Governor Releases 2024-25 Budget Proposal
Yesterday, the Governor released his 2024-25 Budget proposal. As expected, there is a significant revenue shortfall mostly attributed to volatility in high-income personal income tax revenue due to the 2023 correction in the stock market along with significantly delayed income tax receipts. On the bright side, the Governor’s Budget assumes a $37.9 billion shortfall – much less severe than the $68 billion shortfall estimated by the Legislative Analyst’s Office in December 2023.  The Budget incorporates the following combination of measures to close the shortfall in the budget year:

  • Reserves—$13.1 billion. The budget draws upon funds from the state’s reserves.
  • Reductions—$8.5 billion. The budget reduces funding for various items. Significant solutions in this category include:

◦ Various Climate Reductions ($2.9 billion),

◦ Legislative Requests ($350 million)

  • Revenue/Internal Borrowing—$5.7 billion.
  • Delays—$5.1 billion. The budget delays funding for multiple items and spreads it across the three-year period, beginning in 2025-26, without reducing the total amount of funding through this period. Significant solutions in this category include:

◦ Clean Energy Reliability Investment Plan ($400 million),

◦ Vulnerable Community Toxic Clean Up ($175 million).

  • Fund Shifts—$3.4 billion. The budget shifts certain expenditures from the General Fund to other funds. Significant solutions in this category include:

◦ Various shifts to the Greenhouse Gas Reduction Fund ($1.8 billion).

  • Deferrals—$2.1 billion.

In terms of Budget changes of interest to CASA, there is a glimmer of good news. In the Natural Resources and Environmental Protection chapter of the Budget summary, the Budget provides new ongoing funding in response to a recent court case in support of water quality programs, which offsets the burden that could have otherwise be borne by permittees under the Waste Discharge Permit Fund. A more detailed summary of that line items follows:

PROTECTING WATER QUALITY AND HABITAT
Last year, in Sackett v. EPA, the U.S. Supreme Court significantly narrowed the reach of the federal Clean Water Act, ruling that the Act no longer covered many of the wetlands that had long been protected under federal law. California is well positioned to maintain protections for these wetlands under state law. Existing state programs, however, have operated for decades with the backdrop of federal jurisdiction over these waters, necessitating updates to reflect the new regulatory landscape. The Budget includes $6.1 million Waste Discharge Permit Fund in 2023‑24, and $7 million ongoing for the State and Regional Water Boards to conduct essential activities to protect these waters, including water quality permitting and enforcement work that has historically been conducted by the U.S. Army Corps of Engineers and the U.S. Environmental Protection Agency.

Additionally, in a stakeholder briefing held by CalEPA on Wednesday afternoon, the Administration signaled that they are still willing to consider a climate Bond being passed by the legislature for voter consideration on the November 2024 Ballot.  Two Bond bills continue moving through the legislature which could potentially be amended to offset proposed programmatic cuts to environmental protection programs in this year’s proposed Budget. CASA will continue to advocate for important program funding in the Bonds as this year’s legislative session progresses.

However, the overall sentiment of the 2024-25 Budget proposal is that most programs with one-time funding under the CalEPA umbrella will receive significant haircuts via reversions, delays and fund shifts, including:

Water Programs:

  • Watershed Climate Resilience Programs—A reversion of $88.4 million General Fund and a reduction of $350 million over the next two years for various watershed climate resilience programs within the DWR and the Wildlife Conservation Board. The Budget maintains $56 million previously allocated to these programs.
  • Water Recycling—A reversion of $174.4 million General Fund and a delay of $100 million until 2025-26 for water recycling and groundwater cleanup. The Budget maintains $348 million previously allocated to this program.
  • Per- and Polyfluoroalkyl Substances—A reversion of $71.6 million General Fund and reduction of $30 million in 2024-25 for Per-and Polyfluoroalkyl support. The Budget maintains $53 million previously allocated to this program.
  • State Water Efficiency and Enhancement Program—A shift of $20.6 million General Fund to the GGRF for the State Water Efficiency and Enhancement Program. Funding being shifted for the Program is delayed to 2024-25.

Climate Resilience:

  • Regional Climate Resilience—A reversion of $25 million General Fund and a reduction of $50 million for the Regional Climate Resilience Program at the Office of Planning and Research. The Budget maintains $25 million previously allocated to this program.
  • Regional Climate Collaboratives—A reversion of $9.8 million General Fund for Regional Climate Collaboratives Program at the Strategic Growth Council within the Office of Planning and Research. The Budget maintains $10 million previously allocated to this program.
  • Climate Adaptation and Resilience Planning Grants—A reversion of $5 million General Fund for the Climate Adaptation and Resilience Planning Grants at the Office of Planning and Research. The Budget maintains $20 million previously allocated to this program.

