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The Budget Center’s First Look: Governor’s Proposed 2021-22 Budget

Proposal Responds to Needs of the Pandemic, Misses Opportunities for Urgent & Ongoing Investments

January 2021 | By California Budget & Policy Center

Introduction

On January 8, Governor Gavin Newsom released his proposed 2021-22 state budget, drawing on stronger-than-expected revenues to call for a series of emergency investments to respond to the public health and economic impacts of the pandemic and provide modest relief for Californians. These much-needed emergency investments, which the governor calls for the Legislature to enact as quickly as possible in the coming weeks, include providing $600 in one-time assistance for Californians with low incomes, extending the state’s eviction moratorium, putting steps in place to reopen schools, and providing small business assistance through loans and tax credits. 

While the administration’s proposals seek to address the challenges confronting many Californians amid the pandemic, the proposed spending plan misses opportunities to address other urgent and ongoing basic needs of Californians, particularly Californians with low incomes and people of color, and particularly where investments would help to allay the health and financial strains that millions of Californians will face in the months and years to come. Notable missed opportunities include:

  • Providing no new or ongoing funding for local public health departments to ensure that they have the resources they need to respond to COVID-19 and other threats to population health.
  • Failing to extend comprehensive health coverage to undocumented seniors with low incomes, who are at high risk of severe illness and death from COVID-19. 
  • Limiting investments in a child care system that was inadequately funded before the pandemic and now confronts a crisis in the loss of providers and facilities, such that the ability of many Californians, particularly people of color, to return to the workforce will be constrained by their lack of access to affordable and quality child care.
  • Failing to provide ongoing funding to prevent and combat homelessness at scale beyond the one-time support included in the governor’s proposal.

In addition, the proposed budget notably fails to recognize that the state’s unexpectedly strong fiscal health results from dramatic and widening economic inequality, where the wealthiest individuals and corporations are thriving while Californians with low and middle incomes, and particularly Black and brown Californians and other people of color, are struggling more than ever to make ends meet. California’s substantial, but concentrated, wealth means that our state can afford to make the investments needed for a more equitable recovery. State policymakers have an opportunity to put a budget plan in place that, with additional revenue and appropriate borrowing and reserves, invests in the immediate and future health and economic security of all Californians, makes the state’s tax system more equitable, and in so doing, positions our state to more quickly and equitably emerge from the recession and pandemic.

While state leaders may be inclined to rely upon stronger-than-expected revenues and the uncertain prospect of federal resources, they must recognize the need to take bolder action to provide greater state support to Californians, local governments, and communities across our state hardest hit by the pandemic. 

This report outlines key pieces of the 2021-22 budget proposal, with consideration for how the plan supports — or does not meet the needs of — Californians with low incomes, as well as women, Black Californians, Latinx Californians, American Indians, Pacific Islander Californians, Asian Californians, and other Californians of color. 

Contents

Budget Overview

Health

Homelessness & Housing

Economic Security

Education

Justice System

Other Proposals

Budget Overview

Governor’s Economic Outlook Is Bleak, Especially for Workers in Low-Paying Industries

California and the United States remain deep into the worst recession in generations and the financial situation for many people has worsened as the nation recently began to lose jobs again due to spiking COVID-19 cases. Job losses throughout the recession have been concentrated in industries that pay low wages and have hit Asian, Black, and Latinx workers, as well as women, particularly hard.

The governor’s economic outlook expects Californians to gain back jobs slowly, with the total number of jobs in the state not returning to pre-pandemic levels until 2025. The forecast also expects that increased automation and the shift to online retail will permanently eliminate some jobs in the low-paying leisure and hospitality, retail, and “other services” industries. This means that some unemployed workers will not have jobs to come back to once the pandemic is over and will have to find employment elsewhere. For this reason, the administration projects that employment in these industries will remain below their pre-pandemic levels beyond 2025. The outlook also points out that the recent approval of Proposition 22, which allowed gig economy companies to classify their workers as independent contractors, will lead to a decline in the quality of many jobs in the state.

It is important to consider that the governor’s outlook may be overly pessimistic because it did not take into account the impact of the federal economic relief bill that was enacted in December. This means, for example, that it incorrectly assumed that millions of Californians would lose access to unemployment benefits beginning late last year. That said, the administration points to a number of factors that could cause the economic outlook to worsen, including more widespread job losses than anticipated, more business closures than expected, or a “failure to address structural inequality.”

Governor’s Proposal Assumes Higher Revenues than Anticipated and a One-Time Windfall, but Deficits Ahead

The 2020-21 budget agreement enacted in June included actions to close a $54 billion budget gap that was projected as a result of expected revenue losses and spending increases due to the COVID-19 pandemic and recession. However, the governor’s 2021-22 budget proposal reflects an improved revenue outlook over the 2020 Budget Act assumptions and a one-time $15 billion “windfall” that can be allocated during the current budget cycle. The administration’s estimate of the windfall is significantly lower than the Legislative Analyst’s Office (LAO) November estimate of $26 billion, although the LAO estimated that the actual windfall could range from $12 billion to $40 billion, depending on economic conditions.

This improved outlook and windfall are due to two main factors. First, while many Californians are facing severe struggles in the COVID-19 economy, those with high incomes have continued to fare well, and this group is responsible for a large share of the state’s General Fund revenue due to the progressive personal income tax (PIT) system. Second, the recession has been less severe than expected, largely due to federal assistance to workers, families, and businesses. As a result, the administration projects General Fund revenue will be $71 billion higher than anticipated in the 2020 Budget Act over the three-year budget period, covering fiscal years 2019-20 through 2021-22. This includes higher estimates over the budget period for the three primary General Fund revenue sources, including $58 billion in personal income tax revenue, $9 billion in sales tax revenue, and $1.3 billion in corporation tax revenue.

The budget proposal warns that the revenue situation could deteriorate in the case of a sharp decline in the stock market, a rise in bankruptcy, or more widespread unemployment affecting higher-income Californians. The proposal also notes that the revenue estimates were completed prior to the enactment of the recent federal COVID-19 relief package, which should reduce the likelihood of a more severe recession scenario in the short-term.

Although the outlook for the current budget is improved, the administration conservatively projects that the three main General Fund revenue sources will grow by only 1.9% annually between 2019-20 and 2024-25, significantly slower than the 6.4% average growth rate since 2009-10. Additionally, expenditures are expected to grow faster than revenues over this time, resulting in a structural deficit of $7.6 billion for 2022-23, growing to $11 billion by 2024-25 without actions to increase revenues, reduce spending, or a combination of the two.

Stronger-Than-Expected Revenues Allow State to Build Reserves to $22 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 is to be used to reduce certain state liabilities (also known as “budgetary debt”). 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 Proposition 98 funding guarantee (see section on Proposition 98).

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.

The enacted 2020-21 budget projected drawing down $8.8 billion in reserves — $7.8 billion of $16.1 billion in available funds from the BSA; all of approximately $500 million in the PSSSA; and $450 million of the available $900 million in the Safety Net Reserve — based on projections of declining revenues due to the pandemic. The enacted budget also projected that $2.6 billion would remain in the SFEU as of June 30, 2021.

However, stronger-than-expected revenue collections result in changes to the BSA, PSSSA, and SFEU balances for the prior fiscal year (2019-20), the current fiscal year (2020-21), and projections in the governor’s proposed 2021-22 budget. The proposed budget estimates a total BSA balance of $12.5 billion in 2020-21, growing to $15.6 billion in 2021-22, and a PSSSA balance of $747 million in 2020-21, growing to $3 billion in 2021-22. The SFEU balance is estimated to be $9 billion as of June 30, 2021, declining to $2.9 billion as of June 30, 2022. In addition, the proposed budget maintains the Safety Net Reserve at $450 million.

Taking into account the BSA, PSSSA, Safety Net Reserve, and SFEU, the governor’s proposal would build state reserves to a total of $22 billion in 2021-22.

Budget Proposal Continues to Pay Down Unfunded Liabilities

The governor’s budget proposal includes required contributions to two state-run retirement systems: the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). CalPERS and CalSTRS, like many retirement systems, are not funded at levels that will keep up with future benefits guaranteed to workers, resulting in the state needing to make higher annual contributions in order to pay down unfunded liabilities. In recent budget agreements, state leaders have also agreed to make supplemental payments to the two systems in order to help pay down those unfunded liabilities.

The governor’s proposed budget includes the required contributions to CalPERS ($5.5 billion total, $3.0 billion General Fund) and CalSTRS ($3.9 billion General Fund). In addition, the administration proposes to make one-time supplemental payments in 2021-22 to CalPERS ($1.5 billion) and CalSTRS ($410 million) using funding set aside by Prop. 2 for paying down budgetary debt. If Prop. 2 revenues for paying down budgetary debt are available in future years, the administration projects that the state will be able to make additional supplemental payments of $4.1 billion to CalPERS and $602 million to CalSTRS over the 2022-23 to 2024-25 fiscal years. (See Reserves section for more on Prop. 2.) 

Health

Proposed Budget Provides Funds for COVID-19 Public Health Emergency, But Does Not Include New Investments for Local Public Health Departments

As the state approaches almost one year into the pandemic, over 2.8 million Californians have tested positive for COVID-19 and over 31,000 Californians have died due to COVID-19 — a devastating and immeasurable loss for families and communities across the state. Communities of color, particularly Black, Latinx, and Pacific Islander Californians, have been disproportionately impacted due to long standing inequities. Since the start of the pandemic, the administration has taken steps to mitigate the spread of the virus and protect the health of Californians. Efforts include issuing stay-at-home orders, ramping up testing for the virus, securing personal protective equipment, increasing hospital capacity, and implementing a health equity metric that requires counties to address COVID-19 health inequities in their economic reopening plans. 

The proposed budget continues efforts to overcome the pandemic. Specifically, the budget includes:

  • Over $820 million General Fund to continue COVID-19 response measures such as laboratory capacity and testing, surveillance, response, and prevention. This builds on previous emergency and federal funding that was processed as of late fall 2020.
  • About $300 million for vaccine distribution, including a public awareness campaign to increase vaccine distribution. The administration anticipates receiving an additional $350 million in federal funds for this effort. The budget summary does not state whether or not federal funds will supplement or supplant the $300 million in state funds for vaccine distribution.

While the budget consists of much-needed COVID-19-related support, no new funding for local public health departments is included. Public health officials throughout the state have expressed that more support is needed to adequately bolster public health infrastructure. Ensuring that local public health departments have the resources needed to combat COVID-19 and other threats to population health is vital. California and federal leaders must work together to provide additional resources and coordination needed to help communities adequately respond to the virus and to prepare for future threats.

Proposed Budget Fails to Expand Medi-Cal Coverage to Undocumented Seniors, Delays Potential Suspension of State Funding for Medi-Cal Provider Payments

Building on the federal Affordable Care Act (ACA), California has substantially expanded access to health coverage in recent years. For example, more than 13 million Californians with modest incomes — 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. In addition, over 1.3 million Californians with incomes up to 600% of the federal poverty line ($76,560 for an individual) receive federal subsidies, state subsidies, or both in order to reduce the cost of coverage purchased through Covered California, our state’s health insurance marketplace. Despite these gains, millions of people — including undocumented immigrants — remain uninsured, health care costs continue to rise, and many Californians continue to face high monthly premiums and excessive out-of-pocket costs — such as copays and deductibles —  when they use health care services. 

The proposed budget:

  • Fails to propose an expansion of comprehensive Medi-Cal coverage to seniors regardless of immigration status — even in the midst of a deadly pandemic that is disproportionately affecting older adults. In recent years, California has extended full-scope Medi-Cal coverage to undocumented immigrants under age 26 who otherwise qualify for the program. One year ago, Governor Newsom proposed to expand this state policy to include undocumented adults age 65 or older, but he withdrew this proposal in May and continues to exclude it from his 2021-22 spending plan. As a result, under the governor’s proposed budget, seniors who are undocumented would remain locked out of full-scope Medi-Cal coverage a time when preventive health services and treatment for chronic health conditions are needed most, particularly given that older adults are most at risk of severe illness from COVID-19 and even death. By failing to expand Medi-Cal to undocumented seniors, the governor misses an opportunity provide these older adults with an affordable, regular source of care, which could help to improve their health status as well as their chances of recovering from COVID-19.
  • Delays, to 2022, the potential suspension of state funding for a wide array of programs and services that boost access to care and generally support Californians’ health and well-being, including certain Medi-Cal provider payments. The state budget for the current fiscal year made more than $1 billion in state spending subject to suspension in the 2021-22 fiscal year if certain conditions are met. These suspensions would take effect on either July 1, 2021, or December 31, 2021, depending on the program. The largest item on the list: supplemental payments for providers in the Medi-Cal program. This suspension would reduce state General Fund spending on Medi-Cal by nearly $760 million in 2021-22, but could impede Medi-Cal beneficiaries’ access to services if some providers stopped accepting Medi-Cal patients due to the payment cut. However, the governor proposes to prevent any health and human services suspensions from taking effect in 2021-22 by shifting the effective dates forward by one year — to July 1, 2022, and December 31, 2022.
  • Projects that average monthly enrollment in Medi-Cal will increase from 14 million in 2020-21 to 15.6 million in 2021-22 — covering nearly 40% of the state’s population. This substantial year-over-year growth is due to the devastating economic downturn and job losses triggered by the COVID-19 pandemic, which continue to cause Californians to lose access to job-based health coverage. This caseload increase is projected to increase Medi-Cal spending by $13.5 billion ($4.3 billion General Fund) in 2021-22.
  • Proposes to create an “Office of Health Care Affordability.” This new office would have a wide array of functions, including boosting price transparency, developing cost targets for various sectors of the health care industry, and establishing financial penalties to enforce compliance. The governor proposes to use revenues from the Health Data and Planning Fund — $11.2 million in 2021-22, $24.5 million in 2022-23, and $27.3 million in 2023-24 and ongoing — to establish and support the activities of this new office.
  • Proposes to expand and make permanent certain “telehealth” flexibilities for Medi-Cal providers. This proposal would also add “remote patient monitoring” as a new Medi-Cal benefit, effective July 1, 2021, for a total cost of $94.8 million ($34 million General Fund) in 2021-22. These changes would “expand access to preventative services and improve health outcomes,” according to the governor’s budget summary.

Proposed Budget Revives Ambitious Effort to Improve Health Outcomes Through Medi-Cal Reform

The administration launched an ambitious reform effort known as CalAIM (California Advancing and Innovating Medi-Cal) in late 2019, but postponed the initiative’s implementation due to COVID-19. Building on previous pilot programs, CalAIM aims to coordinate physical health, behavioral health, and social services in a patient-centered manner with the goal of improving health and well-being, otherwise known as the “whole person care” approach. It also aims to improve quality outcomes, reduce health disparities, reduce complexity across all delivery systems, and implement value-based initiatives and payment reform. 

The main goal of this initiative is to better support millions of Californians enrolled in Medi-Cal — particularly those experiencing homelessness, children with complex medical conditions, children and youth in foster care, Californians involved with the justice system, and older adults — who often have to navigate multiple complex delivery systems to receive health-related services. As such, CalAIM positions the state to take a population health, person-centered approach to providing services, and potentially reduces health care costs.

The administration assumes that implementation of these various reforms would begin on January 1, 2022, and that $1.1 billion ($531.9 million General Fund) would be available during the initial fiscal year (2021-22) to:

  • Provide enhanced care management – a collaborative approach to providing intensive and comprehensive services to individuals; 
  • Support “in lieu of” services, which include housing transition services, recuperative care, and respite; 
  • Fund infrastructure needed to expand “whole person care” programs statewide; 
  • Build upon existing dental initiatives, such as the Dental Transformation Initiative, which aims to expand preventive dental services for children.

Substantial reforms to the Medi-Cal program as well as the level of federal funding that will be provided must be negotiated with the federal government through the Medicaid waiver process. As such, CalAIM implementation will depend on the availability of funding and federal approval.

Governor Proposes Investments in the State’s Behavioral Health System

Behavioral health services — mental health care and/or treatment for substance use — are primarily provided by California’s 58 counties, with funding from the state and federal governments. Before the COVID-19 pandemic, Californians with behavioral health conditions confronted many challenges in accessing services that are delivered by multiple complex systems. The increased stress, grief, isolation, and depression highlight the need to prepare for a possible behavioral health crisis on the horizon. Given that Californians of color have been disproportionately impacted by the pandemic, state policymakers should consider the racial equity implications in future budget and policy deliberations related to behavioral health.

