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.
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.
From speaker series to virtual panels to our annual conference, we host a variety of in-person and digital events to help you advance a more equitable and just California.
Join our email list!
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.
Join our email list!
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.
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.
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:
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.
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.
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.
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 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.
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.
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.
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:
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.
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.
Join our email list!
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:
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.
Emergency & Environmental Response
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.
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:
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:
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.
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:
The May Revision proposes to draw down $8.6 billion from these reserves, including:
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.
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.
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:
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.
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:
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:
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 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:
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:
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.
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:
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:
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:
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).
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.
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:
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.
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.
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:
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:
In the May Revision, the Governor also makes several adjustments to his January proposal. These adjustments include:
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:
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:
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:
At the UC, the Governor makes several adjustments from his January proposal, including:
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:
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:
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:
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:
Yet, key reforms in the Governor’s January proposal regarding local corrections and the judicial system were suspended. For instance, the May Revision:
The Administration also proposes trigger cuts unless federal funding can be secured to allow for a balanced state budget. The Governor recommends to:
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.
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:
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.
Join our email list!
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.
Join our email list!
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.
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
Join our email list!
On January 10, Governor Gavin Newsom released his proposed 2020-21 budget that advances a series of commitments to some of the most pressing needs facing Californians: addressing homelessness and behavioral health, providing access to affordable health coverage, and improving paid family leave so that more workers can care for their family members.
The Governor forecasts revenues that are $5.8 billion higher (over a three-year “budget window” from 2018-19 to 2020-21) than previously projected in the 2019-20 budget enacted in June, driven largely by continued economic growth.
The Governor’s proposal includes significant new funding to support access to housing and services to address homelessness, proposes to improve care for individuals who are homeless and/or individuals with substance use disorders through transforming how Medi-Cal services are delivered, and seeks to reform the Mental Health Services Act.
The proposal also builds upon expansions that were made in the 2019-20 budget that support Californians with low and middle incomes, particularly people of color, who are struggling to make ends meet and access greater economic opportunity, including: working toward universal preschool, expanding health care to move closer to universal coverage, boosting CalWORKs grants, and increasing investment in state higher education systems. The state’s ongoing economic and fiscal health also means a significant increase in funding for K-12 education and community colleges.
Recognizing the reality that the state will eventually confront an economic downturn, the budget proposal calls for continuing to build up reserves and pay down debts in order to improve the state’s fiscal resiliency.
Due to prudent planning and continued economic growth, state leaders have the opportunity to make additional investments to help the many Californians who are struggling to live and work in our communities and who are blocked from expanding income and wealth as a result of existing conditions and state policies. For example, the Governor’s proposal does not ensure that all working immigrant families have access to the recently expanded California Earned Income Tax Credit (CalEITC).
The following sections summarize key provisions of the Governor’s proposed 2020-21 budget.
Other Priorities in the Proposed Budget
Download the full report PDF.
The Administration’s economic outlook expects that the nation’s record-long economic expansion will continue through the forecast period, from 2020 to 2023, but projects that the pace of growth will slow both nationally and in California. The Administration rightly notes that “the state’s strong economy has not lifted all Californians,” that “economic inequality persists between regions of the state and for many living within the state’s more prosperous regions,” and that “wage and job growth have been uneven across the state and too many struggle to make ends meet.” The outlook projects that California will continue to add jobs over the next few years, but at a slower pace. Additionally, the outlook projects that the tight labor market will boost wages and assumes that the wages of lower-wage workers will outpace inflation.
Although the Governor’s economic outlook does not expect a recession in the forecast period, it notes that “continued growth is uncertain” due to a number of risks, many of which are outside of state policymakers’ control. These include trade disputes, a stock market correction, and a global economic slowdown. The outlook also points out that beyond these immediate risks, California faces several longer-term risks to economic growth, including the economic impact of the state’s housing shortage and the aging of the population.
