With the deficit estimated at $68 billion, Newsom is seeking “major changes” in health care wage laws

California Governor Gavin Newsom leaves the stage after presenting his budget proposal on Tuesday, January 10, 2023, in Sacramento, California.  California faces a projected budget deficit of $22.5 billion for the coming fiscal year, Newsom announced Tuesday, just days into his second term.  It's a sharp turnaround from last year's $98 billion surplus.  (AP Photo/Jos Luis Villegas)

(Jos Luis Villegas/Associated Press)

With the deficit estimated at $68 billion, Newsom is seeking “major changes” in health care wage laws

California politics, homepage news

Taryn Luna
Mackenzie Mays

Dec. 7, 2023

Now California faces a projected budget deficit of $68 billion

up to and including the following financial year

Gov. Gavin Newsom is seeking “major reforms” to defund a costly plan set to launch next year

increase to increase

the national minimum

to dare

for health

caregivers at $25 per hour.

Newsom said

t T

He Times last week that his staff has been working behind the scenes with Democratic leaders




Legislature on how to move forward with minimum wage law in light of state budget concerns. The changes that would take place


to be approved by


Lawmakers next year were “all part of an agreement” with union leaders before he signed the bill, Newsom said.

We knew exactly where we stand in terms of finances. We were very honest with these guys. “I said, ‘No way,’ and we’ve been working on something, and it will reveal itself in a few weeks,” Newsom said.

last week

recalling conversations that led to the passage of the bill.

It is unclear whether Newsom is suggesting this


he would like to reduce what is higher


minimum wage to fewer employees, or whether he is trying to delay or pause the implementation of the increase.

Newsom discussed health care pay a week before a report was released Thursday by the Legislative Analyst’s Office, a nonpartisan government body that reviews health care policies.



that The report

estimate that

California the state

could experience a budget deficit of $68 billion in the 2024-25 fiscal year. The state budget is determined on the basis of an annual budget calendar that starts on July 1 and ends


June 30th



The bleak financial picture was revealed later than usual this year due to extensions of 2022 federal and state income tax filing deadlines

it returns

from April to November, forcing lawmakers and the governor to pass the current law


budget in July without a clear understanding of state tax revenues.

Federal tax collection delays forced California to adopt a budget based on forecasts rather than actual tax revenues,” said Erin Mellon, a spokesperson for Newsom, in response to the new deficit projections. “Now that we have a clearer picture of the state’s finances, we now need to solve last year’s problem in this year’s budget.

Now that tax collections are underway, the

analyst firm LAO

reported a severe decline in revenues and estimated that California had a $26 billion deficit in the fiscal year ended


June 30, with similar deficits expected this year and next year


. Analysts predict an additional deficit of $30 billion per year between 2025 and 2025.


26 to 2027-


This amounts to a potential deficit of $155 billion over six years.

Gabriel Petek,

the offices

chief deputy legislative analyst

with the LAO

According to the report, there is a ‘serious budget problem’.

California’s progressive tax structure already places a disproportionate burden on the state budget

it is the



including tax windfalls that arise when companies seek investors through initial public offerings

the ups and downs of the stock market.


analyst firm LAO

said some of the sales decline is an expected pullback from abnormally strong sales growth in previous years, when federal COVID-19 stimulus funding artificially increased income taxes


es, resulting in a record state surplus.

Analysts also blamed the Federal Reserve for raising interest rates, some of whose effects are “outsized for California,” the report said. Investments in California begin

ups and the tech industry declined significantly, with 80% fewer companies going public in 2022 and 2023, for example, compared to 2021.

California entered an economic downturn in 2022, with the number of unemployed rising by nearly 200,000 since the summer of 2022.

last year 2022

according to the




Legislative Analyst FirmLAO

said conditions exist for Newsom to declare a budget emergency and draw on budget reserves to cover part of the deficit. Analysts have outlined other maneuvers

that could be used

to reduce the deficit, including saving $16.7 billion by cutting education


funding under Prop


98 to the constitutional minimum.

Both the governor and Legislature face a significant challenge with the 2024 budget, HD Palmer, a spokesman for the California Department of the Treasury, said in a statement. The administration will present its plan to close the budget gap when the governor sends his proposal to the Legislature next month.

After cutting more than $30 billion from the state budget this summer, Newsom and lawmakers expected a further decline in revenues. Newsom in particular tried to be cautious and


dozens of bills in the case that he said would have cost the state nearly $19 billion if not included


costs, including $11 billion in ongoing expenses.

Senate Bill 525, the Healthcare Minimum Wage Act, was one of the last bills passed


to receive the governor’s signature and, according to recently released Treasury Department estimates, the most expensive.

Under the law, workers in large health care facilities will earn $23 an hour starting in June


$24 per hour in 2025 and $25 in 2026. That applies to

all levels of staff, not just healthcare providers,

including money launderers and hospital gift shop employees.

Workers at independent rural hospitals and facilities that serve high numbers of Medicare and Medi-Cal patients will see a minimum wage of $18 per hour next year, gradually rising to $25 per hour by 2033.

The bill was significantly amended in the final hours of the legislative session, reflecting the controversial deals between hospital lobbyists and labor unions. The late agreement gave the Legislature and the Newsom administration little time to conduct a detailed financial analysis before final votes.



The Treasury Department said publicly in November, after Newsom signed the legislation, that the pay increase for health care workers would cost $4 billion in 2024-25, the first full fiscal year after implementation began.

The bill



include any mechanism that allows the state to postpone wage increases during economic recessions.


Finance D

The department said half of the money to pay for the wage increase would come directly from the state’s general fund, while the other half would be paid from federal funds earmarked for providers of Medi-Cal, the Medicaid program in California.

Laurel Lucia, director of the UC Berkeley Labor Center’s health care program, said a yet-to-be-released university estimate suggests first-year costs will be nearly $300 million less from the state’s general fund than the state’s forecast. The labor center developed the estimate based on the final law to help inform policymakers, she said.

Newsom said he was determined he could not sign the bill into law without promises from key players that changes would be made during the legislative session that begins in January.

Tia Orr, executive director of Service Employees International Union California, said the state’s financial health is consistent with raising wages for 500,000 health care workers.

healthcare workers, almost half of


are dependent on some form of government support.

Orr said SEIU California is committed to working with the government and the


The Legislature “to ensure that safeguards are in place to ensure that this critical measure is taken in a manner that preserves California’s fiscal health, just as we did when we negotiated the last minimum wage increase on the entire state.

The unions agreed to work with the governor’s office to develop a methodology for implementation if California enters a recession, although it


criterion has not yet been determined, Orr said.

Newsom said that once the January budget is unveiled:


Tradeoffs will be considered, predicting “a serious conversation about what the risks or the rewards are.”

Mellon said Newsom’s office plans to meet with lawmakers and stakeholders in the coming weeks about health care wages.

Newsom is expected to unveil his budget plan for the coming fiscal year on Jan. 10.


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