Governor Newsom Introduces Proposed California Budget for 2023-24

Yesterday morning, Governor Newsom presented his proposed $297 billion budget, which includes $223.6 billion from the General Fund. Though the Governor’s economic forecast does not project a recession, the Budget anticipates General Fund revenues to be $29.5 billion lower than projections from the 2022 Budget Act and includes an estimated budget gap of $22.5 billion in the 2023-24 fiscal year.

Notably, the Governor’s Budget does not propose to draw from the state’s $35.6 billion in total budgetary reserves to close the budget gap. Rather, this Budget includes a trigger mechanism that would restore proposed reductions for certain commitments if there are sufficient General Funds available by January 2024. Items proposed to be cut that could be reinstated with the trigger are primarily in the areas of Climate and Transportation ($3.1 billion), Housing ($600 million), Parks ($106 million) and Workforce Training ($55 million). As additional cost savings solutions, the Budget proposes to implement the following:

    • Funding Delays – $7.4 billion
    • Reductions/Pullbacks – $5.7 billion
    • Fund Shifts (utilizing special and federal funds) – $4.3 billion
    • Trigger Reductions – $4.3 billion
    • Limited Revenue Generation and Borrowing – $1.2 billion

The Budget currently reflects $35.6 billion in total budgetary reserves. These reserves include $22.4 billion in the Budget Stabilization Account, which fulfills the constitutional maximum mandatory deposit limit of 10 percent of General Fund tax proceeds. The total reserve total also includes $8.5 billion in the Public School System Stabilization Account, $900 million in the Safety Net Reserve, and $3.8 billion in the state’s operating reserve – the Special Fund for Economic Uncertainties. As the Budget Stabilization Account balance is at its constitutional maximum amount, a total of $951 million is required to be committed for infrastructure projects in 2023-24.

Table 1

Below are the key priorities from Governor Newsom’s proposed Budget for 2023-24:

Climate, Natural Resources and the Environment

Of the $54 billion pledged from 2021 to 2026, this year’s budget maintains $48 billion (89%) of these investments. However, it does include reductions across several programs (which are partially offset by using alternative fund sources). Should additional funds not materialize in the future to cover these commitments, a series of trigger cuts and revenue alternatives will be deployed. This includes pursuing additional federal funds (through the Inflation Reduction Act and the Infrastructure Investment and Jobs Act) or a legislatively pursued natural resources bond. Should funding materialize, these triggers would reinstate historical funding levels for transportation and climate projects.

Climate

The budget includes $14.6 million ongoing to enact the 3,200 setback requirements from new oil wells[1], $7.6 million to implement a state strategy for carbon removal targets for natural and working lands[2], and $4 million to be distributed to various agencies to enable clean energy grid transition[3]. The Budget summary suggests it will consider, with the Legislature, if and how to engage budgetarily on large scale carbon removal and carbon capture, utilization and sequestration projects.

As the largest source of state emissions (more than half), the 2021 and 2022 budgets committed $10 billion over five years for transition to zero emission vehicles (ZEV), infrastructure and equipment manufacturing. This year’s budget maintains 89% of ZEV funding (at $8.9 billion). The $2.5 billion reduction will result in cuts to various ZEV programs and shifts $1.4 billion investment from General Fund to Cap and Trade funds (from the discretionary apportionment). More specifically, significant budget adjustments include:

  • $745 million reduction (offset by $535 million Cap and Trade) for ZEV and infrastructure in low-income neighborhoods.
  • $1.5 billion reduction (offset by $839 million Cap and Trade) for drayage, transit, school and port ZEVs.
  • $184 million reduction (offset by $25 million Cap and Trade) for zero-emission transit mobility.
  • A $133 million reduction (offset by $40 million Cap and Trade) for maritime, aviation, rail and off-road vehicles and support of hydrogen infrastructure.

Other important transportation related incentive programs, such as the FARMER program, have not been funded in this year’s budget, but prior year appropriations have not been reduced.

