As we begin the 2022-23 fiscal year, state leaders have reached a “nearly final” California state budget agreement, though some details still remain to be finalized and additional budget-related bills will be acted upon in August and beyond. According to legislative summaries, the budget framework includes approximately $235 billion in General Fund spending for 2022-23, a significant increase over the 2021-22 General Fund budget of $196 billion. The agreement assumes a total reserve balance of more than $37 billion across the state’s four budget reserves: the Budget Stabilization Account, the Public School System Stabilization Account, the Special Fund for Economic Uncertainties, and the Safety Net Reserve. The framework contains actions to prevent the budget from exceeding the state’s constitutional spending cap (the “Gann Limit”) over the two-year period that ends June 30, 2022 and for the 2022-23 fiscal year.

This report highlights selected elements of the budget framework that represent significant advancements to improve the lives of Californians with low and middle incomes — including women, immigrants, and American Indian, Asian, Black, Latinx, and Pacific Islander Californians and other Californians of color. We also highlight areas where the budget framework misses opportunities and there is work still to be done by policymakers to ensure that all Californians are able to not only survive but thrive in their communities.

Rebates

What’s included in the 2022-23 California state budget: The budget agreement provides one-time payments, tiered by income level, for Californians who filed a tax return for 2020. Filers will receive the following rebate amounts for themselves, their spouse if filing jointly, and up to one dependent.

• $350 for filers with incomes below $75,000 ($150,000 for joint filers); 
• $250 for filers with incomes between $75,000 and $125,000 ($150,000 – $250,000 for joint filers);
• $200 for filers with incomes between $125,000 and $250,000 ($250,000 – $500,000 for joint filers).

Relative to earlier rebate proposals from the governor and legislators, the agreement would provide more support to small families with low incomes, but less support to larger families with low incomes.

State leaders can further support Californians by: expanding ongoing supports — such as the CalEITC, Young Child Tax Credit, and CalWORKs — for households with low incomes who have long struggled to afford their basic needs to help them achieve lasting economic security.

Tax Credits

What’s included in the 2022-23 California state budget: California families without work earnings who have children under age 6 will now qualify for the $1,000 Young Child Tax Credit (YCTC), and the YCTC will be adjusted annually for inflation so it keeps up with rising prices. In addition, former foster youth ages 18 to 25 who qualify for the CalEITC will be eligible for a new $1,000 Foster Youth Tax Credit modeled after the YCTC. Also, beginning on or after tax year 2024, the controller will no longer be permitted to intercept tax refunds for debt payments of Californians who receive the CalEITC or YCTC, with the exception of debt related to child or family support. This will ensure that more Californians receive the full tax refunds they are counting on. Finally, the state will provide $20 million for two years, and $10 million annually thereafter, to support community-based efforts to raise tax credit awareness and connect Californians with free tax preparation services. 

State leaders can better support Californians by: establishing a larger, more meaningful minimum CalEITC, increasing the YCTC and extending it to families with older children, and continuing to expand investments in free tax prep services.

Safety Net 

What’s included in the 2022-23 California state budget: Monthly CalWORKs grants are based on the number of eligible people in the household. Reasons for ineligibility include exceeding the time limit for assistance, not meeting work requirements, or immigration status. The budget agreement includes a two-year 21% grant increase effective October 1, 2022, raising grants above the deep poverty threshold (50% of the federal poverty line) for all cases with at least four eligible people, even where there is also an excluded member. The budget agreement also passes-through to former CalWORKs families outstanding child support debt that currently is claimed as “reimbursement” for programmatic costs. Funding is appropriated for a 100% pass-through for current CalWORKs families, subject to future legislative action for the 2024-25 fiscal year.

State leaders can further support Californians with low incomes by: ensuring that grants are above the deep poverty threshold for all CalWORKs families. Additionally, state leaders should commit to ending the work participation rate penalty for counties, an outdated racist and sexist policy that hinders helping parents address barriers.

Paid Time Off

What was not included in the 2022-23 California state budget: The final budget agreement fails to strengthen key programs that are critically necessary for workers in balancing work, their own health, and family obligations. Specifically, the final budget agreement does not update payment rates for the state’s paid family leave and disability insurance programs, leaving in place a barrier to utilizing these programs for workers paid low wages. And, despite providing tax credits for businesses to cover the expense of COVID-19 supplemental paid sick days, the budget agreement fails to extend this pandemic safeguard beyond the current sunset date of September 30, 2022. This will leave many workers with just three paid sick days per year.

State leaders can better support California workers by: ensuring all workers in California are able to take paid time off, particularly workers paid low wages who are disproportionately women, Black, and Latinx Californians. Policymakers can do this by boosting payment rates for the state’s paid family leave and disability insurance programs to ensure that workers do not face difficult choices about paying the bills or caring for themselves or family. Policymakers should also extend COVID-19 supplemental paid sick leave, and, after the pandemic, require employers to provide additional paid sick days for all to maintain the health of workers and communities.

Child Care

What was included in the 2022-23 California state budget: Policymakers extended certain pandemic protections for families and subsidized child care and state preschool program providers, including the waiver of family fees and provider payments based on student enrollment, not attendance. The final budget agreement also invests $100 million in one-time federal funds for child care facilities. Finally, the 2022-23 budget provides $100 million for health care benefits for certain subsidized child care providers, but it does not update provider payment rates, leaving many struggling to keep pace with the rising statewide minimum wage and increasing price of food and supplies.

State leaders can better support California working parents, families, and communities by: providing reimbursement rates for subsidized child care providers that allow for fair and just wages that reflect the critical value of early educators’ profession. Providers, children, and working parents suffer when child care is limited in their communities because of policymakers’ lack of investment.

Medi-Cal

What’s included in the 2022-23 California state budget: Comprehensive Medi-Cal coverage is expanded to low-income undocumented Californians ages 26 to 49, the last group explicitly excluded from eligibility due to their immigration status and age. By January 1, 2024, all qualifying Californians will have access to comprehensive Medi-Cal coverage. This move effectively builds on previous coverage steps the state has already taken and ends the racist and exclusionary policy that blocks Californians from accessing vital health services. To provide Medi-Cal for adults age 26 and over, the state is estimated to allocate:

• $67 million total funds ($53 million General Fund) in 2021-22 and $745 million total funds ($628 General Fund) in 2022-23 for older adults.
• $834 million total funds ($625 million General Fund) in 2023-24 for adults age 26-49.
• $2.6 billion total funds ($2.1 billion General Fund) in on-going out-year costs, including In-Home Supportive Services.

State leaders can further support Californians by: moving up the comprehensive Medi-Cal coverage start date. Californians who have been barred from consistent health care coverage need timely access to critical services and care to have the ability to live a healthy life.

Public Health

What’s included in the 2022-23 California state budget: $300 million ongoing General Fund to improve public health infrastructure, with about $200 million earmarked for local health jurisdictions and about $100 million for state-level operations. Under this proposal, local health jurisdictions would receive a minimum base allocation to support workforce expansion, data collection and integration, and partnerships with health care delivery systems and community-based organizations. At the state level, this funding would establish a new Office of Policy and Planning to assess current and emerging public health threats as well as support other core functions, including emergency preparedness and public health communications. This much-needed investment will strengthen public health departments’ ability to protect and promote the health and well-being of communities across the state.

State leaders can further support Californians by: establishing dedicated funding to support community-based organizations, clinics, and tribal organizations in their efforts to address health disparities and advance racial justice, given that structural racism continues to have a profound impact on communities across the state.

Health Workforce

What’s included in the 2022-23 California state budget: significant investment in the health workforce in order to increase access to timely and culturally competent care for Californians. Specifically, the budget includes $532.5 million one-time over four years to bolster the behavioral health workforce, the public health workforce, and the primary care and reproductive health workforce. The also budget includes $296.5 million in 2022-23, $370.5 million in 2023-24 and in 2024-25 for the Workforce for a Healthy California for All Program, which aims to expand the following professions:

• Community health workers, who are trained health educators and are trusted members of the community they serve;
• Nurses, including registered nurses and certified nurse midwives;
• Social workers;
• Behavioral health providers, such as psychiatrists and psychologists; and
• Multilingual health care professionals.

State leaders can further support Californians by: promoting LGBTQ+-affirming training for health providers to better serve their communities. Policymakers can also invest in efforts to make sure that the health workforce better reflects the diversity of all Californians, including their gender identities and sexual orientations.

Reproductive Health

What’s included in the 2022-23 California state budget: over $200 million to protect and increase access to reproductive health care services, particularly in response to the Supreme Court’s recent decision to end a constitutional right to an abortion as well as states’ actions to ban or restrict access to abortion care — both of which severely undermine the health and economic security of pregnant people. Funding in the budget agreement includes:

• $40 million to establish an uncompensated care fund for Californians with low incomes; 
• $20 million to support abortion training for clinicians and health care professionals;
• $20 million to establish the Los Angeles County Abortion Access Safe Haven Pilot Program; and 
• $20 million to assist patients in overcoming barriers to abortion care.

State leaders can further support Californians by: ensuring that all Californians have access to reproductive health care, especially Californians in rural areas and those with low incomes, given the possible influx in out-of-state patients seeking health care.

Homelessness

What’s included in the 2022-23 California state budget: New funds in the budget agreement focus on encampments, with $300 million in 2022-23 (and $400 million in 2023-24) for local governments for encampment “resolution.” Equitable and effective use of these funds should prioritize the housing and service needs of Californians living in encampments, not just clearing streets. The budget agreement also boosts current-year investment in Homekey by $150 million, and includes intent to continue the annual $1 billion investment in flexible local funding to address homelessness for another year in 2023-24. Also included are $1 billion in 2022-23 — and $500 million in 2023-24 — for bridge housing for people  experiencing homelessness with serious mental illness, as proposed by the governor in January. Policy negotiations continue for the CARE Court proposal.

State leaders can better support Californians experiencing homelessness by: increasing flexible local funds to address local service gaps and opportunities, and providing these funds on an ongoing basis to enable long-term planning. Also boosting investment in affordable permanent housing, which is necessary to end homelessness.

Affordable Housing

What’s included in the 2022-23 California state budget: There are increased funds to expand California’s supply of affordable housing, including for multi-family housing ($100 million in 2022-23 and $225 million in 2023-24), shovel-ready projects through the Housing Accelerator Program ($250 million), adaptive reuse of underutilized commercial space ($410 million over two years), and infrastructure for infill housing ($200 million in 2022-23 and $225 million in 2023-24). Significant new funds are also allocated to assist first-time homebuyers and homeowners with moderate and low incomes, through existing ($350 million over two years) and new ($500 million) programs. These programs could help address the racial wealth gap — but they are unlikely to benefit renters with the lowest incomes, who face the greatest housing affordability challenges and risk of homelessness.

