Record state budget agreement includes many new, one-time funding opportunities, but misses the chance to support shared city-state priorities

Gov. Gavin Newsom and the Legislature reached an agreement on how best to spend the state’s eye-popping $97.5 billion surplus. On June 27, the Governor signed the primary budget framework (SB 154, Skinner), followed by AB 178 (Ting) on June 30, which made significant amendments to SB 154 and represents the 2022 Budget Act agreement. The Governor also signed dozens of budget trailer bills, which include implementation language for specific appropriations.

Notably, the budget contains funding for one of the League of California Cities’ top legislative priorities — $180 million to help cities implement state-mandated organic waste recycling programs. However, it does not include funding for Cal Cities’ other budget asks: a new program to help finance housing faster and reimbursements for unfunded state mandates.

Despite lengthy negotiations, the $308 billion budget largely stayed true to the goals of the Governor’s proposed May Revision by increasing financial reserves, strengthening economic support for businesses and families, and allocating most of the surplus to one-time investments.

With the state’s economic future growing increasingly shaky, lawmakers allocated a record $37.2 billion to the state’s rainy-day fund. However, the focal point of this historically large budget is a $17.5 billion inflation relief package, $9.5 billion of which will go directly to Californians. Fiscal relief will also be provided in the form of low-income rental and utility assistance programs and targeted tax credits for individuals, businesses, and nonprofits. 

Below is a breakdown of the key budget policies and investments that impact cities. Additional budget amendments are expected in the form of “budget bill junior” measures when the Legislature reconvenes on Aug. 1. Cal Cities will continue to advocate on behalf of cities’ interests as the Legislature considers subsequent budget revisions throughout the summer.

Housing, Community, and Economic Development  

Addressing California’s persistent housing supply and affordability crisis is a top priority for Cal Cities, the Legislature, and Gov. Gavin Newsom. The state budget 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, $410 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.

Other important allocations include:

• $100 million over two years for mobile homes and manufactured housing.
• $150 million over two years for the preservation of existing affordable housing.
• $100 million over two years for affordable housing on state excess sites.
• $350 million for the CalHOME program.
• $50 million for the California Housing Financing Authority’s accessory dwelling unit financial assistance program.
• $100 million over two years to continue the Veterans Housing and Homelessness Prevention Program created by Proposition 41 (2014).
  

Additionally, one of the trailer bills, SB 197 (Committee on Budget and Fiscal Review), contains language that provides a one-year extension to cities in the Southern California Association of Governments that were unable to adopt a certified housing element by Oct. 15, 2021. The deadline for completing required rezoning may also be extended by one year, under specified circumstances, if the city has completed the rezoning at densities sufficient to accommodate at least 75% of the units for low- and very-low-income households.

Community Services

The state budget mirrors the Legislature’s ongoing discussions related to homelessness and behavioral health by directing historic amounts of funding to both crises. These investments reflect the Cal Cities 2022 State Action Agenda, which seeks to secure increased funding and resources to prevent homelessness and assist individuals experiencing homelessness.

Homelessness

Critical investments in homelessness include:

• $700 million for Encampment Resolution grants over two years to help local governments with resolving critical encampments and transitioning individuals into permanent housing.
• $1 billion in 2023-24 for the Homeless Housing, Accountability, and Prevention Program.
  

Critical investments in behavioral health include:

• $65 million for the implementation of the Community Assistance, Recovery, and Empowerment (CARE) Court proposal. Cal Cities has a support if amended position on the legislative vehicle for CARE Court, SB 1338 (Umberg), which is headed to the Assembly Appropriations Committee after the conclusion of the Legislature’s summer recess.
• $1.5 billion over two years for bridge housing solutions for individuals experiencing homelessness with serious mental illness.
• $200 million to support California’s behavioral health workforce, including $26 million to increase the number of licensed behavioral health professionals through grants to existing university or college behavioral health professional training programs. Cal Cities supported SB 1229 (McGuire) earlier this year, the legislative vehicle to create this grant program. While that measure ultimately did not move forward, Cal Cities is thrilled to see the inclusion of this funding in the state budget. 
• $250 million over three years to address urgent needs and emergent issues in behavioral health for children and youth.
  

