Update to the State Budget Agreement

The State Budget is Here: 
Agreement Preserves $5.1 Billion in Transit Funding, Implements Fund Shifts and Minor Delays 

The June state budget agreement keeps much of the May Revise proposal in place.  

By Arianna Smith
Managing Editor
Transit California 

In the final week of June 2024, the Legislature passed SB 108 (Wiener), the Budget Bill Jr. for 2024, representing budget agreement between Governor Gavin Newsom and California Legislative leadership in on the 2024-2025 state budget. As of the publication of Transit California, this bill is pending signature by Governor Newsom. While much of the agreement adheres to the proposals originally described last month in the May Revision (as reported in the May 2024 issue of Transit California) and the Joint Legislative Budget Agreement announced in late May, several updates to the agreement affect the work of transit agencies and their project funds.   

The Governor signed AB 107 (Gabriel), the main budget bill, on June 26, 2024, one day before the constitutionally mandated deadline. When Governor Newsom signs SB 108 (Wiener) and a series of trailer bills, they will represent the Budget Act of 2024.  

Here’s what you need to know. 

The Big Picture and How We Got Here 

In early May 2024, Governor Newsom released his May Revision budget proposal, updating his January budget proposals and responding to new information about the state budget deficit from reduced revenue collection.  On May 29, State Senate President pro Tempore Mike McGuire and State Assembly Speaker Robert Rivas responded to the Governor’s proposal by announcing the Joint Legislative Budget Agreement, the Legislature’s budget framework for Fiscal Year 2024-25. 

This agreement was passed by the Legislature on June 13 as AB 107 (Gabriel), the main budget bill, two days before the constitutional requirement to pass a legislative budget bill by June 15 – about two weeks before the beginning of the state’s new fiscal year on July 1.  This budget bill became the starting position for Legislative Leaders as they entered negotiations with Governor Newsom on a budget agreement that represents the interest of the Senate, Assembly, and Administration.  

On June 22, Governor Newsom, Assembly Speaker Rivas, and Senate President pro Tempore McGuire announced they had reached a budget agreement.   

“This agreement sets the state on a path for long-term fiscal stability – addressing the current shortfall and strengthening budget resilience down the road. We’re making sure to preserve programs that serve millions of Californians,” said Newsom of the overall agreement. The overall agreement includes total expenditures of nearly $300 billion, of which $211.5 billion comes from the General Fund.   

The agreement also addresses this year’s $46.8 billion deficit, which according to Jason Sisney, Budget Director in the Office of the California State Assembly Speaker, came about for two main reasons: “1) The projected surplus of the 2022 Budget Act overstating the actual level of the surplus; and 2) The IRS delay of the tax filing deadline for 2022 all the way into November of 2023, which kept the state from sufficiently addressing the impacts of the overstated 2022 surplus.” 

The budget agreement addresses this shortfall by withdrawing $5-8 billion from state’s the Rainy Day and Safety Net Funds during this and the next budget cycle, borrowing $13.6 billion from internal state special fund accounts, and cutting state programs and government operations across a variety of service sectors – including transit. 

The budget agreement was formally introduced as SB 108 and a series of trailer bills – including AB 173, the transportation trailer bill – on June 22 and approved by the Legislature on June 26.  

The Transit Piece of the Budget 

Of great interest to Association member agencies, once the Governor signs the additional budget bills, including SB 108 and AB 173 , the spending freeze on SB 125 funding may be lifted. 

In 2023, the Governor signed SB 125, which included the proposed release of billions of dollars in flexible funds for capital and operations starting in 2024; the measure also established the Transit Transformation Task Force to plan for long-term transit rider and community needs.  But Governor Newsom’s administration froze budget spending in late April 2024, and the regional transit projects using these committed funds have been put on hold since then.  This freeze may be lifted once the Governor signs SB 108 and his Department of Finance provides new guidance to state agencies and departments. 

