Assembly Budget Subcommittee No. 7 on Accountability and Oversight

I want to be mindful of time and am eager to get to the Member comments and questions as soon as possible. Therefore, I'm going to give an opening statement, ask the Chair and Vice Chairs of the Budget Committee if they have comments and then quickly transition to the panel.

I ask that Members of the Committee wait until after the panel presentations to ask their questions. I'm also aware that some of the Members have flights back to their districts, so we're going to try and facilitate Member comments and questions to give an opportunity to speak.

Please note that this Committee does not have a public hearing segment, a public comment segment since these oversight issues overlap with hearings in the regular budget process where public comment is usually heard. I'd now like to start by giving a few opening remarks. California is the fifth largest Economy in the world.

If California were a nation, we would be the most economically productive country per capita in the world. How have we accomplished this? We've supported and invested in our diversity. We treat every resident of this state with the respect and dignity they deserve.

We understand the critical importance of public education and have the most accessible and prestigious higher education system in the world. The innovation and creativity fostered by our public universities drives Silicon Valley and the other technology hubs across the state.

State California is home to the most Fortune 500 companies in the world, many of which are at the forefront of global technology. California also hosts more than 4 million small businesses, more than any other state. Two thirds of our small business jobs in the country are found right here in California.

California's 4.1 million small businesses are more than 20% higher than second place Texas, 3.2 million. California is also the largest manufacturing state in the Nation with over 35,000 manufacturing firms employing 1.2 million Californians. Every day, California manufacturers are creating new industries spanning the entire economic spectrum from aerospace to computers, electronics, medicine and agriculture.

Our agricultural productivity feeds the nation. The Central coast is the salad bowl of the United States and the Central Valley United yields a third of all the produce grown in the country. Our forward thinking climate policies lead innovation in our national energy policy and are an example to countries in the world.

We have shown that it's possible to dramatically reduce carbon emissions and create green jobs at the same time, we've embraced the idea that providing healthcare to all our residents creates a better healthcare system for everyone. Close to 94% of Californians now have health insurance.

And the days when hospitals and clinics provided completely uncompensated health care for a huge portion of our state's residents is fading in the rearview mirror. California's economy pays far more than its share to the Federal Government treasury. We are a donor.

State estimates are we send around $80 billion more dollars to Washington than we get back in return federal spending. $80 billion is more than the entire budgets of 47 other states.

California's excess contribution to the Federal Government is larger than the combined state budgets of Alaska, Arkansas, Delaware, Idaho, Iowa, Mississippi, Montana, New Hampshire, Rhode Island, Vermont and Wyoming. California is the goose that lays golden eggs. California literally subsidizes the rest of the United States.

Now we're facing the very real threat of draconian federal spending cuts that will disproportionately hurt California. Today's accountability and oversight hearing is intended to highlight what these Federal Government cuts will mean to California residents. Today we'll look carefully at what the first round of Trump spending cuts will do to our state budget.

We don't yet know the full impact of these cuts, but the news is grim. We have serious work to do. Mr. Gabriel, thank you for joining us. Do you have any comments you'd like to make?

Yes. Thank you very much, Mr. Chair. I appreciate the opportunity to share a few thoughts. And first, let me applaud you for the wisdom and foresight focusing us on this really important conversation about our relationship with the Federal Government, about federal spending here in California, how it impacts us.

I think this is potentially the most important conversation we are going to have as a Budget Committee this year. And I just want to say thank you to you for elevating the issue and for helping us to focus attention on it.

As I've said to many of my colleagues, both Democrats and Republicans, whatever issue you care about, whatever issue you want to see funded in the state budget, whether that is health care, whether that is the environment, whether that is domestic violence, shelters, literally every policy priority that Members have here, you should be concerned about this conversation with Washington, D.C.

and our relationship and whether we are going to get our fair share of federal resources. And as the chair has really elevated the issue and I think laid it out beautifully for us, we are subsidizing the rest of the country right now.

And if there's action in Washington that is going to further restrict the flow of dollars back into California, that will deeply impact our budget and our ability to Fund programs and services that touch every corner of the state.

Whether that is funding to prevent wildfires, whether that is funding for our roads, for our schools, for our universities, for the economic engine that we provide for the rest of the world and for our United States. So this is a really important conversation. I hope it will be a bipartisan conversation.

I think the notion that Californians should get their fair share of federal resources, that our tax dollars, at the end of the day, this is our money that we are sending to Washington D.C. and what we are simply asking is that the hard earned taxpayer dollars that Californians send to Washington come back and benefit them here.

So I'm hopeful that we can work with our Republican colleagues, with colleagues from different parts of the state, with different policy priorities to really make sure that we are getting our fair share of federal resources. And I think hopefully we can unite behind that.

The idea that Californians should get their fair share of federal dollars, should be able to have their tax dollars come back to benefit them in their communities up and down the state, to me, should be a non controversial one. But again, I cannot underscore this enough.

Small changes to the way in which Washington allocates dollars to states, particularly in the health care space, could have profound and dramatic consequences not only for health care in California, but really for everything that we care about.

And so having this conversation, standing strong together, demanding that our state and our residents get their fair share of federal resources, is an incredibly important conversation. So thank you, Mr. Chair, for beginning this conversation and I look forward to working with you to make sure that Californians get their fair share of federal resources. Thank you, Mr. Gabriel.

Mr. Flora, before we begin, do you have any opening comments?

Yeah, thank you, Mr. Chair. And it's a privilege to be with all of you again. And there is obviously a lot of concern and a lot of unknown with the Federal Government right now. We acknowledge that and understand that.

But just because there's concerns with the Federal Government doesn't relieve us of our responsibilities to be responsible with our state dollars as well. And I think both of those should be, you know, working together when we talk about accountability and programs, things that serve our communities the best, especially in the climate change space.

There are programs that seem to be always on the cutting block, programs that are actually really, really working well for the Central Valley and they seem to be the first to get cutted, even though they are the most successful programs that we have as a state.

So I just want to encourage us as we have these conversations we've talked a lot about. We all represent different communities. We all represent different needs. And let's have that holistic approach as we develop this budget. And I'm excited about the accountability and the oversight. And I appreciate your leadership.

Thank you very much. Can I please have the secretary call the roll?

[Roll call]

Thank you. We'll hear from the all five panelists first before we go to Member questions. Ms. Hollingshead, welcome. Could you please introduce yourself and begin your presentation?

Yes. Thank you. Chair and Members, Ann Hollingshead from the Legislative Analyst Office. I'm here to give a overarching presentation at a high level on federal spending in the State of California. I'll be speaking from a handout which you should have a copy of in front of you. Looks like this.

And for those who are not in the room, this handout is available on our website@lao.ca.gov so I'll make three relatively brief this presentation will have three relatively brief parts. The first is that I'll provide an overview of how federal funding flows from the Federal government in D.C. to to California residents, essentially the system under which this works.

The second part is I'll talk about how federal funding interacts with the state budget, and I'll include how much the Federal Government spends in the state budget, as well as the major program areas there.

And then third, I'll talk about money that goes directly from the Federal Government to individuals, businesses and other private entities, as well as some public entities in the state. And then again, I'll talk about amounts and the major program areas that it's spent on. So turning to the first page. This.

Chart provides essentially a flowchart, which you can think of as kind of the system by which money moves from D.C. to California residents. And there are three major pathways, major flows in this flowchart direct payments, payments to state government, and payments to local government.

So starting kind of in the middle of the chart with payments to state government, this is money that goes directly to the state government. It interacts in the state budget. Essentially, state and federal money will work together to provide services to Californians.

And it can there's really a broad range of areas here that this covers, from transportation to health and Human Services, K12 education, higher education. I'll talk shortly in a little bit more detail about what exactly is here. But just to understand kind of the process.

So the state government retains some of this money to use for itself to provide services directly. This includes money, for example, for highways and maintenance and so forth. But much of this money is then directed to other entities around the state. So that's essentially the bottom part of the flowchart.

The state government remits federal money to UC and CSU through the public universities, to private entities like businesses and healthcare intermediaries in the case of health programs, to individuals directly, for example, in the case of CalWORKS and tanf, funds to other entities like local housing authorities, school districts, and then to local governments as well.

So then second, I'll talk about direct payments. So that's what's on the left side of the chart. Direct payments are monies that go from the Federal Government to essentially all of the entities that I've already mentioned, including public and private entities and individuals directly. And I'll talk subsequently about how much that is and what it's for.

And, and then finally, on the right side of the chart, we have payments to local governments. These are monies that go specifically to cities, counties and special districts. This is not going to be part of the presentation. But similar to state government, money goes to local governments.

Some of that is retained for local governments to provide services directly, and then much of that is transmitted again to other entities, private entities, individuals, et cetera. So turning to the next page. This. Shows the distribution of federal funds in the state budget by agency, or you can think of it as by program area.

This data comes from the Department of Finance. Finance estimates that the state will get about $171 billion in 2526, the upcoming fiscal year in the state budget to be distributed. And this money, again, is going to interact with state funds in the vast majority of cases.

