Health care, housing, schools and environmental programs will jockey for lawmakers’ attention — and state money — as they face the prospect of plugging a $68 billion hole in the budget this year. Legislative budget analysts have identified $10 billion in cuts in one-time spending and dipping into $24 billion in reserves.
Assemblymember Jesse Gabriel, an Encino Democrat who just took over as chairperson of the budget committee, said the deficit is likely to impact everything the Legislature does this year.
“It’s going to require us to make some tough choices. But that’s what that’s what government is about — making tough choices,” he told CalMatters. “Our top priority is going to be to protect vulnerable communities.”
That includes social services and classroom funding, as well as protecting recent investments in climate and homelessness programs, he said.
Senate Budget Chairperson Nancy Skinner, an Oakland Democrat, said her goal is to avoid cuts that “will create harm for people,” and instead modify new programs that haven’t started yet. Delaying planned new spending was one of the strategies the state employed to close a more than $30 billion deficit last year; it’s unclear whether that will be enough this year.
Gov. Gavin Newsom will help frame the debate when he unveils his initial budget proposal next week. He rebuffed a Dec. 14 call from Assembly Republicans to call a special session focused on the budget deficit, or to take further actions other than some spending freezes. His Department of Finance spokesperson H.D. Palmer declined to comment.
The deficit is partly a consequence of California’s progressive tax system that relies heavily on the incomes and capital gains of very wealthy residents — producing revenues that infamously seesaw alongside the booms and busts of the stock market.
When the incomes of the rich soared amid low interest rates during the pandemic, taxes on their earnings and federal COVID-19 aid filled the state’s coffers with a nearly $100 billion surplus. Then interest rate hikes slowed down the housing market and investments in the tech sector. That, combined with delayed tax filings caused by last year’s winter storms, has prompted revenues now to come in short.
This year’s projection by the nonpartisan Legislative Analyst’s Office is the state’s largest deficit to date, though not by its percentage of the overall budget. And the state is in better shape to handle it than during the Great Recession, having put billions of dollars into reserves since then.
But the situation is likely to prompt some discussion of whether to stabilize the state’s revenue sources. In the past, proposals to bring in revenue through taxing business services have been seen as too politically unpopular.
“We need structural tax reform,” Sen. Scott Wiener, a San Francisco Democrat, wrote on social media Tuesday. “We need to broaden out our tax base to make it more stable.”
Wiener, through a spokesperson, declined to comment on whether he will introduce legislation to do so.
Gabriel added that he would consider all the options for addressing the shortfall, although he hadn’t heard any serious conversations around raising taxes.
Budget cuts are also likely to pit parts of the Legislature’s Democratic supermajority — and the interest groups they represent that rely on state funding — against each other. For some Republicans, it’s already an opportunity to float cuts to programs they oppose.
Assemblymember Bill Essayli, a Riverside Republican, introduced a bill today to roll back funding for California’s expansion of Medi-Cal to low-income undocumented immigrants, citing the deficit.
The expansionwent into its final phase (immigrants aged 26-49) this month at a cost of $1.2 billion this year, estimated to grow to nearly $3 billion in the upcoming fiscal year. California years ago expanded Medi-Cal coverage for undocumented children and last year did so for seniors; Essayli’s bill would cut “all taxpayer funding” for the program’s coverage of undocumented immigrants. Newsom, though, told reporters in southern California that he’s “committed” to the expansion.
Health spending is also expected to rise with the introduction of phased minimum wage hikes for health care workers, prompting the state to pick up some of the increases for workers in the University of California and state hospital systems, as well as increased costs in public health care.
But there’s far more than the budget before lawmakers. Some other pressing issues:
Israel-Hamas war: While the state’s role is limited, some lawmakers have either willingly stepped into the conversation, while others face pressure from constituents to address their concerns, whether that’s advocating for the release of hostages still held by Hamas, or calling for a ceasefire. Shortly after the Assembly gaveled in, dozens of protesters from Jewish Voice for Peace and IfNotNow began singing in support of a ceasefire in Gaza. Calling the action “out of order,” lawmakers quickly called a recess, emptied the chamber and adjourned soon after until Thursday. Outside in the rotunda, more than 100 protesters chanted, citing a national activist group’s calculation that California taxpayers contribute about $600 million to U.S. military aid to Israel, and calling for the money to be put toward state priorities instead.
Retail theft: Assembymember Carlos Villapudua, a Stockton Democrat, introduced a referendum to revise the much-debated Proposition 47. He said his proposal would fix “unintended outcomes” of the measure approved by voters in 2014. Specifically, it would change the $950 threshold for petty theft and shoplifting to be charged as a felony, which he said has “fueled a market of petty and repeat offenses with zero-to-low accountability.” Assembly Speaker Robert Rivas already created a special committee to look into retail theft, but the Legislature has rejected GOP moves to repeal Prop. 47 altogether. Politicians in recent years have seized on rising voter concerns of theft, though late last year a national retail group retracted an oft-cited claim about how much stores had lost from “organized” shoplifting.
Reparations: Last year, a state task force released a final report tallying up for the Legislature what it would take to offer reparations to Black Californians descended from enslaved people. Lawmakers are now expected to introduce bills to make those recommendations actually happen. Sen. Steven Bradford, an Inglewood Democrat, already filed one last year to create a new state agency to administer reparations. But it won’t be an easy road ahead, despite the backing of Democratic lawmakers and Newsom to create the task force. The report put an $800 billion price tag — two and a half times this year’s state budget — on compensating eligible Black residents for the enduring harms of discrimination in areas like policing and housing. So far most lawmakers and Newsom have demurred on supporting the recommendations.
Artificial intelligence: More proposals are expected to address rising concerns about artificial intelligence and its applications, including in campaigns and elections. Legislators will consider bills to create a new regulatory framework for AI systems and to give entertainment artists some authority to nullify contracts over the use of their “digital replicas.” Today, Chula Vista Democratic Sen. Steve Padilla introduced a bill to “establish safety, privacy, and nondiscrimination standards” for any AI companies with state contracts. A law passed last year requires the state’s department of technology to create a “comprehensive inventory” of “high-risk automated decision systems” by September.
Wildfire insurance: Legislators failed to fix the home insurance market before adjourning last year’s session, after several major insurance companies decided to stop selling new homeowner policies. The state’s Department of Insurance is working on new regulations, but such rules may not be enacted until 2026.
Maternity wards: Citing CalMatters’ reporting about the alarming rate at which California maternity wards are shutting down, Assemblymember Akilah Weber, a La Mesa Democrat, is introducing a measure for additional state review, including how a closure would impact the nearby community.
The Oregon Capital Chronicle is a professional, nonprofit news organization. We are an affiliate of States Newsroom, a national 501(c)(3) nonprofit supported by grants and a coalition of donors and readers. The Capital Chronicle retains full editorial independence, meaning decisions about news and coverage are made by Oregonians for Oregonians.
