BUDGET MAGIC: It was a small miracle when Gov. Gavin Newsom and California lawmakers found a way to close a $48 billion budget deficit without massive cuts. They did so, in part, with billions in proceeds from an enormous tax on health insurance plans. But a November ballot measure would take away that budgeting magic trick by requiring the bulk of those funds to be spent on health care, blowing a hole in the precariously-balanced budget deal. Newsom’s Department of Finance estimates the initiative would sideline money each year until 2027, amounting to $12 billion the state had planned on using to balance the budget. The governor has made no secret about his aversion to Proposition 35. “This initiative hamstrings our ability to have the kind of flexibility that’s required at the moment we’re living in,” he told reporters earlier this month. “I haven’t come out publicly against it, but I’m implying a point of view. Perhaps you can read between those many, many lines.” His opinion holds a lot of weight on a crowded ballot. The budget pressure is amping up the stakes on Prop 35, which has no formal opposition but is driving a wedge between the governor and some of his closest allies. The measure was crafted by some of the most powerful health care players in California, like Planned Parenthood, SEIU, The California Medical Association and the California Hospital Association. Prop 35 would require most of the money — known to nerds as the MCO tax — to be funneled into the state’s Medi-Cal program, raising pay for certain doctors, facilities and services like ambulances that serve low-income people in the state. Its champions say the spending plan is essential to funding Medi-Cal programs Newsom and the Legislature have implemented in recent years — but that it also leaves plenty of room to contribute to the general fund. In 2025 and 2026, the initiative sets aside $2 billion per year for the budget. The tax, they argue, shouldn’t be viewed as a limitless source of money to balance the budget. It’s health care money, and it should be used for health care, said Jodi Hicks, the Prop 35 committee co-chair and CEO of Planned Parenthood Affiliates of California. The Prop 35 campaign is pointing to a different analysis it says is the most accurate, which puts the overall cost to the state between $1 billion and $2 billion annually if it passes. Though the initiative language can’t be changed anymore, Hicks said she is still talking to Newsom to get him comfortable with it and that she will work with his administration to implement Prop 35 if voters approve it. “Every year the budget has a finite amount of dollars, and it’s the choices that we have to spend them,” Hicks said. “These dollars were always intended to go back into health care.” — Blake Jones contributed to this report. IT’S WEDNESDAY AFTERNOON. This is California Playbook PM, a POLITICO newsletter that serves as an afternoon temperature check on California politics and a look at what our policy reporters are watching. Got tips or suggestions? Shoot an email to rbluth@politico.com. | 