The Governor’s proposed budget assumes that revenues will continue to grow throughout the forecast period. For the budget year (fiscal year 2020-21), General Fund revenue is projected to total $153.4 billion before transfers, such as deposits to the state’s rainy day fund. The Administration projects that General Fund revenue (before transfers) over the three-year “budget window” – covering fiscal years 2018-19 through 2020-21 – will be $5.8 billion higher than projected in the 2019 Budget Act. This improved outlook largely reflects stronger-than-expected corporate tax receipts. Additionally, $1.8 billion of the increase is due to expected federal reimbursements of costs related to the 2017 and 2018 California wildfires.
The personal income tax (PIT), sales and use tax (SUT), and corporation tax (CT) are the three primary sources of General Fund revenue. Compared to the figures projected in the 2019-20 enacted budget, the Governor’s proposed budget forecasts that PIT revenue will be $1.5 billion lower over the three-year budget window. The budget proposal reflects higher-than-expected wages as well as higher capital gain realizations due to a strong stock market. However, the Administration notes that the PIT revenue forecast has been revised down, partly due to an assumption that many pass-through businesses (such as limited liability companies and S corporations), which are taxed under the personal income tax system, have been converting and will continue to convert into C corporations, which are taxed under the corporation tax system. This assumption is due to stronger-than-expected CT revenue growth and changes in federal tax law that may encourage more businesses to become C corporations. As a result, CT revenue is expected to be nearly $5 billion higher over the budget window, more than offsetting the downgraded PIT forecast. However, the Legislative Analyst’s Office notes that there is limited evidence for the Administration’s assumption, and if other factors are responsible for the observed strength in corporate tax collections, CT revenue could be weaker than assumed in 2020-21. The forecast for SUT revenue is very similar to the 2019 Budget Act projections, with revenue over the budget window expected to be just $129 million higher. The Administration notes that while consumer spending is expected to be higher than previously projected, the increase is mostly offset with lower projections for private investment.
The Governor’s proposal also contains three tax policy changes:
California voters approved Proposition 2 in November 2014, amending the California Constitution to revise the rules for the state’s Budget Stabilization Account (BSA), commonly referred to as the rainy day fund. Prop. 2 requires an annual set-aside equal to 1.5% of estimated General Fund revenues. An additional set-aside is required when capital gains revenues in a given year exceed 8% of General Fund tax revenues. For 15 years ̶ from 2015-16 to 2029-30 ̶ half of these funds must be deposited into the rainy day fund and the other half is to be used to reduce certain state liabilities (also known as “budgetary debt”). Prop. 2 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 deposit a portion of General Fund revenues into the new reserve as part of California’s Prop. 98 funding guarantee. (See “Increased Revenues Boost the Minimum Funding Level for Schools and Community Colleges.”)
The Governor’s proposed budget includes a transfer of $2 billion to the BSA for 2020-21, bringing the reserve’s balance to $18 billion by the end of the fiscal year. Prop. 2 requires that when the BSA balance has reached its constitutional maximum of 10% of General Fund tax revenues, any additional dollars that would otherwise go into the BSA must be spent on infrastructure, including spending on deferred maintenance. However, while the BSA has exceeded this maximum, the Governor’s budget continues to assume that constitutionally required deposits will be made since the account’s maximum balance was achieved in part through supplemental payments in prior years.
The BSA is not California’s only reserve fund.
Taking into account the BSA, SFEU, Safety Net Reserve, and PSSSA reserve for K-12 education, the Governor’s proposal would build state reserves to a total of $21 billion in 2020-21.
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 ($4 billion General Fund) and CalSTRS ($3.6 billion General Fund). The enacted 2019-20 budget included a $3 billion supplemental payment to CalPERS to be paid over the fiscal years 2018-19 to 2022-23 and a $2.9 billion supplemental payment to CalSTRS to be paid over the fiscal years 2019-20 to 2022-23. The Governor’s proposed 2020-21 budget reflects those prior commitments.
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. The state’s homelessness challenges are cited as a serious concern by California residents and have attracted national attention. The Administration highlights homelessness as a key challenge facing California and a major focus for new spending in the proposed budget, with a particular focus on addressing “street-based homelessness” and expanding access to behavioral health and other supportive services.
