Governor Newsom Releases Proposed Budget
Estimated read time: 5 mins, 40 secs.
Written for: All California Clients
Policy Brief:
The Governor’s proposed budget is based upon a $37.8 billion shortfall, differing from the Legislative Analysts’ Office’s $68 billion budget shortfall.
The Governor’s proposed budget continues last fiscal year’s trend of deferring programs, moving funding, and cutting funding.
The Governor did not declare a fiscal emergency.
There were particular reductions in the areas of water, energy, and transportation.
California Governor Gavin Newsom released his proposed Fiscal Year 2024-2025 State Budget of $208.7 billion. This is an approximate 10% reduction overall from the Fiscal Year 2023-2024 State Budget. The Business, Consumer Services & Housing, Natural Resources, and Environmental Protection sectors felt the greatest spending reductions. This summary will focus on interest areas for Capitol Core clients, including water, renewable energy, and transportation.
Overall and Budget Summary:
The Governor bases the FY2024-2025 Budget upon total revenues of $222.728 billion, which includes a withdrawal of $13.1 billion from the State’s Budget Stabilization Accounts (“Rainy Day Funds”). From FY2023-2024’s State Budget, the Governor proposes an $8.5 billion overall spending cut. This includes -$2.9 billion from Climate Change programs (which include water and renewable energy goal programs) and a -$350 million in [topline] Legislatively-directed spending requests (“earmarks”). The proposed budget defers and delays another $5.1 million in various State programs. This carries over the delays from the FY2023-2024 State Budget and pushes out $3.1 billion in clean energy reliability programs as well as an additional $1 billion in transit and intercity rail. In the current budget proposal, $5.7 billion is borrowed from other funds primarily to meet health care programs. $4.3 billion is shifted from the greenhouse gas reduction fund, State retirement plan contributions, and unemployment insurance interest payments.
Infrastructure
The proposed FY2024-2025 State Budget acknowledges the nearly $61.2 billion dollars the State has received in federal infrastructure funding. The “Clean Energy System” and the proposed “State Water Policy” have been significant beneficiaries of federal infrastructure funding with an additional $41 billion investment by the State.
The Governor has struggled to keep infrastructure investment moving while facing revenue shortfalls. The budget plans for the past two years have largely deferred capital spending programs, delaying the State’s overall clean energy and water infrastructure goals. The State’s required five-year infrastructure plan is due in 2024. The Governor is not proposing to reduce his spending pledges to infrastructure but has pushed out overall dates for completion.
Water
Water issues are primarily contained within the Natural Resources/Environmental Protection and Climate Change sections of the State Budget. The proposed budget contains $9 billion in spending for the year, which is a reduction of 51% from FY2023-2204 spending levels.
The FY2021-2022 State Budget committed $8.7 billion to water projects within the State over a ten-year period. The committed funding was included the Governor’s proposed State Water Strategy with an additional $2 billion request to accomplish various water infrastructure projects. The FY2023-2024 State Budget reduced the overall commitment. The Governor’s Proposed State Budget reduces the overall commitment to $7.3 billion, a $2.7 billion reduction from the amounts needed to accomplish the State Water Strategy. For FY2024-2025, a nearly $800 million reduction/elimination in General Fund allocations and an additional $100 million in water spending projects are being deferred (in addition to those previously deferred in FY2023-2024). The proposed budget shifts State priority spending to support flood protection, levee repair, and Salton Sea restoration. This defers previous State water priorities, including recycled water, desalination, and SGMA implementation.
Specifically, the Proposed Budget:
Diverts $88.4 million of Watershed and Climate Resilience (drought) program funding to other State priority areas. An additional $350 million is eliminated. $56 million in previously allocated funds (not new) remains in the current budget for DWR to administer drought, resiliency, and SMGA implementation.
Water Efficiency and Enhancement: The proposed budget shifts $20.6 million from the General Fund to the Greenhouse Gas Reduction Fund to carry out water efficiency and enhancement activities. Allocation of these funds is deferred to the FY2024-2025 State budget.
Water Recycling: $174.4 million is diverted to other State water priority programs. $100 million is deferred to future budgets. The Budget maintains $348 million in previously allocated funds (not new).
PFAS/PFOA: The proposed budget eliminates the State provided funding for PFAS/PFOA. Maintaining $53 million in federally-provided (formula programmatic) funding.
