Governor Newsom Releases Revised 2023-24 State Budget Proposal

This morning, Governor Gavin Newsom presented the May Revision of his proposed California budget for 2023-24, which emphasizes education, environmental protections, economic development, access to housing and healthcare, and investments in infrastructure.

The May Revision reflects $37.2 billion in total budgetary reserves, including approximately $22.3 billion in the Budget Stabilization Account (BSA). The reserves also include $10.7 billion in the Public School System Stabilization Account, $450 million in the Safety Net Reserve, and $3.8 billion in the state’s operating reserve, the Special Fund for Economic Uncertainties.

Notably, January’s proposal projected a $22.5 billion shortfall. It has now increased to $31.5 billion. To address the $9.3 billion discrepancy, the May Revision puts forth the following solutions:

  • Spending Reductions and Pullbacks — The May Revision reduces an additional $1.1 billion in spending across the 2021-22 through 2023-24 fiscal years. Combined with the Governor’s Budget’s $5.7 billion in reductions and pullbacks and a $57 million adjustment, the May Revision includes total solutions in this category of $6.7 billion.
  • Trigger Reductions — The May Revision does not include additional trigger reductions. However, it maintains most of the $3.9 billion in trigger reductions included in the Governor’s Budget.
  • Delayed Spending — The May Revision delays an additional $695 million across multiple years without reducing the total amount of funding through the same period.
  • Fund Shifts — The May Revision includes $3.3 billion in shifts of spending commitments from the General Fund to other funds.
  • Revenue/Borrowing — The May Revision includes $3.7 billion in revenue and borrowing, which consist primarily of an additional $2.5 billion from the Managed Care Organization tax and $1.2 billion in additional borrowing from special funds.
  • Safety Net Reserve Withdrawal — The May Revision includes the withdrawal of $450 million from the Safety Net Reserve. This represents half of the funds available in the reserve, leaving a balance of $450 million if subsequently needed.

Similar to the budget released in January, the May Revision does not project a recession. Notwithstanding, several risks were detailed that could potentially affect the state’s near-term trajectory:

  • The Economic Fallout from a Debt Limit Impasse
  • Higher Interest Rates
  • Uncertainty in Financial Institutions
  • Delayed Tax Receipts from Fall Filing Deadlines

Table 1

Below are several commitments highlighted in this year’s May Revise:

Climate and Natural Resources

The 2021 and 2022 Budget Acts allocated approximately $54 billion over five years to advance the state’s climate and opportunity agenda. The May Revision maintains approximately $48 billion (89 percent) of these investments.

The May Revision maintains $2.7 billion in a multi-year wildfire and forest resilience package and adds $290 million for a flood risk reduction package to reduce flood risk and enhance flood system resilience. The Administration also continues to engage the Legislature in pursuing a climate bond over the coming months. As a result of lower revenue projections and a resulting increase in the budget problem, the May Revision includes an additional $1.1 billion in General Fund shifts across climate resilience programs that would be bond eligible.

These programs remain a high priority for the Administration and will be included as part of the future climate bond proposal. Specific shifts to the bond include:

  • Water Recycling — $270 million
  • Salton Sea Restoration — $169 million
  • Community Resilience Centers — $160 million
  • Transformative Climate Communities — $100 million
  • Regional Resilience Program — $100 million
  • Urban Greening — $100 million
  • Statewide Parks Program — $86.6 million
  • Sustainable Groundwater Management Act Implementation — $60 million
  • Dam Safety and Flood Management — $50 million
  • Multi-Benefit Land Repurposing — $20 million

Other climate investments to note:

  • Zero-Emission Vehicles (ZEVs): The May Revision maintains $8.9 billion (89 percent) in investments to the state’s ZEV agenda. The May Revision shifts $635 million General Fund ($500 million in 2023-24) over three years to the Greenhouse Gas Reduction Fund.
  • Transportation: The May Revision maintains $11.6 billion (84 percent), including fund shifts, for transportation programs and projects that align with the state’s climate goals.
  • Wildfire and Forest Resilience: The May Revision maintains $2.7 billion (98 percent) over four years to advance critical investments in restoring forest and wildland health to continue to reduce the risk of catastrophic wildfires in the face of extreme climate conditions. The May Revision also includes the following:
  • Climate Catalyst Fund—$25 million one-time General Fund, which partially restores the General Fund reduction proposed in the Governor’s Budget.
  • Nature-Based Solutions: The May Revision maintains $1.4 billion (89 percent) in investments over multiple years in programs and projects to support nature-based solutions.
  • Extreme Heat: The May Revision maintains $444 million (68 percent) in investments over multiple years in programs and projects to support extreme heat.
  • Community Resilience: The May Revision maintains $1.6 billion (85 percent) in investments over multiple years in programs and projects to promote community resilience.
  • Coastal Resilience: The May Revision maintains $734 million (57 percent) in investments over multiple years in programs and projects for coastal resilience.
  • Water: The May Revision maintains $8.5 billion (97 percent) in investments over multiple years in programs and projects to bolster the capacity of communities and ecosystems to endure droughts and floods. As a result of lower revenue projections and a resulting increase in the budget problem, the May Revision proposes additional General Fund adjustments to assist in closing the projected shortfall and ensuring the submission of a balanced budget plan. These include:
    • 2023 Drought Contingency — A reduction of $125 million one-time General Fund. As a result of the significant improvement in statewide water conditions based on the recent winter storms, there is a reduced need for immediate drought relief. These funds have been shifted to a Flood Contingency in response to the shift from drought to potential flood conditions in the state.
    • Delta Salinity Barriers — A reduction of $24.5 million one-time General Fund. The Department of Water Resources no longer anticipates needing to install the salinity barriers as a result of improved statewide water conditions.
    • Agriculture and Delta Drought Response Program (LandFlex) — A reduction of $25 million one-time General Fund. The 2022 Budget Act included $50 million for the LandFlex program, which provides block grants to local government agencies to incentivize farmers to limit agricultural groundwater use near drought-stricken communities whose drinking water wells have gone dry or are close to going dry. The Department of Water Resources awarded $25 million in the first round of grants. Given that water conditions have significantly improved the May Revision proposes a reversion of the remaining $25 million for this program.
  • Other investments maintained —
    • Climate Smart Agriculture: $1 billion (89 percent) of investments to promote healthy resilient and equitable food systems, climate smart agriculture, and economic recovery and high road job growth.
    • Circular Economy: $443 million (95 percent) of investments to support a circular economy that recognizes waste as a resource, shifting the state’s focus to a more resilient and renewable economy in California.
    • Climate Health: $321 million (93 percent) of investments in recognition of the continuing statewide goal of mitigating the health impacts of climate change.

The May Revision includes $290 million one-time General Fund to address flood impacts. $250 million to support various at-risk communities from these impacts and to better withstand future flood events.

  • Flood Contingency — $125 million one-time General Fund as a flood contingency set aside to support costs associated with preparedness, response, recovery, and other associated activities related to the 2023 storms, the resulting snowmelt, and other flooding risks, including, but not limited to, supporting communities and vulnerable populations, such as farmworkers, from these impacts and to better withstand future flood events.
  • Flood Control Subventions — $75 million one-time General Fund to support local flood control projects, including in communities impacted by recent storms, such as the Pajaro River Flood Risk Management Project.
  • Small Agricultural Business Relief Grants — An increase of $25 million one-time General Fund to expand the scope of the current California Small Agricultural Business Drought Relief Grant Program to provide direct assistance to eligible agriculture-related businesses that have been affected by the recent storms.
  • Disaster Response Emergency Operations Account Set Aside — $25 million one-time General Fund in the current year in anticipation of potential additional disaster relief and response costs associated with recent storms and future flooding.
  • The May Revision also includes $40 million one-time General Fund for San Joaquin Floodplain Restoration, which restores the current year General Fund reduction proposed in the Governor’s Budget.

Energy

The Governor’s Budget maintained $7 billion (89 percent) of last year’s $7.9 billion investment in a clean energy agenda including investments in areas such as building decarbonization, transmission development, and long duration energy storage.

Infrastructure

As the Budget Stabilization Account balance is at its constitutional maximum amount, a total of $2.3 billion must be dedicated for infrastructure investments in 2023-24.

The May Revision proposes statutory changes to expedite infrastructure projects. This includes more than $180 billion over the next ten years in clean energy, roads, bridges, public transit, water storage and conveyance, and faster internet for all Californians.

Economic and Job Development

The May Revision includes $250 million for Fresno’s Infrastructure Plan and $100 million for agricultural business grants. The May Revision also invests $2.1 billion to create new workforce development programs and expand existing programs throughout the state.

Significant adjustments include:

  • Small Agricultural Business Relief Grants — An increase of $25 million one-time General Fund to expand the scope of the current California Small Agricultural Business Drought Relief Grant Program to provide direct assistance to eligible agriculture-related businesses that have been affected by recent storms.
  • Technical Assistance to Small Businesses — An increase of $23.5 million Federal Funds, to be spent over 5 years, for the Office of the Small Business Advocate to provide technical assistance to small businesses applying for State Small Business Credit Initiative capital programs.
  • City of Fresno Public Infrastructure Plan — The May Revision reallocates $250 million to support the City of Fresno’s Public Infrastructure Plan to invest in the downtown area. This plan includes projects to build parking structures, develop green space, improve walkability, and for water infrastructure.

The Legislature now has until June 15 to finalize the budget and send back to the Governor for his signature.

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