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key takeaway

Policymakers avoided major cuts to critical services in the 2023-24 California state budget, but additional revenues are needed to make meaningful investments for Californians in the future.

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

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

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

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

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

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


Budget Overview

Revenues

What does the state budget include?

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

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

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

How can state leaders better support Californians?

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

Reserves

What does the state budget include?

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

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

Health

Managed Care Organization (MCO) Tax

What does the state budget include?

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

How can state leaders better support Californians?

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

Access to Medi-Cal

What does the state budget include?

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

How can state leaders better support Californians?

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

Covered California Affordability

What does the state budget include?

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

How can state leaders better support Californians?

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

related content

Want to learn more about each of California’s budget reserve accounts? View our Report: California’s State Budget Reserves Explained.

Homelessness and Housing

Homelessness

What does the state budget include?

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

How can state leaders better support Californians?

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

Affordable Housing

What does the state budget include?

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

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

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

How can state leaders better support Californians?

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

Economic Security

Safety Net

What does the state budget include?

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

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

How can state leaders better support Californians?

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

Tax Credits

What does the state budget include?

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

How can state leaders better support Californians?

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

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

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

Child Care

What does the state budget include?

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

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

How can state leaders better support Californians?

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

Immigrant Californians

What does the state budget include?

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

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

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

How can state leaders better support Californians?

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

state budget terms defined

What’s the difference between a trailer bill and a policy bill? And what exactly is a “Budget Bill Jr.”? Our Glossary of State Budget Terms answers these questions and more.

Education

Early Learning and Pre-K

What does the state budget include?

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

How can state leaders better support Californians?

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

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

K-12 Education

What does the state budget include?

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

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

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

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

How can state leaders better support Californians?

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

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

Higher Education

What does the state budget include?

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

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

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

Notably, the budget also includes:

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

How can state leaders better support Californians?

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

Other

Labor and Workforce

What does the state budget include?

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

How can state leaders better support Californians?

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

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

State Corrections

What does the state budget include?

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

How can state leaders better support Californians?

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

Public Safety

What does the state budget include?

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

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

Tax Policy Changes

What does the state budget include?

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

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

How can state leaders better support Californians?

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

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    The definition of “nonstability rate” includes the percentage of pupils who are enrolled for less than 245 continuous days between July 1 and June 30 of the prior school year.

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