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Download the PDF version of this Issue Brief.

Also, watch our video on Proposition 6.

Proposition 6, which will appear on the November 6, 2018 statewide ballot, would eliminate taxes and fees that California enacted in 2017 to fund transportation infrastructure and also would amend the state Constitution to require voter approval of any future fuel and vehicle-related tax and fee increases. Eliminating the new revenues enacted in 2017 would result in the loss of $5.1 billion annually for transportation infrastructure. Requiring voters to approve increases in fuel and vehicle-related taxes and fees would make it more difficult to fund transportation improvements. Moreover, any future increases in transportation funding could come at the expense of other vital public systems and supports, such as education, public safety, and health and human services. Prop. 6 qualified for the ballot with key support from members of California’s Republican congressional delegation; Republican gubernatorial candidate John Cox; and Carl DeMaio, chairman of Reform California. This Issue Brief provides an overview of the measure, discusses what it would mean for transportation and other public services, and examines other policy issues the measure raises in order to help voters reach an informed decision.

What Would Proposition 6 Do?

Prop. 6 would 1) eliminate transportation funding approved by the Legislature and Governor Brown as part of the Road Repair and Accountability Act of 2017 (also known as Senate Bill 1, or SB 1) and 2) amend the California Constitution to require the Legislature to submit any measure enacting taxes or fees on gas or diesel fuel, or related to the operation of a vehicle on public highways, to voters for approval.[1] Specifically, Prop. 6 would:

Eliminate recently enacted funding for roads, highways, and public transportation. Prop. 6 would reduce funding for highway and road maintenance/repair and transit programs by more than $5 billion annually by eliminating the fuel and vehicle-related taxes and fees established by SB 1.[2]
Require the Legislature to obtain voter approval of fuel and vehicle-related taxes. Prop. 6 would amend the California Constitution to require the Legislature to obtain voter approval of new or increased taxes on the sale, storage, use, or consumption of gasoline or diesel fuel, as well as for taxes paid for the privilege of operating a vehicle on public highways. The Legislative Analyst’s Office (LAO) notes that requiring voter approval would make it more difficult to enact fuel and vehicle-related taxes, potentially resulting in less revenue for transportation purposes in the future. The amount by which revenues would be reduced is unknown, as it would depend upon future actions of the Legislature and voters.[3]

What Did Last Year’s Transportation Package (SB 1) Do?

Governor Brown and the Legislature enacted SB 1, the Road Repair and Accountability Act of 2017, in April 2017, allocating more than $5 billion per year for transportation infrastructure improvements.[4] This transportation package provides funding for highway and road maintenance and rehabilitation, public transit, and projects to improve conditions for pedestrians and bicyclists as well as to facilitate the movement of goods. The revenue comes from both higher fuel taxes and new vehicle-related fees, with a key component being the increase to the state’s base excise tax on gasoline (the “gas tax”).[5] Prior to being raised in 2017, this tax had been frozen since 1994, with the result that revenues from the gas tax were unable to keep up with demands for transportation improvements.

In total, SB 1 seeks to address billions of dollars in deferred maintenance by restoring the purchasing power of the gas tax and boosting other fuel taxes and vehicle-related fees. The transportation package is projected to generate:

$2.5 billion per year from increased state taxes on gasoline, primarily from a 12-cent per gallon increase in the state’s base gas tax, which took effect on November 1, 2017.
$1 billion per year from a 20-cent increase in the state’s excise tax on diesel fuel and a 4 percentage point increase in the diesel fuel sales tax, both of which took effect on November 1, 2017.
$1.7 billion per year from a new annual transportation improvement fee, which took effect on January 1, 2018. This fee ranges from $25 to $175 per vehicle based on the value of the vehicle. For instance, a vehicle valued at less than $5,000 would incur a fee of $25, while a vehicle valued at $60,000 or more would incur a $175 fee.
$19 million per year from a new annual fee of $100 on all zero-emission vehicles starting on July 1, 2020.

These taxes and fees will be annually adjusted for inflation to prevent them from losing value over time. The transportation improvement fee will be adjusted starting on January 1, 2020; the gas and diesel fuel excise taxes will be adjusted starting on July 1, 2020; and the zero-emission vehicle fee will be adjusted starting on January 1, 2021.

SB 1’s initial allocations are already reflected in the state budget. For example, in its first (partial) year of implementation, the state budget for 2017-18 (the fiscal year that ended on June 30, 2018) allocated over $2.8 billion for SB 1 transportation improvements, with half going to state projects and half to local projects. The 2018-19 state budget allocates $4.6 billion for SB 1 transportation improvements, with half going to state projects and half to local projects.[6] By 2020, when all of SB 1’s taxes and fees are fully in effect and the inflation adjustments begin, the state expects the annual allocation to be $5.1 billion, split evenly between state and local projects.

The revenues raised by SB 1 support a variety of state highway, local road, transit, and other transportation improvements. Annual funding is allocated as follows:[7]

$1.9 billion per year for state highway and bridge repairs.
$1.8 billion per year for local road repairs.
$750 million per year for public transit and intercity rail.
$310 million per year to improve trade corridors.
$250 million per year to reduce congestion on major commute corridors.
$100 million per year for bicycle and pedestrian projects to better link travelers to transit facilities.
$170 million per year for a range of smaller programs, including freeway service patrols, local planning grants, university transportation research, and parks and agricultural programs.

What Would Passage of Proposition 6 Mean for Transportation and Other Public Services?

If California voters approve Prop. 6, the implications for public services would include:

Reduced funding for road, highway, and transit improvements. In the current state fiscal year (2018-19), Prop. 6 would eliminate $2.4 billion in transportation funding. By 2020-21, Prop. 6 would mean a reduction of $5.1 billion annually in funding for road and transit improvements.[8]
Decreased ability to raise state revenues for transportation infrastructure in the future. Prop. 6 would require the Legislature to obtain voter approval for all future increases in fuel and vehicle-related taxes and fees. While the actual revenue impact of this provision would depend on future legislative actions and the will of California voters, requiring voter approval would undoubtedly make it harder to raise revenues for transportation infrastructure.[9]
Increased pressure on state and local budgets to finance future public transportation improvements. The combination of reducing state funds for transportation infrastructure and making it more difficult to raise revenues for transportation projects in the future would put the state, as well as local governments, under increasing pressure to fund future transportation investments from their general funds, from which they must also pay for an array of other vital public systems and supports. Demands for transportation investments would, as a result, compete with needed investments in education, public safety, housing, and health and human services.
Reduced ability to keep up with critical public transportation needs in the future and reduced safety levels. The increased difficulty of raising dedicated state revenues for transportation, coupled with competition for state and local general fund support, would make it harder for state and local governments to keep up with the demand for transportation improvements in the future. California’s state and local governments already confront a large backlog of deferred maintenance (see more on this topic in the next section). The costs of maintenance and repairs rise the longer they are deferred due to increasing decay and the likelihood that facilities may need to be fully replaced. Putting off maintenance and repairs also increases the safety risk of the state’s transportation facilities — roads, highways, bridges, and transit facilities.
Fewer jobs and slower economic growth. Reduced transportation funding would mean fewer jobs and less economic activity in communities across California. The state estimates that there are more than 4,000 local transportation projects already receiving SB 1 funding, including projects in every county in the state. Those projects generate jobs and economic activity. For instance, the White House Council of Economic Advisors has estimated that every $1 billion in highway and transit investment supports 13,000 jobs.

Does California Need Additional Funding for Transportation?

