Assembly Budget Subcommittee No. 5 on State Administration

Good afternoon, and welcome to Assembly Budget Subcommittee five hearing. Today we will hear the May revision proposals. We have a lot to cover today, and we'll go through each item as efficiently as possible. A few housekeeping notes. This is an in person hearing with all panelists testifying in person. We will take questions from Members of this Subcommittee after each issue.

So I'll say that again, we will go through each section of the agenda, and after that section that you are interested in talking about, we will ask you to come up then. Public comment is limited to 30 seconds. As you can see, we have a very long agenda, and there will be more individuals coming as we go through each item. If you are unable to attend this hearing in person, you may submit your comments via email to asmbudget@asm.ca.gov. With that, we will call the roll call.

[Roll Call].

All right, and before we begin, I'm going to just make a few comments, and I will also ask my colleague here, I just to support our colleague from Assemblymember Joe Patterson. He often has many other committees exactly at the same time. So he will be coming if possible, but he takes very close notes, and we know that he's very engaged. But the comments I have is, as some of you have been following issues that are coming up, not just issues, but cuts that are coming up in this very lean budget time.

We know that is extremely painful for some of the advocates. We also know that these cuts that are slated under this purview of this Subcommitee will have devastating effects. We understand that we are doing our best to advocate as much as we can to not only save and keep or not delay various programs, but is extremely difficult. And I will say on behalf of myself, we are dismayed by some of the cuts or many of the cuts that we see here. Open it up to any remarks from my colleague here before we start.

Thank you, Madam Chair. No, I just would, I know we have a lot to get to today, so just certainly come into this hearing with, you know, much more somber feelings for the news that we're seeing in the May revision. Want to dive a little bit deeper into understanding the nature of these proposals, knowing that we're not taking any actions here today. I definitely have some of my own thoughts, item by item, that, you know, we can share at that time. But in totality, in summary, you know, we take this role very seriously.

We are looking for those alternatives because each one of these programs or each one of these areas of funding matter to the deliverables that we are sent up here to do for Californians. So with that, I'd like to, I guess, get on with the hearing. But thank you all for being here today.

All right. With that, we will begin our first item, issue one, tax agency proposals, and welcome you up. We have the California Department of Tax and Fee Administration and the Franchise Tax Board. We have our Department of Finance and the LAO. We will also ask all individuals to introduce themselves before they speak. And thank you all for participating today, just in general across the board. And welcome to all. Welcome back I should say, as we've seen some of individuals here many times, go ahead and present yourselves, please.

Nick Thomas, Department of Finance. So, as part of solving the projected deficit and to balance the budget, not just for the budget year, but for the following year as well, the may revision proposes to temporarily suspend net operating loss used for medium and large businesses and to limit business credit use to $5 million per year. This solution would be in effect for tax years 2025/2026 and 2027. Businesses with less than $1 million in taxable income would be exempt from the NOL suspension and all businesses would be able to use their credits up to $5 million per year. Therefore, small businesses would generally not be impacted by this proposal.

The solution is also subject to a trigger whereby if cash receipts through April 2025 come in above average expectations such that the solution is no longer needed, the suspension and credit limitation would not take effect. The temporary NOL suspension and credit limitation also does replace the ongoing 80% NOL limitation that was included in the Governor's Budget.

This NOL suspension and credit limitation largely mirrors the suspension and limitation from 2020 and 2021, including the protection for small businesses. Although there are two key differences. First, it has a much longer lead time to allow businesses to better plan ahead, and second, it also includes the cash receipts trigger as I discussed up front.

The state has historically utilized NOL suspensions to help balance the budget during revenue downturns, including in the early 1990s, the early 2000s following the Great Recession, and most recently during the COVID-19 pandemic. Additionally, it puts in place credit limitations. It put in place credit limitations as part of the latter two. As part of this proposal, the carry forwards for businesses to use their NOLs and their credits would be extended by three years, and generally it's expected that businesses will still be able to utilize their NOLs and their credits just at a later time.

The proposal is estimated to generate $900 million in the budget window and also increase revenues through the multi year, including by $5.5 billion in 25/26. However, it would result in revenue losses after the multi year as companies are able to fully utilize their NOLs and credits, including any backlogs from the years during the suspension. Of note, these revenue estimates are achieved in part because there is a limitation on both NOLs and credits. Because many companies have stocks of both NOLs and credits. Enacting a limitation on just NOLs or just credits would significantly reduce revenue gains from the solution as some companies would be able to avoid impacts by merely shifting from using NOLs to credits or vice versa. With that, I'm happy to answer any questions.

Thank you. Who would like to go next?

Are we running through all the issues?

So for apportionment factor, the May revision includes a proposal which clarifies existing law that when a corporation receives income that is excluded from taxable income, it must exclude this income from its apportionment factor formula. As background, an apportionment factor represents the share of business activity a firm conducts an estate divided by its total business activity to determine the share of income that is subject to tax in each state.

Consistent with constitutional principles which seek an equitable and reasonable method for taxing corporations that do businesses in multiple states and countries, the FTB has previously issued longstanding and consistent guidance to taxpayers that activities that are not subject to taxation, if they generate income, are required to be excluded from the apportionment formula.

However, in recent legal rulings, the Office of Tax Appeals has determined that existing statute is unclear on how certain non taxable income should be treated, which has led to some refunds being issued to taxpayers related to past tax years. The issue became particularly relevant following the Tax Cuts and Jobs Act at the federal level, which provided an incentive for corporations to repatriate large amounts of foreign sourced dividends from their international subsidiaries. California law allows 75% of those dividends to be deducted from income, meaning that portion is not taxed.

However, taxpayers have successfully argued that they should be able to count the entire amount of those dividends in the denominator of their apportionment formula, which should normally be representative of their total taxable business activity. However, since 75% of these dividends are not actually taxed in California, this has led to taxpayers artificially reducing their calculated share of overall business activity, which in turn has resulted in a reduction of their tax owed simply by having more foreign source dividends.

So this proposal is declaratory of existing law, and it seeks to provide clear statutory authority and guidelines to taxpayers on how to determine what income should be included in their apportionment factor. It wouldn't overturn any specific prior taxpayer cases, but would instead be considered in future cases. Additionally, it prevents a loophole where taxpayers could include non taxable income in their apportionment base to reduce their tax liability. The FTB estimates that there are approximately $1.3 billion in potential refund claims from past years that are at risk if no legislative action is taken to clarify statute.

And then there's also a prospective, potential ongoing refund claims of $200 million per year. Finance we estimate that without this proposal, about half of those $1.3 billion in potential refunds would be issued to taxpayers throughout the multi year budget window as additional legal cases and refund claims are brought forward. Of that, the May revision assumes that revenues would be $216 million lower in the budget window, with additional revenue losses outside the budget window. The proposal before you would prevent those losses and will bring corporation revenues back to what they would be without the distortions from the alternative computation of the apportionment factor. That's all I've got on that.

Thank you.

Thank you Madam Chair. Colby White, Department of Finance. So the next issue before us is the IRS conformity disaster relief. And so, by way of background, under existing federal law, the Internal Revenue Service can grant federal tax relief in the form of certain delayed tax filing and payment deadlines who are covered by a disaster declaration that is declared by the Federal Emergency Management Agency.

And under existing law, the state does have the option to fully conform or partially conform or not conform at all with those federal delayed deadlines. So in recent years, in response to disaster declarations, the IRS has extended tax filing and payment deadlines multiple times, including last year when, following a series of winter storms in 2023, the IRS ended up delaying tax filing and payment deadlines to November 2023.

Some of those deadlines were extended as long as 10 months, and it ultimately impacted 55 of the 58 counties and over 99% of the state's population. So this extension was overly broad in terms of both scope and length of the delay. It was - meaning that these - so and just to support that statement, the declaration, the disaster declaration itself was for individual assistance in only 15 counties, which means that individuals or households were impacted and the remaining counties were public assistance where only public entities were impacted by the disaster.

So that particular broad, overly broad and unprecedented extension from last year had significant detrimental impact on the state's budget. Normally, the bulk of cash data is known around April, when we're preparing the May revision, and we can prepare a may revision that's more informed by those cash receipts. And so last year, due to those deadlines and deadline delays, the state's subsequent conformity, the majority of the state's revenues did not show up until October and November. The extent of the shortfall was known much later, and the state's ability to respond was in adjust expenditures. Delay was significantly delayed. So this proposal here does two things.

It shifts the authority from the Franchise Tax Board to the Director of Finance to determine whether and to what extent the state will conform to the federal postponement of deadlines in future disaster declarations and in cases where the where the state does not conform or partially conforms. This proposal adds a process to the state, to the state to grant individualized relief to taxpayers, and they're required to show supporting documentation. But for taxpayers that are truly impacted, that would not have, would not get those full extended deadlines, there's a process for them to get relief.

So it is the intent of the state to provide a disaster response of relief to Californians who need it, and this proposal achieves that goal. This proposal is needed, though, to provide the state a tool to adjust and provide more targeted relief when the situation arises and while still allowing the state to plan for the budget and appropriately adjust the budget and right size expenditures if necessary.

And given climate change and the increased frequency of disasters, it is important for the state to have this flexibility. And it is appropriate for the Director of Finance as well to have this authority, although we envision it being in consultation with both the Franchise Tax Board and Cal OES. But if such a decision was made to not fully conform, it would be based on budget implications and ability to plan appropriately. Thank you.

Thank you. Next.

Good morning. Robin Finnestead, Department of Finance. Our next proposal is shifting the YCTC and Foster Youth Tax Credit income limits to match the Cal EITC income limits. The maximum income thresholds for the Young Child Tax Credit and Foster Youth Tax Credit are currently slightly out of alignment with the California Earned Income Tax Credit for tax year 2023. The thresholds were in alignment from tax years 2019 when the YCTC was enacted through tax years 2022, when they were both. Thank you.

When they were both set at $30,000, the FYTC was enacted with the same maximum income threshold in tax year 2022. The 30,000 limit was set until the minimum wage reached $15 per hour. For the Cal EITC and the YCTC and FYTC, current law sets phase out amounts whereby credits are gradually reduced as income rises above a specified level until earned income exceeds a maximum income threshold and the credit earned zero.

Due to small differences in how the CalI EITC, YCTC and FYTC are phased out beginning in tax year 2023, the maximum income thresholds are slightly out of alignment with the Cal EITC, fully phased out at $30,950, while the YCTC and FYTC are fully phased out at $30,931, a difference of $19.

This proposal, beginning in tax year 2024, adjusts the phaseout amount of the YCTC and the FYTC so that the maximum income threshold for both credits are equal to that of the Cal EITC in 2024 and ongoing. This technical change will avoid misalignment in the maximum income thresholds of the three credits and avoid confusion for tax filers. It is also consistent with the original intent when the YCTC and FYTC were created. The fiscal impact of this proposal effective tax year 2024 is estimated to result in a revenue loss of $150,000 for fiscal year 24/25 followed by a revenue gain of $30,000 in 25/26 and $50,000 in 26/27. Thank you.

Thank you. Welcome.

Good morning. Chris Hill, Department of Finance. The first two bullets under the Budget Bill Language proposals are respective adjustments of $1.9 million and $750,000 to cover increased employee compensation, salary and wages costs for certain classifications of Franchise Tax Board employees who are impacted by negotiated labor agreements.

The next two bullets are requested reappropriation items in respective amounts of $31.3 million and $2.2 million for Franchise Tax Board's enterprise data to revenue to information technology project and for Franchise Tax Board to acquire a high speed printer. And the final item is a requested augmentation of $6,000 special fund for Franchise Tax Board to administer a new voluntary contribution tax form fund.

Brian Uhler with the LAO. We have comments on two of the items, the NOLs Credit Suspensions and the Disaster Relief Trailer Bill. So starting with the NOLs Credit Suspensions, we have different positions on the two pieces of this proposal. On the tax credits, we think that the business tax credits can and should be evaluated as spending programs, and notwithstanding that many of these programs do aim to achieve worthy goals, we think from the perspective of evaluating the ... spending programs, it's difficult to justify maintaining those credits in full during a time of the current budget environment where the Legislature is considering significant spending cuts in other areas. On the NOLs deductions when the administration's proposal.

Their previous proposal to limit NOLs was before the Subcommittee. We had commented about our concerns about how that would lead to some inequitable outcomes across taxpayers. Those concerns extend to this proposal as well. While we acknowledge that suspending NOLs has been a go to budget solution for the state in the past, the frequency at which the state is doing this is starting to raise questions about whether or not it's undermining the reason for having NOLs deductions in the first place of providing for this equitable treatment of taxpayers.

If these proposed suspensions take effect, the state will have suspended NOLs for almost half of the years in the last two decades. And so that raises concerns for us. Should the Legislature agree with the Governor on pursuing revenue solutions of this magnitude, we would suggest considering alternative ways of raising revenue to the NOL suspensions.

We would suggest first by starting to look at reevaluating some other tax expenditures and also potentially considering a temporary rate increase. Our rough estimate is that a temporary rate increase on the corporation tax of one and a half percent would raise roughly the same amount as the NOL, the proposed NOL suspensions. On the Disaster Relief Trailer Bill, we do - we certainly appreciate the concerns that the Administration is attempting to address with the proposal.

That being said, we think it's important for the Legislature to consider that the state's tax Administration has always been firmly linked to the IRS and that decoupling from the federal process, as is potentially contemplated here, could lead to frustration or confusion among taxpayers. And the Legislature just needs to weigh that potential risk against the potential benefits that this proposal might bring for the state budget process.

All right, any other comments before we open it up to our comments? Assemblymember.

