The 2024-25 California Spending Plan

Other Provisions

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• Broadband Infrastructure
• California Department of Food and Agriculture
• Department of Consumer Affairs
• Department of Financial Protection and Innovation
• Department of General Services
• Generative Artificial Intelligence (GenAI)
• Governor’s Office of Business and Economic Development (GO-Biz)
• Governor’s Office of Planning and Research
• Governor’s Office of Emergency Services
• Labor and Employment
• State Operations and Employee Compensation
• Statewide Infrastructure
• Tax Policy Changes

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Broadband Infrastructure

Reflects Changes in Funding From 2023-24 Broadband Infrastructure Spending Plan. The total amount of the 2024-25 broadband infrastructure spending plan is about $7.8 billion, an increase of $1.2 billion from the 2023-24 spending plan. This increase is explained by the appropriation of the state’s roughly $1.9 billion allocation from the federal Infrastructure Investment and Jobs Act’s (IIJA’s) Broadband Equity, Access, and Deployment (BEAD) program in 2024-25. This appropriation makes the source of funding for the majority of the 2024-25 spending plan now federal funds. Out of $7.8 billion in total funds, $4.9 billion is federal funds and $2.9 billion is General Fund. The $700 million reduction in General Fund from the 2023-24 spending plan (as well as the $550 million General Fund delay we discuss below) reflects actions taken by the Legislature to address budget problems in 2023-24 and 2024-25 and projected future budget deficits. For more information about each of the broadband infrastructure proposals and actions taken during the 2024-25 budget process, see our February 28, 2024 brief—The 2024-25 Budget: Broadband Infrastructure—and May 23, 2024 budget and policy post—The 2024-25 Budget: Broadband Infrastructure at May Revision.

Below is a summary of the changes in funding amounts for each of the major state broadband infrastructure programs and projects, as reflected in the 2024-25 spending plan:

• Reduces $700 Million General Fund From Loan Loss Reserve Fund (LLRF). The LLRF provides local government entities, nonprofit organizations, and tribes with grants to help them obtain financing for last-mile projects through, for example, establishing and funding reserves and paying the costs of debt issuance for broadband infrastructure projects. The spending plan reduces $700 million General Fund from the LLRF across three fiscal years—$125 million in 2023-24, $300 million in 2024-25, and $275 million in 2025-26. (These funding reductions incorporate early action taken in Chapter 9 of 2024 [AB 106, Gabriel] that reduced $150 million in 2024-25 and $100 million in 2025-26.) The remaining $50 million General Fund in 2023-24 will be awarded from the LLRF in 2024-25. This represents the only planned expenditure from LLRF.

• Delays $550 Million General Fund in Last-Mile Project Grants. The spending plan delays $550 million General Fund in last-mile project grants across three fiscal years—$100 million in 2024-25, $200 million in 2025-26, and $250 million in 2026-27—to 2027-28. (These funding delays incorporate early action that delayed $100 million from 2024-25 to 2026-27.)

• Maintains $250 Million General Fund for Middle-Mile Network. Consistent with the Legislature’s stated goal in Chapter 48 of 2022 (SB 189, Committee on Budget and Fiscal Review), the spending plan includes $250 million General Fund in 2024-25 for additional costs to build the state’s middle-mile network. Provisional language in Chapter 35 of 2024 (SB 108, Wiener) also allows the administration to request up to an additional $250 million General Fund in 2024-25, but only if it is supported by a November 2024 report on various aspects of the middle-mile network (described in more detail later in this section) and 30-day written notification of and approval by the Joint Legislative Budget Committee (JLBC). (The provisional language also allows the Department of Finance [DOF] to authorize up to three additional permanent positions for the Department of Technology’s [CDT’s] middle-mile network activities.)

• Appropriates Additional $1.9 Billion From Federal BEAD Program. The federal National Telecommunications and Information Administration (NTIA) announced in 2023 that California would receive roughly $1.9 billion from the IIJA’s BEAD program for last-mile project grants. The spending plan appropriates this amount in 2024-25, with provisional language in Chapter 22 of 2024 (AB 107, Gabriel) to improve legislative oversight of this appropriation (described in more detail later in this section). (The spending plan also authorizes 31 temporary positions, from 2024-25 to 2026-27, for the California Public Utilities Commission [CPUC] to administer the BEAD program.)