So the biggest part of this pie chart, as you can see, is for health and human services. This is about 80% of the total, or 134 billion, of that 134 billion. The lion's share of that is going to medical, the state's combined Medicaid and CHIP program.

But there are a number of other health and human services programs that are funded both by the state and Federal Governments, including in home supportive services, Developmental Services, public health programs, child support and child welfare, as well as many others. I'll talk just briefly about some of the other components of this pie chart in order.

So, labor and Workforce development. This is nearly exclusively the state's Unemployment Insurance Program. It's about $9 billion in what is technically considered Federal funds, but we would also consider state funds as this is a state program. There's $8 billion for K12 education. This is mainly for school meals.

Money for high poverty school districts as well as funds for students with disabilities. There's $7.3 billion for higher education. This is mostly money that's going to UC, but also some, you know, a minority, but a sizable amount for CSU. Transportation is $6.7 billion. This is mainly funds for highways.

The state retains a majority of these funds to provide maintenance itself, but then remit some of the funds also to local governments. Legislative, Executive and judicial. Is 2.5 billion. This is mainly money that's going to the Office of Emergency Services for Disaster Response and Recovery.

That amount can vary quite substantially from year to year, but in this particular year around 2 billion. And then the all other for 2.4 billion is money that is mainly for environmental and protection programs as well as natural resources programs. Turning to the next page.

So this is the first part of that flowchart on the left hand side and it is showing the amount that our office estimates is going to directly to individuals and other entities, private entities which include businesses, as well as any governmental entity that is or public entity that is not the state or city, county or special district.

So that's going to include universities, housing authorities, transit agencies, agencies, school districts, et cetera. We estimate that the state received $453 billion in federal money in 2023. That's the year that most of the data comes from. And we've organized this graphic into three parts. So on the left hand side we have grants and assistance to individuals.

You can think of this essentially as money that is going to individuals to support income either through direct, you know, monetary benefit, but also in, in kind benefits. So of course the lion's share of this is Social Security and Medicare. These are 114 billion and 128 billion.

Then there's a wide variety of other federal programs including Supplemental Nutrition Assistance, money for housing, money for federal student loans, tax credits that mainly benefit Low income and moderate income people. In the second category we have grants, contracts and support for nonprofits as well as business entities.

This includes mainly contracts to private companies for both defense and non defense, but also includes research grants and contracts to universities, both public and private in the state. And then the third category is wages, salaries and benefits to employees. You can think of this as essentially the money that's going to support federal workforce that's in the state.

So it's going to include both, both federal civilian workers and the wages and salaries paid to them, as well as military military folks in the military who are residing in California and then benefits to retirees as well as veterans that reside in the state.

Because there's quite a lot going on on this graphic, on the final page we have a table that includes each of the amounts by the category so you can see that more detail and with that, happy to take questions at the appropriate time.

Next we'll go to Ms. Halterman.

Good morning, Chair and Members of the Committee Mary Halterman, Department of Finance I'm the Assistant Program Budget Manager for the Department's Federal Funds Accountability and Cost Tracking Unit, also known as FACT.

Since the creation of this unit in 2021, my team has sought to maximize the impact of federal investments by monitoring and highlighting new federal funding opportunities for California, administering and ensuring compliance of over $27 billion in COVID19 stimulus funding awarded to major state programs and coordinating COVID19 direct disaster response, cost tracking and recovery.

Since January 202025 the President has signed a number of Executive orders calling into question the future availability of funding related to numerous federal programs, including those related to diversity, equity and inclusion, or funded by the Infrastructure Investment and Jobs act and the Inflation Reduction Act.

While no reductions to federal funding have been implemented to date, future funding levels for specific programs could be affected. Federal funding typically comprises about a third of the State of California's budget.

In the current fiscal year 202425 California's $500 billion budget anticipates 168 billion in federal funds, 34% of all funding, which does not include federal funds expected by the states public college and University Systems, as well as 232 billion of state General Fund, which is about 46% of all funding and then the remainder of the state budget consists of the state special funds and state bond funds.

Cancellation of federal state contracts or a significant reduction in federal personnel and or funding for partner federal agencies will impact the state's ability to to adequately serve its residents.

Some examples of potential impact in the current fiscal year include Medicaid, known as Medi Cal in California, which is budgeted for 107.5 billion in federal funds, which is 64% of all federal funds received by the state.

Federal Fund drawdowns for medi Cal average between 6 billion and 9 billion monthly and any decrease in this funding would harm up to 15 million Californias covered by Medi California, more than one third of the state's population as well as their healthcare providers.

The California Department of Education, University of California System and California State University systems are budgeted a total of $179 billion, of which 15.2 billion is federal funds, 9% of their budgeted funds.

Any decrease of this funding would harm up to 6 million students or enrolled in TK to 12 education programs and more than 10,000 school servers throughout the state.

Additionally, any decrease in funding would also harm the UC's 10 campuses that enroll approximately 294,000 students and the UC extension centers that register an additional 500,000 participants in continuing education programs, along with the CSU's 23 campuses serving approximately 457,000 undergrad and grad students.

The California Department of Transportation Caltrans, which is budgeted a total of 17.6 billion, of which 6.7 billion is federal funds, about 38% of their budget. Any decrease in federal funding would impact Caltrans ability to operate and maintain the state highway system and its ability to Fund and oversee local transportation projects.

Of California's approximately 250,000 state employee positions, over 9,000 full time equivalents or 3% of our staffing are federally funded. California's budget for the 2425 fiscal year has relied on the assurance that that federal resources, including personnel, administrative systems and funding will be provided.

The state allocated funding for staffing and design and implemented programs based on the anticipated federal support. The possibility of a dramatic decrease in the federal workforce or a decreased pause or termination of funding would have a detrimental impact on California's ability to provide services that its residents rely upon, such as madi Cal or highway safety.

Without an assurance of knowing when and whether federal dollars will be dispersed, state agencies may not be able to outlay those funds, causing immediate decrease, pause or potential termination of government services in some sectors, California does not have sufficient resources to backfill the gaps in programs that California residents rely upon that would be created by the withdrawal or reduction of federal funds.

Finance continues to monitor policy and legislative developments at the federal level to assess potential impacts on funds the state receives from the Federal Government. I'm available to answer any questions. Thank you.

Thank you, Ms. Halterman. Next we'll go to Dr. Johnson.

Thank you. Chair and Members, Savette Johnson, County of Ventura CEO I appreciate the opportunity to discuss the impacts of the federal funding freeze and other key issues and how they would impact county governments. A preliminary assessment of the county's federal grants identified over $280 million in active federal awards with 153 million yet to be encumbered.

While some are unlikely to be affected by the Executive Orders referenced by the OMB, a broad federal funding freeze or pause could have significant consequences.

As you know, many of these grants operate on a reimbursement basis, meaning any disruption would have a delayed but substantial impact on the county's budget and cash flow, which impacts our ability to respond nimbly to serve constituents, especially in times of crisis.

Coming from Ventura County, we know crises well, unfortunately with significant impacts by wildfires almost on a yearly basis. This year our total budget is just over $3 billion, which with $1.4 billion in the General Fund, absorbing the cost of affected grants would place considerable strain on our operating budget.

Should we be put in a position to reimburse work that has already been completed. Through existing agreements, counties cannot backfill for the lost dollars that would be created from a potential federal freeze or cut of these dollars.

Tapping into the county General funds is not an option to backfill health and human services that have now been put into question. While counties have significant differences, this is something we absolutely have in common. Mr. Flora mentioned climate change initiatives, so I'm going to touch on that really briefly regarding grants specifically referenced in the Executive orders.

In our county alone, we've identified about $12 million for charging and fueling infrastructure grants as particularly vulnerable to funding delays and have already been paused.

A continued or prolonged pause will result in cancellation or delay of critical service initiatives including our EV charging centers, our off grid EV charging solutions paired with solar battery storage, deployment of over 150 FAST and Level 2 chargers across our county, our E bike integration programs to reduce vehicle miles traveled, and our workforce development programs to train workers on the installation, maintenance and operation of the expanding EV charging network.

Again, these initiatives are essential to aligning with the state's transition to electric vehicles and electrification of our county's fleet. Regarding health and human services, we are closely monitoring potential impacts across the county.

The county has assets specifically designed to support populations referenced in the Executive orders and have been proud to provide culturally relevant services to vulnerable populations, understanding the idea that in population health, the total health of a community is measured by those with the least amount of resources and only by serving those do we keep our community, our whole community, healthy.

Our human service agency has identified about $150 million in federal funds that would be subject to no longer being funded because of their specific purpose in serving vulnerable populations. To note, our Human Services Agency budget is $340 million.

As Ventura County is an agricultural county, it is important to ensure we do serve these vulnerable populations as this also supports the economic vitality of a critical industry in our county as well.

Because one in three county residents rely on services from our Human Services Agency, including 240,000 medical enrollees, we know that the potential impact of funding freezes or cuts could be absolutely devastating.

Additionally, proposed changes to service certification and the recertification process, such as new work requirements, would significantly increase workload demands in our county workforce while resources are being significantly decreased. The California Welfare Directors Association's assessment of at risk funding streams that flow through the state and could ultimately affect our ability to provide services is eye opening.

