As our state faces a significant budget shortfall, state leaders have a lot to consider as they make important decisions on the 2024-25 state budget. In the coming weeks, budget committees and their subcommittees in the Assembly and Senate will hold hearings to review the governor’s budget proposals and express their respective priorities. This is … Continued
key takeaway
California’s budget shortfall presents significant challenges for the state’s economy, public services, and residents. Addressing the shortfall requires a balanced approach that includes revenue-raising measures and targeted spending cuts to ensure continued support for critical programs and vulnerable populations.
Building a just and equitable California for every person no matter their race, ethnicity, gender, age, or zip code requires investments to create health, housing, economic, and educational opportunities. The foundation for these investments is the state budget, through which policymakers can commit the funding needed to build a California where everyone can be healthy and thrive. But sustaining and expanding the state’s investments in individuals and communities becomes more challenging when revenues fall short of projections and lead to a state budget shortfall — as is the case this year.
This Q&A:
looks at the size of the state budget shortfall and why it emerged,
notes that state revenues could come in higher or lower than expected,
outlines state leaders’ options for addressing the budget gap, including raising revenues and using reserves, and
describes how advocates can work, even in a tough budget year, to advance their priorities and lay the groundwork for building a more equitable California.
California faces a budget shortfall — also known as a “budget problem,” “deficit,” or “gap” — of tens of billions of dollars. The shortfall is based on estimates of revenues and spending across three fiscal years: 2022-23 (the prior year), 2023-24 (the current year), and 2024-25 (the fiscal year that begins on July 1, 2024). This three-year period is known as the “budget window.”
Policymakers must close the deficit by June 2024 as part of the 2024-25 budget process by taking actions that apply to all three fiscal years. (Potential budget actions are described in later sections of this Q&A.)
There is no single, agreed-upon estimate of the current size of the budget shortfall. Estimates involve making assumptions about economic conditions, revenue collections, and the needs of California communities in the future. The governor’s administration and the Legislative Analyst’s Office (LAO) independently produce estimates of revenue collections and the state’s overall fiscal condition for the three-year budget window, and their assumptions are often different.
For the current budget window (July 2022 through June 2025):
However, the actions the governor proposes to take to close the deficit add up to $58 billion, according to the LAO. This means the governor has actually identified a $58 billion budget problem, based on the LAO’s analysis, even though his “headline” number — $38 billion — is much smaller. The reason why there are two different numbers is that the governor and the LAO disagree about how to categorize some spending actions in the governor’s proposed budget.
The LAO’s own estimate of the budget shortfall is $68 billion.
In short, the governor solves for a smaller budget shortfall ($58 billion) than the LAO projects ($68 billion). This difference is largely due to the governor’s more optimistic state revenue forecast. The governor currently assumes that revenues will be about $15 billion higher over the three-year budget window compared to the LAO’s projections.
Estimates of the budget shortfall will be updated in May as more information becomes available. The key takeaway is that the state has a sizable budget problem to address in this year’s budget process.
Why is California facing a budget problem this year?
The main reason for the budget problem is that state revenue collections have been coming in much lower than previously projected, and forecasts for future revenues have also been adjusted downward as a result. This occurs after several years of strong revenue growth that produced budget surpluses and made possible new spending commitments.
A large portion of the problem is related to state revenues for the 2022 tax year, which are estimated to be about $25 billion lower than policymakers expected when they adopted the budget for the current fiscal year last summer.
One major factor leading to the lackluster revenue performance in 2022 was the impact of the Federal Reserve’s interest rate hikes, which decreased investment, slowed economic activity, and contributed to a steep stock market decline. The stock market drop negatively impacted personal income tax collections from high-income earners, whose income is disproportionately made up of capital gains and stock-based compensation.
The extent of the 2022 revenue shortfall only became clear in late 2023 due to the extension of tax filing deadlines for 2022 taxes to November 2023. Because of this delay, state leaders had to finalize the 2023-24 budget last June with much less complete revenue information than usual, and they enacted a budget assuming significantly more revenue for the 2022 tax year than actually materialized.
Could state revenues come in higher — or lower — than current projections?
The estimated budget shortfall is just that — an estimate. In May, the governor’s Department of Finance and the Legislative Analyst’s Office will release updated projections of the size of the budget gap. These new numbers will take into account the most recent information available on the economy, revenues, and spending needs.