The proposed budget maintains some funding for community resiliency and extreme heat related to climate change. Specifically, the $649 million committed for extreme heat and $1.9 billion for community resiliency in the 2021 and 2022 budgets have been reduced to $444 million and $1.6 billion respectively. Reductions were made to the following programs: urban greening ($100 million), extreme heat ($25 million), urban forestry ($200 million), regional climate resiliency ($25 million), transformational climate communities ($105 million), and the community air protection program ($50 million).[4] $85 million budgeted for community resilience centers will be delayed until 2024-25.

With regard to “nature based” climate solutions, the 2021 and 2022 budgets included $1.6 billion for nature-based solutions and $1.3 billion for coastal resilience over several years. This year’s budget, though maintaining the funding at $1.3 billion and $734 million, respectively, proposes to cut $779 million across various programs. Those cuts include fish and wildlife protection ($35 million), conservancy nature-based projects ($100 million), natural community conservation planning and land acquisition ($6 million), climate smart land management program ($4 million), local and tribal corps ($12.5 million), coastal protection and adaptation ($184 million) and for ocean protection ($79 million).[5] The previously appropriated $40 million for San Joaquin Valley Flood Plain Restoration and $10 million for San Francisco Bay Wetland support is proposed to be eliminated entirely.

This year’s proposed budget did not include an allocation plan for Cap and Trade revenues, though some of the proposed expenditures are noted in the proposed budget. It is likely the Governor will unveil his proposal in later weeks when auction revenues are more certain.

Energy

The 2022 Budget proposes $7.9 billion in energy investments and legislative actions to expedite a transition to clean energy and support grid reliability in response to high-heat events. Governor Newsom proposes to retain $7 billion (89%) of last year’s investments and $100 million this year to enact the Clean Energy Reliability Investment Plan. It also proposes a $897 million reduction and a $370 million delay in funding other energy investments including the California Arrearage Payment Program for residential utility arrearages ($400 million), residential storage and solar ($270 million), long duration energy storage ($50 million), carbon removal ($25 million), transmission financing ($25 million), refrigerant alternatives ($20 million), the Food Production Incentive Program ($10 million), industrial grid support ($10 million), and the Equitable Building Decarbonization program ($370 million).[6] It also delays $150 million proposed to fund the Climate Innovation Program at the California Energy Commission.

Forestry and Wildfire

The 2023 proposed budget maintains 97% of the funding committed in 2021 and 2022 ($2.8 billion) to advance forest health and fire prevention. Reductions include $10 million in the Climate Catalyst Fund, $10 million in forest management on state-owned lands, $5 million in defensible space inspections, $5 million in monitoring and research, and $15 million in workforce training to support fire prevention.[7]

Agriculture

The 2021 and 2022 budgets proposed $1.1 billion over many years for “climate smart agriculture” and investments to “foster a healthy, resilient, and equitable food system.” The budget proposes to maintain $1 billion of this funding and reduce $128 million in investments as follows[8]:

  • $29.5 million in food systems. This includes reductions of $5.8 million in the urban agriculture program (leaving $6.2m), $8.9m in the healthy refrigeration program (leaving $10 million), and a full elimination of the $14.8 million appropriated for food hubs
  • $94.2 million in climate smart agriculture. This includes a $15 million reduction in Healthy Soils (leaving $70 million), eliminating the $10 million appropriation for the sustainable cannabis pilot program, a $15 million reduction in pollinator habitat program (leaving $15 million), a $22 million reduction in the conservation agricultural planning program (leaving $17 million), GHG research, the invasive species council and the Climate Catalyst Fund
  • $4.7 million in the New and Beginning Farmer Training and Farm Apprenticeship Program (leaving $5 million)

Drought and Water Resources

In November 2022, the Federal Energy Commission authorized the state to remove dams, address fish population declines and river health in the Klamath Basin. This will require the removal of four hydroelectric dams in California and Oregon. This work is expected to begin in the Spring of this year. The proposed budget includes nominal funding for the Department of Fish and Wildlife to participate in this process.

