Senate Standing Committee on Budget and Fiscal Review

And I the minute we have a quorum, I will interrupt who's ever speaking so we can quickly establish it. We'll hear a presentation and then we will have public comment once everything has been presented.

And today we have one item on the agenda, Assembly Bill 106, which is a budget bill that makes amendments to the 2022 and 2023 budget acts. This AB 106 reflects the early action agreement among the Senate, Assembly and Governor in order to shrink the significant shortfall that we are encountering in our budget this year.

The agreement represents a mix of solutions totaling $17.3 billion. The Administration will describe that agreement in detail in a moment.

And I just want to note that AB 106 reflects specific adjustments to current and past budget agreements and includes a section requiring the Administration to confirm details of the remainder of the agreement to the Legislature through the Joint Legislative Budget Committee notification process.

I want to just stress this early action, of course, does not solve our budget deficit, but it is significant progress. This is not what we normally do. We normally do the budget in one big action.

We could have simply waited and done it all in June, but we have decided that it's important to take a strong step so that we can then spend the next couple months focusing on some of the truly difficult decisions that we're going to have to make in order to produce and pass a balanced budget, which we will do. So I want to thank our partners in the Assembly and the Administration.

I want to thank our budget sub chairs and everyone who has brought us to this point. So before we proceed, I want to provide an opportunity to our Vice Chair, Senator Niello, to make any opening comments. Mr. Vice Chair.

Thank you, Mr. chair. I appreciate that. So we have, we're looking at 1-2 billion specifically this morning, but the total is 17 billion on early actions, which we're anxious to see the rest of it. But I guess we're also planning on 12 billion from the Reserve.

That's a total of 29 billion. And according to the Governor, the gap is 38 billion. So we're almost there. I don't know why we don't just go ahead and identify the other nine this morning.

I'm joking, of course, but trying to make a point. One correction with what the chair said, that this is a proposal of the Assembly and the Senate along with the Administration. It would be appropriate to just add the word Democrats to that, because Republicans have been no part of that discussion, which we continue to complain about.

The 8 million citizens that our caucus represents are not represented in these discussions, which is disappointing. But as to the point of what we normally do, normally in the context of the challenge we have, one could look back to 2009, which was a similar circumstance, although we were in greater degree of difficulty at that point, but only marginally so.

And in that year, we grabbed that challenge by the throat, if you will, and spent a week in February settling that budget problem on a permanent, at least for that particular cycle, on a permanent basis.

Here we are almost halfway through April and beginning to tackle what is a deficit that is significantly greater than the Administration is so far willing to admit. So I look forward to learning more about what the Senate and Republican Senate and Assembly Democrats have proposed.

I think the magic has happened. And we have a quorum. We don't. I'm sorry, false start. We need one more. So please, everyone stay if you can. Yes, I know. Okay. Thank you, Mr. Vice Chair. And we will now go to Chris Ferguson from the Department of Finance to present the agreed upon plan.

Sure. Chair and Members, Chris Ferguson for the Department of Finance. I'll keep my remarks rather brief. First, I'd like to take a moment to thank the Committee for the partnership in crafting the early action package that is being considered today.

This package reflects roughly $17.3 billion in early budgetary actions that will significantly reduce the existing budget shortfall and position the state to responsibly address the remaining shortfall in June.

These actions consist of roughly 3.6 billion in reductions, $5.2 billion in revenue and borrowing, 5.2 billion in delays and deferrals and chips, roughly 3.4 billion in in costs from the General Fund to other state funds.

Additionally, the package before the Committee reflects budget language authorizing the Administration to freeze additional one time funding that was included in the 2021-2022-2023 budget acts. This is the first step in closing the shortfall.

More discussion will come to fully close that shortfall as part of the may revision and the final budget agreement. This will conclude my remarks and myself and my colleagues from the Department are available to address any questions the Committee may have at the appropriate time.

Thank you so much. And I want to note that our Legislative Analyst is here for questions that may arise. We'll now, before we open with public comment, open it up to discussion and questions for Members of the Committee. Any questions or comments? Senator Neillo?

I have a lot of questions. I'll just ask a couple for now. One, I understand the bill author also authorizes Department of Finance to suspend a wide range of program spending from 2023, perhaps going back to 2021. I don't see a dollar amount on that. I wonder what that is. And we are authorizing a significant latitude to basically unilateral cuts. I'd like some clarifying comments on that.

And I'll just start before I turn it over to Mr. Ferguson. I mean, the reality is we are about two months from passing the final budget. And I think not having unnecessary cash burn gives us more latitude in that final budget.

And so we're simply providing the Administration some flexibility, which frankly, they already effectively have, because in terms of when money goes out the door, the Administration has significant functional latitude anyway.

And they will, you know, any formal freeze will have to, the JLBC will have to be notified about that and have the opportunity to object if we deem appropriate. But Mr. Ferguson, you can respond in more detail.

