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CA Legislative Analyst’s Office increases state deficit by $15 billion to $73 billion

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The 2024‑25 Budget

Deficit Update

Under LAO Revenue Update, Budget Problem Grows by $15 Billion

February 20, 2024

From the California Legislative Analyst’s Office, The California Legislature’s Non-Partisan Fiscal and Policy Advisor

The state already faces a significant deficit this year—we estimate it totaled $58 billion under the administration’s revenue forecast at the time the Governor’s budget was proposed in January. However, recent revenue collections data reflect even further weakness relative to those estimates. Specifically, our forecast is about $24 billion below the Governor’s budget across 2022‑23 to 2024‑25. All else equal, this means the budget problem is likely to be higher at the time of the May Revision. The actual increase in the state’s budget problem will depend on a number of factors, including formula-driven spending changes, most notably Proposition 98 spending requirements for schools and community colleges. (Due to specific circumstances this year, changes in revenues are unlikely to have a significant effect on the state’s other major formula-driven spending requirements, specifically related to Proposition 2.) Roughly, a $24 billion erosion in revenues corresponds to a $15 billion increase in the budget problem. This would expand the $58 billion estimated deficit to $73 billion under our updated revenue forecast.

Options to Address $15 Billion in Additional Budget Problem

If the budget problem increases by $15 billion, the Legislature will need to find a like amount of new budget solutions to ensure the budget is balanced for 2024‑25. Budget solutions include, for example: revenue increases and spending reductions (on both a one-time and ongoing basis), as well as other tools, like reserves and cost shifts. As the Legislature considers how to address this increased budget problem, we have put together a set of tables identifying one-time and temporary spending that could be pulled back or reduced in order to achieve budgetary savings. Below, we explain why we set forth these amounts as a possible first option to addressing a larger budget problem and then walk through our method for estimating the amounts potentially available in more detail.

Why Reduce One-Time and Temporary Spending?

The Legislature will weigh the implications of each possible solution—including increasing revenues and spending reductions—against others and, ultimately, choose a mix of solutions based on its priorities. We recommend the Legislature start by reviewing whether recent augmentations for one-time and temporary spending could be pulled back or reduced. We recommend this approach for two key reasons. First, when this one-time and temporary spending was adopted, it was understood that doing so would provide a cushion for future budget problems. For example, the administration frequently displayed “operating surpluses” in its multiyear forecasts excluding this type of spending—implying that the administration understood that the state could not afford all of the commitments under its own projections, but the state could afford the ongoing budget.

Second, the more the Legislature reduces one-time and temporary spending this year, the more other tools it can preserve for future budget problems. Reducing one-time and temporary spending is a “use or lose” tool for addressing the budget problem—once the funds are disbursed to recipients, pulling them back becomes practically impossible. Other tools, like reserve withdrawals and cost shifts, also can be used only once, but at any time. Saving them to deploy in the future can help the Legislature avoid cuts to ongoing services—which involve very difficult decisions. For example, in the Great Recession, the programs with some of the largest expenditure reductions were in health and human services, including to Medi-Cal, which provides health coverage to low-income individuals and the California Work Opportunity and Responsibility to Kids (CalWORKs) program, which provides income assistance to low-income individuals. Although the federal government has certain requirements for minimum state participation in these programs, California provides services well above these minimums. As a result, reductions tend to be concentrated in these areas because they are the ones where the state has the most flexibility to reduce spending without raising issues related to requirements imposed by courts, the voters, and the federal government. As such, maintaining other tools like reserves and cost shifts now could help mitigate reductions in these areas in the future.

Options Possibly Available to Reduce One-Time and Temporary Spending

State Allocated Large Shares of Surpluses to Temporary Purposes, Although Some Has Been Disbursed or Already Proposed for Reduction. Recent budgets allocated tens of billions of dollars in surpluses to one-time and temporary spending, including in 2023‑24, 2024‑25, and 2025‑26. Some spending, most notably for 2023‑24, has already been disbursed or encumbered. This means, for example, that grants have been awarded, funds have been transferred to other entities of government, and contracts or leases have been signed. (In some cases, funds have also been committed for 2024‑25 and 2025‑26, for example, through grant awards.) In addition, the Governor has already proposed pulling back much—but not all—of the undisbursed spending associated with these augmentations.

State Has Nearly $16 Billion in Recent One-Time and Temporary Spending That Could Possibly Still Be Pulled Back or Reduced. After setting aside disbursements and Governor’s budget proposals, we estimate the state possibly could pull back and reduce one-time and temporary augmentations by as much as $6.4 billion in 2023‑24, $4.1 billion in 2024‑25, and $5.1 billion in 2025‑26. Figure 1 shows the distribution of these amounts by program area, while the Appendix includes a complete list of them. These figures represent our current estimates of the amounts for which the Legislature has broad authority to make reductions, which could help the state address a larger budget problem in May. (In some cases, however, further disbursements could occur between now and May, such smaller amounts would be available for reduction at that time.)

Figure 1

Summary of Possible Remaining One‑Time and Temporary Spending

(In Millions)

2023‑24 2024‑25 2025‑26
Business and Labor $266 $284 $198
Criminal Justice 130 40 —
Education 602 1,195 1,109
Health and Human Services 867 301 701
Housing and Homelessness 1,599 — 260
Other 1,752 557 432
Resources and Environment 1,049 1,005 1,377
Transportation 146 739 1,000
Totals $6,411 $4,121 $5,076
Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages.

