Medi-Cal cuts, business tax hikes loom in CA budget

from Dan WaltersCalMatters

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The primaries have come and gone. Votes are still being counted, and the eventual results of the close races may not be known for weeks.

However, he’s back to work for those already in office, including Gov. Gavin Newsom, and the biggest issue on their agenda is budget writing for fiscal year 2026-27

The state constitution requires a new budget to be passed by June 15, leaving little time for Newsom and legislative leaders to resolve multibillion-dollar disparities, particularly those involving health and social services up to about 15 million Californians are poor enough to qualify.

Newsom suggests spend $334.2 billion on these programs — the largest portion is Medi-Cal — with three-quarters coming from the federal government. However, due to recent cuts in federal aid and the state’s chronic budget deficit, Newsom’s budget will cut some services.

this defenders don’t like it for Medi-Cal recipients. They have issued a cascade of critical statements in the two weeks since Newsom released a revised budget.

The skeleton budgets that the leaders of Senate and Assembling have announced it will restore many of those reduced or eliminated services, though plans differ in details. Overall, the legislative budgets would add at least several billion dollars in spending, though they don’t provide exact final numbers.

There is also legislative appetite to raise taxes, especially on corporations, by changing the way multinational companies calculate taxable income or requiring large employers to pay a $285 monthly fee for each employee enrolled in Medi-Cal.

The Senate would pass the $285 employer fee instead of renewing the longstanding tax on health plans, called the managed care organization tax, that Newsom and the Assembly support.

Revenue from the current managed care tax, about $4.5 billion a year, was used to qualify the state for additional federal health care dollars, but it will expire at the end of this year.

The federal government has placed limits on the managed care tax strategy. And in 2024, California voters passed a healthcare industry ballot measure which requires tax revenue to go to medical services rather than non-medical programs.

California Association of Health Plans opposed the renewal of the managed care taxsaying it would derail the 2024 ballot measure and raise consumers’ medical costs by $1.5 billion a year.

The issue epitomizes the complex high-dollar issues facing Newsom and legislative leaders as they negotiate whether to backfill cuts in federal aid, whether to restore services Newsom would cut and whether new taxes are the solution.

While health care and welfare issues, because of their high costs, may dominate the negotiations, there are many other points of contention for Newsom and legislative leaders as they craft what will be Newsom’s eighth and final budget.

He claims his revised budget will cover the gap between revenue and expenditure that first appeared in the state finances in 2022 and has persisted ever since. Thus, he said, his successor will not be troubled by what is called a “structural deficit” upon taking office next January.

However, most of the deficit-reduction proposals are temporary in nature, such as transfers from state emergency reserves, off-the-books borrowing and what could be a short-lived spike in tax revenue on the artificial intelligence boom.

The Legislature’s budget analyst, Gabe Petek, warned in a Newsom’s budget reviewthat “given the state’s dwindling reserves and already amassed wall of debt, California is ill-prepared for even a drop in revenue.”

Unfortunately, as they resolve their specific differences and write a budget by the June 15 deadline, lawmakers and Newsom are more likely to continue patching holes in the budget than closing them for good.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.