Governor's 2023-24 Budget Released

The Governor's January budget was released on January 10, and is just the beginning of a month-long budget process. The following from Kiana Valentine of Transportation California and Politico Group is an analysis of the Governor’s January Budget for 2023-24, and how it relates specifically to transportation and infrastructure related programs and our industry.

The Takeaway: The programs that the transportation construction industry cares about are seeing reductions in many of the one-time General Fund appropriations achieved in the budget last year, delayed expenditures, and shifts in special funds while not tapping into state reserves. While some of the proposed reductions to one-time General Fund investments would be backfilled, the source of the backfill is existing transportation funding. Therefore, the Governor’s January Budget is still a net loss for transportation programs and projects. Our partners will be digging into the impacts these proposals would have, if adopted, on existing programs, such as the State Highway Operation and Protection Program (SHOPP), and will follow up with more information as it becomes available.

Summary: The 2023-24 January Budget reflects significant revenue losses – to the tune of $29.5 billion below estimates – and an estimated budget gap of $22.5 billion. Tax receipts have underperformed for a few key reasons – high-inflation, multiple federal reserve bank interest rate changes, and stock market declines. The stock market influence over California’s fiscal condition is oversized with a large portion of tax revenues coming from capital gains and progressive personal income tax structures.

The Governor’s budget emphasizes the state’s ability to weather this fiscal storm given prudent planning, saving for a rainy day, and accelerated debt repayment over the last decade. The 2023-24 January Budget proposes additional actions that will allow the state to avoid draconian cuts to priority programs as was the case during the Great Recession. Specifically, the Governor’s budget proposes funding delays ($7.4 billion), reductions and pullbacks ($5.7 billion), funds shifts ($4.3 billion), trigger reductions ($3.9 billion), and limited revenue generation and borrowing ($1.2 billion). The fiscal picture remains uncertain; as such, the Governor does not propose to draw from its reserve accounts to close the budget gap. Depending on the revenue condition between now and the May Revision, the Governor may propose withdrawing from reserve accounts and make additional reductions if the situation worsens or may reconsider spending delays and reductions if the fiscal picture improves.

Transportation: 
Due to projected revenue decreases, the Governor’s 2023-24 state budget includes $2.7 billion in reductions from one-time General Fund allocations. These cuts would be partially offset by a $500 million allocation from the State Highway Account, which would otherwise fund state highway maintenance, operations, and improvements, for a net reduction of $2.2 billion.

Significant Budget Adjustments:

• Transit and Intercity Rail Capital - $2 billion reduction and delayed expenditures. The 2022-23 Budget included $2 billion in 2023-24 and $2 billion in 2024-25. The Governor’s Budget reduces this to $1 billion in 2023-24, $500 million in 2024-25, and $500 million in 2025-26. The $2 billion reduction would be subject to restoration in the 2024 Governor’s budget if sufficient revenue is available.
   
• Active Transportation Program - $200 million net reduction. Last year’s transportation funding package allocated $1 billion in 2021-22 from the General Fund. The Governor’s Budget reduces this amount by $500 million with a $300 million backfill from the State Highway Account that allows the program to sustain all projects funded in the California Transportation Commission’s 2023 grant cycle.
   
• Railroad Grade Separations – No net reduction and delayed expenditures. Last year’s transportation funding package allocated $350 million in 2021-22 from the General Fund for railroad grade separation projects, with anticipated expenditures in 2023-24. The Governor’s Budget delays these expenditures until 2025-26.
   
• Climate Adaptation Program – No net reduction. The full $200 million allocation in 2021-22 for regional and local transportation climate adaptation grants is retained in the uGovernor’s budget, although funding would now be from the State Highway Account instead of the General Fund.

Transportation Funding Projections: 
The Governor’s budget projects increases in special transportation fund revenues, with a 4.3-cent inflationary adjustment to the gasoline excise tax and a 3.3-cent inflationary adjustment to the diesel excise tax, both effective July 1, 2023. Revenues from the SB 1 Transportation Improvement Fee, which is charged along with vehicle registrations, will grow by 8.9% year-over-year. The SB 1 Road Improvement Fee for zero emission vehicles still comprises a tiny component of total revenues, but it is projected to nearly double from $43 million in 2022-23 to $81 million in 2023-24.

Zero-Emission Vehicles (ZEV) Acceleration: 
The Governor’s 2023-24 budget includes $2.5 billion in General Fund reductions across various ZEV programs, which are partially offset by approximately $1.4 billion from Cap-and-Trade program Greenhouse Gas Reduction Funds (GGRF).

Significant Budget Adjustments:

• Equitable Zero-Emission Vehicles and Infrastructure – a $745 million reduction; partially offset with $535 million from GGRF. This maintains $2.1 billion.
   
• Heavy-Duty Zero-Emission Vehicles and Supporting Infrastructure – a $1.5 billion reduction for heavy-duty ZEVS and supporting infrastructure, partially offset by $839 million from GGRF. This maintains $5.3 billion.
   
• Community-Based Zero-Emission Mobility – a $184 million reduction; partially offset by $25 million from GGRF. This maintains $180 million.
   
• Aviation, Off-Road, Maritime, Rail and Hydrogen – a $133 million reduction; partially offset by a $40 million from GGRF. This maintains $1.3 billion.

Next Steps: The release of the January Budget on January 10, is just step one in a months’ long budget process. The Legislature will convene their respective budget committees and subcommittees in the coming days and weeks to vet Governor Newsom’s January Budget proposals. However, the process does not truly pick up momentum until the Governor releases his May Revision, which will account for April tax receipts and provide a clearer fiscal picture. From mid-May to June 15, it’s a marathon of more budget committee and subcommittee hearings, negotiating between the houses and then between the Legislature and Governor, and action to adopt a budget bill. Note, the Legislature can amend the budget (through a vehicle called a “budget bill junior”) and adopt budget trailer bills (policy vehicles associated with budget implementation) through the end of the legislative session on September 14, 2023.

We will continue tracking this process and provide updates as we receive them.
Contact UCON. 

UCON will continue to provide our members with updates as any developments occur. As always, reach out to UCON's Contractor Help Desk with any questions - (925)-855-7900.

Kiana Valentine is Executive Director for Transportation California and a Principal at Politico Group, UCON's lobbying firm. Kiana brings over 15 years of policy experience to UCON in transportation, local government, and state funding and budget issues. She played a leading role in the passage and implementation of some of California’s most significant transportation funding decisions over the last decade, including the passage of SB1 (the Road Repair and Accountability Act of 2017), and the defeat of Proposition 6 in November 2018.