This Information Reflects Our Best Current Understanding. While these estimates reflect the best information we have available, in many cases we do not have perfect information from the administration about the current status of funds. As such, we would view this list as a starting place for the Legislature as it begins crafting the final budget package. For any specific reductions, particularly in 2023‑24, the Legislature could ask the administration for detailed and up-to-date information on disbursements and encumbrances.

More Could Be Pulled Back From Earlier Years. For the purposes of this analysis, we only reviewed disbursements and encumbrances authorized for 2023‑24 and later. There is, however, additional spending attributable to 2022‑23 and earlier that has not yet been disbursed. The Legislature could ask the administration to provide information about the amount of unspent funds from these earlier years.

Appendix Tables

Appendix Figure 1

Possible Remaining One‑Time and Temporary Spending:
Business and Labor

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
EDD New IT overhaul—EDDNext $99 — —
GO Biz California Competes Grants 10 — —
HCAI Health and home care workforce package 85 $259 $198
HCAI Behavioral health workforce capacity 52 — —
HCAI Various other health care workforce initiatives 20 25 —
Totals $266 $284 $198
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages.
EDD = Employment Development Department; IT = information technology; GO Biz = Governor’s Office of Business and Economic Development; and HCAI = Department of Health Care Access and Information.

Appendix Figure 2

Possible Remaining One‑Time and Temporary Spending:
Criminal Justice

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
BSCC Adult Reentry Grant $20 — —
CDCR Expansion of community reentry centers 40 $40 —
CDCR Various capital projects at San Quentin Rehabilitation Center 20 — —
OES Nonprofit Security Grant Program 40 — —
OES Family Justice Centers 10 — —
Totals $130 $40 —
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages.
BSCC = Board of State and Community Corrections; CDCR = California Department of Corrections and Rehabilitation; and OES = Governor’s Office of Emergency Services.

Appendix Figure 3

Possible Remaining One‑Time and Temporary Spending:
Education

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
CSAC Golden State Teacher Grants $91 $128 $1
CSU CSU Dominguez Hills Dymally Institute facility 15 — —
DGS State share for school construction projects 472 994 485
DGS Construction and renovation of transitional kindergarten, State Preschool, and full‑day kindergarten facilities — — 550
OPR California College Corps Program — 73 73
UC Cancer Research Relating to Firefighters 7 — —
UC UC Berkeley School of Journalism Police Records Access Project 7 — —
UC UC Los Angeles Ralph J. Bunche Center 5 — —
UC UC Davis Equine Performance and Rehabilitation Center 5 — —
Totals $602 $1,195 1,109
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages.
CSAC = Student Aid Commission; DGS = Department of General Services; and OPR = Governor’s Office of Planning and Research.

Appendix Figure 4

Possible Remaining One‑Time and Temporary Spending:
Health and Human Services

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
CalHHS Health innovation accelerator initiative — — $43
CDPH Carryover from certain one‑time funds in previous years $268 — —
CDPH COVID‑19 response 25 — —
CDPH Public health IT systems 9 — —
CDPH Public education and change campaign — $40 5
Aging Modernizing the Older Californians Act — 37 37
DHCS Behavioral Health Bridge Housing program — — 235
DHCS Behavioral Health Continuum Infrastructure Program — 100 381
DHCS Evidence‑based and community‑defined behavioral health programs — 109 —
DSS CalFresh minimum nutrition benefit pilot — 15 —
HCAI Carryover from certain one‑time funds in previous years 565 — —
Totals $867 $301 $701
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages.
CalHHS = Health and Human Services Agency; CDPH = California Department of Public Health; Aging = Department of Aging; DHCS = Department of Health Care Services; DSS = Department of Social Services; and HCAI = Department of Health Care Access and Information.

Appendix Figure 5

Possible Remaining One‑Time and Temporary Spending:
Housing and Homelessness

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
BCH Agencya Homeless Housing, Assistance, and Prevention Program (HHAPP) $1,100 — $260
BCH Agency Encampment Resolution Grants 299 — —
HCD Portfolio Reinvestment Program 100 — —
HCD Multifamily Housing Program 75 — —
HCD Infill Infrastructure Grant Program 25 — —
Totals $1,599 — $260
aBy the time the HHAPP costs are incurred, the program will have transferred to from BCSH Agency to HCD.
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages.
BCH Agency Business, Consumer Services, and Housing Agency and HCD = Department of Housing and Community Development.

Appendix Figure 6

Possible Remaining One‑Time and Temporary Spending:
Other

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
CDT Broadband infrastructure—increased middle‑mile network costs $420 $250 —
CPUC Broadband infrastructure—last‑mile projects 900 100 $200
CPUC Broadband infrastructure—Broadband Loan Loss Reserve Fund 175 150 175
GO‑Biz Fresno Infrastructure Plan 50 — —
OPR Establish new office of public outreach 60 57 57
SCO California State Payroll System 147 — —
Totals $1,752 $557 $432
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages
CDT = California Department of Technology; CPUC = California Public Utilities Commission; GO‑Biz = Governor’s Office of Business and Economic Development; OPR = Governor’s Office of Planning and Research; and SCO = State Controller’s Office.

