Senate Standing Committee on Budget and Fiscal Review

The Senate Committee on the Budget and Fiscal Review will now come to order. This is our first meeting of 2024, and as most of you have probably noticed, the Governor did present his January, his proposal for the 2024 budget just a couple of weeks ago. And this hearing, our first hearing is to hear from our Department of Finance and the LAo to give us an overview of that proposal and to allow our Committee Members to ask questions.

Just first public airing in effect, and then, of course, to hear from the public. Now, we will not have telephone testimony. We have now stopped that the Senate has. So it'll only be the in person testimony. We will do that after we have heard from Department of Finance in Lao and after our Members have asked questions. Then we will go to that public comment, and I will talk about the context for that or our format once we get there.

In the meantime, before we hear from our folks, from Department of Finance and the Lao, I think, as we are all aware, we are in a different financial and revenue situation than we have been in the last couple years. Well, actually, it's different for last year, too, but we were in a situation, the State of California is such that we have to make forecasts, and in this case, we had to make forecasts prior to our revenue coming in, since the feds delayed the tax filings.

So we did not have a clear picture of what our revenue was. And yet we must adopt a budget based on the forecasts. That's part of the constitutional rules of having a balanced budget. So this is just one of the, we obviously try to do our best, the, we being the Department of Finance, the LAO, the collective, the Administration, in doing those forecasts. But there's so many factors that can affect them.

So the forecast, had we had a forecast or had we had revenues in last year, in enough time before we adopted the budget, we would have adopted a different budget. So part of what we're dealing with now is that circumstance and then some projections for future that don't have revenues at the levels of the spending that we were hoping. So we're going to have to make adjustments. And the Governor has put out his proposal for what adjustments and how to make those adjustments.

And obviously, the Legislature, that's what we're, the process we're beginning today is the Senate's vetting of that. Our subcommittees will start sometime late February or march to go into the details. And then, of course, we will spend the next x months really getting into the weeds of it and getting in the back and forth to the point where we are ready and able to adopt a budget June 15, as our constitutional requirement is.

So that's our circumstance, and I want to start first, let me look at my agenda. We will start with Erica Lee from Department of Finance. But let me just turn to my Vice Chair. Senator Neela, would you like to make any comment before I turn over to Erica Li?

Yes, thank you very much. It is true that forecasts are neither right nor wrong, but they can be either more or less reliable as a tool for adopting the budget. And I tend to think that the proposal of a budget advisor is probably a little bit easier to rely upon than the budget writer. There's a difference in approach toward the two issues, but I look forward to Department of Finance explaining why they believe that the governor's proposal is a more reliable forecast than is the lao's.

All right, and before, Ms. Lee, before we start with you, I want to take role to establish a quorum. So, Secretary Sandy, let's do the roll.

[Roll Call]

So we have a quorum, so we may proceed. Ms. Li.

Great. Good afternoon, chair Skinner, Vice Chair Neilo and Members of the Budget Committee. Erica Li with the Department of Finance. And I'm here to present to you the 24 Governor's Budget. And I would start by saying a lot of my intro was really said by chair Skinner in regards to some of the circumstances that we were entering into as we developed this year's Governor's Budget. Several pretty extraordinary events occurred prior to this, the first being a surge in revenues from 1920 through 2122.

Big three taxes, pit Corp. And sales tax grew by record 55% during that time period, and capital gains realizations increased 11.6% of personal income, and that's the highest ever, more than doubling the historic average of 5%. And generally, when the state experiences such upward swings, we expect it to be followed by a period of revenue declines. And the question is always how much and when would those declines occur? Projecting revenues, as stated earlier, is difficult. And you're right, Mr. Neela, we're always wrong.

How wrong are we? Is always a big question. But this task was made even more difficult because the IRS pushed the tax filing delay or tax filing day, 1st October and then to November. And so information, vital information, I would say, in regards to cash tax receipts that we normally have in the spring to help develop the May revision that then can inform the budget act. We just didn't have that information available at the time.

So we did our best to forecast what we thought would be shifted from the spring into the fall. And such an unprecedented delay really did have a sizable impact on the time in which we had to develop this budget as well. So the 2023 budget act did capture the downward trend in revenues, but it wasn't until we had the tax receipts in hand later this past fall that we actually understood the magnitude.

In the 23 budget, we projected about 42 billion of pit and corp taxes would be shifted to the fall, and we actually were 25.7 billion lower than that. And overall, our General Fund revenue in the budget window, which is the three years prior year, current year that we're in, and the budget year that we're looking toward, we are projecting 44 billion lower than what was actually assumed in the Governor's Budget. I'm sorry, in the budget act. The Governor's Budget, however, does not assume a recession.

We see this as more of a correction of revenues, essentially going back to a normalization pre pandemic. And if you look at the trend, the 202223 tax receipts were 23% higher than they were in 1819 pre pandemic. So we're not, for those two years of spikes, we're steadily growing in terms of our revenue. So that's why we call it a correction.

So with cash data in hand, we are now estimating the budget shortfall to be about 37.9 billion, which includes a positive 3.4 billion for what we call our state Fund for economic uncertainty. And as chair Skinner mentioned, had we known this back in May, we would have incorporated some of the shortfall that we're now seeing, this correction in terms of revenue back in the 23 Budget act. However, we are here where we are now, and we do have to correct for it now.

So overall, the Governor's Budget includes expenditures of 291.5 billion in total funds, or about 208.7 billion General Fund. This spending is about 20 billion lower total, about 17 billion lower General Fund than what was in the budget act. And similar to last year, we're proposing a suite of package of balanced budget solutions to address this shortfall. And similar to last year. I'll go through these categories.

I would just like to preface, and maybe this doesn't need to be said, but none of these proposals that are before you were easy to make, they are proposals, and we understand that there may be a difference in direction or priorities for the Legislature, and we look forward to having the conversation with you about those and also understand and would like to hear alternatives from the Legislature. So the first category of solutions is the largest, it is our reserves.

So the budget proposes 13.1 billion in Reserve solutions. As you will recall, we have not dipped into our reserves. So the budget act that is in place right now maintained our budget stabilization, maintained our school Reserve and the health safety net, and this allowed us to maintain budget resiliency should we need it now. And so now we are proposing to withdraw from those reserves, specifically about 12 billion from the rainy day Fund, 900 from the safety net Reserve, and then on the Prop.

98 side of the budget, we have 5.7 billion from the school's rainy day Fund that we are proposing to withdrawal. That still, however, leaves us with 18.4 billion in total reserves that are left for continued budget resilience. The second suite of solutions is our reductions, and it is the next largest category at 8.5 billion. As the Governor mentioned at his budget briefing a couple of weeks ago, we're looking first to the Administration for some of that savings.

So we've sent out direction to departments to only continue with essential functions in terms of expenditures and to really reduce those current year expenditures. In addition, the Governor's Budget includes a proposal that would sweep funding for any vacant position that a Department has for one year, and that's about 762,000,000 in savings. Other significant or notable reductions would be 2.9 billion in reductions in climate, 1.6 billion reduction in education programs, 1.2 billion reductions in housing.

We also have some reductions in CalWORKS programs as well as child welfare programs. The next bucket is delays and deferrals, which total about 7.2 billion. These are delays. They are not proposed as reductions at this time. They will be funded but in future years. Some notable delays are to transit and inner city rail capital program.

We are proposing delaying of 2 billion 1 billion in the budget year, allowing 1 billion to continue to go forward, but moving 1 billion out into out years clean energy reliability investment. Also about 400 million delayed in health and human services programs. We are proposing the delay of full implementation for the DDS service provider rate reform as well as delay in the behavioral health bridge program. Now these delays are, and this behavioral health bridge program in particular delays only a portion of the funding.

There's still continued funding of 484 in current year and 457 in budget year. On the economic development front, we have California jobs first delay of 300 million and we have a 550,000,000 delay in preschool Tk full kindergarten facilities grant program. On the deferral side, both for the UC and the CSU, we're proposing deferring for one year the 2425 compact, which is the 5% base increase to both systems. That's about 228 for UC, along with a 31 million, which is the nonresident revenue offset.

And then for the CSU, that's about 240,000,000. These deferrals are basically promises into the future. Then it allows both the CSU and the UC to seek interim financing so that they can continue to support their operations in the budget year. Next, we have revenue and borrowing at 5.7 billion. A couple of things to note here is the increase in the MCO tax General Fund offset. We have at 3.8 billion.

And then we're proposing to conform to the Tax Cuts and Jobs act, the federal act for net operating loss limitations. That's about 300 million in revenue. And then finally we have Fund shifts, the most notable being shifts from the General Fund to the greenhouse Gas Reduction Fund. And the Fund shifts in total totaled 3.4 billion.

So just in conclusion, much of the story of our budgets, our state budgets, are based on boom and bust, and it is largely due to the progressive nature of our tax system. And we have tried to mitigate that volatility, which we've seen hit extremes in the past few years. And voters passed Prop two. So we have Proposition two, which sets aside Reserve requirements annually, and that's helped us to build up our reserves that we're now tapping into.

However, as the Governor noted at his budget briefing, it's likely time to revisit and boost these reserves, these Reserve requirements, and we hope to have that conversation with the Legislature to look at options and how we can do that so that we can save more money during the upswings so we don't have to cut core programs during the downswings. And as I started off earlier with, these are proposals that are in the Governor's Budget to attempt to meet the 37.9 billion shortfall.

As always, it's the first part of a conversation, a pretty lengthy conversation that we have with the Legislature, and we do look forward to engaging with you on coming to some shared agreement, particularly in the next few weeks. As we think about some of the early action that we're proposing.

We believe it's our shared goal to develop a budget that has a balanced approach to meeting this large shortfall and at the same time protects a lot of the progress that we've made in priority areas as well as sets aside more reserves. So again, thank you and look forward to responding to your questions.

Great. Thank you. Ms. Li from Department of Finance. And Members will wait until we hear from the Lao before we entertain our questions. So Mr. Pettick will allow you to proceed.

Well, thank you very much, Madam Chair Skinner and Mr. Vice Chair Niello, for including our office in today's hearing. And what I was planning to do today is provide some assessment and high level comments on certain aspects, major aspects of the governor's proposal. Hopefully, you have the handout from our office before you. But what I thought I would do first is starting on page one. Just for setting the table for this conversation, there are three questions that I think are helpful to think about.

The first is just looking at this current moment, why does the state face this budget deficit problem? And it's easy to forget, but we recall that back when we adopted the budget for the current year, back in June, the multi year fiscal budget estimates from the Department of Finance showed that there would be a $14 billion deficit in the coming budget year. So we were starting off with that sort of deficit position to begin with.

And then, as both the chair and my colleague here from finance has mentioned, the revenues did begin to underperform throughout 2022. There was some revenue erosion and it persisted throughout all of 2223 that fiscal year. Eventually, revenues fell by 20% that year. We had the complication of not knowing at the time the magnitude of the drop off in revenue.

And we now know, looking back at it, that revenues fell about 26 billion, or about 26 billion of the revenue decline that we're talking about today is attributable to that prior fiscal year. Our office in December reduced our estimate of revenues for the budget window by 58 billion. Department of Finance reduced theirs more recently by 44 billion. So the point is there's not really disagreement about the prior year decline. Now. Now we know where we differ, really, is on when revenues begin to recover.

When will we see a rebound after this downturn? And if you look at finances, revenue estimates, what they're assuming is that in the current fiscal year, General Fund revenues will increase by about 8%. Our revenue estimates do not see that happening. They have another year kind of, of stagnation, and then in the subsequent year after that, we would begin to see revenue growth. Our rationale is that historically that is not what has tended to happen when we have a big drop off in revenues in California.

Usually there's a year or two of flatness in the revenue trend, and that was one major reason we think this the second is just looking at the year to date cash collections. Year to date cash collections are underperforming prior assumptions. Even the most recent information we have for January is underperforming the governor's recent estimates. And so, so far, those cash collections are telling us that it's more likely, we think, that the revenues will underperform the estimates shown in the Governor's Budget proposal.

The second question is, well, given that we have a problem, how prepared is the state for dealing with this budget problem here? There's a little better news because we do go into this on much stronger fiscal footing than we did, say, before the great Recession. The state has done a very good job of building up large balances in its budget Reserve accounts. And in addition, we have very high levels of cash throughout state government.

So we have no liquidity constraints in our ability to Fund our expenditures. And as you will recall, that really led to a crisis atmosphere back in the great Recession time. In addition, a lot of the allocations that we made from the recent large surpluses in the post pandemic years were put to one time and temporary spending purposes. And so that does give the state the flexibility to pull back portions of those allocations to find savings given this deficit we face.

Finally, the final question is, what is the outlook for the future years? And here, both our office and Department of Finance, we are both forecasting or currently projecting that the state will continue to face budget deficits in the subsequent years. So it's not just a one year problem. We're talking in the order of 30 billion per year deficits in the subsequent years, three years after the upcoming budget year.

So in light of that, what you would hear from our office, from me and our office throughout the upcoming budget hearings, I think is a set of recommendations kind of oriented around developing changes that would mitigate the future challenges while at the same time preserving some of the state's budget resilience and will help it help the state navigate these uncertain times in a better way. So that's kind of the thematic comment that I wanted to provide.

Moving to the second page on this one, really just trying to speak to. We've received a lot of questions. I've seen a lot of coverage of this. The Department of Finance has cited a $38 billion deficit. Our office cited a $68 billion deficit. And it's understandable that there would be attention to what explains this. It's a large discrepancy, even for a large state like California. This is $30 billion difference and what's causing it.

As we've unpacked the governor's proposal, what we think is that the deficit that the Governor's Budget refers to is not so far off from the number that we are citing. And if you look at this figure on the page here, we're trying to reconcile the two estimates starting at the far left. The bar there is the governor's cited $38 billion budget problem. Immediately to its right are two smaller bars, and those sum to about 20 or $21 billion.

And so if you add those to the 38 billion, those bring us to 58 billion. That's our estimate of what the Governor's Budget actually solved. Now, those two smaller bars, though, in the Governor's Budget proposal represent changes to the expenditure base, assumed changes in the spending base of the state. We do not assume that those will just occur because they would not occur just as a matter of applying current law. They will require the Legislature to act and vote on these to make these happen.

In that sense, we view them as policy choices. So it's really your decision to make those changes, and that's why we don't include them. So then once we have the $58 billion number, you move over to the next panel. And here we're just showing that you get to the $68 billion problem that we estimate because we have lower revenue estimates. And then there are some other smaller changes. But these are the two major components of these different estimates of the budget problem.

