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Prepared by Precision Advocacy
The governor's 2026-27 budget proposal was the focus of the Assembly Budget Committee's hearing on Tuesday. This initial session was key for tracking the Assembly's overall budget priorities and offered an early read on the legislative sentiment regarding the priorities of Orange County and other local jurisdictions. Notably, two members of the legislative delegation representing Orange County, Assemblymembers Cottie Petrie-Norris and Sharon Quirk-Silva, serve on this committee.
The hearing reflected that the legislature is broadly aligned on the seriousness of the state’s fiscal constraints but is increasingly uneasy about the operational and policy consequences of managing another year of a “workload budget,” as proposed by the governor. Members repeatedly emphasized that while reserves and one-time solutions have bought time, they do not resolve the underlying structural pressures driven by Medi-Cal growth, federal funding uncertainty, and volatile revenues. Several lawmakers underscored the need for earlier and more transparent engagement with the legislature, cautioning that waiting until the May Revision compresses decision-making, and forces rushed tradeoffs that can undermine program stability and local implementation.
Public safety, health, and human services issues generated sustained questioning from lawmakers. Legislators probed the downstream impacts of federal actions on Medi-Cal, behavioral health services, and county-administered programs, warning that state decisions could unintentionally shift costs or operational burdens to local systems that are already strained. Members highlighted the risks of reducing or restructuring benefits that counties and providers have spent years scaling, particularly in crisis response and safety-net programs, and urged caution against policies that could destabilize fragile delivery networks. The public comment period reinforced these concerns, with counties, providers, and advocacy organizations urging the legislature to reject cost shifts, protect core safety-net services, and consider new revenue strategies to avoid compounding federal retrenchment.
Across multiple exchanges, lawmakers also questioned whether the state’s spending growth is producing commensurate outcomes, signaling interest in accountability, efficiency, and long-term sustainability rather than simply maintaining baseline funding levels. Members expressed concern about program growth that may outpace measurable performance improvements and raised questions about how the administration evaluates return on investment in large systems such as education, health care, and homelessness. While there was general acknowledgement that difficult choices are unavoidable in a constrained fiscal environment, several legislators emphasized that those choices must be guided by clearer priorities, better data, and more predictable policy timelines so that state agencies and local partners can plan effectively.
Within that broader context, Assemblymember Sharon Quirk-Silva framed her comments around the idea that budgets reflect values and tradeoffs but argued that the current approach to housing and homelessness funding has become unnecessarily uncertain and reactive. She questioned why, despite reported declines in homelessness, the legislature continues to “beg and haggle” each year for housing dollars rather than embedding predictable investments into the base budget. Quirk-Silva pressed the administration on the timing of homelessness accountability trailer bill language, noting that funding is expected to flow by September 2026 and that last year’s delayed policy rollout created planning challenges for cities and counties. She also highlighted the imbalance in housing investments, acknowledging the $500 million allocation for Affordable Housing and Sustainable Communities but pointing out the absence of funding for the state Low-Income Housing Tax Credit and the Multifamily Housing Program. While recognizing that the legislature has often restored those dollars later in the cycle, she urged colleagues to advocate early and emphasized the importance of ensuring that local jurisdictions understand the compliance requirements, so they do not inadvertently lose access to available funds.
Assemblymember Cottie Petrie-Norris reinforced Quirk-Silva’s concerns by underscoring the tension between rising accountability expectations and constrained housing production tools. Her questioning reflected skepticism that accountability alone can drive meaningful outcomes if local governments lack stable financing mechanisms to move projects forward, particularly in high-cost markets where capital gaps remain large even with federal support. Petrie-Norris also signaled concern with the recurring pattern of deferring major housing funding and policy clarity until late in the budget process, which undermines the ability of cities, counties, and developers to build reliable pipelines and long-term staffing strategies. Together, their comments highlighted a shared legislative expectation that the state must better align its housing and homelessness rhetoric with durable investment strategies and earlier policy certainty if local governments are expected to deliver measurable results under increasingly stringent accountability frameworks.
Looking Ahead. As the governor's budget proposal transitions into legislative review and negotiation, our county advocacy efforts will commence with the legislative delegation, budget committees, and the administration. County departments are currently analyzing the proposal to identify impacts, including potential cost pressures, funding shifts, or reductions, while simultaneously identifying critical investment opportunities. Per the Board's directive, we will champion the County's priorities and ensure you remain informed of all developments.