Yeah, I think that's a succinct summary of what that language would do. Effectively, it's creating opportunities to review additional potential solutions that could be considered at both the May Revision and as part of the final budget package.

So we would think of it as more of a pause as opposed to, you know, a direct signal that we're pulling back any particular type of spending. And as such, we don't have a specific amount that you may see in, you know, what would be paused at this point in time.

Senator, sorry. Senator Smallwood-Cuevas.

Thank you, Mr. chair. And just to follow up on that, when you say, I appreciate the sort of pause framework and when you make the determination of what is being paused, is it taking into account, I'm curious about the criteria and is it taking into account programs that are already in flow with those dollars that might suddenly be frozen?

And I say that because I'm hearing from constituents in my district who are doing some, you know, I want to say, important work around crime reduction. They are managing some of the reentry work that is happening in communities. They're doing it in some ways for a song, in terms of the level of service that they're providing.

And when you're comparing to the amount of dollars that are paused, but the, the program is actually still supporting those folks who are coming out of prison. So the pause is interfering with those individuals being able to get the services that they need.

And we know if those services aren't provided when people don't are desperate and they have no safety net, we don't want to see any alternatives to actually coming out of prison and stepping into a contributing role in our communities versus coming out of prison and being forced to step into a more dangerous pathway.

So I'm curious, what's the criteria for what's paused, and are you being mindful of those programs that are relying on those documents and are actually working and utilizing those funds?

And before we get to the answer, we now do have a quorum. So we will call the roll, establish quorum, and then get an answer.

[Roll Call]

We have a quorum and it is established. So you may answer.

Yeah, certainly I can't speak to any one particular program, but what I can say is globally, our intent isn't to claw back what's already been released out to programs. I think it's more to look toward those resources that may have not been allocated at this point in time and or released out to program.

So, you know, I can't speak to the particulars of what you mentioned around public safety, but I can say that the goal is really to try and identify those one time or available resources that have not been directly allocated out to programs or to the field at this point in time.

I just would hope that the criteria is looking at issues of public safety and that those are being prioritized. And so when the freeze or pause function is applied, that it's not applied equally across a spreadsheet, but really thinking about what the impacts will be on the ground, and I hope that that's taken into consideration in this process.

Senator Seyarto.

Thank you very much. And I want to, the first question I have is regarding the use of our reserves, and that's not part of this 17 billion.

That would be correct. The early action package does not reflect withdrawal from the Reserve, but what it does reflect is intent that the final budget agreement reflect a withdrawal from both the budget stabilization account and the public school system stabilization account.

Does that require a fiscal State of Emergency declaration from the Governor and is he planning on doing that?

The Governor's Budget did assume that at some point the Governor would make that type of declaration. We don't have a specific point in time in which that would occur, but our budget package was predicated on that occurring.

All right, my second question is, you know, when we make these funding cuts, a lot of them, following up a little bit on Senator Cuevas, Smallwood-Cuevas remarks. There's a lot of projects, a lot of mandated projects, frankly, that have timelines, and they also have fiscal consequences if you don't meet those timelines.

We've planted in the last three years a lot of seed money into those things like broadband to ensure that they had at least some of the resources they need.

If we're going to cut those resources, has there been any talk about suspending the timelines with that? Because otherwise we're going to leave people out there not being able to get those done. They're going to be fiscally punished for not doing it.

So there's more to go with that. I think that's where probably the declaration part would come in, is he'd have to make those adjustments, and I'm hoping there's discussions about that.

Yeah, certainly I can take that back. I can't speak to specific projects that might be impacted by the delay or specific allocations, but certainly, you know, at finance, we would take those types of situations into consideration.

Okay. The bigger $17 billion package has a lot of deferrals and delays. And when we started this process, we were told we have to prepare a budget this year that takes into account our future years. Our future years don't look any better than this year. And so these deferrals and delays have the potential to be actually permanent, don't they?

I think that would be subject to a lot of discussion between the Legislature and the Administration as to what those out years might look like come the final budget agreement and the May Revision.

At this point in time, I can speak to what the Governor's Budget proposed, which was a package of delays, a package of deferrals and other items. And I can say that the package before you today is the first step in the process of addressing that shortfall.

It is not the complete package for the three year window or what might be considered into the out years.

Right. We're just trying to get an idea of some of the thinking that goes into the early action plan versus what's in store for later, since, as my colleague had noted, this is the first we've been seeing it too so the MCO tax that we passed last year to help bail out, to help augment some of the, and enhance some of the medical reimbursements, because we added a lot to the medical program that's been sent to the General Fund.

A lot of it has 600 and some odd million dollars. How are we going to reimburse medical if we're sending the money that was proposed exactly for that elsewhere?

I defer to my colleague Laura IO Hanks.

Good morning, Senator. Can you clarify what you mean by sending it to the General Fund?

Well, it's been transferred to the General Fund. It means they're not going to use it for its intended purpose. Instead, it's going to the General Fund so that the General Fund can either backfill or use it for, for General Fund purposes.

