SACRAMENTO, Calif. (CN) — Republican Assemblymember Heath Flora bore the task of standing in opposition to most of the California Legislature’s budget bills during a Wednesday evening session.
But once, when an education trailer bill came up, Flora — the Assembly floor leader for the minority party — drew cheers from his colleagues when he voiced support.
“Yeah, I know, it’s amazing,” Flora joked.
It was one of a few moments of levity during a rare evening session held to pass a series of bills that will, once signed by Governor Gavin Newsom, amend the legislative budget into the final fiscal year 2024-25 budget.
Newsom earlier that day signed the legislative version of the budget, hours before the Legislature voted on final budget bills.
The governor on Wednesday also issued a proclamation declaring a budget emergency, a necessary step before the Legislature can pass a bill that does two things. It suspends a rule that funds be transferred from the general fund to the budget stabilization account — the rainy day fund — as required by the state constitution. It also allows the transfer of money from that stabilization account to the general fund to deal with the budget emergency.
“I have determined that estimated resources are inadequate to fund general fund expenditures for the current or ensuing fiscal year, which constitutes a budget emergency,” Newsom wrote in his proclamation.
Several bills comprise the larger, California budget. Assembly Bill 107 — by Assemblymember and Budget Committee chair Jesse Gabriel, an Encino Democrat — is a main budget act. However, there are several others.
Newsom signed Senate Bill 154, which suspends the minimum funding required for schools and community colleges under Proposition 98 for the current fiscal year. He also signed a handful of non-budgetary bills.
The governor had 12 days after receiving the budget bills to sign or veto them. That deadline is Thursday, when it’s expected he’ll be in Atlanta for the presidential debate.
The legislative version of the fiscal year 2024-25 budget lays a foundation. The bills the Legislature took up Wednesday evening reflect the final budget agreement reached over the weekend between the governor, Assembly Speaker Robert Rivas and state Senate President Pro Tempore Mike McGuire. Those bills will amend the legislative version and incorporate the final budget agreement.
"This budget is responsible, methodical and it's deserving of our support," McGuire said.
The Assembly first convened Wednesday afternoon, moving quickly through several Senate budget bills before recessing. It waited until the Senate passed pending Assembly bills before reconvening and taking up its budget bills that had returned.
One Senate bill that also drew some levity would exempt a Capitol annex project from the California Environmental Quality Act, a law requiring impact reports and other benchmarks to be met before a project can proceed.
Republican Assemblymember Joe Patterson, of Rocklin, questioned if a doghouse would be included in the annex.
“Are you auditioning for it?” Speaker Pro Tempore Jim Wood said, eliciting laughs.
Republican Assemblymember James Gallagher, his chamber’s minority leader, argued that he has housing projects in his district languishing under the environmental act while the Legislature exempted itself, “for new offices for ourselves,” he said.
Senate Republicans also pushed back on the various budget bills. Senator Roger Niello, of Fair Oaks, pointed out that the budget was drafted by Democrats, which hold a supermajority in the Legislature. Niello learned about the budget deal, announced last weekend, on social media.
Niello, vice chair of the Senate’s Budget and Fiscal Review Committee, said California recently had two years of unsustainable revenue growth. However, the state suffered from a large deficit going into the next fiscal year and its revenue forecasts are faulty.
“The budget is balanced nominally, but it is not sustainable,” he said, arguing Newsom would face a much larger deficit than anticipated when he unveils the fiscal year 2025-26 budget in January.
The final budget contains $297.9 billion in expenditures for the upcoming fiscal year. It fills a deficit of $46.8 billion in next year’s budget, which starts July 1, as well as an expected shortfall in the following year.
The annual budget process began on a sour note, when late last year the state Legislative Analyst’s Office revealed a deficit it later estimated was $73 billion. Delayed tax returns due to grace periods because of disastrous winter storms in 2023 led to the late discovery of the shortfall.
Newsom in his January budget unveiling said the budget deficit was closer to $38 billion. The estimates changed over the months, as did the budgets. Newsom made massive cuts to certain programs, with the Legislature adding some of those back into its own budget.
One part of the deficit solution involves delaying the implementation of a $25 minimum wage for qualifying health care workers. Passed last year into law, the new wage now will be triggered by one of two options.
The first hinges on Newsom submitting a federal waiver for an additional quality assurance fee, which would bring in billions of dollars for hospitals. The other is if revenues outperform projections by 3% — expected to occur between October and January.
Another budget fix is the reduction of most state departments by almost 8%. That’s projected to save about $2.2 billion. The budget also does away with funding for vacant positions, about $1.5 billion, and removes $1.1 billion in affordable housing programs.
California’s fiscal health is in many ways tied to the stock market. In his budget emergency proclamation, Newsom points to what he calls significant volatility that in 2021 led to capital gains realizations of an all-time high of $349 billion. However, those gains swiftly dropped, reaching $156 billion in 2022 and $137 billion in 2023.
That caused state leaders to make revenue estimates that ultimately didn’t reflect reality. That “misalignment” between expenditures and revenues will continue unless action is taken, Newsom wrote.
"Newsom needs to make up his mind — either the economy is in great shape or we are in a budget emergency that requires draining half our reserves," Gallagher said in a statement to Courthouse News. "He can’t have it both ways.
"This budget plan shows just how out-of-step Democrats’ priorities are with the needs of California — billions of dollars in higher taxes, more money for broken homelessness programs, cuts to middle class scholarships and programs for disabled children," Gallagher added. "Once again, Newsom is dodging the real reforms our budget needs to stay on a sustainable path for the future.
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