Budget deal includes some wins for cities, but negotiations are still ongoing

By Cal Cities Staff

Lawmakers on Monday approved a $355.9 billion state budget. But while the deal contains some wins for cities — including more funding to address homelessness — it also contains several losses and notable punts. But overall, the agreement advanced by the Legislature rebukes or delays many of the cuts and reductions proposed by Newsom.

“At a time when cities and the state alike are navigating significant fiscal headwinds, Cal Cities thanks the Assembly and Senate for including investments in homelessness, housing, and public safety, cities’ top priorities, in their agreement,” Cal Executive Director and CEO Carolyn Coleman said in a statement. “As budget negotiations continue, Cal Cities is urging the Legislature and the Governor to course correct on proposed changes to the state’s Cap-and-Invest framework that would scale back future funding for key climate programs."

Notably, Gov. Gavin Newsom has been uncharacteristically silent on the budget bill. We also have far fewer details on which pot of money is going where and for what. So, consider the budget deal final, only in the sense that lawmakers meet the constitutional deadline for getting paid. 

The Legislature and the Governor historically hammer out the final details up to July 1, when the new fiscal year starts. And this year is no different. Keep reading for some topline highlights from Cal Cities lobbyists about what we know so far.

-Brian Hendershot, Cal Cities Advocate managing editor

Lawmakers narrow structural deficits but punt new tax proposal

Framed as a responsible and balanced response to federal cuts, the Legislature’s budget proposal, AB 109, includes $355.9 billion in total expenditures — approximately $6 billion higher than the Governor’s May Revision. The Legislature pointed to elevated revenues, nearly $5 billion higher than May’s estimates, as the reason for additional spending capacity. The budget proposal also balances the FY 2027-28 budget, but structural/operating deficits north of $9 billion remain for the subsequent year.

Notably, lawmakers did not finalize a deal on whether to tax digital prewritten software and software as a service. Instead, legislators will vote on the proposal later this week. The sales and use tax, estimated to generate over $1 billion for local governments, comes at a cost, as cities would also have to pay the tax.

- Ben Triffo, legislative advocate

Budget deal includes more funding for homelessness

The Legislature’s budget includes $900 million for the state’s flagship homelessness grant program: the Homeless, Housing, Assistance and Prevention (HHAP) grant program. That is $400 million more than the Governor included in his May revision, which proposed slashing the next round of HHAP to $500 million. Cal Cities and its allies have urged the Governor and the Legislature to restore HHAP funding to its historic levels of $1 billion and make it ongoing. 

- Caroline Grinder, legislative advocate

Cities could see affordable housing programs restored — and changes to impact fees

In a win for cities, the budget bill proposes new funding for affordable housing programs, including the Low-Income Housing Tax Credits, the Multifamily Housing Program, and the Infill Infrastructure Grant program. This is a positive step. The Governor’s May Revision did not propose any new funding for the programs, which are some of the state’s most effective home-building initiatives. 

However, the budget bill is silent on changes to impact fees that would create challenges for less-resourced communities trying to support new and necessary affordable housing. Although the Senate rejected the impact fee trailer bill, the Assembly deferred taking action on the proposal. Cal Cities will advocate for affordable housing funding over the summer and encourage the Legislature to reject the proposed impact fee trailer bill.

- Brady Guertin, legislative advocate

Fate of key Cap-and-Invest grant programs still uncertain

The legislative budget deal punted climate-related funding decisions to later negotiations that will take place in August. Cal Cities is urging the Legislature and the Governor to course correct on proposed changes to the state’s Cap-and-Invest framework that would scale back future funding for key climate programs. Long-running funding for clean infrastructure, affordable housing, wildfire resilience, and climate adaptation must be preserved in the final budget agreement.

The proposal also includes the second year of climate bond funding, to be appropriated before the end of session. This will provide valuable grant funding for water, coastal, wildfire, extreme heat, and park resilience.

- Melissa Sparks-Kranz, legislative advocate

Cal Cities secures some money for Proposition 36

Lawmakers voted to provide $50 million for Proposition 36 implementation but provided few details on how that money will be distributed. Cal Cities has been advocating for $400 million to address the needs of county probation and county jails. However, there are other funding sources in the budget that could provide some help, including funds for trial court and pre-trial services. The exact details of the $50 million appropriation will be detailed in a later trailer bill. 

The deal does not include funding for home hardening or defensible space, as proposed in the Governor’s budget.

- Jolena Voorhis, legislative advocate

Promised transit funding missing

The Legislature agreed to fund a $40 million Clean California program to reduce litter along the state roadways. However, there remain some major sticking points between the Governor and lawmakers in other key funding areas.

California transit agencies in particular face significant funding uncertainty: Proposed changes to the Cap-and-Invest program that lawmakers have yet to vote on could eliminate approximately $600 million annually for transit programs through 2030. Meanwhile, the Governor's May Revision omitted $690 million in transit funding promised under the 2023 budget agreement. Discussions over the transit funding are ongoing.

Separately, legislative budget leaders want to withhold $55 million from the Department of Motor Vehicles over concerns that a planned interstate driver data-sharing system, intended to comply with the federal Real ID Act, could expose information about undocumented Californians to federal immigration enforcement agencies.

- Damon Conklin, legislative advocate

Next steps

The Legislature and the Governor have a little under two weeks to reach a budget deal. As is tradition, the details will get hammered out privately and then passed (very quickly) through budget trailer bills. Complicating the matter slightly is Newsom’s desire to shore up the state’s long-term fiscal health after several multibillion-dollar budget deficits — and before a run at the Oval Office. There’s a chance he could reduce or eliminate specific appropriations when signing the budget.

To learn how you can get involved, stay subscribed to Cal Cities Advocate or contact your regional public affairs manager.