State Legislature passes preliminary budget, teeing up a summer of negotiations

The State Legislature passed the FY 2022-23 State Budget bill on June 13. The budget bill includes significant investments in Cal Cities State Action Agenda priorities, including housing and homelessness, infrastructure, and climate resiliency. Especially notable is the nearly $4 billion in funding for existing programs to support housing production and provide permanent supportive housing and behavioral health services for unsheltered Californians.

The budget bill also contains $180 million to help cities implement new state-mandated organic waste recycling programs — a top Cal Cities legislative priority. If approved by Gov. Gavin Newsom, the funding would help local governments implement collection, education, outreach, edible food recovery, procurement activities, and capacity planning.

However, the budget bill does not include funding for Cal Cities’ other budget asks: a new program to help finance more housing faster or reimbursements for unfunded state mandates.

While there is general consensus on priority areas in the budget, the final spending amounts, as well as the allocation and distribution methods, have yet to be agreed upon. Key disagreements remain over a potential tax rebate to Californians, the amount of money available to spend in future years, infrastructure allocations, and how quickly to spend money on key initiatives.

The Governor has until June 30 to take action on the budget bill, which may include line-item vetoes. Either way, the budget debate is far from over. The June 13 bill is a framework for a long summer of negotiations between top lawmakers and the Governor. Details will be hashed out in trailer bills and budget bill junior amendments, which contain the implementation language for the state budget and do not adhere to the same constitutional deadlines as the FY 2022-23 State Budget bill. 

As negotiations progress, Cal Cities will continue to engage with the Governor and legislators to ensure strong investments for cities remain in the final budget package.

Read Cal Cities Executive Director and CEO Carolyn Coleman’s response to the budget bill and continue below for a recap of how the budget bill impacts cities.

Housing

The budget bill allocates more than $2.5 billion for various housing programs, including $500 million to the Infill Infrastructure Grant program over the next two years, $500 million in Low-Income Housing Tax Credits, $400 million to the Multifamily Housing Program, $250 million over the next two years for Adaptive Reuse, and $150 million to Homekey 2.0.

The budget bill also creates a new first-time homebuyer program, the California Dream for All program, which would help make homeownership more achievable and affordable. Up to $1 billion in revolving revenue bonds will be available per year for ten years to generate the needed funds. The bond principal would be repaid once homebuyers sell or refinance the house. The funds would then be recycled to help future homebuyers.

Homelessness 

The Legislature’s proposed budget invests an additional $500 million for the Homeless Housing, Accountability, and Prevention Program (HHAP). This is on top of the $1 billion already available for HHAP in FY 2022-23. The HHAP program awards funding to Continuums of Care, cities with populations over 300,000, and counties statewide to build a unified regional response to reduce and end homelessness.

However, the Legislature’s budget bill lowered the funding available to local governments through the Encampment Resolution Grant Program from the Governor’s proposed $500 million to $300 million. Open to cities of all sizes, the program helps cities build the capacity needed to provide relevant and responsive services to individuals experiencing homelessness in encampments.

The Legislature’s budget set aside funding for future appropriations for the Community Assistance, Recovery and Empowerment (CARE) Court proposal. This proposal, which is moving through the Legislature via SB 1338 (Umberg), would create a civil court process that would connect individuals experiencing acute behavioral health needs with a court-ordered care plan managed by a community care team. Significant funding will be needed to support the implementation of this proposal statewide.

Although the Governor’s proposed May Revision included $65 million for CARE Court implementation, it appears that the Legislature is holding off on determining how much funding is needed until SB 1338 is finalized. Cal Cities supports additional funding in the budget bill and annually thereafter to ensure all new obligations for local governments included in the CARE Court proposal are set up for success by providing them with sufficient funding.

The Legislature’s proposed budget also includes funding to support the Governor’s health care workforce proposal. This includes an additional $200 million specifically for the behavioral health workforce. As the Legislature considers proposals that would modernize California’s behavioral health continuum, there must be continued attention to addressing workforce shortages that limit the availability of care to our residents. Cal Cities supports additional funding and resources to expand access to behavioral health services. However, workforce shortages in this field will likely continue to grow over the next decade.

Transportation and infrastructure   

The Legislature’s joint budget agreement includes $10.9 billion across four fiscal years for a comprehensive transportation infrastructure package. This package would include funding for transit, freight, active transportation, climate adaptation, and more. However, key details regarding the nature of this transportation package remain unknown, including whether any portion of the $10.9 billion would be made available to local governments.

The Legislature’s budget also rejects three key proposals included in the Governor’s $18.1 billion inflation relief package: the deferred increase in fuel excise tax rates, a rebate for vehicle owners, and incentive grants to transit and rail agencies to provide three months of free public transportation.

Instead, the Legislature has proposed an $8 billion Better for Families Rebates plan to provide relief for Californians impacted by high gas prices and inflation. This could include possible stimulus checks — as outlined in the revenue and taxation section below — a rebate for families enrolled in the CalWORKs program or the Supplemental Security Income/State Supplementary Payment program, and a rebate for any low-income Californians not captured in either of the first two rebate proposals.

Both the infrastructure package and possible rebates will be a major focus of the upcoming negotiations between the Governor and legislative leaders.

Organic waste

The Legislature included $180 million in the budget to help local governments implement CalRecycle’s SB 1383 (Lara, 2016) organic waste diversion regulations — one of Cal Cities' key legislative priorities. This funding will help local governments implement these new regulations quickly and effectively. It is critical that this funding continues to be included in the final budget negotiations with the Governor and Legislature over the coming weeks. 

Public safety

The Legislature added $40 million for Officer Wellness Grants and $10 million for de-escalation and use of force training to be administered by the Board of State and Community Corrections. However, lawmakers removed some of the Governor’s May Revision proposals that Cal Cities is supportive of, such as grants to support small businesses hurt by retail theft.

 The Legislature also rejected several proposals for CAL FIRE, including requests for firefighting tools. In response to the growing number of wildfires throughout the state, the Governor’s May Revision committed resources to CAL FIRE for local mutual aid. During extreme wildfire events, when multiple large wildland fires burn simultaneously, local resources are strained.

Revenue and taxation

The budget sent to the Governor includes a record $37.8 billion for the state’s reserves, with nearly all new spending on one-time activities. While there remains disagreement on a final relief plan for families, the Legislature’s budget includes direct, $200 stimulus checks per taxpayer and dependents for taxpayers with an annual income up to $250,000 for joint filers and $125,000 for single filers. This means a family of five could receive a $1,000 rebate. 

Over the past year, policymakers have learned a lot about the constraints that the State Appropriations Limit put in place by the infamous 1978 “Gann” ballot proposition. The Legislature’s approved budget brings the expenditures under the limit by allocating funding for infrastructure, direct stimulus payments, and changes to the statutory definition of “local subventions” to count more subventions under local Gann Limits. However, more details are needed in the subsequent budget and trailer bills.