California has a vast state and local transportation infrastructure that encompasses a state highway system with 50,000 lane-miles, 300,000 miles of locally owned roads, 25,000 bridges (13,000 state, 12,000 local), and 200 local transit agencies that operate bus, light rail, and subway systems.[10] The California Department of Finance notes that “[e]fficient operation of this vast network is vital to the state’s continued economic growth and also serves much of the country, with nearly 20 percent of the goods imported to the United States moving through California ports, highways, and railways. Bottlenecks in the state’s trade corridors constrain economic growth and reduce quality of life when Californians spend hundreds of hours in traffic.”[11]

Approximately $35 billion is spent each year on transportation in California, including $16 billion from local sources, $12 billion from state sources, and $7 billion from federal sources.[12] Local sources come from local sales taxes (which are closely restricted by state law), transit fares, and local government general funds that must also fund other vital programs and services such as public safety, housing, and health and human services. Federal funding primarily comes from federal fuel taxes, including the federal excise tax on gasoline. The federal gas tax is not automatically adjusted for inflation each year to account for the rising costs of goods and services. This means that Congress and the President must agree to raise the federal gas tax rate. However, federal policymakers have not increased this rate since 1993, leaving the federal Highway Trust Fund (the primary source of federal funding for state and local transportation) unable to keep pace with demands for new facilities or for maintaining and repairing existing highways, roads, bridges, and other facilities.[13]

State transportation funding primarily comes from fuel taxes and vehicle-related fees. Until the passage of SB 1, California had not increased its gas tax rate since 1994, leaving the state unable to keep up with demands for transportation improvements.[14] As a result, California has faced a significant deficit in transportation funding to pay for infrastructure improvements and deferred maintenance — a deficit that has been exacerbated by inadequate federal funding. In its 2017 “Infrastructure Report Card” assessing the state of the nation’s infrastructure, the American Society of Civil Engineers estimated that 50% of California’s public roads are in poor condition, that 5.5% (1,388) of the state’s bridges are structurally deficient, and that Californians pay $844 per driver annually for the costs of driving on poorly maintained roads.[15] As recently as the 2016-17 state budget, Governor Brown’s Administration estimated that California confronts $57 billion in total deferred maintenance needs related to transportation.[16]

The SB 1 transportation package aims to address the state’s transportation infrastructure needs by providing more than $5 billion in additional annual funding. As noted above, about half of this funding comes from the increase to the state’s base gas tax rate, which had been frozen since 1994. If the 1994 rate ($0.18 per gallon) had been adjusted each year to account for changes in the cost of living, it would have risen to $0.32 per gallon by 2018 — slightly higher than the current rate of $0.30 per gallon established by SB 1 (see chart below). In other words, SB 1 nearly restores the purchasing power of the gas tax to fund transportation improvements. Moreover, by annually adjusting all of the fuel and vehicle-related taxes and fees for inflation, SB 1 ensures that the state’s sources of funding for transportation infrastructure will be better able to keep up with future needs.

Is the Gas Tax a Fair Tax?

Whenever increases in the gas tax are considered, questions are raised about the fairness of the tax. There are different ways to assess the fairness of taxes, but most people agree that a fair tax system asks taxpayers to contribute to the cost of public services based on their ability to pay. When lower-income households spend a larger share of their budgets on taxes, such as for transportation, than do higher-income households, those taxes are considered to be regressive. Conversely, taxes that impose a relatively greater cost on higher-income households are considered to be progressive.[17] In this respect, gas taxes are often thought to be regressive because all households pay the same rate regardless of their income.

However, it is important to put the gas tax in the broader context of overall funding for the transportation package. State leaders structured the transportation improvement fee on vehicles — another key piece of the package’s revenue mix — so that it is based more on people’s ability to pay, with the fee increasing relative to the value of the vehicle.

Moreover, the critique that the gas tax has a greater impact on low-income households would be more concerning if this tax were chosen over other, more progressive ways of funding these improvements. The reality is that transportation funding in California, and nationally, as outlined above, primarily relies on a set of usage-based excise taxes and fees — taxes and fees that households and businesses pay to use highways, roads, transit facilities, ports, airports, and so on. While usage-based taxes and fees may be mostly regressive, they can be considered fair, to a degree, in that they are paid as the cost of using the service. Even alternative transportation funding options — toll roads and fees based on vehicle miles traveled, for instance — raise revenues based on people’s use of highways and roads, and not with regard to users’ incomes. Another potential alternative, the carbon tax — a tax imposed on the burning of carbon-based fuels such as coal, oil, and gas — would still generate revenues based on the demand for, and use of, those fuels.

Another option would be to fund transportation improvements from the state’s General Fund, or through general obligation (GO) bonds where the service on the debt is paid out of the General Fund, because most state General Fund revenues come from California’s progressive income tax. However, as noted above, relying on the state General Fund would put transportation investments in competition with other vital public systems and supports for limited state funding.

Usage-based taxes and fees also make sense as a source of transportation funding because they can be structured in ways that meet other policy goals. For instance, because driving creates emissions that harm the environment, taxes and fees can be designed to encourage transit use and alternative forms of transportation.

Concerns about how particular taxes affect lower-income individuals can be addressed by providing offsets. For instance, California could expand its state Earned Income Tax Credit (the CalEITC) — a refundable credit for low-income working Californians — as a means of offsetting increased gas costs.[18] The Institute for Taxation and Economic Policy recommends that states modernize their gas taxes by increasing gas tax rates to reverse long-term declines (relative to inflation), structuring gas taxes so that their rates keep up with rising costs, and creating or enhancing tax credits, like the EITC, for low-income families to offset the impact of gas tax increases.[19]

Are SB 1 Revenues Required to Be Spent on Transportation Improvements?

One of the questions raised about the SB 1 transportation package is whether the funds are assured to go toward transportation improvements. In fact, SB 1 dedicates approximately two-thirds of its revenues to highway and road repairs and the remainder to other transportation improvements, such as public transit, according to the LAO.[20] In addition, the SB 1 transportation funding package included a set of accountability provisions designed to ensure that the revenues are spent as intended.[21] Among these was a constitutional amendment on the June 2018 statewide ballot (Prop. 69, approved by 4 in 5 voters) that prevents SB 1 funds from being used for anything other than specified transportation purposes.[22]

What Do Proponents Argue?

Proponents of Prop. 6, including Republican gubernatorial candidate John Cox, the Howard Jarvis Taxpayers Association, and the National Federation of Independent Business, argue that the measure would “immediately lower the price” of gasoline and that much of the funds from state fuel and vehicle-related taxes and fees are “used for programs other than streets, roads and highways.”[23]

What Do Opponents Argue?

Opponents of Prop. 6, including the League of California Cities, the California State Association of Counties, associations representing first responders and public safety personnel, and the California Chamber of Commerce, argue that Prop. 6 “eliminates funding for more than 6,500 road safety and transportation improvement projects,” “threatens public safety,” and “eliminates thousands of jobs and hurts our economy.”[24]

Conclusion

Prop. 6 would eliminate recently enacted funding for transportation infrastructure by repealing certain fuel and vehicle-related taxes and fees. The measure would also amend the state Constitution to require the Legislature to obtain voter approval of any future increases in fuel and vehicle-related taxes and fees. The fiscal impact of Prop. 6 would be to eliminate $5.1 billion in annual revenues used to fund highway and road maintenance and repairs, transit, and other transportation programs. Requiring voters to approve future fuel and vehicle-related taxes and fees would make it more difficult to fund transportation infrastructure improvements in the future.

Prop. 6 presents California voters with a choice as to whether they are willing to support continued investments in California’s transportation infrastructure. Approving Prop. 6 would undo recent increases in fuel and vehicle-related taxes and fees and significantly decrease funding available for transportation infrastructure. Rejecting Prop. 6 would allow California to continue to invest in highways, roads, bridges, transit, and other transportation improvements.

Endnotes

[1] Secretary of State’s Office, California General Election Tuesday November 6, 2018: Text of Proposed Laws, downloaded from https://vig.cdn.sos.ca.gov/2018/general/pdf/topl.pdf on August 21, 2018. See also Legislative Analyst’s Office, “Proposition 6: Eliminates Certain Road Repair and Transportation Funding. Requires Certain Fuel Taxes and Vehicle Fees Be Approved by the Electorate. Initiative Constitutional Amendment. Analysis by the Legislative Analyst,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 40.

[2] Legislative Analyst’s Office, “Proposition 6: Eliminates Certain Road Repair and Transportation Funding. Requires Certain Fuel Taxes and Vehicle Fees Be Approved by the Electorate. Initiative Constitutional Amendment. Analysis by the Legislative Analyst,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 41.

[3] Legislative Analyst’s Office, “Proposition 6: Eliminates Certain Road Repair and Transportation Funding. Requires Certain Fuel Taxes and Vehicle Fees Be Approved by the Electorate. Initiative Constitutional Amendment. Analysis by the Legislative Analyst,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 41.

[4] For an overview of SB 1, see Legislative Analyst’s Office, Overview of the 2017 Transportation Funding Package (June 2017).

