Introduction

Governor Gavin Newsom released his proposed 2024-25 California state budget on January 10, projecting a $38 billion shortfall that is notably smaller than the independent Legislative Analyst Office’s estimate of $68 billion released last month. The governor proposes to close the budget gap through the use of reserves, delays or deferrals of spending authorized in earlier years, and spending cuts. The $209 billion General Fund spending plan would protect many investments made in prior years, but fails to propose significant tax policy changes to increase state revenues to meet near-term needs and build a more equitable, thriving state in the long run.

The projected budget shortfall is primarily the result of state revenue collections that the administration now projects are $44 billion lower over the three-year budget window (fiscal years 2022-23 through 2024-25) than was anticipated when the current-year budget was enacted last June. The extent of this revenue drop only recently became clear because filing deadlines for the 2022 tax year were pushed from April 2023 to November 2023 by the IRS. 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 for K-12 schools and community colleges.

The governor’s proposed solutions to cover the shortfall include:

• Using $18.8 billion of state reserves, often called “rainy day funds” (leaving an estimated $18.4 billion for future use),
• Internal fiscal measures including internal borrowing ($5.7 billion) and fund shifts ($3.4 billion), and
• Various reductions in funding levels ($8.5 billion) and delays and deferrals in funding to later years ($7.2 billion).

The governor’s proposal notably does not include any substantial tax policy measures to increase revenues to avoid reductions in funding levels for critical services and enable additional ongoing investments. As a result, the austerity measures used to cover the shortfall include some reductions and delays in funding that will disproportionately impact low-income communities and Californians of color, including:

• Ongoing cuts to CalWORKs supportive services (despite draining the Safety Net Reserve designed to avoid cuts to CalWORKs),
• Delays to programs that help address homelessness,
• Various reductions in funding for workforce systems and supports, and
• Various reductions in climate and housing programs.

Overall, the governor’s budget proposal would protect and maintain much of the progress made in prior budget years to help improve economic security and opportunities for Californians with low incomes and Californians of color, including policy advances in health care and behavioral health, cash assistance (refundable tax credits and SSI-SSP), food assistance, and universal transitional kindergarten (TK).

However, California has the wealth and state leaders have the tools and resources to further protect essential services and build upon earlier progress. The state is better equipped to tackle current fiscal challenges as a result of a decade of prudent budgeting and building reserves. But, there is still much more that can be done to help Californians thrive and secure our state’s fiscal future. In good times and in bad, all Californians deserve the dignity and support necessary to lead thriving lives.

This First Look report outlines key pieces of the 2024-25 California budget proposal, and explores how the governor prioritized spending and determined cuts amid a sizable projected state budget shortfall.

Table of Contents

Budget Overview

• Economic Outlook: Governor’s Budget Projects Slower Job Growth, Modest Wage Gains
• Revenue: Budget Assumes a $44 Billion Revenue Shortfall Over 3-Year Budget Window
• Tax Policy: Governor Proposes Modest But Insufficient Revenue Increases
• Reserves: Governor Proposes Withdrawal of Reserve Funds, Maintains Some Reserves for Future Use

Health

• Coverage, Affordability & Access: Governor Keeps Commitment to Expand Medi-Cal to All Undocumented Californians
• Behavioral Health: Proposed Budget Upholds Major Behavioral Health Initiatives

Homelessness & Housing

• Homelessness: Proposed Budget Does Not Advance Funding to End Homelessness
• Housing: Budget Reduces Funds and Fails to Continue Affordable Housing Investments

Economic Security

• Refundable Tax Credits: Governor’s Budget Preserves Refundable Tax Credits for Low-Income Californians, Makes No New Investments
• CalWORKs: Proposed Budget Makes Significant Cuts to CalWORKs Support Services
• Food Assistance: Governor Retains Most Food Assistance Commitments, But No New Investments
• SSI/SSP: Governor Proposes to Maintain Current Grant Levels, Provides No Additional Funding to Increase Grants
• Child Care: Governor Maintains Temporary Rate Increase and Commitment to 200,000 Slots
• Immigrant Californians: Governor Preserves Key Supports for Immigrant Californians; Cuts Legal Services
• Domestic Violence Prevention: Proposed Budget Fails to Extend Funding for Domestic Violence Survivors

Education

• Early Learning & Pre-K: Pre-K and Transitional Kindergarten Funding Continues, but With Key Delays
• Proposition 98: K-14 Education’s Minimum Funding Level Drops Due to Lower Revenue Estimates
• K-12 Education: Budget Proposal Relies on Reserves to Support K-12 School Funding Formula
• Community Colleges: The Proposed Budget Includes Reserve Withdrawals to Support Community Colleges
• CSU/UC: Proposed Budget Defers Planned Investments for the CSU and UC Systems
• Student Financial Aid: Spending Plan Fails to Propose Solutions to Fund Cal Grant Reform

Justice System

• State Corrections: Governor Does Not Propose Additional Prison Closures
• Retail Theft: Governor Maintains Funding and Proposes Tougher Penalties to Tackle Retail Theft
• Proposition 47 Investments: Budget Estimates Proposition 47 Savings of $88 Million in 2024-25

Workforce & Climate Change

• Health Care Workforce: Governor Seeks Changes to Health Care Worker Minimum Wages
• Health Care Workforce: Governor Proposes Delay in Health Care Workforce Investments
• Other Workforce: Governor Proposes Cuts and Delays to Workforce Programs
• Climate Change: Proposed Budget Reduces or Delays Funds for a Range of Climate Investments

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Budget Overview

Governor’s Budget Projects Slower Job Growth, Modest Wage Gains

The Administration’s economic outlook for California projects slower job growth and an uptick in the unemployment rate over the next two years, largely in response to actions taken by the Federal Reserve to slow inflation. Specifically, nonfarm employment is projected to rise by just 1% in 2024, followed by a 0.4% increase in 2025 – notably slower than the 2.2% rise in employment in 2023 and 1.5% increase in 2019, just before the pandemic. In addition, the state’s unemployment rate is projected to increase from 4.6% in 2023 to 5.1% in 2024 and 5.2% in 2025 – also much higher than the 4.1% pre-pandemic unemployment rate in 2019. While the Administration does not provide projections for specific groups of workers, the devastating impact of rising unemployment is likely to hit communities of color harder, as the effects of structural racism mean that Black and Latinx workers, in particular, always face much higher unemployment rates than white workers, in both good times and bad.

Projections for wages and inflation are a brighter spot in the Administration’s outlook. The average worker’s wage is expected to increase by 3.4% and 3.7% in 2024 and 2025, respectively — up from 2.7% growth in 2023 — reflecting the strengthening tech sector, in particular. Nevertheless, average annual wage gains are projected to still fall short of pre-pandemic levels during the forecast period. The Administration also projects that rates of inflation in the US and California will continue to moderate over the next few years, with growth in the state’s inflation rate falling to 3.0% in 2024 and 2.4% in 2025, down from 3.8% in 2023.

Budget Assumes a $44 Billion Revenue Shortfall Over 3-Year Budget Window

The proposed budget is built on state revenue estimates that are significantly lower than projected when the 2023 budget was enacted. Still, the revenue shortfall assumed by the administration is substantially smaller than the $58 billion previously estimated by the Legislative Analyst’s Office (LAO). For the three-year budget window, including fiscal years 2022-23 through 2024-25, the governor estimates that General Fund revenues will be $44 billion below the 2023 Budget Act estimate before accounting for proposed budget solutions.

A large share of the shortfall — about $25 billion — is attributable to fiscal year 2022-23, which ended last June. The extent of this shortfall only recently became clear because filing deadlines for the 2022 tax year were pushed from April 2023 to November 2023. 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, as well as the economic dampening effects of the Federal Reserve’s interest rate hikes.

For fiscal years 2023-24 and 2024-25, the administration’s revenue projections are more optimistic than the LAO’s, leading to the difference between the two revenue shortfall estimates. This difference in revenue projections also contributes to the difference between the governor’s estimate of an overall $38 billion budget problem and the LAO’s estimated $68 billion budget problem, but the estimates of the budget problem reflect spending projections in addition to revenue projections.

It’s important to keep in mind that both the governor’s and the LAO’s estimates of the 3-year revenue shortfall and overall budget problem are just estimates and are subject to change as additional information becomes available. There is always a high degree of uncertainty in forecasting future revenues, and the picture may very well look better or worse by the time the 2024-25 budget is being finalized, depending on changes in economic conditions and their impact on state tax collections.

Governor Proposes Modest But Insufficient Revenue Increases

One piece of the governor’s plan to address the budget problem is a package of tax proposals that the administration estimates would raise state revenues by about $400 million in 2024-25 and about $293 million ongoing by limiting or eliminating some tax breaks. These proposals include:

While these proposals to bolster state revenues and limit wasteful tax breaks are commendable, they fall far short of the level of revenue increases needed to avoid cuts to important state services and to meaningfully improve those services to better meet the needs of Californians. There are many ways to make the state’s tax system more fair while substantially raising state revenues.

Notably, the state loses tens of billions of dollars on corporate and personal income tax breaks each year. However, these costly tax breaks are not re-evaluated in budget discussions each year, meaning billions of dollars in tax expenditures often continue yearly without scrutiny. Some of the largest of these tax breaks largely benefit highly profitable corporations and wealthy individuals and make the state’s tax system less equitable, yet the governor does not propose changes to these. For example:

• The “Water’s Edge election” is estimated to cost the state around $4 billion each year, and encourages corporations to avoid taxes by using foreign tax havens.
• The Research and Development tax credit is estimated to cost around $2-3 billion each year and is overly generous, leaving room for reforms that would retain the credit but limit the revenue loss.

Along with reductions to the official state corporate tax rate, these and other corporate tax breaks explain why corporations pay only about half as much of their California profits in state taxes as they did a generation ago. Meanwhile, corporate profits shot up during the pandemic and are still near record highs despite more recent economic challenges, including higher inflation and rising interest rates. California corporate taxes make up a very small share — about 0.1% — of corporations’ expenses, and requiring more fair contributions from the most profitable of these corporations would only marginally increase that share. Policymakers have many options to combat corporate tax avoidance and ensure the wealthiest corporations and individuals are paying their fair share to support the needs of California communities.

In both good and bad budget times, raising revenues and making the state’s tax system more equitable is a key strategy to help keep Californians healthy, housed, well-fed, and able to access educational and economic opportunities.

Governor Proposes Withdrawal of Reserve Funds, Maintains Some Reserves for Future Use

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.

The BSA is not California’s only reserve fund. 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, each year, the state deposits additional funds into a “Special Fund for Economic Uncertainties” (SFEU) — a reserve fund where state leaders have 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 — $23.1 billion in the BSA; $5.7 billion in the PSSSA; $900 million in the Safety Net Reserve; and a shortfall of $2.5 billion in the SFEU, which fluctuates throughout the year based on changes in revenues.

The governor proposes to use $18.8 billion in reserve funds from the BSA, PSSSA, and Safety Net Reserve to cover a portion of the projected budget shortfall. The proposal includes $12.2 billion from the BSA, $5.7 billion from the PSSSA, and all $900 million from the Safety Net Reserve. (The portion from the BSA includes dollars that would normally be deposited into that account — a transfer that the governor proposes to suspend.) The withdrawal of the Safety Net Reserve funds is surprising and concerning because the governor also proposes cuts to CalWORKs for low-income families with children — a program the reserve is intended to protect from budget cuts (see CalWORKs section).

For 2024-25, the proposal projects balances, after withdrawals, of $11.1 billion in the BSA, $3.9 billion in the PSSSA, no funding remaining in the Safety Net Reserve, and an SFEU balance of $3.4 billion. 

Taking into account the remaining reserves in the BSA, PSSSA, and SFEU, the governor’s proposal assumes total reserves of $18.4 billion in 2024-25.

Health

Governor Keeps Commitment to Expand Medi-Cal to All Undocumented Californians

Access to health care is necessary for everyone to be healthy and thrive. About 14 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 1.6 million Californians purchase health coverage through Covered California, the state’s health insurance marketplace.

The governor’s proposed budget protects major health care investments that were established in prior years. Specifically, the budget:

In order to sustain recent health care investments, the governor’s administration seeks to increase the Managed Care Organization (MCO) tax, which was approved by the federal government in December 2023. 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 governor’s administration is seeking early action by the Legislature to request federal approval to increase the tax by $1.5 billion for a total of $20.9 billion from April 1, 2023 through December 31, 2026. Of this amount, $12.9 billion would support the Medi-Cal program and $8 billion would support provider rate increases to drive greater Medi-Cal provider participation.

State leaders can take additional steps to ensure that all Californians, regardless of race, age, disability, or immigration status, can access and maintain the critical health coverage they need to be healthy and thrive. The need for action is evident as almost 1 million Californians have lost Medi-Cal coverage during the ongoing processing of Medi-Cal renewals since the start of the pandemic. Although not everyone who loses Medi-Cal coverage becomes uninsured, the majority of people who lost coverage did so because of paperwork challenges. Certain groups, including immigrants, older adults, and people with disabilities, are at greater risk of losing Medi-Cal coverage. State leaders should invest in health navigators and pause procedural terminations to prevent Californians who remain eligible for Medi-Cal from losing coverage.

Proposed Budget Upholds Major Behavioral Health Initiatives

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 ensure access to these services for all Californians, regardless of race, age, gender identity, sexual orientation, or county of residence.

