On May 12, 2023, Gov. Gavin Newsom unveiled his fiscal year 2023-24 May Budget Revise, a $306 billion total spending plan that features $224 billion in General Funds and $31.5 billion in total budgetary deficits. Both thematically and in its specific proposals, the May Revise does not differ significantly from Newsom’s January proposal, with few changes in spending delays or trigger reductions. However, it does show that the state’s deficit has grown by $9 billion. Despite this number being smaller than some anticipated at this point in the year, Newsom warned that the deficit could grow more before the final budget is approved, citing the potential for a broader economic turndown, delayed state tax receipts, uncertainty around the federal debt, stock market volatility, interest rate hikes, and higher programmatic utilization — particularly within Medi-Cal — all as potential factors that could impact the state’s fiscal outlook.
In the face of potential economic volatility, Newsom framed the May Revise with a focus on fiscal prudence, noting California’s position as a state with a highly progressive tax structure that relies heavily on a small number of high-income earners for a substantial amount of the state’s revenue. While the May Revise does not project a recession, even a mild recession or economic downturn could add an estimated $20 billion beyond the current deficit, while a severe downturn could increase the deficit by as much as $40 billion.
With this in mind, Newsom emphasized “prudence,” “caution,” and “resilience” as he explained his decision to make marginal adjustments rather than cutting investments to ensure a balanced budget. Tapping into the state’s rainy day fund is not a consideration at this point, with Newsom stating instead that he would depend on other means to protect investments made in previous budgets, with proposals such as:
- $6.7 billion in spending reductions, primarily related to previously allocated but unspent funds. This includes an additional $1.1 billion beyond what Newsom’s January budget proposed.
- $3.9 billion in “trigger” reductions, with the May Revise maintaining these from the January proposal but not calling for any additional trigger reductions.
- $8.1 billion in spending delays, with the May Revise proposing an additional $695 million in delays beyond the $7.4 billion the governor requested in January.
- $7.5 billion in shifts across various commitments related to environmental investments.
- $450 million in drawdowns from the state’s Safety Net Reserve to help offset increased costs related to Medi-Cal and CalWORKs utilization. This action would leave $450 million remaining in the fund.
Even though the May Revise does not currently propose cuts to key programs and services, a more defensive posture may be necessary in future years with these factors in mind.
At this year’s First 5 Advocacy Day, First 5 LA met with legislators to discuss critical early childhood priorities. A primary focus of the talks was the development and implementation of an equitable system for child care rate reform that recognizes the essential and challenging work of child care providers. While the May Revise does not specifically mention rate reform, it does propose to allocate $29.4 million in available federal funds to waive child care family fees until September 30; this would extend that temporary policy beyond its current sunset date of June 30, 2023. Adopted as part of early action trailer bills AB and SB 100, this extension will allow families to continue accessing services while Child Care Providers United (CCPU) continues negotiations with Newsom and the California Department of Developmental Services (CDSS) to develop a rating system that both ensures child care providers can cover the full cost of care and permanently eliminates the need to charge family fees.
Currently, legislative and administrative efforts at CDSS are attempting to advance comprehensive rate reform. Two First 5 LA-supported parallel bills directed toward comprehensive rate reform — AB 596 (Reyes, D-Colton) and SB 380 (Limon, D-Santa Barbara) —are currently in the appropriations committees of their respective houses. However, both bills carry an estimated annual cost of $30.8 million, and Newsom has already indicated that he is likely to veto legislation that contains new spending. As a result, even if the bills are approved by the Legislature, Newsom’s willingness to sign them into law is not assured.
Trigger commitments related to continuous Medi-Cal eligibility for children prenatal to age 5 and enhanced CalWORKs cash grants were also a priority of First 5 LA’s Advocacy Day efforts, though the May Revise does propose a 3.6% increase in the maximum CalWORKs aid payments. While not as significant as the budget trigger First 5 LA is advocating for, this does bring the state a step closer to ensuring that no child served by CalWORKs will grow up in deep poverty.
Leaders have until 2024 to decide whether trigger commitments made in the prior year should go into effect. In light of the current economic conditions and Newsom’s refrain regarding preserving core investments, the omission of these trigger commitments is not unexpected. This strategy permits more leeway to assess the uncertain fiscal situation and preserves the capacity to reassess and prioritize these commitments at a later date. With this in mind, First 5 LA will continue advocating that policymakers follow through on previous trigger commitments by funding continuous Medi-Cal eligibility for young children and enhanced CalWORKs cash grants.
