Senate Standing Committee on Budget and Fiscal Review

Okay, great. And I'm going to begin by asking a few questions and some of them play off of the comments that you just made. So let me ask the legislative analyst; you, you built in the risk of an economic downturn: how do you factor in the estimated timing?

I mean, what if we head to this and the timing of a downturn is it corrects later you anticipated: how will that be built into your projection?

Very fair question. Just to specify we're not assuming that there's a downturn. What we do, Brian can, my colleague can probably speak to this, but what we do is we incorporate the risk of a market downturn into our economic our forecast models and we develop this range of revenue outcomes that we think is the most plausible range.

And by including this market risk indicator, it kind of lowers the top end of that range. And then the middle of that range is what our main forecast is. And so I just want to make sure it's understood. We're not assuming there's a market downturn, but we are acknowledging the elevated risk of one.

If there were a market downturn, our numbers would wind up looking very positive. It would actually be much worse than even the numbers we have. As for the timing, you know, I do want to say, you know, people described the stock market in the mid-1990s as experiencing irrational exuberance. That was, Alan Greenspan said that in 1996.

But the market went on to grow for a few more years before we had the downturn. And so we can't know for sure when it will happen. We think there is heightened risk of it happening.

But even, like I said, even if you were to adopt the governor's revenue estimates and, or our estimates, let's say you adopt our revenue estimates and the market doesn't turn down because of the structural deficits, it still can be beneficial for the stake's structural fiscal position if we were to take actions that were living under the proposed the numbers that we put forward.

I don't know if, Brian, you'd want to add?

Well, let me just accept that as a reasonable answer. Although using the name Alan Greenspan and exuberance in the same sentence seems kind of faulty off the top.

But let me just follow up quickly, because even if you haven't factored in this major downturn, you factored in some downturn, and you said in your testimony the last thing you wanted us to do is have to make cuts in an out year if in fact they don't materialize.

I'm still looking for a little balance in how you would take this estimate and decide when it's real for us having to make actual decisions?

I don't know, maybe you can add?

Yeah. Senator, Brian Uhler with the Legislative Analyst Office, I think one way that we think about both our revenue estimates and our advice that we're giving you in terms of your budget approach is that you always are balancing two kinds of risks, right, both with the estimate and the approach you take to your budget.

One is the risk that Gabe mentioned that. You know, you see these out your deficits, you act now to address them and then it turns out we had more revenue growth than we anticipated and you made more cuts than you really needed to. That's certainly one real risk.

The other is that we see these out your deficits, we take no action. We actually hit the downturn and instead of it being 35 billion, it's a 60 billion dollar budget problem. And now you have a much worse situation that you weren't prepared for. Right.

And so as Gabe mentioned, our approach attempts to sort of take a middle ground of those two things, to not suggest you prepare for that 60 billion situation, but also not suggest that you do nothing. And so our numbers kind of pick a point in the middle where you won't be fully prepared for the downturn if it comes, but you'll be in a much better situation.

And if you do make some of those cuts now, you're not doing as much as you would if you were assuming to fix the whole problem in a very conservative assumption say. And also as Gabe mentioned, with those sort of at your structural deficits, if you were to take our numbers and make some of those adjustments now, you know, whether they're needed in the budget year or at some point in the out years, both us and Department of Finance seem to agree at some point those kinds of solutions will be needed to address the structural problem.

Thank you. And let me ask a follow up question of the Department of Finance, because both the Governor and the Department of Finance commented on a desire to work with the Legislature on those out year problems. But if we get them in the May revise, we have a very limited amount of time to deal with them.

And so how will you engage with the legislature in the next few months before the May revise to talk about some of those options?

Yes, absolutely. And as I mentioned before, the sooner we can begin having those discussions the better because these are not. We don't want to plop something in the May revision and give the legislature four weeks to look at something that isn't our intention at all.

But we plan on reaching out to leadership to start having fruitful discussions as soon as people are available.

Okay. We're anxious to have those conversations and not feel like we're jammed at the end. And then both of you spoke about the reserves. And this is a significant reserve by historic standards, and I mean going from 14.4 billion to 23 billion, if you include the single year reserves as well as the rainy day fund.

Can both of you comment on what an appropriate level of reserves might be and how we might be able to build those reserves during the next few years? I don't know who wants to go first?

Yeah, I mean, I think as you know, we withdrew from the rainy day fund over a period of two years to the tune about 12 billion. And so I think you're seeing that we are trying to build that up again. And obviously we have a 10% cap or, yeah, 10% cap based on Proposition 2.

The legislature and the administration can always exceed that and put more in. And we have that. We have done discretionary deposits into the reserve as well. I would say we continue to want to build that up. We intend to.

As part of this governor's budget, we have about 11.4 billion planned to and then over the next three years to put in the reserves, 3 billion in budget year.

Let me ask if the legislative analyst would like to comment.

Yes. Well, we think it's a tough question in the sense that it's not an easy time to build substantially add to reserves when the state is in the midst of deficits that are recurring. We, as I mentioned in the remarks, we do recommend against the suspension of the deposit to the budget stabilization account.

Longer term, our staff did do some quantitative analysis that would resulted in a report that would examine how to increase the state's budget reserve. And to some extent there's a choice in the part of the legislature. How much of a downturn would you want to be prepared to cover?

And that's really more of a policy choice that probably belongs in your hands. But I don't know. And, if my colleague, it was the author of the report, if there's anything briefly that you would want to add to that about that.

This is certainly a long term perspective and not a short term perspective given that the state, you know, faces these structural deficits and kind of major budgetary challenges.

But from the report's perspective, what we looked at was, you know, given the state's current revenue structure, given the volatility in the current revenue structure, what kind of reserve would you need to kind of fully smooth spending and revenues over time with reserves. Right?

So if we sort of say we've got the volatility that we've got, we're not going to reform the system.

We're going to use reserves to put money aside when revenues are dropping and then use those to cover spending, I'm sorry, vice versa, to put money aside when revenues are surging and then to use that to pay for spending when revenues are dropping. What kind of reserve do we look at?

And under our analysis, we found that despite the fact that the state has a 10% cap on reserves, meaning that reserves can't exceed 10% of state revenues, that a reserve of 50% would actually be more appropriate. So it is quite a significant increase.

Then one observation before I move to my last question, and the observation is, I mean Governor Schwarzenegger had a panel to try to deal with the volatility, and we all identify volatility as an issue.

If we were really to do the tax structure, the only way to ease the volatility is to give the wealthiest Californians a break and expand taxation into the middle class and other places. Politically, that is untenable.

And so it seems that the reserve is our volatility safety valve, and we are not having it at a level thus far that handles the real volatility. And so the question is what we do over time.

And I, I get about this year because the idea of reserve for volatility is you really fill it during the good times and are ready for the bad times. And but that's the only way we're going to have further steps to, to deal with volatility. So we should talk about it.

My last question is of the Department of Finance and it's an education on Proposition 98. And it's, I'm just wondering why the settle up payment is being created for the budget year we're in, if the risk is really in the next budget year.

The current year is not yet certified. And so, we also just acknowledging the same uncertainty that you've mentioned, want to certify that until we actually know what the calculation will bear out in the end. And so, creating that settle up allows, acknowledges that uncertainty.

