In summary
A state budget is headed to Gov. Gavin Newsom for his signature, but it won’t take effect unless the Legislature makes changes to housing and infrastructure development rules that he has demanded.
After days of confusion in which a deal with Gov. Gavin Newsom threatened to unravel over his demand to include new housing and infrastructure regulations, the California Legislature passed an updated state budget on Friday.
With the start of a new fiscal year looming on July 1, budget negotiations — already challenged by a $12 billion and growing deficit — dragged on this week as Newsom and legislative leaders struggled to reach an agreement on waiving state environmental reviews for priority projects.
The details of that proposal were only made public Friday morning, hours before the budget vote, despite a poison pill that would invalidate the entire $321 billion spending plan if the Legislature does not also approve the infrastructure proposal, Senate Bill 131. Lawmakers are expected to take it up on Monday, alongside the housing measure Newsom sought, Assembly Bill 130, which was unveiled and then amended this week following fierce blowback from organized labor.
Officials involved in those negotiations have been loath to explain why the budget process staggered to such an odd and protracted conclusion this year, even as California is now set to adopt sweeping changes to how it builds without much public notice. Senate President Pro Tem Mike McGuire and Assembly Speaker Robert Rivas refused to speak with reporters after the vote.
“I’m not going to comment on the process or any of that,” state Sen. Scott Wiener, the San Francisco Democrat who leads the Senate budget committee and was a driving force behind the infrastructure proposal, told CalMatters on Friday. “The people of California, I don’t think they care much about the timing. They just want us to deliver on making their lives more affordable.”
The Legislature, which already passed its own version of the budget earlier this month to meet a constitutional deadline, voted along largely partisan lines to approve the deal with Newsom. It will freeze enrollment of undocumented immigrants in California’s health care program for the poor, but relies on reserves and internal borrowing to avoid many other cuts to services that Democratic legislators opposed.
Republicans criticized the secretive deliberations and last-minute changes, noting that even some Democrats publicly complained this week about being sidelined from discussions with hugely consequential policy implications.
“I have been involved in more than a dozen public-sector budgets,” state Sen. Roger Niello, a Roseville Republican, said on the Senate floor. “I have to say, this is the worst experience that I’ve had relative to navigating frustrations of the lack of transparency.”
But Assemblymember Jesse Gabriel, an Encino Democrat who leads the Assembly budget committee, laughed off the drawn-out dealmaking, which he compared to one of his pregnant staffers.
“She was actually due to give birth five days ago, and so we’ve been having a debate in our office about which would come first: budget or baby,” Gabriel said on the Assembly floor. “Right now it looks like budget is going to win.”
California’s landmark environmental law at stake
The high-stakes showdown began last month, when Newsom endorsed two contentious pro-development bills by Bay Area Democrats and announced that he would fold them into the budget. Both make changes to the California Environmental Quality Act, which requires governments to study the environmental impacts of new housing and infrastructure projects they approve.
The five-decade-old law is sacrosanct to environmentalists, but critics argue that it has driven up the cost of building in California because studies and subsequent legal challenges, sometimes brought by construction unions or other groups that want concessions from developers, can take years to resolve. Newsom has framed his approach as a crucial reform to fix the state’s housing affordability crisis.
While the leadership of the Assembly got on board, the proposals were met with more skepticism in the Senate, where there is a growing rift among Democrats over whether simplifying project approvals without setting terms for affordable housing and labor standards is a giveaway to developers.
That prolonged the budget negotiations, even as Newsom and legislative leaders reached a difficult compromise on spending cuts.
When the budget bill eventually went into print on Tuesday, so that legislators would have enough time to pass it before July 1, officials were still haggling over the details of the infrastructure proposal. To ensure discussions would continue, Newsom demanded the inclusion of an unusual line stating that the budget “shall be inoperative and repealed” if SB 131 is not signed into law by June 30 at 11:59 p.m., though the measure was empty at that point.
The version that finally landed on Friday reduces the number of documents that projects must provide for their environmental reviews. It also eliminates the reviews entirely when cities rezone neighborhoods to meet their state-mandated housing goals, as well as for building a potpourri of other projects: farmworker housing, sewer systems in disadvantaged communities, broadband internet, public parks and trails, rural health clinics, food banks, advanced manufacturing facilities, day care centers and stations for the high-speed rail project.
‘Critical’ housing reforms
The related housing measure, intended as a grand political bargain to speed up construction in cities, threw another late wrench into the budget process.
It would exempt most new apartment buildings in already developed urban areas from environmental reviews, provided they meet local zoning rules. To secure support from organized labor, the bill originally created new wage floors for projects taking advantage of the law.
But powerful unions representing construction workers revolted after the proposal was introduced this week Their members crowded into hearings at the Capitol, casting it as a betrayal that would undercut higher “prevailing wage” standards that have long existed for publicly funded projects. Many Democratic lawmakers, who are closely allied with organized labor, eviscerated the measure.
Newsom and legislative leaders scrambled to contain the fallout. Amendments to the bill late Thursday stripped out the wage provisions while requiring projects taller than 85 feet or those that have 100% affordable units to offer prevailing wages if they want to access the expedited approval process. But that means many small apartment projects could sidestep environmental reviews without having to pay higher wages of any kind.
The bill retains another provision that unions asked for, giving them the right to take contractors to court for workers compensation, insurance and payroll tax violations.
Newsom praised the development proposals on Friday as a “triumph” and “one of the most significant housing reforms in California history” — so important to fixing the state’s shortage of affordable homes that they needed to be pushed through as quickly as possible.
“I did it because it’s critical and it’s essential that it was done,” Newsom told reporters in a virtual press conference. “We’ve got to get out of our own damn way.”
Ben Christopher contributed reporting to this story.