Appendix Figure 7

Possible Remaining One‑Time and Temporary Spending:
Resources and Environment

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
CalEPA Environmental Justice Initiative (Community Resilience Package) $5 — —
CalFire Post‑fire reforestation and regeneration (Wildfire Resilience Package) 50 — —
CalFire Emergency surge (helitanker contract component) 45 $45 —
CalFire Forest Improvement Program (Wildfire Resilience Package) 13 — —
CalFire Tribal engagement (Wildfire Resilience Package) 10 — —
CARB FARMER program 75 — —
CARB Clean Cars 4 All (ZEV Package) 50 — —
CARB AB 617 (Community Resilience Package) 50 — —
CARB Equitable Building Decarbonization (Energy Package) 20 — —
CEC Clean Energy Reliability Investment Plan (SB 846) 100 400 $500
CEC Distributed Electricity Backup Assets (Energy Package) 100 25 25
CEC Demand Side Grid Support (Energy Package) 95 — —
CEC Equitable Building Decarbonization (Energy Package) — 53 92
CNRA Water resilience projects (Drought‑Water Resilience Package) 171 — —
CNRA Tribal nature‑based solutions program (Nature‑Based Solutions Package) 30 — —
CPUC Residential Solar and Storage (Energy Package) — 50 100
DTSC Brownfield cleanups — 85 15
DWR Flood and dam safety (Drought‑Water Resilience Package) 53 — —
DWR Oroville Pump Storage (Energy Package) 4 10 20
DWR American River flood project — 27 —
DWR Urban flood risk reduction — 35 —
DWR Strategic Reliability Assets (Energy Package) — 75 75
DWR Water conveyance, water storage (Drought‑Water Resilience Package) — — 500
Go‑Biz or CNRA Diablo Canyon land use planning — — 50
IBank Transmission Financing (Energy Package) 25 — —
OPC Ocean protection (Coastal Resilience Package) 13 — —
OPC Coastal resilience SB 1 implementation (Coastal Resilience Package) 1 — —
OPR Community‑Based Public Awareness Campaign (Extreme Heat Package) 14 — —
SWRCB Water recycling, groundwater cleanup (Drought‑Water Resilience Package) 17 — —
SWRCB Drinking water and wastewater projects (Drought‑Water Resilience) — 200 —
Various Misc Nature‑Based Solutions Package 9 — —
Various Misc Wildfire Resilience Package 5 — —
WCB Protect fish and wildlife from changing conditions (Nature‑Based Solutions) 49 — —
WCB Various WCB programs (Nature‑Based Solutions Package) 46 — —
Totals $1,049 $1,005 $1,377
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages
CalEPA = California Environmental Protection Agency; CalFire = California Department of Forestry and Fire Protection; CARB = California Air Resources Board; CEC = California Energy Commission; CNRA = California Natural Resources Agency; CPUC = California Public Utilities Commission; DTSC = Department of Toxics and Substances Control; DWR = Department of Water Resources; Go‑Biz = Governor’s Office of Business and Economic Development; IBank =California Infrastructure and Economic Development Bank; OPC = Ocean Protection Council; OPR = Governor’s Office of Planning and Research; SWRCB = State Water Resources Control Board; and WCB = Wildlife Conservation Board.

Appendix Figure 8

Possible Remaining One‑Time and Temporary Spending:
Transportation

(In Millions)

Department/
Program Area		 Description 2023‑24 2024‑25 2025‑26
Caltrans Clean California $146 — —
CalSTA Transit and rail funding (Transportation Infrastructure) — $739 $1,000
Totals $146 $739 $1,000
Note: This table includes allocations from the 2021 and 2022 budget packages that remain after accounting for Governor’s budget proposals and known disbursements and encumbrances, as of February 2024. In some cases our office does not have full information on disbursements from the administration, which means these estimates reflect our best understanding at this time.

Note: Amounts reflect one‑time and temporary spending adopted in the 2021 and 2022 budget packages.
Caltrans = California Department of Transportation and CalSTA = California State Transportation Agency.

 

Valentine’s Day marchers call on UC Regents, Chancellors to “Break Up with Blackstone”

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Marches at two of seven UC campuses on Valentine’s Day. Source: AFSCME 3299 Facebook page

Hundreds of students, workers, tenants participate at 7 UC campuses; claim UC is major shareholder in $3.5B controversial private equity investment trust that’s been linked to state’s housing affordability Crisis

On Valentine’s Day, Wednesday, Feb. 14, 2024, students, the University of California’s (UC) union of low-wage frontline service and patient care workers – members of AFSCME Local 3299 – alongside Blackstone tenants and community members with the Alliance of Californians for Community Empowerment (ACCE) called on UC Chancellors to “Break up with Blackstone” and invest in affordable housing. The global Wall Street private equity firm Blackstone has become the largest landlord in America and has been accused of worsening high housing costs and evictions.

Actions were held across the state in seven locations on the campuses of UC Berkeley, UC Davis, UC Santa Cruz, UCLA, UC Riverside, UC Santa Barbara and UC San Diego. The renewed call to divest from Blackstone follows the announcement of its $3.5 billion acquisition of Tricon Residential Inc. UC invested $4.5 billion in Blackstone’s BREIT in 2023 to boost investor confidence amid a wave of shareholder redemptions.

Blackstone went on an aggressive buying spree in 2021 and 2022, expanding its residential real estate empire, and adding over 200,000 housing units to its portfolio, including 5,600 naturally occurring affordable housing units in the San Diego area. ACCE released a report earlier this year with the Private Equity Stakeholder Project showing that Blackstone had raised rents in some units in San Diego between 43% – 64% in two years. Even before its announced acquisition of Tricon Residential, Blackstone owned more than 300,000 housing units, including a majority stake in the nation’s largest provider of student housing. As California becomes increasingly unaffordable, throwing more families into homelessness, Blackstone’s aggressiveness as one of the largest landlords in the state in hiking up rents for its thousands of units only adds to the problem.

UC acknowledged last year that its staff vacancy rate had tripled under the weight of California’s housing affordability crisis since the start of the COVID Pandemic, but has thus far failed to act on calls from students and workers to divest from Blackstone and invest in more affordable housing.  The University currently houses just 38% of its students in places that cost 30% more, on average than comparable campus communities nationwide. Recent news reports have chronicled the struggles of UC’s low-wage service and patient care workers being forced to commute several hours or sleep in their cars to maintain their employment.