Key highlights of Newsom’s 2023-2024 May Budget Revise related to First 5 LA’s 2023 Policy Agenda priorities include:
Expand access to affordable, quality early care and education.
Newsom’s May Revise budget proposal includes:
- Funding to continue the waiver of child care family fees from July 1, 2023, to September 30, 2023. This reflects legislation that authorizes CDSS to spend $29.4 million in available federal funds to extend the fee waivers and approximately $169.2 million in available federal funds to provide temporary stipends to state-subsidized child care providers.
- An 8.22% increase for statutory cost of living adjustments (COLA), which equates to $183.3 million in General Fund for Child Care and Development Programs. While the actual COLA percentage has increased from what was proposed in January, the actual cost of providing this adjustment has decreased by $52 million Proposition 98 General Fund and $28 million General Fund due to a lower number of providers being reimbursed at the standard reimbursement rate than projected previously.
- An allocation of $690 million for the second year of universal transitional kindergarten (UTK) expansion and $165 million to add another certified or classified staff person to each classroom. This May proposal also revises first-year investments in UTK from $614 million for expanding access to $604 million and from $383 million for additional staff in the classroom to $337 million. This is due to enrollment for UTK programs falling short by 35,000 students. Full implementation of UTK is still set to be complete by 2025-2026.
- $2 billion to preserve the 200,000-space expansion to child care programs by 2026.
Improve systems to promote the optimal development of children through early identification and supports.
Newsom’s May Revise proposal includes:
- $11.1 billion resulting from the proposed Managed Care Organization (MCO) Tax to provide new General Fund revenue and also improve access, quality, and equity in the Medi-Cal program over an 8-to-10-year period, starting in 2024. Furthermore, new revenue from the MCO tax would provide $237 million ($98 million General Fund) in 2023-2024 and $580 million ($240 million General Fund) annually to increase rates to at least 87.5% of Medicare rates for primary care, obstetric care (including doulas), and non-specialty mental health services as a condition of federal approval of the Designated State Health Program (DSHP). Finally, the May Revise adds details around the MCO tax compared to the governor’s January proposal, moving up the effective date of the tax to April 1, 2023, and specifying the period over which the revenue would be spent.
- The In-Home Supportive Services (IHSS) program provides personal care and services to low-income individuals with disabilities, including children. $22.4 billion ($8.4 billion General Fund) is proposed for the implementation of the IHSS program in 2023-2024, with $60.7 million ($27.9 million General Fund) ongoing to increase access to authorized services for minor recipients and their families.
Promote a comprehensive system of family supports to advance positive outcomes for the whole child and whole family.
Newsom’s May Revise budget proposal includes:
- $7.2 billion for California Work Opportunity and Responsibility to Kids (CalWORKs) program expenditures and $1.4 billion for other programs. This entails a 3.6% increase to the CalWORKs Maximum Aid Payment levels, with an estimated cost of $111.2 million in 2023-2024. As a result, the May Revise proposal is greater than the 2.9% increase estimated in the governor’s January Budget Proposal, creating additional positive impacts for families.
Ensure communities have the resources and environment that support optimal development of children prenatal to age 5.
Newsom’s May Revise proposal includes:
- $3.7 billion to address homelessness, including $1 billion in one-time General Fund 2023-2024. Homelessness is a community-identified priority for Best Start Region 2 (Compton/East Compton).
- $500 million one-time Mental Health Services Fund in 2023-2024 in lieu of General Fund for the Behavioral Health Bridge Housing Program, effectively eliminating the governor’s budget proposed delay of $250 million General Fund to 2024-2025. With this proposal, the May Revision maintains the $1.5 billion funded in the 2022 Budget Act for the Behavioral Health Bridge Housing Program. The program addresses the immediate housing and treatment needs of people experiencing homelessness and serious behavioral health conditions, including mental illness and substance use disorders. Mental health is a community-identified priority in Best Start Region 4 (Wilmington), while affordable housing is a priority identified by Best Start Regions 1 (Central/Southeast LA) and 4 (Long Beach, Wilmington).