Figure 1 reflects the 2024-25 broadband infrastructure spending plan, incorporating each of the changes in funding amounts across the relevant fiscal years and for each broadband program or project.

Budget-Related Legislation Requires Additional Reporting on Broadband Programs and Projects. Several enacted bills require additional reporting on each of the major broadband programs and projects. Below is a summary of the reporting requirements included in each budget bill:

• Chapter 22 of 2024 (AB 107, Gabriel). Assembly Bill 107 requires CPUC, no later than 30 days after NTIA authorizes the award of BEAD program funds, to notify legislative staff of any award conditions placed on the funds by the NTIA, and of any NTIA-required modifications to state-administered BEAD program processes. Assembly Bill 107 also requires CPUC to later provide detailed information about the BEAD program’s subgrantee selection process.

• Chapter 35 of 2024 (SB 108, Wiener). Senate Bill 108 requires CDT to submit three separate reports regarding the middle-mile network: (1) a biannual report through September 2026 on the number of network miles constructed, leased, and purchased; the project funding encumbered and expended; and the status of last-mile project connections to the middle-mile network; (2) a one-time report on or before November 1, 2024 on the cost, locations, and time line of standalone California Department of Transportation middle-mile network projects and their anticipated connection to last-mile projects; and, (3) a one-time report on or before January 31, 2025 that includes a five-year business plan for maintaining and operating the middle-mile network, as well as an evaluation of alternate funding sources for any additional network miles that are not currently funded. The provisional language for the November 2024 report also requires the JLBC to deem the information in the report to be sufficient before any additional (up to $250 million) General Fund for the middle-mile network is authorized by DOF.

• Chapter 41 of 2024 (SB 164, Committee on Budget and Fiscal Review). Senate Bill 164 requires CPUC to provide CDT (and its third-party administrator) with last-mile project information to facilitate middle-mile network development.

Budget-Related Legislation Requires Prioritization of Middle-Mile Network Development to Connect Last-Mile Projects. Chapter 41 of 2024 (SB 164, Committee on Budget and Fiscal Review) requires CDT (and its third-party administrator) to prioritize the development of the state’s middle-mile network around last-mile projects that provide broadband to unserved and underserved areas and locations. Senate Bill 164 also directs CDT (and its third-party administrator) to work directly with last-mile project staff on planning and development of relevant middle-mile network segments to ensure their last-mile projects are supported.

Two Other Significant Broadband Infrastructure Items in Spending Plan. The spending plan includes two other significant broadband infrastructure items:

• $63.6 Million Increase in CPUC’s California Advanced Services Fund (CASF) Local Assistance Expenditure Authority. The CPUC is statutorily authorized (through the end of 2032) to annually collect up to $150 million in surcharge revenues for CASF program grants. The spending plan increases CPUC’s local assistance expenditure authority for CASF program grants from $72.6 million to $136.2 million in 2024-25 and ongoing. (The remaining $13.8 million in surcharge revenues primarily covers state operations costs.)

• $9.4 Million in CPUC’s Utilities Reimbursement Account Expenditure Authority to Continue Broadband Infrastructure Implementation. Chapter 112 of 2021 (SB 156, Committee on Budget and Fiscal Review) requires CPUC (among other departments) to lead or support several state broadband infrastructure programs and projects. To assist these efforts, the 2021-22 Budget Act provided temporary funding, from 2021-22 to 2023-24, for 46 permanent positions and 4 limited-term positions. The spending plan provides an additional three years of expenditure authority for these 50 positions, from 2024-25 to 2026-27, in the amount of $9.4 million from CPUC’s Utilities Reimbursement Account.

California Department of Food and Agriculture

The budget provides $638 million from various fund sources to support the California Department of Food and Agriculture (CDFA) in 2024-25, which represents a decrease of $517 million (45 percent) when compared to the revised 2023-24 expenditure level. The decrease is associated with the expiration of one-time General Fund support the department received in prior years largely through the sustainable agriculture package.

Funding to Address Invasive Fruit Flies. The budget includes $25 million from the General Fund and $28.8 million in federal funds in 2024-25 to respond to emergencies related to invasive fruit fly infestations across the state. Funding will be used to support additional workload associated with detections, eradication trappings, and quarantines. In addition to the 2024-25 amounts, legislation passed in April 2024 provided $22 million from the General Fund for similar activities that was scored as an amendment to the 2023-24 budget.