The budget proposal maintains funding to continue behavioral health initiatives that state leaders launched in recent years. Specifically, the budget preserves:

Due to the state’s projected General Fund revenue decline, the proposed budget:

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.

Homelessness & Housing

Proposed Budget Does Not Advance Funding to End Homelessness

All Californians deserve a dignified, safe and stable place to call home. Yet, in early 2023 Californians experiencing homelessness increased to over 181,000 individuals statewide. Unhoused Californians face harmful effects to their physical and mental health, and severe disruptions to employment, school, and basic needs. Deeply rooted inequities have also placed Black, American Indian or Alaska Native, and Pacific Islander Californians, adults without children, older adults, and LGBTQ+ individuals at higher risk of facing homelessness within their lifetimes.

While the administration largely sustains previous budget allocations to address homelessness, there is no additional funding in 2024-25. Most notably, the administration maintains $1.1 billion General Fund in 2023-24 for the Homeless Housing, Assistance and Prevention (HHAP) Grant Program, which provides local jurisdictions with flexible funds to address homelessness. However, it delays $260 million General Fund in 2023-24 to 2025-26 for HHAP “bonus” funds for grant recipients that meet performance conditions. It also reverts $100.6 million General Fund for HHAP administration, leaving $51.1 million for this use.

The proposed budget also delays or shifts funding for various homelessness programs that serve diverse populations at risk of or experiencing homelessness. Specifically, the proposed budget:

The administration further upholds previous allocations that leverage federal and state Medicaid funds to allow up to six months of rent or temporary housing to eligible individuals experiencing or at risk of homelessness transitioning out of institutions or foster care (see Coverage, Affordability & Access section). Broadly, the governor notes addressing California’s homelessness challenge remains a top priority and funding will be revisited in the spring. 

Budget Reduces Funds and Fails to Continue Affordable Housing Investments

All Californians deserve safe, stable, and affordable housing. However, the state’s affordable housing shortage and accompanying high housing costs are preventing many Californians from remaining stably housed. Renters, people with low incomes, Black and Latinx Californians, and Californians who are undocumented are especially likely to struggle to afford their homes. Yet despite noting California’s serious housing affordability challenges, the governor proposes funding reductions from prior years and no additional investments to increase the affordable housing supply.

As an austerity effort, the administration instead reduces $1.2 billion in funding allocated since 2019 for various housing-related programs, which encompass initiatives that promote affordable housing development and homeownership. Some reductions include:

• $300 million General Fund for Regional Early Action Planning Grants 2.0.
• $250 million General Fund for the Multifamily Housing Program, leaving $75 million in 2023-24.
• $247.5 million General Fund over the next three years for the Foreclosure Intervention Housing Preservation Program.
• $200 million for the Infill Infrastructure Grant Program, leaving $25 million in 2023-24.
• $152.5 million General Fund for CalHOME Program, which initially received $300 million one-time General Fund in 2023-24.
• $50 million General Fund for the Veterans Housing and Homelessness Prevention Program, fully reducing allocated state funds in 2023-24.

The proposed budget also does not include an additional $500 million – as has been done since 2019 – for state Low Income Housing Tax Credits, which help promote and finance affordable housing development. Regarding student housing, the administration eliminates a total of $494 million General Fund for the California Student Housing Revolving Loan Fund Program in 2023-24 and 2024-25. This reduction leaves $6 million General Fund in 2023-24 to provide interest-free loans to campuses for new student housing projects (see CSU/UC section).

Economic Security

Governor’s Budget Preserves Refundable Tax Credits for Low-Income Californians, Makes No New Investments

California’s Earned Income Tax Credit (CalEITC), Young Child Tax Credit, and Foster Youth Tax Credit are refundable income tax credits that collectively help millions of families and individuals with low incomes 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 does not propose to make any new investments in these tax credits. Yet the need for additional cash support among Californians with low incomes remains high.  Sustained inflation, together with the expiration of federal pandemic supports, has made it increasingly difficult for families and individuals to make ends meet as rising shares of Californians are now facing food insecurity and poverty – particularly among children and Californians of color.

The administration also does not propose to sustain the state’s $20 million investment in refundable tax credit outreach, education, and free tax preparation assistance grants, which allows community based organizations (CBOs) to provide year-round services to tax filers. The budget reduces this funding to $10 million, which will reduce the capacity of CBOs to provide tax-filing support.

Proposed Budget Makes Significant Cuts to CalWORKs Support Services

The California Work Opportunity and Responsibility to Kids program (CalWORKs) is a critical support that provides modest cash assistance to families with low incomes, particularly families of color. The governor’s budget proposal includes an approximate 0.8% grant increase. This increase is required by AB 85 (2013), which links CalWORKs grant increases to projected sales tax revenues. The governor also 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).

In addition to drawing down the entire Safety Net Reserve, the governor proposes ongoing cuts to Family Stabilization and Expanded Subsidized Employment services within the CalWORKs program, effectively eliminating both services. Specifically, the proposed cuts include:

Recognizing the significant challenges facing CalWORKs families — and the importance of respectfully addressing these challenges to enable families to secure long-term stability — these cuts undermine the recent steps the state has taken to create a more family-centered CalWORKs program. These programs play an important part in supporting families with the greatest need and the budget proposal fails to recognize the cost savings that can be obtained by helping families thrive and preventing deeper poverty.

Governor Retains Most Food Assistance Commitments, But No New Investments

Being well-nourished is one of the necessary foundations for individuals to thrive. Yet since the end of pandemic-era enhancements to food assistance, food insecurity is on the rise. The proposed budget appears to retain commitments made in recent years to expand food assistance, including:

• Expanding the California Food Assistance Program (CFAP) to include undocumented adults age 55 and older beginning in October 2025;
• Funding a pilot program to increase the minimum CalFresh benefit (California’s version of the federal Supplemental Nutrition Assistance Program) from $23 to $50 for some recipients; and 
• Providing administrative funding to phase in the new Summer EBT program to provide Electronic Benefit Transfer Cards to students eligible for free or reduced-price school meals in 2024.

The proposed budget also includes an additional $122.2 million in ongoing Proposition 98 General Fund dollars to fully fund the universal school meals program in 2024-25 (see K-12 education section).

However, the governor does not propose any additional support for nutrition assistance programs to address the rising rates of food insecurity, nor does he propose fully ending the exclusion of undocumented Californians of all ages from CFAP. The proposal also does not provide a funding plan for Cal Grant reform, which would allow more college students to qualify for CalFresh benefits (see Student Financial Aid section).

Finally, the proposed budget would revert $33.2 million of the previously approved $35 million for the California Nutrition Incentive Program, which provides grants to organizations to provide matching funds to recipients of CalFresh, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and the Senior Farmers Market Nutrition Program when they purchase fruits and vegetables at farmers markets and certain other retailers.

Governor Proposes to Maintain Current Grant Levels, Provides No Additional Funding to Increase Grants

The Supplemental Security Income (SSI) and State Supplementary Payment (SSP) programs together provide grants to well over 1 million low-income older adults and people with disabilities to help them pay for housing and other necessities. Grants are provided to individuals and couples and are funded with both federal (SSI) and state (SSP) dollars. State policymakers made deep cuts to the SSP grant in 2009 and 2011 to help close budget shortfalls caused by the Great Recession. During this period, the state repealed the Cost of Living Adjustment (COLA), which has limited the grant’s ability to keep up with rising prices. 

The 2021-22 budget adopted a substantial (24%) increase to SSP grants that took effect on January 1, 2022. There have been steady increases in recent years, primarily in 2017, 2021, 2022, and most recently in 2023 when the budget raised the maximum SSP grant for individuals from $219.73 in 2023 to $239.94 in 2024. For couples, the maximum monthly SSP grant increased from $556.62 in 2023 to $607.83 in 2024. Despite these recent increases, the SSI/SSP grants for individuals have not caught up to the level they would have been had the COLA not been repealed, and they remain below the Federal Poverty Line (FPL). 

The governor’s proposal protects the recent SSP grant increase but does not allocate any additional funding or make commitments to closing the gap between grants and the FPL. Grants are trailing significantly behind housing costs across the state, and delayed policy action in closing these gaps hinders low-income Californians from making ends meet.

Governor Maintains Temporary Rate Increase but Does Not Expand Slots

California’s subsidized child care and development system is a critical resource for families with low to moderate incomes seeking to access affordable, nurturing early learning and care. The 2023-24 enacted budget contained significant steps forward for child care, including a more affordable family fee schedule and a historic agreement with Child Care Providers United (CCPU) that secured stronger benefits and mandated a path forward for rate reform. While these recent efforts have contributed to a more equitable child care system, poverty among young children has increased. More resources are needed to ensure the system meets the needs of all families and reflects the integral role of child care providers. Too few families can access affordable child care options, and providers continue to face uncertainty around crucial ongoing wage increases.

The governor’s proposed budget:

Regarding ongoing provider rate reform, the 2024-25 Budget Act will be finalized alongside the development of a single rate structure and alternative methodology for child care reimbursements. Specifically, by July 2024, the State of California will submit a state plan to the federal Administration for Children and Families to approve a proposed alternative methodology. Following federal approval, the State of California will issue an implementation outline and the CCPU rate-related contract sections will be reopened to negotiate a restructure to reimbursement rates and associated funding. Therefore, the 2024-25 Budget Act will likely not include items related to the alternative methodology currently being developed, and questions of how much funding will be appropriated for ongoing rate reform and how it will be implemented will be carried into the next fiscal year.

Governor Preserves Key Supports for Immigrant Californians; Cuts Legal Services

Immigrants and their families are deeply ingrained in the state’s social fabric. They are members of the state’s workforce, pay taxes, attend schools, own businesses, and raise families who invest in local communities. California has the largest share of immigrant residents of any state. Over half of all California workers are immigrants or children of immigrants, and more than 2 million Californians are undocumented, according to estimates.

The governor’s budget proposal maintains some key recent commitments to immigrant Californians. Specifically, the budget:

The proposed budget reduces funding for immigration legal services, which are a lifeline for immigrant families. Specifically, the budget:

State leaders can take additional action to better support immigrant communities, such as by providing humanitarian support to migrants and border communities, fully ending the exclusion of undocumented Californians of all ages from CFAP, and strengthening the safety net for California workers who lose their jobs and are undocumented, therefore excluded from unemployment insurance benefits despite their critical contributions to the state’s economy and our communities.

Proposed Budget Fails to Extend Funding for Domestic Violence Survivors

All Californians should be able to live in safe environments free from violence. However, millions of Californians experience domestic 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, 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. Additionally, California is anticipating a reduction in VOCA funding to the state of around $170 million, or approximately 40%, due to anticipated cuts in federal funding.

In his proposed budget, the governor:

Education

Pre-K and Transitional Kindergarten Funding Continues, but With Key Delays

In addition to the child care and development programs housed within the California Department of Social Services (CDSS) (see Child Care section), the California Department of Education (CDE) hosts two additional 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. As the state continues to roll out universal TK for all 4-year-olds, California’s state leaders can strengthen and expand access to early learning and care opportunities by fully developing a mixed delivery system tailored to the needs and diversity of California families. 

The governor’s proposed budget:

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 proposed budget assumes a 2024-25 Prop. 98 funding level of $109.1 billion for K-14 education. However, because the Prop. 98 guarantee tends to reflect changes in state General Fund revenues and the proposed budget’s estimate of General Fund revenue is lower than estimates in the 2023-24 budget agreement, the governor’s budget proposal assumes a significant decrease in the Prop. 98 guarantee in 2023-24 and 2022-23. Specifically, the governor’s budget assumes a Prop. 98 guarantee of $105.6 billion in 2023-24 and $98.3 billion in 2022-23, $2.7 billion and $9.1 billion below the levels assumed in the 2023-24 budget agreement respectively. The governor’s budget “proposes statutory changes to address roughly $8 billion of this decrease.” 

The governor’s budget also reflects withdrawals of more than $3 billion in 2023-24 and more than $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). Based on projections in the governor’s budget, funds in the PSSSA will total $3.9 billion by the end of 2024-25, nearly $7 billion lower than the 2023-24 balance estimated in the 2023-24 budget agreement. Because the revised 2023-24 PSSSA balance of $5.7 billion is projected to exceed 3% of the total K-12 share of the Prop. 98 minimum funding level in 2023-24, current law would continue to prevent K-12 school districts from maintaining 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 Proposition 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 budget proposal would 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 proposed budget:

The Proposed Budget Includes Reserve Withdrawals to Support Community Colleges

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 spending plan proposes a withdrawal from the Prop. 98 reserve for CCC apportionments and funds a 0.76% cost-of-living adjustment. Specifically, the proposed spending plan:

Proposed Budget Defers Planned Investments 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 460,000 students at 23 campuses, and the UC provides undergraduate, graduate, and professional education to more than 290,000 students across 10 campuses. 

The 2024-25 budget proposal defers planned funding increases to the CSU and the UC systems. This funding was part of multi-year investments established through agreements between the administration and the CSU and UC systems in 2022. These agreements (also known as compacts) outline major goals, including increasing access, improving student success and advancing equity, increasing affordability, improving collaboration among systems of higher education, and supporting workforce preparedness.

For the CSU, the governor’s budget:

• Defers $240 million General Fund dollars to 2025-26. These dollars were meant to fulfill multi-year funding increases as part of the compacts in 2024-25.

For the UC, the spending plan:

• Defers $228 million General Fund dollars from 2024-25 to 2025-26 as part of the multi-year compacts. 
• Defers $31 million General Fund dollars from 2024-25 to 2025-26 to support the UC in increasing the number of resident undergraduate students.

