Executive Summary
Overall Budget
Revenues Return to Reality... After a two-year surge of tax revenue driven by federal pandemic spending and a tech stock boom, California’s tax revenues appear to be returning to reality. Tax revenues assumed for the 2023-24 budget would reach nearly $209 billion General Fund, a slight increase of $3 billion (1.5 percent) from the revised 2022-23 level. This is a substantial decrease of $31 billion (13 percent) from the amount received in 2021-22. The budget forecasts that revenues would actually decline slightly through 2025-26 before ticking up marginally in 2026-27.
...But Spending Does Not. The enacted budget authorizes nearly $226 billion in General Fund spending for 2023‑24, which is $8 billion (3.4 percent) below the 2022-23 enacted budget of $234 billion. Despite the slight year-over-year decline, General Fund spending for 2023-24 still would be $9 billion (4 percent) higher than the revised spending amount for 2021-22. This demonstrates a lack of willingness by the Governor and legislative Democrats to give up their high-spending ways and live within their means.
Deficit Solutions Include Taxes and Borrowing, Few Programmatic Reductions. The enacted budget includes $32 billion in budget “solutions” to address the deficit, as summarized in the following chart. Borrowing and tax increases account for a combined 34 percent of the solutions, while actions counted as reductions make up only 25 percent. However, these “reductions” include previously approved funds that went unspent for non-budget reasons, as well as planned amounts that would have been increases to programs. There are few actual reductions to ongoing programs.
Deficits Appear Every Year in Forecast. The budget’s lack of true, ongoing spending reductions means the state would continue to live off the recent short-term revenue surge while refusing to pause or reverse many recent program expansions. The budget only solves the deficit for 2023-24, but the lack of spending restraint means that projected deficits will continue every year through 2026‑27. The table below summarizes these annual deficits as well as their cumulative effect. Barring a surprise increase in revenues, these deficits must be addressed eventually through future budget solutions.
Reserves Held Intact for Now. The enacted budget provides nearly $38 billion in total reserves, including $22 billion in the Rainy Day Fund and $11 billion in the public school reserve. Despite the seemingly high reserve balance, the public school reserve can be used only to increase spending on Proposition 98 purposes and is thus not available to cover general deficits. Additionally, the point of reserves is to prepare for unknown budget difficulties, not preplanned overspending.
Housing and Homelessness
Spending Billions on Housing Reflects Failure of State Housing Policies. The 2023-24 budget follows recent tradition by continuing to throw money at the housing crisis in an effort to overcome the state’s failed housing policies. California’s housing permit numbers were virtually unchanged from 2017 to 2021. In contrast, the competitor states of Florida and Texas build dramatically more housing in raw numbers, despite having populations that are significantly smaller.
Affordable Housing Programs and Funding. The budget includes a total of nearly $15 billion in support of various housing programs, such as the Multi-Family Housing program, the Infill Infrastructure Grant program, the CalHome program, and the California Dream For All program, among others. Clearly, there is no lack of subsidies from the state for housing, even during years marred by multi-billion dollar deficits.
Budget Borrowing to Close Deficit. As part of the solutions to close the budget deficit, the budget borrows $400 million from the Department of Housing and Community Development’s (HCD’s) Housing Rehabilitation Loan Fund.
Billions Spent for Poor Results on Homelessness. California has spent astronomical amounts of General Fund resources on homelessness, including more than $20 billion between 2018 and 2022-23, and the new budget adds another $3.5 billion in 2023-24. Despite this, there is little evidence of success or improvement in this crisis. Over that same period, California’s homeless population increased nearly 32 percent, from 129,972 homeless in 2018 to 171,500 homeless in 2022.
Flexible Funding for Local Governments to Combat Homelessness. The 2023-24 budget provides $1.1 billion General Fund for the Homeless Housing, Assistance, and Prevention program (HHAP), requires 10 percent of the funds to be spent on homeless youth, and begins to transition the grant program to the Department of Housing and Community Development.
Behavioral Health Bridge Housing Program. The budget appropriates a total of $265 million in Proposition 63 Mental Health Service Act funding to support the Behavioral Health Bridge Housing program.
Accountability and Performance Metrics Needed For Homeless Programs. The budget includes statutory changes through the trailer bill AB 129 to establish coordinated planning, accountability and performance metrics within the state’s HHAP program, but fails to define how future funding would be tied to defined outcomes.