The administration recognizes the toll on health and well-being that COVID-19 has taken, particularly on students, and proposes several budget proposals to support behavioral health. Specifically, the administration’s proposed budget includes: 

  • $750 million one-time General Fund, available over three years, for competitive grants to support acquisition and rehabilitation of properties for behavioral health treatment facilities, including community-based residential facilities. (See the Homelessness and Housing section for additional information.) 
  • $400 million one-time in a mix of state and federal funding, available over multiple years, to implement a program intended to increase the number of students receiving behavioral health services from K-12 schools. The Department of Health Care Services would implement this program through Medi-Cal managed care plans, in partnership with county behavioral health departments and schools.
  • $27.1 million General Fund for a one-year delayed suspension of Medi-Cal post-partum extended eligibility, which extends the duration of Medi-Cal eligibility for postpartum care for an individual who is diagnosed with a maternal mental health condition.   
  • $25 million one-time from the Mental Health Services Fund to expand the Mental Health Student Services Act Partnership Grant Program, which funds partnerships between county behavioral health departments and schools.
  • $25 million ongoing Proposition 98 General Fund to fund county behavioral health partnerships that support student mental health services. 

Homelessness & Housing

Governor Proposes Addressing Homelessness Through One-Time Spending to Acquire Housing Units and Residential Facilities

California has more than 25% of the nation’s population of homeless individuals, with approximately 150,000 homeless residents on a given night as of January 2019. Black Californians bear a disproportionate burden of homelessness, making up nearly 1 in 3 residents experiencing homelessness but only 6% of the overall state population. During the COVID-19 pandemic, individuals experiencing homelessness face increased risk of exposure to the virus and significant barriers to following public health guidelines to protect their health and prevent the virus from spreading. 

The governor’s budget proposal highlights investments the state has made to date with state and federal dollars to address shelter needs during the pandemic. In 2021-22, the governor proposes substantial one-time spending to “further develop a broader portfolio of housing needed to end homelessness” by acquiring and rehabilitating hotels/motels and residential facilities. Specifically, the budget proposal includes:

  • $750 million one-time General Fund (with $250 million available through early action before June) to continue property acquisitions through the Homekey program. Funds would continue to be administered by the Department of Housing and Community Development (HCD) as competitive grants for local jurisdictions to acquire and rehabilitate hotels, motels, and other buildings and to convert them into interim or permanent housing for individuals experiencing homelessness.  
  • $750 million one-time General Fund, available over three years, to support the acquisition and rehabilitation of properties for behavioral health treatment facilities, including community-based residential facilities. Funds would be administered by the Department of Health Care Services as competitive grants to counties, with a local match required, producing an estimated minimum of 5,000 beds, units, or rooms. The Administration also proposes to explore redirecting $202 million in relinquished adult jail bond financing to support the purchase or modification of short-term residential mental health facilities.
  • $250 million one-time General Fund for the acquisition or rehabilitation of Adult Residential Facilities (ARF) and Residential Care Facilities for the Elderly (RCFE), specifically to secure housing for low-income seniors. These facilities would provide housing, personal care, and supervision (including medication management) for individuals who are unable to live by themselves but do not need 24-hour nursing care. Funds would be available to counties through the Department of Social Services. 

Additional new investments to prevent and address homelessness include one-time funds to address student hunger and homelessness at California Community Colleges and the California State University (see Community Colleges and California State University and University of California sections). The governor also points to the CalAIM proposal to transform Medi-Cal in order to better meet the needs of individuals with complex and high needs, such as individuals experiencing homelessness, through strategies that include addressing social determinants of health, including meeting housing needs (see CalAIM section).

The governor’s budget proposal does not include substantial ongoing state funding specifically to address homelessness, though advocates and legislators have identified ongoing funding at scale as a priority to successfully address California’s homelessness crisis.

Governor Proposes Extending Eviction Moratorium, Investing in Housing Development to Stimulate Economy

Even before the COVID-19 recession, more than half of California’s renter households had unaffordable housing costs. Since the start of the pandemic, millions of Californians have lost jobs, with employment losses concentrated among lower-wage workers, who are least likely to have savings to cover housing costs in the face of lost income. As of December 2020, more than 6 in 10 California adults reported having difficulty paying for usual household expenses, like rent.

To address the urgent needs of renters during the pandemic, Governor Newsom proposes immediate action to extend the state eviction moratorium beyond its current expiration date of January 31, 2021. The governor notes that the federal COVID-19 relief bill enacted in December makes approximately $2.6 billion in assistance available for rent (including back rent) and utility expenses for California renters with low incomes.

The governor’s budget proposal also includes two major one-time investments to support housing development:

  • $500 million one-time General Fund for the Infill Infrastructure Grant Program (with $250 million proposed for early action before June). This investment is intended to stimulate economic recovery and job creation while facilitating housing development in infill locations.
  • $500 million for expansion of the state’s Low Income Housing Tax Credit (LIHTC) program, which supports affordable housing development. This proposal would maintain LIHTC tax expenditures for the third year in a row at the boosted level first adopted in the 2019-20 budget.

The governor also proposes continuing to streamline the state’s housing funding programs, with $2.7 million General Fund allocated to the Department of Housing and Community Development (HCD) to support this effort, while also working to improve alignment across the state’s housing finance programs. In addition, the governor proposes creating a new Housing Accountability Unit within HCD to increase the state’s focus on supporting local jurisdictions and holding them accountable for meeting their housing planning goals, with $4.3 million General Fund proposed to support technical assistance and proactive engagement provided through this new unit.

Economic Security

Governor Proposes $600 Tax Refunds for Californians With Low Incomes Through the CalEITC

Millions of Californians are continuing to struggle to pay for basic expenses like food and rent amid the worst recession in generations. Asian, Black, and Latinx workers, women, and workers paid low wages were far more likely to lose their jobs and earnings this past year, and their financial situation has likely deteriorated recently as the nation began to lose jobs once again due to spiking COVID cases.

To help address the financial challenges facing families and individuals with the lowest incomes, the governor proposes providing one-time $600 tax refunds to tax filers who qualify for California’s Earned Income Tax Credit (CalEITC) — a refundable state tax credit available to families and individuals who earn less than $30,000 per year from work. Specifically, the administration’s “Golden State Stimulus” would provide $600 to the 3.8 million tax filers who received the CalEITC last year when they filed their taxes for tax year 2019. In addition, the state would provide $600 refunds to an estimated 250,000 families and individuals who use Individual Taxpayer Identification Numbers (ITINs) to file their taxes this year for tax year 2020 and qualify for the CalEITC. These tax filers became newly eligible for the CalEITC as part of the 2020-21 budget agreement. Families and individuals who qualify for the CalEITC in tax year 2020, but who did not qualify for the credit tax year 2019 (with the exception of ITIN filers) will not be eligible to receive these payments. The administration estimates that the $600 cash payments will cost $2.4 billion.

This proposal is part of the governor’s early action in January. If this proposal is approved within the administration’s anticipated timeframe, the governor envisions that the $600 payments would begin to be sent to CalEITC recipients as early as February 2021. Californians who file their taxes with Social Security Numbers, who make up the vast majority of those qualifying for these payments, will not have to do anything to receive the cash. The Franchise Tax Board (FTB) will automatically deposit the payments into these tax filers’ bank accounts based on the information they provided on their 2019 tax returns. For filers where this information wasn’t provided or is no longer accurate, the FTB will send filers checks. Californians who file their taxes using ITINs, on the other hand, will need to file their 2020 taxes in order to receive the cash payment.

Administration Includes Some Support for Undocumented Immigrants, But Misses An Opportunity to Extend Medi-Cal to Undocumented Seniors

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. About 1 in 4 of these immigrant workers is employed in an industry highly affected by the COVID-19 economic shutdown. Among California’s undocumented workers, approximately 1 in 3 are employed in an industry highly affected by the COVID-19 economic shutdown, according to Budget Center estimates. Undocumented immigrants and their families face an especially high risk of financial crisis if they lose work due to COVID-19 because they are excluded from most support programs, including standard unemployment insurance as well as expanded COVID-19 federal relief. 

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 of crisis. The administration makes important strides to support Californians who are undocumented and have not recieved much if any support during the COVID-19 pandemic, but misses a key opportunity to improve health equity and make strides toward universal coverage during public health crises. 

Supports in the administration’s proposal include:

  • $600 tax refunds for Californians with low incomes through the CalEITC, including immigrants who use Individual Taxpayer Identification Numbers (ITINs) to file taxes. The administration’s “Golden State Stimulus” would provide $600 refunds to an estimated 250,000 families and individuals who use Individual Taxpayer Identification Numbers (ITINs) to file their taxes this year for tax year 2020 and qualify for the CalEITC. These tax filers became newly eligible for the CalEITC as part of the 2020-21 budget agreement. The governor envisions that the $600 payments would begin to be sent to CalEITC recipients as early as February 2021.
  • Ongoing annual funding for immigration services. The budget proposal includes $75 million in ongoing General Fund for the unaccompanied undocumented minors and Immigration Services Funding programs. The Department of Social Services allocates funds through these two programs to nonprofit organizations who provide immigration services.
  • $11.4 million one-time for the California Food Assistance Program (CFAP) emergency allotments. CFAP provides state-funded food assistance to “qualified” immigrants who are not eligible for CalFresh, California’s Supplemental Nutrition Assistance Program (SNAP). Under the governor’s proposal, the state would provide $11.4 million General Fund to maintain CFAP emergency allotments from July through December 2021, with these state funds offset by federal Coronavirus Relief Funds. These emergency allotments increase households’ food assistance benefits to the maximum benefit for their household size. However, the additional funding does not reflect a 15% increase in the maximum benefit as was approved for SNAP households in the recent federal economic relief bill. State policymakers should ensure that this 15% increase is also reflected for CFAP households, keeping with the longstanding practice of aligning CFAP benefits with CalFresh. In addition, state policymakers should consider expanding eligibility for CFAP to meet the needs of California’s immigrant population. The most recent available data from October 2020 shows that over 35,000 people participated in CFAP. Participation peaked in June, when nearly 40,000 people benefited from CFAP.
  • $5 million one-time General Fund for Rapid Response Program. This additional funding is to provide support to entities that provide critical assistance and services to immigrants during emergent situations. 
  • New requirement that all eligible high school seniors complete a California Dream Act Application. Local educational agencies would be required to ensure compliance beginning in the 2021-22 academic year. The California Student Aid Commission reported a 45% decrease in California Dream Act application completions in 2020 compared to 2019. 

Missed opportunities in the administration’s proposal include:

  • Failure to expand comprehensive Medi-Cal coverage to seniors regardless of immigration status — even in the midst of a deadly pandemic that is disproportionately affecting older adults. In recent years, California has extended full-scope Medi-Cal coverage to undocumented immigrants under age 26 who otherwise qualify for the program. One year ago, Governor Newsom proposed to expand this state policy to include undocumented adults age 65 or older, but withdrew this proposal in May and continues to exclude it from his 2021-22 spending plan. As a result, under the governor’s proposed budget, seniors who are undocumented would remain locked out of full-scope Medi-Cal coverage at a time when preventive health services and treatment for chronic health conditions are needed most, particularly given that older adults are most at risk of severe illness from COVID-19 and even death. By failing to expand Medi-Cal to undocumented seniors, the governor misses an opportunity to provide these older adults with an affordable, regular source of care, which could help to improve their health status as well as their chances of recovering from COVID-19. 
  • Not including new funding to expand student support services for immigrant students including undocumented students in California Community Colleges. The 2020-21 budget allocated $5.8 million for Dreamer Resource Liaisons and student support services, but no additional funding is proposed in the 2021-22 budget. 

The Administration’s January Proposal Makes Modest Adjustments to the CalWORKs Program, Anticipates an Increased Caseload

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for low-income children while helping parents overcome barriers to employment and find jobs. Even before the COVID-19 crisis, CalWORKs primarily served children of color, who faced higher rates of economic insecurity than did white children. Now, with millions of California workers who have lost their jobs or seen reduced wages due to a long-term public health emergency and recession, CalWORKs is a particularly critical source of support.

In his January proposal, the governor proposes allocating $7.4 billion in federal Temporary Assistance for Needy Families (TANF) funds to support the CalWORKs program in 2021-22. Part of this spending reflects the administration’s anticipation of an increase in the average monthly number of CalWORKs families, due to the economic downturn. Workers of color — especially Black and Latinx women — have experienced the largest drops in employment due to the COVID-19 recession. With the loss of millions of jobs in California, it will be harder and will take longer for parents with work barriers to secure jobs that can cover the costs of living while also keeping their families safe and healthy. More parents will need to turn to CalWORKs for support, including some parents who turned to CalWORKs for support previously during the difficult job market and loss of housing stability in the Great Recession. 

Unlike most states, where parents are allowed to receive cash support for 60 months, California restricts parents in CalWORKs to only 48 months. Though this restriction, which began in 2011, was lifted in the 2020-21 budget, the restoration of the 60-month time limit will not take effect until at least May 2022 due to data system constraints. Until then, the January proposal provides $46.1 million one-time General Fund to ensure that CalWORKs clients who receive assistance during the COVID-19 pandemic can continue to do so without running down their 48-month clock.

Finally, the governor also proposes $50.1 million for a 1.5% grant increase, effective October 1, 2021. This increase would not be funded through the General Fund but instead through the Child Poverty and Family Supplemental Support subaccounts of the Local Revenue Fund.

Governor’s Proposal Offers Small Amount of Support for Subsidized Child Care, Does Not Include Plan for Federal COVID-Relief Funds

California’s subsidized child care and development system provides assistance for working parents with low and moderate incomes who are struggling to afford the cost of child care for their children. During this unprecedented health and economic crisis, many child care providers in California have stepped up to the challenge of providing early learning and care and distance learning support for families — particularly for children with parents who are essential workers. While the state and federal government have both provided emergency funding to support child care providers, total support falls far short of the estimated level necessary to sustain this critical system. Meanwhile, family budgets are even more strained due to lost jobs and wages, and without access to safe and affordable child care, many California families may not be able to return to work.

The governor’s proposed budget provides a small amount of funding to support child care providers and families. Specifically, the proposal:

  • Provides $55 million one-time General Fund for child care providers and families who are struggling due to the COVID-19 health and economic crisis. Additional details are not available.
  • Provides $44.3 million in Proposition 64 Cannabis Funds for roughly 4,500 spaces in the Alternative Payment Program. The governor proposes making $21.5 million available in the current fiscal year and $44 million ongoing.
  • Shifts $31.7 million and 185.7 staff positions from the California Department of Education to the Department of Social Services as part of the planned migration of child care programs that was part of the 2020-21 budget agreement. Administration of and funding for child care programs operated by the California Department of Education will also shift to the Department of Social Services on July 1, 2021.

Absent from the administration’s proposal is a plan to distribute an estimated $1 billion in federal funds — California’s expected share of the $10 billion in federal Child Care and Development Block Grant funds included in the most recent COVID relief package included in the Consolidated Appropriations Act. While the 2020-21 budget agreement stipulated how up to $300 million should be allocated if the state received additional federal funds, these items are also absent from the budget document released by the administration. The state has 60 days from the enactment of the federal relief package — which occurred on December 27, 2020 — to submit a plan for the use of these dollars.

Supporting child care in California is critical to helping providers survive the COVID-19 crisis, supporting parents who have no choice but to work outside the home, and aiding the state’s economic recovery.

Proposed Budget Lacks a State Increase for SSI/SSP Grants, but Includes New State Funding for Housing, Alzheimer’s, and Other Initiatives to Assist Seniors

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 funded with both federal (SSI) and state (SSP) dollars. State policymakers made deep cuts to the SSP portion of these grants to help close budget shortfalls that emerged after the onset of the Great Recession in 2007. Since then, state policymakers have provided only one increase to the state’s SSP portion of the grant — a 2.76% boost that took effect in January 2017, resulting in monthly SSP grant levels of $160.72 for individuals and $407.14 for couples, which continue to remain in effect.

Although the recently released Master Plan for Aging recognizes that SSI/SSP grants have “not kept up with poverty levels,” the governor proposes maintaining the SSP portion at the current inadequate levels into 2022. However, the federal government is expected to increase the SSI portion of these grants by 2.2% in January 2022. This increase would boost maximum SSI/SSP grants by $17 per month for individuals (to $971.72) and by $26 per month for couples (to $1,624.14).

While the governor misses an opportunity to boost state financial assistance for older adults and people with disabilities, he does propose new investments aimed at assisting these Californians in other ways. For example, the proposed budget:

  • Provides $250 million to preserve and expand housing for certain seniors with low incomes. The Department of Social Services would use this one-time funding to acquire and rehabilitate Adult Residential Facilities (ARFs) and Residential Care Facilities for the Elderly (RCFEs), with the goal of maintaining and increasing housing options for seniors who are homeless or at risk of homelessness. (This proposal is also discussed in the Homelessness section.)
  • Allocates $17 million to improve the state’s approach to Alzheimer’s disease. This one-time funding would support a public education campaign on brain health ($5 million); Alzheimer’s-related research ($4 million); new training and certification for caregivers ($4 million); expanded training for health care providers ($2 million); and grants to help communities become “dementia-friendly” ($2 million). Overall, this approach would emphasize people of color and women, who are disproportionately affected by Alzheimer’s, according to the budget summary.
  • Provides $7.5 million to expand one-stop information centers that serve seniors, people with disabilities, and people living with Alzheimer’s. These centers — known as Aging and Disability Resource Connections (ADRCs) — currently serve about one-third of the state and would be expanded statewide under the governor’s proposal. ADRCs provide “access to information and assistance with aging, disability, and Alzheimer’s, in multiple languages and with cultural competencies,” according to the governor’s budget summary. Funding for these centers would be subject to suspension on December 31, 2022, under the governor’s proposal. 
  • Includes $3 million to increase and diversify the geriatric medicine workforce. This one-time funding is intended to develop “a larger and more diverse pool of health care workers with experience in geriatric medicine,” according to the governor’s budget summary.