State leaders can better support Californians’ housing needs by: increasing investment in affordable housing production and preservation to a scale that matches the need. A stable, affordable home is the most basic foundation for health and well-being, and addressing the severe affordable housing shortfall is vital for California’s long-term prosperity.

K-12 Education

What’s included in the 2022-23 California state budget: K-12 schools will receive significant funding increases including:

• $7.9 billion for a one-time discretionary block grant allocated based on the percentage of enrolled students in K-12 districts who are English learners, students from low-income families, or foster youth — a more equitable method than proposed in the May Revision.
• $7.9 billion for the Local Control Funding Formula (LCFF), which includes $2.8 billion for LCFF grant costs using a three-year average of average daily attendance.
• $4 billion in ongoing funding for the Expanded Learning Opportunities Program, which provides additional learning time for students before or after school, and outside of the traditional school year. 
• $3.6 billion for a one-time per-pupil block grant that can be used for many purposes such as arts and music.

State leaders can better support Californians by: providing additional resources to leverage the language assets of more than 40% of the state’s K-12 students who live in a home where a language other than English is spoken.

Higher Education

What’s included in the 2022-23 California state budget: The 2022-23 budget makes progress in making higher education more affordable by: 

• Increasing total ongoing funding for the Student Success Completion Grant (SSCG) to nearly $413 million. The SSCG supports community college students by encouraging full-time enrollment. 
• Providing an additional $227 million one time in 2023-24 for the Middle Class Scholarship, which supports students at the UCs and CSUs. 
• Initiating reforms to the Cal Grant program to expand access to more students, but major changes to the program would not be implemented until 2024-25 if there are dollars available.

The budget agreement also includes ongoing base increases for all higher education segments to support operational costs and provides $1.4 billion in grants for the construction of affordable student housing.

State leaders can further support Californians by: providing additional emergency financial assistance to students from low-income households that recently abandoned their educational plans. Education expenses are a major reason why students, especially those from low-income households, canceled their higher education plans in the most recent academic year.

Gann Limit

What’s included in the 2022-23 California state budget: The budget package keeps state spending under the disco-era Gann Limit during both the 2022-23 fiscal year, which began on July 1, and the two-year period that ended June 30, 2022. To achieve this outcome, state leaders used the limited flexibility provided by the Gann Limit to allocate a large share of state dollars toward purposes that are excluded from the limit. For example, policymakers substantially increased spending on infrastructure, tax refunds, and emergency response — none of which counts toward the Gann Limit. The budget package also changed state law so that significantly more state funding for local governments (“subventions”) will count against local governments’ own spending limits rather than against the state’s limit, creating Gann Limit “room” at the state level.

State leaders can further address the Gann Limit’s impact by: laying the groundwork for meaningful Gann Limit reform. The Gann Limit is a roadblock to creating a more equitable California. Failure to repeal or revise the spending cap could soon jeopardize California’s ability to adequately fund public services.

Introduction

Governor Gavin Newsom released the May Revision to his proposed 2022-23 state budget on May 13, projecting $49 billion in discretionary revenues, a $227 billion General Fund spending plan, and total reserves of $37 billion. 

The state’s fiscal health presents state leaders with an opportunity to provide targeted relief to the Californians most harmed by rising costs of living and an ongoing pandemic. While the governor’s proposal makes some strides, it fails to adequately provide direct, meaningful assistance to individuals and families struggling the most to pay for basic needs. Specifically, the administration proposes to move forward with a proposal to provide rebates to households based on vehicle registration — knowing it will exclude many Californians who need help and include wealthy Californians who do not need the aid — that only reinforces California’s widening income and wealth gap.

Progress in the May Revision

The governor’s budget proposal would make progress by investing in:

• Public health infrastructure at the local and state levels.
• Comprehensive Medi-Cal for Californians with low incomes who are undocumented and ages 26-49.
• Health premium subsidies for Californians with low and middle incomes.
• Emergency rental assistance that state leaders agreed to earlier this year.
• Homekey to support housing to help people exit homelessness.
• Children’s behavioral health.
• Pandemic protections for subsidized child care providers and families to boost economic security.
• K-12 and higher education systems.

Missed Opportunities in the May Revision

In addition to the ill-advised vehicle-based rebates plan, the governor’s proposals fail to:

• Expand or strengthen the California Earned Income Tax Credit (CalEITC) that provides direct cash assistance to Californians earning low wages.
• Increase payment rates for California workers who need paid time off.
• Adequately invest in long-term housing and supportive services to address homelessness.
• Provide new investments in the development, acquisition, or preservation of affordable housing.
• Provide more public health support to address health equity.
• Increase payment rates for subsidized child care providers.
• Increase CalWORKs grants at a level that keeps all families out of deep poverty.
• Significantly invest in addressing the needs of older adults and people with disabilities.
• Expand food assistance to all Californians who are undocumented.
• Allocate large one-time discretionary grants in the K-12 and California Community College systems using equity-based formulas. 
• Streamline and eliminate barriers that prevent students from low- and middle-income households and students of color from accessing state financial aid.

Tax Breaks for Wealthy Californians & Corporations

Too many of the governor’s proposals also potentially waste vital resources by providing  aid and tax breaks to wealthy Californians and corporations. Most notably, the administration proposes to spend $3 billion over the next two years to unnecessarily pay down a federal unemployment insurance loan, which amounts to a tax break that primarily benefits larger businesses and corporations. 

On the Gann Limit

The May Revision also outlines how the governor proposes to manage the state’s constitutional spending limit — or Gann Limit. The administration projects that the state will be under the limit for the two-year period ending on June 30, 2022 and will exceed the limit, pending other budget choices, in 2022-23. However, if state revenues continue to grow, state leaders may be confronted with making cuts to current services to meet the state’s rising constitutional spending obligations. As a result, the Gann Limit threatens to hold the state back from building a better and more equitable future for Californians and will need to be repealed or significantly reformed in future years.

Looking Ahead

This First Look report by the Budget Center team outlines key pieces of the May Revision to the governor’s 2022-23 budget proposal and examines how state leaders can expand upon the governor’s proposals to invest in the people who are most struggling to meet basic needs. Californians across the state have put their own health and well-being at risk to keep our communities running amid the ongoing pandemic, and the 2022-23 state budget agreed upon by the Legislature and governor should ensure kids, families, and individuals can be healthy and thrive.

Contents

Budget Overview

• Economic Outlook: Revised Budget Projects Slightly Slower Economic Growth, Increase in Minimum Wage
• Revenue: Revised Budget Reflects Even Stronger Revenues than Anticipated in January
• Rebate Proposal: Governor’s Car Rebate Proposal Steers Support in the Wrong Direction
• Reserves: Unanticipated Growth in Revenues Allows State to Build Reserves to $37 Billion
• Gann Limit: State Is Under the Gann Limit Through 2021-22, but Exceeds the Cap in 2022-23

Health

• COVID-19 Response: May Revision Bolsters COVID-19 Response Efforts
• Public Health: Public Health Support Maintained, More Needed to Promote Health Equity
• Coverage, Affordability & Access: Revised Budget Maintains Expansion of Medi-Cal to All Undocumented Immigrants
• Behavioral Health: Revised Budget Increases Funding to Support Children’s Mental Health

Homelessness & Housing

• Homelessness: Governor’s New Homelessness Proposals Prioritize Interim Housing and Homekey
• Housing: Governor Meets Emergency Rental Assistance Commitment, but Fails to Boost Investment in Affordable Housing
• CARE Court: Proposed CARE Court Framework Lacks Housing First Practices 

Economic Security

• CalEITC & Tax Credits: May Revision Maintains Refundable Tax Credit Proposals
• Immigration: May Revision Maintains Medi-Cal Expansion, but Fails to Expand Food Assistance to All Undocumented Immigrants
• CalWORKs: Revised Proposal Yields Mixed Progress for CalWORKs Families
• Child Savings Account: May Revision Maintains Governor’s CalKIDS Proposal
• Child Care: Governor Fails to Increase Payment Rates for Subsidized Child Care Providers
• Paid Family Leave & State Disability Insurance: May Revision Fails to Increase Payment Rates for California Workers Who Need Paid Time Off
• SSI/SSP: May Revision Does Not Accelerate a Pending Increase to State SSP Grants

Education

• Early Learning & Pre-K: Administration Continues Push for Pre-Kindergarten Programs
• Proposition 98: Increased Revenues Significantly Boost the Minimum Funding Level for K-14 Education
• K-12 Education: May Revision Dramatically Increases Funding for Several K-12 Education Programs 
• Community Colleges: The Revised Budget Includes Base Augmentations for the California Community Colleges
• CSU/UC: Proposed Budget Provides Multi-Year Investments in the CSU and the UC
• Student Financial Aid: May Revision Misses Opportunity to Provide Additional Financial Support for Students Pursuing Higher Education

Justice Systems

• State Corrections: Governor Does Not Propose to Close More State Prisons
• Public Safety: Proposal Maintains Inequitable Crime Reduction Plan, Modestly Invests in Additional Public Safety-Related Programs

Workforce & Other Proposals

• Workforce Development: The Revised Budget Makes Additional Climate-Related Workforce Investments
• Broadband & Digital Divide: The Revised Spending Plan Proposes $1.1 Billion to Bridge the Digital Divide
• Small Business: Governor Proposes Additional Relief for Small Businesses
• UI Debt Repayment: Governor Maintains Unnecessary Unemployment Insurance Loan Payment
• Climate Change: Administration Increases Spending to Respond to Climate Change

---

Budget Overview

Revised Budget Projects Slightly Slower Economic Growth, Increase in Minimum Wage

The governor’s revised economic outlook expects US and California economic growth to continue in the coming years, but at a slower rate than projected in January. This reflects several factors including global supply chain bottlenecks, recent interest rate hikes by the Federal Reserve, and persistently high inflation. The administration also expects steady job growth to continue, helping to draw more people back to the labor force and reducing the state’s unemployment rate to around 4% by the end of the year. In addition, the revised budget projects inflation to fall to around pre-pandemic rates by the end of 2023, which should contribute to real average wage gains in the coming years. The administration also projects that inflation will exceed 7% in 2021-22, which will trigger an automatic increase in the state’s minimum wage, bringing it up to $15.50 for all employers beginning January 1, 2023.

