Assembly Standing Committee on Budget

And so as you need to step out to go to other committees, we completely understand. But we are here today to dive into our early action agreement as reflected in SB 106 or AB 106, our early action budget bill. This reflects the agreement that was announced last week between the governor and the leadership of both houses of the legislature. Would reduce the shortfall by approximately 17 billion.

It would free certain discretionary one time spending that will provide us with flexibility as we consider the tougher choices that lay ahead. And also importantly, we as the assembly certainly reserve the right to revisit any of the decisions that are made as part of this early action agreement. As we get additional information about revenues, additional information about the tough choices that lay ahead, we may have to come back and revisit some of these. But I am very grateful for all of the hard work.

And I particularly want to thank all of our subcommitee chairs, many of whom are in the room today for their hard work. Thank you, Mr, Bennett, for your hard work, in particular in going through. And I also want to thank our staff, our Budget Committee staff, for all of their hard work as we have done, dug in and done the hard work of identifying the choices in front of us and the solutions in front of us as we address the significant budget challenges this year.

So we have about 65 days left, approximately, give or take, as we move on towards the June budget, and certainly many more difficult decisions that lay ahead. And this putting early action behind us is going to allow us to take the first important step in addressing our budget challenges, as I mentioned, will help us to reduce the shortfall by approximately 17 billion. But certainly this will also allow us to pivot to the more difficult decisions that lay ahead.

And so I want to assure everyone that the assembly remains committed to a thoughtful and inclusive and transparent process. We are prepared for the tough choices ahead and we are prepared to meet them head on. So thank you to all the members who are here. And with that, I'm going to turn it over to our vice chair for any introductory comments. Okay, thank you, Mr. Vice Chair.

Well, with that, we're very fortunate to have Chris Ferguson from the Department of Finance joining us, our excellent Legislative Analyst, Gabriel Petek, and then Christian Griffith from the Assembly Budget Committee here, who is available to answer any questions. So, Mr. Ferguson.

Sure. Chair and members of the committee, Chris Ferguson for the Department of Finance. I'll keep my initial remarks brief. First, I'd like to take a moment to thank the committee for the partnership in crafting the early action package before you 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 budget 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 ships, roughly 3.4 billion in cost to the general from costs to 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 and 2023 budget acts.

This will conclude my remarks, and my colleagues and I are available today to address any questions the committee may have at the appropriate time.

Thank you very much Mr. Ferguson,. The Legislative Analyst Office.

Hello, Mr. Chair. Mr. Vice Chair. I'm here with some of my colleagues and we're happy to help answer questions, if that's of interest.

All right, thank you very much. A lot of brevity today for Sacramento. All right, we will bring it back to the committee. Do members of the committee have questions or comments? Mr. Vice Chair.

Thank you, Mr. Chair. I'll just jump right in to tackle kind of each component. You indicated Department of Finance, that there was 1.4 billion in borrowing from special funds?

Yeah, that's included within the package.

Okay. And then the common theme, I think, through the previous Lao analyses is to make sure that we, as the assembly and state legislature, understand that dynamics of current year actions and future year budgets. So assuming. I mean, let me first ask, that amount has to be repaid, correct?

Yeah, that's my understanding.

Okay, so what would be the future, what would be the debt service on that 1.4 billion in borrowing?

I'd have to defer to my colleague in terms of what, you know, interest may accrue depending on the funds.

Which colleague would that be?

If she's available. Lisa Mierczynski.

Okay, we got an extra seat here if you want to come up. Little tight quarters then, compared to down there.

Hi, Lisa Mierczynski with the Department of Finance. Could you ask the question again? I apologize.

So out of the 1.4 billion in borrowing being proposed by the governor by, in this agreement. What would the debt service be to future budgets?

So most of the payments have been scheduled in the multi year. I would have to get that for you. I apologize. I don't have that. I don't know what the total amount of debt service would be.

It is a little troubling that you're asking us to vote on Thursday and you're not telling us the details of the.

So this was included in the Governor's Budget. The payment schedule was in, I believe, one of the documents for the Governor's Budget. I just apologize. I don't have it with me.

It was a good thing I did some calculations. So my understanding is that the State of California would owe more than $4.6 billion in debt service. Is that roughly correct?

I could not verify that.

Maybe my question to the LAO, could you give us a sense of what the debt service would be since the Department of Finance doesn't have that information readily available.

Mr. Fong, on this specific borrowing, or more broadly.

Just broadly. If the legislature assumes or wants to borrow 1.4 billion in special funds and there is a repayment, I just would like to know in the future what that debt service would be so that we understand the implications to future budgets.

Well, there is a repayment schedule related to the, to the borrowing that's in this package, but there is. And then, but this, the number you referenced, I think would encompass more than just that. It sounded more like it would include debt service on bonds that have been issued. So I guess it's sort of a question of just what specific debts debt service we're referring to.

Okay. If possible, maybe the Department of Finance can get that information to me.