The governor’s updated estimates will be unveiled in his revised budget (the “May Revision”), which must be released by May 14. The May Revision will set the stage for negotiations between the governor and legislative leaders in June over the key outlines of the 2024-25 budget package.
At that point, the state will have mostly complete information on 2023 tax receipts since the April tax deadline will have passed. Policymakers also will have some information on 2024 tax collections from quarterly estimated tax payments by businesses and high-income individuals. However, the revenues assumed in the 2024-25 budget, when enacted this summer, will involve some projections. In other words, it is still possible that actual revenues for the 2022-23 through 2024-25 period (the “budget window”) will be higher or lower than expected.
If revenues come in higher than anticipated, state leaders could revisit some of the spending reductions, spending delays, and/or other “budget solutions” that they decide to adopt in June. Alternatively, if revenues were to come in significantly lower, state leaders would need to take additional actions, potentially including more spending solutions, although such actions would likely not occur until early to mid-2025 as part of the 2025-26 budget cycle.
What revenue-raising options do state leaders have to balance the budget?
Policymakers have many options to increase state revenues and make the state’s tax system more fair. These options should be seriously considered, not just to address the current budget problem, but also to strengthen state services on an ongoing basis and create a more equitable state.
State leaders consistently fail to examine the tens of billions of dollars that the state loses to tax breaks each year as part of the annual budget process. Many of the largest tax breaks primarily benefit wealthy corporations and high-income individuals. Eliminating or scaling back ineffective or inequitable tax breaks would provide additional revenue to support Californians struggling with the basic costs of living while also increasing tax fairness.
For example, the state is estimated to lose around $4 billion a year to a tax break called the “water’s edge election.” This break incentivizes corporations to avoid taxes by using foreign tax havens. Policymakers should ensure that corporations are sufficiently contributing to state revenues by reexamining this and other corporate tax breaks.
Policymakers can also restructure corporate tax rates so that the small number of immensely profitable corporations — which receive the majority of profits in the state — are subject to a higher tax rate than less profitable corporations.
Wealthy corporations can afford to pay their fair share in state taxes. Corporate profits are near record highs, yet corporations contribute a smaller share of their profits toward state taxes than they did a generation ago due to tax cuts and tax breaks approved by state policymakers. Increasing corporate taxes would only affect businesses that report profits, so it would not impact businesses’ ability to pay their workers and cover their other expenses.
The governor did put forth modest revenue solutions in his proposed 2024-25 state budget, but they make up less than 1% of the overall package of solutions — a package that also includes substantial spending cuts that would negatively impact Californians facing the most disadvantages. Policymakers could avoid painful cuts by growing state revenues instead of focusing mainly on spending solutions as the governor has proposed.
What other options do policymakers have to balance the state budget?
Aside from increasing revenues, policymakers have several additional tools to close the budget shortfall in a way that minimizes the impact on public services — particularly services that reduce poverty and prioritize economic opportunities, well-being, and the overall improvement of Californians’ lives.
One option is to use the state’s General Fund reserves. In fact, the state has built up substantial reserves precisely to help support critical services when revenues fall short.
State leaders especially should use reserve funds to bolster programs that help Californians meet basic needs like food, health care, housing, and child care. However, reserves should be used prudently. Reserve funds may be needed over multiple fiscal years, particularly if state revenues are expected to decline over an extended period. (See below for more on the state’s General Fund reserves and how they may be used.)
Policymakers also could borrow from state special funds. Many of the state’s 500+ special funds may have large balances that aren’t immediately needed. The state could borrow these excess revenues and use them to temporarily support services that are typically supported with General Fund dollars. The borrowed funds are later repaid with interest when General Fund revenues rebound. However, policymakers should avoid borrowing from a special fund if doing so would compromise the state’s ability to achieve the policy goal for which the fund was created.
Another option is to shift General Fund costs onto another fund source, such as a special fund. In this case, the dollars are not borrowed. Instead, the General Fund cost displaces spending that the special fund would otherwise have paid for. This would include, for example, shifting climate-related costs from the General Fund to the Greenhouse Gas Reduction Fund or paying for the state’s typical costs for Medi-Cal with revenues from the managed care organization (MCO) tax. The governor has proposed both of these actions as part of his 2024-25 spending plan.
Borrowing from and/or shifting costs onto special funds is a reasonable and prudent budgeting practice. This approach can help to close a state budget gap in a way that minimizes the need for cuts to critical public services without compromising the state’s fiscal health.
