Thursday, July 3, 2025
2025-26 State Budget Approved
On Friday, June 27, the Legislature passed, and the Governor signed, the 2025 Budget Act along with several related bills (including numerous trailer bills that implement policy changes tied to the budget). The package represented a final agreement among three parties (the Governor and the Democratic leaders of both houses; Republicans are no longer included as their votes are not necessary to enact a budget) for the 2025-26 state budget. The budget deal advances many of the Legislature’s priorities, such as reducing the Governor’s proposed cuts to the Medi-Cal program. It relies more on reserves and internal borrowing than what was proposed in the May Revision. In a notable, and probably unprecedented move, the entire budget deal was made contingent on the Legislature’s approval and the Governor’s signature on SB 131, a budget trailer bill that authorized a new CEQA exemption for infill housing projects and other environmentally-beneficial initiatives, as well as providing an extra $500 million appropriation to local governments through the Homeless Housing and Assistance Program (HHAP) in FY 2026-27.
Despite contentious hearings on a related housing trailer bill, AB 130, and significant opposition from the environmental community to SB 131’s changes to CEQA, the Legislature came together to pass both bills, which Governor Newsom signed on June 30. While all components of the final budget deal have been approved, action will continue on additional trailer bills throughout the rest of the 2025 legislative session, and modifications to the budget are entirely possible given the considerable uncertainty of fiscal policy at the federal level.
What wasn’t widely discussed in the media but was noted by several bloggers was the concessions made to construction unions.
John Fleishman wrote:
“Media outlets around the state are heralding this as a triumph for housing reform, praising streamlined permits, CEQA exemptions, and such. Yet behind this carefully crafted narrative lies a troubling truth: these bills represent yet another extreme expansion of pro-union labor mandates, but you would not know it because it is largely unreported by the media. With a liberal in Governor Newsom who has made no secret of his progressive agenda and a legislature that has received millions in union campaign contributions, such government overreach was predictable. The public gets promises of housing relief while powerful union interests secure unprecedented control over California’s construction industry. It is time to examine what these politicians are delivering to their constituents.
AB 130 strikes at the heart of competitive free enterprise in California. The bill creates new CEQA exemptions for infill housing developments that meet local zoning and planning standards, but the devil lives in the details, which most media outlets ignore. Section 25 of the legislation exempts housing projects from environmental review while imposing minimum wage requirements and prevailing wage rates on developments that were never subject to these costly mandates—a costly mandate in a bill that purports to make it easier to build housing.
Most small-scale residential construction projects are not currently covered by prevailing wage requirements, making this a seismic shift in California’s construction landscape. For San Francisco projects exceeding 50 units, the legislation establishes labor standards that must be enforced by joint labor-management committees—entities dominated by union representation. Section 26 further rigs the system by manipulating prevailing wage calculations to exclude non-union data, guaranteeing that union-negotiated rates become the mandatory standard.
While SB 131’s CEQA exemptions appear less explicit in their union favoritism, they trigger prevailing wage laws that funnel construction work directly into union hands. This represents the government picking winners and losers in the marketplace, not genuine policy reform designed to benefit California families.
CEQA reform has long been a priority for Republicans and business advocates, who recognize that excessive environmental regulations strangle economic growth and housing development. Streamlining environmental review for appropriate projects represents sound policy that could benefit California families struggling with housing costs.
However, Newsom and the Democrats in the legislature have weaponized this reform to serve their union allies. By tying CEQA exemptions exclusively to projects that accept union labor mandates, they have transformed a pro-business reform into a tool for government favoritism. Only developments that surrender to these costly labor requirements receive regulatory relief, while projects seeking to operate competitively face the full burden of environmental bureaucracy.
This represents the worst kind of crony capitalism—government using its regulatory power to favor politically connected interests over fair competition. Rather than consistently applying CEQA reform across all qualifying projects, Sacramento politicians use regulatory relief as a carrot to force compliance with their union agenda.
I note that some Republicans voted for this, and I wonder if they slept soundly last night, knowing they used the coercive power of government this way.”
That’s not to say that Governor Gavin Newsom didn’t TRY to make these CEQA by-pass projects more affordable. An earlier proposal included some new language:
- California Environmental Quality Act (CEQA) exemptions for housing projects of up to 25 units (10 units in San Francisco) without Labor Code prevailing wage/apprenticeship requirements.
