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COVID-19 Recession at Six Months: California’s Unemployment Remains High

Persistent Economic & Racial Disparities for California Workers Point to Urgent Need Extend Support

September 2020 | By Alissa Anderson

Millions of Californians are struggling to pay for basic necessities like housing and food amid the worst recession in recent history. California’s unemployment remains extremely high, particularly for Black and brown Californians. What’s more, the financial situation for many people has deteriorated as Congress has failed to extend additional federal unemployment benefits or provide any new economic relief that would significantly help children, families, and individuals who have lost income and cannot safely return to work. This report shows how California’s workers are faring six months into the COVID-19 recession and highlights the urgent need for federal and state policymakers to extend support to people and do more to respond to the economic crisis that is exacerbating health and financial disparities for Californians, especially Black and brown Californians.

California’s Unemployment Remains High, Know the numbers:

California is still down more jobs than the state lost during the Great Recession.

California is still down more jobs than the state lost during the Great Recession. As of August, California was still down by 1.7 million jobs because of the COVID-19 crisis. This is about 400,000 more jobs than the state lost due to the Great Recession, which began in 2007. Earlier this year, California lost a total of 2.6 million jobs – twice the number lost due to the Great Recession.

As of August, California had gained back just 34% of the 2.6 million jobs the state lost in March and April

About two-thirds of the jobs California lost have not returned. As of August, California had gained back just 34% of the 2.6 million jobs the state lost this past spring. Most of these gains (21%) occurred in June as the state loosened restrictions on businesses that were put into place to slow the spread of COVID-19. In July and August, however, job gains slowed dramatically as California reimposed business restrictions to respond to spiking virus cases. In fact, a sizable share of jobs added in August were temporary positions related to the decennial US Census that will end when the Census count wraps up this fall. In other words, without these temporary jobs, August gains would have been much weaker.

All major private-sector industries in California still have fewer jobs than before the COVID-19 recession began

All major private-sector industries in California still have fewer jobs than before the COVID-19 recession began. The leisure and hospitality industry, which includes jobs at restaurants, hotels, and entertainment venues, remains the hardest hit industry. As of August, this industry was still down 657,000 jobs, meaning that about two-thirds of the 982,000 jobs the industry lost between February and April were still gone. In fact, this industry, together with the “other” services industry, which includes face-to-face personal care jobs, began to lay workers off again in August. This likely reflects the fact that California reimposed restrictions affecting many businesses in these industries in early July amid rising COVID-19 cases.

Unemployment remains higher for Californians of color and Black Californians have yet to see a notable decline

Unemployment remains higher for Californians of color and Black Californians have yet to see a notable decline. At the peak of the COVID-19 recession, the unemployment rate reached 20% or more for Asian, Black, Latinx and other Californians of color – several percentage points higher than the rate for white Californians. Job gains through August reduced unemployment for some groups, but disparities between Californians of color and white Californians persist. Also of great concern, Black Californians have yet to see any significant net job gains. Their unemployment rate has remained essentially unchanged since peaking this summer, possibly reflecting the persistent discrimination Black workers face in the workplace.

The unemployment rates presented in this report were adjusted to account for people the Bureau of Labor Statistics suspects were misclassified as employed but absent from work who actually were unemployed. For more information, see the technical note at the end of this report.

Unemployment rose higher for women in California and remains extremely high

Unemployment rose higher for women in California and remains extremely high. The unemployment rate for women increased by 20 percentage points between February and April, reaching 25%, while men’s unemployment rate rose by 15 percentage points, peaking at 20%. This means that at the worst point of the recession, 1 in 4 women were out of work, compared to 1 in 5 men. By August, unemployment rates had fallen to 14% for women and 12% for men, but remained extremely high, at more than twice their pre-recession rates.