Programs such as Supporting Safe and Stable Families grants, Child Abuse Prevention Grants, SNAP Food Stamp Benefits and Temporary Assistance for Needy Families, also known as TANF. TANF. Regarding public health funding, in 202425 CDPH's total budget was approximately $5.35 billion.

This is comprised of approximately $960 million in a General Fund, 2.2 billion in federal funds, and 2 billion special funds and reimbursements. Several large urban jurisdictions receive funding directly from the CDC, so that won't be included in these numbers.

Some of the programs that could be impacted are the family health programs 1.3 billion, infectious disease programs 274 million, public health emergency preparedness 162 million and healthy communities programs, 17 million.

The uncertainty that is caused by the unknown is profound and as a result, we as county CEOs across the state have embarked on a deep dive analysis of all the federal funding we receive as a county and what those gaps would look like more so what programs would be cut, the number of staff that would be terminated, what services would no longer be provided, and ways that the safety net would not serve those that need these critical services most and the ripple effects that this would cause.

Again, I repeat that the impact would be devastating to our health and human services agencies, including Public Health and Behavioral health, and would prohibit the ability to serve our most vulnerable communities.

And backfilling what for some counties range from 10% or more of our General Fund is not fiscally responsible or feasible Given the other commitments those dollars have been allocated for, these services would be lost and could cause irreversible damage to our residents and and therefore our communities.

Thank you for the opportunity to speak and I'm able to answer questions at the appropriate time.

Thank you very much, Dr. Johnson. Next we'll have Dr. Kathryn Newman.

Thank you, Chair Hart, and Members of the Committee for Giving me this opportunity to talk to you about the significant federal challenges for public higher education and for the University of California in particular.

The UC has been evaluating recent Executive orders and agency guidance to try to understand their potential impact on our students, our faculty, our staff and our communities.

We are also engaging with policymakers, federal agencies, all of our Association partners, and other higher education institutions throughout the country to gather more information because there is a lot we don't yet know. But with that said, I want to talk to you about what we do know. First, the Federal Government provides for UC in three crucial areas.

Patient care, research and student financial aid. In the last fiscal year, federal support for the University of California totaled $17.3 billion in those three categories. That amount represents a little over 30% of our total budget. Let me break that 17.3 billion down for you.

Over half that amount, almost 10 billion, is for patient care in the form of Medicare and Medicaid reimbursements. UC is the nation's largest academic health system and serves, as you know, as a critical part of the California safety net. We serve the second highest number of medi Cal patients in this state.

The next category for which we receive funds is research, which is a subject near and dear to my heart as a faculty Member. Last year, federal research activity totaled $4.2 billion. In addition, the University received 1.1 billion for the operation and management of Department of Energy national laboratories.

And I might editorialize for a moment to say these are all highly competitive grant programs. The fact that the UC has received such an enormous amount of money reflects the excellence of our faculty and the investment you have made in the outstanding nature of the University of California.

The final category of funds we receive from the Federal Government goes to our students. Over 1.7 billion for Pell grants, scholarships, student loans, and work study programs. Much of this funding goes directly to the students who need it the very most.

The Executive orders and administrative actions taken to date threaten in some way or another, all of the funds we receive from the Federal Government. If we were to lose funding for Medicaid, for example, we simply could not continue to serve our most vulnerable patients. Last year alone, we served over 1.2 medi Cal inpatient days.

If we were to lose our federal financial aid funding, nearly 85,000 students who depend on it might not be able to continue their education. Let me spend a bit more time on research. Federal funds are our single most important source of support for research, accounting for more than half of UC's total research award.

The NIH is the largest funder of UC research funding that totaled $2.6 billion in the last academic year alone. And last year, our state, not specifically UC, but the entire state received the most NIH funding of any state in the country. That's because we have the very best research in the country.

The Federal Government is currently proposing to slash that funding. And although we have a temporary reprieve from the courts, if this proposal comes to fruition, UC could lose hundreds of millions of dollars to support UC and our state's biomedical research. Let me be clear. UC cannot absorb this.

The entirety of the University's research mission could be at risk. We are therefore asking for your help in voicing these concerns to our congressional delegation, whom we are speaking to as well. Of course, starting with signing on to a letter that asks that they oppose these draconian cuts.

The University of California will continue to advocate for legislation for policies and programs that reflect our values, support our mission, and benefit all Members of our community. In line with our principles of community, UC remains committed to fostering a safe, supportive, equitable and responsive environment for everyone that we serve.

But I am worried about what these significant cuts will mean for all of us. We are doing what we can to plan for this financial uncertainty, but we really can't do this alone. We are going to need your help.

So I will close by reiterating how much we appreciate the state, the strong partnership we have with the state Legislature. We are very grateful for your recognition of the importance of public higher education to the future of our state. And I look forward to partnering with you during these very uncertain times.

Thank you so much for the opportunity to speak today.

Thank you very much, Dr. Newman. And finally, we'll go to Scott Graves.

Yes, good morning, Chair Hart and Members of the Subcommitee. My name is Scott Graves. I'm the Budget Director at the California Budget and Policy Center based here in Sacramento. We're a research and analysis nonprofit that works to expand opportunities and promote well being for all Californians.

So what I want to do this morning is briefly share with you our perspective on federal funding and the current federal policy landscape. And I'm going to do that by making five relatively high level points that hopefully then will allow you to launch in the conversation that you all would like to have this morning.

So first, I want to reiterate the fact that federal funding is the foundation that that supports a broad range of public services in California. And I want to call out two programs in particular which you've heard a little bit about this morning. The first is Medi Cal.

So important to remember that this program is serving more than 14 million Californians across your districts. I'll get to the high level numbers in A second. The second program I want to highlight is CalFresh, which provides critical food assistance to over 5 million Californians each month. That's the program known as SNAP at the federal level.

So both of these programs are hugely important to your districts, of course, to every Member of the Assembly. But I'm really talking right now to the 20 who are appointed to this Committee for today. Based on estimates from my organization, the California Budget and Policy Center, and from the UC Berkeley labor center, we can see the impact.

So first, let's start with Medi Cal. In most of your districts, one third of residents or more are covered by this program. And in one member's district on this Committee, that's more than 60% of constituents enrolled in Medi Cal. And Medi Cal is delivering between 1 billion and 3.5 billion to your districts this fiscal year.

So those are annual numbers, between 1 and 3.5 billion in MEDI Cal funding flowing to your districts. CalFresh is also a critical source of support among your districts. The enrollment ranges from around 30,000 to around 130,000. And in most of your districts, the annual, the monthly benefit of CalFresh is $10 million or more.

That's flowing into your districts, going to people who are spending it on groceries and fueling their local economies. So this brings me to my second point, which is, as we have all heard, we all know, federal policymakers are considering making pretty deep reductions to health care, food assistance and other services.

So if I could be a little more specific than we have been this morning, the House budget resolution that's under consideration right now calls for at least 1.5 trillion. That's a word we don't hear much in California.

1.5 trillion in cuts across the next 10 years to federal funding, partly to pay, let's be honest, for tax cuts that would disproportionately benefit corporations and the wealthy. Now, most of these spending cuts that are proposed in the House Resolution are really targeting Medicaid and snap.

So when you hear abstractly that House Republicans are thinking about cutting programs, what they're really talking about, for the most part is cutting Medicaid and cutting snap, because that is where the dollars are that they need to find if they're going to pursue that policy.

So this brings me to point number three, that deep cuts to Medicaid are especially worrisome because they would destabilize our state budget and also have severe impacts potentially depending on your choices that you make on.

On the Californians who rely on Medi Cal for health coverage, Federal Cuts could shift in the range of 10 billion to 20 billion or more in new costs from the Federal Government to the state government, costs that would need to be absorbed somehow by the state in order to keep the Medi Cal program whole.

So keep in mind what this means. The the proposal is to shatter a federal state relationship that goes back decades and has served this country so well, leaving our state to pick up the pieces. And under this scenario, state cuts to Medi Cal would be really hard to avoid.

As much as no one in this body would probably want to make cuts to Medi Cal, it would be really challenging to avoid doing that, which would mean taking health care away from from the residents who most need it. And it's not that you can hermetically seal off Medi Cal, of course, from the rest of the budget.

As we've heard this morning, cuts to federal Medicaid funding would destabilize the state budget. Likely not all of California's solutions would fall on that single program, which would mean cuts could likely come to other parts of the budget that also rely on federal funding and are also funded annually through the budget.

So this brings me to my fourth point, which is if Congress approves deep federal funding cuts, state leaders, you all would have to make hard choices about how to respond. But let's keep the focus on that word I just used, choices. You would all have choices.

They would be difficult, challenging, probably uncomfortable choices, but there would be choices to be made.

And from our organization's perspective, the Budget center, our main goal should be to prevent or mitigate the impact of harmful federal policy changes on California's diverse communities, especially Californians with Low incomes who are already struggling to pay rent, to keep a roof over their heads, and to put food on the table. So what does this mean?

