Gov. Gavin Newsom and legislative leaders reached a nearly $300 million budget agreement on Saturday that closes a $46.8 deficit that was projected for the coming fiscal year with across-the-board cuts of nearly 8% to every department.
The $297.5 billion budget is proposed for both the 2024-25 fiscal year and the 2025-26 fiscal years, a maneuver the governor in May called a "budget year, plus one" proposal that he said would help bring spending in line with revenue projections over the next two years.
"This agreement sets the state on a path for long-term fiscal stability - addressing the current shortfall and strengthening budget resilience down the road," Newsom said. "We're making sure to preserve programs that serve millions of Californians, including key funding for education, health care, expanded behavioral health services, and combatting homelessness."
The gap was closed with a combination of $16 billion in cuts and other financial tricks, such as $13.6 billion in additional revenue sources and internal borrowing from special funds. It shifts around $6 billion in spending, delays or defers over $5 billion in payments, and draws over $12 billion over the next two fiscal years from the state's Budget Stabilization Account known as the rainy-day fund.
The cuts include $1.1 billion to various affordable housing programs and $500 million from the California Student Housing Revolving Loan Program, which was established in 2022 and gives zero-interest loans to universities and colleges to build affordable housing.
About $2.2 billion is saved by the 7.95% cut to every department's budget. An additional $1.5 billion was reduced from departments' budget to fill vacancies.
Senate President Pro Tempore Mike McGuire, D-Marin, said cuts were less than anticipated in May but would still be felt.
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"This is a tough budget year, but it also isn't the budget situation we were originally fearing," McGuire said.
"This balanced budget helps tackle some of our toughest challenges with resources to combat the homelessness crisis, investments in housing, and funding to fight wildfires and retail theft," he said.
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Assembly Speaker Robert Rivas, D-Salinas, said the budget prioritized "affordability and long-term stability."
"We secured crucial investments to lower housing costs and keep people in their homes, and to sustain essential programs that help vulnerable families thrive," Rivas said.
Some of the new revenue sources in the agreement include limiting the business tax credit to $5 million in each of the next three tax years, which would raise about $15 billion over the next three fiscal years.
The budget bill must be approved by the full legislature before being finalized with the governor's signature.