Other higher education proposals in the spending plan include:

• Eliminating a total 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 (see Housing section).

Spending Plan Fails to Propose Solutions to Fund Cal Grant Reform

The governor’s budget does not propose any budgetary actions to ensure Cal Grant reform is funded in 2024. The Cal Grant is California’s financial aid program for low-income students pursuing postsecondary education in the state. Grants made available through this program do not need to be paid back. 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. Students pursuing postsecondary education confront significant hardship to afford basic necessities, and are often forced to make difficult decisions that impact their college experience and degree completion. The 2022 budget included a plan to reform the Cal Grant program. This reform would reach thousands of new students who were previously not eligible and would also allow more students to qualify for CalFresh, freeing up resources for institutions to support students with other non-tuition costs. However, the plan will only be implemented if sufficient General Fund dollars are available in spring of 2024. The proposed spending plan does not include any actions, such as raising revenues, to fulfill this commitment. Meeting this commitment can ensure more students have the financial means to meet their basic needs and be able to complete their chosen educational programs. 

The proposed spending plan also eliminates a planned one-time increase of $289 million in 2024-25 for the Middle Class Scholarship (MCS) that was included in the 2023-24 budget. The MCS provides awards to students to help them cover the total cost of attendance at the University of California and the California State University systems.

Justice System

Governor Does Not Propose Additional Prison Closures

More than 94,000 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 91,000 — are housed in state prisons designed to hold roughly 75,500 people. This overcrowding equals 120.4% 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 nearly 3,100 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.

In recent years, California embarked on a process of downsizing its costly and sprawling state prison system. Budget documents indicate that:

Despite these initial steps toward shrinking the prison system, California can do more — yet the governor’s proposed budget fails to chart a path toward additional prison closures. Research from the nonpartisan Legislative Analyst’s Office indicates the state can safely close up to five additional state prisons. The ongoing savings from closing five more prisons — around $1 billion per year — could be redirected to help people successfully transition back to their communities and boost services to support crime survivors, reduce poverty, increase housing stability, address substance use and mental health issues, and enhance the safety and well-being of our communities.

Governor Maintains Funding and Proposes Tougher Penalties to Tackle Retail Theft

Retail theft is defined in several ways in California law:

Retail theft increased following the isolation and social breakdown caused by the COVID-19 pandemic. However, while statewide shoplifting rates remain below their pre-pandemic (2019) levels, commercial burglary and robbery rates continued to exceed their 2019 levels as of 2022, the most recent year for which statewide data are available.

The governor proposes to provide $119 million in 2024-25 to address organized retail theft and other crimes. This is the same amount of General Fund support provided in the current fiscal year (2023-24) despite the large budget shortfall the state is facing.

• Most of this funding would support grant programs for local law enforcement agencies ($85 million) and district attorneys ($10 million). In both cases, these funds would lapse in 2025-26 under the governor’s proposal.
• The remaining $24 million proposed for 2024-25 would support state-level task forces and prosecution teams — all of which the governor proposes to make permanent starting in 2025-26, with ongoing annual funding of roughly $23 million.

In addition, the governor announced a set of proposals that aim to reduce certain property crimes. Specifically, the governor proposes to:

The governor’s framework wisely steers clear of modifying Prop. 47 — a key justice system reform that has significantly reduced prison overcrowding and reallocated hundreds of millions of dollars to trauma recovery services for crime survivors, programs for vulnerable youth, and local public safety programs that have reduced recidivism (see Prop. 47 Investments section.) However, the governor’s largely punitive approach to addressing certain types of property crime would further criminalize poverty, increase incarceration, and boost jail and prison costs, while doing too little to advance “upstream” solutions that can prevent crime from happening in the first place.

Budget Estimates Proposition 47 Savings of $88 Million in 2024-25

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 state cost of the prison system relative to the expected cost if Prop. 47 had not been approved. The state Department of Finance is required to annually calculate these savings, which are deposited into the Safe Neighborhoods and Schools Fund and allocated as follows:

• 65% for mental health services, substance use treatment, and diversion programs for individuals who have been arrested, charged, or convicted of crimes.
• 25% for K-12 public school programs to support vulnerable youth.
• 10% to trauma recovery services for crime victims.

Through 2023-24, Prop. 47 has generated roughly $720 million that has been invested in local programs that support healing and keep communities safe.

The governor estimates net state General Fund savings of $87.8 million in 2024-25 due to reduced incarceration stemming from Prop. 47. These additional savings will bring Prop. 47’s total investment in local communities to more than $800 million since this funding was implemented in 2016-17.

Workforce & Climate Change

Governor Seeks Changes to Health Care Worker Minimum Wages

Last year, the Governor signed into law Senate Bill 525 (Durazo, Chapter 890, Statutes of 2023) to gradually raise the statewide minimum wage for certain health care workers. A Berkeley Labor Center report found that this legislation would significantly boost the earnings of low-paid health care workers, the vast majority of whom are women and people of color and the majority of whom are the primary earners for their families. The proposed budget notes that the Administration is hoping the Legislature will take early action in January to make changes to this law, including adding an annual “trigger” to make the wage increases contingent upon General Fund availability. Additionally, Assembly budget documents point out that the proposed budget does not score any costs associated with SB 525 in 2024-25, implying that the Administration is assuming that the law does not go into effect during the budget year.

Governor Proposes Delay in Health Care Workforce Investments

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, and the Administration proposes delaying spending on several investments this year. Specifically, the proposed budget delays until 2025-26:

• $140.1 million General Fund spending for the nursing and social work initiatives administered by the Department of Health Care Access and Information; and
• $189.4 million Mental Health Services Act Fund spending for 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.

Governor Proposes Cuts and Delays to Workforce Programs

The Administration proposes to delay or reduce spending on a wide range of workforce development programs to help address the budget problem. Specifically, the proposed budget delays $734.5 million (total funds) from 2023-24 and prior years to 2024-25 or beyond and cuts approximately $100 million General Fund. In addition, the budget proposes to borrow $125 million from the Labor and Workforce Development Fund that is “not currently projected to be used for operational or programmatic purposes” in order to offset General Fund spending.

Proposed spending delays include:

• $300 million General Fund for California Jobs First (formerly called the Community Economic Resilience Fund);
• $189.4 million Mental Health Services Act Fund and $140.1 million General Fund for various health care workforce investments (see Health Care Workforce section); 
• $40 million General Fund for the Apprenticeship Innovation Fund at the Department of Industrial Relations;
• $40 million General Fund for a Goods Movement Workforce Training Facility in Southern California; and
• $25 million General Fund for the California Youth Apprenticeship Program at the Department of Industrial Relations.

Proposed reductions in spending include:

• $45 million General Fund in 2023-24 for the High Road Training Partnerships program at the California Workforce Development Board;
• $15 million General Fund for the Low Carbon Economy Grant Program at the California Workforce Development Board;
• $10 million General Fund for the Displaced Oil and Gas Worker Pilot Fund at the Employment Development Department;
• $10 million General Fund for the Emergency Medical Technician training program at the Employment Development Department; and
• $5 million General Fund ongoing for the Women in Construction Unit at the Department of Industrial Relations.

Proposed Budget Reduces or Delays Funds for a Range of Climate Investments

Climate change poses a threat to all Californians, but the effects of climate change are often felt acutely by California’s low-income communities and communities of color, which have experienced segregation, underinvestment, and neglect, making them more vulnerable to climate catastrophes. The 2021 and 2022 budgets allocated substantial one-time resources to climate change resiliency projects, much of which was intended to be spent across several years.

To address the budget problem, the governor is proposing $2.9 billion in reductions of previously approved General Fund climate investments and $1.9 billion in General Fund expenditure delays, as well as $1.8 billion in shifts from the General Fund to other funds, mainly the Greenhouse Gas Reduction Fund, which is funded by cap-and-trade auction proceeds.

Significant reductions in the governor’s proposal include:

• $796.8 million for various drought and flood resilience projects;
• $475 million for the Climate Innovation Program; 
• $452 million for coastal protection and adaptation programs;
• $419 million in clean energy projects;
• $200 million for the Active Transportation Program (meant to encourage more biking and walking);
• $100.7 million for various wildfire and forest resilience projects;
• $89.8 million for programs to advance climate resilience in low-income and underserved communities;
• $79.1 million for sustainable agriculture programs, including the $33.2 million reversion to the California Nutrition Incentive Program (see Food Assistance section);
• $40.1 million for the Extreme Heat and Community Resilience Program;
• $38.1 million for various Zero-Emission Vehicle programs;
• $25 million in climate-related workforce programs, including the Low Carbon Economy Grant Program and the Displaced Oil and Gas Worker Pilot Fund (see Workforce section); and
• $15 million for “nature-based solutions” to climate change.

Significant spending delays proposed by the governor include:

• $1 billion of Transit and Intercity Rail Capital Program formula grants from 2024-25 to 2025-26; 
• $600 million Greenhouse Gas Reduction Fund dollars for Zero-Emission Vehicle programs from 2024-25 to 2027-28;
• $505 million across various clean energy programs; and
• $100 million for various drought and flood resilience projects.

Despite the reductions and delays, the proposed budget does include $159.1 million in new investments, including $93.9 million one-time General Fund for various flood safety projects and $65.2 million General Fund for Salton Sea restoration efforts.

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The ink is now dry on the 2023-24 California state budget agreement. The Legislature has passed and the governor has signed the budget bills and a package of budget-related trailer bills. Policymakers avoided major cuts to critical services, but additional revenues are needed to make meaningful investments for Californians in the future.

The enacted budget includes $225.9 billion in General Fund spending, down from $234.6 billion in 2022-23. Surpluses turned to deficits as revenue estimates fell, creating a $30 billion budget problem. The enacted budget includes a variety of solutions to close this shortfall without any major cuts to core services. These solutions include delaying or reducing some previously committed spending, shifting some spending between state funds, and internal borrowing.

The budget also extends the Managed Care Organization (MCO) tax, which will draw down additional federal dollars and offset state Medi-Cal spending (see Health section). Some spending items that were reduced in the budget may be restored if sufficient resources are available in 2024. The governor’s administration can delay one-time spending items until March 1, 2024, if a major revenue shortfall arises when the Legislature is not in session. However, the Legislature must approve further delays or reductions. State leaders must address significant budget shortfalls in the coming years, despite the balanced nature of the 2023-24 budget.

This report highlights key components of the budget agreement that help to improve the social and economic well-being of:

• Californians with low incomes,
• Californians of color,
• women,
• immigrants,
• and others historically excluded from economic opportunities.

Areas where the budget agreement misses opportunities to support Californians are also highlighted.

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Budget Overview

Revenues

What does the state budget include?

The enacted budget assumes General Fund revenues, including transfers, of $208.7 billion for 2023-24, in line with the governor’s May Revision estimates. Revenues for the 2022-23 fiscal year were also revised down significantly from the 2022 budget estimates. This reflects economic challenges including:

• High inflation
• Interest rate increase
• Collapse of the Initial Public Offering (IPO) market

The final budget did not adopt the more conservative revenue estimates of the Legislative Analyst’s Office (LAO). According to the LAO, the state’s primary General Fund revenue sources would be about $11 billion lower across 2021-22 to 2023-24 than the administration’s estimates. So if revenues fall short, budget amendments may be needed.

How can state leaders better support Californians?

Making tax policy changes to significantly increase revenues. This would be needed to make substantial new investments to improve the lives of Californians. Such changes could also make the tax system more fair. The Senate’s April proposal to restructure corporate taxes and raise revenues was not included in the final budget. This would have addressed some of the state’s most pressing challenges.

Reserves

What does the state budget include?

The budget does not withdraw any funds from the state’s budget reserves. This leaves them fully available to help prevent budget cuts in the future during an economic downturn or budget emergency. This is in contrast to the governor’s May proposal to withdraw $450 million of the current $900 million balance of the Safety Net Reserve, which is intended to be used to maintain CalWORKs and Medi-Cal benefits during economic downturns.

Under the enacted budget, the 2023-24 combined balance of the state’s four budget reserves — the Budget Stabilization Account, the Public School System Stabilization Account, the Special Fund for Economic Uncertainties, and the Safety Net Reserve — is estimated to total nearly $38 billion.

Health

Managed Care Organization (MCO) Tax

What does the state budget include?

The budget includes the renewal of the MCO tax, effective April 1, 2023 through December 31, 2026. The MCO tax essentially reduces — or “offsets” — state General Fund spending on Medi-Cal by well over $1 billion per year. The MCO tax renewal, which requires federal approval, would result in $19.4 billion over the proposed tax period. Of this amount, $8.3 billion would support the Medi-Cal program, and $11.1 billion would support provider rate increases to drive greater Medi-Cal provider participation. For 2023-24, the budget includes $237.4 million to increase Medi-Cal provider rates effective January 1, 2024 for primary care, maternity care (including doulas), and non-specialty mental health services.

How can state leaders better support Californians?

Increasing education and training to prepare health workers to meet California’s health needs. In 2019, the California Future Health Workforce Commission developed a strategic plan for addressing health workforce gaps. According to a recent progress report, policymakers have made progress on many of the priority recommendations. However, state leaders can do more to recruit and train students from rural areas and other historically underserved communities to practice in community health centers.

Access to Medi-Cal

What does the state budget include?