AFSCME Local 3299 represents more than 33,000 Service and Patient Care Technical workers at UC’s 10 campuses, 5 medical centers, numerous clinics, research laboratories, and UC Law, SF.

The Alliance of Californians for Community Empowerment (ACCE) Action is a grassroots, member-led, statewide community organization working with more than 16,000 members across California. ACCE is dedicated to raising the voices of everyday Californians, neighborhood by neighborhood, to fight for the policies and programs we need to improve our communities and create a brighter future.

Delta Levees Investment Strategy becomes California state law

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Delta levee work. Photo: Delta Stewardship Council

New flood-related regulations prioritize levee investments in the Delta and Suisun Marsh

By Delta Stewardship Council

SACRAMENTO – The new year has brought new flood protections for the Sacramento-San Joaquin Delta. The Delta Stewardship Council has successfully amended the Delta Levees Investment Strategy (DLIS), a tool the state uses to prioritize investments in Delta levee operations, maintenance and improvements, thus reducing the likelihood and consequences of levee failures.

Executive Officer Jessica R. Pearson at a Delta Stewardship Council meeting. Photo: DSC

The amendment assigns very high, high, or other priority to islands or tracts within the Delta and Suisun Marsh and directs the California Department of Water Resources (DWR) to fund levee improvement projects by order of priority. Additionally, it requires the DWR to submit an annual report to the Council describing Delta levee investments relative to the established priorities. The amended regulation took effect on January 1, 2024.

“Delta flood risk is one of the most urgent threats to California and will continue to worsen in the future with changes in sea levels and storm patterns,” says the Council’s Executive Officer Jessica R. Pearson. “Limited funding to address that risk demands clear priorities. The product of nearly a decade of public input and collaboration, the strategy represents one of the Council’s greatest milestone achievements.”

 

The amendment assigns very high, high, or other priority to islands or tracts within the Delta and Suisun Marsh and directs the California Department of Water Resources (DWR) to fund levee improvement projects by order of priority. Additionally, it requires the DWR to submit an annual report to the Council describing Delta levee investments relative to the established priorities.

The Dutch Slough Tidal Marsh Restoration Project site, located in the Sacramento-San Joaquin Delta near Oakley, California.
The restoration project implemented by the California Department of Water Resources will restore 1,187 acres into a tidal marsh to provide habitat for salmon and other native fish and wildlife. Photo taken May 18, 2023, by Florence Low / California Department of Water Resources,

“Flood protection is a key piece of DWR’s work to increase water resilience as California moves toward a hotter, drier future,” says DWR Director Karla Nemeth. “DWR stands in partnership with the Delta Stewardship Council across multiple initiatives, including the Delta Levees Investment Strategy. These efforts will provide needed protections to the diverse communities that call the Delta home.”

The Delta’s 1,100 miles of levees provide protection for residences, agricultural lands, and infrastructure, which need deliberate and sustainable maintenance and funding. Many of the levees date back to when the Delta was reclaimed for agricultural purposes in the late 1800s.

The updated strategy prioritizes the protection of people, property, and state interests and advances statewide water supply reliability and Delta ecosystem resilience in a manner that protects and enhances the Delta as a place where people live, work, and recreate.

Source: DSC

On September 21, 2023, the Office of Administrative Law approved the Council’s Administrative Procedure Act process to amend the California Code of Regulations, title 23, sections 5001 and 5012, to implement the Council’s Delta Levees Investment Strategy. The amended regulation took effect on January 1, 2024, and is available at on the Delta Levees Investment Strategy web page at deltacouncil.ca.gov/DLIS.

ABOUT THE COUNCIL

The Delta Stewardship Council was created by the California Legislature in 2009 to advance California’s water supply reliability and the Delta’s ecosystem resiliency in a manner that protects and enhances the region’s unique characteristics. It is composed of seven members, advised by an independent 10-member science board, and supported by a dedicated staff. For more information, visit the Council’s website at deltacouncil.ca.gov.

Opinion: Will California’s budget woes impact tax reform?

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By Jon Coupal, President, Howard Jarvis Taxpayers Association

The Taxpayer Protection and Government Accountability Act (TPA) is a proposed constitutional amendment which has already qualified for the November 2024 ballot. It is sponsored by taxpayer and business organizations to restore key provisions of Proposition 13 and other pro-taxpayer laws that give voters more control over when and how new tax revenue is raised.

Although TPA, unlike previous tax reform measures, doesn’t reduce or eliminate any state or local tax, it does impose both enhanced voter approval requirements for fee and tax increases as well as robust accountability and transparency provisions.

For obvious reasons, tax-and-spend interests hate TPA and have launched a multi-front assault hoping to either defeat it or keep it off the ballot entirely.

The motivation for these schemes is that politicians and their enablers are fully aware that TPA is highly likely to pass if it stays on the ballot. Californians are sick and tired of having the nation’s highest tax rates jammed down their throats, especially when these heavy tax burdens are not accompanied by higher levels of public services; in fact, the opposite is true, as evidenced by California’s high cost of living, crime, homelessness, hostile business climate, and other ills.

But now, there may be another reason why anti-taxpayer interests are waging this war on TPA. A recent report by the California Legislative Analyst’s office threw a bucket of cold water on progressives’ plans to continue to increase taxes with virtually no restraint. The LAO now estimates “2022-23 revenues to be $26 billion below Budget Act projections. Historical experience suggests this weakness is likely to carry into this fiscal year and next. Overall, our updated revenue outlook anticipates collections to come in $58 billion below Budget Act projections across 2022-23 to 2024-25.” (Note that in less than a week after this news, the LAO upped the shortfall from $58 billion to $68 billion).

