Governor’s May Revise Sets Stage for Budget Negotiations

Governor Newsom released the last proposed budget of his tenure on May 14, laying the foundation for deliberations to create a final budget in collaboration with the Legislature by the end of June.

Prior to the May Revise, Democrats in the California Senate and Assembly had each released their own priority frameworks. Both the Assembly’s Road Map to a Responsible and Compassionate Budget and the Senate’s Foundation for the Future identified affordable housing production as a priority, albeit through different proposals.  The Assembly expressed support by putting an affordable housing bond before voters in November, while the Senate sought to appropriate $1 billion between the Multifamily Housing Program and the Low-Income Housing Tax Credit programs, as well as $1 billion for affordable homeownership through California Dream for All and Calhome. Both Assembly and Senate Democrat plans expressed support for continuing to fund the Homeless Housing, Assistance, and Prevention (HHAP) program, with the Senate going further and stating an additional $1.5 billion for the program over the next two funding rounds. These frameworks position housing and homelessness resources as a significant part of negotiations and bode well for the likelihood that there will be more resources, in some form, than exist in the May Revise.

The May Revise makes clear that Governor Newsom’s priority in negotiations will be a budget that increases reserves and leaves a balanced budget for the next two years.  On housing and homelessness, relatively little was proposed on new investment, with the exception being $100 million for a Disaster Rebuilding Fund to expand access to construction and renovation financing for disaster-impacted homeowners. Other noteworthy proposals focus on reducing development costs and continuing to enhance accountability actions for HHAP funds.  Fee waivers for housing, if provided, would now be considered to be a form of local contribution, making these projects more competitive for public funding. Additionally, the Governor’s proposal would prohibit local governments from imposing development fees on any project receiving state funding for which they are an applicant or co-applicant.

New HHAP accountability requirements would also be significant. City and County HHAP recipients would now be required to obtain and maintain a Prohousing designation from the state, have a compliant housing element, and provide local match funding.

There appears to be significant agreement on the overall architecture and baseline understanding of the state’s revenues among the Assembly, Senate, and Governor, which shrinks the areas in which negotiation needs to occur to allow greater emphasis on the actual programs to prioritize. Housing and homelessness will be balanced with other priorities that will include mitigating concerns about federal cuts to health programs, as well as other pillars of an affordability agenda that will include higher education and safety net programs.

The prospects for increased funding in the housing and homelessness spaces from the existing baseline seem very promising, with possible general fund infusions and the ability to make a case to voters on an affordable housing bond this fall.