The budget maintains the commitment to expand full-scope Medi-Cal eligibility to undocumented immigrants ages 26 to 49 starting January 1, 2024. This builds on previous steps state leaders have taken to end the racist and exclusionary policy that blocks Californians from accessing vital health services. To provide Medi-Cal for adults age 26 and over, the state is estimated to allocate $1.4 billion ($1.2 billion General Fund) in 2023-24 and $3.4 billion ($3.1 billion General Fund) at full implementation, inclusive of In-Home Supportive Services costs.

How can state leaders better support Californians?

Removing barriers to Covered California — the state’s health insurance marketplace — based on immigration status. Undocumented Californians who are not income-eligible for Medi-Cal are unjustly excluded from accessing and purchasing health care coverage plans through Covered California.

Covered California Affordability

What does the state budget include?

The budget provides $82.5 million in 2023-24 and $165 million annually thereafter to reduce the cost of health coverage through Covered California. The budget also includes a $600 million loan to the General Fund to help address the state budget shortfall, which will be repaid in 2025-26. This compromise between the Legislature and the governor’s administration will provide affordability assistance to Californians who lack access to affordable health care.

How can state leaders better support Californians?

Providing greater financial assistance for Californians who are uninsured and struggling to purchase coverage. Additionally, providing assistance for those who are insured but can’t afford to access the care they need. Policymakers should ensure that dollars raised from the state’s individual mandate penalty help people afford health insurance through Covered California, as was intended when the penalty was established.

Homelessness and Housing

Homelessness

What does the state budget include?

The budget upheld previously promised funds for critical homelessness services and supports, including another $1 billion one-time investment in local flexible funding to address homelessness in 2023-24. These funds will be contingent on local jurisdictions developing regionally coordinated homelessness action plans. Also allocated is $400 million one-time General Fund for local encampment resolution grants, and $265 million one-time for the Mental Health Services Fund in 2023-24 and $235 million General Fund in 2024-25 for bridge housing for people experiencing homelessness with serious mental illness. Funding adjustments were also made to support the CARE Act implementation starting in select counties this fall.

How can state leaders better support Californians?

Centering ongoing, at-scale funding to adequately resource local response systems and enable long-term planning for future years. Expanding affordable permanent housing, especially for Californians with the lowest incomes, is also needed to end to homelessness.

Affordable Housing

What does the state budget include?

The 2023-24 enacted budget largely maintains prior allocated funding for affordable housing development. It provides an additional $500 million for the state’s Low Income Housing Tax Credit program and supplemented $100 million for the Multifamily Housing program for a total of $325 million in 2023-24. Other allocations in 2023-24 include:

• $250 million for adaptive reuse of underutilized commercial spaces
• $225 million for infrastructure for infill housing
• $82.5 million (for a total of $330 million over four years) to help preserve affordable housing and promote residential property ownership

The budget sustained $500 million one-time General Fund for the Dream for All program. It also reduced the CalHome program to $300 million one-time General Fund in 2023-24. Both of these programs promote first-time homeownership for low or moderate income Californians.

How can state leaders better support Californians?

Scaling affordable housing development and preservation investments to match our housing needs. Many Californians — especially those with low incomes, renters and people of color — continue to struggle to afford their homes. Addressing our housing shortage must be prioritized.

Economic Security

Safety Net

What does the state budget include?

The budget protects a 10 percent increase to the California Work Opportunity and Responsibility to Kids (CalWORKs) program grant. This grant increase was set to expire in 2024. Regarding food assistance, the budget allocates $47 million to phase in a Summer Electronic Benefit Transfer (EBT) program for children who qualify for free or reduced-price school meals, and $15 million for a pilot program that will increase the CalFresh minimum from $23 to $50 for selected participants.

The budget also moves up the expansion of the California Food Assistance Program (CFAP) to October 2025. This expansion will extend benefits to undocumented adults over 55. The budget also includes the governor’s proposal of an 8.6% increase to the Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants.

How can state leaders better support Californians?

Reforming CalWORKs. The exclusion of the Reimagine CalWORKs effort from this year’s final budget was a significant missed opportunity. The effort could have impacted thousands of children by transforming the CalWORKs participation requirements to make the program more family-centered, anti-racist, and participant-inclusive.

Tax Credits

What does the state budget include?

The budget clarifies that recipients of the Foster Youth Tax Credit (FYTC) – in addition to recipients of the CalEITC and Young Child Tax Credit (YCTC) – cannot have their tax refunds intercepted for debt payments (with the exception of child or family support payments). This will provide critical relief for low-income foster youth once this provision goes into effect.

How can state leaders better support Californians?

Strengthening and expanding California’s refundable tax credits. Important next steps include:

• Increasing the minimum CalEITC to provide a more meaningful credit to workers with low incomes.
• Extending the YCTC to all CalEITC-eligible families with children, not just those with kids ages 0 to 5.
• Increasing the renter’s tax credit and making it refundable. This would help Californians with the lowest incomes who are currently excluded from the credit, even though they have the greatest difficulty affording rent.

Senate Bill 220 (Committee on Budget and Fiscal Review) would implement these CalEITC and renter’s tax improvements as part of a broader package of policy changes.

Child Care

What does the state budget include?

The budget includes $56 million from the General Fund for permanent family fee reform beginning October 1, 2023. Under the new family fee structure, families below 75% of the state median income (SMI) will no longer pay a fee for subsidized child care. Additionally, families at or above 75% of the SMI will have fees capped at 1% of monthly income.

The budget also provides a total of nearly $1.4 billion in one-time funds for rate increases for providers reimbursed through the California Department of Social Services (CDSS). The agreement with Child Care Providers United, signed by the governor on September 14, 2023, specifies the amount of additional funds providers will receive per child, per month. The budget also authorizes CDSS to develop an alternative methodology for child care program reimbursement rates.

How can state leaders better support Californians?

Continuing to expand child care slots. While the slots created during the past two cycles (over 100,000) will be maintained, the budget delays 20,000 additional slots until 2024-25. Notably, the legislative budget agreement included these additional slots for 2023-24. However, this did not make it into the enacted budget.

Immigrant Californians

What does the state budget include?

The enacted budget maintains and further invests in funding for a variety of programs and services to support immigrant Californians. New investments include:

• $150 million in funding for shelters and services for people at the border.
• $5 million for organizations to provide education and employment services to all workers, regardless of immigration status.
• $5 million in one-time funding to support unaccompanied undocumented minors.

Additional support for immigrant Californians include further investments in food assistance, health insurance, and worker services. More details are available in the Safety Net, Health, and Labor sections, respectively.

How can state leaders better support Californians?

Better supporting  undocumented Californians. This year’s budget missed an opportunity to expand eligibility of the Cash Assistance Program for Immigrants (CAPI) to include immigrants who are undocumented. Another missed opportunity was failing to extend unemployment benefits to excluded immigrant workers (see Labor section).

Education

Early Learning and Pre-K

What does the state budget include?

The family fee and rate reform changes described in the child care section also apply to the California State Preschool Program (CSPP). Specifically, $22.4 million is allocated for family fee reform and $1.47 billion is provided for CSPP provider rate increases. The budget also provides $597 million for Transitional Kindergarten (TK) enrollment growth — 42,000 new enrollments — in 2023-24.

How can state leaders better support Californians?

Following up on the delays noted in the 2023-24 budget, including:

• Delaying the requirement to lower TK classroom ratios to 1:10 until 2025-26. 
• Extending the deadline for TK teachers to earn 24 units (or equivalent), a child development permit, or an early child childhood education specialist credential from August 2023 to August 2025.  
• Delaying $550 million to 2024-25 in facilities funding for TK, CSPP, and Kindergarten.
• Delaying the requirement that at least 7.5% of enrollment in CSPP enrollment is reserved for children with exceptional needs to July 1, 2025.

K-12 Education

What does the state budget include?

The budget provides some notable investments in K-12 education, including:

• An 8.22 percent cost-of-living adjustment (COLA) for the Local Control Funding Formula (LCFF). This is the largest COLA since the establishment of the LCFF a decade ago.
• $300 million ongoing for an “Equity Multiplier” add-on to the LCFF. This will be allocated to school sites on a per pupil basis based on a metrical called the “nonstability” rate.¹The definition of “nonstability rate” includes the percentage of pupils who are enrolled for less than 245 continuous days between July 1 and June 30 of the prior school year.
• $20 million one-time for a Bilingual Teacher Professional Development program. This will provide professional learning opportunities to increase the number of teachers authorized to teach in bilingual settings.

Lastly, the budget reduces two one-time block grants provided in last year’s budget agreement:

• A $1.7 billion cut to the Learning Recovery Emergency Block Grant, from $7.94 to $6.25 billion.
• A $200 million cut to the Arts, Music, and Instructional Materials Discretionary Block Grant, from $3.56 billion to $3.36 billion.

How can state leaders better support Californians?

Targeting efforts to address major issues that impact student learning, including:

• High rates of absenteeism, especially among students of color and students from low-income households.
• Addressing staffing shortages in areas with high need.

Higher Education

What does the state budget include?

The budget maintains funding for the Higher Education Student Housing Grant program for the construction of affordable student housing at all three segments of higher education. However, funding for these projects will shift from the General Fund to bonds.

The 2023-24 budget also includes base funding increases for public colleges and universities. Specifically:

• $790 million for the California Community Colleges (CCCs), reflecting an 8.22 percent cost-of-living adjustment for the Student Centered Funding Formula. 
• An increase of $227 million California State University (CSU) system.
• An increase of $215 million for the University of California (UC) system.

Notably, the budget also includes:

• An increase of $227 million one-time for the Middle Class Scholarship (MCS). This provides aid to eligible students who attend a UC or CSU university or those pursuing a bachelor’s degree at the CCCs.
• Funding through the MCS and the Student Success Completion Grant program to cover the cost of college for current and former foster youth students.

How can state leaders better support Californians?

Ensuring next year’s budget enacts the Cal Grant reform. Additionally, making the state’s financial aid system more equitable for students from families with low incomes.

Other

Labor and Workforce

What does the state budget include?

The budget invests $35 million in the Domestic Worker and Employer Education and Outreach Program and makes this program permanent. This will help community based organizations ensure that domestic workers’ rights and protections are upheld throughout the state.

How can state leaders better support Californians?

Providing unemployment benefits to Californians who lose their jobs and are undocumented. Especially those who continue to be excluded from unemployment insurance benefits.

All California workers should have a financial cushion to help them stay housed and put food on the table when they lose a job. Establishing an Excluded Workers Program to provide this vital safety net was prioritized by the Senate, but was not included in the final budget deal with the governor. A joint house legislative agreement to establish a work group to explore options for establishing a permanent excluded workers fund was also left out of the final deal.

State Corrections

What does the state budget include?

The 2023-24 enacted budget continues plans to downsize the state’s prison system. The budget addresses prison closures by declaring an intent to shut down additional prisons. This is accompanied by a requirement for the California Department of Corrections & Rehabilitation (CDCR) to assess the state prison system’s capacity and needs and report back to the Legislature during 2023. This report should provide a foundation to understand where opportunities lie in closing more state prisons. Additionally, the enacted budget includes $361 million from the Public Buildings Construction Fund to build an educational and vocational center at San Quentin State Prison, which will be renamed the San Quentin Rehabilitation Center.

How can state leaders better support Californians?

Further downsizing the prison system. According to a report by the Legislative Analyst’s Office, the state can safely close up to five additional prisons, saving the state around $1 billion per year. These savings could be used to provide services and supports for individuals after they are released from prison in order to help them rebuild their lives in their communities.

Public Safety

What does the state budget include?

The enacted budget funds a variety of public safety measures designed to improve the safety of all Californians, including:

• An additional $12 million to assist tribal police and prosecutors in cases of missing/murdered Indigenous persons.
• $20 million in one-time funding to enhance security at nonprofits that are at risk of hate-motivated violence.
• Restoring $40 million in one-time funding for the third year of a three-year Public Defense Pilot Program. This allocates funding to counties to provide public defenders for those who cannot afford legal services.
• Restructuring a gun buyback program in order to more quickly address mass shootings.
• Providing $113 million for the Safe Neighborhoods and Schools Fund (Proposition 47 of 2014) to help reduce recidivism, support truancy and dropout prevention programs, and fund services for crime victims. This funding reflects state-level savings due to declining incarceration following the implementation of Prop. 47.

Tax Policy Changes

What does the state budget include?

Although the budget agreement does not contain substantial tax revenue increases to support new spending, state leaders did take a positive step by limiting one strategy that wealthy people use to avoid state income taxes, which will increase state revenues by an estimated $17 million annually.

However, the enacted budget also commits the state to five additional years of the film tax credit starting in 2025-26 and will even allow businesses to get cash back if their credit amount exceeds the taxes they owe. The extension of this credit — which has not been shown to be very cost-effective — will cost the state around $1.6 billion over 12 years at a time when the state is facing budget shortfalls in future years.

How can state leaders better support Californians?

Meaningfully and equitably raising revenues to support the services that Californians need —including by reducing or eliminating tax breaks that mainly benefit highly profitable corporations and wealthy people.

Introduction

Governor Gavin Newsom released the May Revision to his proposed 2023-24 California state budget on May 12, projecting a $31.5 billion shortfall, up from a projected $22.5 billion shortfall in January. The administration proposes to resolve the shortfall through a series of spending reductions, trigger cuts, and delays or deferrals of spending authorized in earlier years as well as through internal borrowing and fund shifts. The $224 billion General Fund spending plan would protect many ongoing investments made in prior years, mostly maintains state reserves that are projected to total $37.2 billion, and rejects raising revenues to continue to invest in Californians.