Moving on to page three, I was going to provide our characterization of the major buckets in which the Governor is proposing solutions. And then, briefly, our assessment of a couple of them. A couple of the major ones. First, you can see, looking at this pie chart, that almost half of the total solutions being proposed are spending related solutions. They sum to 26 billion. In addition, there's a reduction to Proposition 98. I'm not including that.

But if you do include the Proposition 98 reduction, you're well over half of the solutions being in the category of spending side adjustments. Then there's 13% of the solution, as my colleague from finance mentioned, 13% of it, I'm sorry, 22% or 13 billion, is from use of reserves.

And then there are some smaller items that make up the balance, cost shifts and revenue increases just to provide briefly, and our high level assessment of a few of these, we think that the use of the reserves is appropriate when you're facing a budget deficit, a large budget deficit like this. We call it a rainy day Fund. There's certainly a rainy day when you look at the fiscal picture. And so using some of the reserves in this circumstance makes sense.

And we also think that the governor's proposed use of about half is prudent. He maintains about 11.1 billion in the budget stabilization account, and that could be very useful given the uncertainty we face ahead. I did want to mention on the Proposition 98 reduction. So as we've looked at this proposal, we find that, unfortunately, it's not a complete presentation. It's not fully explained what's going on here.

And so we still do have questions, and our staff is looking into this and continue, we'll continue to try to be able to explain it, but it does seem to rest on an $8 billion reduction to the prior year Proposition 98 funding level. But if you read the budget documents, they also say that the local education agencies will not be adversely impacted. I'm paraphrasing, but that they would be protected. And so it's unclear to us what the mechanism is to effectuate both of these outcomes.

And so we're hoping to get more information about that. Then I did want to just comment, too, on the spending related solutions. As I mentioned, there's 26 billion of these in total by our count. These include things like just outright reductions, delays, reversions, and Fund shifts. And we think many of these proposals probably are very much worthy of consideration given the budget condition that we face. However, some of them also pose challenges.

For example, of the 26 billion of solutions on this spending side here, 8 billion of them are in the form of delays. And so that 8 billion reduces our expenditures in the coming budget year. So that helps the budget problem. But when you say delay, it means you're pushing them out, those expenditures out to future years. And so 5 billion of that 8 billion shows up as an expenditure in 2025 26, 2 billion in 202627 and 1 billion in 2728.

Given that we already faced these 30 billion in annual deficits after the budget year, this particular proposal, while it helps in the budget year, it actually exacerbates the budget problem in those future years. So that's one critique that we have and that you may even need to consider some of these proposals that are characterized as delays. They might actually wind up being cuts if there aren't the resources available to Fund them.

Finally, on the last page of my presentation, we have a text box here that I will not read through, but it provides some principles for the Legislature to consider and keep in mind as you craft your own budget. But in General, our recommendation aims to mitigate the problem in future years and preserve the state's resilience that will help you weather the uncertainty ahead. In particular, I would just leave with one thought, which is to try considering to maximize the reduction of the one time spending.

The more one time spending that can be pulled back now, the more of your resilience tools will remain in place in future years. Like the Budget Reserve, the less of the one time spending that you pull back now, in order to balance the books, the numbers need to add up. It's a zero sum Proposition.

And so if you don't do that, then you will wind up having to use more of the budget Reserve in the current budget process, which will leave you with fewer tools in subsequent years. And while our current estimates are roughly 30 billion per year deficits, similar to what finance is estimating, we all hope that they're smaller than that, but they could also be worse. This is just our best estimate at this time. And each year that we go out into the forecast, there's more uncertainty.

And so that's just a parting thought. With that, I'll stop and be happy to take any questions you may have.

Thank you. Greatly appreciate it. I've got a few questions I want to start with, but I have a little list. I see. Mr. Dahle. Let's see. I've got, just to let you know. So Padilla, layer. Dahle. Let me see who else. Right away, Ms. Menjivar. Okay, got you, Miss Grove. Mr. Niello, you actually go after me. So I will add Mr. Niello to the beginning of the list, and then obviously, anybody else can be out. All right, sorry. I've got you now. Okay. All right.

So let me just quickly, I think many on Members and the public are interested in the. And this is a question to both Department of Finance and Lao's office, is that what are some of the economic changes that drove these forecasts in terms of our know, obviously, we are adopting budgets based on forecasts. And so looking back, we're trying to, obviously, I would have guessed both Department finance and Lao trying to understand. Okay. How can we adjust our projections to be a little more accurate?

So what were some of the factors that affected it that you could give us some insight on? And then. Yeah, that's really my core question. And then I have one other go ahead.

I'm so sorry. I'll turn that question over to my colleague, who has some more detail on the indicators.

So I think if we're talking about this most recent forecast, the Governor's Budget. I'm sorry. Colby White, Department of Finance. Thank you, really. To repeat, Ms. Lee's, comments from earlier when we were talking about the delayed tax filing deadlines and then the cash receipts related to that. That information became known in October and November, and that gave us a picture that we didn't have prior of what occurred related to tax year 2022. And so that was a significant revision downward.

What you can sometimes see with revenue forecasts is like was stated earlier, we're not forecasting a recession. This is a correction in revenues. And the economic indicators are actually looking relatively solid. We're forecasting modest growth. Our revenue structure is built upon at times, revenues realized from things like capital gains and things like that. And it is not always correlated with the economy. So we monitor all the economic indicators. We have a specific economic forecast that goes into the Governor's Budget forecast.

But this downward revision was largely driven by non economic factors, at least to a significant degree.

Okay. All right, LAO, did you want from our end?

I will ask my colleague who manages our economy and tax unit. But it does seem that some of the changes in the economy that were undertaken, particularly by the Federal Reserve, to raise interest rates over the last couple of years, had an outsized effect on the level of investment activity and in forms of investment that are very important to California's tax revenues, the types of investments that lead to business expansions, startups, initial public offerings, and these very narrow kind of parts of the overall economy.

But they really have an outsized effect on our revenue base. But with that, I'll turn it over to Brian.

Yeah, I think Gabe really summarized it well. Brian Euler with the Legislative Analyst Office. I think Gabe summarized it well. Know, if we think back over the last few years, obviously we went through a period of heightened inflation and concerns that were related to that. And in response to that, the Federal Reserve took a series of actions to in some sense, kind of put the brakes on economic growth and expansion that we were having in response to concerns about the rising inflation.

And it appears that those actions of the Federal Reserve had an outsized impact on California's economy, in particular some of our key sectors, like tech, that are really driven by some of that kind of startup activity and lots of the investment that was driven by the expansion period during the pandemic. And so in some sense, we're kind of seeing the opposite side of the coin now.

We saw the kind of unprecedented revenue growth earlier in the pandemic, and now we're kind of seeing the flip side of that now with kind of a pullback in tech and a pullback in investment in California startups and businesses. And so that's part of why you've probably seen the narrative on the national economy, that there's been a fair amount of concern calls for recessions in the national economy. A lot of that being because of the actions taken by the Federal Reserve.

There's been a little bit of a decoupling between the US economy and California, where the US economy and the economic indicators there do continue to remain strong. There isn't much sign of a recession in California. There's a little bit more worrying signs. We've seen our unemployment rate has been consistently going up for the past year. The last report, it just went over 5%, and that's the first time it's been there since 2017. Setting aside kind of the temporary spike we had early in the pandemic.

We've had several quarters in a row of real personal income declines. We've seen taxable sales falling for several quarters in a row. And so we're seeing somewhat more signs of weakening. For California's economy in particular, that is a little bit of a different story than looking at the narrative on the national economy.

And a big part of that story likely is the importance of sectors like tech and other industries that were particularly sensitive to some of those actions of the Federal Reserve, kind of leading to some outsized contraction for California.

So my follow up question to that is we've heard the Fed has indicated that they are likely to lower interest rates. We don't know how much, we don't know how many times this year. But again, to both. How much. Do you think that their lowering of interest rates may assist that part of California's economy which seems uniquely sensitive to those signals?

Yeah, I think that to the extent that the Federal Reserve does start to reverse some of the actions they've taken over the last 18 months or so, that would be beneficial to California economy. I think right now it's a little bit speculative, obviously, to the extent that they will do that this year. And in large part, I think our forecast is trying to just look at the information that we have in front of us right now.

Some of that is looking at various indicators in financial markets and other things that are trying to gauge what the future actions of the Fed might be. But we can only kind of build in so much kind of speculation on what the Fed may or may not do this year.

Okay. I would just add that, and I think this is maybe the difference between the Department of Finance and the Legislative Analyst Office. We're a little bit more positive, optimistic in our outlook. And I think looking at the stock market more recently has hit highs. We have, consumer sentiment has also hit an all time high compared to back and going back to 2021. Non farm payroll growth is increasing. It has increased over 2023. Real income has grown three quarters out of 2023.

So we're looking at different indicators or perhaps interpreting them a little bit different than the LAO. And so we are a little bit more optimistic in regards to the near term revenue impacts. I would say that over the six years, we're looking at the budget window as well as three years afterwards. Our revenue differences are 2.5 billion. That's been a skill. And so I think some of that is a timing thing.

Great, Mr. Petek.

Thank you. I think Ms. Lee is correct. I think over the overall period that we're talking about, our revenues are really very close. We remain committed to standing behind the revenue forecast that we have, primarily because the increase in the stock market that we saw throughout 2023, most of that was built into our forecast of revenues. We put out our forecast in December.

There was some continued increases thereafter, but most of the increase occurred throughout the earlier part of the year, and we have that built into our forecast. The most recent gains that we've seen in the stock market, we might have started to see some uptick even in the January cash collections, but if anything, those have been disappointing.

And what we've noticed over time is when we look at the relationship between stock market performance and the state tax revenues, what we really benefit from is when the stock market goes up high and stays up high. So there's a period of sustained elevation. And now, although we're at record highs, we're really kind of back to where we were in 2021, little bit above. And so that's something to keep in mind. How long will this increase remain?

The second point is that it's not just the stock market. We also really need to see an accompaniment of increased investment activity in California, businesses, expansions, startups, ipos that I was talking about, venture capital. All of those measures remain somewhat depressed at this point, even with this last year of stock market increase, we haven't really seen that come back. And so certainly we don't know what will happen come may or April.

And it could be very, well, that could be higher than we think in terms of revenues. But for right now, we think the data are lining up in the way that I'm talking about.

Great. I appreciate both perspectives, but I also really appreciate the kind of setting on the record, because around that, there is differences between Department of Finance's projections and interpretations and Laos. And yet the differences are not as great as what has been in some of the popular discourse, let's say. So clearly, part of the purpose of my questions were to help us as Members understand that.

So we're not just responding to a headline, but rather we're really getting more into the nuance of the circumstance that we're facing so that we can try to juggle it as best we can and get to the point where we have a budget that puts California in the best position possible, which I think obviously is what the administration's goal also is. And so this is the beginning of our process.

So I appreciate all the inputs you've given, and I may have other questions later, but I'll just go starting on the list right now. Let's go to Senator Padilla.

Thank you very much, Madam Chair. Thanks, everyone, for your work. A couple of questions first. I'm going to be a little more programmatic, analytical first on the energy and zero emission package, a couple of fronts the state has for a number of cycles on the implementation plans necessary to achieve ozone reduction goals, had fairly consistent funding in the last few budget cycles and in the proposal from the Administration, those funds are not identified going forward.

Similarly, we're already behind regional goals on SB 375 program for sustainable planning and communities programs. What, if any, analysis perhaps, or comment, additional comment Lao might have with respect to the ability to come into conformity with existing standards just from sort of a policy impact standpoint.

Thank you, Senator. I'm going to ask my colleague to assist with this one. Thank you.

Good afternoon. Rachel Ehlers with the LAO. So actually, with regard to the zero emission funding package, there are some proposed delays in that package under the governor's proposal. We certainly haven't had time to kind of take a look at what that would mean programmatically. I think I would just highlight that is one of the areas that's not really proposed for reduction as compared to some of the other packages.

It is more of a delay and shifting of funds, shifting from the General Fund to the greenhouse gas reduction Fund. So I think one of the choices you all will have to make is weighing that versus other priorities, thinking about timing. The other point I would highlight is this is an area where there actually has been quite a bit of federal funding available from recent federal action. So it's not a one to one match. The federal programs are different from the state programs.

Some of them are tax credits which don't apply to everybody, households who don't file taxes. But this is an area where there is some additional federal funding that may be helpful for you as you're thinking about all of your priorities and weighing things. But we certainly have set very aggressive goals around zero emission vehicles. So whether we can achieve those goals likely will require assistance from the state, particularly for lower income households that may not have the resources to do that adoption.

But in this package, it is an area where the Governor at least has sustained a lot of the funding, at least over the multi year period.

And the obvious concern is opportunity cost here and losing potential leveraged federal dollars. Right. And the consistency of funding programmatically because achieving an air quality standard is something not subject to the concerns that we're here trying to address here. And so identifying what those might look like obviously kind of important and just a flag.

Also in dealing with housing and homelessness, if I might, we had an extensive dialogue in the last cycle in oversight about particularly one of the sort of flagship programs around this issue in H app, and the lack of clarity, the lack of time for empirical data to produce itself about measuring effectiveness, a lack of the ability of local implementing entities to coordinate and long range plan.

We have some basic commitments maintained in the cycle, but no commitment to having, other than having a dialogue around round six and appreciate that and understand sort of the drivers of that. But I would just flag that one of the critiques that was gleaned from oversight with respect to programs like this that were deemed empirically effective. Right.

Aren't we exacerbating potentially the very critique that was gleaned from oversight conversations, that one of the critiques was the inability of implementers countywide, local nonprofits to others to be able to adequately long range plan and coordinate. Here we have a scenario, even though we're constrained, where it's very unclear as to whether, other than a conversation that we've identified hard means to maintain a consistency in funding. Are we concerned at all about the impact here on sort of leaving local implementers in limbo?

It. Thank you. I'm going to have a colleague assist with this one as well.

Thank you. Jenny Bella with the Legislative Analyst Office. We are also in the early stages of looking at the Governor's Budget and looking at what this means in terms of the ongoing oversight. We've been involved over the years in kind of thinking about what is the Legislature's plan for housing and homelessness. And I think this question you raise about near one time, funding versus ongoing, is part of that dialogue similar to the conversation we just had.

It is one area where the homelessness money is largely held to the prior agreement. The amount that is delayed is an amount, it is our understanding, that would not go out until that further out year. So it gives us a little bit of time to think about what some of that oversight language would be. But it is a good question and one that is on our minds too, as we look at the governor's proposal.