- For projects exceeding 25 units (or 10 units in San Francisco), new construction labor standards may be used as an alternative to Labor Code prevailing wage and apprenticeship requirements.
- In Los Angeles, Marin, Monterey, Napa, Orange, Riverside, Sacramento, San Bernardino, San Diego, Santa Barbara, Santa Cruz, Solano, Sonoma, and Ventura counties, state law would require that 60% of the construction workers shall be paid at a wage rate of no less than $36 per hour and 100% at a wage rate of no less than $24 per hour.
- In Alameda, Contra Costa, San Mateo, and Santa Clara counties, and the City and County of San Francisco, 60% of the construction workers shall be paid at a wage rate of no less $40 per hour and 100% of the construction workers shall be paid at a wage rate of no less $27 per hour.
- For all other counties, 60% of the construction workers shall be paid at a wage rate of no less than $28 per hour and 100% of the construction workers shall be paid at a wage rate of no less than $20 per hour.
- These new wage rates would be reduced by the hourly cost of health benefits.
- These new wage rates would be adjusted annually based on CPI.
- There would be no apprenticeship requirement.
This alternative was hit with a buzzsaw of opposition from Democrats and their union supporters and the language was quickly dropped.
Time will tell if these changes make a difference and increase the availability of new homes, or slow their inflationary increase.
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Litigation Financing Measure Becomes Law, Delivering Win for Ariz. Legal System Arizona Gov. Katie Hobbs on Friday signed legislation establishing new requirements around third-party litigation financing, marking a win for the Arizona business community concerned about the increasing prevalence of outside funders driving up the costs of litigation. The measure, SB 1215, sponsored by Sen. Vince Leach (R-SaddleBrooke), sets the stage for continued reform of lawsuit lending practices. The new law targets a fast-growing industry that funds lawsuits in exchange for a share of potential settlements. While once viewed as a novel tool for legal access, critics argue that the practice has evolved into an opaque, unregulated sector that distorts the legal system and even invites foreign interference in U.S. court cases. Story
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Rule Breakers Labor Secretary Lori Chavez-DeRemer kickstarted an “aggressive deregulatory” effort this week that would slash more than 60 department regulations, including eliminating overtime and minimum wage protections for home health care workers and union organizing rights for migrant farmworkers. The deregulation push comes after Trump’s January executive order mandated “agency leaders to cut 10 existing rules, regulations or guidance documents for every new one created.” Also on the chopping block: “affirmative action requirements for registered apprenticeships”.
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New Supervisor Imperial Beach Mayor Paloma Aguirre coasted to an easy victory in a special election for an open seat on the San Diego County Board of Supervisors. Votes are still being tabulated, but Chula Vista Mayor John McCann, down by about 6 points, conceded the race and said in a statement that he had called Aguirre to congratulate her on her win. Both Aguirre, a Democrat, and McCann, a Republican, issued statements that included pledges to address the sewage from Mexico that contaminates the Tijuana River and befouls south county beaches. That’s undoubtedly one of the most pressing issues in the district, one that has also attracted the attention of the Trump administration. Most of the attention outside the district, however, has been on how the results will break a partisan divide on the powerful Board of Supervisors. Aguirre’s win means the board will again have a 3-2 Democratic majority, which will matter as the county wrestles with changes to Medicaid in the Republican megabill and other looming challenges.
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OBBB Smackdown: Governor Newsom told reporters that Central Valley Rep. David Valadao “might as well resign early and I can call a special election” if he votes for Trump’s megabill, which is awaiting House approval. “If he votes for the bill, he should be voted out, period, full stop,” the governor said, calling the legislation “one of the most calamitous and devastating bills of our lifetime.” Newsom slammed Valadao, one of the state’s more vulnerable Republicans, at a Los Angeles news conference touting new film tax credits in the freshly-signed state budget. The governor said that any vote for the federal OBBB would be "the ultimate betrayal,” noting more than 60 percent of Valadao’s constituents rely on Medi-Cal, the state’s version of the federal Medicaid health insurance that covers the poorest Americans. The legislation could boot millions of Californians off the program to help Republicans fund tax cuts. [SV Sun]
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