California’s poverty rate has increased significantly, with disproportionate impacts on Black and Latinx residents. This alarming trend highlights the urgent need for federal and state policymakers to implement robust anti-poverty measures, such as strengthening the Child Tax Credit, Earned Income Tax Credit, and SNAP program.
California’s poverty rate increased to 18.9% in 2023, up from 16.4% in 2022 and 11.0% in 2021, according to new Census data. The state’s poverty rate was particularly high among Black and Latinx Californians and California continued to have the highest poverty rate of the 50 states.
California’s high poverty rate means that 7.3 million state residents lacked the resources to meet basic needs last year — more than the populations of California’s four largest cities: Los Angeles, San Diego, San Jose, and San Francisco. In sharp contrast, the incomes of the richest 1% of state residents continued to substantially exceed the incomes of most Californians. The average income of the top 1% of California households was $1.2 million in 2023 — 67 times the average income of households in the bottom 20% and 14 times the median household income.
These figures point to the need for federal and state leaders to take urgent action to ensure that all Californians have the resources to thrive, and recent experience proves that policymakers can achieve this vision. Bold investments in the federal Child Tax Credit (CTC) and other economic security-promoting policies during the pandemic brought about a historic drop in poverty in 2021. When Congress allowed these effective policies to expire, that progress was reversed the following year, causing the largest increase in the national poverty rate in 50 years.
With Congress poised to pass a substantial tax package in 2025, federal policymakers should prioritize strengthening and expanding two of the most effective anti-poverty policies: the federal CTC and Earned Income Tax Credit (EITC). Additionally, federal leaders should strengthen SNAP nutrition assistance (CalFresh in California), which plays a critical role in reducing poverty and poverty-related hunger. California policymakers can also cut poverty by strengthening state tax credits and the safety net, and ensuring that all Californians — regardless of immigration status — have access to affordable housing, nutrition assistance, health coverage, and good jobs.
Poverty Rates in California Are at the Highest in Years
California’s poverty rate, as measured by the Census Bureau’s Supplemental Poverty Measure — a more comprehensive reflection of economic well-being than the Census’ Official Poverty Measure — increased two and one-half percentage points to 18.9% between 2022 and 2023.1SPM thresholds rose 8.6 percent in 2023 for renters, which is notably higher than the 4.1 percent inflation rate from 2023. This difference reflects that prices rose faster for some household items (mainly rent) than average inflation for the full range of household items. Some researchers prefer to use “anchored SPM thresholds” given that SPM thresholds are higher than inflation. Given California’s high cost of housing (among other costly household needs), the Budget Center maintains the SPM thresholds provided by the Census Bureau. The 2023 poverty rate is also higher than the pre-pandemic rate of 16.6% in 2019.
This is the second year the poverty rate has significantly increased, after the expiration of many pandemic-era policies put in place to reduce economic hardships many Americans experienced as a result of COVID-19. These include federal supports such as the expanded Child Tax Credit, the expanded Earned Income Tax Credit for childless workers, and enhanced unemployment benefits — all of which ended in 2021. Additionally, Supplemental Nutrition Assistance Program (CalFresh in California) emergency allotments, which temporarily increased nutrition benefits, ended in early 2023.
California’s labor market also fared worse in 2023 than nationally, with the state’s unemployment rate increasing and inflation-adjusted hourly wages for low-wage workers decreasing in California.
Poverty Rose Across Children, Adults, and Older Adults
While poverty rose across all age groups, rates vary among children, adults, and older adults, notably:
Poverty remains high for older adults in California.
As displayed in the chart above, poverty is highest for adults ages 65 and older, at 20.6%. This trend is consistent with national poverty data by age group and is largely due to higher out-of-pocket medical expenses for older adults.
Child poverty remains high at 19.2%, reflecting the sunset of the expanded federal child tax credit.
Child poverty has risen since 2022 and is even higher than the 2019 rate.2The increase is not statistically significant at the 95% confidence level. In general, the poverty rate is higher for children than for adults given the costs associated with raising children (such as child care) and the low wages for parents and caregivers, particularly women and women of color. Additionally, at the national level, the expanded federal CTC kept 2.9 million children out of poverty in 2021. With its expiration in 2022, we know that more children in California have fallen into poverty.
Poverty rates for adults are significantly higher in 2023, as compared with 2022.
Poverty is on the rise for the largest age group in California. Specifically, poverty for Californians ages 18 to 64 rose from 15.7% in 2022 to 18.4% in 2023.
Poverty Increased for All, Californians of Color Face Greater Hardship
Poverty increased for all racial and ethnic groups in California in 2023. However, poverty rates are more pronounced among Californians of color, highlighting deep-rooted inequities that are a direct consequence of historic and ongoing racism.
Most notably, the rise in poverty was sharpest for American Indian, Alaska Native, Native Hawaiian, Pacific Islander, and multiracial Californians (noted as “Other Californians of Color” in the chart above). Specifically, the poverty rate for this group collectively surged from 8.4% in 2022 to 13.6% in 2023. This significant and alarming increase underscores the unique challenges that these communities face, such as historic marginalization, systematic displacement, and limited access to targeted resources.
Poverty also remains disproportionately high for Latinx and Black Californians at 25% and 22.3%, respectively. Both groups saw an increase of about 4 percentage points from 2022 to 2023. These higher poverty rates reflect how centuries of discriminatory policies and systemic racism — such as redlining, wage discrimination, and chronic underinvestment in communities of color — continue to prevent Black and brown Californians from accessing the same economic opportunities as white people.
The persistence of higher poverty rates for Californians of color is not accidental. Structural racism is the result of policymakers and other individuals with power successfully implementing policies and actions that block people of color from opportunity, many of which are rooted in racism.
Income Inequality Remains Stark in California
In addition to information on poverty, the Census data also sheds light on the incredible magnitude of income inequality in California. In 2023, the richest 5% of California households had an average income of $662,792 and the richest 1% had $1,208,478 on average.3The variable used to estimate household income is the sum of individual top-coded income variables, therefore the total may be underestimated for households at the top of the income distribution. Income reported to the Census Bureau may differ from income reported to the Franchise Tax Board due to underreporting, differences in the composition of households versus tax units, and the exclusion of capital gains income from the Census data. The average income of the top 1% of Californians is 14 times the $89,300 median California household income and 67 times the average income for the bottom 20% of Californians, which stood at a woefully inadequate level of $18,170. For reference, a single adult needs an annual income of more than $56,000 to afford typical expenses in California, and a single parent with one child needs an income of nearly $100,000.
Notably, the Census income data does not include capital gains — income from the sale of assets like stock shares and real estate — which make up a significant portion of income for wealthy households. Therefore, the Census figures for the top 5% and top 1% of Californians understate their total income. Tax data, which do take into account capital gains income, demonstrate the high level of income concentration in the state, with the top 1% of Californians generally receiving around one-fifth to one-quarter of total income over the past several decades.
Policymakers Can Cut Poverty and Create a California for All
High poverty following the end of major pandemic-era investments proved that policymakers play a significant role in determining the economic well-being of all people. This means they can reverse the spike in poverty by investing in policies that help families and individuals meet basic needs and thrive in their communities.
Significantly expanding the federal Child Tax Credit (CTC).
Federal tax policies enacted in 2017 are slated to expire in 2026, including the doubling of the federal CTC from $1,000 to $2,000 per child. This presents an opportunity for federal policymakers to strengthen the federal CTC to maximize its poverty-fighting power. The expanded federal CTC that was in place for one year during the pandemic cut child poverty by more than 40% in California, proving the effectiveness of this policy.
Improve the federal Earned Income Tax Credit (EITC).
This is particularly for low-paid adults who are not supporting children in their homes and who consequently get limited assistance from other public supports. The significant increase and expansion of the federal EITC to young childless workers for one year during the pandemic reduced material hardship among young adults and cut poverty, particularly among young Latinx workers ages 18 to 24. The credit was also expanded to childless adults age 65 or older for one year in recognition that a larger share are working today than did when the credit was established.
Strengthening SNAP nutrition assistance (CalFresh in California).
This includes improving benefit adequacy, ending harsh and arbitrary time limits that prevent certain individuals from accessing the nutrition and health benefits of the program, and ensuring equitable college student access.
Approve federal emergency child care funding.
This is a request submitted to Congress by the Biden Administration. At the end of September 2023, federal pandemic-related funding for child care expired. This has led to a “child care cliff” across several states that has exacerbated challenges for families with finding affordable child care and for providers with making a living wage. If approved, this $16 billion request would equate to $1.5 billion additional dollars in California to support families and providers with making ends meet.
California policymakers can also do more to cut poverty across the state, including by:
Increasing California’s Earned Income Tax Credit (CalEITC) and expanding the state’s Young Child Tax Credit (YCTC).
Raising the CalEITC to provide a more meaningful credit would help millions of low-paid workers in California, the majority of whom are excluded from the federal EITC and need a strong state credit to help make ends meet. Additionally, extending the YCTC to low-paid families supporting older children — not just those ages 0 to 5 — would help boost the incomes of families with very low incomes who are currently excluded from the full federal CTC.
Strengthening vital supports that improve families’ economic well-being.
This includes increasing the minimum CalFresh nutrition benefit and reimagining CalWORKs to be anti-racist, trauma-informed, and empower parents to build real pathways out of poverty.
Ensuring that all Californians, regardless of immigration status, can benefit from supports.
Investing in affordable housing and homelessness response services.
Over half of California renters pay unaffordable housing costs, exacerbating economic hardship and severe housing insecurity. Boosting programs that support both affordable housing development and effective homelessness intervention services is critical to ensuring Californians can afford their homes and quickly prevent or exit homelessness.
Ensuring good jobs for all.
Recent efforts to boost the pay of fast food workers and health care workers will go a long way toward helping Californians meet basic needs, but more is needed. State leaders can build on this progress by continuing to raise wages across industries to reflect living costs, bolstering workers’ collective bargaining power to determine their own pay and working conditions, and supporting policies that address persistent inequities in pay and benefits by race, ethnicity, immigration status, gender, and LGBTQ+ status.
Improving access to Medi-Cal.
Despite being eligible, many Californians lose vital Medi-Cal coverage due to complex paperwork and difficulty reaching county offices. Streamlining the renewal process and improving accessibility are crucial to prevent poverty and promote economic stability. Without health coverage, individuals may face high health care costs or medical debt, increasing their risk of falling into poverty. Ongoing health coverage helps lower out-of-pocket expenses and ensures access to preventive care, while supporting workforce participation and continued education, both of which are vital for long-term financial security.
SPM thresholds rose 8.6 percent in 2023 for renters, which is notably higher than the 4.1 percent inflation rate from 2023. This difference reflects that prices rose faster for some household items (mainly rent) than average inflation for the full range of household items. Some researchers prefer to use “anchored SPM thresholds” given that SPM thresholds are higher than inflation. Given California’s high cost of housing (among other costly household needs), the Budget Center maintains the SPM thresholds provided by the Census Bureau.
2
The increase is not statistically significant at the 95% confidence level.
3
The variable used to estimate household income is the sum of individual top-coded income variables, therefore the total may be underestimated for households at the top of the income distribution. Income reported to the Census Bureau may differ from income reported to the Franchise Tax Board due to underreporting, differences in the composition of households versus tax units, and the exclusion of capital gains income from the Census data.
You may also be interested in the following resources:
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
key takeaway
California voters will decide on November 5th, 2024 whether to pass Proposition 35, which would 1) require the state to request federal approval for the Managed Care Organization tax on an ongoing basis and 2) allocate those dollars for certain health care investments.
Access to health care is essential for everyone to be healthy and thrive. In California, Medi-Cal, the state’s Medicaid program, provides free or low-cost health care to over one-third of the state’s population. Medi-Cal covers a wide range of services to Californians with modest incomes, and many children, seniors, people with disabilities, and pregnant individuals rely on it. About half of Medi-Cal beneficiaries are Latinx, highlighting Medi-Cal’s role in promoting health equity.
California’s shortage of health care workers undermines the availability and quality of care for communities across the state. When people can’t find a provider in their area or experience long wait times for appointments, they don’t have meaningful access to health care. Enrolling in Medi-Cal and navigating the health care system can also be difficult, underscoring the need to invest in outreach and enrollment supports. While state policymakers have made considerable investments in recent years to bolster the health care workforce, more progress is needed.
what is health equity?
When everyone has the opportunity to be as healthy as possible and no one is disadvantaged from achieving this because of their race, gender identity, sexual orientation, the neighborhood they live in, or any other socially defined circumstance.
This year, policymakers had to make challenging decisions about health care investments due to the state’s recent budget shortfall and resistance from some state leaders to raise ongoing revenues. This has led to debates over the allocation of revenue from the state’s recently approved Managed Care Organization (MCO) tax. In response, many representatives of the health care industry have proposed Proposition 35, which would:
Require the state to request federal approval for the MCO tax on an ongoing basis.
Allocate MCO tax revenue for certain health care investments.
There are merits to having dedicated funding to invest in the state’s health care system. However, this approach would reduce flexibility in the state budget and could negatively affect available funding for other key services that improve the lives of Californians. This Q&A provides a high-level overview of Prop. 35, including how Californians with low incomes might be impacted by its passage as well as implications for the state budget.
Managed Care Organizations (MCOs), also known as health insurance plans, are responsible for managing health care services as a way to control costs, utilization, and quality of care. Anthem Blue Shield and Kaiser Permanente are two examples of MCOs in California. These health insurance plans oversee the health care benefits that people receive, often requiring prior authorization or referrals to ensure that people receive appropriate and cost-effective care.
MCOs manage health care services for people with private health insurance as well as Medi-Cal enrollees. They contract with Medi-Cal to receive payments based on the number of Medi-Cal recipients they serve. Medi-Cal is a joint federal-state program, with the federal government covering part of the cost and the state covering the rest.
Federal law allows states to impose a tax on MCOs and other health-related services to help cover the state share of Medicaid health care costs, but states must comply with federal regulations and receive federal approval for these taxes. Eighteen states reported having an MCO tax in place during the 2023 state fiscal year.
California’s MCO tax is a charge based on enrollment in Medi-Cal managed care plans and private health insurance plans. The MCO tax is distinct from other types of state taxes in that the primary state fiscal benefit comes from the additional federal dollars drawn down as a result of the tax. MCOs bear very little of the cost, as they receive Medi-Cal payments from state and federal funds that offset the portion of the tax levied on Medi-Cal enrollment. By drawing down additional federal funding, the MCO tax frees up state General Fund dollars that would otherwise have been used to support existing Medi-Cal services.
California’s MCO tax was most recently approved in December 2023, and it will expire at the end of 2026 unless it is renewed again. However, state leaders are seeking additional changes to the MCO tax structure to draw down more federal funding. These changes are still pending federal approval. The state is expected to receive net revenues of $7 billion to $8 billion annually while the tax is in effect, assuming the federal government approves recent changes. Essentially, the net revenues are the additional federal funds the state is able to draw down minus the cost of the state’s portion of payments to MCOs to offset the cost of the tax. Under the enacted 2024-25 budget, most of that revenue will be used to offset state General Fund spending on existing Medi-Cal services, with a smaller portion going to increased provider rates and augmentations.
How do policymakers currently plan to use MCO tax dollars?
Policymakers outlined a plan — which Prop. 35 would overturn — to use revenue from the MCO tax in the 2024-25 budget package, with the majority of dollars allocated to offset General Fund spending on Medi-Cal and maintain existing services in the program. Assuming that the federal government approves the changes to the MCO tax that state leaders are seeking, the budget includes the following MCO tax dollars to sustain existing services in Medi-Cal:
$6.9 billion in 2024-25
$6.6 billion in 2025-26
$5.0 billion in 2026-27
Policymakers also allocated funding from the MCO tax for new targeted Medi-Cal provider rate increases as well as other investments. These budget allocations include:
$133 million in 2024-25
$728 million in 2025-26
$1.2 billion in 2026-27
The rate increases from the current MCO tax spending plan are intended to build on investments that policymakers made in previous years. As shown below, the majority of funds for rate increases that will go into effect on January 1, 2025 will support emergency department physician services, abortion care and family planning, and ground emergency medical transportation.
The current MCO tax spending plan also includes additional rate increases and investments that would take effect on January 1, 2026, with the vast majority of dollars allocated to physician and non-physician professionals (e.g., physician assistants, nurse practitioners and certified nurse midwives).
Policymakers also allocated $40 million one-time MCO tax dollars in 2026-27 to strengthen and support the development and retention of the Medi-Cal workforce. This amount reflects a decrease in health care workforce investments that state leaders made in the past. More substantial and sustained investments are necessary to build a health care workforce that can better meet the needs of Californians.
This MCO tax spending plan would be overturned if voters approve Prop. 35.
How does Prop. 35 differ from the current MCO tax plan?
Prop. 35 proposes a major shift to how state policymakers have used MCO tax revenue to essentially reduce, or offset, General Fund spending on Medi-Cal. If passed, Prop. 35 would overturn the current MCO tax spending plan that policymakers agreed upon in the 2024-25 budget.
Prop. 35 would require the California Department of Health Care Services to request federal approval for the MCO tax on an ongoing basis in an attempt to make this funding stream more permanent. Federal approval is required for the state to levy health care taxes that draw down additional federal dollars.
While Prop. 35 provides some flexibility for the state to structure future versions of MCO tax proposals to comply with federal regulations and ensure federal approval, it does set limits to the tax on commercial enrollment. This limitation could affect the state's ability to secure future approval for a tax that generates the same level of revenue as the current tax. The measure also specifies that the MCO tax would not go into effect if the state does not receive federal approval and federal funding in the future.
Additionally, Prop. 35 would establish rules for how MCO tax revenue would be spent in the short term (2025 and 2026) and long term (2027 and beyond). The key difference is that policymakers would no longer be able to use the bulk of the dollars to offset General Fund spending in Medi-Cal. Another notable difference is that Prop. 35 would require funds to be spent by the end of each calendar year or fiscal year, beginning 2027. Currently, policymakers have the flexibility to save funds for future years to help cover costs if the MCO tax is not approved in the future.
If passed, funds would first cover a portion of MCOs’ cost of the tax as well as administrative costs.
For calendar years 2025 and 2026, $2 billion would be used to offset General Fund spending in Medi-Cal. Specifically, this amount would cover a portion of the non-federal share of Medi-Cal managed care rates for health care services for children, adults, seniors, and people with disabilities. This represents the majority of funds (about 43%), as shown below. MCO tax revenue would also support health workforce initiatives, including primary care, specialty care, and emergency care.
For calendar year 2027 and beyond, Prop. 35 would allocate revenue from the MCO tax differently. After covering a portion of MCOs’ cost of the tax as well as administrative costs, the next $4.3 billion collected from the tax would be allocated for specific purposes. The majority of funds (44%) would support access to primary care and specialty care. Specifically, it would increase reimbursement rates for primary care services and increase the number of specialty care service providers. A smaller portion of funds would support other rate increases, such as emergency department services and family planning. Prop. 35 would allow the Department of Health Care Services to allocate 8% of funds — $344 million — to provide overall support to the Medi-Cal program.
If there are remaining MCO tax revenues after these funding allocations are made, the measure contains parameters to allocate the excess revenue. Examples of these other allocations include:
Additional General Fund offset to support existing services in Medi-Cal.
A grant program to expand the number of community health workers.
Supporting the state’s ongoing efforts to reduce the cost of prescription drugs.
Providing additional funding to health workforce initiatives.
In addition, Prop. 35 would establish oversight and accountability measures, requiring the state controller to perform independent financial audits. It would also create an advisory committee that would provide input to the Department of Health Care Services on future MCO tax proposals. This advisory committee would be made up of mostly health care provider representatives.
Would Prop. 35 actually make the MCO tax permanent?
No, the MCO tax funding structure under Prop. 35 is entirely dependent on federal approval and ongoing renewals. Prop. 35 would require the California Department of Health Care Services to request federal approval for the MCO tax on an ongoing basis in an attempt to make this funding stream more permanent. Federal approval is required for the state to levy health care taxes that draw down additional federal dollars.
One issue with Prop. 35 is that the MCO tax may not be a sustainable, long-term funding source. While the federal government has historically approved California’s MCO tax, it has indicated that it may revise the rules governing state MCO taxes in the future, which would have implications for the amount of net revenue that future versions of the tax may bring into the state.
Without federal approval and federal funding, the MCO tax and spending plan under Prop. 35 would not be implemented.
How would Prop. 35 impact the state budget?
While Prop. 35 would ensure more funding is dedicated for health care, its requirement to spend MCO tax revenues on specific services would also limit policymakers’ flexibility in making budget decisions. This is particularly concerning in years when the state is facing a budget shortfall because the reduced flexibility could lead policymakers to make cuts to other critical public services to balance the budget.
State leaders are required to balance the budget each year, and there are already several strict requirements on how some state funds are spent that make budgeting complex. By creating additional mandates on state spending, Prop. 35 would result in policymakers having even less flexibility in making budget decisions. While the measure gives policymakers some ability to modify the structure and uses of the MCO tax, changes would require a three-fourths vote in the Legislature — which can be difficult to obtain — and would need to further the purpose of Prop. 35.
In years when the state is facing a budget shortfall, this limited flexibility could result in cuts to other critical public services that help Californians make ends meet and address vital needs, such as income supports, subsidized child care, food assistance, and investments in reducing homelessness and increasing affordable housing.
Of course, cuts could be limited or avoided during budget deficits if state leaders are able to raise new revenues to address a shortfall. However, the state Constitution requires a two-thirds vote in the Legislature to raise taxes, while spending cuts can be approved with a simple majority, and state leaders have generally been more inclined to make cuts than to increase taxes.