So your question is how we're going to pay for -

Increased Medi Cal reimbursements, or are we not going to increase our reimbursements to the providers, which is causing them great financial stress?

That is still, the agreement from the 2023 Budget Act is still in place. Nothing has been changed for any provider rate increases. That proposal is still reflected in the Governor's Budget.

Okay. Part of this, this is a different question. Thank you very much for your answer. There's $1.3 billion that's used to pay down debts, right? We have debt payment money, but we're taking some of that money and we're going to pay for a pension payment instead. Is that correct?

I prefer to my colleague Aston.

Some of this we have to interpret, and you guys can help us interpret it the right way if we're interpreting it wrong.

Aston Tennefoss, Department of Finance. The payment that is being proposed is that the prior supplemental pension payment from 2023, a $1.7 billion payment, will be used to reduce the contributions toward CalPERS in the budget year.

Okay. So there's no constitutional issues with how we're handling that. In other words, it's not going to be told we can't do that later on. Then we have a $1.3 billion addition to what we've been. Go ahead, sir.

Hi, Gabe Petek, Legislative Analyst. Our office does think there could be some constitutional questions, because this, as our understanding of this maneuver, is that it would be supplanting the current year payment with prior year payment.

And so, as I read the agreement here in the early action package, it does seem like it reserves some of the final details for later in the process of how this would be implemented. And so perhaps it could be shifted to avoid or implemented in a way that avoids the concerns that we raised.

All right. Thank you. The last question I'll ask because there's lots you can keep going and going. So I'll just ask this last one. So it's going to delay the $1 billion in the transit bailout.

At some point we're going to have to come to the reality that it's probably not going to get put back in, in the next three years, and somebody's going to have to deliver the bad news that we're going to have to live with what we have or adjust our programs.

Is there any talk with working with those agencies to figure out how to downsize or whatever so that they don't depend on something that they probably aren't ever going to get?

With the Department of Finance. You are right that in the formula TIRCP program, our proposal is to delay $1.0 billion from the budget year to the budget year plus one. Transit still remains an enormous priority of the Governor, and at this point our plan is to fully fund that program.

All right. Thank you very much. I appreciate it.

Thank you. Can I just clarify one thing? The bailout was $1 billion in GGRF funds that we put in the budget last year. That's not what's being delayed here. This was two years ago, I believe, or three. We allocated $4 billion for transit capital, the Tursip program. 1 billion of that capital funding is being deferred. It's not the bailout operational money. I just wanted to clarify that.

But it's money that we had told them they were going to get in there. That's what I was getting at.

Yeah. And I'm a big fan of that.

Money bailout or whatever.

Thank you, Senator Blakespear. And then did someone. And then Senator Menjivar.

Yes. Thank you, Chair. Thank you for being here today. I have a comment and then a question. So one of the things that I found most difficult about trying to get my arms around understanding these proposed budget cuts is not understanding how the analysis is being done, because I think coming from a local city government evaluating programs for their efficacy, I know there are some things that are infrastructure projects or one time projects.

There are other things that are staffing and things that are maybe not particularly measurable on efficacy, but some programs are. And so if programs are started to provide more housing or to provide carbon reduction or whatever, the goals of the programs are, when I'm reading a document that says, like, for example, reduces 7.3 million for the Emerging Opportunities program.

And I don't have an understanding of what is an emerging opportunities program. What was its goal? Why was it set up?

Is this something that we find is not as effective as we hoped it would be? Because I think my hope when we're doing this belt tightening and budget downsizing is that we would be evaluating these programs for efficacy and this would be the opportunity for us to cull things that we think are lower performing. So, and I'm not hearing any of that back from the Executive branch about that kind of analysis.

So I wanted to just put that out there and see if you have any response to that, if that's happening behind the scenes, but it's not being presented to us, if it could be, or what is the other analytic approach? Because I think part of my concern is that it seems scattershot. It seems almost like it's random, and that's obviously not what we hope for. So I'd like to hear your response to that.

Yeah. Since what I would say to that is certainly that's part of the calculus as we look at the Governor's Budget and the package that we put forward, and I think we look at it in terms of what the downstream impacts of the reductions, the delays, the deferrals, the revenue shifts would be on the programs that are being funded with those resources.

So that does somewhat factor into the calculus where available. I think that's sort of what I would say in response. Certainly to your point, there are varying degrees of program information that are or are not available, especially with some of the more recent investments, because it does take time to see the results of those programs.

Yes, sorry, Chair, is it okay if he answers, too?

No, just Gabe Petek here from Legislative Analyst Office. And I thought perhaps like somewhat of a stepping back perspective to your question might be helpful because I think when we look back at the Governor's January proposal, it included a wide spectrum of solutions put forward, including some of the actions that are in this early action package, but then also some additional outright reductions, which will be probably the harder choices that the Legislature will have to make.

I mean, I think the Chair made a reference to that, that later in the process is when there will need to be these harder decisions that you'll have to make, kind of along the lines of what you're referring to, Senator.

