Budget Sub4 — 2026-05-21 (partial)

And we can begin with the ongoing animal care program resources. Thank you, Chair and member of the committee for allowing us to present our May revision proposals today. My name is Arma Kozina. I am our Deputy Secretary for Finance and Administration. So first, the animal care program resources. The May revision includes a one-time transfer of $5.2 million general fund to the Ag Fund and $2.8 million general fund ongoing to implement the animal care program and comply with Proposition 12. Proposition 12, passed by the voters in 2018, established the animal care program to enforce new minimum space standards on housing for calves raised for veal, breeding pigs, and egg-laying hens. The proposition also prohibited businesses in California from knowingly engaging in the sale of products that came from animals housed in a manner that does not comply with the new requirements. This includes products from animals raised and maintained at facilities located both in California and out of state. A portion of this program was intended to be supported by fees. However, given multiple ongoing legal challenges, including from the federal government, CDFA has held off from setting these fees. The one-time general fund transfer will allow CDFA to repay a loan incurred to establish the animal care program and support the ongoing operations of the program until a fee-based funding structure can be implemented. I'm happy to take any questions the committee might have

Ahmed Sam, Department of Finance, nothing further to add

Good morning, Chair and members of the subcommittee Brian Metzger from the Legislative Analyst's Office We recommend the legislature approve this proposal ongoing litigation challenging prop 12 means that there is still legal uncertainty around the ability of the state to charge fees to fund this program and there's also provisional budget bill language that allows the general fund to be used to cover program costs if program fee revenue is insufficient to cover them covering the program costs that were initially incurred by the AG fund which receives revenue from a variety of agricultural producers and not just the ones that are covered by Prop 12 also reduces the potential risk of future litigation We also do recommend however that the legislature revisit this funding in future years once the litigation is resolved and more is known about federal government efforts to preempt Prop 12, including the 2026 Federal Farm Bill.

there are two ongoing active lawsuits against prop 12 and then there is also language in the farm bill the current version of the farm bill preempts certain activities were around prop 12 so specifically the provisions applicable to the raising of breeding pigs or veal calves at operations outside of California. I can't comment on what might happen with the farm bill. That's unknown at this time. In terms of the ongoing litigation, I don't have any details regarding when those will be resolved.

We have prioritized the overarching implementation regulations for Proposition 12 in accordance with what was requested of us by the voters. We will continue to operate the program as it was outlined in Proposition 12. we do continue to evaluate the most appropriate path forward for fee structures as these matters resolve at the federal level and and with the ongoing litigation we want to evaluate a fee structure that is equitable legally durable administratively workable and consistent with the long-term operational needs of the animal care program as it was envisioned by voters great thank you

thank you all right still me when the California hemp program we're speaking about the industrial hemp program support and transition so when the California hemp program was established in 2017 there was significant interest in growing hemp throughout the state since then the industry has faced a few major changes. The first is really market-based, so demand for hemp has not kept up with the initial explosion of production, and processing facilities needed to support the industry have not materialized. The second is related to the federal hemp program. In the 2018 Farm Bill, USDA was authorized to operate an industrial hemp program on a national level, and CDFA harmonized our regulations to match the stringent federal requirements in 2022. While we initially expected approximately 600 to 700 growers. After the supply shocks and federal changes, the remaining industry is approximately 70 growers which is insufficient to financially support a state program The program has worked diligently with the Industrial Hemp Advisory Board to establish fees that would support the program but such fees would necessitate an increase from about $900 per grower per year, from about $1,100 or $1,200 to $200 and $1,200 $1,200 annually, depending on the size of the operation. Those fees, understandably, are untenable for the industry. Eleven states facing similar constraints have transitioned to USDA's licensure authority. These transitions have proven beneficial in reducing costs for registrants while maintaining the same level of testing, oversight, and enforcement of hemp regulations. Several of these states have comparable medical and adult-use cannabis programs whose regulatory and law enforcement bodies coordinate successfully with USDA to ensure compliance. CDFA proposes to follow suit requesting trailer bill language to end its oversight of industrial hemp beginning January 1st, 2028. This timeline will allow CDFA to coordinate with existing licensees and USDA to ensure a smooth transition to the federal program. CDFA also requests the transfer of $8.3 million general fund to the Ag Fund to cover the deficit incurred by CDFA to date to start up the program program and pay for the operating cost of the program during the transition

L.A.O. Ryan Metzger, L.A.O. We recommend the legislature approve this proposal as well as associated trailer bill language that would implement the transition. Similar to the previous item, there were program costs that were initially incurred by the AG fund and repaying the fund would reduce the risk of future litigation. The declining number of state program participants also means that less fee revenue will be gathered and will be unable to cover program costs in the medium and long term. And as such, the transition to a federal program with minimal state costs would be the most cost effective option.

Senator Smallwood-Cuevas. Thank you. Good morning, Madam Chair. Thank you for that overview. I just have a question about at what point will we sort of have a sense of the scale here on the hemp side I know that this sort of regulation around hemp exploded as we were looking at the legalization and expansion of our CBD policies and also at some point thinking about federal legalization. But looking back, did the administration overestimate the long-term sort of transition of this industry? And at some point, will we decide that the scale is just not there for what we need to fund in terms of regulation?

Okay. And what's the forecast in terms of projections of how we address this? because in some ways we're subsidizing this industry now, and it's not growing to scale to help us see some return. So is there a sense of reassessing? Is there some evaluation? Is there a timetable that's being put together?

And tell me again the timeline. I'm sorry, maybe I missed.

Senator Gabala, do you have any questions? Okay. Okay, so no additional questions or comments on this item. We'll go ahead and move on to agenda item number three.

Questions or comments from the Department of Finance?

Okay. Questions or comments from LAO?

Okay. Questions from committee members? Okay. I don't have any questions on this topic. We can go ahead and move on to agenda item number four. All right, thank you.

Comments from Department of Finance Ahmed Sayon Department of Finance nothing further to add Comments from the LAO Ryan Metzger LAO we reviewed this proposal and have no concerns

Thank you. Thank you.

Anita Lee with the Department of Finance. So we're going to be taking two issues up together because they both involve the new federal workforce Pell program. We thought it would be helpful to provide a little bit of context for the administration's approach to the package. The package includes a couple of components and includes trailer bill language that I'll briefly walk you through shortly as well as one-time funding for two entities one is for cradle to career and that will be heard today in this before this committee and then the other funding is for the California Student Aid Commission which will be heard in sub one actually concurrently so specifically related to the administration's package federal workforce Pell is a evolving program the The rules, final rules were literally, I mean that, I do mean that literally, earlier this week. We are still in the process of reviewing them, but that gives an indication of how things are changing. There are also still quite a bit of uncertainties. And so for the administration's proposal, how we approached it is we really focused on what are the key activities that are needed to get the program off the ground and providing sufficient resources in the short run to kind of get those activities going. And so specifically related to the trailer bill, it has a few components. First, it generally follows the requirements that we were aware of in federal regulations and rules before the finalization, as I mentioned, of the federal rules earlier this week. We are in the process of reviewing the final rules and we'll update the trailer bill language if necessary. Second, in looking at the trailer bill, it does establish the state's process for determining program eligibility. It does identify the California Student Aid Commission as the authorizing entity that will be responsible for making those eligibility determinations, but it does require consultation with California Workforce Development Board. A third piece of the trailer bill is that it provides a framework for outlining how institutions who are interested in seeking workforce Pell eligibility will go about doing that. And it does include requiring that they justify that they meet the federal standards. The fourth component is that it requires institutions that are seeking eligibility to provide certain data to demonstrate that eligibility to the Office of Cradle to Career Data. And then finally, as I mentioned before, you know, we're really focusing on those key activities that are necessary. And so the current trailer bill language focuses on public institutions first and it focuses on leveraging those existing data and legal sharing agreements that the state currently has in place in order to implement the program as cost in the short run given sort of the uncertainties that we are aware of. We are open to conversations about further details, et cetera, but again, the administration's package focuses on sort of those key activities that are necessary in the interim. I'm going to pass it on to my colleague who's going to focus specifically on the proposed funding level for C2C.