[5] In addition to the “base” excise tax, the state has a separate excise tax on gasoline known as the “swap” excise tax. For a description of the swap excise tax, see Legislative Analyst’s Office, Overview of the 2017 Transportation Funding Package (June 2017), pp. 2-3.

[6] Department of Finance, California State Budget 2018-19 (June 2018), p. 84, downloaded from http://www.ebudget.ca.gov/2018-19/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf on August 21, 2018.

[7] For an overview of how SB 1 funding is generated and allocated, see the Legislative Analyst’s Office, Overview of the 2017 Transportation Funding Package (June 2017).

[8] Legislative Analyst’s Office, “Proposition 6: Eliminates Certain Road Repair and Transportation Funding. Requires Certain Fuel Taxes and Vehicle Fees Be Approved by the Electorate. Initiative Constitutional Amendment. Analysis by the Legislative Analyst,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 41.

[9] Legislative Analyst’s Office, “Proposition 6: Eliminates Certain Road Repair and Transportation Funding. Requires Certain Fuel Taxes and Vehicle Fees Be Approved by the Electorate. Initiative Constitutional Amendment. Analysis by the Legislative Analyst,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 41.

[10] Legislative Analyst’s Office, Overview of the 2017 Transportation Funding Package (June 2017), p. 1.

[11] Department of Finance, California State Budget 2018-19 (June 2018), p. 81, downloaded from http://www.ebudget.ca.gov/2018-19/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf on August 21, 2018.

[12] For a discussion of transportation infrastructure funding in California see Legislative Analyst’s Office, “Proposition 6: Eliminates Certain Road Repair and Transportation Funding. Requires Certain Fuel Taxes and Vehicle Fees Be Approved by the Electorate. Initiative Constitutional Amendment. Analysis by the Legislative Analyst,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 40.

[13] Department of Finance, California State Budget 2018-19 (June 2018), p. 82, downloaded from http://www.ebudget.ca.gov/2018-19/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf on August 21, 2018.

[14] Department of Finance, California State Budget 2018-19 (June 2018), pp. 82-83, downloaded from http://www.ebudget.ca.gov/2018-19/pdf/Enacted/BudgetSummary/FullBudgetSummary.pdf on August 21, 2018.

[15] American Society of Civil Engineers, 2017 Infrastructure Report Card: Infrastructure in California, downloaded from https://www.infrastructurereportcard.org/state-item/california/ on August 21, 2018.

[16] For a discussion of California’s deferred maintenance see Legislative Analyst’s Office, The 2016-17 Budget: Governor’s General Fund Deferred Maintenance Proposal (February 12, 2016), p. 2.

[17] For a discussion of California’s tax system, including state and local sales taxes and other sources of revenue, see Jean Ross, Alissa Anderson, and Samar Lichtenstein, Principles and Policy: A Guide to California’s Tax System (California Budget & Policy Center: April 2013).

[18] For an overview of California’s EITC see Alissa Anderson, How Much Do Working Families and Individuals Benefit From the CalEITC? (California Budget & Policy Center: February 2018).

[19] Institute for Taxation and Economic Policy, Building a Better Gas Tax: How to Fix One of State Government’s Least Sustainable Revenue Sources (December 2011).

[20] Legislative Analyst’s Office, “Proposition 6: Eliminates Certain Road Repair and Transportation Funding. Requires Certain Fuel Taxes and Vehicle Fees Be Approved by the Electorate. Initiative Constitutional Amendment. Analysis by the Legislative Analyst,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, pp. 40-41.

[21] For an overview of the accountability provisions in SB 1 see Legislative Analyst’s Office, Overview of the 2017 Transportation Funding Package (June 2017), p. 6 and pp. 8-9.

[22] Proposition 69 was approved on June 5, 2018 (81% yes, 19% no). See Secretary of State’s Office, Statewide Direct Primary Election – Statement of the Vote, June 5, 2018: State Ballot Measures (Propositions 68-72) by County, downloaded from https://elections.cdn.sos.ca.gov/sov/2018-primary/sov/132-ballot-measures.pdf on August 22, 2018.

[23] “Argument in Favor of Proposition 6,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 42. See also “Rebuttal to Argument Against Proposition 6,” p. 43.

[24] “Argument Against Proposition 6,” in Secretary of State’s Office, California General Election Tuesday November 6, 2018: Official Voter Information Guide, p. 43. See also “Rebuttal to Argument in Favor of Proposition 6,” p. 42.

Ballot Propositions

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New Census figures released today show promising gains in income and employment for Californians, yet also show that millions of California residents are still struggling to get by on extremely low incomes. These data underscore the need for policymakers to ensure that the economy’s recent gains are shared among all Californians.

The latest Census figures indicate that median household income in California grew to $71,805 in 2017, an increase of 3.8% over the prior year after adjusting for inflation. Median family income and median earnings for all workers also increased compared to inflation-adjusted income and earnings in 2016, and a larger share of Californians were employed. These positive economic gains are encouraging, but must be considered within the context of the slow speed overall with which the California economy has recovered from the Great Recession. Compared to 2007, when California incomes peaked before the Great Recession, median household income has only increased by 1.1% after adjusting for inflation. This modest real change in the incomes of typical households, this far into the economic recovery, helps explain why many Californians report that they do not feel economically secure, despite the state’s improving job market.

More troubling are new data from the Census that show that millions of people in California continue to struggle to get by on extremely low incomes. On the positive side, California’s official poverty rate of 13.3% for 2017 was lower compared to the previous year, when it was 14.3%. The state’s official child poverty rate also dropped to 18.1% in 2017, from a rate of 19.9% in 2016. However, 5.2 million Californians, including 1.6 million children, still lived in poverty in 2017 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 about $24,900. Moreover, the state’s poverty rate and child poverty rate under the official poverty measure still have not dropped to their pre-Great Recession levels.

Also troubling, 2.2 million individuals, including 600,000 children, lived in deep poverty in 2017 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 about $12,400 for a two-parent family with two children. The state’s deep poverty rates of 5.8% overall and 7.2% for children were lower than in 2016 (when they were 6.2% overall and 8.1% for children), but remain problematically high.

The latest Census figures also show that there are stark differences in people’s economic well-being across California’s counties. In 2017, the official poverty rate ranged from a low of 5.6% to a high of 24.6% across the counties, while the official child poverty rate ranged from 3.2% to 37.1%. In eight counties, more than 1 in 5 people lived in poverty, largely in the Central Valley (see Map 1). Additionally, more than 1 in 5 children lived in poverty in 14 counties, and this includes four counties — again, most in the Central Valley — where over 30% of children were in poverty (see Map 2).

Map 1

Map 2

Download map data.

Although these Census figures published today show that poverty remains unacceptably high in California, they actually understate the problem of economic hardship in the state because they reflect an outdated measure of poverty. Census figures released yesterday 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 7.5 million Californians per year, nearly 1 in 5 state residents (19.0%), could not adequately support themselves and their families between 2015 and 2017. Under this more accurate measure of hardship, California continues to have one the highest poverty rates and by far the most residents in poverty of the 50 states.

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 current state-level policy planning efforts, including the Lifting Children and Families Out of Poverty Task Force and the Assembly Blue Ribbon Commission on Early Childhood Education, represent important opportunities to prioritize investments that will help Californians avoid and overcome poverty and address the serious negative consequences of living in poverty.

Other specific steps that policymakers can take include:

Reject steep cuts 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, while also helping children in poverty succeed over the long-term, according to research. Yet this month federal policymakers are considering changes to SNAP that would reduce the number of individuals able to access this support. People in communities throughout the state would likely be harmed.
Help families afford their basic needs. 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. Voters will have the chance to consider multiple ballot measures this fall that aim to address the state’s housing challenges (which will be discussed in upcoming Budget Center blog posts and publications). Continuing to invest in affordable child care, another major basic expense for many working families, can also make a difference.
Make sure workers earn enough to support themselves and their families. Most families in poverty work, which means that low pay and not enough work hours are key barriers to economic security and opportunity. California’s recent decision to gradually raise the state’s minimum wage to $15 per hour by 2023 has already made a difference for the lowest-paid workers in our state. California policymakers have also supported low-wage workers by creating the CalEITC — a refundable state tax credit that helps low-earning workers pay for basic necessities — and expanding it in recent years to benefit all full-time minimum wage working parents and self-employed workers as well as low-income working young adults and seniors. Policymakers could build on this important investment by increasing the size of the CalEITC, particularly for working adults without dependent children; extending the credit to workers who remain excluded (such as those filing taxes with an Individual Taxpayer Identification Number); expanding access to free tax preparation services; and ensuring that CalEITC funding is protected in future economic downturns, when tax revenues are lower but need is even greater.