Unemployment rose higher for immigrants in California and remains extremely high

Unemployment rose higher for immigrants in California and remains extremely high. The unemployment rate for immigrants increased by 21 percentage points between February and April, peaking at 25%, while non-immigrant’s unemployment rate rose by 16 percentage points, reaching 21%. In other words, 1 in 4 immigrants were out of work at the worst point of the recession, compared to just over 1 in 5 non-immigrants. By August, the unemployment rate had fallen to 13% for both groups, but remained extremely high, at around three times their pre-recession rate.

Federal and State Policymakers Need to Do More to Respond to the COVID-19 Recession

Six months into the COVID-19 recession, California is still down 1.7 million jobs and California’s workers continue to face extremely high unemployment rates. These facts point to the urgent need for federal and state policymakers to do more to address both the public health and economic crisis. Failing to do so will pile onto the hits to Black and brown Californians and be yet another policy choice that exacerbates longstanding racial, ethnic, and gender disparities. Lawmakers can alleviate the economic pain millions of Californians are feeling and prevent those pains from hardening into deep scars with a combination of policies at the federal and state level.

Federal policymakers should provide more economic relief including:

  • Reinstating the $600-per-week additional unemployment benefit that expired in late July so that out-of-work Californians can continue to pay the rent and buy groceries for their families.
  • Providing rental assistance to people at risk of eviction because losing housing threatens families’ economic security and could put more people at risk of contracting COVID-19.
  • Increasing food assistance benefits so that Californians who are struggling to buy enough food during the pandemic and recession do not go hungry.
  • Providing more aid to state and local governments in order to avoid large reductions in education, health, and other critical services and to prevent more layoffs.
  • Assisting child care providers who are maintaining safe places for children to learn and grow during the pandemic and are essential to working parents and those seeking to return to the workforce.

California policymakers should continue to fill in where federal economic relief policies fall short. One of the most glaring shortcomings of federal policymakers’ response to the COVID-19 recession is that economic relief measures excluded undocumented immigrants and their families, diminishing the economic security of millions of Californians. State leaders could help to reduce this harm by:

  • Providing emergency food assistance to undocumented Californians and their families, who are likely at high risk of being unable to afford enough food during the pandemic.
  • Providing financial assistance to help undocumented workers who lose their jobs and are shut out of state and federal unemployment insurance benefits.
  • Working toward extending eligibility for comprehensive Medi-Cal health coverage to all income-eligible adults who are excluded from such coverage due to their immigration status. 

Technical note

The Bureau of Labor Statistics (BLS) believes that during the COVID-19 recession a large number of workers who reported being employed but absent from work were in fact on temporary layoff and should have been counted as unemployed. Each month since March, the BLS has estimated how many workers may have been misclassified in this way and has reported what the national unemployment rate would have been had these workers been counted as unemployed. This analysis follows the BLS methodology for identifying potentially misclassified workers, which is described here, and adds these workers to the number of unemployed in order to calculate adjusted unemployment rates. These rates should be more accurate than rates calculated with no adjustments.

Nevertheless, these adjusted unemployment rates may still understate unemployment for a different reason. To be counted as unemployed, workers must have made specific efforts to find employment in the past four weeks. If they did not, then they are counted as not in the labor force even if they want to work. This means that they are not included in the unemployment rate. However, it’s likely that many workers who lost their jobs during the COVID-19 recession did not search for work even if they wanted a job, particularly at the beginning of the recession when state-mandated business closures meant that there were far fewer jobs available. Moreover, California temporarily waived the requirement that unemployed workers search for jobs each week in order to receive unemployment benefits, reducing the incentive for workers to search for new jobs. Some economists have published adjusted unemployment rates that are likely more accurate because they reclassify some individuals who recently dropped out of the labor force as unemployed. This analysis, however, does not attempt to correct for this problem, which means that actual unemployment rates for Californians may be higher than what is presented in this report.