Despite the growing shortfall, the governor’s revised budget manages to protect and maintain much of the progress made in prior years to help improve economic security and opportunities for Californians with low incomes, including investments in health care and behavioral health, safety net and cash assistance programs, homelessness and housing, and cradle-to-career education.

Each year the state budget provides state leaders with an opportunity to fund the vision of California they aspire to create. As Californians continue to experience the rising costs of basic needs like food, child care, and housing, our state’s leaders face increasing demands for essential services to meet the needs of our communities. This is especially important for Black, Latinx, and other Californians of color as well as for Californians with low incomes, who repeatedly bear the brunt of economic downturns, rising cost of living, and austerity policies.

Yet, the governor’s proposal misses an opportunity to consider additional revenues and ensure large and highly profitable corporations pay their fair share, as proposed in the state Senate’s budget plan. The Senate’s proposal proves that state policymakers can take steps to make critical investments to improve economic security, address homelessness and unaffordable housing costs, and support child care providers.

Budget shortfalls should not be addressed solely through spending solutions. State leaders should consider other tools, like raising revenues and redirecting spending that supports the wealthy and corporations, to further protect essential services and continue to make progress toward a more equitable California.

This First Look report outlines key pieces of the May Revision and explores how the governor prioritizes spending amid the first budget shortfall of his tenure.

Contents

Budget Overview

• Economic Outlook: Governor’s Updated Economic Forecast Assumes Slow Growth but No Recession
• Revenue: Revised Budget Downgrades Revenue Estimates, Includes No New Tax Proposals
• Reserves: May Revision Mostly Maintains State’s Reserves, but Draws Down Safety Net Reserve

Health

• Coverage, Affordability & Access: Governor Maintains Commitment to Expand Medi-Cal to All Undocumented Californians
• Behavioral Health: Revised Budget Sustains Major Behavioral Health Initiatives
• Public Health: May Revision Maintains Public Health Infrastructure Investment, Restores Funding to Rebuild Workforce

Homelessness & Housing

• Homelessness: Proposal Keeps Previous Homelessness Commitments but Lacks Ongoing Funding
• Housing: May Revise Proposes No New Investments for Affordable Housing Production

Economic Security

• Refundable Tax Credits: May Revision Makes No New Investments in Tax Credits for Low-Income Californians
• CalWORKs: No Significant Investments in CalWORKs Despite Safety Net Reserve Withdrawal
• Food Assistance: Governor Proposes Investments in Anti-Hunger Programs, but More Is Needed
• SSI/SSP: Governor Maintains Increase to SSP, but Falls Short of Prior Commitments
• Child Care: Governor Extends the Family Fee Waiver but Does Not Boost Provider Rates
• Paid Sick Leave: May Revision Fails to Expand Paid Sick Leave
• Immigrant Californians: May Revision Boosts State’s Commitment to Addressing Needs of Migrants

Education

• Early Learning & Pre-K: Governor Continues to Focus Investments in Transitional Kindergarten
• Proposition 98: K-14 Education’s Minimum Funding Level Drops Due to Lower Revenue Estimates
• K-12 Education: Revised Budget Funds a Large Cost-of-Living Adjustment for K-12 Education
• Community Colleges: The Revised Spending Plan Reduces Several One-Time Investments for Community Colleges
• CSU/UC: May Revision Maintains Multiyear Funding Investments for the CSU and UC Systems

Workforce & Other Proposals

• Workforce Development: Governor Reverses Some Workforce Cuts Proposed in January
• CalKIDS: May Revise Makes Modest Adjustments to CalKids Proposal
• Broadband & Digital Divide: Revised Spending Plan Maintains Delays for Broadband Infrastructure Projects
• State Corrections: May Revision Does Not Propose or Plan for Additional Prison Closures
• Local Safety: Revised Budget Doubles Funding to Address Missing Indigenous Persons

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Budget Overview

Governor’s Updated Economic Forecast Assumes Slow Growth but No Recession

The governor’s May Revision highlights several risks to the economic outlook — including the federal debt ceiling standoff, high interest rates, bank failures, and tech sector layoffs — but does not anticipate a recession. The forecast assumes nationwide economic growth to be slow but positive through most of 2023, then to recover to more normal rates (1.5% – 2%) beginning later in the year as inflation continues to moderate and monetary policy eases, continuing through the forecast period ending in 2026.

The administration notes several reasons for cautious optimism: inflation has been slowing, consumer spending is still strong, and the state is continuing to add jobs, albeit at a slower rate than during the recovery from the dramatic losses early in the pandemic. The revised budget also maintains that despite some high-profile tech layoffs, employment in the information sector is still above pre-pandemic level, many of the layoffs have occurred outside of California, and they likely represent a “correction to apparent over-hiring at some firms during the pandemic.” The forecast does not anticipate any major banking or tech sector crises that would disrupt the economy.

The forecast assumes that job growth will continue to slow throughout 2023 and 2024 and revert to its historical trend, and that the state’s unemployment rate will increase through 2025 to a peak of 5.2% due to the effects of higher interest rates and more cautious lending activity on business investment and the labor market.

Average wage growth in the state fell to almost zero in 2022 after strong growth in previous years, largely reflecting declines in the highest-paying sectors that have seen reductions in bonuses and stock options. The forecast anticipates that wage growth will recover to around 3% in 2023 and 2024 and 4% in 2025. Taking into account inflation, real average wage growth was negative in 2022 and the forecast doesn’t project positive real wage growth until 2025.

Revised Budget Downgrades Revenue Estimates, Includes No New Tax Proposals

The governor’s January budget proposal projected a $29.5 billion shortfall in state General Fund revenue relative to the estimates in the enacted 2022 budget. Since then, revenue collections have come in even lower than anticipated, reflecting weaker stock market performance and inflation-adjusted wage growth. Due to the weaker revenue collections and the risks to the economic outlook, the revised budget assumes General Fund revenues for the three-year budget window ending with the 2023-24 fiscal year will be $8.4 billion lower than expected in January.

Relative to the January projections, the revised budget anticipates revenues for the state’s “Big Three” revenue sources to be:

• $14.3 billion lower for the personal income tax ($3.2 billion lower excluding the impact of the pass-through entity elective tax, which shifts some revenue from the personal income tax system into the corporate tax system),
• $6.2 billion higher for the corporation tax ($4.3 billion lower excluding the impact of the pass-through entity tax), and
• $100 million higher for the sales and use tax.

These estimates are based on the assumption that the economy does not go into recession. The administration notes that in the case of a mild to moderate recession, General Fund revenues could fall below these estimates by $20 billion to $40 billion. Also notable, updated estimates of the state’s “Big Three” tax revenues across the budget window from the Legislative Analyst’s Office are $11 billion lower than the governor’s May Revision estimates, suggesting that the actual budget problem could be substantially larger than the governor is projecting.

The updated revenue estimate is subject to additional uncertainty this year as a result of the extension of tax payment deadlines for most Californians into October, giving estimators less complete information about the state’s revenue situation than they usually have at this point in the year. The May Revision assumes that these extensions will result in about $42 billion of personal and corporation income tax revenues being delayed until October. This uncertainty increases the likelihood that the 2023-24 budget will be subject to more substantial adjustments after being signed into law than in most years.

The governor does not propose any substantial revenue increases to protect or strengthen services and supports for Californians, nor does he propose any additional tax policy changes beyond his January proposals. These proposals included closing a tax loophole related to income from certain trusts, exempting forgiven student loan debt from state taxation, extending and making refundable the state’s film and television tax credit, and changing the rules for the state’s existing New Employment Credit.

In stark contrast to the governor’s proposal, the state’s Senate Budget Plan released on April 26 includes a proposal to move from a single tax rate on general corporations to a graduated tax rate where the first $1.5 million of a corporation’s state profits would be taxed at 6.63% while profits above that level would be taxed at 10.99%. This change is estimated to raise several billion dollars in state revenue and would support proposals to increase tax credits for Californians with low- and middle-incomes (see the refundable tax credits section), ongoing funding to address homelessness, child care provider rate increases, K-14 education funding, and shoring up the state’s Safety Net Reserve.

May Revision Mostly Maintains State’s Reserves, but Draws Down Safety Net Reserve

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 section on Prop. 98).

In addition, Prop. 2 increased the maximum size of the BSA to approximately 10% of estimated General Fund revenues. If this limit is reached, any dollars that otherwise would have gone into the BSA would have to be spent on infrastructure, including spending related to deferred maintenance. Similarly, Prop. 2 caps the size of the PSSSA at 10% of the estimated Prop. 98 minimum funding guarantee for schools and community colleges. If this limit is reached, state policymakers are required to use the dollars that would otherwise have been deposited into the PSSSA to instead support schools and community colleges.

The BSA is not California’s only reserve fund. The 2018-19 budget agreement created the Safety Net Reserve, 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, each year, the state deposits additional funds into a “Special Fund for Economic Uncertainties” (SFEU) — a reserve fund where state leaders have a lot of flexibility and discretion as to when and how they can use the available funds.

The governor’s May Revision does not draw down the BSA to cover the projected state revenue shortfall and projects an increase in the PSSSA balance. For 2023-24, the proposal projects a BSA balance of $22.3 billion — the same as the 2022-23 level — and a PSSSA balance of $10.7 billion — up from $9.9 billion in 2022-23. The administration estimates the BSA in 2023-24 will continue to top out at 10% of estimated General Fund revenues, requiring that $2.3 billion that would exceed that level be spent on infrastructure projects. In addition, the PSSSA is expected to reach 10% of the Prop. 98 minimum funding guarantee.

The May Revision does propose to draw down $450 million from the Safety Net Reserve, leaving $450 million in that account. In contrast, the state’s Senate Budget Plan released in late April would increase the Safety Net Reserve to $1.9 billion.

The SFEU is projected to be $3.8 billion in 2023-24, down significantly from its current year (2022-23) projected total of $18.8 billion.

Taking into account the BSA, PSSSA, Safety Net Reserve, and SFEU, the governor’s proposal would include total reserves of $37.2 billion in 2023-24.

Health

Governor Maintains Commitment to Expand Medi-Cal to All Undocumented Californians

California has expanded access to health coverage in recent years, building on the federal Affordable Care Act (ACA). More than 15 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 2022-23. Another 1.7 million Californians purchase health coverage through Covered California, our state’s health insurance marketplace. Nonetheless, many Californians — including immigrants who are undocumented — remain uninsured, while those with health coverage often face high monthly premiums and excessive out-of-pocket costs, such as copays and deductibles, when they seek health care services.

The governor’s revised budget protects major health care investments that were enacted in the 2022 Budget Act. Most notably, the budget maintains the commitment to expand full-scope Medi-Cal eligibility to undocumented immigrants ages 26 to 49 starting January 1, 2024. In recent years, California has expanded eligibility for comprehensive Medi-Cal coverage to certain immigrants who qualify for the program except for their immigration status, including children and young adults up to age 25 as well as adults age 50 and older. However, undocumented adults ages 26 to 49 continue to be excluded. The enacted 2022-23 budget began the process of closing this eligibility gap by extending full-scope coverage to these adults no sooner than January 1, 2024. The May Revision includes additional funding for the two most recent Medi-Cal expansions: $1.6 billion General Fund in 2023-24 and an estimated $2.4 billion General Fund annually. These figures include the cost of providing In-Home Supportive Services to newly eligible adults who are anticipated to enroll in the program.

In addition, the governor’s revised budget maintains the proposal to renew California’s Managed Care Organization (MCO) tax, effective April 1, 2023 through December 31, 2026. The May Revision advances the effective date nine months earlier than planned in the governor’s proposed budget. The MCO tax essentially reduces — or “offsets” — state General Fund spending on Medi-Cal by well over $1 billion per year. The renewal of the MCO tax, which requires federal approval, would result in $19.4 billion to maintain Medi-Cal funding. Of this amount, $10.3 billion, including $922.7 million in 2023-24,  would be set aside for future use and $8.3 billion over the proposed MCO tax period would support the Medi-Cal program, offsetting General Fund spending. The remaining funding would be allocated as follows: $237 million ($98 million General Fund) in 2023-24 and $580 million ($240 million General Fund) annually thereafter to increase provider rates for primary care, obstetric care (including doulas), and non-specialty mental health services.

While the revised budget proposal would improve health care access and affordability for many Californians, it fails to use dollars raised from the state’s individual mandate penalty as intended when the penalty was established: to help people afford health insurance through Covered California. Penalizing Californians with low-to-moderate incomes for not obtaining health coverage and then failing to use the penalty revenue to address the high cost of coverage and care is an injustice. As outlined in the state Senate’s budget plan, the governor should provide greater financial assistance to Californians who are uninsured and struggling to purchase coverage given that premiums, deductibles, and other out-of-pocket costs are on the rise. Access to timely, quality, and comprehensive health care services is critical because it promotes overall physical and mental health. When people do not have access to health coverage, they are less likely to receive preventive care, less likely to receive treatment for chronic health conditions, and more likely to report a poor health status.

Revised Budget Sustains Major Behavioral Health Initiatives

Behavioral health services — mental health care and/or treatment for substance use — are primarily provided by California’s 58 counties, with funding from the state and federal governments. These services support millions of Californians who cope with mental illness or substance use disorders. Unfortunately, many Californians experience barriers to accessing the behavioral health care services they need in order to thrive, particularly individuals experiencing or at risk of homelessness. In addition, LGBTQ+ people and people of color disproportionately experience barriers to care due to the legacies of discrimination.