Policymakers also can revert, delay, and/or reduce appropriations to help close a budget gap.
A reversion means returning unspent funds to the General Fund when state costs come in “below budgeted amounts.” Funds are typically reverted after three years, but reversions can be accelerated.
A delay means moving an expenditure to a later period when revenues may be more robust.
Spending reductions should be used with caution and especially should avoid targeting services that support Californians’ health and well-being — things like cash aid, food assistance, child care, and health care. Services like these are lifelines for individuals and families, and cutting them would disproportionately impact low-income communities and Californians of color.
Instead, if spending reductions are needed to help balance the budget, they should target ineffective spending, such as poorly targeted tax breaks as well as the billions of dollars that annually fund the state’s costly and inequitable prison system.
How much does the state have in budget reserves, and when can those funds be used?
California policymakers’ prudent decisions to set aside funds for a rainy day mean the state has significant resources to address a budget shortfall.
the Public School System Stabilization Account (PSSSA),
the Safety Net Reserve, and
the Special Fund for Economic Uncertainties (SFEU).
California’s Constitution and state law govern when funds may be withdrawn from these reserves, the amount that can be withdrawn, and how funds may be used. For example, the state Constitution only allows withdrawals from the BSA and PSSSA if the governor declares a budget emergency and the Legislature passes a bill, by majority vote, that approves the withdrawal. In contrast, state law allows the Legislature to withdraw funds from the Safety Net Reserve or the SFEU at any time by majority vote.
All of the funds in the PSSSA, Safety Net Reserve, and SFEU may be withdrawn in one year. However, a withdrawal from the BSA is limited to the lower of the amount needed to address the budget emergency or 50% of the BSA balance — unless funds had been withdrawn in the previous fiscal year, in which case all of the funds remaining in the BSA may be accessed.
First Look: Understanding the governor’s 2024-25 state budget proposal
Learn about the key pieces of the 2024-25 California budget proposal, and explore how the governor prioritized spending and determined cuts amid a sizable projected state budget shortfall.
The PSSSA is the only reserve with strict limits on the use of its funds, which must be provided to support K-12 schools and community colleges. On the other hand, the Legislature may use funds from the BSA and the SFEU for any purpose.
State law specifies that funds in the Safety Net Reserve are intended to support CalWORKs and Medi-Cal benefits and services during an economic downturn. However, the Legislature may allocate these funds for other purposes if the governor signs a bill to do so.
Governor Newsom’s 2024-25 budget proposes withdrawing the entire Safety Net Reserve while also making cuts to the CalWORKs program. These proposals likely run counter to the intent of the Legislature when it created a reserve fund to support families with the greatest need. Moreover, draining the Safety Net Reserve would leave no funds to support CalWORKs and Medi-Cal benefits and services if economic conditions worsen.
What should advocates keep in mind when advancing their policy priorities this year?
Advocating for policies and the funding to support them is clearly more challenging when the state faces a budget shortfall, like it does this year. In particular, proposals that call for new spending will face much greater scrutiny — and significantly higher hurdles — compared to years when state revenues are stronger. But advocates still have options for navigating a tough budget year.
Advocates can push for new revenues and a fairer tax system. Revenues are a key tool in the budget-balancing toolbox and can prevent harmful spending cuts when there’s a budget shortfall. For example, advocates can encourage state leaders to examine the tens of billions of dollars that the state loses to tax breaks each year as part of the annual budget process.
Ensuring that our state has adequate revenues to support robust public services should be a top long-term priority regardless of the state’s fiscal condition. New revenues are needed to continue making progress toward an equitable state where everyone can be healthy and thrive, and advocates can make that case even in a tough budget year.
Advocates can also urge policymakers to protect recent policy gains and funding commitments, particularly investments that help to create a more equitable state. These include investments in child care, housing, health care, assistance for older adults and people with disabilities, and other critical services. Many recent investments could be at risk if the governor’s May Revision identifies a much larger budget gap than currently anticipated, so advocates will need to make a strong case for protecting recent gains and urge policymakers to exhaust alternatives to cuts to vital services.
Furthermore, advocates can plan for the future by continuing to make the case for additional state investments that prioritize the overall improvement of Californians’ lives. Advocates can educate state leaders about Californians’ ongoing needs, highlight policy solutions, and seek allies to help advance their proposals — using both the policy bill process and the budget process. Educating policymakers today can lay the groundwork for policy wins and expanded funding when the revenue situation improves.
