June 17, 2026 · Budget · 23,340 words · 49 speakers · 252 segments
Thank you. Thank you. The Senate Committee on Budget and Fiscal Review will come to order. We are a subcommittee. There's five of us here. So as soon as we can get to 10, we will call a quorum. I want to acknowledge that there are simultaneous committee hearings going on. Many members of the budget committee are members of, so there will be people coming in and out of the hearing. We're holding our committee hearing here at 1021 O Street, room 1200. Public comment will be heard after all the discussion items have been presented. Today, we will hear Assembly Bills 110, 122, 125, and 177. While we passed AB 109, our budget bill, on Monday, we now take up the trailer bills that represent revenue changes assumed in those bills. On ABs 110, 122, and 125, we have reached an agreement with the administration and the assembly, and the assembly passed these bills on Monday night. On AB 177, the Senate continues to prioritize making progress toward a fair share from big corporations act. This does not turn on the contribution and does not generate revenue at this point, but it does create the fair share from big corporations act to begin holding companies accountable for the taxpayers' cost of providing health care to their employees. Under this bill, the administration will be required to present fully developed options to the legislature to be considered during next year's budget process. The bill is part of the two-party agreement and will be part of the final negotiations with the administration. I also want to note that the Senate led the call for new revenues to address our structural deficit and doing this as part of a balanced approach, which was to make cuts as well and hold revenue from this year for the year after next so that the structural deficit would be cut roughly in half and the budget would be balanced for two years. While these revenues were not our first choice, we appreciate the administration and the assembly in going from zero dollars in new revenue to joining the Senate's call for over five billion in ongoing revenues. We understand that some of the potential impacts on health care premiums from the new MCO tax but let it be clear this bill is only needed because President Donald Trump wiped out California prior MCO tax that protected premiums So the best way to protect premiums is for the federal government to reverse course and allow our prior MCO structure to return. In the meantime, this revenue package allows the state to prevent some of the most devastating reductions to health care and social services and delay the implementation of others. The revenue package also allows for continued investments in education, child care, affordable housing, homelessness reduction, and many other items that are important to Californians. Today, our process will be we are going to hear on the four items on the agenda, and then we are going to bring it back to the committee for questions or comments on all four together. So we will hear the four and then do that, and then after hearing the bills, we'll have a public comment prior to voting. So before we begin, Vice Chair Nielo, do you have any opening comments? Thank you very much, Mr. Chair. Not surprisingly, we have some fundamentally differing views on the nature of the challenge that we face with a structural deficit that appears because of not declining revenues, which is typically what happens. We hit a recession and we have declining revenues and a mismatch between revenues and expenditures, but increasing revenues, rather strong, but more increasing expenditures. And so to solve an increasing revenue challenge with increasing revenue even further just kind of doesn't make sense. But go ahead and tax the labor on custom software development. And while you're at it, not to offer any creative suggestion because it's maybe already being considered, why not tax labor on a complete rebuild of an air conditioning unit? It becomes a product at that point. Why not tax that labor? Why not tax the labor on replacing a roof? When it's completely replaced, it's a whole new product. Why not tax that labor? I hate to offer suggestions, but I'm concerned that the logic could go in that direction. And so go ahead and tax a limitation of research and development credits. I mean, after all, our economy is fundamentally an innovative economy. The strength of our economy is the tech sector, and that is an innovative economy that requires and survives on continuing research and development. So by all means, limit that. and we will see unintended, from my standpoint, and undesirable anyway, results with regard to that. And with regard to the MCO tax, go ahead and increase the cost of health care by that amount to individuals on the commercial side And just a point with regard to the so fair share I indicated my concern about that phrase a couple of days ago, but maybe as part of that we could also take a look at the impact that we're having on the health care industry industry by virtue of woefully under-reimbursing procedures, particularly with regard to Medi-Cal. And while you're at it, continue to ignore my recommendation that we do some fundamental assessment of ongoing existing spending programs to see where we can bring those increasing costs in line with the increasing revenues without raising taxes. So I look forward to a healthy discussion about this and on with the show. Thank you, Senator. We had a quorum and Senator Grove walked out. So see if she's in the hallway. I found it. Perfect. Would you please call the roll to purposes of establishing a quorum? Senator Slaird? Here.
Nilo?
Here.
Archuleta?
Here.
Blakespear?
Cabaldon?
Here.
Choi?
Dorosso?
Here.
Grove?
Here.
Hurtado?
McNerney?
Here.
Menjabar?
Here.
Ochoabog?
Here.
Perez?
Reyes?
Richardson?
Sayarto?
Here.
Smallwood Cuevas?
Present.
Weber Pearson?
Thank you. We have established a quorum. Thank you, members, for that. So we are going to now begin with Erica Lee from the Department of Finance for a brief overview of the bills in front of us. And then we'll have Carolyn Chu from the Legislative Analyst. And I think we could do this either way, but why don't we just go through each one individually, We go to finance and then LAO and work our way through the four, and then we'll bring it back to the members for questions and comments. So, Ms. Lee, welcome to the committee.
Good morning, Chair Laird, Vice Chair Nilo, members of the committee. Erica Lee with the Department of Finance here again this week to present several trailer bills that together are part of the architecture of the legislature's budget. And I will begin with AB 110. AB 110 is a budget bill junior that amends the 2026 Budget Act to identify budget-related legislation. Moving on to AB 122, this is a trailer bill on revenues. Beginning January 1, 2027, this bill extends the application of the state's existing sales tax and pre-written software when it is brought in a physical medium like a disk to pre-written software that is delivered electronically or assessed remotely. I would note that this modest expansion of the sales tax base aligns California's tax system more closely with most other states and better reflects changes to modern purchasing patterns since California last updated its software tax laws in the 70s. The bill also extends the temporary $5 million business tax credit limitation that is currently in place for tax years 2024 through 2026 for an additional three years, so 2027 through 2029 including its refundability provisions that will allow impacted taxpayers to fully claim those credits in future years It then permanently limits business tax credit use to the greater of either 5 million or 70 of a company tax liability beginning in 2030 ensuring that large profitable corporations doing business in California pay a reasonable minimum level of corporation tax in the state. This bill also reduces the annual tax from $800 to $400 for tax years 27, 28, and 29 for limited liability companies, limited liability partnerships, and limited partnerships in their first year of operation. And lastly, this bill establishes a new tax of 100% on federal settlements paid out of the federal anti-weaponization fund. Thank you.
And do you have any comments on the first two?
No. Good morning, Chair and members. Carolyn Chu from the Legislative Analyst's Office. We're here and happy to answer questions.
Great. Thank you. Then we'll move to the third one.
Sure.
AB 125 authorizes a renewed managed care organization or an MCO tax for three years beginning January 1 of 2027 that conforms with new stringent federal requirements in HR 1. Revenues from the tax will support the Medi-Cal program and maintain targeted rate increases for primary, maternal, and non-specialty mental health care implemented in 2024. The proposals, as mentioned, in AB 122 and AB 125 were included in the governor's budget with that modification to the tax credit limit proposal, as I mentioned, and to which the administration is supportive.
Should we go on to AB 177?
That would be great.
Okay. Finally, AB 177 is a bill that requires the Department of Finance to present to the legislature options assessing large corporations for the cost of their employees that are enrolled in Medi-Cal on or before March 1, 2027. At least one option must include an employer-paid premium to offset the state cost for their employees who receive Medi-Cal for companies with at least 250 employees. All options must include proposed statutory changes, specified data, and analysis of costs and timelines. And then the bill also appropriates $1,000 general fund for the Department of Finance to implement these requirements. And it becomes inoperative if H.R. 1 is repealed prior to implementation. And that's the end of my presentation.
Thank you. And do you have any comments on the other two bills? Okay. Then having heard a presentation on each of the four bills, we'll bring the matter back to the committee where we can have questions or comments on any of the four bills. And let me, Senator, just a second. Let me see who else. But I have Senator Durazzo. Anybody else? Senator McNerney? Senator Smallwood-Cuevas. And I'm going to move Senator Smallwood-Cuevas in front of Senator McNerney because Senator Durazzo and Smallwood-Cuevas have other committees they're chairing that begin at 930. And then Cobaldon. Anybody else want to get on the list? Grove and C.R. Toe.
Mr. Chair, just to clarify, we are commenting on all the bills or there's more presentation?
Let me just finish. Anybody else? Senator Menjivar. And just to repeat, questions or comments can be on any of the four bills. We just heard a presentation on each and we're combining the comments. All together. Okay. Four questions into one. And then when we are done with the committee comments, we will go to public testimony and after public testimony. We will take votes. So let's begin with Senator DeRozco.
Thank you, Mr. Chair. Good morning. I have a question on AB 125. How are the funds prioritized within the Medi-Cal Stability Fund framework?
Good morning, Mr. Chair and members of the committee. Aaron Edwards with the Department of Finance. So the way that the funds would be prioritized is first there would be about $300 million allocated to support targeted rate increases that became effective January 1st, 2024. and those are related to non-specialty mental health, primary care, and maternity care services. In addition to that, the remaining roughly $2 billion in annual revenues would be allocated to support the Medi-Cal program.
$2 billion?
Yes.
Okay. Okay, great. Thank you. Yeah, I support the bill because it does help to stabilize, and I think that's really important. We still have the issue, of course, of resolving the freeze for the Medi-Cal. On AB 177, I mean, we're still subsidizing the billion-dollar corporations, and this is a good tool to have in our box. So I support the tools that we have, but I understand that we need more tools. I'm supporting the bills because they protect the floor, but I want to be clear we need to move beyond the floor because over a million hardworking Californians are still frozen out of coverage. And the corporations receiving these huge tax cuts from H.R. 1 should not be able to pay poverty wages and then hand the health care bill to California taxpayers. So I'm supporting. I am voting yesterday because I believe in the direction that this is going in. But we need to see a serious proposal in March, not merely a placeholder. So I don't know if you have any comments on that, but those are my comments and questions. Thank you, Mr. Chair.
Thank you very much. We're going to go to Senator Smallwood-Cuevas.
Thank you, Mr. Chair. I wanted to raise a couple questions about SB 122. and just making sure we are understanding tax credits are basically discounts that reduce the amount of taxes a company owes. And these can sometimes result in companies owing nothing or even being refunded cash after paying no taxes and some of the refundable tax credit. So I guess my question on this is you know what safeguards are in place to prevent large corporations from restructuring shifting liability or exploiting loopholes in ways that would undermine the intent of this proposal
Good morning. Colby White, Department of Finance. There are longstanding rules under the corporate tax law. Some of them include, for example, companies have to report as a combined entity, so they can't shift profits into different entities. So there's things like that. The state enacted the single sales factor apportionment in 2012. It didn't enact it. Sorry, the voters approved it. And so that deals with how states, multi-state corporations apportion profits to California, and they now have to do it based on their sales in California versus their sales throughout the country or throughout the country on the water's edge basis. Um, so, um, so there's different, you know, there's longstanding laws throughout, throughout the corporate tax law that, uh, that the franchise tax board enforces in order to ensure that corporations do, do pay tax. Um, and when we were talking about the credit limitations specifically, we do see that the corporations report liability on their, on their returns. And so this, this proposal, uh, before you today, um, that it has two parts. One is related to the temporary extension of the existing where the credits are limited to $5 million per year, and then after that they're still limited. They can take up to $5 million, and then after that they can claim up to 70% of their liability. But that 30% will represent a true ability for larger corporations to have to pay some minimum reasonable level of tax in California. And so in the framework that you just presented, when we think about the revenue that gets generated from this proposal,
how much or any sense of what percentage part of this revenue will go toward protecting Californians who may be frozen or fallen off of Medi-Cal or SNAP?
Well, this is general fund revenue, so it's part of the entire budget architecture, and it helps, you know, it builds out the whole, it's a piece of the puzzle to build out the entire budget architecture to address all the different competing priorities of the state.
But it's meant to raise significant revenues, and is there any earmarked intentional investment that is targeted toward Medi-Cal as a result of these revenues, specifically and directly?
Not as part of the whole general fund, but in terms of addressing the reality that $1.3 to $3 million in terms of estimates of Californians,
many of them working Californians who may lose their coverage, is any of this revenue targeted specifically to that?
None of the revenue is specifically earmarked in regards to the revenue that is coming in for this proposal. It is, as my colleague mentioned, allows for more revenue and allows for the administration and legislature to have some flexibility in how they're building the budget overall and prioritizing programs. And, of course, we as administration, as a state, have prioritized certain things in our budget. And freeing up some additional revenue allows us to have the flexibility in the future to make decisions in regards to how we build the budget And when you say make decisions in the future is there language that speaks specifically to that as it relates to Medi in this proposal There's nothing specific to supporting the Medi-Cal program, aside from the fact that the entire budget and the framework for the budget is there to allow for the continuation of priority programs, including all of our health and safety net programs.