In recent years, the administration launched various behavioral health initiatives to transform California’s behavioral health system. This summer, the administration will seek approval of a new federal waiver called the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration — previously known as California’s Behavioral Health Community-Based Continuum (CalBH-CBC) Demonstration. This initiative would complement the administration’s ongoing efforts to expand access to Medi-Cal behavioral health services with a focus on children and youth, individuals experiencing or at risk of homelessness, and justice-involved individuals. The waiver is estimated to cost $6.1 billion ($306.2 million General Fund) over five years and is expected to be implemented no sooner than January 2024. Major reforms to the Medi-Cal program as well as the level of federal funding that will be provided must be negotiated with the federal government through the Medicaid waiver process. As such, implementation of BH-CONNECT will depend on the availability of funding and federal approval.

The administration’s revised budget also includes the following:

• $500 million from the Mental Health Services Fund to support the Behavioral Health Bridge Housing Program, which aims to address the immediate housing and treatment needs of people with serious behavioral health conditions who are also experiencing unsheltered homelessness. In January, the governor’s administration proposed to postpone $250 million for this program to 2024-25. The revised budget eliminates this delay by using Mental Health Service Fund dollars in lieu of General Fund support. (See the homelessness section for more information about supports for Californians who are experiencing or at risk of homelessness.)
• $250.3 million Opioid Settlements Fund for opioid and fentanyl response. Of this amount, $220.3 million would be allocated over four years to support the Naloxone Distribution Project. Naloxone is a life-saving medicine that reverses an opioid overdose, which is urgently needed. Over 7,000 Californians died due to opioid overdose and nearly 6,000 Californians died due to a fentanyl overdose in 2021. The remaining $30 million would be available in 2023-24 to support the development of a generic naloxone nasal spray product.
• $50.5 million Mental Health Services Fund to support the CalHOPE program, which provides crisis support for communities impacted by a national disaster.
• $50 million General Fund over three years to support behavioral health for older adults. Specifically, the revised budget allocates $20 million General Fund in 2023-24, $20 million General Fund in 2024-25, and $10 million General Fund in 2025-26 to support a targeted media campaign for older adults as well as competitive grants to local governments to identify and address the unique behavioral health needs of older adults.
• $40 million ($20 million General Fund) to support the governor’s proposal to modernize the state’s behavioral health system. This allocation reflects initial funding to support the governor’s proposed 2024 ballot initiative, which would authorize a general obligation bond to build mental health treatment residential settings for Californians with behavioral health conditions. It would also reform the Mental Health Services Act (Prop. 63 of 2004) by overhauling the funding structure, leading to at least $1 billion annually in local assistance for housing and residential services for people experiencing behavioral health conditions.
• $15 million one-time 988 State Suicide and Behavioral Health Crisis Services Fund in 2023-24 to support the 988 Suicide & Crisis Lifeline, which helps connect Californians to trained crisis counselors who can help people experiencing a mental health crisis or emotional distress. This funding would support 988 call centers for a total of $19 million in 2023-24 and $12.5 million in 2024-25 and ongoing.

Investments in our behavioral health system are critical. The governor’s commitment to improving access to behavioral health services can support Californians who are coping with mental health conditions or substance use disorders. These investments can also reduce hospitalization or even incarceration due to behavioral health conditions.

May Revision Maintains Public Health Infrastructure Investment, Restores Funding to Rebuild Workforce

Everyone should have the opportunity to be healthy and thrive, regardless of their race, gender identity, sexual orientation, income, or zip code. The California Department of Public Health as well as local public health departments play a critical role in protecting and promoting Californians’ health and well-being. Their responsibilities include infectious disease control, chronic disease prevention, health promotion, and more.

The May Revision maintains $300 million ongoing General Fund to strengthen public health infrastructure at the state and local level. The governor’s revised budget also restores $49.8 million over four years for various public health workforce training and development programs. This is critical because public health funding has historically not kept pace with the cost of responding to ongoing and emerging health threats.

The governor’s revised budget scales back resources for COVID-19 response by $50 million General Fund due to the end of the state of emergencies at the federal and state level. It is important to note that reducing funding for COVID-19 response may have potential implications for managing the virus in the future. State leaders should continue to monitor COVID-19 and make funding adjustments as needed. This includes ongoing funding for state and local public health needs to ensure that California is better prepared to address current and future public health emergencies.

State leaders can do more to make sure all Califorrnians have the opportunity to be healthy and thrive. Given that structural racism continues to have a profound impact on the health and well-being of many communities across the state, the governor’s administration and other state leaders can employ a variety of strategies to combat the effects of historical and ongoing racist policies and practices. Such strategies include declaring racism a public health crisis at the state level and establishing dedicated funding to support community-based organizations, clinics, and tribal organizations in their efforts to advance health equity.

Homelessness & Housing

Proposal Keeps Previous Homelessness Commitments but Lacks Ongoing Funding

Having a safe and stable place to call home is core to living a dignified and healthy life. Yet, over 171,000 Californians were counted as experiencing homelessness at a point-in-time in early 2022. Over the same year, local homeless service providers made contact with more than 315,000 Californians needing to find a home or search for other life-sustaining services. While people of all ages and backgrounds are pushed into homelessness for varying reasons, deeply rooted inequities have placed Black, American Indian or Alaska Native, and Pacific Islander Californians, adults without children, older adults, and LGBTQ+ individuals at higher risk of facing homelessness and its destructive effects. Still, the May Revision does not build on the governor’s earlier commitments to address homelessness. The administration instead continues to focus on establishing stronger local accountability measures around homeless services and regional coordination.

Most notably, the administration sustains $1 billion one-time General Fund for the Homeless Housing, Assistance and Prevention (HHAP) Grant Program in 2023-24, which provides local jurisdictions with flexible funds to address homelessness. In conjunction, the administration will propose trailer bill language so these funds prioritize high need populations —specifically unsheltered individuals — through permanent housing supports and programs like Homekey and the Community Assistance, Recovery, and Empowerment (CARE) Act. This is in contrast to the state Senate budget plan that proposes $1 billion ongoing for HHAP which is needed as effectively addressing homelessness requires adequate capacity and services at a scale that meets the need as well as reliable ongoing funding so that efforts can be sustained.

Other maintained homelessness-related allocations in 2023-24 include:

• $500 million one-time Mental Health Services Fund for the Behavioral Health Bridge Program, which supports people experiencing homelessness with serious behavioral health conditions through short-term bridge housing and services. This amount reflects a $250 million restoration that was not reflected in the January proposed budget but was included in the 2022 Budget Act. These funds were previously proposed through General Fund dollars (see Behavioral Health section).  
• $400 million General Fund for encampments resolution grants for local jurisdictions.

The May Revise also moves forward with the CARE Act that is set to start in select counties in October 2023 and expand statewide by 2024. The proposed budget augments funding for the Department of Health Care Services and the Judicial Branch for implementation. This includes $128.9 million General Fund in 2023-24, $234 million General Fund in 2024-25, $290.6 million General Fund in 2025-26, and $290.8 million General Fund in 2026-27 and annually ongoing after.

Lastly, the administration upholds proposals that leverage potential federal and state Medicaid funds for homelessness prevention and rehousing assistance for select populations if waivers are approved by the federal government. This includes various initiatives within California Advancing and Innovating Medi-Cal (CalAIM) , such as the Transitional Rent Waiver Amendment and the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration (see Behavioral Health section).

Housing

May Revise Proposes No New Investments for Affordable Housing Production

Safe and stable housing is a basic need for all individuals, but many Californians are unable to maintain stable housing because of unaffordable housing costs. Renters, people with low incomes, Black and Latinx Californians, and Californians who are undocumented are especially likely to struggle to keep up with housing costs. Despite noting California’s serious housing affordability challenges, the governor proposes no additional or expanded investments to increase the supply of affordable housing.

The May Revision maintains the funding for affordable housing development that was included in the 2022-23 budget agreement for use in 2023-24. This includes $225 million for multifamily housing, $410 million over two years for adaptive reuse of underutilized commercial space, and $225 million infrastructure for infill housing. It also continues the $500 million boost to the state Low-Income Housing Tax Credit program, as in recent previous years, but no further increase is proposed. The governor also does not augment other state funding that directly supports the development of affordable housing.

The administration continues to propose a $350 million reduction in 2023-24 for homeownership programs and accessory dwelling units that were included in the 2022-23 state budget agreement. These reductions would be restored if sufficient General Fund is available in January 2024. One-time funds for the Foreclosure Intervention Housing Prevention Program are also newly impacted. The governor proposes deferring $345 million — of the $500 million included in the 2021 Budget Act — over four fiscal years for a revised allocation of $50 million in 2023-24, $100 million in 2024-25, $100 million in 2025-26, and $95 million in 2026-27. Additionally, the administration shifts and restructures funds included in the 2022-23 budget agreement that support affordable housing for public college students (see CSU/UC section).

In contrast, the Senate budget plan proposes allocating an additional $500 million towards the state Low-Income Housing Tax Credit Program as well as an additional $300 million flexible funding for affordable housing production programs. Additionally, the Senate budget plan proposes restoring or augmenting homeownership programs delayed by the governor. It also allocates $700 million to expand the Renters Tax Credit and makes it refundable, so that it would benefit renters with the lowest incomes (see Refundable Tax Credits section).

Economic Security

May Revision Makes No New Investments in Tax Credits for Low-Income Californians

California’s Earned Income Tax Credit (CalEITC), Young Child Tax Credit, and Foster Youth Tax Credit are refundable income tax credits that collectively help millions of families and individuals with low incomes pay for basic needs like food each year. These credits also promote racial and gender equity by targeting cash to Californians of color, immigrants, and women who face racism, sexism, and other structural barriers to advancement in the labor market.

The administration does not propose to make any new investments in these tax credits even though Californians’ need for cash support remains high. About 2 in 3 households with incomes under $35,000 reported difficulty affording basic needs like groceries last fall and the economic challenges facing millions of Californians have worsened since then with the expiration of federal supports, such as emergency SNAP/CalFresh food assistance. The end of this and other federal policies are key factors expected to push more Californians into poverty this year.

In contrast with the governor’s May Revision, the Senate’s budget proposal would invest $1.9 billion ($1.5 billion ongoing) in tax credits that would boost the incomes of millions of Californians with low and moderate incomes. This includes:

• A $700 million expansion of the state’s renters credit that would help 3.25 million households better afford rent;
• A $400 million increase in the amount of money provided through the CalEITC that would help more than 3 million low-paid workers pay for basic needs; and
• A $400 million investment to begin providing California’s new Workers Tax Fairness  Credit, which was signed into law last year and would extend a tax benefit to as many as 2.5 million union workers who are not eligible for an existing tax deduction that largely benefits high-income union workers.

No Significant Investments in CalWORKs Despite Safety Net Reserve Withdrawal

The California Work Opportunity and Responsibility to Kids program (CalWORKs) is a critical support that provides modest cash assistance for families with low incomes, particularly families of color.

The May Revision:

• Includes a slight increase of 3.6% to CalWORKs grants (at an estimated $111.2 million cost in 2023-24), up from 2.9% in January, as is required by AB 85 of 2013, which links CalWORKs grant increases to projected sales tax revenues.
• Proposes pulling back approximately $280 million in unspent funds from the 2021-22 CalWORKs Single Allocation, which funds employment services, eligibility determination, and administrative costs. 
• Delays the start of a previous proposal, which would redirect collected child support payments from the state back to former CalWORKs parents. Implementation is expected to begin April 2024. This delay results in approximately $70 million General Fund revenue — dollars that otherwise would have gone to families. 
• Withdraws $450 million from the Safety Net Reserve designed to maintain existing CalWORKs and Medi-Cal benefits and services during an economic downturn (see Reserves section for more).

The governor’s proposal falls short in meeting the minimal needs of CalWORKs families. In recent years, state policymakers have raised the maximum CalWORKs grant above the deep poverty threshold (50% of the federal poverty line) for some CalWORKs families, but not for many of those with an excluded family member, unfairly leaving these children and families behind with less assistance to meet basic needs. The governor’s revised budget again fails to raise CalWORKs grants above the deep poverty threshold for all families.

The initial proposal to redirect collected child support payments to formerly assisted families was a step forward from a policy that routed outstanding child support debt to the state, county, and federal governments as “reimbursement” for the costs associated with the CalWORKs program. The delay in redirecting collected child support to former CalWORKs families, however, perpetuates a racist policy that blocks Black, Latinx, and other families from economic security.

The governor’s proposal also misses an opportunity to provide funding to end the CalWORKs work participation rate penalty for counties, a racist and sexist policy that works against recent CalWORKs program reforms and hinders the CalWORKs program from helping parents address barriers.

Governor Proposes Investments in Anti-Hunger Programs, but More Is Needed

No Californian should have to worry about whether they’ll be able to put food on the table. But about 1 in 10 California households sometimes or often do not have enough to eat, according to a recent Census Bureau survey. The recent end of several federal programs that provided additional food assistance since the beginning of the COVID-19 pandemic has left many Californians on the brink of a hunger cliff.

The revised budget proposes several changes from the January proposal to improve food assistance programs, including:

• Additional support for the Universal School Meals Program (see K-12 section).
• $47 million ($23.5 million General Fund) to phase in a new federal Summer EBT program for children who qualify for free or reduced lunch. The program would begin in the summer of 2024.
• An updated timeline for the expansion of the California Food Assistance Program (CFAP), which would extend benefits to undocumented adults over the age of 55, to begin in October 2025. This includes a $40 million investment for automation and outreach efforts.