Thank you. And summarily, I would apply the same kind of dynamic with respect to the fact that our bonding capacity funds for production planning is about depleted, as noted in the proposal and in the analysis, and there is a net, in fact reduction over the long term. And I would just sort of flag and sort of ask the same dynamic would apply there.

This is a critical time for there not to be a question or inconsistency, in my view, with respect to what our capacity is to help folks leverage funding on the production side, which is really interesting. And then, if I might just on General government, one last sort of question comment.

I know that, and there may even be internal controls or policies around this in more constrained scenarios, to look just programmatically first and foremost, and look very short term, even when we're putting numbers out over two or three cycles. But there's something to be said in this member's view about investment, strategic investments that have the capacity to develop long range and sustainable sources of revenue to the state and to the benefit of certain emerging industries.

It will rely on both for their own good and for the good of the state budget. I note that we are now down to about half of what we have typically allocated around Cal competes. These kinds of grant funding programs are important to some substantial emerging industries and investments being made in the state that have the potential for long range positive revenue to the state and to, as the program is designed to do, increase our competitive posture. I mention this because that's a drastic overall trend.

The example I might give is the fact that the State of California currently literally is sitting on top of more than a third, as the latest analysis has put forward, of the global demand for lithium, which is a relevant commodity there. So I'm concerned about the inclination to be less focused on the ability to support investments in key emerging industries that are going to have an outsized impact on the future.

Budget pictures, potentially, if we are successful, and time is a factor here, and every cycle that we delay or put that off or we deemphasize that it actually could potentially come at a revenue cost. And I just don't view it as particularly strategic, but I thought I would offer the ability to comment on that as well.

Senator Padilla, I would just like to add that going back to some of your comments and appreciate them. In the last few years and in the space of both housing and homelessness, we have provided billions of General Fund dollars to locals and with the idea that there would be regional planning and that with the hope that there would be more local dollars also included in their planning and in regards to certainty of funding.

And I would also say on the calcompete side, we share your perspective and want to support those emerging industries. And calcompetes is one of the new items in terms of dollars in this budget. So I just wanted to highlight that as a priority for this Administration as well.

I appreciate that very much. Thank you, Madam Chair.

Thank you. And Department of Finance, feel free to, even when the question may be directed towards the lao, if you have a comment, I will recognize, you may add. Okay. All right, so let us turn to Senator Laird and then Senator Dahle.

Thank you very much, Madam Chair. I'm sophisticated in my knowledge about state budget, but I'm having real trouble understanding the proposals for Proposition 98 in the education proposals. And the budget proposes to shift $8 billion that was paid to schools in 2023 to a repayment scheme in 202620272028. And that raises questions about both ends of that, about basically the 8 billion that was paid, how those savings were realized, or how that is paid for until the payment scheme kicks into repayment.

And then the other half of it is what is the scheme for repayment and who pays? Because it is a key question that other people have here about will it be the schools that over time in those three years or four years, pay back the overpayment, or will it be the rest of the budget that contributes through childcare or health care or public safety or other things. So to start, it's like, let's ask about the 8 billion in the 2023 year, and clearly you have help.

I do. And I appreciate that. I'll start at a high level and then I will turn it over to my colleague. The proposal in the Governor's Budget does bring down the prior year guarantee by about $8 billion, recognizing the reduced revenues in the prior year. And so when we provided the guarantee in the budget act, it was based on what we thought the revenues would be. Clearly, we now know what the revenues were in 2022, so that $8 billion could otherwise just be pulled back.

But we are providing those dollars have actually gone out to local school districts, and rather than clawing them back, we're providing those funds to the local schools, to schools and accruing them to out years. And so that is sort of the mechanism for that. I will turn it over to my colleague for further details. Thank you.

Brittany Thompson, Department of Finance so with this proposal, we'll be reducing the expenditures for the Local Control Funding FormuLA and the student centered funding formulas in 2223 and then we would Fund those costs with 998 General Fund in 2526 through 2930. So five years.

Well, then let's go to the two questions I asked, because the first one is that $8 billion went out the door. So is that considered paid for out of the General Fund or other places, or is that accounted to be paid back in those out years, even though there somehow you have to, on a cash basis, cover for the 8 billion that went out the door?

So those are non $98, so not part of the Prop 98. So that's, I think, your first question. And the second question is no.

That might have been part of the first question, but that's not the answer. It is basically in 2023 it was budgeted, but it was 8 billion over. And so when it was reduced to the guarantee by $8 billion, is that considered a General Fund payment that was made in 2023 for the 8 billion that is not in the guarantee? How was that actually paid for in the budget year with that money having gone out the door?

Brittany Thompson, Department of Finance so we are reducing the guarantee to the minimum level, and then in the out years we're going to use Non Proposition 98 General Fund to cover those costs then.

Let me try the question again, because I get that, but you're making it sound like the 8 billion didn't go out the door and people didn't spend it. It went out the door and it was spent.

So did we just cover that as an expenditure in the budget and then on the books it is owed back in relation to outside of Prop 98, how was it handled in 2023 when that 8 billion actually went out the door, or are we claiming it wasn't spent at all and it is being repaid in 2026? What of those?

Is it there is no repayment. These are what we're going to be considered supplemental payments in future years. So we are not going to be taking those dollars back from schools and from students.

And then what does it mean that it's supplemental payments? Does that mean that what is a supplemental payment then? Who pays and where does it go?

So the payments that make up the future supplemental payments do add up to that 8 billion, which is the difference between bringing down the prior year, basically adjusting prior year for revenues.

This is really clear as Mud right now, and I'm trying to understand clearly because the 8 billion went out the door and you're talking about supplemental payments on the books to make good the 8 billion in out years that are 3 and 4 and 5 years from now. But who pays in the out years to who? It's a supplemental payment from who to who?

Brittany Thompson, Department of Finance you could think of it as accruing the expense in the out years. So since the guarantee was reduced by $8 billion, instead of taking those funds back from the leas, who's probably already spent it or budgeted for it, we're just going to take those expenses and spread them out over five years. In the out years with Non Proposition.

98 General Fund, meaning that the rest of the General Fund pays for this and not the schools when it's accrued in the out years? Is that what you're saying?

That is correct.

And I would just say we have five months. We're going to want to talk about that.

We look forward to having those conversations.

Yes, this is very hard to understand. And a lot of the backup was not totally in the budget, especially on the supplemental payments. And the question is, and there's another question and the chair staring at me, so whatever her limits were, I'm exceeding.

And I think that there are other questions related, which is do we just accept that all the 8 billion went out the door or there are some things that haven't been spent that might lower this in the out year that we should be talking about. If there's reserves, that 5.7 billion are going to Prop up the existing Proposition 98, and then there'll be no reserves at the time of the supplemental payment. So there's not equity between education money and the General Fund.

Those are all real substantial issues to talk about. And the chair is getting edgy. But is it okay to ask the LAO to comment on this.

It's fine. The Lao can comment. And don't worry, I'm not limiting that comment. But I would only add that, of course, as the subchair, Senator Laird, you will have a good amount of time to get into the weeds on this, and it's appropriate to ask the questions and to set the stage for those conversations in Subcommitee. But we'll turn to Lao now in.

A comment on that, because I do not think people and many in the education stakeholder community, as well as those that might be the givers to supplemental payments, have understood this at all. So it is very important, even though we're going to drill down in the Subcommitee, that people start to understand the lay of the land. So thank you, and I'll just ask if the LAo has anything they wish to comment on about this.

Edgar Cabral with the legislative rounds office. I'll keep it brief, but I think sounds like, I think we've clarified the mechanism. This is non 98 costs. I think the one thing I would highlight that maybe hasn't been referenced is because of the cruel. What this means is essentially pushes $8 billion worth of spending into the out years. So otherwise it would have been something that would have needed to be solved within the budget window.

Instead, that means that it's a way of delaying those costs into the out years and then would be born on the non indeed side of the budget.

So when you do the out year deficits or the out year projections, you will be factoring in $8 billion that has already been expended in 2023.

That's right.

Okay. Thank you.

All right, we will go to Senator Dahle, followed by Senator Menjivar and Senator Grove.

Thank you, Madam Chair and Members, as this is my fourth year on Budget Committee, and I have not seen this many people in our Budget Committee hearings until the year where we have a huge deficit. And I'm assuming they're all trying to figure out how they're going to get their slice of the pie. But I have one question I just looked up. It was yesterday that the stock market hit 38,000.

So the rest of America seems to states, if you look at many of the other states, we're doing well. So you touched a little bit on why California is where we're at. And I think that is really what this Committee needs to be looking at, is why is you talked about interest rates, you talked about those type of things. But at the end of the day, the top 1% of earners in California pay the highest amount of taxes and they're leaving.

There was an LA Times article, I think it was yesterday or this morning, about how many people are leaving California. And that's because as a business owner myself, it's very difficult to do business here. We're regulated and we're taxed, we're sued, we have air quality issues. We have all kinds of things that California does different than other states. And at the same time, it's easier to do business in other places and there's less taxes to pay there.

So we are seeing, could you, could you talk about that part of it? Have you drilled down in the part of not just why we have a revenue problem, but why is that? Because the stock market is doing great. And in the history of, or I shouldn't say the history, in the 28 years I've been elected at the local level and at the state level, when the stock market was doing well, California was doing well.

This is the first time that the stock market is doing well and California is not doing well. So can you talk about that part of it?

So with regard to the stock market doing well and revenues not doing well, every sale of a stock is reflective of somebody that held it for a certain period of time. Some of them 10 years, some of them nine years, some of them seven years, some of them one year.

So when you're thinking about the stock market doing well, you have to think of it in terms of how long has it done well and what the holding periods are, are how people are netting against losses, how people are choosing to realize those gains. And as you mentioned, because 1% of taxpayers pay 50% of our personal income taxes, which represents the bulk of our revenues, they have highly variable incomes. And it's not really a statement on the underlying economy that those revenues are variable.

If you go back to 2009, you can see that the stock market did incredibly well in 2009 and revenues did very, very poorly because we were still recovering from a much higher level in the stock market. I'll stop there.

Okay, so basically what you're saying is that we're not going to use that as a measurement. Is there any other measurement that would tell us. I believe that it's because people are leaving the state, businesses are leaving. I mean, we've seen HP, Hewlett Packard, Oracle, they're leaving. Those are high wage earning companies that they relocated and they're not here anymore. And that's starting to catch up with us. So I think we have to be honest.

We have to figure out why it is where we're at. We can play the game of borrowing and pushing and stealing from future generations, which we're going to do. We're going to use our reserves. But at the end of the day, we're not going to get out of this anytime soon unless we figure out how to keep businesses here which pay taxes and high income earners that pay taxes if they leave, we're going to be here a long time.

So I think that there needs to be some more focus on are we actually leave. There's a lot of articles written about it, but the Governor doesn't talk about it. And you guys don't seem to talk about those real details that we need as a Legislature to know, because we can change that here. We can make it easier to do business in California if we have the will to do.

You know, we've. This is a question that comes up a lot, and it is data that we track. And over time, over many years, what we saw for a long time was that the net out migration that was occurring was among people that had a harder time affording to live in California because of the cost of living, the cost of housing. That story did begin to change around 20202021.

What we began to see is that there was a net out migration also among the higher income taxpayers as well, to your point, and we don't know definitively at this point what the reason is. It may have something to do with the pandemic, the ability to work remotely, but that 2021 is the most recent year that we have IRS data on the migration patterns, and it's also the high watermark. So it might have even been higher in 2022. We don't know yet.

What I will say, though, is we do have to keep it in perspective. I think as the Chief Deputy from finance mentioned, 2021 and 2020 and 2021 were years where we had exceptionally strong revenue growth at the same time. So even if we were experiencing this outmigration, it's unclear to me how much revenue the state was missing out on at that point. And I don't think that the story of our shortfall that we're facing right now is explained entirely by outmigration.

It might be on the margins adding to it, but it is not the whole of the explanation. Our revenues were revised down by 58 billion. That is not explained just by outmigration in my view. But again, I don't think this is a concern we should dismiss. I think it's something we should continue to pay close attention to and it's not something we should write off. But I think it's a complicated story, and I think we have to just keep it in kind of a balanced perspective on both sides of it.

I appreciate that, and I just want to close with this. It's complicated to run a business in California really hard, and I do it personally myself. And if we don't, as a Legislature, figure out how to keep the tax paying businesses in California. I mean, I know that some of us are going to be termed out and some of us are just going on to whatever, the governor's not going to be here that much longer.

But at the end of the day, the people that love California want to stay here. This is going to hurt if we don't fix the fundamental problems of being able to do a business in California. And we can talk about saving the world and the climate, we can talk about the best education, but at the end of the day, if we don't have the revenue, we can't accomplish any of those things.

So I just want to go on record saying we have to address the issue of keeping californian businesses in California or we're going to be here a long time and California is going to suffer and it's not easy to get them back once they leave. So thank you.

And I'd like to have some data on who's leaving and who's coming because I think the people that are paying the Bill are leaving and the people that are coming are a drain on us more than they are helping the economy. Thank you.

Thank you. We obviously, Members can always request, make such data requests to our different partners, but we'll now go to Senator Menjivar.

Thank you, ma'am. Chair, 15 questions. I got to pick my favorite ones, right?

Yes.

Okay. I'd like to start off with the safety net Reserve. I know the intention of that was to protect CalWORKS case increases and medi Cal case increases. Given the cuts to several CalWORKS programs, in fact, the elimination of three CalWORK programs, could we justify how we're depleting the entire safety net Reserve while still eliminating some CalWORK programs?

Thank you, Senator Menjivar. Yeah, I would start with saying that this is the second year of over $30 billion budget problem. And as I stated at the very beginning, none of these proposals were easy to come by, and they are just proposals. We are interested in hearing alternatives to them in regards to the safety net and withdrawal from the health safety net. I think the intent was to reduce cuts, further cuts, deeper cuts to the core health safety net programs. And even so, there was still a big shortfall to bridge.

Do we anticipate, given future outlooks, having $0 in our safety net reserves, how we're going to be able to address even more cuts in the upcoming years?

Right. And that is why I believe we have made the decision to leave. There's 18.4 billion left in total reserves to help build some of that resiliency. And as I mentioned earlier, too, the Governor is interested in Prop two reform and looking at ways where we can suck away more money in reserves during the good times so that when we hit hard times, we don't have to make those hard decisions because we have those reserves.

So would you say the 900 million that was drawn down directly went into human services programs?

