Gavin Newsom, California lawmakers still need to fix $32B budget gap. How are they divided?

California lawmakers have passed a spending plan for the upcoming year — but Gov. Gavin Newsom isn’t fully on board just yet.

The Legislature on Thursday approved a $311.7 billion budget that will act as a placeholder while Newsom and legislators remain locked in negotiations over how to close the state’s estimated $31.5 billion budget gap.

The legislative accord represents a deal between the Democratic caucuses of the state Senate and Assembly that was reached after 120 public hearings that spanned six months. California’s constitution requires lawmakers to approve a balanced budget by June 15 in order to get paid.

It’s become common practice during Newsom’s tenure to continue negotiations after the legislative budget agreement is passed and amend the bill prior to the start of the new fiscal year on July 1, when Newsom must sign off on the final budget.

Assembly Budget Chair Phil Ting, D-San Francisco, on Thursday said lawmakers and the administration are “very close” to an agreement, which he expects will come together in the matter of days.

During floor discussions, Republicans raised concerns about $42 billion in anticipated tax receipts that have been delayed until October. California residents in areas affected by severe winter storms received a tax-filing extension, which means leaders are not certain exactly how much revenue they will get this fall.

“We have a framework based off of risky revenue estimates,” said Assembly Budget Vice Chair Vince Fong, R-Kern County. “According to the Legislative Analyst’s Office, it is more than likely revenues will come in below the governor’s estimates. And should revenues come in lower than estimated, we have a major budget problem.”

Here are the major differences between the legislative deal and the revised budget Newsom unveiled in May.

Passing Gavin Newsom’s infrastructure plan

Newsom in May announced a new plan — made up of 10 budget trailer bills and an executive order — to expedite transportation, water, clean energy and other major infrastructure projects across California. Since then, it has become the most contentious issue of the budget.

Trailer bills are used to flesh out specific programs and policies in the main budget. But unlike the main budget, the deadline to pass trailer bills is the end of the session on Sept. 14.

The legislature’s budget deal does not include trailer bills, including the ones pertaining to the governor’s infrastructure plan.

During committee meetings in recent weeks, lawmakers rejected Newsom’s package, saying they weren’t given adequate time to consider the complex proposals. The governor tried to squeeze the bills in just weeks before lawmakers were required to pass their budget plan.

Senate Budget Chair Nancy Skinner, D-Berkeley, said Thursday that discussions were ongoing and it was unclear whether an agreement would be reached prior to the budget vote later this month. Unlike the budget, trailer bills do not need to be passed until the end of the session in the fall.

“If the past is any kind of indicator, there will be some revisions,” Skinner said.

Lawmakers are concerned the bills could be used to push through certain controversial projects like the plan to build a tunnel to transport water beneath the Sacramento-San Joaquin River Delta.

Funding for California’s public transit operators

Newsom’s budget plan would pare back $2 billion for transit capital projects in order to help fill the financial hole.

But at a time when the state’s major public transit agencies face slumping ridership and a looming “fiscal cliff,” Democrats in the legislature are staunchly opposed to the governor’s proposal. They, along with transit advocates, say the cuts would jeopardize the future of public transit across California and hinder the state’s emission reduction goals.

The legislature’s agreement not only reverses Newsom’s proposed $2 billion cut to transit capital funds, but it also allocates $1.1 billion in largely cap-and-trade funds to public transportation operations.

California transit systems received an unprecedented flow of federal relief to maintain operations throughout the pandemic. But that funding is running out and systems that rely heavily on fare box revenue — those in the Bay Area and Southern California — said they would need to run trains less frequently and reduce hours of operation if they didn’t get operational funds to balance their budgets.

Senator Scott Wiener, D-San Francisco, said the legislative deal was a “meaningful and positive step towards solving the transit operation fiscal cliff so that our constituents can continue to get to work, to the doctor, or to the supermarket.”

Closing more prisons and reforming San Quentin

California lawmakers and Newsom agree they want to continue moving away from mass incarceration by closing prisons and increasing programming at remaining facilities. They are not on the same page about how to make that happen.

Newsom, during his spring State of the State tour, announced plans to reform San Quentin State Prison and turn it into a rehabilitation center.

However, the Legislature rejected the governor’s request for $360 million in revenue bond authority to construct a new educational and vocational center and approved just $20 million for preliminary project planning costs.

As California’s incarcerated population continues to decline, more prison closures are likely on the horizon. But it’s unclear exactly how many facilities leaders will shutter and when the closures will occur.

Assembly Democrats’ budget proposal suggested closing five more prisons by 2027. The governor’s May budget revision said his administration is “committed to meeting the needs of staff and the incarcerated populations while right-sizing California’s prison system.”

Ongoing homelessness funding for cities and counties

Continuing of providing California cities and counties with money to curb homelessness, Newsom’s plan would allocate $1 billion in one-time funding for a fifth round of grants through the Homeless Housing, Assistance and Prevention program, also known as HHAP.

The legislative deal goes further than the governor’s plan to guarantee an additional $1 billion for a sixth round of HHAP funding. Local leaders have long advocated for ongoing support, saying that one-time allotments make it difficult to plan for the future.

Lawmakers say the additional round of funding would help local officials make longer-term investments to get more people off the streets and into permanent housing. The legislative deal also would fast-track the deployment of $360 million in HHAP funding that is currently set aside only to be used for local jurisdictions that achieve their goals around reducing street homelessness.

Supporting California child care providers

Lawmakers and the governor are also at odds over pay for child care providers. The state’s contract with a major industry union expires at the end of the month.

Newsom signed a 2019 bill that allows providers who care for low-income children to collectively bargain with the state. Child Care Providers United members signed their first contract with the state in 2021. Now, the union is back at the negotiating table, and their existing agreement comes to an end on June 30.

The Legislature’s budget would increase reimbursement rates and would restore 20,000 subsidized child care slots set to be released on July 1, 2024. Newsom’s spending plan proposed delaying funding for the slots to save money.

In the meantime, the state will continue bargaining with the union.

Skinner wouldn’t provide details about negotiations between lawmakers and the governor over funding for providers. But she said Newsom’s administration is “also committed to child care.”