Department of Finance on items 5 and 7? No? Okay. The LAO? Good morning Madam Chair and

questions from committee members? Senator Smallwood-Cuevas? I just have one

access and outcomes for workers? I'm curious. Thank you for the question. This

By connecting this data with the state and the local providers, what will it give workers a sense of we'll see their trajectory, we'll see their earnings and how it compares to other states or just I'm trying to understand the benefit of this data for workers having better outcomes.

Erica Baldwin. Thank you, Madam Chair. and I appreciate the questions by the Labor Committee Chair as well on this, because first, just a technical piece. I don't know if we're doing this in other trailer bills. I would certainly urge our committee staff and chair to consider just referencing the public law number in statute and not put propaganda in the statute by referring, for all time, putting phrases like one big beautiful bill into law into California state law we don't need to there's no reason to do that so just as a technical question as a technical matter obviously this is a very big deal this program and although it is called Pell for the reasons that have been outlined in the presentation it isn't it isn't isn't intended to simply be an extension of Pell to the work to workforce programs offered by institutions that already are eligible for the existing program and so the this is that I'm this proposal is a very big deal and so I think LAO's admonition that we really dig into the to the to the not even to the details to the basic policy choices that are being made here is is very well taken and whether whether we try to wrap all of that up by the passage of the budget or this is the one that needs a needs a budget needs a trailer in August. We need to get this as close to right as we can, and this is no shade on the administration. Obviously, these guidelines and things just came out, so we're all trying to react. We don't want to leave money on the table. At the same time, I'm one of the Senate's representatives to the Cradle of Career board, and Cradle of Career is mainly a family of educational institutions with a few friends. And so I guess I'm not surprised, but I'm not sure I'm ready to buy into the notion that we should start with colleges and public sector colleges, essentially, when workforce Pell is intended to be accessed through a variety of institutions, which may or may not be those kinds of institutions and other workforce development programs, as an example. And starting with Pell, and so the language in the trailer bill that, at least if I'm reading this correctly, that the short-term programs that would be covered under California's instance of Workforce Pell would have to lead to the post-secondary credential that's stackable and portable, have to prepare for one or more degrees at a post-secondary ed institution, have to be prepared to receive academic credit subsequently. I mean, these are policy choices about what we as California means as workforce development and who we're trying to serve. So that conversation, obviously, C2C is not just the educational institutions and all that, but the workforce system, our labor and workforce partners, we need to be having a conversation in this building about what is it we want to do, what can we do, what are we prevented from doing in this space. and so I would certainly encourage us to devote the time to this and not let it become sort of a trailer bill say hey and the authorized state entity which shall not be named but we named it has now the authority to make all these choices and we decided on a random Thursday in May that this is going to be the new main workforce development federal program in California So I just think it's worth us spending the time on the policy design here. We don't have unfettered degrees of freedom, but we do have some, and we should be assuring that we're accomplishing that. Right, it will raise some uncomfortable questions, which this federal law and several others have. There are quite a few community college programs that are public that don't have a 70% completion rate or 70% placement rate. On average, community college programs have a completion rate that's half that. So it will raise questions for us, too, but also what this means for non-public institutions and some of the BPPVE-authorized schools as well. so there's a lot here and we should be taking the time in the coming weeks and maybe through to August to make sure that we're getting this as close to right as possible and or setting the stage so that we can put something in place that we need to now to move forward with the express understanding that we're going to do full legislation on this in January. Because the other thing I point out, I know the administration is aware that we have legislation moving through the process, it's passed through the Senate, first through Senator Smallville-Krevis's committee, SB 1054, which I'm the author of. And it relates to both this but principally to the next item, but I'm just flagging it, that as we're looking at the data sources, data sharing, and occupation, and the SB 1054 is in the same exact space, and so we should be trying to align what we're doing here to advance the overall system while we're opening up these statutes and making sure that the data elements, the processes, the agreements, the privacy protections and everything else match up between these different approaches because they're both necessary and both for the same purpose, but we want to make sure we get that right. So thanks, Madam Chair.

All right, Kayla Landman, Department of Finance. The California Cradle to Career Data System, passed by legislation in 2019, is a statewide longitudinal data system that provides tools to help students reach their goals and delivers information on education and workforce outcomes. The May revision includes trailer bill language that requests the UC and requires other C2C data providers to sign the participation agreement for the purpose of data sharing with the C2C data system. This language reinstates repealed language from the former Education Code Section 10858 and clarifies that this does not impose a new requirement on providers and available for any questions. Thank you.

Thank you. Natalie Gonzalez with the LAO. We have reviewed the trailer bill language and have no concerns with the proposal.

Thanks Madam Chair Sorry an overall question for GovOps So not for a career in this space although maybe it a project you want to take on too which is where do we stand with respect to CalCompute? And I will have a separate question on SB53 as well.

Maybe I could ask Finan, ask the same question. And this is in part because I was listening to the This is Guy Van Newsom podcast in the last couple of days, and the subject was an hour and a half on AI, and the governor was highlighting and celebrating SB53 as one of California's leading accomplishments in the area of artificial intelligence, both in California and globally. And so I'm curious, I mean, you haven't received an appropriation because you didn't ask for one. This is what the process is for. And so from the Department of Finance, why do we not see if this is one of California's signature leadership

It is definitely a priority for the legislature, but perhaps it's a conversation to be had with the governor, because the governor has specifically, by bill number, identified this as a priority for the state. And so it just seems odd that the budget doesn't match that when the cost of implementation is less than some of the proposals that we will have here later that are also discretionary, for example, the living governor's legacy fund for $20 million. So we have proposals here for purely discretionary things that are not in statute not in law and haven been identified as anybody top priorities And yet this particular issue which leads the world in this space as the governor has said and is in some sense the first step in the world's best hope that somebody will get their arms around the frontier models, that we don't have the basic baseline funding for the staff to implement the bill that was signed just in the fall. Just one more quick comment. I do want to note that

I guess it will be a conversation to be had with the governor about his priorities on this issue, but I appreciate that. Thank you, Madam Chair.

Good morning. I'm Mark Monroe, Deputy Director for the Middle Mile Broadband Initiative. As I think we're all tracking, we're developing an 8,000-plus-mile network across the state to connect the state's unserved communities, and we are going to be operational on the first segment in July of this year. So to that end, we have asked for provisional authority in the May revision. It's kind of a backstop as we look at how we plan to fund the first year of operations. We are expecting $30 million in revenues from the Golden State Net, the third-party administrator. And so those are how we're planning to cover the costs. We currently have contracts in place for operation of the network, and so if we get the revenues as planned, we should not need this authority. But if we, you know, as the project moves on, we know we expect to have between 4,000 and 5,000 miles done by the end of this year. But the GSN has noted that their ability to sell access to the network is being delayed somewhat until more of the network is completed. And so we're just asking for a backstop just in case we don't collect all of the revenues in time to be able to cover the costs that we have for operating the network. Any questions?

