The California Budget & Policy Center’s guide, The CalEITC and Young Child Tax Credit: Smart Investments to Broaden Economic Security for Californians, provides an overview of how refundable state income tax credits to help people who earn little form their jobs to pay for basic necessities and support families, children, and communities.
Under the 2019-20 state budget, Governor Newsom and the Legislature expanded the California Earned Income Tax Credit (CalEITC) and created the Young Child Tax Credit. The expansion of the CalEITC — originally created in 2015 — included increasing the income limit and increasing the size of the credit for tax filers with low incomes.
The guide looks at two tax credits:
CalEITC — available to families and individuals with annual earnings under $30,000; and
Young Child Tax Credit — available to CalEITC-eligible families with children under age 6.
In this extensive guide that includes more than 25 comprehensive charts by Senior Policy Analyst Alissa Anderson, readers will learn:
How California is an economic powerhouse, but millions are not benefiting from the state’s economic success
How boosting the incomes of workers who earn little form their jobs benefits families, children, and communities
Who benefits from the CalEITC and Young Child Tax Credit
How California has significantly strengthened the CalEITC since 2015
How does the CalEITC compare to the federal EITC and other states EITCs
How does California’s Young Child Tax Credit compare to the federal Child Tax Credit and other state child tax credits
How building on the CalEITC and Young Child Tax Credit would allow more Californians to share in the state’s prosperity
Why the CalEITC and Young Child Tax Credit are smart investments
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Introduction
California has been a national leader in helping people receive the health coverage they need since the enactment of the federal Affordable Care Act (ACA) in 2010. Until 2016, the share of Californians without health coverage dropped substantially. But this decline slowed significantly before finally stalling out in 2018, leaving close to 3 million Californians uninsured.
This recent trend in large part reflects two factors: 1) federal efforts to undermine the ACA and 2) state policymakers’ focus on protecting California’s health coverage gains rather than boosting state health investments. After Governor Gavin Newsom took office in January 2019, state policymakers’ approach shifted and several policies that aim to improve health coverage and affordability — all of which take effect in 2020 — were adopted. California can make further progress in 2020 and in the coming years to help more people access and afford coverage — so long as the ACA remains intact and state policymakers continue to build on the investments in health they’ve made in the last decade.
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Policymakers Must Work to Ensure that All Californians Share in the State’s Economic Gains
New Census figures released today show rising income inequality across the state and millions of California residents who are struggling to get by on extremely low incomes, while higher-income households experienced more income growth. Even as the latest figures also show there is a decline in the official poverty rate in California, these findings underscore the need for policymakers to ensure that the benefits of California’s strong economy and recent economic growth are shared among all Californians.
The latest Census figures indicate that median household income in California grew to $75,277 in 2018, an increase of 2.3% over the prior year after adjusting for inflation. Median annual earnings for all workers also increased by 0.9% compared to inflation-adjusted earnings in 2017, and a smaller share of Californians were unemployed. These modest economic gains for typical households and workers are encouraging, but must be considered within the broader context of rising inequality within the state over the past several years. From 2006 to 2018, the median household income in California increased by 6.4%, after adjusting for inflation, but the average real income for the lowest quintile of households (those in the bottom 20%) actually decreased by 5.3% – while the inflation-adjusted average income for the top 5% of households increased by 18.6%, or nearly three times as much as the increase in the median income (see Figure 1). At the same time, the cost of living – particularly the cost of housing – has increased much faster than wages for typical workers, as noted in the Budget Center’s report on Supplemental Poverty Measure data released earlier this month. As a result, many Californians with middle and low incomes find themselves unable to make ends meet.
Also troubling are new data from the Census Bureau that show that millions of people in California continue to struggle to get by on the extremely low incomes reflected in the official federal poverty line. There is slight progress to be noted: California’s official poverty rate of 12.8% for 2018 was lower compared to the previous year, when it was 13.3%. The state’s official child poverty rate also dropped to 17.4% in 2018, from a rate of 18.1% in 2017. However, 4.9 million Californians, including 1.5 million children, still lived in poverty in 2018 based on the official poverty measure. For a family of two adults and two children, for example, this means living on an annual cash income of less than $25,465. Moreover, the state’s poverty rate under the official poverty measure still has not dropped to its pre-Great Recession levels (see Figure 2). The child poverty rate in 2018 is not statistically different from the pre-recession rate.
Also troubling, 2.2 million individuals, including 660,000 children, lived in deep poverty in 2018 based on the official poverty measure, meaning that their families had cash incomes of less than half of the official poverty threshold last year, or less than $12,732 for a two-parent family with two children to pay for basic needs. The state’s deep poverty rates were 5.9% overall and 7.5% for children in 2018.
The latest Census figures also reveal stark differences in people’s economic well-being across California’s counties. In 2018, the official poverty rate ranged from a low of 6.0% to a high of 23.1% across the counties, while the official child poverty rate ranged from 3.9% to 32.2%. In eight counties, more than 1 in 5 people lived in poverty, largely in the Central Valley (see Figure 3). Additionally, more than 1 in 5 children lived in poverty in 16 counties, and this includes four counties – again, mostly in the Central Valley – where over 30% of children were in poverty (see link to downloadable data).
Although these Census figures published today show that poverty remains unacceptably high in California, they understate the problem of economic hardship in many parts of the state because they reflect an outdated measure of poverty. Census figures released earlier this month based on an improved measure – the Supplemental Poverty Measure (SPM), which accounts for the high cost of housing in many parts of the state – show that roughly 7.1 million Californians per year, more than 1 in 6 state residents (18.1%), could not adequately support themselves and their families between 2016 and 2018. This rate is much higher than the official poverty rate measured over the same time frame in the same data of 12.5% (see Figure 4). Under this more accurate measure of hardship, California continues to have the highest poverty rate and by far the most residents in poverty of the 50 states. (See the Budget Center’s guide to poverty measures for California for more details on the differences between the official and supplemental measures.)
The new Census poverty figures underscore the need for policymakers to do more to ensure that all people can share in our state’s economic progress. Some encouraging recent investments in the 2019-20 state budget include an expanded CalEITC – a refundable state tax credit targeted to low-earning workers – and improvements to the CalWORKs program, which provides modest cash assistance for low-income children and their families. These investments represent important opportunities to help Californians avoid and overcome poverty and address the serious negative consequences of living in poverty.
Other specific steps that policymakers can take include:
Make sure workers earn enough to support themselves and their families. Most families in poverty work, which means that decades of wage stagnation have been a key barrier to economic security and opportunity, as noted in the Budget Center’s recent Labor Day report. In recent years, lawmakers have taken steps to address this challenge, such as raising the state’s minimum wage and establishing and subsequently expanding the CalEITC. Policymakers could build on these important investments by extending the CalEITC to workers who remain excluded (such as those filing taxes with an Individual Taxpayer Identification Number). Greater investments in career pathways, career technical education, and adult education could also help some individuals advance and prepare for jobs in high-demand, better-paying industries. Additionally, women and workers of color, particularly black and Latinx workers, experience some of the greatest disadvantages and discrimination in the job market. Given this, lawmakers should prioritize policies that reduce persistent disparities in pay and access to workplace benefits by race, ethnicity, and gender.
Help families afford their basic needs. With the rising cost of basic expenses, particularly housing, boosting earnings is not enough to increase economic security. With housing costs far outpacing many families’ earnings in recent years, it has become increasingly challenging for people with low incomes to keep a roof over their heads. Over half of California renters are housing cost-burdened, meaning that they pay more than 30 percent of their income toward housing, and nearly a third spend more than half of their income on housing. Since housing costs are most families’ biggest basic expense, addressing the housing affordability crisis is key to broadening economic security in California. Policymakers should also continue to invest in affordable child care, another major basic expense for many working families.
Reject harsh changes to public supports that help families make ends meet and get ahead. Public supports such as food assistance through the Supplemental Nutrition Assistance Program (SNAP) (CalFresh in California) provide vital resources to help Californians make ends meet now. They also help children in poverty succeed over the long term, according to research. Yet the Trump Administration has proposed changes to SNAP rules that would reduce the number of individuals able to access this support. People in communities throughout the state would likely be harmed. The Administration has also announced a change to the rule directing how receipt of public supports can affect whether immigrants can become permanent residents in the US, threatening harm for thousands of families working to build a better future for themselves and our state of immigrants.
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This report was updated on October 10, 2019, due to revised SPM data from the US Census Bureau.
Policymakers Have Opportunity to Promote Economic Security, Break Down Barriers
Approximately 7.1 million Californians lived in poverty each year from 2016 to 2018 – more than 1 in 6 state residents (18.1%) – according to new Census data released this morning based on the Supplemental Poverty Measure (SPM).
The high cost of living in many parts of California is a key reason for California’s high SPM poverty rate, underscoring the continuing need for policies that address the state’s affordability challenges. High living costs are particularly problematic when they rise faster than incomes. This presents a challenge in California because inflation-adjusted wages in recent decades have grown only for the highest-paid workers, while wages for mid-wage and low-wage workers have remained largely flat, as highlighted in the Budget Center’s recent Labor Day report. Public supports like tax credits, public health insurance, and food assistance play a critical role in helping families and individuals meet their basic needs as living expenses rise. New national data also released today show that many more individuals would be living in poverty if they did not have access to these vital public supports.
It’s also important to note today’s SPM figures provide a more accurate indicator of economic need in California than the official federal poverty measure that is frequently used. The SPM accounts for the high cost of living in many parts of the state as well as public supports that help families meet basic needs, among other factors. (See more below on how the SPM addresses shortcomings of the official poverty measure.)
Housing Costs Rising Faster Than Wages Are a Barrier for Californians
California’s high SPM poverty rate largely reflects the high housing costs in many parts of California. The SPM accounts for differences in housing costs across the country, unlike the official poverty measure, and when these costs are factored in, a much larger share of the state’s population is shown to be living in poverty: 18.1% under the SPM from 2016 to 2018, compared to 12.5% under the official measure.
Housing affordability is a problem throughout California, even in areas where housing costs are lower, because incomes are also lower in these areas. Statewide, more than half of renter households pay more than 30% of their incomes toward housing, making them housing cost-burdened, and nearly a third are severely cost-burdened, paying more than half of their incomes toward housing. California’s unaffordable housing costs are particularly a problem because they have been growing far faster than earnings for most workers. While inflation-adjusted median household rents increased by 16.1% from 2006 to 2017, median hourly wages for workers ages 25 to 64 actually declined by 0.5%. This decline in hourly wages for most workers is only one component of a broader picture of changes in the labor market – including a decline in employer-sponsored retirement plans, a drop in union representation, and a small but rising share of workers engaged in gig work – such that many Californians can no longer count on their jobs to provide economic security.
Housing costs in many parts of California are higher than the national average, as reflected in the relatively high poverty thresholds for many metro areas within the state under the SPM. These relatively high housing costs, which are factored into poverty under the SPM, are a key reason that California’s poverty ranking among the 50 states jumps from 18th under the official poverty measure up to first under the SPM, a dubious distinction.
Policies Are Needed to Help Californians’ Incomes Cover Basic Living Expenses
California’s high supplemental poverty rate focuses attention on two key challenges for the state: a high and rising cost of living, paired with stagnant earnings for all but the highest-paid workers. At the same time, the measurable impact of public supports in reducing poverty suggests that smart public investments to help individuals meet basic needs, together with a strong economy, can help more Californians achieve economic security.
State policymakers have taken several important steps in recent years to help address the challenges that residents with low incomes face in making ends meet. These include establishing the CalEITC – a refundable state tax credit targeted to low-earning workers – and subsequently expanding the credit, including adding a new Young Child Tax Credit for families with the youngest children; increasing the support available to families with children through CalWORKs, California’s welfare-to-work program; increasing access to affordable child care and health insurance; and pursuing multiple strategies to address housing affordability, both this year and in prior years. Policymakers have also taken some important steps to address changes in the labor market that have left workers with stalled wages and shrinking access to benefits, through policies such as raising the state’s minimum wage and creating CalSavers, a workplace retirement savings option for private sector employees.
Given that many Californians continue to live without enough resources to cover the costs of basic necessities, it is important to continue to build on the state’s recent investments to address affordability and the changing labor market. Thoughtful public policies can help make basic necessities like housing, child care, and health care more affordable; can help ensure that incomes for all Californians, not just the highest-paid workers, better match the rising cost of living; and can help restore the promise that all California workers get to share in the economic prosperity that they help to create.
* * *
Note About the Census Bureau Data Released Today:
The state-level figures released today reflect average annual supplemental poverty rates during a three-year period, from 2016 to 2018. The SPM addresses a number of shortcomings of the official poverty measure. (See the Budget Center’s Guide to Understanding Poverty Measures for more details on the differences between these poverty measures.) For one, under the official measure, the income threshold for determining who lives in poverty is the same in all parts of the US. For example, a single parent with two children was considered to be living in poverty in 2018 if their annual income was below $20,231, regardless of whether they lived in a low-cost place like rural Mississippi or a high-cost place like San Francisco. The SPM better accounts for differences in the cost of living by adjusting the poverty threshold to reflect differences in the cost of housing throughout the US. For example, the SPM poverty line for a single parent with two children living in a renter household in San Francisco was $32,667 in 2018 – more than 60% higher than the poverty line based on the official measure.
Another shortcoming of the official poverty measure is that it fails to factor in the broad array of resources that families use to pay for basic expenses. The official measure only counts cash income sources, such as earnings from work, Social Security payments, and cash assistance from welfare-to-work programs. It does not take into account noncash resources, such as food or housing assistance, and it fails to consider how tax benefits, such as the federal Earned Income Tax Credit (EITC), increase people’s economic well-being. The SPM improves on the official measure by including these resources. It also better accounts for the resources people actually have available to spend by subtracting from their incomes what is needed to pay for necessary expenses, including work-related expenses, such as child care; medical expenses, such as health insurance premiums and out-of-pocket costs; and state and federal income and payroll taxes.
After incorporating these improvements over the official poverty measure, the SPM produces a more realistic picture of poverty in California: the state’s SPM poverty rate that was nearly 1.5 times the official poverty rate between 2016 and 2018 (18.1% versus 12.5%, respectively).
Although the SPM provides a more accurate picture of economic hardship in California, it does not indicate how much people need to earn to achieve a basic standard of living. Measures of what it actually takes to make ends meet in California show that families need incomes several times higher than the official poverty line to afford basic necessities.
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Executive Summary
This Guide to Understanding Poverty Measures Used to Assess Economic Well-Being in California is designed to help policy stakeholders understand the details of and differences between the three major measures of poverty available for California — the official poverty measure, the Supplemental Poverty Measure, and the California Poverty Measure — and provides guidance on when each measure is most appropriate to use to understand the poverty Californians experience.