Proposed Budget Includes Proposals to Address Food Hardship

Food hardship has skyrocketed in California due to the COVID-19 health and economic crisis. This is particularly true for Black and Latinx Californians and other Californians of color who have been hit hard by the pandemic and are much more likely to not have enough food to eat. The governor’s proposed budget includes a number of food and nutrition proposals to help address food hardship in California. Specifically, the proposed budget:

  • Provides $11.4 million one-time for the California Food Assistance Program (CFAP) emergency allotments. CFAP provides state-funded food assistance to “qualified” immigrants who are not eligible for CalFresh, California’s Supplemental Nutrition Assistance Program (SNAP). Under the governor’s proposal, the state would provide $11.4 million General Fund to maintain CFAP emergency allotments from July through December 2021, with these state funds offset by federal Coronavirus Relief Funds. These emergency allotments increase households’ food assistance benefits to the maximum benefit for their household size. However, the additional funding does not reflect a 15% increase in the maximum benefit as was approved for SNAP households in the recent federal economic relief bill. State policymakers should ensure that this 15% increase is also reflected for CFAP households, keeping with the longstanding practice of aligning CFAP benefits with CalFresh. In addition, state policymakers should consider expanding eligibility for CFAP to meet the needs of California’s immigrant population. (See also Immigration section.)
  • Extends increased funding for the Senior Nutrition Program, providing a total of $17.5 million in 2021-22. This includes catered meals as well as the Meals on Wheels program. Funding for this program was subject to suspension on December 31, 2021, but this potential suspension was delayed by one year, to December 31, 2022.
  • Provides an additional $22.3 million ongoing General Fund for the Supplemental Nutrition Benefit and Transitional Nutrition Benefit programs. As part of the 2018-19 budget agreement, state policymakers eliminated the “SSI cash-out,” allowing people enrolled in SSI/SSP to receive federal food benefits provided through the Supplemental Nutrition Assistance Program (SNAP) — called CalFresh in California. As a result of this policy change, certain households that were already receiving CalFresh benefits would have experienced a reduction in those benefits or become ineligible for CalFresh. The Supplemental Nutrition Benefit and Transitional Nutrition Benefit programs were created to offer state-funded benefits to these households to ensure that they did not lose critical assistance. The proposed budget would increase the average benefit amount for each program.
  • An additional $30 million one-time General Fund for food banks. Recognizing the vital role that Emergency Food Assistance Programs, food banks, tribes, and tribal organizations play in making sure Californians have enough to eat, the proposed budget includes an additional $30 million in one-time funding. Millions in California have recently turned to food pantries and food banks during the current recession, but this funding has not been identified for early action, despite the severity of the crisis. Additionally, this boost in one-time funding likely falls short of the levels necessary to adequately address the hunger crisis across the state. 
  • Provides $115 million to support college students’ basic needs, including access to food. The proposed budget includes $100 million one-time Proposition 98 funding to support CCC students experiencing housing and food insecurity in order to help mitigate the effects of the pandemic. The governor also proposes $15 million ongoing General Fund to address basic needs — such as hunger, homelessness, and financial insecurity — for California State University students through the Graduation Initiative 2025. (See also Community Colleges and California State University/University of California sections.)

Many in California are struggling to afford basic expenses while the COVID-19 pandemic rages unchecked. The governor’s proposed budget offers much-needed food assistance but none of these proposals are currently identified as “early action” items to be fast-tracked by state policymakers, despite the very clear need. 

Education

Governor’s Proposal Invests in Transitional Kindergarten

Transitional kindergarten is the first year of a two-year kindergarten program for children who turn five on or between September 2 and December 2 of the year they enter the program. Eligibility is based on age alone in public schools and is not dependent on family income. As part of the administration’s recently released Master Plan for Early Learning and Care, the 2021-22 budget proposal invests $500 million in one-time funding to make transitional kindergarten more accessible for families. This includes:

  • $250 million one-time Proposition 98 General Fund for incentive grants for school districts to expand transitional kindergarten programs to younger children born after December 2. These funds would be distributed over a multi-year period.
  • $200 million one-time General Fund for school districts to construct or retrofit existing facilities in order to offer transitional kindergarten and full-day kindergarten programs. This is on top of $100 million included in the 2018-19 budget agreement for the same purpose, of which nearly all has been spent.
  • $50 million one-time Prop. 98 General Fund for training for transitional kindergarten and kindergarten teachers. Training instruction is to focus on a variety of issues meant to create more inclusive classrooms, such as implicit-bias training and supporting English Language Learners. 

Despite rescinding significant funding as a result of the pandemic, the governor’s proposed budget does not include funding for the California State Preschool Program — a program serving children from families with low and moderate incomes in community-based organizations and local education agencies. The State Preschool Program may be better positioned to provide services for working families with low incomes who need wraparound child care services beyond school hours and during summer months. 

Increased Revenues Boost the Minimum Funding Level for Schools and Community Colleges

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of annual funding for K-12 schools, community colleges, and the state preschool program. The governor’s proposed budget assumes a 2021-22 Prop. 98 guarantee of $85.8 billion for K-14 education, $14.9 billion above the 2020-21 funding level of $70.9 billion estimated in the 2020-21 budget agreement. The Prop. 98 guarantee tends to reflect changes in state General Fund revenues and estimates of 2019-20 and 2020-21 General Fund revenue in the proposed budget are higher than those in the 2020-21 budget agreement. The governor’s budget proposal assumes a 2020-21 Prop. 98 funding level of $82.8 billion, $11.9 billion above the level assumed in the 2020-21 budget agreement, and a $79.5 billion 2019-20 Prop. 98 funding level, $1.9 billion above the level assumed in the 2020-21 budget package. Last year’s budget agreement did not include a deposit into the Public School System Stabilization Account (PSSSA) – the state budget reserve for K-12 schools and community colleges – due to projections for weak revenue from capital gains and a decline in the Prop. 98 funding guarantee. Revised projections in the governor’s proposed budget, however, would require a PSSSA deposit of $747 million in 2020-21 and an additional $2.2 billion in 2021-22, bringing the PSSSA total to $3 billion. 

To address the reduction in Prop. 98 funding for K-12 schools and community colleges that was projected last year, the 2020-21 budget agreement included a provision to supplement Prop. 98 funding beginning in 2021-22 by 1.5% of annual General Fund revenues. This new spending obligation was slated to continue until the total in supplemental payments reached $12.4 billion. Because of the significant increase in General Fund revenue projections in the governor’s proposed budget, his spending plan eliminates this ongoing obligation and instead includes a one-time supplemental payment of $2.3 billion for K-14 education in 2021-22. 

Governor Proposes to Repay Some Deferred Funding to Schools and Provide a Large Amount of One-Time Funding to Address Pandemic-Related Educational Disruptions

The largest share of Prop. 98 funding goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to more than 6 million students in grades kindergarten through 12. The governor’s proposed budget repays school districts for a large amount of payments that were deferred in last year’s budget agreement, allocates significant one-time funding to address the impact of the COVID-19 pandemic on students and to incentivize schools to provide in-person instruction, and increases ongoing funding for the state’s K-12 education funding formula – the Local Control Funding Formula (LCFF). Specifically, the governor’s proposed budget:

  • Provides $7.3 billion to repay deferred payments to K-12 school districts. The 2020-21 budget agreement deferred $11.0 billion in LCFF payments for K-12 school districts until 2021-22. The payment deferrals allowed the state to authorize a level of spending by K-12 schools that the state could not afford in 2020-21, providing the state with one year of savings without requiring a reduction in K-12 education spending. While repaying a large amount of the deferrals in 2021-22, the governor’s proposed budget would continue to defer $3.7 billion in LCFF payments until 2022-23. 
  • Provides $4.6 billion in one-time funding for expanded learning time and academic intervention grants. To address educational disruptions due to the pandemic, the budget proposes early action before June and targets these dollars for interventions focused on English learners, students from low-income families, and foster and homeless youth, such as an extended school year or summer school. 
  • Allocates $2 billion in one-time funding for In-Person Instruction Grants. These per pupil grants would be available beginning in February 2021 to school districts, COEs, and classroom-based charter schools that fulfill a series of requirements that include:
    • submitting a COVID-19 School Safety Plan to their COE, or the California Department of Education for single-district counties; 
    • providing an option for in-person instruction by no later than March 15, 2021 for transitional kindergarten through 6th grade; and 
    • providing the option for in-person instruction to at least students with disabilities, foster youth, homeless youth, and students who are not able to participate in online instruction.

Schools not able to provide in-person instruction due to high COVID-19 case rates in their county or local health jurisdiction would be eligible for full grant amounts if they fulfill grant requirements and the seven-day adjusted average COVID case rates in their county or local health jurisdiction falls below 28 cases per 100,000 people per day. In-Person Instruction Grants would be available for use until December 31, 2021 and could be used for any purpose consistent with providing in-person instruction such as teacher salaries, COVID-19 testing, or personal protective equipment.

  • Increases LCFF funding by $2 billion. 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. The governor’s proposal would provide a cost-of-living adjustment (COLA) of 3.84% in 2021-22, which includes making up for last year’s budget agreement not providing a 1.5% COLA for the LCFF in 2020-21.
  • Provides more than $300 million in one-time funds for educator professional development. The governor’s proposal would fund several programs including $250 million for the Educator Effectiveness Block Grant, $50 million to create statewide resources and provide professional development on social-emotional learning and trauma-informed practices, and $8.3 million for the California Early Math Initiative to provide teacher professional development in mathematics teaching strategies. 
  • Provides $264.9 million in one-time funds for community schools. Community schools provide integrated educational, health, and mental health services to students. The governor’s budget proposes to use community school grants for school districts to develop new and expand existing networks of community schools with priority given for schools in high-poverty communities. 
  • Provides $225 million in one-time funds to improve the teacher pipeline. The governor’s proposal would increase funding by $100 million for the Golden State Teacher Grant Program, a grant program for students enrolled in teacher preparation programs who commit to teach in “high-need” subjects, including bilingual education, STEM, and special education (also see Student Financial Aid section); $100 million for the Teacher Residency Program, a competitive grant program established in 2018 to recruit and prepare special education, science, technology, engineering, mathematics, and bilingual education teachers to teach in high-need communities; and $25 million for the California Classified School Employees Credentialing Program, which provides grants to K-12 school districts to recruit school employees to become classroom teachers.
  • Provides $85.7 million to fund COLAs for non-LCFF programs. The governor’s proposed budget funds a 1.5% COLA for several categorical programs that remain outside of the LCFF, including special education, child nutrition, and American Indian Education Centers.

The Budget Proposal Expands Supports for Low-Income Community College Students Hardest Hit by the Effects of the Pandemic

A portion of Proposition 98 funding provides support for California Community Colleges (CCCs), the largest postsecondary education system in the country. CCCs help prepare nearly 2.1 million students to transfer to four-year institutions or to obtain training and employment skills. In 2017-18, about 126,000 CCC students transferred to a four-year postsecondary institution — approximately 32,000 of those were first-generation students — and in 2018-19, more than 84,000 students earned an associate’s degree. 

The 2021-22 budget proposal includes emergency financial support for students most affected by the pandemic, invests in targeted efforts to engage and retain students, increases access and quality of remote learning, and makes investments in workforce development. Specifically, the proposed spending plan:

  • Includes approximately $1.1 billion to reduce deferred payments to CCCs. To avoid spending cuts, the 2020-21 budget agreement deferred $1.5 billion in payments to CCCs until 2021-22. The budget proposal includes repayment of a portion of these deferrals, but still defers approximately $326.5 million from 2021-22 to 2022-23.
  • Proposes $250 million in one-time funding to expand financial assistance for students experiencing hardship due to the pandemic. The budget proposes early action before June to provide $100 million in funding for emergency financial support for full-time, low-income students who lost full-time employment. The budget proposal also includes $150 million for this same purpose for 2021-22, after June.
  • Includes an increase of $111.1 million for a 1.5% cost-of-living adjustment (COLA) for apportionments. 
  • Provides $100 million in one-time funding to support student basic needs. The proposed budget includes support for CCC students experiencing housing and food insecurity in order to help mitigate the effects of the pandemic. 
  • Includes $40.6 million in ongoing funding to bolster remote learning and support student mental health. An increase of $30 million Prop. 98 would support students’ basic technology needs and make progress in closing the digital divide by helping students acquire devices and high-speed internet and also increase student access to mental health resources. The proposed budget also includes $10.6 million to continue improving distance learning, online access to academic support, counseling, and mental health services. 
  • Includes $20 million in one-time funds to address a decline in student enrollment as a result of the pandemic and increase retention rates. From fall 2019 to fall 2020, student enrollment at CCCs has dropped by roughly 8%. As part of the early action package, the proposed investment would support re-enrollment, retention, and recruitment.  
  • Includes $20 million in one-time funding to expand work-based learning programs at CCCs. This investment would expand work-based learning programs, models, and curriculum. 
  • Provides $15 million in ongoing funds to expand the California Apprenticeship Initiative. The apprenticeship program supports the expansion of apprenticeship opportunities for training and development in growing and priority industries. 

Absent from the administration’s proposal is additional funding to expand student support services for immigrant students, including undocumented students in CCCs. CCCs provide support through Dreamer Resource Liaisons and legal services for immigrant students, faculty, and staff. Changes in federal immigration policies have increased the need for services and greater investment is necessary to advance economic justice for immigrant students.

The January Proposal Increases Funding for the CSUs and UCs, Includes Some Additional Support to Address Equity

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 486,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 285,000 students on 10 campuses.

For the CSU, the administration proposes $144.5 million in ongoing General Fund, including:

  • $111.5 million to support a three percent increase in base resources for operational costs.
  • $15 million to address basic needs (such as hunger, homelessness, and financial insecurity) for students through the Graduation Initiative 2025.
  • $15 million to address inequities in digital connectivity and for mental health support.
  • Over $3 million for other purposes such as an online learning platform, expansion at CSU Stanislaus, Stockton, and broadband access.

The governor also proposes one-time spending of $225 million General Fund, including $30 million for emergency grants to low-income students and students working full-time. The remainder would go to support deferred maintenance, faculty development, and the Computing Talent Initiative at CSU Monterey Bay.

For the UC, the administration proposes $136 million in ongoing General Fund, including:

  •  $103.9 million to support a three percent increase in base resources for operational costs.
  •  $15 million to address inequities in digital connectivity and improve access to mental health resources.
  •  $12.9 million for UC Programs in Medical Education, including an expansion to focus on American Indian communities. (See also Other Proposals section.)

The governor also proposes one-time spending of $225 million General Fund, including $15 million for emergency grants for low-income students and those working full-time. The remainder would support deferred maintenance, professional development for K-12 teachers to address ethnic studies and learning loss mitigation, and other purposes.

The administration would provide these funds with the expectation that both the CSU and the UC would maintain current tuition and fee levels. Both institutions would also be expected to take action to reduce equity gaps by 2025 and to create pathways to guarantee admission to first-time freshmen who have completed an Associate Degree for Transfer from the California Community Colleges.

Administration Provides Additional Emergency Financial Assistance Grants and Funds Golden State Teacher Grant Program

Cal Grants are the foundation of California’s financial aid program for low- and middle-income students pursuing higher education in the state. Cal Grants provide aid for tuition and living expenses that do not have to be paid back. Ensuring Californians have access and the resources to attend and thrive in the state’s higher education institutions broadens opportunities for individuals and families as well as strengthens our state’s workforce to drive long-term economic growth. Many students already confront significant hardships to afford tuition and living expenses, including student-parents, current and former foster youth, undocumented students, and those from families with low incomes. These students now face added layers of stress and financial insecurity due to the COVID-19 pandemic. In order to address these challenges and continue to support California’s higher education students, the proposed 2021-22 budget includes:

  • $295 million one-time General Fund for emergency student financial assistance grants. This includes $250 million for California’s Community Colleges, $30 million for the California State University, and $15 million for the University of California. The additional student grants will target full-time, low-income students who were previously working full-time and who demonstrate a financial need. The governor proposes $100 million for California’s Community Colleges to be included in an early action package this spring.
  • $100 million one-time General Fund for the Golden State Teacher Grant Program. The program is intended to provide grants of $20,000 for teachers committed to teaching for four years in “high-need” subjects — including bilingual education, STEM, and special education — and in schools that have a high percentage of teachers with “emergency-type permits.” 
  • $35 million ongoing General Fund to add 9,000 Competitive Cal Grant awards. Competitive Cal Grants support students who attend college more than a year after high school graduation and meet certain income and GPA requirements. The additional funding will expand the number of available grants to 50,000, up from the current level of 41,000.
  • $20 million ongoing General Fund for former and current foster youth access award. Eligible new or renewal Cal Grant A and B students will receive awards up to $6,000 and Cal Grant C students will receive $4,000.
  • A new requirement that all high school seniors complete a FAFSA or California Dream Act Application. Local education agencies would be required to ensure compliance beginning in the 2021-22 academic year. The California Student Aid Commission reported that there was a 10% decrease in FAFSA and 45% decrease in California Dream Act application completions in 2020 compared to 2019.

