Calif. budget deficit: Health care worker wage hike, student financial aid in crosshairs

California is looking at a multi-billion-dollar shortfall ahead of the next fiscal year, but exactly how much, or how it will be balanced, is still an open question.

Estimates range between $38 and $73 billion, depending on who you ask, and state lawmakers are hunkering down for months of negotiations with Gov. Gavin Newsom’s administration to decide on a path forward.

What is certain is that California faces a sizeable deficit that must be resolved by summer. As a result, some programs risk being delayed, new funding stalled and existing funding reduced.

Kayla Kitson with the California Budget & Policy Center says plenty could change between the governor’s Jan. 10 budget unveil and the May revision, which includes updated figures and proposals. The amount of revenue the state can count on, especially after April tax filing deadlines, could decide just how large a financial chasm Newsom must reconcile.

“The governor's proposal is just a starting point,” Kitson said. “We're now in the process of the legislature having their own hearings on the governor’s proposals to accept or reject them or put forth their own proposals.”

Areas that could be affected include the expansion of Cal Grants for higher education, the state’s planned minimum wage hike for healthcare workers, and various climate and housing programs.

Here are possible budget cuts or delays to watch over the next few months as lawmakers work toward producing an updated proposal, set to debut in May.

California minimum wage hike for health care workers could be delayed

Legislators in October 2023 signed a new minimum wage law to increase pay for health care workers employed at most types of medical facilities, from hospitals and outpatient clinics to skilled nursing facilities and physician offices. The starting $21 per hour rate is meant to go into effect July 1, 2024, and inch up to $25 an hour by 2028 for most workers. However, this timeline is now in the governor’s crosshairs.

It is estimated to increase wages for up to 426,000 workers and predominantly benefit workers of color and women, according to analyses by UC Berkeley’s Labor Center. In the first year of implementation, the center says annual earnings will average $6,400 per workers, and the cumulative pay increase over four years in projected to grow individual earnings by 25%.

In his January 2024 proposal, Newsom asked the Legislature to adjust the law to make these wage increases subject to the state’s budget and available revenue. This could mean a delay of the wage hike by a year or more, and could augment stated exceptions for state facilities in the original law.

Lawmakers are still discussing this possible change.

Estimates of the wage increase by the Department of Finance following the bill’s signing topped out at $4 billion, however, leading the agency to oppose the legislation entirely. The Legislative Analyst’s Office said December the measure is likely to increase Medi-Cal spending, but the extent of its impact is “uncertain.”

Planned aid increase for CSU and UC students could be reduced

State lawmakers decided to expand the Cal Grant in 2022 to allow for more students to access what is the state’s largest financial aid program. Included in this change is a planned injection of $289 million into the existing Middle Class Scholarship program, devoted to helping University of California and California State University students pay for non-tuition expenses. However, expansion of the program, which was approved when California was sitting on a massive $97 billion surplus, has always depended on whether the 2024-25 budget could support it.

Newsom’s budget proposes nixing this one-time $289 million funding increase for the Middle Class Scholarship program, while maintaining the existing Cal Grant and Middle Class Scholarship funding totaling over $3 billion.

Cal Grants helped more than 380,000 students last year access and pay for college. The awards are based on family size and income: For instance, last year students qualified for the largest tuition aid of upwards of $13,000 per academic year if their annual household income was $61,400 and under and met basic GPA requirements. Awards of varying amounts are also available for students from households making less than $116,800 per year.

The Middle Class Scholarship program aided more than 275,000 students last academic year. Figures from the nonpartisan Legislative Analyst’s Office show more than half of students offered the award came from households making $50,000 or less, and more than 80% have a household income of $100,000 or less. Average awards range from $1,500 to a little over $3,000 per student.

California's overall budget likely to change

The California state Senate last week released their plan to “Shrink the Shortfall,” endorsing 97 of Newsom’s spending cuts, borrowing, deferrals and fund shifts intended to balance the budget. But if latest estimates by the Legislative Analyst’s Office of a $73 billion deficit ring true, the legislators’ $17-billion-dollar action plan will amount to just a fraction of what is needed.

The LAO, whose revenue projections Newsom’s office has disagreed with in defending their lower deficit numbers, has put forward a range of suggestions, including withdrawing spending that hasn’t yet been disbursed, such as for wildfire resilience and flood control.

The depth of the deficit will be clearer following the end of tax season, when revenue from Californians’ income taxes will be incorporated into the equation. Though eyes are focused on where the state is in the red, the May Revise will also clarify which investments and funding promises lawmakers will see through.

Kathryn Palmer is the California 2024 Elections Fellow for USA TODAY. Reach her at kapalmer@gannett.com and follow her on X @KathrynPlmr.

This article originally appeared on Palm Springs Desert Sun: California budget deficit: What popular programs face cuts or delays