Encampment Resolution Grant Program. The budget provides $400 million for the Encampment Resolution Grant program within the California Interagency Council on Homelessness.
Health
A New Managed Care Organization Tax on Health Plans. The budget authorizes a 3.75-year managed care organization (MCO) tax that is scheduled to provide $19.4 billion in new budget resources for both General Fund relief and for Medi-Cal provider rate increases.
Relief for Vulnerable Hospitals. The budget sets aside $200 million to aid hospitals at risk of closure or in need of relief from seismic safety retrofitting requirements.
Resumes Covered California Health Insurance Premium Subsidies. The budget ends the practice of siphoning off the individual mandate penalty tax revenue for other General Fund needs and uses the revenue to restart health insurance subsidies for Covered California insurance purchases.
Mental Health
Delay in Behavioral Health Infrastructure Funding. The budget delays by up to two years $480 million for direct funding of the current mental health bed capacity expansion program.
Planning for the Governor’s Behavioral Health Housing Bond. The budget allocates $20 million to prepare for the Governor’s proposed allocation of bond funding for treatment beds, if the bond is approved by the voters in March 2024.
Funds Short-Term Housing for Severely Mentally Ill. The budget appropriates $265 million to counties to purchase and install tiny homes with time-limited behavioral health supports, or purchase bed space at assisted living facilities.
Short-Changes Counties in CARE Court Funding. The budget allocates $129 million to the counties to implement the Governor’s CARE Court program to treat severely mentally ill individuals, an amount the counties deem “inadequate.”
Public Safety
Rising Violent Crime Ignored. Violent crime peaked in California in 1992, then declined for more than two decades thanks to tough-on-crime policies. It reached its lowest point in 2014 before soft-on-crime policies championed by the ruling party began to change the trajectory. Violent crimes have increased by 27 percent between 2014 and 2022, erasing more than one fifth of the two-decade decrease. The budget provides no significant additional funding to address this concerning trend.
San Quentin Makeover Is a Boondoggle. Prison costs are increasing while the prison population continues to decrease. This budget makes things worse by borrowing $360 million to demolish a single building at San Quentin State Prison and build a new one in its place. The exorbitantly expensive project is intended to provide a better environment for inmates to be rehabilitated. In order to try to meet an arbitrarily short project completion timeline, the budget authorizes the Department of Corrections and Rehabilitation to use the progressive design-build delivery method. In addition, rather than reforming the problematic California Environmental Quality Act, the budget continues the ruling party’s history of hypocrisy by simply exempting the San Quentin project.
Attorney General’s Litigation Fund Bails Out General Fund. The budget authorizes a $400 million loan from the Department of Justice’s (DOJ) Litigation Deposit Fund to the General Fund to help address the state’s budget deficit. The administration claims the loan will be made from “idle resources not required for…operational or programmatic purposes”, which begs the question of why there is $400 million in idle resource in an off-the-books DOJ special fund.
Ammunition Fee May Exceed Cost of Actual Ammunition. The DOJ currently charges a $1 fee on each ammunition transaction in the state. The fee was established in 2016, following enactment of Proposition 63, to pay the costs of DOJ’s ammunition regulation duties, although DOJ has consistently outspent fee revenues. The budget provides a $4.3 million General Fund loan to cover DOJ’s costs in the short term. The Administration plans to work with the Legislature over the summer to align the fee with the costs of regulating ammunition transactions. However, just to pay back outstanding loans and keep up with operational costs, DOJ estimates the $1 fee would have to be increased to $6 or $7 per transaction. For some calibers and quantities, this fee level would exceed the cost of the ammunition.
K-12 Education
Overall Education Spending. Includes $129 billion in total K-12 education programs and reflects a Proposition 98 minimum guarantee of $108 billion for K-14, of which $95 billion is for K-12 programs. Ongoing K-12 Proposition 98 per pupil expenditures is at $17,678 in 2023-24, and $24,054 per pupil when accounting for all K-12 funds. A cost-of-living-adjustment of 8.22 percent is provided for the Local Control Funding Formula (LCFF) LCFF, which when combined with enrollment adjustments, will result in $3.4 billion in additional discretionary funds for schools. This brings the total LCFF funding to approximately $79 billion.
