ARTICLE
The summer is here in full swing as our state and local governments are finalizing their respective budgets. Last week, the state legislature approved a 2024-2025 budget to meet the June 15 deadline. The Legislature passed a temporary budget Thursday, June 13 that reflects agreements between the Senate and the Assembly. As they cast their votes, Democrats repeatedly emphasized how open they’ve been in crafting their budget. “We’ve had 72 public hearings,” Assembly Budget Chair Jesse Gabriel (D-Encino) said after the vote. “I have sat through hours of public comment, as have all of the subchairs.” I am not sure the general public reflects that opinion based on a recent Public Policy Institute of California (PPIC) poll that shows the majority of California adults (62%) and likely voters (59%) continue to think that things in the state are headed in the wrong direction, a share that has slowly grown in the last year (June 2023: 54% wrong direction, 45% right direction). A poll is like a point in time count but the PPIC has been very consistent in their analysis of Californians and likely voters’ opinion. The full poll is here: PPIC June Poll. Of course, when you have a $45 billion dollar deficit, hard choices are a part of the discussion. There is still a deep divide between what the Democratic-led legislature passed and what Governor Newsom submitted to the legislature in his May budget revision. Every year there are internal conversations behind closed doors between the state Legislative leaders and the Governor. But the amount of backroom negotiations underway this month is especially intense due to two upcoming deadlines. The governor must sign a balanced state budget by June 30, and the deadline to put measures on the November ballot is June 27. This year‘s secret budget conversations are intertwined with dealmaking around the 2024 ballot. Closed-door meetings will continue with the governor as they work to close a $45-billion deficit and land a final funding plan for the fiscal year that begins July 1. Beyond the budget, elected officials are also negotiating with interest groups over proposed statewide ballot measures that include billions of dollars in bonds to build schools, housing, and environmental projects. Some of those conversations deal with revising Prop 47. The Legislature has debated a series of bills to modify Prop 47. However, the proponents of the ballot measure, which qualified for the November ballot by collecting over 900,000 voter signatures, and the Governor have stalled as of this writing. There are other matters to resolve before a final budget is approved. Last year the Governor signed a law to raise the minimum wage for health care workers to $25/hour. The Governor has noted he wants to delay that increase while the legislative leaders and the unions demand it remains in the budget. On the higher education front, Newsom’s plan imposes cuts and delays funding for UC and CSU in 2024-25 and then restores funding in 2025-26 — but by much less than what lawmakers and the governor promised last year. Newsom’s funding plan has numerous moving parts, but would basically see Cal State receive $75 million less in 2024-25, then bounce up by $171 million the next year, and leap by another $265 million by 2026-27. That would increase Cal State’s main state support to $5.35 billion. But Cal State faces numerous budget challenges, including a deficit as high as $831 million in the next two years. The legislative plan would switch the order of fiscal pain by proposing to grow the UC and CSU budgets in 2024-25 and apply cuts — if the budget deficit still calls for it — in 2025-26. The logic is that another year of additional state aid, even if it’s less than what the systems were promised last year, provides them a year to prepare for the budgetary cycle. Under both plans, the UC and Cal State systems would see more funding by the third year. For Cal State, that’s a jump from $4.99 billion in 2023-24 to $5.35 billion in 2026-27. And for UC, that’d mean state support growing from $4.74 billion now to $5.18 billion in 2026-27. I don’t expect a final state budget deal to come forward until the last days of June, which will be followed by budget trailer bills on specific funding strategies. Now, let's see what the discussion is at the Santa Cruz City Council. The Santa Cruz City Council approved their 2024-2025 budget with very few public comments last week. Either the general public has grown tired of the labor-intensive city staff and city council discussions or the general public just doesn’t understand the city budget process. The Chamber closely follows the process but we did not see where our input would make any meaningful difference at this time. What we do know is the City’s deficit has doubled in this 2024-2025 budget vs. the previous year. While compared to the state deficit, the $2.4 million deficit means the city has to dip into its reserves to cover expenses. City Manager Matt Huffaker noted that the city can’t maintain a budget on one-time revenue streams from the state and federal government. Santa Cruz will see no one-time funds going forward. The city acknowledges that expenses will continue to rise due to pension costs, staff salary increases and inflation. However, we don’t believe placing an additional burden on the residents and businesses to absorb those rising costs by increasing their tax burden is the best way to meet the city’s financial obligations. This is a diminishing return on local businesses, which may look to curb their tax obligations, by moving out of the city limits, reducing overhead and employees and other means to hopefully stay in business. One real strategy is to look at the future of the City through the lens of the business community by addressing the need for more housing in our city. The City is on the right path to increase the housing stock by 3700 units over the next eight years. Along with housing project approvals come construction jobs and increase retail and commercial activity in our city. This increases the city tax base with both sales tax and property tax valuation and encourages more out of town visitors to spend their vacation time (and money) here. It will take time but the end result is a more sustainable option than a new tax or new fee on the general public.