Revised Budget Reflects Even Stronger Revenues than Anticipated in January

The governor’s January budget projected state revenues to come in significantly higher than assumed in the 2021 enacted budget. Despite a less positive economic outlook than expected in January, the revenue outlook for the three-year budget window spanning 2020-21 through 2022-23 has continued to improve. The governor now estimates that General Fund revenues across the budget window will be $55 billion higher than estimated in the January proposal, before accounting for transfers such as to the state’s rainy day fund. 

The administration projects that total General Fund revenues before transfers will be $223 billion in the upcoming budget year — an increase of $25 billion over the January estimate. For the state’s three largest revenue sources, the revised budget projects 2022-23 General Fund revenues of:

• $137 billion in personal income taxes,
• $39 billion in corporation taxes, and
• $34 billion in sales and use taxes.

Additionally, the administration now estimates that General Fund revenues for the current 2021-22 fiscal year will also total $223 billion — $29 billion higher than projected in the governor’s January proposal.

The estimated revenue growth over the three-year period reflects:

• Increased personal income tax revenues due to strong wage growth and a booming stock market in 2021, prior to the 2022 market decline.
• Increased corporation taxes due to higher corporate profits and more “pass-through” businesses choosing to participate in an elective tax payment program. The revenue from these elective payments will be largely offset through personal income tax credits for the owners and shareholders of these businesses.
• Increased sales tax revenues due to inflation and some continuation of the trend of consumers spending more on taxable goods than on untaxed services during the pandemic.

The governor’s revised plan proposes several tax changes, including:

• Modest improvements to the Young Child Tax Credit and a new tax credit for former foster youth, as proposed in January and covered in the CalEITC and Tax Credits section, at an estimated cost of $89 million in 2022-23.
• A tax payment flexibility program proposed in January for low- and middle-income households, estimated to cost $100 million in the current year (2021-22) and $60 million in 2022-23.
• A one-year suspension of the General Fund portion of the diesel sales tax (approximately 3.9%), estimated to cost $327 million in 2022-23 and $112 million in 2023-24. The governor proposes to use other General Fund revenues to backfill the lost revenues for transportation funding.
• An extension of the California Competes tax credit program through 2027-28 at an annual cap of $180 million. This program awards tax credits to businesses that pledge to create jobs or make investments in the state and is currently set to expire after 2022-23. The governor also proposes $120 million to extend the California Competes grant program for one additional year. The grant program was created last year to provide awards to businesses that owe no taxes and do not benefit from tax credits. While California Competes is better structured than many other business tax incentives, the majority of these dollars go to large, profitable corporations.
• An expansion of an existing sales tax exemption for business equipment purchases, focused on businesses that extract, process, or manufacture with lithium, at a cost of $15 million annually from 2022-23 through 2024-25. The governor also proposes an unspecified tax on lithium extraction.
• A set of reforms to the state’s cannabis taxes, including the elimination of the tax on cannabis cultivation and mechanisms to ensure that cannabis tax-funded programs for youth, environmental restoration, and public safety continue to be funded at a baseline level of $670 million in each fiscal year through 2025-26. These mechanisms include providing up to $150 million one-time General Fund to backfill lost revenues as needed through 2025-26, and the option to increase the cannabis excise tax to make up the difference.

The revised budget also reflects tax changes proposed in January that have already been enacted through early action, including an early reversal of the temporary limitation on business tax credits and net operating losses as well as the exclusion of federal COVID-relief grants to restaurants and venue operators for state tax purposes. Finally, the revised budget now assumes that the two new business incentive programs the governor proposed in January to encourage climate change mitigation research and technologies will be administered as a grant program instead of tax credits.

Governor’s Car Rebate Proposal Steers Support in the Wrong Direction

The governor’s revised budget includes a proposal announced by the governor in March to provide rebates to car-owning Californians to address high gas prices. Under the proposal, Californians would be able to receive $400 each for up to two registered vehicles, at an estimated cost of $11.5 billion. This proposal appears to be one of the major ways the proposed budget would stay under the State Appropriations Limit (see the Gann Limit section). The governor indicated that the rebate would not be available for vehicles above a certain value, but did not specify what this value would be. Previous information released by the administration suggested that the rebates would be provided to eligible individuals by a third-party vendor based on information provided by the Department of Motor Vehicles (DMV). 

This proposal falls short in several ways. Financial relief for Californians should be:

• Targeted to Californians having the most difficulty making ends meet. Californians with low incomes and Black, Latinx, and other Californians of color are the most likely to be struggling to afford basic expenses. This reflects more than just gas prices. Low-income households have been hit hard by the rising costs of housing, food, and other necessities. And Californians in households without cars are more than twice as likely to be living in poverty. Additionally, some people with cars may not have valid registrations because they cannot afford to pay renewal fees or parking fines. Although the governor’s plan would provide needed assistance to non-vehicle owners by including $750 million for public transit agencies to provide free rides and by providing assistance with rent, utilities, health insurance, and child care costs, the scale of resources proposed for these purposes pales in comparison to the proposed payments for car owners. Policymakers should ensure that state resources are directed toward people that are in most need of help without providing windfalls to high-income and wealthy Californians who are not struggling to get by. 
• Meaningful to those who receive it. Better targeting would also allow for the state to provide more meaningful relief that would go further in meeting the needs of the most financially strapped families and individuals.
• Delivered through efficient and proven pathways. Last year, state leaders were able to provide direct assistance to Californians with low and middle incomes through two Golden State Stimulus packages for people who file taxes and Golden State Grants for people receiving CalWORKs and Supplemental Security Income. Instead of creating a new and untested system to deliver relief specifically for vehicle owners based on DMV records — which could take additional time and resources to ramp up — policymakers should build on proven mechanisms and identify options to provide aid to those left out of previous rounds of payments.

Unanticipated Growth in Revenues Allows State to Build Reserves to $37 Billion

California has a number of state reserve accounts, some of which are established in the state’s Constitution to require deposits and restrict withdrawals, and some of which are at the discretion of state policymakers.  

California voters approved Proposition 2 in November 2014, amending the California Constitution to revise the rules for the state’s Budget Stabilization Account (BSA), commonly referred to as the rainy day fund. Prop. 2 requires an annual set-aside equal to 1.5% of estimated General Fund revenues. An additional set-aside is required when capital gains revenues in a given year exceed 8% of General Fund tax revenues. For 15 years — from 2015-16 to 2029-30 — half of these funds must be deposited into the rainy day fund and the other half is to be used to reduce certain state liabilities (also known as “budgetary debt”).

Prop. 2 sets the maximum size of the BSA at 10% of General Fund Revenues and, if the limit is reached, any dollars that otherwise would have gone into the BSA would have to be spent on infrastructure, including spending related to deferred maintenance. 

Prop. 2 also established a new state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA). The PSSSA requires that when certain conditions are met, the state must deposit a portion of General Fund revenues into this reserve as part of California’s Prop. 98 funding guarantee (see Prop 98. section). 

The BSA is not California’s only reserve fund. Each year, the state deposits additional funds into a “Special Fund for Economic Uncertainties” (SFEU). Additionally, the 2018-19 budget agreement created the Safety Net Reserve Fund, which holds funds that can be used to maintain benefits and services for CalWORKs and Medi-Cal participants in the event of an economic downturn. 

Stronger-than-expected revenue collections result in changes to the BSA, PSSSA, and SFEU projections for 2022-23. The administration projects 2022-23 balances of:

• $23.3 billion in the BSA;
• $9.5 billion in the PSSSA; and
• $3.4 billion in the SFEU.

The administration’s proposal for 2022-23 leaves the Safety Net Reserve at its 2021-22 level of $900 million.

The governor’s proposal estimates that the BSA is now at its constitutional maximum (10% of General Fund revenue), resulting in a required $476 million in infrastructure investments in 2022-23.

Taking into account the BSA, PSSSA, Safety Net Reserve, and SFEU, the governor’s proposal would build state reserves to a total of $37.1 billion in 2022-23.

State Is Under the Gann Limit Through 2021-22, but Exceeds the Cap in 2022-23

In 1979, California voters approved Proposition 4, a constitutional amendment to limit state and local spending that became known as the “Gann Limit” after its primary sponsor, Paul Gann. The Gann Limit restricts policymakers’ ability to use revenues that exceed the spending cap. At the state level, this cap is tied to California’s 1978-79 spending level and is adjusted each year for changes in population and per capita personal income, as explained in the Budget Center’s Gann Limit Q&A. The Gann Limit was not a factor in state budgeting for several decades but recently has emerged as a constraint because state revenues are “growing faster than the limit,” according to the Legislative Analyst’s Office (LAO).

If the state exceeds the Gann Limit over a two-year period, the Legislature must spend the revenue over the limit in specific ways — providing half to taxpayers and the other half to K-12 schools and community colleges. State policymakers have limited options to structure budgets to avoid exceeding the spending cap. For example, they can spend more on things that are excluded from the limit, such as tax refunds, emergency response, and infrastructure projects, which can include housing. Reducing tax revenues, such as by expanding tax credits like the CalEITC, also helps the state to avoid exceeding the Gann Limit.

The budget and policy choices reflected in the May Revision keep the state under the Gann Limit by $2.6 billion (on net) across 2020-21 and 2021-22, the current fiscal year. These choices include massive outlays in 2021-22 for infrastructure, emergency response, and the governor’s ill-advised cash rebates for vehicle owners — all of which are excluded from the Gann Limit. (See the “Rebates” section for more on the governor’s vehicle-based rebate proposal.) Specifically, the revised budget excludes:

• $36.7 billion for infrastructure projects in 2021-22, up from $3.5 billion in 2020-21;
• $13.4 billion to address the COVID-19 and drought emergencies in 2021-22, up from $2.1 billion in 2020-21; and
• $11.5 billion in tax refunds for vehicle owners in 2021-22, up from $0 in 2020-21.

In contrast, the administration projects the state will exceed the Gann Limit by $3.4 billion in 2022-23, the fiscal year that begins on July 1. This occurs largely because the May Revision excludes much less spending from the Gann Limit in 2022-23 compared to 2021-22. For example, the revised budget excludes:

• $15.7 billion for infrastructure projects in 2022-23, down from $36.7 billion in 2021-22;
• $4.3 billion to address the COVID-19 and drought emergencies in 2022-23, down from $13.4 billion in 2021-22; and
• $0 in tax refunds for vehicle owners in 2022-23, down from $11.5 billion in 2021-22.

Notably, only a small share of Gann-exempt infrastructure spending that the May Revision budgets for 2022-23 would go toward housing — a clear missed opportunity in light of the state’s housing affordability crisis. (See the Housing & Homelessness section.)