And so I think there is a point that in some sense this package kind of clears the deck in a way of some of these, if these were always going to be included in a final package, kind of takes them off the table and hopefully increases the capacity for the Legislature to engage in negotiations and discussions around those harder decisions, which I think is, you know, kind of what you're referring to.

And I don't know how much program evaluation or efficacy would be available for some of the more recent allocations, but certainly those are the kind of discussions that I think are appropriate as you make those decisions.

Well, thank you for that. And so, I mean, maybe my comment is more forward looking. So in the next several weeks and months that there would be this evaluation of efficacy of programs, particularly with their set out goal, because I think there sometimes can be.

There was a goal like, for example, to provide more housing. And what happened was the program is providing a lot of resources and connecting to other agencies, but it's not actually creating housing or providing housing.

So that analysis of is the goal actually being met. And I think that to me that would be a rigorous and analytic approach that would make sense. And I really urge us to do that and you to present that to us so that when we're reading these proposed cuts that there's some, a little more fullness around. Why is that being proposed? And so you were saying downstream impacts are what you're looking at, which is important.

But I also would just hope you could think about the efficacy of the program. Thank you so much.

Thank you, Senator Menjavar.

Thank you. Mr. chair, Department of Finance. Would you say that some of the items here that are proposed for delay could be eligible for cuts in the May Revise?

I think I couldn't speculate as to what the May Revision or the final budget agreement will include. What I can say is that the package before you today reflects the allocations in those categories as delays from one fiscal year to the next or to a different fiscal year.

Should the May Revise have even more bigger of a deficit. Are they eligible, just on principle, are they eligible to go from deferrals to cuts?

Certainly that could be part of the discussion, but again, you know, I wouldn't want to speculate.

Thank you.

Any other questions, comments, colleagues? Okay. Senator Durazo. My apologies, Senator Durazo and then we'll go back to the Vice Chair.

I just wanted to ask how were things? We're getting a lot of federal funding, right, from different programs. It's a lot of money. And one of my concerns has been for several years, is workforce development, is how do we prepare?

How do we make sure that we're going to have the workforce to do the things that we're doing around climate, infrastructure, many of those things. And so we're in a very unique position of having a lot of federal funding coming in for those kinds of things. We don't have the state dollars. How do you address that specifically around workforce development?

Because one of just for full exposure here, I have a bill that talks about setting aside a percentage of that federal dollars specifically for workforce development because we don't have money right now. We don't have money allocated on workforce development. And so why wouldn't we do that?

To make sure that we have the ongoing training and development of Californians for the needs that we have. Otherwise, we're going to find ourselves one year not being able to meet those workforce needs.

So I specifically was talking about the California Jobs First program because it has, you know, we're looking for equity, we're looking for good jobs, but we also, more importantly, we need the dollars for the training and apprenticeships.

Hi, good morning. Teresa Calvert with Department of Finance for the California Jobs First. That is proposed as a delay with some out year Fund or some funding shifting to the out years. I am not aware of any federal funding loss associated with that.

We can definitely take that question back and see if we have more information about the linkage to federal funding. But I'm not tracking like a loss of federal funding associated with that delay.

Yeah, I'm sorry if I said it wrong. I didn't mean to. Is I thought that this was an opportunity for us to take some of those federal dollars and specifically put them into workforce development. Not that we were going to lose them, but why wouldn't we take those funds and use them for workforce development when they're available to us?

And the Administration is definitely looking at many different opportunities to pull down federal funds where available. And so that definitely remains a focus to draw down as much of those federal funds.

Specifically to workforce development.

My question.

And I don't know the linkage to this delay and how that would impact our ability to draw down those federal funds for workforce development or if those federal funds could be used in a similar vein to what these funds are also to be used for.

Yeah, it's about setting aside the federal dollars, specifically setting aside federal dollars for workforce development. It's not that we'll lose the dollars, it's what we do with the dollars. That's the real issue.

Okay. And I will definitely take that concern and note that back if that helps. Thank you.

Thank you. Was that Senator Niello? And then Senator Menjivar.

Thank you, Mister Chair, for allowing me a second comment. First of all, I want to applaud Senator Blakespeare's line of questioning and the spirit behind it, because I also haven't heard much about assessing the efficacy of existing programs and getting rid of those that don't work. And a perfect example of that came out just yesterday with regard to the homeless audit.

And insofar as the experience of San Diego and San Jose is concerned, much of our, now this is after the fact, unfortunately, but much of our homeless spending has appeared to be ineffective, largely because we're not really tracking and reporting on it, which is unfortunate. But I think she raises a very good point.

But to conclude my statement, and in the interest of transparency and for perhaps a bit of comic relief, I think it's important in a public hearing, this public hearing, to point out one what I like to call the mother of all gimmicks, that will be part of the broader $17 billion package.

