By Alexei Koseff, CalMatters

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The California Legislature passed a state budget today that relies more on borrowing than spending cuts to close a projected $12 billion deficit, aiming to push off difficult decisions about priorities even as that gap is only expected to grow in future years.

The $325 billion legislative spending plan, which was approved by the Democratic majority along largely partisan lines, is something of a formality, because lawmakers are constitutionally required to pass a balanced budget by June 15 or forgo their pay.

Having rejected many of the cuts to social services that Gov. Gavin Newsom proposed last month to stabilize California’s finances long-term, they must now negotiate a compromise in the coming weeks, with the July 1 start of the fiscal year looming.

The two sides remain billions of dollars apart, particularly on Medi-Cal, the state’s health insurance program for the poor, as well as home health services, public transit, higher education and raises for state workers.

Democratic leaders said they want to delay painful cuts by a few years to give themselves more time to find another solution that doesn’t “balance the budget on the backs of the most vulnerable” — and perhaps, as one lawmaker put it this week, wait for a “miracle” turnaround in California’s economy.

“The worst outcome here, though, would be to make cuts that we ultimately realize we didn’t need to make — to throw people off safety net programs and then come back and realize, you know what, the projections were off, that wasn’t something that was necessary,” Assemblyman Jesse Gabriel, the Encino Democrat who chairs the Assembly budget committee, told reporters after the vote. “We could be in a totally different world six months from now.”

A major point of contention is Medi-Cal, which is driving a large portion of the deficit. The state expanded services significantly in recent years and costs are now rising faster than anticipated after more new patients enrolled than projected. Lawmakers allocated billions of dollars in additional funding to the program this spring to keep it solvent.

Newsom proposed major changes to address those structural issues, including freezing enrollment for adults living in the country illegally, who became newly eligible last year, as well as adding a $100 monthly premium and cutting long-term care and dental benefits for those who maintain their coverage. The governor also wants to eliminate coverage for weight loss drugs like Ozempic and reinstate a strict asset test for seniors, which was recently eliminated.

The Legislature has accepted some of those proposals, such as the enrollment freeze and stopping coverage of weight loss drugs, and scaled back others, including the asset test. Lawmakers want to lower the monthly premium for undocumented immigrants to $30, give those who lose their Medi-Cal coverage because they cannot pay it a chance to re-enroll, delay cutting their dental benefits and maintain their long-term care benefits.

Even that potential compromise has been anathema to some Democrats, who spoke out against what they deemed a “two-tiered health care system” during the floor debate, urging a no vote or asking the Legislature to instead consider raising taxes on billionaires.

“We cannot contribute to the fear and suffering of communities across our state, and I implore us to consider alternatives,” said Assemblymember Celeste Rodriguez, an Arleta Democrat, who was nearly in tears as she told her colleagues that she was offended by the budget bill.

The legislative plan also rejects a Newsom proposal to cap overtime hours for in-home supportive service providers and eliminate those benefits for adults living in the country illegally. 

It restores funding the governor had sought to eliminate for family planning clinics; the University of California, California State University and student financial aid; and public transit. It moves forward with $767 million in raises for state employees that Newsom asked to pause and introduces funding for other legislative priorities, including more than $900 million for affordable housing construction and mortgage assistance for first-time homebuyers. It proposes lending up to $1.75 billion from the state for local governments in Los Angeles and San Francisco Bay Area transit agencies dealing with their own budget crunches.

All of that would add billions of dollars in spending, next year and ongoing, above Newsom’s plan — which already relies on shifting money meant to pay for climate projects and Medi-Cal provider reimbursements, and pulling $7.1 billion out of a rainy-day reserve fund to close the revenue gap. To pay for it, the Legislature seeks to borrow even more from state special funds.

Their approach could be difficult to maintain given the state’s grim fiscal outlook, with an annual budget shortfall projected to grow to $30 billion within the next three years. Turmoil in the stock market and key California industries caused by Trump’s sweeping new tariffs, as well as anticipated federal funding cuts, could deepen that hole.

“This budget was really passed on a hope,” state Sen. Roger Niello, a Roseville Republican who serves as vice chair of the Senate budget committee, told reporters. “A budget that is passed on hope is a budget that is destined for trouble.”

Out of touch with Californians on spending?

And it increasingly does not reflect the will of California voters.

The Public Policy Institute of California has been surveying residents since 2003 on whether they prefer having higher taxes and a state government that provides more services or lower taxes and a state government that provides fewer services.

While Californians narrowly expressed a preference for higher taxes and more services for more than 20 years, that has recently flipped. PPIC’s latest survey released this week found that 55% of Californians now would rather have lower taxes and fewer services — although that is only true of about a third of Democrats.

The survey also found that 56% of California adults think it’s a bad idea to dip into the rainy-day fund to help balance the budget, even as an equal number support some combination of spending cuts, revenue increases and borrowing. And 58% now oppose providing health care coverage for undocumented immigrants, a complete reversal from when the question was last asked two years ago.

Mark Baldassare, director of the PPIC survey, told CalMatters the shifting political landscape tracks with an increasing number of respondents in recent years who believe the state is headed in the wrong direction and that there are bad economic times ahead.

“There’s so much pessimism about what the year ahead might look like, both in California and the nation, that there’s really a desire to shrink down the size of government and expectations that we had previously,” he said. “Voters are just not convinced that we’re not going to be in times where we can afford all the things that we want from government.”

State Sen. Scott Wiener, a San Francisco Democrat who chairs the Senate budget committee, dismissed the results of one poll. He contends that most Californians, asked if they want to cut specific programs such as funding for community health clinics or kick people off their health care, would say no.

“Yes, Californians want to have government that is run well and efficiently. I want that, too,” Wiener told reporters following the budget vote. “But Californians have shown over and over again that they care deeply about making sure that we have these basic services.”

A few Democrats agreed during the floor debate today that California needed to “right-size” its spending, especially with heavy cuts to federal funding likely coming later this year.

But most defended their plan as striking the right balance between fiscal responsibility and upholding California’s values, generating intense criticism from Republicans.

“Let’s be practical. We can’t be all things to all people, but we can be responsible to the critical issues that make California a great state,” said Assemblymember Diane Dixon, a Newport Beach Republican, who cited wildfire management and home health services as priorities that the Legislature should focus on funding. “We can’t be perfect, which means we can’t do everything.”

This article was originally published on CalMatters and was republished under the Creative Commons Attribution-NonCommercial-NoDerivatives license.