Coastal Resilience:

  • Sea Level Rise—A reversion of $220.9 million General Fund for Sea Level Rise activities. The Budget maintains $333.6 million previously allocated for this program.
  • Coastal Protection and Adaptation—A reversion of $171.1 million General Fund for Coastal Protection and Adaptation activities. The Budget maintains $154.9 million previously allocated for this program.
  • Ocean Protection—A reversion of $35 million General Fund for Ocean Protection funding at the Ocean Protection Council. The Budget maintains $65 million previously allocated for this program.

ZEV Funding:

  • Expenditure Reductions—A reduction of $38.1 million General Fund for various programs including Drayage Trucks and Infrastructure Pilot Project ($23.5 million), ZEV Manufacturing Grants ($7.3 million), and Emerging Opportunities ($7.3 million). The Budget maintains $477 million previously allocated for these programs.
  • Fund Shifts—A shift of $475.3 million General Fund to the GGRF in the current year for various programs including ZEV Fueling Infrastructure Grants ($218.5 million); Drayage Trucks and Infrastructure ($157 million); Transit Buses and Infrastructure ($28.5 million); and Clean Trucks, Buses and Off-Road Equipment ($71.3 million).
  • Funding Delays—A delay of $600 million GGRF from 2024-25 to 2027-28 across various programs including Clean Cars 4 All and Other Equity Projects ($45 million), ZEV Fueling Infrastructure Grants ($120 million), Equitable At-home Charging ($80 million), Drayage Trucks and Infrastructure ($98 million), Clean Trucks, Buses and Off-Road Equipment ($137 million), Community-Based Plans, Projects and Support/ Sustainable Community Strategies ($100 million), and Charter Boats Compliance ($20 million). This delay enables a shift of $600 million General Fund expenditures to the GGRF for other programs.

Energy:
• Capacity Building Grants—A reversion of $20 million General Fund for the Capacity Building Grants Program at the California Public Utilities Commission (CPUC). The Budget maintains $10 million for this program.

  • Investments in Strategic Reliability Assets— ◦ A delay of $55 million General Fund for the Electricity Supply Reliability Reserve Fund Program from 2024-25 to 2025-26. The Budget maintains the full $2.37 billion General Fund to the DWR. ◦ A delay of $50 million General Fund for the Distributed Electricity Backup Assets Program at the California Energy Commission (CEC), with $25 million delayed until 2025-26 and $25 million delayed to 2026-27. The Budget maintains $595 million, with $495 million in 2023-24, $25 million in 2024-25, $50 million in 2025-26, and $25 million in 2026-27 for the program and $100 million for DWR for this program through 2027-28.
  • Carbon Removal Innovation—A reversion of $40 million General Fund for the Carbon Removal Innovation Program at the CEC. The Budget maintains $35 million to the CEC for this program.
  • Incentives for Long Duration Storage—A shift of $56.9 million General Fund to the GGRF in 2024-25 for the Long Duration Storage Program at the CEC. The Budget maintains $330 million for the program with this shift.
  • Oroville Pump Storage—A delay of $200 million General Fund ($90 million in 2024-25 and $110 million in 2025-26) for the Oroville Pump Storage Project. The delay results in $100 million General Fund in 2026-27 and $100 million in 2027-28. The Budget maintains the full $240 million to the DWR for this project.
  • Industrial Decarbonization—A reversion of $22 million General Fund for the Industrial Decarbonization Program at the CEC. The Budget maintains $68 million to the CEC for this program.
  • Hydrogen Grants—A reversion of $35 million General Fund for the Hydrogen Grant Program at the CEC. The Budget maintains $65 million to the CEC for this program.
  • Clean Energy Reliability Investment Plan (CERIP)—A delay of $400 million General Fund in 2024-25 and $400 million General Fund in 2025-26 for the CERIP. The Budget maintains the $1 billion for CERIP, which is consistent with SB 846 (Chapter 239, Statues of 2022) as follows: $100 million General Fund in 2023-2024, $100 million General Fund in 2025-26, $300 million General Fund in 2026-27, and $500 million General Fund in 2027-28.

Other:

  • Compost Permitting Pilot Program—A reversion of $6.7 million General Fund for the Compost Permitting Pilot Program at the Department of Resources Recycling and Recovery. The Budget maintains $800,000 previously allocated to this program.

 

LAO Report on Water Conservation Regulations
Last week, the Legislative Analyst’s Office (LAO), a non-partisan analysis unit for the Legislature, released a report analyzing the state’s water conservation regulations as required by conservation bills passed in 2018 (SB 606 and AB 1668). The report is available here: https://www.lao.ca.gov/Publications/Report/4823. Included in the report are several recommendations for the Legislature to consider, including extending some conservation deadlines, increasing the bonus incentive percentage for potable reuse, and making changes to how variances are provided.  The report does not provide an analysis of impacts to wastewater systems, but acknowledges that DWR is tasked with doing an analysis by 2028, and further reiterates that wastewater systems will ultimately bear many of the costs associated with conservation efforts.