State spending cuts to vital services should be a last resort, not the first response. Let me give you an example. State policymakers would need to look at raising state revenue at least partially to backfill federal cuts. Could you backfill all of it, depending on how deep the cuts go? Probably not. Could you backfill some of it? Probably.

That would be within your power as a legislative body to do. My organization for many years has proposed options on the revenue side of the ledger for your budget. Options could include ensuring that profitable corporations that have benefited from massive tax cuts at the federal level are paying their fair share in taxes here in California.

And as we've said for many years, state leaders also need to scrutinize the tens of billions of dollars in tax breaks, also known as tax expenditures, that constitute a shadow budget in this state in the sense that they are not regularly looked at or evaluated.

They just sort of continue year to year, costing California in the range of $100 billion without anyone ever consistently asking what are we getting for our money? Where instead, all of the focus is on the spending side of the budget that we know so well. Not tax expenditures, but the rest of the budget.

So I want to close by noting that perhaps a somewhat positive note, federal funding cuts are not inevitable here. We're all following the news. We know that federal policymakers are divided on when, how and whether to make deep cuts to public services.

Everyone on this Committee and in this Legislature has an interest in ensuring that these public services do not go on the chopping block because the impact of federal cuts would reverberate across every Assembly District in this state and directly affect your constituents. So with that, I will conclude my remarks.

Thank you for the opportunity and happy to take questions.

Thank you very much, Mr. Graves. The panel's comments together are incredibly sobering and very powerful. Our first question is from Assemblymember Ahrens.

Thank you, Mr. Chair. Thank you to the thank you to everyone for being here today. It's hard to put into words the testimony that you've given today. I want to say I share the opening remarks by Mr.

Flora about the need for greater oversight and accountability on government waste in our state budgets and how we certainly can do a better job at looking at programs and efficiencies in the state government.

However, the threats and the proposals coming out of the Federal Government completely overshadow and frankly do a lot of harm to the real impacts of folks who actually want to make these programs more efficient. And so, and frankly is it's a huge distraction coming out of the Federal Government.

I appreciate the comments that were given about how, you know, I've heard the words challenging, difficult, uncomfortable choices, harmful choices that the State of California would have to make. I would disagree with those. I think that the words that we should be using are devastating, immoral, cruel, sickening, catastrophic and immeasurable.

And I think we need to call out what some of these impacts to the State of California, regardless of what district you live in, would have on our constituents in our communities.

I guess my further comment and will lead to my question is I do appreciate the letters of support and sign on urging our congressional representatives from both sides of the aisle to work in a bipartisan manner to stop.

I understand that that is happening and I do appreciate both the Democrats and the Republicans in the House of Representatives in their effort to put a halt on some of these devastating proposals. But letters of support are not going to be able to do it.

We do letters of support in the Legislature all the time, and many of them are promptly ignored and would like to challenge us to look at more comprehensive and tangible ways we could be doing to raise the alarm on these issues.

I think these hearings are a great first step, but we have to do more than hearings and letters of support to really impact and move the needle on some of the things that we're hearing from in the Federal Government.

In terms of, you know, what was mentioned about the long term impacts that these cuts on these proposals would have. Have there been any initial thoughts to how to compensate these cuts or where they would come from in the state budget.

So Mary Halterman, Department of Finance so this is still kind of all new and developing as more information comes out from the Federal Government. So that is information that we're still trying to gather and part of what we're we're looking at as we work. Towards the May revision.

Are there certain industries that are more vulnerable than others?

Other than what has been kind of identified through the Executive orders? So programs under the Green New Deal have been clearly called out as well as DEI programs.

Has there been an initial conversation about the number of jobs that would be. Potentially lost by these budget, budget cut. Proposals.

Potential cuts to federal positions? That's new information that we're still kind of looking into.

Do we know what impacts these potential. Cuts would have on our Low income and vulnerable communities?

Other than what I noted in my presentation, still we're trying to gather all of the different programs that could potentially be impacted. But under the Medi-Cal program that's up to 15 million Californians.

And are you aware of any federal reductions that could affect our California's biotech or technology industries? Other than the research and innovation that.

Was mentioned, other than the NIH funding freezes that I believe the courts have put a hold on at this point point, we're still trying to track all of the different programs that they've been targeting.

Yes, it's very dizzying, confusing, uncomfortable and devastating to hear these threats coming out. Of the Federal Government. I appreciate you all being here and. Looking forward to more discussion with my colleagues. Thank you, Mr. Chair. Thank you so much.

Can I just add that with respect to the biomedical research industry, it would. Be devastating if these cuts hit the. Universities because that's where most of the innovation originates. And throughout California we have a very. Vibrant research investment in that field, which is why California has the kind of prominence it does.

If those NIH cuts go through, you. Will see immediate devastating effects, to use your term, on our research, which in turn fuels that entire industry. And so I think the economy of California and a huge number of jobs. Would be at stake.

Thank you. Assembly Member Bennett.

Thank you very much. I just want to very briefly point out that these cuts will affect the most vulnerable in our state. And I would like to emphasize the impact on the children of California. And certainly there will be the immediate impact from the cuts in the programs like medical etc.

The long term impact on the children of California is really significant.

And it goes all the way to if we cut the research grants at NIH and then we don't have as good a UC systems, our children will grow up in a poorer California, California that will be less able to meet their hopes and dreams of the future.

Thank you, Assemblymember Bennett. Assemblymember Jackson.

So I hope we just keep our eyes and as much as we can, emphasize how devastating the impacts will be on the generations that we have our greatest responsibility to, that might help us in our lobbying efforts. Thank you very much.

Thank you very much, Mr. Chair, for having this hearing. This question is for Mr. Graves. It seems to me that when you look at the Republican budget resolution, that we're basically seeing a transfer of wealth, taking resources, support away from the poor and the middle class and transferring it to corporations and the ultra wealthy.

Am I wrong in that assessment?

I would not dispute that assessment.

So even though we've already seen historic wealth inequality, we are now seeing a proposal to double down on wealth inequality. So it seems to me that that means that if this goes through, then California no longer has to provide tax credits and rebates for corporations and the wealth.

Would it be, suffice it to say, appropriate or reasonable to eliminate all of California's rebates and subsidies and giving rebates credits for people's second homes and all those type of things? Would that be a reasonable response?

I'm not going to say that eliminating every credit deduction exclusion would be reasonable. I think what needs to happen is what should be happening all the time, particularly in a Subcommitee like this that's dedicated to oversight and accountability, which is asking hard questions.

So if California policymakers, your predecessors, and maybe some of you have approved some of these exclusions, deductions, and others that are depriving our State treasury of $100 billion per year ongoing, I would hope that there would be a process in place to ask whether you're getting your money's worth.

Is it better to provide that big tax cut to very profitable corporations, or is it better to ask the corporation to pay their normal tax rate without the credit or the deduction and then use those dollars to Fund a very vital public service in the state. So I think this, depending on what happens in D.C.

this may give you all an opportunity to. To say we actually need to get pretty serious about this. We need to be looking at this right now and doubling down on our efforts to assess the shadow budget in California.

$100 billion in ongoing tax breaks that no one really knows whether they're working or not, whether they ever served a purpose.

Mr. Chair, it seems to me that we probably need to begin to think about our own plan of Republicans are successful. What will we have to do in order to stop the catastrophe that is inevitable if this goes through. And so it's our hope that reasonable minds prevail in this effort.

But certainly there seems to be no doubt that at this time that the party in charge is doubling down on the wealthy and the corporations as their top priority in this nation.

And if I might add, it's also a massive cost shift to all of the states, right? Not just to California, but to every state in the nation. The feds would essentially be saying, we don't want to uphold our end of the bargain anymore.

We want to let go of this federal state partnership we've been putting in place since the 1960s or maybe earlier, you're on your own. You know, you all figure it out. And some states will decide, oh well, I guess that means we have to cut everything in sight because we're not getting money anymore for it.

But I think maybe California values would be different there. And that's where my organization would hope that there would be some real scrutiny of the tax expenditure side of your budget that doesn't get scrutinized from year to year and opportunities to backfill with the vast resources that our state has at its disposal.

Assemblymember Quirk-Silva.

Thank you for your presentations. Appreciate it. There's so many adjectives we could use today, and my colleague used some of them, but simply chaos, devastation and a lot of hurt. I'm looking at the page 4, and as was noted, these impacts would impact all of our districts across the State of California.

And whether we agree or disagree, I think there's a case to be made that many of our constituents would be hurt, whether it's elderly, whether it's children. But I am looking at the list here. Social Security is at the top of the list.

And as I interact with my constituents, I've heard things like, well, those are just going to be those programs that, whether it's a housing program, Section 8 or Head Start, and those don't apply to me. Things like Head Start don't apply to me. I've even heard, well, I'm a disabled veteran and nothing's going to change for me.

But when I look at this list, in fact, we see veterans benefits on here. In fact, we see Social Security, which there is a quite a big myth out there that somehow that's an entitlement program, forgetting that people have worked jobs for sometimes 30 years and paid into Social Security. And it is not a benefit program.