In the 2021 and 2022 Budgets, Governor Newsom dedicated $8.7 billion over multiple years for drought resiliency and responsiveness. This budget proposes to maintain $8.6 billion (98%) but includes $194 million in reductions over various programs. These include a $24 million reduction and $270 million delay in watershed resilience programs, $70 million reduction and $30 million delay for PFAS cleanup, a $40 million reduction in water recycling, a $40 million reduction in the State Water Efficiency and Enhancement Program (SWEEP), a $15 million reduction in aqueduct solar panels, and a $5 million reduction in school water refilling stations.[9]

The 2023-24 budget does, however, propose new spending in response to drought and flooding. They include:

  • $135.5 million over two years for local governments to reduce urban flood risks.
  • $40.6 million for ongoing Delta levee projects.
  • $25 million for flood resilience in the Central Valley (with ecosystem and agricultural sustainability benefits).
  • $4.7 million in Waste Discharge Permit Funds this year and $5.7 million and $408,000 from the Safe Drinking Water Account ongoing for new water supply projects.
  • $31.5 million to update water rights data for the California Project.
  • $7 million over four years to implement indoor residential water use efficiency.
  • $4.9 million over five years for availability analysis and technical assistance for San Joaquin River Basin groundwater recharge.
  • $4.7 million over two years for reactivation of historical stream gages.

Recycling

The 2021 and 2022 budgets proposed $468 million over two years to support reducing methane pollution and plastic waste. The proposed budget maintains $443 million of these investments but reduces program investment by $24 million, including $4.8 million for the composting program, $15 million for recycling feasibility grants and $4.5 million for the recycling market development zone loan program.[10]

Economic Development/Small Business

The state has made investments to support small businesses, including tax relief for businesses impacted by the COVID-19 Pandemic, fee waivers for new businesses to encourage business growth, additional funding to bolster existing grant programs and technical assistance centers, and new programs to support entrepreneurs. In addition to making an investment of over $4 billion for the California Small Business COVID-19 Relief Grant Program, the state has made General Fund investments totaling over $800 million to support California businesses. Many of the following programs will be implemented over several fiscal years. Items of note include:

  • Rural & Industrial Economic Agenda: In maintaining funds for rural communities and industrial industries to continue expanding economic opportunities, the Governor’s budget will continue getting hundreds of millions of dollars to communities for economic development, local government projects, grants for businesses and workforce development, and more. Maintained initiatives include:
    • State Small Business Credit Initiative (SSBCI) – $1.1 billion from the federal American Rescue Plan Act of 2021 has been allocated to help support small businesses. This funding is intended to leverage an additional $18 billion of capital to California small businesses. To supplement SSBCI funds, the 2021 Budget Act added $20 million one-time General Fund for IBank’s Small Business Loan Guarantee Program to continue to provide loans as businesses recover from the economic impacts of the COVID-19 Pandemic. The Small Business Loan Guarantee Program uses state funds for guarantees that are not eligible for SSBCI.
    • Small Business and Nonprofit COVID-19 Supplemental Paid Sick Leave Grants – $250 million one-time General Fund has been appropriated for relief grants for small businesses and non-profits to offset costs of their employees who used the state’s supplemental COVID-19 paid sick leave.
    • Small Agricultural Business Drought Relief Grant Program – $75 million one-time General Fund was allocated to provide direct assistance to eligible agriculture-related businesses affected by severe drought conditions.
  • Advancing Workforce Development Programs: The Governor’s budget proposes to invest $1.65 billion to create new apprenticeships, bolster training opportunities for clean energy transition jobs, workforce development efforts for the justice-involved population, and create new opportunities for a diverse health and human services workforce.
    • The Governor’s budget proposes to reduce the 2022 allocation of $2.2 billion to $2.14 billion ($55 million reduction) to support apprenticeships; provide training to mitigate the effects of climate change; provide job training and other assistance to the justice-involved population; and create more innovative and accessible opportunities to recruit, train, hire, and advance an ethnically and culturally inclusive health and human services workforce. However, these reductions are included in the trigger, so if there is sufficient General Fund in January 2024, they will be restored.
    • Wage Claim Adjudication – An additional $11.7 million special funds and 42 positions in 2023-24 and $6.5 million special funds ongoing for the Department of Industrial Relations are proposed to address wage claim processing times by improving the efficiency of the claims intake and processing as well as automate portions of the claims processing activities within the Wage Claim Adjudication unit.
    • Electronic Adjudication Management System Modernization – $21.1 million special funds are proposed for the Department of Industrial Relations to support the replacement of the Division of Workers’ Compensation’s electronic case management and document storage system.