Thank you for the presentation. Again, as I kind of mentioned my opener, I think a lot of these items are going to present a lot of sobering news to critically think through. On this item, I guess just two kind of comments, and I'll be wanting more staff input, I think, as we kind of come to decision time, you know, I'm sympathetic to maybe the LAOs recommendations as well, recognizing that the history of using the NOL deductions and moderating those, I think, you know, as a response to the budget while it solves something in the short run and creates, I think, incredible uncertainty for the business community that translates into potential impact for future economic opportunity, which itself is going to generate tax base for future years as well.

And I would just invite this moment to maybe allow us to think about some of these alternatives and not necessarily just these, but other alternatives as well. We talked and we've heard, you know, the Governor talk about as well, the need to think more about making our revenue streams less volatile. And is this a moment that we can maybe start to kind of plug in a solution here that is helping to achieve that end, too, that would help to mitigate against the on again, off again NOL deduction decisions that we're using as a Legislature?

I just, I think I'd like to see more options that are available to see how that might smooth out over time, be fair to the business community who is producing these jobs, who is producing the economic activity that does come back to the state for social use, and then make sure that we're seeing more options. On the, on the credits. You know, again, I've got incredibly similar concerns. Something's got to give, of course, in this budget and a broad brush sort of overture that we're going to suspend all of these credits. I think, I worry might be a little bit of, what's the phrase? Pennywise pound foolish. Yes.

We're trying to be able to find ways to be able to balance the budget right now, but knowing the heavy competition that's out there for so many of these industries that are intertwined, I think, with California's identities and really are very present here today in sustaining some of the job and economic activity that we have, could, decisions that we are making now could invite the competition to leave.

And that's been at risk before. When we think about something I know more close to home, representing San Diego, the biotechnology and technology clusters that we have, I'm well aware from industry's economic impact reports, right, that this is an industry that produces great jobs, obviously is advancing the cures and the needs that healthcare is asking for us. But it's larger than California's wine, aviation, film and tourism sectors combined.

And so if we are going to put that on the table and be at risk for potentially having any of those companies leave because they find competitive advantage in Massachusetts or in the Research Triangle or in Texas, you know, that's cutting off .... And that does not make sense, even though right now we are trying to save some other programs as well, too. So I just would really need to see a lot of this unbalance.

I think something that would help me reconcile whether that is a wise decision or not is knowing and remembering that it was just a few years ago that we did not have some of these credits available to us. And what did that do? Has somebody analyzed what that did do? During a subsequent year or two period in the context of lost business activity or losing any business to other states, that would be informative for where this might go should we make this decision?

Because, again, sustaining these businesses here and this economic activity, you know, while it is a choice and an immediate loss to the state from a budget perspective, could have greater consequence in the form of personal income, sales tax, other things that do more sustainably support the states and California's needs going forward. So I'll be seeking more information probably after this. I don't know if you have any comment, anybody to. I'm giving comment. I'm not necessarily asking a question here here, but that's what I'll be looking a little bit closer on this issue.

Thank you. Assemblymember Ward. Colby White, Department of Finance. So I appreciate those comments and concerns. With regard to the credit limitation itself, I would just clarify that it is allowing all businesses to use credits up to $5 million, so everyone can use those credits up to $5 million. And so we expect, like the number of companies impacted, would be relatively small, finite group, much, much larger, larger companies that make decisions whether or not to locate in California based on a lot of different factors, you know, including, of course, tax calculus is part of it.

But there are many different things that California offers to larger businesses. And so, yes, I just would offer that clarification. And then with regard to your comment, as far as what happened after 2020 and 2021, so there was a suspension for two years, and then it was lifted one year early by the, by the Governor. So I would just point out that, again, this one has a trigger mechanism. So if, similar to 2020, if revenues improve and we don't need this, it won't, it won't be in play.

But also that businesses, I mean, what we've seen so far, it's in actual, we haven't seen, seen like less business formation or strong evidence that businesses left the state because of that. And we did see, for example, in the tax data in 2022, we see an increased use of credits because to the extent that they didn't use those credits in 2020 or 2021, they used them in 2022. So it is a delay and they're using the credits. And larger companies generally have good access to capital and things like that. But I appreciate your comments.

Any other comments? I, too, it weighs heavily on our attempt in California to recruit and retain businesses to, in essence, take seriously some of the gains we have made over the years regarding manufacturing, of course, biotech, all of these important sectors that we know played such a huge role for us, not only during the pandemic, but of course when you look at manufacturing, trying to bring those important jobs back here to California.

And so this is something that we will continue to weigh heavily as we move through these very short few weeks. I did want to note that on the income threshold fix, we were literally talking about very small amount of dollars, but I guess it would go back to every dollar is going to count in this budget. And there are individuals scouring the budget not only under these topics but many others to find dollars to save for other programs. So I appreciate that it may not to the public seem like a lot, but when you start to make those fines, they are important fines.

Also related to making these tax credits understandable to the public is extremely important because it's not only that there's a credit, but then there's the accessibility part of it. And if there's confusion for even individuals who work in this space, you can imagine the confusion for people who are trying to navigate these tax policies.

So with that, we will go ahead and do the California Department of Tax and Fee Administration and then we will open it up to public comments.

Chris Hill, Department of Finance. The first proposal under CDTFA is the reversion of an anticipated $20 million in salary savings savings for the 23/24 fiscal year. I just note this is actually separate and apart from the Administration's broader proposal on vacant position salary savings. The next two proposals are respective amounts of $1.15 million General Fund and 458, I'm sorry, $1.15 million All Funds and $458,000 All Funds for required staff and salary and benefit adjustments for specified classifications at CDTFA pursuant to negotiated labor agreements.

And the final proposal is proposed augmentation of $1.2 million Special Fund for the Department of Tax and Fee Administration to administer the new AB 28 Firearm and Ammunition Excise Tax. That's AB 28 from the current legislative session. That tax goes into effect on July 1, 2024. And happy to answer any questions the Committee may have.

Any other comments?

Seth Kerstein, LAO. We have no concerns.

There you are. Sorry, I didn't see you over there. All right, any comments from - seeing none. We are going to go ahead and open up all of these items for comment. Public comment. As a reminder, you have 30 seconds for public comment. We certainly would like to hear more from you, but moving this hearing along, we'll keep it to 30 seconds. So again, if you see me do this, it means kind of wrap up your comments. And again, reminder, you can move the microphones up and down for your height. Welcome, and please join us for public comments on any of these initial items.

We are beginning public comments on issue one, tax agency proposals. Welcome.

Thank you. Jennifer Snyder with Capital Advocacy on behalf of the California Life Sciences and the Biotechnology Innovation Organization. I apologize. I was standing outside waiting till the end. So thank you for letting us come in during this subject matter. It's very, very helpful to us.

So two organizations, CLS and BIO, represent 13,000 life sciences companies in California, all areas of research and development, from medical technology to biopharma to agriculture across the board in California. Suspending tax credits for these companies are going to have a dramatic effect on decision-making as we move forward into not just this year, but 2027-2028.

Many of these decisions, on whether or not they retain their presence in California and their workforce development, has an impact on their ability to utilize these tax credits as they move forward. It's important to remember we have 441,000 individuals that are employed by these companies. Average wage of $130,000 a year.

Our sector generates about $472 billion in GDP and over $7.1 billion in R and D. Important. And we really appreciate the time and the consideration of this. And we would ask the subcommittee to reject the governor's proposal. Thank you.

Thank you.

Thank you. Preston Young from the California Chamber of Commerce. We're here today in opposition to the NOL deduction suspension as well as the cap on business tax credits. The NOL deduction is typically synonymous with Silicon Valley because startups don't operate at a profit the first couple of years.

However, over the last couple of years with pandemic induced restrictions and pandemic induced shutdowns, industries, especially in restaurant hospitality and lodging, are utilizing the NOL deductions, and this is a difficult situation for them to face if they can't utilize that tool.

Additionally and troubling is the budget proposal to cap business tax credits, in particular the research and development tax credit, which props up our innovation-based economy. California companies perform more than 144.5 billion worth of R and D activities in 2018, which was nearly five times as much as the second-ranked state for industry investments in R and D. This activity took place in large part because of California's R and D tax credit, so capping it is disconcerting.

This credit not only applies to R and D activities but also the wages paid to those engaged in research and directly supervising or supporting research activities. So for those reasons, were opposed. We appreciate your consideration today.

Thank you. Remember, we're going to keep this to 30 seconds. Thank you.

Hello. Sam Wilkinson with the Cal EITC Coalition and GRACE end Child Poverty in California, in strong support of the trailer bill proposal to match the income threshold between the YCTC, the foster youth tax credit, and the Cal EITC. And to your point, of accessibility of our state's anti-poverty tax credits, in strong support of fully restoring the 20 million for free tax preparation assistance, education, and outreach funding, and also to consider equitable revenue-raising proposals by the LAO. Thank you so much.

Thank you.

Madam Chair, Mr. Ward. John Valencia, here representing Illumina Incorporated, which is a genomic sequencing company headquartered in San Diego with a physical footprint in Hayward and in Redwood City, Foster City, three different Assembly districts that would be affected by the NOL and tax credits decisions.

I can tell you that the immediate reaction by our company, by our client, is to the uncertainty created by the finance announcement. So the immediate reaction, based on conversations I was involved in yesterday, echo what Mr. Ward mentioned. We will slow down capital investment, we will slow down hiring, new hiring, and we'll consider what has to be the reaction in terms of personnel. Thank you very much.

Thank you.

Thank you. Madam Chair and members, Moira Topp, here on behalf of Biocom California, we're the trade association for life science companies throughout California. Here on behalf of the more than 400,000 employees that our companies employ, I share all the comments that have been made already, but I think it's really important to underscore the problem of the volatility of presenting this and collecting and investing in research and development in California and then having that yanked away. It was just three years ago that we had it suspended. This does represent a more than $15 billion tax hit to our companies over the three-year life of the suspension. And that volatility at that level is particularly problematic for our companies. We do urge you to reject this proposal.

Thank you.

Good afternoon, Madam Chair Members. Lance Hastings from the California Manufacturers and Technology Association, here in strong opposition. We've heard the governor recently talk about the peaks and valleys of the economy. The best way to manage those is to have a strong economy.

Manufacturing is at the tip of that economy and having these annual changes, it's very difficult for us to plan. And everything that was said before is really important. R and D is not a 12-month exercise. R and D is years long and accumulating so that we can lead the nation and the world in our manufacturing prowess through the intellectual property and innovation that California is known for. And we strongly oppose the two proposals before you today.

Thank you.

Thank you. Madam Chair and Members, Rob Spiegel, on behalf of the Aerospace and Defense Alliance of California, or ADAC, represent the aerospace and defense manufacturing and contracting companies within the State of California. Definitely very concerned and opposed to the proposals relative to NOL and the R and D tax credit. Thank you very much.

Thank you. All right. Seeing nobody else, we appreciate those comments and take them very seriously. Thank you so much. All right. We are going to move to issue two, Office of Planning and Research Department Reorganization and May revision.

Good morning. Chair Quirk-Silva and committee members, my name is Russ Fong, the chief deputy director for the Office of Planning and Research. And next to me we have Josh Fryday. He's our chief service officer for the California volunteers, and we're both happy to be a part of the May revise hearings, and I'll turn it over to you. Thanks.

Good morning. Henry Ng, Department of Finance. I will be highlighting a few notable adjustments proposing the May revision for OPR.

You want to speak a little louder? There you go.

How about. Oh, sorry. How about now? Okay. So I'll be highlighting a few notable adjustments proposed in the May revision for OPR's budget. First, I would like to get into the OPR's reorg. The OPR is proposing to be renamed to the California's Office of Climate and Land Use Innovation, otherwise known as Go Cal.

With this, we're proposing to move the following programs from OPR. This includes the job first unit and the zero-emissions vehicle program, over to the governor's Office of Business and Economic Development. We're also proposing to move the California Initiative to advance precision medicine to the Health and Human Services Agency.

And along with this restructuring of OPR is the creation of the new agency called the Governor's Office of Service and Community Engagement, otherwise known as Go Serve. This will house the California Volunteers program, the Office of Community Partnerships and Strategic Communications, and the Youth Empowerment Commission.

This new office will preserve the critical investments the state has made in its outreach and volunteer capacity while providing a vehicle to enhance these efforts. And there are two highlighted, that there are two fold benefits to this reorg and the creation of Go store. First, this elevates service and volunteerism, which has been a focus of this Administration.

And second, this also enables OPR to return to its core mission of climate and land use planning.

The mayor revision also includes the following solutions to address the projected budget shortfall, and these include reductions to the California Climate Action Corps, the Youth Corps program, Neighbor to Neighbor program, the Californians For All College Service Program, and the Office of Community Partnerships and Strategic Communications.

These programs going to over to go serve. And for the programs that are remaining of OPR, we're proposing a following solution to the California Education Learning Lab, Extreme Heat and Community Resilience program, and a reversion to the Golden State Awards.

The May revision also includes the fund proposals to provide support to OPR, and these include 977,000 general fund ongoing in six positions to address the increased administrative workload associated with the transition to civil service as approved in the 2023 budget act.

OPR has grown significantly in staff and programs over the last several years, and these resources will address the administrative workload and help with this transition to civil service. The May revision also includes 3.7 million general fund, ongoing in 2024-2025 and ongoing to establish an ongoing baseline for OPR to meet their IT infrastructure needs.

The 2023 Budget Act had included resources for OPR to establish an IT unit, and the governor's office had been providing it support to OPR but will be ending the support. So the 2023 Budget Act had provided the positions to get this IT unit established, and now this proposal will provide resources for them to have to to establish an ongoing IT infrastructure to meet their IT needs.