“With the budget now passed, we call on Governor Newsom to sign the budget bill immediately upon its receipt and to lift the current state spending freeze, which is preventing the California State Transportation Agency from allocating funding to transit agencies that was decisively appropriated last year,” said Association Executive Director Michael Pimentel in a statement on June 26 regarding the effects of the April spending freeze. “As we broadcast earlier this year, agencies across the state have already established plans to accomplish the goals for this funding, as codified in last year’s budget, and advance transformative work in their respective regions. By signing the budget bill and lifting the spending freeze, agencies can finally move forward with much-needed state investments that not only maximize the tangible impacts for riders, but also the financial benefits to the State and local communities by unlocking funding from the federal Bipartisan Infrastructure Investment and Jobs Act.” 

While the Association continues to engage the Administration on the lifting of the spending freeze, transit agencies will have to contend with a variety of other changes to their plans, many of which were originally reflected in the budget’s May Revision and are now contained in SB 108.  

For the key formula-based funding provided through Transit and Intercity Rail Capital Program (TIRCP) and Zero-Emission Transit Capital Program (ZETCP), SB 108 adopts the May Revise proposal for the program. 

The budget will maintain the $4 billion for TIRCP approved in the Budget Act of 2023, but updates the appropriation timeline, appropriating $2 billion in this Fiscal Year (FY), $1 billion in FY 2024-25, $1 billion in FY 2025-26. It’s also supported by a shifting of funds from the General Fund to the Greenhouse Gas Reduction Fund across Fiscal Years 2023-24, 2024-25, and 2025-26. 

In good news, the budget will maintain all TIRCP Cycle 6 funding approved in the Budget Act of 2022, including rejecting the May Revise proposal to cut $148 million from the program. The action is supported by a shifting of funds from the General Fund to the Greenhouse Gas Reduction Fund across Fiscal Years 2023-24, 2024-25, and 2025-26, and 2026-27. 

In total, to maintain the $4 billion for the formula-based TIRCP and all funding commitments to TIRCP Cycle 6 projects, the budget shifts $958 million General Fund to the Greenhouse Gas Reduction Fund.  

The $1.1 billion for ZETCP approved in the Budget Act of 2023 will also be maintained in this budget, but the appropriation timeline will be updated to $190 million in this FY, $220 million FY 2024-25, $230 million in FY 2026-27; and $460 million FY 2027-28.  The Budget Act of 2023 would have provided $1.1 billion for the formula-based ZETCP as follows: $410 million in FY 2023-24; $230 million in FY 2024-25; $230 million in FY 2025-26; and $230 million in FY 2026-27. 

A variety of other transit-related actions will be taken through the budget as well.  

The Public Transportation Account will provide support for several important programs. State-Supported Intercity Passenger Rail Agencies will receive $211 million between FY 2024-25 and 2027-28.  The California Integrated Mobility Program and the Development of the Data & Digital Services Division at the California Department of Transportation will be provided $6.9 million to support the ongoing implementation of the California Integrated Travel Project. 

Originally cut entirely in the May Revise, the Active Transportation Program will be supported by $200 million appropriated from the General Fund in FYs 2024-25 and 2025-26.  The budget approves $400 million for future appropriation from the General Fund.  

The budget cuts $200 million from the Safety Grade Separations Program and maintains $150 million for the program, appropriating $75 million from the General Fund in FY 2025-26 and $75 million from the State Highway Account in FY 2026-27. This funding will be reflected in next year's budget. Transportation trailer bill language directs CalSTA to prioritize previously awarded projects from existing transportation funding programs. 

Finally, AB 173, the transportation trailer bill, updates the accountability requirements for distribution of funds appropriated to the Transportation Agency from the Greenhouse Gas Reduction Fund for TIRCP, requiring regional transportation planning agencies to submit additional updated regional short-term financial plans and/or transit operator data to maintain eligibility for this funding through FY 2027-28.   

What Happens Next? 

The Governor will have until July 1 to sign the Budget Act of 2024 and budget trailer bills. When signed, the Budget Act of 2024, will amend AB 107 (Gabriel), which is serving as a placeholder budget to fulfill the Legislature's constitutional requirement of having a budget passed no later than June 15, 2024.  

“Transit agencies stand ready to deliver for their communities and build the infrastructure of tomorrow. We call on Governor Newsom to keep Californians moving for generations to come by signing the budget agreement as soon as possible,” said Pimentel.” We encourage all members to act immediately to send a letter to Governor Newsom that requests his signature of these budget bills and the lifting of the current spending freeze using the template found here. A copy of the Association's signature request letter can be found here. 

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