I would say that there were a lot more cuts that could have been made that were spared. And so, again, proposal on the table. We'd like to continue to have those conversations with you during subcommittees and throughout the spring to see what other alternatives the Legislature has in mind to bridge that shortfall.

In sub three we had, yeah, I was talking to my colleague over here in sub three, we had some major wins, really phenomenal ones, really excited about it. A lot of those wins are being proposed to be called back and they're our most vulnerable population. I'm thinking about our foster population and our individuals with developmental disabilities in the foster world. The first program, which is the family urgent response system, started about three years ago.

It's a 24 hours service, mobile service to foster kids and their caretakers. Whenever they need help, you can call this number and get services. I think they've helped about like 4000 families at any given time. And it's being proposed to be cut. Studies show one in three foster kids end up in homelessness. Other studies show one in five foster kids end up in homelessness are the way.

It's really high number with that being proposed to be cut and additionally the subsidies for their supervised independent living placements also being cut. I feel like we're really creating this broken dam, a bigger broken dam, and allowing more of our foster youth to fall into homelessness. If we're proposing cuts that prevent them from falling into homelessness. We know there's a housing crisis, homelessness crisis. Again, with this proposed cut, I know it's all difficult. Why? In the areas that we know that are preventative, that will save us money down the line.

I think when we were recognizing the size of the shortfall, we had to put everything on the table and attempted to look across programs and priorities. And what you have in front of you is our first pass at this. Again, continued conversation, I think is important so that we can reach our shared goals and our priorities through this budget. Despite the shortfall.

We still have funding under the Children's Youth Behavioral health initiative intended for youth under 25. Is there a possibility to use some of that funding for some of these foster youth programs that are being proposed to be cut?

Again, this is good conversation. Yeah.

Two more questions and then I'll move on. Big topic. Just like the Prop 98 conversation, very convoluted. Also, MCO tax, huge discussions last year. There's some remaining Fund from that that hasn't been allocated. We're drawing down $1.5 billion. Additionally, I know a lot of that is going to be to balance the budget. The Administration proposed some of that Fund to address and improve equity. Do we have any plans, detailed plans on what that looks like? And then can that addressing improving equity include additional investments and other provider types?

I'll turn that question to my colleague on the equity issue.

Laura Ayala, Department of Finance. The Department of Healthcare Services has released. A policy paper for the MCO tax. Targeted rate increases and it specifically addresses the equity adjustments that are proposed to be provided as part of that.

Okay. Is that available?

Yes. We can have that shared with your staff.

For this year, right? No, for upcoming years.

It would begin January 1, 2025.

Yeah, upcoming years. Okay. Gosh. Pick one more. It's a lot of questions. You got your kids, foster, elder population going to make sure we protect them all. So last year the Administration proposed delays in workforce development in the healthcare field. It's being proposed and we clawed it back and it included in the final budget last year. It's being proposed to be clawed back again. CalAIM, Carecorps. It's being implemented.

These are big, huge programs that are calling for healthcare workers, mental health, behavioral workers at every single corner. How do we then uplift these programs, ensure that they're successful if we're not investing in the workforce that is needed, specifically these topics, these expertise into these programs.

Thank you. Matt Aguilar, Department of Finance. Thank you for the question. The state is committed to approximately $1.0 billion of General Fund and mental health services funds over multiple years for workforce in the HKI area of the budget. We have had some resource availability issues both with the General Fund and with the Mental Health Services Fund. And so we're still committed to providing the services, but due to the budget situation, we're having to allocate the funds in later years. That's what's proposed. But I would flag also that in the nursing area that my understanding is that the community college's budget has the 60 million annually for five years.

You said 1 billion.

Yeah, 1 billion over a multi year package.

Directed just to workforce?

Yes.

Over five years, I think you said.

Yeah, this goes back to 2022. It was a multi year package.

We still have a billion left?

Yeah.

Didnt see that anywhere. Okay, more to come, sub three. Thank you.

Yes. And Members, obviously we appreciate the questions and we don't want to limit them. However, a lot of the detail we expect you to get into in your Subcommitee. So if there's, again, you may ask the questions you want, but some high level ones might be appropriate in this hearing since a lot of the more specific detail we'll get into in our subcommittees. But let me go to Senator Grove, followed by Senator Niello, followed by Senator Seyarto and then Becker and then Durazo.

Thank you, Madam Chair. I'm just going to make a few follow up comments and have questions on some things. My colleague that just talked about the budget sub three issues last year. There were a lot of promises made, and now those promises are pulled back. And there were deals made. We made a commitment, the Legislature and the Governor, and we came to agreements and we all agreed on that, and we voted on this.

And then you reneged on the promises that were made to these groups or individuals, including only the three coverages that she mentioned on her 15 questions that she had to cover. And the same with the MCO tax and our hospitals and those loan programs to save our hospitals. I have a chart here with all of our financially distressed hospitals. Not everybody in this room or in this state is going to buy an electric vehicle.

As a matter of fact, those electric vehicle productions, there's such a Low demand that Ford and other companies are stopping them producing, but we're on this fast track to zero emissions. So not everybody's going to buy an electric vehicle, but everybody in this state at one time or another going to need a hospital.

And I can tell you that the list on both pages of this document shows the financially distressed hospitals and the commitment that we made so that they would have survivability, predominantly in Low socioeconomic disadvantaged communities because they receive the highest medical payments from the state. And again, if you're in the medical business, there's no reason... you're never going to survive because if you spend a dollar, you get reimbursed roughly 70 cents.

And that's a compromise of plans and MCO taxes and all the combination of mechanisms to get to that dollar. But it's a pathway to bankruptcy. We heard hit that the hard way when Madera closed and put pressure on Fresno and Tulari. I have a hospital in Ridgefest right now that has closed labor and delivery. Don't have your baby for an hour and a half because that's the next closest hospital.

You have Kuya Delta hospital, who has 1700 beds, and they have a bridge loan that was passed in, what, 21 and 22 that's due and payable this in two weeks, one week, February 1. Right. And they don't have the money to cover payroll and all this other stuff, but they're going to have to pay back a loan that was given to them to survive for a couple of years. And then the deals that were made last year with the MCO tax pulling down federal dollars.

And it's my understanding the $2 billion additional money that was going to come down from the feds for the MCO tax that we all agreed on that was going to Fund these providers and Fund these hospitals, you guys are pulling back.

The proposal is actually increasing the MCO tax by 1.5 billion and not pulling it down. I'm not quite sure where the 2 billion is coming from. There was 3.1 billion in the out years that was essentially not categorized, not allocated. We are proposing bringing that 3.1 billion forward into the current year, into budget year to help solve for some of the shortfall. But we're actually needing to go to our proposals to go to the Federal Government to ask for an additional 1.5 billion.

So we would have actually over $20 billion MCO tax that would help both General Fund offset and our medical providers. So the structure of the MCO deal remains intact. It's the same. And so that's our proposal.

That's not really a true statement. The structure of the MCO tax remains the same as far as the structure goes, that you're going to pull dollars down from the Federal Government, but you're taking the money from the providers and the hospitals that are providing services to all of Californians. And with the Low medi Cal reimbursement rates, our poorest people in our community are going to be absent hospitals.

And so the only reason that this Legislature and the Governor responded to this hospital catastrophe is because we lost a hospital. You got Hazel Hawkins, you got Kaweah Delta. You've got almost everybody on this. Dais has some Jared Phelps, John Fremont Healthcare center district. That's Alvarado-Gil. I mean, I'm looking at all these. El Centro Regional Medical center. The Member is sitting on this dais. These hospitals are all in catastrophic trouble.

We made a deal last year under the structure of the MCO tax, that they would get money and the providers would get resources, and that we could take and offset some of the Low cost of medical reimbursements. And now you are reneging on that deal. What are these hospitals that you're still demanding? They have seismic 30 million here. Why pay 30 million? You're going to be out of business. You don't have the money to pay for seismic. Let's take SB 525. Is it 525?

Help me out here. Yes, 525. The increase on the healthcare payments. So they don't have the money, but they've got to pay that. And what's interesting to me is the governor's office is going to not pay that based on the information in this budget to the state workers. Where's a PAGA attorney when you need one to fight for these state workers who the law says you have to pay these wages? And now all of a sudden, the budget's like, zero, we can't afford that.

So we're not paying those wages in the private business sector and district hospitals. We don't have that option. If the law is the lawn says you have to pay this wage as a minimum wage, you have to pay that wage and everything associated with it. So for that to happen, I think is, and I found out after researching this, that you're not held to the same PAGA standards or the same labor law standards that the private business enterprises is held to.

And that's why you have the ability to just say, I know it's the law, but we're not going to do it. There's another piece in here you're going to delay. I'm going to ask if this is true. Is it true that you're going to delay payment to state employees by two and a half weeks and pay them in July versus June so you can carry those payments over to the next year?

I mean, in the real world, if we don't pay our employees on time, there's a lawsuit and there's penalties for non payment of wages. How come you don't comply with that and how are you exempt from that and why are you doing that?

So there are a lot of questions there. I will try to respond to them as I recall them, the first one being the, I think you're talking about the June to July deferral, which is moving one state employee payment from one day to the next and there will be no loss of check within that time. It is moving just by one day. And so employees will be paid

The next day after payday?

They will be paid. Yes.

Senator Grove, go ahead.

Yes, I know, I am getting irriated but that's okay.

And just want to remind Members we have not adopted this budget as a proposal. So it is perfectly legit to ask questions about why the Governor is proposing X or Y, but certainly just remind you this is a proposal, this is not yet adopted. Budget and Department finance, go ahead.

Yes. And to your other question about taking money from hospitals, that's not accurate. It's not an accurate description of our MCO proposal at all. We have committed to increase rates to providers which we will continue to pay. What this proposal does, and again, it is a proposal is to take monies that were sitting in an account in the out years, move it forward to help our budget problem and to help us sustain what we can to pay forward to pay these rates going forward.

It does put pressure on the General Fund and the back of this MCO tax. But the hope is always that we would get another MCO tax. It would be renewed and paid out in that year, but we are not taking any funds from hospitals.

Okay, thank you for clarifying that. I want to echo what my colleague from Beaver said. I don't think people in the state realize that, or people that make decisions about this realize that every single dollar that the state generates comes from a business in some form or another. And I know I have employees and people who I pay taxes to, even if you're a state employee.

But the bottom line is that some business started up a business and created business tax and property tax and sales tax and payroll taxes for their employees, which came to the state, which paid your wages, which you pay taxes on. But it originated from a business. For the twelveth year in a row, California has been the highest litigated state in the nation. For the 12th year in a row, more people in the 1% have left this state.

My colleague referenced the 800,000 people that have left the state. I, in my own district, sat across the table from somebody with lunch that's been here his entire life and his parents have been here. His entire very wealthy individual slid a Wyoming driver's license across to me. He paid $8 million in taxes to the State of California, which he no longer pays.

Now, that may not seem like a lot of money to you guys, but I know probably it would take everybody in this room based on wages to make up that difference for that one individual leaving. We are not taking care of the people you, sir, mentioned. We have a Low business expansion, business startups, all that stuff. It's very difficult to start a business. It's very difficult to keep a business, and it's very difficult to comply with the labor code in this industry.

And the continuation of lawsuits, PAGA reform, we've been fighting for that because that's just a modern day extortion capacity for attorneys to file lawsuits against businesses and creating additional sacks. The edd overdraft. You're just going to send a Bill? You're just going to send a Bill.

I'm just trying to apology Senator Grove, but I want to be conscious of the fact that we have many people here in the public who want to comment. And I'm going to take what your remarks,

I'll finish with one sentence. We have to do something about the business climate. Our revenue is going to keep declining and you're going to have to keep borrowing from future years. And in future years, those dollars are not going to be there. Do a root cause analysis, find out what's going on. And you guys really know what's going in on all this shifting. And you guys are the queen of spin. You are the queen of spin.

And I think we just need to really address the facts and make sure that we get a good budget this year and stop borrowing from our future years. Thank you, Madam Chair, for letting me go on a rant.

You're welcome. And that is, of course, a comment, not a question. And I just would point out that the last time there was that payroll switch when we were having in the recession, serious deficits was under Governor Schwarzenegger. But let us go now to Senator Niello.

Thank you, Madam Chair. I've got a couple of questions and a couple of comments. I'll try to make it as quickly as I can, but this is really important stuff because a lot of these questions are being posed because of concerns about the governor's proposal and the structure of his proposal. But one specific question with regard to the net operating loss carryover proposal, is that in any way intended to be retroactive or will it be effective in the budget year, meaning 2324 and beyond?

Colby White, Department of Finance. Thank you for the question. It's not retroactive in any way. It's effective for taxable years beginning on or after January 1, 2024. So it'll be effective, so when a corporation files their tax return for 2024 or later, NOLs that they had earned or any NOLs they had earned in the past, they will only be able to use up to, they can use all their NOLs, but only up to 80% of their taxable income. So they can't fully offset, but they're able to use four-fifths.

What a deal. So another question with regard to delays and deferrals, and deferrals being characterized as more certain, which means that the delays are less certain. But the Governor said the deferrals, particularly with regard to UC and CSU, they can borrow against that. I would suggest to my friends in those institutions that they would be foolish to borrow against that.

But given the projection of continued deficits up to a cumulative 90 billion through three more budget years, how possibly are you going to meet these delays and deferrals in subsequent years when we're already behind the eight ball?

Yes, and thank you for the question and the distinction. In this budget, we do have categories or buckets, as I said, and some of those are the reserves and some are reductions and some are delays and deferrals. We acknowledge that there are operating deficits in the out years.

I think constitutionally we must solve for this year, and we have done that through this budget. We need to continue to assess what those out years are going to look like, what it's going to take to bring those down. We have a lot of one-time solutions putting on-the-table cuts that were one-time versus ongoing. We have some ongoing as well.

But to really get at the heart of the out years, it would require reductions to ongoing programs and possibly to some of our core programs. And so I think we're mindful of that, and we want to have discussions with the Legislature as we go forward on that to address your issue. Just not just delays, but the full budget and all of our programs.

I think the LAO also wanted to address. Go ahead, Mr. Petek.

Senator Niello, regarding your question, you mentioned the Net Operating Loss Proposal, which the Administration describes as conformity to the federal law. That's true to an extent, but one thing we do point out is that under the federal law, those net operating losses that accrue began after 2017 are eligible for this. But the administration's proposal is to encompass all the net operating losses from years before 2017. So in that sense, it is not conforming strictly with federal law.