While the May Revision makes some improvements to the January budget proposal, which proposed no new food assistance funding, it does not include any new commitments to further expand CFAP and fully end the exclusion of undocumented households from vital food supports. It also misses an opportunity to increase CalFresh monthly benefits. This is particularly important given the recent end of pandemic emergency allotment support, which had increased a household’s benefits to the maximum allotment for its family size. The recent end of this program means some households participating in CalFresh have seen their food assistance benefits plummet, from $281 to just $23 in some cases. The governor’s proposal does not include any additional food assistance to help support families during this transition.

Governor Maintains Increase to SSP, but Falls Short of Prior Commitments

Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help well over 1 million low-income seniors and people with disabilities to pay for housing and other necessities. Grants are provided to individuals and couples and are funded with both federal (SSI) and state (SSP) dollars. State policymakers made deep cuts to the SSP portion of these grants in 2009 and 2011 to help close budget shortfalls caused by the Great Recession. Except for a small increase provided in 2017, the recession-era cuts to SSP grants remained in effect for more than a decade.

State leaders changed course in 2021 and adopted a substantial (24%) increase to SSP grants that took effect on January 1, 2022. Also in 2021, state leaders committed to providing an additional increase to SSP grants in January 2024, subject to funding being provided in the 2023-24 state budget. Part of this increase has already taken effect, with state leaders raising the maximum monthly SSP grants for individuals from $160.72 in 2021 to $219.73 in 2023. For couples, the maximum monthly SSP grant rose from $407.14 in 2021 to $556.62 in 2023.

In line with the governor’s January proposal, the May Revision:

• Increases the state’s portion of SSI/SSP grants in 2024, but not as much as previously committed. As noted above, an increase to the maximum monthly SSP grants took effect on January 1. The governor calls for an additional increase to take effect on January 1, 2024, raising the maximum SSP grants for individuals from $219.73 in 2023 to $238.62 in 2024. For couples, the maximum monthly SSP grant would increase from $556.62 in 2023 to $604.49 in 2024. These new maximum SSP grant levels would fall somewhat short of the 24% increase originally anticipated by state lawmakers. For example, assuming the January 2022 grant levels were raised by 24%, the maximum grant for individuals should rise to roughly $247 and the maximum grant for couples should go up to nearly $626 as of January 2024.
• Does not commit to future increases that would allow grants to keep up with the cost of living and fully make up for prior grant reductions. Even with an increase in SSP grants in 2022, 2023, and 2024, the maximum SSP payment for individuals in 2024 — $238.62 — falls far short of the level it would have reached — more than $400 — if state leaders had consistently adjusted this grant for annual changes in the cost of living since 2008, according to Budget Center calculations. In other words, grants have not kept pace with the cost of living in California due to state policy choices, leaving many low-income seniors and people with disabilities less able to make ends meet.

Governor Extends the Family Fee Waiver but Does Not Boost Provider Rates

California’s subsidized child care and development system is a critical resource for families with low to moderate incomes seeking to access affordable, nurturing early care and education. Despite child care’s critical role for California families, too few families can access affordable child care options and many are unable to pay high family fees, prompting families to make sacrifices in other areas of need (i.e., housing and food). Furthermore, provider reimbursement rates have not kept pace with the rising minimum wage, resulting in many providers struggling to make ends meet. Child care providers are integral to supporting the development of California’s children and the economic well-being of families. Current provider rates do not reflect their vital profession.

The governor’s proposed budget: 

• Waives family fees for child care and development programs. The governor proposes to extend the 2022-23 policy to waive family fees using $29.4 million of one-time federal funds. The current fee waiver was set to expire on June 30, 2023, and the proposal extends the waiver until September 30, 2023. In fact, two bills recently passed by the Legislature — Assembly Bill 100 and Assembly Bill 110 — will waive family fees until September 30, 2023. The governor signed both bills into law on May 15, thereby implementing the policy change assumed in the May Revision.
• Includes temporary stipends to state-subsidized child care providers. The governor will authorize the California Department of Social Services (CDSS) to use around $169 million in federal funds to provide stipends for state-subsidized providers. The 2023-24 stipends follow previous years of similar funding, allocated on a per child-basis. Specifically, state-subsidized child care provider stipends were also provided in 2022-23 ($1,442 per child) and 2021-22 ($600 per child). Assembly Bill 100 and Assembly Bill 110, referenced above, include the temporary stipends. With the governor’s May 15th signature, this funding will officially be implemented as planned.
• Does not add any new child care slots for 2023-24. The governor indicated in January that the slots created during the past two cycles (over 100,000) will be maintained. The January budget proposed that 20,000 additional slots be added for 2024-25.
• Does not increase child care provider rates for 2023-24. The Senate Budget Plan proposes over $1 billion to increase child care rates “to support and stabilize child care providers.” The Assembly’s Child Care Funding Budget Plan  (“Care COLA”) proposes a $1 billion cost of living adjustment, increasing child care funding by 25.44%. This effort is intended to move providers away from poverty wages. Despite the Senate and Assembly’s plans, the governor’s proposed budget does not incorporate increases to provider rates. The Assembly described the Care COLA proposal as a “first step in a multi-year effort currently being collectively bargained by the Governor and Child Care Providers United.” The state plans to continue to work with Child Care Providers United (CCPU) to negotiate a successor agreement to the current contract, which expires on June 30, 2023. Rate increases could be considered as a part of these negotiations.
• Includes over $184 million from the General Fund to support an estimated 8.22% statutory cost-of-living adjustment (COLA). This increase would be provided to child care and development programs ($183.3 million) as well as the Child and Adult Care Food Program ($840,000).

While the proposed budget includes a 8.22% COLA, this increase only applies to the rates received by providers that contract directly with the state. Providers that are a part of the state subsidy system will not see an increase in rates in the proposed budget, despite the roughly $1 billion for rate increases named in the Senate budget plan and the Assembly’s “Care COLA.”

May Revision Fails to Expand Paid Sick Leave

Most California workers are entitled to at least 24 hours of paid sick leave per year. State policymakers temporarily expanded the amount of paid sick leave available to California workers during the COVID-19 pandemic, providing up to 80 hours of annual leave for COVID-related reasons. However, this supplemental paid sick leave expired at the end of 2022, leaving many workers with just three days of paid sick leave to care for themselves or a family member.

The May Revision does not propose to expand paid sick leave. As a result, under the governor’s plan many workers would continue to have just three days of paid sick leave per year. In contrast, a bill moving through the Legislature would expand sick leave from three days to seven. California lags behind every other state that has paid sick leave — leaving workers with the impossible choice of going to work while sick or losing their paycheck. State leaders should require employers to provide additional paid sick days for workers so that all Californians are able to care for themselves or their loved ones when they are ill.

May Revision Boosts State’s Commitment to Addressing Needs of Migrants

California has the largest share of immigrant residents of any state, and over half of California workers are immigrants or children of immigrants. More than 2 million Californians are undocumented, according to estimates.

The May Revision boosts California’s commitment to addressing the needs of migrants along the border. Specifically, the governor proposes to spend $150 million from the General Fund in 2023-24 to provide respite sheltering for migrants and “support their safe passage through border regions.” This initiative will prioritize vulnerable groups, including families with young children and LGBTQ+ individuals.

The revised budget also maintains some recent key commitments to immigrant Californians. Specifically, the May Revision:

• Continues to fund full inclusion in Medi-Cal for otherwise eligible Californians regardless of immigration status. This expansion is set to take effect beginning in January 2024 (see the Coverage, Affordability & Access section).
• Moves up the start date for expanding food assistance to otherwise eligible undocumented Californians age 55+. These Californians are now anticipated to begin receiving benefits through the California Food Assistance Program in October 2025 rather than the initial date of January 2027 (see the Food Assistance section).

The May Revision does leave some urgent needs of immigrant Californians unmet, however. There is no funding to provide a basic safety net for California workers who lose their jobs and are undocumented, who continue to be excluded from unemployment insurance (UI) benefits despite their critical contributions to the state’s economy and our communities. In contrast, the Senate budget plan envisions extending UI benefits to these excluded workers.

Education

Governor Continues to Focus Investments in Transitional Kindergarten

The governor’s 2021-22 budget included a plan to implement universal transitional kindergarten (TK) for all 4-year-olds over a four-year period. The 2023-24 proposed budget aligns with year two of TK implementation (2021-22 was considered a planning year). TK eligibility is based on age alone in public schools and is not dependent on family income. In addition to TK, the state also funds the California State Preschool Program (CSPP). CSPP provides preschool to children ages 3 and 4 for families with low to moderate incomes. While CSPP and TK reflect the two state-funded pre-kindergarten programs, they are among several early learning options available to California families with low to moderate incomes (see section on Child Care).

The governor’s revised budget:

• Continues to fund the implementation of TK expansion. The initial year one expansion took effect during the current 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 2023-34 expansion will provide eligibility to children who turn 5 between September 2 and April 2 (about 42,000 children). The governor proposes approximately $762 million for 2023-24 costs to expand TK access. Of this total, roughly $597 million will support expanded eligibility and $165 million will support one additional certificated or classified staff person in TK classrooms. The $597 million to support expanded eligibility is a reduction from the $690 million proposed in the January budget. This difference is due to reduced TK enrollment projections at the time of the May Revision (roughly 4,000 children).
• Includes roughly $95 million to support an 8.22% statutory cost-of-living adjustment for the state preschool program. This increase reflects $60 million Proposition 98 General Fund and $35.3 million General Fund. The total funding amount is an $80 million reduction from the January 2023 estimates. The May Revision states that this reduction is due to a lower number of state preschool program contractors being reimbursed at the State Reimbursement Rate than originally expected. 
• Includes $9.7 million to waive family fees for the state preschool program. In addition to the proposal to waive family fees for child care and development programs (see Child Care section), the May Revision proposes to continue to waive family fees for CSPP from July 1, 2023 through September 30, 2023. The governor proposes that a total of $4.4 million non-Proposition 98 General Fund and $5.3 million Proposition 98 General Fund from the 2022 Budget Act be used to waive CSPP family fees.
• Includes temporary stipends to state preschool program providers. The governor authorizes the California Department of Education (CDE) to use around $112 million in federal funds to provide stipends for CSPP providers. As mentioned in the Child Care section, Assembly Bill 100 and Assembly Bill 110 were recently signed by the governor, confirming temporary stipend funding for both state preschool and child care and development providers.
• Continues to implement a multiyear plan to ensure CSPP serves a greater diversity of children. The 2022-23 budget package increased payment rates for certain children enrolled in state preschool, including children with disabilities, dual language learners, and 3-year-olds. In exchange, preschool providers have begun enrolling more children with disabilities and providing enhanced services to dual language learners. In January, the governor proposed to continue implementing this plan in 2023-24, at a cost of $64.5 million Proposition 98 General Fund and $51.8 million General Fund.
• Delays a planned $550 million investment in preschool, TK, and full-day kindergarten facilities from 2023-24 to 2024-25. This delay was included in the governor’s January budget. 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.
• Does not include funding for educator (including early educator) recruitment needs. The Senate budget plan includes $1.1 billion one-time Proposition 98 General Fund for resources such as incentives and staff training to support educators with earning units at institutions of higher education. The Senate budget plan states that this funding may support developing micro-credential programs for transitional kindergarten. The governor’s plan does not include funds for the Senate’s outlined educator recruitment needs.

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 funding for K-12 schools, community colleges, and the state preschool program. Changes in state General Fund revenues tend to affect the Prop. 98 guarantee, and the May Revision’s estimates of 2022-23 and 2023-24 revenues are lower than those estimated in January’s budget proposal. As a result, the May Revision assumes a 2023-24 Prop. 98 funding level of $106.8 billion, approximately $2 billion below the level assumed in the governor’s January budget proposal, and a 2022-23 Prop. 98 funding level of $106.8 billion, slightly lower than the $107 billion funding level assumed in January. The revised budget assumes a 2021-22 Prop. 98 funding level of $110.6 billion, slightly above the $110.4 billion funding level assumed by the governor in January.

Revenue projections in the governor’s January budget proposal would have required a deposit into the Public School System Stabilization Account (PSSSA) — the state budget reserve for K-12 schools and community colleges — raising the account balance to $8.5 billion. However, the May Revision projects an increase in capital gains revenues as a share of General Fund revenues. This increase would boost the required PSSSA deposit and bring the total account balance to approximately $10.7 billion in 2023-24, which would reflect its constitutional limit. (See Reserves section.) Moreover, because the PSSSA balance is projected to exceed 3% of the total K-12 share of the Prop. 98 minimum funding level in 2022-23, current law would prevent K-12 school districts from maintaining more than 10% of their budgets in local reserves beginning in 2023-24.