Yeah, I'm aware that, you know, nearly more than half, nearly two-thirds of our budget goes toward health and human services, including Medi-Cal. I think it's $289 billion or so of our expenses go toward health and human services and Medi-Cal being a significant part of that. So that's why I'm asking the question about how are we thinking about targeting resources, revenues to address what is going to be an increase in those costs as we're looking at folks losing care, having to not get preventative care, having illness accelerate in a way that it becomes expensive and ultimately deadly, and then showing up in emergency rooms, which then costs our system so much more. So that's why in terms of how do you prevent that scenario, my question was is there some intentionality around the investment in these funds, and it seems like the answer is no on that. On item 3, SB 125, the MCO tax, and I really appreciate all of the work that the administration has done in trying to save our Proposition 35 efforts and the will of the people in the state of California. We see this as an opportunity for additional resources, but we also know that this administration has made it very difficult for us to make good on that commitment. On SB 125, does the proposal still deliver on what voters intended, and can you talk a little bit about how there are assurances that future action by the Trump administration will allow these changes to move forward and, once again, that we are not further disrupting California's efforts to provide and fund Medi-Cal for the people of California who depend on it.
Aaron Edwards once again with Department of Finance. Appreciate the question. I'll take the first question about whether our proposal upholds what the voters are trying to accomplish in approving Prop 35. The world has changed, I think, pretty significantly from when the voters approved Proposition 35 in 2024. The big change, of course, was H.R. 1 passed in 2025. And what that bill did is it essentially limited the state's ability to apply disproportionate taxes on Medi-Cal plans relative to commercial plans. And the interaction of H 1 with Prop 35 which capped the tax revenue that could be collected from commercial plans essentially means that the state cannot move forward in the way that I think the voters probably intended when Prop 35 was passed So our proposal we think it conforms with the law as written under Prop 35 That law requires the state to submit a tax that's substantially similar to the tax proved under Prop 35, which we intend to do. We recognize that the federal government may not choose to approve that tax because it is disproportionate, because it places higher taxes on Medi-Cal plans and commercial plans. So we also intend to submit a request to the federal government for a tax that would comply with Prop 35, with H.R. 1 that is proportionate, and that levels the same tax across Medi-Cal and commercial plans. In that event, the proceeds from that tax would not be subject to Prop 35. Prop 35 provides that if the state cannot get approval for a tax that's substantially similar, then Prop 35 essentially sunsets and winds down. And so that is our approach. We believe that it is consistent with Prop 35 and reflects the new reality that we live in post-HR 1. So hopefully that addresses your first question. In terms of your second question, could you actually remind me what the second question was?
So my second question is, is there a sense of these resources being able to come back to help fill some of the gaps that we have in our Medi-Cal system? Absolutely.
Our intent is to use these revenues to support the Medi-Cal program. As I indicated in response to Senator Durazo's question previously, we allocate $300 million from the revenues to support specifically targeted rate increases for non-specialty mental health care, primary care, and maternity care that were previously approved in 2024. And then the remaining $2 billion is to generally support the Medi-Cal program, which would allow us to stave off making further reductions to what we believe is really a critical social safety net program. So these dollars are for future reductions, not actually addressing the folks who are currently at risk or who have been frozen out of access to care for future reductions? That's correct. This revenue would allow us to avoid making further reductions to the Medi-Cal program.
Well, I think this just brings me to the final point around $177,000. And, you know, the Californians most harmed by this current budget between the cuts and the delays, are many sectors of our most vulnerable populations. Working poor families, children, our seniors, people with chronic illness who now will not be able to get that continuous care. Communities of color in my district, 48% of my constituents are on. Medi-Cal, and these cuts are going to create severe suffering in those communities. And I understand future cuts may be protected, but it's the current ones that are going to hurt, and we're going to see those effects. And so, you know, when we're talking about, you know, whether it's grocery workers who are fighting cancer or warehouse workers who are trying to manage their chronic illness or seniors choosing between medication and their rent. This is an incredibly difficult situation, and the health care sector is one of the few places that is helping to boost California's economy. It's helping to maintain our workforce. It's helping to keep so many of our industries thriving. And this hit to Medi-Cal is going to have implications on the public safety side and on the economic ecosystem of California. So I believe and agree. I saw there was a letter sent by UDW Local 3090 that we just received that says it encourages the legislature to adopt the Medi-Cal fair share regardless of any federal actions affecting Medicaid. Large employers should contribute their fair share toward health care system and not rely on taxpayers to subsidize the health care costs of their workforce. It seems to me this is an all-hands-on-deck moment. It's a moment where we're watching a domino fall, and we know anyone who's lived through the late 90s and through the 2000s that when communities start to lose whole swaths of the safety net, it triggers a level of desperation and negative implications for so many things. in our communities. California is a beacon. We are and have been leading in many ways against this administration. We've shown that investing in safety is providing Medi-Cal for all, for example, just one example of the ways we've shown that when we invest in people, we are able to sustain our communities. We're able to keep folks insured and healthy. We've seen the lowest crime rates that we have experienced in decades. We've seen our economy grow from the fifth to the fourth largest economy because we made investments, because we did the work to fortify and expand our safety net. The contracting will create a domino on the opposite effect. And the way we stay in front of that is to have the courageous conversations of bringing everyone to the table to invest in that safety net today. So I think AB-177 is fundamental. It's fundamental to helping to weather this HR1 nightmare. And at the same time, it creates some accountability and shared responsibility and recognizing that when public dollars are helping to cover health care costs for employees for some of the largest and wealthiest corporations in the world most profitable in the world there is a responsibility for those corporations to fund the health care of their workers and not shift that cost to Californians who are already hurting, who are already in an affordability crisis. This is not about punishing success. It's about shared responsibility. And California has not been afraid to stand up and to do the courageous things that allow our state to advance and grow, this is a moment where we have to do the same as we are facing some of the darkest moments for many in our communities where it is literally going to be life and death. So with that, I thank you for your time, Mr. Chair, and I hope the administration does the important thing of coming to the table on this question of 177. and help us to protect California as we weather these next couple of very dangerous times.
Thank you very much, Senator. We're going to go to Senator McNerney, and Senator Cabaldon is on deck.
Well, first of all, I want to thank the chair and the committee consultants, even the governor's office, for working on this budget. I think it's important. We're going to need to do it. but it's always hard for elected officials to raise revenues. It's always hard. But SB 122 will improve the fairness of our sales tax system. California sales taxes were created during the Great Depression nearly 100 years ago, and it only applies to things like cars, clothing, food, which taxpayers of modest means all need. But it doesn't apply to things like services, software, and other intangibles where the wealthier taxpayers are more likely to purchase. SB 122 modernizes our sales tax for the 21st century. It ensures that the sales tax will continue to be a vital revenue source for both the state of California and local governments and that lower-income Californians won't be the only ones to pay for it. The bill also has an added benefit, and I like this one a lot. Businesses can deduct sales taxes from federal income, so this is the tax that the federal government will help us pay for. SB 122 also makes sure that the wealthiest companies do pay their fair share more than the minimum amount possible. The research and development credit is an important tool for innovation in California. It's a good thing, but when this legislature enacted the credit in 1987, it could not have imagined that companies holding billions of stockpiled credits that could wipe out their tax liabilities forever. That's kind of crazy. SB 122 strikes the right balance. Companies with credits limited in the next three years are made whole with refundable credits after a three-year wait. The permanent limitation that starts in 2030 only applies to those companies with more than $60 million in California profit, and those companies can still use credits to offset 70% of their liability. Finally, I want to add that the cloud-based software sales tax portion of this bill is a good first step toward fairness, but over the next year I strongly believe that we should examine other current tax breaks that the tech industry no longer needs. and now I will yield back to the chair Thank you very much We move to Senator Cobaldin and Senator Grove is on deck Thank you Mr Chair and I want to pick up on all the points that the Chair of the Revenue and Taxation Committee made as well
because for me, the proposals that are before us, I think they are supportable simply on their merits, not as revenue raisers, but they are simply modernizing our tax system and making some baseline fundamental equity considerations come into play. So I appreciate the administration's work on these measures. And the software sales tax, I mean, as I think most Californians know, if I buy Microsoft Excel and I ask for them to send me a disk and hope that my computer can still read it, I pay sales tax on it because it's a physical good. The exact same product, if I say, let me click download instead, there's no sales tax at all. Now, I'm not doing either one of those things anymore. This bill is largely going to apply to business-to-business transactions, and none of those businesses are ordering disks anymore either. So this is simply modernizing our tax collection system for software to match what many, many, many other states have done with none of the catastrophic consequences that have been foreshadowed in my esteemed colleague, the vice chair's remarks. Texas does this, but Texas actually goes further. Texas taxes custom software. This measure does not propose to do that. So this is not a tax on labor. It's simply modernizing a taxation system that will allow to assure that companies that are purchasing pre-written software are paying the same share, whether it's delivered digitally or not. So the revenue is helpful given our budget situation, but this makes sense regardless. And similarly, I mean, it is outrageous that there are barbers in my district that are paying more. An individual barber or farm worker is paying more in taxes than Apple or Google. I mean, that just makes no sense. That's not defensible as a matter of public policy. And this governor has steadfastly insisted on not raising taxes during his entire term. And I know this proposal is coming from the administration not as a way to raise revenue, but because that's just not fair. And I appreciate the efforts that have been made by the administration and by the leadership of our two houses to try to, in working with industry, to make sure we're not having unintended consequences on research and development in the state. But that fundamental proposition that in a democracy, in a free society, everyone has to pay something, that doesn't work if that doesn't apply to the largest. And although I wasn't here when the research and development credit was first adopted, it was a very different California. And I think I continue to support the credit, but let's be real. That credit was done when the state of California was one of the biggest players in the world. We still are, but so are many of our companies now. And our hope was to spur innovation across the entire economy, particularly with small businesses in a lot of different sectors that we were trying to establish a foothold in. It has, in many ways, worked to do that. But it is no longer the case that the state of California with general fund revenues of a quarter billion dollars plus or minus it makes no sense that we should be incentivizing companies that are worth 10 times us to continue doing research If we didn't have this credit at all, would NVIDIA continue to do research in how to make an even better chip, faster and cheaper? No. It's fundamental to their business model. So much of our economy, because the tax credit has worked, has embedded R&D as fundamental lines of business for taxpayers like Alphabet, NVIDIA, and others that have so many unused tax credits that they are paying essentially not. They're paying $800 or whatever in the business license fee, $800 on revenues that are more than us. So it's a quaint artifact of history that we think the people of California need to be paying some of the largest tech firms in particular in order to do research, which is their fundamental line of business. And so there are important research efforts that have been undertaken with these tax credits in the life sciences and ag and many other places. So I'm very supportive of the credit, but it does need a 21st century look. And this effort and this proposal that is being put forward by the budget chair and the pro tem, I think, begins that effort simply to make sure everyone pays something. And by something, I don't mean $800, but that there's absolutely no basis for a teacher in my district to be paying far more in taxes, and certainly as a share, but even just in dollars in taxes than Google or Apple or NVIDIA or PayPal or Intuit are paying. And this proposal would start to make that right by showing you at least have to pay 30% of your tax liability. That seems eminently fair, and the changes that have been made in this proposal as opposed to the administration's proposal to try to deal with some of the concerns from life sciences and other industries I think are appropriate to appreciate them and look forward to supporting these bills today. Thank you, Mr. Chair.
Thank you very much. Now we're going to move to Senator Grove, and Senator Ciardo is on deck.
Thank you, Mr. Chair. Thank you for starting the committee on time. so that we can get our questions asked and get out of here. I just have a series of questions. I'm going to start with AB 177. What's the definition of an employer?
Anybody? I don't care who answers it. For the purposes of the bill before you, I don't think that the definition of the employer is included, except for the fact that the study is to examine the potential options for employers that employ more than 250 employees, but I don't believe the bill extends beyond that particular designation. So there's no definition of employer.
When you say 250 employees, are they full-time or part-time?
I don't believe the bill defines that, but I'd have to go back and look.
It doesn't define it. Are they supplemental income individuals, like somebody on Social Security, Medi-Cal who's working at Walmart at a greeter to be just social in society? Is it a part-time employee trying to get through college, working at Starbucks or something else? or is it, I mean, what's the definition of an employee in their hours and how it qualifies?
Sure. I understand the line of questioning that you're pursuing. As we understand the committee's intent, it's to direct the administration to examine options that would to impose this type of penalty. And we would imagine that as the administration develops options, it would examine how to determine the types of businesses that would be subject to the penalty. And so as far as I understand it, the bill is relatively silent on the specific parameters in order to enable the administration to look at different ways to design the penalty depending on what the data supports in terms of the ability to impose such a penalty. So based on what you said, this bill allows the administration to charge, what,
200 and how much dollars? The bill itself does not impose a tax. What's the intent? The intent
of the bill is to direct the administration to present to the legislature by next spring options to impose a penalty on employers whose employees utilize the Medi-Cal program. And what's that what's that total, what's that dollar? There was a $245 or a $285 figure per month per employee floated around.