As the governor and legislative leaders work toward finalizing the 2022-23 budget package, they will be able to craft a spending plan that satisfies Gann Limit requirements while also continuing to support baseline public services and systems. This is because the state’s large budget “surplus” provides policymakers with room to maneuver this year. Policymakers can meet the state’s constitutional obligations — including the Gann Limit and the Proposition 98 school funding guarantee — while also maintaining and in some cases expanding state services overall.

However, the state is likely to face large and growing Gann Limit requirements in the next few years if revenues keep growing substantially. For example, the LAO estimates that under the governor’s revenue assumptions and spending proposals, the state would face Gann Limit obligations exceeding $20 billion in 2023-24. In addition, the state will continue to be required to spend part of each General Fund dollar to satisfy its other constitutional obligations, including Prop. 98 (funding for K-14 education) and Prop. 2 (reserve deposits and debt payments). Under this scenario, for every dollar in revenue that is subject to Gann Limit requirements, the state would have to spend more than a dollar to meet its constitutionally required obligations. To keep the budget in balance while also satisfying all of these obligations, state leaders would have to cut spending on services and systems that lack constitutional protections, including child care, health care, the CSU and UC, college financial aid, and much more.

In short, while state leaders will be able to manage within the Gann Limit’s constraints this year, over the longer term the spending cap is a roadblock to creating a more equitable California. Since the Gann Limit is in the state Constitution, state leaders would need to ask voters to approve any changes to it. Repealing or meaningfully reforming the Gann Limit would allow the state to make the investments needed for all Californians to be healthy and thrive.

Health

May Revision Bolsters COVID-19 Response Efforts

COVID-19 continues to be an ongoing health threat for communities across the state. Recognizing the possibility of new variants of the virus as well as future surges in cases, the May Revision reflects an increase of $1.2 billion General Fund in 2021-22 and $760.8 million General Fund in 2022-23 to bolster COVID-19 response. Of this amount, $1.1 billion would fund the SMARTER Plan for the next phase of California’s pandemic response. 

In order to implement the SMARTER Plan, the May Revision includes: 

• $530 million to increase COVID-19 testing, specifically to purchase additional antigen tests, support testing at schools, and continue rapid testing and treatment sites. 
• $468 million to support services for newly arrived migrants and border communities, such as temporary shelter, vaccinations, testing, and quarantine services.
• $250 million for unanticipated COVID-19 emergency response needs.
• $230 million for the Office of Community Partnerships and Strategic Communications to continue COVID-19 vaccine-related public education and outreach campaigns.
• $183 million for COVID-19 operations support, including the COVID-19 call center, contractor support, and the Public Health Reserve Corps. 
• $158 million to implement a program for therapeutic treatment, which would specifically target uninsured and underinsured Californians. 
• $100 million for medical surge staffing to support health care facilities during COVID-19 surges.
• $93 million for vaccination efforts. This funding would sustain mobile vaccination sites and support uptake of boosters for eligible Californians.
• $40 million to support staffing for vaccinations. This funding would help the state prepare for the release of vaccines for children under five.
• $16 million to continue tracking and monitoring of COVID-19 transmission, such as through wastewater surveillance, epidemiologic data analysis, modeling of future data trends, and research on the long-term impacts of COVID-19.

Public Health Support Maintained, More Needed to Promote Health Equity

The California Department of Public Health as well as local public health departments play a critical role in protecting and promoting Californians’ health and well-being. Yet despite this important responsibility, funding has not kept pace with the cost of responding to ongoing and emerging health threats. Many Californians suffered as a result of the COVID-19 pandemic due to the state’s lack of preparedness. Most notably, communities of color experienced higher rates of illness and death due to historic and ongoing structural racism that deny many communities the opportunity to be healthy and thrive. The intersection of the pandemic and structural racism continues to highlight the need to address the root cause of health disparities. 

The governor’s revised budget maintains many public health investments that were proposed in January, including $300 million ongoing General Fund to improve public health infrastructure at the state and local level. Under this proposal, local health jurisdictions would receive a minimum base allocation to support workforce expansion, data collection and integration, and partnerships with health care delivery systems and community-based organizations. At the state level, this funding would establish a new Office of Policy and Planning to assess current and emerging public health threats as well as support other core functions, including emergency preparedness and public health communications. 

This funding provides much-needed support for public health infrastructure, but state leaders can make additional investments to bolster the public health workforce at the local level. Doing so can help to ensure that counties and cities have the capacity to address ongoing and future public health threats. State leaders can also do more to advance health equity. Given that structural racism continues to have a profound impact on the health and well-being of many communities across the state, the governor’s administration and other state leaders can employ a variety of strategies to combat the effects of historical and ongoing racist policies and practices. Such strategies include declaring racism a public health crisis at the state level and establishing dedicated funding to support community-based organizations, clinics, and tribal organizations in their efforts to advance health equity.

Revised Budget Maintains Expansion of Medi-Cal to All Undocumented Immigrants

Building on the federal Affordable Care Act (ACA), California has substantially expanded access to health coverage in recent years. For example, more than 14 million Californians with modest incomes — nearly half of whom are Latinx — receive free or low-cost health care through Medi-Cal (California’s Medicaid program), several million more than before the ACA took effect. Another 1.5 million Californians receive subsidies to reduce the cost of coverage purchased through Covered California, our state’s health insurance marketplace. Nonetheless, many Californians — including many immigrants who are undocumented — remain uninsured while those with health coverage often face high monthly premiums and excessive out-of-pocket costs, such as copays and deductibles, when they seek health care services.

The May Revision:

• Maintains the governor’s January proposal to expand Medi-Cal eligibility to undocumented immigrants ages 26 to 49, the last group of income-eligible undocumented immigrants in California who are excluded from comprehensive Medi-Cal coverage. The governor assumes that implementation would occur no sooner than January 2024. Health care and immigrant advocates have called for this expansion to take effect earlier.

• Proposes $933 million in one-time payments to around 600,000 hospital and nursing facility workers. These payments are intended “to help retain this critical workforce,” according to the administration. The state would provide a baseline payment and would increase the payment “up to $1,500 if employers commit to fully matching the additional amount.” 

• Includes $304 million to reboot state premium subsidies for Californians with low- and middle-incomes who buy health coverage through Covered California, our state’s online health insurance marketplace. State premium subsidies were in effect in 2020 and 2021 but were suspended when the federal government began providing enhanced federal premium subsidies through the American Rescue Plan Act. With these enhanced federal subsidies expected to expire at the end of 2022, the governor proposes to restart the state’s own subsidy program, which reduces the cost of health insurance premiums for Californians with incomes up to 600% of the federal poverty line. However, these state subsidies would provide much less assistance than is currently available through the soon-to-expire enhanced federal subsidies ($1.7 billion per year).

• Provides $100 million to help increase generic manufacturing of insulin and ultimately reduce the cost of this vital medication. The administration suggests that “CalRx biosimilar insulin products” would cost less than the current market price ($300 per vial) and would “disrupt market forces” that drive up the cost of insulin. The administration also notes that affordable insulin is an equity issue for people of color and Californians with low incomes, who are “much more likely to have diabetes-related complications, such as renal disease and amputations.”

• Includes $57 million — on top of the $68 million proposed in January — to improve the availability and affordability of reproductive health care services. In response to the US Supreme Court’s likely decision to overturn Roe v. Wade as well as to growing restrictions on abortion access across the country, the May Revision includes proposals to bolster access to reproductive health care services and “prepare for the influx” of people from other states seeking reproductive health care services. This new package would provide $40 million to help reproductive health care providers offset the cost of providing abortion care services to people with low and moderate incomes who lack health coverage. Another $15 million would go to community-based organizations to provide medically and culturally competent outreach and education on sexual and reproductive health issues. The remaining $2 million would be used to develop and maintain a website focusing on reproductive rights as well as to conduct research on unmet needs for reproductive health care. These investments would come on top of the $68 million that the governor proposed in January to bolster reproductive health care in California.

• Expands the governor’s January proposal to create Equity and Practice payments for Medi-Cal providers. The May Revision proposes $300 million ($150 million General Fund) for these payments, which would be on top of the $400 million ($200 million General Fund) the governor proposed in January. This funding would be available over five years, with the payments focused on “advancing equity, addressing COVID-19 driven health disparities, and improving quality measures in children’s preventive, maternity, and behavioral health care.” 

• Proposes to continue certain flexibilities in the Medi-Cal program that would otherwise expire when the federal COVID-19 public health emergency ends on July 15. The revised budget includes $176.5 million ($71.2 million General Fund) to extend several flexibilities, including separate payments to Federally Qualified Health Centers for COVID-19 vaccinations, “presumptive eligibility” for older adults and people with disabilities, and reimbursing at 100% of the federal Medicare rate for oxygen and respiratory durable medical equipment.
• Includes several proposals aimed at helping eligible Medi-Cal beneficiaries maintain coverage as the state prepares to resume annual eligibility renewals. With the end of the federal COVID-19 public health emergency on July 15 (unless extended), California will once again be required to annually verify Medi-Cal beneficiaries’ eligibility — a requirement that was temporarily suspended by the federal government at the outset of the pandemic. The state will have 14 months to complete annual eligibility renewals for almost all 14 million-plus Californians enrolled in Medi-Cal, a process that will involve a number of entities including counties, Medi-Cal managed care plans, and community-based organizations. The May Revision continues to include $146 million ($73 million General Fund) over two fiscal years to address counties’ workload costs due to annual eligibility renewals. The May Revision also includes two new key proposals related to Medi-Cal eligibility. First, it proposes $60 million ($30 million General Fund), available over four years, to continue funding Health Enrollment Navigators, who help Californians connect with and maintain Medi-Cal coverage. Second, the May Revision includes $25 million ($12.5 million General Fund) to support a media and outreach campaign to 1) educate Medi-Cal enrollees about the soon-to-be-reinstated annual eligibility renewal process and 2) encourage them to update their contact information with their counties.

Revised Budget Increases Funding to Support Children’s Mental Health

The May Revision builds on the significant investments that state leaders have made to support Californians’ behavioral health needs (mental health conditions and/or substance use disorders), which have increased as a result of the ongoing pandemic. The administration acknowledges the toll on children and youth in particular and proposes additional funding to urgently address their behavioral health needs. 