As a key strategy to address homelessness, the Governor proposes spending $750 million one-time General Fund to create a new California Access to Housing and Services Fund, administered by the Department of Social Services and distributed through “performance-based contracts” between the state and “regional administrators.” Funds would be used to provide short-term and long-term rental subsidies, support development of new affordable housing units (particularly on state-owned land made available for housing development), and stabilize board and care facilities through capital and operating support. The Fund would also “be used to engage with landlords to secure units and negotiate individual client leases” and to provide tenancy support services and case management for individuals receiving rent subsidies. The Administration asks the Legislature to expedite the establishment of the Fund in order to issue funding this summer.
Other significant proposals included in the budget aim to address the needs of homeless individuals through the state’s health and behavioral health systems. These include:
These proposals build on an executive order on homelessness issued by the Governor in early January 2020, a “100-Day Challenge” the Governor issued to local governments in December 2019, and funding and administrative actions addressing homelessness included in the 2019-20 budget.
More than half of California renter households pay more than 30% of their income toward rent, making them housing cost-burdened, and high housing costs are a key driver of California’s high poverty rate. After significant new state investments in housing planning and development in the 2019-20 budget, including a $500 million ongoing expansion of the state Low Income Housing Tax Credit (LIHTC) program, the Governor proposes no major new state funding specifically for housing production or affordability in the 2020-21 budget, other than funds included in the Administration’s proposal to address homelessness (see previous section) and a modest $10 million annually over the next three years “to support the state’s efforts to increase housing production.” The Administration highlights last year’s investments and the fact that the state has secured $4.5 billion in private funding, including loans, from major technology companies to finance affordable housing projects. A share of the proceeds from cap and trade auctions must be directed to the Affordable Housing and Sustainable Communities program to fund land-use, housing, transportation, and land preservation projects to support infill and compact development, totaling $468 million in the budget proposal.
Additional funding for housing-related legal assistance and foreclosure prevention comes from a court decision last year (National Asian American Coalition v. Newsom) that found that the state previously (under Governor Brown) improperly diverted to the General Fund $331 million intended for a special fund to assist California homeowners affected by the mortgage crisis. As a result, these funds have now been deposited in the National Mortgage Special Deposit Fund, and the Administration proposes managing the funds in a trust to support ongoing legal assistance related to housing issues for California renters and homeowners as well as borrower relief to prevent foreclosures.
In terms of administrative actions, the Governor continues to propose revamping the Regional Housing Needs Allocation (RHNA) process, including implementing more ambitious housing production goals, by 2023. The Governor also outlines plans for “exploring… the creation of an agency exclusively focused on housing and homelessness” and working with the Legislature on “additional actions to expedite housing production, including changes to local zoning and permitting processes.”
Behavioral health services are primarily provided by California’s 58 counties, with funding support from the state and federal governments. Californians with behavioral health conditions – mental health conditions and/or substance use disorders – confront many challenges in accessing services that are delivered by multiple complex systems. This is particularly true for Californians who are experiencing both homelessness and behavioral health conditions.
In order to address these challenges, the proposed 2020-21 budget includes a number of initiatives that aim to improve integration of behavioral health treatment with physical health care. Specifically, the Administration proposes to:
In other efforts to improve behavioral health outcomes, the budget also includes:
The Administration is leading an ambitious reform effort known as Medi-Cal Healthier California for All. (Medi-Cal is a joint federal-state program that provides health care services to nearly 13 million Californians with low incomes.) Building on previous pilot programs, this initiative aims to coordinate physical health, behavioral health, and social services in a patient-centered manner. It also aims to reduce complexity across all delivery systems and to implement value-based initiatives and payment reform. The main goal of these proposed changes is to improve care for Californians experiencing homelessness, children with complex medical conditions, Californians involved with the justice system, and older adults. As such, this initiative positions the state to take a population health, person-centered approach to providing health-related services, and potentially reduces health care costs.
The Administration assumes that implementation of these various reforms would begin on January 1, 2021, and that the following funding would be available during the initial fiscal year (2020-21):
The proposed reforms – and the level of federal funding that will be provided – must be negotiated with the federal government through the Medicaid waiver process. The Administration’s goal is to transition all existing Medi-Cal managed care authorities into one consolidated 1915(b) managed care waiver. The Department of Health Care Services began a stakeholder engagement process last year and will continue to seek input over the coming months.