And that is that we will recognize about a billion and a half dollars in budget savings by transferring the payroll that will be paid on the last day of the fiscal year to the next day of the next fiscal year. It is absolutely no savings whatsoever. With regard to a cash perspective, it is only a budget gimmick that recognizes $1.6 billion in savings by delaying recognition of a payment by 24 hours.

I think it's important for everybody to know that that's part of the budget solutions we're talking about.

Thank you so much. I had forgotten another question. On the analysis, the last point, point 61 regarding, you know, the list of adjustments to commitments related to past budget agreements, and then it also includes the intent for use of reserves. Do you have anything you could share on what would, what we will see on that list?

In terms of. I think there's two pieces to the list. Certainly there's a requirement that for at least the budget year pieces of the package that have been identified, that there would be a letter that identifies what those are in terms of what would come from potential freezes or pausing of one-time allocations or other allocations in '21, '22 and '23. I couldn't speak to the specifics of that at this point. That is still subject to additional consideration.

So it's freezes of one-time allocations. What were the other potential options that we could see on this list?

So I think in terms of what you would see, I think the language does two things. There is a list of what is in the package that would come before you that would be included in the final budget agreement because we are not proposing, at this point in time, the actual budget Bill. And then the second piece to that is of the funds that are being paused.

We wouldn't be able to tell you what would be on that particular list at this point in time for additional consideration that would be brought to the Legislature. I would defer to my colleague Lisa Mierczynski for additional details.

Good morning. Lisa Mierczynski with the Department of Finance. So that list in this package, the list will resemble this. It's pretty much what is in the budget agreement, and we will then put that forward in a JLBC letter.

Thank you.

And if I may, just to add to Senator Niello's previous comment, I would just say that we view the payroll deferral as part of our overall budget resilience, and we think that it's a reasonable component of what we put forward.

Senator Wahab.

Thank you. You know, just going over this and comparing it to city council, as Senator Blakespear mentioned, oftentimes, you know, we have heard a lot in the media and so forth that we're kind of in a silent recession. I will say in my district in particular, we are seeing a significant amount of layoffs in the tech industry in the Bay Area, literally thousands at this point, and we haven't necessarily seen the impact. Right?

And the talking points amongst a lot of electeds is that we're the fourth largest economy in the world. And it's also not very clear to the larger public as to why we are in a recession, considering that two to three years ago we had such a surplus, right? A record-breaking surplus, if you will.

I would have to say that given sitting on a Budget Subcommittee and obviously on this Committee and having a lot of conversations, I think that we need to do a better job of educating folks as to why we are in the position we are in now, number one. I think that's first and foremost to just explain exactly what that looks like and why.

And I think that the Governor did a great job when speaking to us as to why we're in that position in very simple terms. Right? Number one. Number two is, I think to Senator Blakespeare's commentary as to the efficacy of programs and projects and efforts that we're doing. You know, audits are one thing. Right? And we're looking at audits as to, you know, did the number of funds that went in come out and so forth. But we're not necessarily looking at success models. We don't.

We really don't. What is the definition, definition of success, whether we're talking about workforce development and what that really looks like, as many of the Members here on this Committee have talked about, we also don't take a look at what does success look like in the rehabilitation of an individual that is serving time. Right? And that's not clearly laid out program per program per program. And oftentimes, I think that from our Republican colleagues, we hear oftentimes that we haven't been given enough time to discuss this.

Right? And I think that that is accurate considering the amount of money we're talking about here. Righ?. And I'll let you guys say what you need to say before I go on. I'm going to hit a couple points, so I just want to.

Go ahead.

Well, Senator Wahab, this is Gabe Petek from the Legislative Analyst Office. And I would just point out, I think you raise a really important question about what's going on in the economy and how it's affecting California and our fiscal picture in particular. For anybody watching or for any of the Members, I would highlight that we do have a place on our website, actually, the economy and taxes blog, that we've been kind of tracking all of this.

And in fact, if we go back to May of 2022, we began highlighting some of the reasons we had some concern about the economy. And I think you're right, it kind of went under the radar a little bit.

But earlier in this past year, in summer of 2023, we noted that it did appear like California experienced something like a recession in late 2022 and early 2023, emanating primarily from what was going on in the tech sector, a pullback of investment and then that having a lot of ripple effects for all the supporting industries. And so really the fourth quarter of 2022, early first quarter of 2023, is what looked like that.

And it seemed to kind of correspond with what we were seeing in our revenue trends and other supporting indications were a very pronounced drop-off in IPO activities and a decline in venture capital investment. And so while the stock market has been appreciating rapidly and a lot of times folks think that that's beneficial for California, and it is, it needs to stay up for a while, and it also needs to be accompanied by this rejuvenation of investment in that sector, in particular for California.

Now, today we just had a very higher than expected inflation report and saw another volatility in the market. So this remains to be seen what the effects will be. But I think, I think you're raising an important point. And I just wanted to say, like, we have been cautioning about this, and.

