California Legislature Passes Budget but Fails to Reach Agreement with Governor Newsom

Pursuant to the 2010 initiative approved by the voters. the Legislature passed a state budget on Monday, June 15 that attempts to account for a projected $54 billion deficit caused by the COVID-19 pandemic. The vote is largely a formality, however, as a few key elements are missing, including:

  • Total revenue the state will bring in as the tax deadline was pushed to July 15;
  • How much further aid, if any, the federal government will provide the state; and
  • Agreement with Governor Gavin Newsom.

The Senate and Assembly will now negotiate with the Governor to reach consensus on several significant points of disagreement:

  • The Governor has proposed $14 billion in cuts from schools, health care and safety net programs unless the federal government sends funds by July 1. The Legislature’s budget flips the presumption, and instead assumes federal funding will arrive, and if it doesn’t arrive by October 1, limits cuts to $7 billion by drawing on reserves.
  • The Legislature’s budget rejects several proposed cuts to programs by the Governor, including cuts to affordable housing programs and the California State Universities and University of California systems.
  • The Legislature’s budget rejects the Governor’s proposed 10% pay cut to all state employees and rather defers this to the union negotiation process.

As of Thursday, June 18th an agreement between the Legislature and Governor has not been reached. It is expected that an additional budget bill or bills will be agreed upon between now and July 1, the beginning of the state’s fiscal year. This will be followed by one or more additional budget bills in July and August, after the delayed July 15 tax deadline has passed and lawmakers have much clearer picture of the state’s fiscal outlook.

There remain two outstanding issues of particular interest to California agriculture that deal with the State Water Resources Control Board and the Cap and Trade program.

Two separate proposals by the State Water Resources Control Board request new funding and authority to hire additional employees to implement various programs.  One proposals requests $12.8 million and authority for 48 new staff for the Safe Drinking Water Program. These positions were not identified in the main budget bill, however, we expect to see them in a future budget trailer bill. Assuming that the Safe Drinking Water Fund is fully funded at $130 million annually, this is just under 10% of the Fund, which directly contravenes the administrative cap of 5% that is contained in landmark legislation SB 200 passed last year.

A second Water Board proposal requests 16 positions for the Water Resiliency Portfolio to be paid for by increasing waste discharge permit fees on  irrigated agriculture, dairies, food processing facilities, local governments and any other entity that is required to obtain a discharge permit. Again these positions were not identified in the main budget bill, but are expected to be raised in a forthcoming budget trailer bill within the next week.

Another major concern is a legislative proposal directing the CA Air Resources Board (CARB) to reassess the Cap and Trade program and consider increasing both the allowance floor and ceiling prices, which would create uncertainty in the market and potentially increase costs across the board.

The Legislature’s budget appropriates $200,000 for CARB to conduct the rule-making. We expect a follow-up budget trailer bill will be introduced that will direct CARB to specifically consider reducing the number of Cap and Trade allowances and increasing prices.  Several Senators and Assembly Members testified against the appropriation and impending budget trailer bill, arguing that it undermines the original Cap and Trade rulemaking conducted just 2 years ago.

CCM will continue to engage on both issues as the Legislature and Governor continue negotiating the budget and supplemental legislative through the summer.


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