Mr Fong, this borrowing is from special funds that have a balance that's not going to be used. And so essentially this is an available balance to borrow in the short run. Typically we repay with a PMIA level of interest, which is kind of a 3% level, and there is repayment terms for each of the lines. So I think it's hard to aggregate it off top of our heads because there's different terms for each of them. But you think of it from the perspective of the special funds.

Those funds would sit in the account, not really accruing any interest otherwise. So by blending the General Fund, it's essentially a little bit better for those special funds. And again, it is our money we're borrowing from ourselves. So there is, the debt service is internal.

Sure.

I'm just understanding there is going to be an implication, though, to the future?

Well, I would say if you go back and look at how we handled the great recession, we built up what was called the wall of debt by Governor Brown, and we did do some special fund borrowing, and then we were able to repay it over time.

And it was a very, it was probably the cheapest and easiest solution that we had to respond to the Great Recession, and it's the easiest one now as well, because in the long run, it does have the least implications in terms of cost and some of the other options we're looking at.

Totally. Look, I'm not here to, I'm just trying to understand and get the numbers. So if it's possible to, with the framework that's currently before us, if we are going to incur new borrowing, whether it's 3% or 4% or 2%, there is going to be an implication to the future. And I just wanted to get the, if there is that number, if they can aggregate or if you can give us the debt service charts, that would be critically important in terms of.

I know that there's intent language here on the reserves. This specific proposal doesn't have a call to tap the reserves, is that correct?

So the package states that the legislature's intent that the Governor's Budget withdrawals from the rainy day fund, that's both the school rainy day fund and the budget stabilization account as adjusted at may revision, would be made.

Okay. So the amount that would be taken out of the reserves is not been determined yet.

Yeah. The final amount would be subject to continued discussion and the May revision.

Okay. And then my understanding is that to access the reserves, there would have to be a declaration of a fiscal emergency. Do you have any sense of when that declaration would be made?

No. I would have to get back to you on the specifics of when the administration would make such a declaration.

Okay. In terms of the reductions in the spending reductions, is there a breakdown in terms of how much of the spending reductions are one time and how much of the spending reductions are ongoing? I think the concern is that the sustainability of the budget is in question, and so is this just a one time reduction of this year, but that we still have ongoing deficits as outlined in the LAO's analysis?

So we do have to figure out how to put the state budget on more stable financial footing. Ongoing. So can you break down how much of the spending reductions are ongoing for year over year and how much of it is just one time?

So I don't have the specifics. I don't know, if my colleague Lisa has that in front of me, I would note that just in the education arena alone, it's roughly $1.0 billion of those reductions that are one time in nature or delays that are one time in nature.

Do you have that information?

So I know 3 billion for sure is one time. That's the current year amount. And then there's the 14 billion that is in the budget year, and quite a few. I would have to get the total amount. I didn't break it down by that way, but there are several that are ongoing reductions.

Okay. I think that's the, from a framework perspective, I think that's going to be understanding the challenges of the current year deficit. There are ongoing deficits, I guess, projected in the out years, and so we do have to figure out how to deal with the out years. I don't know if the LAO has a perspective on this.

So, Mr. Fong, my understanding is that according, we haven't scored the package. Our office, but the documents refer to the 3.6 billion of reductions, generally reductions of one time funding, which I think does make some sense. Our office has pointed out that there were these very large allocations of one time and temporary spending from those previously estimated surpluses that were very large.

And so if anything, our office might suggest there's more of that type of one time funding that could be addressed, maybe if not in this package, before the conclusion of the budget process, that could help shrink the deficit before getting to that ongoing. I think, however, as you mentioned, the state does face these ongoing deficits that both our office and Department of Finance have estimated. And so most likely, at some point, there will need to be ongoing adjustments as well.

But for now, I mean, there's some focus on some of those one time allocations, partly because if you don't pull those back now, the money goes out and they become not available. Those are sort of, as we've described them, use it or lose it above to save. And so, even different from reserves or other types of one time solutions, which if you don't use them, they're still available in subsequent years.

Absolutely. And correct me if I'm wrong, did the LAO, did your analysis outline about 9 billion in one time?

We outlined, actually more than that. There's roughly 15 or 16 billion of one time available over the subsequent three years, including the budget year.

Okay. That 15 to 16 billion. Thank you. In terms of the specific items, I understand that there was one proposal to take 100 million from the employment training fund to pay back the UI debt. Can someone I guess explain kind of the thought process here in terms of. It seems like it's a double whammy to businesses in California. They have to pay a potential increase in payroll taxes for the debt.

And then now the funds that would have gone to them for training now has to be used. It's being shifted. Can you kind of outline the thought process there?

Andrew March, Department of Finance so the proposal to use $100 million of the employment training fund is already allowable use in statute. So this was conceived upon when the, what we call the add on tax. So it's a 0.1% add on tax. Unemployment Insurance taxes on employers. Typically that funding is used for training that can be allocated by the employment training panel. However, in statute, it authorizes the legislature to utilize that funding to pay interest on unemployment insurance loans.

Okay, so that's already in statute. You're just, instead of allowing it to go to workforce training, it's now going to be used to pay down the interest.

