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With two days to spare, the California State Legislature met its June 15 constitutional deadline for passing a balanced State Budget. Senate Bill 154, titled “The Budget Act of 2022”, cleared both the State Senate and Assembly June 13 on party-line votes. However, SB 154 only represents an agreement between the two houses of the Legislature; further negotiations between Legislative leaders and Governor Gavin Newsom are expected before a final version of the State Budget is approved and signed into law. Below is a brief overview of what we know so far.

Budget Overview

The 2022-23 State Budget includes total spending of just over $300 billion with $235.5 billion being from the General Fund. In addition, the Legislative Budget Agreement includes roughly $37.8 billion in total reserves including $3.2 billion in the regular operating reserve. These record high reserves include $3.2 billion in Regular Reserve, $1.5 billion in the Safety Net Reserve, $9.5 billion in the Proposition 98 Reserve, and $23.3 billion to be included in the Rainy Day Fund (Budget Stabilization Account). Of note, the General Fund spending in the previous year’s Legislative budget plan is roughly $8 billion less than the Governor proposes, with only nine percent of new commitments in 2022-23 being ongoing.

Below are highlights of the 2022-23 Legislative Budget Agreement that will potentially impact special districts across California:

Infrastructure Investments

The Legislative Budget Agreement funds infrastructure investment in the form of $40 billion throughout the budget forecast period. These investments are reflected throughout the budget in areas such as, but not limited to, deferred maintenance, climate and energy, broadband, and decreasing the overall cost of the Capitol Annex project down by switching the cost of from lease revenue bonds to the General Fund.

Climate, Energy and, Water

The Legislature recommends adopting a Legislative Climate-Energy Budget Plan by appropriating $21 billion General Fund for the climate and energy package. This plan is includes water-drought resilience, extreme heat, biodiversity and outdoor access, zero-emission vehicles, and wildfire resilience.

The Legislative budget provides $3 million in grants over three years from the Water Quality, Supply, and Infrastructure Improvement Act of 2014 while including $100 million for dam safety projects. In approval of the Governor’s May Revision proposals, the Legislature approves $200 million for residential wastewater and water arrearages.

Locally, the Legislature approves of $23.75 million in Local Assistance in 2022-23 at the California Department of Public Health to establish a Climate Change and Health Resilience Planning Grant program funding local health departments to develop regional Climate and Health Resilience Plans.

Disaster Prevention and Response

The 2022-23 Legislative Budget Agreement both approves key actions on the Governor’s proposals and makes key legislative additions. First, the agreement approves $114 million one-time increase, and an ongoing increase of $37.4 million for the California Disaster Assistance Act adjustment. Second, the Legislature directs the Office of Emergency Services to create a statewide plan with goals associated with the state’s emergency response capacity and an assessment of that capacity in addition to establishing $250 million for the Multifamily Seismic Retrofit Matching Grant Program in the following year.

Local Government Financing

The Legislature rejects proposed language that would cap revenue offsets for city and county Vehicle License Fee (VLF) backfill insufficiencies propelled by insufficient Educational Revenue Augmentation Fund (ERAF) revenues. In addition, the Legislature approves of the $3.783 million backfill for property taxes lost in El Dorado County and Plumas because of wildfires.   

Tangentially, the Legislature allows for the reappropriation of $5 million General Fund for the acquisition of property for the development of a new state park to be used for studies/planning, acquisition, and the development of immediate public use improvements. Lastly, the Legislature will allocate $180 million to help local governments implement Senate Bill 1383 (Lara, 2016) related to organic waste recycling programs.

Housing

The Governor’s affordable housing proposals includes $500 million over two years for the Infill Infrastructure Grant Program, $50 million in accessory dwelling unit (ADU) financing, and provides $150 million for the preservation of existing affordable housing over the next two years.

Transportation

The 2022-23 Legislative Budget Agreement includes $1.2 billion over the next two years for freight-related infrastructure at (and around) the state’s ports for zero-emission equipment modernization, deployment, and new bridges. This budget agreement also includes a $10.9 billion transportation package ($5.5 billion in 2022-23, $1.85 billion in 2023-24, $1.45 billion in 2024-25, and $2.1 billion in 2025-26).

State Appropriation (GANN) Limit

On April 26, the Legislative Analyst’s Office (LAO) published an article discussing how the state’s continued revenue growth could cause large recurring budget deficits due to the increase in ongoing constitutionally required funding (state appropriations). The LAO goes on to explain that considering the state “has essentially reached the Proposition 4 (1979) state appropriations limit (SLA), each additional dollar in revenue must be allocated consistent with SLA requirements, generally making them unavailable to fund baseline expenditures,” (Petek, 2022). Although not a problem now, the LAO suggests that major budgetary problems could occur in 2025-26.  