In some cases, state leaders may be open to adopting a policy change, while delaying implementation until funding is provided in a subsequent state budget. This approach keeps the issue on the state’s “front burner” and puts advocates in a good position to argue for the needed resources in a future state budget cycle. However, given the significant budget challenges the state is facing, policymakers may be reluctant to commit now to a future expansion of services, even if it’s only “on paper.”
Finally, advocates should keep in mind that the budget is never truly final when the governor signs the budget package into law each June. State leaders always return to the budget later in the summer, making minor and sometimes substantial changes. For example, the Legislature may pass amendments that change the spending levels in the Budget Act. Lawmakers also may pass additional trailer bills, thus increasing the size and scope of the original budget package.
Unexpected opportunities can always emerge — so advocates should be prepared to advance their priorities through the budget process year-round.
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.
what is the governor’s proposed budget?
Released on or before May 14, the May Revision updates the governor’s economic and revenue outlook; adjusts the governor’s proposed expenditures to reflect revised estimates and assumptions; revises, supplements, or withdraws policy initiatives that were included in the governor’s proposed budget in January; and outlines adjustments to the minimum funding guarantee for K-14 education required by Proposition 98 (1988).
The 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:
Businesses can only offset up to 80% of their income in a given year with prior-year losses to reduce their tax liability. This change would bring California law into conformity with current federal tax law on NOLs and would increase revenues by an estimated $300 million in 2024-25 and $200 million annually on an ongoing basis.
Limiting “conservation easement” deductions.
Allows property owners to claim tax deductions in exchange for agreeing not to develop the land. This provision can be easily abused, and the proposed budget would bring the state into conformity with recent federal law aiming to minimize abuse and tax avoidance. This proposal would raise an estimated $55 million in 2024-25 and the subsequent fiscal year, and $25 million ongoing.
Eliminating the “bad debt deduction" for non-retailer lenders.
This currently allows lenders and retailers to deduct or claim a refund for sales and use taxes related to purchases made with credit where the debt cannot be collected — even if the lender made a profit on the bad debt. This proposal would raise an estimated $23.5 million in 2024-25 and $50.6 million annually ongoing.
Eliminating three tax breaks for the oil and gas industry.
This includes the immediate deduction for intangible drilling costs, the “percentage depletion” deduction rules for fossil fuels, and the Enhanced Oil Recovery Costs Credit. Eliminating these tax breaks would increase revenues by an estimated $22 million in 2024-25 and $17 million annually ongoing.
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 arenot 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 CalWORKssection).
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.
virtual event: breaking down governor newsom’s 2024-25 state budget proposal
How will policymakers navigate a tough budget year? Budget Center policy experts will dive deep into that and what the proposal means for Californians.
Join us for this free, virtual event on January 22.
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:
Maintains the commitment to expand Medi-Cal eligibility to undocumented immigrants ages 26 to 49 starting January 1, 2024.
This expansion is estimated to cost $1.4 billion ($1.2 billion General Fund) in 2023-24, $3.4 billion ($2.9 billion General Fund) in 2024-25, and about $3.7 billion ongoing. These figures include the cost of providing In-Home Supportive Services to newly eligible adults. Ensuring comprehensive health care coverage for all benefits communities across the state and strengthens the health care system overall.
Sustains the ambitious Medi-Cal reform effort known as CalAIM (California Advancing and Innovating Medi-Cal).
This was originally introduced in 2019. The budget maintains about $2.4 billion ($811.1 million General Fund) in 2024-25. The budget also maintains $24.7 million ($8.6 million General Fund) in 2025-26 increasing to $197.9 million ($69.3 million General Fund) at full implementation to allow up to six months of rent or temporary housing to eligible unhoused individuals or those at risk of homelessness who are transitioning out of institutions or foster care and are at risk of inpatient hospitalization or emergency care.
Maintains one-time $200 million ($100 million General Fund) in 2024-25 to support access to reproductive health services.
The administration plans to develop a federal demonstration waiver that would support access to family planning services for Medi-Cal enrollees as well as strengthen the state’s reproductive health safety net. Access to reproductive health services, including contraceptive care, sexually transmitted infection prevention and treatment, obstetrical care, and abortion services, have a profound impact on the lives of women and pregnant people.
Maintains commitment to eliminate the Medi-Cal asset test for seniors and people with a disability.