Secondly, I think you raised in a very important question about the delay of these payments to the CSU and USC, UC, pardon me,

That is a terrible mistake.

That was a faux pas, and I did not even attend the school.

But I think if we're faced with a budget deficit this year such that we need to delay 500 million in these payments to a future year, the proposal really implies that then we would be paying $1.0 billion in the subsequent year to CSU and UC to make up both. And given that the forecasts indicate a $36 billion deficit in that year, I think it's a very important question. It's the type of question that the Legislature should be thinking about as you go through these deliberations.

Yeah. Thank you. And I'm trying to take, other than the specific NOL net operating loss question, sort of a higher view. And by the way, that is a very small solution in the context of the budget, but to individual businesses, it's huge. They've lost money, and they're trying to recapture that by not overpaying taxes. When they do start making money. To a business, that is a huge deal, I can't overemphasize that. But again, it's troubling with regard to delays and deferrals.

We are just delaying and deferring problems into the next year and I think we know that. And a lot of the questions. Well, first of all, I want to make a quick comment about the changing nature of the in-and-out migration that Mr. Petek was talking about with Senator Dahle. That is a very troublesome trend. And I think what Mr. Petek said was that we can't tell if it's a permanent trend, but it has changed in the last few years from what it was before.

We were trading in and out-migration at roughly the same demographics and income levels, et cetera. But now it's different. We're having people with lower incomes coming into the state and higher incomes leaving the state. And just think a little bit about if that is a trend, the impact that's going to have certainly on revenues, but the economy of the state as a whole, and therefore the quality of life of everybody in the State of California beyond the budget troubles that we could potentially have.

So we really need to keep a close eye on that. And a macro question about the approach to the budget. As Mr. Petek pointed out, the apples-and-apples comparison of the deficit is really 58 to 68, which is not a huge difference. And the governor's proposal gets to 38 by virtue of baseline assumptions on the budget. But those baseline assumptions, as I think Mr. Patek pointed out, have to be budget actions in and of themselves.

And so I'm wondering, this just confused the issue as well as the handling of the Proposition 98 guarantee from the closed budget year. The LAO recommended that that be covered by drawing on reserves. So essentially it is paid, expected to be paid back. But no, you don't have to because we'll apply the reserves to it. That's pretty simple and easy to understand. With Mr. Senator Laird's questions. It's obvious that it's very confusing and you had a difficult time even answering the question.

And to have a completely different approach for the budget, which is further confusion. Why?

I actually think that we have approached this budget like we have approached other governors' budgets. And what that is, is we propose changes to current law and we provide the trailer bill that does that. That's the mechanism by which that happens. And so perhaps some of this confusion can be settled when we go over the trailer bill.

I'll just say that generally, but particularly for this Prop 98 proposal, which I actually think is simple, but clearly there are questions. Yes, in general, what we do is we baseline. The Department of Finance has more information than the LAO by virtue of us being part of the Administration. And we know our departments. So we do baseline. We do baseline adjustments. We know what their savings. So we generally baseline the number, let's say, on the expenditure side because we know that.

And we have included the Prop 98 on that side because we're also proposing legislation to make that change. All of these proposals require legislative action. And I think it's great to have this discussion because it does highlight the things that we are proposing. And again, they are proposals. We look forward to hearing alternatives. If this proposal is too confusing or if this proposal doesn't meet the priorities of the Legislature, we need to find other alternatives to meet this budget shortfall.

They are confusing, and I think that could have been predicted ahead of time. But I've been involved with about a dozen public budgets in my career as an elected official, local and state, and over that time, I've seen lots of maneuvers for challenged budgets, the tried and true approach to just assume more revenues, which I think we did last spring, and I think the Governor is proposing again, and the significant use of delays, deferrals, fund shifts, and fund borrowings.

There are some reductions in expenditures, and that shows priorities, by the way. This budget prioritizes benefits to noncitizens over benefits to citizens who are suffering from developmental disabilities as well as Senator Grove was questioning, lack of adequate help to hospitals in the state that are particularly challenged in rural areas. And I just have to say that of the dozen budgets that I've been involved with in the public sector, this one is probably the most illusory, in my opinion.

And I just have to question the true honesty of the approach. It's not a question.

I was going to say we'll take that as a comment and we will move on to Senator Seyarto. And I still have Senator Durazo, Senator Becker, and Senator Ochoa Bogh. And again, Members, we do want to hear from the public. So proceed.

Thank you very much. And keeping in mind everything people have talked about up there are concerns of all of ours.

People have expressed a lot of things that we're all concerned about. On the revenue side, what's our plan for increasing our revenue? Because that's going to have to happen. But at the same time, if you look at where we're taxing, we're taxing the very businesses that we're trying to keep here. It looks like we have close to a billion dollars in increased taxes landing on the shoulders of our businesses, in addition to our labor costs and things like that.

And if that's where a lot of our revenue shortfall came from, there's a reason for that. And if we're going to make it even more expensive for them to be here, how are we going to, where else are we going to get revenue from?

Yeah, I would just point out that our revenue proposals, and there are several, but the largest being the NOL conformity or partial conformity, the Federal Government, are small in regards to the total solution that we're. The total 37.9 billion. We are pulling back one-time funds.

We are proposing some reductions that are ongoing. And again, we have deferrals, fund shifts, taking advantage of some of the cash that we have in special funds and borrowing. So it is what we would call a broad-based and approach to dealing with this problem. So it does include some revenues, but revenues outside of the MCO Tax, which is a large 13.8 billion. We are not proposing large revenue proposals.

And without that, we are moving expenditures into future years that we don't anticipate being able to cover with revenues. So we're going to be having the same conversation next year. People who we've now told, hey, it's just a delay. It's not a cut, it's a delay. They're going to be back here wondering where their delayed money is, and we're going to have to tell them it doesn't exist. We're going to delay it another year.

And looking at our picture, it looks like, and tell me if I'm wrong, that our deficit is getting larger and larger right through 27-28 to close to $90 billion.

It's actually 30 billion in each of the years.

Right, $90 billion, eventually. We have to get honest with the public. We promised them a lot of things, and now we don't have the money to pay for it. And so we do have to claw back some things.

One of the things we shouldn't be clawing back on is our disability. That's $650 million. And that is, is that the last payment that we have promised them over a few years, part of their disability package? Because if this is the last one, then they've already programmed this money. What are they going to do?

Senator, Chris O'Neill, Department of Finance. Is that regarding the Department of Developmental Disabilities? Yes. Correct.

So up through this fiscal year, providers that are included in the rate models that are being reformed have seen an increase of their rates, equivalent to 50% of the increase that they would eventually see. The Governor's Budget proposes the final adjustment for the freight reform to be to take effect July 1, 2025 which was the original timeline, which was the original timeline in which, when the budget picture was different, we had hoped the budget had accelerated into July 1 of 2024.

But it is the outstanding adjustment is the final adjustment in this rate reform implementation.

Okay. So that kind of, in the expenditure side, is a priority that I think I've heard a lot of people express that we need to address. We have $500 million going to electric buses. Right now, we are struggling. Talk to the industry. We are struggling trying to make that work.

And this is the perfect opportunity we have as a state to take a step back, take care of some of these priorities, like our foster youth and our disabled people, and allow the technology and the stuff that we need to get on the ground to be able to support the lofty goals of the climate change stuff. We don't need $500 million spent on electric school buses. We already have school buses.

What we need is their last payment to be made on time so that they can do the job that we ask them to do. And so that's, I think, something else that we really need to pay attention to. Last thing, because everything else has been covered. This hasn't. 750 million dollars that was promised in local spending. In other words, these are district asks that people had and these district asks were for public safety infrastructure.

They were for road infrastructure, things that people needed the last bit of funding in order to accomplish. And we're basically saying the 750 million dollars is being cut and anything that got paid, got paid and everything else is on the chopping block. We need that list of who's on the chopping block because those are, again, some of these agencies have been preparing to be able to do this, and now we're pulling the rug out from under them.

It's going to cost them twice as much to be able to fix what they need to fix. So are we going to get that list?

I appreciate the question, and I just wanted to say that the actual proposal is for 350 million of that total bucket. The reason it is 350 million is because we are proposing, we don't know all the funds that have gone out so far. There were over 600 local funds and spread across multiple departments and agencies.

And at this point, we don't have a consolidated list yet and we don't know what the actual monies are left. And so that was an assumption that we made, again, a proposal. I know there's been a lot of discussion around this, and then we will continue to have that discussion.

Great. And that needs to have a, again, we need priorities. Fire stations and finishing up an infrastructure project is probably much more important than some of the other projects that are on those lists.

And so if we have to cut, we need to make priorities based on need and what's best for the public, not necessarily on politics. And that's what I'm concerned about. So thank you so much. A lot of work gone into this and I appreciate it.

We will go to the next on my list. And obviously, Members, this is our first discussion in this. We will have all of the Budget Subcommittees and our full Committee hearings to get.

We're going to be, as has been, the Administration has put forward a proposal. We know there has to be trade-offs. We know there has to be. We have a deficit, so we're going to have to adopt a budget that addresses that. And so we're going to have lots of time to get into a discussion of all the trade-offs. So if we could stay relatively high-level now, that would be great. And we have Senator Durazo, Senator Becker, and Senator Ochoa Bogh.

Okay, so Senator Becker, go ahead.

Great. Thank you. Just kind of one or two high-level comments and a couple on climate, just one for LAO. I think we met in the past. You've indicated to me, that revenue is really tied to stock market. So with stock markets a record high, and are you concerned that you're projecting flat revenues going forward?

So, Senator Becker, the revenue forecast that we have incorporates, like I was saying earlier, much of the appreciation of the market throughout the 2023 calendar year. And if the gains that we've seen recently were to persist and remain high, it could be some upside for us in April. And then, like I said, also typically we benefit the most when there's the accompanying investment activity in California businesses. I don't know if my colleague would want to supplement any of those points.

I mean, I think we'd agree generally with the point that when stock prices go up, it's beneficial for the state's budget. No argument there. I mean, I think the relationship is somewhat complex, in part because in the past, when we look back and we see that the stock market is doing well and the state budget is also doing well at the same time, part of that is a direct story that it's a capital gain story. People are selling stocks at higher prices.

They're paying taxes on those. Some of it is, or a big part of it is what Gabe mentioned, sort of an indirect story that you have more initial public offering activity, more investment interest in California businesses, and that leads to more high-income jobs being created, more bonuses being paid.

And so what we're seeing right now is a rally in the stock market that to this point hasn't been accompanied by that second part, that the initial public offering activity that we saw at record highs in 2021 really hasn't bounced back. And similarly, sort of the really high kind of venture capital interest in the state in 2021 hasn't returned either. And so it's definitely a positive development for the state that the stock market has rallied in recent months.

And as Gabe mentioned, if it stays up there, that does provide a lot of upside for probably particularly 24-25. That being said, we did see the stock prices did go up quite a bit in calendar year 23. And even with that, the current read that we're getting on January income tax collections, which is kind of the first data point we would get that would show any sort of potential positive benefit from those stock payments.

It would be people paying quarterly estimated payments on those capital gains from 23. Those January estimate payments have been relatively weak. And so the data we have at this moment is not yet indicating to us that that stock market rally is showing a lot of benefit yet.

Yeah, well, actually, I'm agreeing with you. I mean, I was representing Silicon Valley.

It just, I think it underscores, and I think this point I've tried to make too, maybe the last few years, that how dependent we are really on that kind of IPO activity. I think we probably underestimate the impact of the SPACs, which was like a limited phenomenon. We really saw for a year or two where everything was marked to market.

I mean, any investment activity in startups that takes five to 10 years to realize, but the SPACs, everything was marked to market immediately, and that phenomenon is gone. Right. So I think we've maybe underestimated that impact, but certainly, the IPO market could come back, as you say, with a higher stock market. But we are, I think, certainly dependent on that. Just a less high-level comment representing my district, I think pays probably roughly 15% of income taxes.

And, you know, we, we have seen some people leave for sure, but I'm hoping, I think that our work here, as well as our work on homelessness, public safety, wildfire, the things that we've actually, that we're, I think now have a real strategy on will help stem that. A couple of specific comments on climate. I want to thank the Governor for removing the state subsidies for fossil fuel and oil companies.

There was something that 13 Members and I had called for, and we think that additional savings, over $20 million in this budget alone will be helpful. I did want to ask about clean energy reliability. This budget really kind of guts a lot of those programs, and I think some of that, the 55 million for the Strategic Reliability Reserve makes sense.

And again, we'll get into this, obviously in our Subcommittee, but there was a lot of investments that were tied to the Diablo Canyon Extension Deal, and it feels unfair to go back on that promise, particularly when we're seeing these OTC plants being extended. So we're talking about the 50 million for DEBA, the 56.9 for long-duration storage, 200 million for Oroville Pump Storage Project.

So why is the state cutting these programs and weren't sure about what the hydropower projects are or how hydropower energy source will be this year when there's already a tight resource adequacy year?

Thank you, Mr. Senator Becker. Just at a high-level, and I'll start there. The General Fund resources, in the past, a lot of the one-time funding did go to climate.

So just generally speaking, you will see some higher reductions and some higher delays because of that, as a result of the amount of the one time funding that went to resources. And in regards to clean energy generally, I think we looked at lots of proposals and attempted to put on the table the things that made sense. It is clear that we have different opinions of what that is, and I think we would like to continue to have that conversation. If not this, then what else?

Good. We'll look forward to having that conversation in the Subcommittee about the clean energy reliability. Just raising those concerns. I'll just limit to one other question, certainly concern about the coastal resiliency, for sure, that many of my colleagues I know share, given that we may return to the atmospheric rivers that we saw last year. Just specifically, last question. The Administration said that we expected 10 billion in federal funding related to climate at one point, I think that was the number that I saw with IRA and IIJA money.

I'm just wondering, what specifics do you have around that? What funds might offset the proposed cuts and deferrals in the climate package? And how are we thinking about that? How specifically are we able to now plot some of those revenues?

Sure. And can we get you that list, that 10 billion? I don't have that handy.

But I also would want to say that again, some of the decisions we made were based on what could be backfilled, potentially, or supplemented by other funding, specifically federal funding, and particularly in space of infrastructure, energy as it relates to the IRA and IIJA. So we'll follow up with your staff and get you that list.

Okay, we'll follow up on that. And just last thing to flag is just the equitable building decarbonization. Big cut, 283 million.

And we know the Governor has a target of 6 million heat pumps by 2030. So I'm just raising flagging that as well. I think that's something that we need to come back to. But thank you for these answers.

Thank you.