I am Bender, Department of Finance. Nothing to add at this moment.

Thank you, Madam Chair. Zinma with the Legislative Analyst's Office. As reflected in the agenda, our initial recommendation was to reject this proposal because we were concerned that the proposed language would provide broad spending authority without sufficient legislative oversight, and those concerns still remain. So accordingly, we would still recommend rejecting the proposal as currently drafted. However, our office has since received additional information indicating that relying solely on the annual budget act process could create timing challenges should the department require additional operational funding before the next budget cycle. And in light of that information, we're offering the legislature an alternative approach for consideration. Specifically, rather than outright rejection, the legislature could amend the proposal to include stronger reporting requirements, a defined legislative review period before funds are augmented, and clear statutory parameters governing the use of contingency funding. So while our concerns regarding oversight and broad augmentation authority remain unchanged, our revised recommendation reflects a possible path forward should the legislature wish to accommodate the department's timing concerns while preserving stronger legislative oversight. And our office would be happy to work with the committee and legislative staff on potential amendments should the legislature wish to pursue that approach. Thank you.

I remember we had a lot of discussion on this when you all did your initial presentation and request and shared with us the third party operator out of state and there were very few guidelines in terms of what services they would provide, how would they provide them, what is sort of liability, responsibility. There were a lot of questions about the agreement. The state is now looking at another 30 million backstop for operations. I don't even think there was a message that said we may come back for this when we had that very long discussion. So I'm just wondering at what point do we acknowledge that some of the financial forecasts, projections, estimates, assumptions underlying the project, either we are being very optimistic or we are sadly way off in terms of our fundamental sort of accuracy of how much we expect to generate and what it will cost. Can you help me understand which is it? And at what point will we have some estimates that can give us a fairly realistic view so that we aren't sort of like thinking one moment where we have a third-party operator and we're going to have revenue, and now, oh, wait, maybe not. We may need a backstop. When will we know, and what is preventing us from knowing?

And so as we learned earlier this year, there's some miles that are going to slip into 2027. We're still trying to work on how we can speed some of those up and be strategic. Right now, our primary focus is to reach the federal funding account grant awardees. There's 65 of them said that they would connect to us. So that's really our focus by trying to make sure that we're ready to meet them by the end of this calendar year. So in answer to your question, when we'll know more, we're going to know, once we have the full 8,000 miles in 2027, we're going to have a much better understanding and then we're going to be able to be in a position where we can sell access to much larger segments of the network. And so we're developing the network. Our highest priority, obviously, is reaching the FFA awardees and other communities around the state that have been historically unserved or underserved. That's why we're building the network. Once we have more mileage ready, we're going to be able to look at what we call enterprise customers. That's really going to be what's important because that's what's going to ultimately fund the operation of the network. Does that make sense?

Madam Chair. So I agree with the original LAO recommendation not the revised one And in part because as LAO noted in the analysis that there should be statutory parameters and an opportunity for legislative review and oversight. And I think what I have noticed compared to my childhood spent in this building is that we see more and more and more trailer bill proposals that are broad, unfettered authority. and then LAO says, you know, well, we should add a JLBC review, which none of us, I've been a member of JLBC, we don't review it. I mean, the LAO does and the staff does, but it's sort of, you see what, okay, this is how it turned out. But that's not our job. Our job is to establish the policy parameters in the first place. And so I appreciate the challenges of the uncertainties, but it was a bit ironic you mentioned the business plan from, as you say, you produced at the beginning of last year. But in the spring of last year, we couldn't get a copy. and so there's just the the level of transparency and trust that is necessary to be able to approve the sort of broad as lao describes as a broad spending authority without sufficient oversight we do do that sometimes and we do that because there are operational exigencies and needs that have to happen but but those only are effective when you when you build a record of of transparency and trust along the way, and this is not to be accusatory, but that takes work to do. And in the alternative, if we don't have that to rest on, then we need to have in the statute, in the trailer bill or in the Budget Act itself, more parameters about what this is for and what it's not for, including review afterwards, but before, as the appropriation has happened, we need to have some parameters in there as well. So I appreciate the problem, not close-minded about should we do something about it, but I do think the trailer language as it's proposed is too broad and does not provide for sufficient policy parameters at the front end by the legislature and the administration.

That's a good question. I would have to get back to you. When we developed the network back in 2021, GSN, they kind of broke the state into five different regions. And so when you go to our website, you kind of see those different regions. It kind of goes broadly north to south. It doesn't include the Central Valley proper. So my team could take a look at that and get back to you, but I don't have that information here.

Oh, yeah, sir. When we look at the initial segment that will be operationalized in July, that will start in the Bay Area. It will go down the coast into Los Angeles. It will go out to the eastern portion of the state, up Digital 395, and all the way up to, I think, Siskiyo County. So it's kind of almost a fish hook shaped segment that's about 1300 miles.

Sounds like all around my district but not in it Exactly Thank you I promise you we are moving all segments of this network as quickly as possible and when I mentioned you know I mentioned 1300 miles being operationalized in July we looking at a 43 4500 miles operationalized by the end by December and why that's key is that you know we've always been targeting SB 156 provided funding for last mile projects in the federal funding account that CPC has been allocating. And so we're targeting those locations. There's 65 of them that said they'll connect. So we are working with them so that when they are ready, we have a middle mile to connect them to.

And that includes some in the Central Valley.

Madam Chair, members of the committee, my name is Miles Burnett. I'm the Chief Administrative Officer for the California Department of Technology. I want to present Poppy, California Digital Assistant. CDT requests a $1 million budget augmentation in the Technology Services Revolving Fund for fiscal year 2026-27 to support the scale-up and ongoing operation of POPI, California's digital assistant, as a shared statewide platform for broader adoption across state departments. POPI is a secure, centrally managed Gen AI service provided by CDT to support state of California employees. It will allow staff to access approved large language models through a state-managed environment with uniform security, compliance, and integrations. Built by state staff for state staff, POPI acts as an intelligent assistant to automate routine tasks, support information discovery, and enable secure collaboration while using internal and approved external data sources. By centralizing the infrastructure, configuration, security, governance, and ongoing model management that individual departments would otherwise need to build on their own, POPI substantially reduces the high initial and ongoing implementation costs that currently impede Gen.AI adoption. This platform will create an efficient, effective, and secure Gen.AI environment for state departments aimed at significantly enhancing government operations while protecting state data and avoiding duplicative efforts and expenses. Finally, it directly mitigates data-related risks by operating on the state's network under enterprise security standards with governance, logging, and privacy controls already established for participating departments And with that, I'm here to answer any questions.

Ryan Bender, Department of Finance. Nothing to add at this moment.

Senma with the LAO. We have reviewed this proposal, and it's requesting $1 million from the department's revolving funds, so we have no concerns to raise at this time. Thank you.

I love this project. Don't tell HCD because this is the first thing I've loved this week in this community, but I love this pilot, both the way it's been deployed and built and tested and with the deep engagement of both experts in the technology side and the government side and with the staff of all the agencies and everyone else who have been kind of collaborating to build this. So I think it's been the development cycle, the rollout has been very solid, and the reviews have been very good as well from the users. I guess the only question I have about this is the, so the, you know, if we build our own, as poppy as California's own system, and I know it's two state standards about security and privacy and egress and all of that, but where does the compute sit for this? Is all the data and the compute power for this LLM inside state government directly, or is it through contractors that are meeting state standards? I'm going to invite up to answer that question Shani Imanovian, who is our deputy chief state technology officer. Bad news, nobody's coming up. Oh, there he is. You're on your own, sir. I was hiding.