In the near term, Prop. 35 would result in the recently enacted 2024-25 budget being out of balance. This is because a solution to the budget shortfall involves using some MCO tax dollars that were previously intended to support provider rate increases and other augmentations to instead offset General Fund spending on existing Medi-Cal services. Since Prop. 35 would require MCO tax revenues to be used for health program augmentations instead of offsetting existing spending, state leaders would have to identify other solutions — potentially spending cuts or delays, revenue increases, or additional budget reserve withdrawals — in next year’s budget to cover the difference. The Legislative Analyst’s Office estimates that the General Fund impact would be between $1 billion and $2 billion in 2025 and 2026, but in a legislative hearing on August 13, 2024, the Department of Finance noted that it estimates the impact could range from $2.6 billion and $4.9 billion in fiscal years 2024-25 through 2026-27.
In the long term, raising state General Fund revenues — through sources aside from the MCO tax — would help to increase the state’s capacity to cover the costs of existing Medi-Cal services and improve state health services and increase access to care, without jeopardizing other state services. This is especially important given that there is no guarantee the federal government will continue to approve an MCO tax that yields the amount of revenue anticipated from the currently authorized tax.
How would Prop. 35 impact Californians?
If passed, millions of Californians who receive health care services through Medi-Cal — about half of whom are Latinx — could have better access to care, especially for primary care and specialty health care services. Increasing provider participation in Medi-Cal is critical to improving access to a wide range of health care services, especially in historically underserved areas where there is often a shortage of providers. By increasing the number of providers in the Medi-Cal network, patients can receive more timely care, which can help improve health and well-being for all Californians, but especially Latinx communities.
However, there are some critical health equity investments that are included in the current MCO tax spending plan that are either not included or not prioritized in Prop. 35. Examples include:
Implementing continuous coverage for children from birth to age five.
This would allow children to keep their Medi-Cal coverage without any administrative renewals or disruptions from birth to age five. Consistent and timely access to preventive and primary care services is especially important for children’s health and development. Coverage disruptions are not only harmful to health, but research suggests that Black and Latinx people are more likely to be impacted.
Raising rates for community health workers.
These are frontline public health workers who help patients access health and social services. This workforce supports patients in a way that is linguistically and culturally responsive to their communities, including immigrant communities and people of color. While state leaders have taken steps to integrate community health workers into the Medi-Cal workforce, additional ongoing investments are needed to ensure that they are paid fair wages.
Investing in long-term supports for children with complex medical needs, older adults, and people with disabilities.
This includes private duty nursing, community-based adult services, and congregate living health facilities. These services provide medical care and assistance with daily living activities, which is essential for people’s quality of life.
These potential cuts raise health equity concerns, as they would disproportionately impact people of color, children, older adults, and people with disabilities. Policymakers should explore alternative revenue-raising measures to sustain and advance these crucial health equity initiatives, if Prop. 35 passes.
Additionally, Prop. 35’s limitations on using MCO tax proceeds to offset General Fund spending on current Medi-Cal services could make policymakers more likely to make cuts to other state services when facing budget shortfalls. Such cuts would likely harm Californians with low incomes most. For example, in the difficult budget years during and following the Great Recession, deep cuts were made to safety net programs such as subsidized child care, income supports for families under the California Work Opportunity and Responsibility to Kids (CalWORKs) program, and income support for older adults and people with disabilities under the Supplemental Security Income/State Supplementary Payment (SSI/SSP) program.
Lastly, the passage of Prop. 35 would lock in spending decisions in the future, which would impact how Californians engage with the state budget process. Advocates and community members would have less opportunity to weigh in on how state resources should be allocated because the MCO tax spending decisions would be constrained by the ballot measure. Currently, Californians can contribute to conversations about how MCO tax revenue should be spent during the budget process via public hearings and interactions with policymakers.
What are arguments for and against Prop. 35?
Supporters of Prop. 35 believe the measure will protect and enhance access to care for Medi-Cal patients by ensuring that MCO tax dollars are directed toward patient care. They argue that it would prevent lawmakers from redirecting funds intended for health care to other purposes. Key supporters include the California Medical Association, Planned Parenthood Affiliates of California, the California Hospital Association, the California Primary Care Association, and the California Dental Association.
Opponents of Prop. 35 argue that the measure would reduce flexibility in how Medi-Cal dollars are allocated and overturn the commitments made in the 2024-25 budget to fund important services with MCO tax dollars, including continuous Medi-Cal coverage for young children and the rate increase for community health workers. Opposition groups include The Children’s Partnership, the California Pan-Ethnic Health Network, the California Alliance for Retired Americans, Courage California, and the League of Women Voters of California.
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
key takeaway
California voters will decide on November 5th, 2024, whether to pass Proposition 36, which would increase penalties for several drug and theft crimes. This would significantly drive up state prison costs, cut funding for behavioral health treatment and other critical services, and potentially push more Californians into homelessness.
Introduction
Over many years, California lawmakers and voters adopted harsh, one-size-fits-all sentencing laws that prioritized punishment over rehabilitation, led to severe overcrowding in state prisons, and disproportionately impacted Californians of color.
California began reconsidering its “tough on crime” approach in the late 2000s. Multiple reforms were adopted as prison overcrowding reached crisis proportions and the state faced lawsuits filed on behalf of incarcerated adults. These reforms worked as intended: The number of adults serving sentences at the state level fell from a peak of 173,600 in 2007 to around 90,000 today. Meanwhile, violent and property crime rates in California remain well below historical peaks.
A key justice system reform was Proposition 47, which passed with nearly 60% support in 2014. Prop. 47 reduced penalties for six nonviolent drug and property crimes from felonies to misdemeanors. As a result, state prison generally is no longer a sentencing option for these crimes. Instead, people convicted of a Prop. 47 offense serve their sentence in county jail and/or receive probation.
Prop. 47 also requires the state to calculate prison savings due to reduced incarceration and use those dollars to reduce recidivism and support crime victims. Since 2016, over $800 million in Prop. 47 savings has been allocated across the state for behavioral health treatment and other critical services that promote community safety.
However, interest groups opposed to justice system reforms qualified Prop. 36 for the November ballot. Their goal is to increase punishment for drug and theft crimes in California, including by reversing key provisions of Prop. 47. Major donors to Prop. 36 include Walmart ($2.5 million), Home Depot ($1 million), Target ($1 million), In-N-Out Burger ($500,000), the California Correctional Peace Officers Association ($300,000), and Macy’s ($215,000).
Prop. 36 Would Increase Penalties for Several Drug and Theft Crimes
Prop. 36 would amend state law to increase penalties for several drug and theft crimes. These changes would disproportionately impact Californians of color given racist practices in the justice system as well as social and economic disadvantages that communities of color continue to face due to historical and ongoing discrimination and exclusion.
Prop. 36 would increase penalties for drug crimes in multiple ways. Key drug-related provisions of the measure include the following:
Creating a new process allowing prosecutors to charge people with a “treatment-mandated felony” for possession of illegal drugs.
Currently, possessing illegal drugs is generally a misdemeanor regardless of the number of times a person has been convicted of certain drug crimes. Prop. 36 would allow a felony to be charged for drug possession in certain circumstances. This change would reverse a key reform implemented in 2014 by Prop. 47, which reclassified most unlawful drug possession as a misdemeanor. Specifically, Prop. 36 would:
Allow people who are arrested for possessing illegal drugs — such as cocaine, fentanyl, or heroin — and who have two or more prior convictions for certain drug crimes to be charged with a “treatment-mandated felony” rather than a misdemeanor.
Allow defendants to plead guilty or no contest and enroll in a no-cost, court-approved treatment program. Programs could include services related to substance use, mental health challenges, job training, and “any other conditions related to treatment or a successful outcome for the defendant that the court finds appropriate.”
Require the charges to be dismissed in cases where people complete the treatment program. In contrast, people who do not complete the program could be sentenced to up to three years in county jail or state prison, depending on their criminal history. However, a judge would have the option of re-referring a defendant to treatment.
Requiring people who sell large quantities of certain drugs, including substances containing fentanyl, to serve their term in state prison.
Currently, people who sell large quantities of illegal drugs, such as cocaine or heroin, may receive an additional sentence (an “enhancement”) in county jail or state prison, depending on their criminal history. The enhancement ranges from three years to 25 years depending on the substance and the weight of the substance. Prop. 36 would:
Eliminate jail as an option and instead require these individuals to serve their full sentence in state prison.
Add fentanyl to the list of drugs that would trigger this sentencing enhancement, with the add-on ranging from three years to 25 years.
Requiring people convicted of unlawfully possessing fentanyl while armed with a loaded gun to serve up to four years in state prison.
Currently, people convicted of possessing certain illegal drugs, such as cocaine or heroin — but not fentanyl — while carrying a loaded firearm can be sentenced to up to four years in state prison. In contrast, people convicted of possessing fentanyl while carrying a loaded gun are generally sentenced to up to one year in county jail. Prop. 36 would:
Add fentanyl to the list of drugs that are punishable by a prison sentence of up to four years for this crime. People convicted of this crime for fentanyl would serve longer sentences compared to current law — and would serve those sentences in state prison instead of county jail.
Prop. 36 also would increase penalties for theft crimes in multiple ways. Key theft-related provisions of the measure include the following:
Allowing people with multiple prior theft convictions to be charged with a felony if they subsequently commit petty theft or shoplifting.
Currently, theft of money or property valued at $950 or less (petty theft or shoplifting) is generally a misdemeanor and carries a maximum sentence of six months in county jail. Prop. 36 would allow petty theft and shoplifting to be charged as a felony if a person has two or more prior convictions for certain theft offenses. If convicted of a felony, the defendant would receive a sentence of up to three years in county jail or state prison, depending on their criminal history. Creating a felony option and longer sentences for petty theft or shoplifting would reverse a key reform implemented by Prop. 47 of 2014.
Creating sentencing add-ons (“enhancements”) that apply to people convicted of a felony involving damaged or stolen property valued at more than $50,000.
Prop. 36 would:
Add one year to a sentence where the value of the affected property exceeds $50,000, up to $200,000.
Add two years to a sentence where the value of the affected property exceeds $200,000, up to $1 million.
Add three years to a sentence where the value of the affected property exceeds $1 million, up to $3 million.
Add four years to a sentence where the value of the property exceeds $3 million, with an additional year tacked on for each additional $3 million in property loss or damage.
Prop. 36 Would Drive Up State Prison Spending and Create Unfunded Costs at the State and Local Levels
By increasing punishment for several drug and theft crimes, Prop. 36 would create substantial new costs — including for incarceration and the court system — at the state and local levels. However, the measure would provide no new revenue to pay for these expenses.1Prop. 36 states that a person charged with a “treatment-mandated felony” may receive, if eligible, relevant Medi-Cal or Medicare services that are delivered through a court-ordered treatment program. (Medi-Cal is supported with state and federal funding; Medicare is funded solely by the federal government.) Therefore, some federal funding could be available to support services for people who are charged with a treatment-mandated felony and are eligible for Medi-Cal or Medicare. However, the state would have to pay a portion of any Medi-Cal services delivered, and Prop. 36 would not provide any revenue to offset those new state costs. In addition, the costs associated with treatment-mandated felonies represent only part of the substantial state and local criminal justice costs that Prop. 36 would create — costs for which the measure provides no new funding. State and local leaders would face the prospect of curtailing funding for existing public services in order to make room in their budgets for the unfunded costs imposed by Prop. 36.
While Prop. 36 would clearly burden public budgets, the magnitude of the impact is uncertain. Cost estimates have been developed by the nonpartisan Legislative Analyst’s Office (LAO) as well as by Californians for Safety and Justice (CSJ), a leading statewide public safety advocacy group. Both organizations suggest that the cost of Prop. 36 could be substantial, although the LAO’s estimates are significantly lower than CSJ’s.2The substantial gap between these two sets of estimates is likely the result of different assumptions, methodologies, and/or data sources adopted by each organization.
Specifically:
The LAO estimates that the ongoing increase in state criminal justice costs would likely range from several tens of millions of dollars to the low hundreds of millions of dollars. This estimate reflects a larger prison population — which could grow by “around a few thousand people” — as well as an increase in state court workload.
In addition, the LAO estimates that ongoing local criminal justice costs would likely increase by tens of millions of dollars due to Prop. 36. This estimate reflects larger county jail and community supervision populations — which, combined, could rise by “around a few thousand people” — as well as higher costs for courts, prosecutors, public defenders, and county agencies like probation and behavioral health departments.
In contrast, CSJ projects that Prop. 36 would lead to much higher costs. CSJ estimates that combined state and local costs would rise by around $4.5 billion ongoing. For example, CSJ suggests that more than 32,000 additional people would be sentenced to state prison within seven years. CSJ also assumes that over 31,000 additional people would serve one-year sentences in jail each year. These projected increases in incarceration are much higher than what the LAO’s analysis suggests.
Regardless of the magnitude of the costs created by Prop. 36, the result would be the same: elected officials would face difficult choices about how to accommodate these new unfunded costs in their budgets. Such choices could disproportionately harm Californians with low incomes and communities of color depending on which current state and local services were affected by funding reductions.
These tough decisions would come at a time when state and local leaders are already struggling to keep their budgets balanced and ensure ongoing support for core services. For example, the 2024-25 state budget package relies heavily on borrowing from future budgets and only temporarily increases revenues — decisions that could compromise the state’s ability to sustain core programs as well as stall much-needed investments in the coming years. The new unfunded costs imposed by Prop. 36 would make it even more challenging for state leaders to sustain support for core services and maintain a balanced budget.
In addition, Prop. 36 would reverse the modest progress that California has made in controlling state prison spending. Justice system reforms, including Prop. 47, have reduced the prison population and allowed state leaders to end private-prison contracts, begin closing state-owned prisons, and bend the prison cost curve. In fact, prison spending is billions of dollars lower today than it would be absent these reforms. These freed-up dollars have been redirected to critical state services that rely on the state’s General Fund for support.
Moreover, the prison system’s “footprint” on the state budget has been shrinking as reforms have taken effect. The budget of the California Department of Corrections and Rehabilitation (CDCR) comprised over 9% of total General Fund spending in 2013-14 — the fiscal year before Prop. 47 was approved in November 2014. Since then, CDCR’s share of the state budget has dropped to less than 7% as prison spending has grown more slowly than overall state expenditures.
Still, state correctional spending remains too high, and more work is needed to further downsize California’s costly and sprawling prison system. However, the trend has been moving in the right direction, and the significant gains that have been made over the last decade would be eroded if Prop. 36 is approved by voters.
Prop. 36 Would Reduce State Funding for Behavioral Health Treatment and Other Critical Services
By passing Prop. 47 in 2014, voters not only reduced penalties for several low-level crimes and lowered the prison population — they also required state prison savings from Prop. 47 be used for services that reduce crime, support youth, and help crime victims heal. To date, Prop. 47 savings — as calculated by the Department of Finance — exceed $800 million, or around $90 million per year, on average.
Prop. 47 savings are annually deposited into the Safe Neighborhoods and Schools Fund and used as follows:
65% for behavioral health services — which includes mental health services and substance use treatment — as well as diversion programs for individuals who have been arrested, charged, or convicted of crimes. These funds are distributed as competitive grants administered by the Board of State and Community Corrections.
25% for K-12 school programs to support vulnerable youth. These funds are distributed as competitive grants administered by the California Department of Education.
10% to trauma recovery services for crime victims. These funds are distributed as competitive grants administered by the California Victim Compensation Board.
Prop. 47 savings are invested in a broad range of programs that support healing and keep communities safe. For example, a recent evaluation shows that people who received Prop. 47-funded behavioral health services and/or participated in diversion programs were much less likely to be convicted of a new crime. People who enrolled in these programs had a recidivism rate of just 15.3% — two to three times lowerthan is typical for people who have served prison sentences (recidivism rates range from 35% to 45% for these individuals). These programs are also successful in reducing homelessness and promoting housing stability, with a 60% decrease in the number of participants experiencing homelessness by the end of the program compared to when they enrolled.
Because Prop. 36 would undo key provisions of Prop. 47, the annual state savings from Prop. 47 would decline. The LAO estimates that this reduction would likely be in the low tens of millions of dollars per year, whereas CSJ projects that the state savings would be entirely eliminated.
The most recent estimate of Prop. 47 savings is $95 million, as reflected in the 2024-25 state budget. If Prop. 36 had been in effect this year, these savings would have been tens of millions of dollars lower (based on the LAO’s analysis) or entirely eliminated (based on CSJ’s assessment). Either way, there would be substantially less funding for services that reduce crime, support youth, and help crime victims heal. In other words, Prop. 36 would shift tens of millions of dollars or more each year from behavioral health treatment and other critical services back to the state prison system.
Prop. 36 Could Push More Californians Into Homelessness
Prop. 36 could worsen homelessness in California by pushing more residents into the carceral system, further exacerbating the deep link between homelessness and incarceration. While the lack of affordable housing is the primary cause of homelessness, this detrimental outcome is intensified by incarceration as formerly incarcerated people are nearly 10 times more likely to experience homelessness than the general population.
Californians leaving incarceration often face significant obstacles to securing long-term, stable housing, which is essential for reconnecting with support networks, finding employment, and maintaining health. Without proper housing, which Prop. 36 does not account for or ensure, formerly incarcerated individuals are more likely to recidivate and resort to survival crimes, perpetuating the harmful cycle.
A recent statewide homelessness study found that nearly 1 in 5 unhoused Californians (19%) entered homelessness directly from an institutional setting, primarily a jail or prison. Additionally, fewer than 20% of people leaving jail or prison had support finding housing upon their release. Prop. 36 does nothing to address this need and instead reverts funding from existing programs that help unhoused individuals with conviction histories connect with housing, behavioral health treatment, and other necessary services needed to reintegrate.
Further, Prop. 36 fails to follow effective, evidence-based interventions that successfully help individuals obtain and sustain mental health and substance use treatment, with housing as a foundational component. The initiative allows certain people arrested for drug possession to admit guilt (or plead no contest) and have their charges dismissed if they complete court-ordered treatment.
However, completing a treatment program is especially challenging for individuals experiencing housing instability or homelessness. Not having a home causes severe stress and trauma and harms physical and mental well-being, which can trigger or worsen mental health issues and lead to complex coping mechanisms like substance use. Yet there is no guarantee that those who are referred to treatment and who may need housing will receive it in a timely manner, essentially curtailing their chances of completing the program and increasing their likelihood of facing incarceration for up to three years.
Moreover, coerced treatment is antithetical to successful “Housing First” principles, which prioritize permanent housing before addressing treatment and other comprehensive needs. Policy experts also recommend against legally compelling people to comply with treatment for opioid use disorders as an alternative to other sanctions like incarceration. While coerced treatment may help engage people with substance use challenges, it likely has minimal to no effect on treatment retention, remission, and overdose mortality. This approach effectively places individuals in vulnerable positions that can lead to long-term incarceration and an increased likelihood of homelessness under Prop. 36.
Creating Safe and Equitable Communities Requires Smart Investments, Not Harsh Penalties and Mass Incarceration
Creating safe, vibrant communities for all Californians is achievable through intentional investments that uplift opportunities and economic security. Rather than promoting this positive vision for California, Prop. 36 advances an incarceration-focused approach that:
Fails to prioritize compassionate, evidence-based strategies that help communities thrive and instead would redirect limited state resources to ineffective, punitive, and costly policies.
Instead of increasing incarceration, state leaders should prioritize policies and interventions proven to reduce crime, enhance public safety, and expand behavioral health treatment options. Effective measures include increasing affordable and supportive housing, expanding economic security programs, broadening access to health care and behavioral health services, supporting education and youth intervention programs, improving recidivism reduction strategies, and implementing equity-centered policies that target vulnerable residents. By focusing on these proven strategies, we can create safer, more equitable communities for all Californians.
Prop. 36 states that a person charged with a “treatment-mandated felony” may receive, if eligible, relevant Medi-Cal or Medicare services that are delivered through a court-ordered treatment program. (Medi-Cal is supported with state and federal funding; Medicare is funded solely by the federal government.) Therefore, some federal funding could be available to support services for people who are charged with a treatment-mandated felony and are eligible for Medi-Cal or Medicare. However, the state would have to pay a portion of any Medi-Cal services delivered, and Prop. 36 would not provide any revenue to offset those new state costs. In addition, the costs associated with treatment-mandated felonies represent only part of the substantial state and local criminal justice costs that Prop. 36 would create — costs for which the measure provides no new funding.
2
The substantial gap between these two sets of estimates is likely the result of different assumptions, methodologies, and/or data sources adopted by each organization.
You may also be interested in the following resources:
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
In late June, Governor Newsom and state leaders reached a deal on the 2024-25 California state budget. Confronted with a substantial shortfall, state leaders negotiated a budget package that presents a mixed bag for California families. Policymakers managed to protect many essential programs, but some financial maneuvers and the continued resistance to significantly raise revenues to help all Californians thrive may hinder progress in future years.
The June budget package rejects many harmful cuts to critical programs initially proposed by Governor Newsom in January and May. State leaders protected many essential programs that Californians rely on, including by drawing on the state’s reserves and delaying some program expansions. However, the budget also relies heavily on borrowing from future budgets, commits a higher percentage of future revenue growth to schools, and only temporarily increases revenues. These decisions could compromise the state’s ability to sustain core programs and stall much-needed investments in the coming years if revenue conditions do not improve.