Also, you know, just to comment on one of the things that my colleague here said: in terms of instead of 5.8, creating a settle up of 5.8, sorry, 5.6 billion, putting that in a reserve, and I would just say the result of that would be then we would need an additional 5.6 billion in cuts in the year.

And I think just acknowledging that is it should be part of a larger part of the larger discussion, as I mentioned, if that is something that is what the legislature wants to do, then we as part of that larger discussion in terms of long term and the short term coming up with solutions to bridge that gap.

So I don't know if there's anything that you'd like - my colleague would like to add.

Alex Shoap, Department OF Finance: so, I would just add that for the settlement proposal, which is in 25-26, which is currently the current year. Right. It's sort of the similar intent as the settle up that was included in the budget act last year.

And it acknowledges, you know, obviously there's the uncertainty in revenue projections and it acknowledges the statutory restrictions on being able to reduce Proposition 98, once 25-26 becomes the past year next year. Right.

Of course, that was the kind of issue we had at the 2024 Budget Act, with fiscal year 22-23 when we were significantly over appropriated and you know, had to, you know, include the language to kind of start accounting for that kind of incrementally on the non-98 side of the budget in the out years.

Okay. And thank you. And I really appreciate - I was going to acknowledge that we would have to find 5.6 billion in solutions if it weren't there. So people are moving up. And before I move on, did the LAO have a comment you wanted to make on this?

Edgar Cabral with the Legislative Analysis Office. I think the conversation kind of walked through the main trail, so, I think what I would just highlight is that essentially under the Administration's budget, you're right that there aren't—there would need to be $5.6 billion in solutions in the '26-'27 budget.

But as the Governor's budget is constructed, that means that there will be an additional $5.6 billion in solutions on top of their estimate of the structural deficit that will need to be addressed next year if the Governor's revenues were to materialize.

Thank you. We probably could have done without that comment because it's brutal.

But I do appreciate you making it. Okay, my list is Menjivar, Richardson, Reyes, Blakespear, Cabaldon, Grove, Ochoa Bogh, Seyarto, Weber, Pierson, Smallwood-Cuevas, Durazo, and Choi. I'm sure there's more. Somebody's indicating they're not chopped liver over here. Senator Perez. So, you will be added to the list. And Senator McNerney. We'll go to Senator Menjivar, and Senator Richardson, you are on deck.

Thank you, Mr. Chair. So, what I'd like to do is—I know I gotta respect time.

I just want to ask questions—not to be answered all of them today—but just to give a preview for your staff to be prepared in sub 3 hearings so that I don't get a "let me get back to you" response in those hearings.

But I'll start off by elevating what the LAO mentioned because I think it's really important. I'm going to read verbatim from your report. Delaying until May forces the Legislature to either accept solutions that have not received sufficient public discussion or defer action even more.

I think it's really important that we have these discussions now and not have Subcommitee discussions based on a proposal that it's going to be obsolete completely. That is not considering the reality of our situation.

I think it's a disservice to us, as legislators, and the public to have discussions that come may are going to be completely switched off.

And then, each Subcommittee will have one to two hearings only to discuss the drastic changes and then shove down our throats to accept shortly after. Completely unacceptable approach for how we deal with the fourth largest economy of the world.

So, in Health, in particular—I apologize that I got to use your words, but you share that the budget is—the approach is the more compassionate way possible was what you quoted. But we are creating, once again, a third demographic, a third hierarchy for those who will have health insurance or not.

Last year was very vocal that we created the haves and have nots with the UIS population and the documented population. We are now creating a third tier of individuals with certain access to health insurance. So, now, this third tier will be asylees, refugees, VAWA. Women under VAWA, who are here legally, will have less insurance than the undocumented population. So, three tiers.

We'll have the fully scoped individuals, the undocumented population that we limited their scope last year, and now, this third demographic will have even less health insurance than the undocumented population, who are here illegally.

Regardless of how you feel, if you're here legally, creating this third demographic I think is barbaric. We are saying literally we're looking at people and saying, you can have it, you can have some of it, you can have none of it. I think we need to do better than that.

I'm disappointed that the state of California, with all its rhetoric that we're fighting against the Federal Government, completely takes the knee and absorbs every single request from HR 1. There is no response here to how we're going to address HR 1 impacts. There's no solutions for how the counties are supposed to address the impacts and cuts to HR 1.

I know Director Stepenshaw talked about working with counties on the impacts of HR 1. I haven't heard any additional information. I don't know when that information is going to come on what we expect the Administration to have there. One of the other biggest cuts, it's around CalFresh. We are completely—we're going to have a lot of people lose access to CalFresh.

I'm also wondering why we are accepting work requirements for the undocumented population even though they're not required to have worker requirements. That's something that we went above and beyond the Federal Government.

I don't know why we're going above and beyond the cuts that the Federal Government is asking us to do if we don't have to do that. I recognize we have to do cuts. I get it. I'm okay that we have to balance the budget. I'm disappointed that there is no proposal to change how our revenues come in.

We just can't cut our way out of it. I think it should be a mixture of cuts, being strategic with how we use our dollars, but also looking to change our revenue, our revenue streams. So, those are going to be my focus in sub three, the third tier.

I don't know how we're going to propose to get—to maintain—people on health insurance if we're asking for six-month redeterminations. A lot of paperwork. How are we making it easier for people not to fall off of Medi Cal?

If the Federal Government is asking to kick people off of Medi Cal because of the bureaucracy, how are we helping people? We're asking counties to absorb the overtime for IHSS. We're throwing down a lot to the county without any additional support for them to absorb the increase in cost.

I'm interested in finding why we eliminated the statewide Medi Cal mobile crisis benefit that's been really beneficial in our time. It's shown decreases with interactions with law enforcement. It's helped to deescalate situations. A lot of us have seen it firsthand. So, I'd like to know why that was cut. And my actual, my actual questions now.

So, those are where I'm going—thinking about. My actual questions are start with LAO for clarity and I apologize, I don't know much. I'm not an expert in this whole in the stock market issues, but yesterday, it was reported that the DOW dipped really, really low, one of the lowest since October.

Are incidents like that what impacts what you talked about, the stock market dipping an impact on revenues?

Yeah, I believe the S&P 500 stock index went down about 2% yesterday, which is a large one-day decline. It is the type of volatility that all of my remarks about the risk to the revenues were reflected.

That, you know, so much of our revenue, as Ms. Li said and our office has said, so much of our revenue growth has been driven by this very strong stock market gains. It's been up, like I said, 50% over the last two years. But it's very difficult to predict the future when it comes to the market.

Many people have tried over many, many decades to predict when there will be a market downturn. The best we can do is identify these indicators that have all kind of lined up the way they are right now in the past decades before there was a downturn and they are lining up like that.

We can't say for sure what the precipitating factor will be. Yesterday's, from all the news articles I read, had to do with the discussion around tariffs being imposed on Europe and Greenland and all of that. And so, what we've been talking about is that there's this overexuberance in the market around artificial intelligence.

But we don't know for sure what will be the precipitating incident or factor that will cause the market to suddenly realize that it's over its skis essentially. But that is the risk, that is the risk that we're concerned about. And that type of volatility is precisely the thing that represents a major risk to our revenues.

