Governor Newsom’s May Budget Revision Maintains Reserves but Rejects Tax Cuts for Small Businesses

“Governor Gavin Newsom’s revised 2023-2024 budget proposal calls for the state to pare back funding increases for programs and services essential to job creation, workforce development, and overall small business growth. 

Many of California’s smallest businesses remain vulnerable and require resources to help them with long-term recovery; however, the governor’s revised budget failed to include several measures important to the small business community, such as the following:

• Tax reforms for small businesses. The 'Protect our Progress' budget plan, released by Senate Democrats in April, proposes meaningful tax cuts to our state's small businesses. This tax cut will enable them to reinvest critical dollars back into their business, allowing them to grow and create new jobs. 
• Healthcare Affordability Reserve Fund (HCARF). The revised budget proposes diverting more than $300 million from the HCARF to the general fund, which would limit this program’s ability to maintain affordable healthcare for the more than 1 million people enrolled in Covered California. Our polling shows that healthcare affordability remains a critical component for success with small businesses and their employees. It will be important for the enacted budget to maintain full funding for the HCARF and include policies that support extending premium assistance and containing costs.

Despite some missed opportunities, the May Revision includes a few investments that support our job creators, including additional funding to bolster existing grant programs, technical assistance centers, and new programs to help small businesses grow. Portions of the proposed budget will go to the following programs:  

• Relief for small businesses impacted by the COVID-19 pandemic. As small businesses continue to recover from the pandemic, we are glad that the proposed budget includes provisions that will award grants to eligible businesses and allow for program closeout activities.
• Technical assistance to small businesses. To incentivize small business lending, we are glad that the budget includes an increase of $23.5 million in federal funds, to be spent over five years, for the Office of the Small Business Advocate to ensure that capital reaches businesses in under-resourced communities, particularly those applying for State Small Business Credit Initiative capital programs.
• Healthcare for all. The governor’s proposal includes renewing the Managed Care Organization tax to maintain the Medi-Cal program and expanding the program to all who are income-eligible, regardless of citizenship status. As undocumented Californians make up the largest group of the state's uninsured, many of whom own or work for small businesses, it will be important to support increased investments in programs such as Medi-Cal and help to decrease the number of remaining uninsured in the state. 
• Meaningful investments in childcare. We are glad that the revised budget maintains investments in childcare. Championing quality and affordable childcare boosts entrepreneurship and sustains practical solutions to overcoming childcare challenges for small business employees.

We hope the enacted budget will continue to build on the policies and investments of previous budget cycles and advance resources to support the state’s entrepreneurs, small employers, and employees. We encourage the governor to center the small business ecosystem in the ongoing growth of California's economy and incorporate budget measures that will support fair competition, innovation, and job growth.” 

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