California Lawmakers Make Progress on Budget, but Issues Remain

California lawmakers head into the weekend without a final deal on the state budget, and without resolving how to spend new tobacco tax revenue and whether to extend the state’s cap-and-trade program.

The governor and legislators agreed on a number of issues late Thursday night, and negotiations will continue as lawmakers face a June 15 deadline to approve a budget.

“In trailer bills, it can be accomplished,” Gov. Jerry Brown said Friday of a cap-and-trade deal. “We’re working very hard to do that.”

The state’s current cap-and-trade program, in which businesses are allowed to buy and sell credits that allow them to pollute, expires in 2020. Brown is pushing for a two-thirds vote to protect the program from legal challenges, and new state emission goals will likely require the program to make emissions more costly for businesses.

Of more immediate concern is how to spend more than $1 billion in new revenue from the state’s tobacco tax (Proposition 56). The Brown administration wants to use the new funds to pay for the state’s expanding Medi-Cal program. Legislators want to pay for provider rate increases to doctors, dentists and reproductive health clinicians.

Brown already secured one key budget win on Thursday night, when the Legislature’s Budget Conference Committee agreed to take up the governor’s revenue projections in the state budget.

Those revenue estimates, which frame the discussion of policy priorities, have consistently been lower than legislative projections.

As part of the deal, the budget will include the Legislature’s estimates of higher property tax revenue, which will largely be directed to schools. That will leave more income tax money available for Assembly and Senate spending priorities.

Lawmakers needed the late-night Thursday hearing to advance a budget plan that will need to be approved by next Thursday at midnight. Newly enacted Proposition 54 requires that bills (including the budget) be in print for 72 hours before passage, meaning a resolution needs to be in print early next week.

During the roughly three-hour committee hearing, the three sides also solidified a number of other closely watched budget battles.

The committee approved an Assembly priority to expand the state’s earned income tax credit to include low-income Californians who are self-employed.

A compromise was also reached around funding for the University of California. The budget will withhold $50 million from UC until it implements reforms recommended by a recent state audit. Lawmakers also set a new target for UC to enroll an additional 1,500 in-state students in 2018.

An Assembly proposal to spend $400 million in the budget on affordable housing was killed by the committee. Brown initially proposed the funding last year, contingent on reforms to expedite housing development. The governor did not want to move ahead with the funding without the reforms in place.