Poverty & Inequality

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State and National Leaders Must Do More to Promote Economic Security and Opportunity

California continues to have one of the highest poverty rates among the 50 states, statistically tied for first with Florida and Louisiana, according to new Census data released this morning based on the Supplemental Poverty Measure (SPM). This poverty measure provides a more accurate indicator of economic need in California than the official federal poverty measure because it accounts for the high cost of living in many parts of the state, among other factors (see note below).

The new data show that about 7.5 million Californians — nearly 1 in 5 state residents (19.0%) — do not have enough resources to cover the costs of basic necessities. High housing costs are a key reason for California’s high SPM poverty rate, underscoring the need to increase access to affordable housing within the state. The new data also show the critical role played by public supports like tax credits, food assistance, and disability benefits in reducing poverty at the national level. Protecting and strengthening these supports is vital to bringing down California’s high poverty rate. State lawmakers have taken recent steps to bolster supports like the CalEITC, California’s refundable tax credit for working families, and CalWORKs, the state’s welfare-to-work program. National policymakers, on the other hand, over the past year have proposed changes to public supports that would reduce their effectiveness in addressing poverty, including changes currently being considered to the most important public source of food assistance.

High and Growing Housing Costs Drive Up California’s Poverty Rate

With 7.5 million state residents struggling to get by, California has by far the largest number of individuals in poverty of any state, based on the SPM.[1] In fact, nearly 1 in 6 Americans in poverty live in California. The state’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 federal 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: 19.0% under the SPM, compared to 13.4% under the official measure.[2] As a result, California’s poverty ranking among the 50 states jumps from 16th under the official poverty measure up to first under the SPM (statistically tied with Florida and Louisiana), a dubious distinction.[3]

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 faster than incomes for most workers. While median household rents increased by 13.2% from 2006 to 2016, median annual earnings for full-time workers (those working at least 35 hours per week) grew by only 4.1% during that period.

Given California’s serious housing affordability challenges, it is important to pursue policies that can help increase the availability of affordable housing and meet the needs of individuals and families facing housing crises. This year state policymakers took several important steps to support local and statewide efforts to increase the availability of shelter and support services for Californians at risk of or struggling with homelessness. Building on these steps, voters will have the opportunity to consider several state ballot measures this fall that aim to address the state’s housing challenges (as will be discussed in upcoming Budget Center publications and blog posts).

Federal Policy Proposals Threaten to Plunge More Californians Into Poverty

With nearly 1 in 5 residents still struggling with poverty, even as the unemployment rate has dropped substantially since the Great Recession, Californians need strong support from state and national leaders to enable more people to share in the economy’s recent gains. Yet proposals by federal policymakers would change key public supports in ways that would reduce support for families and individuals struggling with poverty. Congress is currently considering a proposal to cut funding and impose new work requirements on people who receive food assistance through the Supplemental Nutrition Assistance Program (SNAP, known as CalFresh in California) as part of the Farm Bill that is expected to be passed this month. The Trump Administration is also soon expected to propose a new “public charge” rule for immigrants applying for green cards that would jeopardize their chances of long-term legal status if they or any of their family members (including US-born citizen children) use supports like public health insurance or receive benefits like refundable tax credits for low-income working families.

These proposed policy changes would result in fewer families and individuals accessing the public supports they need to meet critical basic needs, likely increasing California’s already unacceptably high poverty rate. Moreover, research shows that public investment in safety net supports for children, in particular, produces important long-term public and private benefits as a result of improvements in health and economic productivity in adulthood — an argument for strengthening, rather than shrinking, these types of investments.[4]

* * *

Note About the Census Bureau Data Released Today

The state-level figures released today reflect average annual poverty rates during a three-year period, from 2015 to 2017. The SPM addresses a number of shortcomings of the official poverty measure. One is the fact that 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 2017 if their annual income was below about $19,700, 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 about $30,800 in 2017 — considerably 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 was 1.4 times the official poverty rate between 2015 and 2017 (19.0% versus 13.4%, 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.

Poverty & Inequality

[1] Texas had the second-highest number of residents in SPM poverty at 4.1 million.

[2] The SPM poverty rate is also higher than the official poverty rate for most major demographic groups in California. See Alissa Anderson, A Better Measure of Poverty Shows How Widespread Economic Hardship Is in California (California Budget & Policy Center: October 2016).

[3] Florida had an annual average of 18.1% of state residents living in poverty based on the SPM from 2015 to 2017, while in Louisiana the poverty rate was 17.7%. The annual average SPM poverty rates for California, Florida, and Louisiana were not statistically different for this three year period, so all three states were statistically tied for the highest state SPM poverty rate.

[4] See Hilary Hoynes and Diane Schanzenbach, Safety Net Investments in Children (National Bureau of Economic Research: May 2018).

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Women’s participation in the California workforce has become critical to families’ financial security and the state’s economic well-being. As part of our work on the California Women’s Well-Being Index, the Budget Center recently released a set of issue briefs focusing on women’s employment, earnings, and economic security, highlighting how gender- and race-based discrimination continues to hold women back. Labor Day presents an opportunity to highlight the data and analysis from these new briefs and also to discuss policy solutions that could boost the financial security of women and their families in California.

Mothers Have Become Breadwinners in California

The share of working women with children has nearly doubled in the past 50 years, and the most recent data show that 2 out of 3 women with children under the age of 18 are in the labor force. Because so many mothers are working for pay, over half (55%) made a significant contribution to their families’ finances in California in 2016 — more than double the share in 1967 (see chart below). Yet, despite the dramatic increase in mothers’ labor force participation, state and federal policies do not go far enough to support parents struggling to balance work and family obligations. This holds women, their families, and the economy back. The right policy choices are particularly important for parents with low incomes who often have limited benefits and are subject to unpredictable and nonstandard work schedules, making it difficult to both hold a job and care for their families.

Women Are More Likely Than Men to Earn Low Wages

Women are more likely overall than men to earn low wages, but a much larger share of Latinx women earned low wages compared to women in other racial and ethnic groups. In California in 2016, 55% of Latinx women earned low wages — defined as less than $14.71 per hour (see chart below). The share of Latinx women who earned low wages is more than double that of white women (26%). In addition, more than 1 in 3 Native American and African-American women earned low wages in 2016. Women earning low wages often struggle to pay rent or buy food. This lack of financial security is stressful and affects women’s mental and physical health as well as the health and well-being of their children.

Women Are Overrepresented in Low-Wage Occupations

More than half (53%) of workers in the 10 lowest-paid occupations are women, while only 30% of workers in the 10 highest-paid professions are women (see chart below). Women aren’t clustering in low-wage jobs simply due to personal preferences. Research shows that “women’s work” is often valued less than comparable work done by men, regardless of skill level. In fact, as the share of women working in a given occupation increases, the pay in that occupation decreases. Alternatively, women may make career choices — even taking a pay cut or turning down a promotion — to minimize harassment or maximize their ability to juggle work and family obligations.

Women Are Still Paid Less Than Men

For the reasons mentioned above, and more, women working full-time, year-round in California earned just a fraction of what white men earned in 2016. These disparities vary by race and ethnicity, but the wage gap is significantly larger for Latinx women, who earned just 42 cents for every dollar earned by white men (see chart below). Native American, Pacific Islander, and African-American women all earned less than 60 cents for every dollar earned by white men. Even the highest-earning racial groups — white and Asian women — earned just 78 and 75 cents, respectively, compared to white men.

If women had earned the same amount as comparable men in 2016, the state would have seen a decrease in poverty rates and an increase in economic activity. According to the Institute for Women and Policy Research, eliminating the wage gap in California would have resulted in an estimated average increase of roughly $6,400 in earnings per working woman. This would have cut working women’s poverty rate from 7.6% to 3.6%. Because 2 out of 3 mothers with children under the age of 18 were working in California in 2016, equal pay for working moms would have also benefited children across the state, cutting their poverty rate nearly in half (from 11.6% to 6.2%). Finally, eliminating the wage gap would have added $55.5 billion to the state’s economy, equal to 2.1% of California’s Gross Domestic Product in 2016.