This analysis highlights key components of the June budget package and examines how it protects — or misses opportunities to enhance — services that aim to improve the well-being of Californians with low incomes, Californians of color, women, immigrants, and others historically excluded from sharing in the state’s wealth.
How did state leaders close the budget shortfall?
State leaders closed a roughly $47 billion General Fund shortfall across the three-year “budget window” (fiscal years 2022-23 through 2024-25) using a broad array of budget tools. The “solutions” in the 2024-25 budget package include:
$16 billion in spending reductions.
$13.6 billion from a combination of additional revenue (which is mostly temporary) and internal borrowing from state special funds.
$6 billion in fund shifts, which transfer certain costs from the General Fund to other state funds.
Nearly $6 billion in withdrawals from two reserves: the Budget Stabilization Account (also known as the rainy day fund) and the Safety Net Reserve.
$3.1 billion in funding delays and pauses. This includes delaying, for two years, an expansion of food assistance to undocumented Californians as well as postponing, for six months, a wage increase for people who provide services to Californians with intellectual and developmental disabilities.
$2.1 billion in deferrals, which postpone certain payments to later years. This includes shifting one month of state employee payroll costs from June 2025 (the last month of the 2024-25 fiscal year) to July 2025 (the first month of the 2025-26 fiscal year).
What happened to Prop. 98? Was school funding protected?
The budget agreement protects funding for Transitional Kindergarten, K-12 schools, and community colleges (TK-14 education) despite revenue challenges. Estimates of the Proposition 98 minimum funding guarantee for TK-14 education are updated to reflect two major budget actions: 1) the adoption of a proposal to “accrue” some funding from 2022-23 to future years and 2) the suspension of the Prop. 98 guarantee in 2023-24. These actions increase the Prop. 98 minimum funding levels across the 2022-23 to 2024-25 “budget window” and also ensure funding growth beyond the three-year window.
Key details that further explain the Prop. 98-related budget actions are outlined below.
The enacted budget adopts a plan to accrue $6.2 billion in TK-14 spending to future years.
A drop in income tax collections in the 2022 tax year led to a reduction in the Proposition 98 minimum funding guarantee. This revenue drop only became clear in late 2023, after the 2022-23 fiscal year ended. As a result, the Prop. 98 disbursement amount exceeded the revised minimum funding guarantee for 2022-23. The budget agreement sets the 2022-23 minimum guarantee base at that higher level ($103.7 billion), which is $6.2 billion higher than what the formulas require under the revised revenue estimates. To account for these budgetary costs over the Prop. 98 guarantee in 2022-23, the enacted budget requires annual payments to be made in later fiscal years. These payments of $544 million annually over 10 years will begin in 2026-27 and will be paid for with non-Prop. 98 General Fund dollars.
The enacted budget suspends the Prop. 98 minimum funding guarantee.
The decision to set the Prop. 98 base at a higher level in 2022-23 increases the 2023-24 minimum guarantee to $106.8 billion. (Prop. 98 formulas in this case require the prior-year funding level to be one of the main components of the calculation in the subsequent year.) However, available state revenues are insufficient to meet this requirement in 2023-24. As a result, state leaders decided to suspend the Prop. 98 guarantee and set the funding level at $98.5 billion in 2023-24. Suspending the guarantee is allowed under the state Constitution for this particular purpose — this is the third time the guarantee has been suspended since Prop. 98 was passed in 1988.
The Prop. 98 suspension creates a funding gap called “maintenance factor.”
Constitutional provisions require that the Prop. 98 guarantee be restored to the level it would have reached absent the suspension. This happens over time by accelerating growth in the minimum guarantee depending on General Fund revenue growth. Furthermore, the maintenance factor amount is adjusted annually to reflect changes in student enrollment and the cost of living. Under current estimates, the 2023-24 suspension creates a maintenance factor amount of $8.3 billion.
Overall, decisions on the minimum guarantee push large spending obligations to future budget years that add pressure to the non-Prop. 98 side of the budget. First, while the Prop. 98 suspension provides relief in 2023-24, TK-14 education will get a higher percentage of future revenue growth than normal until the maintenance factor is paid. In other words, a larger portion of General Fund revenue growth will go toward the maintenance factor obligation, leaving less funding for the non-Prop. 98 side of the budget.
Second, shifting $6.2 billion in TK-14 education spending to the non-Prop. 98 side of the budget starting in 2026-27 will reduce funding available for other critical needs, such as food security, child care, housing, and other programs that help families make ends meet.
What revenue solutions does the budget include?
One of the budget solutions is a temporary increase in state revenues, which helps to avoid more harmful service cuts, but will also lead to decreased revenues in later years.
Specifically, for tax years 2024 through 2026, the budget agreement 1) limits the tax credits businesses can use to $5 million and 2) suspends tax deductions for prior-year losses (“net operating losses” or NOLs) for businesses with at least $1 million in profits. These provisions are estimated to increase revenues by $5.95 billion in 2024-25, $5.5 billion in 2025-26, and $3.4 billion in 2026-27.
However, the budget agreement also includes provisions to allow businesses impacted by these limitations to fully recoup the lost tax benefits in later years, reducing state revenues for several years beginning in 2027-28 by as much as a few billion dollars in some years. Notably, businesses subject to tax credit limitations will be allowed to receive the credits above the $5 million annual limit as a refund — spread across five years — after the limitation period ends. In other words, if the excess credits claimed in future years exceed a business’ tax bill, it can receive the difference in cash. Historically, business tax credits have generally not been refundable.
Additionally, if the governor’s administration determines that the budget can be balanced in 2025-26 and/or 2026-27 without the additional revenue from the temporary business credit limitation and NOL suspension, policymakers can specify in the Budget Act that these provisions do not apply for that year.
Finally, the budget contains some smaller, ongoing tax policy changes impacting businesses and investors. These changes will increase revenues by a few hundred million dollars ongoing, including eliminating tax subsidies that specifically benefit oil and gas companies.
state budget terms defined
What’s the difference between a trailer bill and policy bill? A deficit and an operating deficit? And what exactly is a “Budget Bill Jr.?” Our Glossary of State Budget Terms answers that and more.
How did California’s Rainy Day Fund and other reserves help cover the shortfall?
California has several reserve accounts that set aside funds intended to be used when economic conditions worsen and state revenues decline. These include:
The Budget Stabilization Account (BSA), commonly referred to as the Rainy Day Fund. This is the state’s largest reserve and its funds may be used for any purpose.
The Public School System Stabilization Account (PSSSA), which is also known as the Prop. 98 reserve. Funds withdrawn from this account must be used to support K-12 schools and community colleges.
The Safety Net Reserve Fund. Funds withdrawn from this account are intended to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn.
State Budget Reserves Explained
See our report, California’s State Budget Reserves Explained, to learn more about the savings accounts policymakers can use to support Californians in times of budget shortfalls.
The budget agreement rejects many harmful cuts to critical services in part by drawing on state reserves. However, the budget takes an imbalanced approach, taking around half the funds in the BSA, but draining all funds from the Safety Net Reserve, leaving no dedicated funds to help support CalWORKs and Medi-Cal in future years.
Specifically, the budget agreement withdraws $4.9 billion from the BSA in 2024-25, and assumes an additional BSA withdrawal of $7.1 billion in 2025-26, which would leave about $10.5 billion available for future years. In contrast, the budget withdraws all $900 million from the Safety Net Reserve in 2024-25. The budget also takes all $8.4 billion from the PSSSA in 2023-24, but makes a $1.1 billion discretionary deposit to that account in 2024-25.
As required by the state Constitution, the governor signed a proclamation on June 26 declaring a budget emergency in order to allow the withdrawal of funds from the BSA. The governor did not need to declare a budget emergency to withdraw funds from the PSSSA or the Safety Net Reserve.
The budget includes a big cut to “state operations” spending — what does this mean and is the cut achievable?
The budget agreement adopted the governor’s plan to permanently reduce “state operations” spending by around $3 billion starting in 2024-25. This funding supports the basic activities of state government. Savings are to be achieved through two actions implemented by the Department of Finance (DOF) in collaboration with state departments:
Reducing state operations spending tied to vacant positions, for General Fund savings of $762.5 million in 2024-25.
In addition, the governor is required to propose the permanent elimination of vacant positions as part of his 2025-26 state budget, which will be released in January 2025. The budget agreement exempts several state entities from this reduction, including the Legislature, the judicial branch, the California State University, and the University of California, and the UC College of the Law, San Francisco.
Cutting state operations spending by up to an additional 7.95%, for General Fund savings of $2.2 billion in 2024-25.
This reduction is to be applied on top of the cut to funding for vacant positions, with savings expected to be achieved through operational efficiencies and other cost-reduction measures. The budget agreement exempts the Legislature from this cut.
These reductions would equal roughly 10% of total General Fund state operations spending. However, it’s questionable whether $1 of every $10 in state operations costs could be permanently eliminated through efficiencies and other measures without eroding state services. Moreover, in some departments, most state operations spending supports employee salaries and benefits — which cannot be unilaterally cut to generate state savings. As a result, some departments may have relatively little state operations funding available to cut to help meet the $3 billion statewide reduction target.
Furthermore, the governor’s administration reported in budget hearings that 24-hour operations would be exempt from the reductions. This includes, for example, the state prison system, which is overseen by the California Department of Corrections and Rehabilitation (CDCR). The budget agreement assumes that CDCR will account for nearly $400 million of the $3 billion in state operations reductions. CDCR could easily achieve these savings by closing state prisons. However, the governor refuses to plan for more prison closures, and it’s uncertain whether CDCR will be able to cut roughly $400 million from its operating budget without downsizing the state prison system.
Overall, it’s highly unlikely that the projected $3 billion in statewide savings will fully materialize, according to the Legislative Analyst’s Office. Unrealized savings would need to be addressed during the 2025-26 budget process and would “add to any fiscal challenges” the state is facing that year. In the meantime, DOF will update the Legislature in October and again in January on any progress made toward reducing state operations spending as envisioned in the budget agreement.
What changes were proposed to the MCO tax, and how does it help support Medi-Cal services for Californians?
Managed Care Organizations (MCOs), also known as health insurance plans, are responsible for managing health care services as a way to manage cost, utilization, and quality. States, with federal approval, can impose a tax on MCOs to reduce — or offset — state Medicaid spending and draw down additional federal funds. The MCO tax is a charge based on enrollment in Medi-Cal managed care plans and private health insurance plans.
In 2023, California renewed its MCO tax with federal approval, effective from April 1, 2023 to December 31, 2026. State leaders planned to use the roughly $19.4 billion in tax revenue to offset General Fund spending on Medi-Cal and support provider rate increases to improve access to health care services. Currently, many Californians face difficulties accessing Medi-Cal health care services because local providers oftentimes do not accept Medi-Cal patients.
This year, state leaders proposed amendments to increase the tax, generating a net fiscal benefit of $24.3 billion total, given the budget shortfall. These amendments require federal approval.
The 2024-25 budget agreement outlines a plan to use revenue from the MCO tax to support the Medi-Cal program as well as rate increases for health providers, with some investments delayed to 2026. Budget allocations include:
$6.9 billion in 2024-25, $6.6 billion in 2025-26, and $5.0 billion in 2026-27 to help maintain existing services in the Medi-Cal program; and
$133 million in 2024-25, $728 million in 2025-26, and $1.2 billion in 2026-27 for new targeted Medi-Cal provider rate increases and investments.
However, the MCO tax spending plan would be overturned if voters approve a ballot initiative this November that would make the tax permanent and require the state to use these dollars solely for certain provider rate increases.
What was the overall impact of the budget on critical programs and services?
The budget agreement rejects many harmful cuts to critical programs proposed by Governor Newsom in January and May. However, despite growing needs, the agreement includes considerable cuts to housing and safety net programs and makes no significant ongoing investments in critical programs and services.
The budget agreement maintains funding for the CalFresh Minimum Benefit Pilot and the Work Incentive Nutritional Supplement (WINS) programs, which were at risk of being eliminated. Both of these programs are important in addressing food insecurity. The budget also includes a small increase of 0.3% to the California Work Opportunity and Responsibility to Kids (CalWORKs) cash grants and protects the recent increase to the Supplemental Security Income/State Supplementary Payment (SSI/SSP) programs.
Missed Opportunities
The budget agreement includes cuts to various CalWORKs services, including the Expanded Subsidized Employment and Home Visiting programs. While the cuts are tailored to match recent utilization levels, the cuts may limit the reach these programs could have. The budget agreement also drains the Safety Net Reserve, which leaves CalWORKs vulnerable to more cuts in the event of an economic downturn. While the agreement preserves the California Food Assistance Program (CFAP) expansion to older undocumented adults, a population experiencing high rates of food insecurity, it delays the start date to 2027.
The budget agreement allocates $1 billion for local flexible funding to address homelessness with additional requirements. It also adjusts previous allocations for various homelessness programs that serve vulnerable diverse populations including families involved with the child welfare system, individuals involved in Adult Protective Services, and unhoused individuals who are likely eligible for disability benefits. Separately, the budget agreement maintains over $1 billion for critical affordable housing programs including an additional $500 million for state Low Income Housing Tax Credits, $315 million for the Multifamily Housing Program, and $260 million for the Regional Early Action Program (REAP) 2.0.
Missed Opportunities
The budget agreement cuts roughly $1.1 billion from various critical affordable housing, homeownership, and homelessness programs, for which there is no slated future funding. Over half of California renters continue to pay unaffordable housing costs, the instability of which is a primary driver of homelessness. California cannot afford to continue piecemealing needed funding for affordable housing and homelessness through one-time funding allocations. Ongoing resources are needed for localities, service providers, and developers to effectively implement short- and long-term solutions to these challenges.
While the budget agreement temporarily pauses the promised 200,000 subsidized child care slot expansion at approximately 118,000 slots, it does solidify a plan for rolling out the remaining slots by 2027-28. Additionally, the budget agreement funds the approximately 11,000 general child care spaces awarded in March 2024. Lastly, the budget agreement includes trailer bill language to advance the creation of an alternative rate methodology for child care providers by the July 1, 2025 federal deadline, as well as language to ensure that provider rates do not revert back to the 2018 regional market rate if the deadline is missed.
Missed Opportunities
Due to various administrative and contextual challenges, the amount of funding for new child care slots can exceed the number of slots that actually materialize, leaving dollars unspent. The joint legislative budget agreement proposed creating a reversion account to ensure that unspent child care dollars remain within child care programming. In contrast, the budget agreement with the governor does not include this reversion account. Therefore, any unspent child care dollars will be reverted back to the General Fund.
The budget agreement preserves the expansion of Medi-Cal eligibility to undocumented adults ages 26 to 49 as well as In-Home Supportive Services (IHSS) for undocumented Californians. The IHSS program helps people with low incomes who are over the age of 65, blind, and/or disabled live with dignity in their own homes. In May, the governor proposed eliminating IHSS for all undocumented Californians, a harmful and xenophobic proposal that could have pushed many immigrant families deeper into poverty.
Missed Opportunities
The budget agreement does not provide funding to reform the Medi-Cal Share of Cost program, which would alleviate financial burdens for many older adults and people with disabilities. Under the current program, many Californians must choose between paying for their health care, rent, food, or other basic needs. This reform was passed in the 2022 Budget Act but was subject to future appropriation.
The budget agreement provides key funding for survivors of domestic violence, among other crimes. Specifically, it includes $103 million in ongoing state funding to fill a gap in federal Victims of Crime Act funds that provide critical services to survivors. The budget agreement also preserves funding for the Flexible Assistance for Survivors program, which provides grants to community-based organizations to provide flexible assistance such as relocation or care costs to survivors of crime. In May, the governor proposed removing all funding for this program, which would have eliminated crucial support for survivors.
What changes to the 2024-25 budget package might happen in August?
Budget decisions happen throughout the year, not just from January to June. In August, for example, the governor and legislative leaders will revisit the 2024-25 budget package and make changes by passing additional trailer bills and, potentially, amending the 2024 Budget Act.
In fact, the Legislature is expected to soon consider proposals that aim to smooth budget volatility by requiring the state to set aside more revenue in the future. State leaders have indicated that this plan includes two components:
Require a portion of a projected budget surplus to be placed in a “temporary holding account” to be allocated in future years if anticipated revenues are actually realized; and
Ask voters to 1) amend the state Constitution to increase the maximum size of the Budget Stabilization Account (“rainy day fund”) — which is currently capped at 10% of General Fund tax proceeds — and 2) exclude deposits to state reserve funds from the state spending limit created by Proposition 4 in 1979 (the “Gann Limit”).
These proposals involve trade-offs. Expanding reserves would provide more budget resilience during revenue downturns and help policymakers avoid making harmful cuts. But some critical needs of Californians may remain unmet if additional resources must be saved instead of being immediately invested in California’s communities.
What more should state leaders do next year and beyond to create an equitable California?
For every Californian — from different races, backgrounds, and places — to thrive and share in the state’s economic and social life, strategic policy choices must be made. To a large extent, these choices are made through the state budget process. State leaders should set funding and policy priorities that help all Californians share in the wealth that they help create while also ensuring that the state’s tax dollars are invested in the areas of greatest need.
To achieve these goals — and move toward a more equitable California — bold approaches are needed across a broad range of public services and systems. For example, state leaders should:
Raise revenues to boost tax fairness and invest in our communities.
The temporary tax revenue in the 2024-25 budget package helps to prevent many harmful spending cuts in the short term. But state leaders missed an opportunity to raise revenues on an ongoing basis by ensuring that profitable corporations and wealthy Californians are adequately contributing taxes to support critical public services. For example, policymakers can enact permanent tax policy changes to 1) address corporations’ use of tax havens to avoid state taxes and 2) impose reasonable limitations on business tax credits to prevent businesses from essentially zeroing out their tax bills.
Provide ongoing, at-scale resources to increase affordable housing and solve homelessness.
More Californians are experiencing homelessness than ever before. Recent state investments have been crucial in supporting these individuals and in promoting housing stability. However, policymakers can go further by creating sustainable systems to serve all Californians struggling to stay in their homes. Specifically, state leaders should prioritize at-scale, sustained funding and policy interventions that promote affordable and supportive housing, protect renters, and direct resources to rental assistance and homelessness services.
Close more state prisons to free up resources for critical services.
In recent years, state leaders have taken steps to downsize California’s costly and sprawling prison system, but progress has stalled. Spending on state corrections remains high — over $14 billion per year — and the prison system operates with roughly 15,000 empty beds. While the budget agreement deactivates selected prison housing units — lowering state costs by around $80 million per year — closing prisons would generate substantially more ongoing savings. California can safely close up to five additional prisons for state savings of roughly $1 billion per year. These resources could be used for reentry assistance and other services to promote rehabilitation, reduce poverty, and strengthen families and communities — particularly Black and Latinx communities, which have been disproportionately impacted by generations of discrimination at the hands of the criminal justice system.
Governor Gavin Newsom released a summary of the May Revision to his proposed 2024-25 California state budget on May 10, projecting a $44.9 billion shortfall, or $27.6 billion shortfall, when taking into account early budget action taken by the legislature in April to reduce the shortfall by $17.3 billion. While many of the details are forthcoming, the governor proposes to close the budget gap through the partial use of reserves, spending cuts, and delays or deferrals of spending authorized in earlier years. While the $201 billion General Fund spending plan would protect many investments made in prior years, it also includes cuts and delays to programs and services that affect the day-to-day lives of Californians, particularly foster youth, Californians with disabilities, immigrant communities, students, and families with young children. Notably, the administration’s strategy demonstrates continued resistance to adopting long-term revenue solutions, putting corporate profits over families. This shortsighted approach exacerbates wealth inequality, stalls progress, and undermines the governor’s vision of a California for all.
WHat is the May Revision?
Released on or before May 14, the May Revision updates the governor’s economic and revenue outlook; adjusts the governor’s proposed expenditures to reflect revised estimates and assumptions; revises, supplements, or withdraws policy initiatives that were included in the governor’s proposed budget in January; and outlines adjustments to the minimum funding guarantee for K-14 education required by Proposition 98 (1988).
The rapid shift from a budget surplus, as was the case in recent fiscal years, to the budget shortfall we face today, is a lingering effect of the unprecedented COVID-19 pandemic and its impact on the economy. The projected budget shortfall is primarily the result of state revenue collections that the administration now projects are $12.5 billion lower over the three-year budget window (fiscal years 2022-23 through 2024-25) than was anticipated in the governor’s January proposal. The shortfall reflects the steep stock market decline in 2022 — after significant growth in 2020 and 2021 — that negatively impacted income tax collections from high-income Californians and corporations, as well as the economic dampening effects of the Federal Reserve’s interest rate hikes.
Lower state revenues over the three-year budget window result in automatic adjustments to constitutionally-required funding allocations, including to the state’s main reserve and education reserve accounts, as well as reduced funding for K-12 schools and community colleges.
The governor’s proposed solutions to cover the shortfall would partially draw down on various state reserves. The solutions include using $12 billion enacted through legislative early action in April, however, just $3.1 billion would be used in 2024-25, and $8.9 billion would be shifted to 2025-26. The administration also proposes draining the Safety Net Reserve ($900 million), withdrawing $2.6 billion from the Public School System Stabilization Account for education, and leaving an estimated $22.9 billion for future use.
