California budget deal scraps Newsom bid to speed Delta tunnel

BY: WES VENTEICHER, RACHEL BLUTH, CHRISTOPHER CADELAGO | 06/27/2023 12:13 AM EDT

SACRAMENTO, Calif. — A budget deal between Gov. Gavin Newsom and his fellow Democrats in the Legislature scraps his plan to ease approval of a water tunnel to ship water to Southern California but includes changes to environmental regulations he sought to speed up major infrastructure projects, the two sides said in a joint statement early Tuesday.

Lawmakers and the governor agreed to a nearly $311 billion budget that closes a $31.5 billion deficit just before the start of the new fiscal year on July 1.

The agreement relies on the shifting of $9.3 billion, reductions of about $8 billion and delayed spending of nearly $8 billion to close the deficit.

The two sides agreed to drop a plan to limit legal challenges to the proposed Delta Conveyance project but include changes to the California Environmental Quality Act that intended to make it easier to build transportation, energy and water projects. Environmental advocates opposed the changes to what many consider a vital regulation.

Newsom said the state was “fast-tracking the clean energy projects that will create cleaner air for generations to come” with the budget.

“In the face of continued global economic uncertainty, this budget increases our fiscal discipline by growing our budget reserves to a record $38 billion, while preserving historic investments in public education, health care, climate, and public safety,” he said.

Negotiations between the branches of government remained tense into the afternoon Monday after a long weekend of friction, with the Assembly refusing to sign off on the governor’s proposal to limit legal challenges to major construction projects over environmental regulations, which can result in lengthy delays.

Why it matters: The agreement is a compromise between Newsom and members of his party in the Legislature. The governor, over the objections of fellow Democrats, sought changes to the California Environmental Quality Act this spring, arguing that the landmark legislation was causing delays to major transportation, energy and climate projects. He also sought to make it harder to file legal challenges to the proposed Delta Conveyance Project. That project — which environmental groups, regional farmers and powerful Northern California lawmakers oppose — would build a 45-mile tunnel from the Sacramento-San Joaquin Delta to help ship water to Southern California.

Key context: The budget deal closes a $31.5 billion projected deficit that resulted from declining earnings among California’s wealthiest residents. In addition to the infrastructure dispute, lawmakers disagreed with Newsom over where to trim spending that has been buoyed by record budget surpluses in recent years.

More details about the agreement:

Climate: Lawmakers agreed to an initial proposal from Newsom to cut $6 billion from a landmark climate spending package, but they objected to additional reductions Newsom proposed in May. The new agreement restores cuts Newsom proposed to coastal protection funds, building decarbonization efforts and a range of other programs.

Transportation: Newsom proposed cutting about $2 billion in transit infrastructure funding, but lawmakers — driven by transit agency warnings — wanted to keep that money and add more. The final deal restores the proposed $2 billion, adding flexibility that allows agencies to use it to support day-to-day operations and provides an additional $1.1 billion to help keep the agencies afloat.

Health care: Health care industry leaders and the administration also hammered out a deal on a $19 billion managed care organization tax, a closely watched source of revenue that insiders say would be the biggest-ever investment in the state’s Medicaid program. The money, which would eventually be matched by federal funds and total more than $35 billion, would raise reimbursement rates, assist distressed hospitals and create new medical residency slots. Funds would also be set aside for ambulances, emergency rooms and behavioral health beds.