I am not familiar with that specific penalty level,
as I believe the agenda speaks to the intent of raising a few billion dollars in revenue, which would require likely a penalty in the hundreds of millions, excuse me, hundreds of dollars.
So this bill, just to be clear that we're voting on today, does not identify an employer who would be subject to a penalty for having their employees on Medi-Cal. It doesn't identify or have a definition of an employee, whether that's a full-time or part-time or supplemental income employee. There's no definitions of an employer or an employee that would be subject to this penalty or this study that we would allow the administration to take up next spring. Is that true?
I'm going to interrupt.
Oh, come on, Mr. Chair. You didn't interrupt anybody else. I'm just trying to get to the meat and the potatoes of the thing. Oh, I get it.
But this is a bill that's come from the legislature, and they are answering questions about the bill that came from the legislature. And so I just want to clarify that if this bill is approved, it asks the administration to consider all those things and then come to the legislature, and it doesn't trigger it. It doesn't even mean it's final. It's just they are to consider it and present it. So there are no specifics in the bill because it asked the administration to consider the specifics and what it would recommend to the legislature. Okay, so there's no specifics in the bill to authorize the governor's office or the administration or the next administration, well, the administration, I guess, to come forward and present information to this. Do you have to have a bill as the administration, as the governor of the state of California, do you have to have a bill that says, hey, I think we should look at employers and higher taxes Do you have to have a bill that says that?
Well, I'm from the Legislative Analyst's Office, but the administration does not require a bill to do studies. But often the legislature will direct through statute specific studies that it would like the administration to pursue.
Miss Lee, go ahead.
Good morning.
Good morning.
My colleague is right. The administration does not require a bill for proposing anything in, say, the governor's budget or the mayor revision or something that could happen through an executive order. But this specific bill does require – it would require the administration to do just as was stated and to look into the potential options of developing said plan and how to implement said plan.
Thank you So just to be clear my colleagues on the other side of the aisle are introducing this piece of legislation to give to the governor to require him to do something that he could do if he chose to do but required him to do a study to go forward with this plan But in this legislation that we're approving today or that will be approved today, I'm pretty positive. I'm voting no, by the way. But that will get past this committee and past the floor. It doesn't identify an employer, what an employer is. It doesn't identify an employee where that employee is part-time, full-time, working their way through college, a senior on Medi-Cal that is just trying to supplement their income or whatever. So none of that is in this language. I mean, the only reason I'm asking is we got this language. When did we get this language, Kirk, this morning, yesterday? Yeah, but us. When did we get the briefing and everything on it? Like Monday, today's Wednesday. Monday morning and today's Wednesday. And it was several thousand pages. So just curious. That's why I'm asking these questions. It doesn't identify an employer or an employee or hours or pay. As the chair stated and my colleague stated, it is more direction that the administration should come forward with a plan. and that plan would need to have trailer bill language or statutory changes, and those types of definitions would at that time be included. So currently it is just a, not a request, but it would be a shall. The administration shall do these things. And so right now it is a concept, and then the administration would put forward the actual plan. Okay, thank you. Thank you, Ms. Lee. Forgive me, I forgot your name, sir.
Erin Edwards.
Okay, so when you were making comments, I'm moving to the MCO tax. When you were making comments on the MCO tax regarding Prop 35, you said that, let me see, I tried to write it down as you were talking. You said that Prop 35 no longer applies. You made that statement when you were addressing, I believe, H.R. 1 and implementing Prop 35 in the same conversation. If Prop 35 no longer applies, don't you think it has to go back to the voters to tell the voters that it no longer applies because of what's going on? Or do you think the voters have no say so even after they pass Prop 35?
Sure, Senator. I'm happy to clarify that issue. So under Prop 35, we are required to submit to the federal government a request to renew a MCO tax that's substantially similar to the tax that was approved in Prop 35. In the event that the federal government does not approve that, that the state is unable to achieve an approval of an extension on that tax, Prop 35 allows for the wind down of Prop 35, recognizing that the tax cannot be continued without federal approval. So happy to elaborate on what our plan is. I spoke to that earlier and can explain that in a little bit more detail if that's helpful. But essentially what I think you were referring to in my previous statement was alluding to the fact that under Prop 35, it sort of envisions what might happen if we could not achieve federal approval for the extension of a solution. So that was the basis of your statement.
If you put forward a plan in the state of California and the federal government does not approve it then that would be something that would be effective of Prop 35 Correct Okay So a lot of conversation was around H 1 My understanding is that H 1 restricted states from using taxpayer dollars to fund undocumented individuals under health care plans. Is that true or not true? It says right here, it says H.R. 1.
No, they're just looking for the right person.
Oh, okay, right person. Sorry. Okay. But just for information, it says that H.R. 1 did not strip Medi-Cal or Medicaid for Medi-Cal in California eligibility from U.S. citizens. Instead, a sweeping health care legislation focuses, cuts eligibility restrictions on non-citizens. So is that true? Did H.R. 1 affect citizens or legal residents? So H.R. 1. And just for the record, if you could identify yourself.
Yes, thank you. Guadalupe Manriquez with the Department of Finance.
Nice to meet you.
So HR1 did make a change to certain individuals who are qualified noncitizens. So under federal law, they do have some status. But for purposes of eligibility, federal eligibility for Medicaid, they are no longer eligible to receive federal share. So those are qualified non-citizens, but technically they do have some status.
Okay, but what about non-citizens with no status? H.R. 1 also imposed work requirements for single childless adults regardless of status. And also eligibility redeterminations every six months for all single childless adults in Medi-Cal regardless of status. So did H.R. 1 take California's ability to pay illegal undocumented individuals with their status their eligibility for Medi-Cal?
So California always operated a state-only program for Medi-Cal. Under the federal government, California and other states are still able to claim federal dollars for emergency and pregnancy services for undocumented Californians.
Yes. And so tell me how HR1, since you're saying it doesn't affect but a very minimal, tiny bit of population that are undocumented, why are we using individuals who have health care plans, like regular Blue Cross Blue Shield, take your pick, I don't care, who are working, who have health care plans, and their plans are going to go up, I don't know, $1.5 billion total a year, probably $400 per family. So somebody who's a plumber of whatever who has a health care plan is going to pay an additional $400 or higher, depending on their family and the age of that employee. It's all varied on age and respect or all those things and the number of employees associated with the plan. How is that going to backfill? What is that going to backfill? What are we backfilling if we don't need it? Because it only comes, you're talking about a very small amount that HR1 affected. You said pregnant individuals who are here, emergency rooms, things. So that's a very small population of the undocked population. If it doesn't have a blanket coverage reduction, and so we allocated, what, $13 billion to undocumented health care. and then if it's not over that and it's just on that very small percentage of population, why is there such a need for a high backfill from plans?
The Medi-Cal program, as we've testified before this committee, has grown significantly In 1920 I think general fund expenditures for Medi were roughly billion In the current year Medi expenditures are over billion general fund And so the MCO tax, as my colleague noted earlier, supports Medi-Cal and our ability to continue to fund all services. So, like I mentioned, $44.9 billion in budget year.
So, please, just answer my question. I'm just asking you, and I apologize. So, my question is that even if the number went from $20 billion to $48 billion, we would still get federal dollars, right? Federal dollars for whoever that's legally authorized to be here or has some documented status. You just said that undocumented health care is only affected, HR1 only affected a very small portion of that population, those that are pregnant, emergency, with accompanied children, to make sure that kids, you know, they're here undocumented, they're taken care of. I'm not disputing that. I'm just saying that HR1 only affected that very small number, but yet we're taking billions to offset cost the HR1 had nothing to affect. Is that true?
And what I would say to that, Senator, is that our MCO tax proposal broadly supports the Medi-Cal program, so we are putting forth a plan, a MCO tax plan, that is allowable now under new HR1 requirements to support the overall program. The impetus for the MCO tax is for the overall program, not for a specific population.
Okay, so when we have somebody on Medi-Cal, we can get money from the federal government. What is it, like 60%, right?
It depends by category of eligibility, but it could be 50-50, 65%.
What's the lowest? Let's go with the low. 50%. 50%. So someone on Medi-Cal in California, the federal government gives us 50% of that cost. If those individuals on Medi-Cal here in California are not in the undocumented population, do we still get with H.R. 1 50% at a minimum? For emergency and pregnancy services?
Just that small population. We don't get it for anything else.
Can you clarify your question, Senator? So you just said that 50% of our Medi-Cal funding comes from the federal government. It could be 65, but we're going with the low number just for conversation's sake. So the federal government gives us 50% of anyone on Medi-Cal or just pregnant people.
We get a federal share for anyone that is eligible for Medi-Cal. Depending on their eligibility of category, we get different federal shares. 50 to 65.
We already established that. Yes.
Okay. And for undocumented individuals, we only get that share depending on their eligibility category for emergency and pregnancy services.
But I don't know if my LAO colleague has to. That's okay. I just want to. So let me just do one follow-up question on that. So when you said that we get federal dollars, so with H.R. 1 in place, do we still get federal dollars for those pregnant emergency care services?
Do we still get money from the federal government? But we don't get H.R. 1 eliminated federal dollars for undocumented individuals who do not fall into that category. Is that true? Just for the qualified non-citizens that I mentioned earlier.
Oh. So we get federal dollars for the individuals that you mentioned earlier, which were pregnant individuals. Okay, so we still get federal dollars under H.R. 1. So is it fair to say, and this is where I'm trying to get the point across, we are increasing a huge tax on individuals who work hard, the plumbers, the construction workers, the line, anybody. We're imposing a share on their insurance, whether it's Blue Cross Blue Shield. I don't care where they get their insurance. health net, those employees are going to pay an additional cost to backfill HR1 because the federal government has taken California's ability to provide whole Medi-Cal insurance at a 50% match to those that are undocumented or illegal status here in California, with the exception of those
that have pregnancy and children. Is that true? Again, I would say that the MCO tax proposal is again, like my colleague mentioned, a bigger part of the puzzle to help support the Medi-Cal program and the overall state budget. So that's... But we wouldn't need the Medi-Cal program
if we weren't spending $12 billion. We wouldn't need the MCO tax if we weren't spending $12 billion. I guess my conclusion that I'm trying to draw that I can't get an answer or confirmation, maybe Ms. Lee can answer that. You know where I'm going. Can you help me out or answer the
I will. I will have to. I don't know if it will be the correct answer to your question, but I just wanted to say.
Thank you for your answers. Overall, that this administration, this legislature has in the past prioritized certain policies such as providing health care to Californians, no matter their status.
And as we've been saying.
I don't disagree with you.
And as we've been saying, the MCO tax is part of one way that we help to pay for the entire program. And because of the changes of H.R.1 that are not solely in Medi-Cal but also in our SNAP program, CalFresh, we are seeing a hole in the budget that we had previously not seen when we had further federal support that we no longer have for various reasons. And as an entity, as the administration and as the legislature has voted in the past, we want to continue to highlight those priority programs that we've been funding. And this is one way to do that.
And so it may not answer your question specifically. No, it does. And I thank you for the comment. And I'm not trying to just beat the comment down, but I'm just saying that there's a huge conversation on the other side of the aisle on the diocese, and the chair even opened to that, that the only reason we're in this situation is because of H.R.1. That's not true. The reason we're in this situation is because California has made decisions to provide health care coverage to individuals who are not legally authorized to be here. And we have an administration now that is not willing to use taxpayer dollars to do that. And then now instead of, you know, trying to figure out a way that we fix this without taxing citizens and other employees that are working. And again, I'm not trying to diminish or I'm not I'm not being negative towards undocumented individuals. I'm saying that if you're a plumber, if you're a construction worker, if you're a lineman, if you're anybody that works in this state and you have commercial coverage, you are now going to be paying an additional cost for your coverage. And the employer cost is going to go up along with the employee cost in order to cover the policy coverage that has come out of this building to cover undocumented individuals in this state because we no longer getting the match from the federal government Now the federal government based on the conversation that was just provided earlier in the other witnesses testimony the federal HR1 funds do not eliminate emergency room or emergency or pregnant and individuals with children. But just average, I mean, average everyday individuals here that are undocumented that are not working or that have Medi-Cal or whatever the purpose is for them having Medi-Cal because it's extended by the state of California, costs are going to go up for every other other individual that has a job that's working, that's here legally, and it's going to come out of their health plan cost. And that was not the extent. And I think the plans were thinking that if they made this deal a few years ago to try to help the situation that we were having, and we did do the MCO tax, first tax I ever voted for, MCO tax, that's why they funded Prop 35 to make sure that we can do exactly what's happening here today and go after more dollars when the plan's when you saw an avenue for revenue funding. So I just want to make that point. And thank you for your answers, both of you. One thing else is that on 177, just with the chair's indulgence, on the financially distressed hospitals excluded from that. I mean, we have some serious issues, and if this goes into play, would you take that? I know it's a study, and we're going to discuss it. I won't be here. So can you make sure, because I know you'll be here, you do very good at your job, that you guys discuss, you know, like financially distressed hospitals that are going to have to pay this additional cost because, say, somebody empties the garbage cans or answers the phone or whatever it is, and they are somehow connected to the Medi-Cal system, the financially distressed hospitals cannot pay this $282 or $242, whatever the number is, per employee, per month, every month. They already have issues. So would you take that into consideration?
