New budget proposal includes major cuts to housing and homelessness programs

May 10, 2024

The impact of this devastating disinvestment will be “felt for years to come” says Cal Cities executive director and CEO  

By Cal Cities Staff

Gov. Gavin Newsom characterized his May budget proposal as a "return to normalization" and a focus on core services. Yet, there should be nothing normal about making cuts to programs that help California's most vulnerable residents. Like many people, the Governor and lawmakers are looking for ways to close a budget shortfall — $26.7 billion according to the May Revision. Yet despite this deficit, they have billions of dollars to spend.

“The decision to not invest in another round of HHAP funding poses a devastating threat to homelessness programs statewide and puts at risk the health and safety of thousands of unhoused residents,” said Cal Cities Executive Director and CEO Carolyn Coleman. “Not only does the proposal eliminate one-time funding to address homelessness, but it also ignores the growing consensus around the need for ongoing funding to address this decades-in-the-making crisis.” 

The May Revision includes several painful cuts, most notably to major homelessness and housing programs. The Governor also proposed reductions to some hard-fought broadband victories, along with some creative accounting maneuvers that would shift or delay spending in key climate and transportation programs. Investments in public safety programs are largely maintained.

The proposal would draw down $13.1 billion in reserves over two years and implement $3 billion in workplace "efficiencies" in state agencies to close the rest of the deficit, for a total balanced budget of $288 billion. Crucially, the current proposal avoids any redirection of city funds to address the state’s budget shortfalls.

In addition to castigating cities while ignoring the state's own shortcomings — more on that below — the Governor took the opportunity to highlight some potential policy changes. This includes reforms to address revenue volatility and the state's exploding wildfire insurance crisis.

Keep reading for an analysis of major funding cuts, allocations, and policy proposals.

- Brian Hendershot, Cal Cities Advocate managing editor, with contributions by Waleed Hojeij, legislative affairs analyst

Revenue and Taxation

In early January, the Governor unveiled $38 billion in possible reductions, borrowing, delays, deferrals, and shifts, as well as $13.1 billion in reserve spending to close the budget deficit. This projection was at odds with the independent Legislative Analyst’s Office’s $73 billion shortfall projection. Then in April, he struck an agreement with lawmakers that addressed $17 billion of the deficit to secure more time for negotiations later in the year.

Unfortunately, tax collections and General Fund sales taxes came in below forecasts. This led many to anticipate that revenue forecasts would be revised down, increasing the budget deficit. The Governor’s May Revision seemingly validated those predictions, with the budget reduced to $288 billion, down from $291.5 billion in January.

The May Revision addresses what is now an approximately $27.6 billion deficit for the current fiscal year, an increase of $7 billion from January. The Governor attributed the increase to California’s volatile revenue system, which depends on high-income earners and stock market gains. The May Revision also anticipates a near $30 billion deficit for 2025-26.

The Governor again proposed balancing the budget through $15.2 billion in reductions (mostly undisbursed one-time appropriations), along with expansion pauses and shifts, borrowing, and workplace efficiencies. The budget would draw $13.1 billion from reserves over the next two years to close the rest.

He also floated a new “excess revenue investment capture account” to address future revenue volatility. The account would capture excess revenues above historical trends and limit the spending of the funds until they materialize. He also mentioned the need for structural tax reform but was scant on details.

The May Revision assumes steady but slowing economic growth. It does not anticipate a recession. However, the state is seeing an increase in unemployment and stubbornly high inflation. Inflation has cooled since its peak, but it is still higher than the Federal Reserve’s target rate. Although the Fed’s efforts to lower inflation through rate hikes could cool the economy, they also raise the odds of a recession. If that happens, the budget shortfall could drastically increase in future fiscal years.

- Ben Triffo, legislative affairs lobbyist

Public Safety

The January budget included key investments aimed at reducing fentanyl trafficking and retail theft. During the press conference, the Governor said that he is “holding the line” on crime, maintaining California Highway Patrol retail theft operations, and working in partnership with the National Guard to stop fentanyl at the border.

The Governor said he expects to propose trailer bill language to address home insurance companies hiking prices, leaving the state, or refusing to write new policies. He wants to fast-track the Insurance Commissioner’s rate ruling to stabilize the market.

Below is a breakdown of the major reductions — mostly to state and county programs — and policies announced in the Governor’s May Revise.

