May Revision Proposes MCO Tax Renewal — the Mechanism Funding the Medi-Cal Primary-Care Rate Floor FQHCs Depend On (June 15 Decision)

Governor Newsom's 2026-27 May Revision proposes renewing the Managed Care Organization (MCO) tax — which expires Dec 31, 2026 and is one leg of the December 'triple cliff' already tracked — as a novel two-component structure: one component 'substantially similar' to the current Prop 35-compliant tax, and one 'substantially dissimilar' (outside Prop 35). Projected revenue: ~$575M in 2026-27, rising to ~$2.3B/yr in 2027-28 and 2028-29. That revenue funds the Medi-Cal targeted rate increases for primary care, maternal care, and non-specialty mental health that act as the provider-payment floor for FQHC non-PPS visits. The LAO flags the two-component design as novel and potentially risky on federal approval. The Legislature's constitutional budget deadline is June 15, 2026 — the next decision point. If the renewal fails or federal approval lags, the rate floor lapses at the same moment as the July 2026 UIS-PPS loss and the December triple cliff, compounding FQHC revenue exposure.