Finally, I would also like to note that the may revision includes resources to implement chapter ledge, such as SB 69 related to the CEQA notices, and for SB 306 related to extreme heat action plan. This concludes my overview. I am joined by my colleagues at the OPR and finance, and we'll be happy to answer any questions you may have. Thank you.

Thank you.

Thank you. Luke Koushmaro with the Legislative Analyst Office. I'll be speaking specifically to the reorganization proposal. We continue to evaluate the other budget adjustments being proposed for the department. Ultimately, we recommend that the Legislature reject the proposed reorganization without prejudice. We find that reorganizing OPR could have merit.

It's been given many new responsibilities in recent budgets, such as to administer programs, implement legislation, and issue grants. Reorganizing OPR could have some advantages as a result because it could improve transparency and accountability by going through established civil service departments that more traditionally carry out these roles and have leaders appointed and confirmed by the Senate and staffed by civil service. In addition, a reorganization could align functions with departments that have relevant subject matter expertise.

However, the may revised proposal provides little time for the Legislature to review and consider the merits, implications, associated trade offs, and potential alternatives to the proposal. Careful consideration is particularly important because OPR has responsibilities are very closely related to key priorities of the Legislature, such as climate change and the implementation of CEQA, which is land use planning.

In addition, the proposal likely comes with costs. However, we have not yet seen the budget change proposals related to the reorganization. We note that, however, in past reorganizations, there have been costs associated with various activities, such as establishing a leadership team, relocating staff, purchasing new equipment, and covering administrative functions.

Conducting analysis of these costs is going to be important to determine the trade-offs of this reorganization and whether it makes sense at a time when the state is currently facing a budget deficit and it has insufficient funds to meet its existing commitments. As such, we're recommending rejecting without prejudice.

We note that if the Legislature is interested in pursuing a reorganization, they could direct the administration to either go through the Little Hoover process, which is a step state constitution for government reorganizations, or it could submit a proposal with additional details, either through the budget process in January or by finding a legislative sponsor on going through the policy process. Thank you.

Thank you. Next. Welcome. Please introduce yourselves.

I'm Russ Fong, the chief deputy director over at the governor's Office of Planning Research. And next to me, I have Josh Fryday. He's the chief senior officer for Cal Volunteers. And we're basically here to answer any questions. Pretty much DOF kind of mentioned everything that's occurred. I will say a little bit about the reorg. Probably the big question is why? You know, in 2016-17, our budget was about $54 million. Today it's proposed to be over $800 million.

And that really has us take an internal look on some key functions that we really want to drive our organization, which is to be more accountable, to be more collaborative, to look at economies of scales and efficiencies that we can achieve by putting synergy together, putting our programs together that make sense, that can build off each other and be, again, more efficient.

And I think we've accomplished this through this reorganist realignment that we have today. And then for OPR is just to get back to its core function. It's a think tank. It's a research and planning organization that really focuses, and we want to get back to our sensible land use planning and research to help create climate-friendly communities, to inclusive economic development, and then lastly, our equity and well-being of all of California. So we believe we've accomplished this through this reorg. And again, we're here to happy to answer any questions.

You have any comments?

No, only comment. Madam Chair, thank you. And thank you to the members of the committee. Is just to clarify that this is a no-cost transition. This will be a cost-neutral transition, and we will be leveraging existing staff for this reorganization.

All right. I will ask my colleague up here if you have any questions.

Yeah, thank you for the presentation. I hope everybody can just transparently appreciate that. It's a bit exceptional that we would think about a major reorg during the time of the May revision. A little more time to be able to process the nature of the shuffling is helpful, and I wouldn't personally dismiss it outright.

I just want a little bit more time, which we'll have in the coming weeks, to critically think about this. I stated, you know, kind of the reason why we need to do that, but for the. And you've stated that this is going to be revenue-neutral. We do have costs that are programmatic costs, I guess, that I do have in front of me. Right? That are going to be reduced for each of these programs to different degrees. Right? Those I assume are. So you're saying those are just, just 100% programmatic reductions, then less grants going down to community to fill some of those programs?

Yeah, those are proposed reductions to the specific programs. My comment about cost neutral had to do with specifically the reorg.

So is there any cost savings then, for, by doing this reorg, cost neutral?

At this point, we expect it to be cost neutral.

Why rush this?

Yeah. Well, we do hope that over, like again, with all the programs working closely together, like the Office of Community, community partnership, and strategic communications, we do think would work very well with California volunteers, that synergy will have some probably long term savings and efficiencies that will come out of that versus the way it's set up today.

A precision medicine team moving over to health and human services will be better supported there than with OPR. So we do think there could be some long-term savings, but definitely better run programs, better synergy around focused minds, and keeping folks together that have the same mission. And that's really what this alignment's for.

It is cost-neutral. The reorg, some of the bcps you're seeing are just as our transitioning to a state department. We do need some administrative folks, these are HR folks and some IT folks. But that's just to stay on the office alone, whether we did the reorg or not. That's exactly. We would still need those resources.

Sure. So, but again, to underscore what I'm hearing is, and respectfully, theoretically, we don't identify any cost savings at the moment, moment right now. So I think, to the LAO's, point being a little bit more, taking more time to be thoughtful and critical about what we want to see in a reorganization. Ultimately, the goal would be efficiency and making, I think, administrative function better and quicker. That should reduce. That should come with a cost savings through some of those efficiencies. But we're not seeing that in front of us here today.

I want to just bring it back to, you know, my concern, of course, as all areas of the budget for the direct programmatic cuts that we're seeing. And I'm particularly curious about the College Corps program and the Youth Corps program. You know, are these, I just have in front of me the proposed reductions, but what would that leave us with for ongoing or for, I guess, current use in the upcoming fiscal years? Are we completely eviscerating those programs, or is this a modest reduction?

No, it's a meaningful reduction, but it's a reduction that allows us to maintain the core elements of the program that, quite frankly, will give us the opportunity to continue to create economic opportunity for our most vulnerable and low-income youth.

So with the Youth Jobs Corps program, which of which we have in all your districts, as well as the College Corps program, we're able to provide jobs as well as debt-free pathways for low-income students. And our anticipation is that even with these proposed reductions, we're going to be able to continue those key components.

Yes, we'll continue the key components. I'm just wondering to what degree less. So does $10 million in each of those programs represent a 50% reduction?

It represents about a 12%, 12 to 15% reduction. And our hope and what we're working through is to, is to mitigate the impact it has on the direct allocation to our low-income, vulnerable youth. And that's what we are working through and expect at this point.

That's what I'm happy to hear. Okay. Thank you very much.

Thank you.

Thank you. I'm a little perplexed and puzzled by this reorganization because we've been talking about the budget since January. We haven't heard anything about it. It is quite a shift to go from what is currently slated as a governor's Office of Planning and Research to now governor's Office of Service and Community and Engagement.

You also mentioned that the budget initially started at 54 million and has grown to 800 million. This is quite significant. So when we talk about the slated cuts that are under here, whether it's Youth Corps, Neighbor to Neighbor, I haven't seen data as who are these individuals that are being served. Which communities? How much for each region?

Who are the students that are getting these opportunities? Who applies to be a volunteer corps? All of these type of things. So it makes me quite not only perplexed. But at this point, to change over now, we understand that it'll align more of what under your climate goals, things like that.

But they seem like very different type of programs to be under one program. And as was noted, are we going to really see any cost savings? So it's one thing to reduce, but will we see any cost savings? As we are noting that some of the budgets that we are really stripping from housing to foster care, it makes me quite concerned. So we are hoping that perhaps you can provide us with more data on some of the things I mentioned. Who volunteer corps serves. Where are they coming from? Which campuses? I'm assuming they're coming from college campuses. I just really feel that there's some, we need more data with this. That being said, any final comments?

We'll be happy to provide the data. Thank you.

Thank you. We appreciate that. All right. With that, we will open this up to public comments under this item. Office of Planning and Research, Department Reorganization, issue number two. Second call for issue number two. Seeing none. Thank you so much. We appreciate you members out there who are watching us closely. We will be changing our order.

Some of you may not know that the Senate, in fact, is engaging in the same exercise. So we have witnesses coming between both sides. So we are going to be moving to housing, which is issue number five, housing and homelessness proposals. So again, changing the agenda because of witnesses going back and forth between the Senate, we're going to housing and homelessness. Item number five. Here they come.

Again, as we have our guests entering the chambers, please note we will take comments after each item. Those comments are to be under 30 second, and we are happy to have you here, but please make sure you note that and we're going to go ahead and move into housing and homelessness proposal. It's on agenda page 29.

Welcome to those who are presenting today. I want to just make a note that we were quite happy to see the low income housing tax credit back in the budget as we know that building units in California is at the top of the list.

We know that without housing production, we will continue to see and face the consequences of not building, which is not having places for individuals to move into. So we are happy to see that. And yet we know there is much more investment needed in housing. So please introduce yourself and welcome.

Good morning. Andrew March with the Department of Finance. I'll provide a brief overview of the housing and homelessness issues in the May revision. So the May revision includes approximately $500 million in reductions in addition to the 1.2 billion included in the Governor's Budget. These include an additional $236.5 million for the Foreclosure Intervention Housing Preservation Program.

This is in addition to the 247.5 million reduction proposed at Governor's Budget for a total reduction of $484 million. 127.5 million for the adaptive reuse program, also known as the Infill Infrastructure Grant Program Catalytic Component. An additional $75 million reduction for the Multifamily Housing Program.

This is in addition to the $250 million reduction proposed at Governor's Budget for a total reduction of 325 million. An additional $35 million reduction for the Infill Infrastructure Grant Program.

This is in addition to the $200 million proposed at Governor's Budget for a total reduction of $235 million. An additional $26.3 million reduction for the Veterans Housing and Homelessness Prevention Program. This is in addition to the $50 million proposed reduction at Governor's Budget for a total reduction of $76.3 million.

Additionally, there's a $260 million reduction for previously delayed round five supplemental funding for HAPP. This funding was supplemental funding that was delayed in the Governor's Budget from 24-25 to 25-26 and the May revision proposes to reduce that funding.

Additionally, the May revision proposes $6.2 million, and 6 million of that 6 million is General Fund for HCD to implement chapter legislation from 2023. It also includes, as noted, $500 million for calendar year 25 for this enhanced state low income housing tax credit.

Initially for the Civil Rights Department, there is a one time shift of $10 million General Fund expenditures to the Civil Rights Enforcement and Litigation Fund, $1.7 million General Fund for the civil Rights Department to implement chapter legislation, and a one time, 1.2 million General Fund for CRD to relocate its headquarters from Elk Grove to the May Lee Office Complex in downtown Sacramento.

Additionally, one thing I did skip over, there are resources to implement Proposition One in the budget, 17 positions for HCD to implement Proposition One. With that, happy to take any questions.

Any questions? Yes.

Thank you for the presentation today. I think since we had talked about these issues, these items last time, I, I would express my opinion. I feel we're going in the wrong direction.

It was difficult enough to accept, what we were trying to process in the January draft, and then to see, you know, a further evisceration of many of these programs is deeply troubling because I know from my attention to housing, what this would result, likely result in the impact for us to be able to support more housing starts that we desperately need out in our communities.

And I'm fully aware of the pressures that has competing with other areas of the state budget and we've got to find alternative solutions. I guess one thing is I would express also gratitude. That is a start. We're looking at the low income housing tax credit.

We know that's one of the most successful and useful tools that's out there, but it necessarily also needs to pair with something like Multifamily Housing Program and other programs as well to really reach the deeply affordable units that we are also trying to subsidize.

So I'm wondering, has that analysis been done at HCD's level or the Administration's level to sort of estimate? We're still absent, and we've had that conversation in the Accountability Committee, what this might translate into in terms of unit production.

But that being what it is, what are you seeing without the necessary program support through some of these other proposed reductions that LIHTC could be useful?

So for this specific question, I would defer to the Tax Credit Allocation Committee. I believe there's some representatives here from them today. But we do see projects funded with the enhanced state low income housing tax credit that come to their Committee without state funding or other sources of state funding to get deeply affordable projects to be funded.

Additionally, Prop One, we view that as being also an alternative funding source to fund some of these more deeply targeted affordable housing units. And then a timing issue, because the low income housing tax credit is for the calendar year 2025, many of these projects have already been awarded state funding. I already have that in hand.

So we wouldn't necessarily anticipate there to be challenges with demand, especially for homelessness housing. ELI and VLI, which have been priorities at the Tax Credit Allocation Committee for this funding in the next year.

Yeah, thank you. I want to come back to Prop One in a second, but maybe to further dig into one of my points.

You might be aware, I'm happy to partner with the Administration on Assembly Bill 3093, and we're really trying to do a better job goal setting and then measuring our performance on producing extremely low and acutely low income needed housing.

That's going to require even more solutions as a part of the mix of funding those projects to be able to realize and really produce and ultimately count many of those units for the population that needs it there.

And so if we are taking away a number of the programs right now that do contribute to those types of solutions to permit support of housing or other deeply subsidized units that we also need as a part of our housing continuum, I'm not convinced that we're, without those in there, that LIHTC is going to be able to reach those subpopulations.

It'll get down to a low income category and maybe even for some an extremely low income, but, you know, for homelessness housing and resolving those populations' needs, I'm worried that we are not comprehensively thinking about all of our actions at the same time.

And that's the chief complaint that we've heard back to my Bill with the Administration, that it's all well and good that we're trying to goal set and measure it. But where's the money? And right now we're literally talking about funding decisions here that might impact the production of those types of units, that strata of units.