  • Trial Court Operations: Reduces $97 million ongoing, consistent with a reduction to state operations.
  • State Prison Housing Unit Deactivations: Reduce $80.6 million ongoing to reflect the deactivation of 46 housing units across 13 prisons, totaling approximately 4,600 beds.
  • Peace Officer Training Reduction: Reduce $8.5 million in 2023-24, $13.8 million in 2024-25, and $22.6 million ongoing to reflect a reduction in annual training for correctional officers and a discontinuation of the California Reality Based Training Center.
  • Parole Data Study: Reduce $6 million one-time for a study on parole data and outcomes.
  • Post Release Community Supervision: Reduce $4.4 million one-time in 2024-25 to eliminate funding provided to county probation departments for the temporary increase in offenders released from prison to Post Release Community Supervision under Proposition 57.
  • Adult Reentry Grant: Reduce $54.1 million in 2023-24 and $57 million one-time in outyears to proposed delays in the Governor’s January budget. The grant provides competitive funds to community-based organizations to deliver services that help formerly incarcerated individuals reenter communities.

- Jolena Voorhis, legislative affairs lobbyist

Community Services

The Governor's May Revision does not include new funding for reducing homelessness, despite a growing coalition led by local governments calling for ongoing funding. In fact, it goes a step further by eliminating key funding promised in previous years. While the Governor continues to blame local governments for the continued rise in homelessness, a recent state audit expressed significant concerns about the state’s strategy for collecting data and evaluating the success of its own programs.

In response to concerns about the lack of new funding, the Governor pointed to the recently passed Proposition 1. It provides $6.38 billion in bond funding for behavioral health housing. While these funds are a significant step forward in addressing homelessness, they are limited to housing people struggling with mental health and substance use. This leaves a huge gap in the state’s ability to meet the diverse needs of California’s homeless residents.  

A survey by Cal Cities underscores why ongoing funding is essential to helping people experiencing homelessness. Eighty-five percent of surveyed cities have started programs to prevent and reduce homelessness. Over 90% of them worry about their ability to provide those services in the long run. Cities agreed that the lack of ongoing funding is the top barrier to reducing homelessness. Over eight in 10 cities say inconsistent state funding harms their ability to effectively serve unhoused residents.

Below is a breakdown of major cuts announced in the Governor’s May budget.

  • Homeless Housing, Assistance, and Prevention (HHAP): The May Revise does not include any new funding for round six of the program or a commitment to fund it on an ongoing basis. It also eliminates nearly $300 million in previously budgeted HHAP bonus funds, which are awarded to recipients if they can meet specified performance metrics.
  • Behavioral Health: Includes numerous cuts to several behavioral health programs, including:
    • Eliminating $450.7 million in one-time funds from the last round of the Behavioral Health Continuum Infrastructure Program.
    • Reducing $132.5 million in 2024-25 and $207.5 million in 2025-26 for the Behavioral Health Bridge Housing Program.
    • Reducing $72.3 million one-time in 2023-24, $348.6 million in 2024-25, and $5 million in 2025-26 for school-linked health partnerships and capacity grants provided through the Children and Youth Behavioral Health Initiative.
  • Outdoor Access: Includes a one-time reduction of $50 million in 2023-24 for outdoor environmental education and access programs administered through the Outdoor Equity Grants Program.

- Caroline Grinder, legislative affairs lobbyist 

Housing, Community, and Economic Development

Earlier this year, the Governor announced $1.7 billion in cuts to key housing programs that cities rely on to increase affordable housing in their communities. Fast forward to May and continued calls from Cal Cities and its allies to bolster — or even maintain — existing funding levels for affordable housing proved unsuccessful. The Governor on Friday announced even deeper cuts to these programs, including eliminating key funding sources for affordable housing.

Below is a breakdown of major reductions announced in his May proposal.

  • Multi-Family Housing Program: In January, the Governor’s budget proposed eliminating $250 million from the program and leaving $75 million for the 2024-2025 budget year. In May, he proposed eliminating the remaining funds from this year’s budget.
  • Adaptive Reuse Program: The Governor announced the elimination of the $127.5 million program established in the 2023-2024 budget.
  • Foreclosure Intervention Housing Preservation Program: The Governor announced he was eliminating both the $236.5 million in last year’s budget for this program, in addition to the $237.5 million proposed in January, resulting in a complete elimination of the program.

- Brady Guertinlegislative affairs lobbyist

Environmental Quality

In January, the Governor announced significant cuts and delays to climate investments — roughly 11% of a historic $54 billion dedicated over 5 years. The May Revise continues that trend but with proposed shifts and reductions in much smaller magnitudes. However, these cuts are still significant. The changes would impact several programs that address climate change impacts in vulnerable communities.

The Governor cited two funding sources — recent federal climate investments upwards of $15.9 billion and legislatively proposed climate bonds — as an offset to state climate cuts. The two bonds, AB 1567 (Garcia) and SB 867 (Allen), are currently hovering around the $15 billion mark. Gov. Newsom noted he will continue to partner with the Legislature on this issue while staying mindful of the long-term cost of financing bond measures.