So, no, I appreciate your commentary. I also just want to highlight that when the stocks are up and we've seen that across the board, we also know that that is usually a potential signal that it's also going to drop and we're going to hit it a true recession, if you will. There are plenty of reports out today that highlight that, correct?

It's always, there's always a possibility that you can see a recession in the future. What I just wanted to add is as of the Governor's Budget, we did not project a recession in the package that was put before you.

All right. I think, you know, granted, this is the Budget Bill Junior, and a lot of the things that are listed here I can support specifically, for example, the broadband access. You know, we're trying to do as much as we can in regards to insurance, infrastructure, all the issues that, that affect people today, climate, you know, planning, and so forth.

And I do think to be cautious and overly cautious, considering that there are other reports from different agencies that state that we are going to see a recession, we are going to see people struggle. We are already seeing a lot of different issues in regards to insurances being canceled. What does that mean for homeowners? We are seeing public utilities rise beyond a level that is normal, that has not historically been done. We are seeing people, again in my district, the amount of layoffs. Right?

And granted, these are high-earning jobs and I'm sure that, you know, a chunk of them have a decent savings for, you know, a couple months or so, but that's not the case across the board. Right? And so planning for a recession, especially as we're talking about a budget, and granted, even in this budget and even the fiscal outlook for the State of California, it's not just this year. We're looking at a downturn for the next, what, three years or so, right?

I think that we have to be even more conservative on what we're planning. So I state that now and very publicly to you all because I am deeply concerned about that. I think that there are plenty of programs that I see even in my Budget Sub Five. That is redundant, repetitive, and to me is not a success model. Right? And again, what are those measures? What are we holding as an account for success, right? So I want to highlight this.

I also want to say that, you know, the Chair has just stepped out, but I think for me and a lot of other folks, the number one concern is going to be the most vulnerable community members. Right? It's our uninsured, it's are unhoused, it's a number of different things that I'm going to care about. And I state this because, you know, my family, during the Great Recession, our small family business tanked. Retail is the first to tank and the first that business owners will see, right?

The second is housing. How do you pay for your home? And our family home was foreclosed upon. Right? And I will say again, the government bailed out the banks twice. They not only provided, you know, the feds provided a bailout to the banks, but then the banks also kept the asset. So to me that's twice double dipping. Right? And literally millions of Americans suffered and continue to suffer. I'm still a renter. I don't see myself being a homeowner in a number of years.

So I say this because those are the people we need to think about. We have also a growing senior population that is the fastest-growing homeless population, and we don't have enough services. So when we're talking about Medi-Cal in particular, and granted as a big ticket item, we need to provide more services around these wrap-around services, more support there first and foremost in protecting them. Right? For the average public. Everything else we're going to have to tighten our belts on.

But I say this in support of this early action. I know that a lot of people had a lot of discussions, myself included, but I do appreciate the work. But I also want to caution everybody that we need to think even more long-term than just this budget in front of us. Thank you.

Thank you, Senator Min.

Thank you. And I just wanted to build on some of those comments from Senator Wahab. I think at a previous budget hearing, maybe a Budget Sub hearing, I had asked whether we had data on the question of how much of this decline in revenues was due to cyclical economic issues vis a vis the problem of potentially people and companies leaving the state and I guess my first question to you is just, do we have any additional data since that time?

I'd have to defer to my colleagues. What I can say, you know, to both questions, though, is, or both comments, is that the Administration remains focused on equity. That is one of the driving principles as we think about investments. So certainly can associate with and appreciate the comments around keeping a focus on equity as we think about the decisions before us. Unfortunately, I don't have my economics team with me today, so we will have to get back to you.

Looks like Mister Petek has some.

Thank you, Senator Min. I'll just say our office has been awaiting some data that will come out from the Census Bureau, federal data, that we need to do a deeper dive on that question. We're expecting that to be in May. There's a lag with that data. The best information that we have goes back a couple of years. The most recent data, that is, and it suggests that in 2021 we saw $27 billion worth of growth in the personal income tax category.

And we estimate that it may have been closer to 29 billion absent the outmigration that you referenced. And so it's certainly not a concern that I think should be dismissed. But it's not explaining the overall large portion of the revenue that we are missing compared to recent years in the current budget. It's not explaining the budget deficit, in other words.

So just to clarify, there seems to be a cyclical component to this that's quite sizable.

That's unknown. That's unknown. We've seen an increase in the outmigration, including among the higher-income taxpayers, and that increase reached its high point in 2021. We don't know if the trend had continued or leveled off or slowed down, and that's the data that we are awaiting. But at that point, it represented a couple billion dollars worth of missing revenue is what we estimate.

I appreciate that, and I think it's really important that we figure out, and I think this point has been raised by several of my colleagues. To what degree is this a blip vis a vis to what degree might we expect to see more secular declines in revenues going forward? I'll just be honest. This sucks. This is the first year in my time as a Senator where we face major cuts. Previously, we had surpluses as large as we could imagine.

And, obviously, that's a, sitting up here, that's a much more fun time when you're talking about how to dispense money, found money, so to speak.