So the Chair has cast fate to the wind and left me in charge. Senator Durazo.

Thank you. Thank you, Mr. Chair. Just something, it's very broad, but I remember last year bringing something up like this.

We need your information, and I appreciate all the work that the Administration, Department of Finance and our LAO put into this is as you're giving us guidance, you're giving us information that we need to be able to make decisions about what needs to be deferred, if at all, what doesn't. All these really important decisions, it determines what choices we have available to us. And some of my colleagues sort of made reference to this already.

But I'd like to hear, when you do these analysis, to tell us more about not just the stock market, but what about regular working people? Where are they at in this economy? How do they contribute to the well-being of our budget? Just as an example, because it was brought up, an increase in the minimum wage of a healthcare worker. Right? Almost half of those workers are on a public safety net program. So there are MediCal, CalFresh, CalWORKs, a federal income tax credit.

How do we prefer to spend our money, our revenue? Do we spend it on the safety net or do we help people earn the living so that they don't have to rely on the safety net and the government doesn't have to figure out, how do we fund all these human resources and not have to pick between one vulnerable group and another vulnerable group, one group of poor people?

So I think that's really important part of the information that I'd like to hear when you give us this analysis, we have choices in front of us. But if it's limited in terms of the information, then I feel like there's a gap, there's a hole there in that information. So you may not have a response to that right now, but I think it's important for us to have a complete picture of the economy of California, not a partial one. That's just the stock market.

And finally, I just want to thank you all very much. This is hard. It's hard for you, but we need you to give us the best, most accurate information so that we can help to make these decisions.

And the Chair returns.

I don't see Senator Ochoa Bogh here. Was there anyone else on the Committee who had not yet asked questions, who wanted to?

Okay, well, I think we are going to go to public comment, and perhaps when Senator Ochoa Bogh returns, we can have her ask questions. Well, I'll wait. Okay. Well, I can interrupt. All right. So obviously, there's many of you who want to address us. We appreciate that. I would ask, please, for you to be as brief as possible. And I will start putting time limits on very quickly if that is not the case. So let's proceed and go ahead. Your name and if you represent an organization.

My name is Wednesday Pope, and I'm with John Burton Advocates for Youth. I am here to ask the Senate Budget Committee to protect foster youth in the state budget by maintaining funding for the $13.7 million Housing Navigation and Maintenance Program, the $18.8 million Supervised Independent Living Placement Housing Supplement, and the $30 million Family Urgent Response System, each proposed for elimination in the Administration's January budget. Please stand by, California's foster youth. Thank you.

I feel like she did pretty good.

Hello. My name is Cody Van Felden. I am with John Burton Advocates for Youth. I am here to ask the Senate Budget Committee to protect foster youth in the state budget by maintaining funding for the 13.0.

If you are going to repeat exactly what she said, why don't you just say and I want to protect the funding that the first speaker described.

Yes, please protect foster youth like myself.

Thank you.

I would like to add on and please protect foster youth as the two last speakers spoke on. Thank you.

Jan Judson, I'm with Make It Happen for Yolo County. We're a nonprofit that serves transition-age foster youth and I ditto the previous three speakers. Thank you.

I'll translate as brief as I can for her. She's an undocumented worker. She works in construction. She's been living in Sacramento for 19 years. She has three kids. We're here advocating for Safety Net for All. And like she mentioned, in her workplace there's a lot of discrimination on top of the fact that as being an undocumented worker, she has no security net, which is why we're here advocating for that. Thank you.

Thank you.

Good afternoon. My name is Christina Heckt and I'm part of the policy team at UCNPI Nutrition Policy Institute is funded by the budget to evaluate our school meals for all program. I want to tell you that the program is working. Analyzing the data responses from hundreds of parents, students and food service directors across our state has been truly heartwarming. There's so much enthusiasm for and appreciation of Meals for All and also recognition of some challenges, some top-level findings.

Meal participation is rising, so more children are benefiting from healthy meals and without the stigma they used to feel when meals were for poor kids. I want to remind you that for the average child, the food they get at school is healthier than what they eat the rest of the time. The majority of families report that knowing their kids can eat two healthy meals at school each day reduces family stress and stretches family budgets for other necessities.

As for students, almost all endorse School Meals for All. With greater participation and recent increased food and labor costs, more funding is required simply to keep pace. Thank you.

Good afternoon Members Oracio Gonzalez on behalf of the Salton Sea Authority, we are a joint powers authority consisting of the Coachella Valley Water District, the Imperial Irrigation District, the County of Riverside, the County of Imperial, and the Torres Martinez Desert Kawea, a native people that have inhabited the Salton Sea region for thousands of years.

We are grateful for the governor's proposed investments in the Salton Sea that will help scale up implementation of the Salton Sea management plan, but also address the importance of operating and maintaining projects as they are completed. O and M expenses are expected to be over $60 million at completion of the 10-year plan, so we appreciate the Governor making an initial investment in that area.

The governor's proposal also includes a $3 million contribution that will help finance the state share of the U.S. Army Corps of Engineers Salton Sea Imperial Streams Feasibility Study. Projects identified under that study will be eligible for up to 65% federal funding, so this could ultimately result in a cost savings to you and on behalf of the California alliance for Digital Equity at NextGen California, we support the Governor's investments in broadband, specifically the proposal to fully fund the Middle Mile and proposals around the Last Mile Grants. Thank you.

Thank you.

Good afternoon, Members. Martha Zaragoza Diaz, representing the Members of the California Music Educators Association who are classroom music educators with extensive experience and a single subject credential to provide music instruction to students both at the elementary and secondary level. CMEA is very concerned about a K through 12 budget proposal to create a CTE teacher education authorization to teach the arts at the elementary level. Historically, teachers with CTE credentials have taught in grades 7th through 12th grade, emphasizing career training.

CTE does not provide requirements for pedagogical instruction to teach nor to assess elementary-age students. Alternative pathways to credentialing already exist. CMEA believes that elementary students deserve a highly qualified educator in the arts providing age-appropriate instruction. CMEA looks forward to working with you and others on this issue. Thank you.

Good afternoon. Julia Forte Fruden from the Care Law Center, Senior Project Manager and Evaluator. Our organization is also a member of the ECE coalition.

The state budget is the most important legislation for creating an equitable society and a sustainable California where Black and brown families have the childcare they need and childcare providers are fairly compensated for their hard work and dedication to our children. The Childcare Law Center strongly urges the Senate to include funding to implement the new cost-based formula to pay providers based on the true cost of enriching care and to increase the number of new, affordable childcare spaces above the 546,000 spaces this estate has already allocated.

This is especially since no new spaces were allocated last year and thousands of eligible families are on the waiting list. Parent Voices of California also aligns with our comments. Thank you.

Thank you.

Good afternoon. My name is Martin Bourque. I'm the Executive Director of The Ecology Center. We oversee Market Match, the statewide safety net program that matches CalFresh shoppers' dollars for fresh fruits and vegetables at farmers' markets. This is funded by the California Nutrition Incentive program.

I'm here on behalf of the millions of CalFresh shoppers, thousands of family farmers, and dozens of grassroots community organizations involved in Market Match to seek your strong support for CNIP. Last year, $35 million were allocated to support this program. And this year, the Governor has proposed to cut that funding. CNIP helps prevent diet-related illness that disproportionately impacts low-income Californians. It draws down millions in federal matching funds. It has a three-to-one economic multiplier effect that injects money directly into California's rural communities.

Taking hundreds of millions of fresh fruits and vegetables and vegetables out of the mouths of low-income children is not acceptable. Please reinstate the $35 million you approved for CNIP last year. Thank you.

My name is Minnie Foreman. I'm also with The Ecology Center, and I want to second Martin Bourque's comments. I also would note that the California Nutrition incentive program brings in millions of dollars, federal dollars, into the State of California. And between 2017 and today, it brought in $30 million. So this is unique in that it also brings in matching funds. Thank you.

Good afternoon, Madam Chair and Vice Chair and Members. Jim Fraser, representing the Arc of California, 22 chapters, and also United Cerebral Palsy, their 12 chapters in California. The Arc has been an advocate for the special needs community for 74 years in California. And we're here today to tell you and ask you about the deferral that the Governor has proposed in the DDS system is going to be catastrophic to the industry. Historically, through the funding of the agency and the population.

The population has always been the first to cut, the last to get reinstated. So what we've had here in 2015 was the Legislature commissioned a rate study to see where we were and where we needed to be. That took over six years to get implemented, and then a promise was made to phase it in over a period of time. Now that promise is being broken.

The deferral is kind of a reneging on a promise that our providers who are businesses in California providing lifeline services to this community will have to cut back on the promises that they made.

Their employees also. One of the other facets of this is how we've moved the goalposts on this population is the minimum wage that we have given to the fast food workers and the healthcare industry, which creates a competitive, uncompetitive factor for us to be able to have our workforce for retention and also equity and pay. So they're going to make an exodus to these other pay centers to be able to work.

I'm just asking that promises made, that promise be kept for the industry to go forward. Because the rate study wasn't the panacea. It moved us to a place where dialogue could continue to go and make sure that we could have an ongoing conversation because it did not include inflationary costs, growth in population. All of these factors are another impact to the rates that are being paid to these providers.

I hope that we have a conversation of making sure that this promises is kept, but also an ongoing conversation on how we can better the quality of service for the developmentally disabled in California. Thank you.

Thank you.

Good afternoon. My name is Tracy Olsen. I'm the Chief Public Defender of Yolo County. I'm here today to represent the California Public Defenders Association, some civil rights organizations, and constituents. And I'm here specifically to ask you to consider restoring year three of the public defender pilot program grant. It's $40 million, and it's something that the counties had planned on receiving March 2 of 2024, in about six weeks.

One of the reasons I think that it makes sense to restore it, and it's most relevant to what we're talking about today, is it actually saves the state money. Yolo County, just as one example, we received in years 1 and 2, $568,000. Our return on investment to the state is $5.5 million. And that's calculated by, well, it represents reduced incarceration costs and it's calculated using a marginal cost rate that was calculated by the CAO's office.

It's really money in your pocket, and it's something that is replicable, and it has been replicated in all the other counties. So if you take Yolo County and then you imagine all the other ones that I haven't mentioned to you today, it's an incredible return on investment for you. So that's all I have to say today. Thank you.

Good afternoon, Senators. My name is Brian Sanchez, a community organizer from the Inland Empire with the Safety Net for All Coalition.

I am speaking in support of SB 227, aka Safety Net for All. Undocumented workers are currently excluded from receiving unemployment benefits, even though they pay billions into local and state taxes, and taxes on their wages pay millions into the state's Unemployment Insurance Program, of which they have no access to. I ask you that you please include Safety Net for All in the state budget and protect California's undocumented workers. Thank you.

Okay. Good afternoon, Chair Skinner and Members. Appreciate you all hanging back and hearing comment from us all. My name is Jetaun Stevens. I'm a Senior Staff Attorney with Public Advocates. In this tight budget year, we appreciate the Governor's and the Legislature's ongoing commitment to funding affordable student housing for low-income students through the Higher Education Student Housing Grant Program, including finding a state revenue bond solution to ensure housing for low-income community college students.

However, in light of recent reports showing an increase in student homelessness and housing insecurity, we're concerned about the proposal to pull back additional funding for student housing. So we look forward to working with the Legislature to find a solution to ensure that housing costs do not continue to be a barrier for low-income students achieving their higher education goals. Thank you.

Thank you.

Good afternoon, Chair and Members. My name is Savannah Jorgensen, and I represent California Interfaith Power and Light, the Lutheran Office of Public Policy California, and the hundreds of faith communities around the state that we serve. I'm calling on the Legislature to restore California's clean air safety net. Communities suffering daily from some of the worst air pollution in the country should not be on the budgetary chopping block. We hope you'll do the right thing and fight for our right to breathe clean air and live in a safe climate. Thank you.

Susanna Kniffen with Children Now, and we urge the Legislature to reject all cuts to foster youth in the Governor's Budget, including cuts to prevention programs, housing programs for current and former foster youth, and support programs such as the Family Urgent Response System, which can reach any young person or family in California within one hour to help resolve disputes in family homes or to help young people settle into those homes. It's a critical program, and we just urge you to protect these youth. We chose to remove them from their homes. You're now legally responsible for taking care of them. We ask you to prioritize them.

Madam Chair, Members of the Committee, Terry McHale with Aaron Read and Associates. I'd just like to thank the Governor and the Legislature for addressing the onerous work hours that CAL FIRE, the only fire department that works 72 hours a week as opposed to 56 that the other fire departments work. It's appreciated, and we look forward to working with you. Thank you.

Madam Chair and Members, Brendan Twohig, on behalf of the California Air Pollution Control Officers Association, representing the executive officers from all 35 local air districts.

Given the significant budget deficit this year, we ask for your continuing prioritization of funding programs that cost effectively address our air quality, public health, and climate challenges. Two air district administered programs, the AB 617 Community Air Protection Program and the FARMER Program are highly cost-effective at reducing both criteria, health pollutants, and greenhouse gases. We appreciate past and proposed funding, and prioritizing these investments in these programs will make scarce resources go further.

The Community Air Protection Programs proposed to be reduced from 300 to 250,000,000, we ask that you restore that to 300 million; program's already underfunded. And the FARMER Program was cut by 50 percent to 75 million last year, and we ask that you restore it to the previous year's level of 150. And we'll be providing more substantive comments in Subcommittee. Thank you very much.

Hi. I'm Raymond Meyer. I work as a cook at Mercy McMahon Terrace, a local resident care facility. I want to thank all our legislators and the Governor for passing SB 525 that raises the minimum wage for all health care workers. You guys heard us, and when we told you guys that we have short staffing, it's a critical thing that we're doing here. After the pandemic and everything, we're still here, and we're still trying to get better and have more staffing.

My health care job is not my only job. I work Lyft on the side to be able to afford my bills for my family. I'm not the only health care worker that's doing this. I know many people, especially in my facility, are. The higher pay means that I could do less of the extra work and focus on my family, get rest for myself, and be better at my job at work.

We end up being their family, their everything during their last moments for life, as well as all the health care workers. We have those additional responsibilities. And I just want to acknowledge and thank you guys for continuing to do that, to hear us and represent us. Thank you.

Good afternoon. My name is Stacey. I'm EKG Tech with Dignity Health. I'm also wanting to express my appreciation to the legislators and the Governor for passing SB 525 last year, also in recognition to the short staffing and crisis with our hospital and clinics that affect the patient care and workers, and then you guys took action to help resolve the problem for us.