Public Education and Higher Education

K-12 Education

The Governor’s proposed 2023-24 budget maintains a relatively stable commitment of revenues for K-12 schools. It does not propose to draw down additional funds from the Public School System Stabilization Account (also known as the “Schools Rainy Day Account”), which currently has a reserve of $3.8 billion, but rather proposes to add approximately $4.7 billion, bringing the total reserve to $8.5 billion by June 30th, 2023.

The majority of K-12 funds are supported by the constitutional Proposition 98 guarantee. This guarantee uses criteria (including General Fund revenue, per capita income, school attendance) when determining school allocations. Because Prop 98 funds are tied to state revenues (roughly 38% of all General Fund revenues), the 2021-22/2022-23 budget years saw unprecedented expenditure levels. The proposed 2023-24 allocation for K-12 schools and communities is $108.8 billion (a $1.5 billion or 0.01% increase from last year). When combined with other one-time allocations, the total K-12 education budget is proposed at $128.5 billion.

The Governor is also proposing to add an equity multiplier into the Local Control Funding Formula (LCFF), allowing an additional $300 million to be added to allocations to local educational agencies based on their highest need. The January budget continues an investment in transitional kindergarten (TK), providing access to TK, allocating $690 million to implement the second year of TK expansion. Due to poor student performance data in the 2022 California School Dashboard, the budget proposes an additional $250 million in one-time funding for literacy and $3 billion over five years for teacher workforce development. Finally, the Budget proposes to provide $1.2 billion to fund the Arts, Music, and Instructional Materials Discretionary Block Grant established last year. Other minor adjustments include: a Prop 98 cost of living adjustment (8.13%), a decrease of $100 million in school facility funds, a $3.8 million increase for a K-12 High Speed Network program, and $3.5 million for opioid overdose reversal medication on all middle and high school campuses.

Higher Education

The total budget for the University of California (UC), the California State University (CSU), and California Community Colleges (CCC) systems is proposed at $40.3 billion. With respect to the UC system, the Budget maintains multi-year funding agreements and proposes one-time funds ($40.5 million) for undergraduate enrollment growth, backfilling graduate medical education residency positions, and individual campus projects. It also proposes to delay funding proposed in the 2022 budget for capital outlay support at UCLA, UC Riverside, UC Merced, and CSU campuses. Both the UC and CSU system is proposed to see a 5% base increase of $215.5 million and $227.3 million, respectively. The $75 million awarded in the 2022 budget for four CSU Farms has been maintained, with a shift in fund source. The CCC system will see an 8% cost of living adjustment, an increase in one-time funds for student enrollment and training grants, and a $213 million reduction in deferred maintenance funds. Because of the budget shortfall, Governor Newsom also proposes to delay funding multi-year commitments for development of additional affordable student housing units.

Addressing the Homelessness Crisis

The proposed Budget includes $3.4 billion General Fund to maintain the state’s efforts to address homelessness. Funding includes:

  • $400 million for a third round of encampment resolution grants.
  • $1 billion for a fifth round of Homeless Housing, Assistance and Prevention Program (HHAP) grants.
  • $1.25 billion for the Behavioral Health Bridge Housing Program.
  • Funding to allow up to 6 months of rent or temporary housing to eligible individuals experiencing or at risk of homelessness.

Housing Affordability

The proposed Budget includes $350 million in funding reductions from 2022 Budget Act appropriations to housing programs. Housing programs would remain funded at $2.85 billion (88 percent of the prior allocation). These reductions are included in the trigger proposal, meaning should sufficient General Fund revenues be available in January 2024, these reductions will be restored. Significant budget adjustments include:

  • Dream For All: Reduce funding offered in the 2022 Budget to the California Housing Finance Agency for the Dream for All program from $500 million to $200 million. The Dream for All Program provides shared-appreciation loans to help low- and moderate-income first-time homebuyers achieve homeownership.
  • CalHome: Eliminate $100 million proposed in the 2022 Budget Act for the Department of Housing and Community Development’s CalHome program, which provides grants to local agencies and nonprofits to assist low- and very-low-income first-time homebuyers with housing assistance, counseling and technical assistance. The $250 million one-time General Fund in the 2022 Budget Act remains.
  • Accessory Dwelling Unit Program: Eliminate $50 million one-time General Fund for the California Housing Finance Agency’s Accessory Dwelling Unit program, offered in the 2022 Budget Act.