Building on the federal Affordable Care Act (ACA), California has substantially expanded access to health coverage in recent years. For example, nearly 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. Another 1.2 million Californians with incomes up to 400% of the federal poverty line – $49,960 for an individual – receive federal premium subsidies to reduce the cost of coverage purchased through Covered California, our state’s health insurance marketplace. In addition, California recently created state premium assistance subsidies to help further reduce the cost of health insurance purchased through Covered California. Most of these new subsidies benefit people with incomes between 400% and 600% of the poverty line ($49,960 to $74,940 for an individual). Despite these gains, around 3 million Californians remain uninsured, health care costs continue to rise, and many people continue to face both high monthly premiums and excessive out-of-pocket costs – such as copays and deductibles – when they use health care services.
The Governor’s health policy agenda for 2020-21 aims to further reduce the number of uninsured Californians as well as tackle health care cost growth. The proposed budget:
The California Earned Income Tax Credit (CalEITC) and Young Child Tax Credit (YCTC) are California’s only refundable tax credits that boost the incomes of families and individuals who earn little from their jobs, helping them to afford necessities, like food and utilities. The overwhelming majority of people who are eligible to benefit from the CalEITC and YCTC are people of color. In addition, women and children make up the majority of people who are eligible to benefit from the YCTC.
Policymakers are required to specify in each year’s state budget bill how large a credit to provide through the CalEITC and YCTC. The Governor’s proposed budget maintains the increased investments in these credits that were made in the 2019-20 budget and does not provide any additional investments.
The CalEITC coalition, which includes more than 30 organizations across the state, recommends that the Governor extend the CalEITC and YCTC to the hundreds of thousands of immigrant families who earn low wages, pay taxes, and experience significant economic disparities in communities throughout the state, but are excluded from these credits. Both the Assembly and Senate adopted a proposal to make the CalEITC and YCTC more inclusive as part of their 2019-20 budget plans, but it was left out of the final budget deal with the Governor. Extending the CalEITC and YCTC to excluded immigrants could benefit an estimated 505,000 to 722,000 Californians, including 171,000 to 244,000 children, at a cost of just $79 million to $113 million, according to Budget Center estimates. Previous Budget Center analyses have shown that making these credits more inclusive of immigrant families would be a smart investment for the state from both an equity and economic perspective.
In addition to maintaining the CalEITC and YCTC at current levels, the Administration proposes to allocate $10 million for outreach efforts to encourage greater participation in the credits. This continues the same level of investment in outreach provided through the state budget in recent years. Budget documents also indicate that the Administration is continuing to develop “a program that would allow workers to receive a portion of the [Cal]EITC in monthly payments.” The 2019-20 budget directed the Franchise Tax Board (FTB) to work with the Legislature and the Department of Finance to determine how such a program might work, and the FTB is expected to publish a report of recommendations in the spring.
Over the span of a career, most working adults need time off to care for a new child or a sick family member. The California Paid Family Leave program allows caregivers to take up to six weeks of paid time off to care for a family member or bond with a newborn or adopted child. As part of the 2019-20 budget agreement, caregivers will be allowed to take up to eight weeks of paid time off, effective July 1, 2020.
While the vast majority of California workers contribute to the paid family leave program and are eligible to take paid time off to care for a new child or family member, workers are not guaranteed their job when their paid-leave period ends. This is because the state’s paid leave program does not provide job protections when a worker needs to take paid time off. As a result, many workers are unable to utilize paid leave in California. A lack of job protections is more likely to affect workers with low wages, who are disproportionately women and Black and Latinx workers. The budget proposal signals the intent to include statutory language to “align paid family leave benefits with job protections.” The budget proposal also states that resources will be provided to support small businesses that provide paid family leave benefits to their employees.
The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for over 720,000 low-income children while helping their parents overcome barriers to employment and find jobs. CalWORKs primarily serves families of color, making it an important source of support in a state where children of color are more likely than white children to face economic insecurity. In recent years, state policymakers have taken steps to increase economic security for CalWORKs families. In the 2019-20 budget agreement, policymakers significantly increased the maximum CalWORKs grant, as the annualized grant had been well below the deep poverty threshold (50% of the federal poverty line) for over a decade. In this January proposal, the Governor plans to increase the maximum grant by an additional 3.1%, effective October 1, 2020. The proposed budget provides $73.6 million in 2020-21 and $98.1 million in 2021-22 from realignment funds for this increase.
