DELAYED]
    • California Community Colleges:
      • CCC Apportionments: An increase of $69.1 million ongoing Proposition 98 General Fund to provide a 0.76-percent cost-of-living adjustment (COLA) for Student Centered Funding Formula apportionments and $29.6 million ongoing Proposition 98 General Fund for 0.5% enrollment growth. [INVESTMENT]
      • K-14 Rainy Day Fund: A withdrawal of roughly $235.9 million in 2023-24, and $486.2 million in 2024-25, to support Student Centered Funding Formula resource needs. [REDUCTION]
      • Nursing Program Support: An increase of $60 million one-time Proposition 98 General Fund to expand nursing programs and Bachelor of Science in Nursing partnerships to develop, educate, and maintain the next generation of registered nurses through the community college system. [INVESTMENT]

Financial Stability

• Workforce:
  • Employment Development Department: $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). This aims to enhance the EDD’s benefits system—improving call centers, simplifying forms and notices, including user testing and engagement, developing data analysis tools to continue curbing fraudulent benefit claims, and training. [INVESTMENT]
  • 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. Of this amount, $100 million will be funded by the Employment Training Fund. [INVESTMENT]
  • Tax Credits:
    • CalEITC and Young Child Tax Credit: Governor Newsom referenced the power of these tax credits in his budget proposal presentation as evidence of “California Economic Dominance.” According to the Governor, “No one does what we do on CalEITC and YCTC. Those commitments remain.”
      • Although the initial budget summary does not include any specific mention of tax credits at this time, upon guidance from budget experts we have consulted, we assume that there are no new investments or reductions to investments (to the CalEITC, YCTC, etc.) made in previous Budget agreements. We will be sure to provide updates once more information is available.
    • Free Tax Prep Assistance/Outreach & Education: The Governor’s proposal allows the reduction from $20 million to $10 million in fiscal year 2024-25 to take place. There are no proposed reductions to the 2023-2024 funding amount. While this reduction was anticipated, we were working diligently to ensure that the Administration did not allow the program to revert to the lower funding level.

Health & Human Services

Mirroring commitments made by Senate and Assembly budget leadership, the Governor’s budget for the Health and Human Services Agency (CalHHS) prioritizes support for our most vulnerable or at-risk community members. The Governor’s Budget includes $253.4 billion for all health and human services programs in 2024-25.

• Department of Healthcare Services
  • Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration: maintains $7.6 billion through the term of the waiver, effective January 1, 2025. The goal of this program is to expand community based behavioral health care services for Medi-Cal members living with significant health needs. [INVESTMENT]
  • Managed Care Organization Tax: Given the shortfall, the Administration is seeking early action by the Legislature to request the federal government approve an amendment to increase the tax to achieve $20.9 billion in total funding to the state, an increase of $1.5 billion compared to the approved MCO Tax. [*PROPOSED INVESTMENT, pending legislative action]
  • Reproductive Health Services Waiver: Maintains one-time $200 million for the California Reproductive Health Access Demonstration Waiver to support access to reproductive health services beginning no sooner than July 1, 2024. [INVESTMENT]
  • California Advancing and Innovating Medi-Cal (CalAIM): maintains $2.4 billion to continue transforming the health care delivery system through CalAIM. At full implementation, this funding may be used to provide up to 6 months rent or temporary housing to those experiencing homelessness or those at risk of homelessness transitioning out of institutional care, a correctional facility, the child welfare system, or other transitional housing settings. [INVESTMENT]
  • Behavioral Health Continuum Infrastructure Program: Delay of $140.4 million from 2024-25 to 2025-26, for a total of $380.7 million for final round of grants in 2025-2026. This funding is used to construct, acquire, and expand properties and invest in mobile crisis infrastructure related to behavioral health. [DELAYED]
• Department of Social Services
  • Supplemental Security Income/ State Supplementary Payment: Includes 3.2% federal SSI cost-of-living adjustment and maintains 9.2% SSP increase, which took effect on January 1, 2024. These adjustments raise the maximum SSI/SSP grant levels to $1,183 per month for individuals and $2,023 per month for couples. [INVESTMENT]
  • Family Urgent Response System: A reduction of $30 million in 2024-25 and ongoing. This is in effect a proposed elimination of the program. [REDUCTION]
• Behavioral Health
  • Healthcare Workforce: Delay of $140.1 million for the nursing and social work initiatives administered by the Department of Health Care Access and Information. [DELAYED]