I will write it down.
You're awesome. Appreciate you.
Appreciate you.
Okay, so going to the use tax, the service tax is what I call it. So this opens a big door. You know, right now if you have a plumber come to your home and they put pipe and parts and electrical wires or whatever it is to make your plumbing work, you pay taxes on those products that are tangible products. You don't pay taxes on the services that they provide. Is that your expertise here coming back? Thank you, sir.
This opens a huge issue.
The reason why we did that so many years ago in California is because we wanted R&D. We wanted software development. We wanted those corporations to stay here. Is there a fear that, I mean, maybe you guys have talked to these people that if this goes, these companies are mobile. These employees can live in Texas. They can live anywhere in the world and still work because of technology that's available to us today. Do you think this R&D will leave our state? Is that a fear? Have you already talked to them? Are they not worried about it?
We have talked to the industry. We don't think they're going to leave. Now, there's a couple of reasons for that. One is this is a very reasonable level, minimum level of tax that we're asking the largest corporations to pay. And the first part of the proposal is that you can claim tax credits up to $5 million at 100%. So there's no limitation at all up until that point, which means –
When you say $5 million, do you mean five – what did you say, $5 million? Up to $5 million of liability can be offset at 100%.
So that means that a taxpayer with up to like $57 million in taxable profits would pay – would still be able to fully utilize their credits in any given year.
I just need to clarify one thing when you stop right there So are you saying that gross income or net income So net income So credit is applied against your final calculated liability after all So net income.
Yeah, so net income. And then what we also see in the data is that less than 100 corporations every year claim more than $5 million in credits. So we're talking about a relatively small subset. I think there's over a million corporations in California that do business in California, so like one hundredth of one percent. And then when you look at where the proposal is right now, it is allowing for three years, it's extending the current temporary limitation. But then it allows refundability, so taxpayers will be able to fully utilize their credits just at a later date. And then in 2030, we implement or the proposal limits it to 70%. They can claim up to 70% of their liability. So this is in line with many other states. For example, Florida, Georgia, Massachusetts, Connecticut all have limitations along those lines. And it's really to ensure that the largest corporations pay a minimum level of tax. So if you think about a corporation that has $100 million in profits, they would pay $30 million. right, they would have an effective tax rate at most of 2.65%. So it's a middle ground. It preserves the incentive impact of the R&D credit. But at the same time, it does establish that these corporations would pay a minimum level of corporate tax to the state. So let's go back just a minute
to like the financially distressed hospital. They download Microsoft, QuickBooks, all that stuff.
Are they subject to that tax? Well, that's a different tax. So we were talking about the R&D tax credit. Now you're talking about sales tax on software. So the sales tax on software is...
So there's not a use tax on the software?
It depends on how it's... It's a sales and use tax. So it depends. If you buy it in person, it's a sales tax. If you purchase it out of state and bring it into California, or you purchase from an out-of-state vendor, for example, if a hospital purchased from an out-of-state vendor, then it would be characterized as a use tax because it's being used in California, but effectively it's, it's, it's your pain tax on software used in California. So it's not just the high profile or the individuals, the NVIDIAs, all those people
that develop the software and stuff. It's not just them that will be affected by this tax.
Anybody who downloads or uses the product, it'll be a use tax from the college kid that downloads it as, as you know, right. Or is there a limit on them as well? No, there's no, there's no
exceptions. It applies, it's extending the existing sales tax, um, which, which does apply
to pre-written software. So not certain, not custom software, not services. It's extending that tax to, to all the software, regardless of how it's delivered. So 30 years ago, it was delivered in a box. Yeah. Now, now it's delivered in different ways, electronically, it's accessed remotely. So the tax, um, as far as incidents, uh, you know, you know, software is purchased, by consumers, but it's also predominantly purchased by businesses, so roughly three-quarters of the software. So the example you gave would be one example. A lot of other examples would
be a business purchasing. Right, but anybody. Yep. So everybody in California is going to be
affected by this tax? Yes. Yes. Okay. All right. Well, thank you very much. I appreciate your
comments, and thank you for your directness. I got that right away. I have to dance around
some other stuff that I got yours right away. Thank you. Thank you very much, Senator. We'll go to Senator Ciardo and Senator Menjivar is on deck.
Thank you So I just have a kind of an overall comment on the approach that we are taking as a legislature and the administration in addressing what we feel is a shortage of revenue We don have a revenue shortage If this were a family and they made $100,000 a year, but they wanted to spend $110,000, their choices are to go get another job that pays them $110,000. It's not to go next door and tell all of the neighbors that they need to chip in so that they can continue to spend more money than they're making. The approach that we need to take when we're talking about revenue is increasing jobs so that more people are putting into the system, which means we have to have better job attraction of the very corporations that everybody's attacking here. They need to be here, not in Texas. They need to be here, not in Arizona, because that's what brings in real revenue. What we are doing is we are going to the same well over and over, and it's kind of like that family who makes the $100,000. Once they've spent all of that and they need to go find some more, they use up all their savings, and then they start pulling the cushions from the sofa to find the spare change. We're looking for spare change, and that's called taxes. Now, no matter where these taxes happen, they wind up being taxes on us. That means we pay more. This year, this year, this legislature, not this, but the beginning of this legislative session, the talk was we are going to reduce costs for consumers, but everything we're doing is increasing costs for consumers. Because when we're talking about all of this, this new MCO tax, that's increasing cost on consumers. So I don't know that this approach, how long we can do before the well runs dry. And you can see what the well runs dry looks like in some of our election stuff. People asking for tax hikes all over the state. A lot of them are not happening. No matter how dire the situation has been painted for those citizens, They're done. They're done having taxes raised on them to help this out-of-control spending that we have going on in California. And the reason they think it's out of control is because we are creating programs, just like the one that my colleague had just alluded to, that we cannot afford. So instead of saying, hey, we just can't afford that, what do we do? We go find a way to tax. The original way to tax was the MCO tax, the original one. And I have a question on the MCO. Can you bring me up to date on the original MCO tax and then also what this additional tax is on top of the other MCO tax that we had? What has happened to that? How much money is it generating and how much money goes into the reimbursement for hospitals, for Medi-Cal? Aaron Edwards with the Department of Finance.
So this MCO tax that we're proposing, it would be the only MCO tax in place. So it's replacing whatever we had before.
Correct. Okay. And this one is the $1.5 billion.
Because the other one we had, I remember there was quite a bit more money, and some of it was going to General Fund, and some of it was going to Medi-Cal reimbursement, And we're kind of shuffling the thing, and that's what the federal government got fed up with. And the truth about…
The reimbursement for people that are not here legally is that the federal government has never, never reimbursed for that. Is that true to your knowledge? No administration ever has reimbursed for people that are not citizens of this. Only as my colleague from the department.
Except for those except.
For emergency and pregnancy care, correct?
That was what it was always limited to.
Correct, yes. And when we did our original MCO tax, it was kind of meant to, there was a little bit of magic in there that helped us get around that a little bit, thinking that we could fool the federal government into doing that. They caught us. And that's the part that got cut out. So right now we're going, our share of Medi-Cal is $48 billion. Is that correct?
Yes.
$48 to $50 billion a year.
General fund only. General fund only.
And then the entire Medi-Cal budget is $223 billion? Is that what it is?
I believe it's about $150 billion total funds.
$150 total funds for outside of California? Oh, I'm sorry. I'm sorry.
Within California, federal funds and state funds, about $150 billion.
So the state is, the federal government is still augmenting that by $100 million, or $100 billion?
Yes, across all funds.
All right. So they haven't cut out a bunch of our funding for this stuff that they've always –
The foundational program did or does have changes as a result of HR1, as my colleague mentioned. The changes are the part where we thought we were going to put one over on them, and they didn't – they caught it.
So anyway, all right. So anyway, we've got that sorted out a little bit. The bottom line is what we're doing is unsustainable long term. And it may not fall flat while the people up here are up there. We'll turn them out and we'll be on our way. But this is going to catch up with us. This kind of approach to budgeting and governance and spending well beyond what our means are is going to catch up with us. So at some point we're going to have to be a little bit more responsible about how we're approaching this revenue shortage. Because it's not a shortage. When we make $20 billion more than we made last year, it's not a shortage. It's foolishness. If we are coming up short and we have to tax even more to be able to just do that, and that's only this year. Wait until next year and the year after. We're going to wind up going bankrupt as a state. And for a state that is the fourth largest economy in the world, that is inexcusable. So anyway, I'm kind of tired of watching taxes go up and up and up. And so is everyone else. And eventually they will send us the message. and we're going to be making drastic cuts on things that are going to be painful. And they're all the little programs that we've thrown in there to increase our costs all these years. And that's going to be very difficult for us to rectify at that time. So anyway with that I will give back to the chair and those are my comments Thank you Thank you very much Sure May I make a comment in response Sure Okay Thank you for your comments Senator Sarcher I just want to point out that in the 2025 Budget Act we did acknowledge that there were structural problems with the budget
and we dealt with that in the budget, but we also attempted to deal with some of the structural deficit in the out years by providing up to $12 billion in ongoing cuts in the 2025 budget, acknowledging just as you said that we our expenditures were outpacing our revenues. Acknowledge that again in the governor's budget. Acknowledge that in the May revision with the proposals that we put forward, which at that point included a what we would say a balanced approach attempting to address the short term as well as the long term issues by raising some revenues as well as providing for additional cuts beyond the 12 billion from last year. So I just want to acknowledge that that was something that we recognized both the legislative analyst office as well as the administration through the Department of Finance. It is an issue that is not a revenue problem that we are attempting to address, but understanding that we could not make billions and billions of – 30, 40 billion in cuts at this point. So I just want to acknowledge the fact that, as we've all said, these are difficult decisions, both on the expenditure side as well as on the revenue side, And we're attempting to do a balanced approach at addressing a two-year budget and having a positive SFEU both in budget year and budget year plus one, but also reducing the structural deficits by more than half in the outgoing years. So just wanted to acknowledge that.
And I would say thank you. I appreciate wanting to have a balanced budget. But balancing budgets don't have borrowed money. They don't have future tax revenues based on raising taxes and things like that. The balancing is this is how much revenue you have and this is how much we can spend. And that's a balanced budget through natural processes. And we're creating more taxes so that we can keep up with our spending. And we're having a hard time even doing that. But I do appreciate the efforts because I have seen that in the reserves and things like that. Those are really good positive moves. But this is going to continue, and it's just going to make – eventually it will catch up with us. Thank you. Senator Menjivar and Senator Reyes is on deck.