In my clinic, we are still having issues with short staffing, employment retention, and everything, and a lot of that has to do with the wages. So with that, again, I want to say thank you for that, and I hope that the Governor does pass this and that you guys do put this into the budget. The reason that we don't have enough staffing is the low pay.

And as my coworker said, a lot of us work second jobs to supplement our income to be able to make ends meet with the health care minimum wage law that sent a message saying that we really do matter, even after the pandemic. And companies like Kaiser, Stanford Health Care, and Francis have already set the minimum wage care for their employees.

So when it goes into law to effect over the summer, it will make a big difference for health care workers, improving their staffing and facilities and the lives of those who matter on the front line. Thank you.

[Foreign Language]

And I'm going to be translating that. Hi. Good afternoon. I am a farm worker, and I've been working here for over 31 years and contributing to taxes. I support SB 227, Safety Net for All, and I ask it be added to the budget proposal. Thank you.

[Foreign Language]

I'll do my best to translate quickly. So, her name is Victoria. She's a farm worker. She's also an undocumented person, and she was bringing up the points that as essential workers that they were during Covid and in other times, they move the food from the farms and from the land onto people's plates and onto their tables. She feels that it's unfair that they've been excluded from benefits and resources and help. And so this bill, Safety Net for All, is for unemployment benefits. She says that she really wants your guys's support. Thank you.

If I could ask, since these are #MeToos in effect, that we please have folks just say they are also in support of that versus the.

[Foreign Language]

To summarize, I support SB 227, Safety Net for All. He is a construction worker, and this bill would help and support many undocumented people.

Good afternoon, Chair Skinner and Members. Purva Bhattacharjee here with the California Alliance of Child and Family Services, representing 167 different community-based organizations that serve public behavioral health and child welfare populations.

I just wanted to share that we are also deeply concerned with the proposed cuts to foster kids, including the Family Urgent Response System, as well as the Supervised Independent Living Program Housing Supplement. We also look forward to learning more and engaging on the much needed foster care rate reform proposal to ensure that youth, caregivers, foster family agencies, short-term residential therapeutic programs are sustainably funded. We are also concerned by the delays in behavioral health workforce and infrastructure funding given the current youth behavioral health crisis. Thank you.

[Foreign Language]

His name is Guillermo. He's from Ontario, California, and he supports SB 227, Safety Net for All.

[Foreign Language]

This is Lucia Aguilar from San Bernardino, and she supports SB 227, Safety Net for All.

Danica Rodarmel, on behalf of Debt Free Justice California. I want to thank the Senate for all of your hard work to support California's most vulnerable folks, including many here today who probably couldn't afford to take the day off to be here.

I want to particularly thank Senator Skinner for all of your hard work to eliminate criminal fines and fees and uplift a comment made by the Senator in a letter to Department of Finance last year about the continual, annual adjustments that are needed to the budget for our reliance on criminal fines and fees which continue to be uncollectible.

So instead of that, we can just eliminate them, put General Fund dollars that already end up there there in the beginning, and not continue to waste money on trying to collect uncollectible debt. Also want to highlight that this year we're requesting the elimination of two fees related to drug diversion and drug treatment to help address the state's fentanyl crisis. Thanks.

[Foreign Language]

Hi. My name is Betty. I'm from San Francisco, California. I'm here to support Safety Net for All, SB 227, and she's affiliated with TUWU.

I do just want to clarify that bill is not before us, so I think what the real ask is that there be an appropriation for it, but that bill is not before us and it is not a budget bill, so just want to make that clarification.

Good afternoon, Madam Chair and Members. Ross Buckley, on behalf of the South Coast Air Quality Management District. We greatly appreciate the AB 617 funding that is provided in the Governor's Budget for air districts for implementation incentive dollars. We request the continued prioritization of this program and funds, as the LAO previously confirmed that this is a highly cost-effective use for addressing air quality, public health, and climate challenges. The AB 617 program is severely underfunded.

As communities have continued to grow, we lack the necessary resources to even support those existing communities. In the South Coast region alone, we have about two-thirds of the EJ communities and we can't include additional communities due to lack of resources. To help address this, we respectfully ask that the AB 617 funding be restored to last year's levels. This will help cover actual program costs and two: cost-effectively reduced emissions that help meet federal air quality standards and protect health of disadvantaged communities. Thanks.

[Foreign Language]

Hi. My name is Angelina. I am a farm worker. I am from Madera, California, and please support Safety Net for All. Thank you.

[Foreign Language]

I am from Madera, California, and I support Safety Net for All, and he has been working here for over 20 years.

Becky Silva with the California Association of Food Banks. Food insecurity is still at record levels. A quarter of all California households are impacted today. Thank you for your tremendous leadership, Senator Skinner and Senator Menjivar, in securing historic and nation-leading investments in school meals in CalFresh, and we look forward to supporting continued work in these areas in the budget.

We do have concerns about the proposed complete withdrawal of the Safety Net Reserve and all proposed cuts to the CalWORKs and the Family Stabilization Program. Thank you for all your work to prioritize low-income Californians in the budget discussions ahead. Thank you.

Good afternoon. Rebecca Gonzales with the Western Center on Law and Poverty. We appreciate that the Governor's Budget honors past commitments, including expansion of Medi-Cal to all income-eligible adults regardless of immigration status and that there are no CalWORKs and SSI grant cuts. However, we are concerned that whenever there are budget deficits, the state looks to balance the budget by targeting programs that serve the lowest income Californians rather than looking at revenue solutions. We also oppose emptying the Safety Net Reserve coupled with permanent cuts to CalWORKs.

This acts as a double cut that destabilizes our most vulnerable families. We support the state applying for the federal TANF pilot and urge the Legislature to ensure the pilots are successful by including key reimagined reforms to center families. We also oppose cuts to legal services for immigrants, foster youth, and housing. Finally, we urge implementation of share of cost reform and Medi-Cal continuous eligibility for children.

Low-income families are least likely to weather economic downturns and most often the slowest to recover, so protecting and strengthening our Safety Net is critical. Thank you.

Hi. Good afternoon. Carol Gonzalez on behalf of Long Beach Community College District and Hispanas Organized for Political Equality, and part of the Cal Grant Reform Coalition, here to share that we strongly support the Cal Grant Reform Act and its transformative impact on low-income and BIPOC students to make college a reality.

We really urge you and the Legislature to prioritize the implementation of the Cal Grant Reform Act this year in order to simplify the program and support our students. We know it's a tough challenge, but we really encourage you to push for it. Thank you.

Chair and Members, Nick Romo with the Southern California Association of Governments. We urge you to reject the cuts to the REAP programs, 300 million dollars for over 100 real, very real projects in our districts across our state. Look forward to working with you.

Nicole Hutchinson, on behalf of CALSTART, a global nonprofit dedicated to accelerating clean transportation. We continue to appreciate the Governor's commitment to California's ZEV goals, and in particular, we're grateful to see that funding for zero-emission school buses are preserved. That being said, going forward, we look forward to working with the Legislature and the Administration to ensure that the proposed delays don't impact ZEV adoption, infrastructure development, and opportunities for clean mobility options for communities that need it the most. Thanks.

Thank you, Chair and Members. My name is Kai Cooper, on behalf of the EV Charging Association, also known as EVCA. EVCA appreciates the Governor's leadership to maintain his ten billion dollar ZEV package commitments. The Association looks forward to working with the Legislature and the Administration to ensure that critical infrastructure development programs can continue to be successful despite the challenges posed by the budget deficit. Thank you.

Hi. Ann Quirk with Children's Law Center of California. We represent the youth in foster care in Los Angeles, Sacramento, and Placer County. When these children were removed from their families, California promised to keep them safe and take care of them. We're asking California to fulfill that promise by maintaining the budget for the SILP supplements so they have placements, the Housing Navigation and Maintenance Program so they don't exit foster care to homelessness, and the FURS, so that those who are trained to deal with foster care specifically help them when they are experiencing crisis. Thank you.

Good afternoon. Eileen Cubanski with the County Welfare Directors Association. We appreciate that you've got some difficult choices before you and that the Health and Human Services programs were largely untouched in the budget. But we were really disappointed to see some significant cuts to CalWORKs and child welfare system.

Specifically, we opposed the 300 million dollars in ongoing program eliminations in the CalWORKs program, as well as the elimination of the Family Urgent Response System, the housing supplement for older foster youth, and transitional housing supports for those youth as well. We really urge you to object to those cuts, and thank you, Senator Menjivar, for raising those issues in this hearing.

Hello. Alexia Melendez-Martineau with Plug In America, a nonprofit organization with a mission to accelerate the transition to electric vehicles. We urge the Legislature to restore and protect California's clean air safety net. Right now, tailpipe pollution is the largest contributor to the state's air pollution problem.

And pushing funding promises for pollution vehicles--pollution-free vehicles, excuse me--and infrastructure years down the road doesn't benefit the communities that need clean air now. As a representative for EV drivers across the state and an EV driver myself, I've experienced firsthand how EVs cannot only transform the experience, but also the entire vehicle experience through reduced fuel and maintenance costs, cleaner air, and freedom from volatile gas prices.

We understand that you have tough decisions ahead, and we urge you to do the right thing for California's communities and restore this critical clean transportation funding. Thank you very much.

Good afternoon, Madam Chair and Mr. Vice Chair. My name is Tony Anderson, and I'm with the Association of Regional Center Agencies, and we stand firm and strong against the delay in the rate study and the rates for our community providers that support people with developmental disabilities. This delay actually results in a cut of over a billion dollars to our community providers.

And those funds, of course, go towards funding the costs or supporting the direct support professionals who are directly connected to people with disabilities and assure that their lives are integrated and are person-centered and run by them. And so this will push us back. The other thing I would want to mention kind of quickly is that the master plan for developmental disabilities is quite exciting.

We're looking forward to that process, though with something that large, we want to make sure that there is a firm commitment from the state to support the California Lanterman Act and the entitlement to services and supports for people with disabilities and their families. It's a promise that was made, and we want to make sure that we set this in motion with that commitment. Thank you.

Good afternoon. My name is Mercedes Parker. I'm with California Youth Connection. We've been uplifting the voices of young people who have been in foster care for over 35 years now. I'm going to echo the sentiments shared by other foster youth advocates in this room and urge you all to reject any cuts to SILP Housing Navigation and Maintenance Program, as well as Family Urgent Response System. These are critical lifelines for youth and prevent youth from experiencing homelessness as they are exiting foster care, and I also want to thank Senator Menjivar for the questions that you uplifted today. Thank you.

Sofia Rafikova with the Coalition for Clean Air. We'd like to request the Legislature to reconsider cuts to the transportation and zero-emission budgets, as those programs are important to addressing both climate change and air pollution. Clean transportation programs are not just nice to have. Rather, they're a vital part of the air safety net in the smoggiest state of the country.

It is estimated that about 7,500 Californians died here from premature death due to air pollution. And even though it's framed as a delay in funding, the proposed budget essentially zero funds the clean vehicle programs. There's no guarantee that a future governor will uphold the promise to restore that funding, which is why we ask that these programs be backfilled by other funding sources, such as the State Highway Account. Thank you for your consideration.

Good afternoon. Abigail Alvarez with the California Association for Adult Day Services. We urge your support of our request to increase the CBAS Medi-Cal reimbursement rate and place a two-year moratorium on licensing fees. Thank you.

Good afternoon, Madam Chair and Members. My name is Isabella Gonzalez Potter, and I'm the Associate Director of State External Affairs for the Nature Conservancy. Despite record-breaking state budgets, California's investment in natural resources and nature-based climate solutions has not matched the pace and scale of the need. Historically, less than five percent of the state budget has been dedicated to natural resources.

The Governor's 2024-25 budget proposal would reduce state spending for natural resources to less than three percent, three percent of the state budget due to the proposed cuts to this area. We particularly advocate for restoring funding to the Coastal Protection Package as referenced by Senator Becker. We have real concerns about the proposed cuts and slashing of funding to the State Coastal Conservancy and the Ocean Protection Council to address sea level rise and increase coastal protection and ocean resilience.

As California faces a sizable budget deficit, we urge the Legislature to provide strong leadership to advance a robust climate bond that will provide much needed funding for nature-based climate solutions. Thank you.

Hi. Kimberly Sanchez with NextGen California, here to comment on a couple of items. First, we urge you to fund the implementation of SB 253 and SB 261 to bring the resources of the private sector to bear on climate efforts at near negligible cost to taxpayers.

We also urge you to reject the proposed cut to the Active Transportation Program, which can be funded out of well-funded, flexible transportation funding sources. Additionally, we ask to retain the funding to the Public Defense Pilot Program, which is the only statewide funding source specifically for indigent defense.

Finally, as part of the Cal Grant Reform Coalition, we are in strong support of Cal Grant Reform and look forward to working with the Legislature and the Administration on this critical education equity work, as well as working on the Career Education Master Plan. Thank you.

Good afternoon. My name is Santos. I'm from San Francisco and I am here to request that funds be allocated to finance Safety Net for All.

Hi, Sam Wilkinson with the CalEITC Coalition in GRACE and End Child Poverty in California. We're in strong support of the Safety Net for All budget funding. We'd like to echo the Western Center's comments on CalWORKs. We're also very supportive of the governor's proposal to maintain investments in our state's low-income refundable tax credits. And we urge your support of maintaining 20 million in free tax preparation assistance, education, and outreach funding. Thank you so much.

Good afternoon, Chair and Members. Ines Rosales on behalf of the K12 Education Equity Team at Public Advocates. We are thankful for the Governor's commitment to maintain the recent transformative investments in education, including community schools, universal TK and the equity multiplier, among others. And pleased about efforts in the budget to streamline the educator preparation process by eliminating the basic skills requirement. Thank you.

Just about her, quickly. She's an in-home care worker. She's from San Francisco. She's also an undocumented worker. I know you guys have mentioned that the Me Toos, but I just want to quickly take to the point about us being here is just to represent the workers as being undocumented. We know that this is not like the SB 227.

It's not the Bill that you guys are looking at. And it's also not in the budget, but it's important. We're just representing the undocumented workers and how it's important for them.

Yes. I completely appreciate it and I apologies for, but it's not really germane, per se. So I'm going to allow it to continue. And I do not want to cut people off. However, we're going to have to be because its yeah.

Thank you.

Okay, thank you.

Hello, everyone. My name is Lorena, I live in Hayward and I am here to support Safety Net for All. Thank you so much.

Hi, my name is Luis Mejia and I'm here in support of Safety Net for All, for the funding of Safety Net for All. Thank you.