That's correct. Although I would point out that this funding was in the fund balance. So despite using a hundred, utilizing $100 million, there's no impact to the program? Program funding remains at same level, around $130 million.

Okay. So how much would, how much does the. So that 100 million would just be direct down payment to the interest? That's correct, yeah. Okay. In terms of. And then the Diablo Canyon conservation funding, does that at all impact the operations of. I know that the legislature voted to keep that energy production ongoing. So does that impact anything in regards to that.

Shy Forbes, Assembly Budget Committee. The conservation funding was separate. It was money that we set aside to use around the plant for long. Land conservation, economic development. But it does not impact the $1.4 billion loan that was agreed to for PG and E. That's done through the Department of Water Resources.

Okay. So it doesn't impact the operations of the nuclear power plant, it's just the conservation around, around the.

Yeah, sort of additional money that we also agreed to in SBA 46.

Okay. And then I guess the broad question, looking forward, and I know this is going to be an ongoing conversation amongst the subcommitee. So this is early action, 17 billion. So then what's that? Can you kind of take, pull the curtain back a little bit? And is there, does the administration have kind of a sense of what they're looking to do with the rest of the deficit?

Assuming it's, if it's closer to the LAO, if it's in the seventies, 70 billion plus, what is the thought process there?

Yeah, I think from the administration's perspective, we had a roughly $38 billion deficit as of the Governor's Budget. I can't speak to any changes since that point in time, but certainly we put forward a plan at the Governor's Budget that was a combination of reductions, delays, deferrals, revenue, and borrowing to address that deficit. Certainly there will be many conversations around the particulars that were in that package in the next 65 days, as the chair mentioned.

Okay, so just so I understand, you guys will, of course, when the mayor vision comes out, you'll have an updated analysis on what the deficit will be. Hopefully you'll be able to tell us how much you're willing to take out of the reserves, though it's still unclear when that declaration of a fiscal emergency will take place, but presumably before May.

Correct. And in terms of withdrawals from the reserve, what I can say is the Governor's Budget predicated roughly, I believe it was $11 billion in withdrawals from the budget stabilization account and roughly 5.7 billion from the public school system stabilization account. That 5.7 billion was split between roughly 3 billion in the current year and roughly 2.7 billion for the budget year.

Okay, so that's the rough. What would be proposed out of the governor, out of the reserve, and that would still be predicated on a declaration of a fiscal emergency?

That's correct. That's what the Governor's Budget reflected.

Okay, but we don't know when that would take place, when the declaration would take place?

No, I would have to take that back to the Administration.

Okay, but the Administration can do it on. I mean, you'd have to do it on your own first, right before. Okay.

The budget is predicated on that.

Yeah, that's all the question of that. Thank you, Mr. Chair.

Thank you very much, Mr Vice Chair. Are there others with questions, comments? Okay, Mr Patterson.

Yeah, real quick. So I want to. Is this working? Yeah, I want to focus on the $250 million that the Governor was sending to Fresno, California, for significant repair and work in our downtown area on infrastructure and revitalization. Originally it was delayed, and I recall it showed up as a possible recommendation for cancellation. Where does that $250 million stand now?

I defer to my colleague Emma, who's coming up.

Hi, Emma Jungwirth, Department of Finance. The Governor's Budget still represents a delay of funding for a Fresno, so there have been no changes made in early action to that proposal at all.

Can you describe the delay, please? How long? How much? Over what time?

Yeah. So the funding for the current year, 50 million, is still being allocated to Fresno. But what was proposed 100 million for budget year and what was proposed, it was originally 100 million in budget year. 100 million budget year plus one. And we've just delayed it by one fiscal year. The funding would be allocated 50 million current year and $100 million.

Skip a year.

Yeah, it would skip a year. 25-26.

Following two years.

Yeah 25-26 and 26-27.

You can understand how significant that is, particularly with the high speed rail station that's coming in there. Our administration, and I was a mayor, Fresno for eight years. So this is really important to me as well. And I just wanted to make sure that it didn't get on the chopping block, that we actually. I can report back to my mayor that this is 50 million now one year delayed and then two budget years thereafter. The plan is to do the 100 million each, correct?

Thank you. Appreciate that.

That's the plan.

Mr Essayli.

Okay, so we estimate the budget deficit to be about $73 billion. Today's plan that's been offered reports to plug about 18 billion of that. What's the plan for the remaining 50 billion?

So the Governor's Budget puts that figure at roughly 38 billion. The $73 billion figure is a Legislative Analyst figure. So from our perspective, we have a holistic package that was addressing that 38 billion as of the Governor's Budget. That was between withdrawals from the reserve reductions, delays, revenue and other borrowing to address that deficit. So I can't speak to the 73 billion as that wasn't an administration figure.

I will say that within the 38 billion, there was also a proposal around addressing prior year funding and the Proposition 98 guarantee that would also address a significant amount, roughly $8 billion. So certainly that's our plan that we put forward. I defer to the Legislative Analyst to speak to the 73 billion.

