May 17, 2024

Governor's May Revise

On May 10, Governor Gavin Newsom released an updated budget proposal known as the “May Revision” or “May Revise”. It includes up-to-date revenue figures from income, corporate, and sales taxes as well as early action items aimed at reducing the estimated $27.6 billion deficit (which the LAO estimates at $56 billion). The difference in budget deficit estimates can be attributed to how Proposition 98 changes are accounted for in the budget. Click here to learn more.

The May Revision proposes the following program ‘cuts’ or ‘pauses’.

  • Indefinite ‘pause’ to the 200k child care slot expansion, limiting the expansion to approximately 119k slots. Plans for the remaining 81k slots remain unknown. This measure would result in savings of approximately $489 million in 2024-25 and $951 million in 2025-26. While Governor Newsom reaffirmed his commitment to fulfill the promised slot expansion after a two-year hold, we are concerned that this will turn into a permanent reduction.

  • Rescinds 27,000 slots for the General Child Development Program (CCTR), which were awarded to providers in December 2024.

  • Cuts $34.8 million or 40% ongoing from the Emergency Child Care Bridge Program for Foster Children (Bridge Program).

  • Cuts $47.1 million ongoing from the CalWORKs Home Visiting Program.

  • Cuts $126.6 million in total funding for CalWORKs mental health and substance use disorder treatment for families, effectively eliminating services.

  • Withdraws $12 billion from the Budget Stabilization Account (BSA), but spreads the withdrawal over the next two fiscal years. $3.1 billion would be drawn in FY24-25 and $8.9 would be drawn in FY25-26.

  • Sweeps the entire balance of $900 million from the Safety Net Reserve, which was originally designed to support Medi-Cal and CalWORKs during economic hardship - despite also proposing significant cuts to these programs.

  • Withdraws $5.8 billion from the Public School System Stabilization Account (PSSSA) in 2023-24 and $2.6 billion in 2024-25.

  • Projects an end-of-year remaining balance of $3.4 billion in the Special Fund for Economic Uncertainties (SFEU).

Trailer Bill Language (TBL)

The May Revision also includes:

  • Delaying the planned expansion of the California Food Assistance program to adults age 55 and over, regardless of immigration status.

  • Making changes to the Managed Care Organization (MCO) tax, generating an additional General Fund savings of $689.9 million in 2024-25, $950 million in 2025-26, and $1.3 billion in 2026-27. This would eliminate the targeted rate increases and investments for Medi-cal providers proposed in the January Budget.

  • Reducing the Healthcare Workforce General Fund expenditures of $300.9 million in 2023-24, $302.7 million in 2024-25, $216 million in 2025-26, $19 million in 2026-27, and $16 million in 2027-28 for health workforce initiatives adopted in the 2022 Budget Act. This would cut crucial investments in the healthcare workforce and further perpetuate public health gaps.

  • Sweeping the remaining balances from the Multifamily Housing Program (MGP) and the Foreclosure Intervention Housing Preservation Program (FHIPP), while maintaining $1.2 billion in cuts to affordable housing funding.

  • Discontinuing a sixth round of funding for the Homeless Housing and Assistance Program (HHAP), a crucial lifeline for local communities. It would also cut $260 million in supplemental HHAP funding which was previously slated for delay only.

The proposed May Revision makes numerous cuts to vital safety net programs that support Californian families and children and which disproportionately impact black and brown communities and immigrants. We urge the Governor to instead explore alternative budget solutions that increase state revenue and create long-term savings.

Alternative Budget Solutions Could Include:

  • Ending wasteful tax cuts to increase state revenue, reducing the need to cut vital programs. California is currently estimated to lose nearly $70 billion annually through personal and corporate income tax breaks.

  • Utilizing reserves designed for budget deficits. The Governor’s current proposal only draws $3 billion from the State’s Rainy Day Fund rather than the $12 billion proposed in the January Budget. This conservative approach forces deeper cuts to vital safety net programs.

  • Creating long-term savings through prison closures. The Legislative Analyst’s Office estimates $1 billion in ongoing savings upon the closure of just 5 State prisons. The May Revision currently proposes to close 15-20k specific housing units, but makes no concrete plans to close any prisons.

Budget Process Next Steps:

  • The ASM and SEN released a proposed joint legislative budget plan on May 29, ahead of scheduled budget committee hearings on May 30. You can read the summaries here and here. The budget plan will facilitate the passage of the legislative Budget Bill or Budget Act which is constitutionally required on or before Sunday, June 15. Note: The Budget Act must be published on the California Legislative Information website by June 12 to meet the 72-hour bill-in-print requirement.

  • The Governor will then have until Thursday, June 27 to sign or veto the legislative Budget Bill.

  • In late June, proposed trailer bills will be passed to further amend the Budget Bill before the 2024-25 fiscal year begins on Monday, July 1.