But I think we do need to consider the extent to which the policies that our agencies are passing the laws that we're passing, you know, reflect equity, which I think is really, really important, but also to the extent that they also facilitate a strong economy going forward, because I think if we want to continue to have equity, we need to have the funds to be able to try to facilitate that. And this is potentially an ongoing problem. I think we're starting to see signs.

You know, we saw 75,000 people, according, I think, to Politico, leaving the state in the last year. I think a lot of those are high earners. And so because our tax revenues are so dependent on that top 0.1%, I think this is something we need to start thinking about and potentially studying a lot more. Thank you.

Thank you, Senator Becker.

Thank you. You know, to follow up on that. So you said we have data for '21. We don't have the '22 data yet. Is that what you said?

That is correct, Senator, yes.

Yeah. I just want to express my frustration. You and I have had this conversation as well, but, you know, because I represent, my district, has a lot of those high owners and pays a lot of those taxes, and I personally know, you know, a lot of high owners who have left. And so it's just been frustrating that we can't get that data more quickly so that we can be more nimble in our reaction.

And I don't, I'm not asking for a comment on it now because I know we've talked about it and it's probably more complicated to figure out the solution, but it's just, it's frustrating that it takes us so long, you know, to get that kind of information.

Yeah. I would note for the Administration, we do take economic conditions into account when we develop our revenue projections. So you would likely see updated revenue projections as part of the May Revision. Those conversations would continue into the final budget agreement. And I think part of what you're alluding to and what you're seeing is it's because of the high that we saw in the 21-22 and 22-23 budgets that we're really feeling that net impact right now. So I'd just note that.

Any other questions or comments? Seeing none, we will move to public comment. And so anyone who wants to give public comment, you can line up by the microphone. We would ask if folks could please keep their public comment, if possible, to 1 minute.

Good morning, Chair and Members. My name is Kendra Harris with the Climate Center. Last week, we submitted a coalition letter representing a bunch of environmental groups about the budget, Environment California, Coalition for Clean Air, Leadership for Council and Justice, and others. A recent report released by Next 10 shows that we are not on track to meet our 2030 climate goals, and cuts to investments will only make this reality worse. Cuts to critical clean air and climate programs have real immediate human consequences.

Later is too late to protect Californians, especially pollution burdened communities of color. As we consider what expenditures should be shifted from the General Fund to GGRF, we need to prioritize those that produce clean air, public health, and equity benefits. We face an affordability crisis with electricity in California. Helping residents move to cheaper and safer clean energy and cleaner appliances is one of the most important things we can do to improve affordability, health, and ensure that our kids get a shot at a thriving future. Thank you.

Next speaker.

Hi, Darby Kernan on behalf of GRACE, Ending Child Poverty in California. We want to appreciate and thank Senator Menjivar for her questions regarding sections 74 and 77 with the relation to the freeze. We're really concerned that this moves a lot of important programs that you've invested into a process that is not public and goes through the JLBC. And so many cuts to programs or freezes will happen to things you've invested in. And we know that this is something you have to do.

But we're very concerned that this process moves from the public process to something that is less public. And so we're just asking today to think about that and understand we will be monitoring that. And we're really hoping that as we move forward with cuts, that we are not focused only on the most poor and families and children that already are suffering through this economy. Thank you.

Next speaker.

Honorable Chair and Members, my name is Amy Hines-Shaikh with Wildcat Consulting, representing the California Community Land Trust Network. We are appreciative of the difficult position that you are in during this challenging budget time. All 40 affiliate community land trusts in the State of California have the position that we want no further cuts beyond what the Governor proposed, and we just want the Foreclosure Intervention Housing Preservation program to appear in the prospective years as a budget line item.

We need to appear as a line item so that we can fight for more funding another day. We know that we can prove how valuable the Foreclosure Intervention Housing Preservation Program is, and when budgetary conditions improve, we can clamor to populate the funds back in. But if we have to fight to reappear as a program in the budget and then fight for funding, it is double the fight, which would be unnecessarily difficult. Thank you very much for your consideration.

Hello. My name is Olivia Gleason I'm affiliated with Californians United for a Responsible Budget. As this Committee works to mitigate budget deficiencies, I urge you to look at CDCR's $14.6 billion budget as a source to cut funds from instead of essential areas like CalWORKs, clean energy, and early education programs that often prevent incarceration in the first place and actually support our vulnerable communities. We know that the state's current deficit is not a phenomenon.

Departments like CDCR have gone unchecked for years, with the public having little transparency into where the department's massive budget spending actually goes to. With the LAO projecting ongoing deficits, cutting CDCR budget spending, such as through Senator Wahab's 15% budget cut proposal and closing prisons is the clearest path towards ensuring long-term savings and maintaining essential serviceness. Thank you so much.

Thank you. Next speaker.