Modifications to Previous Budget Augmentations. As described in our companion report, The 2024-25 California Spending Plan: Resources and Environmental Protection, the spending plan made a few changes to CDFA’s funding included and planned for in recent budgets through the sustainable agriculture and water and drought resilience packages. The budget package also modifies some CDFA funding that was provided outside of those thematic packages in prior years. Specifically, the spending plan (1) reduces General Fund resources for fairground and community resilience grants by $2.1 million and (2) delays $23 million in General Fund resources for enteric methane reduction incentives from 2023-24 to 2026-27.

Department of Consumer Affairs

The budget provides the Department of Consumer Affairs (DCA) and its boards and bureaus with $759 million from various special funds supported primarily by license fees. This is an increase of $12.1 million, or about 2 percent, compared to the revised 2023-24 level. We identify some of the major actions taken in the 2024-25 budget process below.

BreEZe and Business Modernization Information Technology (IT) Projects. The budget provides $14.7 million ongoing from various special funds to continue to operate and maintain the BreEZe IT system, which supports the regulatory activities of about half of DCA’s boards and bureaus. The budget also provides $3 million on a one-time basis in 2024-25 from various funds to support five entities—the Structural Pest Control Board. California Architects Board, Landscape Architects Technical Committee; Cemetery and Funeral Bureau;; and the Bureau of Household Goods and Services—to continue implementation and support of new IT systems to support these entities’ regulatory activities.

Loan to the Contingent Fund of the Medical Board of California. The budget includes a $27 million loan to the Contingent Fund of the Medical Board of California (Contingent Fund) from the High Polluter Repair or Removal Account, which supports the Bureau of Automotive Repair. This loan is necessary to maintain the solvency of the Contingent Fund. Budget provisional language requires the loan to be repaid no later than June 30, 2032.

Department of Financial Protection and Innovation

The budget provides $178 million for the Department of Financial Protection and Innovation (DFPI), primarily from the Financial Protection Fund (FPF), which is supported largely by regulatory fees. This is a net increase of $11 million (7 percent) from the revised 2023-24 level. We identify some of the major actions taken in the 2024-25 budget process below.

California Consumer Financial Protection Law (CCFPL). The budget includes $14 million (FPF) annually in 2024-25 and 2025-26 for the continued implementation of Chapter 157 of 2020 (AB 1864, Limón)—also known as the CCFPL. The CCFPL authorizes DFPI to promulgate regulations requiring a registration process for businesses offering consumer financial products or services that were previously unregulated. Most recently, DFPI received three-year, limited-term funding for this program in the 2021-22 budget. The limited-term funding in the 2024-25 budget will provide DFPI with additional time to evaluate the ongoing funding and staffing needs of the program.

Debt Collector Licensing and Regulation. The budget provides $11.7 million (FPF) annually in 2024-25 and 2025-26 for the continued implementation of Chapter 163 of 2020 (SB 908, Wieckowski), which requires DFPI to establish a regulatory and licensing system to oversee debt collectors. DFPI first received three-year, limited-term funding for this program in the 2021-22 budget. Similar to the CCFPL funding, this limited-term funding will provide DFPI with additional time to evaluate the ongoing funding and staffing needs of the program.

Digital Financial Asset Law (DFAL). The budget includes $7.9 million (FPF) in 2024-25 generally increasing to $11.4 million in 2026-27 and ongoing to implement Chapter 792 of 2023 (AB 39, Grayson), also known as DFAL. DFAL requires DFPI to establish a regulatory and licensing system for digital financial asset businesses and operators that work with crypto assets (also known as cryptocurrencies).

Department of General Services

The budget provides $1.4 billion to the Department of General Services (DGS) from various funds, including reimbursements from other state departments. This is a net decrease of $20 million (1 percent) from the revised 2023-24 level. We identify some of the major actions taken in the 2024-25 budget process below.

General Fund Reductions. The budget reflects $14.5 million in General Fund reductions in 2024-25 (declining to $1.6 million in 2027-28 and ongoing). Most notably, this includes a reduction of $11.7 million in 2024-25 and $11.6 million in 2025-26 for electric vehicle service equipment.

State Project Infrastructure Fund Shift. The budget shifts $700 million in 2024-25 to the General Fund from the State Project Infrastructure Fund (SPIF), which supports the Capitol Annex Project. These funds will be transferred back to the SPIF for costs associated with the Capitol Annex Project over the course of 2024-25 ($300 million), 2025-26 ($250 million), and 2026-27 ($150 million).