Well, no, I'm speaking to the governor's office because. So you're still operating as if it's only a $38 billion deficit, is that correct?

Yeah. At this point in time, we can speak to the Governor's Budget, which had a $38 billion deficit number that was announced. You would not see another public announcement on what we think that amount might be until the May revision.

So I'm just trying to understand behind the scenes, when you go back to your office state, you guys are not figuring out how to plug a $73 billion deficit. That's not happening.

I think from our perspective, we're still working through what the May revision would look like and what those amounts are. So I can't say that it's 73 billion. Certainly we would account for updated revenue projections. We'd update expenditure projections, and we would create a package for the May revision that addresses both of those scenarios.

So I can't say that it's 73 billion at this point in time, but we would come forward with a package in May that creates a balanced budget and that addresses updates to both revenue and expenditures.

Okay. Well, my concern is I don't feel like the governor's office is taking this seriously because the legislature, who employs the LAO and is better at this, frankly, than the governor, says it's 73 billion. We have a lot of groups. I'm getting people in my office all the time are worried about substantial cuts that are going to be made in this budget. And we're about two months out from a deadline and we're not having any real conversations about what those cuts are going to be.

Are they going to be from healthcare? Are they going to be from schools? Where are we going to cut $50 billion from? And we're not even having a real conversation here. We're talking about 3 billion in cuts today. The rest are gimmicks. And they're one time gimmicks. You won't be able to use those next year.

So my message to the governor's office is, you guys got to wake up and you got to take this seriously because Californians are going to depend on what on we do with this budget. And we can't just have a week or two to figure it out. We need to start working on this down. So I hope you'll take that message back, please.

Yeah, certainly can take that message back. I would say that we've had a tried and true budget process year over year over year that relies on updates at the May revision. That would be the next public opportunity for the administration to speak to the measures that you mentioned.

I'm just going to interject here. I want to maybe add a little bit of context here for folks who are watching at home. We have more than 60 budget subcommitee hearings that are scheduled here. So we have been undertaking the process of thoughtfully deliberating how we craft this year's state budget since the governor introduced his budget in January. If you were to come and watch, you can turn on the TV in your office, maybe watch some of the budget subcommitee hearings.

You'll see our very talented subcommitee chairs who are going through those conversations almost every day of the week. And I just want to remind folks this is our goal with early action, is not to write the entire budget and actually be foolish to do so because we want the opportunity to have those conversations thoughtfully, responsibly, to hear from stakeholders, to hear from legislators about their priorities, to make sure that we think about these things in a thoughtful and deliberative manner.

So what we are trying to do with early action here and what is before us is to take an important first step, a meaningful first step, a thoughtful and responsible first step about how we might address the shortfall. But to accelerate that process so that the legislature could have no hearings and no consideration and no opportunity to hear from interested folks, including folks in your district, about what the most appropriate solutions might be, I would argue it would be a very imprudent way.

So again, I want to take everybody a big step back. This is not the final word on the budget. This is the first step. We're trying to take advantage of what the Legislative Analyst Office has suggested to us, or use it or lose it opportunities to capture savings. That's one of the reasons that this includes this freeze on discretionary one time funding.

And we will continue that hard work as we have been doing in conversation with the governor's office and in conversation with stakeholders and in conversation with legislators about how we craft that larger solution. So again, I just want to back everybody up for a second. This is not the final word on the budget. This is a first step that is thoughtful and responsible about how we meet that. And then we will continue these conversations over the next couple of weeks.

And importantly, when we have more information about what revenue actually is, when we have more information about what the size of the shortfall is, then we can have those final conversations. But I want to assure you, Mr Essayli, all of your colleagues here on the Budget Committee, including the subcommitee chairs, have been diving into this. They've already, they're already working through these various scenarios.

So if you want to have conversation about that, invite you to come have a conversation with me, would invite you to have a conversation with our Subcommitee chairs. But this is not the state budget. This is not the June budget. This is a first step.

Mr Chair, with all respect, I don't want to have private conversations with you in your office.

I want to have them in public here and I sit on those subcommittees and we are not having meaningful conversations about where to cut with the budget. So I appreciate your remarks, but I don't want any closed door meetings that.

Just to be clear, we have over 60 publicly televised committee hearings that any person in the State of California can watch. And I know that all of our subcommitee chairs are doing that in a very thoughtful and inclusive way.

With that, I'm going to open it up to others who'd like to comment. Mr. Alvarez.

As a chair of one of those subcommittees, we have had quite a bit of absences by some members at those subcommittees because we actually have had some very, very deep and informative and often painful conversations about what those trade offs are going to be in a difficult year. We are actually doing that work. We've had well over, I believe, eight subcommitee hearings in education alone, and I would hope that there be continued to be participation from all members of that committee.

I appreciate Mr. Muratsuchi, Mr. Fong, who have been there at every single meeting listening to those really difficult conversations. And again, hopefully others can join. I would just want to acknowledge perhaps the final paragraph in what has been released in our agenda, which is really what the chair already has already stated, what this is about today. This is an early action package that makes meaningful and significant progress to addressing the state's projected deficit. And this identifies that we need to do more.

