CA Governor Releases State Budget Updates Amid $32 Billion Shortfall
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CA Governor Releases State Budget Updates Amid $32 Billion Shortfall

Brownstein Client Alert, May 15, 2023

On Friday, May 12, California Gov. Gavin Newsom held a press conference to present the May Revise to the 2023-24 state budget proposal. This budget updates the governor's January budget announcement by demonstrating a continued commitment to education, protecting the environment and maintaining billions of dollars in needed infrastructure. Gov. Newsom started the press conference by acknowledging the uncertainty in the California tax structure, noting that "roughly one-half of the state's income tax revenue comes from one percent of the population."

The governor's May Revise projects an additional $9.3 billion budget shortfall, bringing the total deficit to approximately $32 billion. The governor expressed confidence in his proposed solution to address the shortfall; however, he also noted the growing uncertainties facing the California economy, such as the federal debt ceiling impasse, higher interest rates, uncertainty of financial institutions, delayed tax receipts from the federal government and a potential recession. These uncertainties make it difficult to predict the future of California's economy. That said, the governor noted the importance of continuing to invest in the state's reserves and announced that the May Revise includes an additional $1.6 billion investment into the state's reserve, resulting in a total investment of $37.2 billion (the largest in the state's history). Gov. Newsom also highlighted that the May ReviseRevise includes an additional $400 million investment to pay down the state's retirement liabilities.

Gov. Newsom noted that preserving investments in education, homelessness, housing, healthcare/mental health, climate, public safety and jobs is foundational to the state's budget. Below is an overview of the significant changes and additional investments in the governor's May Revise budget announcement:

  • Transforming Public Education
    • January budget:
      • $23,723: total per pupil
      • $17,518: Proposition 98 per pupil
    • May Revise:
      • $23,706: - total per pupil
      • $17,444: - Proposition 98 per pupil
  • Continued Investments into Public Education
    • $5.4 billon: Learning recovery and pandemic learning loss mitigation
    • $4.3 billion: Children and youth behavioral health
    • $4 billion: Community schools
    • $3.5 billion: Special Education
    • $3 billion: Educator workforce
    • $2.7 billion: Arts, music, and instructional materials discretionary block grant
      • $933 million included from Prop 28
    • $1.6 billion: Universal school meals
    • $953 million: Transitional Kindergarten
      • $2.6 billion when fully implemented
    • $300 million: Equity multiplier
  • Higher Education - University of California & California State University
    • University of California: $323 million ongoing funding
      • $216 million: 5% base increase
      • $70 million: debt service
      • $30 million: increased resident enrollment
    • California State University: $318 million ongoing funding
      • $227 million: 5% base increase
      • $91 million: debt service
  • Investment in Debt-Free College
    • $4 billion: Student housing
    • $2.3 billion ONGOING: Financial aid - CalGrant
    • $1.9 billion: Child college savings accounts
    • $859 million: Middle class scholarships
    • $293 million: College corps
    • $115 million: Zero cost textbook
  • Homelessness - $15.3 billion Homeless Package
    • $3 billion: Flexible aid to local governments - accountability
    • $3 billion: Homekey
    • $2.2 billion: Behavioral health continuum infrastructure
    • $1.5 billion: Behavioral health bridge housing
    • $860 million: Community care expansion
    • $750 million: Encampment clean ups
    • $262 million: Project Roomkey
  • Housing
    • Noted the state has invested over $30 billion in housing programs since 2019
    • 5 million UNITS: statewide goal
      • 1 million affordable housing
  • Healthcare:
    • $10.7 billion: CalAIM
    • $8 billion: Increased behavioral health services and housing
    • $54.8 billion: Universal access to health care regardless of immigration status
    • $291 million: CARE Court on-going costs
    • $200+ million: Reproductive health care
    • $130 million: Launched CalRx/insulin/naloxone
  • Climate Commitment - $48 billion total
    • $11.6 billion: Clean transportation
    • $8.8 billion: Zero emission vehicles
    • $4.1 billion: Climate resilience
    • $2.7 billion: Wildfire and forest resilience
    • $4.5 billion: Other climate investments
  • Water Resilience - $8.5 billion total
    • $4.6 billion: drinking water, flood, water supply reliability
    • $1.9 billion: habitat and watersheds
    • $1.5 billion: drought support
    • $96 million: conservation/agriculture
  • Flood Protection - $492 million total ($290 million NEW in May Revise)
    • $125 million: flood contingency - funding shifted from draught
    • $75 million: flood control subventions
    • $40 million: San Joaquin floodplain investment
    • $25 million: small agriculture business relief
    • $25 million: unanticipated emergency needs
  • Public Safety
    • Over $800 million: public safety plan
      • Victim services
      • Officer wellness and training
      • Non-profit security
      • Combating fentanyl
  • Opioids and Fentanyl - $269 million
    • $251 million: Naloxone distribution project
      • $172 million: NEW in May Revise
      • $79 million: January
    • $10 million: grants for education, testing recovery and support services
    • $4 million: make test strips more available.
    • $3.5 million: overdose medication for schools
  • Economic and Job Development
    • $4.2 billion: small business relief grants
    • $1.7 billion film tax credits (over five years)
    • $2.1 billion: workforce development
    • $2 billion: child care expansion
    • $1.1 billion: small business credit initiative
    • $168 million: business creation and job growth
    • $110 million: travel and tourism
    • $120 million: CalCompetes
  • Rural and Industrial Economic Plan
    • $600 million: community economic resilience fund
    • $300 million: local sustainability fund - Fresno revitalization
    • $100 million: agricultural business grants
    • $60 million: oil and gas worker skill building

A complete summary of the May Revise is available here

After the lengthy presentation, Gov. Newsom took several questions from reporters about concerns with the budget, fear of California creating an unsustainable welfare state and immigration. The governor defended his budget, emphasized that the May Revise has necessary safeguards to protect against future uncertainties, and highlighted that this budget reflects California's progressive state and demands. 

Click here for a more detailed breakdown of Gov. Newsom's revised May state budget.

Click here for a video of the press conference.

This document is intended to provide you with general information regarding California Gov. Gavin Newsom's May Revision to the state budget. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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