So it's just something I want to think a little bit more critically over the next couple of weeks too, because otherwise we are going to be passing legislation that has even less chance of being successful towards helping regions meet their goals. But back to Proposition One.

I was excited to know this week through the governor's announcement that we're seeing an expedite in the release of more than $3 billion of those funds. And I'll be seeking information. It was, it was a press announcement, so I'd like to better understand, and if you have a high level overview, I'd welcome that here today for that 3.3 billion.

You know, we know that we need treatment beds, we know we need supportive housing, or there might be other areas, but I just haven't seen that definition of what we might see that proposed to local regions for housing production.

And then the subsequent question is, of that $3.3 billion, how much of that might be used in lieu of the units that might be constructed under MHP or the adaptive reuse program or some of these other programs?

Are we swapping buckets here, and will it produce the same types of housing in the end, or are we talking about two different things?

So I think the recent announcement for the 3.3 billion was targeted towards behavioral health treatment beds. So slightly different from the funding that's in Proposition One that HCD will implement, which is around $2 billion for permanent supportive housing. And I think that's going to be a little bit later in the year. I do have my colleagues from HCD who can speak more to that.

Some of it is separate, but some of it's also been sold as that we would be able to have supportive housing opportunities, I guess, through that, through Prop One funding. Did we misunderstand that?

There are permanent supportive housing opportunities, although that 2 billion is a separate pot of funding at HCD than the 3.3 billion I think that was referenced at the press conference that's running through DHCS, the Department of Healthcare Services.

So that was just for treatment beds.

That's correct.

Okay. So we don't have a swabbing out here that's concerning you?

Not at the moment, but yeah. Although the funding for Proposition One that HCD will implement will be later in the year, and I think there was a commitment to release guidance by the end of 2024. And then so I think that would mean that the funding. And again, I have colleagues from HCD here who can speak more if I'm misspeaking, but it would mean 2025.

Thank you, Mister March. Does anybody have any further information to help help us with this knowledge?

Chair, Members, Matt Schueller. I'm the Deputy Director of Administration at HCD. So as my colleague from Finance outlined, we are on track to issue our notice of funding availability, also to release the application for jurisdictions by the end of the calendar year with the money to flow in spring of 2025.

We currently have a stream of Homekey round three money that is going through award. So we do have a steady stream of funding for projects like projects, and then basically the Proposition One will be at the tail end of that.

Okay. And, you know, continuing on the theme of completely wiping out revenues that are useful for programs that are going to resolve homelessness when we're looking at additional HAP cuts that I think in the year that it's proposed here. Wait, no, that's a different chart. Would be for the 25-26 allocation. So that is rescinding part of the program that was part of the round five funds, is that correct?

Chris Hill, Department of Finance. The $260 million proposal. That money was initially slated to flow in the 24-25 fiscal year. And the proposal initially was to defer that to 25-26, and the proposal now is to just sweep that as a budgetary savings, given the scope of the budget situation problem we now face.

Okay. And what's not in here, we haven't seen any further update or thought on the Encampment Resolution Fund Program that still is proposed to be kept as with no changes.

The Encampment Resolution Fund monies have already flowed out to locals or have been committed. It's really not feasible, the Administration believes, to receive that money.

I recall in our review, though, that there was a significant amount that was allocated but not expended.

I believe the administering Department, HCD, has just approved the latest rounds of applications, and all that money has now been claimed.

Yeah, and we talked about that during accountability, when we're seeing at least what we have in front of us right now. You know, less housing connection, less success by, I think, some commonly adopted metrics about resolving homelessness.

In the end, we know what it does on the front end and as a tool in the totality of what we need to help regions be able to address and reduce homelessness.

It's there, but we don't have the, as we all know, total resources that we did have over the last couple of years to be able to think more broadly about a range of programs. And so I'm looking for effectiveness of these programs.

And what I'm hearing from our locals here is that HAP, for all the successive rounds, has been improved. We're waiting on a report as well, that I hear is coming imminently to help us understand the outcomes of some of the first four rounds of programs.

That's going to be helpful information, but my sense is that it's maybe more helpful than some of the other dollars that we put out. So a lot to reconcile here. And definitely, you know, more concerning information than when this item came before us, the Subcommitee, last time. So we'll just keep looking for other solutions as well.

I really want to see us not regress on California's number one issue and the support that is needed. And I've stated this before, but it deserves underscoring that it, as you all know, takes some time to plan for and ramp up these programs. And if somehow revenue just presented itself.

And if this was a new program and we allocated money, it doesn't mean on July 2, all of a sudden that the boots are on the ground and the shovels are in the ground to be able to do more services and produce more housing. It's going to take some time for all that planning.

But when you're counting on those resources being there in future years and then we're clawing that back, it both disrupts maybe existing housing stock that was being planned, literally stopping work. And we're seeing that happen now just from the January announcements at the threat of stopping work.

And it won't turn on a dime if we try to replenish that and everything. That's why we have to sustain the state's commitments that we both previously said we're going to do. But also, communities have been hopeful that we would prioritize, even during a challenging budget year. Now, that said, you know, things don't turn on a dime. We don't just all of a sudden start producing new housing.

But things do stop on a dime when we have the threat of bad news that's out there. And we're seeing that happen, too, with stop work issues because there is a reasonable threat that the money is not going to materialize.

That's going to set us back as we see more Californians fall into homelessness today than get out of it. I believe that you all appreciate that, too. So we need to figure out other solutions very, very strongly on this issue, Madam Chair, and we'll get to work on that. But thank you for the information today.

Thank you. Assemblymember Ward. Can I go ahead and have you make your comments?

Carolyn Chu, Legislative Analyst Office.

Can you pull that up a little closer so we can hear.

Carolyn Chu, Legislative Analyst Office. Generally speaking, the additional solutions within housing and homelessness are consistent with the guidance that we had given at sort of the start of the budget process this year, which is that these use or lose one time monies are one of the first steps to trying to solve the budget problem.

That said, as been highlighted by the Members already, they involve very difficult trade offs. There are still some remaining one time solutions that the Administration has not pulled back, not really in the purview of this particular Subcommitee, but overall, they are still there.

And so the Legislature can wrestle with whether there are other places that it wishes to look to make these additional reductions in order to solve the budget problem.

The other thing that I would offer is that our office, for the last few years, as housing and homelessness has risen to be a greater statewide issue, has highlighted for the Legislature to think about what its ongoing commitments for housing and homelessness should look like.

The tax credits are one ongoing aspect of how the Legislature has supported that activity and incentivized construction at the local level, and we've had multiple years of the augmentations to that tax credit. But the Legislature, I think, should continue to consider what the ongoing support, despite the overall budget structure challenges, could look like.

Thank you. I have quite a lot to say, but I'll try to keep myself together because it's such a critical conversation. And much has been said about housing and homelessness throughout California, from advocates to NIMBYs to others who refuse to build or to address the homeless crisis that we see and are facing.

I will say that, as my colleague suggested, these are devastating cuts, and these are the types of cuts that are going to take the programs that we were starting to make progress in and move us just going backwards. And it's one thing to make investments, billions of dollars.

It's another thing to pull the rug out and kind of say, well, sorry, in this budget, we really can't do these things. When we've heard repeatedly from constituents, from local governments over and over that they need support from the state, that the public does not believe we're making progress, they don't see it.

And yet those working in this space know that there's critical elements or tools in the toolbox to try to make those very slow moving progress forward, like permanent supportive housing. So, yes, I thank you for looking or relooking at the low income tax credit. We know that that's certainly a tool.

But not funding other programs like the Multifamily Home Program, without those side by side, you really limit. A few things that I see here that are of concern, in addition to what was said by my colleagues, certainly are the encampment. You heard from us in January that we were concerned about this program.

There's been evidence over and over saying, is this really working? Are we beautifying a place with encampment dollars and then, in fact, not solving homelessness by pushing people to three blocks later. And yet over $300 million seems to have gone out in this budget time when we're cutting. So I'm quite upset about that.

It feels like whoever made these decisions just didn't listen because this has been repetitive in saying that this, we just had a homeless accountability hearing last week where this was stated. So now those dollars are out and we really can't pull them back. But over 300 million means a lot in some of these programs.

So quite distressed about that. In addition, I'm just going through these notes here. I see a request for 40 positions, 13 in one area, another 17 in Prop One. We don't have enough information on Prop One to even understand what the Governor's office is doing. I've had heard about no hearings related to Prop One.

We don't know what the plan is. The Governor had a press conference last week. I think it was last week. We're not brought into these conversations, and it's extremely upsetting because it's our communities. It's our communities that are going to have to understand, and we can't even say that from the position that we're in.

So please, if you are working on the Governor's team, please share the information so we can share it and understand it, because we don't know this information. We don't know what's happening. I know that on the veterans cut for housing, we didn't raise a huge concern because we knew that Prop One would have some of those elements.

So we appreciate that. But there's other things happening with Prop One that we have no idea. We have a huge amount of surplus property in the State of California where we have formerly disabled hospitals or state hospitals that could be used for this type of housing. And are we looking at that?

And if we are, I don't know about it. And we have been voicing this concern that we have acres upon acres in Norwalk. We have 300 acres of a formerly disabled state hospital. The supervisors are all in line with wanting to put units there. We don't know who to talk to.

So yes, if I'm sounding animated and even angry, I am, because this is my fifth term in California State Legislature. These are cuts that are going to push more people out into the streets, and we're going to have no tools to deal with this.

And we're going to go back to cities that are going to say, look, you cut HHAP. We thought that program worked. We have REAP, we thought that was an important program. With that, this is a passionate cry that we must do better. Any final comments here? I'd like to invite the public up to speak for less than 30 seconds. Alright.

Mark Stivers with the California Housing Partnership, also speaking today on behalf of the California Housing Consortium, the Southern California Association of Nonprofit Housing, the San Diego Housing Federation, the Association of Bay Area Governments, and the Metropolitan Transportation Commission.

First, we just want to thank the Governor for the restoration of the 500 million in state credits and also the words and the passion from the Chair and our Housing Committee Chair. We're hopeful the Committee will approve that today and get that one taken care of.

We are also very supportive and ask the Committee to restore as much as possible of the $325 million that has been reverted from the Multifamily Program. That money would get us at least 1600 units of very deeply targeted affordable housing.

It is true, as DOF said, that you could fund some of those units with state credits, but actually it would eat up a lot of those credits. And also, it's actually not to a developer's advantage to do deeply targeted affordable housing with state credits.

The way the tiebreaker works, they're given some advantage for doing deeper targeting, but then the denominator, they're actually penalized for requesting more state credits. So they're actually not incentivized to do deeply targeted housing with just the tax credits. Thank you very much.

Thank you, Moira Topp here on behalf of San Diego Mayor Todd Gloria, as well as the full Big City Mayors coalition, which is the coalition of the mayors of the 13 largest cities. He's the chair of that this year, and I don't think I can say it any better than you both said it today.

We are very concerned about the homelessness issue in the budget and the fact that we don't have a continuation of the HHAP program. Just want to offer our gratitude that you have supported this program. It is an incredibly important program for all 13 of our cities.

These are dollars that go to immediate assistance for homeless that come off the street immediately. These are not dollars that can be replaced by Prop One. And so we're very concerned about that. We do look forward to working with you.

We do have data that we're sharing with you and we'll continue to share with you, as you mentioned, Mister Ward. And lastly, just want to note our desire to have the REAP program reconsidered by this Committee. Thank you.

Justin Garrett with the California State Association of Counties. We are strongly opposed to the proposed $260 million cut for the HHAP program.

This funding cut along with the lack of funding for Round 6 will have devastating impacts on local homelessness efforts at a time when new accountability measures are going into place and will result in counties being forced to cut housing supports and services that our vulnerable residents need to stay housed. Thank you.

Good morning. Caroline Grinder, on behalf of the League of California Cities, we share the concerns about the cuts to HHAP bonus funds and the failure to commit to funding HHAP for Round 6.

For years, cities have invested these funds in effective programs to address homelessness, and we're deeply concerned that there will be an existential threat to those programs going forward.

We are calling on the Legislature to invest in HHAP Round 6 and also consider the need for ongoing funding to address homelessness as a solution to allow cities to do long term planning. We look forward to working together, understand the calls for accountability, but we also feel like now is not the time to take our foot off the gas. Thank you so much.

Good afternoon, Chair and Members. Ross Buckley, on behalf of the City of Sacramento. We would add our comments to the previous speakers that we would urge the Legislature to maintain the bonus supplemental money for Round 5 and then to fund Round 6. Thank you.

Honorable chair and Members, Amy Hines-Shaikh with the California Community Land Trust Network. I'd like to express my support for the Foreclosure Intervention Housing Preservation Program being funded at a minimal level of $237.5 million as the Governor's January budget proposal suggested. This program would support the acquisition and rehabilitation of 1626 housing units in the short term.

Those stable and affordable homes will benefit nearly 5000 individuals. In the long term, affordability mechanisms in the FIHPP funds mean that FIHPP funded units will serve multiple families over 99 years. FIHPP will support the stabilization of 20,000 units and housing over 60,000 Californians.

Affordable housing preservation is more cost effective per unit versus new construction, and we strongly urge you to reject the May revision and embrace the January proposal. Thank you.

Chair and Members, Nick Romo, on behalf of Southern California Association of Governments and MTC ABAG today urging you to reject the Governor's cut of the REAP 2.0 program. A lot of discussion today about projects that are slow to come. These are over 100 projects that are very real, very ready to go. We urge you to work with us to find a solution. Thank you so much for your time.