Contracting. The budget package includes various changes intended to reduce DGS contract management costs. For example, budget trailer legislation provides DGS with broader authority to delegate contracting for public works projects to state agencies. Additionally, the budget package includes legislation allowing DGS to use job order contracting for public works projects. Specifically, it would allow DGS to enter into competitively bid, fixed price, indefinite quantity contracts for certain public works. This could reduce the number of separate contracts DGS uses to procure services, such as roofing, painting, or plumbing.

Generative Artificial Intelligence (GenAI)

Budget-Related Legislation Provides Legislative Oversight of GenAI Executive Order (EO). Chapter 35 of 2024 (SB 108, Wiener) requires the Government Operations Agency (GovOps) to establish monthly meetings with legislative staff to discuss implementation of EO N-12-23, the state’s first EO on GenAI. (The legislation defines GenAI as “artificial intelligence that can generate derived synthetic content, such as text, images, video, and audio, that emulates the structure and characteristics of the artificial intelligence’s training data.”) Monthly meetings will include updates on any pilot GenAI projects undertaken by departments, such as the first five pilot projects currently in testing. The legislation also requires pilot projects to adhere to specific data privacy requirements.

Governor’s Office of Business and Economic Development (GO-Biz)

Transfers Existing Programs Into GO-Biz. Due to the restructuring of the Governor’s Office of Land Use and Climate Innovation (formerly the Governor’s Office of Planning and Research), the budget transfers both the Zero-Emission Vehicle Program and the California Jobs First Program to GO-Biz, the latter of which is a partnership with the Labor and Workforce Development Agency. For transitioning these programs, the budget provides $2.1 million in 2024-25 for the Zero-Emission Vehicle Program and $3.5 million in 2024-25 for the California Jobs First Program.

Recapitalizes the Infrastructure State Revolving Fund (ISRF). The budget provides a one-time funding of $25 million to the ISRF at the California Infrastructure and Economic Development Bank (IBank). This fund provides loans for small and mid-sized municipalities to undertake various infrastructure projects.

Reduces Funding for the IBank Clean Energy Transmission Program. The Clean Energy Transmission Program was a part of the Climate Catalyst Revolving Loan Fund and was designed to provide financing for projects involving the construction of infrastructure for clean energy transmission. The budget reduces funding for this program by $225 million.

Makes Additional Adjustments to Address the Budget Problem. To address the budget problem, the budget also makes several other funding changes:

• Postpones Infrastructure Funding for the City of Fresno. Last year’s budget allocated $250 million for public infrastructure investments in the City of Fresno. This budget delays $200 million until 2026-27.

• Makes Cuts to the California Jobs First Program. The budget permanently reduces funding for the California Jobs First Program by $150 million and delays an additional $150 million. The program retains $50 million per year in funding for this program in 2024-25 through 2026-27.

• Reduces the Size of the California Competes Grant Program. California Competes is a program that allows GO-Biz to provide tax incentives for companies to stay in, relocate to, or expand in California. In recent years, funds have been made available for a grant program in addition to tax credits. The budget includes a reversion of $10 million previously made available for grants.

• Reverts Funds From the Local Government Budget Sustainability Fund. The Local Government Budget Sustainability Fund was designed to provide grants to local governments with high unemployment and poverty rates. The budget includes a reversion of $50 million from the fund’s 2023-24 allocation.

• Reverts Funds From the Climate Catalyst Revolving Loan Fund. The budget reverts $6 million from 2021-22 related to financing for wildfire and forest resilience projects.

• Reverts Funds From the Small Agricultural Business Drought Relief Grant Program. The budget reverts $5 million from the Small Agricultural Business Drought Relief Grant Program, which provides relief to small agricultural businesses that suffer a decline in revenues or profits due to drought/flood conditions.

Governor’s Office of Planning and Research

Reorganizes Office. The budget package reorganizes and renames the Governor’s Office of Planning and Research (OPR) into two new offices: the Governor’s Office of Service and Community Engagement (GO-SERVE) and the Governor’s Office of Land Use and Climate Innovation. It also realigns some former OPR activities to other state departments. The budget does not provide any additional resources to implement the reorganization. The specific changes include:

• Establishes GO-SERVE for Existing Volunteer and Communication Programs and Funding. The budget moves $251.3 million ($210.7 million General Fund), three programs, and 137 positions from OPR to the newly established GO-SERVE under the Governor’s Office. This includes $234.1 million for California Volunteers, $15.7 million for the Office of Community Partnerships and Strategic Communications, and $1.5 million for the Youth Empowerment Commission. (These totals reflect revised amounts after accounting for the budget solution actions described below.)

