Assembly Democrats are at odds with California Gov. Gavin Newsom on a handful of major issues — including proposed cuts to Medi-Cal providers’ rate increases and suspension of tax deductions — as lawmakers negotiate a budget to close an estimated $100 million deficit 45 billion to close.
The Legislature must approve a spending plan by June 15 so lawmakers can receive their paychecks. That means Newsom, Assembly Speaker Robert Rivas, D-Hollister, and Senate President Pro Tem Mike McGuire, D-Healdsburg, will have to reach an agreement soon.
Administration officials Rivas, McGuire and Newsom are not publicly discussing any deals. But some lawmakers and budget subcommittee chairmen have been more open about their feelings toward Newsom’s proposed budget. Here are some of the possible budget debates that Assembly members are already having.
Changes to Medi-Cal provider rate increases
Newsom’s revised budget, which he presented earlier this month, cuts $6.7 billion from Medi-Cal provider rate increases scheduled for January 2025.
The rate increases would come from higher taxes on managed care organizations, or insurers, that lawmakers approved last year and in March. The MCO tax allows California to take in additional federal money to help fund Medi-Cal, the state’s version of the Medicaid program that provides health insurance to low-income residents.
Assemblywoman Akilah Weber, D-San Diego, chair of the Assembly Budget Subcommittee on Health, said at a May 15 meeting that some lawmakers received “very tough votes” on MCO tax increases last year and in March and are now “quite upset and feel as if this process has not been very fair.
Weber asked for solutions from representatives of the Ministry of Finance who presented the changes. She said hospitals and clinics are losing services and labor and delivery and pediatric wards are closing.
“So we know it’s happening,” Weber said. “This was part of the solution to that problem, and we are taking that away.”
Suspending tax deductions
The governor’s revised budget would suspend a tax deduction for net business losses for businesses with California income of more than $1 million during the 2025, 2026 and 2027 tax years. It would also limit the use of tax credits by businesses to $5 million per company.
Assemblyman Chris Ward, D-San Diego, raised concerns about the appropriations suspension during a May 16 meeting of the Assembly Budget Subcommittee on State Administration.
He said the suspension of the deduction “solves something in the short term,” but it “creates, I think, incredible uncertainty for businesses, which translates into potential impacts on future economic opportunities, which in itself will create a tax base for the coming will generate for years. Good.”
Ward expressed similar concerns about the tax credit cap.
“Obviously something has to be done in this budget,” he said. “And any kind of overture – that we’re going to suspend all this appropriation – is, I’m afraid, a bit penny wise, pound foolish.”
Ending subsidies for homelessness
Newsom wants to cut $260 million from Homeless Housing, Assistance and Prevention (HHAP), a grant program promised to cities and counties to address homelessness.
His revised budget also does not include money for a sixth round of the program, worrying local leaders who have become dependent on the funding to pay for shelters and other services.
Fullerton Assemblywoman Sharon Quirk-Silva, a Democrat who chairs the Assembly Budget Subcommittee on State Administration, said HHAP is one of the housing programs she and her colleagues are working to protect.
Refuse to close additional prisons
Progressive Assembly members are urging Newsom to close more prisons, as the independent Legislative Analyst’s Office has suggested.
The LAO said in February that closing five additional prisons would save California $1 billion a year. Newsom’s administration has decided to close three prisons and terminate a lease with a private prison company for an additional facility, according to the California Department of Corrections and Rehabilitation.
His revised budget would deactivate 46 prison housing units with 4,600 beds, saving $80.6 million.
According to the LAO, prisons will operate with 15,000 empty beds in the 2024-2025 budget year, rising to 19,000 by 2028.
Assemblyman Isaac Bryan, D-Los Angeles, said the state is “running an empty 15,000-person hotel through the state prisons.”
He and other lawmakers would like to see Newsom close more facilities rather than cut funding for subsidized child care and social safety net programs.