And then, when—you talked a little bit about this, the BSA deposit. We suspended it last year and the proposal is to do it again this year.

Last year.

Well, we withdrew from the rainy day fund and we also suspended the deposit, and we are now doing—suspending the deposit for the current year.

So, the current year suspension is for $2.8 billion. Does that mean we're now adding two years of 2.8 billion suspension that we'll have to pay back, or—I just didn't understand that.

So, basically, that will have to be, in the future, we would be truing up the subsequent, in the past years. It's just, this year, we're not, we're proposing to not put that 2.8 billion into the rainy day fund.

So, it doesn't accrue. It's just a total of 2.8 billion?

For the current year. But I will turn it to our expert for details.

Lisa Merzanski with the Department of Finance. So, you don't have to pay back that 2.8 billion. That's just not put into the reserve.

Under my comments, our recommendation is to reject that proposal. We think if we're assuming in our budget that revenues are up by $42 billion, that's not the time you should not be making the true up deposit.

That being said, I recognize that what I'm saying adds to the challenge before you because, as Ms. Li said, the 2.8 billion is the lion's share of their solution to the $2.9 billion deficit that they've identified. And so, that's the tradeoff.

Okay. Okay, thank you for that. And then just for DOF, I shared a lot about HR 1. Can I just get some preliminary feedback on how we're really approaching HR 1 impacts and why we didn't see any solutions—overall feedback?

Sure. And I'll just note, as I did at the top of my remarks, that we are planning—we anticipate an additional 1.4 billion in General Fund costs in the budget year as a result of HR 1, for both the Medi Cal and the CalFresh program.

And that's due to a lot of largely changes in sort of the ratio of states' responsibility to pay. And we anticipate that those costs will grow in the out years, particularly for CalFresh.

And there is the risk of, because of the error rate provisions, that we may end up paying more of what is currently 100% federally funded benefits on the CalFresh side. So, there is that projection as well. But those are the immediate impacts and the immediate costs that you're seeing in this Governor's budget.

What protections exist for people in these programs? Why isn't there a proposal to?

So, I think, to be perfectly frank and clear, where there have been decreases in federal support for programs, we are not in a position to backfill. And so, I think where we can have conversations with the Legislature, and should, is in some cases where we do want to support. In many, many cases, as in Medi Cal, Medi Cal is essentially a $46 billion General Fund program growing to just under 50 billion next year.

And we get over 100 billion from the feds to support. If they withdraw tens and tens of billions of dollars, we're just not in a position where we can backfill.

So, at this point, I would say, in response to your question, this is part of the conversation we would like to have with the Legislature about how we approach the changes that are happening at the federal level. They will result in costs, and we will have to address those costs.

And they will result in people falling off both Medi Cal, CalFresh, other federally funded programs because they're no longer eligible. And so, I think we need to have the discussions about what position do we—can we—take, fiscally, to actually backfill some of those, if we can even do that.

So, that's just a very frank, realistic, kind of a numbers answer. But as I also said, we also have to consider the real impacts on people's lives.

Right. Creating a smooth process so people don't fall off.

Right. And to, to your point, in terms of Administration at the county level, we continue to have conversations. We are having conversations to better understand not just what the potential cost could be for them, but how things can be done differently to help reduce costs and contain cost.

Thank you. Final comment is, I forgot to mention MCO tax also. It's going to be a big topic. We're taking a huge assumption that they're going to approve us all the way to December. I don't know what friends you have over there. I don't think we had any friends in the Federal Government. So, that's a high—that's a big assumption that we're taking.

It is. And we acknowledge that if that extension, that transition period, doesn't extend to the end of the year, that's an additional 1.1 billion in costs.

A lot of ifs in this January budget. Thank you, Mr. Chair.

Thank you. We'll go to Senator Richardson, and on deck is Senator Reyes.

Well, thank you, Mr. Chair. I don't mind batting some second with the Dodgers. That's normally Mookie Betts. So, I will properly represent today in his honor.

Well, then you're headed to the playoffs.

That's right. That's right, exactly. Let me preface my comments by thanking you, Mr. Chair, for the way that you've brought us forward early. You're really encouraging participation amongst not only the Subcommittee chairs, but all members in the Committee. I think you've really taken an approach that's one that we desperately need in these times.

And I want to thank you for your leadership. I also want to acknowledge, as Subcommittee Chair of Sub 5, I have the opportunity to work with incredible people here, both Nora, Eunice, and Diego. I want to personally thank you guys. They're educating Rita as we speak.

For those of you who are old enough to know the movie Educating Rita, they're doing a great job and I'm looking forward to being a part of your team. That said, I'm going to make a couple general comments and then I'm going to get into specific questions related to the Committee that I chair.

I'm going to defer to the other members who are on those other various subcommittees. I'm sure they're going to highlight their points. And if I have—if we have additional time, I may chime in there.

But the first general comment I'd like to make is from the Department of Finance perspective, I think we owe it to the California public to say why has there been this increase over the years? So, I don't think it's enough to say we've had an increase. I think we need to give the public an answer.

The increase is due to increase of population. I just sat here and googled—we had an increase of population, then we had a decrease during the pandemic, and then we popped back up another 109,000. So, what does that mean to the public in terms of what we have to provide?

I think people need to understand that more than just the number. Why are we seeing this spending increase? Because if we're going to ask for additional funding, which you did not, I think we're going to have to give a people—give the people—a reason why.

The second thing is, I'd like to respectfully request, is if you could provide how the agencies have grown in their funding over the last 10 years. I think we need to seriously look at if there are agencies where there's bloated funding.

We—our numbers are so big that we're looking at, you know, it's kind of almost like a helicopter view. But given the seriousness of what we're facing, certainly, there are some agencies that really have bloated to an extent.

And I think there needs to be an answer to why and whether, in fact, it's necessary to maintain at that level. The second point I'd like to make, ironically, that I batted after Otani over there, of Senator Menjivar, I want to concur with her comments of my concern of the MCO tax, and I respect that you're in a difficult position.

Your comment was we're not in a position to backfill. Let me paint a picture for you of my district and many of our districts. You're talking about hospitals that are on the verge of closing.

You're talking about sitting in a hospital emergency room. I don't know if you've had an opportunity to do that recently, but you're talking about going into hospitals where people are waiting hours to receive care, where hospitals are doing everything that they can.

I have a hospital in my district where they have seats and they're taking pulse and doing the pre, you know, pre testing before a person even gets in a room, because they can't get in a room.

We have firefighters and paramedics who are waiting in emergency rooms, standing by people because they physically cannot leave them because the people can't be seen yet. So, to say we're not in a position, I would say we unfortunately are in that position, whether we like it or not.

The question is going to be how do we respond to it. But to say we're not in the position, we can't do anything. Do we plan on being Zombieland, where we're going to have Californians walking around hospitals who can't get care? That's not going to be an option.

So, if that's not going to be an option, I would strongly urge your Department that, sooner than later, and rather for my comment, May is kind of late. We need some responses of what are your options to deal with what we see. We see the tsunami as coming. You see it.

So, for us to kind of go, you know, this is where our numbers are and, you know, be an ostrich and put our head in the sand is not going to work. We need real discussions of options. What are going to be our options to deal with this?

Because to think it's not going to happen is just not an option. We need real options. And so, I want to concur. I'm not saying I necessarily support revenue options that may come forward. I may or I may not.