The first section of the guide provides a brief history of the three poverty measures and describes how each one determines a family’s or individual’s poverty status. The second section explains which data sources the measures are based on and discusses how to find and use the data for each one. The final section of this guide outlines the major advantages and limitations of each measure and provides guidance on when to use one measure over another. Tables, figures, and additional downloadable resources (listed below) provide supplementary information.
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Introduction
Aggressive enforcement of immigration laws, actions to reduce the number of immigrants entering the US, and attempts to limit the legal rights of immigrants living in the US have been a signature focus of the Trump Administration.1,2,3 A recently announced change in the rule directing how immigrants can become permanent residents in the US continues the harmful and troubling changes in our nation’s immigration policies.4 For California, the consequences are stark: thousands more families working to build better a better future for themselves and our state will instead live in poverty. In addition, other individuals will be denied the ability to legally enter the country if they’re not wealthy. This rule will result in a significant loss for California’s economy and workforce and cause harm for California immigrants who already fear that receiving food or health assistance may affect their ability to continue living and working in the state and country. Moreover, as this analysis will show, the new rule, coupled with previous executive actions targeting immigrants, will have ripple-effects on the health, development, and economic outcomes of generations to come.
California: A State of Immigrants
Immigrants make up a larger share of the population in California than in any other state. More than 1 in 4 Californians are immigrants, according to US Census Bureau data.5 As of 2016 more than 3.2 million California children lived in families that included noncitizen immigrants, and nearly 90% of these children were themselves US citizens, according to a Budget Center analysis of US Census Bureau, American Community Survey data.
Immigrants also play a central role in the California economy. Immigrants and children of immigrants made up half of all California workers from 2016 to 2018, according to a Budget Center analysis of US Census Bureau, Current Population Survey data. More than 40% of Silicon Valley high-tech start-ups from 2006 to 2012 were founded by immigrants, and nearly half of the state’s Fortune 500 companies have founders who are immigrants or children of immigrants. 6 For these reasons, changes to immigration rules, such as the new public charge rule, can be expected to have a particularly significant impact on California. At the same time, California’s economy represents about one-seventh of the national economy in terms of Gross Domestic Product, and the state contributes more than one and a half times as much to national GDP as any other state economy.7 As a result, changes that negatively affect California’s residents and workers can be expected to have a substantial impact on the national economy.
What is the Public Charge Rule and Who Is Affected?
Long-standing immigration law, going back to the late 1800s, provides that individuals who are likely to become a “public charge,” or in need of public supports, can be denied entry to the US or denied permission to remain in the US. However, for decades the criteria determining whether someone is considered a public charge has been defined quite narrowly as receiving the majority of resources from monthly cash income supports or relying on publicly-funded long-term institutional care.8
The new public charge rule – officially published August 14 and scheduled to take effect October 15 – makes the definition of public charge much broader in two primary ways. For one, having a family income less than 125% of the federal poverty line, or about $32,000 for a family four currently, will now be considered a negative factor.9 Secondly, the new rule expands the types of public supports considered to include certain non-cash supports including food assistance through SNAP (the Supplemental Nutrition Assistance Program, or CalFresh in California), housing subsidies, and public health insurance for adults age 21 and older through Medicaid (Medi-Cal in California).10 In addition, much more modest use of public supports will be considered an indication of becoming a likely public charge.11 This new definition is extremely broad, considering that more than half of US-born citizens are likely to access the supports included in the new definition at some point in their lifetimes.12
In a draft of the proposed rule, the Department of Homeland Security acknowledged that the rule “has the potential to erode family stability and decrease disposable income of families and children because the action provides a strong disincentive for the receipt or use of public benefits by aliens, as well as their household members, including US children.”13
It is important to notewhen the public charge rule is applied. The public charge rule applies when individuals are seeking to enter the US or seeking to adjust their immigration status to long-term permanent resident status. It does not apply to immigrants who already have green cards or to naturalized US citizens, and it does not apply to US-born children of immigrants.14 Use of public supports by other family members, such as US-born children, is not considered a negative factor.15 Also, the new rule defines having income below 125% of the poverty line or using specific public supports as negative factors in determining public charge, but an immigrant’s overall circumstances are considered when an immigration official makes the determination, so these negative factors do not automatically result in denial of permission to enter or remain in the US. Some categories of immigrants are also exempt from the public charge rule, including refugees and survivors of human trafficking or domestic violence.16
Since the rule was published, the state of California, as well as advocacy groups have filed lawsuitsto block implementation of the rule.17
The Rule’s “Chilling Effect” and Increased Poverty for Californians
Though the public charge rule only applies in specific, fairly narrow circumstances, it is likely to change the behavior of many more individuals who will never likely be formally assessed under the public charge rule. This is because the new rule is likely to produce a “chilling effect” on use of public supports among individuals in families that include noncitizen immigrants, whereby families do not access public supports to address basic needs for which their family members are eligible, and disenroll from supports that they currently access, out of fear and confusion about the consequences of accessing these types of supports.18 Studies of prior changes to immigrant eligibility for public supports through the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) found rates of disenrollment from public supports of 15% to 35% among noncitizen immigrants and citizen children in families that included noncitizen immigrants, with substantial disenrollment observed even among individuals to whom the eligibility changes did not technically apply, such as refugees.19
Similar patterns of disenrollment can reasonably be expected from the changes to the public charge rule. If the new public charge rule results in rates of disenrollment that are similar to those observed as a result of PRWORA, then many thousands of Californians can be expected to disenroll from public supports for which they are eligible and which they currently use to meet basic needs for food, shelter, health care, and other necessities. This disenrollment is likely to result in a substantial increase in the number of Californians living in poverty, according to a Budget Center analysis of US Census Bureau, American Community Survey data for 2016 used to produce the California Poverty Measure, a joint project of the Stanford Center on Poverty and Inequality and the Public Policy Institute of California.
The two supports newly included in the public charge determination that most directly affect poverty status under the California Poverty Measure are CalFresh food assistance and housing subsidies. Under conservative assumptions for the chilling effect of the new public charge rule – assuming that 15% of families that include noncitizens and include family members that are receiving CalFresh or housing subsidies disenroll from those supports – the number of Californians in poverty will increase by an estimated 76,000, and the number in deep poverty (with family resources equal to less than half of the poverty threshold) will increase by an estimated 51,000. If disenrollment rates for these two supports are instead 35%, as observed in some research on PRWORA, the increase in individuals in poverty will be substantially higher, with an estimated 165,000 more Californians pushed into poverty and 115,000 more into deep poverty.
Moreover, out of fear and confusion about the details of the proposed public charge changes, disenrollment can be expected not only from the public supports included in the new rule, but also from public supports that are not included in the public charge determination, such as WIC (the Special Supplemental Nutrition Program for Women, Infants, and Children). If 35% of families that include noncitizens and include family members receiving public supports disenroll from all public supports that they currently access, then the number of Californians in poverty will increase by an estimated 461,000, and the number in deep poverty will increase by an estimated 402,000. These estimated increases in the number of Californians in poverty are particularly troubling because California already has the highest poverty rate in the USwhen accounting for the cost of living.20 By pushing more Californians into poverty, the new public charge rule threatens the health, well-being, and economic security of thousands of children and adults, with potential cascading effects on the state and even national economy over the short term and long term.
It’s important to note too that the new public charge rule follows previous executive actions targeting immigrants, and this latest move only compounds the fear and confusion that may keep families from accessing public supports. Other recent actions include the “Muslim ban” limiting immigration from certain countries and theattempt to end the legal protections provided through the Deferred Action for Childhood Arrivals (DACA) program.21,22 Immigrants (even those who already have legal permanent resident status), refugees, and US-born children of immigrants all are at risk of increased hunger and food insecurity, unmet health care needs, and poverty under the Trump Administration’s recent orders and actions.
Public Health and the Economy will Suffer
The analysis above considers the effects of disenrollment in public supports that most directly affect whether families are considered to be in poverty under the California Poverty Measure. The new public charge rule can also be expected to cause individuals to disenroll from Medi-Cal, California’s public health insurance program, which has a less direct effect on the calculation of poverty status but very significant effects on health and well-being.
In a study among adults who are foreign-born or living with foreign-born family members conducted in December 2018, after publication of the proposed public charge rule, one in seven (13.7%) adults reported that they or a family member did not participate in a noncash benefit program out of fear of risking future green card status. This rate was higher (20.7%) among adults in families earning less than 200% Federal Poverty Level. Health insurance through Medicaid or the Children’s Health Insurance Program was the second-most-common program for which chilling was reported (after food assistance through SNAP).23 Health care providers across California that serve immigrant communities also reported increasing concerns about enrollment in Medi-Cal, WIC, and CalFresh among their patients.24
The chilling effect of public charge could impact up to 2.2 million Californians in immigrant families enrolled in CalFresh and/or Medi-Cal, most of whom would not be subject to the new public charge test. Disenrollment from these programs would most significantly impact Latinx and Asian families, as well as children.25 The Children’s Partnership estimated the impact of the changes to public charge on children’s enrollment in public programs and found that the uninsured rate among all children in California would rise from 3% to as high as 8.2% and up to 311,000 children in immigrant families would lose access to CalFresh despite remaining eligible.26 Furthermore, if immigrant mothers forgo essential pregnancy and postpartum-related services due to (unfounded) fears of being deemed a public charge, this could lead to higher rates of poor birth outcomes—including higher rates of low birthweight and infant mortality—which can lead to poorer long-term health and developmental outcomes for children.
In addition to poorer health outcomes, the rule would also have adverse effects on the state economy and the financial stability of many hospitals. California could lose up to $1.67 billion in federal benefits if 35% of Californians impacted by the chilling effect disenroll from Medi-Cal and CalFresh, according toan analysis by the UCLA Center for Health Policy Research. Given that these federal dollars would have been cycled through California’s economy multiple times, this would yield an even greater loss of spending throughout the broader state economy. Other detrimental effects include up to 17,700 lost jobs, primarily from the health care sector and food-related industries and up to $151 million lost in state and local tax revenue. The financial stability of hospitals across the state, particularly those in communities with large immigrant populations, would also experience a loss. California, with 406 hospitals, is estimated to lose up to $5.2 billion in Medicaid and CHIP payments.27
Public Charge Continues Efforts to Harm Immigrant Families
The new public charge rule will push thousands of Californians into poverty, negatively impact the health and well-being of immigrant families across the state, and result in damages to the state economy. Even the threat of being classified as a “public charge” has sowed fear in immigrant communities and has caused many families to forgo much needed health, food, and housing assistance. Furthermore, it is not only another blatant attack on immigrant families and communities, it is also an attack on families and individuals whoaccess public benefits more broadly. This latest rule, along with many other harsh actions taken by this Administration, will harm the socioeconomic well-being of many California families today and future generations.
1084 Federal Register 41292 (2019), p. 41501. Medicaid benefits used in certain situations would not count toward public charge under the new rule. These exceptions include emergency medical care, services under the Individuals with Disabilities Education Act (IDEA), school-based services, and pregnancy and the first 60 days of post-partum care.
Senate Bill 13, as amended in the state Assembly on August 12, 2019, would help to facilitate the development of accessory dwelling units (ADUs) and provide amnesty for unpermitted ADUs to become compliant. SB 13 may have housing- and income-related health impacts on both homeowners and tenants. This review finds:
strong evidence that easing restrictions on the development of ADUs provides incentives for homeowners to build ADUs and, as a result, increases the supply of permanent housing.[1]
a fair amount of evidence that ADUs are affordable within the neighborhood where they are located, but may not be a viable housing option for lower-income residents in the absence of government incentives.[2]
a fair amount of evidence that rent from ADUs provides homeowners with additional income to maintain their properties, sustain their mortgages, and increase disposable income.[3] There is a fair amount of evidence that seniors (age 65+) do not own or live in ADUs at higher rates than other age groups;[4] instead, there is a concentration of ownership among middle-aged adults.[5]
a fair amount of evidence that infill development in higher-income areas could increase the social and economic diversity of neighborhoods, providing more residents with access to better services.[6]
a fair amount of evidence that an amnesty program for unpermitted ADUs encourages landlords to bring units into compliance with permitting requirements, but it is not well researched if this results in health- and safety-related improvements in units with unhealthy or unsafe conditions.[7] The impact of an amnesty policy on rents is not well researched.
What Is the Goal of the Health Note?
Policy decisions made outside of the public health and health care sectors, such as in education, land use, or criminal justice, can affect health and well-being. HealthNotes are intended to provide objective, nonpartisan information to help legislators understand the connections between these sectors and health. Health Notes are not intended to make definitive or causal predictions.
The California Budget & Policy Center selected SB 13 as an illustrative example to demonstrate potential health impacts of proposed legislation. Developing ADUs to increase the supply of housing has been cited by housing advocates and housing policy researchers as a potentially important strategy in California.
What Are the Potential Health Impacts of SB 13?
There are many ways in which housing and where one lives may influence health. For instance, housing affordability, the conditions in neighborhoods and communities, and the physical conditions within homes all affect individual health outcomes.[8] SB 13 aims to facilitate the development of ADUs and encourage landlords with unpermitted ADUs to become compliant. In doing so, this bill could help to provide more affordable housing options for renters, provide additional income for homeowners who build ADUs, increase renters’ access to well-established resource areas — higher-income neighborhoods — and improve the physical conditions of unpermitted ADUs that become compliant.
Both renters and homeowners may benefit from the development of ADUs by helping to lower their cost of living. Given that ADUs are often seen as affordable housing options for renters, particularly in urban areas, increasing the supply of ADUs may allow renters to spend less on housing.[9],[10] Homeowners who build and rent ADUs could also benefit from additional income support. Research shows that families that experience difficulty paying their rent, mortgage, or utility bills are more likely to lack a sufficient food supply and are less likely to have a consistent source of medical care.[11] Difficulty paying rent or mortgage is also a marker of housing instability and may lead to food insecurity and homelessness.[12] Therefore, this bill could lead to a change in income-related health outcomes for renters and homeowners, including a decrease in chronic health conditions and mental health conditions such as stress and anxiety.
Furthermore, given that access to affordable housing is a problem that disproportionately affects low-income households, and that the majority of individuals with high housing cost burdens in California are people of color, the development of more affordable housing options could help to address health inequities based on race and ethnicity.[13]
Building more ADUs could help with housing affordability even if the ADUs themselves are not considered to be affordable units. The development of ADUs could lead to an increase in the supply of housing, which could potentially reduce the cost of housing in the overall market. More specifically, it could be expected to slow the rate of increase in the cost of housing compared to the increase expected without adding those units to the housing supply.