Major Block Grant Cuts. Cuts the Learning Recovery Emergency Block Grant by about $1.6 billion in Proposition 98 General Fund and also cuts the Arts, Music, and Instructional Materials Discretionary Block Grant by $200 million Proposition 98 General Fund.
Arts and Music Funding. Includes $938 million to implement the Arts and Music in Schools – Funding Guarantee and Accountability Act, approved by the voters as Proposition 28.
Charter School Renewals. The budget provides a one-year extension for all charter schools whose term expires on or between January 1, 2024 and June 30, 2027.
Additional Support for County Offices of Education. The budget includes $80 million ongoing Proposition 98 General Fund for additional support for County Offices of Education (COEs) operating juvenile court and community schools.
Additional Funding to Target Struggling Students. Includes $300 million ongoing Proposition 98 General Fund to establish an “equity multiplier”. The funds are intended to help close opportunity gaps and accelerate learning gains by targeting high-need students.
Dyslexia Screening. Provides $1 million one-time Proposition 98 General Fund for the State Board of Education to appoint an independent panel of experts to create an approved list of screening instruments for assessing pupils in kindergarten through second grade for the risk of reading difficulties, including dyslexia.
Child Care and Early Education
Reimbursement Rate Increases. Provides $2.83 billion one-time ($1.67 billion from General Fund and various federal funds, and $1.16 billion Proposition 98 General Fund) for reimbursement rate increases for child care and preschool providers through 2024-25.
Family Fee Changes. Permanently waives family fees for child care and preschool families that make below 75 percent of the state’s median income and caps fees at one percent of their monthly income for families making at or above 75 percent.
Alternative Methodology. Directs the Department of Social Services, in collaboration with the State Department of Education, to develop and conduct an alternative methodology for setting reimbursement rates for state-subsidized childcare and preschool services. The estimated cost to adopt the alternative methodology is $12 billion.
Extends Hold Harmless Policies. Provides $22 million General Fund to extend the COVID-19 era "hold harmless" policy until September 30, 2023 for child care and preschool reimbursements.
Higher Education
Student Housing and Campus Infrastructure Shift to Bond Funding. The previous two budgets approved billions of dollars in General Fund grants and loans to universities and community colleges for student housing projects and other campus facilities. This includes $1.4 billion for various student housing projects and over $1.0 billion for other facilities. The 2023-24 budget would instead claw back the funds and shift those projects from cash to lease-revenue bonds. The University of California and California State University systems are accustomed to issuing such bonds, but the clawback is a challenge for community colleges, some of whom had begun to spend funds on their projects. The budget package declares an intention to explore a statewide bond to pay for community college housing projects and keep those colleges whole for the funds they must repay.
Baseline Operating Budget Increase for All Public Systems. The budget maintains the previously agreed-upon compacts between the Governor and the University of California and California State University systems, who would each receive another five percent increase in their base operating budgets. The community college system would receive a cost-of-living increase of 8.22 percent, matching the increase for K-12 education under Proposition 98.
Transportation
Implements Gas Price Gouging “Penalty.” Fails to enact any tax or regulatory reforms to reduce the price of gasoline, but instead implements the price gouging “penalty.” The budget provides $7 million to implement SB 1x-2 (Skinner, 2023) to establish a penalty for gasoline refiners exceeding a yet-to-be-established maximum gasoline refining margin.
Gasoline and Diesel Taxes Increase Again. Annual gas and diesel tax adjustments increase the price of gas by 4 cents per gallon and the price of diesel by 3.1 cents per gallon. These increases will generate about $642 million in tax revenues, bringing total gas and diesel tax revenue to an estimated $9.4 billion for 2023-24.
Transit Bail Out. Provides $2 billion to bail out struggling transit operators, contingent upon compliance with new accountability and oversight requirements. A budget trailer bill requires additional accountability measures and short- and long-term financial plans for transit operators, allowing the state to have additional oversight of these entities and the funds spent. The bailout funds are contingent upon compliance with these new measures.
Zero-Emission Vehicle Subsidies and Infrastructure. Includes $847 million for zero‑emission vehicle (ZEV) subsidies, infrastructure, and equity projects. In prior budgets, the Governor committed $10 billion over five years to help transition Californians to ZEVs, aligning with state regulations to ban the sale of gasoline cars by 2035. This budget largely maintains that commitment by providing $10 billion over six years.