The Administration also calls for increasing the amount of child support payments that are passed through to CalWORKs families, effective January 1, 2022. Currently, when one CalWORKs parent has primary custody of a child, the non-custodial parent must provide child support payments. However, the family only receives the first $50 of each monthly payment; the remainder must go to the state, county, and federal governments as “reimbursement” for the costs associated with the CalWORKs program. The Governor proposes allowing parents to retain $100 for a family with one child and $200 for a family with two or more children. The Administration provides $1.4 million ($900,000 General Fund) in 2020-21 to implement these changes and anticipates that this change will cost $17 million General Fund annually, beginning 2021-22. The proposed budget also includes statutory changes to forgive child support debts that the state determines to be uncollectible, beginning January 1, 2022.
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 in order to help close budget shortfalls that emerged following the onset of the Great Recession in 2007. The SSP portions for couples and for individuals were reduced to federal minimums in 2009 and 2011, respectively. Moreover, the annual statutory state cost-of-living adjustment (COLA) for SSI/SSP grants was eliminated beginning in 2010-11. Since then, state policymakers have provided only one discretionary COLA for the state’s SSP portion of the grant ̶ a 2.76% boost that took effect in January 2017, resulting in monthly state SSP grant levels of $160.72 for individuals and $407.14 for couples, which remain in effect today.
The Governor does not propose a state increase for the SSP portion of SSI/SSP grants in 2020-21. However, the Administration does project that the federal government will boost the SSI portion of the grant by 1.7% effective January 1, 2021.
As a result of this projected federal increase:
Millions of Californians face food insecurity, not knowing where their next meal will come from. Californians with low incomes can receive emergency food assistance through a federal program called the Emergency Food Assistance Program (EFAP), which provides food to local food banks across the state. The federal program is supplemented with food purchased by food banks, supported by private donations, state funds, and other sources. The Governor’s budget proposal includes $20 million in one-time General Fund dollars in the Department of Social Services budget for food banks and other EFAP providers to expand their food purchases.
The Administration notes that this one-time expenditure is intended to offset the loss of CalFresh benefits (California’s version of the Supplemental Nutrition Assistance Program, or SNAP) due to recent federal rule changes. Specifically, the Trump Administration issued a rule in December that restricts states’ ability to qualify for waivers of a rule limiting the receipt of SNAP benefits to just three months out of every three years for unemployed and underemployed individuals ages 18 through 49 who are not raising children. Previously, states could seek waivers to the three-month limitation for certain areas or the entire state during times of high unemployment, but the new rule severely limits the situations in which states can be granted a waiver. As a result, the Trump Administration estimated that nearly 700,000 people nationwide would lose SNAP benefits.
Additionally, another federal rule issued in August expanded the definition of “public charge” (people who can be denied entry into the US or permission to remain in the US on the grounds that they are likely to require public support) to include those receiving SNAP benefits and other types of non-cash assistance. The likely result is a “chilling effect” among individuals in families that include noncitizen immigrants, whereby families do not access public supports to address basic needs for which their family members are eligible, such as CalFresh, and disenroll from supports that they currently access out of fear and confusion about the consequences of accessing these types of supports. While the US Department of Homeland Security remains blocked from implementing the public charge rule due to litigation efforts, some potentially affected families may disenroll from CalFresh and other benefits due to fear and uncertainty.
Finally, another rule change proposed by the Trump Administration, but not yet finalized, would limit states’ ability to use “broad based categorical eligibility” to provide access to SNAP food assistance for families with modest savings and those with somewhat higher incomes who have significant expenses for housing or child care. If implemented, this rule could be particularly harmful in California due to the state’s high cost of living.