Justice System

Proposed Budget Reports That California Is on Track to Spend More Than $1 Billion Related to COVID-19 in State Prisons, as the Virus Continues to Spread

More than 95,400 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. More than two-thirds of state prisoners are Black or Latinx individuals — 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 — 90,639 — are housed in state prisons designed to hold fewer than 85,100 people. This level of overcrowding is equal to 106.5% 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. (In other words, although state prisons remain overcrowded, the state is complying with the court order.) In addition, California houses over 4,800 people in facilities that are not subject to the court-ordered 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 reforms to the justice system enacted during the 2010s 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 proposed budget:

  • Projects the state is on track to spend $1.1 billion on COVID-19 activities in state prisons from the onset of the pandemic to the end of the current fiscal year (June 30, 2021). Moreover, the governor proposes to spend an additional $281.3 million on COVID-19 activities in prison during the upcoming 2021-22 fiscal year.
  • Confirms that COVID-19 continues to spread among incarcerated adults and prison staff. In December 2020, active cases among incarcerated adults exceeded 9,000, and active cases among staff surpassed 2,600, with every state prison having had active cases at some point. Furthermore, 103 incarcerated adults at 17 prisons had died of COVID-19 as of mid-December.
  • Reports that the number of adults incarcerated at the state level is substantially lower than expected largely due to state actions taken in response to COVID-19. The state projected an average daily prison population of 122,536 when the 2020-21 budget was adopted last June. The governor now estimates an average daily population of 97,950 in 2020-21 — 20% below the original estimate. Moreover, the state projects the prison population will drop by an additional 2,626 between 2020-21 and 2021-22. These significant declines are largely due to actions the state has taken to reduce overcrowding and mitigate the spread of the virus among incarcerated adults. These actions include suspending intakes from county jails and implementing early releases.
  • Continues to plan for the closure of two state prisons over the next couple of years. The administration plans to close the Deuel Vocational Institution by September 2021, for General Fund savings of $113.5 million in 2021-22, rising to $150.6 million in 2022-23. A second state-operated prison is planned for closure in 2022-23, although the specific institution that will be closed has not been announced.
  • Includes $23.2 million in 2020-21 for technology needed to increase incarcerated adults’ access to remote-learning opportunities. This proposal includes the purchase of about 38,000 laptop computers for adults enrolled in community college courses and other academic programs. It also includes the expansion of network bandwidth and the creation of a “secure online academic portal” that would allow students to complete their educational programs remotely. Maintaining these initiatives would cost $18 million per year beginning in 2022-23, according to the governor’s budget summary.

Proposed Budget Increases Funding for County Probation Departments and Continues Fines and Fees Assistance for Californians With Low Incomes

All California counties play a key role in the state’s local correctional system, including by operating jails and supervising adults and juveniles on probation. While COVID-19 health concerns pushed most counties to continue temporarily lower bail schedules and reduce the number of people held in custody, county jails still house roughly 58,000 adults on a given day. Counties’ role in corrections was transformed by the state-to-county “realignment” that took effect in 2011, following a US Supreme Court order that required the state to reduce its prison population. Under realignment, counties are responsible for managing certain adults who had traditionally been housed in state prisons and supervised by state parole officers upon their release. Recently, juvenile justice realignment also transferred responsibility for youth who are wards of the state to counties. As of June 30, 2021, the California Department of Corrections and Rehabilitation Division of Juvenile Justice (DJJ) will no longer house juveniles, with limited exceptions, and transfer care for these youths to counties.

In this budget, the administration acknowledged the increasing responsibility counties are undertaking due to their key role in rehabilitation and adult and juvenile realignment. To this end, the proposed budget provides:

  • $122.9 million ongoing General Fund to county probation departments to support efforts to maintain or reduce current probation revocation rates due to COVID-19 changes to statewide probation policy.
  • $50 million one-time General Fund in 2020-21 for county probation departments to enhance a broad range of services to quickly and effectively prevent youth and adults from entering or reentering the criminal justice system. The governor proposes early legislative action for this funding in 2021.  
  • $46.5 million General Fund in 2021-22, $122.9 million in 2022-2023, $195.9 million in 2023-24, and $212.7 million in ongoing in 2024-25 for county probation departments to take responsibility for youth who will be under their jurisdiction once the DJJ closes. 
  • $19.5 million one-time General Fund in 2021-22 for county probation departments for additional adults on Post-Release Community Supervision due to a temporary increase in the daily population.

The local correctional system is also accompanied by California’s 58 county-based trial courts that supplement the foundation of the state’s judicial branch – ruling on both civil and criminal cases. The governor’s proposal continues ongoing efforts to reduce criminal fines and fees for Californians with low incomes through allocating $12.3 million General Fund in 2021-22, increasing to $58.4 million ongoing General Fund by 2024-25. These proposed funds are allocated to expand a pilot program currently administered by the Judicial Council in six courts to county courts statewide. This would allow Californians with qualifying incomes to reduce their penalties by 50% or more and make payments over time for certain traffic and non-traffic related fines and fees. 

Other Proposals

Proposed Budget Includes New Investments in Job Creation, Small Business Relief, and Workforce Development

The governor’s budget contains a series of proposals intended to create and retain jobs, assist small businesses struggling due to the COVID-19 pandemic, and provide training and industry linkages for those entering or re-entering the workforce. 

The governor proposes $777.5 million for a “California Jobs” Initiative, which includes:

  • $430 million for the California Competes Program, a competitive tax credit program created in 2014 for businesses that commit to creating or retaining jobs in California. The governor proposes increasing the tax credit program by $90 million in both 2020-21 and 2021-22. Currently, total tax credit awards are capped at $180 million per year. Additionally, the proposal includes $250 million in one-time General Fund to create a competitive grant program for businesses meeting specific investment or job creation criteria. Of the $250 million proposed, $50 million would be reserved for businesses located in “high-need, high-opportunity” areas. The governor requests the Legislature include these funds in an early action package prior to the June budget.
  • $100 million for the Main Street Small Business Tax Credit in 2021-22, a credit against state income or sales taxes for small businesses impacted by COVID-19 to support the hiring and rehiring of employees. This is in addition to the $100 million in tax credits authorized in September 2020.
  • $100 million for a one-time expansion of the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) sales tax exclusion. This program allows businesses to apply for a sales tax exclusion for the purchase of manufacturing equipment relating to alternative energy and advanced transportation, with the goal of expanding the state’s economy and advancing the state’s climate goals. Under existing law, the sales tax exclusion program is capped at $100 million annually.
  • $100 million one-time General Fund for the California Infrastructure and Economic Development Bank (IBank). Of this amount, $50 million would be for small business loan guarantees, and $50 million would more broadly support IBank’s programs, with an emphasis on those that benefit underserved businesses.
  • $35 million one-time General Fund for a California Dream Fund to provide startup grants of up to $10,000 for entrepreneurs to promote new small business creation, focusing on groups that have historically faced barriers to accessing capital such as people of color, women, and immigrants. The governor requests this funding be included in an early action package before the June budget.
  • $12.5 million for the California Rebuilding Fund, a public-private partnership to provide loans to the smallest businesses. The 2020 Budget Act seeded the fund with $25 million, and the governor announced the additional $12.5 million investment in November. The administration expects that the Fund will provide $125 million in capital for small businesses with a combination of public, private, and philanthropic funds.

The proposed budget includes $575 million in additional funds for the State’s Small Business COVID-19 Relief Grant Program, which provides grants of up to $25,000 for small businesses and nonprofit organizations that have been impacted by COVID-19, with priority given to regions and industries particularly hard-hit as well as disadvantaged communities and “underserved small business groups.” Of this amount, $25 million will be for grants to small cultural institutions such as museums and art galleries that have been impacted by COVID-19. The $575 million proposal is in addition to the $500 million in initial funding for the program announced by the governor in November. The governor is proposing the Legislature include the additional investment in an early action package in January. 

The governor proposes $352.9 million to support workforce development strategies, including:

  • $250 million one-time General Fund to support forthcoming proposals to strengthen linkages between institutions of higher education and employers.
  • $35 million Proposition 98 General Fund to support apprenticeship and work-based learning programs in community colleges. (See also section on Community Colleges)
  • $20 million one-time General fund for science and innovation institutes on University of California campuses, including student stipends and linkages with industry partners. (See also section on CSU and UC.)
  • $12.9 million ongoing General Fund for UC Programs in Medical Education (PRIME), including the establishment of a new program focused on American Indian communities. (See also section on CSU and UC.)
  • $25 million one-time General fund for the California Workforce Development Board to expand the High Roads Training Program to create new apprenticeships and pre-apprenticeships in the fields of construction, forestry and agriculture, health care, trade and logistics, and information technology. The governor requests the legislature include this item in an early action package before the June budget.
  • $10 million one-time General Fund for the Computing Talent Initiative at California State University, Monterey Bay to support underrepresented computer science students in developing skills and connecting with industry professionals. (See also section on CSU and UC.)

Finally, the budget proposal includes $70.6 million in one-time fee waivers for individuals and small businesses in service industries heavily affected by shutdowns, such as restaurants, bars, and salons. The governor requests that these waivers be included in an early action package in January.

Some of the governor’s proposals are appropriately targeted to small businesses and workers that have been the hardest hit by the COVID-19 recession. However, some of the proposed funds will likely go to businesses that do not need assistance. For instance, the California Competes tax credit program and the CAEATFA sales tax exclusion are available to businesses of any size and have uncertain effects on the state’s economy, and the Legislative Analyst’s Office has previously recommended eliminating them both. The funds set aside for these purposes could instead be used to directly support Californians most affected by the pandemic and recession.

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California Budget & Policy Center Statement on Governor Newsom’s Proposed 2021-22 Budget

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Providing emergency cash relief and housing support, and prioritizing the safe reopening of schools are wise investments for the state, our economy, and to meet the urgent needs of Californians in low and middle-income households who have been hard hit by the pandemic. Still, Governor Newsom and state leaders need to consider the many urgent and ongoing health and economic needs of children, families, workers, and seniors in low-income households. Every day, Californians are losing jobs and income, health care and food assistance, child care and educational opportunities. State leaders must prioritize ongoing investments that will help Californians with the health and financial strains faced not just today, but in the months and years to come.

About this event

This virtual panel of Budget Center experts will cover key components of Governor Gavin Newsom’s 2021-22 state budget proposal and look at how the proposal supports Californians facing the health and economic challenges of COVID-19.

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COVID-19 has changed jobs, schools, and child care settings for Californians, and this has been particularly disruptive for children, families, and the child care providers who are essential to California’s economy and communities. In this presentation learn what funding early care and education programs received in the 2020-21 state budget and from federal relief in 2020, and the additional support providers, workers, and families – particularly Californians of color and families in low-income households – still need from state and federal policymakers in the ongoing pandemic.

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On June 29, Governor Gavin Newsom signed the 2020-21 state budget into law, enacting a $134 billion General Fund spending plan that outlines how the state responds to the ongoing COVID-19 pandemic and manages a significant budget shortfall. The budget deal reached by state leaders uses a combination of reserves, available federal funds, temporary revenues, internal borrowing, and deferred payments to help resolve a budget shortfall resulting from the COVID-19 recession. The enacted budget also includes a few targeted expansions to help support Californians with low incomes. Notably, the budget includes $11 billion in spending cuts and delayed payments that would be rolled back if the state receives substantial new federal fiscal relief.    

While the enacted budget put forward by state leaders recognizes the challenges the state faces and meets state leaders’ Constitutional obligation to enact a balanced budget, the spending plan fails to meet many of the most urgent and basic needs of Californians: ensuring they can safely earn a living in healthy environments and provide food, housing, and health care for their families. Without bolder action, including raising additional revenues and pursuing appropriate borrowing, the enacted 2020-21 budget will exacerbate income and wealth inequality and systemic inequities that permanently leave Californians of color, undocumented residents, and households with low incomes locked out of our state’s prosperity. 

State policymakers must do more for Californians now to show they can protect and care for the millions of people, especially Black, Latinx, and undocumented Californians, whose lives have been especially impacted by the health and economic crisis that rages on. Policymakers missed a critical opportunity to put a budget plan in place that, with additional and substantial revenue, could invest in the economic security of Californians, make the state’s tax system more equitable, and, in so doing, position our state to more quickly emerge from the recession. 

As state leaders consider revising the state budget later this summer, there is still time for them to act. State leaders should raise additional revenue and explore appropriate borrowing options to avoid additional fiscal austerity measures, such as cutting vital programs and services that will only cripple their ability to respond to ongoing public health and economic implications of COVID-19. 

While additional federal resources are crucial to help support Californians, our state leaders must take action to provide greater state support and produce the revenues needed to make significant public investment in California’s future.

This report outlines key pieces of the 2020-21 budget, with consideration for how the plan supports — or comes up short for — Californians with low incomes, as well as for women, Black, Latinx, immigrant, and undocumented Californians, and students. 

Contents

Budget Overview

Health & Economic Security

K-12 & Higher Education

Federal Aid & Trigger Cuts

What’s Next 

Budget Overview

Budget Agreement Uses Reserves, Available Federal Funds, and Other Budgetary Maneuvers

The 2020-21 budget agreement uses state reserves, funding made available through federal relief provided earlier this year, and other budgetary maneuvers to balance the state’s 2020-21 General Fund budget. 

The enacted budget draws down $8.8 billion in reserves, including $7.8 billion from the state’s Budget Stabilization Account (BSA), $450 million from the Safety Net Reserve, and all of the funds from a separate, smaller reserve for public schools. The state Constitution under Proposition 2 (2014) allows state leaders to withdraw up to one-half of the BSA in the first year of a fiscal emergency. For the current fiscal year (2019-20), the BSA balance is $16.1 billion, meaning state leaders will draw down almost half of the total available funds, leaving $8.3 billion for future use. State leaders also used half of the $900 million in the Safety Net Reserve, leaving $450 million for use in future years. The budget agreement also set aside $2.6 billion in a separate reserve, the Special Fund for Economic Uncertainties (SFEU), for potential use in 2020-21. 

Earlier this year, federal leaders enacted a series of fiscal relief packages in response to COVID-19. The 2020-21 budget agreement uses $10.1 billion provided through Medicaid’s enhanced Federal Medical Assistance Percentage (FMAP), the Coronavirus Relief Fund, and additional child care funding.

Other budgetary measures used to help balance the state’s General Fund budget include borrowing from special funds and delaying payments to K-12 schools and community colleges (see more below). 

While state leaders used a range of measures to enact a balanced budget, they missed an opportunity to pursue appropriate forms of borrowing that would have provided significant additional help in covering the state’s budget shortfall — in 2020-21 and in future years — and avoided making cuts to and deferring payments for vital services that Californians need now more than ever.

Budget Agreement Includes Additional Temporary Tax Revenue

In addition to drawing down on the state’s reserves, another strategy the budget agreement uses to address the budget problem is a temporary tax revenue increase. The revenue increase is primarily achieved by: 

  • Suspending Net Operating Loss (NOL) deductions for some businesses for tax years 2020 through 2022. Businesses generate NOLs when their expenses exceed their revenues for a given year, and this difference can be “carried forward” to reduce the business’ taxable income, and thus its tax bill, in future years. This suspension would only apply to businesses with at least $1 million in net business income. In 2018, only about 2% of corporations met this criteria, according to the Legislative Analyst’s Office, so this limitation would affect a small number of profitable businesses.
  • Limiting business tax credits to $5 million per business for tax years 2020 through 2022. This means that the total of all tax credits a business can claim to reduce their state income taxes in these years is limited to $5 million. The Low-Income Housing Tax Credit is exempt from this limit.

The state has enacted similar limits on business tax deductions and credits in past recessions, and this is a reasonable approach to help fill the budget gap since these provisions only affect profitable businesses and include exemptions for smaller businesses. However, the revenue increases are a relatively small portion of the solutions to close the budget gap. The Administration estimates that the tax changes will raise about $4.4 billion in 2020-21. Given the scale of the economic crisis confronting California, state policymakers missed a critical opportunity to boost revenues more substantially on an ongoing basis to help Californians weather the current health and economic crises and to help the state rebuild its economy into one that is more inclusive of all Californians — particularly those who are Black, Latinx, undocumented, and who have low and middle incomes.