The revised budget includes the following changes for the Children and Youth Behavioral Health Initiative, which aims to transform California’s behavioral health system for all children and youth: 

• An additional $85 million General Fund to increase Children and Youth Behavioral Health Initiative grants to schools, cities, counties, tribes, and/or community-based organizations. These grants would support programs that teach wellness and mindfulness practices to teachers and students. Grants could also be used to expand parent support and training programs to help parents address their children’s behavioral health needs.
• An additional $65 million ($32 million General Fund) to increase access to behavioral health services for students, bringing the total to $194 million ($97 million General Fund) for the Student Behavioral Health Incentive Program. This increase in 2022-23 reflects a change to the timing of payments in the Children and Youth Behavioral Health Initiative. 
• $100 million General Fund in the 2021-22 Budget Act for school behavioral health partnerships and capacity would shift to 2023-24.  
• About $3 million General Fund for the CalHOPE Student Support that was previously included in 2021-22 would shift to 2022-23.

The May Revision also includes proposals for suicide prevention efforts, highlighting the need to address youth suicide rates, particularly among transgender youth and Black youth. Specifically, the May Revision includes:

• $40 million General Fund for the Youth Suicide Prevention Program. This funding would develop and implement a data-driven and community-based youth suicide prevention program for youth at an increased risk of suicide, including Black, Native American, Latnix, and foster youth.
• $50 million to support school and community-based crisis response. This funding would allow schools to pilot a new approach of designating youth suicide and youth suicide attempts as a reportable public health event, which would trigger screening and resource connections to support youth.

The revised budget also includes $64.7 million General Fund in 2022-23 to administer the governor’s proposed Community Assistance, Recovery and Empowerment (CARE) Court plan that was unveiled in early March. See the Homelessness and Housing section for more information. 

Building on the opioid response investments included in the governor’s January proposal, the May Revision includes an additional one-time $41.8 million Opioid Settlements Fund in 2022-23 and allocates the funding as follows:

• $29.1 million for substance use disorder provider workforce training, bringing the total to $51.1 million for this program.
• $10 million for the naloxone distribution project targeting unhoused populations, bringing the total to $15 million for this program.
• $2.7 million for a public awareness campaign targeted towards youth opioid education and awareness and fentanyl risk education at the California Department of Public Health, which brings the total to $40.8 million for this program.

Homelessness & Housing

Governor’s New Homelessness Proposals Prioritize Interim Housing and Homekey

Having a place to call home is the most basic foundation for health and well-being no matter one’s age, gender, race, or zip code. But more than 161,000 Californians were experiencing homelessness and its destructive effects in early 2020, with Black, American Indian or Alaska Native, Pacific Islander, and LGBTQ+ Californians particularly affected by inequitable burdens of homelessness, and many older adults experiencing homelessness.

The May Revision maintains the governor’s January homelessness proposals, which emphasize clearing encampments and funding interim housing and treatment services for unhoused individuals with serious behavioral health issues. New proposals to address homelessness in the May Revision include:

• An additional $150 million in the current year for the Homekey program, administered through the Department of Housing and Community Development, which provides funds for local entities to acquire, rehabilitate, convert, or build permanent or interim housing for people experiencing or at risk of homelessness. This brings the total proposed Homekey funding to $2.9 billion over two years. 
• A new allocation of $250 million General Fund each year in 2022-23 and 2023-24 for grants to local governments to create interim housing on state-owned land — for example “tiny homes” — intended as bridge housing for unsheltered individuals who could eventually transition to long-term housing that will be developed in upcoming years.

Some interim housing is needed within the homeless services system to meet urgent housing needs, but the most effective approaches to addressing homelessness — including for individuals with serious behavioral health needs — combine long-term housing with supportive services as needed. This housing can include leased units or tenant-based rental assistance as well as deed-restricted units. Besides the modest one-year increase in Homekey funding, the governor’s revised budget proposes no new investments to produce or acquire permanent affordable housing (see the Housing section) or to fund rental subsidies to enable individuals to exit homelessness.

Another significant proposal described in the revised budget is the Community Assistance, Recovery and Empowerment (CARE) Court, a plan to establish court-ordered treatment for people experiencing both homelessness and serious behavioral health challenges (see the CARE Court section).

The May Revision also maintains the $1 billion in flexible local funding in 2022-23 through the Homeless Housing, Assistance and Prevention (HHAP) Program that was provided through the 2021-22 budget as $1 billion annually for two years, with the intent to continue in future years “based upon performance and need.” In the May Revision, the governor proposes extending this annual funding beyond 2022-23 but requiring that local entities focus the spending on “highest priority needs, such as encampment resolution, Homekey operating sustainability, and CARE Court housing supports.” Continuing this funding commitment is important to sustain new projects and support existing effective local efforts, but requiring that the funding be spent on specific items would reduce flexibility to focus on identified local needs and gaps in services, which could reduce its effectiveness.

Governor Meets Emergency Rental Assistance Commitment, but Fails to Boost Investment in Affordable Housing

All Californians deserve a safe and stable place to call home, yet California’s serious housing affordability challenges continue to threaten the well-being of families and communities and the future growth of the state — with renters, those with low incomes, and Latinx, Black, and immigrant Californians most severely affected. 

The Governor’s May Revision maintains the $1.5 billion one-time General Fund (to be spent across 2022-23 and 2023-24) proposed in January to boost funding in some programs that support affordable housing development and preservation. The annual $500 million boost for the state Low-Income Housing Tax Credit (LIHTC) and multi-year funding allocation for student housing are also maintained. For future years, the May Revision proposes an additional $500 million General Fund, over 2023-24 and 2024-25, to increase “downtown-oriented and affordable housing” developed through “adaptive reuse” of underutilized commercial and retail space.

Beyond the $150 million for Homekey, described in the Homelessness section, the Governor proposes no new investments for development, acquisition, or preservation of affordable housing for 2022-23 in the May Revision – despite record-breaking revenues above January projections and constitutional budget rules (including the Gann limit and Proposition 2, see Gann Limit and Reserves sections) that encourage or require substantial spending on infrastructure this year. This represents a key missed opportunity to invest in long-term solutions to the state’s housing affordability crisis at a time when about half of renters with low incomes are facing housing hardship and “shovel ready” affordable housing projects face a funding backlog.

In terms of direct assistance to Californians experiencing hardship, the May Revision includes support for both rent and utility assistance by:

• Meeting the commitment state policymakers made through early budget action to fulfill all eligible requests for emergency rental assistance submitted by March 31, 2022 through the COVID-19 Emergency Rental Assistance Program (ERAP), allocating $2.7 billion one-time General Fund in the current year for that purpose. 
• Proposing one-time funding of $1.2 billion for past-due residential energy bill balances, through the California Arrearage Payment Program, and
• Allocating one-time funding of $200 million for past-due residential water and wastewater charges, through the Low-Income Household Water Assistance Program.

Both utility assistance programs are administered by the Department of Community Services and Development.

Proposed CARE Court Framework Lacks Housing First Practices

Addressing the growing number of unhoused Californians has become one of the most serious issues facing the state and a top priority for policymakers. The current homelessness challenge is primarily due to the severe shortage of affordable housing — especially for people with the lowest incomes. However, for the minority of unhoused Californians with behavioral health conditions or substance use issues, inadequate investments in behavioral health services has also been a compounding factor, among others. 

In an attempt to target the small number of unhoused individuals that lack decision-making capacity due to an untreated serious behavioral health condition, the May Revision includes the governor’s proposed Community, Assistance, Recovery, and Empowerment (CARE) Court plan that was unveiled in early March. The proposal creates a new framework to provide at-risk or unhoused Californians with untreated schizophrenia spectrum or other psychotic disorders, who may also have substance use disorders, with a court-ordered treatment plan. Individuals can be referred to CARE Court by behavioral health providers, community-based social services, family, first responders, or other specified parties. 

As proposed, all counties would participate in the program, but it does not require courts to order housing or to require the county to provide housing. This structure does not prioritize effective “housing first” interventions that provide the housing and supportive services needed for individuals to maintain stable housing and live a healthy life. If individuals are deemed to have not successfully completed their mandated Care Plan, they may be referred to conservatorship. 

To administer CARE Court, the May Revision proposes $64.7 million General Fund in 2022-23. This includes $39.5 million General Fund in 2022-23 and $37.7 million ongoing General Fund for the Judicial Branch, $10 million ongoing General Fund for the Department of Aging for the CARE Court Supporter Program, and $15.2 million General Fund in 2022-23, with smaller ongoing funds to the Department of Health Care Services for training and technical assistance, data collection, and evaluation. The administration estimates that CARE Court would serve 7,000-12,000 individuals. 
Given the limited scale of the proposed new program, and the lack of a “housing first” approach, the proposed funding could be better spent in investing in existing housing and behavioral health supports (see the Homelessness, Housing, and Behavioral Health sections).

Economic Security

May Revision Maintains Refundable Tax Credit Proposals

The governor’s revised budget maintains his January proposals to:

• End the work requirement for the Young Child Tax Credit (YCTC) and annually adjust the credit for inflation so that it keeps up with rising prices, at a cost of $55 million and $14 million in 2022-23, respectively.
• Establish a new refundable tax credit for former foster youth modeled after the Young Child Tax Credit, at a cost of roughly $20 million ongoing; and
• Provide $10 million to support efforts to increase awareness of California’s Earned Income Tax Credit (CalEITC) and YCTC and connect tax filers with low incomes to free tax preparation services. This is $5 million less than the state provided in the 2021-22 budget. However, the administration indicated that they intend to build this $10 million into the Franchise Tax Board’s baseline budget so that this program is funded on an ongoing basis. 

As in January, the revised budget does not include any proposals to strengthen or expand the CalEITC.

May Revision Maintains Medi-Cal Expansion, but Fails to Expand Food Assistance to All Undocumented Immigrants

California has the largest share of immigrant residents of any state and is home to an estimated 2 million to 3.1 million individuals who are undocumented. Half of all California workers are immigrants or children of immigrants. These Californians are deeply integrated into our communities, schools, and workplaces. Prioritizing the urgent needs of undocumented immigrants and their families is an important opportunity for California’s policymakers to make our support systems more equitably inclusive, to make our state’s economy more resilient, and to lead in this time where the state has the resources. 