Policy Solutions to Boost Women’s Economic Security

Women’s work is critical to their families’ financial security, and it is a boon to the economy. Yet, women continue to face persistent disparities that continue to hold them back — particularly women of color who face both gender- and race-based discrimination. State and local policymakers should craft policies that boost women’s economic security, particularly for working mothers. This includes increasing funding for the state’s subsidized child care and development system, continuing to strengthen the California Earned Income Tax Credit (CalEITC), adopting policies that combat unfair scheduling practices, and expanding California’s paid family leave program. (The Budget Center’s full suite of policy recommendations can be downloaded here.)

It is crucial that state and local policymakers work to address women’s economic security. This could improve health and well-being, with positive outcomes for women, their children, and the communities they live in. When women thrive, their families and communities prosper.

— Kristin Schumacher

Health & Safety Net

Poverty & Inequality

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Executive Summary

Earlier today, Governor Jerry Brown signed more than 20 bills in the 2018-19 state budget package, his final budget as Governor. The new budget package forecasts revenues that are $8.0 billion higher — over a three-year window — than projected in January, due to strong economic growth.

The budget agreement prioritizes building up state reserves. As required by Proposition 2 (2014), $3.5 billion is set aside, with half going to the state’s rainy day fund and half to pay down debts. An optional $2.6 billion is deposited into a new, temporary reserve; $2 billion is placed in a discretionary reserve; and a new $200 million “safety net reserve” is created to help support CalWORKs and Medi-Cal services in an economic downturn. State reserves are expected to total almost $16.0 billion by the end of 2018-19.

The 2018-19 budget makes some notable investments in the economic security of Californians. It strengthens the California Earned Income Tax Credit (CalEITC) by extending eligibility to young adults and seniors who are currently excluded and raising the income eligibility limit to account for the rising state minimum wage. The budget also includes key investments in the safety net: providing funding for CalWORKs grant increases to help address deep poverty; establishing a CalWORKs home visiting pilot; and ending the “SSI cash-out,” a state policy that prohibits many low-income seniors and people with disabilities from receiving federal food assistance through the CalFresh program.

Significant investments are also made in education. Growth in state revenues means increased funding for K-14 education under the Prop. 98 minimum guarantee, including funding to support full implementation of the Local Control Funding Formula for K-12 schools. The budget also provides additional support for California’s Community Colleges (CCCs), creates a new formula allocating CCC funds, and establishes an online community college. The California State University and University of California receive increases in one-time and ongoing funding. In addition, the new budget package provides modest increases for early childhood education and to address homelessness, though far less than what the Legislature had sought.

In several areas, the budget provides a roadmap for investments in coming years, calling for future savings in excess of the state’s rainy day fund cap to be split among construction and maintenance of state buildings, housing, and rail projects; cost-of-living-adjustments (COLAs) to be reinstated for CalWORKs and SSI/SSP by 2022-23; and a plan for achieving unified financing of health care delivery in California.

The following sections summarize key provisions of the 2018-19 budget.

Download full report (PDF) or use the links below to browse individual sections of this report

Rainy Day Fund and Debt Repayments: Budget Package Brings Constitutional Rainy Day Fund Balance to Its Maximum Level
New Reserves: Budget Agreement Creates Two New Reserves
California Earned Income Tax Credit (CalEITC): Budget Agreement Strengthens the CalEITC
Proposition 98: Budget Package Creates New Process for Certifying Proposition 98 Minimum Funding Guarantee
K-12 Education: Budget Supports Full Implementation of the Local Control Funding Formula (LCFF) for K-12 Education
Community Colleges: Budget Agreement Moves Forward With New Community College Funding Formula and Online College
CSU/UC: Budget Package Increases Funding for CSU and UC, While Making Several Adjustments Regarding Financial Aid Programs
Early Care and Education: Budget Package Uses Federal Funds to Provide Additional Subsidized Child Care Slots
CalWORKs Grants: Enacted Budget Takes Preliminary Steps to Raise CalWORKs Grants and Indicates Intent to Reinstate the State COLA
Home Visting: Enacted Budget Revises Governor’s Proposal for CalWORKs Home Visiting Initiative
SSI Cash-Out: Budget Agreement Ends the “SSI Cash-Out,” Allowing People Enrolled in SSI/SSP to Receive Federal Food Benefits for the First Time Since the 1970s
SSI/SSP Grants: Budget Package Does Not Provide a State Cost-of-Living Adjustment for SSI/SSP Grants, but Sets the Stage for Annual Increases Beginning in 2022-23
Health: Budget Package Aims to Address Health Care Affordability and Financing, but Includes None of the Policy Expansions Advanced by the Legislature
Proposition 56 Revenues: Budget Package Allocates More Than $1 Billion in Proposition 56 Tobacco Tax Revenues for Medi-Cal Provider Payment Increases and a New Loan Assistance Program
Immigration: Budget Includes Some New Funding for Legal Services for Immigrants, but Leaves Other Immigrant-Focused Proposals Unfunded
2020 Census: Budget Package Dramatically Increases State Funding for the 2020 Census
Housing: Budget Includes New Funding to Address Homelessness and Proposes Future Investment in Affordable Housing
Cap and Trade: Budget Agreement Includes a $1.4 Billion Plan for Allocating Cap-and-Trade Revenues
Criminal Justice: Budget Agreement Creates a Roadmap for Reducing the Capacity of the State Correctional System if the Number of Incarcerated Adults Continues to Decline

Budget Package Brings Constitutional Rainy Day Fund Balance to Its Maximum Level

California voters approved Proposition 2 in November 2014, amending the California Constitution’s 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 will be deposited into the rainy day fund and the other half will be used to reduce certain state liabilities (also known as “budgetary debt”).

The 2018-19 budget package assumes that Prop. 2 will constitutionally require the state to deposit $1.75 billion into the BSA and to use an additional $1.75 billion to repay budgetary debt. Moreover, the budget deal includes the Governor’s proposal to make an optional deposit of $2.6 billion into the BSA in 2018-19 in order to bring the rainy day fund to its constitutional maximum — 10% of General Fund tax revenue. (As explained in the section titled “Budget Agreement Creates Two New Reserves,” this additional $2.6 billion will temporarily be held in a new reserve called the Budget Deficit Savings Account.) Overall, the 2018-19 budget agreement assumes a $4.4 billion transfer from the General Fund to the BSA: $1.75 billion as required by the state Constitution, plus the $2.6 billion optional deposit. With these funds, the BSA balance is projected to grow to $13.8 billion by the end of the 2018-19 fiscal year, which ends on June 30, 2019. If future mandatory deposits exceed the BSA’s maximum capacity, Prop. 2 would require these “overflow” funds to be spent on infrastructure. The 2018-19 budget package includes a plan for allocating any such excess funds, beginning in 2019-20, for “state buildings and their deferred maintenance, housing, and rail projects,” according to the Assembly Floor Report.

Along with the constitutional rainy day fund, the state has a separate discretionary reserve called the Special Fund for Economic Uncertainties (SFEU), which was established in the early 1980s. The budget package assumes that the state will end the 2018-19 fiscal year with an SFEU balance of $2.0 billion.

Budget Agreement Creates Two New Reserves

The 2018-19 budget deal creates two new reserves: the Safety Net Reserve Fund, which includes both a CalWORKs subaccount and a Medi-Cal subaccount, and the Budget Deficit Savings Account (BDSA). The purpose of the Safety Net Reserve Fund is to set aside funds that can be used to maintain benefits and services for CalWORKs and Medi-Cal participants during economic downturns when state revenues decline and need rises. The budget agreement deposits $200 million General Fund into the CalWORKs subaccount and requires the Department of Finance (DOF), in consultation with certain other departments, to establish a process for making future deposits into the reserve and for withdrawing and distributing funds from the reserve.

The BDSA will temporarily hold a $2.6 billion discretionary deposit (above what is constitutionally required to be deposited) into the state’s existing rainy day fund, the Budget Stabilization Account (BSA). This reflects the amount of additional funds the Administration currently projects are needed to bring the BSA up to its constitutional maximum in 2018-19. The Administration will revise this amount based on updated budget projections in May 2019 and that amount will be transferred from the BDSA to the BSA no earlier than May 31, 2019. Half of any funds remaining in the BDSA will be transferred to the Safety Net Reserve Fund, while the remainder will stay in the BDSA.