Health & Economic Security

Some Immigrant Families Will Now Benefit From the CalEITC, While Many Other Californians Remain Excluded From Tax Credits

After years of exclusion, immigrant families with children age 5 or younger will be able to access the California Earned Income Tax Credit (CalEITC) and Young Child Tax Credit for the first time beginning in tax year 2020. This will help these families, who earn little from their jobs and were shut out of federal COVID-19 economic recovery efforts, to buy groceries, diapers, and other necessities. However, hundreds of thousands of Californians remain excluded from the CalEITC simply because they or a family member files taxes with an Individual Taxpayer Identification Number (ITIN). In fact, an estimated 7 in 10 Californians in households where someone could qualify for the CalEITC if not for the fact that they file taxes with an ITIN will continue to be excluded from the credit, including many children. This exclusion, together with exclusions from federal tax credits, the federal recovery rebates, unemployment benefits, and other public supports, means that many Californians living in immigrant families have far fewer resources to meet basic needs, denying them a fair chance to thrive and build a better life. This exclusion also contributes to racial and ethnic discrimination in California’s tax code. The same tax system that excludes Californians who are mostly Latinx and Asian/Pacific Islander from the CalEITC, provides enormous benefits to wealthy Californians, most of whom are white. Ending the CalEITC exclusion would cost only about $35 million to $51 million, according to Budget Center estimates. That is just a fraction of the tens of billions of dollars California spends each year on all personal and corporate income tax breaks — and it would take a critical step toward dismantling policies that create vastly different opportunities and outcomes for Californians based on their race or ethnicity. 

Seniors Who Are Undocumented Won’t Receive Comprehensive Medi-Cal Coverage, Perpetuating Racial Health Disparities

Income-eligible California seniors (age 65+) who are undocumented will not receive full-scope Medi-Cal health care coverage under the 2020-21 budget. Policymakers’ failure to adopt this critical expansion for older Californians regardless of immigration status comes at a time when preventive health services and treatment for chronic health conditions are needed most. While seniors and people with chronic health conditions are at a higher risk of developing life-threatening complications from COVID-19, undocumented seniors with low incomes are particularly at risk because they have been historically excluded from health programs and services and face additional barriers to accessing routine care and treatment for chronic health conditions. Although extending full-scope Medi-Cal to this group would have required the state to commit new funding during a period of economic and fiscal uncertainty — $80.5 million ($64.2 million General Fund) in 2020-21, rising to an estimated $350 million ($320 million General Fund) in 2022-23 — this investment is critical from a long-term public health perspective and could be paid for by closing tax loopholes that primarily benefit the wealthy and corporations. Continuing to exclude Californians who are undocumented from vital health coverage is harmful to the state’s collective health and perpetuates racial health disparities. 

Federal and State Funds Will Help Address Some of the Needs of Californians Experiencing Homelessness

On any given night, more than 150,000 Californians are homeless  — a crisis affecting people and communities well before the COVID-19 pandemic. Now the urgency to help Californians who are without a permanent home has dramatically increased, because individuals experiencing homelessness face significant barriers to protecting themselves from exposure to the virus, while many are at high risk of serious complications and even death if infected because they are older adults and/or have chronic health conditions. Black Californians bear a disproportionate burden of both homelessness and COVID-19 deaths, and addressing the needs of homeless Californians now is important to avoid perpetuating and increasing these racial inequities. The budget agreement includes $550 million in federal CARES Act funds  and $50 million General Fund for acquisition and rehabilitation of hotels, motels, and other sites and related expenses to continue Project Roomkey on a more permanent basis. This initiative was launched in response to the COVID-19 pandemic to provide safe housing for especially at-risk homeless individuals in motel or hotel rooms. Additional CARES Act funds are provided to cities and counties to address COVID-19 needs related to homelessness, public health, public safety, or other services. In addition to these federal dollars that specifically address COVID-19, the budget agreement also allocates $300 million General Fund for local jurisdictions (Continuums of Care, cities, and counties) to address homelessness more broadly. This investment of state dollars recognizes that homelessness was one of the state’s most serious challenges even before the pandemic and requires action beyond the needs related to the pandemic. At the same time, $300 million in state funds is far less than the amount needed on an ongoing basis to fully meet the housing and support needs of all Californians experiencing homelessness.

Parents Will Gain More Access to Support Through CalWORKs to Meet Basic Needs While Facing an Exceptionally Challenging Job Market

Parents participating in CalWORKs, California’s welfare-to-work program, will have 12 more months of access to cash support and fewer confusing and restrictive work and education activity requirements under the 2020-21 budget. The budget agreement restores parents’ lifetime limit for receiving CalWORKs cash support to 60 months, the maximum allowed for federally funded support and an increase over the current 48-month time limit, which was adopted in 2011 to address a state budget shortfall in the wake of the Great Recession. The budget agreement also eliminates confusing CalWORKs “time clock” requirements, which limited parents to only 24 months to focus on addressing serious barriers to finding work or completing an education. Due to the time required to incorporate these changes into CalWORKs data systems, the changes will take effect in May 2022 or as soon after that date as the data system update can be completed.

These changes in CalWORKs for parents and families are especially important in the face of massive job losses due to the COVID-19 pandemic and the public health measures put in place to address it. With the loss of millions of jobs in California in just the past three months, it will be harder and will take longer for parents with work barriers to secure jobs that can cover the costs of living while also keeping their families safe and healthy. More parents will need to turn to CalWORKs for support, including some parents who turned to CalWORKs for support previously during the difficult job market and loss of housing stability in the Great Recession. CalWORKs primarily serves families of color, and workers of color — especially Black and Latinx women — have experienced the largest drops in employment due to the COVID-19 recession. Bolstering CalWORKs support for California families in their time of need by eliminating unnecessary time limit restrictions is an important step to make sure state policies do not further exacerbate racial disparities that cause Californians of color to bear the burden of the economic effects of the pandemic.

K-12 & Higher Education

Delaying Payments to K-12 Schools and Community Colleges Avoids Cuts Now but Creates Cost Pressures on the State and K-14 Schools

The budget agreement defers a large amount of K-12 school and community college payments but will reduce the amount of these deferrals if the state receives additional federal funding. Specifically, the budget package defers a total of $12.5 billion in K-14 education payments until 2021-22 — $11.0 billion in late payments for K-12 schools and $1.5 billion for community colleges. If $14.0 billion in federal funding becomes available by October 15, 2020, the payment deferrals to K-12 school and community college districts will be reduced by $6.6 billion — $5.8 billion to reduce deferrals for K-12 schools and $791.1 million to reduce deferrals for community colleges. The budget agreement also eliminates the 2020-21 cost-of-living adjustment to the Local Control Funding Formula (LCFF), a reduction of approximately $1.1 billion.

The payment deferrals included in the budget agreement allow the state to authorize a level of spending by K-12 schools and community colleges that the state cannot afford in 2020-21. Deferrals provide the state with one year of savings, which occurs in the initial year of a deferral, without requiring K-12 school and community college districts to reduce their spending. However, without the state payments, school districts and community colleges must front the cash in order to maintain spending levels. In the short-term, deferrals avoid state cuts to K-14 education but the amount of the deferral must eventually be repaid and creates future cost pressures on the state, and current and future cost pressures on K-14 schools. State leaders could better position the state to maintain funding for schools and community colleges — now and in future years — by raising additional revenues and pursuing alternative borrowing options.

The California State University and the University of California Face Steep Cuts Unless the State Receives Federal Funding

Under the 2020-21 budget, the CSU and the UC face significant cuts — $400 million and $370 million General Fund, respectively — unless the federal government steps in. These cuts could be fully restored if the state receives $14 billion in federal funds by September 1, or potentially simply reduced if federal funds are less than the $14 billion requested. While the Legislature has indicated its intent to avoid any “disproportionate impact on low-income students, students from underrepresented minority groups, and other disadvantaged students,” these cuts could result in the CSU and the UC raising tuition and increasing fees, as in previous recessions. These actions would raise the cost of attending college for students with low and moderate incomes, many of whom already struggle with tuition and living costs.

However, the 2020-21 budget also provides one-time General Fund dollars for summer-term financial aid ($6 million to the CSU and $4 million to the UC). This support will help low-income students graduate on time and could ease capacity limitations. The budget agreement also provides local assistance funds from the California Dreamer Service Incentive Grant program for emergency financial aid to undocumented students, with $3 million allocated to the CSU and $1 million to the UC. This funding is particularly important for undocumented students, whom the federal government barred from receiving COVID-19 assistance. Here again, instead of cutting funding for CSU and UC, state leaders could better position the state to support those systems and the students that they serve by raising additional revenues and pursuing appropriate borrowing options.

Federal Aid & Trigger Cuts

Some Spending Cuts and Payment Delays Would Be Rolled Back if California Receives $14 Billion in Additional Federal Funding

A variety of state budget actions totaling $11.1 billion would take effect if Congress provides California with an additional $14 billion in federal funding by October 15, 2020. Under this “trigger” mechanism, the state would:

  • Eliminate $6.6 billion in payment delays, or “deferrals,” to K-14 education ($5.8 billion for K-12 schools and $791.1 million for community colleges).
  • Deposit $1.9 billion into a new state fund to offset cuts to state employee compensation.
  • Repay up to $936 million in special fund loans to the General Fund.
  • Restore $498.1 million for the CSU.
  • Restore $471.6 million for the UC.
  • Provide counties with an additional $250 million, on top of the $750 million already included in the budget, to make up for reduced sales tax revenue collections — dollars that the counties use to operate a range of programs, including health-related services.
  • Restore $203 million for the infrastructure grant program operated by the Department of Housing and Community Development.
  • Restore $150 million for the judicial branch.
  • Restore $88.4 million for the Golden State Teacher Grant Program operated by the California Student Aid Commission.
  • Restore $46.4 million for the operation of the child support program.
  • Restore $45 million for moderate-income housing production.
  • Restore $1.9 million to the Hastings College of the Law.

If the state receives less than $14 billion in federal funds, but at least $2 billion, the amount above $2 billion would be allocated proportionally among the purposes listed above. If the state receives less than $2 billion in additional federal funds, or no funding at all, the spending cuts and K-14 deferrals would remain in effect, and the counties would not receive the additional $250 million.

While additional federal fiscal relief is clearly needed, enacting a 2020-21 budget that relies upon unknown support from the federal government in order to roll back significant cuts to vital services creates tremendous uncertainty and instability and only delays addressing California’s fiscal challenges using the full array of options available to the state.

What’s Next

Moving California Forward Requires Significant Investment

We can’t ignore how quickly COVID-19 has changed California’s fiscal outlook. Nor can we look away from the high price Californians are paying as they shoulder the economic impact of this crisis. The sudden and widespread job and income losses due to the necessary stay-at-home orders have left millions of Californians — especially Black, Latinx and undocumented Californians, as well as low-income households — struggling to pay rent and buy groceries.

Austerity measures won’t move California forward. The clearest path requires the state to help the people, families, and organizations that have been economically harmed by the crisis not just survive but recover and thrive. This requires significant public investment. 

And while state leaders are required by law to balance the budget, policymakers have options to avoid cutting vital public supports and deferring payments that will cause further harm at a time when so many Californians are struggling with the health and economic implications of COVID-19. In addition to urgently requesting additional federal fiscal relief, policymakers should borrow appropriately and raise taxes in ways that produce significant additional revenue and make the state’s tax system more equitable for Californians. 

We are living in unusual times that demand extraordinary responses. Doing what Californians need now will mean making some difficult choices so that the state can provide and maintain targeted assistance to the individuals, families, and organizations most affected by the crisis. These decisions may be big and daunting for state leaders, but they are our best shot at bending the curve of this pandemic and economic downturn in a direction that will benefit all Californians as quickly as possible and improve the state’s economic and fiscal outlook.

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Executive Summary

On May 14, 2020, Governor Gavin Newsom released the May Revision to his proposed 2020-21 state budget. Our state is facing unprecedented challenges as a result of the COVID-19 crisis – an estimated $54 billion state budget shortfall for the current (2019-20) and next (2020-21) fiscal years, a rapid increase in unemployment, and millions of Californians in need of assistance as they confront new challenges to paying rent, buying groceries, and covering the costs of basic needs. The health and economic hardships are especially striking for Black and Latinx Californians, women and children in low-income households, and undocumented Californians.  

In response to these challenges, the Governor’s revised budget proposes to use a multi-pronged strategy to close the state’s budget shortfall. This strategy includes: 

  • Canceling new spending proposed in January and canceling or reducing spending included in last year’s budget act ($8.4 billion). This includes canceling $6.1 billion in program expansions and spending increases proposed in January as well as one-time spending included in the 2019-20 budget. It also includes redirecting a $2.4 billion supplemental payment to the California Public Employees’ Retirement System (CalPERS) included in the 2019-20 budget. 
  • Drawing down reserves ($8.6 billion). The proposal withdraws $7.8 billion from the state’s primary reserve, the Budget Stabilization Account (BSA); $450 million from the Safety Net Reserve, and $377 million from a reserve for K-12 schools and community colleges.
  • Internal borrowing, transfers, and deferrals ($10.4 billion). This includes borrowing and transfers from special funds ($4.1 billion), deferral of payments in the Local Control Funding Formula (LCFF) for K-12 education ($5.3 billion), and deferral of apportionments to the California Community Colleges ($992 million). 
  • Generating new revenues ($4.4 billion). The Governor’s proposal would temporarily suspend net operating losses that businesses can report against their taxes and limit the amount of tax credits a business can use in any year to $5 million. Both short-term limitations (through 2022-23) would primarily affect medium-size and large corporations and would generate $4.4 billion in additional revenues.  
  • Using available federal funds ($8.3 billion). The May Revision would apply federal CARES Act funds already made available to the state to support public schools, public health, and public safety. 
  • Triggering cuts to ongoing spending if additional federal fiscal relief is not provided ($14 billion). The Administration calls for $14 billion in cuts to ongoing programs and employee compensation, which can be avoided if sufficient additional federal fiscal relief is provided. Notable trigger cuts would include:
    • Nearly $7 billion in funding for K-12 schools and the Local Control Funding Formula (LCFF);
    • $2.8 billion in reduced employee compensation costs by requiring all collective bargaining units to reduce pay by 10%;
    • $1.6 billion for various health programs;
    • $1.1 billion for the California Community Colleges; 
    • $850 million for CalWorks;
    • $780 million for CSU and UC;
    • $707 million to support child care providers and infrastructure;
    • $490 million for preschool spaces and provider payment rates;
    • $270 million for courts and the judiciary;
    • $217 million for IHSS; and
    • $34 million for SSI-SSP.

This strategy – if federal relief is forthcoming and the trigger cuts are avoided – allows the Administration to largely maintain funding for programs and supports that provide cash assistance and critical services to Californians with low-incomes who are disproportionately affected by the health and economic effects of the crisis. Most notably, the May Revision includes ongoing support for the California Earned Income Tax Credit (CalEITC) and maintains support for eligibility and grant levels for CalWORKs and SSI-SSP. Support is also largely maintained for Medi-Cal, with some rollbacks of policies enacted in prior years.

The May Revision underscores the fundamental importance of receiving additional federal fiscal relief to avoid cuts to other vital services. 

At the same time, the urgency of this moment requires that the state do more than cover budget shortfalls. Amid the economic and fiscal realities presented by the COVID-19 crisis there is an opportunity to address long-standing economic inequities built into state systems and the tax code. Raising additional revenue must be considered for the state to respond to the public health crisis and the economic crisis – both of which require significant public investment. Supporting our communities and people now will help address the immediate crisis, position the state for a return to growth, and move our state toward an economy that is inclusive of all Californians. 

The following sections summarize key provisions of the Governor’s May Revision. Please visit the Budget Center’s Economic, Health & COVID-19 webpage for our latest commentary and analysis.

Contents

Budget Overview

Economic Security

Health 

Homelessness & Housing

Education 

Corrections & Justice

Emergency & Environmental Response 

Budget Overview

Economic Outlook Anticipates a Deep Recession Followed by a Slow Recovery

California’s economic outlook has changed dramatically since the Governor’s initial 2020-21 budget proposal, as the US economy entered into a recession in March. The Administration’s revised economic forecast expects this recession to be more severe than the Great Recession in terms of lost jobs and wages. Specifically, the Administration expects California’s unemployment rate to reach 24.5% in the second quarter of 2020, with 4.8 million people out of work – more than double the number of unemployed Californians at the worst point of the Great Recession. People with lower incomes are expected to shoulder much of this job loss. Additionally, the Administration projects that total wages and salaries in California will fall by 12.8% ($170 billion) in 2020, or about twice the drop that occurred during the Great Recession. Recovery from this recession is expected to be “gradual, fairly measured, and restrained,” according to the Administration, with the number of jobs in California not returning to pre-recession levels for six years – only one year faster than the recovery from the Great Recession.