Hi, also. Hi, my name is Cesar and I'm also here in support of Safety Net for All. Thank you.

All right, thank you. And we are not going to take any more long testimony from any other supporters of Safety Net. Purely support Safety Net Funding at this point or I will cut you off. Go ahead.

Good afternoon, honorable Chair and Members. My name is Sammy Sheikh with Wildcat Consulting, representing the California Community Land Trust Network, speaking in favor of the Foreclosure Intervention Housing Preservation program and your ongoing investment in this important housing justice strategy. Thank you.

Honorable Chair and Members, Amy Heins-Shaikh, also in support of the Foreclosure Intervention Housing Preservation program. Thank you so much.

Madam Chair and Members. Michael Pimentel here on behalf of the California Transit Association, just want to start off by acknowledging that last year took the decisive action to save public transit in our state that was made possible with $5.1 billion from the state given to our Transit and Intercity Rail Capital Program. We're hardened to see the Governor's Budget preserves that funding, even though it does make some changes to the time schedule for the release of the funds.

We would simply ask as the Legislature is considering the budget that you carry forward on that commitment to provide the 5.1 billion to California agencies. It's going to impact every region of the state, every one of your districts, making sure the services can stay online, the major capital projects can move forward.

And on a separate note, I did want to note that for the American Heart Association, I do want to voice our support for the continued appropriation of $35 million in previously approved dollars for the California Nutrition Incentive Program at CDFA. That program is instrumental in drawing down federal dollars and critical for making sure that programs like statewide market match nutrition incentive program can continue to deliver on its benefits. Thank you.

Madam Chair and Members. Alchemy Graham with the California City Transportation Initiative, representing California's eight largest departments of transportation and public works departments. Just want to echo some former comments that were made on the active transportation program and maintaining the funding that was previously awarded. Excuse me, previously applied in fiscal year 23-24.

While we fully understand the gravity of the current budget outlook, investments in the ATP are essential in supporting city's active transportation projects and enabling them to deliver on the state's climate, mobility, public health and equity objectives. And for that reason, we urge the Committee to consider supporting maintaining funding for the Active Transportation Program. Thank you.

Good afternoon, Chair and Members. My name is Kendra Harris, government affairs with Climate Center. I want to thank you for today's hearing. I know this is a tough budget year. We're looking at a number of cuts, but I want this Committee and the Legislature to consider eliminating all oil and gas subsidies and tax breaks before making additional cuts to the climate package. Thank you.

Hello. Good afternoon. My name is Irene Debarikua and I'm Director of Policy for Lidar Escampesinas. It's a statewide network of women farmworker leaders and we have the mission to ensure the rights of farm workers and their families.

We are part of a coalition which is made up of 150 organizations that have stepped up to fill gaps related to food insecurity, rental assistance, and severe wage loss, a role that should typically fall under our government. We are a coalition led by impacted workers that are excluded from receiving unemployment benefits. These workers are essential to the economy and although they are labeled immigrants, many have resided and served this country for over 25 years with their labor.

This is a Me Too. Excuse me. Excuse me. You can add your Me Too. Can we cut off the mic? Sorry. That's a Me Too. Thank you. All right, I will.

Good afternoon. John Drebinger with the Steinberg Institute. Just wanted to say that we're heartened by the limited number of proposed delays in behavioral health funding. We do have concerns around bridge housing, B chip, and workforce dollars, especially because we think those dollars going out on time will have a more timely impact on our existing workforce crisis. We're also concerned about the $7.8 million reduction in the Board of State and Community Corrections data collection on public safety realignment dollars.

We think that this data is essential for making sure that those dollars are being spent on programs that have more benefit than harm. And we just wanted to thank the Committee for your considerations of behavioral health issues. Thanks.

Thank you, Madam Chair and Members, Megan Subers on behalf of the California Professional Firefighters and I would just like to express our support for the Governor's proposal to implement the reduction in work week for our CAL FIRE firefighters. This was an issue that was bargained between the local and the Administration, really important to improve the working conditions and lives of our firefighters out there on behalf of the state on the front lines and would urge your support for full implementation. Thank you.

Kimberly Rosenberger with Service Employees International Union. On behalf of our 700,000 Members, we are heartened by some things, but concerned by a number of the cuts to social services and safety net programs. Not just because I'll have to change the opener to my remarks and numbers of folks we represent, but in particular because we have worked to progress really hard in California to create crucial safety net services. And we know that by cutting workers first, it takes a longer time to rebuild that.

We've worked for over a decade to rebuild that, and it costs a lot more. So we urge continued partnership and commitment as we work together to rebuild around social services, public health, behavioral health and continue to improve on childcare in K through 12. Thank you.

Good afternoon, Chair and Members Chris Lee here on behalf of the Sacramento Area Council of Governments urging you to reject the $300 million reduction to the Regional Early. I'm sorry, Regional Early. Oh my gosh, the REAP 2.0 program. I'm sorry, it's been a long day. Planning is in the title of the program, but in the Sacramento region, it's going towards capital projects that will unlock an estimated 8000 units of climate-friendly housing.

Urge you to reject that reduction and look forward to working with the Committee.

Good afternoon, Chair and Members. Janice O'Malley with the American Federation of State County Municipal Employees. Wanted to echo the comments made by my counterpart at SEIU, but also wanted to emphasize that we are still paying the price from the cuts made during the Great Recession which have continued to cause problems with retention and recruitment of public sector jobs. And this is why we oppose the sweeping of vacancies in the state workforce.

And we are also assessing the impacts of the delay in TCIRP funding on transit operations and how it will affect the transit workforce. We can't ignore the fact that at some point we are going to recover, hopefully from this bad budget cycle and we're going to need the help of the public sector workforce who perform the vital services that are needed for our state and our communities.

We look forward to working with all of you on finding ways to mitigate the impacts to our public sector workforce. Thank you.

Good afternoon, Madam Chair and Members Malik Bynum with United Domestic Workers AFSCME Local 3930. Very much appreciate the administration's maintained investment in the IHSS program, especially the provider backup system and the expansion of medical inclusive of IHSS cost. Very much look forward to working with you all on extending the current 10% state participation cap on locally negotiated wage increases, as well as building upon the current career pathways program for IHSS providers. Thank you.

Good afternoon Chair and Members. My name is Sam Greenlee. I'm the Executive Director of Alchemist Community Development Corporation, a nonprofit serving the Sacramento region. I'm here to speak for the statewide Market Match Program that is funded by the California Nutrition Incentive Program known as CNIP. Our organization administers Market Match at eight farmers markets here in Sacramento county in 2023. We facilitated almost one and a half million dollars in Market Match and CalFresh combined at these eight markets.

This number represents years of grassroots, nonprofit work locally and across California, building an effective safety net for California small farms and low-income families. The proposed $33 million in cuts to CNIP would undercut this work, kill this program, and leave no possibility of a future return. It would leave thousands of families without fresh fruits and vegetables, and accelerate the loss of California's small and midsize farms.

I ask you to reject the proposal to cut CNIP and reinstate all 35 million that was originally approved in the budget last year. Thank you.

Good afternoon. I'm Eric Lawyer speaking on behalf of the California State Association of Counties and representing all 58 counties in the state. We appreciate that this budget proposal preserves some recent investments in behavioral health and public health. However, several funding proposals would diminish the core services that counties provide.

Specifically, we're concerned about the lack of new HAPP funding, which is vital to addressing and making sustained progress in addressing our homelessness crisis. We have concerns about the cuts to CalWORKs and foster care services and specifically have concerns about the cuts to supports for local jurisdictions in implementing SB 1383, which is necessary to divert organic waste from landfills that will slow the state's efforts to reduce methane emissions.

We look forward to working with you all and addressing this budget problem, and thank you for your time today.

Good afternoon, Chair and Members Amara Eger on behalf of Ceres. We thank the Legislature for your leadership last year with the passage of California's landmark climate disclosure laws, SB 253 and 261. We emphasize fully funding these two bills in the final budget in order to have timely implementation. These policies were supported by over 30 major businesses, including Salesforce, Microsoft, Apple, Google and more.

Many of these companies feel prepared to comply with both laws as written, and we therefore urge the Legislature to work with the Governor's Office to make sure this funding is secured. Thank you.

Good afternoon, Chair and Members Nicholas Mazzotti on behalf of East Bay Regional Parks District, Mid Peninsula Regional Open Space District, Sempervirens Fund, Save the Redwoods League, and Land Trust of Santa Cruz County expressing concern over the governor's proposed cuts to coastal resilience and wildfire funding. Climate change does not stop for a bad budget year. Thank you very much.

Good evening, Madam Chair and Members. I'm Katie Van Deynze with Health Access California, the statewide Healthcare consumer advocacy coalition. We appreciate that despite the deficit, the Governor's proposed budget continues key investments in MediCal, especially the continued commitment to keeping MediCal available for all income-eligible Californians, regardless of immigration status and age. To further this effort toward health for all, in the coming year, we'll seek to include all Californians, including those barred by immigration status, to allow them to purchase plans through Covered California with a modest request for startup costs in parallel with AB 4.

We are also hardened to see no changes in the budget to the Covered California Affordability Assistance that the Legislature secured last year. We look forward to working with the Committee over the course of the year to protect these key health investments. Thank you.

Hello. Melissa Romero with California Environmental Voters. Here strongly opposed to the governor's proposed cuts and delays to the climate budget, especially when environmental groups have identified up to $9 billion in funding that could be found by cutting oil and gas subsidies. I also want to urge the Legislature to pass a climate bond.

Want to echo the comments from my colleague who represents Ceres on the importance of funding SB 253, the Climate Corporate Accountability Act, and SB 261, the Climate Financial Risk Disclosure Act, both major achievements last year that we really need to get implemented. Thank you.

Good afternoon, Chair and Members. Melissa Cosio with Californians for Safety and Justice and Crime Survivors for Safety and Justice. We want to thank the advocacy of Senators Ochoa Bogh, the Chair, Senator Caballero, Menjivar, and Durazo for all the.

Yes, of course. Yes. Thank you for your advocacy on our issues. We are a network of survivors of 50,000 crime survivors through a statewide California who are advocating for flexible cash assistance through the Flexible Cash Assistance Grant. And it's being delayed by about a year. So we're asking for that today. And we're also asking for the future closure of prisons.

Last year, the LAO showed that there could be five additional prisons closed by 2027, and with that, could result in 1 billion funding and resources that could be used for survivors as well. So thank you for your time.

Nicole Wordleman on behalf of The Children's Partnership, they're very appreciative that the budget primarily protects families and children's services.

In addition to the Governor's proposal, The Children's Partnership urges the Legislature to greenlight the immediate implementation of continuous MediCal coverage for children zero through five, as well as increased reimbursement rates for community health workers. On behalf of Orange County and San Bernardino County, I urge you to reject the clawback of the $40 million for the public defender pilot program. Cases are in process and it will reduce access and delay justice for these people.

Additionally, on behalf of San Bernardino County, we oppose the cuts to foster youth programs. Thanks.

Good afternoon, Madam Chair and Members. Alejandro Solis on behalf of Clinica De Salud Del Valle, we'd like to thank the Governor for his inclusion of Salton Sea restoration funds in the January proposal. We would also encourage the Legislature to protect and prioritize AB 617 Community Air Protection Program funding to continue the progress that AB 617 communities have been doing. Thank you very much.

Good afternoon, Madam Chair and Members. Graciela Castillo-Krings here on behalf of All Home, Enterprise Community Partners, and California Housing Consortium, really hoping that we can see some of the restoration of the cuts of the 1.2 billion from housing. That has been an investment that continues to be absolutely necessary if we're supposed to meet the housing and homeless crisis that the state is encountering. We understand that during this budget year might not be the only one. Future years probably will be a downturn.

So we hope that the Legislature will continue to prioritize a housing bond to help us kind of get through the downturns that we're going to be experiencing. Thank you so much.

Good afternoon. Andrea Amavisca on behalf of the California Immigrant Policy Center, we greatly appreciate that the Governor's proposed budget maintains our state's commitment towards implementing health for all, as well as making progress towards food for all. While critical, these investments are insufficient for fully addressing the persistent inequities in California.

We respectfully urge the Governor and Legislature to prioritize funding for food for all ages, expanding access to Covered California for immigrants regardless of status, funding and creating a statewide excluded workers fund, and lastly, preserving the full $75 million budget allocation for vital immigration legal services. Thank you.

A.J. Johnson, California Competes here to echo three statements, one on Cal grant reform, one on affordable student housing in our higher education system and the bond resolution proposed for May revision, and third, items for foster youth housing who are also students. And please preserve that it'll draw in federal funds as well. Thank you.

Good afternoon, Chair and Members. Kim Stone, Stone Advocacy, on behalf of Persephone, urging support and funding for implementation of SB 253 Wiener and SB 261 Stern regarding carbon accounting. If California funds the Air Resources Board to appropriately implement those two bills, then policymakers and Californians will have access to the same information about carbon risk that investors do. Be good for all of us. Thank you.

Good afternoon, Chair and Members. Rebecca Marcus, representing the Union of Concerned Scientists, wanted just to echo the previous comments on the implementation of SB 253. Also, on behalf of Leading Age California, the state's leading advocate for quality nonprofit senior living and care, would like to echo the comments my colleague at the housing consortium in support of restoration of the housing cuts. Thank you.

All right. I believe that is all our public comment. I would have allowed Senator Ochoa Bogh to ask questions, but she has departed already. Pardon me. No, it's okay. Anyway. All right. So I want to thank the Department of Finance and the LAO's Office for presenting today and for both of your shops, being very direct and honest with us about both the situation we're facing and the ways that, how you derived your projections and such.

And I want to particularly thank the Department of Finance for in this presentation, being very upfront that the proposal that the Governor has put forward is what the Administration and the Department of Finance's, you know, their best take on how we should respond to this situation that we're in, which is a deficit with less revenues. But you were also very upfront with that you welcome the Legislature's interactions and proposals that if there, obviously, as some comments were made, if we see ways to approach this differently.

But of course, and you didn't so much say it, but I will say it, that in doing so, we have the constitutional obligation to adopt a balanced budget, and we have to be cognizant of the projections, because regardless of whether they're a little different or not, there's still clearly a deficit projection. But I just really wanted to show my appreciation for both the presentations and for the honesty in terms of the information that was given to us.

So with that, I am going to thank staff also for preparing the documents. And with that, we will conclude, and we look forward to all the Budget Subcommittees, hearings, and you're going deeper into many of these proposals. Thank you very much. The Senate Budget Committee is now adjourned.