But the last sentence, I think, is critical, and I want to acknowledge the work by the Department of Finance in this regard, that this bill contains important provisions to empower the director of finance to free freeze spending from the 2021-2022 and 2023 budgets. That is significant action being taken with this. The provision will also preserve the options.

This is even more critical as we go forward, preserve the options for additional budget solutions, which are the ones that each one of us and our subcommittees are discussing, that each one of us are having in depth conversations with departments, with Department of Finance, with the LAO, with stakeholders for hours and hours of public testimony that will continue in the assembly.

That's the kind of work that our speaker has asked us to do, that our budget chair has asked us to do, and we will continue to do that over the next several months in order to actually get to a budget that is balanced and that is full of real solutions to make sure that this issue is addressed not by kicking the can down the road for more years, but by actually addressing it this year so that in the future years, we aren't talking about risks to services that are so important.

So there's just three additional points that I hope at this moment. I think this gives us an opportunity to also just pause and reflect on how we should be thinking towards the forwards.

There's things I want to put out that I know in our subcommitee, we've already discussed one, the freezing, which already is being done here, and we have to appreciate the administration for stepping up in that way and saying, we've got to take a pause and see what's there so that we can make other decisions as we go forward, too. I like to make sure that we have a conversation in June about additional reserves.

I think, if nothing else, is a lesson that those who had the foresight years ago to do the emergency reserves was a smart thing to do. The education Reserve another smart thing to do. But there are other parts of our budget I believe deserve reserves as well. Certainly in higher education, where the General Fund is the major contributor primarily to our community college system and our CSU system, but also to our UC system.

When our General Fund goes down, our institutions of higher education have to deal with a more difficult situation. Having reserves, additional reserves for those purposes in the future makes sense, as I think it also makes sense for other things, like early childhood education. I think we should definitely talk about that this year. And then lastly, I'll say I want to thank the Department of Finance who's here, certainly the LAO, for this being a collaborative relationship, as it should be.

During this process where you come forward, you present the best information that you have. We ask you some very tough questions, of which some you don't have answers to just yet, but you're going to be expected to have those answers before we make a final decision.

And I know that that type of work, either through our committee or maybe through going back to a conference process, would be the most ideal in order for us to really have those deep level conversations that our chair wants to have that are required in a year like this. So with that, I want to thank the chair for the opportunity and all of you for being here today.

Thank you very much. Mr. Alvarez, Mr. Bennett, thank you.

I just very briefly would like to point out that at a hearing like this, we really have two choices. We can either try to characterize people's intentions or lack of intentions, or you're not taking this seriously, sound bites. Or we can just roll up our sleeves and identify specifically what would you do differently with the budget, which is what we should be doing. And I would just suggest that that's certainly the more productive way for us to move forward. Thank you.

Thank you very much, Assemblymember Quirk Silva.

Thank you. And I wanted to assure the public that we are taking our jobs seriously. We have had just in my committee sub five, which is all state administration, including areas, taxes, cannabis, veterans, housing, homeless, some major issues in California that we have had not only multiple hearings from the past, but we have many, many hearings planned through April and May, we'd be happy to get you a calendar if you need that for your purview. But in these committees, we are asking tough questions.

One that has been talked about is cannabis. As we know, the cannabis fund has been a little volatile, going up and down, but there has been money coming into the state. One of the issues we found is it's been difficult to get those funds out and the enforcement dollars are going out readily, but there's education funds that have not been moving out. So one of the proposals is to move those funds into another area until we can get those education funds out.

But we have serious, serious issues to face as we move into May, including all of the homeless funding, all the housing funding, foster care funding. We have many issues that not only are constituents going to be weighing in, advocates are going to be weighing in, and they already have weighed in since the January budget was released. Our offices are entertaining many, many meetings from individuals who want to weigh in.

Plus we have seen a huge amount of letters that have been sent into our offices, either asking to consider saving a program, consider holding programs, not delaying. So there is a large amount of correspondence that our offices are not only reading through, but Wayne, as we deliberate on, how do we exactly make the determinations for a budget for California in a very slim budget. Thank you.

Thank you, Ms. Quirk Silva. Have any other members of the committee with questions or comments? Oh, Ms. Petrie Norris. Then we'll go back to Mr. Fong.

Thank you, Mr. Chair. Well, and I do. I want to thank our chair and our speaker and all of our subcommitee chairs for the work that you have been doing and the very deliberative process that you have undertaken as part of coming to this proposal.

And as I think you've heard from other members, I think while early action is what's before the committee today, I think the question of what's next is certainly very much top of mind for all of us and for all of our constituents. And whether it's the estimate from the governor's January budget, the LAO's estimate, or what we see in May, I think there is no doubt that we are going to have a significant gap to close and some tough choices in front of us.

And so I guess kind of with that view of looking forward, just two things that are really top of mind for me. And the first, our education sub chair already highlighted his desire that we have some conversations about reserves and opportunities to grow reserves in the future, so that if we are ever in a situation where we have a $100 billion budget surplus, a $74 billion budget surplus. We are able to store more of that away in anticipation of the inevitable rainy day.