It is actually an earned program. Now we're hearing about Our national parks being in impacted. And now I do start to hear people with more concern because now they're seeing that some of these things could in fact apply to them. So we definitely have a national conversation of us versus them.

These things aren't important because they don't apply to me, or they are important because they do apply to me. But I see on this comprehensive list, many of these things are going to apply to many of our constituents. And we should all be have our alert on.

We should all be very concerned because we've done too much of this. Us versus Them, that Head Start child who comes from a disadvantaged community. What do I have in common with them?

Well, we know that when kids are educated and they're fed, they're going to be more successful academically and they're going to be having more opportunities to move on to higher education and then do exactly what we want as Americans to go back into their communities and work and contribute.

And so for the tale of the Us versUs them, for the people who are cheering these cuts, and there are, there are people that we're cleaning up the swamp, they're going to be very concerned when they call the Veterans affairs and cannot get somebody on the phone.

They're going to be very concerned when they try to make a health care appointment and they can't get an appointment for months or even years. And they're going to be very concerned when we have students who are impacted, whether it's at preschool, Head Start or at the college level.

And we then have what we've worked so hard over decades to overcome, which is an us versus them, where the people who have the ability or the financial ability to pay for college private will go. And for the people who can't, they won't.

We've already seen that impact through the pandemic where we lost about 30% of our students at community college because they had to go and work. So for my colleagues on both sides, this means something to all of us.

When people don't have a Section 8 voucher and we've complained about housing for now almost a decade, and we've been angry that money has gone out to assist people, what are we doing but growing the homeless population? And this won't just be in California. So we have tough choices to make.

I'm definitely interested in, as you pointed out, a shadow budget and us analyzing and getting data on some of these tax incentive programs. We certainly, as a budget sub chair of five, we certainly have some proposed this year and we are going to be demanding that data comes with these types of new investments, let alone past.

And for those who have received those and that I'm talking state here, they should be responsible for giving us data because you are absolutely right.

If we are going to have to cut, which it appears this is, moving forward quickly, then we are going to have to analyze where we are spending our state dollars and we will need data to show us this roadmap and who it's impacting and who it's helping. And we know that there's winners and losers.

But it simply I'll just end with this really, I'm going to use a word is horrifying. It's horrifying to understand the deep impacts that we are going to see. And some are laughing and cheering until they call someone.

And when they need help, whether it's in fires, whether it's in fraud, whether it's a consumer affair and they can't get anybody on the phone because thousands of federal employees already have been cut, we'll see how much laughing they're going to be doing.

And when every safety net is cut, we'll see how much cheering they're going to be doing. It's a sad day in California and in the United States.

Assemblymember Addis.

Thank you, Mr. Chair. And I want to also thank our panelists and my colleagues who are speaking so passionately and really care about the people of California and the taxpayers of California. And I chair the Health Budget Subcommitee.

And we'll be having numerous hearings around Medi Cal and frankly, as I was sitting here and have gotten into that position this year, have just really felt the terror from the community.

I think our communities feel terrorized by the magnitude of what we're hearing at the federal level, by the rhetoric, the othering that we are hearing from many of our colleagues, some of whom sit on this dais and at times, I think maybe later in this hearing are going to be emboldened to say that we shouldn't be giving health care to to some people in our community and thinking that it's okay to talk like that, it's okay to cut services, it's okay to take things away from people when we all know that the health of our communities, the health of our individual community Members, I should say, is really about the health of all of us.

And so I really do wanna say thank you, Scott, for highlighting the number thank you, Mr. Graves, for for highlighting the number of people across California, the 14 to 15 million people that get Medi-Cal in California, because California cares about its residents.

California understands that when we care about one person, we care about all of us, and that those are our core values and that when we lean into these conversations around othering, we're not leaning into our best selves. We're not leaning into the highest reason that we come to service in the state Legislature.

We don't have to lean into that rhetoric. I think some of my colleagues on the dais and in the Legislature think that somehow they are defending communities by leaning into othering, and it's just not the truth. I'm very disturbed.

I have people in my office all the time talking about how devastating and any kind of change to Medicaid will be to Californians.

But I do have a couple of questions, and one of those is we've talked about tax credits and doing things around the tax side of things, but are there any other ideas coming out of any of your offices, really, around how we can address healthcare in California if we see any kind of cuts at the federal level?

So we know the tax credit idea. What other ideas are out there in terms of addressing this situation?

Mary Halterman, Department of Finance I'm not over the health budget. I just kind of oversee the General federal issues that are coming out. So more information would be coming from our health budget team at the May revision.

Are you asking specifically about where to find money in the health budget or where to find money elsewhere to help close gaps?

Good question. Where to find money elsewhere.

Okay. So I would here would like to highlight the good work of the Legislative Analyst Office, which for the last couple of years their team that focuses on the justice system in California.

Now this is data going back a year, but I'm sure you're all familiar with, with their analysis that California for a number of years has had a lot of empty prison beds. And they estimated that California could safely close five prisons, ultimately saving the state around $1 billion per year, ongoing.

Now, of course, we've had Prop 36 passed by the voters in the interim. Who knows what the impact of that is? That's still being debated, but I think that's an example of where the Legislature and Governor need to get creative with thinking about ways to scale back where it makes sense.

We are not going to do more harm, and mine is an organization that would argue you're not going to do more harm by closing prisons with 15,000 empty beds.

There may be other places in the budget to look, but that to me is a prime example because your own Legislative Analyst Office has been pointing this out and it hasn't been taken up as a potential solution, a way to more efficiently use our state's resources without diminishing public safety in the state.

So I think that's an area that would need a look.

Thank you for that. And then the other question I have is obviously there's a lot of rhetoric coming out around cost savings for Medicare or Medicaid, excuse me, which should translate to the imagined perception that there's cost savings if we cut medical care from people.

But have you started to quantify the cost of cutting medical services to people? Have any of you started to quantify that cost in terms of what it means to have a less healthy 15 million people in California?

Not that I'm aware of, but I can check with the team and I'll just say, I think as we're thinking about accountability and we're talking about cost savings, that there's huge cost to having a less healthy population, particularly the number of people that we're talking about 15 out of 40 million people being less healthy.

I think we need to really understand the magnitude of what we're going to end up spending if our population is less healthy.

The other question I would ask is on the food side, we heard about the cuts to SNAP and if we have a more hungry population, what that does to us, particularly to kids in schools and those kinds of costs. Has anyone yet started to look at those kinds of cost to California taxpayers?

Certainly on our end, I don't think we've been able to quantify. But I can say that when we spend money on preventative care, we save. Over the lifetime of the individuals we're taking care of.

And if you look at what happens when people are denied that preventative care, it comes out in much more expensive health care problems later on in life. The same thing is true of children. As Assemblyman Bennett pointed out, if you.

Strip children of the ability to learn in school because they're hungry or because their class size has exploded, you will not see better upward mobility later on in life when they become taxpayers. So investment in children, we know this. Investment in children's health, well being and education pays off over the long run. To an enormous degree.

That's part of what's at stake here.

I want to appreciate that comment. Having been a teacher for over 20 years that what you just said about upward mobility and education, I would urge all of us to really get the data around the adverse effects.

We obviously know we'll lose money, but we're actually going to end up spending more money in the long run and we need to have that data to be able to make sound decisions about these things. So thank you so much. Chair.

Thank you, Assembly Member, if I may. In Ventura County, I can give you a quick snapshot. Currently, one in four residents use Food Share, which is our local food bank. And we've had conversations with them. If these benefits are cut, what do they anticipate the need would be? And they think it would more than double.

And, and the problem with that is that they don't have the resources to provide services and food if the need more than doubles. So just on a very small scale. Ventura County, 850,000 population, that's what we're looking at. Thank you.

Assembly Member Patterson.

Great. Thank you, Mr. Chair. Appreciate the opportunity today. Got a question for Mr. Graves. Talking about 100 billion in tax expenditures. Are there expenditures that the California Budget and Policy Center these tax expenditures support removing?

We would support taking a close look at these tax expenditures on an annual basis so that policymakers, assisted by the Department of Finance and the Legislative Analyst Office, can make decisions about whether they should be maintained or eliminated.

There are, if you, I mean, I can offer up one, there's a, and I'm not the expert on it, we have tax policy team at my organization that I could put you in touch with. But there is one classic jargony name the Waters Edge Election.

Essentially, this is a way that allows corporations to take some of their domestic profits offshore them as a way of avoiding state taxes in California, giant loophole, I think at Department of Finance pegs it at the cost to California at between 3 and 4 $1.0 billion per year.

We certainly think that that's one that's worth taking a look at, especially in light of the fact that the track the tax cuts passed in 2017 at the federal level by Congress, signed into law by President Trump, reduced the federal corporate tax rate from 35% to 21%. And there are proposals to reduce that further to 15%.

So just to give you one, off the top of my head, that's probably one place that you all could take a look at first.

But is it fair to say when you say there's $100 billion in tax expenditures, that maybe your, that probably wouldn't be a good idea, or do you think we should look at every, every $100 billion tax expenditure?