The administration’s proposals include billions in cuts, delays, and deferrals of critical investments intended to improve the health and well-being of all Californians. Reductions that will disproportionately affect the lives of low-income communities, Californians of color, Californians with disabilities, and families with children include, among others:
Ongoing cuts to CalWORKs for supportive services, home visiting, and mental health/substance abuse services (despite draining the Safety Net Reserve intended to be used to avoid cuts to CalWORKs) and a one-time cut in employment services,
Cuts to programs that help address homelessness and provide affordable housing,
Indefinitely delaying further expanding child care slots,
Various reductions in investments in behavioral health, including cuts to infrastructure, housing, workforce, and youth behavioral health initiatives,
Cuts in ongoing support for public health and one-time investments in the health workforce,
Cuts to services for Californians who are undocumented, including ongoing support for the expansion of In-Home Support Services (IHSS) and delayed expansion of the California Food Assistance Program (CFAP),
Pulling back investments in transitional kindergarten (T-K) facilities and pre-kindergarten (pre-K) inclusivity of students with disabilities.
The revised budget also continues to utilize a controversial accounting maneuver to shift $8.8 billion in K-12 schools and community college (K-14) costs — on paper — from 2022-23 to later fiscal years and pay for these delayed expenses using non-K-14 funds.
The May Revision proposals would protect and maintain some progress made in prior budget years to help improve economic security and opportunities for Californians with low incomes and Californians of color, including expanding full-scope Medi-Cal coverage to all Californians, maintaining investments in cash assistance through the CalEITC, Young Child Tax Credit, and Foster Youth Tax Credit, and temporary rate increases for child care providers.
However, state leaders have the tools and resources to prevent other harmful cuts. By further tapping into the state’s main rainy day fund and permanently reducing tax breaks for profitable corporations, state leaders can ensure corporations pay their fair share and avoid cuts to services that help Californians stay healthy, housed, and put food on the table.
This First Look report outlines key pieces of the May Revision to the 2024-25 California budget proposal, and explores how the governor prioritized spending and determined cuts to balance the budget amid a sizable projected state budget shortfall.
Revised Budget Projects Moderate Job and Wage Growth
The administration’s economic outlook projects trends in major economic indicators that affect state tax collections and revenues in the budget. The revised outlook projects steady, but slowing national economic growth into next year, with California job gains expected to remain relatively weak through 2025. The number of nonfarm jobs in the state is forecast to increase by just 0.1% in 2024 and 0.4% in 2025, following a stronger increase of 0.9% in 2023 and 1.5% in 2019, just before the pandemic. California’s unemployment rate is projected to remain relatively higher in the near term as well: 5.2% in 2024 and 5.3% in 2025, up from 4.7% in 2023 and 4.1% in 2019. Wages and incomes are also expected to grow more slowly this year and next than just prior to and coming out of the pandemic downturn. The revised budget does not project a recession in the near term, but does note that if inflation remains elevated, the Federal Reserve could maintain higher interest rates which could slow economic activity by more than projected.
While the administration’s outlook is useful for understanding how economic conditions might impact budget revenues, it’s also important to consider how economic conditions are affecting Californians with low incomes, who count on programs and services funded by the budget. In March 2024, the majority of California households with incomes under $25,000 (55%) reported having difficulty paying for basic needs like food, housing, and medical expenses, according to the most recent US Census Pulse survey. Black, Latinx, and other Californians of color, as well as households with children were more likely to struggle paying for basic expenses. The Census data from March also show that 42% of Black households with children and 32% of Latinx households with children did not have enough to eat, compared to 15% of white households with children. Among all households with children, about one-quarter (24%) had insufficient food. In addition, the latest Census data show that California continues to have the highest poverty rate of the 50 states based on the Supplemental Poverty Measure, which provides a more accurate picture of poverty by accounting for differences in the cost of housing across communities. Housing costs in California typically exceed costs in the rest of the nation, and rents have risen sharply in many parts of the state in recent years making it difficult for Californians with low incomes to afford housing.
Revised Budget Reflects Additional $12.5 Billion Downgrade in Revenue Outlook
The governor’s revised proposal is based on an updated revenue estimate for the three-year budget window spanning fiscal years 2022-23 through 2024-25. After lower-than-expected tax collections since the governor’s January proposal, the administration now expects General Fund revenues to be about $12.5 billion lower over that window than the January estimate. This is before taking into account loans and transfers, the governor’s revenue proposals, and other budget solutions (see Tax Proposals section).
The administration continues to have a more optimistic revenue outlook than the Legislative Analyst’s Office, which recently projected that the three-year total of the “Big Three” General Fund revenues sources — personal income taxes, corporate taxes, and sales taxes, which together make up the majority of General Fund revenues — could be around $19 billion lower than the governor’s January projection.
After accounting for automatic spending changes resulting from the lower revenue estimate, the governor estimates that the downgraded revenue outlook results in a $7 billion addition to the three-year state deficit the governor identified in January.
The administration expects state revenue growth to generally return to the pre-pandemic pattern after the dramatic spike in revenues during the pandemic as the stock market surged and then subsequently corrected.
Modified Tax Proposals Include Temporary Business Tax Break Limitations
In January, the governor proposed a modest package of revenue solutions that included limiting the extent to which businesses can use prior-year losses to offset their taxable profits (“Net Operating Loss carryforwards”), eliminating oil and gas tax subsidies, and other minor tax changes. These revenue proposals made up less than 1% of the total budget solutions proposed in January.
The May Revision modifies the January revenue-related proposals by:
Replacing the previous Net Operating Loss proposal with temporary business tax benefit limits.
The updated proposal would suspend the use of Net Operating Losses for businesses with state income above $1 million, and limit total business tax credits that a business can use in a single year to $5 million. The tax credit limit would exclude Low-Income Housing Tax Credits as well as Pass-Through Entity Elective tax credits. These limitations would be in effect for up to three years, beginning with the 2025 tax year, and could be eliminated if the administration determines that the revenue situation has improved sufficiently by the 2025-26 May Revision. The administration estimates these limitations would raise revenues by $900 million in 2024-25 and $5.5 billion in 2025-26.
Clarifying existing law for how some multinational corporations calculate their taxable income in California.
The administration expects this proposal to raise $216 million in the budget window.
While temporary limitations on businesses’ ability to reduce their state income taxes help to address the deficit in the short-term, the governor’s revised proposal does little to increase state revenues on an ongoing basis and misses key opportunities to make the state’s tax system more fair. Policymakers should consider permanent limitations on business tax credits — as some states already do — to ensure that businesses are not paying next to nothing in state income taxes when they turn large profits. State leaders should also explore other options to permanently increase state revenues by making the corporate tax system more fair and eliminating or reforming other costly and inequitable tax breaks, which are not regularly considered as part of the budget process.
May Revision Includes Withdrawal of Reserve Funds, Proposes New Fund to House “Excess Revenue”
California has a number of state reserve accounts that set aside funds intended to be used for a “rainy day” when economic conditions worsen and state revenues decline. Some reserves are established in the state’s Constitution to require deposits and restrict withdrawals, and some are at the discretion of state policymakers.
California voters approved Proposition 2 in November 2014, amending the California Constitution to revise the rules for the state’s Budget Stabilization Account (BSA), commonly referred to as the rainy day fund. Prop. 2 requires an annual set-aside equal to 1.5% of estimated General Fund revenues. An additional set-aside is required when capital gains revenues in a given year exceed 8% of General Fund tax revenues. For 15 years — from 2015-16 to 2029-30 — half of these funds must be deposited into the rainy day fund, and the other half is to be used to reduce certain state liabilities (also known as “budgetary debt”).
Prop. 2 also established a new state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA). The PSSSA requires that when certain conditions are met, the state must deposit a portion of General Fund revenues into this reserve as part of California’s Prop. 98 funding guarantee (see Prop. 98 section). In order to access the funds in the BSA and PSSSA, the governor must declare a budget emergency — an action that is not included in the May Revision or in the early budget action agreed to by the governor and Legislature in April, but will be necessary to access these funds.
The BSA and the PSSSA are not California’s only reserve funds. The 2018-19 budget agreement created the Safety Net Reserve Fund, which holds funds intended to be used to maintain benefits and services for CalWORKs and Medi-Cal participants in the event of an economic downturn. Additionally, the state has a Special Fund for Economic Uncertainties (SFEU) — a reserve fund that accounts for unallocated General Fund dollars and that gives state leaders total discretion as to when and how they can use the available funds.
The current-year (2023-24) budget, enacted in mid-2023, projected $22.3 billion in the BSA; $10.8 billion in the PSSSA; $900 million in the Safety Net Reserve; and $3.8 billion in the SFEU. However, revenue adjustments in the current year result in updated 2023-24 projections in the governor’s proposed budget — $22.6 billion in the BSA; $2.6 billion in the PSSSA; $900 million in the Safety Net Reserve; and a shortfall of $843 million in the SFEU, which fluctuates throughout the year based on changes in revenues.
In April 2024, the governor and legislative leaders agreed to an early action budget package to partially address the state’s budget shortfall that included drawing down $12 billion from the BSA, a proposal that was also included in the governor’s January budget proposal.
The May Revision:
Includes the $12 billion withdrawal from the BSA, but spreads the withdrawal over the next two fiscal years — utilizing only $3.1 billion in 2024-25 and shifting $8.9 billion to 2025-26.
Withdraws all $900 million from the Safety Net Reserve, despite also proposing significant cuts to the CalWORKs program, a program the reserve is designed to protect (see CalWORKs section).
Withdraws $5.8 billion from the PSSSA in 2023-24 and the remaining $2.6 billion in 2024-25.
Projects a 2024-25 year-end SFEU balance of $3.4 billion.
In total, the May Revision proposes to withdraw less from the state’s rainy day funds for 2024-25 than the governor’s January proposal, despite the fact that the administration projects that the budget shortfall has increased since January. Taking into account the remaining reserves in the BSA and the SFEU, the governor’s May Revision projects total remaining reserves of $22.9 billion at the end of 2024-25, compared to $18.4 billion in the governor’s January proposal.
Given that the administration’s approach to resolving the state budget shortfall includes an array of harmful cuts to vital programs and services that help Californians with low incomes, communities of color, and Californians with disabilities, state leaders appear to have additional room to responsibly draw upon reserves to protect those programs and also leave funds available to address future fiscal uncertainties.
New Fund to Capture “Excess Revenue”
The May Revision also signaled the administration’s intent to enact legislation to enable state leaders to save more during future upswings in revenue by requiring the state to set aside a portion of anticipated “surplus” funds — funds that exceed a yet-to-be-determined standard for historical trends. The administration notes that the funds would not be able to be committed until revenues have been realized.
While the specifics of the governor’s proposal are not yet available, any efforts to set aside additional funds would likely interact with other constitutional requirements that affect state spending and reserves, including Prop. 4 (1979; the “Gann Limit”), Prop. 98 (1988), and Prop. 2 (2014). For instance, the administration notes that amendments would be needed to Prop. 2 to allow for increased deposits to the BSA. Any amendments to the constitutional provisions, however, would need to be approved by California voters.
State Budget Reserves Explained
See our report, California’s State Budget Reserves Explained, to learn more about the savings accounts policymakers can use to support Californians in times of budget shortfalls.
Access to health care is necessary for everyone to be healthy and thrive. About 14.5 million Californians with modest incomes — nearly half of whom are Latinx — are projected to receive free or low-cost health care through Medi-Cal (California’s Medicaid program) in 2024-25. Another 1.8 million Californians purchase health coverage through Covered California, the state’s health insurance marketplace.
The May Revision maintains recent Medi-Cal expansions, but pulls back on other health care investments that were established in prior years. Specifically, the revised budget:
Maintains the expansion of Medi-Cal eligibility to undocumented adults ages 26 to 49, but cuts $94.7 million to eliminate In-Home Supportive Services (IHSS) for all undocumented Californians.
These services help Californians with low incomes who are over the age of 65, blind, and/or disabled live with dignity in their own homes. Under this revised spending plan, Californians would lose access to IHSS solely due to their immigration status. This proposal is both harmful and xenophobic, potentially pushing immigrant families deeper into poverty. These cuts could also lead to increased state spending on nursing home care in the long run. State leaders should not compromise home care for Californians simply due to their immigration status.
Cuts $280 million for Equity and Practice Transformation Payments to Providers.
These grants to certain Medi-Cal providers were intended to improve quality, health equity, behavioral health integration, and primary care infrastructure. The May Revision maintains $70 million General Fund expenditures included in the 2022 Budget Act.
Cuts $62 million from the Health Care Affordability Reserve Fund intended to reduce cost-sharing in Covered California.
These funds are critical for Californians who are uninsured and struggling to purchase coverage as well as for those who are insured but can’t afford to access the care they need.
Eliminates the Indian Health Grant Program.
This aims to improve the health status of American Indians living in urban, rural, and reservation or rancheria communities throughout California. The May Revision proposes to reduce $23 million annually beginning in 2024-25 to eliminate this program.
Freezes funding levels for county administration of Medi-Cal eligibility.
This reflects a reduction of $20.4 million in 2024-25 and ongoing. This reduction occurs at a time when counties are processing a high volume of renewals and many Californians are losing Medi-Cal coverage.
Eliminates acupuncture as an optional Medi-Cal benefit for adults.
The estimated reduced General Fund cost for this cut is $5.4 million in 2024-25 and $13.1 million ongoing. Acupuncture is performed to prevent, modify or alleviate severe, persistent chronic pain resulting from a medical condition.
Eliminates $2 million in ongoing General Fund for free clinics.
This provides primary care, preventive health care, and additional health services to medically underserved Californians.
Does not provide funding to reform the Medi-Cal Share of Cost program.
This would alleviate financial burdens for many older adults and people with disabilities. Under the current Medi-Cal Share of Cost program, which forces many Californians to choose between paying for their health care, rent, food, or other basic needs. This reform was passed in the 2022 Budget Act but was subject to future appropriation.
Does not provide funding to implement continuous coverage for children from birth to age five.
California was one of the first states to pass a policy that would ensure that children under age five can keep their Medi-Cal coverage without administrative renewals. Funding is needed to start the necessary steps to implement this policy change.
The May Revise also amends the Managed Care Organization (MCO) tax revenue and expenditure proposal. The MCO tax is a provider tax imposed by states on health care services that essentially reduces, or offsets, state General Fund spending on Medi-Cal. The federal government approved the initial MCO tax proposal last year. In January, the administration proposed to increase the MCO tax and the May Revision proposes an additional amendment to the MCO tax to include health plan Medicare revenue, resulting in an additional $689.9 million in reduced General Fund costs in 2024-25, $950 million in 2025-26, and $1.3 billion in 2026-27. These changes would be subject to federal approval. Overall, the May Revision includes $9.7 billion in MCO tax funds over multiple years to support the Medi-Cal program. However, rather than using $6.7 billion of this amount to continue Medi-Cal provider rate increases, as originally planned, these funds will be used to offset General Fund spending.
The May Revise does protect some health care investments that were established in prior years. Specifically, the budget:
Sustains the ambitious Medi-Cal reform effort known as CalAIM (California Advancing and Innovating Medi-Cal).
This was originally introduced in 2019. The main goal of this initiative is to better support millions of Californians enrolled in Medi-Cal — particularly those experiencing homelessness, children with complex medical conditions, children and youth in foster care, Californians involved with the justice system, and older adults — who often have to navigate multiple complex delivery systems to receive health-related services. Initial components of CalAIM launched in the beginning of 2022 and the remaining components will go live over the next several years.
Maintains one-time $200 million ($100 million General Fund) in 2024-25 to support access to reproductive health services.
The administration plans to develop a federal demonstration waiver that would support access to family planning services for Medi-Cal enrollees as well as strengthen the state’s reproductive health safety net. Access to reproductive health services, including contraceptive care, sexually transmitted infection prevention and treatment, obstetrical care, and abortion services, have a profound impact on the lives of women and pregnant people.
Maintains commitment to eliminate the Medi-Cal asset test for seniors and people with a disability.
Specifically, the revised budget includes $112.2 million total funds ($56.1 million General Fund) in 2023-24 and $227.2 million total funds ($113.6 million General Fund) in 2024-25 for the elimination of the Medi-Cal asset test which became effective on January 1, 2024.
Lastly, the May Revision includes directed payments to children’s hospitals and public hospitals. This includes an annual allocation of $230 million to support children’s hospitals, with half of these funds provided by the federal government and the remaining half sourced from the Medi-Cal Provider Payment Reserve Fund.
Revised Budget Severely Cuts Health Care Workforce Development
Access to health care services is important for everyone’s health and well-being. The state’s workforce must meet the needs of Californians to achieve equitable access to timely and culturally competent health services. While state policymakers have made considerable investments in recent years to bolster the health workforce, investments in various health workforce areas still fall short.
Despite the clear need to invest in the health workforce, the May Revision cuts over $1 billion over multiple years. This includes:
$854.6 million General Fund across five years for various health care workforce initiatives.
This includes community health workers, nursing, social work, primary care education and training, and efforts to increase the number of underrepresented individuals in health professions. The May Revision proposes to cut $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 these initiatives.
$189.4 million Mental Health Services Act Fund for behavioral health workforce programs.
These cuts impact the social work initiative, addiction psychiatry fellowships, university and college grants for behavioral health professionals, expanding Master of Social Work slots, and the local psychiatry behavioral health program overseen by the Health Care Access and Information Department.
The May Revision also modifies previous plans to enhance Medi-Cal provider participation under the Managed Care Organization (MCO) tax proposal. While the revised budget maintains $727 million to increase provider rates for primary care, maternity care (including doulas), and non-specialty mental health services, it reallocates $6.7 billion previously intended for other health areas, including primary and specialty care in Medi-Cal, abortion and family planning access, clinics, and the Medi-Cal workforce pool. This redirection of funds towards existing Medi-Cal services is sensible in a budget deficit, but it raises concerns about the impact on timely access to health care services.
The health care workforce and access to health care services are intrinsically linked. If people cannot find a health care provider in their area or face extended wait times for an appointment, they do not have meaningful access to health care. State policymakers must continue to build a health care workforce that not only meets the needs of Californians but also mirrors the state’s diverse population in terms of race, ethnicity, sability, gender identity, and sexual orientation. Doing so will require sustained, ongoing investments, not cuts.
Behavioral Health Initiatives Mostly Sustained, But New Cuts Proposed
Millions of Californians who cope with behavioral health conditions — mental illness or substance use disorders — rely on services and supports that are primarily provided by California’s 58 counties. Improving California’s behavioral health system is critical to ensuring access to these services for all Californians, regardless of race, age, gender identity, sexual orientation, or county of residence.
In recent years, state policymakers have launched various initiatives to transform California’s behavioral health system with the goal of improving access. Proposition 1, the most recent of these initiatives, was approved earlier this year. Prop. 1 is a two-part measure that 1) amends California’s Mental Health Services Act and 2) creates a $6.38 billion general obligation bond to fund behavioral health treatment and residential facilities as well as supportive housing for veterans and Californians with behavioral health needs.
The May Revise includes some initial funding to begin Prop. 1 implementation, including:
$126.9 million for the Department of Health Care Services in 2024-25.
Of this amount, $16.9 million is from the General Fund, $28.2 million is from the Behavioral Health Services Act Fund, $31.6 million is from the Opioid Settlement Fund, $10.4 million is from the Behavioral Health Infrastructure Bond Act, and $39.8 million is from the federal government.
$85 million ($50 million General Fund) for county behavioral health departments.
This provides mental health and substance use disorder services to Californians through Medi-Cal and other programs.
In the governor’s January budget proposal and the revised budget proposal, the administration maintains funding to continue behavioral health initiatives that state leaders launched in recent years. For instance, the revised budget sustains the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration, which aims to improve mental health services for Medi-Cal members. The administration assumes that implementation of BH-CONNECT will begin on January 1, 2025. Major reforms to the Medi-Cal program as well as the level of federal funding provided must be negotiated with the federal government through the Medicaid waiver process. As such, implementation will depend on the availability of funding and federal approval.
However, the revised budget also proposes a series of cuts and delays to other behavioral health initiatives. Specifically, the revised budget:
Eliminates $450.7 million one-time from the last round of the Behavioral Health Continuum Infrastructure (BHCIP) Program.
This program provides competitive grants to expand the community continuum of behavioral health treatment resources. The May Revision proposes to reduce BHCIP funding by $70 million General Fund in 2024-25 and $380.7 million General Fund in 2025-26. While BHCIP will receive Prop. 1 bond funds, these funds are inadequate to address the overarching need for state investments. (See homelessness section.)
Reduces funding and modifies the Children and Youth Behavioral Health Initiative.
The spending reductions — $72.3 million in 2023-24, $348.6 million in 2024-25, and $5 million in 2025-26 — impact school-linked health partnerships, various grant programs, a public education campaign, and a youth suicide reporting and crisis response pilot program. Of this amount, the administration notes that $140 million General Fund proposed in 2024-25 to support a platform is no longer needed. The revised budget does maintain $9.5 million ($4.1 million General Fund) in 2024-25 to establish a Wellness Coach benefit in Medi-Cal, which the administration proposed in January. Effective January 1, 2025, these coaches will offer wellness education, screening, support coordination, and crisis management services to children and youth in schools and other behavioral health settings.
Cuts $132.5 million in 2024-25 and $207.5 million in 2025-26 for the Behavioral Health Bridge Housing Program.
This program aims to address the immediate housing and treatment needs of people with serious behavioral health conditions who are also experiencing unsheltered homelessness. The administration notes that $90 million in Behavioral Health Services Act funding would be provided in 2025-26, resulting in a net reduction of $117.5 million for that year. (See homelessness section.)
Cuts $126.6 million ongoing General Fund for CalWORKs mental health and substance abuse services, effectively eliminating this service.
California has led the way in expanding CalWORKs support services, recognizing families often need additional support, like mental health and substance use treatment, to improve their well-being and address barriers to work. (See CalWORKs section.)
