THE BUZZ: SEEING RED (INK) — Get ready to see red today: Gavin Newsom is about to release his latest budget blueprint, and it’s expected to be rife with spending cuts. The plan, colloquially known as the May Revise, will be the final iteration of the budget proposal to kick off the toughest stage of negotiations with lawmakers, namely Assembly Speaker Robert Rivas and Senate Pro Tem Mike McGuire. This governor has never faced a tougher budget climate: California’s deficit was previously projected to be between $38 billion and $73 billion. Here are the five key factors we’ll watch for today that could shape the weeks of negotiations ahead: The actual size of the deficit: There’s no bigger looming question hanging over Sacramento. The governor’s Department of Finance is expected to estimate a smaller deficit than it did in January due to a deal Newsom struck with legislative leaders, offering $17.3 billion in cost savings. That said, state revenue through March fell $5.8 billion short of what the Newsom administration had baked into its earlier estimate. The Legislative Analyst’s Office has released far less-rosy projections than Newsom’s budget team. “It’s still unclear,” said Senate Budget Chair Scott Wiener. “The Department of Finance and the LAO still are not fully aligned.” Education funding gambit: School groups are anxiously waiting to see how — and whether — the decline in tax revenue could eat into their funding under Proposition 98, which set a revenue-based minimum for education spending. Newsom has proposed a controversial accounting maneuver to blunt the pain. The governor wants the state to essentially take out an $8 billion loan from itself to avoid cuts to schools — money that would be repaid using future general funds. Some education advocates worry that move would merely delay cuts in later years, when Newsom is conveniently out of office. The question now is whether Newsom sticks to that plan. Health care wages could wither: In his January budget plan, Newsom asked the Legislature to move quickly on limiting California’s march toward a $25 health care wage, potentially by tying the rate of increases to how much revenue is available. Five months later, we’re still waiting to see language — a reflection of the tricky politics involved for Newsom: He was wary of wage-boosting Senate Bill 525’s price tag but ultimately signed it last year, blessing a deal that SEIU and healthcare players forged from months of intensive negotiations. Now Newsom must balance his desire to curb the fiscal hit with the risk of angering labor allies if he trims too much. Public transit now in limbo: One of the biggest sticking points between Newsom and lawmakers, especially in the Senate, could be his administration’s decision to freeze $2.4 billion in funding for struggling public transit agencies. That money, approved in last year’s budget, includes funding intended to save bus and rail systems in the Bay Area and Los Angeles from a so-called “fiscal cliff.” Wiener, who has significant leverage over the budget in the Senate, went to the mat to secure that lifeline for Bay Area agencies, including MUNI and BART in his San Francisco district. If Newsom pushes to claw it back, that could draw protests from lawmakers from the state’s major metro areas. Enviros in a lather: Few interest groups have felt as jilted by the governor’s January budget plan as environmentalists. They want Newsom to: a) move forward with a plan to offer $600 million in incentives for electric cars, clean trucks and other programs, instead of delaying it by two years, as he has planned, and b) back down on a pledge to cut $200 million from a program to make cities more pedestrian- and cyclist-friendly. But that’s not the half of it. Climate hawks are also eager to get Newsom’s support for a climate bond to fund programs to reduce planet-warming emissions. Their hopes could be dashed as they compete for his love against two separate infrastructure bond proposals on schools and housing. Moreover, there could be little appetite for putting too many bonds on the November ballot for voters given Newsom’s mental-health measure, Proposition 1, passed by a slim margin in the primary. — with help from Blake Jones and Jeremy B. White GOOD MORNING. Happy Friday. Thanks for waking up with Playbook. Meanwhile, you can text us at 916-562-0685 — save it as “CA Playbook” in your contacts. Or drop us a line at lkorte@politico.com and dgardiner@politico.com, or on X — @DustinGardiner and @Lara_Korte. WHERE’S GAVIN? Presenting his May revised budget in Sacramento this morning.
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