State Legislative and Budget Update - Feb 2025
Legislative Update
The ongoing crisis of the wildfires in Los Angeles is expected to dominate much of the legislative agenda, influencing a range of proposed bills. One significant piece of legislation already introduced is AB 238, a mortgage forbearance bill that would allow homeowners impacted by the wildfires to request a 180-day forbearance on their loans, with an additional 180-day extension option. The bill includes an urgency clause, meaning it would take effect immediately upon passage, bypassing typical legislative timelines. We have already engaged with the author’s office to discuss the bill and its potential impact on community banks.
Another bill worth noting is AB 232 (Calderon and Gipson) authorizes homeowners to set up catastrophe savings accounts until January 1, 2030, aimed at covering deductible amounts and uninsured losses from natural disasters like wildfires, floods, and earthquakes. This bill is a proactive step toward helping Californians better prepare for future disasters and mitigate financial burdens.
Although California’s 2025-2026 legislative session officially began last month, lawmakers began meeting regularly on January 6th. A substantial number of new members joined the ranks – 29 to be exact.
Despite the fact that the Legislature implemented a lower limit for bill filings, reducing the number of bills members can introduce to 35, hundreds of new bills are anticipated ahead of the February 21 introduction deadline.
As of January 2025, the California State Assembly and Senate have appointed new leadership for their respective banking committees. In the Assembly, Avelino Valencia (Democrat - District 68) serves as Chair, succeeding Timothy Grayson from the previous session. Phillip Chen (Republican - District 59) is the Vice Chair. Other members include:
- Diane B. Dixon (Republican - District 72)
- Mike Fong (Democrat - District 49)
- Maggy Krell (Democrat - District 6)
- Michelle Rodriguez (Democrat - District 53)
- Blanca E. Rubio (Democrat - District 48)
- Pilar Schiavo (Democrat - District 40)
- Esmeralda Z. Soria (Democrat - District 27)
On the Senate side, Tim Grayson (Democrat - District 9) has been appointed as Chair, taking over from Monique Limón. Roger Niello (Republican - District 6) serves as Vice Chair. Other members include:
- Sabrina Cervantes (Democrat - District 31)
- Melissa Hurtado (Democrat - District 16)
- Monique Limón (Democrat - District 21)
- Laura Richardson (Democrat - District 35)
Budget Update
Governor Newsom presented the 2025-26 budget proposal as the fires were just starting in LA. At that time, he projected a $322 billion budget for the 2025-2026 fiscal year, marking a significant shift after two years of notable budget shortfalls.
Even before the fires, the budget was announced amid uncertainties around federal funding cuts from the Trump administration which could force the state to make cuts to essential programs.
While the Legislative Analyst’s Office (LAO) had projected a balanced budget, the $2.5 billion the state just allocated for wildfire recovery will certainly change. What has not changed is California’s reliance on capital gains. Ten percent of the state's income tax withholding in the first half of 2024 originated from stock compensation at four major tech companies. This dependency underscores the need for fiscal prudence and diversification to mitigate risks associated with market volatility.
Of note, the Budget aims to move financial institutions to a single sales factor apportionment, instead of a three-factor apportionment formula. This is estimated to increase state revenues by $330 million in 25-26. Multistate and multinational corporations use a single sales apportionment factor formula to determine what their California taxable income is. The single sales apportionment factor is based on the location of a company’s sales.
Looking Ahead
Key date to keep in mind:
- February 21st marks the deadline for bills to be introduced.