- $500 million one-time General Fund for the Foreclosure Intervention Housing Prevention Program, which provides funds to various non-profit organizations to acquire foreclosed property and operate as affordable housing. The 2023-2024 May Revision proposes to defer $345 million of the $500 million one-time General Fund over four fiscal years, for a revised allocation of: $50 million in 2023-24, $100 million in 2024-2025, $100 million in 2025-2026, and $95 million in 2026-2027. Affordable housing is a priority identified by Best Start Regions 1 (Central/Southeast LA) and 4 (Long Beach, Wilmington).
- A proposal to revert $17.5 million in unexpended funding that remained in the Downtown Rebound Program after the Notice of Funding Availability. This program finances the conversion of vacant or underutilized commercial and industrial structures into residential units, residential infill, and the development of high-density housing adjacent to existing or planned mass transit projects. Affordable housing is a priority identified by Best Start Regions 1 (Central/Southeast LA) and 4 (Long Beach, Wilmington).
- Maintains over $8 billion in various behavioral health investments and implements the California Food Assistance Program expansion for income-eligible individuals aged 55 years or older, regardless of their immigration status, by October 2025. Best Start Regions 1 (Central/Southeast LA), 2 (South LA), and 3 (Panorama City & Northeast Valley).
- $150 million General Fund in 2023-2024 in the Rapid Response funding to be administered by the California Department of Social Services (DSS) to support the immigrant population as the COVID-19 public health emergency ends. Funds will be used to support respite sheltering for migrants and support their safe passage through border regions.
- Maintenance of funding to expand full-scope Medi-Cal eligibility to all income-eligible Californians, regardless of citizenship status. The state’s adopted 2022-2023 budget included $835.6 million ($626.1 million General Fund) in 2023-2024 and $2.6 billion ($2.1 billion General Fund) at full implementation and annually thereafter, inclusive of In-Home Supportive Services (IHSS) costs, to expand full-scope eligibility to all income-eligible adults aged 26 through 49 regardless of immigration status. This funding will ensure all income-eligible Californians have access to health care through Medi-Cal.
- $86.6 million to the Statewide Park Program to support the creation of new parks and recreation opportunities in underserved communities across California.
- $67.3 million to continue the state’s commitment to clean up parkways surrounding the former Exide Technologies facility identified with high levels of lead and/or metals. The funding will be allocated over two years, including $40.4 million in 2023-24 and $26.9 million in 2024-25. Residents in Best Start Region 1 (Central/Southeast LA) have identified the cleanup of communities located near the Exide Technologies facility as a priority.
With the release of Newsom’s May Budget Revise, the focus of budget development now moves to the State Legislature. Both the Senate and Assembly have already provided some initial frameworks that indicate the potential focuses of their budgets:
- Senate: The Senate released a full budget proposal ahead of Newsom’s May Revise —something the Legislature rarely, if ever, does. An increase in the state’s corporate tax rate for businesses earning more than $1.5 million in profits in California is perhaps the most significant element of the Senate proposal and would raise approximately $4.3 billion annually. Newsom has already stated that he does not support this, and while Assembly leadership has not commented, individual members appear to disfavor this approach. The Senate also proposed $1 billion to increase child care rates and would approve the CalWORKs cash grant trigger included in the 2022-2023 state budget, with these proposals fully dependent on the implementation of the corporate tax. With Newsom already dismissing the corporate tax, the Senate’s budget is not likely to move forward in a meaningful way. Rather than offering a realistic policy proposal, It is possible that the Senate may be employing the proposals as a means of opening a conversation around revenue generation in response to the state’s deficit.
- Assembly: Unlike their Senate colleagues, the Assembly will not be releasing a full budget proposal. However, leadership did announce a $1 billion proposal to increase child care provider rates. This 25.44% increase aligns with First 5 LA and the ECE Budget Coalition’s major advocacy priority on rates. This child care funding is the Assembly’s only priority released so far, as it has not yet proposed any other new spending as of yet.
The constitutional deadline for the Legislature to pass a budget bill is June 15. The Legislature and Newsom will have through the end of June to negotiate a finalized budget, with June 30 being the constitutional deadline for Newsom to sign the budget into law. California’s fiscal year begins on July 1.