Specifically, the May Revision:

• Maintains the governor’s proposal to expand comprehensive Medi-Cal coverage to all undocumented Californians starting no sooner than January 2024. In recent years, California has expanded eligibility for comprehensive Medi-Cal coverage to undocumented immigrants up to age 25 and adults age 50 and older who otherwise qualify for the program. The governor’s May Revision maintains his proposal from January to expand comprehensive Medi-Cal coverage to undocumented adults ages 26 to 49 starting no sooner than January 1, 2024 (See Coverage, Affordability, and Access section).
• Maintains the govenor’s proposal to limit the expansion of the California Food Assistance Program (CFAP) to undocumented Californians who are age 55 or older. CFAP provides state-funded basic nutrition assistance for Californians who are blocked from CalFresh, California’s Supplemental Nutrition Assistance Program (SNAP), due to xenophobic and racist rules. 
• Provides funding to support newly arrived migrants and “border operations.” This includes $175 million one-time General Fund for the Department of Social Services to administer rapid response efforts to support migrant arrivals at the southern border; $468 million for the Department of Public Health for “border operations” and “humanitarian activities at the southern border,”  including temporary shelter, testing, vaccines, and support services for newly arrived migrants; and an additional $9 million is allocated to the California Office of Emergency Services for “border response operations.”

The May Revision misses an opportunity to extend targeted economic support to undocumented families who have been excluded from thousands of dollars in federal aid and other support programs to help families meet their basic needs during the pandemic, including unemployment benefits. The administration’s proposal to expand food assistance to adults age 55 and older is an important step. But more than half of children in undocumented immigrant families live in poverty. Completing this expansion to include Californians of all ages, regardless of immigration status, is necessary to truly dismantle racist and xenophobic barriers and to address persistent gaps in federal aid.

Revised Proposal Yields Mixed Progress for CalWORKs Families

The California Work Opportunity and Responsibility to Kids (CalWORKs) is a critical support that provides modest cash assistance for families with low incomes, particularly families of color. Monthly CalWORKs grants are adjusted according to the number of people in the household who are eligible for CalWORKs. A family member may be excluded from grant calculations for reasons including having exceeded the time limit for assistance, not meeting work requirements, or due to their immigration status. These situations are not rare but rather represent almost two-thirds of CalWORKs cases. 

In recent years state policymakers have raised the maximum CalWORKs grant above the deep poverty threshold (50% of the federal poverty line) for some CalWORKs families but not for those with an excluded family member, unfairly leaving them out of receiving sufficient assistance for basic needs. In the revised budget, the administration again misses the opportunity to raise CalWORKs grants above deep poverty for all families. The May Revision includes an 11% increase to CalWORKs grants (at an estimated $296.2 million in 2022-23). This increase is due to AB 85 of 2013, which provides a grant increase based on projected sales tax revenues. For example, under the governor’s proposal, while a family of three with no excluded members would receive a grant that is above deep poverty at 53% of the federal poverty line, a family with an excluded member would receive a grant that is below deep poverty at just 42% of the federal poverty line. To ensure grants are above deep poverty for all families, state legislators should also provide an additional 18% grant increase targeted to families with an excluded member.

The May Revision maintains the January proposal to allow former CalWORKs families to receive outstanding child support debt that currently goes to the state, county, and federal governments as “reimbursement” for the costs associated with the CalWORKs program. Under this change, these families would receive an estimated annual total pass through of $187 million. State leaders should build on this change to end racist policies that block Black, Latinx, and other families from economic security by also passing through 100% of child support payments to current CalWORKs and Medi-Cal recipients and ending the state’s collection of interest on child support debt.

May Revision Maintains Governor’s CalKIDS Proposal

The California Kids Investment and Development Savings (CalKIDS) program was created in 2019-20 to establish college savings accounts for all newborns and deposit at least $25 into those accounts. In 2021-22, the program was expanded to establish accounts for all public school students in grades 1-12 who live in families with low incomes and to deposit $500 into those accounts, with an additional $500 for foster youth and $500 for homeless students, up to a maximum of $1,500 per child. CalKIDS is expected to launch this summer.

The May Revision proposes to allocate $299,000 one-time General Fund and $1.5 million ongoing General Fund beginning in 2023-24 to support last year’s expansion of the CalKIDS program and to support outreach costs. This is a reduction in funding from the governor’s January budget which proposed allocating $170 million ongoing General Fund to support the expansion of CalKIDS as well as $5 million one-time and $5.2 million ongoing General Fund to support outreach and implementation costs.

Governor Fails to Increase Payment Rates for Subsidized Child Care Providers

California’s subsidized child care and development system has long been critical to the state’s economic infrastructure, helping families struggling to make ends meet cover the high cost of early care and education for their children. The governor’s May Revision would maintain federal child care relief funding that was included in the January proposal to expand child care programs to serve an additional 36,000 children ($22.5 million for General Child Care and $247.3 million for the Alternative Payment Program). Yet, the May Revision would not increase provider payment rates for the 2022-23 state fiscal year, despite stagnant payment rates, the rising statewide minimum wage, and the increasing price of food and supplies. 

Other child care investments in the May Revision include:

• $200.5 million for child care infrastructure. This includes $100 million General Fund and $100.5 million federal funds for minor renovation and repairs to child care facilities in child care deserts and low-income communities.
• $136 million to extend family fee waivers for one year. Under federal law, most families must pay a family fee for subsidized child care. California took advantage of flexibility offered by the federal government during the pandemic to waive these fees to boost family economic security. The May Revision provides $136 million in federal Coronavirus Response and Relief Supplementary Appropriation relief funds to continue this waiver until June 30, 2023.
• $114 million to pay providers based on enrollment. Prior to the pandemic, the state paid subsidized child care and California State Preschool Program providers based on whether or not a child was in attendance. During the pandemic, state leaders opted to reimburse providers based on enrollment, similar to the private market, to stabilize providers’ budgets. The May Revision would continue this reimbursement policy through the 2022-2023 fiscal year, primarily using federal funds.
• $20 million to boost administrative capacity in the Alternative Payment Program. The Alternative Payment Program provides subsidized child care vouchers to eligible families. The May Revision provides funding to enable these community-based programs to expand services and enroll additional children and families in the Alternative Payment Program.

Finally, the administration has not made any proposals to further boost the economic security of child care providers, such as by offering health care or retirement benefits. Nor have state leaders provided resources for workforce development training — funding that was rescinded in the 2021-22 budget agreement due to pandemic-related budget uncertainties.

May Revision Fails to Increase Payment Rates for California Workers Who Need Paid Time Off

California’s paid family leave and state disability insurance programs allow workers to take paid time off from work to attend to their own health or that of a family member. The Disability Insurance Fund — funded entirely by California workers’ contributions — provides benefits to workers when care needs arise. Policymakers temporarily increased payment rates for these programs in 2018 from 55% of earnings to 70% for workers with very low pay and 60% of earnings for all other workers, including full-time workers paid the minimum wage. Yet workers paid very low wages are far less likely to utilize the benefits they’ve paid for. 
Californians should be able to take paid time off to care for themselves or their family without risking their jobs or financial security. Governor Newsom’s paid family leave task force and Master Plan for Early Learning and Care both recommended that payment rates be increased to 90% for some workers to increase access for workers paid low wages, but the administration’s revised budget does not increase payment rates for these critical programs. And without action this year, payment rates will revert to just 55% of earnings at the end of 2022.

May Revision Does Not Accelerate a Pending Increase to State SSP Grants

Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help well over 1 million low-income seniors and people with disabilities to pay for housing and other necessities. Grants are provided to individuals and couples and are funded with both federal (SSI) and state (SSP) dollars. State policymakers made deep cuts to the SSP portion of these grants in 2009 and 2011 to help close budget shortfalls caused by the Great Recession. Except for a small increase provided in 2017, the recession-era cuts to SSP grants remained in effect for more than a decade.

State leaders changed course last year and adopted a substantial (24%) increase to SSP grants that took effect on January 1, 2022. The maximum monthly SSP grant for individuals jumped from $160.72 to $199.21. For couples, the maximum monthly SSP grant rose from $407.14 to $504.64.

Also as part of the 2021-22 budget package, state leaders committed to providing an additional substantial increase to SSP grants in January 2024, subject to funding being provided in the 2023-24 state budget. In the meantime, advocates for older adults and people with disabilities have called on state leaders to accelerate this increase to provide a permanent and more timely boost to the modest budgets of SSI/SSP recipients as the cost of housing, food, and other necessities continues to rise.

The May Revision:

• Does not propose to accelerate the pending increase to the state’s SSP portion of SSI/SSP grants. As a result, the maximum SSI/SSP grant for individuals will remain below the federal poverty line for at least another year and a half.

Lacks significant new investments to address the needs of older adults and people with disabilities and advance the bold goals included in the Master Plan for Aging.

Education

Administration Continues Push for Pre-Kindergarten Programs

The state currently funds two pre-kindergarten programs: transitional kindergarten (TK) and the California State Preschool Program. TK is a two-year kindergarten program offered at local educational agencies (LEAs) to children turning five between September 2 and December 2 of each year. The 2021-22 budget agreement included a multi-year plan to expand the state’s existing TK program to all four-year-olds in the state. The May Revision builds off of the transitional kindergarten proposals included in the January proposal, by eliminating credential requirements for TK teachers through June 30, 2026. 
The May revision also proposes two additional changes to the California State Preschool Program, including the substantial changes to this program included in the January proposal. The California State Preschool Program is an early learning program for children from low and moderate income families offered by community based organizations and LEAs. The May Revision proposals include two items: 1) $21.6 million to waive family fees for participating children ($10.8 million Proposition 98 and $10.8 million General Fund) and 2) paying California State Preschool Program providers based on enrollment, not attendance — a policy known to stabilize funding for subsidized early care and education providers (see Child Care section).

Increased Revenues Significantly Boost the Minimum Funding Level for K-14 Education

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of funding for K-12 schools, community colleges, and the state preschool program. Changes in state General Fund revenues tend to affect the Prop. 98 guarantee, and the May Revision’s estimates of 2021-22 and 2022-23 revenues are significantly higher than those estimated in January’s budget proposal. As a result, the May Revision assumes a 2022-23 Prop. 98 funding level of $110.3 billion, $8.4 billion above the level assumed in the Governor’s proposed budget, and a 2021-22 Prop. 98 funding level of $110.2 billion, $11.1 billion above the level assumed in January. The revised budget assumes a 2020-21 Prop. 98 funding level of $96.1 billion, slightly above the $95.9 billion funding level assumed by the Governor in January. 

Revenue projections in the Governor’s January budget proposal would have required total deposits of $9.7 billion into the Public School System Stabilization Account (PSSSA) — the state budget reserve for K-12 schools and community colleges. However, the May Revision projects a decrease in capital gains revenues as a share of total taxes that would reduce required PSSSA deposits and bring the total account balance to $9.5 billion in 2022-23. (See Reserves section.) Because the PSSSA balance is projected to exceed 3% of the total K-12 share of the Prop. 98 minimum funding level in 2021-22, current law would prevent K-12 school districts from maintaining more than 10% of their budgets in local reserves beginning in 2022-23.