Covid-19
Poverty & Inequality

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Local tax revenue reflects a community’s shared effort to support vital public services that all Californians need to live in our cities and counties, such as education for students in K-12 schools and community colleges, housing, health care, public parks, and libraries. When tax breaks provide advantages to some taxpayers over others, it not only creates inequities but can also lead to revenue losses that compromise the ability of schools and local communities to provide essential services for Californians. This is the case with commercial and industrial property taxes across California, and why voters will be asked in fall 2020 to vote on Proposition 15, an amendment to the state Constitution that would change how commercial and industrial properties are taxed to provide more revenue for schools and communities. 

Under Prop. 15, commercial and industrial properties would be taxed based on their market value rather than their purchase price. By moving from a property tax system based on purchase value to one based on market value, Prop. 15 would raise an estimated $6.5 billion to $11.5 billion annually in property tax revenues for K-12 schools and community colleges, counties, cities, and special districts, according to the Legislative Analyst’s Office.

Guide to Understanding Proposition 15

FAQ: Understanding Commercial Property Tax & Revenue in California

How Are Commercial and Industrial Properties Taxed Today? 
The general property tax rate for California commercial and industrial properties has been capped at 1% of assessed value since voters approved Prop. 13 in 1978. Counties determine the assessed value of commercial and industrial properties based on the property’s purchase price plus an annual adjustment for inflation not to exceed 2%. Counties collect property taxes and are generally only allowed to reassess properties to their market value when they undergo a change in ownership or new construction.

How Is Revenue From Commercial and Industrial Property Taxes Distributed Across California?
Revenue received from the taxes paid by commercial and industrial property owners is distributed to counties, cities, K-12 schools and community colleges, and special districts (such as public utility districts and fire protection districts) for services provided to Californians, based on complex state laws. The share of countywide property tax revenue going to each local entity is largely based on the distribution of these revenues dating back to the mid-1970s – before Prop. 13 was enacted and each local entity was able to set its own property tax rates. This means that there is wide variation among counties in the share of revenue going to – and the level of services provided by – each type of local government.

Why Are Commercial and Industrial Property Taxes Inequitable for Californians and in Need of Reform?
The property assessment limits set by Prop. 13 mean that an owner that purchased a commercial or industrial property several decades ago pays far lower taxes than an owner that recently purchased a similar property – leading to inequity among local businesses and a significant loss of revenue at the expense of schools and local community services. Schools and local communities are losing significant revenues every year as properties that have not changed ownership in many years are assessed at values much lower than their market values. Additionally, when a property changes hands, commercial and industrial property owners can more easily avoid reassessment than residential property owners due to the laws defining ownership changes and the complexity of business property ownership.

Report: Raising Revenue for Schools and Local Communities, Changing California’s Inequitable Taxing of Commercial Properties, and Understanding Proposition 15

Local tax revenue reflects a community’s shared effort to support vital public services that all Californians need to thrive in our cities and counties. This ranges from education for students in K-12 schools and community colleges to access to housing, health care, public parks, and libraries. These vital public services are supported by tax revenues from commercial and industrial properties – many of which are still taxed based on purchase prices that are more than four decades old. California voters will be asked in fall 2020 to vote on a measure known as Proposition 15, an amendment to the state Constitution that would change how commercial and industrial properties are taxed and provide more revenue for schools and local communities to support services Californians rely upon.

 

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Infographic: California’s Inequitable Tax System Hurts Schools & Local Communities

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Taxes & Revenue

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Across California and the United States, the push for bail reform has gained momentum with increasing awareness and research showing the disproportionate impact the money bail system has on people of color and low-income households. In California, it’s estimated over two-thirds of people detained in jails – around 47,000 – have not been sentenced for a crime, a number that includes both those who cannot afford bail and those who are awaiting sentencing post-conviction. Los Angeles County alone is the largest jail system in the US and houses over 1 in 5 of adults who have not been sentenced for an alleged crime in California.

Enter Proposition 25 that will appear on the November 3, 2020 statewide ballot and asks California voters to decide whether a 2018 state law that effectively ends money bail should take effect. If voters approve Prop. 25, judges will be able to utilize risk-based assessment tools – examining population links between rearrest or reconviction and individual factors such as age, gender, or criminal record – to determine if individuals detained for certain crimes can be released before a court appearance rather than posting money bail.