Extreme Heat

Longer and hotter periods of extreme heat are affecting more and more communities. The budget includes $25 million, one-time, to provide grants to communities seeking to build or upgrade existing facilities to serve as community resilience centers that mitigate the public health impacts of extreme heat and other emergencies exacerbated by climate change. Cooling centers, fairground upgrades, and other public buildings would be eligible for this funding. An additional $300 million for extreme heat has yet to be allocated.

Child Care

The budget includes several investments in early childhood and child care to help meet the state’s ongoing child care crisis. The COVID-19 pandemic led to the temporary or permanent closure of over 10,000 child care programs. Funding and resources to address the affordability and availability of early learning and care options is essential to an equitable economic recovery and future stability.

Notably, the budget includes $100 million for the acquisition, construction, development, and renovation of child care facilities. Other significant investments support actions taken earlier in the COVID-19 pandemic, such as waiving family fees for childcare, increasing rates for the California State Preschool, and funding agreements between the state and child care providers union for health benefits. 

Libraries

The state budget includes critical funding for community services programs that support public libraries, seniors and youth, and local parks. Specifically, the budget bill provides $50 million to support an infrastructure grant program for libraries. The budget also expresses an intent to provide an additional $100 million in 2023-24 for this program. These grants will address the life-safety and critical maintenance needs of public library facilities throughout California. There are also additional library-related investments to support literacy, outdoor access, workforce training, and lunch at the library programming.

Seniors and Aging

The state budget also includes numerous investments in aging programs and supports the continued implementation of the Master Plan for Aging. Important allocations include:

• $61 million for COVID-19 Mitigation and Resilience Grants to Combat Senior Isolation.
• $10 million for three years for the Community Living Fund, which will help older adults and persons with disabilities to transition from nursing homes to an independent living community.
• $12.5 million for the RN/Community Health Worker Pilot in Low-Income Senior Housing Pilot, which will support efforts to hire registered nurses and community health care workers to provide health education, navigation, coaching, and care to residents of senior citizen housing developments.
• $4.5 million to provide grants to local jurisdictions to plan age-friendly communities.
• $3.5 million to support a Long-Term Care Ombudsman outreach campaign to raise awareness of the resources available to residents and families in skilled nursing, assisted living, and other residential facilities.
• Increases Supplemental Security Income/State Supplementary Payment grants by about $39 per month.

Parks and Open Spaces

This year’s budget includes several key investments in parks and open spaces, such as $35 million for the Recreational Trails and Greenways Program, which offers competitive grants that provide infrastructure development and enhancements to enable Californians to reconnect with nature. Earlier this year, Cal Cities supported AB 1789 (Bennett), which sought to create an ongoing funding source for outdoor trails and greenways. While that measure no longer creates a funding mechanism, Cal Cities is encouraged by the inclusion of those types of investments in the state budget. Other parks and open space investments include:

• $13.5 million to support programs that expand the availability of state park passes offered via local libraries.
• $25 million for the California Cultural and Art Installations in the Parks Program, which will fund art installations to reflect local cultural heritages and connect the public to the natural resources of state and local parks.

Transportation, Communications, and Public Works

The budget includes $47 billion worth of investments in the state’s infrastructure, including a $14.8 billion multiyear transportation package for transit, freight, active transportation, climate adaptation, and other purposes across the state.

The budget also includes a compromise between the Governor and legislative leaders on how best to provide relief to Californians impacted by growing inflation. The main expenses in this $11 billion inflationary relief package include:

• $9.5 billion worth of direct stimulus checks to Californians.
• $439 million to suspend the General Fund portion of the sales tax on diesel fuel, which is used to support public transit services. This reduces costs by about 23 cents per gallon, a move that will primarily benefit businesses. The budget will backfill this funding with quarterly transfers from the General Fund.

The budget also commits $6.1 billion for electric vehicle-related initiatives, including:

• $3.9 billion for the electrification of ports, heavy-duty trucks, school and public transit buses in the state.
• $1.2 billion on 40,000 passenger electric vehicles and 100,000 new charging stations throughout the state by the end of 2023.
• $1.2 billion over two years for freight-related infrastructure at and around the state’s ports. Additionally, the budget invests $1 billion in the current year for the Active Transportation Program.

Broadband

Trailer bill SB 189 allocates $550 million ($300 million in 2023-24 and $250 million in 2024-25) to support the completion of the Broadband Middle-Mile Initiative. The initiative is a partnership among several state entities to construct an open-access middle-mile network, which will help deliver affordable, high-speed broadband services to all Californians. Securing funding for this program was a key Cal Cities legislative priority in 2021.