  • Legislation almost always returns in August for further budget amendments and to clean up the final Budget Bill.

______________________________________________________________________________

Human Services

An indefinite “pause” to the planned expansion of over 200k new subsidized child care slots, limiting the expansion to approximately 119k slots. Plans for the remaining 81k slots remain unknown. This measure would result in savings of approximately $489 million in 2024-25 and $951 million in 2025-26. These slots are desperately needed in order to address ongoing gaps in child care access and affordability. In 2022, only 1 in 9 eligible children in California actually received child care services due to a lack of spaces.

Cuts 27,000 General Child Development Program (CCTR) spaces due to “under-utilization” of program funds. Click here to view the LAO’s April summary of the CCTR funding proposals. According to CDSS, these cuts will not affect FY2023-24 grant recipients. However, this year’s grant recipients received a “tentative” award letter specifying that final allocations would be “subject to appropriations”.

Includes Trailer Bill Language (TBL) on Information Sharing for Small Family Child Care Homes (FCCHs), which removes the state confidentiality clause that currently prohibits identifying information like names or addresses from being posted on sits like MyChildCarePlan.org.

Makes several cuts to CalWORKs including $47.1 million in ongoing reductions to the CalWORKs Home Visiting Program and the permanent elimination of $126.6 million in total for mental health and substance use disorder treatment for families.

Delays the planned expansion of the California Food Assistance Program to adults age 55 and over regardless of immigration status to 2027-28. This would result in approximately $30 million in savings for 2024-25 and $114 million in 2025-26. This further perpetuates long standing inequities for noncitizens, 45% of whom face food insecurity.

Health

Makes changes to the Managed Care Organization (MCO) tax which would generate additional General Fund savings of $689.9 million in 2024-25, $950 million in 2025-26, and $1.3 billion in 2026-27. Would also eliminate the targeted rate increases and investments for Medi-cal providers proposed in the January Budget.

Reduces the Healthcare Workforce General Fund expenditures of $300.9 million in 2023-24, $302.7 million in 2024-25, $216 million in 2025-26, $19 million in 2026-27, and $16 million in 2027-28 for various health workforce initiatives adopted in the 2022 Budget Act. This cuts crucial investments in the healthcare workforce, further perpetuating public health gaps that were exposed during Covid-19.

Housing

Sweeps the remaining balances from several programs including the Multifamily Housing Program (MGP) and the Foreclosure Intervention Housing Preservation Program (FHIPP) as well as maintains $1.2 billion in cuts to affordable housing funding.

Stops a sixth round of funding for the Homeless Housing and Assistance Program (H

HAP), a crucial lifeline for local communities. It also cuts $260 million in supplemental HHAP funding which was previously slated for delay only.

Education

Allows schools to keep $8.8 billion of cash disbursements above the minimum requirement for FY2022-23. Also known as the “Prop 98 maneuver,” this re-classification of funds attempts to address the decline in Prop 98 funding for FY22-23. The maneuver shifts the $8.8 billion to a later fiscal year which would then be paid for with other, non-prop 98 funds. This maneuver puts the State at further risk of needing to cut vital safety net programs. Click here to read LAO’s in-depth summary of the Proposition 98 Funding Maneuver.

Click here for a full summary of proposed cuts visit:

______________________________________________________________________________

Conclusion

The proposed May Revision makes numerous cuts to vital safety net programs that support Californian families and children and which disproportionately impact black and brown communities and immigrants. We urge the Governor to instead explore alternative budget solutions that increase state revenue and create long-term savings. These include:

Permanently End Wasteful Tax Cuts

California currently loses nearly $70 billion annually through personal and corporate income tax breaks which disproportionately benefit higher-income households and businesses. By ending wasteful tax cuts, the State could increase its revenue, reducing the need to make cuts to its most crucial social programs and services.

While the May Revision includes Trailer Bill Language to temporarily suspend the use of Net Operating Losses (NOL) tax break for businesses, this is a temporary measure which automatically resumes under specific conditions. Long-term solutions are needed in order to address future budget shortfalls and to protect the program/services that support our highest needs families and children.

Fully Utilize Reserves That are Designed for Budget Deficits

The Governor’s current proposal only draws $3 billion from the State’s Rainy Day Fund in FY24-25 and another $9 billion in FY25-26, rather than the $12 billion proposed in his January Budget. This conservative use of Rainy Day Funds forces other, deeper cuts to vital safety net programs rather than utilizing a resource created to support the State during a deficit.

Create Long-Term Savings

The Legislative Analyst’s Office estimates $1 billion in ongoing savings upon the close of 5 State prisons. The May Revision currently proposes to close 15-20k specific housing units but makes no concrete plans to close any prisons. Underutilized state resources such as prisons is a significant source of State savings that would prevent cuts to social safety net programs/services. We encourage the Governor to explore these alternative options.