High-Speed Rail. In addition to continuing to spend previously appropriated bond funds, the budget includes $889 million in 2023-24 from Cap and Trade funds. The 2023 Project Update Report indicated the total costs of completing HSR is up to $128 billion, with no estimated completion date.
High-Speed Rail Office of the Inspector General. Includes $1 million for the implementation of the High-Speed Rail Office of the Inspector General to oversee the high-speed rail project. However, the $1 million budget is far from sufficient to provide any meaningful oversight.
Energy
Strategic Energy Reliability Reserve. Provides $215 million for the Strategic Energy Reliability Reserve in an effort to keep the lights on. Despite the budget deficit, reserve programs were not significantly reduced, and an additional $200 million is still planned for future years.
Clean Energy Incentive Programs Modestly Reduced. Includes $1.1 billion in 2023-24 for various clean energy programs. The five-year package totals $2.9 billion, with only $390 million in program reductions to help address the budget deficit.
Clean Energy Reliability Investment Plan (CERIP). Provides the first $100 million (General Fund) for the CERIP. Prior legislation earmarks a total of $1 billion over a three-year period for the CERIP, to accelerate the deployment of clean energy resources, support demand response, assist ratepayers, and increase energy reliability.
Defers Some Broadband Investments. Eliminates planned funding of $550 million for last‑mile broadband infrastructure and $575 million for the Loan Loss Reserve Fund, used to finance local broadband infrastructure development, and instead plans funding for future years.
Resources and Environment
Offshore Wind Aspirations Likely to Raise Costs Again. Conveys the intention to evaluate offshore wind energy permitting, which could potentially exacerbate already-high energy costs.
Insufficient Funding for Flood Risk Reduction. Designates a meager one-time $436 million General Fund to assist at-risk communities in managing and preparing for future floods.
Dam Safety Local Assistance Program. Establishes a new dam safety assistance program to provide much-needed state funding for repairs, rehabilitation, enhancements, and other projects.
Continues to Expand Fee and Enforcement Authority. Extends the fee authority for recycled water permits, introduces new enforcement for hazardous materials programs, and removes the cap on administrative fees for the Pharmaceutical and Sharps Waste Stewardship Program.
Cannabis
Enhances Cannabis Licensure Process. Addresses key issues related to existing cannabis licensure laws and their alignment with federal requirements.
Perpetuates Troubled Cannabis Regulation System. Fails to address concerns about the sustainability and financial viability of the cannabis regulation system established in response to Proposition 64 (2016).
Funds Proposition 64 Programs. Provides $670 million spread across various cannabis programs, as required by Proposition 64.
Business and Employment
Breaks Promise of Relief for Job Creators and Small Businesses. Deletes $750 million, promised in last year’s budget, to help pay down the Unemployment Insurance (UI) debt, and withdraws the commitment of $500 million in 2024-25 for small businesses to offset rising federal UI tax rates.
Borrows to Cover UI Interest Payment. As a General Fund solution, the budget includes a loan of $306 million from the State Disability Insurance Program to the General Fund to cover the state’s required payment of interest to the federal government on UI loans.
Industrial Welfare Commission. Includes $3 million to revive the long-dormant Industrial Welfare Commission, in an effort to “backdoor” the issuance of rules for fast food restaurants.
CalCompetes Grant Program. The budget includes $120 million General Fund for the CalCompetes grant program within the Governor’s Office of Business and Economic Development (GO-Biz). This program was established to support additional firms that could not take advantage of the CalCompetes Tax Credit program, and it previously received $120 million General Fund in both 2021 and 2022.
Flood Relief Grant Program. The budget expands eligibility for the Small Agricultural Business Drought Relief Grant program within GO-Biz to include businesses impacted by storm flooding within a county that has a state or federal disaster declaration.
Developmental Services
Provisional Eligibility for Services to Children Age 2 and Under. The budget expands provisional eligibility to likely developmentally disabled children 2 and under in order to reduce the likelihood of delays in needed intensive services and supports.
Allows Service Provider Rates to Increase as the State Minimum Wage Increases. Provider reimbursement rates for services will adjust whenever the California minimum wage increases.
Waives Family Fees for an Additional Year. The budget extends the pandemic-era non-collection of family fees for one more year.
Creates a New Employment Incentives Office as Subminimum Wage Law Phases Out. As employers lose the right to hire at wages that match productivity, the state will coordinate employer grants to help hire developmentally disabled individuals.