Revised Budget Projects Revenues Will Be More Than $40 Billion Lower than Forecast in January, and Proposes $4.4 Billion in Revenue Solutions

The COVID-19 crisis and the extraordinary measures that have been taken to limit the spread of the virus have caused estimates of state revenues to plummet. The Administration forecasts that General Fund revenue will be $43 billion lower – before transfers – over the 3-year budget window (reflecting fiscal years 2018-19 through 2020-21) than projected in the Governor’s January budget proposal absent any policy actions to increase revenue. In contrast, the Legislative Analyst’s Office estimates that revenue over the budget window will be between $26 billion and $39 billion lower than the Governor’s January projections, depending on the trajectory of the economic recovery from the COVID-induced recession.

The Administration’s estimate of the overall decline mainly reflects decreased revenue estimates of:

  • $33 billion in personal income taxes, reflecting lower taxable wages due to high unemployment, lower capital gains due to declines in the stock market forecast, and lower proprietorship income.
  • $10 billion in sales and use taxes, reflecting lower consumer spending and business capital investment.
  • $5 billion in corporation taxes, reflecting lower corporate profits.

These declines are partially offset by expected payments from the federal government related to the COVID-19 crisis and California wildfires. Additionally, the Governor proposes several tax measures that will raise an estimated $4.4 billion in General Fund revenue in 2020-21. Namely, the proposal would:

  • Temporarily suspend Net Operating Loss (NOL) deductions for businesses with income above $1 million (for the 2020, 2021, and 2022 tax years). NOLs arise when a business has losses and deductions that exceed its taxable income, and can generally be “carried forward” to offset the business’ taxable income in future years.
  • Temporarily limiting the amount of tax credits that a business can claim to $5 million (for tax years 2020, 2021, and 2022).
  • Allow an exemption from the $800 minimum tax in the first year of business for partnerships, limited liability companies (LLCs), and limited liability partnerships (LLPs). This proposal would cost an estimated $50 million in 2020-21, which is reflected in the $4.4 billion estimate of revenue solutions, and $100 million in 2021-22 and 2022-23.

After incorporating the proposed budget solutions, as well as a $7.8 billion transfer from the Budget Stabilization Account (the “rainy day fund”) and other transfers, the May Revision reflects General Fund revenue for 2020-21 that is $14.2 billion lower than forecast in the January budget, and $6.4 billion lower than the enacted 2019-20 budget. Additionally, estimated revenues for 2019-20 have been revised down by $7 billion from the enacted 2019-20 budget. In the longer-term, the Administration forecasts that General Fund Revenue from the three primary tax sources – the personal income tax, sales and use tax, and corporation tax – will begin to grow in 2021-22 but will still remain lower than its 2018-19 level in 2023-24.

Finally, the revised budget maintains the Governor’s January proposal to create a new “vaping tax” of $2 per 40 milligrams of nicotine beginning in 2021. The revenues from this tax, estimated to total $33 million in 2020-21, will not go into the General Fund but would be deposited into a new special fund to be used to offset some Medi-Cal costs, support the administration of the tax, and combat the underground market for vaping products.

May Revision Draws Down Reserves to Help Cover Budget Shortfall

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”).

BSA funds may be withdrawn in the event of a budget emergency, including an economic downturn. However, the entire balance cannot be removed immediately — only the amount needed to address the budget emergency may be withdrawn, subject to the additional limitation that a withdrawal may not exceed 50% of the BSA balance in the first year of a budget emergency. In the second consecutive year of a budget emergency, all of the funds remaining in the BSA may be withdrawn. Funds that are taken out of the BSA may go toward any purpose determined by the Legislature. For example, these dollars could be used for health care services, subsidized child care for working families, cash assistance for people with low incomes, K-12 schools, and any number of other public services and systems.

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

Additionally, the 2018-19 budget agreement created a new Safety Net Reserve, which holds funds that can be used to maintain benefits and services for people enrolled in CalWORKs and Medi-Cal in the event of an economic downturn.

Currently, the state’s reserves consist of:

  • $16.2 billion in the BSA;
  • $377 million in the PSSSA; and
  • $900 million in the Safety Net Reserve.

The May Revision proposes to draw down $8.6 billion from these reserves, including:

  • $7.8 billion from the BSA;
  • $377 million from the PSSSA; and
  • $450 million from the Safety Net Reserve.

The remaining funds in the BSA and the Safety Net Reserve would be available for use in future fiscal years.

Each year, the state also deposits additional funds into a “Special Fund for Economic
Uncertainties” (SFEU). The SFEU serves as a buffer against unanticipated revenue shortfalls or spending increases. The May Revision proposes an SFEU balance of $2 billion by the end of 2020-21.

Economic Security

Administration Fails to Extend the CalEITC to Excluded Californians

Hundreds of thousands of Californians with low incomes are excluded from the California Earned Income Tax Credit (CalEITC) and Young Child Tax Credit (YCTC) because they file their taxes with federally issued Individual Taxpayer Identification Numbers (ITINs). These Californians are also excluded from the federal EITC and recent federal supports that will provide economic relief to people struggling financially due to the COVID-19 recession, including enhanced unemployment benefits and federal recovery rebates. As a result, the after-tax incomes of children whose parents file using ITINs are far lower than those of children whose parents have identical earnings from work but who file using Social Security Numbers.

Although the COVID-19 crisis has highlighted the urgent need for policymakers to address racial and ethnic inequities due to state and federal policy choices, the Governor’s May Revision does not extend the CalEITC or YCTC to these excluded Californians. The revised budget simply maintains these credits for the 2020 tax year, with no changes in eligibility or credit size.

May Revision Withdraws Proposal to Extend Medi-Cal to Undocumented Seniors and Leaves Out Extension of CalEITC to ITIN filers

California has the largest share of immigrant residents of any state, and half of all California workers are immigrants or children of immigrants. Given the prominence of immigrants in California’s population and the state’s economy, recent and ongoing federal actions that limit immigration, aggressively enforce immigration laws, and seek to exclude immigrant communities from economic relief have significant negative implications for California. 

The May Revision maintains important proposals that the Governor unveiled in January, including establishing the Social Entrepreneurs for Economic Development Initiative and funding to monitor compliance with Assembly Bill 1747 (Gonzales, Chapter 789 of 2019), that limited the use of the California Law Enforcement Telecommunications System (CLETS) for immigration enforcement purposes. However, the Governor misses key opportunities to support Californians most in need during the COVID-19 pandemic. Specifically, the May Revision:

  • Withdraws the Governor’s January proposal to expand comprehensive Medi-Cal coverage to seniors regardless of immigration status.
  • Fails to extend the California Earned Income Tax Credit (CalEITC) and Young Child Tax Credit (YCTC) to Californians who file taxes with federally issued Individual Taxpayer Identification Numbers (ITINs).
  • Withdraws the $5.8 million funding increase proposed in January for Dreamer Resource Liaisons at Community Colleges.
  • Reverts $4.7 million appropriated in the 2019-20 budget for the Immigration Justice Fellowship Program.

While California continues to make strides to provide support and create safe communities for immigrants, it is crucial that state leaders support undocumented Californians during the COVID-19 crises. State policymakers must step up to fill the gap in federal relief efforts that have left out Californians who are undocumented.

Federal and State Emergency Funds Have Supported Subsidized Child Care, but Trigger Cuts Would Significantly Reduce State Funding

Subsidized child care allows parents with low and moderate incomes to find jobs and remain employed, feeling secure that their children have a safe space to learn and grow. These programs provide a critical service, keeping families across California afloat. The state and federal government have taken action during the COVID-19 pandemic to support the subsidized child care and development system during this health and economic crisis, and the May Revision takes these actions into account. 

For instance, to support families, Governor Newsom’s Administration has waived the fees for families who were receiving subsidized care prior to the pandemic through June 30, 2020. Governor Newsom has also provided 20,000 limited-term subsidized child care spaces – prioritizing essential workers who earn lower wages and certain at-risk populations. These spaces are funded with $50 million from Senate Bill 89 – emergency legislation enacted in March 2020 to fund COVID-19 response efforts. The state also helped to set up nearly 500 pop-up child care programs for employers of essential workers.

The Administration is also supporting child care providers in various ways during the pandemic, such as allocating $50 million from SB 89 for cleaning supplies and personal protective equipment for providers who remain open and serving essential workers, children with disabilities, or certain at-risk populations. This funding is available to providers that offer subsidized child care and to providers that do not. In addition, the state is also providing payment to subsidized providers on a short-term basis even if they close or serve fewer children. 

In addition to state actions, the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act provided $3.5 billion in one-time supplemental funds for the Child Care and Development Block Grant. California received $350.3 million of this additional funding. Federal statute requires states to supplement state funding for subsidized child care – not to replace funding. However, the state can use this federal funding for reimbursement for actions already taken to respond to the pandemic. The May Revision proposes to use $144.3 million of the federal CARES Act child care funding to cover the costs of the aforementioned state actions. The May Revision would allocate the remaining $206 million in federal funds in the following way:

  • $125 million for one-time stipends for subsidized child care providers. These stipends would target providers who remain open during the pandemic in recognition of the increased cost of providing care. The May Revision does not provide details on the value of the stipend.
  • $73 million for additional access to subsidized care. The May Revision does not provide details on whether or not this includes additional spaces for children or if the funding is meant to extend the duration of the term-limited 20,000 spaces mentioned above. 
  • $8 million to waive family fees through June 30, 2020.  

The May Revision also proposes to use $53.3 million in increased federal funding for subsidized child care from the 2020 federal appropriations bill to provide 5,600 child care spaces in the Alternative Payment Program.

However, the May Revision also proposes $707.4 million in trigger cuts that could harm child care providers even while they provide care for essential workers’ children. In turn, this could jeopardize families’ access to subsidized care. These cuts will go into effect on July 1, 2020 if the federal government does not provide additional fiscal relief to the state during this COVID-19 health and economic crisis. These cuts would include:

  • $408 million for child care infrastructure ($363 General Fund and $45 million federal funds). The 2019-20 budget act included $440 million in one-time funding for child care facilities and workforce development. The May Revision would cut nearly all of this funding absent federal assistance.
  • $223.8 million General Fund from a 10% reduction in provider payment rates. These cuts would affect both the Regional Market Rate for voucher-based providers and the Standard Reimbursement Rate for providers who contract directly with the state. 
  • $100 million Prop. 98 for the After School Education and Safety Program. This program offers expanded learning and care for elementary and middle-school students in schools with a higher share of students with low incomes. This cut would erase gains made in recent years to boost provider payment rates, and would return the rates per student to the same level they were in 2006 – even though programs would be expected to serve the same number of students. This is despite increased program costs due to the rising minimum wage and other operating expenses.
  • $35.9 million General Fund for decreased enrollment in CalWORKs Stage 2 and Stage 3 child care.  
  • $25.3 million General Fund by suspending the cost-of-living adjustment. For providers who contract with the state, this would be a cut in the payment rate. For voucher-based child care, this would mean fewer spaces for children. 
  • $14.4 million General Fund for planning and policy. Absent federal action, the May Revision would cut $10 million in one-time funding for a child care data system that was part of the 2019-20 budget agreement. The May Revision would also reduce funding for the Early Childhood Policy Council by $4.4 million, which would leave $2.2 million to be used in 2020-21 and 2021-22.

Lastly, the May Revision would alter the proposal included in the Governor’s January Proposal to create a new Department of Early Childhood Development under the California Health and Human Services Agency. Instead, the May Revision proposes to consolidate all child care programs within the California Department of Social Services, effective July 1, 2021. (Currently, subsidized child care programs are administered by both the Department of Social Services and the Department of Education.) This modified proposal would be funded with $2 million General Fund.

The Administration’s May Revision Maintains Recent Investments in CalWORKs Grants, Makes Cuts to Some Services

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for low-income children while helping parents overcome barriers to employment and find jobs. Even before the COVID-19 crisis, CalWORKs primarily served children of color, who faced higher rates of economic insecurity than did white children. Now, with millions of California workers – especially workers of color – facing unemployment or lost wages due to the public health emergency, CalWORKs is a particularly critical source of support.As a result of the economic downturn, the Administration anticipates a significant increase in the average monthly number of CalWORKs families in 2020-21. To support these additional families, the Administration provides $82.3 million in General Fund and federal Temporary Assistance for Needy Families (TANF) dollars to facilitate enrollment. Additionally, the Governor’s May Revision maintains grants at the increased levels determined in the 2019-20 budget agreement and withdraws his January proposal to provide additional grant increases. The revised spending plan also withdraws the proposal to increase the amount of child support payments that are passed through to CalWORKs families and to pursue statutory changes to forgive uncollectible child support debt.Finally, the Administration proposes a total of $850 million General Fund in trigger cuts to various CalWORKs services in 2020-21, unless the federal government provides additional funding. The May Revision:
  • Cuts employment services and child care by $665 million General Fund in anticipation of reduced use of those services.
  • Reduces expanded subsidized employment by $134 million General Fund.
  • Scales back funding for home visiting by $30 million General Fund.
  • Ends funding for the CalWORKs Outcomes and Accountability Review (Cal-OAR) performance measurement system, though counties may continue implementing this system on their own. This proposal would yield a General Fund reduction of $21 million. 

Two Key Supports for Seniors and People With Disabilities – IHSS and SSI/SSP – Would Face Trigger Cuts Under the May Revision

The May Revision includes trigger cuts to two key safety net supports for seniors and people with disabilities: In-Home Supportive Services (IHSS) and Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants. IHSS helps around 560,000 Californians with low incomes remain safely in their own homes, preventing the need for out-of-home care. SSI/SSP grants help well over 1 million Californians with low incomes to pay for housing and other necessities. These grants are funded with federal (SSI) and state (SSP) dollars.

The trigger cuts proposed for IHSS and SSI/SSP would take effect unless California receives additional federal funding to help close the state budget shortfall. Specifically, the Administration proposes to:

  • Reduce IHSS consumers’ hours of care by 7%, for a General Fund reduction of $205 million in 2020-21. This change would take effect in January 2021. By reducing hours of care, this proposal would result in a pay cut for IHSS providers, who are mainly women and people of color.
  • Reduce the state’s SSP grant by the same amount as the pending federal SSI increase, for a General Fund reduction of $33.6 million in 2020-21. This change would take effect in January 2021. Because the SSP portion would go down while the SSI portion would rise, this change would have “no impact on the grant amount” that people receive, according to budget documents.

Health

The May Revision Provides Funding for Public Health, But Falls Short of What is Needed to More Adequately Respond to COVID-19 and Prepare for Future Threats

The Department of Public Health has been at the forefront of protecting and promoting the health of Californians during the COVID-19 pandemic. The Department’s efforts include issuing a stay-at-home order, ramping up testing for the virus, and increasing hospital capacity. The Governor’s revised budget includes a modest increase in funding for public health, totaling $3.2 billion ($209.1 million General Fund) in 2020-21 for the Department. Specifically, the May Revision:

  • Directs $3.8 billion federal funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act to protect public health and safety, including $1.3 billion to counties for public health, behavioral health, and other health services and $450 million to cities for public safety and to support Californians experiencing homelessness. There is no state funding included in the budget for local public health departments.
  • Maintains and increases the Department’s disease surveillance and identification workforce. This includes a proposed increase of $5.9 million General Fund for 2020-21 and $4.8 million General Fund ongoing to increase testing capacity and to purchase equipment and supplies for COVID-19 testing. These resources will also support emergency coordination, communication, and response as well as provide ongoing support for public health laboratory capacity and disease surveillance.
  • Maintains funding for infectious disease prevention and control, including $5 million General Fund each for STD, HIV, and hepatitis C virus prevention and control.

Public health officials throughout the state have expressed that more support is needed to adequately bolster public health infrastructure during the COVID-19 pandemic. Additional funding for local health departments could help to increase contact tracing, further expand testing, and acquire personal protective equipment. Investing in public health infrastructure and ensuring that health care professionals have the supplies they need to treat patients with COVID-19 is critical to slowing the spread of the virus as well as mitigating the overall threat to population health. California and federal leaders must work together to provide the resources and coordination needed to help communities adequately respond to the virus and to prepare for future threats.

The Governor’s Revised Budget Scales Back Proposals to Improve Medi-Cal and Misses a Key Opportunity to Advance Health Equity

As the COVID-19 pandemic and economic downturn continue to cause hardship for many Californians, our health programs are more important than ever. In response to a rise in unemployment, more Californians are expected to qualify for Medi-Cal (California’s Medicaid program), which currently provides free or low-cost health care to nearly 13 million Californians with modest incomes. This number is projected to increase to 14.5 million by July 2020 due to COVID-19-related unemployment. In addition, many Californians whose incomes are too high to qualify for Medi-Cal will continue to have access to subsidized health insurance through Covered California, with many eligible for new state premium subsidies that took effect this year. While the state’s major health coverage programs would largely remain intact under the Governor’s proposal, the May Revision does include significant reductions to health services that could worsen health outcomes as well as undermine efforts to advance health equity, which is especially critical to address in the midst of this pandemic.  