Right. So they fall into three main categories, personal income tax, corporation tax and sales tax. So there's different buckets if you remove the sales tax. That's a tough one. Right? You know, increasing or reducing the exemptions on Items subject to the sales tax or making more items, more purchases subject to the sale tax.

If you remove those, you're at about 80 billion. And it's just worth keeping in mind that the personal income tax and corporate income tax items here are really focusing on, to a large extent, folks who are doing pretty well. They're disproportionately, in many cases benefiting high income households and very profitable corporations.

Not all of them, but we think it's important for the Legislature to understand what is the lay of the land with these tax expenditures. Which ones make a lot of sense, which ones maybe don't make so much sense anymore.

Especially if you're in a position where the Federal Government is saying, hey, California, you now have to pick up $20 billion more per year of the cost of your Medi-Cal program. Good luck. Well, that's why I use the word difficult choices. Yeah, devastating choices potentially. But that leaves you all in a very tough spot.

Where are you going to find $20 billion to close a hole that large? Probably not all in one place, maybe not all can be backfilled. But that's where you have to start asking what are some tough questions for a lot of Members of this body.

Is there a way that we can close some loopholes in our tax code that we may not need anymore, really aren't effective, don't have a bang for the buck? Why are we doing that? The same way that you look at the spending side of the budget, right? That's under the microscope every year.

What are the Budget Committee, what are the Budget Subcommittees looking at every year? The spending side of the budget. So we're simply asking, put that same microscope on the tax expenditure side and you may find some that even you all across the aisle can agree on. That's, hey, you know what?

From an efficiency point of view, this doesn't make sense anymore. Why are we doing it? Let's just close the gap.

Well, I think we should have. Thanks for that. And I think we should have efficiency in all government programs. And I think honestly, without looking at any, I mean, we, you know, we brought you in, for example, I imagine is an expert, you know, in this.

So I think if California is going to look at tax expenditures, they're going to need some thoughts because a lot of people say, hey, you know, we need to get rid of tax expenditures. Okay, tell me where. You know, otherwise, you know, the $100 billion that cited isn't really, you know, doesn't really mean anything.

But, but I also think that the federal Government, you know, not looking at any particular cut or tax expenditure that they have, also should look at their efficiencies as well. And I think that'll be a part of the process as they go forward. I don't know what cuts are going to come.

I've seen a lot of proposals from a lot of people. There are hundreds of Members of Congress and Senators and obviously a President, so we don't know what's going to happen. But I do want to go over some of the tax expenditures we have in California, just so people get an idea.

Proposition 13 is a big one that keeps property taxes low for seniors.

The veterans exemption, the renters' credit, the earned income tax credit for low- income workers, charitable contributions, student loan interest deduction, housing interest deduction, child tax credit, educator expense deduction, itemized deduction for self-employed, standard deduction for everyone else, and as you mentioned already, food that people need to eat.

So I hope your organization doesn't support eliminating all those because that would obviously have much more devastating impact on Californians. So tax expenditures, which is government speak for tax break, does significantly help people in California that maybe are out of work, maybe need assistance elsewhere.

Maybe their homeowners are trying to afford their house, maybe they're seniors, they've lived in their house for 50 years and worried about taxes going up on them. So I think it's really important that we don't characterize tax expenditure as just going to the wealthy or something like that. It does have significant.

And what would create chaos in California is if we cut $100 billion in tax expenditures. I also want to talk about. Sorry, excuse me. I also want to talk a little bit about some decisions that have been made here in California or proposed in California. Just last year, California created a maintenance Fund and suspended Proposition 98.

Billions of dollars to students throughout California. That was a decision made in California that's having a devastating impact right now on our classrooms. We also borrowed money and it's going to come up every single. Well, it's not anymore. Fortunately, the voters took care of that.

But borrowing money from the MCO tax, again, billions of dollars out of the health care specifically for Medi-Cal to balance the state's budget, the General Fund budget. Also proposals again this year to cut housing programs that have shown success, that actually are efficient, that local governments have been doing a great job, you know, implementing.

And I'm sure that Ventura County's aware of how successful like the HHAP program have been in California. So I think it's really important that as we go through this process. We don't throw out terms like tax expenditures that would have a devastating impact on the neediest of Californians.

And also we think about the chaos in California by the decisions that we make ourselves when the budget is approved every year. So thank you very much.

Assemblymember Ransom.

Thank you, Chair and I'd like to thank our panelists for being here. This is a very important discussion at this, this point in time.

I want to start by saying that it is imperative that we all, all of us, whether you are Democrat, Republican, nonpartisan, whether you support the Administration or not, we have to be of the same mindset that this is too important to try to get a cheap little win for your political points.

It's great to get a great sound bite to score a point against the Democrats, against the State of California. But at the end of the day, we all are losing. Democrats and Republicans in my district are afraid their suffering. We're already receiving phone calls from people who have received letters that their kids research scholarship has been pulled.

We've already received letters of people whose jobs in the Veterans Administration to take care of our veterans are in jeopardy and they may not be able to start those jobs. We already have people who've been torn with do they quit their job in fear of the Administration or do they continue to contribute to this economy?

So let's make no mistake about is there's nothing to gain by not standing up against what we are currently facing.

You might win the war in the battle of the comments, but you're going to lose overall for this country with us being the fifth largest economy and our California, make no mistake about it, we are the ones that are the target of a lot of these Executive orders because it's an attack on our values.

This is not about efficiency. This is not about waste because we've taken no time to even look into and address those things. This is about a disagreement in values. And with us being the fifth largest economy, attacking California is attacking the nation's health care.

It's attacking the nation's education, the nation's children and the nation's vulnerable populations because we are the largest donor to the Federal Government. So we need to really keep that in mind that our veterans, our seniors and everyone, all of the vulnerable populations are under attack and no one is winning.

And not only is it immoral, unethical, against the leadership pledge, the pledge that we all took to defend the Constitution of the United States and the Constitution of California, it's important for us to come together as Republicans and Democrats to say, hey, we might disagree on lots of other things, but at this point in time, we need to stand up for the State of California and stand up for the nation and come together.

So we definitely need to do a better job of getting people to be more courageous as opposed to speaking in word salads and, you know, pointing us away from the issue. And so with those things in mind, I definitely encourage us to all move forward and work with, you know, on one accord.

But I do have questions given our large contributions to the Federal Government. Your presentation. Thank you very much for the presentation. You spoke about the flow of federal dollars to the state. Can you speak of the flow of California's dollars and contributions to the Federal Government?

Yeah, I can address that. Our office has not done a study of this recently, but I would point to a Rockefeller Institute report that is point that is published annually. The most recent report, I think, said that California receives about 90 cents for each dollar that it sends to the Federal Government.

So taxes versus expenditures, the balance of payments in the state, this, the national average, I think it's important to note for context, is not a dollar, as you might assume, but a $1.20 because the Federal Government has a deficit.

And California did also rank last in terms of the amount of money received versus the amount of money transmitted.

Okay. So while California is subsidizing the rest of the country, I think it's important that we, we keep that in mind. And I'd like to know, I probably shouldn't ask this publicly, but I'm going to ask what happens if we did not contribute? Like, do we have, as we're looking at ways to address these current threats?

What if we decided that we're going to withhold our dollars?

Carolyn Chu, Legislative Analyst Office that would require the citizens of California not to file their income taxes and the corporations headquartered here and doing business here not to pay taxes to the Federal Government. So you have sort of a massive collective action problem.

If that's really sort of the route that the state government wanted to take, because you're really talking about the individuals and the individual businesses in the state who are remitting the taxes based on the federal tax cod, there's not really a direct state mechanism to do that, and individuals and businesses would face penalties from the Federal Government for that type of action.

But understand sort of the direction and point that you're making in terms of California as a whole's overall contribution to the federal system. Thank you.

So we definitely need to work on that. But theoretically, if we were to somehow compel folks that California needs to be heard and considered the contributions that we make, it definitely would be more harmful to the United the rest of the country. So thank you for that.

Looking at oversight and how we as a state are operating, there was a New York Times article today that spoke to proposing the cut in HUD funds. I don't know if you've all have had an opportunity to even consider how this could potentially impact our fire recovery. Is there anyone prepared to speak to that?

I'm sorry, could you clarify which program within HUD was referenced? I don't know the latest news.

It's an overall cut to. It's still in the, I guess, Executive order phase, so I don't know all the details, but it's a cut to HUD housing funds. We could follow up with your office about that. I'm sorry, I'm not familiar with it. Okay. And then this will be my final question.

Do you know what our exposure in California is for unreimbursed FEMA claims? Do we have any idea of what that could potentially look like?

Mary Halterman, Department of Finance. I believe for the 2526 proposed budget, it's 4.2 billion in outstanding claims.

4.2 billion in outstanding. Is that what you said? I believe so. Okay. Okay. Thank you. I appreciate your presence and presentation here today. And hopefully we can all look forward to moving or collaborative collaboratively on behalf of Californians. Thank you.

Thank you, Chair Assembly Member Patel.

Thank you, Mr. Chair. And thank you panelists for your presentations and your overview of the current fiscal outlook for California. Also for providing your expertise and insight as we work together to protect Californians. The cuts definitely hit at the core of our California values. It feels very targeted.