I want to start off first by clarifying because I know we're throwing a lot of H.R. 1, and HR1 is only going to impact a little bit. Why are we offsetting so much if it's only impacting the small percentage of our non-documented individuals? But the increases to Medi-Cal as a whole are not as a result of us covering a state-only funding for undocumented individuals. We are seeing an increase to Medi-Cal because here in the state of California, we believe people deserve health care, not the UIS population, everyone. And also because HR1 cut a lot of our ability to provide funding for these individuals. For example, the HCOF, the Hospital Quality Assurance fee was incorporated into our last budget, and H.R. 1 removed that, creating a big hole in our budget that we now have to offset to protect our hospitals because H.R. 1 removed our ability to do that. That is not at the fault of undocumented individuals. That's something that the federal government decided to do that we're trying to backfill. Also, we are owed almost half a billion dollars from CMS because they haven't paid a lot of matching funds And we have to put general fund dollars up to cover the cost now because we don know when those payments are going to come So as a result it the federal government not the undocumented population as to why we are spending more in the Medi We are spending more in Medi-Cal because we believe seniors should stay on health insurance, and we do not want to bring down the asset limit test to 2,000 and kick seniors and people with disabilities off of health care. It is not the fault of the undocumented individuals as to why our Medi-Cal costs have ballooned so much. It's because we have a silver tsunami and more people are aging at this point right now in time than any other time that we've seen in our history. We have high costs in Medi-Cal because pharmaceutical companies, respectfully, are gouging everyday Californians and everyday Americans and causing us to pay so much more in drug costs, not because the undocumented population are covered by state-funded. In fact, in this budget, we are moving undocumented population into a fee-for-service, creating a more cost-effective, a cheaper cost than anyone else who is covered by health insurance. So, in fact, it is more cheaper to provide this health insurance to the undocumented population than ever before. We are removing services from undocumented individuals. So the cost is not the undocumented individuals that is ballooning Medi-Cal. is everything around. And one other thing I would say with the HR1 we have to backfill is because we have to give money to counties to make sure people stay on Medi-Cal and CalFresh because HR1 is banking on people falling off of Medi-Cal with the added two times now redetermination and the added worker requirements. Not because people aren't working because close to 50% of people on Medi-Cal are working. It's because there are banking on the fact that the paperwork will be so burdensome that they will fall off of Medi-Cal. So we have to help counties give them more money so that they can help people get back on Medi-Cal. It is not the undocumented people's fault that our Medi-Cal costs are skyrocketing. It is at the hands of the federal government who have now put us in a situation that we have to backfill so much more that we would have never had to backfill before. All that being said, it is no secret that I'm not a fan personally of this new MCO tax. I am a huge fan of the fair share plan because that will put a tax, not a tax, it's not a tax, that will make corporations pay their fair share for forcing their employees to be on Medi-Cal, where you and I now have to take on that bill. We have to pay for their inability, not their lack of capacity, their inability to make sure their employees have enough hours so that they're on their own employer health insurance and that they continue to rake in billions and billions of dollars and have 100 homes across the world so that people are still forced to be on Medi-Cal. I would prefer that route. Instead of the route we are taking, yes, it's $8.85 per member per month increase in premiums. I am not a fan of that. I would hope that in the three-party deal, we continue to work on considerations to offset that, because starting in January 1st of 2027, $8.85 a month is a lot for a lot of people. That's $110 a year. That's $440 a year for a family of four. I don't think that's the ideal route we should have landed on. But regardless I one of 120 members and 119 others might have felt that this was the best route to take for right now because I understand people have worries of other stuff But to say that we here in this situation because a senora wants health insurance I think it offensive And we want to make sure that the facts are out there of exactly why we are paying so much.
We're paying so much because we're a state of entitlement and we think that people with disabilities deserve access to IHSS, to every kind of services.
You would be hard fought to find a state that provides more services to our marginalized communities than California. And I'm proud that we fight so much to give so much to individuals who, if we don't, will be on the streets, who I don't know how they would figure it out. So I'll jump into my questions. Oh, and we never got a match for undocumented. Let's just make that clear. For Medi-Cal, that's always been a state-funded program. we don't get matches to cover the undocumented population. That's correct, right? Maybe for the UIS expansion of legal permanent residents, but for undocumented, solely undocumented, we've never gotten a match from the federal government. Just for emergency and pregnancy services.
Just for outside of that, yes. Yes, MTALA, for sure.
I just want to make that clear. We've never had that match. For the MCO tax, what considerations are being taken to offset that increase? And I know that it's going to be for three years of that increase. Is there anything that we're thinking about to offset that increase in premiums? Attach to that question, who is going to be paying that?
Thank you for the question, Senator Menjivar. So in terms of offsetting the increase, under federal law, the state cannot offset directly the cost of paying that tax without violating federal law. So there cannot be a sort of direct offset of that rate. In terms of who pays the cost, so to be clear, the tax is imposed on health insurance plans. not on consumers. We know that plans will respond in different ways to that. Some may choose to pass on those costs to consumers in the form of higher premiums. Other plans may choose to absorb some of those costs and reduce their profit margin to maintain more competitive premiums. I think that in general, firms will tend to do some combination of the two. And so I think that in this case, that may as well be the case. And plans, some plans have already submitted the rate request in the middle without taking this into consideration.
Is there an ability for health plans to readjust that rate request given this new MCL tax?
I don't know the answer to that question. We would have to get back to you on that.
Okay. For the Procovery California ACA individuals, we have a pot that exists that has helped offset premiums. We're putting in $300 million, a historic amount in this budget. A lot of people are paying $0 in premium. I guess my question for consideration is that a way we can help for the people that the health plans will not absorb those costs and bring it down to consumers. Can we help in that way?
Guadalupe Manriquez with the Department of Finance. So as my colleague, We can't directly offset per federal law. However, I would note that the intent of the $300 million in Covered California is to help consumers overall with their cost of care in the Covered California program. But for the potential increase, it's not just going to be for those enrollees under Covered California? The $300 million is just for individuals in Covered California.
MBO tax.
It's not just for plans under, yeah.
Correct. How then for Medi-Cal beneficiaries, can you explain to me, we don't charge, so how, they wouldn't see any impact?
No, Medi-Cal beneficiaries wouldn't pay anything.
So those plans would just have to absorb it?
Well, essentially, the cost of doing business goes up for those plans, and we use actuaries that determine the costs for the plans in terms of setting the capitated reimbursement rates that the state pays those plans. So the tax would essentially be incorporated in the cost of the plans during business, so the state ultimately ends up paying higher capitated rates to plans.
Okay, thank you for that. On the digital tax, if I download Canva because I'm looking to do a flyer and I want to pay for the premium Canva, Am I now going to be eligible under this tax?
Colby White, Department of Finance. Senator Medjavar. So most likely, yes. It's a tax on software, and software is defined as a set of coded instructions meant to cause a computer or data processing system to perform a task. So I'm not familiar with that program, but it sounds like software.
Adobe, I think, maybe Adobe.
You were familiar with Adobe. There's different versions of Adobe for a business.
A college student who just downloads Adobe has to pay for that.
Would that tax be applied to that student? Yeah, there's no – we're extending our existing sales tax laws to this – to pre-written software regardless of how it's delivered. And so just like a college student would pay sales tax on buying a computer or buying software if he had bought it, he or she, in a disk, then yes.
Okay. Thank you for that. I think it's disappointing that this legislature struggles so hard to tax corporations, but in a blink of an eye, we tax everyday Californians. It's upsetting. I recognize we need revenues, but there's always more of a bang at the door if we're looking at tax corporations than there is to tax everyday Californians, and that's upsetting. Mr. Chair.
Thank you very much. We'll go to Senator Reyes, and Senator Blakespear is on deck.
I want to begin by applauding the governor and the legislature for trying to find creative ways to raise revenue. It isn't easy. And in fact, in the January budget, there was nothing for revenue. And it takes a lot of discussion about how we can be creative how we can find ways to bring in some revenue especially when we dealing with a structural deficit that we have to deal with And so we're looking to the future to try to figure out what we do. And so I do applaud him for the May revise, including what we are voting on today. I also applaud the Senate and now the Assembly for looking at this fair share program. to fair share from big corporations act, to find other ways to make sure everybody pays their fair share. I also want to be, I just feel that with all this conversation about our undocumented population, we talk about them as if almost inhuman, that these people that come and try to leach off of California, In fact, they're paying an average of $9 billion every year in taxes to the state of California alone and receiving no tax returns as a result of that. They are the ones taking care of our loved ones. They are the ones putting food on our table. They are the ones building the homes that we live in. These are the people that we're talking about. And I think it's really important that we recognize who we're talking about. They are parts of our neighborhoods. They are parts of our family. They are very important people to the state of California. And California, many would argue, is the fourth largest economy thanks to the immigrants, whether they are currently documented or undocumented, whether they have status or don't have status, whether they've been here for 30 years or recent arrivals. These are the people who have been working hard to make California the fourth largest economy because it isn't the corporation and the corporate head that makes this the fourth largest economy. It's the people working for those corporations that make this the fourth largest economy. And I felt very, it's troubling to hear comments otherwise. When we're talking about fair share, all we're saying is let's study this. For too long, now one of my colleagues mentioned Walmart. Walmart isn't the only one. For too long, many of the corporations have provided even full-time employment. or just under full-time employment, and then they provide the application form so that their employees, full-time or almost full-time, can go apply for Medi-Cal because they qualify. Why do they qualify? It's because they don't have medical coverage provided. And what we are saying in this study is, although the legislature may have thought, let's go ahead and begin the process, The governor, to his credit, said, let's study it together. Let's figure out what we can actually do. Let's figure out if there really are corporations that are not providing medical coverage so that if we are going to move forward, we've got the data. And that's what the bill is about. That's what AB 177 is about, is let's study it. Are there these large corporations that rely on coverage for Medi-Cal in other words rely on the taxpayers to pay medical coverage for their employees is this really happening is it anecdotal or is it really happening if it really happening let do something about it let study it and I think that fair I think that very fair Now one of my colleagues mentioned, well, if you're making $100,000 and you want to spend $110,000, you don't ask your neighbors to give you, to help you pay for that extra $10,000. I agree. I agree. I have my own budget, if I don't have enough money, then I say let's reduce my costs. However, if you're living with a group of people and some of them are paying their fair share, the others are not, and you can't pay your bills, at some point you're going to say, all right, time to have a group meeting. You are not paying your fair share. You've been under the radar. You have relied on us to pay for all of your expenses, it's time for you to pay up. I think that's fair. I think that's fair. And that's why the title of it is the Fair Share from Big Corporations Act, is all we're saying is, if you've been relying on taxpayers, the rest of us, we're having to pay for medical coverage for your employees. If you're relying on us, it's time to regroup. It's time for you to accept that you have got to pay your fair share. It isn't a tax. We're saying we want you to pay your fair share because for decades you have not paid your fair share. You've relied on the rest of us, our taxpayers, to pay medical coverage for your employees. And that simply is just not wrong. It's just wrong. We know, and this was from the testimony provided at our budget hearing just a few days ago, 1.3 million Californians are going to lose their medical coverage. 1.3 million. Now, we can say out of 40 million, 1.3 million is not a whole lot. It is a whole lot for those 1.3 million that are losing it. We have heard from the county of Los Angeles the number of people that they alone are going to be losing their medical coverage. The legislature is looking for ways to deal with this Medi-Cal loss and health care loss in California. And I applaud the governor. I applaud the legislature for trying to find those ways to take care of this. And this is exactly what we're doing, and this is what we are voting on today. We have a responsibility to do everything that we can within our power to protect access to health care for Californians who rely on Medi-Cal, including children and seniors. As was mentioned by my colleague, we have more and more seniors. I'm one of them, but I happen to have great coverage, but many seniors don't. and they are now needing more coverage, they need more services, and that increases the cost of our healthcare. Our seniors, those with disabilities, and working families trying to make ends meet. The proposals that we have before us represent practical and necessary steps to preserve federal funding regarding the MCO tax, and also to strengthen Medi-Cal and to help shield Californians from the harmful cuts that have come, yes, from H.R.1. I thank you so much for all the information that you all have provided. And with that, I would yield back to the chair.
Thank you very much, Senator. We're going to go to Senator Blakespear, and Senator Weber Pearson is on deck.
Okay thank you Thank you Chair I appreciate all the hard work that goes into this every year and particularly this year I just going to make comments on three separate topics So the first one is AB 125, the Medi-Cal Managed Care Provider Tax. So I support AB 125 because it preserves one of California's most important tools for financing Medi-Cal and drawing down our federal health care dollars. More than 15 million Californians rely on this health care coverage, and maintaining a stable financing structure is essential to ensuring continued access to care. With significant cuts expected under H.R. 1, replacing the expiring MCO tax helps protect health care services while reducing pressure on the general fund. So I am happy to be supporting that today. The other thing I'd like to mention is AB 177. So I support AB 177 because California taxpayers deserve a clear understanding of whether public health care coverage is being used to offset costs that might otherwise be borne by large employers. At a time when Medi-Cal faces financial substantial fiscal pressure, it's reasonable to ask whether taxpayers should continue absorbing health care costs that may be associated with the employment practices of some of the state's largest corporations. AB 177 gives us the facts that we need before making any policy decisions. Rather than rushing into imposing a new policy, it asks the administration to conduct the analysis necessary to inform future legislative discussions. So I do think that that's a really important thing for us to be doing as well. And the last thing I want to mention is the anti-weaponization fund. This is something that maybe has been talked about less today. But I think this is a really important thing that we're doing, and I just want to recognize how among the corrupt and self-serving actions of our president, one of the more recent and egregious examples of this was the creation of this anti-weaponization fund. And the Anti-Weaponization Fund was created, it's $1.7 billion created by the Department of Justice in settlement funds from the Trump administration's lawsuit with the IRS. So essentially, Trump appointed the top people at the IRS, sued the IRS over previous leaking of his tax returns, then settled with the IRS and presented this idea of an anti-weaponization fund that would basically be a slush fund, which is premised on a deception that would be able to potentially fund January 6th. insurrectionists on the taxpayer's dime. So this was, this is deeply offensive and egregious, and I was very grateful to see the Department of Justice announcing it was not moving forward with this fund, but that announcement doesn't necessarily mean that that is what will happen. So it's important that California be prepared to impose a hundred percent tax on payments that would be made from this anti-weaponization fund and certain related settlement funds during the tax year of 2026 to 2029. So California is protecting ourselves and standing up for California's values and those of all Americans by saying that we would have 100% tax on payments from that anti-weaponization fund. And I also just want to mention as part of this that I was happy to see that there were 35 ex-federal judges who asked the federal judge who oversaw that court to reopen the case because it was a fraud on the court. And the recognition that a party can't do self-dealing, keep the detouration, from the court and then have our court system bless that. And a fraud on the court is something that's infrequently used, and I just want to share the sentence about what a fraud on the court is. So it occurs when there's an intentional deception in the judicial system, thereby corrupting the integrity of the legal process. Unlike standards, civil fraud, or simple perjury, it involves an egregious, unconscionable scheme that prevents the court from impartially adjudicating a case. So I do think this is a good example of that. And so I strongly support this 100% tax. And with that, I will hand it back to the chair. Thank you.
