This morning, Governor Gavin Newsom presented the May Revision of his California Blueprint. Previously, his proposal included a $286.4 billion budget for the 2022-23 fiscal year, of which $213.1 billion would be from the General Fund. However, General Fund revenues are estimated to be nearly $55 billion higher than January, even after the temporary limitation of business tax credits was restored earlier this year. Consequently, this revision proposes a $300.7 billion budget to “provide relief from rising inflation, ensure public safety, address homelessness, transform public education, and combat climate change,” as stated in the Governor’s press release.
These proposed state funds consist of approximately $227.3 billion from the General Fund, $68.9 billion from special funds, and $4.4 billion from bond funds. Additionally, the May Revision reflects $37.1 billion in budgetary reserves and plans to prepay billions of dollars in state debts and make supplemental deposits into the Rainy Day Fund. The May Revision reflects $49.2 billion in discretionary surplus, and the overall budget plan spends 94 percent of the discretionary surplus on one-time projects.
Below are key takeaways from the Governor’s revised proposal.
1.) Broad-Based Relief
Inflation is expected to exceed 7 percent in 2021-22, triggering an increase of the state's minimum wage on January 1, 2023. Under current law, the state's minimum wage will go to $15.50 per hour for all employers. To further address rising prices and return tax proceeds to Californians, the May Revision includes additional numerous other proposals to provide broad-based relief to Californians totaling $18.1 billion.
-----a. Early Broad-Based Relief Proposal
The May Revision reflects the early budget proposal made by the Administration to provide broad-based relief to millions of Californians facing high gas prices and other inflation-induced price increases.
This proposal would provide a one-time refund of $400 to each eligible owner of a registered vehicle. The proposal caps the number of rebates to two per registered vehicle owner for a total of $800, excludes fleets and corporate-owned vehicles, and excludes vehicles over a certain value. This broad-based refund would return an estimated $11.5 billion back to taxpayers.
To provide relief to millions of Californians who ride transit and rail, the broad-based relief package includes $750 million in incentive grants to transit and rail agencies to provide free transit for Californians for three months. This proposal will provide an amount to agencies based on their 2019 fare revenues.
The broad-based relief package also includes a 12-month pause, effective October 1, 2022, on the General Fund (3.9375-percent rate) portion of the sales tax rate on diesel fuel. This pause will provide relief to the commercial sector that utilizes the bulk of diesel fuel in the state. This pause is estimated to reduce revenues by $327 million in 2022-23 and $112 million in 2023-24. Revenue from this portion of the diesel fuel tax is generally dedicated to the Public Transportation Account (PTA).
The May Revision proposes to continue making transfers from the General Fund to the PTA as if the full amount of tax were being collected, thereby having no impact on transportation funding. Complementing these relief efforts, the Administration proposed to accelerate its $10 billion zero-emission vehicle (ZEV) plan to move California toward clean transportation options that reduce overall dependence on gas and fossil fuels and proposed additional investments in active transportation.
2.) Economic Growth, Job Creation, and Expanded Opportunity
The May Revision proposes additional grants to small businesses in hard-hit industries, including farms and related businesses impacted by the drought and additional tax relief to small businesses.
-----a. Drought Relief Assistance for Small Agricultural Businesses
The May Revision includes $75 million one-time General Fund in 2022-23 for the California Small Agricultural Business Drought Relief Grant Program to provide direct assistance to eligible agriculture-related businesses that have been affected by severe drought conditions. Grant awards range from $30,000 to $50,000, depending on annual gross revenue decline, and will be prioritized first to businesses located in regions hardest hit by drought impacts, including the Sacramento-San Joaquin Valley, and then to additional areas experiencing drought impacts, as determined by the California Department of Food and Agriculture. This program will be administered by CalOSBA, in consultation with the California Department of Food and Agriculture and will be modeled after other CalOSBA programs providing relief to small businesses.
3.) Climate Change
The Governor’s January Budget proposed $22.5 billion over five years to support transformative climate investments in transportation, energy, housing, education, wildfire resilience, drought, and health.
To address these pressing issues, the May Revision includes an additional $9.5 billion from various fund sources over four years for a total $32 billion to continue to advance the state’s Climate and Opportunity Budget, provide equitable climate solutions, protect communities, and support energy reliability.
-----a. Water Resilience and Drought Response
Given the intensification of drought since January, the May Revision includes an additional $1.3 billion General Fund for drought resilience and response designed to help communities and fish and wildlife avoid immediate negative impacts as a result of extreme drought while continuing to advance projects and programs that prepare the state to be more resilient to future droughts. This funding is proposed for acceleration into the 2021-22 fiscal year given current availability of resources.
Significant investments include:
- $530 million to support water recycling and groundwater cleanup; advance drinking water and clean water projects that leverage significant federal infrastructure funds; and continue aqueduct solar pilots.
- $553 million to provide grants to urban water districts and smaller community water suppliers for drought-relief projects; support data, research, and public education campaigns; support local technical assistance emergency drinking water response, including the purchase and pre-positioning of water storage tanks; enhance water rights enforcement and modernization tools; and support food assistance programs for farmworkers impacted by drought.
- $280 million to address fish and wildlife impacts associated with drought and climate change, and to build aquatic habitat and water resilience projects to support implementation of voluntary agreements with water suppliers.
- $187 million to support agricultural water conservation practices; incentivize farmers to install more efficient irrigation equipment and provide on-farm technical assistance; provide direct relief to small farm operators; and support additional water conservation projects.