Good afternoon. Kirk Blackburn here on behalf of the San Diego Association of Governments, SanDAG. SanDAG is deeply concerned with the proposed cuts to REAP 2.0, as doing so will only exacerbate the state's climate and housing crises.

SanDAG has already awarded over $12 million in REAP 2.0 funding for 15 different local projects, both for capital and planning, as well as had additionally planned to use REAP funds for various other housing programs within the region. Also, SanDAG was planning to use these REAP 2.0 funds to leverage over 22 million additional non state funding. So urge you to preserve REAP 2.0 funding. Thank you.

Natalie Spievack with Housing California. First of all, I just wanted to express appreciation for your acknowledgement of the need to continue investing in affordable housing and homelessness even during our state's budget crisis.

Housing California really strongly supports the 500 million state low income housing tax credit investment and strongly urges continuing to push back against the cuts to to the Multifamily Housing Program and HHAP. Thank you.

Thank you. Any others out there? Last call. All right. With that, any final comments? We appreciate you being here. Thank you so much. We are again going to be moving the agenda around as we have, as I said before, different witnesses going back and forth. So we will be moving to labor and workforce development.

May revision. Is that issue six? Issue number six? Do you know where we're at? Again, we are going out of order and we are now taking up issue number six, labor and workforce development. If you are looking through the agenda, that's page 36. We only have two of our friends here and we appreciate you being here and you may go ahead and begin.

Good morning again. Andrew March with the Department of Finance. So, for our labor and workforce issues, the May revision includes $40 million in new reductions and proposes to reduce 215 million that was previously proposed for delays at governor's budget. Additionally, just for a reminder, the governor's budget proposed reductions of approximately $100 million general fund and delays of 734.5 million total funds.

The May revision reductions include $150 million reduction to the California Jobs First program, formerly the Community Economic Resilience Fund, that was proposed to be delayed a governor's budget, $40 million for the Apprenticeship Innovation Funding program that was delayed to the out years in the governor's budget, $25 million for the California Youth Apprenticeship program that was delayed to the out years in the governor's budget, a $20 million reduction to the and budget year for the California Youth Leadership Corps program, a $10 million ongoing reduction for the Women in Construction Priority Unit.

This is in addition to the $5 million reduction included in the governor's budget. Additionally, there's an updated unemployment insurance interest payment in 24-25. The updated interest payment is approximately $484 million. This is up from around $331 million that was included in the governor's budget.

And as was adopted in early action in the budget year, the state will use $100 million from the employment training fund to pay for a portion of that interest. And then additionally, the May revision proposes to use $50 million of the employment training fund in 25-26 to pay for some of the unemployment insurance interest.

In addition to these reductions, there's approximately $11.7 million for the Department of Industrial Relations to implement chapter legislation, including the Fast Food Council. And there's a re-appropriation for the California Workforce Development Board of previously allocated federal funds.

Thank you.

Chas Alamo with the Legislative Analyst Office. No specific comments about the labor and workforce development May revision proposals, but happy to take questions or step in with context anything that the subcommittee find helpful.

Thank you. Mr. Assemblymember Ward. No questions. At this point, get my blood pressure to go down a little bit. No, no questions at this point. Thank you so much. Anybody from the public who would like to speak on this item?

Last call on labor and workforce development issue number six. Welcome.

Good afternoon, honorable Chair and Members. I'm Anallely Martin with the California Immigrant Policy Center. While not on the agenda, we're pleased that funding for the California Workplace Outreach Project was maintained. We urge the Legislature to ensure that the funding is protected and expanded and that you include the Safety Net Fraud Coalition's proposal in this year's budget. Thank you.

Thank you. Appreciate. Seeing nobody else. We will be closing item number six. Thank you so much. All right, now we are going to try to get back on the agenda and we will be going to item number three, general government May Revise proposals. Office of. We have several departments, so. These are all supposed to be under there.

All right, we'll let people come in and out.

Jessie Romine, Department of Finance. So, today I'll be providing an overview of proposals included in the May Revision for departments in the general government area. So, I'll be cycling through from one Department to the next.

At the end, if you have questions, feel free to stop and we can go back and we can pull in the appropriate DOF personnel or department staff. So, beginning with the Commission on Asian and Pacific Islander American Affairs, the May Revision includes two requests.

The first is a workload request for 374,000 General Fund in 24-25 and 287,000 ongoing to cover the Commission's operating expenses for physical office space and cost to convert one temporary position to permanent.

The next is a re-appropriation of 1.25 million from the 2021 Budget Act to allow for the Commission to administer a high to administer a higher education workgroup with the objective of improving student outcomes of low-income, first-generation API college students. Moving on now to the Department of Veteran Affairs and State Lottery Commission.

The May Revision includes a reappropriation of 3.8 million from the 21 Budget Act to allow for CalVet to cover contract costs for the CalVet Electronic Health Records Project through June 30, 2025. Regarding the Lottery Commission, the Governor's Budget proposes removing the Division of Juvenile Justice as a recipient of State Lottery education funding.

This is a technical change as DJJ closed all facilities effective June 30, 2023. For the Secretary of State, there's five requests in total.

The May Revision includes 2.4 million Federal Trust Fund in 24-25 to accept and expend the 2024 Election Security Grant, excuse me, Election Security Federal Grant Award and 475,000 General Fund in 25-26 to meet that 20% state match requirement to receive the grant.

Additionally, the May Revision includes one time and ongoing funding to support four legislative BCPs for the Secretary of State. Next is for the Citizens Redistricting Commission. The May Revision includes provisional language that will allow the Department of Finance to augment the Commission's budget to address any cost increases for services provided by DGS or CDT.

For the Political Reform Act of 1974, the May Revision includes ongoing resources for the Franchise Tax Board related to staff benefits. Due to the nature at Franchise Tax Board, those benefits are funded through this BU and this Department. It's acting as a pass-through, so it's technical in nature.

For the State Treasurer's office, there are two requests, the first being 729,000 one-time General Fund to provide funding for IT equipment necessary for establishing networks and network security infrastructure at its renovated headquarters.

The second is for provisional language to be added to their budget to provide a short-term exemption for certain statewide contracting requirements related to electronic subscription services. Moving forward to the CalSavers Retirement Savings Board, the May Revision includes two positions at the board in conjunction with a $12 million General Fund loan proposed in the Governor's Budget.

These two additional positions are necessary for the CalSaver's retirement savings board to support additional compliance verification and outreach workload. Moving on to the State Controller's Office, there are multiple issues in a couple different issue areas, so bear with me. For the California State Payroll System Project, the May Revision includes 3.15 million in total.

It's about 2 million General Fund and 1.1 million central cost Central Service Cost Recovery Fund in 24-25 to support contracts for the payroll system project. There's also a partial reappropriation, 41.6 million to support the system integrator contract.

There's also a reversion of an unencumbered system integrator future solution costs and dart resources appropriated in the recent budget act. The next area underneath the state controller office area is the California Department of Technology rate increase.

The May Revision includes limited term resources in 24-25 and 25-26 to support the increased mainframe computer infrastructure and operational costs associated with services provided by the California Department of Technology. Now, the last area here within the State Controller's Office is for accounting book of record and annual comprehensive financial report of FI$Cal implementation.

The May Revision includes 6 million General Fund and 3.5 million special fund in 24-25 and then only 134,000 in 25-26 and 26-27 for consulting services and in one 3-year limited term position to support the SEO Book of Record.

Additionally, the May Revision includes a re-appropriation of 3.3 million General Fund for contract costs related to the SEO Book of Record functionality, migration to FI$Cal and annual comprehensive financial report support. Moving forward for the Department of Financial Protection and Innovation, the May Revision includes three proposals, two of which are for the Department of Financial Protection Innovation to implement chaptered legislation.

The first includes 26 positions in 7.9 million Financial Protection Fund in 24-25, 41 positions and 11.5 million in 25-26, and 11.4 million in 26-27 and ongoing for the Department of Financial Protection Innovation to implement AB 39, the Digital Financial Assets Law.

With these resources, DFBI will license and regulate digital financial asset business activities, process applications, investigate applicants, conduct exams, and take enforcement actions as necessary to protect consumers. The second includes three positions and 1.6 million General Fund in 24-25 and 846,000 financial protection fund in 25-26 and ongoing and include statutory changes to implement SB 54.

With these resources, DFPI will develop an online search portal for reports containing demographic information about founding team members of companies that venture capital companies invest in.

Statutory changes are requested to change the Department venture capital companies, sorry, statutory changes are requested and to submit that allow for the submission of reports to come from the Civil Rights Department to DFPI, among other changes.

Lastly, the May Revision also includes 1.1 million one-time Financial Protection Fund to support the Department's increased rent costs associated with the move to the May Lee State Office Complex.

Moving forward to the Commission on State Mandates, the May Revision proposes to fund a new mandate from SB 203 of 2020 at 2.2 million General Fund in 24-25 and one million ongoing thereafter. SB 203 requires law enforcement to ensure that youth 16-17 years old consult with legal counsel prior to custodial interrogation and before the waiver of Miranda rights.

Only a couple left. For FI$Cal the May Revision includes two adjustments for FI$Cal. The first adjustment includes a reduction of 537,000 General Fund and 315,000 Central Service Cost Recovery Fund and an increase of five positions in 24-25 and ongoing.

This is a joint proposal with the Department of General Services and allows FI$Cal to realign positions and funding for procurement related functionality in the FI$Cal system. The second request removes provisions 4 and 5 from FI$Cal central service cost recovery fund item.

These provisions provided the Department of Finance authority to augment the item for a workload, to transition the accounting book of record and onboarding remaining departments and are no longer necessary since the project was deemed complete.

Moving on to the final issue, interest payments to the Federal Government. The May Revision includes 15 million General Fund and 500,000 special fund to provide a federal interest liability payment to the Federal Government. The increases are due to using the actual liability payment made in 23-24. That concludes my presentation.

My colleagues at the Department of Finance and company departments are available for any questions you may have.

Well done, very concise. Any comments? Thank you.

Brian Metzker, LAO. My comments are going to be specific to the State Controller's California State Payroll System Project, and my colleague will also have other comments. We find the proposed reversion of $70 million for this project to be reasonable in 23-24.

There were project procurement delays that led to lower-than-expected costs and that freed up those funds for reversion. We also find the proposed additional 3.2 million in 24-25 for ancillary project contracts to be reasonable.

However, we are still reviewing the $41.6 million in General Fund that's proposed for re-appropriation for future vendor solution costs, and we'll provide some analysis and recommendations to the Subcommittee soon.

Drew Soderborg, Legislative Analyst's Office so I will be providing some comments related to DFPI, and I'd also just flag for the Committee that these represent sort of our initial takes, and in the coming days our office will have additional comments on some of these proposals likely that we'll be getting your way.

With respect to DFPI, the Administration proposes to use General Fund to implement SB 54 in the first year, in 24-25, and on an ongoing basis to support the program from the Financial Protection Fund.

While we're still working with the Administration to get information about this proposal, it's unclear to us why General Fund is necessary in the first year. For example, when DFPI has set up programs in the past, they've used the resources in the Financial Protection Fund and been reimbursed for that upfront investment from revenue created by these programs.

So, the Legislature might want to ask the Department or the Administration why it's not possible to use the Financial Protection Fund initially. Cause that would reduce pressure on the General Fund, obviously of importance now given the state of the General Fund.

The other thing we wanted to flag for you on this proposal is that the trailer Bill legislation is changing the administrating entity from the civil rights Department to the Department of Financial Protection and Innovation.

And so, the Legislature is going to want to work with the Administration to ensure that this change doesn't undermine the original intent of the Bill in any way. Happy to answer questions at this point.

Thank you. A lot packed in this item and some of it very technical, so we're not going to go through each one. But as far as the public is concerned on FI$Cal, if whoever would like to add in, can we get a background of that? What is it?

How long has it been trying to be implemented by the state. I understand it's been quite a while. What is the intent and what kind of dollars are we talking about?

Just to be clear, FI$Cal is not requesting additional funding except for removing the provisional language. And we're actually having a reduction in General Fund in the May Revision.

No, I understand that, but I'm just talking about the overall, what is FI$Cal for the public? How much is it cost over its period of implementation? And I know there have been some setbacks, so if you can talk to that.

Yeah, so FI$Cal is the financial information system for California, and it's the budget mechanism and system that we utilize to track our dollars for the State of California. And I believe the number is roughly slightly under $1.0 billion. I'd have to get back to you on the specifics of how much this costed. Like just under a billion to implement the system. Yes.

And how long has this system been trying to be implemented? Because I know it's not complete the project?

Yeah, it's been a pretty long term project. I'm not sure exactly on the amount of years. I don't know if you know the specifics, Brian.

Brian Metzker, LAO. The project was under development and implementation up through 2022. The remaining workload is onboarding any departments that have not come onto the system yet. And so that work is ongoing and is expected to complete pursuant to state law by 2032. But the actual development implementation was between a 10-to-15-year timeline.

Okay, so 10 to 15 years to implement a new system to pay California State workers. Is that?

So, that system is the California State Payroll System that we, that our comments were specific to. That's a separate system. And that system is in planning. FI$Cal has been implemented. FI$Cal is our financial management system, and that's a separate one.

And that one is currently in the process of onboarding any remaining departments and helping with the migration of the accounting book of record and other functionalities. So two separate systems.

Okay. And the reason I ask is, obviously we speak a certain language up here with systems, with programs. The public doesn't always understand the nuances between programs.

But what I would say as being chair of this Committee since January, I have seen a lot or many, many dollars go out, surpassing billions of dollars in technology and upgrade for various systems within each agency.