Read the full report that discusses racial, economic, and gender disparities embedded in the money bail system and why efforts to reform California’s bail system also aim to address the wide racial disparities seen in the criminal justice system.

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Justice System

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Over many years, California lawmakers and voters adopted a series of harsh, one-size-fits-all sentencing laws that prioritized punishment over rehabilitation, led to severe overcrowding in state prisons, and disproportionately impacted Black and Latinx Californians – consequences that many families still feel today. California began reconsidering its “tough on crime” approach a little over a decade ago as prison overcrowding reached crisis proportions and the state faced lawsuits filed on behalf of incarcerated adults. Ultimately, a federal court in 2009 ordered California to reduce overcrowding to no more than 137.5% of the prison system’s capacity – an order that remains in effect today.1

State-level reforms – enacted into law through voter approval of ballot propositions as well as through legislative action – have focused on reducing incarceration, promoting more effective pathways to rehabilitation, and addressing the disparate impacts of criminal justice policies on people of color, particularly Black and Latinx communities.2 With these reforms, both the prison population and crime rates are down substantially, showing that California’s efforts to reduce mass incarceration, while far from complete, are working.

1. The Number of Adults Incarcerated by the State Has Declined Substantially

Adults who are incarcerated by the state fall under the jurisdiction of the California Department of Corrections and Rehabilitation (CDCR). Most of these adults – more than 9 in 10 – are held in 34 state-owned prisons. The remaining men and women are housed in other locations throughout California, including in public and private facilities under contract with CDCR. (Until recently, thousands of state prisoners were housed in out-of-state facilities.) The number of adults incarcerated by the state exceeded 173,000 in 2007, when state prisons were crowded to roughly double their capacity. By June 2020 – following years of criminal justice reforms and, more recently, new policies adopted in response to the COVID-19 pandemic – the number of adults incarcerated had dropped by more than one-third, to 113,403.3

2. With Declining Incarceration, California Ended the Use of Out-of-State Prisons and Has the Opportunity to Begin Closing State-Owned Prisons

In 2006, California began transferring incarcerated adults to facilities in other states to help reduce overcrowding in state prisons. State policymakers adopted this approach even though “out-of-state private prisons create significant barriers to rehabilitation and humane conditions of care.”4 The number of Californians moved out of state peaked at more than 10,000 in the early 2010s. However, as incarceration declined, California was able to gradually reduce its reliance on facilities in other states before finally terminating its last out-of-state contract in June 2019. Moreover, due to the ongoing decline in the prison population, California is on track to soon end the use of all in-state contract facilities for men, and the recently enacted 2020-21 budget package envisions closing two state-owned prisons in the coming years.5

3. California’s Incarceration Rate for Adults Has Fallen to a Level Last Seen in the Very Early 1990s

As California implemented criminal justice reforms, the incarceration rate – the number of adults incarcerated by the state for every 100,000 residents – has plummeted. California’s state-level incarceration rate dropped to 314 per 100,000 in June 2019, down by more than one-third (34%) from the recent peak of 476 per 100,000 in June 2006. Moreover, the June 2019 incarceration rate was slightly below the June 1990 level of 315. Still, incarceration of California men and women – disproportionately Black and Latinx Californians – remains high compared to earlier years. For example, in the late 1970s the state incarcerated fewer than 100 people for every 100,000 residents.

4. Meanwhile, California’s Property and Violent Crime Rates Remain at Historic Lows

California’s property crime rate – the number of property crimes per 100,000 residents – was 2,290 per 100,000 in 2019, far below the peak of 6,881 in 1980. The violent crime rate was 434 per 100,000 in 2019, less than half the peak of 1,104 in 1992. This latter rate is up modestly compared to the low of 393 per 100,000 in 2014, partly due to technical factors.6 Nonetheless, California’s violent crime rate resumed its decline after 2017 and is now below the 1969 rate (449 per 100,000).