If there is any saving grace to the current financial situation it is that California still has substantial budget reserves. That, plus some creative accounting, can probably blunt the negative impacts of a severe drop in revenues – at least for a while.

Nonetheless, if California’s tax revenue spigot is curtailed any significant amount, will the enemies of the Taxpayer Protection Act argue that this provides another justification for removing all restraints on raising taxes?

Economic growth in Texas and Florida is outpacing that in California, due in part to a top marginal income tax rate of zero. What is happening in other smaller states is less well known. The smart move would be to follow the lead of other states which are aggressively pursuing pro-growth strategies which in turn lead to more tax revenue.

Take Iowa for example. Defying critics who claimed that tax reductions would crush the state budget, Iowa’s Governor Kim Reynolds slashed top marginal tax rates, previously some of the highest in the nation. Not only did revenues not crash, but they shot up by huge percentage points. According to a report in Center Square, “Iowa led the ‘tax-cutting wave’ in 2022, with the most comprehensive and aggressive tax reform in the United States. This will gradually replace the nine-bracket, progressive income tax with a flat tax, bringing the top rate, which was close to 9 percent, down to a flat 3.9 percent by 2026.”

Other states have provided California with a roadmap for economic growth and healthy budgets by cutting taxes and pursuing other pro-freedom policies. However, the political realities in this one-party state – governed by hardcore progressives – render the odds of politicians even looking at the roadmap extremely slight.

That being said, if the Governor and the Legislature won’t do what’s necessary to prevent a budget disaster, the least they can do is get out of the way of those who have offered the Taxpayer Protection Act to the voters so that ordinary citizens can do what politicians won’t: impose fiscal discipline on a fiscally reckless state.

This column originally appeared in the Orange County Register. Republished with permission.

CA State Controller responds to Legislative Analyst’s projected $68 billion budget deficit

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Says state can borrow over $91 billion

By Allen D. Payton

The California Legislative Analyst’s Office issued a report on Dec. 7, 2023, that the state faces a $68 billion budget deficit for the 2024-25 Fiscal Year. Entitled, “The 2024-25 Budget: California’s Fiscal Outlook”, the report’s Executive Summary read as follows:

“California Faces a $68 Billion Deficit.

Largely as a result of a severe revenue decline in 2022-23, the state faces a serious budget deficit. Specifically, under the state’s current law and policy, we estimate the Legislature will need to solve a budget problem of $68 billion in the upcoming budget process.

Unprecedented Prior-Year Revenue Shortfall Creates Unique Challenges.

Typically, the budget process does not involve large changes in revenue in the prior year (in this case, 2022-23). This is because prior-year taxes usually have been filed and associated revenues collected. Due to the state conforming to federal tax filing extensions, however, the Legislature is gaining a complete picture of 2022-23 tax collections after the fiscal year has already ended. Specifically, we estimate that 2022-23 revenue will be $26 billion below budget act estimates. This creates unique and difficult challenges—including limiting the Legislature’s options for addressing the budget problem.

Legislature Has Multiple Tools Available to Address Budget Problem.

While addressing a deficit of this scope will be challenging, the Legislature has a number of options available to do so. In particular, the state has nearly $24 billion in reserves to address the budget problem. In addition, there are options to reduce spending on schools and community colleges that could address nearly $17 billion of the budget problem. Further adjustments to other areas of the budget, such as reductions to one-time spending, could address at least an additional $10 billion or so. These options and some others, like cost shifts, would allow the Legislature to solve most of the deficit largely without impacting the state’s core ongoing service level.

Legislature Will Have Fewer Options to Address Multiyear Deficits in the Coming Years.

Given the state faces a serious budget problem, using general purpose reserves this year is merited. That said, we suggest the Legislature exercise some caution when deploying tools like reserves and cost shifts. The state’s reserves are unlikely to be sufficient to cover the state’s multiyear deficits—which average $30 billion per year under our estimates. These deficits likely necessitate ongoing spending reductions, revenue increases, or both. As a result, preserving a substantial portion—potentially up to half—of reserves would provide a helpful cushion in light of the anticipated shortfalls that lie ahead.”

Controller Cohen Calls for Calm

In a press release issued today, Tuesday, Dec. 19, State Controller Malia M. Cohen calls for calm in the wake of recent budget deficit announcements and issued the following statement after releasing the recent Cash Report on December 8:

“Despite reports from various sources indicating a budgetary deficit of approximately $68 billion, the state’s cash position remains strong, and, absent any unforeseen circumstances, the state has sufficient cash to pay its bills and meet its financial obligations through the end of the fiscal year.”

“As chief fiscal officer, one of my duties is to track and report on the state’s actual cash balance,” she continued. “In that regard, the state currently has more than $91.4 billion in available borrowable resources, due in large part to the Governor’s and Legislature’s foresight in building prudent rainy-day reserves in the Budget Stabilization Account. While legislators will have difficult choices to make in the new year, I am confident they will be deliberate in addressing the budget challenges before them, and I urge them to protect, to the extent possible, the health and social service programs designed to benefit those who are displaced, without shelter, or otherwise economically disadvantaged.”

About Controller Cohen

As the chief fiscal officer of California, Controller Cohen is responsible for accountability and disbursement of the state’s financial resources. The Controller has independent auditing authority over government agencies that spend state funds. She is a member of numerous financing authorities, and fiscal and financial oversight entities including the Franchise Tax Board. She also serves on the boards for the nation’s two largest public pension funds. Follow the Controller on X at @CAController and on Facebook at California State Controller’s Office.