The summer is here in full swing as our state and local governments are finalizing their respective budgets. Last week, the state legislature approved a 2024-2025 budget to meet the June 15 deadline. The Legislature passed a temporary budget Thursday, June 13 that reflects agreements between the Senate and the Assembly. As they cast their votes, Democrats repeatedly emphasized how open they’ve been in crafting their budget. “We’ve had 72 public hearings,” Assembly Budget Chair Jesse Gabriel (D-Encino) said after the vote. “I have sat through hours of public comment, as have all of the subchairs.” I am not sure the general public reflects that opinion based on a recent Public Policy Institute of California (PPIC) poll that shows the majority of California adults (62%) and likely voters (59%) continue to think that things in the state are headed in the wrong direction, a share that has slowly grown in the last year (June 2023: 54% wrong direction, 45% right direction). A poll is like a point in time count but the PPIC has been very consistent in their analysis of Californians and likely voters’ opinion. The full poll is here: PPIC June Poll.
Of course, when you have a $45 billion dollar deficit, hard choices are a part of the discussion. There is still a deep divide between what the Democratic-led legislature passed and what Governor Newsom submitted to the legislature in his May budget revision.
Every year there are internal conversations behind closed doors between the state Legislative leaders and the Governor. But the amount of backroom negotiations underway this month is especially intense due to two upcoming deadlines. The governor must sign a balanced state budget by June 30, and the deadline to put measures on the November ballot is June 27. This year‘s secret budget conversations are intertwined with dealmaking around the 2024 ballot.
Closed-door meetings will continue with the governor as they work to close a $45-billion deficit and land a final funding plan for the fiscal year that begins July 1. Beyond the budget, elected officials are also negotiating with interest groups over proposed statewide ballot measures that include billions of dollars in bonds to build schools, housing, and environmental projects. Some of those conversations deal with revising Prop 47. The Legislature has debated a series of bills to modify Prop 47.
However, the proponents of the ballot measure, which qualified for the November ballot by collecting over 900,000 voter signatures, and the Governor have stalled as of this writing.
There are other matters to resolve before a final budget is approved. Last year the Governor signed a law to raise the minimum wage for health care workers to $25/hour. The Governor has noted he wants to delay that increase while the legislative leaders and the unions demand it remains in the budget.
On the higher education front, Newsom’s plan imposes cuts and delays funding for UC and CSU in 2024-25 and then restores funding in 2025-26 — but by much less than what lawmakers and the governor promised last year.
Newsom’s funding plan has numerous moving parts, but would basically see Cal State receive $75 million less in 2024-25, then bounce up by $171 million the next year, and leap by another $265 million by 2026-27. That would increase Cal State’s main state support to $5.35 billion. But Cal State faces numerous budget challenges, including a deficit as high as $831 million in the next two years. The legislative plan would switch the order of fiscal pain by proposing to grow the UC and CSU budgets in 2024-25 and apply cuts — if the budget deficit still calls for it — in 2025-26. The logic is that another year of additional state aid, even if it’s less than what the systems were promised last year, provides them a year to prepare for the budgetary cycle.
Under both plans, the UC and Cal State systems would see more funding by the third year. For Cal State, that’s a jump from $4.99 billion in 2023-24 to $5.35 billion in 2026-27. And for UC, that’d mean state support growing from $4.74 billion now to $5.18 billion in 2026-27.
I don’t expect a final state budget deal to come forward until the last days of June, which will be followed by budget trailer bills on specific funding strategies.
Now, let's see what the discussion is at the Santa Cruz City Council. The Santa Cruz City Council approved their 2024-2025 budget with very few public comments last week. Either the general public has grown tired of the labor-intensive city staff and city council discussions or the general public just doesn’t understand the city budget process. The Chamber closely follows the process but we did not see where our input would make any meaningful difference at this time. What we do know is the City’s deficit has doubled in this 2024-2025 budget vs. the previous year. While compared to the state deficit, the $2.4 million deficit means the city has to dip into its reserves to cover expenses.
City Manager Matt Huffaker noted that the city can’t maintain a budget on one-time revenue streams from the state and federal government. Santa Cruz will see no one-time funds going forward. The city acknowledges that expenses will continue to rise due to pension costs, staff salary increases and inflation. However, we don’t believe placing an additional burden on the residents and businesses to absorb those rising costs by increasing their tax burden is the best way to meet the city’s financial obligations. This is a diminishing return on local businesses, which may look to curb their tax obligations, by moving out of the city limits, reducing overhead and employees and other means to hopefully stay in business.
One real strategy is to look at the future of the City through the lens of the business community by addressing the need for more housing in our city. The City is on the right path to increase the housing stock by 3700 units over the next eight years. Along with housing project approvals come construction jobs and increase retail and commercial activity in our city. This increases the city tax base with both sales tax and property tax valuation and encourages more out of town visitors to spend their vacation time (and money) here. It will take time but the end result is a more sustainable option than a new tax or new fee on the general public.