Environmental Quality

The Legislature appropriated $21 billion towards an energy and climate package to address issues around solid waste and recycling, wildfires, zero-emission vehicles, and the drought. One of the most notable items included in this year’s budget is $180 million in SB 1383 (Lara, 2016) local assistance grants for cities and counties. This funding will help cities implement this important greenhouse gas emission reduction law, which requires local governments to divert organic waste from landfills.

Last year, Cal Cities and a coalition of local government, environmental, and waste hauler associations advocated for and secured $60 million for local assistance grants for SB 1383 organic waste diversion regulation implementation. This year, Cal Cities again led a local government coalition to secure an additional $180 million for cities and counties to implement the SB 1383 regulations. Cal Cities will continue to monitor these dollars as CalRecycle develops a grant program to distribute these funds.

Although the main budget has been signed into law, there are still some of the larger pots of funding in this package that are still being negotiated by the Governor and the Legislature. The remaining funding pots that need to be finalized include:

• $3.795 billion for energy investments.
• $3.534 billion for zero-emission vehicles.
• $530 million for wildfire and forest resilience.
• $1.465 billion for drought resilience and response.
• $773 million for nature-based solutions.
• $180 million for the state’s Cap-and-Trade Program.
• $330 million in special funds, Beverage Container Recycling: Strengthening the Circular Economy with Consumer Recycling Credits and Market Incentives.
• $3.111 billion for other climate change projects.

Cal Cities will continue to monitor these remaining allocations as they are finalized over the next two months.

Energy Facility Siting and Authority

Although this year’s budget is largely positive for city priorities, it does include one major negative: the removal of cities’ permitting and siting authority for certain types of energy projects. The Governor and the Legislature hastily developed and passed AB 205 (Committee on Budget), an energy budget trailer bill that completely removes the ability of local government to site and permit certain types of energy facilities.

In the bill, permitting for the siting of certain types of energy projects, such as on and offshore wind or large-scale solar, would be consolidated at the California Energy Commission. AB 205 was introduced without input from local governments and was only in print for three days before it was passed by the Legislature. Cal Cities, along with our county partners, will begin discussions with the Administration and the California Energy Commission to better understand how this bill will be implemented.

Public Safety

The budget amendment, AB 178, increased the funding available for peace officer wellness grants to be administered by the Board of State and Community Corrections from $40 million to $50 million. Additionally, the budget includes funding for the California Office of Emergency Services to assist with mutual aid for response and recovery during emergent incidents. $25 million will be made available to support activities directly related to regional response and readiness. An additional $23 million will be made available to the Law Enforcement Mutual Aid System in support of responses to conditions that threaten public safety, such as civil unrest.

Cannabis

The final agreement also includes the elimination of the cultivation tax. The cannabis excise rate will remain at 15% for three years, allowing relevant state agencies to adjust the cannabis excise tax rate every two years that follow in order to capture revenues equivalent to the cultivation tax. Additionally, the minimum baseline for Allocation 3, which includes Youth Education Prevention, Early Intervention, and Treatment Programming, will be set at $670 million to ensure there are no gaps in service.

AB 178 also established the Cannabis Local Jurisdiction Retail Access Grant Program by setting aside $20 million to be allocated to local jurisdictions that plan to expand cannabis retail access but do not have any cannabis retail permitting programs.

Revenue and taxation

The state appropriations limit or the “Gann Limit” was back in the limelight again this year. As the name implies, the Gann Limit constrains total state spending to adjusted levels; funds that exceed the limit must be spent on excluded expenditures or be rebated back to taxpayers.

In a maneuver to improve the state’s Gann condition, the budget excludes additional local subventions — unrestricted money received by a local agency from the state — from the state limit and thus counts some additional expenditures within local government appropriations limits when capacity exists at that level of government.

The vast majority of the redefined subventions affect county appropriations limits. However, cities may need to revise their local calculations in the coming months. Cal Cities will work with state officials to provide technical assistance.

In addition to the billions in direct relief, the budget includes a suspension of the General Fund portion of the sales tax on diesel fuel, reducing costs by about 23 cents per gallon. The budget will backfill this funding with quarterly transfers from the General Fund.