Health care, housing, schools and environmental programs will jockey for lawmakers鈥� attention 鈥� and state money 鈥� as they face the prospect of plugging this year. identified $10 billion in cuts in one-time spending and dipping into $24 billion in reserves.
Assemblymember , an Encino Democrat who just took over as chairperson of the budget committee, said the deficit is likely to impact everything the Legislature does this year.
鈥淚t鈥檚 going to require us to make some tough choices. But that鈥檚 what that鈥檚 what government is about 鈥� making tough choices,鈥� he told CalMatters. 鈥淥ur top priority is going to be to protect vulnerable communities.鈥�
That includes social services and classroom funding, as well as protecting recent investments in climate and homelessness programs, he said.
Senate Budget Chairperson , an Oakland Democrat, said her goal is to avoid cuts that 鈥渨ill create harm for people,鈥� and instead modify new programs that haven鈥檛 started yet. Delaying planned new spending was one of the strategies the state employed to close a more than $30 billion deficit last year; it鈥檚 unclear whether that will be enough this year.
Gov. Gavin Newsom will help frame the debate when he unveils his initial budget proposal next week. He rebuffed a Dec. 14 call from Assembly Republicans to focused on the budget deficit, or to take further actions other than some spending freezes. His Department of Finance spokesperson H.D. Palmer declined to comment.
The deficit is partly a consequence of California鈥檚 progressive tax system that relies heavily on the incomes and capital gains of very wealthy residents 鈥� producing revenues that of the stock market.
When the incomes of the rich soared amid low interest rates during the pandemic, taxes on their earnings and federal COVID-19 aid filled the state鈥檚 coffers with a nearly $100 billion surplus. Then interest rate hikes slowed down the housing market and investments in the tech sector. That, combined with delayed tax filings caused by last year鈥檚 winter storms, has prompted revenues now to come in short.
This year鈥檚 is the state鈥檚 largest deficit to date, though not by its percentage of the overall budget. And the state is in better shape to handle it than during the Great Recession, having put billions of dollars into reserves since then.
But the situation is likely to prompt some discussion of whether to stabilize the state鈥檚 revenue sources. In the past, proposals to bring in revenue through taxing business services have been seen as too politically unpopular.
鈥淲e need structural tax reform,鈥� Sen. , a San Francisco Democrat, Tuesday. 鈥淲e need to broaden out our tax base to make it more stable.鈥�
Wiener, through a spokesperson, declined to comment on whether he will introduce legislation to do so.
Gabriel added that he would consider all the options for addressing the shortfall, although he hadn鈥檛 heard any serious conversations around raising taxes.
Budget cuts are also likely to pit parts of the Legislature鈥檚 Democratic supermajority 鈥� and the interest groups they represent that rely on state funding 鈥� against each other. For some Republicans, it鈥檚 already an opportunity to float cuts to programs they oppose.
Assemblymember , a Riverside Republican, introduced a bill today to roll back funding for California鈥檚 expansion of Medi-Cal to low-income undocumented immigrants, citing the deficit.
The went into its final phase (immigrants aged 26-49) this month at a cost of $1.2 billion this year, to nearly $3 billion in the upcoming fiscal year. California years ago expanded Medi-Cal coverage for undocumented children and last year did so for seniors; Essayli鈥檚 bill would cut 鈥渁ll taxpayer funding鈥� for the program鈥檚 coverage of undocumented immigrants. Newsom, though, in southern California that he鈥檚 鈥渃ommitted鈥� to the expansion.
Health spending is also expected to rise with the introduction of , prompting the state to pick up some of the increases for workers in the University of California and state hospital systems, as well as increased costs in public health care.
But there鈥檚 far more than the budget before lawmakers. Some other pressing issues:
Israel-Hamas war: While the state鈥檚 role is limited, some lawmakers have either willingly stepped into the conversation, while others face pressure from constituents to , whether that鈥檚 advocating for the release of hostages still held by Hamas, or calling for a ceasefire. Shortly after the Assembly gaveled in, dozens of protesters from Jewish Voice for Peace and IfNotNow began singing in support of a ceasefire in Gaza. Calling the action 鈥渙ut of order,鈥� , emptied the chamber and adjourned soon after until Thursday. Outside in the rotunda, more than 100 protesters chanted, citing a national activist group鈥檚 calculation that California taxpayers contribute about $600 million to U.S. military aid to Israel, and calling for the money to be put toward state priorities instead.
Retail theft: Assembymember , a Stockton Democrat, introduced a referendum to revise the . He said his proposal would fix 鈥渦nintended outcomes鈥� of the measure approved by voters in 2014. Specifically, it would change the $950 threshold for petty theft and shoplifting to be charged as a felony, which he said has 鈥渇ueled a market of petty and repeat offenses with zero-to-low accountability.鈥� Assembly Speaker Robert Rivas already created a special committee to look into retail theft, but the Legislature has rejected GOP moves to repeal Prop. 47 altogether. Politicians in recent years have , though late last year a national retail group about how much stores had lost from 鈥渙rganized鈥� shoplifting.
Reparations: Last year, a state task force released a final report tallying up for the Legislature to offer reparations to Black Californians descended from enslaved people. Lawmakers are now expected to introduce bills to make those recommendations actually happen. Sen. , an Inglewood Democrat, already filed one last year to create a new state agency to administer reparations. But it won鈥檛 be an easy road ahead, despite the backing of Democratic lawmakers and Newsom to create the task force. The report put an 鈥� two and a half times this year鈥檚 state budget 鈥� on compensating eligible Black residents for the enduring harms of discrimination in areas like policing and housing. So far and Newsom have demurred on supporting the recommendations.
Artificial intelligence: More proposals are expected to address rising concerns about artificial intelligence and its applications, including in . Legislators will consider bills to create and to give entertainment artists some authority to over the use of their 鈥渄igital replicas.鈥� Today, Chula Vista Democratic Sen. introduced a bill to 鈥渆stablish safety, privacy, and nondiscrimination standards鈥� for any AI companies with state contracts. A law passed last year requires the state鈥檚 department of technology to create a 鈥渃omprehensive inventory鈥� of 鈥渉igh-risk automated decision systems鈥� by September.
Wildfire insurance: Legislators before adjourning last year鈥檚 session, after several major insurance companies decided to . The state鈥檚 Department of Insurance is , but such rules may not be .
Maternity wards: Citing CalMatters鈥� reporting about the alarming rate at which , Assemblymember , a La Mesa Democrat, is for additional state review, including how a closure would impact the nearby community.
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