And then can that scale to all, I mean, once it leaves the pilot, assuming, once it leaves the pilot and it scales up to all of state government, perhaps, you know, we develop another, something similar for local agency or what have you, can it scale in that environment? That is 100% what we're doing right now and moving from this early access.

So in – I'll just pick New York as an example. The state government there is building its own compute capacity and data capacity in part to assure that long-term, regardless of our standards and our protections that not only is it controlled by, but completely owned by and entirely within the state government's box. I think we heard earlier we're not moving very fast on CalCompute. What is the future of both this and other Gen I approaches that require both lots of data and lots of compute Are you envisioning an environment where we principally reliant on vendors or do you see the state moving in a direction of building at least some native capacity ourselves

And I mentioned earlier local governments or our local government partners for whom the tools could potentially be even more useful if you're a city planner in Culver City or you're the sanitation manager in Dixon. where you're experiencing, you're grappling with some of these procedures and policies, or you need to understand local code requirements matched up against state water board or what have you, but you don't do it every day like the staffers at the state water board or DSS might be doing. Are you envisioning, and do you have a sense of timing about where the – and by the way, Dixon is not big enough to ever develop its own gen-I-LLM capacity, So do you see, is there a path where we can make not only ourselves, but the instrumentalities of the state, our local agencies also have access to the power of this tool? Yeah, absolutely.

So is all the training data boring regulations and guidelines, documents, and build analyses and that sort of thing? Or does the LLM have access beyond just the state's own documents?

Yeah, yeah, yeah. And then I guess last question, and thanks for the indulgence on this, Madam Chair. This is a much bigger deal than I think folks recognize for a million bucks. But just one other protection question. And so given what's happened at a couple of platform companies, there's no capacity. What are the protections to assure that a future deputy director does not capture keystrokes and using the work product and the workflow of state employees to train the model to replace them?

Okay.

Yeah, absolutely. So all of the poppy LLMs use what's called grounding. So basically when a state employee gives it a particular set of information or documents, that employee and the LLM for that moment are the only entities on earth that have access to that. Now that employee can choose to share that with other coworkers or even with other people in the department, but they have the ability to share that. At no time can that information be shared with the vendor or the creator of the LLM. It's only to get the response back and then it's forgotten. We don't use it to what we call train. We also have an extra safeguard in regards to bias. POPI doesn't always get the newest model right when they release it. We put the models in quarantine. Our engineers look at it. It's a different team, but very closely related to who are looking at bias and how we measure that. Once we know that the LLM is above board and proper compliant for our state needs, then we bring it into POPI. So we use that extra layer of protection to make sure that this thing is doing what we need it to do.

Yeah, the quarantine depends on how much changes are in there and how busy the engineers are. But typically we get them within a week or two. If it's a really big update, it can take up to three weeks. But the engineers, because we have a lot of experience with the sandboxes and now with Poppy, they're getting really fast at it. So, yeah. Thank you.

So the default is CA.gov, but you also have the ability to take documents and upload them. It's called a RAG model. It's a retrieval augmented generation. Sorry to be nerdy. But that is a supplement to CA.gov. And that's what I was mentioning before. It's a document that only you as the uploader can access unless you share that with other coworkers.

Colby White with Department of Finance. So taxation of digital pre-written software, this is one of three revenue solutions that the administration is proposing as part of a balanced approach to restore structural budget balance. Beginning on January 1, 2027, the administration proposes to align California with the majority of other states and extend the sales tax to sales of electronically delivered pre-written software, regardless of how the product is delivered to the purchaser. Pre-written software refers to computer programs not designed to the specifications of a single user. Electronically delivered pre-written computer software can be transferred to the purchaser through a download or other means where the purchaser takes possession either with a copy or persistent access to the software, and then software as a service is also pre-written software, hence it is also subject to tax under this proposal. But unlike pre-written software delivered electronically for installation on a computer's device, SAS is hosted on a platform by the vendor, and the customer obtains a right of access to it rather than a copy of the program. So California sales tax law generally applies only to the sales of tangible goods, but not to their digital equivalents. As a result of this historical practice, California taxes software only if delivered on a physical disk or drive and not if it's downloaded or accessed remotely. In recent years, many states have updated their sales tax laws by applying sales tax to electronically delivered pre-written software, with a large majority taxing downloaded and locally hosted pre-written software and an increasing number taxing software as a service. Of the 45 states with the sales tax, 35 states tax pre-written software electronically delivered, and 24 tax software as a service. This proposal will simply extend equitable sales taxation to pre-written software regardless of how it's delivered and consistent with what is occurring in the majority of other states with the sales tax. The proposal is estimated to increase general fund revenues by $450 million in 26-27 and $900 million in 27-28 and ongoing. That's general fund and then local revenues by five hundred sixty million in twenty six twenty seven and one point one billion ongoing.

Thank you. Seth Kirstein with the LAO. I'll start with the broader budget context. So the state has a structural deficit and the May revision would make some progress towards addressing that. And we've recommended that the legislature enact a budget with at least the amount of ongoing budget solutions that the administration has proposed in the May revision. And so we've analyzed these revenue proposals, particularly this one and the one you'll be hearing later about business tax credit limitations, keeping in mind that the alternatives would be some other type of revenue increase or spending cut. So as for this particular proposal, we see merit in the general idea of modernizing the state's sales tax and eliminating some of the arbitrary distinctions between taxed and untaxed sales. If the legislature wants to address these issues, we recommend that it consider a version of the governor's proposal that lines up more closely with those policy goals. And so this would involve two major modifications. The first one would be to extend the sales tax more broadly to digital products. And actually, I can be concrete about this because just as the trailer bill language came out last night, started skimming it, and it includes a list of specified exemptions from the definition of digital product. I can go through those real fast, and essentially this part of our recommendation would be to not include these. So, well, to not include most of them, let's say. So the exemption list includes digital assets, audio works, audio visual works, books, infrastructure, video game products, and visual works. And so this sort of this part of our recommended modification would be to not enact most of those or perhaps all of those exemptions And so like pre software many of these products have close analogs that already are subject to sales tax So taxing them would eliminate additional arbitrary distinctions between taxed and untaxed products. And then the second modification that we're recommending is to include or to recommend for the version that the legislature would consider, not necessarily to unambiguously recommend enactment, but the second recommended modification for you all to consider would be an exemption or reduced rate for software purchased by businesses to be used for commercial purposes. So taxes on business-to-business sales might seem appealing because the resulting costs to consumers are indirect and maybe not very salient. But taxing those purchases can raise costs for consumers even more than a direct tax on consumption because they favor some types of production, like vertically integrated businesses, over others, and that can lead to inefficient business operations and higher costs. And just one additional thing I'll flag, a smaller thing as we've started looking over, trailer bill language that was posted last night is on that list that I read earlier of specified exemptions. Most of them are ones that we anticipated when we reviewed and published our analysis of the proposal over the weekend, but there is one that the video game exemption is not one that we had anticipated when we did our initial analysis and so that that adds somewhat more revenue downside I think than we then we'd anticipated when we analyzed the proposal probably not a huge amount that's not something we've analyzed yet but just want to flag that all for you thank you thank you questions from

given the challenges that we have funding our health care programs our our need for building more affordable housing, all of the core safety net programs we have, this is, I think, a pragmatic step towards strengthening our revenue system in the state. And certainly California should be aligned with what the majority of other states are doing. And so I see this as a step toward fairness and stability. I guess my question, and I think the LAO, you sort of in your comments, but definitely in reports, spoke to this, that there may be some ways to build out this proposal in other years. Can you say more about how we might be able to do that in terms of ways to expand this revenue stream without hurting consumers in the process? or businesses for that matter.