May Revision Dramatically Increases Funding for Several K-12 Education Programs

The largest share of Prop. 98 spending goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to 5.9 million students in grades kindergarten through 12. The governor’s revised spending plan significantly increases funding for the state’s equity-based K-12 education funding formula, the Local Control Funding Formula (LCFF), but proposes a less equitable per-pupil formula to allocate a large discretionary block grant. Specifically, the May Revision:

• Allocates $8 billion for a one-time “discretionary block grant.” The governor proposes to use a per-pupil formula to allocate the block grant to local educational agencies (LEAs), which could be used for a wide variety of purposes including maintaining staff levels and addressing student learning challenges. Under the governor’s proposal, funding received by LEAs would reduce outstanding state mandate debts, which reflect the cost of state-mandated services that LEAs provided in prior years but for which they have not yet been reimbursed. Allocating these one-time grant funds on a per-pupil basis arguably fails to meet the goal of equitable funding established by the LCFF. 
• Allocates $3.8 billion to modify the LCFF. The LCFF provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. Because many school districts are experiencing reductions in average daily attendance (ADA) and LCFF base grants are calculated based on ADA, the governor’s January budget proposed changing the LCFF base grant calculation to allow LEAs to use the average of three prior years’ ADA. The May Revision maintains the proposed option for LEAs to use a three-year rolling average of ADA to calculate base grants, but would modify how 2021-22 ADA is calculated to allow classroom-based LEAs to “be funded at the greater of their current year average daily attendance or their current year enrollment adjusted for pre-COVID-19 absence rates.” The administration estimates a total cost of $3.3 billion ongoing and $463 million one-time to implement these changes to the LCFF.
• Adds $2.2 billion in ongoing funding for LCFF base grants. The May Revision would boost LCFF base grant funding for K-12 school districts and charter schools by $2.1 billion and for COEs by $101.2 million. 
• Includes funding for a 6.56% LCFF cost of living adjustment (COLA). The May Revision notes that the 6.56% COLA would be the largest since the LCFF was implemented. The governor’s January budget proposal provided $2.1 billion to fund a 5.33% COLA for the LCFF. 
• Includes $1.8 billion in one-time Prop. 98 funding for deferred maintenance of school facilities. The May Revision would provide these funds to LEAs for a variety of purposes such as repairing and restoring classrooms. The revised budget proposal would allocate $100,000 to each COE and the remainder of funds to LEAs in an equal amount per their unduplicated number of English learners, foster youth, and students from low-income families.
• Adjusts one-time non-Prop. 98 General Fund K-12 school facilities spending. The governor’s January budget proposed spending $1.3 billion in 2022-23 and $925 million in 2023-24 to support new construction and modernization projects through the School Facilities Program. Instead, the May Revision proposes to appropriate these dollars in the current fiscal year (2021-22). 
• Expands one-time funding for community schools by $1.5 billion. Community schools provide integrated educational, health, and mental health services to students. The 2021 budget agreement provided $3 billion for community school grants. Despite this level of funding, the May Revision states that demand for the grants exceeded expectations and that additional funding would expand access to the program. 
• Allocates more than $800 million in one-time funding to support educator workforce programs. The governor’s proposal includes $500 million to expand the Teacher Residency Grant Program for teachers and school counselors, $300 million to increase professional development resources available through the Educator Effectiveness Block Grant, and $15 million over three years to continue the work of the Educator Workforce Investment Grant Program in areas of special education and support for English learners.
• Includes $611.8 million in ongoing funding for school nutrition programs. In January, the governor proposed $596 million to fund a requirement included in the 2021 budget agreement that all public schools provide two free meals per day to any student regardless of income eligibility in 2022-23. The May Revision would expand funding to increase the state meal reimbursement rate beginning in 2022-23. To the extent an increase in federal school meal reimbursement rates frees up state funds, the revised budget proposes to reallocate state funding for the Kitchen Infrastructure and Training Grant Program. 
• Adds $403 million in ongoing funding for the Expanded Learning Opportunities Program (ELOP). The revised spending plan increases the governor’s January budget proposal to provide $3.4 billion in ongoing funding for the ELOP to provide additional learning time for students before or after school, as well as outside of the traditional school year. 
• Allocates $100 million in one-time funding to expand the Community Engagement Initiative (CEI). The CEI’s goals include building the capacity of communities and school districts to facilitate conversations that focus on improving student outcomes. The May Revision proposes to expand the number of LEAs that have been reached by the initiative since it was established in 2018. 
• Allocates $62.1 million to increase the COLA for non-LCFF programs. The May Revision increases the COLA for several categorical programs that remain outside of the LCFF to 6.56% from the 5.33% provided in January.

The Revised Budget Includes Base Augmentations for the California Community Colleges

A portion of Proposition 98 funding provides support for California’s Community Colleges (CCCs), the largest postsecondary education system in the country, which serves high percentages of students of color and students with low incomes. CCCs prepare approximately 1.8 million students to transfer to four-year institutions or to obtain training and employment skills. 

The 2022-23 revised budget proposes to increase funding for deferred maintenance projects at the CCCs, increase base funding for the Student Centered Funding Formula (SCFF), and provide a large one-time discretionary block grant using a less equitable allocation method than the SCFF. Specifically, the revised spending plan:

• Provides $1.1 billion one-time Prop. 98 dollars for deferred maintenance projects. The funds are intended to support deferred maintenance and energy efficiency projects at the CCCs. These dollars are in addition to the $387.6 million proposed in January. 
• Includes $750 million one-time Prop. 98 dollars for discretionary block grants to CCC districts. Grants are intended to support districts in addressing pandemic-related issues and “reduce long-term obligations.” Grants would be allocated by the California Community College Chancellor’s Office based on the number of full-time equivalent students and can be used for any purpose determined by each community college district. Allocating these one-time dollars based on the number of full-time equivalent students arguably fails to meet the goal of equitable funding established by the SCFF.
• Provides $375 million ongoing Prop. 98 dollars for base increases for the SCFF. These dollars include $250 million to increase funding rates for all components of the SCFF and an additional $125 million to boost the SCFF’s base allocation. 
• Allocates nearly $85 million ongoing Prop. 98 for a COLA for apportionments and enrollment growth. The revised budget includes an increase of $83.5 million to reflect a higher COLA (6.56%) for apportionments. The 6.56% COLA (up from 5.33% in the January budget) increases total funding to $492.9 million. The budget also includes an additional $1.3 million for a 0.5% enrollment growth for a total of $26.2 million for this item.
• Includes nearly $62 million Prop. 98 dollars to support apprenticeships. The revised budget includes $45 million in one-time dollars for the California Healthy School Meals Pathways Program and $16.9 ongoing to make changes to the apprenticeship program Related and Supplemental Instruction rate. 

Proposed Budget Provides Multi-Year Investments in the CSU and the UC

California supports two public four-year higher education institutions: the California State University (CSU) and the University of California (UC). The CSU provides undergraduate and graduate education to roughly 462,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 290,000 students on 10 campuses. For both institutions, the administration maintains the governor’s January proposal of a multi-year budget through 2026-27, focused on increasing enrollment, raising graduation rates and closing graduation gaps, increasing affordability of on-campus housing, and decreasing non-tuition costs. 

For the CSU, the revised budget provides the following adjustments in addition to the $304.1 million ongoing General Fund proposed in January:

• $147.5 million to invest in facilities to support the growth of a STEM workforce to meet the state’s goals on climate change.
• An additional $25 million one-time General Fund to support CSU University Farms.
• An increase of $1.5 million General Fund to support services for foster youth at CSU East Bay and CSU Northridge. 

For the UC, the revised budget provides the following adjustments in addition to the $307.3 million ongoing General Fund proposed in January:

• $514.1 million one-time General Fund to fund various programs, including research on the digital economy and biotechnology, graduate medical education, fire advisors for the California Department of Forestry and Fire Protection, and African American studies at UCLA. Of the $500 million allocated for biotechnology research, only $300 million is for 2022-23.
• $13 million ongoing General Fund to support and expand UC Labor Centers.
• $1.5 million General Fund ($650,000 ongoing) to integrate independent colleges and universities onto the ASSIST web platform that supports prospective transfer students.

May Revision Misses Opportunity to Provide Additional Financial Support for Students Pursuing Higher Education

Cal Grants are the foundation of California’s financial aid program for students with low and middle incomes pursuing higher education in the state. Cal Grants provide aid for tuition and living expenses that do not have to be paid back. The May Revision estimates that over 400,000 financial aid grants will be awarded to students in the 2022-23 academic year. Ensuring Californians have access and resources to attend and thrive in the state’s higher education institutions broadens opportunities for individuals and families and strengthens our state’s workforce to drive long-term economic growth.

The governor’s revised spending plan proposes no new changes to student financial aid from those included in the governor’s January proposal. The governor misses an opportunity to better support California students. High costs of higher education, exacerbated by the economic hardship of COVID-19 pandemic, have caused many students to cancel their education plans. Since the beginning of the 2021-22 academic year, students in low-income, Black and Latinx households were most likely to cancel all plans to take classes from postsecondary institutions. The governor can continue to support students with low and middle incomes and reduce racial inequities in higher education by pursuing reforms to Cal Grants that streamline and eliminate remaining barriers that prevent more students from accessing state financial aid. In addition, more investments are needed to adequately address non-tuition costs, such as housing, food, transportation, and other basic living expenses.

Justice Systems

Governor Does Not Propose to Close More State Prisons

More than 97,000 adults who have been convicted of a felony offense are serving their sentences at the state level, down from a peak of 173,600 in 2007. American Indian, Black, and Latinx Californians are disproportionately represented in state prisons — a racial disparity that reflects implicit bias in the justice system, structural disadvantages faced by these communities, and other factors. Among all incarcerated adults, most — 92,514 — are housed in state prisons designed to hold fewer than 82,000 people. This level of overcrowding is equal to 112.9% of the prison system’s “design capacity,” which is below the prison population cap — 137.5% of design capacity — established by a 2009 federal court order. California also houses more than 4,500 people in facilities that are not subject to the cap, including fire camps, in-state “contract beds,” and community-based facilities that provide rehabilitative services. The sizable drop in incarceration has resulted both from 1) a series of justice system reforms enacted by voters and state leaders and 2) changes adopted in 2020 to further reduce prison overcrowding in response to the COVID-19 pandemic, such as suspending intakes from county jails and implementing early releases.