Cuts $61 million General Fund in 2024-25 and ongoing for the Naloxone Distribution Project and Medication Assisted Treatment.
Naloxone is a life-saving medicine that reverses an opioid overdose and Medication Assisted Treatment is treatment for a substance use disorder that includes medications along with counseling and other support.
Includes $27.2 million General Fund in 2023-24 and $37.8 million General Fund in 2024-25 for Community Assistance, Recovery, and Empowerment (CARE) Act.
This is a plan to establish court-ordered treatment for people experiencing both homelessness and serious behavioral health challenges. The revised budget adjusts estimated county funding to align with recent trends in utilization.
Investing in the state’s behavioral health system is crucial for supporting Californians who are coping with mental health conditions or substance use disorders. State leaders should continue to invest in the behavioral health system and address the behavioral health workforce shortage. Policymakers can also invest in efforts to make sure that the behavioral health workforce better reflects the diversity of all Californians, including their gender identities and sexual orientations.
Cuts to Public Health Leave Californians Vulnerable to Future Threats
Everyone should have the opportunity to be healthy and thrive. The California Department of Public Health as well as local public health departments are vital in protecting and promoting Californians’ health and well-being. From improving living conditions to promoting healthy lifestyles to responding to infectious disease emergencies, public health workers are essential.
Despite this important responsibility, funding has not kept pace with the cost of responding to ongoing and emerging health threats. Many Californians suffered during the COVID-19 pandemic due to the state’s lack of preparedness. Communities of color experienced higher rates of illness and death due to historic and ongoing structural racism that deny many communities the opportunity to be healthy and thrive. Structural racism continues to underscore the need to address the root cause of health disparities through public health initiatives.
In an alarming move, the governor’s revised budget proposes significant cuts to public health investments that were established in previous years. Specifically, the May Revision eliminates $52.5 million in 2023-24 and $300 million ongoing General Fund thereafter to improve public health infrastructure at the state and local level. Under this revised spending plan, local health jurisdictions would no longer continue to receive a minimum base allocation to support workforce expansion, data collection and integration, and partnerships with health care delivery systems and community-based organizations. At the state level, these cuts will reduce the capacity to assess and respond to current and emerging public health threats and will weaken key functions such as emergency preparedness and public health communications.
These cuts to public health capacities are short-sighted and harmful. After years of underinvestment in public health, these dollars provided much-needed infrastructure support. Given that public health emergencies and climate change disasters often disproportionately impact people with low incomes and communities of color, these cuts undo progress to advance health equity. State leaders should ensure that counties and cities have the capacity to address ongoing and future public health threats.
Homelessness & Housing
May Revision Reduces Limited Funding for Homelessness
Having a place to call home is core to living with dignity and health. Yet homeless service providers served over 330,000 Californians experiencing homelessness last year, underscoring both the need and increased capacity of the state’s response systems. Homelessness providers and localities are serving more individuals and families than ever before partially due to previous one-time state funding investments that provided critical resources for homelessness prevention and resolution services. Despite this, the May Revision proposes no new resources and reduces previous allocations, effectively leaving no significant state funding to address homelessness in 2024-25 or beyond.
The May Revision proposes to eliminate $260 million in supplemental grant funds for the Homeless Housing, Assistance and Prevention (HHAP) Grant Program in 2025-26, but maintains the last round of funding in 2023-24. HHAP is critical as it provides local jurisdictions with flexible funds to address homelessness in their communities in a variety of ways, ranging from rental and operating subsidies to acquiring shelter, interim and permanent housing beds, and street outreach, among other uses. The May Revision also changes previously proposed funding delays into funding cuts for various homelessness programs that serve diverse populations.
A reduction of $132.5 million in 2024-25 and $207.5 million in 2025-26 for the Behavioral Health Bridge Housing Program.
This leaves $132.5 million General Fund in 2024-25 and $117.5 million ($90 million Mental Health Services Fund and $27.5 million General Fund) in 2025-26. These funds help provide immediate housing for people experiencing homelessness who have a serious mental illness or substance use disorder (see Behavioral Health section).
A reduction of $80 million General Fund for the Bringing Families Home Program.
Appropriated in the 2022 Budget Act, which serves families involved in the child welfare system.
A reduction of $65 million General Fund for the Home Safe Program.
Appropriated in the 2022 Budget Act, which supports the safety and housing stability of individuals involved in Adult Protective Services.
A reduction of $50 million General Fund for the Housing and Disability Advocacy Program.
Appropriated in the 2022 Budget Act, which assists people experiencing or at risk of homelessness to connect with disability benefits and housing supports.
Also notable is the increased reduction of $450.7 million one-time from the last round of the Behavioral Health Continuum Infrastructure Program (BHCIP), leaving $30 million one-time General Fund in 2024-25. This program provides competitive grants to expand the community continuum of behavioral health treatment resources ranging from wellness centers to psychiatric care facilities. BHCIP will be receiving $4.4 billion in bond funds through Proposition 1, which voters approved in March 2024. The Department of Health Care Services is anticipated to open funding applications this summer and begin granting competitive awards by the fall (see Behavioral Health section). Prop 1. also restructures funds from the Mental Health Services Act, which exists separately from the state budget. It now requires counties to redirect 30% of these funds for housing interventions for people experiencing or at risk of homelessness with behavioral health conditions. However, these funds are inadequate to address the overarching need for state investments, as they focus solely on a specific subset of unhoused Californians.
May Revision Proposes Deeper Cuts for Affordable Housing
All Californians deserve a safe, stable, and affordable place to call home. However, many are blocked from this opportunity due to California’s affordable housing shortage and accompanying high housing costs. Renters, people with low incomes, Black and Latinx Californians, and undocumented Californians are especially likely to struggle to afford their homes. Yet despite noting California’s serious housing affordability challenges, the May Revision proposes deeper funding reductions and scarce new investments to affordable housing programs.
The administration now proposes $1.7 billion in General Fund reductions for various programs that support affordable housing development and homeownership. The May Revision reductions build on those in the January proposed budget. These include:
An additional reduction of $236.5 million General Fund for the Foreclosure Intervention Housing Preservation Program in 2023-24, bringing the total reduction to $474 million, which will eliminate the program.
An additional reduction of $75 million General Fund for the Multifamily Housing Program, bringing the total reduction to $325 million General Fund, eliminating state funding in 2023-24.
A newly proposed reduction of $127.5 million General Fund for the Adaptive Reuse Program, with $87.5 million from the 2023 Budget Act and $40 million from the 2022 Budget Act, which will eliminate the program.
An additional reduction of $35 million General Fund for the Infill Infrastructure Grant Program, with $25 million from 2023 Budget Act and $10 million from the 2022 Budget Act, eliminating state funding in 2023-24.
An additional reduction of $26.3 million General Fund for the Veterans Housing and Homelessness Prevention Program from the 2022 Budget Act. The January proposed budget already fully reduced allocated state funds for this program in 2023-24.
The May Revision does reinstate an additional $500 million for state Low Income Housing Tax Credits – as has been done since 2019 – which help promote and finance affordable housing development. The administration also highlights Proposition 1, approved by voters in March, as providing some funding for supportive housing programs. Prop. 1 provides roughly $2 billion in bond funds for the development of permanent supportive housing units specifically for Californians experiencing or at risk of homelessness with behavioral health needs (see Homelessness and Behavioral Health sections). Over half of these funds are designated for veterans. The Department of Housing and Community Development is anticipated to open applications for this funding at the end of 2024. However, these funds are specifically for supportive housing units and fall short in providing the diverse critical investments needed to continue meaningful, affordable housing development in California.
state budget terms defined
What’s the difference between a trailer bill and policy bill? A deficit and an operating deficit? And what exactly is a “Budget Bill Jr.?” Our Glossary of State Budget Terms answers that and more.
May Revision Proposes Alarming Cuts to Vital Safety Nets
While California has made significant investments in its social safety net in recent years, millions of people in communities across the state are still struggling to make ends meet as the cost of living continues to outpace incomes. Poverty, particularly among children and people of color, is on the rise. Despite this, the governor’s proposed budget includes very concerning cuts to vital safety net programs that may have devastating consequences for California families with the greatest needs. Cuts to the Department of Social Services, which administers the state’s safety net programs, total nearly $2 billion in the 2024-2025 fiscal year alone. These cuts target key investments in CalWORKs, food assistance, and child care. The budget proposal outright eliminates several critical support services for CalWORKs families, significantly reduces funding for program administration, and drains the dedicated reserves that were designed to protect the program from cuts.
Additionally, the proposal delays a long-awaited program expansion of food assistance to undocumented older adults and defunds a pilot to increase CalFresh benefits. In delaying and eliminating these vital services, which were small stepping stones to larger expansions that would close gaps in food insecurity across the state, the proposal would take California a step backward. In the child care space, the governor indefinitely delays his promised slot expansion despite the growing unmet need. Other cuts in this space would affect programs that serve foster youth and people with disabilities.
California’s future largely depends on children whose entire lives will be shaped by the extent to which our state invests in their education, health, and well-being. But children cannot thrive unless their families thrive. Despite the budget shortfall, California’s leaders have a responsibility to ensure that our state’s children and families have the opportunity to reach their full potential.
Revised Budget Maintains Tax Credits for Californians with Low Incomes
California’s Earned Income Tax Credit (CalEITC), Young Child Tax Credit, and Foster Youth Tax Credit are refundable state income tax credits that provide tax refunds or reductions in state taxes owed to millions of Californians with low incomes, boosting their incomes and helping them to pay for basic needs like food. These credits also help to promote racial and gender equity by targeting cash to Californians of color, immigrants, and women who are frequently blocked from economic opportunities and forced into low-paying jobs that fail to provide economic security.
The administration maintains these tax credits in the revised budget while also continuing to cut funding for free tax preparation assistance, education, and outreach, in half to $10 million in 2024-25, as proposed in January. These funds support community based organizations (CBOs) in their efforts to educate community members about state and federal refundable tax credits, connect eligible tax filers to free tax preparation services and assist tax filers in applying for or renewing Individual Taxpayer Identification Numbers, which some Californians must have in order to claim tax credits. Cutting this funding will reduce the capacity of CBOs to provide these services.
Revised Budget Does Not Implement Workers’ Tax Credit Slated for 2024
The 2022-23 budget included a new refundable tax credit for workers slated to become available in tax year 2024 if the Department of Finance determined that sufficient General Fund resources were available to support it. This credit was intended to help cover the cost of being a member of a labor union, particularly among workers with lower incomes who are typically excluded from an existing tax deduction for certain business expenses, including union dues. The administration does not include this new tax credit in the revised 2024-25 budget given the multi-year budget shortfall.
May Revision Proposes Additional Cuts to Critical CalWORKs Support Services
The California Work Opportunity and Responsibility to Kids (CalWORKs) program is a critical component of California’s safety net for families with low incomes. The program helps over 650,000 children and their families, who are predominantly people of color, with modest cash grants, employment assistance, and critical supportive services. The governor’s May Revision proposes deeply concerning cuts to CalWORKs administrative and program funding in addition to the significant cuts proposed in January.
The newly proposed cuts include:
A one-time reduction of $272 million in 2024-25 for employment services under the single allocation funding.
An ongoing reduction of $126.6 million for Mental Health and Substance Abuse Services, effectively eliminating this service.
An ongoing reduction of $47.1 million for the Home Visiting Program, which is designed to support positive health, development, and well-being of CalWORKs families with children under 2.
This amounts to a total cut of $445.7 million. Adding on to the cuts proposed in January, which totaled about $293 million in FY 24-25, this brings the total to about $739 million in cuts to CalWORKs, two-thirds of which would be ongoing. For many years, California has led the way in expanding CalWORKs support services, recognizing families have diverse needs and often need additional support to address barriers to work and improve their well-being. Taking programs away that offer mental health support, crisis intervention (Family Stabilization Program), and parenting support (Home Visiting Program), which research has shown can reduce or prevent the effects of adverse experiences for children, could jeopardize families’ ability to meet all program requirements and maintain access to their grants. Families not meeting strict program requirements will be at risk of punitive sanctions, which will only push them deeper into poverty.
In addition to the proposed cuts, the governor’s budget does not include funding to redirect collected child support payments from the state back to former CalWORKs parents. For formerly assisted families, outstanding child support debt that is collected does not go to the families but rather goes to the state, county, and federal governments as “reimbursement” for the costs associated with the CalWORKs program. Under this change, which was supposed to go into effect in April 2024, these families would have received an estimated annual total pass-through of $187 million annually.
Additionally, the governor proposes drawing down the full $900 million in the Safety Net Reserve, which was created to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn (see Reserves section). While the governor does not propose cutting cash grants, given the projections of a sustained deficit in upcoming years, fully drawing down the reserve will leave CalWORKs vulnerable to additional cuts, similar to what occurred during the Great Recession. Closing the budget shortfall at the expense of families with low incomes is a short-sighted approach that could have detrimental effects on California’s economy and families facing the greatest needs.
Governor Proposes Cuts and Delays to Previous Food Assistance Commitments
All Californians should be able to put enough food on the table without having to go without other basic needs. But about 1 in 11 California households — and 1 in 8 California households with children — sometimes or often didn’t have enough to eat in March 2024, according to recent US Census Household Pulse data. In recent years, households have been hit with both rising food prices as well as the expiration of enhanced pandemic-era food benefits.
CalFresh — California’s version of the federally funded Supplemental Nutrition Assistance Program (SNAP) — provides modest food assistance benefits to about 5.4 million Californians. The California Food Assistance Program (CFAP) is a state-funded program providing food benefits to certain non-citizens who are excluded from receiving federal benefits, but undocumented immigrants are still excluded from CFAP benefits. The 2021-22 budget agreement included a plan to expand CFAP to Californians aged 55 and older who are excluded solely due to their immigration status. The expansion is currently set to begin in October 2025.
While the governor’s January budget proposal generally maintained prior commitments to improve and expand the state’s food assistance programs, the May Revision proposes cuts and delays that would reverse or pause recent progress, including:
Delaying the CFAP to include undocumented adults age 55 and older until 2027-28.
This means those older adults will continue to be excluded from vital food benefits for the next several years. The administration also has not put forth any plans to end this exclusion for undocumented Californians under age 55, even while 45% of undocumented Californians with low incomes are affected by food insecurity.
Eliminating funding for the CalFresh Minimum Nutrition Benefit Pilot Program.
The 2023-24 budgetcreated this pilot program and included $15 million one-time funding for 2024-25 to provide a state supplement to increase the minimum benefit for selected households to $50 for one year. This pilot program was a small step in acknowledging the inadequacy of the current minimum benefit of $23.
Eliminating the Work Incentive Nutrition Supplement Program (WINS) beginning in 2025-26.
WINS is a $10 supplemental food benefit for some working CalFresh households. The Legislative Analyst’s Office estimates that eliminating the program would reduce food benefits for around 125,000 households. The program is funded through CalWORKs but is only available for households not receiving regular CalWORKs benefits. The program was created with the primary goal of improving the CalWORKs Work Participation Rate (WPR), and it appears the proposal to eliminate WINS is a response to a recent federal law that would require the state to increase the supplement in order for it to continue helping the state achieve its WPR target, which could cost the state an additional $40 million each year. However, this elimination represents a loss of benefits for those households that rely on the additional assistance to keep food on the table, and the administration does not propose any relief for families to offset that loss.
Eliminating all remaining $111.6 million for the Older Californians Act Modernization Funding for Senior Nutrition.
The 2022 Budget Act included $186 million over three years to restore local services and supports for older adults that were reduced during the Great Recession; the 2023 Budget Act spread this funding out over five years instead of the original three years. This funding was intended to enable the local Area Agencies on Aging (AAAs) to continue to serve new meal participants brought on during the COVID pandemic. Taking away this funding could leave a gap in food access for a community struggling to stay housed and make ends meet.
Additionally, the budget does not include funding to implement Cal Grant reform, which would allow more college students to access CalFresh benefits (see Financial Aid section). The 2022 budget included a plan for Cal Grant reform, but it was subject to sufficient funds being available in 2024, so this was one of several “trigger” proposals included 2022 that will not be moving forward this year.
Finally, the budget includes $63 million in additional funding to implement the universal school meals program to account for an expected increase in the number of meals to be provided and a cost-of-living increase (see K-12 Education section). The $63 million is in addition to the increase included in the January proposal.
Thousands of families in California rely on subsidized child care and development programs administered by the California Department of Social Services (CDSS) as a critical resource for supporting their families to grow and thrive. While the state has made improvements to California’s child care system — most recently through reforming family fees and committing to an alternative methodology for child care provider reimbursements — the system is still falling short for many families and child care providers. For example, as of 2022, only one in nine children eligible for subsidized child care received services, despite growing demand. Moreover, the state released data this year showing that 73% of family child care providers do not pay themselves a salary. The administration therefore has an opportunity to advance progress toward creating an equitable child care system that meets the needs of all families and reflects the integral role of child care providers.
Pauses planned child care slot expansion at 119,000 new spaces.
In 2021-22, the governor committed to adding approximately 200,000 new child care slots by 2026-27. As of 2023-24, approximately 146,000 new slots were funded. Expansion was paused in 2023-24, and the state is still in the process of rolling out all intended new slots. Specifically, only about 119,000 new slots have been added. The revised 2024-25 budget paused slot expansion at this 119,000 “until fiscal conditions allow for resuming the expansion.” These proposed actions result in a reduction of $489 million in 2024-25 and $951 million in 2025-26 for subsidized child care slots. The April 24, 2024 Assembly Budget Subcommittee No. 2 on Human Services and Assembly Budget Subcommittee No. 3 on Education Finance discussed the possibility of creating a “reversion account” that would keep unspent funds for slot expansion within child care. This reversion account to maintain unspent dollars within child care is not included in the 2024-25 revised budget.
Maintains commitment to one-time funding for temporary subsidy rate increases but lacks a detailed plan for meeting federal deadlines to implement an alternative rate structure.
The 2023-24 budget provided a total of nearly $1.4 billion in one-time funds for temporary rate increases for providers reimbursed through the California Department of Social Services (CDSS). The 2024-25 proposed budget maintains this one-time funding. This one-time funding is set to expire July 1, 2025, which is also the federal deadline determining the new rate structure, per the alternative methodology currently being developed. If the new provider rates are not determined by this deadline, they will revert back to the 2018 regional market rate or standard reimbursement rate. The administration remains committed to developing a single rate structure and alternative methodology for child care reimbursements. However, given the need for spending associated with the alternative methodology to be included in the 2025-26 budget process and Child Care Provider United union negotiations, the lack of a detailed plan (i.e., confirming a timeline for when state agencies produce cost estimates) makes the state more vulnerable to missing the federal deadline.
Cuts funding for foster youth child care programs and support services.
The Emergency Child Care Bridge Program for Foster Children (Bridge Program) is administered through CDSS. The Bridge Program provides time limited vouchers for child care and child care navigator services for foster care system families and parenting foster youth. The revised budget reduces funding for the Bridge Program, reflecting a reduction of $34.8 million in 2024-25 and $34.8 million in 2025-26. Additionally, the revised budget maintains proposed cuts to the Family Urgent Response System (FURS) by $30.1 million. FURS is a hotline for current or former foster youth and their caregivers to call and get immediate help for any issue they may be experiencing.
Includes $972 million in cost shifts to help ensure that unspent federal relief dollars are not reverted.
The Legislative Analyst’s Office (LAO) estimates that the state currently has $450 million of COVID-19 federal relief funds that may go unspent (set to expire September 30, 2024). Moreover, as of March 2024, the state had a Proposition 64 child care carryover balance of $296 million. The 2024-25 proposed budget plans to utilize all or a portion of these funds (among others) to offset General Fund costs for child care. Specifically, $596.8 will be shifted for 2023-24 and $375.5 will be shifted for 2024-25. This approach likely aligns with the LAO’s recommendation to minimize federal reversion of COVID-19 relief funds.
Governor Protects SSI/SSP but Cuts Key Services for People with Disabilities
All Californians should be included, supported, and treated with dignity in their communities, regardless of disability status. In California, people with disabilities can access several essential programs and services to manage their needs. The governor’s revised budget maintains a recent increase to the largest cash assistance program serving low-income Californians with disabilities, but builds on January’s proposed cuts and reduces support for key programs serving this population.
Delaying, by one year, a scheduled raise for workers who care for people with intellectual and developmental disabilities.
The governor proposes to implement this wage increase for around 150,000 workers on July 1, 2025 — one year later than anticipated. This delay would allow the state to avoid $613 million in new state costs in the 2024-25 fiscal year, with these costs instead reflected in the 2025-26 budget. More than 460,000 Californians with intellectual and developmental disabilities — including children receiving early intervention services — are expected to receive supports and services in 2024-25. Delaying pay increases for workers who provide these services could exacerbate staffing shortages across the disability system. This, in turn, would make it more challenging for individuals with disabilities and their families to receive the services that the Lanterman Act requires the state to provide.
A funding delay for the Preschool Inclusion Grant program.
The January budget proposal included a delay of $10 million General Fund for this program, which had been delayed to 2024-25 in previous years. This delay essentially postpones its implementation to 2026-27. The Preschool Inclusion Grant program was created in the 2022-23 budget with the goal of supporting preschool programs to include more children with developmental disabilities. This program and proposed reductions are different from the enrollment requirements as part of the California State Preschool Program (see “preschool inclusivity” bullet below).
The May Revision maintains these delays in funding and also:
Eliminates the In-Home Supportive Services (IHSS) expansion coverage to undocumented Californians of all ages by cutting $94.7 million ongoing.