Thank you very much. We'll go to Senator Weber Pearson, and Senator Archuleta is on deck.
Thank you, chair. I want to thank everyone for coming to present and answer our questions today. I do have some questions of my own, and I do apologize if those were answered earlier before I was able to get to committee. First, I will be supporting AB 122 and also, of course, the fair share. I think that I agree with my colleagues that have spoken previously about the importance of fair share and the burden that certain corporations have been placing on Californians to do what they should be doing. But I do have some questions on the MCO tax. So in November of 2024, the voters approved Proposition 35. the Protect Access to Health Care Act of 2024. That was a very clear mandate, that the MCO tax revenues must be used to strengthen the Medi-Cal program by improving provider payments and expanding access to care for the millions of Californians who rely on those programs. It anticipated that the federal policy changes may be required to change the current MCO tax program, and included mechanisms to adapt the tax structure while maintaining its core purpose within the statute. And I will rephrase the purpose. To provide improvement in provider payments, because we all know that Medi-Cal reimbursement rates are dismal in this state, and expand access of care for millions of Californians. So why is it that AB 125 redirects the MCO tax revenue away from voter-approved investments and expanding Medi-Cal care and sweeps it into the general fund?
Thank you for the question, Senator. Aaron Edwards with the Department of Finance. So the first thing I would say is that we're not redirecting funding away from Prop 35. Under Prop 35, the measure requires the state to submit a request to the federal government to extend a tax that's substantially similar to the tax that was approved as part of Prop 35, knowing that, of course, the federal approval is required to have an MCO tax. So the measure also provides that if the federal government does not approve that tax that essentially the measure would be sunset and wound down the requirements for how the funds would be spent, essentially. We are complying with Prop 35 in that we are planning to submit a request to the federal government to extend a tax that is substantially similar to the tax under Prop 35. However, that tax that exists today is applied disproportionately in that Medi-Cal plans pay far more than commercial plans. That is not allowed under H.R. 1. And so we anticipate that the federal government may deny the request for us to extend that tax. And in that event, we are also requesting the federal government approve a tax that is substantially different than the tax under Prop 35, but complies with H.R. 1 by setting a tax that's proportionate across all plans.
So I thought H.R. 1 prohibits states from implementing new provider taxes after July 4th, 2025.
Under federal law, this would not be new. It would be an extension of an existing tax. But the extension of the existing tax is one that falls under Prop 35 regulations.
So it's either a new tax or it's a part of Prop 35, which this significantly deviates from.
I think there are some nuances there. I think we have with us here Director Boss from the Department of Health Care Services. I would invite her to come up if you want to dive into the details in terms of how the interaction works and how we distinguish between a new and extension.
Good morning, Chair members. Michelle Boss, Director of the Department of Health Care Services. So under the proposal, we would be submitting to CMS a renewal of our existing managed care tax. It would have two components. A component, as was described, that would be substantially similar to the tax authorized under or compliant with Proposition 35. And then a component that is dissimilar to the tax authorized under Proposition 35. That would be kind of a per member per month across all of our plans. This is similar to today. We actually have MCO tax that is part of Proposition 35, and we have MCO tax that is outside of Proposition 35. So this is similar to kind of the structure that we have today. So it sounds to me like this new structure that you plan on requesting goes against H.R. 1 because it specifically states no new provider taxes after 2025. and this would be a new provider tax.
You'd have some parts that adhere to Prop 35 with the new MCO,
but this new structure would be a new request to the administration, which is different. This would be a renewal of our existing managed care tax. It's a tax that we have a transition period to provide, so it would be compliant in that respect with H.R. 1. But Prop 35 also allows for flexibility, understanding that there would be transition period.
I won't get into it, but I think that legally you may have some issues there. Why are we taking money from health care and putting it into the general fund instead of putting it back into health care
I'm not sure that we would agree that we're taking money out of health care.
Is it going into the general fund?
This funding would support Medi-Cal, so there's roughly $2.3 billion that we'd be generating from this tax. $300 million of that is going to be earmarked to support targeted rate increases that took effect January 1, 2024. That's for non-specialty mental health, primary, and maternity care providers specifically. The remaining $2 billion is going to be earmarked specifically for the Medi-Cal program. And I would just say, I'm not sure if you were here when Senator Smallwood-Cuevas asked a similar question for one of the other proposals, and that was the tax credit limitation as well as the pre-written software. And she asked if there was an earmark for the revenue there that was specific to Medi-Cal. I said generally that was not the case, that those are free general fund dollars that we could use to make decisions for the full architecture of the budget. In respect to the MCO tax, these are earmarked for going back to support the Medicaid program. So distinct uses of the revenue.
So you are saying that the entire MCO tax structure, as you have revised it, will go back into health care?
That's correct.
Okay. Now, I want to talk about these new rates that you have come up with, because one of the issues that we hear all the time from our constituents, we feel personally, is around affordability. it is becoming very challenging to live in California. It is becoming very challenging to afford to live in California. And one of the top things that people do care about as far as affordability has to do with their health care. How exactly did you all come up with this increased per member rate for this new MCO tax structure?
So the rate is set to generate the $2.3 billion. That's the $300 million that I described for the targeted rate increases plus the $2 billion to support Medi-Cal. Our view is that that strikes an appropriate balance in terms of managing on the affordability issue and supporting a critical safety social net program. And I think just important context to consider is, you know, we've had an MCO tax in some form or fashion for 20 years now. It's become an integral component of the way that we finance our Medicaid program. This is similar to many other states. Virtually every state provides funds, pays part of their state share through some form of provider tax. and without an extension of the MCO tax, I think it's important to recognize we'd be leaving hundreds of millions of dollars in federal matching funds on the table and essentially creating a $2 billion hole in the budget that we would have to address as a structural deficit. That would probably necessitate further cuts, reductions to core social safety net programs such as Medi-Cal. So what we trying to do here is strike that balance between affordability which is important we recognize that and also protecting a social safety net program that we consider to be absolutely critical Right yeah I don think I arguing that we should not have an MCO tax
I'm probably one of the strongest opponents of MCO and was of Prop 35 as well. But I'll just give you an example from a health care facility in my area. With the current MCO tax, there is a member share of $6.69 per member per year. With this new MCO tax structure that you're proposing under this bill, that would significantly go up to $106.20 per member per year. So that's $400 plus for a family of four a year. That is a significant increase. So that is why I asked you, how did you come up with these numbers? Also recognizing the issue of affordability, because going from $28 a year for a family of four to almost $400 a year for a family, actually over 400, excuse me, is not insignificant, and it's not really a balanced approach, in my opinion. So that's why I was asking how those numbers, how you came up with those numbers, because when you look at it from how people are going to have to bear this burden, it is extremely problematic. It is a huge swing from what they currently have to pay to what they will have to pay under this proposal. I appreciate you answering my questions. as a senator, but also someone who still practices in the health care space, still has patients, still has families that I interact with on a daily basis. I am very uncomfortable with this proposal and the economic burden that it will have on the families that I serve, not only as a senator, but also as their physician. Thank you. Thank you very much. And we'll move to Senator Archuleta. Thank you. As we wind down, I'd like to thank you all for appearing before us and enlightening us on exactly how things look. And it's a tough burden, no doubt. But it's also tough on the American people, the people here in California, that we're facing some of the things we talked about, whether it be Medicare. but in essence we are the fourth largest economy in the world and when we're told that we have people still on the streets or we have people without medical insurance, people that can't find a job but yet we are the fourth largest economy in the world. So I can't help but to credit for the work you do because the Senate, the Assembly, the Governor in the session, we'll come together trying to address everything that pertains to California. You know, we do have a National Guard. We do have schools, colleges, and universities. We have hospitals. We have plants, factories that all need to come together to maintain that fourth largest economy in the world. And I applaud the governor for what he's trying to do. And we also have to look at all of us working together. But some of the issues that keep banging away is how are we going to take care of these seniors that are on Medicare, the ones that are asking about, am I going to lose my Medi-Cal insurance, how am I going to pay it, and so on. So one of the things that come to mind, the care that they're receiving from managed care, are there going to be such a hit because of the lack of funding coming from the federal government that is it going to increase? We heard there was 1.2 million people that may lose their Medicare. Is that going to get even worse, or are we going to be able to stabilize that for the future with this budget? The estimates in terms of individuals losing coverage are due to the H.R. 1 work requirements in the adult-only population, And so individuals, I think in the sort of beginning of your statement, you were referencing older individuals or individuals with disabilities. They often will be eligible for exemptions if they are duly eligible for Medicare and Medicaid as a single adult. So the work requirements have exemptions for the medically frail or those who need certain types of care such that they don't have to meet those additional requirements. So we wouldn't expect those estimates to increase for the older population, if I've gotten to the heart of your question. Yeah, and the other thing that we mentioned, of course, the fair share. We heard that earlier from my colleague, fair share. But also on one side of the aisle, and I think we all have to agree to this, is that we can't continue to keep subsidizing. And fair share comes when employers need to up their game, which in turn, if that were to happen, billions of dollars would be free to service some of the other things that we need. So that fair share, again, I think it is on both sides of the aisle. when people contribute as much as they possibly can, but fairly, to go ahead and address some of the things we're looking at today. So as we move this budget along, I think it's the only way we're going to be able to sustain what we have and even continue to grow. So I'm going to support the budget, and we're going to keep looking to see what we can do and hope that things will change with the federal government in time. after they review California as one of the greatest states in the union and the fourth largest economy. So I'm going to be optimistic. So with that, Mr. Chair, I'll give that right back to you. Thank you. Senator Nilo. Thank you, Mr. Chair. I'll bad clean up here, and I will be quick, mindful of the fact that that phrase is normally followed by an endless string of words. I will not do that. But clarification with regard to the answer to Senator Weber Pearson's question that the general fund portion of that is dedicated to health care. The only way that can truly be assured is if that money actually went to the health care organizations and not to the general fund because the general fund is infinitely fungible infinitely fungible So just a clarification to that point With regard to fair share that is kind of fungible too One man or one person fair share can be another person disproportionate overcharge. It's in the eye of the beholder. And not necessarily following on that comment, but as a point of question and clarification, we have very large public sector and non-profit employers in the state of California. Will those organizations be looked at also? In regards to AB 177? Yes. Again, as stated, I think the concept is for there to be research a study created. And so I think, as I noted to Senator Grove, I can definitely write that down, but there's nothing structurally that is four quarters of that study yet. I would stress that I think that's, in order to be fair, that ought to have a global look relative to, if we're talking about employers, and if we're talking about employees of employers, that are on government-provided health care plans. We have to look at all employers. So I just want to make that point of clarification. Thank you. Thanks. Thank you. I have one closing comment, and then we're going to move to public comment. It's on the MCO, and there was lots of discussion earlier in particular. And I just want to be clear. I did this in my opening statement. H.R. 1 killed the current MCO tax. This bill replaces it with a federally compliant MCO tax. There is nothing in this that has to do with undocumented services. I just want to make that clear. With that, let me do a show of hands. How many people would like to speak at public comment? And I'm suspecting there's going to be a bunch of people running in from the hallway that have been sitting out there lolling during our discussion. Okay, we are trying to be done by noon. So I'm going to encourage everybody, I'm going to cut you off at a minute, and I'm going to encourage you to take less. So if you would please come. Chair, may I have one response back to Senator Nilo? A quick one. Very quick. I just wanted to point out that the MCO revenues do not go back to the general fund. They go specifically to a fund that is for Medi-Cal, the Medi-Cal program only. So it is earmarked. Just wanted to highlight that. Okay. Now we are going to move to public comment, and I urge you all to show restraint. Welcome to the committee. Good morning, Mr. Chair. Chris McKaylee here on behalf of the Los Angeles Area Chamber of Commerce. As mentioned in Monday's testimony on the budget, we are opposed to the tax increase proposals, and we just note for your consideration that the $5 million cap has been in existence for several years despite rising revenues, as well as the employer community is burdened by a $1.6 billion annual payment to the federal government to repay our debt in the UI fund. Thank you, Mr. Chair. Thank you very much. Welcome. Mr. Chair, members, Sarah Flox, California Federation of Labor Unions. We are here in strong support of the revenue proposals especially the software as a service tax to modernize our tax base the cap on the corporate tax breaks and especially the Medi Fair Share Act over 60 of Medi recipients in the state are workers That begs the question is