5. California’s Incarceration Rate and Crime Rates Are All Down Substantially Since the Mid-2000s

Incarceration and crime rates are all down substantially compared to their levels in 2006 – shortly before state policymakers and the voters began enacting reforms to California’s criminal justice system. As noted above, the incarceration rate of adults dropped by more than one-third (34%) from June 2006 – the recent peak – to June 2019. During approximately the same period (2006 to 2019), California’s property crime rate fell by more than one-quarter (28%) and its violent crime rate declined by nearly one-fifth (19%). These statistics contradict the common, yet unsubstantiated, claim that reducing mass incarceration will cause crime rates to spike. In fact, California’s experience and a large body of research highlight the weak link between incarceration and crime.7

Conclusion

California’s experience with criminal justice reform provides further evidence that reducing mass incarceration of men and women can go hand-in-hand with lower crime rates. But California’s work is not done – policymakers can and should do more to decrease incarceration of Californians, particularly given the impact of the COVID-19 pandemic on incarcerated adults, prison staff, families, and surrounding communities. This is especially important for Black and Latinx men and women and their families, who are bearing the greatest burdens of COVID-19 in prisons and the broader community. In recent weeks, the state has been moving in the right direction: The prison population has fallen more rapidly than anticipated due to early releases and other policies advanced by Governor Newsom to slow the spread of the coronavirus behind prison walls. With these steps, the Governor has created an opportunity to plan for the closure of several state-owned prisons over the next several years – assuming, at a minimum, that current criminal justice reforms remain in place and that the state prison population does not again begin to rise. 

Downsizing California’s costly prison infrastructure would allow the state to reduce the size of the corrections footprint on the state budget. This, in turn, would free up resources that could be used for reentry assistance and other services that can help to promote rehabilitation, reduce poverty, and strengthen families and communities – particularly Black and Latinx communities, which have been disproportionately impacted by the pandemic and the deep recession that it triggered as well as by generations of discrimination at the hands of the criminal justice system.

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1 The US Supreme Court upheld this order in 2011. California has been in compliance with this order since February 2015. See California Department of Corrections and Rehabilitation, Three-Judge Court Monthly Update (July 2020).

2 For an overview of key state-level reforms, see Scott Graves, State Corrections in the Wake of California’s Criminal Justice Reforms: Much Progress, More Work to Do (California Budget & Policy Center: October 2018), pp. 4-10.

3 CDCR’s in-custody population further declined to 103,169 as of August 12, 2020. This substantial ongoing decline reflects early releases and other policies adopted by the Newsom Administration that are intended to slow the spread of the coronavirus in state prisons. 

4 Randall G. Shelden and Selena Teji, Collateral Consequences of Interstate Transfer of Prisoners (Center on Criminal and Juvenile Justice: July 2012), p. 4.

5 Department of Finance, California State Budget 2020-21 (June 2020), p. 80.

6 Technical factors “related to crime classification and reporting” contributed to the slight – yet temporary – uptick in violent crime rates after 2014. Mia Bird, et al., The Impact of Proposition 47 on Crime and Recidivism (Public Policy Institute of California: June 2018).

7 Don Stemen, The Prison Paradox: More Incarceration Will Not Make Us Safer (Vera Institute of Justice: July 2017).

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Introduction

Even before the COVID-19 pandemic, unaffordable housing costs represented one of California’s most pressing challenges – and the job losses triggered by stay-home orders necessary to address the public health emergency threaten to exacerbate this long-standing crisis. Housing affordability is a problem throughout the state when housing costs are compared to incomes, and the Californians who are most affected by the affordability crisis are renters, households with the lowest incomes, people of color, and immigrants. Many of these same Californians are also especially hard hit by the economic effects of the COVID-19 public health crisis. Policy solutions that particularly address the needs of these households represent a promising approach to tackling the state’s housing crisis strategically, with a focus on those most deeply affected. The current pandemic highlights the urgency for strategies to eliminate unjust disparities in who is burdened by unaffordable housing, including racial inequities in housing affordability.