The revised budget:

• Does not call for the closure of additional state prisons. California recently closed the state prison in Tracy and was on track to shut down the Susanville prison by the end of June 2022 until litigation filed by the city of Susanville halted the process. In the meantime, the revised budget does not outline a plan to close more prisons even though the Legislative Analyst’s Office estimates that California could close as many as five prisons over the next few years. However, the administration says it is “committed to right-sizing California’s prison system” and suggests that “it may be possible to close three additional state prisons by 2024-25” (emphasis added). Closing more prisons, particularly those with costly, decaying infrastructure, would generate substantial savings as well as reduce overreliance on incarceration, which disproportionately impacts Californians of color and does not make neighborhoods and communities safer.
• Projects that the prison population will temporarily rise before resuming its long-term decline by 2024-25. The prison population is estimated to increase by about 3,300 between 2021-22 and 2022-23, primarily because the state has been transferring people to prison who were temporarily being held in county jails to reduce the risk of COVID-19 transmissions in the prison system. However, current estimates also suggest that the prison population will soon resume its long-term decline, falling to roughly 95,700 by 2024-25.
• Maintains the governor’s January proposal to keep providing emergency housing services to adults who are at risk of being unhoused when they leave prison. The Returning Home Well Program, which was created in response to the COVID-19 pandemic, would continue for another three years at a cost of $10.6 million General Fund annually.
• Proposes $3 million in one-time funding to provide transitional housing for youth who are at risk of homelessness when they are discharged by the Board of Juvenile Hearings.

Proposal Maintains Inequitable Crime Reduction Plan, Modestly Invests in Additional Public Safety-Related Programs

California has adopted various justice system-related policy changes that reformed sentencing laws while still ensuring public safety. These reforms, passed through legislative action and voter approval, have led to sustained decreases in overall crime and prison population rates. Despite the relatively low and stable crime rates California has experienced since the mid-2000s, the May Revision maintains proposals that target retail theft and other crimes, and does not explicitly account for the potential racial discrimination that may arise in enforcement of those policies. 

The May Revision also proposes a series of new investments to support law enforcement, probation services, and victim supports, including:

• $50 million one-time General Fund for officer wellness grants for efforts that support peace officers’ physical and mental health and build community relations. The grants will be administered by the Board of State and Community Corrections to counties and cities to support eligible programs.
• $20 million one-time General Fund for mobile probation center grants to increase access to probation services, especially for unhoused Californians. The mobile centers are intended to help individuals more easily access court appearances and pre-trial check-ins and complete various types of needs assessments. 
• $30 million one-time General Fund to establish innovative victim service pilot programs, including recovery centers in hard-to-reach and rural areas. These funds are intended to be spent over three years. 
• $12 million one-time General Fund over three years for a competitive grant program to support California tribes in locating and identify missing Indigenous persons.
• $7.9 million General Fund in 2022-23 and $6.7 million ongoing for the Department of Justice to establish the Fentanyl Enforcement Program. 

Workforce & Other Proposals

The Revised Budget Makes Additional Climate-Related Workforce Investments

To create pathways to jobs in industries related to the care economy and climate adaptation, the revised spending plan maintains workforce development proposals included in the January budget and adds additional investments.

The May Revision maintains investments in the care economy workforce and health-related fields. Those investments include major proposals such as $350 million for community health workers and $340 million for high road training partnerships in “family-sustaining” health care jobs. 

The revised spending plan also maintains all the investments aimed at supporting the state’s efforts to combat the climate crisis and the ongoing transition to clean energies. Those include $265 million to support the transition from oil and gas to other industries and $235 million for training programs and grants across various climate-related industries. 

The revised budget includes additional investments in workforce development opportunities related to climate adaptation, which include: 

• $41.5 million General Fund to support the state’s response to extreme heat. This includes $24.5 million to the Department of Industrial Relations to provide targeted outreach and education to communities in order to protect workers from heat-related illnesses and smoke from wildfires. It also includes $17 million over two years to the Workforce Development Board to expand high road training partnerships with industries that support the state’s response to extreme heat conditions. See Climate Change section for other climate-related investments.

Other proposals in the revised spending plan include additional investments in apprenticeships. This includes: 

• Nearly $62 million Prop. 98 dollars to support apprenticeship programs. As discussed in the California Community Colleges section, these funds include $45 million in one-time dollars for the California Healthy School Meals Pathways Program and $16.9 million ongoing to make changes to the apprenticeship program Related and Supplemental Instruction (RSI) rate.

The Revised Spending Plan Proposes $1.1 Billion to Bridge the Digital Divide

The pandemic has exposed the inequities in access to computers and high-speed internet, also known as the digital divide. Access to such technology is necessary to participate in education and other essential activities such as remote work, applying for jobs, virtual health appointments, and access to many other services. The digital divide disproportionately impacts low-income and Latinx households, as well as children and youth, seniors, and people with disabilities. 

The governor’s revised spending plan proposes $1.1 billion one-time over two years for broadband infrastructure. The proposal would provide $600 million in 2023-24 and $500 million in 2024-25 to the California Department of Technology (CDT) to support broadband infrastructure projects currently underway across the state. These dollars are in addition to investment of $3.25 billion for the same purpose provided in the 2021-22 budget. 

While broadband infrastructure is necessary to reach many households that are unconnected, especially in rural areas of the state, the proposal does not include support to address other aspects of the digital divide such as affordability barriers that keep many California households from connecting to the internet.

Governor Proposes Additional Relief for Small Businesses

In addition to the business tax proposals noted in the Revenue Outlook & Tax Proposals section — which are not specific to small businesses — the revised budget proposal includes some additional assistance targeted to small businesses, including:

• $500 million one-time General Fund to provide grants of between $10,000 and $50,000 to small businesses and nonprofit organizations in industries hit hardest by the pandemic.
• $75 million one-time General Fund to provide grants of between $30,000 and $50,000 for small agricultural businesses — those with 100 or fewer full-time employees in 2021 — that have lost revenue due to drought. 

Both of these grant programs would be administered by the Office of the Small Business Advocate (CalOSBA).

Governor Maintains Unnecessary Unemployment Insurance Loan Payment

Millions of California workers who lost their jobs during the depths of the COVID-19 pandemic used unemployment insurance benefits to pay for basic needs like food and rent. Although these benefits are supposed to be financed through employer payroll taxes, California businesses — for decades — haven’t been paying the true costs of the benefits workers need during recessions. Consequently, California’s unemployment fund has been chronically underfunded, and the state had to borrow billions of dollars from the federal government to help pay for unemployment benefits during the pandemic.

The governor’s revised budget continues to propose wasting $1 billion General Fund in 2022-23 and $2 billion in 2023-24 to pay down a portion of the state’s outstanding federal loans for these benefits. This proposal is unnecessary and amounts to a tax giveaway mostly benefiting large, profitable corporations, while wasting $3 billion that could be better spent supporting small businesses and California workers struggling to afford the high cost of living. Specifically, this proposal:

• Is unnecessary because there is already a sensible process in place for paying off the state’s unemployment debt. Under federal law, California businesses will pay off this debt very gradually through small increases in the federal payroll tax rate. For example, in 2023, businesses will pay just $21 per worker more for the entire year. It makes sense for businesses to gradually pay off this debt since it largely resulted from decades of insufficient contributions by businesses to California’s unemployment fund prior to the pandemic.
• Is a giveaway to large, profitable corporations that haven’t been paying the true cost of unemployment benefits for their workers for decades. The more employees a business has in California, the more a business would benefit under this proposal. One corporation that stands to benefit most is Chevron, which employs 10,000+ California workers and raked in $15.6 billion in profits last year as soaring gas prices strained the budgets of millions of Californians.

• Would provide no immediate relief to small businesses that are still recovering from the pandemic. In January, the governor indicated that one rationale for this proposal is to reduce how much small businesses will pay in increased federal payroll taxes in future years. But the proposal would primarily benefit large corporations, and “provide no near-term economic relief to employers or workers,” according to the Legislative Analyst’s Office.

Administration Increases Spending to Respond to Climate Change

The revised budget provides additional funding for various proposals intended to help California and its residents adapt and respond to climate change. This includes:

• An additional $8 billion to support the Clean Energy Investment Plan, of which $5.2 billion will support the Strategic Electricity Reliability Reserve to help the state’s energy grid withstand extreme climate events;
• $970 million for the Public Utility Commission to provide residential solar and storage system incentives, of which $670 million would be for low-income households;
• An additional $1.3 billion General Fund for a wide range of projects intended to help communities, fish, and wildlife avoid the negative impacts of extreme drought;
• $1.2 billion to reduce or eliminate past due energy bill balances for California households, as outlined in the Housing section;
• $250 million to leverage additional state financing tools to develop strategic clean energy projects;
• $220 million over two years to support community cooling centers, as included in the state’s updated Extreme Heat Action Plan;
• $150.2 million ($141.7 million General Fund) and 465 positions to increase CalFIRE’s ability to respond to wildfires due to climate change;
• $100 million one-time General Fund for the Tribal Nature-Based Solutions program to support initiatives by California’s Native American tribes that use nature-based solutions to combat the climate crisis;
• $100 million in match funding to support carbon removal projects;
• An additional one-time $100 million from Cap and Trade auction proceeds to increase the number of satellites launched to measure methane emissions;
• $24.5 million General Fund to the Department of Industrial Relations to help protect workers from heat-related illness and wildfire smoke hazards;
• An additional one-time $20 million Greenhouse Gas Reduction Fund for the Community Air Protection Program, which aims to reduce emissions in communities with a disproportionate exposure to air pollution; and
• $17 million General Fund over two years to the California Workforce Development Board to support training in industries that support the state’s response to extreme heat, as outlined in the Workforce Development section.

The revised budget also outlines a plan for how to spend $768 million included in the 2021-22 budget to implement California’s Natural and Working Lands Climate Smart Strategy to advance “climate-focused land management” and the Pathways to 30×30 Strategy to accelerate conservation of California’s lands and coastal waters. In addition, the administration proposes to accelerate its $10 billion zero-emission vehicle (ZEV) plan to increase clean transportation options. Finally, the revised budget proposes converting two tax credits included in the January budget into a single Climate Innovation Grant program administered by the California Energy Commission and provides a Sales and Use Tax exclusion to incentivize projects that manufacture, process, or recover lithium, as outlined in the Revenue Outlook & Tax Proposals section.

Each year, the Budget Center comes out with a First Look analysis of the governor’s May Revision, and we are proud to provide you with this timely breakdown. Want to support our work? Please consider donating to the Budget Center to help advance understanding and transparency in the state budget process and create a more inclusive California.