Legislative Analyst’s Office Overview of the Governor's Budget
The Legislative Analyst’s Office (LAO) released its initial assessment of Governor Gavin Newsom’s 2026-27 budget proposal last week. The LAO finds that the governor’s budget proposal is only roughly balanced in the near term and is highly vulnerable to downside risk, despite significantly higher projected revenues. While the administration estimates a modest deficit of roughly $3 billion, the LAO warns that this apparent improvement relies on optimistic revenue assumptions tied to an overheated stock market and does not meaningfully address the state’s chronic, structural multiyear deficits, which are projected to range between $20 billion and $35 billion annually in the out-years.
The LAO characterizes California’s fiscal condition as having shifted from a cyclical downturn to a persistent structural imbalance, raising serious concerns about long-term sustainability.
Sunny Revenues. The governor’s budget reflects a $42 billion upward revision in General Fund revenues across the budget window (2024-25 through 2026-27) compared to the June 2025 budget assumptions. This revenue upgrade is the primary reason the administration projects a much smaller deficit than the LAO’s November Fiscal Outlook, which estimated an $18 billion shortfall.
However, the LAO emphasizes that the administration’s revenue forecast does not incorporate a significant probability of a stock market downturn, despite multiple historical indicators suggesting heightened risk. Because California’s personal income tax revenues are heavily dependent on capital gains and high-income earners, a market correction would likely result in rapid and substantial revenue losses. The LAO concludes that failing to account for this risk leaves the budget in a precarious position, even before considering longer-term pressures.
Even with higher revenues, the budget remains only marginally balanced because baseline spending has increased substantially. Key drivers include:
- Constitutionally required spending increases, particularly under Proposition 98 (education funding) and Proposition 2 (debt payments and reserve deposits), which together add roughly $13 billion in required expenditures across the budget window.
- Higher underlying program costs across health, human services, and other major programs, reflecting prior year commitments and cost growth.
As a result, the improved revenue picture does not translate into meaningful structural improvement.
Stock Market Exposure and Structural Deficits. The LAO highlights several historically reliable indicators, such as elevated stock valuations, increased investor borrowing, and high household exposure to equities, that suggest the stock market is overheated and vulnerable to a downturn. Because the governor’s budget assumes continued strength, any reversal would quickly reopen a large operating deficit, potentially requiring mid-year corrections or use of reserves.
The LAO stresses that budgeting without acknowledging this risk increases the likelihood of disruptive fiscal actions in future years.
Multiyear Deficits Are Now Chronic. Both the administration and the LAO project large multiyear deficits, but the LAO views the situation as especially troubling due to its persistence, structural nature, and the state’s worsening outlook. The state has faced four consecutive years of projected deficits and has already solved an estimated $125 billion in budget problems since the pandemic. Deficits continue even as revenues and the broader economy grow, indicating that spending commitments exceed sustainable revenue capacity. The LAO’s November forecast was its most pessimistic assessment since the pandemic, underscoring the depth of the imbalance. Together, these factors suggest the state has entered a period of ongoing structural deficits, not a temporary downturn.
The LAO notes that the governor and administration publicly acknowledge both revenue volatility and multiyear deficits, but the proposed budget does not include material actions to mitigate either challenge. While the budget includes some limited steps, such as reserve deposits and constrained new spending, the LAO does not view these measures as sufficient to improve fiscal resilience or reduce long-term risk.
In effect, the budget postpones difficult decisions, leaving future legislatures to confront growing deficits under potentially worse economic conditions.
LAO Recommendations. Rather than endorsing the governor’s approach, the LAO outlines an alternative framework for the legislature:
- Adopt More Conservative Revenue Estimates: Use LAO revenue assumptions that explicitly account for stock market downside risk.
- Address the Resulting Budget Problem Earlier: Acknowledge that lower, more realistic revenues would reopen a significant budget gap and take deliberate actions to close it.
- Reduce Structural Deficits: Begin shrinking multiyear operating deficits through a combination of spending restraint, program prioritization, and revenue solutions.
The LAO emphasizes that early, proactive action would reduce the likelihood of sudden cuts, program instability, or emergency measures in future years.