And then number two, and I know this is very much in line with the framework and the process that our budget share has outlined. It is really, really important that our agencies and departments are able to provide us with data, with analysis, so that we can actually evaluate the ROI of ongoing programs. We're not going to solve this problem anymore by just stopping one time spending. That's what we're looking at here.

So as we're forced to make tough choices about ongoing programs, we need to have really robust metrics by which to evaluate those, and really robust metrics by which to evaluate efficacy and return on investment. And so I know that that's a message you've heard loud and clear from us in the Assembly, and certainly one that I think will continue to really be our north star as we move into phase two of closing this gap and meeting this challenge. So thank you.

Thank you very much. Assemblymember anybody else? Mr. Fong

I just have a few additional questions. Just off, I think a couple questions came into my mind after listening to my colleague from San Diego. In terms of LAO, you know, when we talked about the reserves, and I think what my colleague has said is important to increase reserves.

In your previous analyses, previous budgets, you indicated not only that we have to be diligent in terms of whether we should use reserves and how we use reserves and not use reserves to prop up ongoing spending, it is to ensure that we minimize the effect if possible. So will you have an analysis of this and what recommendation do you have moving forward in terms of the use of the reserves? Your analysis is still the same?

Sure, Mr. Fong. So our analysis, I think, remains broadly the same because what is referenced in this package seems fairly similar to the January Governor's Budget proposal of using roughly half of the reserves. And we had said in our analysis back at that time that that seemed roughly appropriate given the, you know, faced with a large deficit like we and the Administration are estimating it, it's reasonable to use some of the reserves at a time like that.

But it's also good to maintain some balance in the reserve for the future years as well, especially since we already anticipate there to be some fiscal pressure in those upcoming years. So this is not an area where we had a major difference with the administration's proposal.

So in terms of the analysis you provided, you did outline in your last forecast that you were concerned about outgoing years. So is your conclusion still the same, even with this early action, there is still kind of ongoing structural deficits going out to the future, correct?

That would be. Our current multi year outlook includes those. I mean, it is important to note that we are in April, which is the very important revenue month for the State of California. There has been some improvement in our withholding tax collection trends in particular, although fairly concentrated within a couple of days, which is hard to read as a broad improvement in the overall economy or labor market so much as maybe specific very large high tech firms or making large payments to people.

And so we're still kind of waiting to see how that plays out. But yes, in general, we're not expecting that broad picture to change dramatically.

And then two last questions. In terms of this proposal and the move forward, does any of this Department of Finance, does any of this, did you include Prop one in your budgetary analysis or any other? I know that some of, there were some delays or cuts, like for example, to school facilities that may be rolled into maybe a future bond that's going to be proposed by the legislature. Is that taken into account here or are you assuming any of those things?

Which I would've guessed we shouldn't assume so.

I'll defer to my colleague on the Prop one issue. As it relates to school facilities, there is a delay of 550 million for the full day kindergarten, transitional kindergarten and preschool facility grant program from a plan, $550 million investment in 24-25 to instead 25-26. Certainly as conversations progress, and to the extent we think about an education bond, which we clearly supported in the Governor's Budget, those would be further conversations to be had with the legislature.

Our budget proposal does not contemplate anything beyond a delay, and the early action package right now only reflects a delay.

Okay, thank you.

Guadalupe Manriquez is with the Department of Finance. So given that Prop one just recently passed, there's the Governor's Budget or the package before you, doesn't include any impact of Prop one.

Okay. But would there be additional spending that is not included in the January budget that would now have it in the May revision?

So that's part of what our office is doing right now. We're evaluating those impacts and we'll be making updates for the May revision.

Okay. And so the delays, those, those spending, that, that amount of spending is, will be in the, will be taken into account the out years, correct. They don't go away. They're just, they're in the future years.

It depends on the timing of when those effects per the Prop one will take effect. But that will all sort of be determined as part of our may revision.

Sure. Right.

The Prop one. In addition to the 3.6 billion or to the delays, you've got 550.

Yeah, that's 550 million. That's on the General Fund side, I think, as it relates to the 1.4 billion, as you may have heard from Miss Mierczynski, that is already scheduled into the multi year in terms of what those repayments will look like, I do believe that the multi year assumes that roughly 1.5 billion per year for the school facility program would continue. So we do have some level of projection in terms of what that debt service might look like.

Should there be a facility bond, should there not be? That would definitely come off of the multi year projection. Sure.

But all the delays are included in the out years. And then my last question is going back to the debt service. Correct me if I'm wrong, I just wanna make sure I have the numbers correct. We currently borrow as a state 3.2 billion already, the special funds. This would add another 1.4 billion in borrowing on top of that. Correct.

I defer to my colleague, but I do believe that's roughly right.

Maybe you should come up and just give me an affirmative or negative answer on this one. Sorry. Get your steps in today.

I need it. Yeah. Lisa Mierczynski with the Department of Finance. That's correct.