But to not have any of that in your presentation in the budget, I think really is derelict of duty because we cannot continue to operate the way that we are.

So, I would hope, come May, not only have, I'm sure, I would hope, some ideas of how funds can be moved around, what potential cuts we're going to have to make, but also, I think there has to be a discussion of what other options there might be, particularly regarding revenue. In my hospitals, I'm having people where they're receiving less than 75% on the dollar, meaning they're providing a service and their reimbursement is less than 75%.

How can they remain open? They cannot. They've been borrowing on their reserves. They're, you know, robbing Peter to pay Paul. But there's only so long they can do it. And we're going to have to have some other considerations.

So, I'd respectfully ask for information regarding down to the Department level, looking at where the increases have come, why have they come, and some of those areas we might consider being able to cut. And then, also, what other options do you have on the table, particularly regarding the MCO tax?

I don't want to tiptoe too much on my colleague over there, but I just want to concur for emphasis that this is something that's going to be desperately needed. I can pause if you wanted to respond.

I just want to touch on a couple things that you've said, and I think not addressing the problem is not a solution. I agree with you and I think, as I mentioned before, we intend on beginning discussions with leadership on what those solutions are. And the realization is the Administration shouldn't and can't do this on its own.

And so, the idea of partnering with the Legislature is a necessary step before—way before May Revision. I don't—I also want to be really clear, like we don't want to drop something on the Legislature at the May Revision and it's the first time you see it.

So, to many of the members' points and not backfilling for federal loss is, again, I stated that as a position because we don't have—we have finite dollars and we can't print money. But making the decisions to maintain hospitals and other things, that is something I think is part of the greater discussion.

Things can't stay the way they are because they're not sustainable—the way programs are being run. I think we all acknowledge that as we look to the out years and so, addressing some of that, the goal would be to maintain the hospitals and to maintain a lot of the core programs that are important to us, important to millions and millions of Californians.

So, just want to reiterate that because it isn't a no, we can't backfill, so, let's not have a conversation about it; it's we have to talk about it differently. And I think that's what we need to do and we need to do that as soon as possible. I will turn to my colleague for a response at MCO.

Laura Ayala, Department of Finance. Just to provide some general comments on MCO tax, the Governor's budget does assume the full transition period, and I know that that's that is an if, but the Administration is—one did not want to assume prematurely that we would get six months less.

As my colleague mentioned earlier, it's a $1.1 billion additional General Fund shortfall and we felt that it would be even harder to come with the Governor's budget already making premature cuts when we are still fighting and working really hard and waiting for federal guidance to obtain those additional six months.

And on the Hospital Quality Assurance Fee, we are also waiting for federal guidance, but the Administration collaborated with is collaborating with CMS and was able to obtain an extension through mid-March to submit a modified request. And this, again, is to obtain around $6.6 billion for support for hospitals.

So, we are waiting for federal guidance, but we didn't want to want to make premature cuts when we—or to let the gov, the Federal Government, know that we can backfill those dollars because we can't.

Yes.

So, Senator, I thought maybe I would offer to weigh in a little bit on your first question as well about the growth of state expenditures. And it's a really good question. And one of the things to remember, I guess about California finance, is that the voters have established some of the spending requirements too.

And so, over the years, Proposition 98 and Proposition 2 mandate essentially that when our revenues grow, so does our spending. So, not all of the increase in spending is a result of new policy choices by the Legislature.

That being said, back in 2024, our office did do some work on what were the biggest drivers of the expenditure growth. We found that overall expenditures—this is part of the origins of the structural deficit, which is why I think it's such a great question because that's the thing that we're expressing concern about.

But that expenditure growth had exceeded—had come to a point where it was exceeding—our revenue growth, the historically normal rate of revenue growth. And so, we wanted to dig into that and what was behind it.

What we found at that time is that it was being driven by particularly medi— growth in Medi Cal—and growth in IHSS, but also, we had provided more funding to the UCs, CSU, and childcare. And so, there were policy choices involved in that, of course.

Last year, when the state was facing a deficit, there were difficult choices made by the Legislature to make reductions in Medi Cal. That helped, from a fiscal standpoint, bring down the growth rate of the expense expenditures.

And so, at this point, what we see now is that the growth rate of expenditures is more in line with the growth rate of revenues. So, in that sense, it's good. It's just that the level of expenditures is still stuck way above the level of revenues, and so, we still have this big gap.

But that's a quick summary, I think, of our understanding of what is going on there.

I appreciate your expertise, and for both of you, I think the fact that we're all here present and we're all here prepared to ask these questions says that we are partners with you and we realize that we're all in this boat and if it sinks, it's all of us in it, not just, you know, one of us; it's all of us.

And so, I just encourage you—thank you for that information, Mr. Chair—I just encourage all of us, we've got to figure out a way, how do we message to the public what has happened, why it's happened, what can we do to resolve this so the public isn't just looking at us and saying, oh, you know, costs are too high, you're bloating, you're this, you're that, when they're really not understanding these details.

And I think also working frankly in conjunction with the media to make sure that we can properly communicate to the public. So, that's my first comment. My second thing, getting more now into the specifics of Sub 5, of which I'm Chair, I'd like to point out a couple things.

One, I noticed in transportation there is a reference to help in particular with one of our opening locations, which I saw certainly support and concur, but I didn't see any mention further of FIFA, the Olympics, Paralympics, and that is two years away. And I know, from having meetings with the Committee, there are additional resources.

California, it's my understanding we're being asked to assist or support far less than we normally would have, given the fact that we're using extensive existing facilities. But there still are, as my understand it, additional requirements from a public safety perspective, transportation, and so on.

And I was just surprised that there was no mention of it given the significance to California.

Hi, good morning. Teresa Calvert, Department of Finance. There's no new funding proposed here in the Governor's budget associated with the Olympics. As you recall, there was funding last year in the transportation area for Caltrans.

There was also a set of trailer bills that were worked on in coordination with the host Committee to help set the stage for the Olympics. But at this time, there's nothing new proposed. Conversations continue. We have conversations with both the city and the coordinating committee, but as you noted, no new funding is proposed in this Governor's budget.

I'm going to ask quick follow up question because you have roughly $100 million for Exposition Park. Isn't some of that going for the Olympics?

Right. That's a broader amount and some of that could be used in support of the upcoming events including, including the Olympics.

Yes, I did see that. However, and my colleague here that represents that area, Senator Smallwood, I will tell you though that that facility was built back 1932 of that Olympics. And so, we're now almost 100 years later. So, that will be—you're talking about hundreds of thousands and millions of people who are coming and those are overdue work that has been done.

And the point is that there are many venues throughout California where the Olympics and Paralympics will take place. Quite a few of them will be in my district.

I don't want to spend speak out of turn by naming names. We're probably not supposed to do that, but I would just encourage you, again, it might be helpful, regarding the staff, when we're getting a budget to talk about things.

Hey, we didn't mention these specifically, but these things are kind of on the table that may require some additional funding that we need to keep our eye on because as has been said, we're going to start our budget hearings and if we're starting them in a vacuum of assuming that's all we're going to need, it's my understanding that's not all we're going to need.

So, if we're going to need more, we need to at least communicate, again, to the public that additional resources might be required to put on a very safe event.