About the Legislative Analyst’s Office

The Legislative Analyst’s Office (LAO) has provided fiscal and policy advice to the Legislature for 75 years. It is known for its fiscal and programmatic expertise and nonpartisan analyses of the state budget. The office serves as the “eyes and ears” for the Legislature to ensure that the executive branch is implementing legislative policy in a cost efficient and effective manner.

The office is overseen by the Joint Legislative Budget Committee (JLBC), a 16-member bipartisan committee. Currently, the office has a staff of 43 analysts and approximately 13 support staff. The analytical staff cover several budget and policy areas: Criminal Justice, State Finance, Education (including K-12 and Higher Education), Health and Human Services, Natural Resources and Environment, General Government (including Local Government), Transportation, and Capital Outlay and Infrastructure.

 

State Public Utilities Commission approves 12.8% PG&E rate increase

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Claims typical residential customer will pay $32.62 more for combined monthly electric and natural gas bill beginning January 1, 2024.

By CPUC

The California Public Utilities Commission (CPUC) on Thursday, Nov. 16, 2023, resolved Pacific Gas and Electric Company’s (PG&E) General Rate Case (GRC), which covers its operational and infrastructure revenue requirement for 2023-2026. The decision marks a crucial step in fortifying the future of California’s electric grid while prioritizing customer affordability.

Based on the evidence presented, the CPUC today unanimously approved the Alternate Proposed Decision of Commissioner John Reynolds. This decision approves investments in the safety and reliability of PG&E’s energy services. Inflation and a significant investment in undergrounding electric lines ranked among the top drivers in PG&E’s request. Over the past year and a half, numerous parties reviewed PG&E’s GRC request and provided input on each cost category and related proposed expenditures.

“I am proud of today’s decision because it represents the CPUC’s commitment to finding a reasonable balance in the face of incredibly challenging circumstances and competing objectives,” said Commissioner John Reynolds, who is assigned to the proceeding. “This decision ultimately represents both an historic investment in PG&E’s electric and natural gas systems as well as an expectation that PG&E must continue to be safer and more efficient. I am grateful to the many parties, and the scores of CPUC staffers, for their help as we grappled with this decision.”

Today’s decision propels PG&E’s energy infrastructure and operations into the future, addressing critical objectives such as mitigating wildfire risk, enhancing safety and reliability, and anticipating evolving electric grid demands. This comprehensive approach not only ensures PG&E’s capacity to maintain a safe and reliable energy system with a dedicated workforce, but also positions California for a more resilient energy future in the face of climate change. Moreover, the decision reflects rigorous oversight over hundreds of programs, and reduces PG&E’s request to more accurately reflect forecasts for prudent use of ratepayer funds.

Among the key initiatives covered in the decision:

  • Wildfire System Enhancement and Undergrounding
    • Approves 1,230 miles of electric line undergrounding, as well as 778 miles of covered conductor, totaling 2,008 hardened miles. This represents an historic opportunity for PG&E to invest in safer, reliable improvements for its customers while also achieving economies of scale to drive down costs; the revised undergrounding total also provides PG&E with a bridge to a future phase of undergrounding planning, through the Senate Bill 884 program.
  • Vegetation Management
    • Approves PG&E investing approximately $1.3 billion in vegetation management to reduce wildfire ignition risk and improve reliability on PG&E’s electrical system.
  • Capacity Upgrades
    • Approves PG&E investing more than $2.5 billion in upgrading the electric distribution system from 2023-2026, which will help prepare the grid to support initiatives for enhanced building electrification and new interconnections for electric vehicle charging stations and new housing and businesses.

“Today’s decision balances a myriad of competing interests—affordability, feasibility, safety, and reliability,” said CPUC President Alice Reynolds. “And in the face of increasingly turbulent climate-driven weather events, it gives PG&E the opportunity to prove it can underground electric lines at scale.  This will allow PG&E to achieve economies of scale, drive down costs, and reduce wildfire risk.”

Setting the pathway for critical investments in PG&E’s system

For PG&E customers, this approval by the CPUC translates to a continued commitment to safe, reliable, and affordable energy services. The GRC ensures that every dollar invested contributes to more resilient energy infrastructure, offering customers lasting benefits. Moreover, stringent accountability measures are embedded within the decision, assuring customers that their investment yields tangible and accountable improvements in PG&E’s operations and services.

PG&E requested $15.4 billion for 2023; Thursday’s decision cut that amount substantially, by $1.8 billion. Today’s decision sets the 2023 revenue requirement at $13.5 billion, reflecting an 11 percent increase from the authorized 2022 revenue requirement. For the typical residential customer, their combined monthly electric and natural gas bill will increase by $32.62 or 12.8 percent, compared to PG&E’s request of $38.73 or 17.9 percent increase.

PG&E’s 2022 Authorized Revenue Requirement Proposed 2023
Revenue Requirement		 Percent Increase Dollar Increase
$12.2 billion PG&E Request $15.4 billion 26% $3.2 billion
Decision $13.5 billion 11% $1.3 billion

Customers can expect any changes to their bill to go into effect on January 1, 2024.

For further information on the proceeding, including today’s decision and a fact sheet, please visit the CPUC’s website.

About the California Public Utilities Commission

The CPUC regulates services and utilities, protects consumers, safeguards the environment, and assures Californians access to safe and reliable utility infrastructure and services. Visit www.cpuc.ca.gov for more information.

