California legislators propose plan to reduce budget crunch

With the unveiling of their own initial budget proposal last week, Democrats in the state Senate aim to make a bad situation a little less worse.

Depending on whom you ask, California faces an immediate budget shortfall that ranges from $38 billion, per Gov. Gavin Newsom’s projections in his January budget proposal, to as much as $73 billion, according to the nonpartisan Legislative Analyst’s Office. 

But whatever projections you go by, the budget deficit will influence nearly every policy decision the Legislature will make as it hammers out a budget agreement. On Thursday, Senate Democrats got a jump start by announcing early budgetary action to “shrink the shortfall” by about $17 billion, while agreeing to the use of $12.2 billion of the state’s rainy day fund that Newsom proposed earlier. 

The result is a proposal that reduces the state deficit to what Senate Leader Mike McGuire of Santa Rosa and Senate budget committee chairperson Scott Wiener of San Francisco say is a “more manageable” $9 to $24 billion. Doing this in the spring sets up lawmakers to tackle more of the deficit when the Legislature and Newsom must come to a deal by late June for the 2024-25 budget, the Senate leaders said.

• McGuire, in a statement: “The Senate’s plan to shrink the shortfall protects core programs, includes no new tax increases for Californians, makes necessary reductions, and takes a prudent approach to utilizing the Rainy Day Fund so we can be prepared for any future tough times.”

The plan includes cuts to various programs in 2024-25 by $2.1 billion, deferring and delaying about $4.6 billion in spending and increasing revenue or borrowing by $3.6 billion. The Senate is also contemplating $3.7 billion in spending cuts, delays, shifts and other budget tweaks for the current budget year.

In response to Thursday’s Senate proposal, Newsom said in a statement that he looks “forward to seeing this proposal move forward quickly.” Today, he visited the Capitol to talk to legislative leaders on the budget.

The Legislative Analyst’s Office has presented lawmakers options to claw back some of the money agencies can spend now beyond what Newsom proposed in January — such as in higher education and programs to combat climate change — to have more cash left over to tackle future deficits. The point is to “pause program implementation and capture savings,” the office wrote.  

Jesse Gabriel, an Encino Democrat and chairperson of the Assembly’s budget committee, said Friday that his colleagues will review the Senate’s plan “closely over the coming weeks.” Gabriel also said he anticipates cuts to climate change and that housing programs will be under the microscope, but that there will be no new taxes on individuals or families in the 2024-25 budget.

• Gabriel: “We are saying our prayers and lighting our candles and lighting our incense and hoping that… our revenues come in better than expected.”

The Senate’s proposal signifies another step in the long process of passing the state budget by June, with additional changes coming through as late as September. Newsom is expected to release a revised budget proposal in May based on new tax revenue data from April. 

Speaking of the budget: The Legislature is considering a handful of measures from the budget committees that are fast-tracked to take effect immediately if they are passed.

• Tax on health insurance plans: Senate Bill 136 and its twin bill in the Assembly would increase the state’s tax on managed care health plans, also known as the Managed Care Organization tax. Because Medi-Cal is funded with state and federal money, California can use that tax revenue to request matching federal dollars and help reduce the budget gap.
• FAFSA deadline: The Assembly is expected to consider a bill today to extend the state deadline for college financial aid applications to May 2, citing a glitch that prevents students with parents without Social Security numbers from applying. It is similar to another budget bill currently in play.

From CalMatters Capitol reporter Alexei Koseff:

With lingering uncertainty over the fate of a signature mental health proposal and the scope of the aforementioned budget deficit, Gov. Newsom has postponed his annual State of the State address.

Though it had not been announced publicly, Newsom planned to deliver the speech to a joint session of the Legislature today. Instead, his office abruptly said Friday that it was coordinating with the Legislature to set a new date for the event.

“We want to be able to discuss where California is headed including on addressing homelessness, mental health and closing the budget gap, some of the biggest issues facing our state,” a spokesperson for Newsom said in an email. “The Governor will deliver a State of the State when we have more clarity on these critical issues.”

The State of the State typically provides an opportunity for the governor to tout his latest accomplishments and his forthcoming agenda — both of which are on shaky ground at the moment.

Nearly two weeks after the March primary election, Newsom is still waiting to find out whether voters passed Proposition 1, an overhaul of mental health funding and treatment in California that the governor pushed for as part of his plan to address homelessness. It leads by the barest of margins — about 20,000 votes, or 0.2%, out of more than 7 million counted as of Saturday afternoon, Alexei writes. And today, opponents walked back their concession from last week.

Meanwhile, Republicans respond: Senate GOP leader Brian Jones, for one, isn’t happy about the speech delay, calling it “unbelievable.”

• Jones, on X (formerly Twitter): “What’s he afraid of? It’s clear he’s manipulating the timing to suit his political agenda. This blatant disrespect for the Legislature undermines trust in our government and harms all Californians.”

Last year, Newsom punted the typical State of State speech and barnstormed the state on a four-day policy tour.

Speaking of Newsom: The governor is also confronting another effort to kick him out of office by some of the same conservative activists who failed to recall him in 2021. In a response to the recall notice, Newsom touted his policies on abortion rights, climate, crime, education, gun safety, health care and homelessness — while also calling his adversaries “Trump Republicans.”

It was originally supposed to be a nondescript, mostly organizational initial meeting of California’s first-in-the-nation council to help decide workplace rules in fast food restaurants. 

But there was an unexpected guest Friday, the final day for the new council to start its work: The testy topic of “PaneraGate.”

Quick recap: The new labor-management council — plus a $20 an hour minimum wage ($4 higher than the overall minimum) for fast food workers that starts April 1 — were the linchpins of an end-of-the-session deal last year between unions and the industry. Then late last month, Bloomberg reported on links between Gov. Newsom and a major campaign contributor — and a possible exemption for bakeries from the higher wage, benefiting that donor. 

Republicans pounced, calling for a full investigation. Newsom and billionaire Panera Bread franchise owner Greg Flynn denied any wrongdoing. And the governor’s office said that bakeries weren’t exempt after all, and Flynn said he would pay the higher wage. 

At Friday’s council meeting in Oakland, the state Labor Commission’s lawyer confirmed that bakeries that use premixed dough, including Panera, do not qualify for the exemption. Only bakeries that prepare and bake bread on site and sell it as a separate menu item may qualify.

Wait, there’s more to the story: KCRA reported this month that the Service Employee International Union, which sponsored the new law that put the deal in writing, required those involved in the final negotiations to sign non-disclosure agreements. 

Friday, SEIU finally responded, calling the report a “nothingburger made of innuendo and hype” that “fails to distinguish conversations taking place between private parties and the public process by which a bill becomes law.” 

• SEIU, in a statement to KCRA: “California’s landmark law lifting 500,000 fast food workers out of poverty and strengthening their voice at work went through a full, transparent, and public process, as required by law.”

Back to the council: As CalMatters Capitol reporter Jeanne Kuang has explained, there are serious questions whether the council can reach consensus or will just be another forum for fights between workers and management. And “PaneraGate” is only one indication that the truce between unions and franchisees may be falling apart.