With the members of the budget conference committee expected to start their work soon to reconcile differences among the budgets proposed by Governor Newsom, the Senate, and the Assembly, the Budget Center team is closely following how the agreed upon policies will affect the health and well-being of millions of low- and middle-income Californians.
Certainly, there is much to watch as final budget deliberations move forward. Read on about five key issues we’re tracking as the 2019-20 state budget is finalized in the coming weeks.
1. Expansion of California’s Earned Income Tax Credit – CalEITC
Governor Newsom has proposed a substantial expansion of the CalEITC, including three major changes: raising the income limit so that all adults working up to full-time at a $15-per-hour wage (the state minimum wage as soon as 2022) would be eligible for the credit; increasing the size of credits for many tax filers who currently get very small credits; and adding an extra $1,000 credit “boost” for filers eligible for the CalEITC who have children under age six. State legislators generally support the Governor’s proposal, though the Assembly has proposed a somewhat smaller expansion. Legislators differ from the Governor in proposing to extend the CalEITC to a group of workers who are currently excluded from accessing the credit: immigrant workers and their families who file taxes using a federally-assigned Individual Taxpayer Identification Number (ITIN) rather than a Social Security Number.
As we discussed in our March chartbook — Expanding the CalEITC: A Smart Investment to Broaden Economic Security in California — expanding the CalEITC would improve economic security for many who are struggling to afford California’s high cost of living. This is particularly important for children. Research shows that increasing incomes for children growing up in poverty are linked to short- and long-term improvements in health, educational attainment, and adult earnings. The vast majority of children who would benefit from the proposed CalEITC expansion are children of color, who are disproportionately likely to live in poverty in California.
We’ve also noted the current CalEITC requirement that tax filers and all the children they claim must have a Social Security Number valid for work excludes many working immigrant families and individuals from accessing the CalEITC. Extending the credit to excluded workers who file taxes using an ITIN or any federally-issued Social Security Number would increase economic security for a significant number of immigrant individuals and families as well as contribute to a better future for many children growing up in our state.
See the Budget Center’s piece from earlier this month: Expanding the CalEITC Is an Effective Way to Invest in California’s Children, But Hundreds of Thousands of Children of Immigrants Won’t Benefit Unless Policymakers Act.
2. Additional Spaces for Children in Subsidized Child Care Programs
Governor Newsom campaigned on an early childhood agenda and his May Revision follows through on a number of campaign promises by expanding full-day, full-year preschool, providing additional subsidized child care spaces for school-age children, and setting aside hundreds of millions of dollars in one-time funding for child care infrastructure. Yet, both the Senate and the Assembly have advanced budget plans that provide significantly more spaces for children in subsidized child care programs.
As our Fact Sheet shows, in 2017, just 1 in 9 children eligible for subsidized child care programs were enrolled in a program that could serve families for more than a few hours a day and throughout the entire year. Some parents have been waiting for subsidized child care for years. Substantial investment in California’s subsidized child care and development system must include increased access to child care programs for children and families, regardless of age. This gives providers the ability to prioritize families with the lowest incomes first.
For the Budget Center’s take, check out our series on the unmet need for subsidized child care:
- Millions of Children Are Eligible for Subsidized Child Care, but Only a Fraction Received Services in 2017
- Subsidized Child Care Can Help Reduce Barriers to Success for Children of Color, but Few Receive It in California
- The High Cost of Child Care Underscores the Need for Supporting Families With Children of All Ages
- Targeted Funding for Early Care and Education Could Provide a Path Out of Poverty for More California Children
3. Raising the Earned-Income Disregard in CalWORKs
The earned-income disregard (EID) is the amount of a CalWORKs recipient’s gross monthly earnings that is overlooked when their grant levels are calculated. Since the implementation of CalWORKs in 1997-98, state law has exempted the first $225 of monthly earnings, then 50% of the remainder. Unfortunately, the value of the EID has not changed in more than 20 years, falling behind the rising cost of goods and services, as well as a growing minimum wage. State legislators are now considering increasing the EID to allow CalWORKs parents to keep more of their earnings. The Governor’s May Revision does not increase the disregard.
As we said in a March analysis, in failing to increase the EID over the years, state policymakers have left struggling families with even fewer resources to meet their basic needs in our state. Raising the value now is a promising step to better serve CalWORKs families. To keep the disregard from losing value in the future, policymakers should ensure that the EID is increased annually to keep pace with inflation. To learn more about the disregard, see the Budget Center’s analysis: The Earned-Income Disregard Falls Short of Supporting Working Families in CalWORKs.
4. Increasing the Number of Competitive Cal Grants
Nontraditional students, such as those who attend college more than a year after high school, are not guaranteed state financial aid. Instead, they must apply for a Competitive Cal Grant. There are nearly 350,000 students eligible for competitive cal grants and only 25,700 awards available. Governor Newsom’s May Revision increases the number of available grants to 30,000 while the Assembly seeks to increase available awards to 70,000, and the Senate proposes 44,000.
Competitive Cal Grants are one of the most effective financial aid investments the state can make to promote access and affordability because they support the lowest-income and least represented students. Our August analysis shows that increasing the number of Competitive Cal Grant awards would help ensure college is affordable for a larger share of nontraditional students.
5. The Pending Expiration of the Managed Care Organization (MCO) Tax
Governor Newsom and state legislators are at odds over whether to seek an extension of California’s current tax on health insurance plans — or MCOs — which expires on July 1. The Governor wants to let this tax expire; the Assembly and Senate are pushing to extend it. The MCO tax generates a net state General Fund benefit of well over $1 billion per year. If the MCO tax goes away, so does this General Fund benefit.
As we said earlier this month, allowing the MCO tax to expire would reduce the capacity of the state budget to support public services and systems, including health care. For more information, see this Budget Center piece: Five Key Facts About California’s Soon-to-Expire “MCO Tax.”
Support for this piece was provided by First 5 California.