Seth Kirsteen, LAO. So I think maybe I'll take it in two parts. I think that really concretely, although, again, I haven't even read every word of the trailer of the language yet, but just sort of from the initial skim, I think one of the sort of things, a lot of it lined up with kind of what we were anticipating and is reflected in our written analysis, I think. the and we were sort of in discussions with the administration did this structure of having a specified list of exemptions was not surprising So that all checked out I think just And so that actually sets up pretty... I'd have to look at how that interacts with the rest of the language because I haven't gone through all those nuances yet. But just as a first pass, modifying the list of specified exemptions would be sort of a pretty, would seem to be at least, maybe not legally, I don't know, but a conceptually straightforward avenue for modifying the scope of the proposal. As far as not hurting consumers or businesses, I think I would point to just, that's something that's very difficult to do when you have any kind of budget solution and particularly one of this nature. And so it's really a question of sort of the tradeoffs versus other types of, you know, as I mentioned earlier, sort of revenue increases or spending cuts that the legislature might consider to bring the budget into structural alignment all would have costs of some sort for someone. And so it's really just a question of tradeoffs at that point. We did, at least on the revenue side in March, our office released a report that sort of goes through a variety of options and sort of trying to give a high-level sense of what some of those tradeoffs might look like. So I think – thank you for the question.

Thank you. Senator Cabaldon?

and then I'll turn it over to my colleague that I think will be better able to explain the local Bradley Burns piece.

trivial amount of money that could potentially be go to local governments. At the same time, we have a we are we in local governments are in, you know, facing massive challenges on a variety of revenue and spending fronts, counties in particular. And so I think one of the questions is, well, you know, to what extent do we just say, okay, it's good luck with this money, local governments, you know, good for you, whoever gets it gets it, that's great. Or do we have some sense that you know counties would risk what like what proportion of the of these dollars do we think might flow to counties versus to cities to suburban places or you know places that have lots and lots of companies headquartered in them I would imagine are buying more software than than you know corporate deserts where there's you know there's not that much and I know this is not part of the proposal but I'm trying to understand what the implications are so we can understand what the you know if if there's additional revenue in the system at the local level, where that might be and also where it might not be.

I appreciate that. I think sort of, and I don't know, but so on the overall, like, county versus city, city versus this is a relevant question because the counties obviously have come here and not to this subcommittee, but to every other one said, look, we're $10 billion short, and the state needs to help us we need $10 billion. And so if, I forget, was the estimate a billion dollars in local revenues from this at full bill?

Okay, so let's, for a second, let's say if we thought that a billion out of that 1.1 billion was going to go to counties and it would be general, you know, in their general fund budget, then we would be able to hear, say, okay, of the 10 billion counties are short, we might be helping them on a billion of it. So now our problem is 9 billion, not 10. But it may be quite the opposite. I mean, I know some of the county folks said, we don't think we'll get anything here in Napa County. We just don't have that in most folks. In which case, this is irrelevant to our overall budget conversation. So that's sort of one, and that's this bigger picture one, which I think Seth, you're indicating, that might be a more answerable one. The second is this trying to understand, like, if we can, because it seems foolhardy to not, to be putting $1.1 billion out, sort of totally incidentally. We're not doing this for this purpose, but put that out and not have some sense about what that does to local government finance, to equalization, to a whole bunch of other stuff. And so even trying to understand in a, you know, pick a county or two, you know, understand the difference between Loomis and Roseville, I imagine it would be quite substantial on a population, you know, on a per capita basis that Roseville is probably getting a lot more resources than Loomis. That's not a bad thing, but just to understand what the, what the implications are that we are creating in terms of local government finance incentives, but also gaps that will remain in issues of equity and equalization across them. So that second one is not as critical as the first in terms of understanding its implications for the rest of the budget, but it is important to understand are we exacerbating inequalities that exist? If we're doing that, should we be doing it differently? Is it the case that people in Loomis buy more non-fungible assets than they do in Roseville, and therefore adding digital assets as has been proposed by LAO would equalize that? It would allow us to assess those sorts of questions. Maybe folks in Loomis are streaming more on Spotify, and then the LAO's proposal becomes more attractive. So that's the reason I'm asking. It's not just idle curiosity, just to really understand what are we doing in terms of the equity landscape of the locals. Then I guess the only other thing I'd say on this other issue, and I think just to follow up on Senator Small McEvoy's question and point, which is that I do, you know, the point here, as Finanza said, is to deal with, you know, a slice of the revenue question and very much appreciate the administration you know stepping up on you know looking for areas where revenue measures that the administration believes are appropriate are in the May revise Very very much I just want to really give kudos to the Department of Finance CDFA and particularly to the governor for taking that step. So that's very positive. At the same time, I think we all, he and we, are concerned that we don't take actions that are going to increase costs for everyday Californians. And so I personally I'm not I'm not prepared to add, you know, digital books and and and Spotify streaming and and, you know, the other stuff to the equation. It's just we're an economics class and we're our law school and we're trying to design the most elegant type proposal. Yes, but that's not the world we're in today to take. Californians can't afford that. So I think this is a, even if that added another billion dollars to charge Californians more for their books and music streaming and everything else, I wouldn't be supportive of doing that. There are other people who are not paying any taxes at all that we need to get their revenue from first. But again, appreciate the administration to work on this and the LAO analysis. Look forward to getting a little bit more information about these other issues. And thank you. And thanks, Madam Chair. Okay, seeing no other comments or questions from the dais, we appreciate your presentation. We'll hold this item open and we'll move on to agenda item number 12, Cal File Resources Realignment. Well, representatives, please come up and provide an overview of the proposal. And please present when you're ready.

Thank you. Thank you. Questions from committee members? The only question I have is, you know, folks are just getting sort of used in accessing direct file and now the momentum is scaling back. Is there a way to, for the department, depending on what happens at the federal level, but is there a way for the department to continue to move the product move the sort of access forward to continue it in a way so that folks see that it's still user and as a free filing system for them I just I I worry that when you scale back if more folks do come to use it then we will have a problem of folks saying, hey, I can't really access this. I'm going to stop using the system. So I'm just curious, how do you go forward and scale back at the same time?

