California budget season starts off with a bang

A journey of a thousand miles begins with a single step — like the one Assembly Democrats took Wednesday, when they unveiled their budget priorities for the upcoming fiscal year.

The move marks a start to months-long negotiations between Gov. Gavin Newsom and state lawmakers over how money should be divided between key programs — an exercise that can prove contentious even in the best of times, and could pose especially tough political questions this go-around as the state stares down an estimated $25 billion budget deficit after enjoying years of unprecedented surpluses.

Although the Assembly Democrats’ blueprint emphasizes that California is better positioned to weather an economic downturn than it has been in the past — with $120 billion in available cash across all funds, including $37 billion budgeted in general fund and rainy day fund reserves — it also adopts some of the cautionary recommendations outlined last month by the Legislature’s nonpartisan fiscal advisor. They include:

• Potentially shifting billions of dollars in expenditures to later years, and re-evaluating the timing of one-time spending.
• Considering low-cost borrowing from special funds if California keeps collecting lower-than-expected tax revenue.
• Evaluating the impact of inflation on certain state expenditures. Because the Legislative Analyst’s Office estimate of a $25 billion budget deficit didn’t account for soaring inflation rates, actual state costs are likely to be higher than estimated.

“We have spent a decade preparing for revenue shortfalls, and with the robust General Fund reserves and Rainy Day Fund, California is prepared to weather future economic downturns while still prioritizing the gains that we have made in K-12 and early childhood education, our higher education institutions, homelessness support and health care,” Democratic Assemblymember Phil Ting of San Francisco, who leads his chamber’s powerful budget committee, said in a statement.

The next major step in the budget marathon: Newsom releasing his blueprint for the fiscal year beginning July 1, which he’s slated to do on or before Jan. 10. He will then unveil a revised proposal in May after negotiations with lawmakers and updated revenue estimates. They must reach a spending deal by June 15, though that deadline is squishier than it seems: During the last budget cycle, lawmakers passed what amounted to a placeholder budget to keep receiving their paychecks while they worked out final details with Newsom.

Another noteworthy budget priority highlighted by Assembly Democrats: Asking voters in 2024 to weigh in on a ballot measure to “craft a modernized Gann Limit … to encourage building reserves and reducing debts.”

The Gann Limit is an obscure provision in the California Constitution that prevents the state from spending more per person than it did in 1978, once adjusted for inflation, and requires it to send the excess money back to schools and taxpayers.

As the economy continues to grow, the Gann Limit will pose an increasingly large problem for state government, according to a March report from the Legislative Analyst’s Office — leaving the Legislature with just two choices: Reduce taxes to reduce revenue growth, or ask voters to change the limit.

A job change: After nearly three incredible years of writing the CalMatters newsletter — and connecting with all of you — I’m headed to the San Francisco Chronicle, where I will start Jan. 23 as a columnist and editorial writer focused on state politics and policy. My last newsletter will run on Jan. 6, so I’ll save my goodbyes for then! In the meantime, CalMatters is hiring its next newsletter writer — and seeking to fill a host of other jobs — so please consider applying for or sharing these opportunities. Thank you for making this newsletter part of your morning routine and for welcoming me so warmly to this engaging and vibrant community.

Other Stories You Should Know

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1 California takes health care to the streets

Living on the streets of California is a deadly affair.

That’s how CalMatters health reporter Kristen Hwang put it so eloquently in her examination of how the state is overhauling Medi-Cal — its health care insurance program for the poor — to make it easier for the growing homeless population to receive much-needed primary care and stay out of costly emergency rooms. The state’s changes encourage Medi-Cal insurers to fund and partner with some 25 existing street medicine teams, which have long brought primary care into encampments but have historically relied on volunteers and philanthropic funds to stay afloat. Now, with an infusion of state money and support, street medicine teams are hopeful for more stability, even as they acknowledge that much of their work remains unfunded.

• Brett Feldman, co-founder and director of USC’s Keck School of Medicine street medicine program: “Where we have been falling short, especially with this (homeless) population, is their reality is so different from ours that we haven’t been building reality-based systems for them. … They have Medi-Cal. They’re eligible for all these benefits, but they can’t access these benefits.”
• For example: Medi-Cal covers transportation to and from a doctor’s appointment, but it requires the patient to provide a fixed address and give several weeks’ notice to the driver, something most unhoused people aren’t able to arrange. 
• Jacey Cooper, director of the state’s Medi-Cal program: “One of our core principles of CalAIM (the program to overhaul Medi-Cal) is breaking down the walls of health care and meeting people where they are. We really feel like street medicine helps us do that.”

In other health care news: Newsom announced Wednesday nearly $481 million in grants to improve behavioral and mental health facilities for California youth, part of the state’s $4.4 billion plan to transform the children’s mental health system.

2 $757M in bids for CA offshore wind auction

The federal government’s first-ever auction for leases to build massive wind farms off California’s coast netted final bids of $757.1 million Wednesday, signaling the beginning of a competitive market for a new industry producing carbon-free electricity, CalMatters’ Nadia Lopez reports. Although the total amount — to be paid by five energy companies — was significantly smaller than the record-breaking $4.37 billion paid in February for six offshore wind leases off New York and New Jersey’s coasts, many viewed the auction as a success, given that the West Coast is an untested and challenging market for building offshore wind farms. The auction included five parcels of deep ocean waters off Morro Bay and Humboldt County.

• Newsom said in a statement: “This sale is an historic step on California’s march toward a future free of fossil fuels. Together with leadership from the Biden-Harris Administration, we’re entering a new era of climate action and solutions that give our planet a new lease on life.”
• Molly Morris, president of Equinor Wind US, one of the companies that won a lease, said a statement: “The US West Coast is one of the most attractive growth regions for floating offshore wind in the world due to its favorable wind conditions and proximity to markets that need reliable, clean energy.”
• New Assemblymember Dawn Addis, a Morro Bay Democrat, said in a Tuesday statement: “While the sale of these leases is a critical and transformative step to providing clean energy to California, the development of offshore wind off the central coast will impact our communities in ways we can’t fully appreciate today. In the coming years, state and regional policymakers must seriously examine how offshore wind farms affect what makes the coast great — our fisheries, public beaches, native lands and our economy, including tourism.”

3 Newsom loses top labor official

The latest high-ranking official to exit the Newsom administration: Natalie Palugyai, whom the governor appointed to lead the California Labor and Workforce Development Agency last year after then-Secretary Julie Su was tapped for a post in the Biden administration, the Sacramento Bee reports. The governor’s office did not provide a reason for her departure; Newsom spokesperson Erin Mellon told the Bee, “We thank Natalie Palugyai for her work in the administration and wish her well in her next chapter.”

Whomever Newsom chooses to replace Palugyai will be charged with implementing controversial legislation, including a new law making it easier for farmworkers to vote in union elections and another creating a state council to regulate wages and working conditions in the fast food industry — which business groups are seeking to overturn via a proposed 2024 referendum. Palugyai’s departure also comes as California deals with ongoing legal battles over state labor laws.

Other things worth your time

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