California Democrats, Gavin Newsom reach budget deal to close major deficit. Here’s their plan

California Democratic lawmakers and Gov. Gavin Newsom on Saturday announced a budget deal to close a roughly $47 billion shortfall following weeks of disagreement over spending priorities.

In the $297.9 billion spending plan, Newsom and top legislative leaders announced a deal to fund an embattled state homelessness grant program, cut more of the prison budget than the governor originally proposed, and delay the start of a health care worker minimum wage increase, according to an Assembly floor report of the budget agreement obtained by The Sacramento Bee.

It also fills the budget gap by cutting state operations by nearly 8% and dipping into reserves.

Assembly Speaker Robert Rivas, D-Hollister, and Senate President Pro Tem Mike McGuire, D-Healdsburg, and Newsom — who produced his own budget in January and a revised version in May — have been far apart on a handful of major issues.

They also faced the large projected deficit, making negotiations even more challenging.

The budget will provide spending for the 2024-25 fiscal year, which begins July 1.

Rivas and McGuire touted funding the Legislature received for spending Newsom proposed cutting in his budget.

“We secured crucial investments to lower housing costs and keep people in their homes, and to sustain essential programs that help vulnerable families thrive,” Rivas said in a statement.

Several interest groups that were critical of the governor’s past proposals came out in support of the new agreement.

Eileen Cubanski, interim director of the County Welfare Directors Association of California, said in a statement the plan rejects cuts to key social service programs.

“The protection of these services will help ensure thousands of California residents remain safe, cared for and without fear of falling deeper into poverty.”

Legislative victories

Legislative leaders achieved much of what they pushed for in a placeholder budget they passed June 13. However, they also made some concessions to Newsom, including further delaying the planned health care minimum wage hike which lawmakers recently pushed back by a month.

Leaders secured $1 billion for another round of Homeless Housing, Assistance and Prevention grants for cities and counties. Newsom’s budget did not provide additional money for a sixth version of the program, which the governor signed into law in 2019. But lawmakers and mayors of large cities pushed back, saying local governments rely on the funding to pay for shelters and other vital services.

The spending plan also provides some money for other legislative priorities, including public health initiatives and in-home supportive services for undocumented immigrants.

To fund some of these programs, lawmakers proposed cutting more money from the California Department of Corrections and Rehabilitation. Progressive Democrats had been urging reductions to prison spending, saying they did not want to see social safety net programs harmed while the state continues to operate empty inmate beds.

The budget agreement features $750 million in CDCR cuts. That’s more than Newsom wanted, although the spending plan does include his suggestion to save $82 million by no longer using 46 housing units in 13 prisons, totaling 4,600 beds, according to the Assembly report.

Lawmakers and Newsom compromised on a couple of key issues.

That includes setting aside some money for rate increases for health care providers who serve patients enrolled in Medi-Cal, after the governor wanted to cancel them. They also agreed on how quickly the state will suspend tax credits and a deduction for operating losses for business.

Health care worker wage delayed

The Legislature may have achieved some of their budget objectives by agreeing to Newsom’s proposal to put off a new health care worker minimum wage contingent on budget conditions.

The governor last year signed into law Senate Bill 525 from Sen. María Elena Durazo, D-Los Angeles, which created a framework for the wage hikes. The Department of Finance projected it would cost $4 billion to implement in the upcoming budget year.

However, Newsom has long said the plan may need adjustments based on financial conditions. In January, he proposed setting up a “trigger” that would make the increases subject to funding availability.

Workers at hospitals and health care facilities were to begin getting the first in a series of increases in June. But lawmakers recently moved to push those hikes to July 1.

Durazo in May said she was opposed to the changes Newsom had proposed. But the budget agreement includes a plan to delay the July increase, depending on when the state meets certain financial targets.

“As a result of workers’ tireless advocacy, we are confident that the initial raise for workers who have not yet received it will happen in the fall,” said Dave Regan, president of Service Employees International Union-United Healthcare Workers West, in a statement.