ADUs could be particularly beneficial for middle-aged and elderly homeowners by allowing them to more easily remain in their homes as they transition into fixed or reduced incomes towards the end of their lives. Research demonstrates that “aging in place” significantly reduces stress and improves mental health among seniors.[16] The income from renting out either an ADU or the main house could help older adults achieve the financial stability needed to age in place, thereby allowing them to stay near their established networks and decreasing the risk of isolation and depression.[17] ADUs could also be beneficial for seniors because they can be built with ADA accessibility standards to allow easy mobility throughout the home.
If ADUs are developed in well-established resource areas, they could improve opportunities for renters to be healthy. Research suggests that people living in lower-income areas rate their own health lower than those living in higher-income neighborhoods.[18] In addition, low-income neighborhoods contribute to higher rates of obesity and chronic disease due to many factors, including a higher density of fast food restaurants, decreased accessibility to fresh foods, and environments that are not conducive to physical activity.[19] Building ADUs in well-established resource areas could help to increase access to the amenities that are often found in these areas, such as higher-performing and better-funded schools, better police protection, and transit stations. Furthermore, ADUs could help to increase social equity — defined as ensuring that social services are delivered fairly and equitably to all social groups.[20] Social equity also reflects the notion that increasingly diverse populations are the foundation for a more creative and more tolerant society.[21]
By providing amnesty to owners of unpermitted ADUs, this bill may help to achieve a higher level of housing quality, which would promote good physical and mental health.[22] Research shows that poor conditions are associated with various negative health outcomes, such as injury, chronic disease, and poor mental health.[23] Features of poor housing conditions include a lack of air conditioning, inadequate plumbing, and/or exposure to hazards such as carbon monoxide, allergens, and lead in paint, pipes, and faucets.[24] People living in units with poor housing conditions may be more likely to be exposed to damaged appliances, exposed nails, or peeling paint, which could lead to illness or injury.[25] Waiving certain fees and penalties may help to provide a pathway for unpermitted ADUs to meet health and safety standards that would be less harmful to an occupant’s health.
Why Do These Findings Matter for California?
The high cost of housing and lack of affordable housing are among the primary drivers of California’s high poverty rate, ranked first among the 50 states under the Supplementary Poverty Measure.[26] The high costs disproportionately affect renters and households with low incomes.[27] More than half of renters are “cost burdened,” meaning they pay more than 30% of income toward housing.[28] Eight in 10 households with incomes below 200% of the federal poverty line were housing cost burdened in 2017.[29] Additionally, more than 2 in 3 Californians who struggle to afford housing are people of color.[30] High costs are in part driven by the shortage of rental housing.[31]
As the state continues to debate policy solutions to improve housing affordability, encouraging the development of ADUs may be an effective strategy to increase the supply of housing because it allows homeowners to increase the number of available units without requiring direct government investments in large development projects.[32] Compared to other forms of low-income and affordable housing, studies show that ADUs are relatively inexpensive to build. The Terner Center for Housing Innovation at UC Berkeley found that costs to build ADUs in the cities of Portland, Oregon, Seattle, and Vancouver were low because they did not include land costs and construction duration is short.[33]
Recent state legislation by Senators Wieckowski and Bloom in 2016 and 2017 helped to facilitate the development of ADUs by requiring cities to limit parking requirements, eliminate some utility connection fees, and streamline review and approval processes.[34] San Diego had 17 ADU applications in 2016, which increased to 64 in 2017. [35] Similarly, Oakland saw an increase in the number of applications received from 99 in 2016 to 247 in 2017.[36] Los Angeles had the largest increase, receiving 80 ADU applications in 2016 and 1,980 through November of 2017.[37] Still, remaining barriers prevent further proliferation. Burdensome development fees and building codes continue to inhibit the construction of ADUs.[38] For example, the Terner Center survey of Portland, Seattle, and Vancouver found that city permits and utility connections accounted for over 10% of construction costs.[39]
What Are the Potential Effects of SB 13 on the Supply of Permanent Housing?
There is strong evidence that easing restrictions on the development of ADUs provides incentives for homeowners to build ADUs and, as a result, increases the supply of permanent housing.[40]
Studies analyzing the effect of easing strict land-use regulations on the development of ADUs conclude that incentives are an effective policy tool to increase the supply of such units. In 2010, Portland, Oregon waived development fees covering sewer, water, and other infrastructure connections, reducing costs by $8,000 to $11,000 per unit.[41] In 2013, the city received almost 200 ADU applications, six times more than the yearly average from 2000-2009.[42]
A recent study found that localities in California with the least restrictive laws regulating ADUs were 67% more likely to receive frequent applications than localities with restrictive laws.[43] This study found that localities without off-street parking requirements were much more likely to receive monthly applications.[44] Another study analyzing single family lots within half a mile of five Bay Area Rapid Transit (BART) stations in the cities of Berkeley, El Cerrito, and Oakland estimated that 2,149 potential ADUs could be constructed if cities had less stringent lot-size, parking, and setback requirements than under the zoning laws at the time.[45]
The Terner Center survey of Portland, Seattle, and Vancouver found that 60% of ADUs were used for permanent housing, compared to 12% for short term rentals.[46] Results from another study in Oregon showed that about 82% of respondents used ADUs as someone’s permanent residence, which is similar to an analysis conducted in 2011 in the East Bay Area, where 85% of owners reported using ADUs as long-term housing.[47]
What Are the Potential Effects of SB 13 on the Supply of Affordable Housing?
There is a fair amount of evidence that ADUs are affordable within the neighborhood where they are located, but may not be a viable housing option for lower-income residents in the absence of government incentives.[48]
Some research finds that ADUs offer affordable rents, in part because of their smaller unit size, and that they often rent at below market rates. [49] The Terner Center study of Portland, Seattle, and Vancouver found that 58% of homeowners reported renting below market rate.[50] Similarly, a study in the East Bay Area concluded that average rents of ADUs were affordable to households earning at or below 62% of area median income. (Many ADUs included in this study were unpermitted, which may have decreased rents.[51]) In contrast, a study conducted in Portland, Oregon found that about 80% of ADUs were rented at market rate or sometimes even at a premium compared to apartments of similar size and location.[52]
Interwoven with the shortage in housing supply is the need to provide low-income housing to the state’s most financially strained residents. There is mixed evidence that permitted ADUs house low-income households, despite localities’ ability — since 2002 — to count ADUs as low-income housing for the Regional Housing Needs Assessment.[53]
Additional policies could guarantee that newly built ADUs have affordable rents. Research by Ramsey-Musolf finds that unless a local zoning code regulates an ADU’s maximum rent, occupancy income, and/or effective period, then the city or state will be unable to ensure that units are available to people with low income.[54] One strategy implemented in Los Angeles, through The Backyard Homes Project, provides owners with support through technical assistance and financing in return for agreeing to rent their ADUs to households using subsidized housing vouchers.[55] Another example is the city of Pasadena, which reduces permit fees from roughly $20,000 to $1,000 per unit if homeowners agree to a seven-year rent restriction.[56]
What Are the Potential Effects of SB 13 on Housing Stability for Homeowners and Seniors?
There is a fair amount of evidence that rent from ADUs provides homeowners with additional income to maintain their properties, sustain their mortgages, and increase disposable income.[57] There is a fair amount of evidence that seniors (age 65+) currently do not own or live in ADUs at higher rates than other age groups;[58] instead, there is a concentration of ownership among middle-aged adults.[59]
While more research is needed to better understand the social-economic breakdown of homeowners who are able to build ADUs, available information suggests that ADUs can provide additional income support. Research shows income received from rent is a major factor prompting homeowners to build ADUs. Building an ADU to have an extra source of income was the number one reason for initiating construction of an ADU, according to a recent Terner Center survey.[60] Furthermore, a study in Seattle found that 64% of respondents said they built ADUs for extra income, 53% to reduce house payments, and 47% to increase home value.[61]
It is often cited that ADUs can provide seniors with the ability to age in place, extend their independence, and allow caretakers to live in proximity. However, research over the past few decades has consistently shown that seniors do not own or live in ADUs at higher rates than other age groups.[62] Major barriers for seniors include the hardships entailed in construction, renting, and maintaining ADUs as well as reluctance to take on debt.[63],[64]
As the population of ADU owners ages, there may be a significant increase in the percentage of seniors who own ADUs and could benefit by living-closer to family, housing a caretaker, receiving additional income from rent, or downsizing. A survey in Oregon found that about 30% of ADU owners were 55 to 64 years old and nearly 23% were 45 to 54 years old. In contrast seniors (65+) accounted for 20% of homeowners in the areas surveyed.[65] Furthermore, opinion polls show that as many as 70% to 80% of Baby Boomers express a preference for aging in place.[66] Therefore, while seniors do not currently own or occupy ADUs at especially high rates, middle-aged adults do, and they could benefit from owning ADUs when they become seniors.
What Are the Potential Effects of SB 13 on Access to Neighborhood-Based Resources?
There is a fair amount of evidence that infill development in higher-income areas could increase the social and economic diversity of neighborhoods, providing more residents with access to better services.[67]
Research shows that when ADUs are located in higher-income areas and provide housing for middle- and low-income families, “place diversity” can increase.[68] “Place diversity” refers to the spatial diversity of people and functions.[69] It can increase social equity by mixing different social groups in one area, providing more people with access to key resources.[70] A recent study found that geographical disparities in life expectancy in US counties are large and increased from 1980 to 2014.[71] Furthermore, research shows that growing up in a neighborhood with concentrated poverty may decrease one’s well-being.[72]
Infill development — when new buildings are constructed in previously developed areas rather than on raw land — could provide more residents with access to better schools, safety, and other vital services that improve health and well-being, assuming that these new units are located in well-established resource areas.[73] In contrast, infill units in neighborhoods with high crime and low-performing schools would not provide access to crucial resources.
What Are the Potential Effects of SB 13 on Unpermitted ADUs?
There is a fair amount of evidence that an amnesty program for unpermitted ADUs encourages landlords to bring units into compliance with permitting requirements, but it is not well researched if this results in health- and safety-related improvements in units with unhealthy or unsafe conditions.[74] The impact of an amnesty policy on rents is not well researched.
Existing literature on ADUs notes that the majority of existing units are unpermitted.[75] A 2014 study estimated 25,000 unpermitted ADUs in Los Angeles alone.[76] Unpermitted ADUs may not have the proper living amenities and may not meet local health and safety standards, which could have health implications. One study in the East Bay Area found that ADUs were more likely to have substandard cooking facilities than other types of rental units, due largely to the number of unpermitted ADUs and construction carried out in an amateur manner.[77]
Research demonstrates that various amnesty programs throughout California have proven successful encouraging many homeowners to register unpermitted units.[78] For example, in just two years, 60 units were legalized in Marin County.[79]Their success was attributed to a limited grace period coupled with fee reduction and regulatory concessions.[80] However, it is unknown if ADU amnesty programs lead to improvements in the health and safety conditions of unpermitted units. Research is needed to determine how to most effectively structure an amnesty program to ensure that owners of unpermitted units in poor conditions may have a path to receive permits and also have incentives to improve the quality of their ADUs.
It is not well researched whether providing a pathway for unpermitted ADUs to become compliant changes rents for tenants. The informal manner in which many ADUs are built, managed, and supplied contributes to relatively lower rents.[81] As noted above, a 2011 study in the East Bay Area found that rents were affordable to someone earning at or below 62% of the area median income.[82] However, this same study found that upwards of 90% of ADUs in the city of Berkeley, one of three cities within the area researched, lacked building and zoning permits.[83] Further research is required to make conclusive claims regarding the effects widespread amnesty might have on rents.
Which Populations Are Most Likely to Be Affected by SB 13?
Research suggests ADUs are composed of smaller households and younger adults compared to the primary residence. Also, ADUs may have important implications for middle age adults, seniors, and communities of color.
The Terner Center study found that ADU households in Portland, Seattle, and Vancouver generally are small: 57% of ADUs consisted of one person and 36% consisted of two people.[84] A study in Oregon found similar results: 64.2% of households included one person and 34.3% two people.[85] It also found that nearly 60% of occupants were female.[86]
Various studies have found that ADU tenants are younger than residents of the primary unit and that most do not have children. A study conducted in the Bay Area found that adults in ADUs were, on average, 11 years younger than those residing in the main residence.[87] It also found an average of 0.18 children per ADU household compared to 0.37 in households in the primary residence.[88] Other studies suggest that ADUs can be an affordable housing option for students near college campuses.[89]
In addition, ADUs can help middle-aged and elderly homeowners who build and rent ADUs. Although seniors currently do not disproportionally utilize ADUs more than other age groups, ADUs may become a source of income for them in the long run. ADUs could provide seniors with the ability to live in multi-generational homes near their children, house caretakers, or downsize to live in a smaller unit while renting the primary residence for extra income.
Facilitating the development and legalization of ADUs could have important implications for communities of color. The majority of individuals in California facing high housing cost burdens are people of color, so if SB 13 led to an increase in the housing supply — particularly in the supply of affordable housing, with resulting effects on health as described above — people of color might especially benefit.[90] At the community level, one study found the most restrictive ADU laws are in communities of color with lower household incomes, greater declines in income during 2010s, and lower median home values.[91] More research is needed to understand why these communities have chosen to enact more restrictive ADU laws in order to understand the benefits and tradeoffs that these communities could experience if SB 13 becomes law.
How Large Might the Impact Be?
The history of zoning in the United States and California has led to urban sprawl and strict limitations on density, which makes ADUs a potential solution to increase the supply of housing in desirable neighborhoods. ADUs allow for infill development of housing in single-family-home neighborhoods. Census data from 2000 show that 56% of overall housing stock in California is composed of single-family detached units.[92] The concentration of single-family-home neighborhoods is even higher in some cities. For example, 94% of residential land in San Jose is zoned for detached single-family homes.[93] After state policymakers eased ADU regulations in 2016, applications in San Jose increased from 45 in 2016 to 166 in 2017.[94] Many other cities, including Los Angeles, Oakland, and San Francisco, also saw significant growth in the number of applications. Oakland received 99 ADU applications in 2016, and 247 in 2017.[95] Therefore, ADUs are a potential strategy to boost the supply of housing in areas that offer few opportunities for large scale multi-family and apartment developments.[96]
Bill Information
Bill number: SB 13
Bill topic: Accessory Dwelling Units (ADUs)
Primary Sponsor: Senator Bob Wieckowski
The bill aims to facilitate the construction of ADUs in single-family and multi-family areas. Key components of the bill prohibit a local agency from:
Requiring the replacement of parking spaces if a garage, carport, or covered parking is demolished to construct an ADU.