Specifically, the budget proposal includes $101.1 million total funds ($50.5 million General Fund) in 2023-24 and $195.4 million total funds ($97.7 million General Fund) in 2024-25 for the January 1, 2024 elimination of the Medi-Cal asset test.
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:
Over $8 billion for the Behavioral Health Continuum Infrastructure Program and the Children and Youth Behavioral Health Initiative.
The budget also proposes an additional $9.5 million ($4.1 million General Fund) in 2024-25 increasing annually to $78 million ($33.8 million General Fund) in 2027-28 to establish the Wellness Coach benefit in Medi-Cal, effective January 1, 2025. These will offer wellness education, screening, support coordination, and crisis management services to children and youth in schools and other behavioral health settings.
$7.6 billion ($350.4 million General Fund, $87.5 million Mental Health Services Fund, $2.6 billion Medi-Cal County Behavioral Health Fund, and $4.6 billion federal funds) for the Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration.
This aims to improve mental health services for Medi-Cal members. 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 will depend on the availability of funding and federal approval.
Due to the state’s projected General Fund revenue decline, the proposed budget:
Delays $235 million General Fund for the Behavioral Health Bridge Housing Program planned for 2024-25 to 2025-26.
This program aims to address the immediate housing and treatment needs of people with serious behavioral health conditions who are also experiencing unsheltered homelessness. The proposed budget also shifts $265 million from the Mental Health Services Fund in 2023-24 to the General Fund in 2024-25 (see Homelessness section).
Delays $189.4 to improve the behavioral health workforce.
Specifically, the budget delays $189.4 million Mental Health Services Act Fund spending for the social work, addiction psychiatry fellowships, university and college grants for behavioral health professionals, expanding Master of Social Work slots, and the local psychiatry behavioral health program.
Delays $140.4 million General Fund from 2024-25 to 2025-26 for the Behavioral Health Continuum Infrastructure Program.
This program provides competitive grants to expand the community continuum of behavioral health treatment resources.
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:
Shifts $265 million for the Behavioral Health Bridge Housing Program.
Shifts $265 million for the Behavioral Health Bridge Housing Program from the Mental Health Services Fund in 2023-24 to the General Fund in 2024-25 and delays $235 million General Fund planned for 2024-25 to 2025-26. These funds help provide immediate housing for people experiencing homelessness who have a serious mental illness or substance use disorder (see Behavioral Health section).
Delays $140.4 million General Fund from 2024-25 to 2025-26 for the Behavioral Health Continuum Infrastructure Program.
This leaves a total of $380.7 million for the final round of grants in 2025-26 designed to build behavioral health treatment resources ranging from wellness centers to psychiatric care facilities.
Delays $80 million General Fund for the Bringing Families Home Program to 2025-26.
This program serves families involved in the child welfare system.
Delays $65 million General Fund for the Home Safe Program to 2025-26.
Home Safe supports the safety and housing stability of individuals involved in Adult Protective Services.
Delays $50 million General Fund for the Housing and Disability Advocacy Program to 2025-26.
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).
state budget terms defined
What’s the difference between a trailer bill and policy bill? A deficit and an operating deficit? And what exactly is a “Budget Bill Jr.?” Our Glossary of State Budget Terms answers that and more.
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:
Pulling back $55 million General Fund from the 2023-24 budget and an ongoing cut of $71 million General Fund beginning in 2024-25 for Family Stabilization.
This program is designed to provide services to families who are experiencing a crisis. Services may include treatment for family members, intensive day treatment, non-medical outpatient drug treatment, residential treatment, emergency shelter, movement to transitional housing, rehabilitative services, and/or substance abuse counseling and treatment.
Pulling back $134.1 million General Fund from the 2023-24 budget and an ongoing cut of $134.1 million General Fund starting in 2024-25 for Expanded Subsidized Employment.
This program provides Welfare-to-Work participants with job opportunities through subsidized employment placement, a connection to the labor force, and job experience needed to obtain unsubsidized employment.
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
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.
Does not expand child care slots beyond the previously funded 146,000.