• Transfers Three Programs to Other Departments and Agencies. The budget transfers General Fund and responsibilities for three programs from OPR to other state entities: (1) $31.5 million and the Precision Medicine Program to the California Health and Human Services Agency, (2) $2.2 million and a zero-emission vehicle program to the Governor’s Office of Business and Economic Development (Go-BIZ), and (3) $400,000 and the California Jobs First program to Go-BIZ.

• Renames OPR as Governor’s Office of Land Use and Climate Innovation. The budget package retains the remaining OPR programs together and establishes a new name for the office. The major responsibilities maintained within this office include the Strategic Growth Council, climate resilience grant programs, and land-use planning activities. After accounting for the budget solutions and administrative augmentations described below, the total budget for this office and its revised responsibilities includes $950 million in total funds ($902 million from the Greenhouse Gas Reduction Fund, $32 million from the General Fund, and the remainder from various other funds) and 186 positions.

Reduces Several Programs to Achieve Budget Solutions. The budget package includes multiple reductions and fund shifts for OPR programs to help address the General Fund shortfall. Figure 2 provides more details on these changes, including reductions totaling $272 million within the budget window (2023-24 and 2024-25) and $387 million across the multiyear period.

Includes a Few Funding Augmentations. The budget includes $15 million in new one-time General Fund spending in 2024-25 for three programs: $5 million for the College Corps program, $5 million for the Youth Jobs Corps, and $5 million for the California Student Success Coach Grant Program. The spending plan also includes $14 million on a one-time basis from the Aliso Canyon Recovery Account for the Extreme Heat and Community Resiliency Program to be used within the Aliso Canyon region where a gas blowout in 2015 caused significant damage and impacts. Additionally, the budget includes $3.7 million to enhance information technology services and $1 million for administrative workload, both from the General Fund on an ongoing basis.

Governor’s Office of Emergency Services

The budget provides $3.2 billion for the Governor’s Office of Emergency Services (OES), primarily from federal funds and the General Fund. This is a decrease of $3.9 billion (54 percent) from the revised 2023-24 level. This decrease primarily reflects the expiration of one-time federal funds received by OES in 2023-24 to reimburse other entities for emergency-related costs. The budget also provides a $3.2 million increase in lease revenue bond authority for the construction phase of a project to relocate the Red Mountain Communications Site in Del Norte County. We identify some of the major actions taken in the 2024-25 budget process below.

Grant Funding. The budget provides various augmentations to OES grant programs. This includes:

• $103 million one-time General Fund to backfill reductions in federal Victims of Crime Act funding that supports various OES victim grant programs. This funding is intended to allow existing programs to maintain current service levels.

• $80 million annually for two years from the General Fund for the Nonprofit Security Grant program, which supports physical security enhancements to nonprofit organizations at high risk of violence and hate crimes.

• $15.8 million in federal funds for the State and Local Cybersecurity Grant Program, which supports grants to address cybersecurity threats and risks to information systems serving state, local, or tribal governments.

General Fund Reductions. The budget also reflects various reductions in General Fund support for OES to help address the state’s budget problem. These reductions include:

• $45 million in one-time funds from 2023-24 that was budgeted for the Prepare California grant program, which supports community hardening efforts by leveraging federal Hazard Mitigation Grant Program funds. The budget maintains $55 million in one-time funding for the program.

• $21 million in one-time funds from 2023-24 that was budgeted to establish a gun buyback grant program.

• $15 million in one-time funds from 2023-24 that was budgeted to establish the Multifamily Seismic Retrofit Matching Funds grant program, which would have provided financial assistance for seismic retrofitting to owners of multifamily housing at risk of collapse in earthquakes.

• $12.5 million in ongoing grant funding beginning in 2024-25 that was budgeted for the Listos California Emergency Preparedness Campaign, which supports the development of culturally competent messaging related to disaster preparedness. The budget maintains $12.5 million in ongoing funding for this program.

• $12 million in one-time funds from 2023-24 that was budgeted for the California Wildfire Mitigation home hardening grant program. The budget maintains $38 million in limited-term funding for this program.