Imposing parking standards on ADUs located within a traversable distance of one-half mile of public transit.
Establishing a minimum square footage.
Establishing a maximum square footage that is either less than 850 square feet, or 1,000 square feet for ADUs with more than one bedroom.
Requiring owner occupancy for either the primary residence or the ADU until January 1, 2025.
Imposing any impact fees upon the development of an ADU that is less than 750 square feet. For larger ADUs, the bill would require any impact fees to be proportional to the square footage of the primary dwelling unit.
SB 13 requires a local agency to consider an application within 60 days, instead of the current 120-day review window. In addition, the bill encourages owners of unpermitted ADUs – those built before January 1, 2020 – to register their units and come into compliance with local building standards. Specifically, a local agency, upon request of an owner, would be required to delay enforcement of a local building standard for five years.
Methodology
Once the bill was selected, the research team hypothesized the bill’s likely impacts, including health outcomes. The bill components were mapped into steps on a pathway of impacts. Research questions and a list of keywords to search were developed. They reached consensus on the final conceptual model, research questions, contextual background questions, keywords, and keyword combinations. Internal and external subject matter experts reviewed a draft of the note. A copy of the conceptual model is available upon request.
Our research questions related to the bill components examined:
To what extent do ADUs affect the supply of housing?
To what extent do ADUs affect the supply of affordable housing?
To what extent do ADUs affect the supply of housing in areas zoned for single-family/multi-family dwelling use?
To what extent do ADUs affect access to well-established neighborhoods with services and transportation?
To what extent do ADUs affect access to safe and quality neighborhoods?
To what extent does rent from ADUs supplement homeowner income to pay for mortgages?
To what extent does rent from ADUs help seniors supplement income?
To what extent do ADUs help seniors retire in place?
To what extent do ADUs affect household disposable income?
To what extent do ADUs affect housing instability?
To what extent do ADUs provide long-term housing?
To what extent do ADUs house families compared to individuals?
To what extent do ADUs provide quality housing?
To what extent do ADUs affect homelessness?
To what extent does legislation incentivize the construction of ADUs?
To what extent does amnesty of unpermitted ADUs lead owners to register and become fully compliant?
The research team then conducted an expedited literature review using a systematic approach to minimize bias and answer each of the identified research questions.[97] They limited the search to systematic reviews and meta-analyses of studies first, since they provide analyses of multiple studies or address multiple research questions. If no appropriate systematic reviews or meta-analyses were found for a specific question, we searched for nonsystematic research reviews, original articles, and research reports from US agencies and nonpartisan organizations. The search was limited to electronically available sources published between January 2014 and January 2019. Research cited by these sources was also explored, some of which were outside these dates.
The research team searched PubMed and EBSCO databases along with the following leading journals to explore each research question: The American Journal of Public Health, Social Science and Medicine, Health Affairs, Social Science Research, Journal of Urban Economics, Housing Policy Debate, Housing Studies, and Journal of Housing and Community Development. For all searches, the research team used the following key terms: Accessory Dwelling Units, supply of housing, affordable housing, proximity to services, quality housing, healthy housing, transportation, disposable income, rent, rent burden, housing stability, mortgages, seniors, aging, low-income families, green housing, and secondary income.
The research team also searched the websites of leading relevant policy organizations, including the Terner Center at UC Berkeley, the Lincoln Institute of Land Policy, the US Department of Housing and Urban Development, the Brookings Institute, and the Urban Institute.
After following the above protocol, the research team screened 95 abstracts. They reviewed and identified 36 peer-reviewed and grey literature sources for full-text review, excluding 18 titles. The remaining 18 sources were included in the Health Note. In addition, the research team identified other peer-reviewed sources through the original articles and identified additional resources with relevant research outside of the peer-reviewed literature. A final sample of 26 resources was used to create the Health Note.
Of the studies included, the strength of the evidence was qualitatively described and categorized as: not well researched, mixed evidence, a fair amount of evidence, strong evidence, or very strong evidence. The evidence categories were adapted from a similar approach from another state.
Very strong evidence: The literature review yielded robust evidence supporting a causal relationship with few if any contradictory findings. The evidence indicates that the scientific community largely accepts the existence of the relationship.
Strong evidence: The literature review yielded a large body of evidence on the association, but the body of evidence contained some contradictory findings or studies that did not incorporate the most robust study designs or execution or had a higher than average risk of bias; or some combination of those factors.
A fair amount of evidence: The literature review yielded several studies supporting the association, but a large body of evidence was not established; or the review yielded a large body of evidence but findings were inconsistent with only a slightly larger percent of the studies supporting the association; or the research did not incorporate the most robust study designs or execution or had a higher than average risk of bias.
Mixed evidence: The literature review yielded several studies with contradictory findings regarding the association.
Not well researched: The literature review yielded few if any studies or yielded studies that were poorly designed or executed or had high risk of bias.
Additional Information
This Health Note was produced using a methodology and approach developed by the Health Impact Project at The Pew Charitable Trusts, and is part of a pilot program in several jurisdictions to test the use of Health Notes to inform policymaking at state and local levels. This Health Note is supported by a grant from the Health Impact Project. The views expressed are those of the authors and do not necessarily reflect the views of the Health Impact Project or The Pew Charitable Trusts.
Dr. Sherice Janaye Nelson is a professor at St. Mary’s College of California and researches the effects of the Black Diaspora with emphasis in the United States. Her study of Black Americans encompasses the economic and political behaviors and the effect of those behaviors in a modern-day democracy. Dr. Nelson served as our external subject matter expert. Sara Kimberlin, Senior Policy Analyst at the Budget Center, served as internal subject matter expert and guided the development of the Health Note.
Aureo Mesquita, Adriana Ramos-Yamamoto, and Monica Davalos prepared this Health Note. The Budget Center was established in 1995 to provide Californians with a source of timely, objective, and accessible expertise on state fiscal and economic policy issues. The Budget Center engages in independent fiscal and policy analysis and public education with the goal of improving public policies affecting the economic and social well-being of low- and middle-income Californians. General operating support for the Budget Center is provided by foundation grants, subscriptions, and individual contributions.
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Executive Summary
On June 27, Governor Gavin Newsom signed into law the 2019-20 state budget, an agreement with state legislative leaders that makes a series of investments in creating economic security and opportunities for Californians, while also fostering the state’s fiscal health.
The budget includes revenues and transfers of $146 billion for 2019-20. This represents an increase of more than $4 billion over the enacted 2018-19 budget, driven largely by the state’s continued economic growth.
The budget package includes a mix of one-time and ongoing investments vital to low- and middle-income Californian’s economic prosperity, including: a significant expansion of the state’s Earned Income Tax Credit (CalEITC), additional investments in early childhood development, extending paid family leave, continuing to expand health coverage, boosting investments in the K-12 and state higher education systems, and promoting greater access to mental health services. The 2019-20 budget also provides funding for housing affordability and to address homelessness, recognizing that the high cost of housing continues to burden and destabilize many Californians. These proposals, individually and in combination, will significantly improve the health and well-being of millions of Californians, most notably low- and middle-income people of color, immigrants, and women and children.
The 2019-20 budget also continues to bolster the state’s fiscal resilience by building up reserves and paying down state debts and liabilities. While the budget package expands a variety of programs, some of these investments could sunset within a few years, providing state leaders with an opportunity to revisit these investments depending upon the state’s economic and fiscal conditions.
These proposals – a combination of one-time and ongoing investments, building up reserves, and paying down debts – represent a mostly balanced approach to managing the state’s fiscal health, while leaving opportunities to further enhance the state’s fiscal resilience and extend support to more Californians in future years. The 2019-20 budget leaves room to further improve the economic and social well-being for all Californians, including older adults and people with disabilities, working immigrants who file their taxes and who are left out of the CalEITC expansion, and low-income immigrant adults who remain locked out of access to state-subsidized health care coverage.
The following sections summarize key provisions of the 2019-20 budget. Please check the Budget Center’s website for our latest commentary and analysis.
Use the links below to browse individual sections: Revenue & Tax Credits
Budget Agreement Projects Increased Revenues Due to Continued Economic Growth and Partial Conformity to 2017 Federal Tax Law
The budget package assumes General Fund revenues and transfers of $146 billion for 2019-20 (before the deposit to the Budget Stabilization Account – the state’s constitutional rainy day fund). This represents an increase of $4.4 billion over the enacted 2018-19 budget. The projected increase is driven primarily by higher expected personal income tax revenues.
Additionally, the budget agreement includes a package of tax changes expected to raise General Fund revenues, on net, by “conforming” in full or in part to selected provisions of the recently revised federal tax code. This tax conformity package limits some tax breaks for businesses and higher-income households and increases tax simplicity for small businesses. The package will increase General Fund revenues on net by an estimated $1.6 billion in 2019-20 and $1.3 billion in future years, according to the Administration. These revenues are intended to more than cover the $1 billion cost of the expanded California Earned Income Tax Credit (CalEITC) (see CalEITC section). Since the combined tax conformity/CalEITC package is estimated to raise General Fund revenues, it results in a higher Proposition 98 guarantee for K-14 education funding in 2019-20 (see Prop. 98 section).
Specifically, the tax conformity package in the enacted budget:
Limits higher-income taxpayers’ deductions for business losses. The amount of business-related losses taxpayers can deduct from their other sources of income to reduce their tax liability will be limited to $250,000 ($500,000 for married couples filing jointly). Taxpayers can carry forward disallowed losses to offset income in future tax years, but the cumulative losses for each tax year are still subject to the $250,000/$500,000 limit.
Limits “like-kind exchanges” for higher-income individuals and businesses. The ability of corporate and individual taxpayers to defer taxes on gains from the exchange of a business- or investment-related property for a similar property will be limited to exchanges of real estate and no longer allowed for personal property exchanges. Individual taxpayers with incomes up to $250,000 ($500,000 for married couples filing jointly, heads of household, and surviving spouses) are exempt from this limitation.
Eliminates Net Operating Loss (NOL) carrybacks. Corporate and individual taxpayers will no longer be able to use NOLs to reduce their tax liability for previous tax years. (NOLs occur when a taxpayer’s total tax deductions exceed total income for the tax year and are generally related to losses from operating a business.)
Limits business deductions for high executive pay. Businesses will no longer be able to deduct compensation above $1 million for their top executives, regardless of whether the compensation is “performance-based.”
Limits deductions for large financial institutions. Banks with assets above $50 billion will no longer be able to take deductions for Federal Deposit Insurance Corporation (FDIC) premiums, and the deductions will be limited for banks with assets between $10 billion and $50 billion.
Simplifies taxes for small businesses. Businesses with gross receipts up to $25 million will be able to use a simpler accounting method for tax purposes and are exempted from several accounting requirements to which larger businesses are still subject. (Previously, most of these exceptions only applied to businesses with gross receipts up to $5 million.)
The tax conformity package also includes a number of smaller tax changes for individuals and businesses. Notably, the budget agreement does not include the Governor’s proposals to limit business deductions for fringe benefits or to provide state tax incentives for investments in Opportunity Zones. (To encourage economic development in low-income communities, the 2017 federal tax law allows for tax breaks on investments in economically distressed census tracts that states have designated as Opportunity Zones.) However, the budget package assumes that Opportunity Zones legislation will be enacted later this year, and so it reflects an estimated loss of $100 million in General Fund revenues for 2019-20, according to the Administration. The budget agreement also includes the Governor’s May Revision proposal to exempt diapers and menstrual products from the sales tax in 2020 and 2021, resulting in revenue losses to the state and local governments. However, as required by law, the state will reimburse the “Local Revenue Fund 2011” – which provides counties with funds for certain criminal justice, mental health, and social service programs – to make up for estimated revenue losses due to the sales tax exemptions.
Budget Significantly Expands California Earned Income Tax (CalEITC)
The 2019-20 budget significantly expands the California Earned Income Tax Credit (CalEITC) – a refundable state tax credit that boosts the incomes of low-earning workers and their families, helping them afford necessities like food and utilities. This expansion, which will take effect in tax year 2019 (for which filing begins in 2020), largely reflects the expansion proposed by the Governor. Specifically, the budget:
Increases the income limit to qualify for the CalEITC to $30,000. This is roughly equal to full-time, year-round earnings for a worker earning $15 per hour, which will be the state’s minimum wage as soon as 2022 and is currently or soon will be the local minimum wage in many parts of the state. For families with qualifying children, the income limit will rise modestly, from $24,950 currently to $30,000. For workers without qualifying children, the income limit will increase substantially, from $16,750 to $30,000. The income limit will remain at $30,000 through the year in which the state minimum wage reaches $15 per hour, then will be annually adjusted for inflation. The Administration estimates that raising the income limit to $30,000 will extend the credit to an additional 1 million tax filers next year, bringing the total number of tax filers estimated to benefit from the credit to 3 million.
Increases the size of the CalEITC for tax filers with annual earnings toward the higher end of what is needed to qualify for the credit currently. Specifically, the tax filers who will receive a larger credit include those with:
Three or more qualifying children and annual earnings over around $14,300;
Two qualifying children and annual earnings over around $14,100;
One qualifying child and annual earnings over about $9,400; and
No qualifying children and annual earnings over about $4,300.
Currently, these tax filers are eligible for relatively small credits: less than about $260 for those with qualifying children and less than about $100 for those with no qualifying children. Beginning in tax year 2019, these filers will be eligible to receive up to about $500 if they have qualifying children and up to $200 if they have no qualifying children. These increases are smaller than what the Governor originally proposed.
Creates a “young child tax credit” that provides an additional $1,000 to families who qualify for the CalEITC and have at least one child under age 6. The $1,000 young child tax credit will be available to families with annual earnings between $1 and $25,000. Families with earnings over $25,000 and less than $30,000 will receive a young child tax credit of less than $1,000. (Specifically, the credit will “phase out” from $1,000 at $25,000 of earnings to $0 at $30,000 of earnings.) The Governor originally proposed phasing out the young child tax credit beginning at $28,000 of earnings. The earnings limit where the young child tax credit begins to phase out ($25,000) will be annually adjusted for inflation beginning the year after the state minimum wage reaches $15 per hour.
The Administration estimates that these changes to the CalEITC will reduce state personal income tax (PIT) revenue by about $600 million, bringing the total cost of the credit to about $1 billion. As discussed above, the budget agreement conforms to several federal tax law provisions that are expected to raise $1.6 billion dollars next year and $1.3 billion per year thereafter, which is more than what is needed to cover the full cost of the CalEITC.