The LAO concludes that while the governor’s 2026-27 budget appears balanced on paper, it rests on optimistic assumptions and leaves California exposed to significant fiscal risk. Without addressing revenue volatility and structural spending pressures, the state remains vulnerable to renewed deficits and long-term instability. The legislature, in the LAO’s view, faces a clear choice - accept a fragile status quo or take earlier action to place the budget on more sustainable footing.
Governor vs. LAO: 2026-27 Budget Comparison
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Issue Area
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Governor’s Budget
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LAO Assessment
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Why It Matters
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Overall Budget Condition (2026-27)
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Roughly balanced; ~$3 billion deficit.
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Only nominally balanced; balance is fragile.
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Apparent balance depends on optimistic assumptions and could unravel quickly.
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Revenue Assumptions
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$42 billion revenue upgrade from June 2025 assumptions, driven largely by strong PIT and capital gains.
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Views revenues as overstated; does not reflect realistic downside risk.
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Overestimating revenues increases likelihood of midyear cuts or future budget shocks.
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Stock Market Risk
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Assumes continued market strength.
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Finds strong evidence of an overheated stock market and high likelihood of downturn.
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California revenues are highly sensitive to capital gains and high-income earners.
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Incorporation of Risk in Budgeting
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Acknowledges risk rhetorically but does not budget for it.
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Recommends explicitly incorporating downside risk into revenue estimates.
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Ignoring risk reduces budget resilience and planning credibility.
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Structural vs. Cyclical Deficit
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Treats current challenges as manageable within existing framework.
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Concludes deficits are structural, not cyclical.
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Structural deficits require policy changes, not one-time solutions.
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Multiyear Deficit Outlook
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Projects large but manageable out-year gaps.
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Estimates $20-$35 billion annual deficits in coming years.
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Persistent gaps signal long-term sustainability problems.
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Primary Cost Drivers
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Higher baseline spending largely absorbed by revenue growth.
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Notes constitutional spending (Prop 98 & Prop 2) and baseline growth erode gains.
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Limits legislature’s flexibility even when revenues increase.
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Reserves and Budget Resilience
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Maintains reserves under current assumptions.
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Warns reserves could be rapidly depleted under a downturn.
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Reserves may not be sufficient to cushion another shock.
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Administration’s Response to Risks
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Limited actions; largely defers tough decisions.
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Finds no material actions to address revenue volatility or structural deficits.
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Deferral increases future disruption and fiscal instability.
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LAO Recommended Legislative Approach
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Not applicable
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1) Adopt LAO revenue estimates 2) Address resulting gap upfront 3) Reduce structural deficits
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Earlier action lowers risk of sudden cuts and program instability.
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Assembly Holds Informational Hearing on Housing Construction Innovation
The Assembly Select Committee on Housing Construction Innovation held its second hearing of the year last Wednesday focused again on factory-built housing (FBH) and its potential to help close the gap on housing needs in the state. The hearing was chaired by Assemblymember Buffy Wicks (D-Oakland) and attended by Assemblymembers Jessica Caloza (D-Los Angeles), Juan Carillo (D-Palmdale), Mark Gonzalez (D-Los Angeles), John Harabedian (D-Pasadena), Diane Papan (D-San Mateo), Sharon Quirk-Silva (D-La Palma), and James Ramos (D-San Bernardino). Following the first informational hearing which focused on the perspective of developers and builders, the second hearing included perspectives from the government, investors, and workers.
Perspectives from Government. The first panel included Kyle Krause, Department of Housing and Community Development; Sean Kennedy, California Strategic Growth Council; and Marina Wiant, CA Tax Credit Allocation Committee. Krause detailed the roles of state and local government in FBH construction and installation. He noted some of the major benefits of time savings, including that the housing can be manufactured offsite while initial site work is being done at the final location. The work to build the modules can be done in a controlled manufacturing environment where employees and materials are protected from the elements. These factors can increase worker safety, reduce material waste, and speed up timelines.
Krause noted that FBH products must meet California building standards with the Department of Housing and Community Development (HCD) serving as the regulatory body overseeing the certification. Third party certifiers, working with HCD, review and approve FBH to ensure they comply with California code and approved design plans. Local governments may require FBH to meet local use zones, snow loads, wind pressure, fire zones, building setbacks, side and rear yard requirements, site development, and property line requirements.