which companies and why are paying poverty wages and not providing affordable health care to people who are working? The Medi-Cal program was meant to be a health care safety net, not a corporate subsidy. And so this report is so important. We hope the legislature will take action. In 2013, we sponsored AB 880, which was a fair share fee, and we encourage everyone to look at that. We look forward to working with you. Thank you. Thank you very much. Welcome. Good morning, Chair and members. Moira Topp here on behalf of BioComm. The life sciences industry has consistently stepped up during tough fiscal times, and the R&D tax credit has either been suspended or capped in 2020, 2021, 2024, 2025, and currently today in 2026. We understand the need for temporary measures to deal with temporary fiscal situations. The proposal before UNAB 122 is a permanent cap on the proposal. It sends a very strong message to our companies, to investors, and to competitor states and countries that compete for California's businesses to move there. It sends a very strong message. We would like you to reconsider the proposal, especially with respect to the permanency of the proposal. Thank you. Thank you very much. Welcome. Thank you, Chair and members. Nick Luizos on behalf of the California Association of Health Plans. We're in strong opposition to the MCO tax trailer bill. We want to thank the Senate for initially rejecting the proposal, but we're disappointed to find it on the agenda today. I think policymakers should ask themselves whether it's the responsibility of individuals, working families and small businesses in their districts to withstand a tax on their health care coverage that basically is going to serve as a general fund backfill and serve as a method of balancing the state budget in the out years. And so this is a regressive tax. We understand that CMS has changed the rules on the states. This MCO tax has not been very popular with CMS, all the way back, starting with the Obama administration, through the Biden administration and to this current one. But there's no requirement. You're at a minute. Thank you very much. Okay. We urge you to reject it. Thank you. Welcome. Good morning, Chair and members. Mark Farouk on behalf of the California Hospital Association. Related to the MCO tax proposal, we'll just echo the comments of the previous speaker. also echo the comments made by the Senate Health Chair here today, her comments and questions. Just want to note that California's hospitals are committed partners to strengthening the Medi-Cal system and improve access to care. To fulfill the promise made to voters through Proposition 35, implementation should remain focused on increasing resources to providers for patient care, preserving dedicated Medi-Cal investments, and addressing critical gaps in the health care delivery system. So we are opposed to the current MCO tax proposal. And we just make a note related to the software tax We did encourage that there be a carve out for health care providers as we see tens of millions of dollars of additional costs related to the software tax for California hospitals California's hospitals have to use a variety of software in order to comply with California's data exchange framework requirements. Thank you. Thank you very much. Good morning. Angelica Gonzalez with Kaiser Permanente, opposed to the MCO tax proposal. I would like to align my comments with those of CAP and with the California Hospital Association and only add that this proposal disproportionately impacts Kaiser Permanente as an organization. And we are committed to working with the legislatures on any proposals that could help improve the situation here. So thank you. Thank you very much. Welcome. Good morning, Chair and members. Gabriela Chavez with United Domestic Workers, ASME, Local 3930, and a strong support of AB 122 and AB 177. We appreciate your commitment to not balancing the budget on the backs of the low-income Californians and instead advancing a more equitable approach by requiring corporations to pay their fair share. We encourage you to adopt the medical fair share regardless of any federal future actions affecting Medicaid. Large employers should continue their fair share toward the healthcare system and should not rely on taxpayers to subsidize their healthcare costs for their workforce. Thank you. Thank you very much. Welcome. Mr. Chair and members, I'm Erin Evans. On behalf of the County of Santa Clara, the county supports the Medi-Cal Fair Share Act as part of the state's revenue solutions. We appreciate the state's partnership with counties like ours to really try to mitigate the disastrous impacts of HR1 that we're facing. Thank you. Thank you very much. Welcome. Alexis Rodriguez with the California Chamber of Commerce. We're opposed to AB122 specific to the sales and use tax on software as well as the limitations on business tax credits. Implementing a tax on digital software will significantly increase the cost for California's businesses of all sizes. Additionally, implementing the permanent business tax credit weakens the incentives that support research, innovation, and job creation in California. In relation to AB 125, the MCO tax proposed will increase premiums for employers and working families, potentially putting them at risk of losing coverage. And for those reasons, we are opposed. Lastly, we are opposed to the Medi-Cal fair share proposal in AB 177 at a time when affordability is a top concern, including healthcare affordability. We'd welcome collaboration with the employer community to strengthen employer-sponsored healthcare coverage options. Thank Thank you very much. Additionally, the proposed tax on digital software and SaaS would be one of the largest of its kind in U.S. history, taxing the digital tools every business, big and small, relies on for business inputs, further driving up costs for consumers. Californians want greater affordability, and this policy delivers the opposite. For these reasons, we urge you to reject this bill. Thank you. Thank you very much. Welcome. Chair, members, Emily Doe with California's Credit Unions. we are opposed to the expansion of the sales tax on the digital pre-written software. Not only would it be very costly, but also it would only apply to state chartered credit unions. And so we're worried about that competitive disadvantage that could weaken California's dual charter system and also encourages more credit unions to to the federal charter. Thank you. Thank you very much. Welcome. Good morning, committee chair and members. Yerely Magallon on behalf of the Business Software Alliance here today to voice our opposition to ABSB 122, specifically the proposed software as a service tax. This is a major expansion of California's tax base that will increase costs for consumers, harm small businesses, undermine investment, and weaken the state's economic competitiveness. Thank you for the opportunity to voice our concerns. Thank you very much. Welcome. Thank you. Chris Rose on behalf of the Information Technology Industry Council. We are opposed to the software attacks for the many reasons already stated as well as to the injuries presented to the state's research and development ecosystem. Thank you. Thank you. Welcome. Hello. Marcus Prasad here. I'm a state worker for California Department of Public Health and I want to thank Mr. Archuleta for bringing this up. California is the fourth largest economy in the world, but we have the second highest poverty rate tied with Louisiana, so something needs to be done here. I'm here to support AB 177. I urge you all to support it too. It's time that we make corporations pay their fair share, and we redistribute that money back into the hands of the workers. Thank you. Thank you very much. Welcome. Sarah Bridges on behalf of the California Manufacturers and Technology Association. I represent a sector that is really struggling and trying to maintain a foothold here in the state. And whether it be the software tax or it be the fair share contribution, the MCO, we're trying to provide good quality jobs and ensure that they have also the benefits that they deserve and make sure that we are providing affordable services and products to consumers. And these type of taxes are going to make that much more difficult for the California consumer and for the worker. And so I urge you all to consider these proposals with that in mind, and we urge your consideration of these proposals with that. Thank you. Thank you very much. Welcome. My name is Skylar Waldeck-Meyers, fiscal analyst for the Department of Corrections and Rehabilitation here in Sacramento. and I just wanted to come here and support the corporate fair share portion of AB177, and I would respectfully ask that you all vote in support of it as well. Thank you. Thank you very much. Welcome. Hello, my name is Benjamin Lester, and I'm a tax technician at the Franchise Tax Board, and I'm here to support the fair share contributions in AB177 and the additional new corporate revenue proposals. I'm going to keep it short. Thank you very much. Welcome. Good morning. Linda Way with Western Center on Law and Poverty. Appreciate the revenue conversation. Specifically, we support the employer fair share contribution plan that requires corporations to pay their fair share, as well as we support corporate tax credit limits that prevent people from losing their health and food benefits. Thank you. Thank you very much. We set short on behalf of PEACH, the Alliance of Catholic Healthcare and Adventist Health, in opposition to AB 122. The sales tax proposal reflects a new and direct cost to California's healthcare safety net providers at a time when we are already vulnerable and access to care is at risk. We urge you to reconsider this proposal with the patients and safety net providers in mind. Thank you very much. Hello Angela Hill with the California Medical Association CMA is respectfully opposed to the MCO tax proposal in AB 125 We share the concerns that were expressed today that the proposal is going to increase health care costs including higher premiums for working California families and their employers. In the interest of time, I'll align my comments with our colleagues at CAP, Kaiser Permanente, and CJ. Thank you. Thank you very much. Good morning, Mr. Chair. My name is Nick Cruz. I work at the Department of Health Care Services, and I'm a member of SCIU Local 1000. I'm here to voice my support for the corporate fair share contributions in AB 177, as well as the additional new corporate revenue proposals. I respectfully encourage an aye vote. Thank you. Thank you very much. Mr. Chair and members, Tiffany Whiten with SCIU California, just here to show our appreciation and thanks for Senate leadership and calling for our budget that fairly balances the needs of the state with creative ways while protecting benefits that our communities rely on. We have more to do. We know that, but we appreciate your work and we look forward to the continued conversations and partnership with you all. Thank you so much. Thank you very much. Welcome. Welcome, Tiffany. Chair and members, Tiffany Mock with CFT, a union of educators and classified professionals. Just wanted to thank you for your leadership and the other senators who support the corporate fair share proposal and also the corporate revenue sales tax. Thank you. Thank you very much. Good morning, Chair and members. Kelly O'Brien with the Western Center on Law and Poverty, also here in support of the fair share proposal and permanent cap on corporate tax revenues or corporate tax credits. We are grateful for the Senate's strong leadership in pushing the wealthiest corporations in the world to stop using hardworking Californians as a crutch to prop up their profits. And these corporations are getting a massive windfall from H.R.1 cuts, yet we're still subsidizing worker health care, even while millions of Californians are losing the health care and food assistance they need to survive. Thank you. Thank you very much. And just before you comment, let me say to the members of the budget committee, we have 15 more people speaking at public comment, and then we will move to motions and votes. So I'm asking members of the budget committee to return to the committee room so we can get to the votes. Welcome. Thank you very much. Thank you, chair and members. Sam Wilkinson within child poverty in California. We are in full and proud support of AB 177 and the permanent cap on corporate tax credits in AB 122. HR1 was the biggest wealth giveaway in history and it was funded by cuts to our healthcare and food assistance programs. There will be devastating or a devastating and unconscionable toll on the people of California as a result of these cuts. And there will also be a tremendous economic strain from completely avoidable hunger and illness-borne costs to society. Corporations are reaping the benefits of federal cuts to families, and we have enough in California to mitigate that harm. And we are so glad to see a budget that delivers justice in the form of sustainable, progressive revenue solutions. Thank you so much. Thank you very much. Welcome. Good morning, Chair and members. Ben O'Brien here on behalf of California Life Sciences to express our opposition to the proposal in AB 122 related to the permanent capping of the utilization of the state's R&D tax credit. Life Sciences really depends on this credit. It's a heavily R&D-dependent sector. In 2025 alone, we contributed over $20 billion in state and local tax revenues. We thank Senator Cabaldon for his comments this morning, acknowledging the importance of this tax credit for both ag and Life Sciences, and look forward to continuing to work together, acknowledging the current fiscal situation, as well as trying to maintain our Life Sciences leadership. So thank you all. Thank you very much. Welcome. Thank you. Christine Smith with Health Access California on behalf of the Fight for Our Health campaign we strongly support the corporate fair share contributions in AB 177 Thank you to Chairman Laird Chairwoman Menjavar and Pro Tem Limon for making sure it is included in the two-party deal. We know that you will do everything you can to include it in the final budget. Thank you. Thank you very much. Welcome. Good morning, Chair and members. My name is Omar Al-Tamimi with CPAN, the California Pan-Ethnic Health Network. align comments with previous speakers. First, expressing gratitude to the Senate for continuing to protect our most vulnerable communities and particularly our immigrant communities from the most severe cuts to their health care. And then second, in support of the fair share plan. Thank you. Thank you very much. Welcome. Good morning, Chair members. Marcus Detweiler with the California Special Districts Association, also here on behalf of the Association of California Health Care Districts and the California Association of Recreation and Park districts. Understand that this is a yeoman's task, making difficult budget decisions in a difficult budget environment. However, we must regrettably oppose the digital pre-written software sales tax as embodied in Assembly Bill 122. You see, unlike our sister units of local government, cities and counties, special districts do not generally receive sales tax revenues, and so that leaves them at a disadvantage. In order to absorb what has effectively become an 8, 9, 10 percent levy on the tech that powers a modern operation and the essential vital local services that California communities depend on. This will invariably be passed upon California's taxpayers and ratepayers in order for special districts to absorb this cost. Looking to address this in subsequent budget action this year. Thank you. Thank you very much. Welcome. Good morning. Chair and members, Beth Malnowski with SU California, a proud part of our Fight for Health Coalition. I really want to second the comments made by my Fight for Health Coalition partners up here today and expressing incredible gratitude to the Senate for leading this important conversation regarding corporate accountability and Medi-Cal, particularly as it relates to 177. I really look forward to a successful vote this morning, but also making sure it's included in the final three-party agreement. Thank you. Thank you very much. Welcome. Thank you. My name is Stephen Gonzalez. I'm with SEIU 1000. And listening to everyone else who's come before, I can speak to what a good quality job looks like, and good quality employers contribute to the social safety net. As a result, I'm urging your support on AB 177. It's in support of a fair share.