Although the new revenues generated by the tax conformity package exceed the cost of the expanded CalEITC, the budget agreement does not extend the credit to low-earning immigrants and their children who are currently ineligible because they use a federally-issued Individual Taxpayer Identification Number (ITIN) to file taxes. Both legislative budget committees included this relatively low-cost provision in their budgets, but it was not included in the budget deal. As a result, hundreds of thousands of low-income workers and their children will remain excluded from the CalEITC.
In addition to expanding the credit, the budget deal provides $10 million to the Franchise Tax Board (FTB) to maximize claims of the CalEITC. This is equal to the amount of support provided last year and double the amount the Governor proposed. The budget agreement specifies that these funds “shall be allocated in a manner that emphasizes nonprofit and community-based organizations that provide increase awareness of the California Earned Income Tax Credit and that provide free tax preparation services.”
The budget deal also directs the FTB to work with the Legislature and the Department of Finance “to determine the feasibility and form of a structure for providing advance payments to recipients of the Earned Income Tax Credit.”
Budget Package Continues to Build Up Reserves to Bolster State Fiscal Resilience
California voters approved Proposition 2 in November 2014, amending the California Constitution to revise the rules for the state’s Budget Stabilization Account (BSA), commonly referred to as the rainy day fund. Prop. 2 requires an annual set-aside equal to 1.5% of estimated General Fund revenues. An additional set-aside is required when capital gains revenues in a given year exceed 8% of General Fund tax revenues. For 15 years ─ from 2015-16 to 2029-30 ─ half of these funds must be deposited into the rainy day fund and the other half is to be used to reduce certain state liabilities (also known as “budgetary debt”). Prop. 2 also established a new state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA). The PSSSA requires that, when certain conditions are met, the state deposit a portion of General Fund revenues into the new reserve as part of California’s Proposition 98 funding guarantee (See Prop. 98 section).
The enacted 2019-20 budget includes a total transfer of $2.2 billion to the BSA for 2019-20, which will bring the reserve’s balance to $16.5 billion by the end of the fiscal year. Prop. 2 requires that when the BSA balance has reached its constitutional maximum of 10 percent of General Fund tax revenues, any additional dollars that would otherwise go into the BSA must be spent on infrastructure, including spending on deferred maintenance. However, while the BSA has already reached this maximum, the enacted budget assumes that constitutionally required deposits will continue to be made because the account’s current balance was achieved in part through supplemental payments in prior years.
The enacted budget also includes a deposit of $377 million into the PSSSA, the first time such a deposit would be made into this reserve.
Additionally, the 2018-19 budget agreement created the Safety Net Reserve Fund, which holds funds that can be used to maintain benefits and services for CalWORKs and Medi-Cal participants in the event of an economic downturn. The 2019-20 budget includes $900 million in the Safety Net Reserve.
Each year, the state also deposits additional funds into a “Special Fund for Economic Uncertainties” (SFEU). The budget package includes an SFEU balance of $1.4 billion.
Taking into account the BSA, PSSSA, Safety Net Reserve, and SFEU, the enacted budget builds state reserves to a total of $19.2 billion in 2019-20.
The 2019-20 budget prioritizes paying down state and local unfunded pension liabilities and paying off outstanding budgetary debt incurred during the Great Recession and its aftermath.
The enacted budget continues to include required and supplemental contributions to two state-run retirement systems: the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). CalPERS and CalSTRS, like many retirement systems, are not funded at levels that will keep up with future benefits, resulting in the state needing to make higher annual contributions in order to pay down unfunded liabilities.
Beyond statutorily required contributions, the enacted budget provides $3.0 billion in supplemental pension payments to CalPERS: $2.5 billion in the current (2018-19) fiscal year along with an additional $500 million for fiscal years 2020-21 ($265 million), 2021-22 ($200 million), and 2022-23 ($35 million).
In the case of CalSTRS, the budget package devotes an additional $2.9 billion toward the state’s share of CalSTRS unfunded liabilities: $1.1 billion in 2019-20, $802 million in 2020-21, $615 million in 2021-21, and $345 million in 2022-23. These funds come from Prop. 2 allocations (see Reserves section) that are required to be set aside for reducing state liabilities.
In addition, the enacted budget includes a one-time $3.1 billion non-Proposition 98 payment to CalSTRS and CalPERS to reduce schools’ (local educational agencies and community colleges) shares of unfunded liabilities in response to prior changes in contribution levels and pressures confronting employers. This includes $2.2 billion to CalSTRS on behalf of schools and $904 million to CalPERS for payments relating schools. Overall, the supplemental payments on behalf of schools will free up local dollars for investment in education, allow employers to pay down retirement obligations, or close budget deficits.
The enacted budget also pays off all remaining outstanding budgetary debts and deferrals incurred during the Great Recession.
The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for over 740,000 low-income children while helping parents overcome barriers to employment and find jobs. In recent years, state policymakers have taken steps to increase economic security for CalWORKs families. This year, the 2019-20 budget agreement:
Raises the CalWORKs asset limit. Under current law, families are ineligible for CalWORKs if they own a vehicle worth more than $9,500. They are also ineligible if they have more than $2,250 in assets such as in a checking or savings account (or $3,250 if a family member has a disability or is age 60 or older). This restriction can prevent families from saving for unexpected emergencies. Effective January 1, 2021, a car’s value may reach $25,000 and the asset limit rises to $10,000 (or $15,000 if a family member has a disability or is age 60 or older). These amounts will be increased annually.
Increases the value of the earned-income disregard (EID). The EID is the amount of a CalWORKs recipient’s gross monthly earnings that is overlooked when their grant levels are calculated. State law exempts the first $225 of monthly earnings, then 50% of the remainder. Without an increase in over two decades, the value of the EID has fallen behind the rising cost of goods and services, as well as a growing minimum wage. Effective June 1, 2020, the EID will rise to $500, which would allow CalWORKs parents to earn more while remaining eligible. Policymakers decided against ensuring that the EID will keep pace with inflation, instead opting for two further increases to $550 and $600, in 2021 and 2022 respectively.
Increases the maximum CalWORKs grant. The annualized maximum CalWORKs grant has been well below the deep poverty threshold (50% of the federal poverty line) for over a decade. Effective October 1, 2019, the 2019-20 budget agreement provides $334.9 million General Fund to raise grants based on the size of the assistance unit (AU), which is the number of people in the household who are eligible for CalWORKs. In low-cost counties, grants for a one-person AU (which represents over a quarter of all CalWORKs cases) will increase to 50% of the federal poverty line and to 47% for all other AU sizes. In high-cost counties, grants for a one-person AU (which represents over a quarter of all CalWORKs cases) will increase to 53% of the federal poverty line and to 49% for all other AU sizes.
Budget Package Extends the Duration of California’s Paid Family Leave Program
The California Paid Family Leave (PFL) program allows caregivers to take up to six weeks of paid time off to care for a family member or bond with a newborn or adopted child. Birth mothers are generally allowed another six weeks to recover from the birth, for a total of 12 weeks. The PFL program is funded entirely by workers’ contributions to the state’s Disability Insurance program. These contributions are deposited into a special fund that provides 60% to 70% of a worker’s weekly earnings based on income when a worker takes family leave.
The 2019-20 budget agreement extends the duration of the PFL program from six weeks to eight weeks, effective July 1, 2020. In order to ensure that the special fund that pays PFL claims can provide additional benefits, the state would reduce the minimum reserve balance requirement. The budget agreement also states that the Governor’s Office will work with a task force to provide recommendations on how to extend the duration of the PFL program to six months, with special consideration to job protections for workers and a higher wage replacement specifically for low-wage workers. The task force recommendations are due to the Legislature by November 2019.
Subsidized Child Care Programs Receive Significant Investment
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, helping families across California make ends meet. The 2019-20 budget agreement makes a significant investment in the state’s subsidized child care programs. Specifically, the spending plan:
Provides $153.3 million to add spaces for additional children. Using a mix of General Fund, special funds, and federal funds, the spending plan creates 12,546 new slots and boosts access to subsidized care for foster children in the 2019-20 state fiscal year. Specifically, the budget agreement:
Adds 3,086 General Child Care slots with $50 million General Fund effective July 1, 2019. According to legislative documents, these slots are to be funded with Proposition 64 Cannabis Tax Fund dollars in future years.
Adds 8,162 Alternative Payment Program (AP) slots with $80.5 million Prop. 64 dollars. These slots will not be restricted to school-age children, as indicated in the administration’s May Revision.
Adds 1,298 AP slots with $12.8 million federal funds effective July 1, 2019. The legislature rejected the Governor’s plan to create a pilot emergency child care program and redirected these funds to create additional slots in the AP program.
Invests $10 million General Fund in the Emergency Child Care Bridge Program for Foster Children, which provides access to child care vouchers for abused and neglected children. This funding will be suspended on December 31, 2021 unless General Fund revenues reach a certain threshold.
Provides $50 million Prop. 98 for after-school care. The spending plan provides an additional $50 million for the After School Education and Safety Program (ASES), which offers expanded learning for elementary and middle-school students in schools with a higher share of low-income students. The boost in funding is for increased daily per-pupil rates.
Provides $56.4 million General Fund to implement a 12-month eligibility period for certain CalWORKs families. The budget agreement extends 12-month eligibility to families participating in CalWORKs Stage 1 child care. CalWORKs Stage 1 child care is the only program within the state’s subsidized child care and development system that did not have this benefit.
Provides $245 million in one-time funds for child care facilities. The budget agreement creates a new infrastructure grant program. This program will provide grants to licensed child care and preschool providers in order to boost their capacity to serve more children. Funds will be used for the renovation, retrofitting, or expansion of facilities and are to be disbursed over a four-year period. The grant program will prioritize providers offering subsidized child care or preschool programs in areas with a higher level of unmet need. Finally, the existing Child Care Revolving Loan Program will be eliminated, with the remaining balance transferred to this new facilities grant program and the Inclusive Early Education Expansion Program.
Provides $195 million one-time General Fund for child care workforce development.The budget package creates a new Early Learning and Care Workforce Development Grants Program. Funds will be distributed over a four-year period to existing local quality improvement partnerships based on each county or region’s need for early learning and care professionals, the local cost of living, and the number of low-income families in the county or region. Funds are to be used for a variety of expenses, such as tuition, supplies, transportation, child care, and professional coaching.
Provides $20 million one-time General Fund for data systems.The spending plan includes $10 million to improve the existing data framework for the state’s subsidized child care and development system. The 2019-20 budget agreement also includes $10 million for data collection and implementation of child care organizing.
Provides $11.3 million to support the administration of subsidized programs. The 2019-20 budget package includes $11.3 million to boost administrative capacity. This includes $2.8 million ongoing for new staff positions at the California Department of Education, $2.2 million one-time funding for the establishment of an Early Childhood Policy Council to advise state leaders on how to expand and improve the state’s subsidized child care and development system, and $6.3 million one-time to augment activities funded by the federal Preschool Development Grant.
Provides $5 million one-time General Fund for a “Master Plan for Early Learning and Care.”As discussed earlier, the budget package authorizes the Secretary of Health and Human Services, Executive Director of the State Board of Education, and the Superintendent of Instruction to contract with one or more nongovernmental organizations to conduct research on five topics: 1) a fiscal framework to expand the state’s subsidized child care and development system 2) a needs assessment for early care and education facilities 3) a needs assessment for subsidized early care and education for low-income families 4) a plan to boost the quality of subsidized care, and 5) a plan to move towards universal prekindergarten for three- and four-year-olds. The final report or series of reports will be due by October 1, 2020.
While the 2019-20 budget agreement makes a large down payment on the future of the state’s subsidized child care and development system, the final budget package does not adopt the most recent Regional Market Rate Survey – which would boost rates for many child care providers. The spending plan also does not adopt legislative proposals to create a more coherent rate system or to boost rates for license-exempt providers, some of whom are paid less than the minimum wage.
Budget Includes Investment to Increase Access to Child Savings Accounts for our Youngest Californians
A Child Savings Account (CSA) is a long-term savings account established for children as early as birth that builds assets over time. CSAs are generally seeded with an initial deposit from a government agency or another sponsoring organization, then built with contributions from family, friends, or the child. Once the child reaches adulthood, the savings are typically used for higher education, though they can also support homeownership or other asset-building investments. As such, CSAs can help make college more affordable and accessible, especially to children from low-income families.
The budget includes a one-time investment of $50 million General Fund to initiate new CSA programs and expand existing programs. Of these funds, $25 million will create a new program in the State Treasury called the California Kids Investment and Development Savings Program with the purpose of increasing access to higher education. The other $25 million will go the Student Aid Commission to implement and administer the Child Savings Account Grant Program, which will support local governments and non-profit organizations in establishing or expanding local CSA programs.
Budget Package Promotes Additional Investments in Services and Supports for Seniors and People with Disabilities
The 2019-20 budget package takes continued steps to invest in California’s older adults and residents with disabilities following significant cuts to services for these populations during and after the Great Recession. Efforts this year focus on funding programs that provide quality housing options and support for low- and middle-income seniors and people with disabilities, as well as bolstering social safety net programs available to this population. Specifically, the revised budget:
Boosts support for programs that provide caregiver services to seniors and people with disabilities. The budget package continues to suspend – through December 31, 2021 – implementation of the 7% cut to In-Home Supportive Services service hours that was enacted during the Great Recession, which never fully took effect. This action was allocated $357.6 million General Fund in 2019-20. The budget also provides a rate increase of up to 8.2% for developmental services providers at a General Fund cost of $125 million in 2019-20 and $250 million in 2020-21. The rate increase will then be suspended on December 31, 2021, unless the Administration finds that the General Fund can accommodate for two additional fiscal years.
Continues to increase funding for programs targeted at helping seniors and people with disabilities stay in their homes and find housing. The Multipurpose Senior Services Program will receive $29.6 million ($14.8 General Fund) over the next three years to provide home and community-based services for seniors who are eligible for Medi-Cal. The budget also provides $25 million General Fund to the Housing Disability Advocacy Program, which helps individuals with disabilities who are experiencing homelessness to find housing and apply for disability benefits.
Reforms Medi-Cal’s eligibility rules to eliminate the “senior penalty.” This action removes the primary obstacle that prevents tens of thousands of low-income adults, age 65 or older, from accessing critical health care services through Medi-Cal at no cost, creating parity between older and younger adults. The budget package includes $63 million ($31.5 million General Fund) to raise Medi-Cal’s eligibility limit to 138% of the federal poverty line for people who are 65 years or older who participate in the Medi-Cal Aged, Blind, and Disabled program.
Provides an additional $17.5 million for the Senior Nutrition Program. This includes catered meals as well as the Meals on Wheels program. This funding will be suspended on December 31, 2021 unless the Department of Finance determines that projected General Fund revenues will reach a certain threshold.