Good morning. My name is Alicia Montero with California's United for a Responsible Budget. The Legislative Analyst Office projects the surplus of 15,000 beds this fiscal year and a surplus of 19,000 by 2028, meaning that California can close an additional five prisons without overcrowding the ones that are still left, which would yield an annual operational cost of 1 billion. In addition to substantial savings on infrastructure repairs, prison closure, and CDCR budget cuts are the clearest paths to addressing the state's budget deficiencies. Thank you.

Thank you. Next speaker.

Good morning. Tiffany Phan on behalf of California Court-Appointed Special Advocate Association, or Cal CASA. Just to remind the Committee, back in 2022, the Legislature made CASA a priority in allocating 60 million over three years for this advocacy program. No other foster child-serving charitable organization has the equivalent court authority, access, and ability to truly change a child's life through court advocacy.

Considering the statistics showing approximately a third of former foster youth ending up homeless or in prison, conservatively, the annual cost of taxpayers if children and youth do not have this CASA advocacy is as much as 1.5 billion a year. So we appreciate that the funding for CASA was included in the governor's January budget. We urge this Committee to protect the promised allocation. Thank you.

Thank you. Next speaker.

Hi, good morning, Members of the Committee. My name is Tana Opliger. I'm a resident of Senate District 37 and a Member of Californians United for a Responsible Budget, which is a statewide coalition of over 80 organizations. I oppose the hundreds of millions of dollars in proposed cuts and delays to life-affirming and life-saving services like CalWORKs, early education, and clean energy. When bloated, departments like CDCR are maintaining their funding even as the prison population has decreased drastically.

We applaud Senator Wahab in calling for a 15% cut in budget to CDCR. And we support the call for five prison closures which can save more than $1 billion per year. This is the clearest path to addressing the budget deficit. Thank you.

Next speaker.

Good morning, Committee Members. My name is Dax Proctor. I'm also a Member of CURB. The early action proposal plan that we've discussed today calls for over 300 million in cuts to CalWORKs and 500 million in cuts to early education programs. It only calls for about 80 million in cuts to the $19 billion corrections budget. The total reduction for the entire Department of Corrections and Rehabilitation is less than the reduction for the foreclosure intervention and housing preservation program alone.

In the context of our current fiscal crisis, we should be prioritizing education, social services, and other life-affirming and life-saving services over our prison system. The question we must pose is straightforward. In a time of significant budgetary constraints, why are we not already prioritizing more significant cuts to the corrections budget, particularly when such cuts could yield significant savings? Redirecting these funds could bolster critical public services that are in peril like housing, education, health care, and food assistance.

The argument for prison spending cuts is not about diminishing the quality of care or rehabilitation efforts for people in prisons. Rather, it's about acknowledging the excessive cost burdens of staffing and maintaining underutilized, often remote facilities, as well as identifying more corrections budget inefficiencies that strain our state's finances. A frequent rebuttal is that reductions in prison spending take years to realize. That's true. But as Senator Wahab's commentary today suggests, California's budget woes are a long-term problem and won't be solved by one-time spending cuts this year alone.

Operating a leaner corrections budget is something both lawmakers and advocates could get behind. Thank you.

Thank you so much. Is there any additional public comment saying none? We'll close public comment and bring the item back to the Committee. Colleagues, is there?

I'll move the Bill.

Okay. Motion by Senator Wahab to pass AB 106 to the Senate Floor. Any additional? Any final comment? Any additional? Okay. With that, we have a motion by Senator Wahab and we will call the roll.

AB 106 motion is do pass. [Roll call]

What's the vote count?

Ayes 10, noes two.

Okay, the current tally is. The tally is 10 to two. And we'll put that. Put the Bill on call for absent Members. So I think we'll briefly recess as we wait for additional Members to come. And so, everyone stay tuned. Okay, we're going to briefly return from recess to open the roll for a few additional Members, and then we'll put the Bill back on call. So we are back in session. And please call the absent Members on AB 106.

[Roll call]

Okay, we'll put the Bill back on call and go. Is there someone else? I should. Oh, go ahead. Okay. Put the Bill back on call and go back into recess. Okay, we're going to come back from recess to open to lift the call for some additional Members. Please call the absent Members.

[Roll call]

14 to two. And Roth already voted? Okay, so the vote is 14 to two. We'll put it back on call and go back in recess. You guys didn't know. Okay, coming back from recess, we're going to open the roll. Please call the absent Members.

[Roll call]

She's literally outside.

She obviously isn't coming. She's outside. Right there. She's.

Close the door.

Okay, it's 15. The three will put it back on call. Okay, we'll come back from recess and we will open the roll on AB 106. Please call the absent Members.

[Roll call]

You're voting aye?

What is this? This is the preemptive one, right? I'm sorry. I had another committee a minute ago. I apologize. I'm just going to lay off.

Okay, so. No, that's fine. Senator Grove is not voting.

Grove. Not voting.

Thank you. Okay. Great. Okay. On AB 106, the vote is 15 to three. The motion passes. And with that, we are adjourned. Yeah. Yeah. Thank you.