Senator Richardson, could you begin to wrap up and maybe if there issues that you haven't gotten to, you can ask for information they could provide to you?

Sure, I'll just end with two other points in particular. One has to do with the Judicial Branch. And we're planning on having one of our first hearings specifically about the Judicial Branch. There has been allocated in the budget 320.3 million for Public Building Construction Fund.

Could you please share what is the budget regarding specifically for repairs and maintenance? And I won't take a whole lot of time because I do plan on having one of our hearings on this, but courthouses in my district, you have where there's been major water damage, there aren't places for people to sit while they're waiting.

There's no places for people to eat. It is really not a place where we can hardly carry on justice. The court—the funding for the courts themselves is just not sufficient. So, I wanted to hear a little bit more about the Administration's thoughts on what are we going to do.

Hi, Good morning. Mark Jimenez, Department of Finance. So there's no. The budget maintains $80 million ongoing General Fund available for the judicial branch to address facility modifications and repairs. We have not augmented that and we've maintained that. And that's generally the pot of funding that they use to make those repairs.

And we defer to the judicial branch to allocate that funding based on their priorities.

Are you aware that additional funding is needed?

We understand that there are. The judicial branch maintains a list of facility modifications, deferred maintenance, generally, we understand that there is.

Are you aware that elevators are not working in our courthouses? Are you aware that people can't even get to the rooms? There's no water, there's no food. They have two vending machines in my district and one of those doesn't work.

I recognize that, and that's certainly one of the reasons why we augmented the judicial branches budget recently on an ongoing basis to increase their budget for facility modifications. However, in this budget, we are not proposing any new augmentations. We are maintaining the augmentations that we have committed in previous budgets.

So I would just suffice to say again, we only have so much money to do everything that we need to do. However, this is an area which we will be covering in a hearing where it is unsafe, it's unsanitary, and it's difficult to do business.

And we have an obligation of being a democracy to actually provide government at its best. And right now it's not operating like that. So the number is not sufficient and it's not safe. When I represented the Long Beach area, the escalator was down and a person died because the OES couldn't.

The paramedics couldn't get to them fast enough. This is a serious problem. This isn't enough. My last point will be on also in this Committee that has to do with the displaced worker program. You know, there's been discussions about closing refineries.

The Department of Finance, we're banking our budget on an economy fueled by AI for all intents and purposes. So are we thinking about that also? The implementation of AI is the replacement of workers. And so what is our plan on that end? You, you know, you can't.

My, my mom used to always say, you can't have your cake and eat it too. And so we can't be eating and feasting off, oh, an increase of revenue with AI without understanding that with the implementation of AI, you have a lot of workers who are now going to be displaced.

And that program, I don't see a comprehensive plan to deal with some of these upcoming closures and impacts that we know are going to happen.

Right. So our plan is not a replacement of humans with AI. I think going back to your initial statement about our revenues banking on AI, I think we recognize as noted that that is a risk. We don't know when that will happen. As was discussed earlier, LAO believes it may happen soon.

We've never incorporated a correction or a downturn in our forecast for many of the same reasons as were discussed in regards to what that might be impact in terms of having to make decisions on cuts, maybe untimely versus over a trajectory of years.

And in regards to AI and workforce, I think that is those are discussions that continue to happen. Understanding that there is a lot of sensitivity in somewhat and even controversy over that. But in regards to the displaced work program itself, I believe those funds are maintained. But I will.

If you could please be brief. We really need to move on here.

Allison Hewitt, I believe that there were some one time investments that were industry specific going back to the 2223 budget for oil and gas workers. And that was a one time allocation. There's no new allocations for displaced workers in the governor's budget, no cuts.

So the point I'm just trying to bring to your attention is it's been well publicized the closures of refineries in the state of California. And so there is going to be additional support needed for those workers. Those are workers who typically make over $100,000.

And finally to say that, you know, we're going to wait and see again about the impacts of AI, I would encourage you. I took my mom to dinner at Denny's and a little robot, a robot came and brought the food, opened up the trays for you to take out your food from. It is here. It's not coming. The train is here. Thank you.

Thank you very much. And I think that highlights what the Senator is going to highlight in her Subcommitee. We're going to move to Senator Reyes and Senator Blakespear is on deck.

Thank you so much. I want to preface my comments by saying that I absolutely, absolutely agree with my two colleagues who have spoken. We cannot wait until May. The question was asked by the chair, how will the Governor engage the Legislature on the May revise?

Before the May revise, what I heard is we intend to have discussions with leadership before May. Does leadership include the chair of this Committee and the chairs of the subcommittees or is it only the speaker and the pro tem?

Well, as I was speaking with the chair earlier today. We have meetings already being scheduled for discussions, and I think I would actually leave it up to leadership to decide how communication occurs in each of the Houses. But our intent is to have robust conversations and have them soon with Members.

Thank you. I came from the Assembly and had the privilege of sitting on every Subcommitee except for one and chairing one of those in the absence of one of my colleagues. One of the things that often happened is questions were asked and they weren't asked out of the blue. They were all provided before the hearing.

Yet we did not get. This is something my colleague talked about when we have the hearings. In order for us to make those difficult decisions, we need straight talk. We need straight answers. We don't need disinformation. We want to rely on the answers given to us so that we can then make those difficult decisions.

We want the responses to be prepared. If they aren't and we never received the proper answer, then we're making decisions based on half information. We need all of the information. As my colleague said, we are partners in this and we want to be true partners.

Now, as the chair of sub 2 natural resources, environmental protection and Energy, I do want to ask a few questions from that section. Addressing wildfire risk in California, especially in vulnerable areas, is something critical. It's a critical issue that must be addressed. Back in 2018, I had the privilege of being part of the SB901 Conference Committee.

We acknowledged the importance of Cal FIRE to work. We supported and allocated $200 million through fiscal year 2324, and that has been ongoing through to the present. And this is to help address healthy forests as well as other fuel reduction projects.

The work of SB901 has continued through last year through AB840, which includes a designated tier toward healthy and resilient forests in addition to that allocation. Page 38 of the governor's proposed proposal outlines that $1 billion in discretionary funding will go through GGRF 750 billion to be directed to Cal Fire.

My question is, can Finance make clear the current GGRF commitment already made to Cal Fire and the rationale for more investment, considering their current streams of income? And are there details you are able to provide regarding the impact of the additional funding?

Stephen Benson at the Department of Finance. So the $200 million that started with SB901, as you referred to in AB840, when they sort of redid the Cap and Invest program last year, they set up a tier 3 and that healthy forest related funding is in tier 3 and it now establishes caps, and you get up to those CAPS amounts based on how much auction proceeds come in.

So the governor's budget produced that was just released indicates what the current estimates are of what the Cal Fire will receive of that under current estimated auction proceeds. So right now we're estimating that of the 200 Cal Fire, we get 141 million roughly. That obviously won't be known until all of the auctions are done for 2627.

And if the auction proceeds come in higher, well, then they'll be up towards, you know, they'll get closer to that cap. If we get enough auction proceeds to fulfill all of the caps in tier three, then, you know, that's great. But projections right now are that that is not the case regarding the other portions.