Allocates funding to help ensure the proper care and safety of seniors who live in long-term care facilities. The budget agreement appropriates $4.2 million in 2019-20 and $5.2 million annually thereafter for the Long-Term Care Ombudsman Program, which investigates and resolves complaints regarding quality of care and abuse in long-term care facilities. The funding is specifically allocated for quarterly visits to skilled nursing facilities and residential care facilities for the elderly.
Misses an opportunity to boost income support for seniors and people with disabilities. The budget package lacks a state increase for Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants, which help well over 1 million low-income seniors and people with disabilities to pay for housing and other basic necessities. These grants are funded with both federal (SSI) and state (SSP) dollars. A decade ago, state policymakers began making deep cuts to the SSP portion of these grants to help close budget shortfalls. These cuts reduced SSP grants for both individuals and couples to the minimum levels allowed by federal law and eliminated annual state cost-of-living adjustments (COLAs). While the state provided a discretionary 2.76% COLA for the SSP portion of the grant in January 2017, there have been no further increases. With no state COLA scheduled for 2019-20, the state’s SSP portion will remain frozen at $160.72 for individuals and $407.14 for couples.
Budget Agreement Addresses Housing Affordability Through One-Time Funding, Tax Credits, and Regulatory Changes
More than half of California renter households pay more than 30% of their income toward rent, making them housing cost-burdened, and high housing costs are a key driver of California’s high poverty rate. The 2019-20 budget agreement adopts a multi-pronged state-level approach to address California’s housing affordability crisis, including one-time funding, an expansion of tax credits that finance affordable housing development, and regulatory changes. Total new expenditures related to housing funds and tax credits are unchanged from the proposal in the Governor’s May Revision, but some of the regulatory changes approved as part of the budget agreement are different from the May proposal.
The enacted budget provides $1 billion in new one-time grant and loan funding for housing development. Following the Governor’s May Revision proposal, the budget agreement allocates $500 million in one-time General Fund for the Infill Infrastructure Grants Program, to fund infrastructure needed to support development of higher-density and mixed-income housing in infill locations. The agreement also includes $500 million in one-time funds to be transferred to the California Housing Finance Agency (CalHFA) to finance low- and moderate-income housing, with $200 million available in 2019-20 and the remainder to be allocated over the following three fiscal years. The budget agreement also expands the allowed uses of some existing state housing funds. The budget removes the matching funds requirement for the Joe Serna, Jr. Farmworker Housing Grant Program and allows funds from the Local Housing Trust Fund Matching Grant Program to be allocated to Native American tribes and available for development or rehabilitation of Accessory Dwelling Units (ADUs). The budget also expands the allowed uses of funding available through the CalHOME program, which supports homeownership programs for lower-income households and which received $300 million from last year’s Proposition 1 housing bond. The budget agreement permits CalHOME funds to be used as well for development or rehabilitation of ADUs and to address housing needs of low- and moderate-income disaster victims.
The 2019-20 budget includes a significant expansion of the state’s Low Income Housing Tax Credit (LIHTC) program. These state tax credits support affordable housing development, pairing with federal housing tax credits to reduce housing developers’ project costs. The budget increases the state LIHTC program by $500 million in 2019-20 and up to $500 million ongoing, upon an annual appropriation by the Legislature, with the requirement that first “the California Tax Credit Allocation Committee has adopted regulatory reforms aimed at increasing production and containing costs.” Up to $200 million of these tax credits may be allocated for mixed-income housing projects that receive financing from the Mixed-Income Loan Program administered by CalHFA. The budget agreement also allows tax credits from the existing state LIHTC program to be used for deeper subsidies for housing undergoing substantial rehabilitation that serves households with very low incomes, to help preserve the existing stock of affordable housing. Other provisions in the budget agreement expand opportunities for affordable housing developers to use the option to “certificate” LIHTC credits (or resell the credits to third-party investors), which increases the value of the credits.
The budget agreement includes regulatory changes, funds for planning, and incentives and penalties to improve planning for housing and to incentivize local jurisdictions to accommodate housing. Related provisions include:
In January, the Governor proposed “revamping” the current system used by the state to set housing production goals for regions and local jurisdictions, the Regional Housing Needs Assessment (RHNA) process. The budget agreement includes the intent to do this, but maintains the extended timeline proposed in the May Revision, with recommendations for the new RHNA methodology and process required to be developed by December 31, 2022.
The enacted budget follows the Governor’s May Revision proposal in allocating $250 million one-time General Fund to support planning by local jurisdictions and regional entities to accommodate housing development and meet housing production goals. The budget agreement does not add school districts and county offices of education to the jurisdictions eligible for these planning funds, as proposed in the May Revision.
To hold local jurisdictions accountable for accommodating housing production, the Governor had proposed withholding transportation funds available through Senate Bill 1, the Road Repair and Accountability Act of 2017 (the “gas tax”) from jurisdictions that were not meeting goals for housing planning and production. The enacted budget does not adopt this proposal. Instead, the budget agreement establishes financial penalties for jurisdictions that fail to comply with requirements to plan to accommodate their designated fair share of housing. However, these penalties would only be applied after a judge found a jurisdiction out of compliance and the jurisdiction failed to correct the problem over the following 12 months. If the jurisdiction continued to refuse to comply, a judge could also appoint an agent to take actions needed to bring the jurisdiction into compliance. The budget agreement also includes the intent to reward local jurisdictions that proactively accommodate housing. Jurisdictions that are complying with required housing plans and demonstrate “prohousing” local policies would receive preference for specified competitive state housing and infrastructure programs.
The budget agreement also allocates $20 million one-time funding, as proposed in the Governor’s May Revision, for legal aid for renters to resolve landlord-tenant disputes. These funds will be distributed as grants to nonprofit legal aid organizations through the Judicial Branch’s Equal Access Fund.
In addition, the budget includes $8 million for housing for young adults, with priority for those who are former foster or probation youth, ongoing at least through December 31, 2021, and $5 million one-time for housing navigators to help young adults secure and maintain housing, with priority to current foster youth.
Budget Includes Significant Funding to Address Homelessness
California has nearly 25% of the nation’s population of homeless individuals, with an estimated 134,000 homeless residents as of January 2017. The enacted budget includes significant one-time funding as well as some ongoing funding to address the needs of individuals who are homeless or at risk of homelessness:
$650 million General Fund one-time funds for local jurisdictions to support homeless emergency aid. This funding total matches the Governor’s May Revision, but the allocation of these funds is slightly different from the May proposal, with $275 million for cities with a population of 300,000 or more, $175 million for counties, and $190 million for Continuums of Care (allocation of the remaining $10 million is not specified). Funds will be allocated based on the share of homeless individuals in each jurisdiction according to the 2019 homeless point-in-time count. Eligible uses for the funds are broad, including rental assistance, security deposits, and rapid re-housing; operations of shelters, navigation centers, and permanent supportive housing; outreach and service coordination; jobs programs; hotel/motel conversions; and new navigation centers and emergency shelters based on demonstrated need. At least 8% of funds must be used to serve homeless youth.
$100 million one-time General Fund, administered through the Department of Health Care Services, for the Whole Person Care Pilots Program, as well as $20 million one-time funding for counties that do not currently operate these programs to allow them to provide similar services. (The $20 million for counties without pilots is from the General Fund, not from the Mental Health Services Fund as proposed in the Governor’s May Revision.) These programs coordinate health, behavioral health, and social services, including housing, for targeted individuals, with priority for individuals with mental illness who are homeless or at risk of homelessness (see also the Health section).
$25 million General Fund for the Housing and Disability Advocacy Program (HDAP), which assists homeless individuals with physical or mental disabilities in applying for federal Supplemental Security Income (SSI) disability benefits by providing outreach, case management, benefits advocacy, and housing supports.
$40 million General Fund (including $25 million ongoing) to address basic needs, including homelessness and housing insecurity, among college students at the California State University and University of California, as proposed in the Governor’s May Revision (see also the CSU and UC section). The budget also allocates $9 million ongoing and $3.9 million one-time to address basic needs and housing insecurity among students at California’s community colleges (see also the CCC section).
$25 million one-time General Fund (available over three years) to address homelessness among families involved in the child welfare system, through the Bringing Families Home Program.
$14.7 million General Fund in 2019-20 and $27.6 million ongoing to increase flexibility in the CalWORKs Homeless Assistance Program, which provides up to 16 days of temporary homeless assistance. The budget agreement removes the requirement that families must use these days consecutively.
The budget agreement also includes a regulatory change to facilitate the development of homeless navigation centers. Local jurisdictions will be required to allow a streamlined “use by right” review process for proposals to develop new low barrier homeless navigation centers in nonresidential areas that allow multifamily housing and in areas zoned for mixed use. These navigation centers are defined as “a Housing First, low-barrier, service-enriched shelter focused on moving people into permanent housing that provides temporary living facilities while case managers connect individuals experiencing homelessness to income, public benefits, health services, shelter, and housing.” This requirement will remain in place until January 1, 2027.
Budget Package Includes Full-Scope Medi-Cal for Young Adults, but Misses Key Opportunities to Support State’s Immigrant Residents
California has the largest share of immigrant residents of any state, and half of all California workers are immigrants or children of immigrants. The 2019-20 budget agreement makes important strides to support immigrant communities. Specifically, the budget:
Provides a total of $98 million to extend full-scope Medi-Cal to 19 to 25-year-olds regardless of immigration status. Implementation begins January 1, 2020 and will cover an estimated 90,000 undocumented young adults in the first year.
Includes roughly $25 million one-time General Fund appropriation for the Rapid Response Program. The Department of Social Services will administer this program, which will provide contracts or grants to nonprofit and community-based service providers responding to immigration-related emergencies.
Allocates $5 million for two pilot projects. The funding will provide mental health services to immigrants and asylum seekers facing legal proceedings and will develop a family reunification navigator to connect undocumented minors and their families with services in the community.
Creates the Cal Grant B Service Incentive Grant Program. The spending plan provides $9 million General Fund to offer up to 2,500 awards to undocumented students. The grant will provide up to $1,500 per semester or $1,000 per quarter.
Extends eligibility for Competitive Cal Grant awards to undocumented students. Competitive Cal Grants support students who attend college more than a year after high school graduation and meet certain income and GPA requirements.
Despite important advances in access to health, legal services, and higher education, there were critical missed opportunities on behalf of California’s immigrant residents. Proposals to expand Medi-Cal to seniors as well as to all adults regardless of age were not included. Additionally, as mentioned in the CalEITC section, while significant expansions were made, immigrant workers who file taxes with an Individual Taxpayer Identification Number (ITIN) were excluded from receiving this credit. These choices leave many immigrant families more vulnerable to economic hardship.
New State Premium Subsidies Created and Medi-Cal Coverage and Benefits Expanded
Building on the federal Affordable Care Act (ACA), California has substantially expanded access to health coverage in recent years. For example, more than 13 million Californians with modest incomes receive free or low-cost health care through Medi-Cal (California’s Medicaid program) — several million more than before the ACA took effect. Another 1.1 million Californians with incomes up to 400% of the federal poverty line — $48,560 for an individual in 2019 — receive federal premium subsidies to reduce the cost of coverage purchased through Covered California, our state’s health insurance marketplace. Despite these gains, around 3 million Californians remain uninsured, health care costs continue to rise, and many people face both high monthly premiums and excessive out-of-pocket costs — such as copays and deductibles — when they use health care services.
In order to increase the number of Californians with health care coverage and help make that coverage more affordable, the 2019-20 budget package:
Creates state subsidies to reduce the cost of health insurance purchased on the individual market. The budget provides $428.6 million General Fund to support “premium assistance subsidies” during the 2020 coverage year for certain households that buy health insurance through Covered California. Of this total funding, about 83% will be used to provide subsidies to two groups of households: 1) those with incomes at or below 138% of the federal poverty line or 2) those with incomes between 400% and 600% of the poverty line. The remaining roughly 17% of the initial funding will go to households with incomes between 200% and 400% of the federal poverty line. Some of the revenue to pay for these subsidies will come from a new state penalty on Californians who do not obtain comprehensive health coverage (see next bullet). These subsidies will remain in effect for three years — coverage years 2020 to 2022 — and the level of funding provided for them will be determined through each year’s state budget process.
Establishes a state requirement for Californians to carry health insurance or pay a penalty. The ACA included an “individual mandate” to encourage young and healthy people to buy health insurance. The goal was to create healthier “risk pools” and keep premiums lower than they otherwise would be if only older and sicker people signed up for coverage. With limited exceptions, people who failed to comply with this requirement had to pay a penalty to the federal government. However, Congress and President Trump eliminated the individual mandate penalty as of January 1, 2019. The budget agreement creates an individual mandate at the state level, effective January 1, 2020. Californians, with some exceptions, will be required to obtain comprehensive health care coverage or pay an “Individual Shared Responsibility Penalty.” Revenues from this penalty will be deposited into the state’s General Fund.
Expands eligibility for comprehensive Medi-Cal coverage to undocumented adults, ages 19 through 25, who otherwise meet the program’s requirements. States are prohibited from using federal dollars to provide full-scope Medicaid coverage to undocumented immigrants. States, however, may use their own funds to provide such coverage. In 2016, California expanded full-scope Medi-Cal coverage to undocumented children and youth through age 18 who meet all other eligibility requirements, including income limits. The budget agreement extends this policy to undocumented Californians who are ages 19 through 25, effective no sooner than July 1, 2019.
Reforms Medi-Cal’s eligibility rules to eliminate the “senior penalty.” This action removes the primary obstacle that prevents tens of thousands of low-income adults, age 65 or older, from accessing critical health care services through Medi-Cal at no cost, creating parity between older and younger adults. Specifically, the budget package includes $124.9 million ($62.4 million General Fund) to raise Medi-Cal’s eligibility limit to 138% of the federal poverty line for people who are 65 years or older who participate in the Aged and Disabled program.
Extends, from 60 days to one year, the duration of Medi-Cal eligibility for postpartum care for women who are diagnosed with a mental health condition. A maternal mental health condition occurs during pregnancy or after giving birth and includes, but is not limited to, postpartum depression. However, this expansion will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
Includes funding to support Medi-Cal outreach and enrollment. The budget provides $29.8 million ($14.9 million General Fund) to the state Department of Health Care Services to help boost awareness of Medi-Cal and encourage eligible Californians to sign up for the program.