So we borrowed 3.2 billion already, and this proposal adds 1.4 on top of that.

Yes, that's where your 4.6 came from. I realized when I got back.

Okay, I just want to make sure my numbers or adding up correctly. Thank you very much. Appreciate it.

Thank you very much, Mr. Vice Chair. Any other comments or questions from members of the committee? Okay with that? I just want to. We're going to open up to public comment in a minute, but I just want to maybe add a few comments, and I just want to, again, thank all of the members of the subcommitee and, excuse me, our subcommitee chairs in particular, and also members of the committee for their Hard work.

I want to thank folks who have attended the hearings, who have submitted budget letters. It is interesting to me when those sometimes who complain the loudest are those who have not shown up to subcommitee hearings or submitted any budget letters. So I want to thank those that are doing the hard work to help us craft this budget and craft the solutions. And I also want to thank the governor's office and the Senate. Excuse me, sir. Excuse me. Excuse me, sir. Mr. Essayli, you're out of order.

Mr. Essayli, we have parliamentary procedure here. Thank you. I'm providing for my comments. Point of personal privilege? Go ahead. What's your point of personal privilege? I am simply commenting on the process here. So as you notice, I didn't mention anyone. Well, you can explain to your constituents why you'd interrupt to those hearings. Anyway, I thank those who are doing the hard work. I want to thank those that are doing the hard work and that are digging into this process. I appreciate that.

I want to thank the governor and the senate for their cooperation in digging into this thoughtfully and collaboratively. I want to thank Mister Alvarez. I think he hit the nail on the head here that this is a complicated process and it requires us to work thoughtfully together to confront difficult challenges.

I know that all of the subcommitee chairs that I have spoken with and that they have mentioned in their subcommitee hearings are mindful of the structural challenges that we face, not just the challenges that we face in the current year budget that people are digging in. And I just want to appreciate the governor and the senate for that. I was raised to believe that actions speak louder than words.

And I appreciate the fact that we're not just saying that we're concerned about the shortfall, but we're taking meaningful action to address it. And then we're beginning that process right now with this important early action process, which is going to, as was mentioned, provide about $17 billion in solutions. So we know that there is continued hard work ahead.

And I have tremendous confidence in our subcommitee chairs, the members of this committee, and the members of the legislature who are going to dig in and do that thoughtfully. With that, I want to invite, if.

I may just correct for the record, we did include Prop one debt service estimates in our January 10 budget.

Thank you very much.

Thank you. No, no problem. Thank you very much. With that, I want to include invite members of the public who would like to come up and provide public comment. Thank you.

Good afternoon, Chair and members. Kendra Harris with the Climate Center. We submitted a coalition letter, broad coalition letter on climate priorities last week. I know it's still circulating. That letter was signed by a number of environment organizations, Environment California, Coalition of Clean Air, Leadership Council, and others. I just want to comment that a recent report released by Next10 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.

Thank you very much.

Honorable Chair and members. Amy Hines-Shaikh with the California Community Land Trust Network. We were understanding of the fact that the foreclosure intervention housing preservation program needed some scaling back, but the fact that you all didn't cut further than what the governor had proposed is noted and very much appreciated. We were just hoping that we could appear for some amount in the out years. It doesn't even matter.

I joke that it could be a dollar just so that our appropriation just appears as a line item so that when we have brighter days ahead, we can advocate for populating that back in. We very much appreciate your understanding of housing justice and how we need to move forward and thank you.

Thank you.

Hi, Tiffany Mok with CFT, a union of educators and classified professionals. We just want to thank the chair for this hearing and further, that we have serious concerns with the deferral for the UC compact funding, but nevertheless deeply appreciate the language from the Department of Finance and the Legislature to explicitly note funding for 202526. We look forward to this further discussion in the subcommittee tomorrow. Thank you.

Thank you very much.

Hi. Mariela Ruacho with the American Lung Association. California faces the most polluted air in the nation, with many parts of the state in non-attainment and extreme non-attainment in meeting federal clean air standards. The state needs to continue funding clean air programs without delay. We appreciate the Assembly proposal, deferred specific cuts under the GDRF, and urge you to continue to prioritize funding for critical clean air and zero-emission programs that Californians depend on for local air quality.

All Californians deserve to breathe cleaner air, especially those living near ports and other major traffic areas who would benefit the most from equitable clean air program. We are deeply concerned with that program's at the heart of cleaning up pollution in hard-hit areas such as the clean cars for all commercial harbor craft, zero-emission port trucks, and equitable building decarbonization phase serious cuts. The state should be balanced by delaying clean air investments while polluting should not be delayed by balancing delay clean air investments while polluting causing investments in fossil fuel subsidies and highway expansions are continued. Again, we urge you to prioritize healthier programs as you consider the budget process this year. Thank you.

Thank you very much.