This state appropriations limit (and the dangers therein) had not eluded the Legislature when building its 2022-23 Budget Agreement. The Legislature states that should the May Revision be adopted with no changes, it would leave the state $3 billion over the SAL in 2022-23. Therefore, the Legislature has provided major changes to the budget that would result in the state being $20 billion under the SAL. In trying to avoid a GANN-related “fiscal cliff” in the following year, the Legislature has leaned on options suggested by the LAO in the form of major COVID-19 emergency-related spending, major infrastructure spending, and direct payments to families. This Budget Agreement includes a call to voters to consider changes to the GANN limit given that these Constitutional conflicts will most likely result in making cuts to baseline programs such as public safety, higher education, and health.

On May 17, 2022, attendees of Special Districts Legislative Days advocated on behalf of all local agencies in seeking reimbursement for nearly $1 billion in state mandate costs that are owed by the State. Mandate reimbursement is one potential way the state might be able to spend its surplus while remaining beneath the state appropriations limit.

CSDA Budgetary Actions

As the Legislative Session continues and nears the constitutional budgetary deadline, CSDA has taken action to advocate on behalf of special districts, including Key Budget Requests in meetings with Legislators and Capitol staff at the 2022 Special Districts Legislative Days. In partnership with other stakeholders, CSDA has formally advocated in support of the following proposals:

On February 28, CSDA joined a coalition including some CSDA members and other organizations requesting for the inclusion of $10 million for the Department of Water Resources Atmospheric Rivers: Research, Mitigation, and Climate Forecasting Program to support the study and implementation of forecast-informed reservoir operations. This request is to advance operational atmospheric rivers forecast tool integration with the Department of Water Resources’ supply management and to increase water management flexibility, and continue innovations that improve the program, precipitation, and snow level prediction capabilities.

On March 18, CSDA along with the Association of California Water Agencies (ACWA), the California Municipal Utilities Association (CMUA), the California Water Association (CWA), and the California Association of Sanitation Agencies (CASA) signed a coalition letter asking to extend the California Water and Wastewater Arrearage Payment Program from June 15, 2021 to December 31, 2021 for residential and commercial customer water and wastewater arrearages accrued between March 4, 2020 and June 15, 2021.

On April 20, CSDA wrote a letter of support for the Sacramento Metropolitan Fire District’s $44 million budget request to fund the Phase 3 buildout of a state-of-the-art regional first responder training facility located in Rancho Cordova, California. The Zinfandel First Responder Training Facility would serve fire/EMS agencies across northern California, as well as other partners in public safety, emergency management, and disaster response and recovery.

On April 27, CSDA wrote a letter to the Chairs of the Assembly and Senate Budget Committees, Assemblymember Philip Ting and Senator Nancy Skinner, proudly supporting the request of $2 million to support the Insure the Uninsured Project (ITUP) to gather and report data to the Legislature on the impacts of expanded broadband access on health outcomes.

On May 24, CSDA joined a coalition with the California Municipal Utilities Association (CMUA) and the Community Water Center advocating for the support of the Senate’s leadership proposal of $7.5 billion in state and federal funds for a climate-resilient water system. This proposal comes in addition to the roughly $1 billion Governor Newsom proposed in his May Revision for a variety of water projects.

On June 6, CSDA submitted a letter to the Assembly and Senate Budget Committees in support of the Mosquito and Vector Control Association of California’s (MVCAC) request for $3 million in one-time funding, and $500,000 ongoing for projects designed to reduce mosquito production on California Department of Fish and Wildlife (CDFW) lands to cover mosquito abatement costs associated with the implementation of wetland management on those state properties.

Last but not least, on June 7, CSDA wrote a letter to the Assembly and Senate Budget Committees in support for the inclusion of $1 billion for district hospital seismic infrastructure projects in this year’s state budget, as requested by Assembly Member Eduardo Garcia and signed by nineteen other members of the Legislature.

The Legislature and Governor Newsom are expected to reach terms on the budget in chief prior to the beginning of the July 1 Fiscal Year and ensuing month-long Legislative Summer Recess.  Once the State Budget is formally approved it is anticipated the Legislature and Governor will continue to consider “Budget Trailer Bills” into the month of August. As these actions progress, CSDA will provide updates of the finalized budget and other budget-related items pertinent to special districts throughout the state.

If you have any questions, please contact CSDA Legislative Analyst Cole Querry at coleq@csda.net.