In addition, the 2019-20 budget agreement:
Restores several optional Medi-Cal benefits that were eliminated during the last economic downturn. The budget agreement restores audiology, speech therapy, and podiatric services as well as incontinence creams and washes as covered Medi-Cal benefits, effective no sooner than January 1, 2020. Optometric and optician services will also be restored on or after that same date — a change was adopted a couple of years ago. The budget package provides $17.4 million General Fund in 2019-20 and assumes ongoing annual costs of $40.5 million to restore these benefits. However, these optional benefits will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
Recasts the “Council on Health Care Delivery Systems” as the “Healthy California for All Commission” and enlarges the commission’s charge to include a focus on single-payer financing. Created in 2018, the Council on Health Care Delivery Systems was charged with developing, by October 2021, a plan for reforming the health care system, including outlining “steps necessary to achieve a unified financing system.” This council is now called the Healthy California for All Commission, and its charge encompasses consideration of how California can move toward adopting “a single-payer financing system.” Moreover, the commission’s membership has been increased from five to 13: eight appointed by the Governor, two appointed by Senate Rules Committee, two appointed by the Speaker of the Assembly, and the secretary of the California Health and Human Services Agency (who is a gubernatorial appointee). The commission is required to produce two reports, with the first due by July 1, 2020 and the second by February 1, 2021.
Allocates $885.8 million in Proposition 56 revenues for a broad range of payment and rate increases for Medi-Cal providers. Approved by California voters in 2016, Prop. 56 raised the state’s excise tax on cigarettes by $2 per pack and triggered an equivalent increase in the state excise tax on other tobacco products. These increases took effect on April 1, 2017. Prop. 56 requires most of the revenues raised by the measure to go to Medi-Cal. The payment and rate increases provided by the 2019-20 budget package will go to a broad range of health providers, including doctors, dentists, facilities that provide services to people with developmental disabilities, women’s health and HIV/AIDS providers, and certain pediatric day health care facilities. In addition, these Prop. 56 dollars will fund “developmental screenings for children, trauma screenings for children and adults, provider training for trauma screenings, and family planning services provided through Medi-Cal.” These investments will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
Provides $250 million in Prop. 56 funds to develop value-based payment (VBP) strategies — financial incentives for health care providers — in order to help improve the quality and efficiency of Medi-Cal managed care. The Department of Health Care services is charged with developing VBP programs that aim to improve 1) behavioral health integration, 2) prenatal and postpartum care, 3) chronic disease management, and 4) quality of care and outcomes for children. The $250 million allocated for this purpose will be available through June 2022, with $70 million of this amount dedicated to behavioral health integration. However, these incentive payments will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
Expresses the Legislature’s intent to enact a managed care organization (MCO) provider tax. Governor Newsom and state legislators were at odds this year over whether to seek an extension of California’s tax on health insurance plans — or MCOs — which took effect in 2016 and ultimately expired on July 1. The Governor advocated for letting this tax expire, whereas key lawmakers in the Assembly and Senate wanted to extend it. While it was in effect, the MCO tax generated a net General Fund benefit of well over $1 billion per year, with these freed-up dollars used to boost state support for public systems and services, including health care programs. In the end, the Governor agreed to seek federal approval of an updated MCO tax. However, because the MCO tax is no longer in effect, the 2019-20 budget package does not assume any revenues from it.
Establishes the Office of the Surgeon General within the California Health and Human Services Agency. In January, the Governor issued an executive order creating a state-level position of Surgeon General and named Dr. Nadine Burke Harris as the first person to serve in this role. The budget agreement establishes this position – and its related office – in law and requires that “the appointment of the Surgeon General shall be subject to confirmation by the Senate” effective July 1, 2019.
2019-20 Budget Aims to Increase Access to Behavioral Health Services and Improve Behavioral Health Outcomes
Behavioral health services in the state are primarily provided by counties’ mental health systems, with funding from the state and federal government. These systems confront many challenges, such as shortages of mental health providers and rising homelessness—a substantial share of homeless individuals experiences mental health conditions and/or substance use disorders. The 2019-20 budget includes funding to address these challenges and improve health outcomes. Specifically, the budget:
Includes $110 million for mental health workforce programs. Of this amount, $35 million one-time General Fund and $25 million one-time Mental Health Services Fund will go towards the 2020-25 Workforce Education and Training Five-Year Plan. This program aims to address the shortage of mental health practitioners in the public mental health system. In addition, the budget includes $50 million one-time General Fund to support mental health workforce development programs, including $2.65 million for scholarships to primary care doctors to enroll in the University of California Primary Care Psychiatric Fellowship and $1 million for grants to mental health professionals formerly in the foster care system.
Includes funding to hire behavioral health counselors in acute care hospitals. Specifically, $20 million one-time General Fund will be allocated to the State Department of Health Care Services to support the hiring of trained behavioral health counselors in emergency departments of acute care hospitals to screen patients and offer referral to mental health or substance use disorder programs.
Increases funding to improve mental health outcomes for students. Specifically, the budget includes $50 million one-time Mental Health Services Fund in 2019-20 and $10 million thereafter to encourage collaboration between county mental health or behavioral health departments and K-12 schools. The funds will be awarded through a competitive grant program to facilitate access to mental health services. The budget also includes $7 million one-time increase in Proposition 63 funds to create a grant program for colleges, in collaboration with county behavioral health departments, to establish or improve access to mental health services and early identification or intervention programs. For more information about student mental health services, please see the higher education section.
Allocates funding for early psychosis research and treatment. Specifically, the budget includes $20 million one-time Mental Health Services Fund for projects that demonstrate innovative approaches to intervene when a young person has experienced a first episode of psychosis. Early treatment of psychosis increases the chance of a successful recovery.
Includes $100 million one-time General Fund for Whole Person Care Pilot Programs. These programs, which are administered through the Department of Health Care Services, coordinate health, behavioral health, and social services for individuals, with priority to individuals with mental illness who are homeless or at risk of homelessness. The budget also includes a one-time augmentation of $20 million General Fund for counties that do not currently operate Whole Person Care Pilot Programs to allow additional counties to provide similar services.
Budget Package Invests in Health Care Workforce Development
Policymakers have become more and more aware of the growing shortage in California’s health care providers, which is partially due to the expansion of Medi-Cal and the state’s rapidly aging and increasingly diverse population. Within the next 10 years it is estimated that the state will lack 4,100 primary care clinicians, 600,000 home care workers, and will only have two-thirds of the psychiatrists needed, according the California Future Health Workforce Commission. To address the rising demand, the 2019-20 budget agreement provides:
$120 million in Proposition 56 funds to continue the Medi-Cal Physicians and Dentists Loan Repayment Act Program. Physicians and dentists may apply for loan repayment assistance up to $300,000 if they agree to maintain a patient caseload consisting of at least 30% Medi-Cal beneficiaries for five years.
$60 million ($25 million Mental Health Services Fund and $35 million General Fund) for the 2020-2025 Workforce Education and Training Programs, which aim to address the shortage of mental health practitioners in the public mental health system. Regional Partnerships who receive the funds are required to provide a 33% local match.
$50 million General Fund to increase support for mental health workforce programs to be administered by the Office of Statewide Health Planning and Development. This includes $2.65 million for a Primary Care Clinician Psychiatry Fellowship Program and $1 million specifically for mental health professionals previously in the foster care system.
$1.3 million from the General Fund to supplement the $38.7 million Proposition 56 revenue previously allocated to develop residency programs at hospitals throughout the state. This brings the total for these efforts to $40 million. The funds will be administered and operated by the University of California in partnership with Physicians for a Healthy California.
Funding Increased for Home Visiting and Black Infant Health Programs
In the 2019-20 budget agreement, the state invests a total of $65.3 million to support infant and maternal well-being. Currently, the California Department of Public Health (CDPH) receives federal funding to administer home visiting programs for pregnant and newly parenting families who are at risk for adverse childhood experiences. The enacted budget allocates $45.9 million to CDPH to expand home visiting outside of CalWORKs, which represents the state’s first financial investment in home visiting for non-CalWORKs families. State policymakers have also invested $19.4 million to support the Black Infant Health program, which aims to improve black infant and maternal health through group support services and case management. Of that amount, $13 million may also support the California Perinatal Equity Initiative’s work to address racial disparities in infant mortality.
Funding Boosted for the California State Preschool Program and Full-Day Kindergarten
State policymakers have taken steps in recent years to expand access to full-day early learning opportunities for young children. The 2019-20 budget agreement continues this trend. Specifically, the budget package:
Provides $300 million one-time General Fund for the Full-Day Kindergarten Facilities Grant Program. The $300 million is to be used over a three-year period, but grants administered during the first two years will be restricted to public schools that are transitioning from part-day to full-day kindergarten programs. Priority will be given to school districts with either a large number of students eligible for free or reduced-price meals or districts that are experiencing “financial hardship.”
Provides $31.4 million General Fund to increase the number of full-day slots in the California State Preschool Program (CSPP). The budget agreement adds 10,000 full-day preschool slots, effective April 1, 2020, for providers that are not Local Education Agencies (LEA).
Shifts $309.3 million in Proposition 98 General Fund for the CSPP to the non-Prop. 98 General Fund. Recent expansion of the CSPP has been directed to LEAs, but many LEAs have been unable to serve more children in the program. Shifting funds out of the Prop. 98 General Fund will free up funding for non-profit providers that have the capacity to serve additional children.
Expands eligibility requirements to increase access to the CSPP. The CSPP offers both part-day and full-day programming. The part-day programs operate for a few hours during the day and roughly nine months of the year. Full-day CSPP programs offer “wraparound” services that provide subsidized child care for the remainder of the day and throughout the entire year. Eligibility for the part-day program is based on family income. To be eligible for the full-day program, families must also demonstrate that they are working or attending school. To increase access to a full-day, full-year program, the budget package eliminates the parental work and school requirement for wraparound child care services. However, priority for the full-day CSPP will still be given to families with the lowest incomes and to families with parents who are working or in school. For providers operating within a school district where 80% or more of students qualify for free or reduced-price meals, children living in that district that would otherwise not be eligible may enroll after all other eligible children have been enrolled. This is effective January 1, 2020.
Provides $5 million one-time General Fund for a “Master Plan for Early Learning and Care.” As discussed earlier, the budget package authorizes the Secretary of Health and Human Services, Executive Director of the State Board of Education, and the Superintendent of Instruction to contract with one or more nongovernmental organizations to conduct research on five topics: 1) a fiscal framework to expand the state’s subsidized child care and development system; 2) a needs assessment for early care and education facilities; 3) a needs assessment for subsidized early care and education for low-income families; 4) a plan to boost the quality of subsidized care; and 5) a plan to move towards universal prekindergarten for three- and four-year-olds. The final report or series of reports will be due by October 1, 2020.
Increased Revenues Boost the Minimum Funding Level for Schools and Community Colleges, Budget Package Includes First-Ever K-14 Education Rainy Day Fund Deposit
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. State General Fund revenues can affect the Proposition 98 guarantee and estimates of 2019-20 revenues in the budget agreement reflect the Legislature’s decision to conform to several federal tax law provisions, which as discussed earlier will provide a net increase to the state General Fund after funding an expansion of the California Earned Income Tax Credit (CalEITC). Overall, the 2019-20 budget package assumes a Prop. 98 funding level of $81.1 billion in 2019-20, $78.1 billion in 2018-19, and $75.6 billion in 2017-18, the same levels assumed in the Governor’s May Revision. The budget agreement projects that a deposit of $377 million into the Public School System Stabilization Account (PSSSA) will be required in 2019-20, which would be the first made into this state budget reserve for K-12 schools and community colleges. The budget package changes the process for finalizing prior-year Prop. 98 spending by eliminating the cost allocation schedule established by the 2018-19 budget agreement. As a result, when the final Prop. 98 guarantee ends up lower than estimated the state would not be able to adjust the Prop. 98 funding level downward, but in years when the final Prop. 98 guarantee ends up higher than estimated the state would be required to adjust the Prop. 98 funding level higher to meet the constitutional funding requirement. The overall effect of these changes means the risk associated with the uncertainty in the annual Prop. 98 guarantee will shift from K-12 school and community college districts to the state.
The largest share of Prop. 98 funding goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to approximately 6.2 million students in grades kindergarten through 12. The 2019-20 budget agreement increases funding for the state’s K-12 education funding formula – the Local Control Funding Formula (LCFF), to support special education services, and to reduce school districts’ spending obligations for retirement costs (see above). Specifically, the budget agreement:
Increases LCFF funding by $2.0 billion. The LCFF provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. The increase in LCFF funding reflects a 3.26% cost-of-living adjustment (COLA) and results in $63 billion in total LCFF funding. The budget package caps increases to the LCFF related to continuous appropriation of LCFF COLA that will reduce the financial risk to the state budget if the COLA for LCFF and other programs exceed growth in the annual Prop. 98 minimum funding guarantee.
Boosts special education funding by $645 million. The budget agreement rejected the Governor’s proposal to allocate a proposed $696.2 million increase in special education funding to school districts with large shares of disadvantaged students, such as those with disabilities. Instead, the budget agreement provides $492.7 million for a new special education early intervention preschool grant and $152.6 million to increase funding for special education local plan areas (SELPAs). The new preschool grant will be allocated to school districts based on the number of children ages 3 through 5 that receive special education services, excluding students enrolled in kindergarten or transitional kindergarten. The budget package makes ongoing funding for the early intervention preschool grant and the increase in support for SELPAs contingent upon changes to state law that are designed to improve the academic outcomes of students with disabilities.
Provides $141 million to fund COLAs for non-LCFF programs. The budget agreement includes a 3.26% COLA for several categorical programs that remain outside of the LCFF, such as special education, child nutrition, and American Indian Education Centers.
Provides $38.1 million in one-time funding to establish the Educator Workforce Investment Grant Program. The budget agreement directs the California Department of Education and the California Collaborative for Educational Excellence to establish a process for awarding grants to institutes for higher education or nonprofit organizations with expertise in providing professional learning for K-12 educators. The budget agreement provides funding for the grant program through 2022-23 and allocates $22.1 million for professional learning for educators in several areas including social-emotional learning, $10 million for professional learning activities designed to implement the California English Learner Roadmap, $5 million for special education-related professional development, and $1 million for administrative costs.
The budget agreement also includes provisions that prohibit charter schools from discouraging enrollment based on student characteristics, such as special education status, or requiring submission of a student’s academic records prior to enrollment.
Budget Agreement Increases Funding for Community Colleges
A portion of Proposition 98 funding provides support for California’s community colleges (CCCs), which help prepare over 2 million students to transfer to four-year institutions as well as obtain training and employment skills. The budget agreement increases funding for the community colleges and makes minor adjustments to the Promise Program and funding formula plans. Specifically, the budget:
Expands the Promise Program. The budget agreement includes $42.6 million for the California College Promise Program—the amount needed to support a second year of tuition-free college for first-time, full-time students.