Budget Agreement Strengthens the CalEITC

The 2018-19 budget deal strengthens 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. Specifically, the agreement:

Extends the CalEITC to low-earning young adults and seniors who are ineligible for the credit. Currently, workers without dependents have to be between the ages of 25 and 64 to qualify for the CalEITC. The budget deal would change this requirement beginning in tax year 2018 so that workers without dependents could qualify for the credit as long they are at least age 18.

Modestly increases the income limit to qualify for the credit to account for the rising state minimum wage. Currently, workers with dependents have to earn less than about $22,000 annually to qualify for the credit — roughly equal to full-time, year-round earnings for a worker earning $10.50 per hour (the state’s minimum wage for large businesses in 2017). The budget deal would raise this income limit beginning in tax year 2018 to just under $25,000 — equivalent to full-time, year-round earnings for workers earning $12 per hour (the state’s minimum wage for large businesses in 2019.) The CalEITC income limit would also increase for workers who do not have dependents, going from about $15,000 currently to almost $17,000.

These two provisions are expected to reduce General Fund revenues by $60 million in 2018-19.

The budget agreement also provides $10 million General Fund to support community-based efforts to promote the CalEITC and evaluate those efforts as well as to support organizations that provide free tax preparation services.

The budget deal does not include an Assembly proposal to extend the CalEITC to low-earning immigrants who are currently ineligible for the credit because they file their taxes using Individual Taxpayer Identification Numbers (ITINs).

Budget Package Creates New Process for Certifying Proposition 98 Minimum Funding Guarantee

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. The 2018-19 budget agreement assumes the same Prop. 98 funding levels as were reflected in the May Revision: $78.4 billion in 2018-19, $75.6 billion in 2017-18, and $71.6 billion in 2016-17.

The budget agreement establishes a new process for how the state certifies the final annual funding level guaranteed under Prop. 98. Specifically, the budget package requires the Department of Finance (DOF) to calculate and publish the Prop. 98 guarantee no later than May 14 for the prior fiscal year and, after a period of public comment, to issue a final certification of the minimum funding obligation and publish this amount by August 15. (For example, the final certification for fiscal year 2017-18 must be published by August 15, 2019.) Any legal challenge to a final certification must be filed within 90 days of DOF’s publication of the Prop. 98 guarantee. The budget agreement also establishes a new process for finalizing prior-year Prop. 98 spending, adjusts the Prop. 98 guarantee to include the cost of wraparound preschool provided by K-12 school districts and county offices of education (COEs), and requires DOF to certify the Prop. 98 guarantee for 2009-10 through 2016-17.

Budget Supports Full Implementation of the Local Control Funding Formula (LCFF) for K-12 Education

The largest share of Proposition 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 2018-19 budget agreement increases funding for the state’s K-12 education funding formula — the Local Control Funding Formula (LCFF) — and, consistent with the Governor’s January proposal and his May Revision, provides sufficient dollars to reach the LCFF’s target funding level in 2018-19. Specifically, the budget agreement:

Provides $3.7 billion to support full implementation of the LCFF, an increase of $407 million above the May Revision. 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 budget agreement provides a 3.7% cost-of-living adjustment (COLA) in 2018-19 for the purpose of calculating LCFF grant targets for K-12 districts and charter schools and provides the remaining funds needed to reach those grant targets and fully implement the LCFF in 2018-19. (All COEs reached their LCFF funding targets in 2014-15.) The budget agreement also includes a provision that would appropriate LCFF dollars to K-12 school districts in future years even if the Legislature does not act and, further, automatically adjusts this appropriation for increases in the cost of living and for changes in enrollment.

Provides $1.1 billion in one-time funding to reduce mandate debt the state owes to schools, down from $2.0 billion proposed in the May Revision. Mandate debt reflects the cost of state-mandated services that school districts, charter schools, and COEs provided in prior years, but for which they have not yet been reimbursed.

Rejects an Assembly proposal to create an ongoing LCFF grant for low-performing students. However, the budget agreement provides $300 million in one-time funding to establish the Low-Performing Students Block Grant to support students who do not meet academic standards on English and mathematics assessments and who are not eligible to receive supplemental grant funding under the LCFF nor identified to receive special education services.

Provides $164 million to support the Strong Workforce Program, down from $212 million proposed in the Governor’s January budget proposal. The budget agreement provides $150 million for a K-12-specific component of the Strong Workforce Program, which was established as part of the 2016-17 budget for the purpose of expanding community college career technical education (CTE) and workforce development programs. The budget package also allocates $14 million for K–12 Workforce Pathway Coordinators and K–14 Technical Assistance Providers to provide technical support to K-12 districts that operate CTE programs.

Allocates $125 million in one-time funding to address the state’s teacher shortage in special education and other areas. The budget package establishes two new competitive grant programs to address areas in which California currently has teacher shortages. The budget allocates $75 million for a new Teacher Residency Grant Program, including $50 million to recruit and prepare special education teachers and $25 million to recruit and prepare science, technology, engineering, mathematics, or bilingual education teachers. The budget also includes $50 million for a new Local Solutions Grant Program to provide “locally identified solutions” that address the need for special education teachers.

Maintains the COLA for non-LCFF programs proposed in the May Revision. The budget agreement provides $114 million to fund a 2.71% COLA proposed in the May Revision for several categorical programs that remain outside of the LCFF, up from the January proposal of a 2.51% COLA. These programs include special education, child nutrition, and American Indian Education Centers.

Provides $27.1 million for the English Language Proficiency Assessment for California (ELPAC). The budget agreement approves the Governor’s May Revision proposal to convert the ELPAC to a computer-based assessment from one that is paper-based as well as to develop a computer-based alternative for children with exceptional needs. The budget agreement makes these one-time dollars available for fiscal years 2018-19 through 2021-22.

Provides $15 million in one-time funding to expand the state’s Multi-Tiered System of Support (MTSS). The budget agreement approves the May Revision proposal to provide funding to the Orange County Department of Education to contract, jointly with the Butte County Office of Education, a to-be-identified California higher education institution to expand the state’s MTSS with the goal of fostering positive school climate in both academic and behavioral areas.

Provides $13.3 million in one-time funding to create the Community Engagement Initiative. The budget agreement approves the May Revision proposal to create this initiative to build the capacity of communities and school districts to deepen community engagement with the goal of improving student outcomes. The budget agreement allocates these one-time dollars to the California Collaborative for Educational Excellence, includes several performance benchmarks for their use, and makes funding available through the 2023-24 fiscal year.

Budget Agreement Moves Forward With New Community College Funding Formula and Online College

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 2018-19 budget agreement approves two new community college proposals: a new funding formula for CCC general-purpose apportionments and the establishment of a fully online community college. Specifically, the new spending plan:

Provides a $522.8 million increase for the new CCC funding formula and adjusts apportionments. The spending plan adopts a new funding formula that apportions funding to districts based on three grant components: a base grant, a supplemental grant, and a student success incentive grant. Funding is allocated as follows:
- - A 70% base grant for each district, based on enrollment of per-Full-Time Equivalent Students (FTES).
  - A 20% supplemental grant based on the number of low-income College Promise Grant fee waiver recipients; specified undocumented students qualifying for resident tuition; and all Pell grant recipients.
  - A 10% student success incentive grant based on performance outcomes of economically disadvantaged students, student transfer rates to four-year institutions, wages of students who have completed a degree or certification program, and other factors.

The final budget includes a “hold harmless” provision that maintains funding for all CCC districts for three years at no less than the amount of funding received in 2017-18 and provides an increase for each district to reflect a cost-of-living adjustment.

Approves new fully online community college. The final budget agreement allocates $120 million ($100 million in one-time funding and $20 million in ongoing funding) for the creation of a new online college. The agreement specifies that this online college will develop unique courses and programs that lead to short-term credentials that are not available at local campuses and that lead into pathways offered at existing colleges. The plan permits the online college to establish its own fee structure, but prohibits it from charging fees higher than a traditional college. The final agreement requires the online college to provide evidence to the Department of Finance (DOF) and the Legislature that it has achieved accreditation candidacy by April 1, 2022 and full accreditation by April 1, 2025.