So part of the agreement last year was to do a backfill of CAL FIRE agreement. The budget agreement between the Administration and the Legislature was to do a billion dollars of General Fund backfill in 25-26, $1.25 billion in 26-27, and then 500 million in 27-28 and in 28-29.

That was part of the solving for the General Fund issues in last year's budget deal. And so we're maintaining that in this budget

In essence, the discretionary fund from GGRF is being used completely for Cal Fire, is that correct?

Not completely, but there are other folks here who are more experts in GGRF than I am that could come up and talk to that if you want to depend on ggrf.

Good morning. Andrew March, Department of Finance. So, as my colleague mentioned, and I think, as you mentioned, chair, that there's 750 million of the 1 billion discretionary funding is being used to fund a portion of the Cal Fire General Fund shift. And then the other 250 million is actually spoken for in SB840.

So some of that funding is already allocated.

That's 1.43. Tier 3.

I'm sorry

From Tier 3.

No. So if you think about the new GGRF structures, there's tier one, which is sort of our existing obligations that are not necessarily able to be changed. So there's the SRA backfill, there's a manufacturing tax credit, there's state operations.

So for staff that are funded out of GGRF. And then we've also for the legislative Council Climate Bureau that was created or alluded to in SB840, tier 2 is a billion dollars for high-speed rail, a billion dollars of Discretionary funding. In that tier two of that billion dollars of discretionary funding, 750 million is for Cal Fire.

And then $250 million is allocated in SB 840 by the Legislature last year. And being continued this year. So it was, it was slated one time funding for fiscal year 26-27 in SB 840. So that sort of, that 250 million does not continue into 27-28 or 28-29.

But that will be further discussions between the Legislature and the Administration about how to spend that discretionary funding.

Okay. And the governor's budget accounts for the significant amount of interest earnings from GGRF to provide funding solutions. How much interest does the cash in GGRF generate on a yearly basis and how much is available now? How dependable are those funds as a projection?

So it really depends. So the last few years we've seen really high interest earnings around $600 million. But it's difficult to project. Some of it's dependent on the actual cash in the fund and what the how those projects are being spent.

So some of it, a large portion of it is associated with affordable housing, high speed rail and the various transit and transportation programs that have been funded out of GGRF. That sort of makes up that cash balance that's fairly large.

And so as that gets spent down and also the Federal Government's interest rate changes, that affects our interest earnings. So we're projecting, I believe around $550 million of interest earnings in the budget year.

Thank you. The next area I'd like to ask about is zero emission vehicles. On page 40 of the summary, the Governor highlighted that the state has invested nearly 3.7 billion already in zero emission cars, trucks and off road equipment.

Now he's proposing an additional 200 million in one time special funds to establish new light duties of incentive programs. Now yesterday the Assembly had their hearing and I do want to align my remarks with my Assembly counterpart, Assemblymember Bennett and highlight the lack of funding for heavy duty vehicles.

Why is the Administration focusing these funds on light duty vehicles? Medium and heavy duty vehicles and equipment have an outsized impact on air quality and there's significant momentum around cost parity and with diesel trucks with the introduction of the new electric semi truck. Yet the governor's budget does not include funding for medium and heavy duty vehicle incentives. Can you explain why?

So it's correct that there is no new funding for heavy duty vehicles in the governor's budget. However, I will point to last year there was $132 million for heavy duty vehicle incentives. That funding is still going out right now. So it's not without any funding for heavy duty vehicles.

And the goal, as the Governor stated last year, if the Federal Government was to pull back of the zero emission vehicle federal tax credit, that the state would step in.

And so this proposal is to step in in that case where the federal tax credit was not targeted towards heavy duty vehicles, it was targeted towards consumer purchases of light duty vehicles. And so this is the governor's budget proposal is to fill that void, partially backfill. To partially fill that void.

Obviously we're not going to be able to fund it at the level $200 million is not the level that the Federal Government was funding at, but it's to partially offset that to continue the adoption of zero emission vehicles in the consumer passenger space.

I would use the word backfill and I do that purposely because we are backfilling some things and we are not backfilling others when we say that we can't backfill what we're losing to take care of people's health, yet we're using our money to backfill on these vehicles.

And that's a comment and something that I will go into in greater detail during our sub 2 hearings. The next area I'd like to talk about is data centers. Mainly a comment on page 49 of your summary you mentioned the anticipation anticipated growth of data center development.

I want to take a moment to highlight the importance of understanding the impacts of large industrial energy users like data centers. And I want to voice my support for the funding of SB 57 by Senator Padilla.

I also want to highlight that this is a critical time to continue vital conversations on the use of water at data centers as well as evaluating their impact on the surrounding communities, such as the type of backup generation used on the site. Oftentimes the communities that are most impacted are the communities that are most vulnerable.

They are the ones that are already super impacted. And here is one more thing on top of everything else, another area that I will be talking about in my subcommittees. I mention these especially because I do want preparation before the Subcommitee hearings. As we know, questions go out before the hearing and they are no surprise.

And being prepared for those answers I think is something we deserve. The other area I want to talk about is AB617 on page 66 of the Governor's summary. He lauds the development of the Community Air Protection Program as a key initiative aimed at enhancing clean air, climate action and public health benefits for California.

As the author of SB352 last year. I was glad to see the oversight in the Bill complemented by 250 million dedicated to AB617 in the cap and invest allocation. I also acknowledge that given the status of revenue today, there is significant risk that the program will not receive full funding.

AB617 was a promise made to the pollution burdened communities throughout California nearly a decade ago that has yet to be fully realized. While there has been significant investment by the state, we have not seen a proportional reduction in emissions. Using diverse strategies to aggressively reduce air pollution in overburdened communities must be a priority.

And finally, an area that is not in my sub but I do want to emphasize what has been discussed. The General Fund, specifically spending on Medi Cal has doubled over the last six years and then we had the reductions.

However, fee for service rates for hospitals haven't been increased in 15 years and now hospitals, as noted earlier, are closing in several communities. How should the Legislature think about prioritizing investments in Medi-Cal programs?

Before I respond to that question, I just wanted to make a note that the ZEV proposal is special funds, not General funds.

So just making that point in regards to your comment on backfill, I would just go back to what I had said about the state not being in a capacity in a place where we can backfill for all lost federal funds, but that it will be important to have discussions with the Legislature to decide what funds we would want to and could be in a position to fund.

So I just want to make that note.

Thank you.

Yes, and in regards to Medi-Cal, it has, as Mr. Petek stated, has been one of the key drivers of expenses for the state in terms of the last few years because we have, as the Administration and the Legislature has decided to invest in that program, invest in particular aspects of that program.

But we do need to take a look at the program as a whole and how we spend and what we spend on all sides. So I would just say that as an answer to your question is part of that overall discussion has to be a look at how the state provides health care to Californians and to also.

Remember that if I may, final statement that our budget is a reflection of our.

Thank you. We'll provide additional information to your office and to the offices of the Members who I saw raise their hands. Thank you.

Thank you very much. Senator Seyarto and Senator Smallwood-Cuevas is on deck.

All right, so number one, public budgets are supposed to be based on low risk, conservative estimates for revenue and expenditures shouldn't be exceeding those projections. And every year for the last few years we've done that and it's reflected in this 77% rise in our expenditures.