So, we will be looking at that in the future because as we're asking other very important issues to be cut, we also want to be analyzing how much we're spending in these areas, understanding that making a U-turn could be also unintended consequences. So, that's not what I'm trying to suggest.

I'm just trying to get more clarity and transparency on how much we're spending in technology in the State of California for these systems. And it's not just state agencies. It's also school districts and local municipalities.

There's a huge amount of money going throughout California and the United States on these technology upgrades and sometimes we just move forward because we feel like we have no other choices. But my ask is are there ways to slim down these, these costs? But that's probably another discussion for another time.

But with that, any other questions? Any other final comments? All right. Seeing anybody who would like to speak on any of these proposals, General government, I know this is what you're all running up here for. All right. Well thank you very much. Appreciate it. We're going to let people move in and out here.

Our next item is GO-Biz, issue number four.

The 2023 Budget act included $250 million to support the City of Fresno's public infrastructure development plan. Gobus has allocated 50 million in 2324 moving on to the infrastructure state revolving Fund. The Governor's Budget included $50,000,000.01 time General Fund to recapitalize the infrastructure state revolving Fund.

This solution would reduce this investment by $25 million to allow the Fund to maintain solvency and to continue offering loans in 2425. Next is the performing arts Equitable Payroll Fund.

The May revision includes a reversion of 12.51,000,001 time General Fund included in the 23 Budget act to support the Performing Arts Equitable Payroll Fund that was established pursuant to Chapter 731, statutes of 2022, SB 1116. Next is the drought relief grant program.

The 2022 Budget act included $75,000,000.01 time General Fund to provide direct assistance to eligible agricultural related businesses affected by severe drought conditions. This solution reverts 5 million of this program back to the General Fund. Next is the ibank Clean Infant clean energy transmission.

The May revision includes a reversion of 225,000,001 time General Fund for our clean energy reversion transmission project in the Salton Sea region. Next is the technical assistance expansion program. The 2022 Budget act included $6 million General Fund in the 2022 to 2023 to bolster the Technical Assistance Expansion program and support increased demand.

Additionally, 23 million annually ongoing thereafter was included. This solution reduces the program to 10 million for the next two years and restores it to 23 million beginning in 2627. Next is calcompetes.

The Governor's Budget included 50 million in new funding in 2425 and $10 million in savings from unallocated Cal competes grants in 2324 toward extending the Cal competes grant program for an additional year in 2425.

This solution reduces the 50 million in 2425 and reverts the 10 million that would have been carried over to support the Cal competes grant program. Next is the local government budget sustainability Fund. The 23 budget act included 50 million to support grants to counties facing significant challenges to the near term sustainability.

This reversion reverts this $50 million I'll move on. Gobiz has a ledge BcP that includes 2.5 million General Fund in 2425 and 250,2526 to implement AB 585. Gobiz also has a federal funds BcP for 3.2 million ongoing to accept a federal award, I can move on to the Gobiz arts.

Okay, let's just do this first part first.

Oh, okay. Sorry.

Any other comments about Gobiz? Semi Member? Any comments? It's okay. No. No comments on this. Then. Then we'll go ahead and move on to the arts council.

Okay. Okay. So the May revision establishes the California Arts Council within the Governor's Office of Business and Economic Development. There is a net zero adjustment of resources and statutory changes to effectuate this transition.

Overall, this transition will allow for greater efficiency in state government as Gobiz and the California Arts Council share common goals around promoting arts and cultural through the creative economy. Working group visit California and the Office of the Small Business Advocate.

This partnership would create opportunities for broader engagement between the expertise within the Arts Council and the cultural sector and the leadership of Gobiz in economic and workforce development. Further, this reorganization would allow California Arts Council to leverage Gobiz administrative capacity to support their programs. By leveraging Gobiz administrative support capacities, this will improve the Arts Council's operations.

This proposal will not disrupt the activities of the California Arts Council and will provide increased operational efficiencies, especially in the Administration of grant the grant making. Additionally, the trailer Bell language allowing for the transition for this transition to take place includes an extension of the Sunset to keep arts and schools tax check by seven years until 2032.

These revenue support programs that administer AHRQ grants in K through 12 schools.

All right, thank you.

Drew Soderborg, Legislative Analyst's office. We recommend rejecting this proposal without prejudice. The proposal could merit consideration if it were to create administrative savings within the Arts Council given the state's budget problem.

However, given that the proposal wouldn't created any administrative savings as proposed, currently, we see little reason for the Legislature to consider it in the compressed timeframe that it has at the May revision.

A restructure like this would warrant greater oversight from the Legislature and scrutiny either through the policy process or if it were introduced earlier in the budget cycle, as it could be reintroduced in January. This would give the Legislature more time to ask questions about it, ensure adequate administrative efficiencies are achieved, and the like.

Happy to answer questions now.

Thank you. Seeing our friends from the AHRQ community welcome and please introduce yourselves.

Good afternoon. My name is Danielle Brazell. I'm the Executive Director of the California Arts Council.

Hello. My name is Ayanna Kiburi. Deputy Director of the California Arts Council.

Do you have remarks you'd like to make?

Oh, I do, I do. And forgive me for having my laptop, but we've been running pretty quickly, so I'm going to try to be able to make eye contact with you and still get my points.

I think you all know that for over 50 years, the California Arts Council has served as a catalytic agency that fosters cultural vibrancy and community development. We promote access, equity and diversity and invest in arts education through grants, programs and strategic partnerships. California is home to over 374307.

I'm not going to be able to say this number correctly. 13,774 nonprofit arts organizations and our state creative sector accounts for over $18 billion in assets and includes over 14.4% of California's total total employment. I think that those are pretty impressive numbers.

Our primary area of focus has always been the nonprofit sector because we believe in this triple bottom line aspect. Right. We know that it's good for the economy. We know that the nonprofit arts and cultural sector has a tremendous amount of job creation that we create and train with youth apprenticeship programs.

But I think we all are also really committed to the civic and social infrastructure of building healthy communities and social connection. I think that this sector has been under capitalized for many, many years. Right.

We have done a great job with very limited resources to be able to get out into the field, and we do that really well. We do that equitably. We do that with the using the primary tool of grant making.

I think that there's a really interesting opportunity to explore what new financing models we could potentially learn from this potential relocation. Would we have more access to capital? Would we have more access to tools that we could help grow the creative and cultural sector equitably.

And then I think from our vantage point as the California Arts Council, one of the things we do incredibly well is we know how to operationalize equity. And so is there a value added for us? Right?

We know we can contribute to the bankable culture scenario of advancing cultural tourism and helping to build new creative jobs and industry. But what could we do to help be a value added to Gobiz and its other programs, to be able to operationalize equity and stitch together the capitalization of the creative and cultural sector?

Ayanna, do you have anything else to say?

Well done. We appreciate those remarks and bring it back here to my colleague here, Samima Reward. All right, any last comments? No.

Gather my thoughts together, I guess just kind of in the same vein of what we were talking about earlier with some of the other reorganizations, you know, the need to be able to do this at this time if we're not seeing in front of us, you know, any necessary cost savings.

And I guess for the, those arts advocates as well. Are there any concerns that you'd want to underscore by just the administrative reorganization of this?

Sorry, could you say that?

So we're not seeing any cost savings here by doing apartmental reorganization through this proposal right now. So I'm just wondering about the timing and the necessity of that.

Yeah, this is a net zero transition. I think we anticipate the greater efficiencies. There are a lot of overlapping similarities between the work that the Arts Council does and Cal OSBA specifically. The majority of grants winners from the Arts Council are small business owners and our small businesses.

I think, too, we anticipate that Gobiz will be able to learn from the Arts council around their grants programs, as well as the Arts Council being able to benefit immediately from the administrative support that Gobiz currently has. So that is why we have this as the May revision proposal and from the Arts Council.

I think there's more details that we just need to understand about transition, sequencing and understanding the organizational structure.

I'd agree.

I mean, just consistent with what we said on the earlier item, too, to, you know, would want to fully vet this, and I'd prefer to do so through a policy Bill if allows the time that it takes to really think through what this would mean on the back end, functionally, to make sure that we're not inducing any new impediments to be able to evaluate and deliver on the functions of those rules.

So we'll keep that under consideration. Thank you, Madam Chair.

Well, first, I love the arts, as some of you know, as a classroom teacher for over 30 years, and I appreciate that the voters going to the ballot and saying we want to see arts in the classrooms as well.

There is no substitute for some of this type of energy that can be infused into communities, whether it's with local nonprofits, local schools, but certainly when we look at arts and their strengths that they bring to the economy related to going to a local play than going to a dinner or going to have a cocktail after.

These are all immeasurable when it comes to, to the dollars that are brought into communities, and that doesn't even encount the creative economy when we are talking about actors, hairdressers, stylists, costumes, whatever the venue it may be.

And I am privileged to live in a very art focused community the City of Fullerton and have worked very closely with the Orange County Arts Council, understanding their value they bring to the community. I do have a little pause again on this reorganization. It did jump out at us.

We haven't heard about it before, so I would definitely raise that concern.

I also agree with the Lao that is this going to be something that we really should be moving through policy Committee and letting others weigh in as we know the way the May revision works, there's a lot of details that get embedded in paper and on links, and the public doesn't always understand again.

And I keep bringing back the public because that's why we're here. We're ultimately here to serve the public, to go back to our districts, to let them know why we said yes to something, why we said no to something else regarding the budget.

So I applaud the artists, the creative individuals that make our communities not only more optimistic but hopeful in the sense that we know that the arts really changed lives. Sometimes it's the smallest thing, the music, whatever it is, that can take regular life to excitement. And we just see this right now.

I might get in trouble by some, but look at the art that Taylor Swift is bringing to the world. A woman who is the Boss, the Boss. But she has hired 400 people to work on her stage, her crew. But she's bringing meaning in music through poetry. Because she is a writer, she is expanding her network.

But it was not just her, it was Beyonce. It was others who have brought this impact to our communities throughout the world, throughout these stages. And we need to take that seriously. And by the way, for those that say women like Taylor Swift should stay home, no, they shouldn't.

They should be out there on the stage and they can do many things. That's a side bar.

And if you don't know what I'm talking about, you can understand why I would make that comment today after a graduation speech was told to all those beautiful young women who attained a degree, that they should in fact, stay home and be homemakers and be happy about that.

A shout out to all the arts for all the kids. Because that's the art organization in Fullerton that has brought art to our Fullerton students. All the arts for all the kids. So I say all the arts for all Californians. With that, any comments from the audience? The Committee?

Julie Baker CEO, California Arts Advocates we've talked a lot about the move to Gobiz, but we really want to talk about our opposition to the disproportionate cuts to arts funding in total of 58% of program funds, including $10 million in grants funds through the California Arts Council and the 12.5 million for the Equitable payroll Fund through California Office of Small Business Advocate.

CAC funding is below the 20002001 funding level, while the General Fund has more than doubled. We are already in a cut position and should be spared this cuts the CIC below the 198990 level of funding without even adjusting for inflation.

Finally, for the California Arts Council, while we do not in principle object to the move to Gobiz, we are needing more information at this time to understand the implications and the impact on the field.

In terms of the funding, though, we urge you to oppose these cuts and recognize that arts nonprofits deliver a essential and core services to the communities they serve.

Thank you. Thank you. And we are going to go ahead and stick to 30 seconds or under.

Good afternoon. Chair and Member Ward David Nelson, representing the National Small Business Advocacy Council. I'm just going to go off of the expression and this is regards to actually the Small Business Technical assistance assistance program.

Like the arts, there is something no more powerful than owning a business is a means of immigration, is a means of providing for a family and growing the economy. Just the SBDC network alone last year contributed 2.3 billion. They touched 2.3 billion in this state's economy that touches.

That means $166 million in taxable revenue came to the State of California. This is not the time to cut this core service for small businesses.

Thank you.

Good afternoon, Madam Chair and Committee. Lori Kammerer with the National Association of Women Business Owners, California chapter and also a swifty I want to let you know that the folder of letters that you have received total about 722 letters, in addition to over 1000 emails that have been sent out to all the Members in opposition to cutting the funding for the technical assistance programs.

I now have another thousand email and I say thousand. It's like 1005 or whatever letters from all over California small businesses that we will be bringing to your office. To many consultants and we these programs have helped the small businesses incredibly and so we would greatly appreciate that this not be allowed that you don't reduce the.

That you don't reduce their tap funding. Thank you.

Thank you.

Good afternoon Chair Quirk-Silva and Members of the Committee. My name is Scott Rogowski on behalf of the 90 small business development centers across the state and the 145,000 businesses that we served last year, we strongly reject the proposed 50% cut to small business technical assistance program.

Since 2017, TAP has provided critical core services and a safety net to small businesses across the state. SBDCs were a vital, necessary partner state in delivering COVID-19 services. Last year, we served 72,000 women owned businesses and 74,000 BIPOC individuals.

These cuts will disproportionately impact minority women owned rural businesses and will actually stop services in some of these rural and underserved areas. Thank you.

Thank you.

Good afternoon, Madam Chair. My name is Oscar Garcia, Senior Vice President of the California Hispanic Chambers of Commerce. And on behalf of the hundreds of thousands of small businesses that comprise women, minorities, Hispanic, Asian, African Americans, we ask that you reject this 50% cut, cutting this budget.

It will definitely, it will be detrimental to the local, regional, and the state economy. As you know, small businesses drives the economy right now. They create jobs as well. So we ask that you please reconsider and reject this cut. Thank you.