IHSS is a key health care program that helps older adults with low incomes and people with disabilities live safely and with dignity in their own homes. Under the revised spending plan, about 14,000 Californians would lose access to IHSS solely due to their immigration status (see the Coverage, Affordability & Access section).
Cuts the planned expansion of preschool inclusivity.
Currently, at least 5% of California State Preschool Program enrollment must be for students with disabilities. The administration had planned to increase this proportion to at least 10% by 2026-27. However, the 2024-25 proposed budget cuts funding for this increase, reflecting a one-time General Fund savings of $47.9 million in 2025-26 and $97.9 million General Fund ongoing starting in 2026-27 (see the Early Learning section).
Cuts $65 million for the Home Safe Program.
Appropriated in the 2022 Budget Act, which supports the safety and housing stability of individuals involved in Adult Protective Services (see the Homelessness section).
Cuts $50 million for the Housing and Disability Advocacy Program.
Appropriated in the 2022 Budget Act, which assists people experiencing or at risk of homelessness connect with disability benefits and housing supports (see the Homelessness section).
Cuts $44.8 million for Adult Protective Services (APS).
This provides abuse intervention and support services to older adults and dependent adults who are unable to meet their own needs. This cut targets a recent expansion effort to address California’s growing aging population, which may limit the program’s reach, particularly for more complex cases.
Does not include funding to reform the Medi-Cal Share of Cost program.
This would alleviate financial burdens for many older adults and people with disabilities. Under the current Medi-Cal Share of Cost program, many Californians have to live at the maintenance need level in exchange for Medi-Cal services, which forces many to choose between paying for their health care, rent, food, or other basic needs (see the Coverage, Affordability & Access section).
Proposal Eliminates and Delays Vital Services for Immigrant Californians, Maintains Cut to Legal Services
Immigrants are an integral part of California’s communities. They are not just part of the state’s mighty economic engine as taxpayers, entrepreneurs, and members of the workforce — they enrich our cultural identity as the Golden State. They are students, teachers, artists, chefs, religious leaders, colleagues, neighbors, and family members.
California has the largest share of immigrant residents of any state. Over half of all California workers are immigrants or children of immigrants, and nearly 2 million Californians are undocumented, according to recent estimates.
State leaders have made notable progress in recent years working toward a California for all, where all people have access to economic opportunity and essential services, regardless of immigration status. Extending full-scope Medi-Cal eligibility to undocumented Californians is one significant example of this, and the governor’s May Revision maintains the final and most recent step in this expansion, extending coverage to adults ages 26 to 49. However, the revised budget takes a step backwards by eliminating or delaying other vital services for undocumented Californians that other Californians can access. Specifically, the revised budget:
Permanently eliminates In-Home Supportive Services (IHSS) for all undocumented Californians.
These services help Californians with low incomes who are over the age of 65, blind, and/or disabled live with dignity in their own homes. This harmful and xenophobic cut will cause Californians to lose access to IHSS solely due to their immigration status, potentially pushing them deeper into poverty (see Health Coverage section).
Delays expanding the California Food Assistance Program (CFAP) to undocumented adults age 55 or older, as promised in last year’s budget.
Instead of beginning in October 2025, these vital food benefits will be delayed until 2027, denying hundreds of thousands of older Californians access to assistance at a time when 45% of undocumented Californians with low incomes are affected by food insecurity (see Economic Security section).
The revised budget also maintains the governor’s January budget proposal to cut immigration legal services, which are a lifeline for immigrant families. Specifically, the May Revision:
Continues to permanently cut funding for the Temporary Protected Status (TPS) Services program, eliminating $10 million General Fund in 2023-24 and each year thereafter, zeroing out all resources for this program.
Continues to permanently cut funding for the California State University Legal Services program by $5.2 million General Fund in 2023-24 and each year thereafter.
Cutting support for immigrant legal services is harmful. These services are crucial for helping immigrants stabilize their lives and remain in their communities. Immigration legal services can help put immigrants on a pathway to stability, particularly for those without status. Without access to legal services, immigrants can face greater risks of deportation and family separation, which can lead to financial hardship for families and adverse health outcomes. Given that newly arriving immigrants have the potential to grow the economy and contribute to state and local coffers, supporting them is a strategic investment in our collective future.
The governor’s May Revision also reduces $29 million for the Rapid Response program in 2024-25, which helps sustain humanitarian support to individuals and families seeking safety at the California-Mexico border in partnership with local providers. This reversion in funds comes out of the $79.4 million General Fund reappropriated for the Rapid Response program from the 2021-22 and 2022-23 budget acts to 2023-24 as part of the early action budget deal approved by policymakers in April. The revised budget proposes no additional state funding for this program in 2024-25 despite the glaring need for continued investment.
Eliminating and delaying vital services to Californians simply due to their immigration status would have a significant negative impact on immigrant communities and our collective prosperity and is a short-sighted approach to closing the state’s budget shortfall.
Governor Does Not Provide Needed Support to Domestic Violence Survivors
Every Californian deserves to live in a world where they feel safe. However, millions of Californians experience domestic and sexual violence every year — women, transgender, and non-binary Californians, and some women of color are most likely to experience this type of violence.
Domestic and sexual violence prevention programs are proven ways to stop the violence from occurring in the first place by taking a proactive approach and seeking to shift culture on racial and gender inequities. Since 2018, state policymakers have provided small, one-time grants for prevention programs, administered by the California Governor’s Office of Emergency Services. Besides funding for prevention services, the state also receives federal funding through the Victims of Crime Act (VOCA) to help provide essential services to survivors of crime, including survivors of domestic violence. These funds help provide survivors with critical services like emergency shelter, counseling, and financial assistance.
However, cuts to VOCA at the federal level are resulting in roughly a 45% cut to state grants for organizations that support survivors of crime, decimating the funding of many of these organizations who rely entirely on VOCA funding to provide these critical services. Additionally, the last round of prevention grants will run out at the end of 2024. Prevention efforts take time, and organizations doing this critical work cannot commit to long term programming without permanent, ongoing funding.
Does not provide funding to fill the gap in crime victim services funding.
In 2021-2022, the state stepped in and provided $100 million in one-time funding to backfill federal VOCA funding gaps. However, since 2019, funding has fallen far short of levels needed to maintain the services local organizations provide to more than 816,000 victims of crime.At the current funding levels, programs will have experienced a 67% cut in funding since 2019. While organizations are being forced to pause critical services to survivors of crime, the state continues to spend billions of dollars on prisons. The state could safely close up to five state prisons, which would result in savings of around $1 billion per year – some of which could be used to help support crime survivors (see State Corrections section).
Does not provide continued funding for domestic violence prevention.
While the 2023-24 budget extended state funding for domestic and sexual violence prevention grants, the governor does not propose any additional funding for new grants in the 2024-25 fiscal year, leaving many organizations uncertain as to how they will continue providing crucial services without funding.
Eliminates all funding for the cash assistance program for survivors.
In 2022-23, the state appropriated $50 million to establish the Flexible Assistance for Survivors (FAS) grant program. These dollars were meant to provide grants to community-based organizations to provide flexible assistance such as relocation, care costs, or other basic needs to survivors of crime. In January, the governor proposed delaying the $47.5 million program until 2025-26. However, the May Revision removes all state funding for the program, eliminating another support for survivors of crime.
While the governor has failed to include funding to support survivors of domestic and sexual violence among other crimes, a bipartisan group of Assemblymembers have issued an emergency budget request to address the VOCA funding shortfalls, recognizing the importance of protecting the state’s most vulnerable individuals.
Transitional Kindergarten Expansion Continues While Facilities are Cut
The California Department of Education (CDE) hosts two early learning and care programs: Transitional Kindergarten (TK) and the California State Preschool Program (CSPP). CSPP provides preschool to children ages 3 and 4 for families with low to moderate incomes. TK serves 4-year-olds, and eligibility is based on age alone in public schools and is not dependent on family income. Given the overlap with the child care and development programs administered through the California Department of Social Services, CSPP is included in recent family fee and rate reform wins (see Child Care section). However, as Universal TK continues to roll out and CDSS child care and development programs face cuts and delays, the administration has the opportunity to ensure that all early learning and care programs have the resources they need to prioritize family needs and early educator well-being.
Continues to fund the implementation of Universal TK expansion.
The initial year one expansion took effect during fiscal year 2022-23 and covered children whose fifth birthdays fell between September 2 and February 2 (the previous cut-off was December 2). The year two 2023-24 expansion provided eligibility to children who turn 5 between September 2 and April 2. The year three 2024-25 expansion will extend eligibility to children who turn 5 from April 2 to June 2. The revised budget includes $550 million from the General Fund for this year three expansion. As Universal TK continues to roll out, TK programmatic delays from 2023-24 are still relevant. Specifically, the following are delayed until 2025-26: 1) the reduction in TK classroom ratios to 1:10 and 2) the deadline for TK teachers to earn 24 units (or equivalent), a child development permit, or an early childhood education specialist credential.
Maintains CSPP slots and temporary reimbursement rate increases.
The revised budget includes $1.4 billion in 2024-25 to maintain projected CSPP enrollment. As shared in the Child Care section, the 2023-24 enacted budget included one-time funding for temporary reimbursement rate increases and a commitment to developing an alternative methodology for provider rates. While this increase was negotiated by Child Care Providers United (CCPU) – representing home-based providers – the per-child temporary rate increase also applies to CSPP providers. Thus, the one-time funding promised for CSPP provider temporary rate increases is proposed to be maintained for 2024-25. Specifically, the revised budget includes $53.7 million from the General Fund to support reimbursement rate increases. Moreover, if the state does not determine the new rate structure by July 1, 2025, CSPP providers will also have their rates reverted to the 2018 standard reimbursement rate.
Cuts the planned $550 million investment in preschool, TK, and full-day kindergarten facilities.
Facilities investments are intended to help build new school facilities or retrofit existing buildings in order to provide appropriate spaces for preschool, TK, and full-day kindergarten. The 2023-24 enacted budget reflected $550 million in 2024-25 to support this facilities program. This funding was delayed to 2025-26 in the January budget proposal. However, due to the projected budget shortfall, the dollars that were delayed to 2025-26 are now cut. The administration suggests that preschool, TK, and full-day kindergarten facilities could be added to an education bond proposal.
K-14 Education’s Minimum Funding Level Drops Due to Lower Revenue Estimates
Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of annual funding for K-12 schools, community colleges, and the state preschool program. The governor’s May Revision assumes a 2024-25 Prop. 98 funding level of $109.1 billion for K-14 education. Because the Prop. 98 guarantee tends to reflect changes in state General Fund revenues and estimates of General Fund revenue in the May Revision are lower than estimates in the January budget proposal, the governor’s revised spending plan assumes a decrease in the Prop. 98 guarantee in 2023-24 and 2022-23. Specifically, the May Revision assumes a 2023-24 Prop. 98 funding level of $102.6 billion, $3 billion lower than the $105.6 billion funding level assumed in the governor’s January budget proposal. The 2022-23 Prop. 98 funding level of $97.5 billion is roughly $800 million below the $98.3 billion funding level assumed in January, but it is $9.8 billion below the level assumed in the 2023-24 budget agreement – the largest decline in an estimated Prop. 98 guarantee for a prior-year since Prop. 98 was adopted.
To address this unprecedented drop in the 2022-23 Prop. 98 guarantee, the governor’s May Revision proposes using the same complex accounting maneuver as the one he proposed in January: the revised budget plan attributes $8.8 billion in reduced Prop. 98 spending to the 2022-23 fiscal year, which would help reduce state General Fund spending to the lower revised Prop. 98 minimum funding level. However, the revised spending plan would not take away the $8.8 billion from K-12 schools and community colleges — dollars they received for 2022-23 that have largely been spent. Instead, the governor proposes to shift the $8.8 billion in K-14 education costs — on paper — from 2022-23 to later fiscal years and pay for these delayed expenses using non-Prop. 98 funds.
The May Revision also reflects withdrawals of $5.8 billion in 2023-24 and $2.6 billion in 2024-25 from the Public School System Stabilization Account (PSSSA) – the state budget reserve for K-12 schools and community colleges (see Reserves section). Because the revised 2023-24 PSSSA balance of $2.6 billion is not projected to exceed 3% of the total K-12 share of the Prop. 98 minimum funding level in 2023-24, current law would allow K-12 school districts to maintain more than 10% of their budgets in local reserves in 2024-25.
Budget Proposal Relies on Reserves to Support K-12 School Funding Formula
The largest share of Prop. 98 funding goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to 5.9 million students in grades kindergarten through 12. The governor’s May Revision maintains the proposal made in his January budget to withdraw funds from the Public School System Stabilization Account (PSSSA) – the state budget reserve for K-12 schools and community colleges – to support the Local Control Funding Formula (LCFF), the state’s main K-12 education funding formula. Specifically, the governor’s revised spending plan:
Allocates $7.5 billion from the PSSSA to support ongoing LCFF costs.
The LCFF provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. The May Revision includes a 1.07% cost-of-living adjustment (COLA) for the LCFF. To pay for the additional ongoing costs, the proposal would withdraw $5.3 billion from the PSSSA to fund the LCFF in 2023-24 and $2.2 billion to fund the LCFF in 2024-25.
Increases one-time funding for green school buses by roughly $395 million, for a total of approximately $895 million.
The May Revision sustains a commitment made in the 2023-24 budget agreement to support the greening of school bus fleets through programs operated by the California Air Resources Board and the California Energy Commission in 2024-25. The governor’s proposal would increase 2024-25 funding for green school buses above the $500 million included in his January budget, but would reduce funding committed to the program to $105 million in 2025-26.
Reduces K-12 school facilities funding by $375 million.
The 2022-23 budget agreement included an intention to allocate $875 million in one-time, non-Prop. 98 General Fund spending for the School Facility Program (SFP) to support K-12 facilities construction in 2024-25. The Legislature’s “early action” package approved the governor’s January budget proposal to reduce the 2024-25 SFP allocation by $500 million. The May Revision proposes to eliminate the remaining $375 million in 2024-25 SFP funding.
Provides funding for a 1.07% COLA for non-LCFF programs and the LCFF Equity Multiplier.
The governor’s January budget proposal included $65 million to fund a 0.76% COLA for theLCFF Equity Multiplier, established as part of the 2023-24 budget agreement, and for several categorical programs that remain outside of the LCFF, including special education, child nutrition, and American Indian Education Centers. The May Revision would increase ongoing funding to support these COLAs in 2024-25.
Increases funding for universal school meals by $63.3 million.
California established a Universal Meals Program in the 2022-23 school year that provides two free meals per day to any public K-12 student regardless of income eligibility. The governor’s January budget proposed $122.2 million to fully fund the program in 2024-25, and the May Revision proposes to increase this funding to pay for growth in the projected number of meals served and a COLA (see Food Assistance section).
Maintains $25 million in ongoing funding for literacy screening training.
The 2023-24 budget agreement included a requirement for school districts to begin screening students in kindergarten through 2nd grade for risk of reading difficulties by the 2025-26 school year. The May Revision sustains the governor’s January budget proposal to provide funding to administer these literacy screenings.
Revised Budget Increases Reserve Withdrawals for Community Colleges Funding
A portion of Proposition 98 funding provides support for California’s Community Colleges (CCCs), the largest postsecondary education system in the country, which serves high percentages of students of color and students with low incomes. CCCs prepare more than 1.8 million students to transfer to four-year institutions or to obtain training and employment skills.
The 2024-25 revised spending plan increases withdrawal amounts from the Prop. 98 reserve for CCC apportionments and provides additional resources to fund an increase in the cost-of-living adjustment (COLA).
Specifically, the governor’s revised budget includes:
Reserve withdrawals totaling $914.1 million from state budget reserves for CCC apportionments.
The governor proposes a withdrawal of $381.6 million from the Prop. 98 reserve (also known as the Public School System Stabilization Account or PSSSA)(see Reserves section)in 2023-24 and $532.6 million in 2024-25 for the Student Centered Funding Formula (SCFF).
A 1.07% COLA for apportionments and other programs.
This includes $100.2 million ongoing Prop. 98 dollars for the SCFF. The revised spending plan also provides ongoing Prop. 98 resources to provide the same percentage COLA to other CCC categorical programs and the Adult Education Program.
Revised Proposal Maintains Deferrals for the CSU and UC Systems
California supports two public four-year higher education institutions: the California State University (CSU) and the University of California (UC). The CSU provides undergraduate and graduate education to nearly 460,000students at 23 campuses, and the UC provides undergraduate, graduate, and professional education to more than 290,000students across 10 campuses.
The governor’s revised budget includes additional cuts to higher education and maintains funding deferrals for both of the state’s public university systems.
A deferral of $240 million General Fund dollars from 2024-25 to 2025-26 for the CSU.
These dollars were meant to fulfill multi-year funding increases as part of the CSU compact. Under this proposal, the governor intends to restore this funding commitment in 2025-26, along with the scheduled base increase for the fourth year of the agreements. Additionally, the administration would also provide a one-time payment of $240 million in 2025-26 as part of the deferral.
Deferrals totaling $259 million General Fund dollars from 2024-25 to 2025-26 for the UC.
This includes a deferral of $228 million for base increase as part of the multi-year compact with the UC and $31 million to support the UC in increasing the number of resident undergraduate students. In 2025-26, the governor intends to restore the $228 million on top of the increase scheduled for the fourth year of this compact and provide a total of$62 million for resident undergraduate enrollment, reflecting the deferred amount and that year’s increase for this purpose. The administration would also provide one-time payments of $228 million and $31 million to compensate for the deferrals in 2024-25 of the same amount.
A reduction of $494 million in General Fund dollars for the California Student Housing Revolving Loan Fund Program.
The proposal pulls back $194 million in 2023-24 and $300 million in 2024-25. This program provides interest-free loans to campuses for new student housing projects.
The May Revision maintains these proposals and also include the following cuts in higher education:
An ongoing reduction of nearly $14 million General Fund for the Proposition 56 General Fund backfill that supports Graduate Medical Education programs at the UC.
An ongoing cut of $13 million General Fund for the UC Labor Centers. This funding provides support for economic research and labor education across various UC campuses.
A reduction of $485 million General Fund of unspent one-time dollars for the Learning-Aligned Employment Program. The program provides resources for students at public colleges and universities to earn money while learning in a field related to their educational and career interests (see Workforce section).
A $60 million General Fund cut for the Golden State Teacher Grant Program. This program provides awards to students in professional preparation programs and who are working toward a teaching credential.
May Revision Abandons Commitments to Expand Student Financial Aid
The budget shortfall and proposed solutions significantly impacts access to financial aid opportunities for California students. The May Revision does not include funding for the anticipated reform to the Cal Grant program and reduces funding for the Middle Class Scholarship (MCS).
Given the multi-year shortfall, the revised spending plan does not include funding for the Cal Grant Reform Act, which was included in the 2022-23 budget, and the governor does not propose any budgetary actions to phase in the program. Trailer bill language as part of the 2022-23 budget stated that the reform would become operative if General Fund dollars “over multi-year forecasts” are available beginning in 2024-25. The Cal Grant is California’s financial aid program for low-income students pursuing postsecondary education in the state. These grants support students by providing financial assistance so they can afford the costs of college attendance, including meeting their basic needs such as housing, food, transportation, and child care. The Cal Grant Reform Act would reach thousands of new students who were previously not eligible and would also allow more students to qualify for CalFresh food assistance, freeing up resources for institutions to support students with other non-tuition costs.
Walks back expansion of the MCS.
The May Revision proposes an ongoing cut to the MCS of $510 million. The revised spending plan also includes an additional spending reduction of more than $20 million, reflecting revised program estimates. These two actions reduce total spending for the program down to $100 million ongoing, reflecting an 88% drop from the 2023-24 total funding level. The May Revision also maintains the January proposal to abandon a planned one-time investment of $289 million that was included as part of the 2023-24 budget. The state created the MCS program in 2013-14 to provide partial tuition coverage to CSU and UC students who were not eligible for Cal Grants. The program was revamped in 2022-23 by increasing funding and implementing new rules. Due to these changes, a broader group of students received the awards. Eligible students include those who qualify based on income (maximum household income is $217,000), low-income students who qualify through other requirements, and community college students in bachelor’s degree programs.
May Revision Calls for Deactivating Prison Housing Units, but Not Prison Closures
More than 93,000 adults who have been convicted of a felony offense are serving their sentences at the state level, down from a peak of 173,600 in 2007. This sizable drop in incarceration is largely due to justice system reforms adopted since the late 2000s, including Proposition 47, which California voters passed with nearly 60% support in 2014. Despite this substantial progress, American Indian, Black, and Latinx Californians are disproportionately represented in state prisons — a racial disparity that reflects racist practices in the justice system as well as structural disadvantages faced by communities of color.
Among all incarcerated adults, most — about 90,000 — are housed in state prisons designed to hold roughly 75,500 people. This overcrowding equals 119% of the prison system’s “design capacity,” which is below the prison population cap — 137.5% of design capacity — established by a 2009 federal court order. California also houses around 3,000 people in facilities that are not subject to the cap, including fire camps, in-state “contract beds,” and community-based facilities that provide rehabilitative services.
Calls for deactivating 46 housing units across 13 state prisons, for ongoing annual state savings of around $80 million.
The housing units proposed for deactivation contain roughly 4,600 beds. However, the state prison system currently operates with about 15,000 empty beds. Moreover, closing housing blocks rather than entire prisons saves the state less money because ongoing operational and staffing costs are higher when prisons remain open. For example, while the governor’s proposal would reduce state costs by around $80 million per year, the state would save around $200 million per year for every prison it closes. Given California’s challenging fiscal outlook, state leaders should be exploring ways to significantly reduce spending on prisons in order to ensure the wise use of state tax dollars and maximize state savings.
