With about two weeks to go before the June 15 deadline for the Legislature to pass a balanced budget, Democratic leaders released a budget plan on May 29 with significant changes to California Gov. Gavin Newsom’s recently revised budget proposal.
Compared to the governor’s plan, the legislative proposal restores billions of dollars in cuts to some programs while increasing revenues significantly by moving forward a proposed cap on net operating losses carried by businesses to be in effect from 2024 to 2026—thus increasing the amount of taxes that some businesses will pay.
The plan was approved by the Assembly’s Budget Committee on May 30, with a full house of spectators in the room. Lawmakers noted the emotionally charged atmosphere and said they were aware that some decisions were more popular than others.
“We recognize that the public is going to be disappointed with many of these changes,” Assemblyman Steve Bennett said during the hearing.
Critics of the net operating loss cap voiced their concern.
“This affects small businesses,” Chris Micheli—representing the Los Angeles Chamber of Commerce—told lawmakers during the hearing.
Hundreds of public commenters queued up to voice their opinions, with the line stretching through the hall of the Capitol’s annex building.
The Democratic leader of the Assembly acknowledged the difficult choices lawmakers felt compelled to make because of the state’s significant budget deficit.
“Fixing California’s deficit means making tough choices, so the Assembly came to these negotiations focused on preserving programs that matter most to Californians: lowering the cost of living, expanding affordable housing access and sustaining public services,” Assembly Speaker Robert Rivas said in a May 29 statement announcing the plan. “The Legislature’s budget plan restores funding to build more homes, supports K–12 classrooms and rejects many of the cuts that impact our most vulnerable residents.”
Senate President Pro Tempore Sen. Mike McGuire agreed.
“This agreement is sound and makes the necessary tough decisions meeting the needs of this critical time, all while maintaining our commitment to strong public schools, investing in desperately needed resources in homelessness and workforce housing, health care access, resources to keep our communities fire safe, key climate investments and more,” Mr. McGuire said in the joint statement. “We look forward to delivering a final on-time balanced budget in the weeks ahead.”
Included in the legislative plan—which aims to resolve budget deficits over the next two fiscal years—are $16.6 billion and $10.6 billion in spending reductions over the 2024–2025 and 2025–2026 fiscal years, respectively.
That includes $1 billion in cuts to public safety programs.
The legislative proposal also includes $10.6 billion and $7.8 billion in revenue solutions over the coming two fiscal years, respectively.
“[This] embraces important responsible budgeting reforms that will strengthen the state’s budget resilience in the future and help further avoid significant budget shortfalls,” a summary sheet of the plan released on May 30 reads.
The budget plan calls for using about $2.5 billion less of the state’s reserve funds than the governor’s plan.
The proposal also seeks to increase reserve caps by allowing up to 20 percent of the state’s budget to be saved—doubling the 10 percent currently allowed by law—after the governor requested an increase to stabilize the state’s finances.
While the governor suggested cutting the middle-class scholarship program, the legislative plan restores full funding for the program, suggesting substantive cuts could “force students into more student debt and hurt chances of thriving in the middle class upon graduation.”
The package also shifts more than $3 billion in costs related to climate investments by pulling the money from the greenhouse gas reduction fund instead of the general fund.
Cuts to offshore wind infrastructure projects suggested by the governor are rejected by the legislators’ plan, and other investments in decarbonization, watershed resilience, ocean and coastal protection, and habitat conservation are also partially protected.
While Mr. Newsom proposed eliminating $2.4 billion in annual health investments scheduled for 2025, legislators are proposing delaying the funds for one year.
Cuts to other programs, including Cal WORKS, foster care, and in-home supportive services, are also rejected by the legislators’ plan.
With the proposal released less than one day before the scheduled budget hearing, the state’s Department of Finance did not have time to properly review it, a representative told lawmakers at the hearing.
“We’re currently reviewing the plan ... but [are] encouraged ... that it solves two years and includes a sizable amount of reductions,” Erika Li from the Department of Finance said during the budget committee hearing. “It’s not clear yet how the plan will impact fiscal years beyond 2025–2026, but with that, we look forward to working with the Legislature toward achieving our shared goal.”
The nonpartisan Legislative Analyst’s Office was on hand to answer questions but did not provide an analysis of the Legislature’s proposal.
“At this point, there’s not as much of a role for us,” Gabriel Petek of the analyst’s office told The Epoch Times after the hearing. “They’ve already made their decisions.”
He noted that the Legislature and the governor will now work through their differences before the July 1 deadline.
“There might be some changes before the end of the month,” Mr. Petek said.
One Democratic lawmaker noted the challenges facing businesses in California and urged her colleagues to work together to find solutions that do not “kill the goose that lays the golden eggs.”
“I think it’s really important that as we chart California’s future, we ... encourage investment, innovation, and expansion,” Assemblywoman Cottie Petrie-Norris said during the hearing.
One lawmaker said that while the state’s fiscal situation is difficult, cuts were “deeper and more painful” during the Great Recession in the years after 2008 because fewer reserves were available.
“This is indeed, perhaps, one of the most challenging budgets that I’ve had to deal with,” Assemblyman Al Muratsuchi said.
Citing “draconian” cuts to education and other programs while criticizing the governor’s plan to allocate money for electric buses, one Republican lawmaker said the budget discussions were a partisan affair.
“We’re not included in the discussions,” Assemblyman Joe Patterson told The Epoch Times.
Legislative subcommittees and the Senate’s Budget Committee will continue to review the proposal, with the Senate and Assembly bodies expected to vote on the matter in the coming weeks.