The 2021-22 enacted budget set a goal of adding 200,000 new child care slots by 2025-26. As of 2023-24, the state had funded approximately 146,000 of these 200,000 new slots. However, of these 146,000 slots, only about 118,000 have materialized due to a slower timeline with general child care contract allocation, meaning that 28,000 slots were not actually created. State policymakers did not add any new slots in 2023-24 and also extended the slot expansion deadline from 2025-26 to 2026-27, with the intention of adding the remaining slots starting in 2024-25. The proposed 2024-25 budget includes 28,000 slots to be added to the 118,000 materialized slots, resulting in a total of 146,000 slots at a cost of $2.1 billion. While the proposed 2024-25 budget includes funding for additional slots, it does not actually expand the total number of slots beyond the 146,000 that were previously funded. The governor maintains his commitment to fund all 200,000 slots by 2026-27; however, the timeline for funding the remaining 54,000 slots by the deadline remains unclear.
Maintains commitment to one-time funding for subsidy rate increases.
The 2023-24 budget provided 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 2024-25 proposed budget maintains this one-time funding. Therefore, as CDSS continues its efforts to develop an alternative methodology for child care program reimbursement rates that reflects the true cost of care (as established in the 2023-24 enacted budget), providers will maintain their temporary rate increase during the interim. Specifically, providers will receive monthly per child Cost of Care Plus Rates ranging from $98 to $211, dependent on license status and region.
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:
Sustains the full inclusion in Medi-Cal for otherwise eligible Californians regardless of immigration status.
Ensuring comprehensive health care coverage for all benefits communities across the state and strengthens the health care system overall (see Health Coverage section).
Maintains funding to start ending the exclusion of otherwise eligible undocumented Californians from food assistance.
Includes undocumented individuals aged 55+ in the California Food Assistance Program (CFAP). The budget proposes beginning benefit distribution in October 2025 (see Food Assistance section).
Upholds the previous year's grant increase to the Cash Assistance Program for Immigrants (CAPI).
This is equivalent to the SSI/SSP grant (see the SSI/SSP section). However, the governor makes no commitments to expand CAPI eligibility, which is currently restricted to immigrants meeting very specific requirements.
The proposed budget reduces funding for immigration legal services, which are a lifeline for immigrant families. Specifically, the budget:
Cuts funding for the Temporary Protected Status (TPS) Services program.
The governor proposes to cut $10 million General Fund in 2023-24 for this program and $10 million General Fund in 2024-25 and ongoing, eliminating all resources for this program. The rationale for this proposed reduction is unclear at this time.
Cuts funding for the California State University Legal Services program.
The budget proposal reduces $5.2 million General Fund in 2023-24 for this program and makes a reduction of $5.2 million General Fund in 2024-25 and ongoing. The rationale for this proposed reduction is unclear at this time.
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.
Does not provide continued funding for domestic violence prevention.
While the 2023-24 budget extended state funding for domestic and sexual violence prevention grants, the governor does not propose any additional funding for new grants in the 2024-25 fiscal year.
Does not fill the federal funding gap for services to support domestic violence survivors.
The governor notes that in the 2021-22 fiscal year, state funding was provided to supplement federal VOCA funding in order to support an increased need for domestic violence services during the pandemic. However, although there are anticipated cuts to federal VOCA funding in this fiscal year, the governor does not propose any funding to help fill the gaps that these cuts will leave.
related content
See our report Dollars and Democracy: A Guide to the California State Budget Process to learn more about the state budget and budget process.
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.
Continues to fund the implementation of TK expansion.
The initial year one expansion took effect during fiscal year 2022-23 and covered children whose fifth birthdays fell between September 2 and February 2 (the previous cut-off was December 2). The year two 2023-24 expansion provided eligibility to children who turn 5 between September 2 and April 2. The year three 2024-25 expansion will extend eligibility to children who turn 5 from April 2 to June 2. The budget proposes to include $635 million for this year three expansion. As universal TK continues to roll out, TK programmatic delays from 2023-24 are still relevant. Specifically, the following are delayed until 2025-26: 1) the reduction in TK classroom ratios to 1:10; and 2) the deadline for TK teachers to earn 24 units (or equivalent), a child development permit, or an early childhood education specialist credential.
Maintains the 2023-24 commitment to increase reimbursement rates for state preschool program providers.
As shared in the Child Care section, the 2023-24 enacted budget included one-time funding for temporary reimbursement rate increases. While this increase was negotiated by Child Care Providers United (CCPU) – representing home-based providers – the per-child rate increase also applies to CSPP providers. Thus, the one-time funding promised for CSPP provider rate increases is proposed to be maintained for 2024-25. Specifically, the budget includes $53.7 million from the General Fund to support reimbursement rate increases that were previously funded through one-time federal dollars. This $53.7 million is in addition to approximately $140.6 million General Fund and $206.3 million Proposition 98 General Fund dollars from 2023-24 appropriated to fund the CCPU agreement. Moreover, these amounts reflect a one-time savings of $172.1 million from the General Fund and $446 million from the Proposition 98 General Fund.