• $9.5 million annually in 2024-25 to 2027-28 that was budgeted to replace personal protective equipment stockpiled by OES.

California Radio Interoperable System (CRIS). The budget includes $30.1 million each year for four years beginning in 2024-25 from the State Emergency Telephone Number Account to continue implementation of CRIS. CRIS is a statewide public safety radio system intended to improve interoperability for state, local, and federal public safety responders.

Labor and Employment

Background

California’s major labor and employment programs provide work-related services and benefits to its residents, enforce its employment laws, oversee its workers’ compensation system, and regulate its workplace safety and health. Many of the work-related services and benefits are funded or required by the federal government, including unemployment insurance (UI) benefits and federal workforce training programs. The labor and employment programs are administered at the state level by the Employment Development Department (EDD), the Department of Industrial Relations, the California Workforce Development Board (CWDB), and the Agricultural Labor Relations Board. The state’s Labor and Workforce Development Agency oversees these entities and works to set policy and coordinate programs.

Key Budget Actions

Uses the General Fund and the Employment Training Fund to Pay Federal UI Loan Interest. The budget agreement includes a $484 million one-time payment for required annual interest payments on the state’s UI loan. Under federal law, California must make annual interest payments on roughly $20 billion the state borrowed from the federal government to keep paying UI benefits during the pandemic. The payment comes from the General Fund ($384 million) and the Employment Training Fund ($100 million). The Employment Training Fund is largely financed by employer contributions to support the costs of administering training programs for individuals covered by UI.

Borrows From the Labor and Workforce Development Fund to Address the Budget Problem. The 2024-25 budget plan includes a $125 million one-time loan from the Labor and Workforce Development Fund (LWDF) to the General Fund. Funds in the LWDF generally are set aside for labor law enforcement and education. These funds come primarily from Private Attorneys General Act (PAGA) lawsuit settlement proceeds. In recent years, PAGA proceeds flowing into the LWDF have exceeded expenditures from the fund.

Reduces or Eliminates Several Recent Labor Initiatives. The 2022-23 budget agreement included ongoing or multiyear funding for several new labor and employment initiatives. See our The 2022-23 Budget: Overview of the Spending Plan for more detail. The 2024-25 budget reduces support for several of these recent initiatives. Affected initiatives include (1) Emergency Medical Technician training grants (reduced by $10 million) and (2) the Apprenticeship Innovation Fund (reduced by $40 million).

Continues Funding for State’s New Technology System at EDD. The budget includes $163 million General Fund ($327 million all funds) for year-three development of a new technology system to manage EDD benefits. The system, to be called EDDNext, would replace aging technology the state currently uses to manage the UI program and Disability Insurance/Paid Family Leave.

Reduces Funding for the California Jobs First Program. The budget reverts $150 million in previous funding for the California Jobs First program (CJF) at the Economic Development Department to the General Fund. In addition, the budget delays $150 million in previous funding to future years. Instead, the budget provides $50 million in funding for CJF in each of 2024-25, 2025-26, and 2026-27.

Goods Movement Workforce Training Facility (GMWTF). The 2024-25 budget plan delays funding of $40 million from the General Fund that was proposed to go to a GMWTF under the CWDB. The GMWTF—which received $30 million General Fund in 2022-23—would build on existing training programs at the Port of Los Angeles and create a 15-acre facility to be used as a training campus.

State Operations and Employee Compensation

Ongoing $2.2 Billion Reduction to General Fund State Operations Expenditures. The 2024-25 budget assumes that ongoing statewide General Fund state operations expenditures are reduced by 7.95 percent beginning in 2024-25. This reduction has an associated annual state General Fund savings of $2.2 billion beginning in 2024-25. These savings will be achieved through an internal administrative exercise coordinated by the Department of Finance (DOF). The Legislature’s direction for how these savings may be achieved is provided under Control Section 4.05, as amended by Chapter 35 of 2024 (SB 108, Wiener), and includes such things as reorganizations, contract reductions, and elimination of excess positions. With the exception of the Legislature and Legislative Counsel Bureau, Control Section 4.05 specifies that each item of appropriation may be reduced in order to achieve the assumed statewide savings. (In the case of the California Department of Corrections and Rehabilitation [CDCR], provisional language under Item 5225 establishes limitations as to how any reductions to CDCR state operations expenditures required by Control Section 4.05 may be applied.) The control section also establishes reporting requirements for the administration. Specifically, (1) on or before October 1, 2024, DOF shall notify the Joint Legislative Budget Committee (JLBC) what direction, if any, has been issued to affected state entities and the criteria DOF will use to assess the reductions identified by state entities in order to reduce General Fund state operations expenditures by up to 7.95 percent; (2) DOF shall first notify JLBC if it intends to allocate a reduction greater than 7.95 percent to a single program, department, or agency; and (3) on or before January 10, 2025, DOF shall notify JLBC, as part of the Governor’s January budget proposal for the 2025-26 fiscal year, how the reduction in state operations was achieved. The control section specifies that it does not override any provision of a properly ratified memorandum of understanding (MOU). This means that any reductions made to achieve the savings cannot conflict with the provisions of an MOU—for example, providing lower-than-agreed upon pay rates.