Hopefully that answers your question. It does. I mean, it's unfortunate that we can't use it fully, but it sounds like it, you know, folks will still be able to access it. It'll still be user friendly and hopefully be ready to jump back in when the time is right. So to the federal collaboration. Thank you. Yeah, this is for an exclamation point, because it's not it's not unfortunate. It's it's grift. I mean, this is this is a criminal what has happened here. and we should I mean we can't fix it we did we didn't do it but the federal government's action to withdraw a free filing option for from Americans in order to force them to buy buy service from a company that's a major donor to the White House is this is the this is why costs are going up is that we just don't the federal government does not care about individual Americans and we're seeing that here so just this it's outrageous but and we've done our homework and appreciate the work that's been done. I think this is getting better. It's kind of separate from that dimension of this, but you know, when we started doing the just the electronic filing at all, and I just want to encourage FDB to keep doing this if you are, which is to really lean in on the user design side for folks that are not heavy technology users. And I know you know this issue, but it shows up in a lot of different ways. You know, folks go to pay their taxes once a year. They log into the system. And it's like, hey, you're locked out because your password expired because you haven't logged in in 90 days or something like that. You're like, well, I mean, other than people who pay estimated taxes, why would I log in between last year and this year? I only use the system once a year. Okay, if you try one more password, you're shut out of your system altogether. You're not going to be able to pay your taxes. I mean, we hear these things in our district offices all the time. And so this is where it's really important that the folks who are running the tax part, the folks who are in charge of the security part, and the folks who actually understand how real people interact in their daily life with technology and all this stuff is very important. And so this project was attentive to that on the free side. But we all pay a cognitive and attention cost with all these systems too. And so assuring that even on that side that we're attentive to the diverse needs of users and making sure that these systems are both available but easily accessible. accessible and we're getting that balance right. Appreciate the work that's been happening and thanks, Madam Chair. Yeah, no, I agree. And, you know, I appreciate your comments because those comments exactly align with the scope of why we want to retain these resources. And, you know, speaking of the people part, one of the resources is a customer service resource. And we know, you know, with the enhancements to the system, there might be questions, you know, just basic questions. So we want to make sure that we're capturing all of the needs of the population that we're trying to target with expanding and modernizing the system. Because right now, you know, it's a free state system, but it's not competitive with the commercially available products. And this would bring this more equitable to that. On my end, I just wanted to ask, how many tax filings does FDB typically get filed here in the state of California? So through Cal File or just in general?

And if you don't have the information, that's okay. I just wanted to get an idea of what we look at.

Okay, so what's the data for the CAL FILE? So for the past three years,

Okay, so 100,000, and do you know if that's like 1% of total filings?

I would have to get back to you on that. Okay. All right. And do you expect that number to go down in the near future, given what's happening at the federal level?

Okay. Thank you. Senator Cabaldon. This is a longer term question, but do you see a path whereby we evolve our system so that employers are filing, my employer files my monthly wage statement with the state and everyone else, the banks are filing their forms every year or what have you, where Californians can log into the system and the information that, quote, unquote, the government already has is pre-populated in the system and they can just add in their charitable donations if they have any or their child care credits and what have you. Do you see us on the path towards a system where Californians aren't expected to re-enter information that they or their intermediaries have already provided to the IRS and to FTP?

Okay, yeah, I'm not talking about this specific proposal, but really where we're headed with this, and maybe Poppy can help, but how we can build a system where we recognize through the data that that we're already receiving from employers in particular, but also from financial institutions and others that we can dramatically, and we have last year's tax returns as well, so that we can dramatically reduce the amount of work that everyday Californians that may not have an HR block account or a Quicken account, we can reduce the amount of effort that they have to go and friction that they have to go through and errors by using that information natively So anyway thanks Madam Chair Okay Seeing no additional comments or questions thank you for your presentation on agenda item number 12. We will be moving over to, and we'll hold this item open, but we'll move over to agenda item number 13, the permanent credit limitation. So if the representatives for the FTB, DOF, and LAO can come forward. And please present when you're ready.

Do we have any comments from the LAO?

Thank you so much. Do we have comments or questions from committee members? Yeah, I just, again, of appreciating a response from the administration on revenue, given our fiscal constraints and structural deficit, and particularly as we're looking at providing health care for Californians here in California and the impact of H.R.1. I think it's important that we look at particularly large corporations and really think about what that fair share tax looks like and ensuring that we're not in any way disadvantaging our smaller businesses, but really trying to look at ways to have a responsible revenue strategy. I guess my question about this proposal is it one of fairness for sure but I also am wondering about the goal of establishing a minimum level corporate tax responsibility I guess my main question is what is the safeguard that we have to prevent large corporations from some accounting maneuvers that maybe they restructure, that they may shift some of their liability. They might look for and find other tax loopholes. You know, we must have obviously an estimate of what these companies are and what they will produce in revenue. How do we ensure that when it's time to collect that, we don't see a lot of changes and shifts that, you know, make this whole proposal obsolete? Do we have a way of trying to look at those potential gaps and plugging them before companies try to skirt the responsibility?

How is the administration, I appreciate that, and I guess we'll have, sorry, my mic is going on and off. Oh, and then this popped off. Okay, it's tired. We're almost done. You can hang in there, Mike. We only have a few more items. You know, I appreciate that answer. I know we said that five rush hole was well thought out. I just want to make sure there's no shifting around that keeps folks below that. We're not able to capture those resources. I guess we will see how this rolls out and we'll understand what have been the opportunities and some of the challenges of this. But my other question is, how is the administration ensuring that large corporations still pay their fair share rather than using the tax credits to reduce their liability to zero? because there have been some examples of very large corporations nationally and others and even our president figuring out ways where we just have a liability that's set at near zero. How do we prevent that here in the state?

I appreciate that. I know that, you know, there's been a lot of conversation, at least in my district, particularly from working people about the level of tax rate that they are paying on very low wages and then very large profitable corporations somehow have no tax liability. liability. And so I'm appreciating that we are one shining some light on this process, even though we're talking more about the tax credit side of it. But I think it's important that, you know, we keep that level of fairness and our taxing system and thinking about ways that we generate revenue, not just on the backs of, you know, lower wage, middle class families, but also on those very large and profitable corporations. So I appreciate, again, the administration's commitment to trying to solve our structural deficit issues, to try to look at ways to bring revenues in that helps us provide the basic safety nets that our constituents and our neighbors need. And this is definitely a step forward and in the right direction. Thank you. Senator Baldwin. Thank you, Madam Chair, and I agree wholeheartedly. I'm very encouraged to see the proposal here, both for the revenue reasons, but more principally for the larger policy reason. For a free society to function, everybody needs to pay something, and it should not be the case that folks in my district should be paying individual people, just a school teacher or sanitation worker should not be paying more taxes than Amazon. That's not right. And so I think the fundamental proposition here is the right one. I'm glad to see the administration tackling it. I mean, I think also, you know, the data that you've shared with us around, you know, how many you know how few companies that we really talking about here in terms of 20 or so that are driving their tax liability down to zero or near zero and 80 that are over the 50 percent are paying less than 50 percent of their tax liability Those are helpful. And just a reminder, this is not an economy-wide problem. I mean, the vast majority of businesses and companies, large and small, are investing in R&D and pushing back their frontiers of knowledge and creating new therapies and new solutions in society and still paying some taxes. It's just like you can't do both things, and we all have to. I mean, when California was an early state-level leader in creating an R&D tax credit, this was, though, before we were the home. of a set of industries, related technology industries, who have plenty of incentives for investment in R&D on their own. We're not trying to convert the ag industry through the R&D tax credit into a more, I mean, originally we were. We want to make sure our manufacturing, agriculture, our investing in R&D and that we remain leaders in innovation. No one, you I anthropic does not need any incentive from the state of California to keep investing in our I wish they would invest a little less in R&D Maybe we could use a little Could we just take Thursdays off from innovation and just live with what we had for a day? Right, we don't need to be paying for that as a tax expenditure in today's California economy as we thought we needed to do back in 1999 or in 2003 when LAO said there was no evidence that this was an appropriate the R&D tax credit now I'm talking about that that was necessary. I would have quarreled with them then but I think today the evidence is very clear that that are there because our R&D tax credit is not as fine-grained as it should be and we don't see the differences between like well what kind of R&D and would you do it anyway and those should be we should be examining those over the long run and there I agree I certainly agree with LAO but we need to get the fundamental problem under control right now and so I think the administration's proposal is is both measured and bold at the same time. Appreciate the administration's willingness to tackle this. And there's certainly remaining questions about the specifics and the details. But I think the broad outlines of what's being proposed here is the simple proposition that everyone needs to pay something in their taxes, regardless of all the credits that are out there. And that should apply no less to the biggest, wealthiest corporations in California than it does to the small businesses or to individual families. So I don't have any questions, but thank you, Madam Chair. Well, thank you. I see no other comments or questions from Zayas. Thank you for your presentation. We'll hold that item open, and we'll go ahead and move on to item number 16, the contract procurement. Sorry, excuse me. Item 14. Item number 14, reduction of new business tax credits. item number 14. And please, please begin when you're ready.