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 for families struggling with the state’s high cost of living. While the 2019-20 budget agreement made a significant investment in the state’s subsidized child care and development system, millions of eligible children and families – disproportionately families of color – are unable to access services due to a lack of state and federal funding. The Governor’s proposal does provide 621 additional General Child Care slots ($10.3 million Cannabis Fund). Further, as part of the 2019-20 budget agreement, just over 3,000 General Child Care slots were added with $50 million one-time General Fund. According to legislative documents, these spaces were to be funded with Proposition 64 Cannabis Fund dollars in future years. The Governor’s 2020-21 proposal replaces the $50 million in one-time General Fund support for General Child Care spaces with ongoing funding from the Cannabis Fund. This does not address the vast unmet need for subsidized child care.
In addition, the Governor’s budget proposal calls for a new Department of Early Childhood Development that would restructure the governance of subsidized child care programs. Currently, both the California Department of Education (CDE) and the Department of Social Services administer subsidized child care programs. The Administration is proposing to shift all subsidized child care programs into the new department under the California Health and Human Services Agency, effective July 1, 2021. The California State Preschool Program will remain under the purview of the California Department of Education. The budget proposal includes $8.5 million General Fund for the California Health and Human Services Agency to support a transition team. This proposal precedes the recommendations that will be made in the Master Plan for Early Learning and Care, due October 1, 2020.
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 have significant negative implications for California. The 2020-21 budget agreement makes important strides to support immigrant communities but also misses a key opportunity. Specifically, the Governor’s proposed budget:
While California continues to make strides to provide support and create safe communities for immigrants, ensuring that all Californians are protected and can access economic opportunity requires enacting policies that extend vital state supports to immigrants and their families.
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 (CSPP) and creating grant programs for early learning facilities. The Governor’s budget proposal continues to invest in early learning opportunities. Specifically, the budget proposal:
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 2020-21 Prop. 98 funding level of $84 billion for K-14 education, $3 billion above the 2019-20 funding level of $81.1 billion estimated in the 2019-20 budget agreement. The Prop. 98 guarantee tends to reflect changes in state General Fund revenues and estimates of General Fund revenue in the proposed budget are higher than those in the 2019-20 budget agreement. As a result, the Governor’s proposed budget assumes a 2019-20 Prop. 98 funding level of $81.6 billion, $517 million above the level assumed in the 2019-20 budget agreement, and a $78.4 billion 2018-19 Prop. 98 funding level, $301.5 million above the level assumed in the 2019-20 budget agreement.
The Governor’s proposed budget also projects that a deposit of $524.2 million into the Public School System Stabilization Account (PSSSA) is required in 2019-20, the first deposit into this state budget reserve for K-12 schools and community colleges. The 2019-20 PSSSA deposit reflects an increase of $147.7 million above the amount that was previously projected in the 2019-20 budget package. The Governor’s spending plan assumes a withdrawal of $37.6 million from the PSSSA will be required in 2020-21, which would leave a balance of $486.6 million in the budget reserve for K-14 education.
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 approximately 6.2 million students in grades kindergarten through 12. The Governor’s proposed budget increases funding for the state’s K-12 education funding formula – the Local Control Funding Formula (LCFF) – and supports the recruitment and professional development of educators. Specifically, the Governor’s proposed budget:
A portion of Proposition 98 funding provides support for 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 2020-21 budget proposal expands support for workforce development programs, increases funding for some cost-of-attendance expenses, creates a pilot program to increase faculty diversity, and makes other investments.
Specifically, the proposed spending plan:
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 Governor’s proposed 2020-21 budget increases support for the CSU and the UC with the expectation that the institutions will continue to support college affordability and access, and improve completion rates. Notably, the proposal does not make funding contingent upon the institutions maintaining current tuition rates.
At the CSU, the proposed budget:
At the UC, the proposed budget:
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 repaid. The Governor’s spending plan maintains Cal Grant award levels and total available awards, and expects the California Student Aid Commission’s financial aid reform working group to “consider strategies to mitigate the underlying drivers of non-tuition costs.”
The proposed budget also includes $5 million one-time to address student loan debt. The funds would support a student loan working group and the development of an informational website to ensure students have access to information regarding loan programs, repayment plans, debt forgiveness options, and workshop opportunities to assist borrowers. This funding would also be used to create grants to public colleges to notify students of available loan repayment options.