Continues to delay a planned $550 million investment in preschool, TK, and full-day kindergarten facilities from 2024-25 to 2025-26.
Facilities investments are intended to help build new school facilities or retrofit existing buildings in order to provide appropriate spaces for preschool, TK, and full-day kindergarten. The 2023-24 enacted budget reflected $550 million in 2024-25 to support this facilities program. However, due to the projected budget shortfall, the dollars that were expected in 2024-25 are delayed for another year to 2025-26.
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:
Allocates $5 billion from the PSSSA to support ongoing LCFF costs.
The LCFF provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. While the governor’s proposed budget includes a 0.76% cost-of-living adjustment (COLA) for the LCFF, total LCFF funding will decrease by $1.4 billion in 2024-25 due in part to a decline in student enrollment. Moreover, last year’s budget agreement relied on $1.6 billion in one-time dollars to help fund a 8.22% LCFF COLA that costs $4 billion annually to sustain. To pay for ongoing costs, the governor’s proposed budget would withdraw approximately $2.8 billion from the PSSSA to fund the LCFF in 2023-24 and approximately $2.2 billion to fund the LCFF in 2024-25.
Reduces K-12 school facilities funding by $500 million.
The 2022-23 budget agreement included an intention to allocate $875 million in one-time, non-Prop. 98 General Fund spending for the School Facility Program (SFP) to support K-12 facilities construction in 2024-25. The governor’s proposed budget would reduce this allocation to $375 million.
Provides $500 million in one-time funding for green school buses.
The proposed budget maintains a commitment made in the 2023-24 budget agreement to support the greening of school bus fleets through programs operated by the California Air Resources Board and the California Energy Commission in 2024-25.
Increases ongoing funding for universal school meals by $122.2 million.
California established a Universal Meals Program in the 2022-23 school year that provides two free meals per day to any public K-12 student regardless of income eligibility. The governor’s budget proposal would fully fund the program in 2024-25 (see Food Assistance section).
Provides $65 million to fund COLAs for non-LCFF programs and the LCFF Equity Multiplier.
The governor’s proposed budget funds a 0.76% COLA for the LCFF Equity Multiplier, that was established as part of the 2023-24 budget agreement, and for several categorical programs that remain outside of the LCFF, including special education, child nutrition, and American Indian Education Centers.
Provides $25 million in ongoing funding for literacy screening training.
The 2023-24 budget agreement included a requirement for school districts to begin screening students in kindergarten through 2nd grade for risk of reading difficulties by the 2025-26 school year. The proposed budget provides funding through the K-12 Mandate Block Grant to train educators to administer these literacy screenings.
Provides $20 million in one-time funding to train math coaches.
The governor proposes one-time funding for a COE, in collaboration with other providers, to develop training for math coaches to support math teachers.
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:
Proposes to withdraw $722 million from state budget reserves for CCC apportionments.
The governor proposes a withdrawal of $235.9 million from the Prop. 98 reserve (also known as the Public School System Stabilization Account or PSSSA) (see Reserves section) in 2023-24 and $486 million in 2024-25 for the Student Centered Funding Formula (SCFF).
Proposes a 0.76% COLA for apportionments and other programs.
This includes $69.1 million ongoing Prop. 98 dollars for the SCFF. The proposal also allocates $9.3 million ongoing Prop. 98 dollars to provide the same percentage COLA to other CCC categorical programs and the Adult Education Program.
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 460,000students at 23 campuses, and the UC provides undergraduate, graduate, and professional education to more than 290,000students 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:
The state is currently achieving $465 million in ongoing annual General Fund savings.
Due to closing two state-owned prisons (one in 2021, the other in 2023) and deactivating facilities in six prisons in 2023.
The state is projected to achieve $156 million in ongoing annual General Fund savings starting in 2024-25.
Due to terminating its lease with the California City Correctional Facility (by March 2024). This is the last of several private prisons the state began leasing to help alleviate overcrowding in state-owned prisons.
The state is projected to achieve $148 million in ongoing annual General Fund savings starting in 2025-26.
Due to closing Chuckawalla Valley State Prison in Blythe (by March 2025).
