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

Frequently Asked Questions: Commercial Property Tax & Revenue in California
Report: Raising Revenue for Schools and Local Communities, Changing California’s Inequitable Taxing of Commercial Properties, and Understanding Proposition 15
Infographic: California’s Inequitable Tax System Hurts Schools & Local Communities
NEW: 10 Key Facts About Proposition 15 and California’s Commercial and Industrial Property Taxes

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.

Download this report.

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

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Ballot Propositions

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.

Ballot Propositions

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.²With 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.

Ballot Propositions

Justice System

¹The 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).

²For 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.

³CDCR’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.

Budget Overview

Balanced Budget: Budget Agreement Uses Reserves, Available Federal Funds, and Other Budgetary Maneuvers
Revenues: Budget Agreement Includes Additional Temporary Tax Revenue

Health & Economic Security

CalEITC/ Young Child Tax Credit: Some Immigrant Families Will Now Benefit From the CalEITC, While Many Other Californians Remain Excluded From Tax Credits
Health: Seniors Who Are Undocumented Won’t Receive Comprehensive Medi-Cal Coverage, Perpetuating Racial Health Disparities
Homelessness: Federal and State Funds Will Help Address Some of the Needs of Californians Experiencing Homelessness
CalWORKs: Parents Will Gain More Access to Support Through CalWORKs to Meet Basic Needs While Facing an Exceptionally Challenging Job Market

K-12 & Higher Education

K-12 Education & Community Colleges: Delaying Payments to K-12 Schools and Community Colleges Avoids Cuts Now but Creates Cost Pressures on the State and K-14 Schools
California State University and University of California: The California State University and the University of California Face Steep Cuts Unless the State Receives Federal Funding

Federal Aid & Trigger Cuts

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

What’s Next

Opportunity for Policymakers: Moving California Forward Requires Significant Investment

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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How Much Does California Spend on Law Enforcement, the Criminal Legal System, and Incarceration?

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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Executive Summary

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

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

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

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

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

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

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

Budget Overview

Economic Outlook: Economic Outlook Anticipates a Deep Recession Followed by a Slow Recovery
Revenue Outlook: Revised Budget Projects Revenues Will Be More Than $40 Billion Lower than Forecast in January, and Proposes $4.4 Billion in Revenue Solutions
Reserves: May Revision Draws Down Reserves to Help Cover Budget Shortfall

Economic Security

CalEITC/ Young Child Tax Credit: Administration Fails to Extend the CalEITC to Excluded Californians
Immigration: May Revision Withdraws Proposal to Extend Medi-Cal to Undocumented Seniors and Leaves Out Extension of CalEITC to ITIN filers
Child Care: Federal and State Emergency Funds Have Supported Subsidized Child Care, but Trigger Cuts Would Significantly Reduce State Funding
CalWORKs: The Administration’s May Revision Maintains Recent Investments in CalWORKs Grants, Makes Cuts to Some Services
IHSS and SSI-SSP: Two Key Supports for Seniors and People With Disabilities – IHSS and SSI/SSP – Would Face Trigger Cuts Under the May Revision

Health

Public Health: The May Revision Provides Funding for Public Health, But Falls Short of What is Needed to More Adequately Respond to COVID-19 and Prepare for Future Threats
Health: The Governor’s Revised Budget Scales Back Proposals to Improve Medi-Cal and Misses a Key Opportunity to Advance Health Equity

Homelessness & Housing

Homelessness: Governor Proposes Using Federal COVID-19 Funds to Address Homelessness by Purchasing Motels, But No State Spending for Homeless Services
Housing: Governor Maintains Boosted Housing Tax Credits, But Rolls Back Unallocated Housing Production Funds

Education

Early Learning (Pre-K): May Revise Retracts Dollars for Kindergarten Facilities, and Would Cut Funding for Early Learning without Additional Federal Assistance
Prop 98: Decline in Revenues Reduces the Minimum Funding Level for Schools and Community Colleges
K-12 Education: May Revision Proposes Cuts and Funding Deferrals for K-12 Schools, Allocates Federal Dollars to Help Address Funding Shortfalls
Community Colleges: Funding Significantly Adjusted for the California Community Colleges
California State University and University of California: The May Revision Significantly Adjusts Funding for CSU and UC
Student Aid: Cuts to Golden State Teacher Grant Program and Student Debt Loan Workgroup and Outreach Proposed

Corrections & Justice

State Corrections: Governor Proposes to Close Two State-Operated Prisons in the Next Three Years
Local Corrections: May Revision Withdraws Local Correctional System Reforms, Maintains Fines and Fees Assistance for Californians with Low Incomes
Juvenile Justice: Governor Proposes to End State Supervision of Justice-Involved Youth Beginning in 2021 and Realign Responsibility for These Youth to Counties

Emergency & Environmental Response

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

Budget Overview

Economic Outlook Anticipates a Deep Recession Followed by a Slow Recovery

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

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

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

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

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

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

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

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

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

May Revision Draws Down Reserves to Help Cover Budget Shortfall

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

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

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

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

Currently, the state’s reserves consist of:

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

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

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

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

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

Economic Security

Administration Fails to Extend the CalEITC to Excluded Californians

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for low-income children while helping parents overcome barriers to employment and find jobs. Even before the COVID-19 crisis, CalWORKs primarily served children of color, who faced higher rates of economic insecurity than did white children. Now, with millions of California workers – especially workers of color – facing unemployment or lost wages due to the public health emergency, CalWORKs is a particularly critical source of support.As a result of the economic downturn, the Administration anticipates a significant increase in the average monthly number of CalWORKs families in 2020-21. To support these additional families, the Administration provides $82.3 million in General Fund and federal Temporary Assistance for Needy Families (TANF) dollars to facilitate enrollment. Additionally, the Governor’s May Revision maintains grants at the increased levels determined in the 2019-20 budget agreement and withdraws his January proposal to provide additional grant increases. The revised spending plan also withdraws the proposal to increase the amount of child support payments that are passed through to CalWORKs families and to pursue statutory changes to forgive uncollectible child support debt.Finally, the Administration proposes a total of $850 million General Fund in trigger cuts to various CalWORKs services in 2020-21, unless the federal government provides additional funding. The May Revision:

Cuts employment services and child care by $665 million General Fund in anticipation of reduced use of those services.
Reduces expanded subsidized employment by $134 million General Fund.
Scales back funding for home visiting by $30 million General Fund.
Ends funding for the CalWORKs Outcomes and Accountability Review (Cal-OAR) performance measurement system, though counties may continue implementing this system on their own. This proposal would yield a General Fund reduction of $21 million.

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

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

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

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

Health

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

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

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

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

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

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

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

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

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

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

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

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

Homelessness & Housing

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

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

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

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

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

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

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

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

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

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

Education

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

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

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

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

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

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of funding for K-12 schools, community colleges, and the state preschool program. Changes in state General Fund revenues tend to affect the Prop. 98 guarantee, and the May Revision’s estimates of 2019-20 and 2020-21 revenues are significantly lower than estimates made in the January budget proposal. As a result, the May Revision assumes the Prop. 98 guarantee has dropped more than $17 billion below levels estimated in January, even after a $1.8 billion boost to the Prop. 98 guarantee due in part to a proposed suspension of certain tax credits. Specifically, the May Revision estimates the Prop. 98 minimum funding guarantee is $77.4 billion in 2019-20 and $70.5 billion in 2020-21, $4.2 billion and $13.6 billion below the levels assumed in the January budget, respectively. Because the 2019-20 Prop. 98 guarantee is less than the 2018-19 Prop. 98 funding level, the Governor’s revised budget reflects the required withdrawal of the entire $377 million in the Public School System Stabilization Account – the state’s “rainy day fund” for K-12 schools and community colleges.

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

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

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

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

Funding Significantly Adjusted for the California Community Colleges

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

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

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

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

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

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

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

The May Revision Significantly Adjusts Funding for CSU and UC

California supports two public four-year higher education institutions: the California State University (CSU) and the University of California (UC). The CSU provides “undergraduate and graduate education to roughly 481,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 285,000 students on 10 campuses.

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

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

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

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

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

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

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

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

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

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

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

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

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

Corrections & Justice

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Emergency & Environmental Response

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

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

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

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

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

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

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A Graduated Corporate Tax Ensures California’s Most Profitable Corporations Pay Their Fair Share

Water’s Edge: Closing the Largest Corporate Tax Loophole in California

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California Passed Prop. 1: What’s Next for Behavioral Health System Reform?

Understanding Proposition 35

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

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

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

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

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

Conclusion

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Understanding Proposition 36

Crime in California Remains Well Below Historical Peaks

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Introduction

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

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Policymakers’ Inaction Will Force Thousands of Formerly Unhoused Californians to Lose Their Homes

Protecting Progress: State Housing and Homelessness Funding Must Continue

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Contents

Budget Overview

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

Budget Agreement Includes Additional Temporary Tax Revenue

Health & Economic Security

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

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

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

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

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

Federal Aid & Trigger Cuts

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

What’s Next

Moving California Forward Requires Significant Investment

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Water’s Edge: Closing the Largest Corporate Tax Loophole in California

Profitable Corporations Can’t Keep Paying Zero in California State Taxes

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How Much Does California Spend on Law Enforcement, the Criminal Legal System, and Incarceration?

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Understanding Proposition 36

Crime in California Remains Well Below Historical Peaks

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Introduction

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How Federal and State Budget Cuts Threaten Latinx Californians

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Executive Summary

Contents

Budget Overview

Economic Outlook Anticipates a Deep Recession Followed by a Slow Recovery

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

May Revision Draws Down Reserves to Help Cover Budget Shortfall

Economic Security

Administration Fails to Extend the CalEITC to Excluded Californians

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

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

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

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

Health

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

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

Homelessness & Housing

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

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

Education

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

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