 

 

 

 

Jury convicts Alamo attorney of embezzling $400,000 from fire victim clients

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By Ted Asregadoo, PIO, Contra Costa District Attorney’s Office

A jury in Martinez returned guilty verdicts on November 7th in a felony case involving an attorney, William James Reed, who embezzled $400,000 from his clients.

Reed, an 80-year-old attorney formerly of Alamo, was convicted of felony grand theft by embezzlement and a white-collar crime enhancement related to a settlement agreement with PG&E. The agreement included payments to victims of the 2006 Zamora Fire near Woodland, CA.

Following the fire, Reed authored a letter, purportedly from a fellow landowner impacted by the fire, stating that in a lawsuit against PG&E, attorney’s fees would be covered by PG&E. He invited fire victims to a Town Hall meeting in Zamora, where he assured them that, according to the law, PG&E would be responsible for attorney’s fees, not the clients.

Two families, including elderly victims with ranch properties damaged by the fire, agreed to have Reed represent them. Reed presented unclear and confusing lawyer-client relationship documents, including a contract implying clients would pay his hourly legal fees and costs at the rate of $625 an hour, and a cover letter stating PG&E would cover Reed’s attorney’s fees and costs. After obtaining the victims’ agreement on legal representation, Reed filed a lawsuit against PG&E on the victims’ behalf in 2008.

In 2013, a $200,000 settlement for each victim family was brokered by Reed with PG&E. Reed received the $400,000 settlement from an attorney representing PG&E — but Reed failed to inform his clients about the money. His clients discovered the settlement money was paid to Reed at an unrelated court hearing.

Afterward, when the victims asked Reed about their money, he presented them with a proposed settlement agreement. The agreement stated the clients would each give him $103,000 for attorney’s fees and costs, and in turn each client would receive $97,000. The victims refused to sign Reed’s proposed settlement agreement because it contradicted their initial agreement with him. Years of civil litigation ensued between Reed and the victims, with Reed using some of the settlement money to pay his lawyers to fight the victims.

In 2017, the Contra Costa County District Attorney’s Office was alerted to possible criminal violations related to the victim’s settlement money. A Forensic Accountant at the District Attorney’s Office analyzed Reed’s bank account statements and determined that Reed had spent the entire $400,000 on himself. Thereafter, felony grand theft by embezzlement charges were filed against Reed.

The case went to trial on October 13, 2023. Deputy District Attorney Scott Prosser had to prove beyond a reasonable doubt to a jury that Reed was not entitled to the victim’s settlement money for attorney’s fees A key piece of evidence presented to the jury during the trial was the document stating that Reed’s fees would be paid by PG&E and not the victims.

The jury deliberated for a few hours and convicted Reed on two felony counts of grand theft by embezzlement and a white collar crime enhancement, establishing illegal possession of over $100,000. Reed faces imprisonment for three years and eight months and will be sentenced on January 10, 2024, by

Superior Court Judge Charles Treat.

Deputy District Attorney Prosser, after the verdict, stated, “It is unconscionable for an attorney to lead a client to believe they were not responsible for attorney’s fees, and then take 100 % of the client’s money from a settlement agreement. And we are very pleased with the outcome in our fight to seek justice for the

victims in this case.”.

BART seeks applicants for public seat on Audit Committee

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BART is seeking applicants to serve as public members on its Audit Committee, which assists the Board of Directors in providing oversight for financial management, operational effectiveness, ethics and regulatory compliance.

The Audit Committee is comprised of five voting members, including three Board Directors and two public members with governmental financial expertise. It meets at least four times per year, with authority to convene additional meetings as needed.

Criteria for the position include:

  • Expertise: Have expertise in governmental accounting, financial management, or Performance auditing, or conducting investigations of fraud, waste, or abuse;
  • Technical Knowledge: Have technical knowledge of accounting, financial or performance auditing, financial reporting, and internal controls, including an understanding of and ability to apply the Government Auditing Standards, accounting standards issued by the Government Accounting Standards Board, and a recognized internal control framework;
  • Professional Certification: Possess a relevant professional certification, such as Certified Public Accountant, Certified Internal Auditor, Certified Fraud Examiner, Certified Inspector General, Certified Internal Controls Auditor, Certified Information Systems Auditor, or a similar certification. Relevant experience may substitute for such certification in the Board’s discretion;
  • No conflicts/recent affiliations: Within the past 10 years and other than in their role as a committee member, have no affiliation with the District or with a firm that has done business with the District.

Public members serving on the Audit Committee must be appointed by a majority of the full Board of Directors through this application process. Public members must possess the independence, experience, and collective technical expertise necessary to carry out the duties of the Audit Committee. Public members must be residents within the District’s boundaries and are subject to conflict-of-interest laws.

The application process has two phases. In Phase 1, all applications will be reviewed to meet all requirements and qualifications, letters of recommendations and any supplemental documents. In Phase 2, selected candidates will be invited to appear before the Board of Directors to briefly explain their interest in serving on the committee, followed by a Board vote.

Download the application form, Audit Committee Public Member appointment rules, and the  Audit Committee Charter.

Please contact the Office of the District Secretary with any questions via email at boardofdirectors@bart.gov.

Grayson cryptocurrency regulation bill signed into law

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Assembly Bill 39 will establish a licensing process for crypto exchanges and provide consumers with needed protections. Senate Bill 401 will establish safeguards for crypto kiosks. 