Consolidates the Student Success and Support Program, the Student Success for Basic Skills Program, and the Student Equity Program into a single block grant. These three categorical programs, which target similar communities of students, will be integrated with the intent of increasing program flexibility.

Provides $23 million for deferred maintenance and other CCC expenses.

Budget Package Increases Funding for CSU and UC, While Making Several Adjustments Regarding Financial Aid Programs

The budget package significantly boosts the funding levels in the May Revision for the California State University (CSU) and the University of California (UC). Specifically, the revised spending plan:

Increases CSU ongoing funding by nearly $200 million and also provides significant one-time funding. The budget agreement allocates $197.1 million in ongoing funding and $161.6 million in one-time funding to support legal services for undocumented students, faculty, and staff and to address student hunger and basic needs, deferred maintenance, and enrollment growth, among others.

Increases UC ongoing funding by nearly $100 million and also provides significant one-time funding. The budget agreement allocates $98.1 million in ongoing support (includes enrollment growth) and $248.8 million in one-time funding to support legal services for undocumented students, faculty, and staff, and to address student hunger and basic needs and deferred maintenance, among others.

The spending plan also makes the following adjustments regarding the state’s financial aid programs:

Creates a new stipulation for addressing the potential impact of tuition increases. The plan allows the Department of Finance (DOF) to reduce primary appropriations for the CSU and UC by the amount of estimated Cal Grant and Middle Class Scholarship program cost increases if tuition is increased in 2018-19.

Increases admission goals for private nonprofit institutions to maintain the maximum Cal Grant tuition awards. The final budget agreement maintains the maximum award for new students attending private nonprofits at $9,084, but adjusts the annual admissions goal for students who have earned an Associate Degree for Transfer (ADT) required to maintain the maximum award level. The budget requires the private nonprofit sector to admit at least 2,000 ADT students in award year 2019-20; 3,000 students in award year 2020-21; and 3,500 in award year 2021-22.

Expands grant eligibility for current and former foster youth. The Cal Grant B Entitlement award provides low-income students with a “living allowance” to help pay for basic expenses. Currently, this award is restricted to students who attend college within one year of graduating high school. The budget agreement extends the Cal Grant B Entitlement award eligibility for current and former foster youth up to age 26. The age limit for current or former foster youth receiving the Chafee Grant has also been extended from 22 to 26.

Budget Package Uses Federal Funds to Provide Additional Subsidized Child Care Slots

California’s child care and development system allows parents with low and moderate incomes to find jobs and remain employed while caring for and preparing their children for school. The state’s subsidized child care and development system is funded with state and federal dollars, but after adjusting for inflation, overall funding for this system is lower than it was 10 years ago due to both state budget cuts made during and after the Great Recession and relatively flat federal funding.

The 2018-19 state budget package utilizes newly available federal funds and continues to reinvest state resources in California’s subsidized child care and development system, but does not adopt the expansive proposals put forth by both the Assembly and the Senate. Specifically, the budget package:

Utilizes newly available federal funding to create time-limited subsidized child care and development slots and to conduct annual inspections. Federal policymakers appropriated additional federal dollars for subsidized child care as part of the omnibus spending legislation for the 2018 federal fiscal year. California will receive $232 million in newly available federal funds as a result. The final state budget package creates 11,307 Alternative Payment Program (AP) slots with $204.6 million of the newly available dollars to be used over two state fiscal years: 2018-19 and 2019-20, which means that the slots are only available to eligible families until June 30, 2020. If federal policymakers appropriate the same amount of money for the 2019 federal fiscal year, then these 11,307 slots will be available through June 30, 2022. The budget package also includes $26.4 million in federal funds for annual inspections of licensed child care providers, as required by federal law.

Modestly increases the number of subsidized child care and state preschool slots with state funds. The budget package includes $15.8 million to add 2,100 AP slots on September 1, 2018. In addition, the budget package provides $8.5 million in Proposition 98 funding to add 2,959 full-day state preschool slots beginning on April 1, 2019, as agreed upon in the 2016-17 budget agreement.

Increases payment rates for providers that contract with the state. The final budget agreement includes a 2.8% rate increase and a 2.7% cost-of-living adjustment for the Standard Reimbursement Rate (SRR), which is the base rate paid to child care providers that contract directly with the state. The budget package also includes $40.2 million to increase the adjustment factors for the SRR for infants, toddlers, and children with special needs, effective January 1, 2019, which will boost payment rates for providers caring for these children.

Increases funding for quality improvement programs. The budget package provides one-time funding for a number of quality and support programs, including $5.0 million for professional development for child care teachers, $5.0 million for the California Child Care Initiative, and $6.0 million in federal funding for other one-time quality activities, such as consumer education.

Provides $109.2 million General Fund for CalWORKs Stage 2 and Stage 3 caseload adjustments. The 2017-18 budget agreement included $25 million to increase the decade-old income eligibility limits and implement a 12-month eligibility period. Based on communication with the Administration, the budget agreement adjusts funding for CalWORKs Stage 2 and Stage 3 child care mainly to reflect a larger-than-expected increase in caseload due to these provisions.

Includes provisions to increase access to early care and education for children with special needs. The 2018-19 budget package creates two new grant programs and establishes a stakeholder workgroup to focus on expanding access to early care and education for children with special needs.

- The budget package provides $167.2 million in one-time Prop. 98 funding to create the Inclusive Early Education Expansion Program with the goal of increasing access to inclusive subsidized early care and education programs. This new program will provide grantees with resources for “infrastructure costs” such as facilities renovation or professional development. Because the new program is funded with Prop. 98 dollars, only Local Education Agencies (LEA) are eligible to apply for the grant program, but the Administration is encouraging partnerships with non-LEAs. Grant funds will be available through June 30, 2023. Grant funds will not be available to provide additional subsidized slots, though that is a requirement of the grant program.
- The final budget agreement includes $10.0 million in Prop. 98 funding to create the Inclusive Early Care Pilot program for county offices of education. This new grant program will also focus on increasing access to subsidized child care and development programs for children with special needs, including children with severe disabilities. Ongoing funding for this grant program will be contingent upon an appropriation in the annual budget act.
- Trailer bill language also creates a stakeholder group — including grantees from the aforementioned programs — to focus on continuously improving access to early care and education for children with special needs. The stakeholder group will work on this issue through June 30, 2023.

The final budget agreement does not include a variety of proposals put forth by both the Senate and Assembly to increase access to subsidized child care for families with low and moderate incomes. For example, the Assembly and the Senate both proposed additional funding for AP slots and General Child Care slots as well as a rate increase for license-exempt providers — often family, friends or neighbors — who care for children on a part-time basis. These providers often are reimbursed at a rate that is well below the minimum wage, which could limit families access to license-exempt care if providers are unwilling to accept the sub-minimum wage rate.

Enacted Budget Takes Preliminary Steps to Raise CalWORKs Grants and Indicates Intent to Reinstate the State COLA

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for over 830,000 low-income children while helping parents overcome barriers to employment and find jobs. The annualized maximum CalWORKs grant for a family of three has been well below the deep-poverty threshold (50% of the federal poverty line) for the past 11 years. In this year’s budget deliberations, the Senate proposed to end deep child poverty in CalWORKs by 2021-22 with phased-in increases to the maximum grant, starting with $400 million in 2018-19 and growing to $1.5 billion by 2021-22. However, the 2018-19 budget package reflects a more modest increase, providing $90 million for a 10% grant increase beginning April 1, 2019. This increase would amount to $360 million in ongoing full-year costs starting 2019-20, if no further increases followed. However, this act is intended as the first of three tentative steps to raise grants above deep poverty potentially over three years. After this initial step, the Legislature plans to halve the gap between the new maximum grant and 50% FPL and then finally close the gap. However, these last two increases are not yet funded and so would depend upon future budget appropriations.

The statutory annual state cost-of-living adjustment (COLA) allows grants to maintain their purchasing power despite inflation, though state policymakers eliminated the COLA for CalWORKs in 2009. In its set of proposals aimed at ending deep poverty in CalWORKs, the Senate called for reinstating the COLA to allow grants to keep pace with the cost of living. Though the enacted budget does not actually reinstate the COLA, it expresses the intent to do so starting July 1, 2022, setting it at 0% with the potential for funding in future budgets.