While we only have a 62% rise over the last few years in revenues. If we keep doing that, we're going to get worse and worse. And so this needs to be this year. We need to start working on this. My comment about EDD, we need a three to five year plan on how to pay this off.

We can't just keep kicking this can down the road. The question that my colleague has, I have the same question. I would like those answers. My question is how much of the principal is being foisted on the businesses?

Because if it's the minimum amount, just like a minimum amount on a credit card, you will never pay that off. They're just going to keep paying that and we'll keep paying the interest which is getting more and more. Right now it's $662 million in interest that we are paying out of the General Fund.

For that it needs to be fixed. The courts, that system has to be fixed in order for Prop 36 to work if it's fully funded. Wildfire. I want to focus on this for just a minute. Prop 4 Wildfire funding is $2.1 billion if I'm not mistaken. Is that correct? Two point. Okay.

Did that take the place of General funding, General Fund funding for those projects, are they funding it through this, this Prop 4 instead? No, is the short answer. Okay, where is the General Fund?

What's the General Fund amount that was in there last year that is paying for what we're paying for with Prop 4 funding in this budget.

The funding that's proposed from Prop 4. This year wasn't being funded by the General Fund. Previously there were some one time investments from the climate budgets of 21 and 22 that in prior budgets last year. We offset some General Fund. With Prop 4, this budget doesn't include any offsets.

Alright, so here's my comment. When you're using bonds to pay for ongoing expenses and this is like mowing your lawn one week and then the next week it needs mowed again, this is going to be an ongoing expense. If we use our bond money to pay for this instead of our General Fund.

In the future, we're going to be looking at our General Fund going. How are we going to continue to keep doing these projects?

So bond money should be used for infrastructure that's going to be there for a while, like if we're bonding for camps for the three C's who are expanding the scope of what they do to help us with our wildfire issues. So I don't believe that we should be using bonding for these recurring expenses.

And that's what it looks like is happening in this budget. And then the last thing on Medi Cal, $50 billion is our cut. And then the federal share is 140 billion. Is that correct?

Currently it's about 46 billion and then growing to 48 billion.

And that's ours. What about the feds? The entire budget is like 190 billion.

For the Medi-Cal program.

Yes, for the Medi-Cal program in California.

Correct.

That's higher than the budgets of all, but like 30 countries. And the same thing can be said with our school budgets. Last thing is on education. So our education budget keeps going up through Prop 98 funding.

But what I'm hearing on the ground from teachers, we have to buy our own tissues, we have to buy our own supplies. And they're complaining because the enrollments are going down and yet we're making this money up here. Where's the money coming? Where is it going if it's not getting to them?

Where they have to buy their own stuff. We need to look at that and correct it. Those are my comments. Thank you.

Thank you. Appreciate it very much. Senator Smallwood-Cuevas with Senator Durazo on deck.

Thank you, Mr. Chair. And really appreciating this robust discussion and conversation. And I want to thank the Department of Finance and LAO office for their presentation today. I'm appreciating the fact that we're all in agreement that we have a structural problem. And I am also appreciating that we understand that it's not temporary.

I also want to make sure we're clear that when we talk about affordability and how our communities are hurting right now, I think it's important to also think about all of the other ways in which we are going to have to come to terms with the 2.5 billion a year loss from the expired ACA premium subsidies, the more than 10 billion, I'm sorry, 7 billion in TANF cash assistance that's been held.

Another example, $18 billion in NIH and scientific research that has been cut by the Trump Administration. We can look at, look at our Environmental Infrastructure, our NEA, NEH, IMLs, $708 million, 1.7 billion in infrastructure that we were in the process of doing that was cut.

28 million cut from nonprofit immigrant legal services that we have to help to try to protect and secure. We also are looking at $25 billion cost to households from tariffs, about 64,000 jobs lost. This is all impacting California. So there's a lot that we haven't talked about in terms of the gaps.

And the question I think before us is not if we backfill, but how we backfill because all of these things are converging on our communities.

You know, in my district where we are hosting the Olympic Games, where we are hosting this year, the World Cup, we see significant impact on what our state will look like if we don't fix this problem.

For example, in South LA, where Exposition park sits, Medi Cal is not an abstract because we have some of the highest density of medical users in and around the front yard of the Olympic Games in Expo Park. We have folks in those communities that are managing chronic illness, mental health, pregnancy, disability, needing emergency and urgent care.

And all of this at a time where the Governor has proposed to leave us trying to figure out how we're going to fill this gap for Medi-Cal.

We also are trying to figure out how we're going to fill this gap to make sure that even our facilities that are going to be used during the Games are going to be able to sustain the number of foot traffic that will be in and around there.

State estimated that it was about $220 million in critical infrastructure needs and this budget has given about 96 million to fill that gap. I say all that to say is that we have a number of issues that are converging at once on our communities. We are trying to understand.

And I guess my question for you today is how are these Federal actions under HR1 driving this large Medi-Cal savings assumptions and the governor's budget?

Can you speak a little bit about, you know, how these cuts are likely to impact communities that are also going to be absorbing disruptions and major infrastructure needs and events planning during the Olympics at the same time?

And how is the state ensuring that communities that are in this very unique situation, like my district, are not simultaneously asked to absorb health care cuts, safety net reductions and rising costs?

I had my county hospitals visit me yesterday and explain that they're looking at about 1300 layoffs on the front end and trying to figure out how they're going to keep, you know, more than a dozen clinics open. So all of these things are converging at once.

I would really appreciate, you know, the ways in which you're looking at offsetting some of these costs. I appreciate the points made earlier about doing this early and having these conversations early and that no option is off the table to ensure that we are one caring and protecting Californians.

But also we are prepared to welcome the world to our stage because so much of the cuts and the suffering are going to be converging all at once on a community like the movie, everything all at once at the same time.

So if you could give me some sense of how you're thinking about these unique communities, the situation in ways that you are looking to offset some of those costs.

Senator, may I provide some of that information to your office in written form for the sake of time, but agree that there are a lot of things happening all at once and converging in a time where we don't have a lot of surplus dollars to address them without going back to the actual structure of these programs and relooking at them and relooking at some of our investments.

So I am happy to provide additional information, especially in regards to the HR1 impacts on the two programs. In particular, what we estimate to be enrollment declines.

And as a result, you mentioned savings, and that is largely due to not just the ineligibility of populations, but additional workload that would have to be done that would likely lead to disenrollment. So we will provide that to your office.

Yeah, I appreciate that. And I also appreciate the comments made about ensuring that when folks come before us in Committee, that we have some sense of what the impact assessment looks like from each of the agencies.

You know, for example, on the CalFresh numbers, you know, it's saying we're going to have a cost savings on CalFresh, but the reality is the Trump eligibility requirements are going to kick so many of our families off of CalFresh.

So that's a cost savings in one sense, but on the other sense, there's going to be more harm and hurt that we're going to have to spend and fund someplace else.

So I just want to make sure that we are understanding the impact of every cut that is being presented, every cost saving that is being presented, so that we can make the decisions that need to be made to ensure that we're protecting particularly our most vulnerable communities.

Yes. And in regards to HR1 impacts, our staff will have as much information as they can as well as the departments and what we believe to be those impacts that are directly related to the changes at the Federal Government.

Okay, is that then. Well, I have to apologize to the public, but I think we're going to have to take public comment in writing. I don't see how we're going to be able to do it in this meeting.