Thank you so much for your presentation at this moment. My district calls, so I'm going to hand over the gavel to Senator Cabaldon. Madam Chair, LAO.

All right. Thank you. Thank you.

so I'm not familiar enough to talk about it at this particular juncture.

the Trump accounts thank you Colby white department of Department of Finance the The administration proposes effective beginning tax year 2026 to conform state law to the federal tax treatment of Section 530A accounts, commonly referred to as Trump accounts, which are tax-deferred accounts established for children under the age of 18 that transition to traditional individual retirement accounts when the child reaches adulthood. These Section 530A accounts were created under the federal H.R. 1 and acted in July 2025. The Internal Revenue Service has announced on March 31st that about 4 million children have signed up for the accounts nationally. We don't have California-specific data, but that suggests that there's likely hundreds of thousands of accounts already signed up for in California. This proposal is consistent with the state's practice of conforming to most federal tax-advantaged accounts, such as traditional IRAs, Roth IRAs, 401K plans, and the Achieving a Better Life Experience or ABLE accounts. Without conformity, due to the difference in federal and state tax treatment of these accounts, the child or the beneficiary will pay tax annually on the account's earnings, even though they can't access the funds, and will then have to track a separate California-only record of these already taxed amounts across potentially several decades so that California does not tax the income a second time when withdrawals are made, which is when they're taxed at the federal level. So additionally, nonconformity could in limited instances require the filing of a state tax return by the, by the child. So the fiscal impact here is minus 1 million in 26, 27. And, uh, increasing to minus 3 million by fiscal year 2930. Thank you.

For an Isaac's LAO, we have no concerns and recommend approval. We concur with the administration that conformity prevents taxpayer burden and confusion.

Good morning, Chair, members. Heather Carlson. I'm the CFO for the Department of General Services. The May revision includes several proposed trailer bill amendments to create some operational efficiencies across procurement and real estate services. The first one is to modernize payments for routine software licensing purchases. This proposal would create a clear statutory allowance for advanced payments for software contracts that meet specific conditions to speed the acquisition time and streamline the payments for vendors, which could result in CEPR volume discounts. It's like if we were to pay a yearly subscription to a streaming service rather than a monthly. It may have discounts that are associated with it. So for certain circumstances, we feel this would allow for some achieved savings across the state. Do you want me to go through all of them? The next one is the authorized electronic submission of state procurements. When California procurement laws were written, they were generally written assuming that it was a paper-based system. We're no longer in that paper age. And so we're seeking to create availability for modernizing statute to reflect the support of modern digital online procurement practices. Without legislative action, state agencies will be at risk for potential legal action and remain reliant on outdated manual workarounds that slow down purchasing, increase administrative costs, and create audit risks. Final for procurement is to reduce required certification. This proposal streamlines the procurement process by consolidating certification submissions. Currently, certifications are individual forms, which can lead to disqualified bid or bidders due to failure to submit a certification. By eliminating the need for separate certification forms, the state could prevent potentially paying higher prices for those disqualified bids. So in essence we basically saying we like to create one form where all certifications rather than each individual certification requirement is a separate form and to align across programmatic areas to make sure that the certifications are in line with each program consistently And finally, an increase in departmental access to agriculture and environmental services. Current statute allows for all departments to contract for agriculture and engineering services when regulations are established through the formal regulation process. This process has led to an over-reliance on DGS to contract on their behalf. The reliance creates backlog, greatly slows the ability for similar projects to be completed and forces DGS to undertake simpler projects instead of focusing on more complex ones. This statutory change would allow departments to use DGS-established, tested procedures until such time that they could implement their own regulations. We respectfully request your support on these measures, And with that, I'm happy to answer any questions.

Andrea Scharfer, Department of Finance. We are working with Ledge Council right now. We do have an RN number, and it should be posted within the next day or two.

No further comments. Just a quick correction is it's architectural and engineering for the regs changes at the end. So we're talking about what we call A&E design.

Hi, Heather Gonzalez with the Legislative Analyst. Circling to your comment, we recommend waiting to make a final decision until we have the actual trailer bill language. We do have a proposal, but not the final TBL. Our initial view is that the intention or direction of the proposed changes appears reasonable, but in order to ensure that we've fully assessed for unintended consequences, we need a clear view of the statutory changes. We will be reviewing those when we get the language and will at that point communicate any concerns to the committee.

Legacies Proposal Department of Finance Good morning Amy Jarvis with the Department of Finance The May revision proposes the addition of Control Section 7 to appropriate million general fund to recognize the history and legacy of California's living governors who are not serving in the office of the governor as the effective date of this budget act. The specific use of the funds has not yet been identified, but the appropriation of $20 million in a control section provides the administration flexibility to determine how the funds will be used to honor the accomplishments and contributions of prior governors and which department will administer the funds.

Good almost noon. Nick Schroeder from the LAO. Given the structural deficit with the state budget, our office as an overarching recommendation that the legislature not approve new discretionary spending. And so according to that recommendation, we are recommending a rejection.

Understood. I was going to say I don't have a question, but I mostly do have questions, but not for you today. But then that's only because we don't have a real proposal here. It's not an appropriate control section item. We can give up to $20 million to any state agency, I suppose. We don't know who that is what it's what it is. There's no description of the program the objectives The accountability the timeline for spending no report not even a JLV or JLVC report. So there's really nothing here There's no proposal here to be responsive to and You know, I I I don't know if I'm unique But I'm one of the few people in the state that's been an appointee of all of all of them Pete Wilson Gray Davis, Arnold Schwarzenegger, Jerry Brown, and Gray Davis at various capacities. So I've served in all their administrations in one form or another. This isn't that I, but I do absolutely agree. This isn't, it's not that it's not really the time for looking backwards and celebrating legacies and building ballrooms and that sort of thing. We have a story to tell in California, both to ourselves and to the world. And I know the governor has been committed to doing that as well. To me, that's far more important to be to be pushed, you know, to be assuring that California's cultural and political and economic influence in the rest of the country and the world is sustained. That's more important than looking backwards on the legacy. So there's no there's no there's no background here about what we would be doing. Are we are we building monuments? Are we renaming the aqueduct? Like what what's happening as part of this proposal? So there's not nothing to respond to. But it's hard to imagine there being some sort of historical legacy that would be more important to us than funding the SB 53, you know, getting arms around AIs and its potential threats to the world and to the state. And for Congressman Jackie Speier, who was here a couple of weeks ago, and just meeting the basic needs on the vehicle license fee in a couple of counties, you know, funding some affordable housing, the arts districts. I mean, there's so many other needs, not even counting the challenges that we're facing from H.R. 1, that we don't have, we have no detail here, but it's hard to imagine a legacies proposal that would rise to that level. So looking forward to the administration's, you know, more detailed proposal, but that you have a very high bar to get over, at least for me, to convince the legislature that of all of the expenditures, pressures that we have in California right now, and also the opportunities that we have, that this is at the top of the list. All right. There's nothing further on this item. Thank you very much. Thank you. All right. Great. We're now going to proceed to public comment, and we'll be taking public comment on all items on the agenda, both the discussion items that we've just completed taking presentations and questions on, but also all of the items that are noted on our agenda as not for presentation. So if you wish to make a public comment, please make your way to the stand-up microphone. And begin by stating your name and affiliation. We very much appreciate everyone's participation. We want to make sure everybody gets a chance to be heard. And to that end, we do ask that all the comments be limited to no more than one minute each. If you're not able or have to go and are not able to testify today, you're absolutely welcome to submit comments and suggestions in writing to the Budget and Fiscal Review Committee or visit our website as well. So why don't we begin with public comments? Welcome. Good afternoon.