Our values of compassion, innovation, health care, providing health care for all, opportunity for economic prosperity and upward mobility. As mentioned earlier, also the ripple effect through our state, our districts and our neighborhoods will be felt for decades as we lose our ability to keep our safety net strong and build support for our workforce force.

It's much easier to destroy than it is to create. Also, we know that what impacts California will impact the rest of our nation. We are one connected United States. Californian educated children grow up to enrich other states and the nation. California businesses improve lives across the nation and the world.

With that said, what is the strategy for working with other states on these cuts to essential programs like Medicare and SNAP in particular? Because. Because we aren't the only state being impacted by these proposals.

I can certainly tell you that in higher education we are in constant touch not only with the associations that span the whole country, but with our red state colleagues in higher education who are also seeing the impact of NIH cuts.

And I do think that there's some value in enabling them to move forward and contact their legislators so that everybody remembers these cuts are across the board.

And are you seeing a positive impact of imploring our colleagues from across the aisle to make those pushes?

We are hearing that they are in very close contact behind the scenes. It's difficult for them to be very out front. That's what I. That's the best I can tell you.

Well, I certainly hope that their voices will be heard on behalf of all of us looking specifically at the targets to education, research and healthcare.

As a research scientist who benefited from the NIH grants in my development of my career pathway, what are the opportunities to partner with the labor and business communities to build a strong coalition to help save these necessary programs?

Because those NIH grants not only Fund the research of graduate students and help the UC system or public education system, but they. They also create the workforce that we depend on for our innovation economy.

That's very true. And so we have had conversations, ongoing conversations with the UAW, for example, which represents our graduate students and postdocs. They are very concerned about what these cuts will mean for our employees, who they represent.

So we are working across the aisle with labor and businesses. I mean, I think the business community should also be involved in these conversations too. If we don't have a workforce, our business communities won't be able to continue to thrive as well.

Well, certainly in the biomedical fields and all of the other industry, agriculture. I mean the potential of this is enormous. So we are in contact with everyone that we work with to try to make sure they understand what's at stake.

Thank you. My final question, do you have any recommendations, expert panelists on our approach to look at our state programs to generate revenue or adjust spending? And I'm not sure that we can actually get to all the dollars we need to recover through just efficiency cuts. I don't see a way to efficiency weigh our solution space.

I think it's going to be more than that. I know you had provided some examples or one example, but what about the General approach or the strategy towards doing that and the timing that it would take to go through that with the timeline that we have ahead of us with our cuts?

Certainly. So our Legislative Analyst Office we will be putting out sort of a oversight kind of framework of how the Legislature can be, can be thinking about how to target, how to examine programs in terms of the costs and benefits and the relative benefits that are being conferred by the state's various programs.

In candor, the piece is targeted more towards the kind of out year deficits that the state also will potentially need to be wrestling with in combination with changes in federal funds. It's a, it's a herculean task. You know, the state has faced significant budget deficits over the last few years.

The state was able to address the vast majority of those deficits through the use of reducing one time expenditures revenue increases. Notably on the corporation tax side. The state has utilized suspensions of new net opera net operating losses and credit suspensions during down revenue years as well as the withdrawing of the of reserves.

The state still does have some reserves left in hand to help help create a glide path to to a balanced budget. But the combination of the fiscal pressures that the state will face is quite significant.

Certainly as has already been mentioned by the panel, you know, our framework will talk about looking at tax expenditures which do run the gamut from, you know, benefits to relatively lower Income Californians to benefits to corporations. A lot of the state's tax expenditures, I'll just note, align with the Federal Government's.

There were some that were changed that the state changed when the first TCJA tax jobs, I can't quite remember TCGA passed under the first Trump Administration. And there are various changes.

There are still additional alignment changes the state could make to that original tax Bill that would raise additional revenue, like reducing the amount which folks can claim for interest on their mortgage. The mortgage interest tax deduction, the Federal Government lowered that from $1.0 million to $750,000. The state did not conform.

So we certainly could pass that on as well. But overall, you know, as, as I think you're articulating, it's a very long term methodical effort to go through the state's slope programs to determine how resources can best be targeted for the highest benefit.

My concern is that it requires that methodical approach so that we're not making risky, untested decisions at the same time. We don't have the luxury of that time. That's kind of where I'm sitting, but thank you. Thank you all for putting our multiple brains together to try to solve this problem. Appreciate it.

Assemblymember Hadwick.

Hi. Thank you, Mr. Chair, and thank you for coming today. I think that in an economic time like this, we have a crucial responsibility to manage taxpayer dollars. And I think every decision we make should prioritize long term financial health and sustainability.

In light of these possible federal cuts, it's more important than ever that we're vigilant in making a budget that balances these essential services, but also fiscal responsibility. I think personally I hold myself accountable to the people that I represent and I think we all should look at it that way.

I want to keep those programs that protect our vulnerable citizens. I was raised by a single mom. I grew up on those programs. But I also want them to be a stepping stone and not a lifestyle.

I represent 11 counties that cannot fiscally manage cuts of this magnitude and they, they want to see our government have less waste and be more transparent. My district has a huge distrust of government in General, state and federal levels. And my husband works for the Federal Government.

So I have a unique perspective as we go through these cuts. I have a few questions. How much federal funding was cut by Trump in his last Administration to California? You guys have information on that?

That's not something our office has tracked, but happy to work with your staff to get you something.

Thank you. And were there threats of funding cuts last time he was in office.

The last time President Trump was in office, there was discussion about eliminating the ACA expansion. That did not ultimately pass Congress. That was one of the largest and most significant fiscal. That. That would have been one of the largest fiscal impacts to the state at the time, but it didn't pass.

Okay, and then when. When do you think that Californians will feel the impact of this? Like, when will they.

I think, you know, ultimately it depends on what actions specifically are taken, both by Congress, you know, through a budget resolution and also through the federal administrative branch to, to some extent.

You know, obviously, I think, as everyone on the panel has said today, we're gathering more information, but a lot of it is we're also waiting to see specifically what actions will be taken because we don't yet know.

I'm very appreciative of this Committee and I hope that we can all work together because I think programs that we all love, support and want to keep going and we know are needed in our districts are going to have some kind of hit a cut of some kind.

So I just hope that we can be responsible and just be transparent and very realistic in our budget this year.

Thank you, Assembly Member Bonta.

Thank you so much, Chair, for putting together this very kind of foundational conversation around the impacts of the Federal Government's decisions, both in Executive orders and the planned changes to our relationship with the Federal Government as a donor state in California. I wanted to touch on a few things that we didn't quite make explicit.

I'm primarily focused on the $115.7 billion from the Federal Government that we received to support vital health and human services and the additional 20 million that we received to be able to support our educational system. One thing I wanted to just focus in on is the purpose of government.

The purpose of government is to protect our residents and citizens, maintain order, and to promote the General welfare of the public. That is our baseline responsibility. We are very, very focused right now on affordability issues to the everyday Californian.

I wanted to touch a little bit on the proposed changes and what we've been hearing from the Federal Government around the Affordable Care Act and the elimination of the enhanced subsidies that we receive through the Inflation Reduction Act. So our subsidies are for private insurance. We have 2.37 million Californians in the individual market.

That's the everyday person who's waking up, paying into their insurance plan, working with their employer to be able to provide just basic health care for their families. My understanding is that if those subsidies are eliminated, 1.5 million American Californians would pay on average of $1,000 more a year in the increase in their healthcare insurance premiums. $1,000.

740,000 people who are unenrolled in unsubsidized insurance would pay $253 a year. That's $20 a month more. And 69,000, this is the one that really gets me. 69,000 additional Californians would become uninsured. That's people who are just trying to make every single day work.

The Federal Government's decisions, particularly around the Affordable Care Act and elimination of these subsidies, are going to have dire consequences for us. Do you all, particularly, I guess the LAO or DOF, have any commentary around the ACA and the impacts of potential changes to that?

And you're speaking specifically to the enhanced subsidies? Yes. So the enhanced subsidies, as I understand it, are set to expire at the end of 2025 current calendar year. So they require reauthorization from Congress.

You know, as everyone else on the Committee, I have seen some conflicting reporting about the extent to which different states are wishing to renew versus allow those to expire. The state's subsidies are not nearly as large for in Covered California as those enhanced federal subsidies.

But, but to your point, you know, that is one area in which, you know, were the Federal Government not to renew those particular benefits, the state would would have the option to increase its subsidies. Again though, it would be a trade off in the context of what other fiscal pressures the state were facing.

Yeah, thank you for that. I did want to move over to Medi Cal for a moment. Medical is $160 billion program. 56% of our children in the State of California are on Medi Cal.

Those children have not made a lifestyle choice to be poor, but yet they find themselves on Medi Cal because being poor is actually not a lifestyle choice.

It's a circumstance of the policies and the decisions that we've made in our government to be able to give money to wealthy people and take away from people who are trying to work every single day. Because we have 56% of our children on Medi Cal. And also on Medi Cal are our elderly people with disabilities.

