Updated 12:56 p.m.
California’s state budget will break $300 billion this year, a startling rebound from a COVID-19-induced deficit in 2020 and a significant jump beyond pre-pandemic levels.
State lawmakers and Gov. Gavin Newsom will have a $97.5 billion surplus to allocate this year, though half of it must be earmarked for education and other purposes. It’s the second year in a row California is facing a substantial surplus driven largely by income tax revenue from the state’s wealthy earners.
In 2019, the budget clocked in at $213 billion.
Newsom wants to use part of the surplus to send rebates to California drivers and $1,500 bonuses to hospital and nursing home employees as part of his proposed $300.6 billion budget plan. It includes $227.4 billion in general fund spending and $73.2 billion from bonds and special funds.
The governor’s administration unveiled the rebate proposals ahead of his revised budget presentation Friday morning. It also includes billions in additional aid for rental assistance and utility bills for Californians affected by the pandemic.
The governor’s revised budget proposal is a refined version of an earlier spending plan he originally released in January, using the most recent tax revenue data. It’s just a wishlist and one part of a lengthy process in which state leaders decide how to spend Californians’ tax dollars. Newsom and top state lawmakers will negotiate the details over the next six weeks.
The Legislature must approve a state budget by June 15, and it must be signed by the governor by June 30 in order to take effect by the next fiscal year on July 1. See a timeline of the process here.
Here are proposals announced by the governor:
Inflation and financial relief
With gas prices stuck at well over $5 per gallon across most of the state and inflation at a 40-year high, Newsom doubled down on an earlier proposal to send $400 rebates to registered vehicle owners, up to $800 per person. The Department of Finance estimates the rebates would cost $11.5 billion.
For those who do not own a car, Newsom’s plan would also include $750 million in grants for public transit agencies to pause their fare collection for three months and make transit free.
The governor initially floated the idea back in March, but remains in a stalemate with Assembly Speaker Anthony Rendon and Senate President pro Tempore Toni Atkins, who say they would prefer relief targeted to help lower- and middle-income individuals and families.
Other lawmakers, particularly Republicans, have pushed to suspend the 51-cent-per-gallon gas tax for one year, but Newsom and top Democrats have said there’s no way to guarantee oil companies would pass those savings on to consumers.
Newsom’s proposal also includes:
- $2.7 billion in additional funding for the state’s rental relief program to help those who applied by the March 31 deadline.
- $1.4 billion to help pay off past-due utility bills for Californians affected by the pandemic. The state approved a similar amount in 2021.
- $933 million to provide $1,500 “retention bonuses” to workers in hospitals and nursing homes, which were hit hard by the pandemic and continue to face staffing shortages.
- $439 million to pause the diesel sales tax for one year. Department of Finance officials point out that unlike the gasoline tax, the tax on diesel is also a sales tax. “As the price of diesel goes up, the amount we collect goes up,” said Finance Director Keely Bosler. “In that case, we saw a lot of value in reducing that.”
- $304 million to boost insurance premium assistance for roughly 700,00 Californians on eligible Covered California plans.
- $157 million to waive up to $595 in monthly childcare fees for an estimated 40,000 low-income families.
Newsom announced Wednesday he would propose $125 million to expand access to reproductive care, including abortion, in California.
That’s more than the $68 million he proposed in January. The funding boost comes after a leaked document showed the U.S. Supreme Court is poised to roll back nationwide abortion protections.
Providers in California expect a flood of new patients traveling in search of an abortion from other states that are planning to crack down on the procedure.
Newsom’s proposal includes $40 million in grants to providers and $1 million to set up a website to connect people with information and services.
Housing and homelessness
Newsom’s revised budget sets aside $2.7 billion from the surplus for emergency rental assistance, bringing the state’s overall spending on rental aid to more than $8 billion. The proposal is intended to help qualified low-income tenants who requested rental assistance before March 31 avoid eviction.
California passed a law in March providing additional time to thousands of tenants who are in the middle of acquiring rental aid. The new law shields renters through June 20 as applications are processed.
For homelessness initiatives, Newsom’s May budget proposes spending approximately $2.7 billion, up from his $2 billion proposal in January.
The additional funding would include spending $500 million on interim housing such as tiny homes and crisis response services.
“We want some more immediate action,” Newsom said at his budget press conference.
It also calls for a $150 million expansion of Homekey, an initiative that pays local governments to buy and convert motels and hotels into long-term housing for people experiencing homelessness. Homekey has awarded funds for 10,000 homeless housing units statewide since it started two years ago, according to the governor’s office.
The initiative is part of a larger push to create non-congregate settings to house homeless residents, many of whom refuse to live at group shelters because they feel they’re unsafe or won’t allow people to live with a partner or pet, according to those who work with homeless residents and interviews with homeless individuals.
Additionally, the revised budget proposal would allocate $65 million for the governor’s CARE Court proposal. The controversial plan would establish a new civil court system and compel treatment for as many as 12,000 people with severe mental illness and drug addiction — including many experiencing homelessness.
Newsom’s $2.7 billion spending proposal is on top of the $12 billion the state allocated last year for the next two years of homelessness initiatives. That larger spending amount would expand housing and behavioral health care. Combined, it would pay for 55,000 new housing units and treatment slots, according to the governor’s office.
In January, Newsom set aside $500 million for homeless encampment clean-up grants for local governments, a 10-fold increase over last year’s budget for that program based on high demand for the grants.
Here’s a timeline of California's annual budget adoption process:
- January: The governor submits a proposed spending plan to the Legislature by a constitutional deadline of Jan. 10. Here's what Newsom proposed.
- May: The governor refines the budget proposal using clearer revenue numbers provided by the Department of Finance. This is known as the “May Revise.”
- June: Lawmakers have until June 15 to pass a budget. The spending plan is generally spread out across multiple bills, including “trailer bills,” or smaller appropriations that can be passed after the June 15 deadline. The governor must sign a budget by June 30.
Correction: A previous headline for this story incorrectly stated the size of the budget surplus. It has been corrected.
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