I pay my fair share of taxes. Corporations should, too. Thank you very much.
Thank you, and let me just remind members of the Budget Committee, we're getting down there on speakers, and we're going to go to motions and votes. Please return to the committee room. Welcome.
and hiring that California wants to grow. We urge you to reconsider this proposal. Thank you.
Thank you very much. Welcome.
Good morning. Megan Varvey with Kaiser Advocacy. I am here for the California Tax Reform Association, who supports AB 122 and AB 177. Thank you.
Thank you very much. Welcome.
Good morning. My name is April Hughes. I am a California state worker here for SEIU 1000 and a California taxpayer I think I speak for all California taxpayers when I say we are tired of subsidizing giant corporations that do not want to pay their employees or give them health care or good wages
Thank you so much. Thank you very much. Welcome.
Maddie Hyatt on behalf of the Capital Business Alliance. We respectfully oppose AB 122 unless amended. We appreciate reducing California's $800 annual tax amount to $400 for new LLCs, LPs and LLPs, but that relief is temporary, narrow, and incomplete. At the same time, AB-122 creates a new recurring tax on digital software and remotely accessed software tools. Bookkeeping software, payroll platforms, point-of-sale systems, scheduling tools, customer management software, e-commerce platforms, cybersecurity tools, these are not luxuries anymore. They are basic operating infrastructure for the modern small business. A one-time $400 break does not offset a permanent increase in the cost of doing business. For a micro-business, every subscription matters. This bill risks taxing productivity, modernization, and entrepreneurship itself. We ask that AB-122 be amended to include real small business protections, a small business exemption, a meaningful de minimis threshold, simplified compliance rules for small software sellers, and permanent first-year relief from the $800 minimum tax. Thank you.
Thank you very much. Welcome.
Good morning. My name is Leif Jones. I work for the Department of Housing and Community Development and represent SEIU Local 1000. I'm here to end support of AB 177, and I respectfully urge a yes vote and for all corporate revenue proposals. Thank you. Thank you very much.
My name is Julia Rose Pacheco. I work as a tax technician at the Franchise Tax Board, and I am a constituent of Mr. Nilo. I am here on behalf of Unrig California and fight for our health campaigns. I strongly support the corporate fair share contributions in Assembly Bill 177 and the additional new corporate revenue proposals. I'm humbly asking that you vote in support.
Thank you very much.
Good morning, Jessica Hay with AFSCME California in support of AB 177 and AB 122. Working Californians are facing growing economic uncertainty and the federal cuts contained in HR 1 will place even greater strain on workers, families, and public services they rely on. At a time when needs are increasing, we believe the conversation must include asking profitable corporations to contribute more toward the systems and services that support their workforce and their success. We support these measures because protecting Californians from harmful cuts should not fall solely on working people. We need revenue solutions that promote fairness and help sustain the investments our communities depend on. Thank you.
Thank you very much.
Nicole Wordleman on behalf of the Children's Partnership in strong support of the Fair Share Plan to assist in a responsible first step to protect Medi-Cal for children and their families. Thank you.
Good afternoon, Chair and members. Thank you, Mr. Chair, and to the members that support the committee's leadership in support of this measure, AB 177. My name is Crystal Coles. I work for Housing and Community Development, and I'm with SEIU Local 1000. I stand in strong support of this bill. Large corporations should pay their fair share to help fund the public services and health care systems that Californians rely on every day. At the same time, while we still don't know the full impacts of the potential HR1 cuts on Medi-Cal, California must take proactive steps and protect access to care. AB 177 helps ensure that profitable corporations contribute. the system that keeps our communities healthy and our economy strong. We urge an aye vote. Thank you.
Thank you very much. Welcome.
Good morning. My name is Sedalia King, representing UDW, Ask Me Local 3930. I'm here on behalf of Child Care Providers United, CCPU, representing over 70,000 child care providers. We stand that child care providers do not pay more in taxes than large corporations and are grateful that the Assembly and Senate and the Governor agreed that California should unrig our corporate tax system and establish a fairer one. I'm pleased that folks are being innovative in addressing the structural deficit budget challenges and the impacts of H.R. 1 without returning to austerity measures. Thank you. We look forward to continuing conversations.
Thank you very much. that completes public comment and let me encourage every member to return to the committee room but we are going to bring the matter back to the committee and we're going to consider each of these four items in sequence for a motion and a vote. And so I'm going to ask that we start with Assembly Bill 110.
Are they going to read? I was going to make a motion. Were they going to read before?
No, we just make motions here. They read on the floor.
Okay. Mr. Chairman, I'd like to make the motion to move to approve AB 110, the Budget Act of 2026.
Motion. I'm announcing that I accepted your motion. Okay. And do you want to make a comment?
I do, yes, sir.
Okay. I'm recognizing you.
It will be brief. We don't.
Pardon?
Are we still debating? Yeah, I got it.
I just got to go back to Kim. No, no, no, no, no. No, we're not debating. She's speaking to the motion. We have a motion in front of us, and the minute she's done, we're going to vote. All right. Thank you. I'm chairing my committee.
Yes. I didn't speak at all in all of the comments.
But speak now.
Yes. I just wanted to say I wanted to thank the chairman, all of those involved in leadership and subcommittee chairs of the efforts that have been done today. Listening to the comments, I think it is important to note that we have worked at attacking the deficit that we have. We've worked very hard. The subcommittee I serve on, sub five, which includes judiciary, we're making headway where we haven't in quite some time regarding courthouses, and we have dilapidated buildings that are 50-plus years old. These things need resources. So I'm very appreciative of the work that we've done, and I'm very much looking forward to the approval of AB 110.
Thank you very much. Then we will move to a roll call. Please call the roll on AB 110. AB 110. Please call the roll. AB 110, the motion is due passed. Senators Laird? Aye. Laird, aye. Nilo? No. Nilo no Archuleta Aye Archuleta aye Blakespeare No Cobaldon Aye Aye Cobaldon aye Troy Dorosso Aye Dorosso aye Grove No Grove no Hurtado McNerney Aye McNerney aye Menjabar Orchoa Bog Perez Reyes Richardson Aye Richardson aye Sayarto? Sayarto, no. Smallwood Cuevas? Aye. Smallwood Cuevas, aye. Weber Pearson? Aye. Weber Pearson, aye. We have eight ayes, three noes, one not voting. We'll put that bill on call. We're going to move to Assembly Bill 122. Move the bill.
Motion by Cobaldon.
AB 122, the motion is due passed. Senators Laird? Aye. Laird, aye. Nilo? No. Nilo, no. Archuleta? Aye. Archuleta, aye. Blakespeare? No. Cabaldon? Aye. Cabaldon, aye. Choi? No. Choi, no. Dorosso? Aye. Dorosso, aye. Grove? No. Grove, no. Hurtado? McNerney? Aye. McNerney, aye. Menjabar? Ochoa Bogues? Perez? Reyes? Richardson? Aye. Richardson, aye. Sayarto? No. Sayarto, no. Smallwood Cuevas? Aye. Smallwood Cuevas, aye. Weber Pearson? Aye. Weber Pearson, aye. That's eight ayes, four no's. We'll put that bill on call. We'll move to Assembly Bill 125. Motion. Motion by Archuleta. Please call the roll. AB 125, the motion is due pass. Senators Laird? Aye. Laird, aye. Nilo? No. Nilo, no. Archuleta? Aye. Archuleta, aye. Blakespeare? Cobaldon? Aye. Cobaldon, aye. Choi? No. Choi, no. Dorosso? Aye. Dorosso, aye. Grove? No. Grove, no. Hurtado? McNerney? Aye. McNerney, aye. Manjabar? Ochoa-Bogue? No. Ochoa-Bogue, no. Perez? Reyes? Aye. Reyes, aye. Richardson? Aye. Richardson, aye. Ciarto? No. Ciarto, no. Smallwood, Cuevas? Aye. Smallwood, Cuevas, aye. Weber Pearson? Weber Pearson? Just a second. Okay, we have eight ayes, five no's, one not voting. We will put that bill on call. We'll move to the last item, and it's AB 177, motion by Smallwood Cuevas. Would you please call the roll? AB 177, the motion is do pass. Senators Laird? Aye. Laird, aye. Nilo? No. Nilo, no. Archuleta? Aye. Archuleta, aye. Blakespeare? Cabaldon? Cabaldon, aye. Choi? Choi, no. Durazo? Aye. Durazo, aye. Grove? No. Grove, no. Hurtado? McNerney? Aye. McNerney, aye. Menjabar? Ochoa-Bogue? No. Ochoa-Bogue, no. Perez? Reyes? Aye. Reyes, aye. Richardson? Aye. Richardson, aye. Sayarto? No. Sayarto, no. Smallwood, Cuevas? Aye. Smallwood, Cuevas, aye. Weber, Pearson? Aye. Weber, Pearson, aye. That is nine ayes, five noes. We will put that bill on call. So I want to thank everybody for the hearing And we are going to recess But whenever somebody walks in the room that hasn voted I going to call us back to order and we going to lift the call Oh, then let's lift the call. Before we recess, let's lift the call for Senator Reyes on anything she did not vote on, and I think one is AB 110. Oh, okay. Then let's just call the entire roll for AB 110 of the nonvoters. Okay. AB 110, the motion is to pass. Senator Blakespear, Hurtado, Manjabar, Ochobog, Ochobog, no. Perez, Reyes, aye.
How about I would love to change my vote?
Okay. Senator Choi?
Yeah, I vote no.
Senator Choi, no.
Voting to no, correct?
Yes. Then that on AB 110, we have nine yeses, five nos. We will put it back on call. Please call AB 122. AB 122, motion is do passed. Senator Blake Spear, Hurtado, Menjabar, Ochoa Bog, Ochoa Bog, no. Perez, Reyes, Reyes, aye. Then on that we have nine ayes, five no's. We'll put that back on call. Let's go to Assembly Bill 125. AB 125, Blake Spear, Hurtado, Menjabar, Ochoa Boog, I'm sorry, Perez, Weber Pearson. That's eight ayes, five no's, one not voting. And then we'll put that back on call. And then we'll go to AB 177, just in case somebody walked in. Please call the roll of the absent members. Blakespeare, Hurtado, Menjabar, Perez. Then that is nine ayes, five no's. We will put that bill on call. We will recess until members come into the room that have not voted. Thank you. Senator Perez has arrived. So would you please lift the call and we will go on all four in Syria Let begin with AB 110 Please call the absent members AB 110 Blakespeare Hurtado Menjabar Perez Aye. Perez, aye. That is ayes 10, noes 5. We'll put it back on call. AB 122, please call the absent members. AB 122, Blakespeare, Hurtado, Menjabar, Perez. Aye. Perez, aye. Okay, that is 10 yeses, 5 noes. We'll put the matter back on call. Please call AB 125, absent members. AB 125, Blake Spear, Hurtado, Menjabar, Perez. Aye. Perez, aye. Then that goes to 9 yeses, 5 noes, 1 non-voting. We'll put the matter back on call. Then please call AB 177, absent members. AB 177, Blake Spear, Hurtado, Menjabar, Perez? Aye. Perez, aye. That item now has 10 yeses, 5 noes. We'll put the matter back on call, and we'll recess for absent members. Please report to the committee room and vote. Thank you. Review Committee, we have four bills on call. The first one is Assembly Bill 110. Would you please call the absent members? AB 110, Blakespeare? Aye. Blakespeare, aye. Hurtado? Aye. Hurtado, aye. Menjabar? Aye. Menjabar, aye. That's ayes 13, noes 5. The bill is out. Will you please call the absent? For those of you listening at home, one person cheered. So we're going to go to Assembly Bill 122. Please call the absent members. AB 122, Blakespeare, Hurtado, Menjabar, Menjabar, aye. That's ayes 11, no's 5. That bill is out. We're going to go to Assembly Bill 125. Please call the absent members. AB 125, Blakespeare, Hurtado, Menjabar, Menjabar, aye. That is ayes 10, noes 5. That bill is out. And then we'll go to Assembly Bill 177. Please call the absent members. Ayes 177. Blakespear? Aye. Blakespear, aye. Hurtado? Menjabar? Aye. That is ayes 12, noes 5. That bill is out. I want to thank everybody for their forbearance on this hearing. and the Senate Committee on Budget and Fiscal Review stands adjourned.