(SACRAMENTO, CA) – On Friday, Oct. 13, 2023, Assembly Bill 39, authored by Assembly Banking and Finance Chair Timothy Grayson (D-Concord) and co-authored by Senate President pro Tempore Toni G. Atkins (D-San Diego), Senate Banking and Financial Institutions Chair Monique Limón (D-Santa Barbara), and Assemblywoman Cottie Petrie-Norris (D-Irvine), was signed by Governor Gavin Newsom. AB 39 will establish a licensing program for crypto assets within the Department of Financial Protection and Innovation (DFPI) to protect Californians from bad actors and foster responsible innovation. The bill represents a major victory for responsible innovators and California consumers.

AB 39’s lead author, Assemblymember Grayson, released the following statement:

“Today California is taking the necessary step to regulate a market that is volatile, risky, and, in some cases, deliberately rigged against everyday consumers. Because of today’s action, Californians can be confident that crypto businesses, like any other company in financial services, must follow reasonable rules that will protect consumers and their money. Thank you to Governor Newsom for helping ensure that our state leads in fostering responsible innovation.”

Assembly Bill 39 is a companion bill to Senate Bill 401 (Limón and Atkins), which will set a regulatory framework for crypto kiosks, a part of the crypto industry rife with fraud and abuse. Crypto kiosks are ATM-like machines that allow consumers to purchase cryptocurrencies such as Bitcoin. However, these machines charge exorbitant fees and are hubs of criminal activity, scams, and consumer fraud.

“With the important frameworks established by AB 39 and SB 401, California will begin the challenging task ahead of us to regulate cryptocurrency and ensure that no Californian falls prey to scams, investment related fraud, or high-fee asset withdrawal schemes,” said California Senate President pro Tempore Toni G. Atkins. “Failures in crypto markets in recent years have emphasized the need for regulatory frameworks that have the backs of consumers, and Assemblymember Grayson and Senator Limón have led the way in doing just that.”

“California is taking a step in the right direction to protect California consumers from fraud, unnecessary risk, and potentially criminal activity with the signing of SB 401 and AB 39,” said Senator Monique Limón. “I am grateful that Governor Newsom sees the benefits to establishing a clear framework that allows for innovation without harming California consumers.”

Senate Bill 401 was signed into law, along with Assembly Bill 39. 

“The Consumer Federation of California thanks Governor Newsom for signing these two important bills protecting consumers in the crypto marketplace,” said Robert Herrell, Executive Director of Consumer Confederation of California. “California now retakes its rightful position near the top of states protecting consumers in the crypto market. We also profoundly thank Assemblymember Grayson and Senators Limón and Atkins for their perseverance on these issues. Consumers will be better protected in crypto thanks to these new laws.” 

With the Governor’s signature of these measures, crypto companies and crypto kiosk operators must obtain or apply for a license by July 1, 2025, to continue doing business in California. Additional information and the text of both bills can be found here. 

 

BART Board president, GM say more state funds needed to avoid “severe cuts to service and staffing”

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From Board of Directors President Janice Li and General Manager Bob Powers:

BART is thankful for the recent action taken by the California State Legislature to restore $2 billion for the Transit and Intercity Rail Capital Program. The program is vital in funding transformative capital improvements to modernize public transportation systems such as BART.

The fate of transit operating budgets, however, presents a do-or-die decision point.

Each day BART moves closer to plunging off the fiscal cliff if the State does not provide short-term financial aid to fund transit operations.

One-time federal funds are dwindling even with BART’s stringent cost controls and will be exhausted by early 2025. If transit operations funding is not included in this year’s State budget, BART must begin making severe cuts to service and staffing, as early as this year. The State has the opportunity – and the power – to sustain BART or let BART and the Bay Area economy fail.
Here’s how failure looks:

  • Trains only once an hour.
  • No trains on weekends.
  • No trains after 9 p.m. on weeknights.
  • Reduced service to San Francisco International and Oakland International airports.
  • Some stations closed.
  • Entire lines potentially shuttered

Those who will pay the biggest price for these severe cuts are those who can afford it the least. Sixty-seven percent of BART riders identify as non-white. Forty-four percent do not have a vehicle. Thirty-one percent have an income of $50,000 or lower. Seven percent are disabled. If the State fails to act, those who rely on BART as a lifeline will be stranded.

Everyone will pay the price if BART fails – even those who don’t use it. Traffic stands to drastically worsen across our already congested roadways and bridges, and regional greenhouse gas emissions will increase, further fueling climate change. Just one trip in a car emits the same amount of C02 as thirty trips taken on BART.

Businesses will struggle to move their goods with thousands more vehicles on already strained roads. BART service cuts to SFO and OAK will make tourism and convention travel unpalatable.

The Bay Area is an economic engine for the entire state, which represents the fourth largest economy in the world. But the regional economy isn’t ironclad. It needs effective public transit – BART, Muni, and other agencies – to thrive.

BART staff, labor partners and Board are focused on increasing ridership by improving the system.

Some highlights:

  • Adding eight to 18 additional police officers to patrol trains each shift in addition to BART’s unarmed safety staff of Ambassadors, Crisis Intervention Specialists and Fare Inspectors on trains.
  • A September schedule change means no rider will wait more than 20 minutes for a scheduled train, including nights and weekends.
  • More than doubling the Clipper START discount for eligible low-income riders.
  • A project to install 700 new fare gates at all stations by 2026 to deter fare evasion and increase safety.
  • Thorough cleaning of train car interiors twice as often.
  • Increasing the number of deep-clean teams by 66% to scrub heavily used stations.

These hard-earned gains for riders would be wiped out by severe service cuts. It’s a recipe for a death spiral.

If the State fails to act, not only will BART fail, but Bay Area public transit will fail. Ninety percent of all transfer trips in the Bay Area involve a connection to BART.

For BART and the Bay Area we know and love to survive, we need State help NOW.