In June, after months of negotiations and days before the start of the new fiscal year, state legislators finally agreed on a $297.9 billion spending plan and closed a $45 billion budget deficit.¹
Anticipating continued deficits over the next several years, the spending agreement maintains a multi-year fiscal structure to balance the budget in both 2024-2025 and 2025-2026 and includes cuts, deferments, and delays in new funding increases and new programs implementation.
Just two years ago, Governor Gavin Newsom boasted about a $97.5 billion surplus as a result of COVID-19-related federal funding and a temporary surge in tax revenues from a post-pandemic economic recovery.² At the time, the surplus and an overly optimistic outlook on the revenue surge led the governor and the legislature to vote on ambitious new funding commitments, including increases in healthcare spending.
This is the second year the governor has had to scale back or delay approved policies.
Two major healthcare areas impacted by the final budget agreement are:
Implementation of SB 525, the bill on minimum wages for healthcare workers, has been delayed. The wage increase will now go into effect on October 15, 2024, but only if tax receipt revenue levels exceed three percent of projection in the first quarter of the fiscal year. Should the requirement not be reached, implementation will be pushed to January 1, 2025.³
The delay of Medi-Cal provider rate increases previously negotiated by the re-implementation of the Managed Care Organization (MCO) tax to 2026. The May revision to the state budget had included the availability of $9.7 billion of MCO tax funds over multiple years to support the Medi-Cal program. In the final agreement, however, the governor redirected $6.7 billion—the single largest cut made to the budget—to offset the General Fund spending.4 Complicating the issue is an approved November ballot initiative that would overrule any cuts made to the state budget and prevent Governor Newsom’s decision to redirect funds. Should the ballot initiative pass in November, a provision was included in the budget statute that would make the rate increases inoperable.
The governor has declared a statewide fiscal emergency to access the rainy-day fund reserves, drawing down $5.1 billion for the 2024-2025 fiscal year.5
Gabriela Villanueva is CAP’s Government and External Affairs Analyst. Questions or comments related to this article should be directed to
GVillanueva@CAPphysicians.com.
¹Taryn Luna, “Newsom, lawmakers use cuts, reserves and ‘fiscal emergency’ declaration to solve budget deficit,” Los Angeles Times, June 22, 2024, https://www.latimes.com/california/story/2024-06-22/newsom-democrats-us…
²Dan Walters, “How California’s bursting budget morphed into a $45 billion deficit in just two years,” CalMatters, May 16, 2024, https://calmatters.org/commentary/2024/05/california-budget-surplus-bec…
³Giuliana Gabriel, J.D., alifornia Employers Association. "Health Care Raises Delayed Again!," California Employers Association, June 27, 2024, https://www.employers.org/news/2024/06/27/newsletter/health-care-raises…
4Kristen Hwang, “The single largest cut in Gavin Newsom’s new budget hits California health care providers,” CalMatters, May 23, 2024, https://calmatters.org/health/2024/05/medi-cal-health-care-budget/
5Taryn Luna, “Newsom, lawmakers use cuts, reserves and ‘fiscal emergency’ declaration to solve budget deficit,” Los Angeles Times, June 22, 2024, https://www.latimes.com/california/story/2024-06-22/newsom-democrats-use-cuts-reserves-and-fiscal-emergency-declaration-to-solve-california-budget-deficit