Human Services
CalWORKs Grant Increases. Provides $111 million for a 3.6 percent Maximum Aid Payment (MAP) Increase beginning on October 1, 2023, and removes the expiration on a temporary 10 percent CalWORKs grant increase provided in the 2022 budget, originally set to expire on September 30, 2024.
Undocumented Immigrant – IHSS Coverage. Provides $902 million General Fund in 2023-24 for the In-Home-Support-Services (IHSS) costs related to the full-scope Medi-Cal expansion to undocumented immigrants 50 and over.
Summer Electronic Benefits Program. Includes $47 million ($24 million General Fund) for outreach and automation costs related to the phase-in of the new federal Summer Electronic Benefits Transfer (EBT) program.
Southern Border Activities. Includes $150 million General Fund for the Rapid Response program, which awards grants and contracts to entities that provide assistance to immigrants (likely undocumented) including but not limited to temporary shelter, medical screening and treatment, food, and clothing.
Food Assistance Expansion to Undocumented Immigrants. Includes $40 million one-time General Fund to support automation and program outreach for the implementation of the expansion of the California Food Assistance Program (CFAP) for undocumented individuals aged 55 and older.
Theft Reimbursement and Prevention of Welfare Benefits. Provides $50 million ($17 million General Fund) to improve EBT card security and reduce benefit theft by upgrading EBT cards to include Chip/Tap technologies. Also includes $43 million in federal funds for automation and administrative activities for the reimbursement of food benefit theft.
IHSS Penalties and Collective Bargaining. Provides $1.5 million one-time General Fund to determine the best way to implement statewide or regional collective bargaining of In-Home Supportive Services (IHSS) providers. Also, beginning October 1, 2023, increases the IHSS county collective bargaining penalty from a 7 percent withholding to a 10 percent withholding of the 1991 Realignment funding.
Ban on Adoption Facilitators. Includes $317,000 from the Federal Trust Fund for the Department of Social Services to enforce a ban on adoption facilitators and to regulate unlicensed adoption agencies.
Taxes
Student Loan Forgiveness. A late 2022-23 budget trailer bill, AB 111, exempts forgiven unpaid community college fees, higher education emergency relief grants, and forgiven student loans from gross income for state tax purposes. The state now conforms to federal law in the tax treatment of forgiven students loans and other student aid.
Expanding the New Employment Tax Credit Exemption. The budget expands the New Employment Tax Credit program to semiconductor, lithium extraction, electric battery, and electric airplane manufacturing businesses.
Film and TV and Studio Tax Credit Program. The budget extends the Film and TV Tax Credit program for an additional five years, starting in 2025-26 through 2029-30. Notably, SB 132, a budget trailer bill, makes the Film and TV Tax Credit refundable, meaning businesses without sufficient tax liability to offset the credit would now receive payments from the program.
Local and General Government
Prioritization of Scarce General Fund for City of Fresno’s Infrastructure Plan. The budget includes $50 million for the City of Fresno’s Public Infrastructure Plan, and commits $100 million more in both 2024-25 and 2025-26, for a total of $250 million over three years. As the state grapples with how to address a $31.5 billion deficit, and years of deficits to come, it is unclear why Fresno has been singled out for favorable treatment over any other locality.
Governor’s Think Tank Continues to Grow. The Governor’s Office of Planning and Research (OPR) will receive nearly $160 million General Fund in 2023-24 for both new and expanded programs. This is in addition to the $320 million and $450 million provided in the 2022 Budget Act and the 2021 Budget Act, respectively, for an agency that traditionally has been a think tank rather than a program administrator.
Increased Borrowing with Shift to Lease-Revenue Bonds for New State Office. The budget shifts $402 million in financing for the Richards Boulevard Office Complex from General Fund (approved as part of the 2022 Budget Act) to lease-revenue bonds, increasing the state’s long-term costs for the project. Lease-revenue bonds, as used by the state, are arguably a backdoor method of issuing General Fund bonds without meeting the constitutional requirement to obtain voter approval for general obligation bonds.
Budget Borrows Capital Annex Project Funds. The budget borrows $500 million from the State Project Infrastructure Fund to help close the 2023-24 General Fund deficit, paving the way for the Governor and legislative Democrats to continue the reckless spending of the past few years.