Kennedy reviewed the more than $5 billion in investments that have been made in FBH through the California Strategic Growth Council. He discussed some of the potential climate benefits associated with FBH including less material waste and energy efficient manufacturing. He also discussed the benefits of using manufactured housing after climate associated natural disasters including the recent wildfires in LA. The more efficient timelines associated with FBH have allowed residents to rebuild their homes significantly faster than traditional construction. He raised the issues of non-standardized building codes across jurisdictions, misaligned financing timelines, lack of demand aggregation, and distances from factories to jobsites, saying that these factors drive a negative perception of FBH. He advocated for regional coordination to break down some of the barriers.
Wiant discussed some of the unpredictable aspects of financing and advocated for broader solutions including tax incentives and building code adjustments to enable more creative housing strategies. As part of HR 1, the tax code was changed to allow affordable housing projects to be financed with 25% tax exempt bonds (down from 50%) which unlocks more capacity for tax credits. As a result of the change, Wiant testified that developers her organization works with returned $200 million in bonds, which they were then able to redistribute to other projects and fund 10,000 additional units.
Perspective from Investors. Panelists included Cecile Chalifour, JP Morgan Chase; Rebecca Foster, Housing Accelerator Fund; and Lad Dawson, Guerdon Modular Buildings. Chalifour emphasized the importance of the team’s experience and the flexibility of FBH products to meet local requirements. She also noted the challenges of when a FBH manufacturer goes out of business. All these elements figure into the risk mitigation that is sought out by financial institutions. Later in an exchange with legislators about why the FBH has not been more widely adopted, Chalifour said the answer is not simple, but it has much to do with overall distributed risk associated with adopting new technology and the learning curve associated with it.
Foster detailed the positive outcomes of a recent affordable housing project completed in San Francisco, which was delivered at $383,000 per unit, a 20-40% savings compared with similar projects. The Housing Accelerator Fund was able to provide Mercy Housing with upfront risk capital that allowed the developer to design the project with modular components from the start. The construction was financed with 100% private and philanthropic capital which allowed them to avoid additional duplicative local requirements. The Housing Accelerator Fund provided full permanent funding and financing certainty so that the developer could lock in their spot at the factory to build the modules. She noted that the project was also successful because its North Star goal was time and cost savings rather than 30 different priorities. Foster advocated to build demand and provide funding certainty, priority scoring for tax credits based on time and cost savings goals, and more regulatory certainty.
Dawson testified that 60% of the historical volume from his Idaho factory has gone to California, with that percentage increasing to 80% in 2026. He emphasized the importance of early engagement and efficiently standardized plans. He noted 5-15% of actual hard cost savings with additional savings being realized because of faster delivery. He noted that the biggest challenge is that modular housing does not fit in the model of traditional construction lending. He recommended that a modular specific loan program be established and advocated for a single housing code across jurisdictions without local code overlays.
Perspectives on Workforce. The third panel included Randall Thompson, Nibbi Brothers; Oswaldo Lira, Harbinger Homes; Jeremy Smith, State Building and Construction Trades Council of CA; and Danny Curtin, CA Council of Carpenters. Panelists spoke in favor of FBH and its benefits for union workers. They also highlighted the importance of making building housing more affordable and feasible in California. Panelists highlighted the importance of iterative learning and building FBH experience within teams that will make projects more efficient and less expensive.
Thompson discussed the financial savings and efficiency gains of modular housing and pointed to industry challenges of a shrinking workforce. He highlighted that construction is the only industry in the world that has become less productive over the last 40 years, while agriculture and manufacturing have doubled their production. Lira gave his perspective on FBH as a worker, and emphasized the safety, consistency, and reliability benefits of FBH over traditional construction. He also talked about the cost and time savings for workers in commuting to a factory rather than a job site, saying that the “two-hour commute is killing us.” Smith advocated for employer accountability, decent wage standards, and “every possible incentive to attract housing factories in California."