Fails to advance a plan to close state prisons.
In recent years, California has ended the use of private prisons and shut down three state prisons. State leaders can — and should — go further. In fact, due to the large number of empty prison beds, the state could safely close up to five additional prisons, according to the Legislative Analyst’s Office. Closing five more state prisons would save around $1 billion per year — dollars that could be redirectedto help incarcerated individuals successfully transition back to their communities as well as support crime survivors, reduce poverty, increase housing stability, and address substance use and mental health issues. Unfortunately, the May Revision fails to advance a plan to close more prisons, with the governor instead focusing on deactivating selected prison housing units for far less state savings.
Proposes deep cuts to the Adult Reentry Grant (ARG) program.
Community-based organizations use ARG funds to help formerly incarcerated people successfully transition back to their communities. In January, the governor proposed to cut $7.8 million in unspent ARG funds from 2022-23 as well as to delay $57 million in ARG funds budgeted for 2024-25 to the next three fiscal years (2025-26 to 2027-28 — providing $19 million per year). The May Revision maintains the $7.8 million cut and also proposes two significant reductions: 1) eliminate (rather than delay) the $57 million budgeted for 2024-25 and 2) cut $54.1 million in ARG funds budgeted for 2023-24. The governor’s proposal represents a major step back from recent efforts to ensure that people released from prison are prepared to successfully reenter their communities.
Revised Budget Continues to Provide Over $100 Million to Address Retail Theft
Shoplifting occurs when the value of stolen goods is $950 or less (petty theft) — a limit set by Proposition 47 of 2014. Shoplifting is generally a misdemeanor, but may be charged as a misdemeanor or a felony if the defendant was previously convicted of certain severe crimes or is required to register as a sex offender.
Commercial burglary
Commercial burglary covers higher-value retail theft (grand theft) and can be charged as a misdemeanor or a felony.
Robbery, a felony, occurs when force or a threat of force is involved. “Smash and grab” incidents are prominent examples of robberies affecting retail businesses.
Retail theft rose following the isolation and social breakdown caused by the COVID-19 pandemic. In California, commercial burglary and robbery rates continued to exceed their pre-pandemic (2019) levels as of 2022, the most recent year for which statewide data are available. In contrast, California’s statewide shoplifting rate remains below the 2019 level despite a recent increase.
In January, Governor Newsom proposed to provide $119 million in 2024-25 to address organized retail theft and other crimes. This was the same amount of General Fund support provided in the current fiscal year (2023-24) despite the large budget shortfall the state is facing.
The May Revision modestly reduces the total funding level from $119 million to $115.4 million. This reflects a $3.6 million cut to the Vertical Prosecution Grant Program, which would see its funding reduced from $10 million to $6.4 million in 2024-25. The governor does not propose cuts in 2024-25 to other components of his organized retail theft package, which includes $85 million for local law enforcement agencies and $24 million for state-level task forces and prosecution teams.
Revised Budget Estimates Proposition 47 Savings of $95 Million for Local Investments
Overwhelmingly approved by voters in 2014, Prop. 47 reduced penalties for six nonviolent drug and property crimes from felonies to misdemeanors. Consequently, state prison generally is no longer a sentencing option for these crimes. Instead, individuals convicted of a Prop. 47 offense serve their sentence in county jail and/or receive probation.
By decreasing state-level incarceration, Prop. 47 reduced the cost of the prison system relative to the expected cost if Prop. 47 had not been approved by voters. The Department of Finance is required to annually calculate these state savings, which are deposited into the Safe Neighborhoods and Schools Fund and used as follows:
65% for behavioral health services — which includes mental health services and substance use treatment — as well as diversion programs for individuals who have been arrested, charged, or convicted of crimes. These funds are distributed as competitive grants administered by the Board of State and Community Corrections.
25% for K-12 school programs to support vulnerable youth. These funds are distributed as competitive grants administered by the California Department of Education.
10% to trauma recovery services for crime victims. These funds are distributed as competitive grants administered by the California Victim Compensation Board.
As of the 2023 Budget Act, the state has allocated roughly $720 million in savings attributable to Prop. 47 — funds that have been invested in local programs that support healing and keep communities safe. For example, a recent evaluation shows that people who received Prop. 47-funded behavioral health services and/or participated in diversion programs were much less likely to be convicted of a new crime. Specifically, individuals enrolled in these programs had a recidivism rate of just 15.3% — two to three times lowerthan is typical for people who have served prison sentences (recidivism rates range from 35% to 45% for these individuals).
The May Revision estimates that Prop. 47 has generated an additional $94.8 million in state savings due to reduced state-level incarceration. These dollars will be allocated through the 2024 Budget Act, increasing Prop. 47’s total investment in California’s communities to more than $800 million since these savings were first allocated through the 2016 Budget Act.
Workforce & Climate Change
Governor Proposes Additional Cuts to Several Workforce Programs
The revised budget proposes to cut spending on several workforce development programs to help address the multi-year budget problem. (See Health Workforce section.) Specific cuts include:
$50 million General Fund in 2024-25 and 2025-26 to California Jobs First (formerly called the Community Economic Resilience Fund).
This program is an inter-agency partnership that supports strategies to diversify local economies and develop sustainable industries that create high-quality, broadly accessible jobs.
$20 million General Fund in 2024-25 to the California Youth Leadership Corp
This is an initiative of the Workforce Development Agency, certain community colleges, and non-profit organizations that prepares historically marginalized youth to become community organizers and change agents in their local communities.
$20 million General Fund in 2025-26 to the Apprenticeship Innovation Fund at the Department of Industrial Relations.
This is in addition to the $40 million General Fund delay in 2024-25 that was included in the governor’s January budget.
$10 million General Fund ongoing for the Women in Construction Unit at the Department of Industrial Relations.
This aims to increase opportunities in the construction industry for women, non-binary, and underserved communities.
$10 million General Fund in 2025-26 for the Department of Industrial Relations’ California Youth Apprenticeship Program.
This provides apprenticeships for youth ages 16 to 24. This cut is in addition to the $25 million General Fund spending delay in 2024-25 that was included in the governor’s January budget.
In addition, the revised budget cuts $485 million General Fund in unspent one-time funds for the Learning-Aligned Employment Program in 2022-23. This program places eligible students at public colleges and universities in employment opportunities related to their area of study or career objectives. (See higher education sections.)
Revised Budget Proposes Further Cuts to Prior Environment Commitments
Californians across the state have increasingly seen the effects of climate change through devastating fires, droughts, and floods, but communities of color and low-income communities are often hit hardest by these catastrophes due to historical and ongoing displacement and underinvestment. Additionally, these communities are more likely to be exposed to environmental pollutants for the same reasons.
Significant investments in climate resilience were made through recent years’ budgets. Most of the commitments were one-time investments intended to be made across several years, so there are significant unspent funds remaining. In January, the governor proposed budget solutions that included $2.9 billion in reductions and $1.9 billion in delays of climate investments committed in previous budget agreements. Several of these proposals were included, or partially included in the early action agreement between the governor and the Legislature.
The May Revision proposes around $1 billion in additional reductions to climate and environment programs for 2022-23 as well as further reductions to planned spending beyond the current budget window. Reductions are proposed in areas including but not limited to clean energy and transportation, water and drought resilience, and wildfire resilience.
Significant new reductions that may disproportionately impact low-income and under-resourced communities include:
$399 million for the Active Transportation Program across 2025-26 and 2026-27 ($300 million in 2025-26 and $99 million in 2026-27).
This program supports walking and biking options with the goals of improving safety and mobility and reducing greenhouse gas emissions. The Transportation Commission notes that 85% of funds committed have gone to projects benefiting disadvantaged communities.
$268.5 million for the Cleanup in Vulnerable Communities Initiative ($136 million in 2023-24, $85 million in 2025-26, and $47.5 million in 2026-27).
The initiative was created in 2021 and committed $500 million across four years to clean up hazardous waste sites in communities subject to environmental hazards.
$140 million for the Equitable Building Decarbonization program across 2024-25 and 2025-26 ($53 million in 2024-25 and $87 million in 2025-26).
This program provides funds for 1) energy retrofits for low and moderate income households and 2) incentives for the adoption of energy efficient technologies, at least half of which must benefit under-resourced communities. This appears to be in addition to the $286 million proposed reduction across several years included in the January proposal.
Every year, California’s governor and Legislature adopt a state budget that provides a framework and funding for critical public services and systems — from child care and health care to housing and transportation to colleges and K-12 schools.
But the state budget is about more than dollars and cents. The budget expresses our values as well as our priorities for Californians and as a state. At its best, the budget should reflect our collective efforts to expand economic opportunities, promote well-being, and improve the lives of Californians who are denied the chance to share in our state’s wealth and who deserve the dignity and support to lead thriving lives.
State budget choices have an impact on all Californians. These decisions affect the quality of our schools and health care, the cost of a college education, families’ access to affordable child care and housing, the availability of services and financial support to help older adults age in place, and so much more.
Because the state budget touches so many services and our everyday lives, it is critical for Californians to understand and participate in the annual budget process to ensure that state leaders are making the strategic choices needed to allow every Californian — from different races, backgrounds, and places — to thrive and share in our state’s economic and social life.
This report sheds light on the state budget and the budget process with the goal of giving Californians the tools they need to effectively engage decision makers and advocate for fair and just policy choices.
Key Takeaways
The Bottom Line
The state spending plan is about more than dollars and cents.
Crafting the budget provides an opportunity for Californians to express our values and priorities as a state.
The state Constitution establishes the rules of the budget process.
Among other things, these rules allow lawmakers to approve spending with a simple majority vote, but require a two-thirds vote to increase taxes. Voters periodically revise the budget process by approving constitutional amendments.
The governor has the lead role in the budget process.
Proposing a state budget for the upcoming fiscal year gives the governor the first word in each year’s budget deliberations.
The May Revision gives the governor another opportunity to set the budget and policy agenda for the state.
Veto power generally gives the governor the last word.
The Legislature reviews and revises the governor’s proposals.
Lawmakers can alter the governor’s proposals and advance their own initiatives as they craft their version of the budget prior to negotiating an agreement with the governor.
Budget decisions are made throughout the year.
The public has various opportunities for input during the budget process.
This includes writing letters of support or opposition, testifying at legislative hearings, and meeting with officials from the governor’s administration as well as with legislators and members of their staff.
In short, Californians have ample opportunity to stay engaged and involved in the budget process year-round.
Key Facts About California’s State Budget
The State Budget = State Funds + Federal Funds
Three Kinds of State Funds
Three kinds of state funds account for over two-thirds (68.4%) of California’s $454.7 billion budget for 2023-24, the fiscal year that began on July 1, 2023. Specifically:
General Fund — The state General Fund accounts for revenues that are not designated for a specific purpose. Most state support for education, health and human services, and state prisons comes from the General Fund.
Special Funds — Over 500 state special funds account for taxes, fees, and licenses that are designated for a specific purpose.
Bond Funds — State bond funds account for the receipt and disbursement of general obligation (GO) bond proceeds.
Federal funds comprise the rest (31.6%) of the state’s 2023-24 budget.
The State Budget is a Local Budget
Dollars spent through the state budget go to individuals, communities, and institutions across California. Under the enacted 2023-24 state budget:
More than three-quarters of total spending (78.7%) flows as “local assistance” to K-12 public schools, community colleges, families enrolled in the CalWORKs welfare-to-work program, and other essential state services and systems that are operated locally.
Nearly one-fifth of total spending (19.6%) goes to 23 California State University campuses, 10 University of California campuses, over 30 state prisons, and other recipients of “state operations” dollars.
Less than 2% of total spending flows as “capital outlay” dollars, supporting infrastructure projects across California. (Local assistance and state operations dollars also fund infrastructure.)
State Funds Primarily Support Health and Human Services or Education
Under the enacted 2023-24 state budget:
7 in 10 General Fund and special fund dollars support three categories of spending: health and human services (37.2%), K-12 education (25.4%), and higher education (7.4%).
6% of General Fund and special fund dollars support corrections, primarily the state prison system.
The balance of these dollars supports other essential services (such as transportation and environmental protection) and institutions (such as the state’s court system).
Federal Funds Primarily Support Health and Human Services
Under the enacted 2023-24 state budget:
Three-quarters of federal dollars (74.6%) support health and human services programs.
6% of federal dollars go to transportation programs.
The balance of federal dollars supports other essential services, including labor and workforce development, K-12 education, and higher education.
The State Budget is a Different Kind of Bill
Bills change state law, such as by creating programs, modifying eligibility for services, or raising or lowering taxes.
Most legislation moves through the Legislature’s policy bill process, which includes review by policy and appropriations committees.
The state budget is a bill. But unlike other bills, the “budget bill”:
Provides authority to spend money across an array of public services and systems for a single year.
Moves through the Legislature’s budget committees on its own timeline.
Moves with other bills that are needed to implement the policies assumed in the budget. These bills are known as “trailer bills.”
Assembly Budget Committee and Senate Budget & Fiscal Review Committee
Review the governor’s budget proposals and develop each house’s version of the state budget. Most budget committee work is done through subcommittees that focus on specific policy areas.
Budget Act
The initial budget bill passed by the Legislature and signed into law by the governor, after any line-item vetoes. The Budget Act can be referred to by the year in which it becomes law (“Budget Act of 2023”) or by the fiscal year to which it applies (“2023-24 Budget Act”).
Budget Bill Jr.
The informal term to describe any budget bill that amends the Budget Act. Budget Bill Jrs. may be numbered sequentially using Roman numerals (e.g., Budget Bill Jr. I, Budget Bill Jr. II, etc.).
Budget-Related Bills (“Trailer Bills”)
Generally make changes to state law related to the Budget Act. These bills are formally known as “bills … related to the budget bill,” but are more commonly called “trailer bills.” Trailer bills are listed in the Budget Act and move through the Assembly and Senate budget committees. Trailer bills are organized by issue area, such as “health,” “housing,” “higher education,” and “public safety.”
From time to time, bills that move independently of the Budget Act — and therefore are not trailer bills — may be considered part of the overall state budget framework. This could include, for example, legislation to increase taxes or to place constitutional amendments before the voters.
Department of Finance (DOF)
Leads the development of the governor’s budget proposals, prepares the governor’s budget documents, testifies on behalf of the governor at legislative budget hearings, develops the governor’s economic forecasts, and performs several other functions. The DOF’s director is the governor’s chief fiscal adviser.
Governor’s Budget Summary
Provides the governor’s economic and revenue outlook, highlights major policy initiatives in the governor’s proposed budget, and summarizes proposed state expenditures. The budget summary is released on or before January 10.
Governor’s Proposed Budget
Provides a detailed overview of the governor’s proposed expenditures for the upcoming fiscal year, estimated expenditures for the current fiscal year, and actual expenditures for the prior fiscal year. The proposed budget is released on or before January 10.
Legislative Analyst’s Office (LAO)
An independent, nonpartisan office that conducts research and analysis on state budget issues, analyzes statewide ballot measures, and provides fiscal and policy advice to the Legislature. The LAO is overseen by the Legislature’s bipartisan Joint Legislative Budget Committee.
Line-Item Veto
The governor’s power to reduce or eliminate specific items of appropriation while approving other portions of a bill. This power applies to any bill that contains an appropriation, including budget bills and budget-related bills. The Legislature may override a line-item veto with a two-thirds vote of each house.
May Revision
Released on or before May 14, the May Revision updates the governor’s economic and revenue outlook; adjusts the governor’s proposed expenditures to reflect revised estimates and assumptions; revises, supplements, or withdraws policy initiatives that were included in the governor’s proposed budget in January; and outlines adjustments to the Proposition 98 minimum funding guarantee for K-14 education.
The Constitutional Framework
The State Constitution Establishes the Rules of the Budget Process
The governor and legislators craft the state’s annual spending plan according to rules outlined in the state Constitution.
California voters periodically revise these rules by approving constitutional amendments that appear on the statewide ballot.
Proposals to amend the state Constitution can be placed on the ballot through a citizens’ initiative or by the Legislature.
A constitutional amendment takes effect if approved by a simple majority of voters.
Three Key Budget Deadlines
Two in the State Constitution (January 10 and June 15), One in State Law (May 14)
The governor must propose a budget for the upcoming fiscal year on or before January 10. The budget must be balanced: Estimated revenues (as determined by the governor) must meet or exceed the governor’s proposed spending.
The governor must release the May Revision on or before May 14.
The Legislature must pass a budget bill for the upcoming fiscal year by midnight on June 15. The budget bill must be balanced: Estimated General Fund revenues (as set Ωforth in the budget bill passed by the Legislature) must meet or exceed General Fund spending.
Proposition 25: Simple Majority Vote for Budget Bills and Trailer Bills
The budget package generally may be passed by a simple majority vote of each house of the Legislature.
Prop. 25 of 2010 allows lawmakers to pass, by a simple majority vote, budget bills as well as trailer bills that may take effect as soon as the governor signs them.
Under the rules of Prop. 25, trailer bills must (1) be listed in the budget bill and (2) contain an appropriation of any amount.
Even with Prop. 25, some types of trailer bills that could be included in a budget package will require a supermajority — generally two-thirds — vote of each house. This includes, for example, bills that would raise taxes or amend a state law that was approved by voters via a ballot initiative. However, most trailer bills in the budget package will need only a simple majority vote to pass.
Proposition 25: Penalties for a Late Budget
Lawmakers face penalties if they fail to pass the budget bill on or before June 15.
Prop. 25 requires lawmakers to permanently forfeit both their pay and their reimbursement for travel and living expenses for each day after June 15 that the budget bill is not passed and sent to the governor.
These penalties do not apply to budget-related bills, which do not have to be passed on or before June 15.
Proposition 26: Supermajority Vote for Tax Increases
Any tax increase requires a two-thirds vote of each house of the Legislature.
Under the state Constitution, “any change in state statute which results in any taxpayer paying a higher tax” requires a two-thirds vote of each house.
This standard was imposed by Prop. 26 of 2010. This measure expanded the definition of a tax increase and thus the scope of the two-thirds vote requirement, which was originally imposed by Prop. 13 of 1978.
Prior to Prop. 26, only bills changing state taxes “for the purpose of increasing revenues” required a two-thirds vote. Bills that increased some taxes but reduced others by an equal or larger amount could be passed by a simple majority vote of each house.
Proposition 26: Supermajority Vote for Tax Increases
Prop. 26 of 2010 also expanded the definition of a tax to include some fees.
Prior to Prop. 26, lawmakers could create or increase fees by a simple majority vote. These majority-vote fees included regulatory fees intended to address health, environmental, or other problems caused by various products, such as alcohol, oil, or hazardous materials.
Prop. 26 reclassified regulatory and certain other fees as taxes. As a result, a two-thirds vote of each house of the Legislature is now required for many charges that previously were considered fees and could be passed by a simple majority vote.
Additional Supermajority Vote Requirements
The state Constitution requires a two-thirds vote of each house of the Legislature in order to:
Appropriate money from the General Fund, except for appropriations that are for public schools or that are included in the budget bill or in trailer bills.
Pass bills that take effect immediately (urgency statutes), except for the budget bill and trailer bills.
Place constitutional amendments or general obligation bond measures before the voters.
Override the governor’s veto of a bill or an item of appropriation.
A Bill Must Be Published for at Least 72 Hours Before the Legislature Can Act On It
Proposition 54 of 2016 requires bills to be distributed to legislators and published on the Internet, in their final form, at least 72 hours before being passed by the Legislature.
This rule applies to all bills, including the budget bill and other legislation included in the budget package.
This mandatory review period can be waived for a bill if:
The governor declares an emergency in response to a disaster or extreme peril, and
Two-thirds of legislators in the house considering the bill vote to waive the review period.
Proposition 98: A Funding Guarantee for K-12 Schools and Community Colleges
Prop. 98 of 1988 guarantees a minimum annual level of funding for K-14 education.
The amount of the guarantee is calculated each year based on one of three tests that apply under varying fiscal and economic conditions. Two of these tests include adjustments for changes in statewide K-12 attendance. Prop. 98 funding comes from the state General Fund and local property tax revenues.
The Legislature can suspend the guarantee for a single year by a two-thirds vote of each house and provide less funding. Following a suspension, the state must increase Prop. 98 funding over time to the level that it would have reached absent the suspension.
While the Legislature can provide more funding than Prop. 98 requires, the guarantee has generally served as a maximum funding level.
Proposition 2: Saving for a Rainy Day, Paying down Debt
Prop. 2 of 2014 revised the rules that apply to the Budget Stabilization Account (BSA) — the state’s constitutional rainy day fund — and also established a new requirement to pay down state budgetary debt.
The state is required to set aside 1.5% of General Fund revenues each year, plus additional dollars in years when tax revenues from capital gains are particularly strong.
Until 2029-30, half of the revenues go into the BSA and the other half must be used to pay down state budgetary debt, which includes unfunded pension liabilities. Starting in 2030-31, the entire annual transfer goes into the BSA.
State policymakers may suspend or reduce the BSA deposit and withdraw funds from the reserve, but only under limited circumstances that qualify as a “budget emergency.”
Proposition 2: A Budget Reserve for K-12 Education
Prop. 2 of 2014 also created a state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA).
Deposits come from state capital gains tax revenues in years when those revenues are particularly strong.
However, various conditions must be met before these dollars could be transferred to the PSSSA. For example, transfers could occur only in so-called “Test 1” years under Prop. 98, which have been rare.