Due to the budget shortfall, several proposals that the Governor advanced in January are now rescinded. For example, the Governor has:

  • Withdrawn his plan to expand full-scope Medi-Cal to all income-eligible seniors (age 65+) regardless of immigration status. In recent years, California has expanded eligibility for comprehensive Medi-Cal coverage to children and youth through age 25 who are undocumented. While the Governor’s revised budget maintains Medi-Cal eligibility for these groups, older Californians who are undocumented remain locked out of comprehensive health coverage at a time when preventive health services and treatment for chronic health conditions are needed most. This includes seniors, who are most at risk of severe illness from COVID-19 and even death. Having regular access to health care services may help to improve one’s health status, thereby improving the chances of recovering from COVID-19.
  • Delayed CalAIM (California Advancing and Innovating Medi-Cal), an ambitious effort to reform Medi-Cal by coordinating physical health, behavioral health, and social services in a patient-centered manner. The revised budget delays the implementation of this initiative, resulting in a decrease of $695 million ($347.5 million General Fund) in 2020-21. 
  • Canceled the Behavioral Health Quality Improvement Program, which would have supported counties in improving their behavioral health systems. While dropping this proposal will reduce General Fund spending by $45.1 million in 2020-21 and $42 million in 2021-22, it may come at a long-term cost. Behavioral health services – mental health care and/or treatment for substance use – are primarily provided by California’s 58 counties, with funding from the state and federal governments. Before the COVID-19 pandemic, Californians with behavioral health conditions confronted many challenges in accessing services that are delivered by multiple complex systems. The increased stress, grief, isolation, and depression, especially among Black and Latinx Californians – who have been disproportionately impacted by the current crisis – highlight the need to prepare for a possible behavioral health crisis on the horizon.

In addition to January proposals that have been withdrawn, the revised budget proposes to halt the implementation of certain policies that were enacted during the 2019-20 legislative cycle. For example, the Governor proposes to:

  • Roll back the expansion of postpartum mental health services in Medi-Cal, part of the 2019-20 budget agreement. This expansion is intended to extend the duration of Medi-Cal eligibility for postpartum care for an individual who is diagnosed with a maternal mental health condition to one year after giving birth. The Governor’s proposal would reduce General Fund spending by $34.3 million in 2020-21.
  • Cancel a planned reform to Medi-Cal’s eligibility rules that would have benefited seniors with low incomes. Medi-Cal applies different rules to seniors and younger adults in determining eligibility for no-cost health care services – rules that put seniors at a disadvantage. The income cut-off for people who are 65 or older is just 123% of the federal poverty line, compared to 138% of the poverty line for people who are under 65. Seniors who fall into this coverage cap (the “senior penalty”) must pay a deductible that can amount to hundreds of dollars per month to access Medi-Cal services. The 2019-20 budget package reformed Medi-Cal’s eligibility rules to eliminate the senior penalty. However, this new policy has not yet been implemented, and the Governor now proposes to change state law to keep the senior penalty in place. The Governor’s proposal would reduce General Fund spending by $67.7 million in 2020-21 and would cause the state to lose an equivalent amount of federal funding.

The Governor also proposes trigger cuts to numerous health care-related programs unless the state receives additional federal funding to help close the state budget shortfall. Specifically, the Administration proposes to: 

  • Reduce Medi-Cal adult dental benefits and eliminate other benefits to reduce General Fund spending by $54.7 million in 2020-21. The “optional” Medi-Cal benefits that would be eliminated include audiology, speech therapy, optometry, occupational and physical therapy, pharmacists’ services, intervention and referral services for substance use, and diabetes prevention programs.
  • Redirect $1.2 billion in Proposition 56 tobacco tax funds to offset General Fund costs for Medi-Cal instead of its intended use: boosting payments for doctors and other Medi-Cal providers. In other words, this proposal would use Prop. 56 revenues to pay for typical, year-over-year cost increases in Medi-Cal, which would help to address the state’s General Fund budget shortfall. This proposal would continue to use a small amount of Prop. 56 funds (about $67 million) for a limited set of rate increases, including for home health providers, certain pediatric facilities, and trauma screenings.
  • Eliminate Community-Based Adult Services (CBAS) and the Multipurpose Senior Services Program (MSSP) for a combined General Fund reduction of $129 million in 2020-21. Eliminating CBAS would reduce General Fund spending by $106.8 million in 2020-21 and $255.8 million ongoing. Eliminating MSSP is projected to reduce General fund spending by $22.2 million in 2020-21 and $21.8 million ongoing. 
  • Remove payment adjustments for Federally Qualified Health Centers to reduce spending by $100 million ($50 million General Fund). 
  • Reinstate the Medi-Cal Estate Recovery Program to reduce General Fund spending by $16.9 million beginning in 2020-21. Through this program, DCHS seeks to recover Medi-Cal costs from the estates of certain deceased beneficiaries. 
  • Terminate a supplemental payment for Martin Luther King, Jr. Hospital to reduce General Fund spending by $8.2 million in 2020-21 and $12.4 million ongoing.
  • Maintain county administration funding at 2019 levels to reduce spending by $31.4 million ($11 million General Fund).
  • Cancel the Family Mosaic Project to reduce General Fund spending by $1.1 million ongoing.This program provides behavioral health services and intensive case management for children with serious emotional problems who have been removed from their homes or are at risk of out-of-home placement in San Francisco County. 
  • Eliminate ongoing funding for the Song-Brown Healthcare Workforce Training Program to reduce General Fund spending by $33.3 million ongoing. The Administration proposes to not implement the 2019-20 budget action to make state funding for the Song-Brown program ongoing. This program provides grants to support primary care residency training programs in California.

Homelessness & Housing

Governor Proposes Using Federal COVID-19 Funds to Address Homelessness by Purchasing Motels, But No State Spending for Homeless Services

California has more than 25% of the nation’s population of homeless individuals, with an estimated 151,278 homeless residents as of January 2019. More than two-thirds of California’s homeless residents are unsheltered, sleeping in locations such as in a vehicle, in a park, or on the street, where they face particularly severe health risks from COVID-19. In January, the Administration highlighted homelessness as a key challenge facing California and a major focus for new state spending, proposing to allocate $750 million one-time General Fund to support a broad range of strategies to address the needs of individuals experiencing homelessness. The May Revision withdraws this January proposal in response to the changed fiscal and policy context due to the COVID-19 outbreak.

The Governor notes that since the start of the pandemic, the state has allocated $150 million to local jurisdictions and the Department of Social Services to help reduce the spread of COVID-19 among Californians experiencing homelessness and to safely house homeless individuals at highest risk of harm from the virus. This state spending has been reimbursed through federal dollars for COVID-19 response. In part these funds supported the launch of Project Roomkey, an initiative to provide safe isolation housing for especially at-risk homeless individuals in motel or hotel rooms. Federal Emergency Management Agency (FEMA) funds for COVID-19 response support most of the operating costs of this program, leveraged by local government funds.

Moving forward, the Governor proposes no General Fund spending for housing or services to address homelessness. Instead, the May Revision proposes utilizing $750 million total in federal COVID-19 funds allocated to the state. These include the $150 million already spent as described above, plus an additional $600 million specifically to purchase hotels and motels currently used for Project Roomkey and to provide related technical assistance. These hotel/motel properties would then be owned and operated by local governments or nonprofit providers to house homeless individuals on an ongoing basis. The May Revision does not address how the operations of these properties would be supported once FEMA funds to address COVID-19 are no longer available.

To strengthen coordination of the state’s efforts to address homelessness, the May Revision includes a modest investment of $1.5 million General Fund ongoing and 10 permanent positions to more fully staff the Homeless Coordinating and Financial Council. The revised budget defers or withdraws state investments that were proposed in January to address the mental and behavioral health needs of Californians experiencing homelessness, including the CalAIM initiative to transform Medi-Cal (see the Health section).

Governor Maintains Boosted Housing Tax Credits, But Rolls Back Unallocated Housing Production Funds

More than half of California renter households paid more than 30% of their income toward rent before the COVID-19 outbreak, and high housing costs are a key driver of California’s high poverty rate. Extensive job losses resulting from the COVID-19 public health crisis threaten to increase the number of Californians who struggle to afford their housing costs.

To support the production of affordable housing, the Governor’s May Revision preserves the $500 million expansion of the state’s Low Income Housing Tax Credit (LIHTC) program to maintain LIHTC expenditures at the boosted level adopted in the 2019-20 budget. These state tax credits support affordable housing development, pairing with federal housing tax credits to help cover housing developers’ project costs. The Administration also notes that new federal funds to support critical infrastructure, disaster relief, and housing development are now available to the state through the Community Development Block Grant program to address unmet needs related to the 2017 and 2018 wildfires and related to COVID-19.

At the same time, the Governor proposes recapturing roughly $565 million in grant funds that had been targeted for housing production in the 2019-20 budget, but had not yet been allocated to specific projects. These funds include $250 million originally intended to support mixed-income housing development, $203 million to support infill infrastructure development, and $115 million in other housing program funds.

The May Revision includes funding for foreclosure prevention that comes from a court decision last year that found that the state previously improperly diverted to the General Fund $331 million intended for a special fund to assist California homeowners affected by the mortgage crisis during the Great Recession. The Administration now proposes spending the bulk of these funds ($300 million) on mortgage assistance and housing counseling through the California Housing Financing Agency, with the remaining $31 million to support housing-related legal aid through grants to legal aid services organizations, administered by the Judicial Council.

Education

May Revise Retracts Dollars for Kindergarten Facilities, and Would Cut Funding for Early Learning without Additional Federal Assistance

State policymakers have taken steps in recent years to expand access to full-day early learning opportunities for young children, including funding additional spaces in the California State Preschool Program and creating grant programs for early learning facilities. The May Revision reaffirms the Governor’s commitment to early learning, but in the absence of additional federal assistance during the COVID-19 health and economic crisis, would make a number of cuts to the California State Preschool Program. These trigger cuts include:

  • $289.4 million for preschool spaces. This would include $159.4 million General Fund for spaces provided by community-based organizations – 10,000 of which were scheduled to begin on April 1, 2020 and 10,000 of which were to be available on April 1, 2021. This trigger cut would also include $130 million for preschool spaces in local education agencies that has not been spent due to a lack of demand.
  • $200.3 million to the California State Preschool Program provider payment rate. State preschool providers contract directly with the state and are reimbursed based on the Standard Reimbursement Rate. The May Revision would make a number of cuts to these providers’ rates, including:
    • A 10% decrease in the Standard Reimbursement Rate ($94.6 million Propositon 98 and $67.3 million General Fund). 
    • A suspension of the 2.31% cost-of-living adjustment ($20.5 million Prop. 98 and $11.6 million General Fund).
    • Elimination of a 1% add-on to the Standard Reimbursement Rate for providers offering full-day state preschool programs ($3.3 million Prop. 98 and $3 million General Fund). 

In addition, the Administration proposes to “sweep” funding provided in the 2018-19 and 2019-20 budget agreements for Kindergarten facilities. Three hundred million of this funding remains unused – out of $400 million total. The May Revision would retract these dollars in order to fund other items in the budget. 

Decline in Revenues Reduces the Minimum Funding Level for Schools and Community Colleges

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 2019-20 and 2020-21 revenues are significantly lower than estimates made in the January budget proposal. As a result, the May Revision assumes the Prop. 98 guarantee has dropped more than $17 billion below levels estimated in January, even after a $1.8 billion boost to the Prop. 98 guarantee due in part to a proposed suspension of certain tax credits. Specifically, the May Revision estimates the Prop. 98 minimum funding guarantee is $77.4 billion in 2019-20 and $70.5 billion in 2020-21, $4.2 billion and $13.6 billion below the levels assumed in the January budget, respectively. Because the 2019-20 Prop. 98 guarantee is less than the 2018-19 Prop. 98 funding level, the Governor’s revised budget reflects the required withdrawal of the entire $377 million in the Public School System Stabilization Account – the state’s “rainy day fund” for K-12 schools and community colleges. 

To address the massive reduction in the Prop. 98 guarantee, the Governor’s May Revision proposes a new state obligation that would boost Prop. 98 spending above the constitutional minimum funding level beginning in 2021-22 and “in each of the next several fiscal years.” The new funding obligation would designate 1.5% of General Fund revenues each year to provide additional Prop. 98 funding “up to a cumulative total of $13 billion.” Currently, Prop. 98 requires K-12 schools and community colleges to receive a minimum of approximately 38% of General Fund revenues. The May Revision proposal to boost Prop. 98 funding above the minimum guarantee would help increase Prop. 98 spending to 40% of state General Fund revenues by 2023-24.

May Revision Proposes Cuts and Funding Deferrals for K-12 Schools, Allocates Federal Dollars to Help Address Funding Shortfalls

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 approximately 6.2 million students in grades kindergarten through 12. The Governor’s May Revision proposes reducing 2019-20 Prop. 98 spending below the level that was anticipated in January. Moreover, the revised budget proposes 2020-21 Prop. 98 spending that is below the 2019-20 Prop. 98 spending level. To address these funding shortfalls, the Governor’s May Revision cuts K-12 education spending, defers spending for the state’s K-12 education funding formula – the Local Control Funding Formula (LCFF), allocates federal dollars to support K-12 education, redirects funding for pension obligations, and withdraws proposals to increase funding for, and establish new, K-12 education programs that were made in his January budget. Specifically, the Governor’s May Revision:

  • Includes more than $6.7 billion in trigger cuts to K-12 education absent additional funding from the federal government. The Governor’s May Revision proposes a $6.5 billion cut to LCFF funding in 2020-21, which would be reduced if the state receives additional federal assistance to backfill the proposed cut. 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. Without additional federal dollars, the May Revision also proposes cuts to several K-12 education programs including:   
    • K-12 Strong Workforce Program – $79.4 million;
    • Career Technical Education Incentive Grant Program – $77.4 million; and
    • Adult Education Block Grant – $66.7 million.
  • Defers $5.3 billion in LCFF payments until 2021-22. The May Revision proposes deferring LCFF payments to school districts: $1.9 billion from 2019-20 to 2021-22 and $3.4 billion from 2020-21 to 2021-22. A payment deferral allows the state to authorize a level of school district spending that the state cannot afford in that year. Deferrals provide the state with one year of savings, which occurs in the initial year of a deferral, without requiring school districts to reduce their spending. If a deferral continues beyond one year, such as the proposal to defer $1.9 billion from 2019-20 to 2021-22, the state does not achieve additional savings, or incur additional costs, in subsequent years that payments are deferred. This is because in any year, the added cost of paying for the deferral from the prior year is offset by the savings from deferring the same amount into the next year.
  • Allocates $4.5 billion in federal funding to support K-12 education. Recent federal actions have provided funding to support state and local government responses to the COVID-19 pandemic. The May Revision proposes allocating $4 billion from the Coronavirus Relief Fund and $355 million from the Governor’s Emergency Education Relief Fund to school districts to address learning loss related to COVID-19 school closures. The May Revision specifies that these funds can be used for several purposes, including extending the instructional school year, providing additional academic services for students, and addressing barriers to learning such as by providing mental health services and professional development to help teachers and parents support distance-learning for students. The May Revision also proposes to allocate the state’s share of the Elementary and Secondary Emergency Relief funds ($164.7 million) to support a variety of activities intended to mitigate the impact of the COVID-19 pandemic.
  • Reallocates $2.3 billion in non-Prop. 98 payments to provide K-12 school and community college districts fiscal relief. The May Revision proposes to redirect payments that were intended to reduce CalSTRS’ and CalPERS’ long-term unfunded liabilities and instead to use the funding to reduce employer contribution rates toward CalSTRS and CalPERS in 2020-21 and 2021-22.
  • Withdraws almost $2 billion in spending proposals that the Governor made in his January budget. For example, the Governor has withdrawn:
    • $900.1 million in one-time funding for educator recruitment, preparation, and training programs;
    • $300.3 million in one-time funding that would have established “opportunity grants” to assist the state’s lowest-performing schools and school districts;
    • $300 million in one-time funding that would have established community school grants;
    • More than $120 million to fund a cost-of-living adjustment in 2020-21 for several categorical programs that remain outside of the LCFF, including special education, child nutrition, and American Indian Education Centers; and  
    • $70 million for school nutrition programs.
  • Maintains special education funding proposed in January. The Governor’s January budget proposed increasing special education funding as part of a multi-phase, multi-year process that included a new special education base rate funding formula that would continue to be allocated to Special Education Local Plan Areas (SELPAs). 