Below is a summary of natural resources and climate proposals in the Governor’s May budget.

  • Cap and Trade Fund Shifts: The May Revise proposes to shift $1.7 billion in 2024-25 from the General Fund to the Greenhouse Gas Reduction Fund for various climate programs. It would also shift $3.6 billion over the next five years from the General Fund to the Greenhouse Gas Reduction Fund, impacting transit programs, clean energy programs, zero-emission vehicle programs, and nature-based solutions programs.
  • Outdoor Equity Grants: Approximately $50 million one-time in 2023-24 would be reduced for outdoor environmental education and access programs administered through the Outdoor Equity Grants Program. Roughly $40 million is already committed for this program.
  • Vulnerable Community Toxic Clean-up: Approximately $136 million in reductions for 2023-24 (and $268.5 million over four years) for the Department of Toxic Substances Control’s Cleanup in Vulnerable Communities Initiative Program. The May Revision maintains $65 million (and $107.5 million over three years) for the program through a fund shift to the Greenhouse Gas Reduction Fund.
  • Habitat Conservation Fund: The May Revise reverts $45 million one-time in 2023-24 and reduces $20 million ongoing, starting in 2024-25, by accelerating the sunset date for the Habitat Conservation Fund, details of which are forthcoming. It is currently scheduled to sunset in 2030.
  • Water Storage: Notably, the Governor proposed $500 million of one-time funding in cuts in 2025-26 for water storage facilities. Proposition 1 of 2014 dedicated $2.7 billion for investments in water storage projects, and significant funding is still available for this purpose.
  • Air Pollution Control Fund Loan: A budgetary loan of $300 million is provided from the fund balance of the Air Pollution Control Fund to the General Fund.

- Melissa Sparks-Kranz, legislative affairs lobbyist

Governance, Transparency, and Labor Relations

The Governor’s May Revise includes “efficiencies,” such as reductions to state operations, and cuts to economic development, workforce, and apprenticeship programs. Some notable changes include:

  • Ongoing Reductions to State Operations and Elimination of Vacant Positions: The May Revise reduces state operations by approximately 7.95%, starting in 2024-25, to nearly all department budgets. This involves all categories, including personnel, operating costs, and contracting. The May Revise also eliminates approximately 10,000 unfilled state positions starting in 2025-26 and ongoing.
  • Reduction of Economic Development and Apprenticeship Programs: The May Revise reduces $150 million for the California Jobs First Program, an interagency partnership that supports resilient, equitable, and sustainable regional economies. The May Revise also eliminates the Women in Construction Program by cutting $10 million on an ongoing basis, in addition to the $5 million ongoing reduction proposed in the Governor’s budget.

- Johnnie Pina, legislative affairs lobbyist

Transportation, Communications, and Public Works

The Governor’s May Revise proposes a combination of fiscal maneuvers — including spending reductions, shifts, and delaying funds — to move $3.6 billion from the General Fund to the Greenhouse Gas Reduction Fund. This would impact transit programs, clean energy programs, zero-emission vehicle programs, and nature-based solutions programs.

The May Revise maintains the Formula Transit and Intercity Rail Capital Program ($4 billion) and the Zero Emission Transit Capital Program ($1.1 billion) funding levels. The May Revision also reduces $148 million not used for awarded projects from the Competitive Transit and Intercity Rail Capital Program and maintains 96% of the Competitive Transit and Intercity Rail Capital Program ($3.5 billion of the originally planned $3.65 billion).

Below is a breakdown of major reductions and shifts announced in the Governor’s May Revision.

  • Transit: Shifts $555.1 million from the General Fund to the Greenhouse Gas Reduction Fund above what was proposed in the Governor's budget, for a total of $1.3 billion in proposed fund shifts for transit.
  • Active Transportation Program: Reduces $300 million in 2025-26 and $99 million in 2026-27 for funds appropriated for active transportation.
  • ZEV Fueling Infrastructure: Shifts $475 million from Cap and Trade intended to support zero-emission vehicles.
  • Broadband: Proposes a $2 billion clawback of investments that would increase access to broadband internet. This would be achieved by authorizing the Department of Finance to override Middle Mile Broadband Initiative investments, eliminating $700 million from the committed $750 million from the loan loss revenue account, and delaying $200 million from 2025-26 to 2027-28 for Last Mile investments.

- Damon Conklin, legislative affairs lobbyist

Next steps

This is just the next step in the budget negotiation dance. Lawmakers must approve the state budget by June 15. However, the exact details of the budget are often hammered out in budget trailer bills throughout the year. To learn how you can make your voice heard, contact your regional public affairs manager.