And then we have 3 more Senators and I want to get to them before 11:45. And so it's Senator Durazo, Senator Choi, Senator McNerney, and we did have Senator Perez on the list. She had to step out. I don't think she's going to be back on time. So let's go with Senator Durazo.

Okay. And my question is, I guess I'll let you give me the information afterwards. But I do want to put them out there.

On the Medi-Cal is same conversation we had last year where we asked for options on how to address the shortfall and the deficit instead of putting it on the backs of the people who need it most. That's how we fixed the budget problem. They are taxpayers.

They are getting excluded from the same thing that other taxpayers get healthcare coverage. And that's okay for a lot of people, but it's not okay for some of us. We have got to get back on giving equal access to health care no matter what your status is. So I want to hear about options.

And one of those is to generate revenue, such as, how about we stop subsidizing all the corporations that put their employees on Medi-Cal? We as taxpayers have to pay for that. That just doesn't come up in the conversation anywhere. And that's a reality that's worth tens of billions of dollars.

So that's one on the GGRF, the fund. What happened to the legislative part of the discretionary fund? It's a billion dollars that says it's ours at our discretion. Last year we were told a billion for fire, a billion for high speed rail, a billion for the Legislative Discretionary Fund.

And now that $1 billion is being taken away from us. Who knows for what, how that all fits in on transportation. We had in 2023 and 2022, we had increased dramatically. It was really important to increase the public transportation fund and somehow it's just not included. That funding is not included.

So I just want clarification as to the funding that we had approved in the past. We increased it. That kind of funding gets cars off the highways it adds for our clean air and it creates good paying jobs. So I really am focused on transportation.

There are many other single issues and that we'll take up in Subcommitee 5. So with that, thank you very much.

Thank you very much. And let me just ask the Finance that if you do respond, I know there's one for Senator Ochoa Bogh and here's another one. You do respond to any of the questions. If you make sure you copy the Committee because we'll probably want to make sure everybody gets them. Because they heard the questions here in the Committee.

Sure. And we can work through staff to get that information to you all.

Thank you very much. We have Senator Choi and then our Last Senator, Senator McNair. Attorney Senator Choi. Thank you, Chair.

I've been so nervous whether I'm going to have a chance to speak on my own. Listening to all the problems so far and the $22 billion of deficit, even though our revenue has grown. Department of Finance Ms. Li used to started out as saying that we have no deficit balance the budget.

But it is so puzzling what the definition of balancing and the deficit deficit is $22 billion that you have said already many, many times in many different areas in the many different years from the past and to the future projections.

Our Governor is boasting and also many of us in fact boast that California is the fourth largest economy. And it is so puzzling that why with that kind of economic power, economic engine that we are facing this kind of deficit issues and not solving the problem that we have been facing year after year because of the time.

I have so much to talk about. But one example is that policy issue. In 2021-22 when I was in the Assembly, I introduced for example for paying off the federal debt for the unemployment insurance. That was AB 1596. We had at that time almost $100 billion, specifically $97.5 billion surplus at that year.

And then the total loan that the unemployment insurance debt to the Federal Government was $19.3 billion. So my Bill proposed since we have such a large surplus, let's pay that off. But my Bill was killed right now. Since then it continues to pay each year over $600,000 of interest.

And to my calculation is that from 2021 to even up to this year is $1.6 billion of interest have been paid. This is kind of a budget when your personal income not personally saying to you that our situation is that all of us we consider our revenue versus spending. I mean when you don't overspend it.

That's a balance. But when you dip into your savings, to me that is imbalance. That's borrowing the money. But I think we need to start with the correct definition rather than just trying to tell not the truth truth to the public because of the time limited. Let me ask you one specific question.

That is how are we going to are you going to both departments suggest to us and then also to the Governor what the methodology will be using to break this continuous structural deficit problem. Specifically, you have to identify certain areas that will have to be sacrificed.

So name couple or three areas what has to be sacrificed to balance the budget.

And I'd really appreciate it if you both could be really brief to get the Senator.

Sure. Just acknowledging that we do have a problem that we need to fix. I think I've said that very clearly that we at the Administration want to work with the Legislature on that structural deficit, which is the 22 billion in not this coming year, but the following year. By definition, we are balanced constitutionally with a positive SFPU.

And that's exactly the definition for a balanced budget. However, what those three topics are. I think we want to talk with the Legislature about your priorities, what the governor's priorities are before making big decisions and big cuts, because that's what it's going to require, as Mr. Gwalden has mentioned over many different program areas.

Will Governor listen to our discussion here and your recommendations and then also LAO recommendations to them or it doesn't matter. Are we all wasting our time?

I would just stipulate we're not wasting our time.

Do you have a quick add on? Just quickly say, yeah, we are working right now on, you know, trying to find our proper placement for this, our proper role in this.

As you know, we're the analysts as opposed to actual policy makers, but we're working in our office but behind the scenes on ideas and kind of going through our analysis of the at the staff level of all the programs to try to be helpful.

And I was anticipating to be in contact with your office chair and others to how we can best be helpful in this regard. Thank you very much. Thank you. Senator Choi, Senator McNerney, close us out.

Thank you. Thank you, Mr. Chairman and the presenters. It's been very enlightening and disturbing. Part of the problem we're facing is with the deficit is the volatility of the state budget and it's inherently volatile. I think it's time for a statewide discussion about how to even out this volatility, even though those are difficult conversations has been noted.

It's been tried before. I'm planning on having some overnight hearings, oversight hearings, and revenue and taxation about how we can find solutions to that problem. And I'm looking forward to that discussion. No question there. The second comment as I'd like to flag is that we don't see any substantial investments in our water infrastructure in this budget plan.

The Department of Water Resources released a report last fall that subsidence in the Central Valley, if unaddressed, could reduce water, the state water project's carrying capacity, by 87%. Now that's water for 27 million Californians.

Furthermore, the Delta, which is my district and also share it with other Members of the Committee that supplies water to the state water project high has 1000 miles of levees, many of which haven't been improved since the 1800s. So we're seeing significant risk on our state water supply.

The Delta Stewardship Council has created Delta Levy Investments Strategy which is completely unfunded. This needs urgent attention in my opinion and I'm ready to work with my colleagues across the state to find a way to solve this problem. And with that I'll yield back with no questions.

Thank you very much. I really appreciate it and I appreciate all the Members who would have liked to have asked expanded questions. And I have about 10 questions that I wanted to the minute we adjourn, we'll leave the microphone system on.

The one thing is, is that we are likely going to have another hearing in mid February and as a result of not taking public comment here, we will prioritize public comment at that hearing.

We also though encourage anybody that had feedback and wants the Budget Committee to know to submit that your comments and suggestions in writing to the Budget and Fiscal Review Committee or visit our website. We want to hear from you. We will prioritize the oral comment at the next meeting.

I apologize for the fact that this was just such a tight time frame. We haven't gotten to it and normally we would make closing comments.

But I would just say this was a very successful hearing in so many issues being raised and us highlighting what the concerns are of the Budget Committee and that's what they will be going forward. So thank you to everyone for their patience and cooperation. That includes the agenda for today's hearing.

The Senate Committee on Budget and Fiscal Review stands adjourned.