Energy
The FY2021-2022 State Budget provided a total of $7.9 billion in State energy investments. An additional $1 billion was provided to the Clean Energy Reliability Fund in 2022. The FY2023-2024 State Budget Act reduced the State’s energy investments by $944 million. The proposed budget further reduces those investments by $414 million. It further shifts $144 million to other programs and delays $505 million. The proposed budget maintains $6.6 billion but defers $1 billion in the Clean Energy Reliability Fund until the FY2024-2025 State Budget.
Capacity Building Grants: A reversion of $20 million General Fund for the Capacity Building Grants Program at the California Public Utilities Commission (CPUC). The Budget maintains $10 million for this program.
Investments in Strategic Reliability Assets: A delay of $55 million General Fund for the Electricity Supply Reliability Reserve Fund Program from 2024-25 to 2025-26. The Budget maintains the full $2.37 billion General Fund to the DWR.
A delay of $50 million General Fund for the Distributed Electricity Backup Assets Program at the California Energy Commission (CEC), with $25 million delayed until 2025-26 and $25 million delayed to 2026-27. The Budget maintains $595 million, with $495 million in 2023-24, $25 million in 2024-25, $50 million in 2025-26, and $25 million in 2026-27 for the program and $100 million for DWR for this program through 2027-28.
Carbon Removal Innovation: A reversion of $40 million General Fund for the Carbon Removal Innovation Program at the CEC. The Budget maintains $35 million to the CEC for this program.
Residential Solar and Storage: A delay of $200 million General Fund ($75 million in 2024-25 and $125 million in 2025-26) for the Residential Solar and Storage Program. Instead, $100 million in 2026-27 and $100 million in 2027-28 would be available. The Budget maintains the $630 million to the CPUC for this program.
Incentives for Long Duration Storage: A shift of $56.9 million General Fund to the GGRF in 2024-25 for the Long Duration Storage Program at the CEC. The Budget maintains $330 million for the program with this shift.
Oroville Pump Storage: A delay of $200 million General Fund ($90 million in 2024-25 and $110 million in 2025-26) for the Oroville Pump Storage Project. The delay results in $100 million General Fund in 2026-27 and $100 million in 2027-28. The Budget maintains the full $240 million to the DWR for this project.
Food Production Investment: A reversion of $18.8 million General Fund for the Food Production Investment Program at the CEC. The Budget maintains $46.2 million for the CEC for this program.
Equitable Building Decarbonization: A reduction of $283 million General Fund and a shift of $87 million to the GGRF for the Equitable Building Decarbonization Program at the CEC. The Budget maintains $639 million to the CEC for this program.
Industrial Decarbonization: A reversion of $22 million General Fund for the Industrial Decarbonization Program at the CEC. The Budget maintains $68 million to the CEC for this program.
Hydrogen Grants: A reversion of $35 million General Fund for the Hydrogen Grant Program at the CEC. The Budget maintains $65 million to the CEC for this program.
Clean Energy Reliability Investment Plan (CERIP): A delay of $400 million General Fund in 2024-25 and $400 million General Fund in 2025-26 for the CERIP. The Budget maintains the $1 billion for CERIP, which is consistent with SB 846 (Chapter 239, Statues of 2022) as follows: $100 million General Fund in 2023-2024, $100 million General Fund in 2025-26, $300 million General Fund in 2026-27, and $500 million General Fund in 2027-28.
Land Conservation and Economic Development Plan: A delay of $150 million General Fund for Land Conservation and Economic Development near Diablo Canyon. The Budget includes $50 million in funding for the program annually for three years beginning in 2025-26.
Transportation
The FY2021-2022 Budget Act included $13.8 billion for transportation programs and projects that align with the state’s climate goals. The Budget maintains $13.6 billion of these investments. The Budget includes $200 million in General Fund reductions, $791 million in fund shifts, and $3.1 billion in delays across various programs.
Inside the Annex is an issue snapshot for Capitol Core Group clients in specific industries. It is compiled from research and discussions, as well as outside resources. All data is public but is compiled for ease of understanding.
This is the first in the series on the California Budget (2024-2025) and is a policy overview in select budget areas. Capitol Core initiated this snapshot due to the release of the Governor’s proposed budget.
Jeff M. Simonetti leads the California practice.