Ongoing Reduction in Position Authority and Associated Funds. In addition to the state operations savings noted above, the budget assumes that sufficient established positions across the executive branch civil service will be vacant in 2024-25 so as to reduce state costs by $1.5 billion ($762.5 million from the General Fund). How this reduction will be distributed across departments in 2024-25 will be determined through an internal administrative process. Control Section 4.12 directs DOF to propose the permanent elimination of established position authority and associated funding in the Governor’s Budget for the 2025-26 fiscal year to achieve this level of savings ongoing. The proposed ongoing reductions will be identified through an internal administrative exercise administered by DOF. The control section requires the administration to report specific information to the Legislature. On January 10, 2025, DOF shall report to JLBC the total amount of savings achieved by eliminating position authority and will also report for each position proposed to be eliminated in 2025-26 (1) the department and program associated with the position, (2) the job classification of the position, and (3) the savings that would result from eliminating the position. Like Control Section 4.05, Control Section 4.12 specifies that it does not override any provision of a properly ratified MOU.

Collective Bargaining Costs. In August 2024, the Legislature ratified agreements with Units 5 (Highway Patrol), 8 (Firefighters), and 10 (Professional Scientific). With these three new MOUs, the state has current MOUs with all 21 of the state’s bargaining units. The budget assumes that current MOUs will increase state costs by $1.4 billion ($654 million General Fund) in 2024-25. (This does not include state costs to reduce the number of hours in firefighters’ duty week to 66 hours [discussed here]).

Retirement Contribution Reductions Using Proposition 2. Proposition 2 (2014) requires the state to set aside certain minimum amounts each year to pay down debts, including the state’s unfunded pension liabilities. As part of the 2023-24 budget, the state made a $1.7 billion transfer to the California Public Employees’ Retirement System (CalPERS) to fulfill its Proposition 2 requirements. Early action legislation reflects an assumption that CalPERS apply this payment to reduce the state’s payments toward unfunded liabilities in 2024-25. This results in $1.3 billion in budgetary savings for the General Fund (the remainder of the $1.7 billion in payments would accrue to other state funds) in 2024-25.

Statewide Infrastructure

Debt Service

The budget provides $7.5 billion from various funds for debt service payments in 2024-25. This represents an increase of 7 percent from 2023-24. This total includes $6.5 billion for general obligation bond debt ($5.1 billion from the General Fund) and $1 billion for lease revenue bond debt ($639 million from the General Fund).

Capital Outlay

Appropriates Notably Less Funding for Capital Outlay in 2024-25 Compared to Recent Years. The 2024-25 budget package includes $863 million for 35 capital outlay projects. This includes $642 million from the Public Buildings Construction Fund, $109 million from the General Fund, and the remainder from various other special funds. These totals are considerably lower than prior years. In comparison, the 2022-23 budget package included $7.9 billion for 190 projects and the 2023-24 budget included $2.6 billion for 93 projects.

Notable Capital Outlay Appropriations. Figure 3 shows a summary of projects receiving funding in 2024-25 by administering department. A more detailed list of the capital outlay projects is available for download at this link. As highlighted in the figure, $566 million (66 percent) of capital outlay funding in the 2024-25 budget package is for projects within the California Natural Resources Agency. Notably, the budget package includes $352 million for an underground parking structure at Exposition Park, $114 million for the Department of Water Resources to undertake flood risk management projects and projects at the Salton Sea, and $79 million for the California Department of Forestry and Fire Protection for various projects including a new training facility and relocating various bases and stations. Other large capital outlay appropriations include $101 million for the judicial branch for courthouse projects and $99 million for the California Department of Food and Agriculture to replace the Blythe Border Protection Station.