The Administration proposes to create a new Department of Better Jobs and Higher Wages that would house several workforce development programs in order to align “fragmented workforce programs.” In addition, the proposed budget includes “statutory changes to consolidate the workforce functions dispersed across the Labor and Workforce Development Agency.” The new department would be composed of the California Workforce Development Board, the Employment Training Panel, the Workforce Services Branch and Labor Market Information Division (currently part of the Employment Development Department), and the Division of Apprenticeship Standards (currently part of the Department of Industrial Relations). According to the Administration, this consolidation is intended to “better align data, policy, and program analysis of the state’s workforce training programs.” The budget allocates $2.4 million in one-time General Fund to establish executive staff for the new department.
The proposed budget also includes $50 million one-time General Fund to support investments in the Fresno area aimed at “improving the economic mobility of Californians living in the region.” Specifically, this includes:
In addition to these proposals, the budget allocates additional funds to several departments to enforce compliance with Assembly Bill 5 (Gonzalez, Chapter 296 of 2019). This bill codified in state law a recent California Supreme Court decision, Dynamex Operations West, Inc. v. Superior Court of Los Angeles County, that requires companies to classify more workers as employees rather as than independent contractors. Specifically, the budget proposes to provide $17.5 million to the Department of Industrial Relations, $3.4 million to the Employment Development Department, and $780,000 to the Department of Justice.
Nearly 123,800 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. Currently, more than 7 in 10 state prisoners 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. Among all incarcerated adults, most ─ about 114,400 ─ are housed in state prisons designed to hold fewer than 85,100 people. This level of overcrowding is equal to 134.5% 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 severely overcrowded, the state is complying with the court order.) In addition, California houses over 9,300 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 sizeable drop in incarceration has resulted largely from a series of policy changes adopted by state policymakers and California voters in the wake of the federal court order.
The proposed spending plan:
California’s 58 counties play a key role in the state’s local correctional system. For example, counties operate jails, which house roughly 72,000 people on a given day, and supervise individuals on probation. Adults under county probation supervision were convicted of a misdemeanor or felony but allowed to return to their communities instead of remaining incarcerated with certain requirements. California’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 took responsibility for managing certain adults who had traditionally been housed in state prisons and supervised by state parole officers upon their release. Each year, the state provides counties with constitutionally protected funding to support their responsibilities under the 2011 realignment.
The Governor’s proposed budget focuses on reforming the adult probation system with the goal of reducing recidivism rates and using evidence-based practices for people with felony and misdemeanor convictions. Specifically, the proposed spending plan:
The Administration proposes other funding increases to select judicial services, while also attempting to encourage further state oversight of county jails. The proposed budget:
In recent years, California has faced unprecedented wildfires, flooding, and extreme heat events that have been exacerbated by climate change. These events are especially devastating for low-income communities, particularly people of color, who are more susceptible to the effects of climate change as they tend to live in more polluted areas or areas with high heat risks, and have fewer resources to recover from a disaster. To mitigate the effects of climate change, the Governor has proposed spending $1.73 billion in 2020-21 ($12.5 billion over five years). The proposed budget:
The proposed budget also provides investments to improve the state’s ability to prepare for, respond to, and recover from natural disasters. Among these investments are:
In response to federal actions that have weakened consumer financial protections, the Administration proposes to establish a new California Consumer Financial Protection Law that will “provide consumers with more protection against unfair and deceptive practices when accessing financial services and products.” In addition, the budget expands the authority and capacity of the Department of Business Oversight (DBO) to administer the new law. Specifically, the department will have increased authority to “pursue unlicensed financial services providers not currently subject to regulatory oversight such as debt collectors, credit reporting agencies, and financial technology (fintech) companies, among others.” Specific new activities include “licensing and examining new industries that are currently under-regulated” and establishing a new Financial Technology Innovation Office to “proactively cultivate the responsible development of new consumer financial products.” To better reflect the DBO’s new responsibilities, the Administration proposes renaming the department the Department of Financial Protection and Innovation and includes $10.2 million Financial Protection Fund in 2020-21 for the establishment and administration of the law. The Administration anticipates funding growing to $19.3 million in 2022-23.
Join our email list!
|
|
|
|