Increasing Healthcare Access

The Governor’s Budget includes $230.5 billion ($71.5 billion General Fund) for all health and human services programs in 2023-24.

Allocations of note include:

  • Implementing Health Care Actions: Continued investment of billions to implement programs, including California Advancing and innovating Medi-Cal ($10 billion), extending health care to low-income Californians regardless of immigration status, and making prescriptions more affordable through CalRX.
    • The Medi-Cal budget includes $137.7 billion ($32.3 billion General Fund) in 2022-23 and $138.9 billion ($38.7 billion General Fund) in 2023-24. Medi-Cal is projected to cover approximately 15.2 million Californians in 2022-23 and 14.4 million in 2023-24—more than one-third of the state’s population. The Budget proposes to reduce Medi-Cal expenditures by $4.2 billion from 2022 funding levels.[11]
  • More Family Planning & Protecting the Right to Abortion: Maintains a $200 million investment in reproductive health care, including grants to health care providers to offset the cost of care to uninsured or underinsured individuals, for clinical infrastructure, and to provide scholarships and loan repayments to providers that commit to providing reproductive health care services. It also seeks to invest an additional $200 million for family planning services, including a grant program focused on supporting access to family planning and related services, system transformation, capacity, and sustainability of California’s safety net.
  • Expanding Access to Mental Health: Maintains $8 billion to continue expanding mental and behavioral health services, especially for children and youth. The Governor’s budget further implements the state’s Master Plan for Kids’ Mental Health and invests $6.1 billion ($314 million General Fund, $175 million Mental Health Services Fund, $2.1 billion Medi-Cal County Behavioral Health Fund, and $3.5 billion federal funds) over five years for the Department of Health Care Services and the Department of Social Services to implement the Behavioral Health Community-Based Continuum Demonstration, effective January 1, 2024.
  • Better Care for the Developmentally Disabled: Maintains an appropriation of $1.2 billion annually to fully implement service provider rate reform with a focus on improving outcomes and quality of services. The Budget includes over $1 billion General Fund annually to provide increased cash assistance to individuals with disabilities and older adults in the Supplemental Security Income/State Supplementary Payment program, and low-income children and families in the CalWORKs program.
  • Care Court: Invests $215 million to implement the CARE Act, the Governor’s approach to manage the untreated and severely mentally ill or those with substance use disorders.

Keeping Californians Safe

California Department of Corrections and Rehabilitation (CDCR)

CDCR incarcerates people convicted of the most serious and violent felonies, supervises those released to parole, and provides rehabilitation programs to help them reintegrate into the community. The Budget proposes total funding of $14.5 billion ($14.1 billion General Fund and $374.9 million other funds) for CDCR in 2023-24. Of this amount, $3.8 billion General Fund is for health care programs, which provide incarcerated individuals with access to mental health, medical, and dental care services that are consistent with the standards and scope of care appropriate within a custodial environment. Appropriations and augmentations of note include:

  • Integrated Substance Uses Disorder Treatment Program: Funding to support the Integrated Substance Use Disorder Treatment (ISUDT) Program, which is funded at approximately $260 million in 2022-23. As of December 31, 2022, the ISUDT Program had screened over 90,000 individuals for substance use disorders, was serving approximately 15,000 of those individuals with Medication-Assisted Treatment and was providing approximately 9,000 individuals with Cognitive Behavioral Interventions.
  • COVID-19 Direct Expenditures: Provide $141.8 million one-time General Fund to enable CDCR to continue taking proactive measures and precautions to protect the incarcerated population and staff and mitigate the impacts of COVID-19 in state prisons. This includes resources to support staff and incarcerated individual testing ($89.2 million), personnel services ($37.5 million), and medical registry costs ($15.1 million).
  • Savings: The average daily adult incarcerated population for 2022-23 is now projected to be 96,157, a decrease of 6.6 percent since spring 2022 projections. Fall projections indicate the adult incarcerated population will trend downward, decreasing by 2,761 individuals between 2022-23 and 2023-24, from 96,157 to 93,396, respectively. The population is expected to decrease to 87,295 by 2025-26. Population decreases and associated cost savings are supported by facility closures, deactivations and resentencing.
    • Closures – In September 2021, CDCR closed the Deuel Vocational Institution in Tracy, achieving savings of $150.3 million General Fund annually beginning in 2022-23. Beginning in November 2022, CDCR initiated the closure of a second prison, the California Correctional Center (CCC) in Susanville, which is expected to achieve an estimated $142.8 million in annual ongoing savings. In total, CDCR estimates $150 million in ongoing General Fund savings as a result of future facility deactivations.
    • Prop 47 – Proposition 47, passed in 2014, requires misdemeanor rather than felony sentencing for certain property and drug crimes and permits incarcerated persons previously sentenced for these reclassified crimes to petition for resentencing. The Department of Finance estimates net General Fund savings of $101 million in 2023-24.

Department of Justice

The Attorney General has the responsibility to see that the laws of California are uniformly and adequately enforced. This responsibility is fulfilled through the diverse programs of the Department of Justice (DOJ). The proposed Budget includes total funding of approximately $1.2 billion, including $486 million General Fund, to support DOJ.

Local Public Safety

Governor Newsom proposes to continue a commitment of $564.4 million General Fund over three years to bolster local law enforcement efforts to address retail theft and other crimes. These investments are helping local law enforcement agencies implement anti-theft task forces, improve prosecution, expand Department of Justice and California Highway Patrol anti-crime and retail theft taskforces, expand drug interdiction and combat fentanyl prevalence and child exploitation. The proposed budget also includes $65 million one-time General Fund for research and grants to support peace officers’ physical, mental, and emotional wellness, which is essential for creating safer communities. Additionally, a Use of Force and De-escalation Training pilot program is proposed to fortify positive policing strategies.

Now that the Budget has been introduced, the Legislature will begin holding committee hearings on the items proposed in anticipation of the May Revision. The Legislature will then have until June 15 to finalize the Budget and send it to the Governor for his signature.

View Update

[1] SB 1137 (Chapter 365, 2022)
[2] AB 1757 (Chapter 341, 2022)
[3] SB 1020 (Chapter 361, 2022)
[4] Remaining funds include: $150 million for urban greening, $100 million for extreme heat, $80 million for urban forestry, $125 million for regional climate resilience, $315 million for TCC, and $560 million for community air protection.
[5] Remaining funds include: $318 million for fish and wildlife protection, $130 million for state conservancy, $30 million for conservation planning and land acquisition, $16 million for climate smart land management, $25.5 million for local and tribal corps, $139 million for ocean protection and $582 million for coastal protection and adaptation.
[6] Remaining funds for these programs include: $630 million for residential solar and storage, $330 million for long duration energy storage, $75 million for carbon removal, $225 million for new energy transmission financing, $20 million for refrigerants, $65 million for FPIP, $90 million for decarbonization and grid support, and $835 million for home decarbonization.
[7] Remaining funds for these programs include: $8 million for Climate Catalyst, $280 million for healthy forests, $20 million for defensible space, $33 million for monitoring and research, and $53 million for workforce training.
[8] Remaining funds include: $98 million for urban agriculture, healthy refrigeration, and food hubs; $867 million for climate smart agriculture programs, and $5 million for new and beginning farmers and apprenticeship programs.
[9] Remaining funds for these programs include: $470 million for watershed resiliency, $130 million for PFAS clean up, $760 million for water recycling, $120 million for SWEEP, and $20 million for aqueduct solar panels.
[10] Remaining funds include $7.8 million for composting and $45.5 million for the recycling market development zone loan program.
[11] The decrease is due primarily to the shifting of certain repayments to the federal government related to state-only populations into 2023-24, and net savings from the assumed extension of the federal COVID-19 Public Health Emergency through mid-April 2023.

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