Among the key findings based on the most recent data available from 2018:

Housing & Homelessness

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

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

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

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

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

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

Contents

Budget Overview

Health & Economic Security

K-12 & Higher Education

Federal Aid & Trigger Cuts

What’s Next 

Budget Overview

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

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

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

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

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

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

Budget Agreement Includes Additional Temporary Tax Revenue

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

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

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

Health & Economic Security

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

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

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

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

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

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

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

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

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

K-12 & Higher Education

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

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

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

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

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

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

Federal Aid & Trigger Cuts

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

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

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

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

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

What’s Next

Moving California Forward Requires Significant Investment

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

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

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

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

California Budget

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Recent acts of police brutality against Black Americans and greater public outcry over the continued abuse and deaths of people across Black communities have amplified calls for defunding, abolishing, and reimagining local policing. This also comes with growing awareness that police violence has disproportionately fatal consequences for Black men and women, and Black transgender women in particular. The calls to action involve significantly transforming the mission and structure of local law enforcement, divesting from local law enforcement in its current forms, and reinvesting the freed-up funding into community-building capacities that would also seek to end racial profiling and police brutality against Black people and other people of color.

What’s more, over-policing of communities of color along with harsh state sentencing laws and local district attorneys’ power to inequitably and unjustly pursue criminal charges continue to drive California’s over-reliance on incarceration as well as the disparate treatment of people of color in the justice system. This leaves Black, Latinx, undocumented Californians, and many other families of color beholden to an overly harsh and unfair criminal justice system that has spanned generations and leaves these families unable to provide or build economic security for their households.

As calls for restructuring and reforming local policing and reducing incarceration intensify, what is at stake in terms of state and local spending in California? Data from the Department of Finance and the State Controller’s Office show that:

  • California’s 482 cities and 58 counties spent more than $20 billion from all revenue sources on city police and county sheriff’s departments as recently as 2017-18 (the most recent statewide data available). Cities spend nearly three times more on police than on housing and community development. Counties spend more of their general revenue on sheriff’s departments than on social services by a substantial margin.
  • The financial outlay goes beyond local law enforcement. The state of California and its cities and counties spend roughly $50 billion annually on local law enforcement, the criminal legal system, and incarceration in state prisons and county jails. In comparison, this spending is about three times what California spends from its General Fund on higher education (community colleges, CSU, and UC) and is roughly equivalent to state General Fund support for K-12 education.

The negative effects of prioritizing spending on systems of punishment and incarceration fall disproportionately on Black Californians and other people of color. For instance, Black and Latinx Californians are incarcerated at much higher rates than other Californians and are overrepresented in state prisons.

Budgets are about values. As state and local leaders craft their budgets for the upcoming fiscal year, they also can address recent and longstanding patterns of police brutality against Black people and other people of color. This should include asking whether spending approximately $50 billion per year on law enforcement, the criminal legal system, and incarceration accurately reflects our state’s values.

Covid-19
Justice System

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Introduction

As California faces a projected state budget shortfall in the tens of billions of dollars due to the COVID-19 crisis, Governor Newsom’s revised budget for the 2020-21 fiscal year includes significant reductions to programs and services that help keep Californians healthy. In particular, proposed cuts to Medi- Cal (California’s Medicaid program) could worsen health outcomes as well as undermine efforts to advance health equity at a time when the health and economic hardships from COVID-19 have disproportionately impacted Black and Latinx Californians, women and children in low-income households, and undocumented Californians. The following table summarizes key cuts to Medi-Cal – including reductions to benefits and eligibility – in the Governor’s revised 2020-21 state budget and highlights how these proposals would affect Californians.

Support for this work is provided by the California Health Care Foundation

Covid-19
Health & Safety Net

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