Where We Go from Here. The final presentation featured Tyler Pullen, Terner Center for Housing Innovation, from UC Berkeley. His testimony highlighted four key areas for policy reform around FBH:
- Reduce friction in building codes and enforcement
- Targeted financing support
- Incentives through existing programs
- State funded research and education
Pullen emphasized that mature and stable ecosystems for construction innovation take time to build as do supportive regulatory environments for housing. The Terner Center is putting together a policy paper, expected to be released in mid-February, that will encapsulate the committee’s learnings thus far, and help inform its work going forward.
Upcoming Hearings
Agendas are typically posted on the committee websites in the Assembly and Senate a few days prior to the hearings. To view hearings after they take place, you may access them in the Assembly or Senate media archives where they are generally available within a few hours of committee adjournment.
Tuesday, January 27, 2026, 1:30 p.m.
Assembly Health
1021 O Street, Room 1100
Informational Hearing: The Devastating Impact of Federal Disinvestment on California's Health Care System: What We Know and How the State, Health Care Providers, and Communities are Responding
Wednesday, January 28, 2026, 9:00 a.m.
Assembly Budget Subcommittee No. 7 on Accountability and Oversight
State Capitol, Room 126
Impact of 2026 Federal Funding Withholding for Child Care Services
Wednesday, January 28, 2026, 10:00 a.m.
Assembly Insurance
State Capitol, Room 437
Oversight Hearing: The California FAIR Plan
Wednesday, January 28, 2026, 1:30 p.m.
Assembly Joint Hearing Utilities And Energy And Privacy And Consumer Protection
1021 O Street, Room 1100
Oversight Hearing: AI's Energy Impacts
Grant Opportunities
Below is a list of the latest grant opportunities released by the state. All opportunities for local jurisdictions may be found here.
Deadline: 2/20/26 17:00
Title: Senate Bill 1 Sea Level Rise Adaptation Grant Program – Track 2
State Agency / Department: Ocean Protection Council
Match Funding? No
Estimated Total Funding: $7,000,000
Funding Method: Reimbursement
Deadline: 3/13/26 23:59
Title: FFY 2024 State & Local Cybersecurity Grant – Local & Tribal (SL) RFP
State Agency / Department: Governor's Office of Emergency Services
Match Funding? 30%
Estimated Total Funding: $9,682,381
Funding Method: Reimbursement
Deadline: 2/23/26 16:00
Title: Literacy Coaches and Reading Specialists Educator Training Grant Program
State Agency / Department: CA Department of Education
Match Funding? No
Estimated Total Funding: $15,000,000
Funding Method: Advances
Governor’s Press Releases
Below is a list of the governor’s press releases beginning January 14.
January 21: FRAUD ALERT: Newsom adds new list of Trump’s pardoned fraudster friends to Trump Criminals tracker
January 20: At World Economic Forum, Governor Newsom announces California shattered clean car goal, surpassing 2.5M ZEV sales despite Trump’s chaos
January 20: Governor Newsom announces first-in-the-nation privacy tool allowing Californians to block the sale of their data
January 16: Governor Newsom announces appointments 1.16.2026
January 16: Governor Newsom Issues Proclamation Declaring Special Election for CA Congressional District 1
January 16: Following 9% drop in unsheltered homelessness, Governor Newsom announces new investments to create more shelter and services — with stronger accountability
January 16: Governor Newsom announces free entry to California State Parks on MLK Day — as Trump swaps the “free day” for his birthday and whitewashes civil rights history from National Parks
January 16: California reduces theft of food and cash benefits by 83% with state-of-the-art technology
January 15: TOMORROW: Governor Newsom and Mayor Lurie to announce new funding for homelessness and mental health efforts in San Francisco
January 15: Governor Newsom proclaims Dr. Martin Luther King, Jr. Day 2026
January 14: California’s water resilience strategy shows major progress after winter storms: state out of drought, according to U.S. Drought Monitor
January 14: Governor Newsom announces appointments 1.14.2026
January 14: Governor Newsom rejects Louisiana’s attempt to extradite California doctor for providing abortion care
January 14: Governor Newsom on Republicans’ failed attempt to silence voters
January 14: Governor Newsom announces funding for construction workforce training program to help support Los Angeles recovery efforts
January 14: Governor Newsom announces early reopening of Highway 1 through Big Sur
January 14: Trump is taking Governor Newsom’s work nationwide. Learn about President Trump’s copycat efforts.
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