Proposition 55: Potential New Funding for Medi-Cal from a Tax on the Wealthiest Californians
Prop. 55 of 2016 extends, through 2030, personal income tax rate increases on very high-income Californians and establishes a formula to boost funding for Medi-Cal, which provides health care services to Californians with low incomes.
Starting in 2018-19, General Fund revenues — including those raised by Prop. 55 — must first be used to fund (1) the annual Prop. 98 guarantee for K-12 schools and community colleges and (2) the cost of other services that were authorized as of January 1, 2016, as adjusted for population changes, federal mandates, and other factors.
If any Prop. 55 revenues remain after meeting these required expenditures, MediCal would receive 50% of this excess, up to a maximum of $2 billion in any fiscal year.
Prop. 55 has not yet resulted in any additional funding for Medi-Cal.
State Appropriations Limit (SAL): A Cap on Spending
Appropriations are subject to a limit established by Prop. 4 of 1979, as modified by later initiatives. This spending cap is known as the Gann Limit.
The SAL limits the amount of state tax proceeds that can be appropriated each year. This limit is adjusted annually for changes in population and per capita personal income.
Some appropriations from tax proceeds do not count toward the limit, including debt service and spending that is needed to comply with court or federal mandates.
Revenues that exceed the SAL over a two-year period are divided equally between Prop. 98 spending and taxpayer rebates. The state last exceeded the SAL in 2020-21 (but did not do so in the prior year).
State Mandates: Pay for Them or Suspend Them
The state must pay for or suspend mandates that it imposes on local governments.
Prop. 4 of 1979 requires the state to reimburse local governments for costs related to a new program or a higher level of service that is mandated by the state.
Prop. 1A of 2004 expanded the definition of a mandate to include the transfer of financial responsibility from the state to local governments.
Prop. 1A also requires the state to suspend a mandate in any year in which local governments’ costs are not fully reimbursed.
What do the Governor and the Legislature Do?
The Governor
Approves, modifies, or rejects spending proposals prepared by state departments and agencies through an internal process coordinated by the DOF.
Proposes a spending plan for the state each January, introduced as the budget bill in the Legislature.
Updates and revises the proposed budget each May (the “May Revision”).
Signs or vetoes the bills included in the budget package.
Can veto all or part of individual appropriations (line items), but cannot increase any appropriations above the level approved by the Legislature.
The Legislature
Approves, modifies, or rejects the governor’s proposals.
Can add new spending or make other changes that substantially revise the governor’s proposals.
Needs a simple majority vote of each house to pass budget bills and most trailer bills.
Needs a two-thirds vote to pass certain other bills that may be part of the budget package, such as bills that increase taxes or propose constitutional amendments.
Needs a two-thirds vote of each house to override the governor’s veto of a bill or an appropriation.
What Happens When?
The State Budget Timeline
The state budget process is cyclical. Decisions are made throughout the year.
State departments and agencies develop baseline budgets to maintain existing service levels in the upcoming fiscal year and may prepare “budget change proposals” intended to alter service levels. The DOF reviews these documents.
Following a series of meetings within the governor’s administration, the governor makes final decisions and the DOF prepares the proposed budget for release in January.
Independent of the governor, legislative leaders develop their budget priorities for the upcoming fiscal year.
In November, the Legislative Analyst’s Office (LAO) releases their Fiscal Outlook, which provides the LAO’s assessment of revenues, spending, and the state’s overall budget condition across several fiscal years.
By January 10
The governor releases the proposed budget for the upcoming fiscal year that begins on July 1.
January to Mid-May
A few days after the proposed budget is released: The Legislative Analyst’s Office (LAO) releases their overview and assessment of the governor’s proposals, and later publishes an updated revenue forecast.
Late January: The Assembly Budget Committee and the Senate Budget and Fiscal Review Committee convene overview hearings on the governor’s proposed budget.
Late February to early May: Budget subcommittees in each house hold dozens of hearings to review the governor’s proposals in depth.
By May 14
The governor releases a revised budget (the May Revision) for the upcoming fiscal year that begins on July 1.
Mid-May to Early June
A few days after the May Revision: The Legislative Analyst’s Office (LAO) releases their overview and assessment of the May Revision, and later publishes an updated revenue forecast and multiyear budget outlook.
The week after the May Revision: Assembly and Senate budget subcommittees convene to review the governor’s May Revision proposals.
Roughly 10 days after the May Revision: The Assembly and Senate publish summaries — “subcommittee reports” — of their versions of the budget package.
Roughly two weeks after the May Revision:
Assembly and Senate leaders reach a deal on a unified legislative version of the budget package and publish summaries of the agreement. For many years, legislative leaders convened a conference committee composed of Democrats and Republicans to resolve differences between the two houses’ spending plans. However, a conference committee has not been convened since 2019.
A full deal with the governor at this stage is possible, but rare. Nonetheless, the Legislature’s budget package will reflect many points of agreement with the governor based on ongoing, behind-the-scenes negotiations between the governor and legislative leaders.
Somewhat more than two weeks after the May Revision:
The Legislature begins drafting the initial budget bill, also known as the Budget Act. Finalizing the Budget Act for floor votes can take roughly a dozen days.
By June 15
The Legislature passes the Budget Act by June 15 — the constitutional deadline — and sends it to the governor.
If the two houses have scheduled floor votes for June 15, the Budget Act must be published on the California Legislative Information website by June 12 to meet the 72-hour bill-in-print requirement.
If the Legislature schedules floor votes before June 15, the Budget Act must be in print prior to June 12 to comply with the 72-hour rule — for example, by June 10 for floor votes on June 13.
Trailer bills, which are also part of the state budget package, are not required to be — and rarely are — passed by June 15. Trailer bills generally make statutory changes needed to implement the policies assumed in the Budget Act.
Second half of June
The governor and legislative leaders continue negotiating in order to reach a three-party deal on the budget package for the upcoming fiscal year.
Once a deal is reached, the rest of the bills in the budget package are unveiled, consisting of multiple trailer bills along with a “Budget Bill Jr.” The Budget Bill Jr. amends the Budget Act as passed by the Legislature in order to reflect the changes required by the deal with the governor.
The Assembly and Senate publish summaries of the budget package as agreed to with the governor.
The Legislature passes the Budget Bill Jr. and trailer bills.
The governor signs the Budget Act, the Budget Bill Jr., and the trailer bills (some trailer bills might not be signed until early July).
All bills must be signed within 12 days of being presented to the governor. However, if the 12th day is a Saturday, a Sunday, or a holiday, the period is extended to the next day that is not a Saturday, a Sunday, or a holiday.
The governor may reduce or eliminate any item of appropriation in any bill (the “line-item veto”).
State departments and agencies focus on the next state budget by beginning to prepare the governor’s proposed budget for release by January 10. This months-long process may begin earlier in June and continues through the summer and into the fall.
July and Beyond
The new state fiscal year begins on July 1.
The governor signs any remaining trailer bills that weren’t signed in June.
The Department of Finance publishes a summary of the June budget package as signed into law by the governor. This summary may be published before the end of June.
The Legislature breaks for a one-month summer recess around July 4.
The Legislature reconvenes in early August for the final few weeks of session, which ends in August in election years and in September in non-election years.
In August, state leaders typically advance changes to the state budget package adopted in June, including at least one Budget Bill Jr. along with additional trailer bills. The changes include budget “clean-up,” such as correcting errors in the Budget Act, as well as substantive — often major — revisions to spending and policy.
The Assembly and Senate publish summaries of the budget revisions as agreed to with the governor.
The full budget committee in each house holds a single hearing on the budget revisions before sending the package to the Assembly and Senate floors for final votes.
The governor signs the budget revisions into law in September — or sometimes October in non-election years — possibly with line-item vetoes.
State Budget Resources
Department of Finance: The governor’s budget proposals and related documents (www.dof.ca.gov).
Legislative Analyst’s Office: Budget and policy analyses, budget recommendations, and historical budget data (www.lao.ca.gov).
Legislative Counsel: Bills and bill analyses, a free bill-tracking service, the state codes, and the state Constitution (www.leginfo.legislature.ca.gov).
State Assembly and Senate: Committee agendas and other publications, floor session and committee schedules, the annual legislative calendar, and live audio streaming of legislative proceedings (www.assembly.ca.gov and www.senate.ca.gov).
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
key takeaway
Despite California’s efforts to expand preschool access, many children, particularly those from families with low incomes and children of color, are missing out on these crucial early learning opportunities. The complex early learning system makes it difficult for families to navigate and enroll their children.
Children and their families deserve early education opportunities that promote whole-child development and support overall family well-being. Preschool programs are an essential component in providing these experiences for 3- and 4-year-old children. While California has made significant strides in expanding access to preschool, thousands of preschool-age children still lack access to the state’s early learning programs. This is especially true for many children of color and children from families with low incomes who do not participate in any early learning program, whether it is in a preschool setting or in any other setting within California’s early learning system.
The early learning system is complex, and families are expected to navigate this system and make decisions on early learning options available in their communities. This report shares findings on the number of children served in the California State Preschool Program (CSPP) in the context of the mixed delivery system and equitable access to early learning.
What is the California State Preschool Program?
CSPP serves 3- and 4-year-old children from income-eligible families — children are eligible if their family’s income level is at or below 100% of State Median Income ($84,818 for a family of 2). The program offers part-day and full-day preschool to families who meet certain eligibility requirements — in addition to income, families must meet other requirements to access full-day preschool.1A 3- or 4-year-old child is eligible for full-day preschool if their family meets one additional requirement under the category “needs childcare.” This category includes whether the child is identified as being in danger of harm or neglect, or if the parent is in vocational training, is enrolled in an English language learner educational program, is employed or looking for employment, is seeking housing, or is incapacitated. California Education Code, title 1, sec. 8208 (d)(1). The California Department of Education (CDE) administers CSPP, including allocating funding to contractors.
At the local level, schools and colleges, nonprofits, and local governments offer the program. CSPP is part of California’s publicly funded mixed-delivery system that serves the early learning and child care needs of California families through several programs. In 2022, the entire system, including federally funded programs, served approximately 309,000 3- and 4-year-old children — most of these children are from families with low incomes.2Total enrollment is likely overestimated because families may participate in more than one program, and available data do not provide unduplicated numbers.
How many children have enrolled in CSPP over the years?
As shown in the chart below, enrollment for 3- and 4-year-old children in CSPP has not fully recovered after sharp declines in 2020. Since then, enrollment has steadily increased but still lags behind pre-pandemic numbers. From 2019 to 2022, the program served around 41,000 fewer 3- and 4-year-old children. This trend was particularly pronounced for 4-year-old children. After slightly recovering in 2021, the number of 4-year-olds in CSPP started to dip again while enrollment for 3-year-olds continued to increase — from 2021 to 2022, 4-year-old children in part-day programs experienced the largest drop.
How many children could potentially be served by CSPP?
Data show a clear gap between the number of children eligible for CSPP and current enrollment levels. In 2022, the program enrolled only 17% of all 3- and 4-year-old children from income-eligible families. Specifically, more than 560,000 children were eligible for CSPP in 2022, but the program served only about 96,000 children. Of the number eligible, 469,000 (84%) were children of color. This gap is partially addressed by other preschool and child care programs serving 3- and 4-year-old children from low-income families. However, even after accounting for other programs, many children still do not benefit from any form of publicly funded early learning services.
What is the demand for CSPP?
Despite the gap in access to CSPP, the total number of available slots significantly exceeds demand. In fiscal year 2022-23, CSPP funding could have served about 211,000 children, but total program enrollment was less than half of the total capacity (100,080 children). The state has made investments to expand the program, such as increasing income eligibility thresholds, but demand is still significantly lower than it was prior to 2020. This means that dollars intended to provide access to preschool are not reaching those families who technically have a spot available to them.
Why might CSPP supply outpace demand?
While there is not enough information to fully understand why enrollment lags behind available spaces, some reports point to potential reasons such as:
workforce challenges that limit providers’ ability to staff classrooms;
the long-lasting impacts of the pandemic;
4-year-old children moving to Transitional Kindergarten (TK);
programs may not meet families’ needs (e.g., inconvenient hours or location); and
families facing access challenges, such as not having enough information about the program.
More research is needed to understand these challenges and target solutions, especially related to how families navigate the system and the factors that guide their decisions.
Implications
The findings presented in this report highlight key implications for policymakers, state agencies, and other early learning advocates. The trends in CSPP amplify continued efforts to expand access for families with the most need. Overall, failure to engage families to enroll in state preschool exacerbates ongoing disparities at the intersection of race and income. Additional implications include:
Low take up rates of preschool slots result in millions of dollars intended to expand access for low-income families being utilized for other purposes.
Traditionally, the state reverts unused dollars to the General Fund and the Proposition 98 General Fund, which can be used for other purposes that may not support the early learning system, potentially hurting CSPP and the entire mixed delivery system.3Unused dollars could also be the result of overappropriations for a policy change.
Low enrollment points to families choosing other programs.
Research on families’ perspectives on the mixed delivery system, including preschool, shows that families from diverse backgrounds prioritize affordability, quality, safety, and specific program features when choosing early learning for their children.4Early Education Division – Opportunities for All Branch, UPK Mixed Delivery Quality and Access Report (February 9, 2024), 36, https://drive.google.com/file/d/1KJjCKg4RwLU7kRVcTwhao3oxbSVfc5Px/view.Given this under enrollment in CSPP, this research may point to areas of improvement for the program.
TK and other programs are likely impacting low enrollment in CSPP.
In 2022, enrollment of 4-year-old children in CSPP continued to drop, in part due to families enrolling their children into TK, which is gradually becoming universal for all 4-year-olds. CSPP, TK, and other preschool programs now have less demand from a limited number of families interested in enrolling their preschool-age children in a program. Eligible families also have the option to send their preschool-age children to other child care and development programs — those administered by the California Department of Social Services — but since CSPP only serves 3- and 4-year-old children, CSPP is more susceptible to declining enrollment due to TK expansion.
What can state leaders do to better support families with preschool-age children?
Strengthening CSPP requires policy changes and investments at the program and system level. The 2023-24 enacted budget included significant investments that will strengthen CSPP and other programs in the mixed delivery system, such as provider rate supplements and family fee reform.
State leaders can further strengthen CSPP by implementing changes that center families and enacting needed reforms to support the early learning workforce. Those include:
greater coordination across preschool programs, early learning and K-12 infrastructure, and resource and referral agencies;
a statewide communications campaign to increase awareness of preschool options that attends to the racial, cultural, and linguistic diversity of the state; and
streamlining eligibility and enrollment across state agencies so that families know what’s available to them.
Ensuring all preschool educators are paid a living wage.
CSPP teachers are paid significantly less compared to teachers in TK. This disparity presents an opportunity to fairly compensate CSPP educators and strengthen programs by ensuring experienced and diverse educators join and stay in the field. To accomplish this, state leaders need to develop a plan to generate needed revenues to implement a rate-setting methodology that pays CSPP providers a living wage.
Making CSPP more flexible.
Program provisions related to age requirements, contracts, and teacher requirements do not allow programs to adapt to the pressures of the current early learning landscape. Flexibility in these areas can support and strengthen programs, allowing them to serve more families. For example, expanding the CSPP age range to include younger 2-year-olds would allow more families to take advantage of this program.
Increasing participation in preschool is crucial to promoting whole-child development and addressing deep inequities in outcomes later in a child’s life. California is making progress in creating a more robust mixed delivery system that works for families. However, there is still much more to be done to ensure children benefit from these investments. As state leaders consider changes to state preschool and the mixed delivery system, policy developments should be informed by those most impacted, namely, providers and caregivers.
A 3- or 4-year-old child is eligible for full-day preschool if their family meets one additional requirement under the category “needs childcare.” This category includes whether the child is identified as being in danger of harm or neglect, or if the parent is in vocational training, is enrolled in an English language learner educational program, is employed or looking for employment, is seeking housing, or is incapacitated. California Education Code, title 1, sec. 8208 (d)(1).
2
Total enrollment is likely overestimated because families may participate in more than one program, and available data do not provide unduplicated numbers.
3
Unused dollars could also be the result of overappropriations for a policy change.
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
California’s Budget Reserves
California’s Constitution and state law govern when funds may be withdrawn from the state’s budget reserves, the amount that can be withdrawn, and how funds may be used.
Established in the state Constitution: Budget Stabilization Account, Public School System Stabilization Account
Established in state law: Safety Net Reserve, Special Fund for Economic Uncertainties
Budget Stabilization Account (BSA) (aka Rainy Day Fund)
Public School System Stabilization Account (PSSSA)
Safety Net Reserve
Special Fund for Economic Uncertainties (SFEU)
Is the state required to make an annual deposit?
Yes
No However, a deposit is required under a restricted set of circumstances.1For example, these circumstances include requirements that deposits only occur when capital gains tax revenues exceed a specific level of total General Fund proceeds of taxes and when growth in the state’s minimum funding guarantee for K-12 schools and community colleges is relatively strong.
No
No
Can a required deposit be reduced or suspended — and by who?
Yes A required deposit can be reduced or suspended if the governor declares a budget emergency and the Legislature approves the reduction or suspension by a majority vote.
Yes A required deposit can be reduced or suspended if the governor declares a budget emergency and the Legislature approves the reduction or suspension by a majority vote.
Not applicable
Not applicable
When can funds be withdrawn?
Funds may be withdrawn if the governor declares a budget emergency and the Legislature passes a bill, by majority vote, to withdraw funds.2These withdrawal rules apply to funds that are deposited into the BSA as required by Proposition 2 of 2014. State policymakers may also deposit funds into the BSA on top of Prop. 2 requirements, creating a “discretionary” balance within the reserve. The Legislative Analyst’s Office suggests that the Legislature can withdraw a discretionary balance at any time without a declaration of a budget emergency by the governor. Separate from this issue, funds must be withdrawn from the BSA — without the need for a declaration of a budget emergency — when updated revenue estimates indicate that a prior-year deposit was greater than required.
Funds may be withdrawn if the governor declares a budget emergency and the Legislature passes a bill, by majority vote, to withdraw funds.3Funds must be withdrawn from the PSSSA — without the need for a declaration of a budget emergency — when the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level, adjusted for changes in student attendance and the cost of living, or when updated revenue estimates indicate that a prior-year deposit was greater than required.
The Legislature may withdraw the funds at any time by majority vote.
The Legislature may withdraw the funds at any time by majority vote.4Additionally, the Department of Finance may withdraw funds from the SFEU without legislative approval to cover the cost of state disaster response efforts upon an emergency proclamation by the governor.
Is there a limit on the amount of funds that can be withdrawn?
Yes The amount that can be withdrawn is limited to the lower of 1) the amount needed to address the budget emergency or 2) half of the funds in the BSA, unless funds had been withdrawn in the previous fiscal year, in which case all of the funds remaining in the BSA may be withdrawn.
No5However, in any year when funds must be withdrawn from the PSSSA because the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level — adjusted for changes in student attendance and the cost of living — the required withdrawal is limited to the amount of that shortfall.
No
No
How can the funds be used by the state?
Funds may be used for any purpose.
Funds must be used to support K-12 schools and community colleges.
Funds are intended to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn, but may be used for any purpose if the Legislature so chooses.
Funds may be used for any purpose.
Note: A ”budget emergency” that’s declared by the governor is defined as either: 1) the existence of ”conditions of disaster or of extreme peril to the safety of persons and property within the State, or parts thereof” as defined in Article XIII B, Section 3(c)(2) of the state Constitution; or 2) a determination by the governor that there are insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years, adjusted for state population growth and the change in the cost of living. Article XIII B, Section 3(c)(2), defines “conditions of disaster or of extreme peril” as being “caused by such conditions as attack or probable or imminent attack by an enemy of the United States, fire, flood, drought, storm, civil disorder, earthquake, or volcanic eruption.”
Sources: California Constitution, California Government Code, and California Welfare and Institutions Code
For example, these circumstances include requirements that deposits only occur when capital gains tax revenues exceed a specific level of total General Fund proceeds of taxes and when growth in the state’s minimum funding guarantee for K-12 schools and community colleges is relatively strong.
2
These withdrawal rules apply to funds that are deposited into the BSA as required by Proposition 2 of 2014. State policymakers may also deposit funds into the BSA on top of Prop. 2 requirements, creating a “discretionary” balance within the reserve. The Legislative Analyst’s Office suggests that the Legislature can withdraw a discretionary balance at any time without a declaration of a budget emergency by the governor. Separate from this issue, funds must be withdrawn from the BSA — without the need for a declaration of a budget emergency — when updated revenue estimates indicate that a prior-year deposit was greater than required.
3
Funds must be withdrawn from the PSSSA — without the need for a declaration of a budget emergency — when the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level, adjusted for changes in student attendance and the cost of living, or when updated revenue estimates indicate that a prior-year deposit was greater than required.
4
Additionally, the Department of Finance may withdraw funds from the SFEU without legislative approval to cover the cost of state disaster response efforts upon an emergency proclamation by the governor.
5
However, in any year when funds must be withdrawn from the PSSSA because the state’s minimum funding guarantee for K-12 schools and community colleges is less than the prior year’s funding level — adjusted for changes in student attendance and the cost of living — the required withdrawal is limited to the amount of that shortfall.
You may also be interested in the following resources:
There was a problem processing your signup. Please try again. Or contact us
Please check your email to confirm your signup.
This website uses cookies to analyze site traffic and to allow users to complete forms on the site. The California Budget & Policy Center does not share, trade, sell, or otherwise disclose personal information. By using our website you agree to our Privacy Policy.