For a variety of reasons, we do not reflect certain capital outlay projects in the figure or linked table. Specifically, to avoid double-counting previously provided funds or because specific data are not available, we do not include projects for which funding is: (1) continuously appropriated, such as some bond funds; (2) reappropriated, which provides additional time for the completion of the project; (3) reverted, if a project ended or requires modification; (4) previously appropriated but shifted to a different fund source, with no net change in the appropriation amount; or (5) provided to support local infrastructure projects. We also exclude funding for capital outlay projects undertaken by the California Department of Transportation (Caltrans). While the Legislature annually approves Caltrans’ overall budget, individual projects generally are approved by the California Transportation Commission rather than through the state budget process and therefore the 2024-25 planned projects and corresponding amounts have not yet been specified. Additionally, at the time of this writing, the administration had not yet submitted a list of approved capital outlay projects for the California State University, so those are similarly excluded from the figure.

Tax Policy Changes

Increases Corporation Taxes for Three Years. The budget changes the ability of businesses to claim certain deductions and most tax credits for tax years 2024, 2025, and 2026. Specifically, the budget:

• Suspends Net Operating Loss (NOL) Deduction. When a taxpayer has business losses or deductions greater than their profits in a tax year, they incur an NOL. Usually, NOLs can be claimed as a deduction in a future tax year. The budget package temporarily suspends the ability to claim an NOL deduction for taxpayers with income over $1 million.

• Limits Business Tax Credits. The state offers tax credits to businesses to encourage them to take actions that are deemed to benefit California. These credits reduce the amount of tax that a business owes. The budget package temporarily limits the total value of credits that can be claimed to $5 million per year. Two credits are exempt from this limit: the low-income housing tax credit and the Pass-Through Entity Elective Tax.

Businesses will be able to claim these deductions and credits as usual from 2027 onwards. The budget package also allows taxpayers affected by the $5 million per year cap to claim a refundable credit, starting after the limit expires, equal to the value of credits they otherwise would have qualified for. These refundable credits would be claimed in equal parts over five years. Finally, the budget package contains a provision that neither the NOL suspension nor the tax credit limit will apply in years where it is determined that state finances are adequate without these changes. The administration estimates that the combined fiscal effect of these changes is to increase revenue by $6 billion in 2024-25, $5.5 billion in 2025-26, and $3.4 billion in 2026-27.

Clarifies Apportionment Factor Rules. The budget provides clarification on calculating the proportion of a corporation’s profits that are subject to taxation in California: consistent with prior legal rulings and Franchise Tax Board guidance, any business income received that is not taxable must also be excluded when calculating that corporation’s apportionment factor. This change is projected to prevent approximately $200 million per tax year in potential revenue losses.

Eliminates Various Oil and Gas Subsidies. Three existing tax subsidies will be ended as of the 2024 tax year: (1) a tax deduction for intangible drilling and development costs for oil and gas wells; (2) a percentage depletion rule for fossil fuels, which allowed for a larger deduction than standard cost-depletion methods; and (3) a tax credit to certain producers if the price of crude oil drops below a specified threshold. The administration estimates that, combined, these eliminations will increase revenue by $22 million in 2024-25 and $17 million each year thereafter.

Makes Changes to Charitable Conservation Easements to Match Federal Law. Landowners may enter into agreements, called conservation easements, to limit the future use of their land and promote conservation. Taxpayers entering into such agreements with charitable organizations can claim a tax deduction. The budget conforms state law with changes made to federal law in 2023. Two notable changes include: (1) a limit on the value of deductions to 2.5 times the original investment cost in most cases and (2) disallowing the deduction for taxpayers previously found to have committed fraud. The administration estimates the change will result in revenue gains of $55 million in the 2024-25 and 2025-26 budget years, and $25 million each year in future years.

Limits Bad Debt Deductions and Refunds to Retailers Only. The budget limits the types of lenders who can claim a sales tax deduction or refund for a purchase made with bad debt. This new policy prohibits non-retail lenders from claiming deductions or refunds for sales tax payments associated with bad debt charged off after December 31, 2024. The administration estimates that this change will raise $2.5 million of General Fund revenue in 2024-25, growing to roughly $50 million over several years.