Revised Budget Funds a Large Cost-of-Living Adjustment for K-12 Education

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 revised spending plan uses one-time dollars to help fund a large cost-of-living adjustment (COLA) to the state’s K-12 education funding formula — the Local Control Funding Formula (LCFF). Specifically, the May Revision:

• Provides a $3.4 billion year-over-year increase for the LCFF. 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 would fund an 8.22% COLA for the LCFF in 2023-24, up from the 8.13% COLA estimated in the January budget proposal. The revised spending plan proposes to use $2.7 billion in one-time dollars to help pay for the large increase in ongoing support for the LCFF. According to the Assembly Budget Committee, the May Revision would provide an estimated $79.8 billion in funding for the LCFF in 2023-24.
• Cuts approximately $2.5 billion from the Learning Recovery Emergency Block Grant. The 2022-23 budget agreement provided $7.9 billion for a one-time block grant to K-12 school districts, COEs, and charter schools allocated based on the percentage of enrolled students who are English learners, students from low-income families, or foster youth. The May Revision proposes to reduce this funding to approximately $5.4 billion. 
• Cuts the Arts, Music, and Instructional Materials Discretionary Block Grant by approximately $600 million more than proposed in January. The governor’s January budget proposed reducing, from nearly $3.6 billion to approximately $2.3 billion, one-time funding for a per pupil discretionary block grant provided to local educational agencies (LEAs) in the 2022-23 budget agreement. The May Revision proposes to reduce funding for the block grant to approximately $1.8 billion. 
• Increases funding by approximately $300 million for school nutrition programs. For the 2022-23 school year, California established a Universal Meals Program that provides two free meals per day to any public K-12 student regardless of income eligibility.  The revised spending plan includes an additional $110 million in one-time dollars and approximately $191 million in ongoing dollars to fully fund increased demand for the program in 2022-23 and 2023-24. 
• Provides $80 million in ongoing funding for COEs serving students in juvenile court. The revised spending plan states these additional resources would be used to support staffing and programming requirements for students in alternative school settings. The May Revision also proposes to increase COEs’ LCFF base grants by 50% for the additional year of assistance they would provide, based on a proposal in the governor’s January budget, to school districts with performance issues. 
• Provides $20 million for the Bilingual Teacher Professional Development Program (BTPDP). The BTPDP was established in 2018, but it expired in June 2021. The May Revision would reinstitute the program and make funding available through 2028-29.  
• Funds an increase in the COLA for non-LCFF programs. The May Revision increases the COLA for several categorical programs that remain outside of the LCFF to 8.22% from the 8.13% COLA provided in January.
• Maintains $300 million for a proposed “equity multiplier” add-on to the LCFF. The revised spending plan would continue to provide ongoing funding proposed in January for LEAs with large shares of students from families with low incomes. Additionally, the May Revision states that it reflects changes to the state’s K-12 accountability system to clarify those proposed in January “including additional assurances that all LEAs with low student performance address disparities in the preparation of their educators.” 
• Proposes to screen students in kindergarten through 2nd grade for risk of reading difficulties. The May Revision proposes to make these screenings mandatory by the 2025-26 school year and would require LEAs to provide services to identified students, including those at risk of dyslexia. 
• Extends the deadline for spending Expanded Learning Opportunities Program (ELOP) funds. The 2022-23 budget agreement provided $4 billion for the ELOP. The May Revision extends the  June 30, 2023 deadline for spending ELOP funds received in 2021-22 and 2022-23 to June 30, 2024.

The Revised Spending Plan Reduces Several One-Time Investments for Community Colleges

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 approximately 1.8 million students to transfer to four-year institutions or to obtain training and employment skills.

The 2023-24 May Revision proposes reductions to several one-time investments and also provides additional funds for a cost-of-living adjustment (COLA) for apportionments. Specifically, the revised spending plan:

• Reduces the COVID-19 Recovery Block Grant by more than half in 2022-23. The 2022 Budget Act included $650 million one-time Prop. 98 for a flexible block grant for community college districts to address the impacts of COVID-19 on students. The revised plan reduces funding for this grant by $345 million in the current fiscal year.
• Reduces proposed funding to support student enrollment and retention. The revised budget includes a reduction of $100 million of the proposed $200 million one-time Prop. 98 that would support colleges in increasing enrollment and retention rates. While recent CCC enrollment rates have shown modest increases, the CCC system experienced significant drops in enrollment as a result of the COVID-19 pandemic.
• Proposes additional reductions for deferred maintenance projects. The May Revision decreases funding for these projects by $239 million one-time Prop. 98 dollars, for a total reduction of $452 million. 
• Includes approximately $28 million for an 8.22% COLA for apportionments and other programs. These funds reflect an increase of $25.4 million ongoing Prop. 98 dollars for the Student Centered Funding Formula (SCFF) for a total of $678 million. The proposal also provides the same percentage COLA to other CCC categorical programs and the Adult Education Program, and allocates an additional $3 million ongoing Prop. 98 dollars for that purpose.
• Allocates one-time dollars for apportionments in 2023-24. The spending plan also includes an increase of about $503 million one-time Prop. 98 dollars for the Student Centered Funding Formula in 2023-24.

The May Revision also includes details on proposed spending flexibilities for CCC districts. The revised spending plan proposes statutory changes that would allow CCC districts to spend flexibly among the Student Equity and Achievement Program, Student Financial Aid Administration, and Student Mental Health Resources. This expanded flexibility would begin in 2023-24. Districts not making “sufficient” progress toward the CCC roadmap goals that were established in the 2022 Budget Act would have that flexibility revoked.

May Revision Maintains Multiyear Funding Investments 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 roughly 462,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 290,000 students on 10 campuses.

The revised spending plan maintains the 5% base increases to both the CSU and the UC, $227 million and $216 million, respectively. This increase is part of the multiyear funding investments established through the compacts between the administration and the CSU and UC systems. The compacts outline major goals, including increasing access; improving student success and advancing equity; increasing affordability; improving collaboration among systems of higher education; and supporting workforce preparedness.

To address the budget shortfall, both the CSU and UC budgets include funding shifts totaling approximately $1.8 billion. Specifically, the funding shifts include:

• Approximately $856 million General Fund support to CSU-issued bonds for infrastructure projects and affordable student housing grants. The spending plan includes $61 million ongoing General Fund for debt service on those bonds.  
• Approximately $935 million General Fund support to UC-issued bonds for capital outlay projects and affordable student housing grants. The spending plan also includes $63.3 million ongoing General Fund for debt service on those bonds.

Other higher education proposals in the revised spending plan include:

• $545 million for affordable student housing projects at the California Community Colleges (CCCs). This includes $450 million one-time General Fund in 2023-24 and $95.4 million one-time General Fund in 2024-25. The 2022-23 budget agreement allocated these funds to support all three segments of higher education for the construction of, or renovation of commercial properties into, affordable student housing.  See CCCs section for other CCC proposals. 
• Maintains a delay — to 2025-26 — of $900 million in 2023-24 and $250 million in 2024-25 for the student housing revolving loan program that was established in the 2022 Budget Act to support all three systems of higher education.
• A decrease of $480 million one-time General Fund in the current fiscal year to the Golden State Education and Training Program. This program supports Californians who lost their jobs as a result of the pandemic to reskill, upskill, or access educational or training programs. 
• Maintains an increase of $227 million one-time General Fund for the Middle Class Scholarship that the administration committed to in the 2022 Budget Act.

Workforce & Other Proposals

Governor Reverses Some Workforce Cuts Proposed in January

The May Revision proposes to restore funding to two programs the Administration proposed cutting in January. The first is a reversal of a proposed $49.8 million General Fund cut over four years to various public health workforce training and development programs. The second is a reversal of a proposed $30 million General Fund cut ($15 million in each of 2023-24 and 2024-25) to the Department of Industrial Relations’ Women in Construction Unit, which promotes and supports women and non-binary individuals in skilled trade careers.

See additional workforce proposals in the early learning and Pre-K section.

May Revise Makes Modest Adjustments to CalKids Proposal

The California Kids Investment and Development Savings Program (CalKIDS) establishes college savings accounts for California children with an initial seed deposit provided by the state. All newborns receive a seed deposit of at least $25, while first graders living in low income families receive $500 seed deposits. First graders who are foster youth get an additional $500, and those who are homeless get an additional $500 for a maximum deposit of $1,500.

In January, the governor proposed increasing the seed deposit for all newborns from $25 to $100, funded by redirecting $30 million ongoing General Fund beginning in 2023-24 that was intended for seed deposits for first graders. The administration projected that there would be fewer eligible first graders than originally expected and that less money would be needed to provide seed deposits to them.

The May Revision includes a new adjustment that further revises down the number of eligible students, resulting in a decrease of $30 million in the General Fund in 2022-23. The administration does not propose a particular use of this savings.

Revised Spending Plan Maintains Delays for Broadband Infrastructure Projects

The pandemic exposed the inequities in access to computers and high-speed internet, also known as the digital divide. Access to such technology is necessary to participate in education and other essential activities, such as remote work, applying for jobs, virtual health appointments, and access to many other services. The digital divide disproportionately impacts low-income and Latinx households, as well as children and youth, seniors, and people with disabilities.

The 2023-24 revised spending plan maintains funding delays of more than $1.1 billion in funding to future years for last-mile infrastructure grants and the Loan Loss Reserve Fund. Both programs support the expansion of broadband infrastructure at the local level and are overseen by the California Public Utilities Commission (CPUC).

Last-mile infrastructure (wires, poles, cables, and other components) refers to the final section of a network that connects to middle-mile infrastructure (fiber-optic cables laid over hundreds of miles) and provides high-speed internet access to individual communities and households. The Loan Loss Reserve Fund supports local governments, tribes, and nonprofits in financing local broadband infrastructure development.

In contrast to the May Revision, the Senate budget plan proposed additional funding for infrastructure, including more than $1.1 billion for last-mile broadband projects and the Loan Loss Reserve Fund.

May Revision Does Not Propose or Plan for Additional Prison Closures

More than 96,200 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. American Indian, Black, and Latinx Californians are disproportionately represented in state prisons — a racial disparity that reflects implicit bias in the justice system, structural disadvantages faced by these communities, and other factors.

Among all incarcerated adults, most — 91,980 — are housed in state prisons designed to hold fewer than 80,000 people. This level of overcrowding equals 115.2% 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 more than 4,300 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. The sizable drop in incarceration has resulted from both 1) a series of justice system reforms enacted by voters and state leaders and 2) changes adopted in 2020 to further reduce prison overcrowding in response to the COVID-19 pandemic, such as suspending intakes from county jails and implementing early releases.

The governor’s May Revision includes a previously announced plan to reduce prison capacity in the following ways:

• By the end of 2023, the state will complete the deactivation of certain facilities within six state-owned prisons, generating ongoing annual General Fund savings of roughly $170 million.
• By March 2024, the state will end its contract for the use of the California City Correctional Facility. California City is the last of several private prisons that the state began leasing to help alleviate overcrowding in state-owned prisons, generating ongoing General Fund savings of roughly $156 million.
• By March 2025, the state will shut down the Chuckawalla Valley State Prison in Blythe.

Adults who are housed in these various facilities will be moved to “appropriate level” state-owned prisons.

This planned downsizing of the prison system follows the closure of one state prison in September 2021 — Deuel Vocational Institution in Tracy — and the anticipated shutdown of another state prison — California Correctional Center in Susanville.

But California can do more. The state can safely close up to five additional state prisons, according to a recent report  by the Legislative Analyst’s Office. The ongoing savings from closing five additional prisons — around $1 billion per year — could be redirected to help people make the transition back to their communities more successfully and boost services to support survivors of crime, reduce poverty, increase housing stability, address substance use and mental health issues, and enhance the safety and well-being of our communities.

Revised Budget Doubles Funding to Address Missing Indigenous Persons

California is home to more people of American Indian/Alaska Native heritage than any other state in the country. There are currently 109 federally recognized Indian tribes in California, including several tribes with lands that cross state boundaries. There are also about 45 tribal communities of formerly recognized tribes that were terminated as part of the United States’ termination policy in the 1950s, as well as tribal communities that were never recognized by the federal government. The diverse array of tribal nations in California currently have nearly 100 separate reservations or rancherias and a number of individual Indian trust allotments. These lands constitute Indian Country.

American Indian/Alaska Native communities experience crime and victimization at higher rates than other populations. In particular, community members and researchers have long identified a crisis of missing and murdered Indigenous peoples, particularly among women. Community advocates describe this crisis “as a legacy of generations of government policies of forced removal, land seizures, and violence inflicted on Native peoples.”

In order to help address this crisis among tribal nations in California, the state recently provided $12 million from the General Fund over three years to help tribal police and prosecutors collect data and investigate cases of missing Indigenous persons. These funds may also be used for counseling services and other activities. The May Revision proposes an additional $12 million General Fund for these purposes — doubling the total allocation to $24 million.

In terms of other local public safety measures, the governor’s revised budget:

• Proposes to restructure a new gun buyback program to get firearms out of circulation more quickly. In 2022, the state provided $25 million General Fund to buy back guns using a competitive grant model overseen by the Board of State and Community Corrections. However, citing recent mass shootings and the need for faster action, the governor proposes to shift these funds to the Office of Emergency Services to “work directly with local law enforcement agencies to expedite targeted, coordinated gun buybacks.”
• Provides $10 million one-time General Fund to enhance security among nonprofits that are at risk of hate-motivated violence. This includes organizations that represent Asian American and Pacific Islander, Black, Jewish, Latinx, and LGBTQ+ communities. The funds could be used for reinforced doors, alarms, and other security improvements.
• Projects state savings of nearly $113 million in 2023-24 due to reduced incarceration stemming from Proposition 47, with these dollars required to be invested in a broad array of services. 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 General Fund cost of the state prison system (relative to the expected cost if Prop. 47 had not been approved). The state Department of Finance is required to annually calculate these savings, which are then deposited into the Safe Neighborhoods and Schools Fund and allocated as follows: 65% to mental health and drug treatment programs, 25% to K-12 public school programs for at-risk youth, and 10% to trauma recovery services for crime victims.