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
Shoplifting occurs when the value of stolen goods is $950 or less (petty theft) — a limit set by Proposition 47 of 2014. Shoplifting is generally a misdemeanor, but may be charged as a misdemeanor or a felony if the defendant was previously convicted of certain severe crimes or is required to register as a sex offender.
Commercial burglary
Commercial burglary covers higher-value retail theft (grand theft) and can be charged as a misdemeanor or a felony.
Robbery, a felony, occurs when force or a threat of force is involved. “Smash and grab” incidents are prominent examples of robberies affecting retail businesses.
Retail theft 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:
Boost penalties for stealing from vehicles and retail businesses.
People who steal from cars or from stores with intent to resell the stolen property would face new penalties, including felony charges and state prison time.
Make it easier to charge multiple petty theft incidents as grand theft.
The value of multiple petty thefts, even across different victims, could be combined to reach the dollar threshold for grand theft (more than $950), potentially allowing these crimes — in the aggregate — to be charged as a felony.
Make it easier for police to arrest people suspected of retail theft.
State law would be modified to clarify that police could make an arrest even if they didn’t witness a retail theft in progress.
Make permanent the state’s organized retail crime law.
The sunset date for this statute (January 1, 2026) would be eliminated.
Explore options to increase penalties on large-scale resellers of stolen goods.
The summary of the governor’s property crime package does not define who would qualify as a “large scale” reseller or indicate what options might be on the table.
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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How will policymakers navigate a tough budget year? Budget Center policy experts dive deep into what the proposal means for Californians.
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About this event
Governor Newsom’s proposed 2024-25 budget was just unveiled, sparking crucial questions about our state’s fiscal future.
Our policy experts break down what the budget proposal means for Californians, examining:
Governor Newsom’s plan to tackle the budget deficit, including dollar amounts, policy shifts, and their impact.
How the proposal both maintains commitments for and hurts low-income communities and Californians of color.
How missed revenue opportunities can help policymakers close the shortfall and create a more equitable, thriving state in the long run.
Join us as we kick off a new budget season and share the tools, policies, and budget investments needed to achieve an equity-focused budget and build healthy, thriving communities for all Californians. Don’t miss our first Empower event of the year!
The California Budget & Policy Center (Budget Center) is a nonpartisan research and analysis nonprofit committed to advancing public policies that improve the lives of Californians who are denied opportunities to share in the state’s wealth and deserve the dignity and support to lead thriving lives in our communities.
SACRAMENTO, CA — On the heels of Governor Newsom’s 2024-25 budget proposal released this morning, the California Budget & Policy Center (Budget Center), a nonpartisan research and analysis nonprofit, weighed in with the following statement from its executive director, Chris Hoene. “In good times and in bad, all Californians deserve the dignity and support necessary … Continued
About this event
As California faces a projected budget deficit, a presidential election, and consequential ballot measures, it is clear that 2024 will be a year of profound significance for Californians and our state’s future. To empower you to navigate this critical year ahead and make your voice heard in Sacramento, we invite you to our premier “Dollars and Democracy” state budget training.
Whether this is your first cycle or you are a seasoned pro, you’ll learn something new as our budget expert, Adriana Ramos-Yamamoto, walks you through California’s budget process, including key deadlines and the roles of the governor, the Legislature, and advocates in advancing and protecting investments for our communities.
Plus, learn insider tips on practical advocacy tools and what to expect in 2024 from our discussion panel of budget and election mavens.
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Meet the Panel
Budget Trainer: Dollars and Democracy training, approx. 30 minutes
Adriana Ramos-Yamamoto, Senior Policy Analyst, California Budget & Policy Center
Discussion Panel: Looking ahead and what to expect in 2024, approx. 30 minutes
Scott Graves, California Budget & Policy Center (Moderator)
Jessica Bartholow, Office of Senator Nancy Skinner
Keely Martin Bosler, Keely MB Strategies
Thank you to our event sponsors
Blue Shield of California Foundation, Heising-Simons Foundation, James Irvine Foundation
About the California Budget & Policy Center
The California Budget & Policy Center (Budget Center) is a nonpartisan research and analysis nonprofit committed to advancing public policies that improve the lives of Californians who are denied opportunities to share in the state’s wealth and deserve the dignity and support to lead thriving lives in our communities.
Late last week, the Legislature passed a dozen late-session bills amending the 2023-24 budget package, closing out legislative action on the state budget this year.
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