Thank you.

Thank you.

Thank you. Thank you.

Good afternoon.

I'm here to speak on behalf of the CNIP program, the California Nutrition Incentive Program. I'm here on behalf of our partners at Roots of Change as well as the California Alliance of Farmers Markets supporting this budget request for CNIP. We're representing all of California's farmers markets and all of California's small and mid-sized farmers. I also serve as the chair of CDFA's Certified Farmers Market Advisory Committee. I'm here to request your support and thank you Senator Cabaldon for expressing your support already for CNIP Loss of CNIP funding will result in not just the loss of those CNIP dollars But the loss of the snap CalFresh dollars spent with farmers at farmers markets I've been an operator of farmers markets for 18 years and prior to market match CalFresh spending at farmers markets was very low Last year alone CalFresh and market match represented only over 25 million dollars of income to farmers If we do not see funding for CNIB, we will lose farms, we will lose farm income, and we will see farmers markets close in the state of California. So we appreciate the urgency of this issue and thank you for your support. Thank you. Thanks.

This is your house.

we're opposed to the governor's May revision proposal to place a permanent cap on business tax credits. The proposal, we believe, undermines what California has done as a leader in innovation, as it significantly will impact the ability of the state to attract and retain companies that heavily invest in the state's economy, its workforce, and infrastructure. California is home to the largest life sciences cluster in the nation with over 17,000 biopharma establishments that generate about $395 billion and 1.15 million California jobs. The predictability and the use of that research and development tax credit is a critical factor in decision-making about these companies and whether or not they choose to invest, expand operations, hire workers, or conduct long-term research activities. We encourage the committee to reject the governor's proposal. We think it's short-sighted and could have long-term detrimental impacts on the California's innovation economy. Thank you.

Good afternoon. Danny Kando-Kaiser here on behalf of two different items. Firstly, on behalf of the California Low Income Consumer Coalition, National Consumer Law Center, and Consumer Reports. all members of the Campaign for California Borrowers Rights Coalition. We respectfully urge the legislature to provide a one-time $20 million investment in the student loan empowerment network under the DFPI. Separately, here on behalf of the California Tax Reform Association, as it relates to the tax policies in the May revise, the credit limitation of $5 million or half of taxable income resolves a looming future budget problem. In 2024, the budget proposed to limit tax credits but refund unused tax credits after 2027. This proposal not only raises $1.8 billion by 2930, but also eliminates the specter of the state paying refunds of hundreds of millions of dollars to each of the world largest companies Relating to software sales tax in addition to the nearly billion in ongoing and increasing revenues for the state this proposal benefits local governments by over $1 billion yearly. Related to lowering the minimum tax, minimum franchise tax, we question the inclusion of LLCs and LPs in the break for, quote, new small businesses, unless tightly drawn to exclude the many thousands of subsidiary LLCs and LPs created as passers for larger companies. Missing from the revise are the following three items. Worldwide combined reporting. As we see in AB 1790, which eliminates the choice of Water's Edge reporting for multinational corporations, this should have been a part of the May revise proposal and should be part of the tax package in the budget. Secondly, in January, the governor said he would address tax benefits to large corporate owners of single-family homes. We urged the governor to revive AB 1611 Haney, which would eliminate the exclusion of tax on capital gains on sale of those homes. And lastly, related to federal conformity, there are a number of provisions in the federal tax bill, such as reforms to use offshore tax havens or NCTIs, which would benefit California's tax system. This discussion, which has happened in years past, should be convened for this session by the governor and the legislature. Thank you.

Hello. Thank you all for having me. Caitlin Herring on behalf of the California Taxpayers Association, and we respectfully oppose items 11 and 13. The proposal to tax digital pre-written software and software as a service would set a dangerous precedent for taxing services and would increase prices for consumers and businesses at a time when California already faces serious affordability challenges. We also oppose the permanent credit limitation because it would weaken California's R&D tax credit, discouraging the investment, innovation, and job creation that is critical to the state's economy. Taken together, these proposals undermine California's innovation economy from both sides, taxing the tools by the state's economy. is used to grow while limiting the credits that encourage them to innovate. For these reasons, CalTACs respectfully opposes both.

All right, thank you. I'm not sure we need a time check but just a reminder so we asked folks to make to limit their comments to one minute I be brief You will notice that we give more leeway appropriately for folks who are here to testify about 17 different items So you can't do that in one minute. But if you're here for a single item, please, please try to limit your comments to no more than one minute. Thank you very much.

I do actually do have a request. So I appreciate you, both you and Life Science Association, being here. For me, it would be very helpful to understand because it would send a bad message. I get the vibes issue here. And we can't ask our state tax agencies which companies are in the 20 that aren't paying any taxes at all or the 80 that are paying less than half of the taxes that are due from them. So we can't ask them who they are. So we don't know are any of them in the bio or life sciences sector. or not, or are they, and so the extent, at least for me, as a member of the subcommittee, I'm sympathetic to the issues that have been raised by the biosciences industry, but it hasn't been clear from the evidence that we've seen so far that there are that many life science companies that are using tax credits in order to pay no taxes at all I can speak to that at the moment but I could Yeah if you if you if there information that you can share with us it would show a real and actual impact in the world, you know, given the small numbers of companies that are affected. I understand the vibes issue, but there's also some really bad vibes from folks from the largest companies in the entire planet not paying any taxes at all. Those are also bad vibes. But if we can get to the data and the evidence about the specific impact on the sector, in reality would be very helpful for our consideration. Thank you very much.

Thank you.

I am a second-year student at UC Berkeley and a board member of UCSA. We're proud members of the Campaign for California Borrower's Rights Coalition. We're here to respectfully urge the legislature to provide a one-time 20 million investment in the Student Loan Empowerment Network under DFPI. The network has secured over $14,000 in monthly payment savings for borrowers, resulting in over $4.6 million in debt discharge or canceled. We hope that the legislature will consider including this funding in the budget and continuing to fund students' futures. Thank you so much. Thank you.

Thank you. Thank you. Well, thanks to everyone for the public comment and for sharing your perspectives. Again, if you didn't have a chance or you're watching this remotely, we absolutely do welcome your comments in writing, submitted to the Budget and Fiscal Review Committee on the website. Also, thank you to our colleagues at the Department of Finance, the Legislative Analyst's Office, and the Department for your participation in today's discussion. Thank you for your patience and cooperation to all. We've concluded the agenda for today's hearing. This next subcommittee hearing will be next week. And with that, Senate Budget Subcommittee No. 4 is adjourned.