CALIFORNIA HAS A 2025-2026 BUDGET
SORT OF
The Legislature and the Governor agreed to a budget deal Friday. We say, “sort of,” because while the basic outlines have been agreed to in sufficient detail to allow for the budget to take effect July 1, many of the details that comprise that “sufficient detail” won’t be fully known until all the trailer bills are published later in the week. For the general purposes that serve our purposes, suffice it to say that while many of the Governor’s proposed cost cutting proposals remain intact, the final budget reflects a softening of many of them. No surprise there. By virtue of the scope of their constituencies, the collective will of a multiplicity of legislators will always favor more spending than a governor whose responsibility is to the whole as opposed to a part thereof.
The cuts lawmakers and the governor agreed to reduce the expansion of state-sponsored healthcare to undocumented immigrants and reinstate asset limit tests for Medi-Cal enrollees, albeit in both cases much less so than Governor Newsom’s budget initially proposed. The plan restores cost-of-living adjustments for child-care workers, which the governor wanted to nix, and rejects his call to cap overtime hours for in-home caregivers. Another $500 million in funding for Homeless Housing, Assistance and Prevention grants were added, despite the Governor’s frustration with the counties for their poor record in reducing homelessness. To make everything balance despite a shortfall that stands at $12 billion before any of the anticipated curtailments coming California’s way from the federal government have been accommodated, the final deal draws down certain accounts, shifts other accounts, defers certain payments, and draws from the rainy day fund as well as certain other cash reserves.
Given that both the governor and the legislature believe that the deficit will grow as the 2025-2026 fiscal year plays out, expect to see a special session this fall to determine how to accommodate it. Deficits in the immediate out years are expected to range from $17-24 billion, presaging some difficult years ahead.
We got one thing right about the 2025 budget in our last newsletter and one thing very wrong. “Wrong” in the sense of failing to anticipate that a stalled piece of legislation would end up being incorporated into the budget as a condition of Governor Newsom’s agreement to any final budget deal.
First, what we got right. The Governor’s proposal to expedite the entitlement processes for the Delta Conveyance Plan is not in the 2025-2026 budget. That doesn’t mean that the Plan is not going to continue moving forward. It just means that it will move through the normal order as opposed to the expedited process that the Legislative Analyst’s Office (LAO) determined constituted a de facto approval on the merits masquerading as an appropriation.
What we got wrong, or more accurately, what we failed to anticipate. Senator Scott Weiner’s (D-San Francisco) SB 607 may have stalled in the 2025 session, but Governor Newsom made a version of it a condition of his approval of the budget that he and the legislature have hammered out. That “version” has not yet been finalized but must be finalized and passed by both Houses before July 1 before the Governor will affix his signature to the budget deal otherwise agreed to.
While not yet finalized, the version of it that the Governor has demanded be sent to him for his signature is contained within AB/SB 131, which makes a number of targeted refinements to strengthen the operational efficiency of CEQA, including but not limited to the following:
Just how much of AB/SB 131 ends up in the budget trailer bill that the Governor has extracted as a condition of his approval of the budget will be determined the last day of the fiscal year Monday, June 30 at a noon Senate Budget Committee hearing. The final results may not appear in print until the end of the week. When they do, we will share them, as this would represent the most comprehensive change in the California Environmental Quality Act (CEQA) to date even if only a small portion of AB/SB 131 survives the last minute budget hearing.
In the last newsletter we characterized much of the 2025 legislative session’s output as representative of a double edged sword with the following warning that bears repeating in light of SB 607’s resurrection in the form of AB/SB 131:
“On one hand, expediting regulatory and permitting processes offers hope of reducing onerous capital project/construction costs. On the other hand – that ever present and troublesome other hand – the fact is that most if not all of the efforts to expedite those processes are focused on expediting the construction of urban housing, which is reminiscent of the 2021 and 2022 ‘Public Golf Endangerment Acts’ that would have created financial incentives to repurpose municipal golf courses as affordable housing tracts. That should send a few chills down the spine of the golf community. Two hackneyed sayings come to mind: The devil is in the details and be careful what you ask for.”
Final note: For those of you wondering how California’s Open Public Meetings Law (Brown Act) can be reconciled with what you just read, please know that the Brown Act applies to all meetings of bodies that report to any kind of legislative body, including advisory bodies, but does NOT apply to the state legislature.
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