Funding Significantly Adjusted for the California Community Colleges

A portion of Proposition 98 funding supports California’s community colleges (CCCs), which help prepare over 2 million students to transfer to four-year institutions as well as obtain training and employment skills. 

The Administration intends to pursue various statutory changes to help the CCCs address COVID-19 related impacts, including: 

  • Allowing the CCCs to use non-lottery restricted fund balances. To access these funds, the CCCs would be required to protect funding for programs and services that serve underrepresented students and to increase the number of students served through online courses and programs. 
  • Exempting direct expenses related to COVID-19 from the 50 Percent Law, under which districts must spend at least half of their unrestricted funds on salaries and benefits for instructional faculty. This exemption does not include reduced revenue.

In the May Revision, the Governor also makes several adjustments to his January proposal. These adjustments include: 

  • Increasing Prop. 98 General Fund support by $130.1 million to offset declining property tax revenues.
  • Cutting support for students’ non-tuition cost-of-attendance expenses. The January proposal provided $11.4 million Prop. 98 General Fund to establish and support food pantries at community colleges and $10 million one-time funding to develop and implement the Zero-Textbook-Cost Degree Program, which would have eliminated the cost of textbooks for certain degrees and certificate programs. The May Revision proposes statutory changes to support food pantries with available Student Equity and Achievement Program funding. The Administration proposes eliminating the Zero-Textbook-Cost Degree program entirely.
  • Reducing support for undocumented and immigrant students by $5.8 million Prop. 98 General Fund. The Governor had proposed these funds for Dreamer Resource Liaisons and other student support services for immigrant students. The Administration now proposes statutory changes to provide these services with available Student Equity and Achievement Program funding. The revised spending plan maintains the January proposal for $10 million to support legal services for undocumented students, faculty, and staff on community college campuses. 
  • Deferring a total of $662 million Prop. 98 General Fund spending. $330 million would be deferred from 2019-20 to 2020-21 and $332 million would be deferred from 2020-21 to 2021-22.

Absent additional federal funding, the Administration also proposes a total of $1.1 billion Prop. 98 General Fund in trigger cuts to the CCCs in 2020-21. For example, some of these cuts include:

  • $167.7 million ongoing for cost-of-living adjustments.
  • $83.2 million, including $40.4 million in one-time funding to support apprenticeship programs, the California Apprenticeship Initiative, and to expand access to work-based learning programs.
  • $68.8 million for the Student Equity and Achievement Program. The remaining funds for this program will now also support the community college food pantries and Dreamer Resource Liaisons for undocumented students, as mentioned above.
  • 31.9 million intended for enrollment growth even as the Administration anticipates an increase in enrollment due to the economic downturn.

The May Revision Significantly Adjusts Funding for CSU and 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 481,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 285,000 students on 10 campuses.

The Administration intends to pursue statutory changes to allow both the CSU and the UC to use non-lottery restricted fund balances to address COVID-19 related impacts. To access these funds, the CSU would be required – and the UC encouraged—to prioritize underrepresented students and to increase the number of students served through online courses and programs. 

At the CSU, the revised spending plan withdraws the following from the January proposal:

  • $199 million ongoing General Fund. These funds would have supported operational costs, enrollment growth, and the Graduation Initiative, which seeks to improve graduation rates and eliminate opportunity and achievement gaps.
  • $6 million one-time General Fund. These funds would have been directed toward the development and expansion of degree and certificate completion programs to support those with some college but no degree.

The Administration also proposes a total of $404 million General Fund in trigger cuts to the CSU in 2020-21, unless the federal government provides additional funding. To this end, the May Revision:

  • Cuts support for the CSU by 10%. This cut represents a reduction of $398 million ongoing General Fund.
  • Decreases financial aid for the summer term by $6 million General Fund. These funds would have provided summer-term financial aid to low-income students, including undocumented students through June 2023.

At the UC, the Governor makes several adjustments from his January proposal, including: 

  • Providing $11.3 million ongoing General Fund for operational support at UC Riverside Medical School. The Governor had previously proposed providing $25 million ongoing for both operational support and enrollment growth.
  • Providing $1.2 million ongoing General Fund to support the UC San Francisco School of Medicine Fresno Branch Campus in partnership with UC Merced. These funds represent a reduction from the Governor’s earlier proposal of $15 million for an expansion.
  • Eliminating various proposals, including: 
    • $169.2 million ongoing General Fund for undergraduate enrollment growth, operational costs, and student support services.
    • $4 million one-time General Fund to support degree and certificate completion programs. 

Absent additional federal funding, the Administration also proposes a total of $376.4 million General Fund in trigger cuts to the UC in 2020-21. To this end, the May Revision:

  • Cuts support for the UC and other UC entities by 10%. This cut represents a reduction of $372.4 million ongoing General Fund. 
  • Decreases financial aid for the summer term by $4 million General Fund. These funds would have provided summer-term financial aid to low-income students, including undocumented students through June 2023.

Cuts to Golden State Teacher Grant Program and Student Debt Loan Workgroup and Outreach Proposed

Cal Grants are the foundation of California’s financial aid program for low- and middle-income students pursuing higher education in the state. Cal Grants provide aid for tuition and living expenses that do not have to be paid back. The Administration estimates an increase in Cal Grant Program costs of nearly $12 million in 2019-20 and a decrease of about $350,000 in 2020-21 due to revised participation estimates. The May Revision includes an increase of nearly $600 million General Fund in 2020-21 for Cal Grants. This covers a similar decrease of $600 million in federal TANF dollars, now shifted to the state’s CalWORKs program, which provides cash assistance for low-income children while helping parents overcome barriers to employment and find jobs. This is a technical shift that has no programmatic effect on Cal Grants.

The May Revision makes significant adjustments to the 2019-20 budget agreement and the Governor’s January proposals, including:

  • Withdrawing $88.4 million General Fund for the Golden State Teacher Grant Program, which is nearly all of the one-time total allocated in the 2019-20 budget agreement ($89.8 million). The program was designed to provide funding for up to 4,487 grants of $20,000 for teachers committed to teaching for four years in “high-need” subjects, including bilingual education, STEM, and special education, in schools that have a high percentage of teachers with “emergency-type permits.” However, the May Revision proposes allocating $15 million one-time federal Special Education funds available to maintain grants to special education teachers only. 
  • Withdrawing $15 million one-time General Fund to support the Child Savings Accounts Grant Program out of $25 million provided to the California Student Aid Commission (CSAC) in the 2019-20 budget agreement. The CSAC funding is intended to implement and administer the Child Savings Account Grant Program.
  • Reducing the maximum Cal Grant award for students at private nonprofit institutions from $9,084 to $8,056. In order for students attending private nonprofit institutions to receive the maximum Cal Grant tuition award of $9,084, the institutions must meet certain goals determined by the state. Since the levels determined by the state were not met, the May Revision reflects a decrease of $8.9 million General Fund.
  • Cutting support for the Student Debt Loan Workgroup and Outreach by $4.5 million General Fund. The funds were meant to support the student loan working group and create grants to public colleges to notify students of available loan repayment options. The revised proposal no longer includes grants to higher education institutions, but maintains funding to support the working group.
  • Eliminating $1.8 million General Fund proposal to support newly leased space for the California Student Aid Commission’s headquarters.

Corrections & Justice 

Governor Proposes to Close Two State-Operated Prisons in the Next Three Years

Roughly 117,100 adults who have been convicted of a felony offense are serving their sentences at the state level, down from a peak of around 173,600 in 2007. More than 7 in 10 adults incarcerated at the state level are Black or Latinx – a racial disparity that reflects implicit bias within the criminal justice system, structural disadvantages faced by these communities, and other factors. While California has recently taken steps to slow the spread of COVID-19 in state prisons, these facilities remain severely overcrowded, operating at 128% of their capacity. However, the prison population is expected to continue declining in the coming years, creating opportunities for state policymakers to close correctional facilities. The May Revision:

  • Proposes to begin closing two state-operated prisons in the next three years. One facility would be closed beginning in 2021-22; the second, beginning in 2022-23. “These closures will be achieved through various actions that will further reduce the prison population through rehabilitation,” according to budget documents. These prison closures are projected to result in state savings of $100 million in 2021-22, $300 million in 2022-23, and $400 million ongoing.
  • Reflects the Administration’s plan to close all state-level correctional facilities for men that operate under contracts with the state. The last remaining private state-level contract facility is expected to be closed in 2020. The three remaining public state-level contract facilities are expected to be closed by July 2022. 
  • Proposes to cap state supervision for most parolees at 24 months. Some parolees would be able to “establish earned discharge” at 12 or 18 months. This proposal would generate General Fund savings of about $23 million in 2020-21, rising to $76 million in 2023-24.

May Revision Withdraws Local Correctional System Reforms, Maintains Fines and Fees Assistance for Californians with Low Incomes

California’s 58 counties play a key role in the state’s local correctional system – housing roughly 72,000 adults in county jails on a given day and supervising individuals on probation. The state’s correctional system underwent a series of reforms beginning with the state-to-county “realignment” that took effect in 2011, following a US Supreme Court order that required the state to reduce its prison population. Under realignment, counties are now responsible for managing certain adults who had traditionally been housed in state prisons and supervised by state parole officers upon their release. Additionally, California’s 58 trial courts supplement the local correctional system, and comprise the state’s judicial branch – ruling on both civil and criminal cases. Both are integral to the state’s legal system. 

While COVID-19 has created significant fiscal impacts for the state budget, the May Revision does preserve initial funding allocated in January for select services. The Administration specifically:

  • Maintains the online ability to pay pilot program administered through select county courts statewide, allocating $11.5 million General Fund in 2020-21.  This tool allows Californians with qualifying incomes to reduce their penalties by 50% or more and make payments over time for certain traffic fines and fees. 
  • Increases the fine and fee revenues backlog funding to $238.5 million one-time General Fund in 2020-21, in projection of lower revenues in 2019-20 and 2020-21.

Yet, key reforms in the Governor’s January proposal regarding local corrections and the judicial system were suspended. For instance, the May Revision:

  • Withdraws funding increases for adult probation services for individuals with misdemeanor convictions. These additional services were aimed to further diminish recidivism rates and promote public safety. This reduces proposed General Fund spending by $60 million annually for three years and $30 million General Fund in 2023-24.
  • Cancels additional funding for the California Community Corrections Performance Incentives Act of 2009. Under this law, also known as Senate Bill 678 (Leno, Chapter 608 of 2009), counties have financial incentives to reduce the number of individuals on felony probation who are sent to state prison. This results in a reduction of $11 million ongoing General Fund, but maintains the existing baseline funding of $112.7 million General Fund in 2020-21.
  • Removes reforms to limit felony and misdemeanor probation terms to two years and the allowance of earned discharge for individuals on probation. Currently, formal probation supervision normally lasts three to five years depending on the crime committed and the county in which individuals are convicted.
  • Reduces funding to support trial court operations.  This is expected to reduce ongoing General Fund spending by $107.6 million.

The Administration also proposes trigger cuts unless federal funding can be secured to allow for a balanced state budget. The Governor recommends to:

  • Cut Trial Court funding to reduce General Fund spending by $178.1 million in 2020-21 and ongoing, with an additional 5% operational expenses decrease of $28.1 million General Fund in 2021-22.
  • Eliminate the Adult Reentry Grant to reduce General Fund spending by $37 million. This grant is competitively awarded to community-based organizations to assist adults formerly incarcerated in a state prison.
  • Reduces state level judiciary funding to reduce General Fund spending by $23.3 million in 2020-21 and ongoing, with an additional 5% operational expense decrease of $10.6 million in 2021-22.
  • Revert funding for other various Judicial Branch Programs to reduce General Fund spending by $15.2 million. 
  • Decrease funding for the Department of Justice by $14 million ($4.3 General Fund).
  • Reduce funding for legal representation provided by the Office of the State Public Defender by $2.1 million in ongoing funding. The January proposal allocated $4 million General Fund in 2020-21 and $3.5 million annually ongoing.

Governor Proposes to End State Supervision of Justice-Involved Youth Beginning in 2021 and Realign Responsibility for These Youth to Counties

Counties are responsible for almost all justice-involved youth, but around 800 are housed at the state level. The Division of Juvenile Justice (DJJ) within the California Department of Corrections and Rehabilitation oversees these youth. The budget package for the current fiscal year (2019-20) abolished the DJJ and shifted responsibility for these roughly 800 youth to a new state-level department under the Health and Human Services Agency, effective July 1, 2020.

The May Revision proposes to change direction and transfer responsibility for these youth from the state to the counties. This plan would “enable youth to remain in their communities and stay close to their families to support rehabilitation,” according to budget documents. Under this proposal, the state would stop receiving justice-involved youth in January 2021 and begin closing state-level facilities as the current population gradually declines through attrition. The state would direct a portion of the savings to counties to fund their new responsibilities, and would provide additional funding for youth who have sex behavior or mental health treatment needs. These additional funds — $2.4 million in 2020-21 rising to $9.6 million ongoing — would be awarded to county probation departments through a competitive grant process through the Board of State and Community Corrections.

Emergency & Environmental Response 

May Revision Maintains Some Proposed Investments to Help the State Prepare for and Respond to Emergencies and Address Climate Change

The revised budget proposal recognizes that, while significant resources are needed to respond to the current COVID-19 crisis, Californians are still vulnerable to other types of disasters such as wildfires and earthquakes and the effects of climate change. Accordingly, the Administration continues to prioritize improving the state’s ability to prepare for and respond to such disasters and maintains some of the investments proposed in the January budget. These investments include but are not limited to:

  • $90 million General Fund ($142.7 million ongoing) to enhance the ability of the Department of Forestry and Fire Protection (CAL FIRE) to fight wildfires, primarily by providing for new permanent firefighting positions. This is down from the $120 million General Fund ($150 million ongoing) proposed in January.
  • $50 million one-time General Fund to support matching grants to local governments to ensure the continued operation of critical services like schools, food storage reserves, and county election offices during power shutdowns.
  • $38.2 million one-time General Fund for a California Disaster Assistance Act funding augmentation to reimburse local governments for costs of emergency activities incurred during a state of emergency or to repair or replace public property destroyed in a disaster. This reflects an increase from the $16.7 million proposed in January.
  • $9.4 million ($9.2 million General Fund) to expand the capacity of the Office of Emergency Services to prepare for and respond to disasters.

Additionally, the May Revision maintains the January budget’s proposed $965 million Cap and Trade spending plan, but proposes a pay-as-you-go mechanism to authorize expenditures based on actual proceeds of Cap and Trade auction in recognition of the uncertainty of future proceeds given current economic conditions. The proposal would prioritize funding for air quality in communities that have been historically underserved, forest health and fire prevention, and safe and affordable drinking water.

The May Revision withdraws the $250 million General Fund proposed in January to create a Climate Catalyst fund to provide loans for climate-related projects as well as the $26.8 General Fund proposed for a “home hardening pilot program” to provide assistance to make homes more wildfire-resistant. 

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Introduction

California is facing significant costs related to the immediate public health response to the COVID-19 crisis. In addition, the state will likely spend more on services such as health care and cash assistance for Californians whose incomes have fallen sharply in the wake of the statewide stay-at-home order. At the same time, the state’s primary revenue sources – income taxes and sales taxes – will be lower than anticipated due to increased unemployment, stock market declines, and reduced consumer purchases. These factors – higher spending and lower revenues – have put the state on the cusp of a substantial budget shortfall.

California is in a much better position to address a budget gap compared to previous recessions because state policymakers prudently set aside billions of dollars for a rainy day. These reserve funds will help to soften the impact of the COVID-19 crisis on the state budget. However, these funds – which total nearly $18 billion as of April 2020 – may be used up quickly depending on the severity and duration of the recession and the extent to which the state receives federal fiscal relief. This Issue Brief describes California’s state budget reserves and explains how the funds can be accessed and used to help support key public systems and services during the uncertain economic times that lie ahead.

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It’s been several weeks since Governor Gavin Newsom released his proposed 2020-21 budget, and now Senate and Assembly budget subcommittees start their work on the state’s upcoming fiscal plan, including holding public hearings and reviewing proposals to determine how money will be spent on programs and Californians.

This guide outlines the Governor’s proposed 2020-21 budget, including revenue forecasts, funding proposals, and key reforms. The Budget Center’s analysis also points to opportunities for additional investments to improve the lives of Californians still struggling to make ends meet. Plus, learn about tax expenditures – spending that happens outside of the budget that could provide additional revenue for policymakers to share the state’s prosperity if better targeted. Finally, our new publication highlights what happens next in the state budget process.

Table of Contents

The Governor’s Proposed 2020-21 Budget: Top Lines     4

The Big Picture: Revenues, Spending, and Reserves     6

Key Elements of the Governor’s Proposed Budget     11

Critical State Investments Left Out of the Governor’s Proposed Budget     47

Spending Outside of the Budget: Tax Expenditures     55

What Happens Next?     58

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