Community Strengthening

• Department of Social Services (DSS): The budget includes $48.6 billion ($21.8 billion General Fund) for DSS programs in 2024-25. [INVESTMENT]
  • CalWORKs Grant Increase: An approximate 0.8-percent increase to CalWORKs Maximum Aid Payment levels, with an estimated cost of $26.7 million, is projected to begin October 1, 2024. A determination and update of the projected grant increase will be made at the May Revision. These projected increased costs would be funded entirely by the Child Poverty and Family Supplemental Support Subaccount of the 1991 Local Revenue Fund and would be in addition to the 3.6-percent statutory increase in 2023-24
    • This amount includes $7 billion for CalWORKs program expenditures and $2.4 billion for other programs such as Child Welfare Services, Foster Care, DDS programs, the Statewide Automated Welfare System, California Community Colleges Child Care and Education Services, Cal Grants, and the Department of Child Support Services.
  • Work Participation Rate Pilot: The federal Fiscal Responsibility Act of 2023 allows up to five states to participate in a pilot to promote accountability and test alternative benchmarks for work and family outcomes in lieu of the Work Participation Rate. California plans to pursue this opportunity to reform the accountability tools in the CalWORKs program to improve outcomes for families.
• Child Care
  • Child Care and Development: The Budget includes $6.6 billion ($4.6 billion General Fund) for child care and development programs.
    • A multiyear plan was initiated as part of the 2021 Budget Act to expand access to subsidized child care slots. The Budget maintains this commitment, and includes $2.1 billion for the DSS to fund roughly 146,000 new subsidized child care slots expected to be filled by 2024-25, working towards the goal of creating over 200,000 new slots by 2026-27.
    • Preschool Inclusion Grants: A delay of $10 million General Fund annually from the Preschool Inclusion Grant program until 2026-27. [DELAYED]
  • Food Resources
    • California Nutrition Incentive Program—A reversion of $33.2 million General Fund for the California Nutrition Incentive Program. The Budget maintains $1.8 million previously allocated to this program. [REDUCTION]
    • Farm to Community Food Hubs Program—A reversion of $14.4 million General Fund for the Farm to Community Food Hubs Program. The Budget maintains the $600,000 previously allocated to this program. [REDUCTION]
    • Healthy Refrigeration Grant Program—A reversion of $8.5 million General Fund for the Healthy Refrigeration Grant Program. The Budget maintains the $12 million previously allocated to this program. [REDUCTION]
  • Office of Planning & Research
    • The Administration proposes to establish California Volunteers as a separate entity from the OPR that may include other programs better aligned with its mission. The Administration will release a detailed proposal for this transition as part of the spring budget process.
  • Office of Community Partnerships & Strategic Communications: A reversion of $5 million in 2023-24 and a reduction of $8 million in 2024-25 and 2025-26 from the Office of Community Partnerships and Strategic Communications. The Budget maintains $60 million in 2023-24 and $57 million in 2024-25 and 2025-26 to continue the state’s top priority outreach campaigns. [REDUCTION]

Housing & Homelessness

While the administration aims to keep its promise of addressing the homelessness crisis, given the shortfall, the budget includes over $1.2 billion in General Fund reductions and delays for various housing programs overall. The administration is seeking to pursue additional federal funding that supports housing development and streamlining of state and local government planning for housing.

• Housing
  • Multifamily Housing Program: A reversion of $250 million General Fund, which leaves $75 million in 2023-2024 for this program; it provides low-interest, long-term deferred payment loans for new construction and preservation of rental housing. [REDUCTION]
  • CalHome: A reversion of $200 million General fund for CalHOME, which provides grants to local agencies and nonprofits for first-time homebuyer and housing rehabilitation services. [REDUCTION]
  • Infill Infrastructure Grant Program: A reversion of $200 million, which leaves $25 million in 2023-2024 for this program. This grant program’s objective is to promote infill housing development by providing financial assistance, as necessary, to develop affordable and mixed income housing. [REDUCTION]
• Homelessness
  • Homeless, Housing, Assistance & Prevention Grants (HHAP): A delay from 2023-24 to 2025-26 of $260 million General Fund HHAP funding, to more appropriately align with when those funds will be available to eligible applicants. There is also a reversion of $100.6 million General Fund in HHAP administrative set asides as General Fund savings, leaving $51.1 million for program administration. This amount matches the resources required to administer HHAP. [DELAYED]
  • Behavioral Health Bridge Housing Program: Delay of $235 million, while maintaining $1.5 billion overall for the program; which provides funding to county agencies to operate bridge housing settings to address the immediate needs of those experiencing homelessness. [DELAYED]

Broadband Implementation

• Statewide Library Broadband Services: To address the projected budget shortfall, the Budget proposes to pull-back $34 million of the $35 million provided to expand broadband access to isolated and under-served communities through a collaborative partnership of local education agencies, and regional libraries due to low participation in the program. [REDUCTION]
• Middle Mile: An additional $1.5 billion General Fund over two years ($250 million in 2024-25 and $1.25 billion in 2025-26) for the California Department of Technology to complete the development of the statewide middle-mile network. Due to changes in scope and the associated costs, as well as inflation costs, additional funding will be necessary to complete the project and bring broadband connectivity to the state’s remaining unconnected and under-connected communities by December 31, 2026. [INVESTMENT]
• Last Mile Infrastructure Grants: A delay of $100 million General Fund from 2024-25 to 2026-27 for last-mile infrastructure grants at the CPUC. This maintains the previously appropriated $1.45 billion and reflects future investments of $550 million General Fund over three years ($100 million in 2024-25, $200 million in 2025-26, and $250 million in 2026-27), for a program total of $2 billion. [DELAYED]
• Broadband Loan Loss Reserve (BLLR) Fund: A reduction of $250 million General Fund ($150 million in 2024-25 and $100 million in 2025-26) for the BLLR. The Budget maintains $500 million for the program, with $175 million General Fund in 2023-24, $150 million in 2024-25, and $175 million in 2025-26. [REDUCTION]

Elimination of Oil & Gas Subsidies

• The Budget proposes to eliminate the following oil and gas subsidies beginning in tax year 2024: Immediate Deduction for Intangible Drilling Costs, the Percentage Depletion Rules for Fossil Fuels, and the Enhanced Oil Recovery Costs Credit. Eliminating these tax expenditures is projected to increase General Fund revenues by $22 million in 2024-25 and by $17 million per year thereafter.