Gov. Gavin Newsom and Democratic lawmakers on Monday agreed on a $310.8 billion budget spending plan that will reduce investment in fighting climate change and a compromise on the governor’s last-minute proposal to speed up infrastructure projects represents throughout California.
The 2023-24 budget deal, which lawmakers will vote on in a series of bills this week, ends weeks of power struggles among Democrats that began after the governor introduced a package of infrastructure legislation at the end of the budget process, including easing his highly controversial one Approve plan to build a $16 billion tunnel under the Sacramento-San Joaquin River Delta to carry water south.
Newsom last week threatened to veto lawmakers’ budget priorities unless they approve his infrastructure plan. The two sides eventually reached an agreement that removes the Delta Tunnel project from the package but retains measures to reduce delays in other major projects due to legal challenges under California environmental law.
“In the face of ongoing global economic uncertainty, this budget increases our fiscal discipline by increasing our fiscal reserves to a record $38 billion while preserving historic investments in public education, health care, climate and public safety,” Newsom said in a statement announcing the deal late Monday night.
California’s budget deficit has complicated negotiations in the Capitol, where financial analysts expect tax revenues to fall nearly $32 billion short of funding for state programs.
The governor and leaders of the Democratic-led Legislature agreed to defer nearly $8 billion in spending, including an allocation of $550 million to build facilities for transitional and full-time kindergarten programs. Lawmakers and the governor agreed on another $8 billion in cuts, such as a $750 million payment to the federal government for COVID-related unemployment insurance debt.
The deficit marks a new era of economic challenges for California that could prevent Newsom from delivering on his expensive policy promises in his second term. The current agreement aims to maintain funding for Newsom’s key programs, including extending Medi-Cal eligibility to all immigrants regardless of legal status, while maintaining $37.8 billion in reserves.
Here’s what you need to know about six key areas of the 2023-24 budget spending plan, which comes into effect on July 1:
An uproar over infrastructure
Newsom’s plan to streamline the process of building infrastructure in California was the most controversial policy proposal in the budget negotiations.
The agreement includes a transformation of the state’s groundbreaking California Environmental Quality Act by reducing the possibility of lengthy legal challenges to major infrastructure projects. Environmental law requires an assessment of potential environmental impacts before a project is approved, but is also used strategically by environmental organizations, project opponents, and others to thwart or alter construction projects.
Some environmentalists objected to the hasty nature of the governor’s plan, claiming that he was attempting to weaken California’s environmental laws and protections without adequate time for political scrutiny and public comment.
Opponents of the controversial underground tunnel used to transport water from the Sacramento-San Joaquin River Delta to Southern California emerged victorious from the budget compromise.
Former Sierra Club director Kathryn Philips last week called Newsom’s proposal an “environmental nightmare” and said it would “decimate one of North America’s largest estuaries”.
Though Newsom and environmental groups often disagree, it’s rare for Democrats in the Capitol to openly criticize the governor. Last week, a bipartisan group of 10 lawmakers sent a letter to Newsom outlining their reasons for rejecting the proposal, including that building the tunnel would have profound health and environmental impacts in three counties: Sacramento, San Joaquin and Contra Costa.
Several other Democratic lawmakers publicly criticized Newsom during the legislative hearings for trying to get such critical legislation through the budget process at the last minute.
Newsom eventually agreed to remove the tunnel from the list of optimized infrastructure projects, according to several sources involved in the negotiations. Lawmakers also successfully urged that the state must seek to reduce impacts on disadvantaged communities in the final agreement.
More money for healthcare providers
Physicians and other medical providers have long argued that low reimbursement rates for services limit access to health care for nearly 16 million Californians, or one-third of the state’s population, who are covered by federally subsidized health insurance.
With the support of a broad coalition of physicians, community health centers, hospitals and unions, Newsom and lawmakers agreed to renew a tax on managed healthcare organizations, known as the MCO tax, to fund Medi-Cal at a time when the state is expanding the pool of eligibility. The tax is expected to generate $19.4 billion in government revenue from 2023 to 2027.
The budget provides for the first increases in reimbursement rates in more than two decades in some cases, and provides a faster timeframe for disbursing the money than Newsom proposed in May.
Legislatures and the governor are allocating $2.7 billion annually for rate increases and other investments from 2025 through 2029, including $1.65 billion for primary and specialty rate increases. The deal also includes $555 million for emergency and inpatient services and $300 million for behavioral health beds.
Although the deal represents a victory for some providers, Sen. Carolyn Menjivar (D-Panorama City) questioned why clinics serving the poorest communities were not consulted in the final negotiations.
“It was a little frustrating how the MCO breakdown came about, or what the final outcome of that was, and who got involved in the talks about who gets a piece of the pie,” she said at a legislative hearing Monday night.
Slight reduction in future efforts to combat climate change
Newsom last year praised the state’s $54 billion in investments in climate programs, but in May proposed cutting it by $6 billion as the deficit became more apparent.
Ultimately, Democrats reached a compromise, agreeing to $51.4 billion for climate programs.
The agreement will provide more than $1 billion for coastal resilience and clean energy programs and will return nearly $300 million to the State Coastal Conservancy.
Public transport funding restored
The final agreement reverses the governor’s call for a $2 billion cut in public transit after extensive lobbying by city transit authorities and Democratic lawmakers in San Francisco and Los Angeles. The deal totals $5.1 billion for transit over four years.
In anticipation of possible future cuts, Democratic lawmakers on Monday unveiled a separate plan that would increase tolls on seven state-owned bridges in the Bay Area by $1.50, by about $180 million annually from 2024-2028. generate dollars.
Money for the reconstruction of a prison
The agreement Newsom has reached with lawmakers will kick-start his comprehensive plan to revitalize San Quentin State Prison into a rehabilitation-focused facility and officially begin the process of renaming it the San Quentin Rehabilitation Center.
Despite early opposition from lawmakers who opposed Newsom’s proposal and criticism from the independent Legislative Analyst’s Office that the plan lacked necessary details, the final budget includes what the governor had aimed for: about $380 million for the Reconstruction of certain parts of San Quentin. The plan calls for the prison to be completely transformed into a Norwegian-style facility focused on vocational training and other programs to better prepare individuals for rehabilitation, thereby reducing recidivism.
San Quentin’s transformation builds on Newsom’s multi-year initiative to overhaul the state’s criminal justice system, which he began in 2019 with an executive order that temporarily halted the death penalty and closed the prison’s execution chamber.
Lawmakers have also negotiated an agreement with the administration that will give the state Police Training and Standards Committee more time to comply with part of a law passed in 2021 that introduces a decertification process for officers who commit misconduct.
An increase in state funding for child care
The current agreement includes a big win for low-income families who receive government support to fund childcare.
Currently, families earning more than 40% of the state median income are required to pay a monthly childcare fee that ranges from $36 to almost $600 — up to 10% of their income. For example, a family of four earning $6,950 a month would pay $518 a month in family fees. These fees were waived during the pandemic but were scheduled to resume on October 1.
The current budget agreement would waive fees for all families earning less than 75% of the state median income and cap all fees for families earning more at 1% of monthly income.
However, the agreement does not authorize the legislature’s target of a $1 billion increase in home childcare rates over 2023-24. Instead, a total of $2.8 billion will be approved to fund payment increases across all childcare and preschool providers over a two-year period. The details are the subject of ongoing collective bargaining with the Child Care Providers Union, which represents California’s 40,000 child care providers at home.
Contributors to this report were employees Hannah Wiley and Jenny Gold, and Sacramento Bureau chief Laurel Rosenhall.