Maintains a commitment to the Student Centered Funding Formula and extends the hold harmless provision. The 2018-19 budget created a new funding formula for CCC general-purpose apportionments. The Governor remains committed to the goals of the new formula and will work with the Chancellor’s Office and stakeholders to continue to explore revisions that further the goals of the formula. The budget makes minor adjustments to the formula, including extending the hold harmless provision by an additional year — ensuring that no district will receive less funding than they did in 2017-18 with cost-of-living adjustments every year until 2021-22.
Provides $13.5 million for deferred maintenance, instructional materials, and other activities.
Provides increased funding for students’ basic needs. The budget allocates an increase of $9 million ongoing General Fund for rapid rehousing and $3.9 million one-time funding for students basic needs.
Provides $7 million one-time funding for students’ mental health services.
Provides $4.8 million to support the improvement of workforce development programs at community colleges in Modesto, Bakersfield, Fresno, San Bernardino, and Norco.
Spending Plan Increases Funding for CSU and UC, Includes Additional Support for Nontraditional Students
The budget package significantly boosts funding for the California State University (CSU) and the University of California (UC). The budget agreement also provides support for undocumented students, food and housing insecure students, and formerly incarcerated students.
At the CSU, the spending plan:
Increases CSU ongoing funding by $361.4 million.
Provides $85 million for enrollment growth. The budget allocates $85 million to support the enrollment of an additional 10,000 full-time equivalent California resident undergraduate students in 2019–20 above the 2018–19 levels.
Provides $75 million for the Graduation Initiative, which seeks to improve graduation rates and eliminate opportunity and achievement gaps. Of this funding, $30 million is provided on a one-time basis and $45 million is ongoing.
Provides increased funding for students’ basic needs. The budget provides $15 million one-time funding for the Basic Needs Initiative and $6.5 million ongoing General Fund to support rapid rehousing for homeless and housing insecure students.
Provides $3 million one-time to support student mental health services.
Allocates $3.3 million for Project Rebound, which supports formerly incarcerated individuals. As a condition of receiving these funds, the budget requires CSU to report annually on the use of funds, program enrollment, and student outcomes.
Allocates $3 million to establish a Center to Close Achievement Gaps. The center will be located at one CSU campus and will provide resources and assistance to local educational agencies in order to eliminate gaps in academic achievement between K-12 students.
Provides $740,000 one-time General Fund for the First Star Foster Youth program at CSU Sacramento. First Star programs support foster youth with academic and life skills needed to successfully transition to higher education.
At the UC, the budget:
Increases ongoing UC funding by $248.8 million.
Provides $49.9 million for enrollment growth. The budget allocates $50 million to support the enrollment of an additional 4,860 California resident undergraduate students by 2020–21 above 2018–19 levels. Provides $10 million ongoing General Fund for the enrollment of 1,000 additional resident undergraduate students previously supported by one-time funds.
Provides increased funding for students’ basic needs. The spending plan allocates $15 million ongoing funding to address food and housing insecurity and provides an additional $3.5 million ongoing General Fund to support rapid rehousing for homeless and housing insecure students.
Dedicates $15 million one-time funding to develop or expand degree and certificate completion at UC extension centers.
Provides $5.3 million ongoing to increase student mental health resources.
Makes a one-time $250,000 allocation for Underground Scholars, which supports formerly incarcerated individuals at UC Berkeley.
Budget Package Provides Summer Financial Aid, Increases Cal Grants, and Extends Support to Undocumented Students and Student Parents
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 spending plan funds summer financial aid, increases Cal Grant support for nontraditional students, students with dependent children, and undocumented students. Specifically, the budget:
Increases Cal Grant awards for students with dependent children. The spending plan allocates $96.7 million ongoing General Fund to provide an access award for UC, CSU, and CCC students with dependent children. The access award provides $6,000 for current Cal Grant A and B student parents and $4,000 for current Cal Grant C student parents.
Increases the number of Competitive Cal Grant awards. Competitive Cal Grants support students who attend college more than a year after high school graduation and meet certain income and GPA requirements. The spending plan expands the number of available grants to 41,000. While this is a step up from the current level of 25,750, it still leaves nearly 300,000 eligible students without aid.
Extends eligibility for Competitive Cal Grant awards to undocumented students. The budget agreement repeals limitations that effectively barred undocumented students from receiving Competitive Cal Grants. Undocumented students will now be able to compete equally for the limited number of awards offered with their peers.
Creates the Cal Grant B Service Incentive Grant Program to support undocumented students. The budget agreement provides $9 million in General Fund to offer no more than 2,500 awards to undocumented students who receive a Cal Grant B award. The grant will provide up to $1,500 per semester or $1,000 per quarter.
Provides summer-term financial aid for UC and CSU students. The budget allocates $4 million to UC and $6 million to CSU to provide “summer-term financial aid” to eligible low-income California resident students, including undocumented students. Notably, no aid is allocated for students at California Community Colleges and private institutions and funding is conditionally suspended in two years.
Creates the Golden State Teacher Grant Program. The budget agreement rejects the Governor’s proposal to create a loan forgiveness program and instead allocates $89.8 million dollars in one-time funding to the California Student Aid Commission to administer a grant program. The funding will provide up to 4,487 grants of $20,000 for teachers committed to teach 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.”
Revises timeline to meet Associate Degree for Transfers (ADT) goals. 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. The budget provides an additional year for institutions to increase the number of ADTs provided. Under the revised schedule, institutions will need to admit 2,000 ADT students in 2019-20, 3,000 students in 2020-21, and 3,500 students in 2021-22 and subsequent years.
Does not include funding to address the total cost of attendance — which includes food and housing. For many students, living expenses far exceed tuition and are the least supported by aid. Efforts to reform the state’s financial aid system to focus on these non-tuition costs have been a focus of the legislature and advocates, but remain unfunded in the budget agreement.
Budget Agreement Lays Foundation for a Cradle-to-Career Educational Data System
The 2019-20 spending plan provides $10 million in one-time General Fund for the initial development of a statewide longitudinal “cradle-to-career” data system. This includes convening a workgroup with representatives from a variety of agencies and organizations, including health and human services, public and private higher education, and workforce development. This workgroup is tasked with developing two reports. The first will provide recommendations on the structure of the new data system and the second will provide recommendations on developing and administering the data system. These reports will be due to the Department of Finance and the Legislature on July 1, 2020 and January 1, 2021, respectively.Back to Top
Criminal and Juvenile Justice
Budget Package Boosts Pay for State Correctional Officers, Creates a Panel to Recommend Changes to the State Penal Code
The budget agreement ratifies a one-year contract with the state correctional officers union. Among other things, this contract boosts pay for night and weekend shifts during 2019-20 and provides a 3% general salary increase effective July 1, 2020. (Correctional officers received a 5% pay raise on July 1, 2019, per the terms of the 2018-19 contract.) The new contract is projected to increase state costs for rank-and-file correctional officers by as much as $112 million in 2019-20 and by $195 million annually starting in 2021-22, according to the Administration. In a recent analysis, the Legislative Analyst’s Office found “no evidence to justify [the] pay increase” and noted that employee compensation is a “major…driver” of state corrections spending, which has continued to rise even as the number of adults incarcerated by the state has declined due to several criminal justice reforms.
The budget package also creates a new committee to examine and recommend changes to the state Penal Code. Recommendations will focus on simplifying and rationalizing criminal law and procedures, outlining alternatives to incarceration, and improving parole and probation. In addition, the committee “may recommend adjustments to the length of prison terms.” There is no timeline for the committee to deliver a complete set of recommendations. However, the committee is required to prepare an annual report that describes the work it has finished as well as any work it plans to do. The committee will be housed within the California Law Revision Commission and will consist of seven members: five appointed by the Governor plus one member of the state Senate and one member of the Assembly.
The 2019-20 budget agreement also reflects the fact that California recently ended – after 13 years – its use of out-of-state facilities to house state prisoners. California began transferring prisoners to facilities in other states in 2006 to help address severe overcrowding in state prisons. Since peaking at over 10,000 in the early 2010s, the number of California prisoners housed in other states gradually declined as criminal justice reforms were enacted and the state pursued a policy of ending the use of out-of-state facilities.
In addition, the 2019-20 budget agreement provides:
$71.3 million for an integrated substance use disorder treatment program in state prisons. The Governor proposed this new initiative as part of his May Revision with the goal of combatting “alcohol and opioid addiction-related issues” among incarcerated adults. This new program consists of 1) the use of medication-assisted treatment; 2) a redesigned curriculum for cognitive behavioral treatment; and 3) the development of treatment plans and appropriate pre-release transition planning for program participants.
$33 million to help formerly incarcerated adults transition back to their communities. The Board of State and Community Corrections (BSCC) will distribute these funds through a competitive grant process to community-based organizations (CBOs) to support people who have been released from prison. Of the total funding, $16.5 million is available for rental assistance and the remaining $16.5 million is set aside “to support the warm hand-off and reentry” of people transitioning out of prison.
$30 million for the California Violence Intervention and Prevention (CalVIP) Grant Program. The BSCC will distribute most of these funds ($29 million) through a competitive grant process to cities or CBOs, with $3 million set aside for cities with populations of 40,000 or less. The remaining $1 million (out of the total $30 million) is designated for the city of Los Angeles.
$8.8 million to establish two 60-bed reentry facilities for women in Los Angeles and Riverside and to expand a male reentry facility in Los Angeles County by 10 beds.
$5.5 million to help improve literacy rates among adults incarcerated in state prison. This effort will include remedial reading programs, literacy coaches, and English-as-a-second-language courses.
$5 million for a new California Reentry and Enrichment (CARE) Grant Program. Grants will go to CBOs that provide rehabilitative services to adults incarcerated at the state level. Grants will be awarded by a committee to be established by the California Department of Corrections and Rehabilitation.
Budget Agreement Shifts Responsibility for Justice-Involved Youth to Health and Human Services Agency, and Increases Funding for Youth Programming
Currently, California houses more than 700 justice-involved youth at the state level. The Division of Juvenile Justice (DJJ) within the California Department of Corrections and Rehabilitation (CDCR) is in charge of this select group. The budget package includes the Governor’s proposal to abolish the DJJ and shifts responsibility to a new “Department of Youth and Community Restoration” under the California Health and Human Services Agency (CHHS), effective July 1, 2020. The Administration suggests that this shift will help “distinguish between adult corrections and juvenile strategies”. This will better enable the state to provide these youth with “trauma-informed and developmentally appropriate services in order to support a youth’s return to their community, preventing them from entering the adult system, and further enhancing public safety.”
In addition, the budget agreement provides funding to prevent initial contact or recidivism of justice-involved youth into the criminal justice system, including:
$8 million to fund programming for therapeutic communities. This funding will “support community building strategies and create therapeutic environments” within youth facilities according to an email from the California Department of Corrections and Rehabilitation. It appears that this approach will rely on the tenets of the Missouri Model as well as other models that focus on addressing youths’ needs in smaller group settings, which presumably would be created within the state’s existing congregate facilities for justice-involved youth.
$10 million for the Tribal Youth Diversion grant program. These funds will be distributed by the Board of State and Community Corrections (BSCC) to support diversion programs for Tribal youth who disproportionately experience high rates of juvenile arrests, suicide, alcohol and substance abuse, and low high school graduation rates.
$5 million for the Youth Reinvestment Grant Program. This program distributes grants to cities and counties to fund educational, mentoring, and behavioral health services for “underserved communities with high rates of juvenile arrests.”
Budget Package Increases Funding for 2020 Census Outreach
The 2020 Census is critical to California’s future. Census data determine the distribution of federal funds to local communities and the number of seats allocated in the U.S. House of Representatives for the state. California currently faces significant challenges to ensure an accurate count because of the state’s high “hard-to-count” population, such as foreign-born residents, renters, young children, and homeless individuals. In addition, certain actions by the US Census Bureau and the Trump Administration could potentially depress response rates in California. The Census Bureau plans to administer the 2020 survey with an internet-based approach and the agency reduced the number of local census offices and field workers. This is coupled with the anticipation that the Trump Administration would add a citizenship question to the Census, which could lead to a further undercount of the state’s population. However, on June 27, 2019, the US Supreme Court blocked the citizenship question from being added to the survey and returned the case to a lower federal court. On July 11th, 2019, the Trump Administration announced that it will be stepping back from including the question and is seeking to obtain citizenship data through other measures.
Nevertheless, the 2019-20 budget package appropriates an additional $87.9 million General Fund to increase participation rates for the 2020 Census. This brings the total support for this effort to $188.2 million. Within the allocated amount, $28 million is for specific outreach efforts, including language access resources, efforts by local governments and community-based organizations, and other related costs. An additional $2 million is for local education agency-based Census outreach strategies.
Budget Agreement Includes New Investments in Disaster Preparedness, Response, and Recovery
The budget package incorporates many of the Administration’s requests for funding to improve the state’s ability to prepare for, respond to, and recover from disasters like wildfires and earthquakes. Significant investments for the Office of Emergency Services include:
$75 million to help the state and local communities prepare for and respond to utility-lead public safety power shutdowns.
$50 million to be transferred into the State Emergency Telephone Number Account for upgrades to the state’s 9-1-1 system.
$29.9 million augmentation to California Disaster Assistance Act funding to repair, restore, and replace public property damaged or destroyed by a disaster and reimburse local government costs.
$25 million to support regional response and readiness, including the prepositioning of state and local fire and rescue resources to respond to disasters.
$20 million in one-time funds available through 2021-22 to assist state agencies that are “mission tasked” with responding to declared disasters.
$16.3 million to complete the Early Earthquake Warning System.
As part of the budget agreement, the legislature also approved the Governor’s proposal to restructure the state’s 9-1-1 fees to support the ongoing operations of the 9-1-1 system, including planning for and implementing new technology and services. The agreement replaces the existing fee structure with a monthly surcharge of up to $0.80 per line as well as a charge on prepaid mobile phones.
The budget agreement also provides $240.3 million for the Department of Forestry and Fire Protection (CAL FIRE) to enhance fire protection and prevention. This includes $127.2 million to enhance aviation resources, $67.5 million to expand surge firefighting capacity, $24.7 million to improve fire detection technology, $14.3 million to increase fire prevention and $6.6 million to support emergency responders. Consistent with wildfire legislation enacted in the fall of 2018, the budget includes $200 million from the Greenhouse Gas Reduction Fund for CAL FIRE forest management and prescribed burns and fuel reduction activities.
The budget deal also includes $10 million in one-time funds to assist communities affected by the 2018 Camp Fire in Butte County and $15 million for additional relief to local agencies affected by wildfires.
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