Hello. My name is Olivia Gleason with Californians United for Responsible Budget, CURB. Despite welfare needs growing, this committee considers cuts to CalWORKS, cuts to education programs, and clean air. Meanwhile, with fewer incarcerated individuals and fewer prisons, CDCR's budget remains untouched at $14.6 billion. I think this committee for naming a need to prioritize immediate and long-term solutions, we must prioritize cutting back from bloated budgets like CDCR's before slashing welfare and investments in California's youth and clean air.

Like we just heard about, California is at a pivotal moment. We can fund the services that would prevent suffering, or we can continue a culture of austerity by funding prisons and rogue corrections budgets. I'm urging you to move forward with prison closures and cut CDCR spending to save billions. Thank you so much.

Thank you.

Hi, my name is Alicia Montero. I'm also with CURB. And just to mirror what Olivia just said, vehemently opposing budget cuts to vital programs like CalWORKS, clean energy, early education, instead hoping that we can trim excess from bloated budgets like CDCR by closing five prisons like the LAO recommended. Thank you.

Thank you very much.

Hi, members of the committee. My name is Tannah Oppliger with California United for Responsible Budget, which is a statewide coalition of over 80 organizations. I urge this committee to take dollars from bloated, wasteful budgets like CDCRs before resorting to cuts from welfare and education, and clean energy as proposed in the early action. CDCR is the only state agency whose budget stays consistent or even increases as the population declines drastically.

And why is it that we are maintaining budgets for prisons that are emptying while we are cutting and delaying funds to welfare in schools and clean air that are desperately needed right now? The LAO has already raised a partial, more responsible solution to the budget deficit. Close five prisons now, save billions annually. Thank you.

Thank you very much.

Good afternoon. Melissa Romero with California Environmental Voters. We really want to urge the Legislature to, even in times like this, to prioritize climate, even in an incremental way, however way that we can, because the cost that we do not spend now will be costs in the future in the form of natural disasters, public health costs, impacts that are unimaginable and will impact people's lives.

I also want to just echo the comments made from American Lung Association and Climate Center from earlier, and also to urge the Legislature to end oil and gas subsidies. We could be saving billions of dollars in the form of tax subsidies and tax credits that are currently benefiting, overwhelmingly benefiting the oil and gas industry.

Environmental advocates have identified almost $9 billion of savings that we could be spending towards climate solutions and other critical things that are being cut right now or being proposed to be cut, I should say. We really want to urge the Legislature to consider things like the water's edge tax election and things that could be undone to provide some long-term funding for the state. And finally, a climate bond. This is the year that we really desperately need a climate bond.

We want to urge you all to prioritize that this year, and essentially we need that in order to meet not only our clean energy goals but also our climate resilience goals. So I really want to urge you to support a climate bond. Thank you very much.

Thank you.

Good afternoon, committee members. My name is Dax Proctor. I'm a member of Californians United for Responsible Budget. The early action proposal calls for 300 million in cuts to CalWORKS and over 500 million in cuts to early education programs, yet 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, pardon me, 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 cuts to prisons, particularly when such cuts could yield significant savings? Redirecting these funds could bolster critical public services that are in peril, like housing, education, healthcare, 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 that strain our state's finances. A frequent rebuttal is that reductions in prison spending takes years to realize. That's true, but California's budget woes are a long-term problem and won't be solved by one-time cut spending cuts alone.

As you've discussed today, we must create a thoughtful policy framework and expedited timetable for prison infrastructure reduction. The pragmatic approach allows for a more rapid and structured response to the evolving needs of our correctional system while ensuring fiscal prudence and public safety. Thank you.

Thank you very much.

Good afternoon, Mr. Chair and members. Andres Ramirez, on behalf of All Home. Just wanting to thank the Legislature and the administration for safeguarding most of the state's housing and homelessness programs in the early action part of the budget and being willing to have those conversations leading up to June. Housing and homelessness, as you all know, continue to be the issues of greatest concern to most Californians. So we just want to ensure the resources continue to be there to continue the hard-won progress on homelessness.

Also briefly want to acknowledge early action impact on the foreclosure Intervention Housing Preservation program and some behavioral health housing programs, and respectfully ask that no further reductions be made on those. Thank you.

Thank you.

Good afternoon, Chair and members. Tiffany Phan, on behalf of California Court Appointed Special Advocates Association, or CalCASA. In the 2022 budget, the Legislature and administration made CASA for foster children a top priority, allocating 60 million over three years. 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. Conservatively, the annual cost of taxpayers if children and youth do not have a CASA is as much as 1.5 billion a year. So we appreciate that the governor included the CASA funding in his January budget. We urge this committee to protect that allocation. Thank you.

Thank you very much. Do we have anyone else in the hearing room who would like to provide comment? Seeing none, let me again thank the Department of Finance and the LAO for joining us today. Let me thank in particular all of the hard-working staff, and I want to thank our Assembly Budget Committee staff that I know spent a lot of long nights working through this and time over our recess. And let me also thank staff in the Department of Finance and the Senate.

We appreciate all the work that you did. We expect this bill will come up for a vote on the floor on Thursday, and we look forward to debating its end. So thank you very much, everybody. This hearing is adjourned. So I want you to check out a couple things.