Thank you. Good morning. Chair and Committee. My name is Keli Benham-Anthis, and I am the Director of the Northern California Veterans Business Outreach Center. And I'm also representing the center that's located in San Diego and in La. And I also ask you to, or we strongly oppose the 50% budget cut to the tap program as well.

We offer no cost services to start or grow businesses for veterans, middle spouses, active duty service Members on 15 military bases across the united or across California. And this is an opportunity to get to those veterans that we were talking about with homelessness and that sort of thing before they transfer out of active duty in the military.

So please consider not cutting the budget to provide technical assistance for businesses. Thank you. Thank you.

Good afternoon, Madam Chair and Members of the Committee. My name is SiewYee Lee-Alix. I am the Director of the Sacramento Small Business Development Center. We're one of the local centers that serve four counties, Sacramento, Yolo, Yuba, and Sutter. Three of the counties that we serve, Yolo, Yuba, and Sutter, 95% of the county is still considered rural.

By cutting the tap funding, where it takes almost a day to make a day trip to provide drop in office hours to those rural counties, we're going to have to significantly reconsider how we're going to provide technical assistance to the rural community.

In between 2023 and 2022 and 2023, we helped 147 entrepreneurs start their business, and that means there's going to be more tax dollars for the state. So on that note, thank you. And I oppose the cut.

Thank you, Madam Chair and Committee, Eduardo Martinez here on behalf of the Actors Equity Association, we are a national union of 51,000 workers, workers in the live arts, and we were the chief sponsors of the Performing Arts Equitable Payroll Fund, which is, as we know, has been proposed for complete elimination.

We're here to speak against that cut as well as the $10 million reduction to the California Arts Council, which, you know, represents a severe reduction in arts funding. The Arts Council cut represents a 38% budget reduction, taking us back to 1989 funding levels.

Cutting the performing arts Equitable Payroll Fund also undermines bipartisan efforts to support nonprofit performing arts that are still recovering from the pandemic even today. The point that the chair made about the economic ripple effect of the arts is very well taken.

We've done that work and we've done that studies, and we can demonstrate that these cuts are very short sighted. So appreciate your help on that. Thank you.

Thank you.

Good afternoon. My name is Tamaira Sandifer. I'm the founder, CEO, black female owner of an organization called Studio T Arts. We service in excess of 200,000 youth from the top of California to the bottom through the arts. These are kids that we find in the juvenile hall.

These are kids that we find after school, wandering around with no services. These are kids that we find in trauma informed communities that don't have resources, they don't have tech, and they don't have opportunity.

What we've been able to do through these arts is not only gift these people with a creative outlet, but also gift them with entrepreneurship coupled with arts. So now they're supplemental providers for their families.

And I'm so happy to hear you mention Beyonce, because two of our babies were the creative directors on her most recent multi $1.0 million tour. So we're also using the arts to give our kids access to stuff that just, barrier wise, they would never get access to.

So I'm here today, just speak on behalf of not just my organization, but the 200,000 students and their families that I represent, saying, we don't need less, we need more. We oppose cuts. Thank you.

Hi, I'm Shelly Gilbride. I'm the Director of International House Davis Cultural center in Yellow County. And I am also here to oppose the cuts to the California Arts Council and the 12.5 million to the performing arts Equitable Payroll Fund.

This represents a 40% cut in local assistance money, and that would decimate the social and economic vitality of smaller cities and rural communities. In these communities, the California Arts Council funding is the most significant and sometimes the only funding for cultural programming.

Without it, my organization won't be able to hire musicians, artists, graphic designers, food vendors, you name it. We can't do our programming that brings people together to celebrate inclusiveness, to combat divisiveness and loneliness. These are the things that we need to cultivate creativity in California. Not cut. Thank you so much. Thank you.

Hello. Thank you. My name is MaryTess Mayall. I'm the Executive Director at Blue Line Arts from District Nine. I oppose the $10 million cuts to the California Arts Council and the $12 million elimination of funding for the Equitable Payroll Fund. I'm extremely concerned over this disproportionate cut to the arts.

As a midsize arts organization in Placer County we receive 25% of our income from California Arts Council. We then are able to leverage these funds by additional 30% of fundraising to serve 2000 artists 4000k through 12 students all from underserved schools who do not otherwise have access to these opportunities. We serve over 6000 visitors a year.

We drive much needed economic vitality and tourism to the region. We oppose these cuts because they will negatively impact much needed jobs for visual artists independent contractors who we work with on a regular basis. I just hope that you oppose these problematic cuts. Thank you.

Thank you.

Hi. Thank you for inviting us to speak. I have a stutter, so bear with me. My name is Amanda Sanchez, co Director of Capitol Creative Alliance a small arts nonprofit that relies on the funding from California Arts Council to support our programming and to pay our staff.

We oppose cuts to the California Arts Council and the elimination of funding for the Equitable payroll Fund. On behalf of my organization and in partnership with the California arts I strongly urge you to join us in opposing these cuts. Thank you.

Thank you.

Good afternoon, Madam Chair, Members of the Committee. I'm Johnnise Foster-Downs, representing the Sacramento. Excuse me. The California Asian Chamber which represents more than 754,000 AAPI owned businesses throughout the state. We strongly oppose the 50% cut to the small business technical assistance program.

Calasia manages the Minority Business Development Agency Center for Sacramento as well as the US Department of Transportation Small Business Transportation Resource center serving over 2000 small, small and disadvantaged businesses statewide which in the last year resulted in over 100 jobs created and over $35 million in increased business capital.

The state's revenue, as well as your district's rely on the success of our clients. A 50% cut to these services will disproportionately and severely impact small minority and and women owned businesses. So we ask that you please preserve the core services of the tap program and please reject these proposed cuts. Thank you.

Thank you.

Hello. Good afternoon, Madam Chair and Members of the Committee. My name is Stacey Tate. I am Director of the Sacramento Minority Business Development Agency business center operated by the California Agency Pacific Chamber of Commerce. The chamber does operate three MBDA business centers, including a rural development program and a capital readiness program focused on the clean energy sector.

Our goal is really to help minority business enterprises grow and expand access to contracts, access to new markets, and help them develop their businesses. For the 22 to 23 contract year, we did help businesses secure over 28 million in contracts and procurement, including over 33 million in access to capital funding for their businesses.

Our minority businesses that we service includes over 2000 MBE's. This also includes veteran owned businesses and women owned businesses as well. And this budget cut will severely and disproportionately impact our small business communities and we strongly oppose these cuts. Thank you.

Thank you. Good afternoon, Madam Chair. Martha Guerrero, representing the Los Angeles County Board of Supervisors. Just wanted to squeeze in since I see it on the agenda is HAPP. The Board of Supervisors is requesting the $1 billion in HAPP funding.

Absent that funding, we will have to figure out either how to backfill 323 million, which comes to Los Angeles County where many people are receiving rental subsidies and other housing supports. So without this funding, continued funding, they would have it to be. We would have a difficult time finding the support for them. Thank you so much.

Thank you so much.

Anybody else on any of these issues seeing additional comments here from our.

Jessie Romeine, Department of Finance and to your point, Madam Chair, on transparency, we did not get to the arts council reductions during our presentation. We just wanted to point out that the mayor vision does include 10 million ongoing reduction for the arts grant programs administered by the California Arts Council. I don't think I need to add any more detail to that solution.

There were a lot of challenging decisions that were made in order to mitigate for the shortfall at the mayor vision.

Thank you. Okay. All right. Seeing no other individuals wanting to speak publicly on that, we appreciate your presence here today and know this is a heart wrenching discussion. Thank you so much. We're going to go ahead and move to issue number seven, page 16. Issue number, page 42. Consumer protection.

Hello. My name is Andrew Hong with the Department of Finance, and I will be providing an overview of issue number seven, consumer protection. The May revision includes two proposals within the Department of Consumer affairs to implement recently chaptered legislation.

This includes 331,002 positions in 24/25 and 315,000 25/26 and ongoing within the osteopathic medical board and 1,509,009 positions in 24/25 and 1,437,000 25/26 in ongoing within the medical board to implement SB 815, which requires these boards to implement a complaint liaison unit.

Also included is a special Fund loan of $27 million from the high polluter repair or removal account to the contingent Fund of the medical board of California to achieve fund solvency.

The may revision also proposes the following technical adjustments within the Department of Consumer Affairs 917,000 in 24/25 and 1,144,000 in 25/26 and ongoing to reimburse the Department of Justice for increased personal service costs and maintenance and operations cost to support the Cures program, a net zero adjustment to redistribute the department's pro eradic cost to boards and bureaus based on the final proposed budget, which includes the noted legislative proposals to assist in closing the projected shortfall.

The May revision proposes to revert from the Department of Cannabis control 16,470,000 in 23/24 for the Cannabis Local Jurisdiction Retail Access grant program, which was appropriated $20 million in the 2022 Budget act.

This reversion reflects the unobligated balance of the program and will not impact the funding provided to existing awardees. The May revision includes two proposals within the Department of Cannabis control to implement recently chaptered legislation. This includes 297,002 positions in 24/25 and 281,000 25/26 and ongoing to fulfill the requirements of SB 51.

These resources are necessary for the Department to continue processing local equity retail provisional applicants and to support those applicants through the process of achieving annual licensure.

The second chapter ledge proposal is for 173,001 position in 24/25 and 165,000 25/26 in ongoing to implement SB 540, which requires the Department to develop a brochure and reform regulations regarding the risks that cannabis use may cause consumers.

The may revision also includes a request for additional resources within Department of Cannabis control 588,000 in 24/25 and 42,2526 and ongoing to purchase and maintain 14 undercover vehicles for the department's sworn officers to perform critical surveillance and investigatory work.

The Department of Real Estate requests 700,003 positions in 24/25.590,003 positions in 25/26 and 251,001 position in 26/27 in ongoing to implement provisions of 18 bills signed into law in 2023.

This request will support workload associated with updating numerous publications and databases, promodulating regulations and licensing and consumer education initiatives related to the various chaptered legislation. Lastly, the Department also requests 849,000 one time to address an increase in rent costs associated with its move from the Meili State office complex.

That concludes my overview and we are available for any questions you have.

Any comments? Submarine Member Ward I have no comments. We'll take it out to the public. Any comments on item number seven, consumer protection? Asking again, any public comments on issue number seven, consumer protection? Seeing none. Thank you so much. We appreciate you coming in. That will take us to item number eight, middle mile broadband.

Page 45 of the agenda. Welcome.

Good afternoon, Chair and Members. Danielle Brandon with the Department of Finance. This item is the Middle-Mile Broadband item. So the California Department of Technology, along with Caltrans and the California Public Utility Commissions and other partners, continue to press forward, developing a Middle-Mile Broadband Network that is resilient, ensuring every Californian, no matter the location of the residence or income, has reliable and affordable access to the Internet to connect, dream, and thrive in the 21st century.

The Administration has been working with external partners since last fall to update and optimize the approach to the Middle-Mile Broadband Project, and we now believe that with the last mile investments preserved elsewhere in the budget, we can meet most of these commitments on this network with existing budget authority, though we recognize the additional funding may become necessary.

For that purpose, the May Revision eliminates the 1.5 billion included in the January Governor's Budget and replaces it with provisional language allowing the Department of Finance to augment the Middle-Mile Broadband Initiative budget authority by up to 1.5 billion with notification to the legislative Budget Committee, Joint Legislative Budget Committee, should the funding be needed. I'm available to take any questions as needed.

Thank you.

Brian Metzker, LAO. We find the elimination of the proposed funding for the Middle-Mile Network across two fiscal years to be reasonable, given the serious budget problem in 24-25 and the projected budget deficit in 25-26. We are still reviewing the revised provisional budget bill language that will allow the approval of an additional 1.5 billion General Fund, and we'll provide our analysis and recommendations soon.

We would note for the Subcommitee, however, that no funding is set aside at May Revision to support this type of an augmentation, that there is still incomplete information about those standalone construction projects that would be funded by the current spending plan and the potential augmentation, and that the proposed JLBC process may limit legislative oversight of such a large request.

No, thank you for this. Again, you know, in the context of trade offs that we're competing with here for other areas of state support, you know, it's, we're very excited and have been for years about the support for Middle Mile Broadband and concerned, of course, with the scope and the size of this as much as we are other areas of state funding.

And I'm wondering if not for this, if this were adopted, is there an alternative pathway and alternative plan to be able to seek funds to be able to continue the progress that we've made in recent years, or are we thinking ahead about alternative solutions?

Thank you for the question, Member. CDT is working with PUC to focus existing funding on providing Middle Mile connections to various entities across the state. And we continue to explore a number of factors impacting overall costs, including the number of miles CDT is able to secure using the latest requests for innovative ideas, RFI-squared, as you've heard it called, the number of miles Caltrans will construct and the number and location of the FFA grants that will be funded.

So, for example, CDT's second RFI-square solicitation yielded more than 50 proposals. And CDT is currently negotiations on a number of these. And so they hope to partner on several hundred more miles out of this effort. And so we're still working through that approach, but that is one of the alternative paths that we are looking at.

Okay. And is there any, I guess, existing work that is out there that would immediately halt? I would hate to see some of these supported projects driving down, you know, say, you know, one of our main roads in Gold Country or, and just have, you know, sort of half finished projects, or do we see any things that, that's currently out there that would be at risk of at least not getting to a decent pause?

I have not been informed of any current work that will be halted, but I can follow up and get back with you if there in fact is.

Helpful information so that we can at least complete what we have made investments in so far and then think about how to complete the entire network, the vision that we had set out just a few years ago.