That's who we're talking about when we're talking about who's on Medi Cal when we're thinking about making tough choices about our financial health and sustainability and being fiscally responsible, which are incredibly important.

I just want us to be very clear what, what we're talking about is building in increased poverty and lack of health care for our most Vulnerable people. That's certainly problematic for me.

I'm sure it's problematic for every single person who's sitting on this panel and the majority of the Legislature, whether you are a red in a red seat or a blue seat. Should we have the kind of dire changes to the funding of Medi Cal by the Federal Government?

I just wanted to dive into one specific concern around the changing of the formula, the federal medical assistance percentage, which is one of the potential tactics that the Federal Government is proposing to change, which would essentially change the formula between what the Federal Government is paying and what the state has to pay into Medicaid.

I've been told that by our UC system in particular, that we would have, on order of about 20 public hospitals, essentially have to close overnight. Can anyone speak to the impact on our hospital, hospital system and our healthcare system and the proposed changes to our fmap?

As I mentioned earlier, the University of California is now responsible for about 10% of the patient care in the state. If those hospitals close. The word devastating, which was used earlier, I think would be mild when we think about what that impact would be. And of course, they're not randomly distributed.

They are in areas of the state where we have the most vulnerable populations to begin with. So I think we would see even more devastating health inequalities, not just losses for our children, but whole regions of the state that would feel this impact disproportionately.

That would be in our rural communities, our communities that already have very limited resources in terms of access to health care and hospitals. That would be in urban communities. It would be devastating for every part of California, fair to say?

I think it's very fair to say. But I also think there are inequality amplifying effects of a cut like that because they will disproportionately occur in areas that are already burdened by poverty.

I wonder how much trust in our government in California and in the Federal Government every Californian will have when all of a sudden they can't go to the hospital when they need an emergency C section or when they need to make sure that they have emergency care because there's no hospital there.

Because we decided to be laissez faire in terms of the way that we were comfortable with the Federal Government completely annihilating our medical system. Lastly, I just wanted to move on to our education system, our TK12 system that we built here in our higher education system.

We are at an unprecedented moment where we have the Federal Government, essentially through Executive order, and this current President essentially trying to mandate and dictate one particular culture and viewpoint into our schools, one that would essentially by virtue of the State of California, making decisions about how it wants to dedicate resources to educate our children.

We're essentially being told by the Federal Government right now that should we decide to continue to engage in our right as a state to support diversity, equity, and inclusion, to support our LGBTQ students, to support our immigrant students, to recognize the full breadth of the impacts of slavery, the full breadth of the impacts of the cultural inequities and the racial inequities that have existed in this country, that we will be defunded.

That our education systems will be defunded. I think the LAO report offered that we have $7.9 billion potential cuts to our K12 education system and $7.4 billion to our higher education funding. Should that decision to push in a particular cultural mindset from the Federal Government into our state government. Can you all give us.

And just to kind of give a flavor, and I'd ask you all to contribute to this, that education funding largely goes towards funding our idea funding. So children with special needs. It goes towards funding our most vulnerable children. We mentioned the cuts to snap.

It would eliminate the ability for us to support our overall mental health for our students, our basic ability to educate in early child care all the way through to making sure that people have thriving come out of our education system with the ability to have a thriving job.

Can you all just give us a sense of what you think the impacts to our education system and our overall economic heft would be should we decide to have to settle for these kinds of cuts that the Federal Government is focused on making?

I mentioned earlier that 85,000 students in the University of California receive federal financial aid.

That would be one number that would stick in my mind about an immediate impact if some of the threatened cuts in the Dear Colleague letter we received recently go through in which a very expansive definition of discrimination could result in the elimination of federal funding altogether because of a particular thrust coming from the Federal Government.

As you noticed, 85,000 is a very big number, and that would be just the beginning because many other forms of financial aid that we provide would be under duress. I mean, it's really. We would be reshaped in ways that I don't think any of us would recognize.

Yeah, I really wish that we were having a conversation in this country right now and that the rhetoric of the Federal Government and this particular President was about fiscal responsibility. It's not. It's about trying to promote the elimination of our civil liberties.

It's about attacking our nonprofit sector, is about attacking our basic ability to provide human services and health care services to Californians. And it's about completely destroying our ability to educate our children right now and so much more. And so when we continue this conversation about our budget, our budget speaks our values.

And I'm going to fight really hard to protect California values and really implore us to get back to a conversation where we are talking about how we can ensure that we are providing the basic responsibility as people in this Legislature and in this government to be able to care for every single Californian.

I really hope that we have the ability to do that. Thank you for this panel.

I want to thank the Members of the Committee for your excellent comments and probing questions today. I'd also like to thank our panelist speakers for their expertise and their considered, thoughtful comments. Today we heard in stark terms the likely devastating impact of the proposed federal spending cuts on California's state and local governments, our universities.

If the Republican Administration and Congress follow through with the federal budget that contains these cuts to pay for the massive corporate tax breaks they promised their billionaire donors, California will be hurt and the national economy will suffer. Frankly, we don't have the state revenue required to backfill the lost federal funding.

We also heard that counties don't have funding to fill this gap. The Federal Government's aggressive and unprecedented retreat of its historic financial responsibilities is breathtaking and astonishing since her time was limited. Today, we're not able to talk about the many other ways President Trump's misguided agenda is damaging California's economy.

The new Trump tariffs are already hurting California consumers by raising prices and interest rates for every person who buys anything. Our agricultural economy is taking a particularly hard hit right now because of the Trump administration's inhumane deportation strategy. Crops are already rotting in fields around the state because farm workers are afraid to go to work.

California agriculture depends upon farm worker labor. Farmers won't survive the deportation of their workforce and the closing of export markets by countries that retaliate against the Trump tariffs.

These federal policies are a direct attack on California and will harm every resident from families with children in public schools and universities, our veterans, patients needing care in hospitals and clinics, our first responders and the survivors of our recent wildfires.

We plan to review a broader array of federal policy impacts to California in April after spring recess to see if we can provide more clarity and as the federal situation evolves, the April hearing will allow us to shape our expectations for the final budget in June Therefore, I'd like to ask the Department of Finance to provide an assessment report by Tuesday, April 12025 that outlines how the state budget may be impacted by federal policies at that time.

We plan to use that report as the basis for the April hearing. Our next Committee hearing will be on March 11th at 1:30pm the subject of the hearing will be state homelessness, funding and accountability measures. Thank you for your participation today, Ms.

Calooza.

Did you, Assembly Member Coloza, did you have something you wanted to add? I'm sorry, I didn't see you.

No worries at all. Thank you so much, Chairman Hart. Thank you to the panel and thank you to our budget chair, Gabriel, and as well as the speaker for making sure that this discussion happened. I'll keep it brief.

The additional items I just wanted to add and bring forth that my colleagues, in addition to what my colleagues already shared, was really talking about the undocumented community and the disproportionate impact that cuts to the Federal Government are going to have to this community. In particular, I represent Northeast la, East LA and South Glendale.

And, you know, our undocumented community contribute $8.5 billion in taxes both to the state and federal level and the local level.

And so it's something that I just wanted to call and point out because it's something that needs to be said and something that I hope that all my colleagues, as we go through all these budget hearings, call out each time and in addition to impacts to women, children, families, workers, that this is something that we stay really focused on.

And I really commend our Chairman for convening the first topic of this budget Subcommitee on this. And what I'm hoping, and hopefully we have, I know the partnership here of everyone on the panel is that this is not the last conversation we have on this topic.

I think we should all be sounding the alarm on what this is going to do to decimate all of our programs, not just in the public sector, but in the private sector as well. This is going to have lasting impacts that are going to take decades for us to recover, if we recover at all.

And so I'm hoping what we get out of the LAO and some of the other panelists, especially from the California Budget and Policy Center, is really equipping the public with information about how they can really talk to this. We are all elected representatives here, elected by the people.

And so our people in the US Congress, there are 52 Members of the House that come from California who are elected by people. And the people should know the impacts that this is going to have to them as people. And so the numbers here, as we talk about the millions, billions, trillions are really important.

But just how you all presented here telling us the impact to people and the number of people that this is really going to hurt, that was personally super helpful for me and I know would be really helpful for the public to know so that we could all sound the alarm together, because that is what this is going to take is for us to organize our communities so that we can keep our dollars in California and really ensure that we do more to continue this conversation.

So I hope that this becomes a standing budget topic, if I may be so bold as to recommend such a thing to Mr. Chair. But I would hate for this to be the only conversation. And to the panelists, I just wanted to also offer that my engagement in this topic.

So I would love to have an open door and conversation to all of you to engage with me and I'm sure many of my colleagues here about finding solutions and being proactive.

And lastly, just also wanted to commend the Assembly Democrats for already taking action to ensure that we protect Californians by already approving $50 million, 25 of which go to the Department Justice Litigation Fund and also $25 million to legal aid Services and our and us being proactive in making sure that we get ahead of these federal funding cuts.

So thank you, Mr. Chairman, and I look forward to your next meeting.

Thank you very much for those really important closing words. That was the nice way to finish the day. Thank you. We are adjourned.

It.