Thank you. I have a little question about the provisional, if you want to call it, trigger. I know that you are going to continue to analyze that. So we definitely want to see that. The scenario of saying we think that we have current funds that we can use and won't, in essence, need to dip into a $1.5 billion additional request seems a little bit awkward in the sense that how do we put that in the budget as far as we want to be able to trigger the use of them if needed, but we don't really think that we will need them. Can you speak to that at all?

I would. Danielle Brandon, Department of Finance, again. Madam Chair, I would just add that this is a safety valve, and while we have more confidence at this point that we can accomplish within the existing budget, we do need that. We do request that safety valve for that purpose.

Brian Metzker, LAO. We would just note again that there is no funding set aside for an augmentation of this size. And so were there to be, for example, additional revenues that are realized in 24-25 that could be put to this purpose, it would be balancing that decision against potentially restoring some of the other General Fund solutions that are currently being proposed by the Administration. So to allow for this augmentation to go forward with a simple JLBC notification process seems a bit difficult to accept. So more to come, but that's our initial take.

All right, thank you. Anybody wishing to speak on this item, please join us. 30 seconds. Under 30 seconds.

On behalf of the California State Association of Counties, as well as the Rural County Representatives of California, notwithstanding the difficulties with the state's funding, we are opposed to the proposal to completely eliminate the loan loss reserve. We have municipalities that have applied for this money and have been planning for this fund for three years now and are still waiting. We oppose the Governor's proposal to completely eliminate this.

And in regard to the proposed reductions for the Middle Mile Initiative of 250 million in 2024 to 2025 and 1.3 billion in 2025 to 2026, we recognize that SB 156 was an historic investment made by this Legislature just in 2021, and the state did commit in that investment to building 10,000 miles of Middle Mile Infrastructure to ensure the most disenfranchised communities get reliable broadband access. And so the Governor's proposed $1.5 billion to make that happen in the January budget is crucial to this commitment. Thank you.

Thank you.

Hello, Madam Chair. Amanda Gualderama with CalBroadband. While we applaud the Administration's decision to withdraw the January 10 budget change proposal to augment the Middle Mile Broadband initiative, we oppose the May Revision proposal to include statutory authority allowing the Director of Finance to augment the Middle Mile Budget by 1.5 billion with only a notification to the Joint Budget Legislative Committee. We urge the Legislature to retain their authority over when and how much General Fund is expended and reject the budget trigger language regarding the Middle Mile. Thank you.

Thank you. Any additional comments? Seeing none. Thank you so much. We appreciate you coming. All right. We are now at issue number nine, operations and informational technology. That is page 47, and please go ahead and make your comments.

Natalie Griswold, Department of Finance. Good afternoon, Chair and Members. Today, I will present on several proposals in General Fund reductions proposed in the May Revision related to government operations and information technology. So beginning with the Government Operations Agency, the May Revision includes a slight increase to a reduction proposed at the Governor's Budget to revert funding for the language access pilot program.

The amount available for reversion from this program has increased to 4.8 million General Fund, which the May Revision proposes reverting to address the General Fund deficit. Next, moving on to the Department of General Services, or DGS, the May Revision includes six proposed reductions and two new workload budget change proposals for DGS. First, the May Revision proposes to shift 700 million currently earmarked for the Capitol Annex projects from the State Project Infrastructure Fund to the General Fund.

This proposal includes trailer bill language authorizing the State Public Works Board to obtain interim financing and to issue lease revenue bonds as necessary to fund the completion of the projects. The May Revision also proposes temporarily reducing DGS's General Fund by about 7.1 million in 2024 and 2025 for Capitol repairs.

DGS receives this amount as an annual appropriation for Capitol repairs. Since the Capitol Annex is currently under construction, the May Revision proposes pausing this funding for two years just to address the General Fund deficit. Next, the May Revision proposes reverting 2.5 million General Fund annually for three years appropriated in the 2023 Budget Act to implement SB 1203, which requires net zero greenhouse gas emissions and state agency operations by 2035. Our next proposal is related to the California Commission on Disability Access, or CCDA.

The May Revision proposes permanently shifting all of CCDA's regular funding from the General Fund to the Disability Access Account. This comes out to about 1.6 million General Fund that would be shifted to the new fund. The May Revision also includes trailer bill language making CCDA basically an allowable use of the Disability Access Account. And our last proposed reduction for DGS is for DGS's Asset Management Branch or AMB. AMB receives about 1.2 million General Fund annually for various workload, including statutorily mandated workload.

We're proposing shifting 1.2 million annually to the Property Acquisition Law Money Account, or PAL, for two years, so 2024 and 2025. The PAL has a sufficient fund balance to support this workload for two years given the current General Fund condition. In addition to these proposed reductions, the May Revision includes two workload related budget change proposals for DGS.

The first BCP is proposed to reflect the transition in workload related to the Financial Information System for California, or FISCal. This is a joint proposal with FISCal to realign resources between the two departments and results in net General Fund savings. Our second BCP includes 1.2 million Building Standards Administration Special Revolving Fund one time and 254,000 and one position ongoing for workload resources to implement Chapter 884, statutes of 2023 or SB 745. This bill requires the California Building Standards Commission to develop standards to reduce potable water usage in buildings.

In addition to these, the May Revision also includes a technical adjustment to reconcile DGS's appropriation from the State School Utilization Fund, as this is required by Education Code section 17224. The May Revision also includes trailer bill language related to a statutorily required statewide contracting and procurement disparity study.

The study was originally funded in a 2023 Budget Act BCP, and due to some delays issuing the contract, we are requesting to delay the publication of this study from January 1 to December 31, 2025. Finally, language for government efficiencies trailer bill language is pending to increase efficiencies in some government processes and result in net savings.

So, moving on to the California Department of Technology. Related to the state's information technology, we were proposing a few workload and technical adjustments for CDT. CDT's first BCP requests 147,000 General Fund in 2024 and 2025 for CDT to equip local entities with dot gov or dot CA dot gov domains as required by Chapter 586, statutes of 2023, or AB 1637.

CDT's second BCP includes $588,000 General Fund to conduct an inventory of all high risk automated decision systems utilized by state entities as required by Chapter 800 statutes of 2023, so that's AB 302. The May Revision also removes provisional language authorizing CDT to augment its General Fund appropriation by up to $10 million General Fund in support of statewide technology services and includes a technical adjustment to remove the use of admin and distributed admin programs in 2024 to 25 and ongoing.

This technical adjustment will allow CDT to accurately reflect its funding while transitioning to the FISCal system beginning on July 1 of this year. Next for the Office of Data and Innovation, or ODI, May Revision proposes to transfer 15 million from the Data and Innovation Services Revolving Fund to the General Fund in order to help address the General Fund deficit. Additionally, the May Revision appropriate 16 million Data and Innovation Services Revolving Fund and 2 million reimbursements.

This fund is supposed to be continuously appropriated until July 1, 2024 and requires an appropriation from the Legislature to continue supporting ODI's ongoing projects. For our last department in kind of this issue area, the California Privacy Protection Agency, or CPPA. The May Revision includes additional resources within CPPA to implement SB 362, the California Delete Act.

The California Privacy Protection Agency requests 901,000 Data Broker Registry Fund and three positions in 2024-25 and 608,000 in 2025-26 and ongoing to continue hosting and maintaining the data broker registry as well as developing the accessible deletion mechanism.

Provisional language is also requested to allow for the augmentation of the agency's budget as they make progress through the project approval lifecycle and gain more detailed information about the cost to build the accessible deletion mechanism. This summarizes the workload proposals and proposed General Fund reductions in the area of government operations and information technology included in the 2024 May Revision. We are available to answer any questions. Thank you.

Thank you. Any comments? No comments from me. All right, anybody wishing to speak on this? No rushing up. All right. We appreciate you being here. Thanks so much. All right. We will move to our last item, item number 10, California public employees retirement. Or actually employee compensation and retirement. Welcome. Be hearing about CalPERS and CalSTRS Prop 2 funding updates and employee compensation. Welcome.

Good afternoon. Noelle Fa-Kaji, Department of Finance. I'll be overviewing the items related to CalPERS. So first, the May Revision reflects the operational budget for CalPERS as approved by the board on April 16, 2024. It represents a net increase of 53.9 million other funds compared to the current year. Secondly, we have the control section 3.60 adjustments that hold the state retirement contributions for both state members of CalPERS and the Judges Retirement System II, which CalPERS also administers.

For the CalPERS plans, the May Revision includes a net reduction of 23.1 million, of which is 12.4 million General Fund compared to the Governor's Budget. And for the Judges Retirement System II, the May Revision has a $38,000 decrease from Governor's Budget to reflect the rates adopted by the board on April 16, 2024. And lastly, we have a trailer bill language that reflects a one time supplemental pension payment to CalPERS of 420 million utilizing Prop 2 funding.

Good afternoon, Madam Chair. Ryan Weinberg with the Department of Finance, and I'll be covering everything else included under this item. First, the May Revision includes 4.26 billion in General Fund contributions to the State Teachers Retirement System, or CalSTRS, in 2024 to 25. This amount has slightly increased by 20 million from what was presented to this Committee on the April 2nd hearing based on updated, credible compensation for California state teachers since the Governor's Budget was released.

And we'd like to note that the May Revision also includes 519,000 to reflect the state's share of overpayments identified by CalSTRS to be paid by the state on July 1, 2024 as required by education code 24,616.2. Next, the May Revision assumes savings of 1.5 billion, of which 762.5 million is General Fund in savings in 2024 to 25 and ongoing associated with reducing departments funding for vacant positions.

The Governor's Budget assumed this amount of savings in fiscal year 2024-25 related to capturing savings for vacant positions, and this proposal was adopted through early action under Chapter nine, statutes of 2024, also known as AB 106. The May Revision proposes to make those reductions to funding permanent and proposes eliminating the associated positions with those funding beginning in fiscal year 2025-26 and continuing ongoing.

Related to employee compensation, the May Revision includes 1.2 billion, of which 640 million is General Fund, for increased employee compensation costs, including health care costs for active state employees, retiree healthcare pre-funding costs, and collectively bargained salary and benefit increases. This amount has slightly decreased from what was included in the Governor's Budget by 92.7 million due to updated payroll estimates for the state in fiscal year 2024 to 25.

The May Revision also includes a proposal to amend control Section 3.61 to authorize the Department of Finance to transfer Proposition 2 debt repayment funding to the California Employers' Retiree Benefit Trust in the current or prior fiscal year to satisfy the state's Proposition 2 debt repayment allocation for that relevant fiscal year.

And finally, the May Revision includes trailer bill language proposing to eliminate telework stipends for state employees beginning on July 1, 2024. The Governor's Budget included a proposal to bargain for the elimination of telework stipends on that date, and it included 51.2 million in expected savings associated with the elimination of telework stipends, of which 25.6 million was General Fund. And with that, we're happy to take any questions you may have on anything included under this item.

Nick Schroeder, LAO. We have no prepared comments, but we're happy to answer your questions.

Sorry, I wanted to go back to the telework stipend. I understood that that was something that was bargained for, so now we see the trailer bill language. Can you speak to that?

Yes. Again, Ryan Weinberg, Department of Finance. The Governor's Budget included a proposal to bargain with the relevant unions to eliminate the telework stipend. Currently, employees of 17 of the state's 21 bargaining units receive the teleworks stipend. The relevant unions were noticed if the state's intent to bargain for the elimination of the teleworks stipend, but it can also be eliminated via trailer bill language, which is what's being proposed in the May Revision.

That brings up a little bit of a red flag because it does speak to bargaining units, and I feel that that communication amongst them should be honored. So it does put us in a predicament of voting for something that has already been bargained for and doesn't seem as if there's a resolution there. So I'll just make those comments and know you'll continue to work with the with the employees and hope that gets resolved.

Understood. Unfortunately, we cannot comment on the state's collective bargaining strategy or any ongoing collective bargaining negotiations.

Right. I understand that, and I appreciate it. That being said, thank you. I know these are technical and a lot of hard work goes into creating this master budget of California. And unfortunately, there are going to be some painful cuts across the board to many, many jurisdictions, whether it's health, whether it's homelessness, whether it's housing, whether it's foster care, CalWORKs, and in our case, many, many items that have crossed our purview system since January.

But we do appreciate the Department of Finance and their hard work and understand that it is not easy to go line by line. We also appreciate the expertise of our Legislative Analyst Office and take all of that into consideration when making comments and when going through items. I know you have a lot of work to do in the next few weeks, and we thank you for your hard work. With that, do we have any additional comments on this item? Seeing one, we have. Thank you. Yes.

Good afternoon, Chair Quirk-Silva and Committee Members. Bryant Miramontes with the American Federation of State County Municipal Employees. We agree with your concerns around the elimination of the telework stipends. We agree that it is a matter that is subject to bargaining and should not be considered for TBL given the agreements among the Legislature and the existing workforce.

Additionally, on issue 436, we are concerned about the vacancy sweeps and the process in which the Administration is making decisions on which vacancies to sweep or eliminate. Given the state struggles to attract and retain its workforce, eliminating vacant positions leads to additional workload burdens and further contracting out of state civil service jobs. Due to austerity measures from the Great Recession, the state has not attracted the workforce it needs to adequately provide the services that our citizens expect our government to provide. Thank you.

Thank you. Appreciate those comments. Seeing anybody else coming? Last call on item number 10. Seeing no one else. Thank you so much for coming. To the public and those watching Budget Sub 5, know that work continues. The May Revise is a draft. It is, in fact, the Governor's Budget, and we will continue to work along with our Assembly colleagues, along with our Senate colleagues to find a final budget to vote on. Stay tuned and keep staying engaged. Thanks so much.