Enacted Budget Revises Governor’s Proposal for CalWORKs Home Visiting Initiative

In January, the Governor proposed allocating $158.5 million in one-time Temporary Assistance for Needy Families (TANF) funds for a new CalWORKs home visiting pilot initiative, with $26.7 million in TANF dollars allocated in the 2018-19 state budget year and the remaining $131.8 million to be available through calendar year 2021. Under the Administration’s proposal, the initiative would provide up to 24 months of home visiting for first-time CalWORKs parents under age 25, who would have to be either pregnant or parenting a child under age 2. (Participation in this new program would be voluntary.) These eligibility requirements would have excluded many families, as the average CalWORKs household has two children and is headed by a 34-year-old caregiver. The 2018-19 budget package addressed this by extending home visiting services to participants of any age and lifting the restriction on the number of children participants may have, though continuing to prioritize first-time parents. The enacted budget funds the initiative for the first three years, subject to appropriation in the annual Budget Act.

Budget Agreement Ends the “SSI Cash-Out,” Allowing People Enrolled in SSI/SSP to Receive Federal Food Benefits for the First Time Since the 1970s

Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help well over 1 million low-income seniors and people with disabilities in California pay for housing, food, and other basic necessities. Grants are funded with both federal (SSI) and state (SSP) dollars. Since the mid-1970s, the state has prohibited people enrolled in SSI/SSP from receiving federal food benefits provided through the Supplemental Nutrition Assistance Program (SNAP), which is called CalFresh in California. This state policy is known as the “SSI cash-out.”

The 2018-19 budget package ends the state’s SSI cash-out policy. SSI/SSP recipients will become eligible for CalFresh food assistance as soon as June 1, 2019, or no later than August 1, 2019, depending on how rapidly the state can implement this change. Ending the SSI cash-out will primarily benefit households that consist solely of one or more SSI/SSP recipients; the state projects that 369,000 such households will sign up for CalFresh after gaining eligibility, which assumes a 75% participation rate among these households. In addition, the budget agreement creates a state-funded food benefit for certain households whose current CalFresh benefits will be reduced or eliminated when the SSI cash-out ends. These households contain a mix of SSI/SSP recipients and other people with low incomes who 1) are not enrolled in SSI/SSP and 2) receive CalFresh benefits. Because of how CalFresh benefits are calculated, once SSI/SSP recipients become eligible for CalFresh about 80,000 of these mixed households will see their CalFresh assistance reduced or lose eligibility for CalFresh, according to state projections.

The state budget provides $230 million to end the SSI-cash out. Of this amount, $199.3 million will pay for the new state-funded food benefit and the remainder will support automation changes (such as reprogramming computer systems) and counties’ additional costs for administering the CalFresh program. The budget package authorizes the Department of Finance (DOF) to transfer additional funds, as needed, to pay for other costs associated with ending the SSI cash-out.

Budget Package Does Not Provide a State Cost-of-Living Adjustment for SSI/SSP Grants, but Sets the Stage for Annual Increases Beginning in 2022-23

For many years, California law required the state to provide an annual cost-of-living adjustment (COLA) for SSI/SSP grants. The Legislature often suspended these automatic annual increases in order to limit the state’s General Fund obligations for SSI/SSP. Nonetheless, this requirement for an annual state COLA remained in place until the 2011 calendar year, when a new policy — approved by the Legislature in 2009 — took effect: The state COLA for SSI/SSP grants became optional rather than mandatory. In the wake of this change, state policymakers have provided only a single discretionary COLA for SSI/SSP grants: a 2.76% increase to the SSP portion that took effect on January 1, 2017.

The new budget package does not provide a state increase for SSI/SSP grants in 2018-19. However, the budget agreement does revise state law to once again require annual state COLAs for SSI/SSP grants beginning on July 1, 2022. However, this new requirement is substantially watered down compared to the “statutory COLA” that existed prior to 2011. This is because the annual state COLA will be set at 0% each year starting in 2022-23 and can only exceed that level if the Legislature specifies a higher percentage in the budget bill. This means that — as under current law — decisions about whether to provide a COLA will be subject to annual negotiations between state lawmakers and the Governor. Nonetheless, by essentially signaling the Legislature’s intent to begin providing COLAs for SSI/SSP grants within a few years, the 2018-19 budget package sets the stage for annual state increases to this critical source of basic income for low-income seniors and people with disabilities.

Budget Package Aims to Address Health Care Affordability and Financing, but Includes None of the Policy Expansions Advanced by the Legislature

The 2018-19 budget agreement includes provisions that aim to boost the affordability of health insurance, reform health care financing, and develop a statewide database to collect information on health care prices and utilization. Specifically, the budget package:

Requires Covered California — the state’s health insurance exchange — to develop options for providing financial assistance to help Californians purchase health care coverage. These options must include a focus on Californians with incomes up to 600% of the federal poverty line, which equals $72,840 for an individual or $150,600 for a family of four in 2018. Covered California is required to report these options to state policymakers by February 1, 2019.

Creates a state council to examine pathways toward achieving “unified financing” of health care delivery in California. This new five-member council is required to consider a number of factors in developing a plan, including key design elements (such as eligibility and benefits), financing options, and whether any proposed changes would require approval by the federal government and/or by California voters. This plan must be submitted to state policymakers by October 1, 2021.

Provides $60 million to help create a statewide database to collect information on health care prices and utilization in California. This database is intended to be “substantially completed” by July 1, 2023, with the goal of providing “greater transparency regarding health care costs” as well as informing health care policy decisions, according to Assembly Bill 1810, the health care “trailer bill.” The development of this database will be led by the Office of Statewide Health Planning and Development (OSHPD) with input from an advisory committee made up of health care policy experts. OSHPD is required to submit a report to the Legislature by July 1, 2020, that addresses a number of considerations, including recommending “a plan for long-term, non-General Fund financing to support the ongoing costs of maintaining the database.”

While the budget agreement promotes long-term efforts to improve California’s health care system, it does not incorporate any health care coverage expansions or affordability policies that the Legislature had advanced. For example, the budget package:

Does not expand eligibility for Medi-Cal to undocumented immigrant adults. The Assembly’s spending plan proposed to expand Medi-Cal eligibility to undocumented adults up to age 26; the Senate’s plan would have expanded eligibility to undocumented adults age 65 or older.

Does not provide state-funded assistance to moderate-income Californians who buy health insurance on the individual market, including through Covered California. The Assembly’s spending plan included new premium assistance or tax credits to help Californians with incomes up to 600% of the federal poverty line pay for health insurance.

Does not end Medi-Cal’s “senior penalty.” Currently, Californians age 65 and older can qualify for no-cost Medi-Cal only if their income is at or below about 123% of the poverty line. In contrast, for younger adults the income limit for no-cost Medi-Cal is 138% of the poverty line. Seniors who fall into this coverage gap must pay a deductible (known as a “share of cost”) that can amount to hundreds of dollars per month in order to access Medi-Cal services. Both the Assembly and the Senate proposed to eliminate this senior penalty by increasing the income limit for adults age 65 and older to 138% of the poverty line.

Budget Package Allocates More Than $1 Billion in Proposition 56 Tobacco Tax Revenues for Medi-Cal Provider Payment Increases and a New Loan Assistance Program

Approved by California voters in 2016, Proposition 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, which provides health care services to more than 13 million Californians with low or moderate incomes. The 2018-19 budget package allocates more than $1 billion of Medi-Cal’s share of Prop. 56 dollars for 1) payment increases for doctors, dentists, and other Medi-Cal providers ($821.3 million) and 2) a new loan assistance program for recent medical and dental school graduates who serve Medi-Cal beneficiaries ($220 million). The state Department of Health Care Services will develop the eligibility rules and other criteria for the loan assistance program, which is called the “Proposition 56 Medi-Cal Physicians and Dentists Loan Repayment Act Program.”

Budget Includes Some New Funding for Legal Services for Immigrants, but Leaves Other Immigrant-Focused Proposals Unfunded

The 2018-19 budget agreement provides a total of $31 million in one-time funding for legal services for immigrants, adding to the increased funding for immigrant legal services already included in the current year’s budget. This one-time funding includes a $10 million augmentation to the Department of Social Services for legal services for immigrants, including undocumented unaccompanied minors and individuals with current or past Temporary Protected Status (TPS). The budget also includes one-time allocations for legal services for undocumented and other immigrant students, faculty, and staff at California’s public colleges and universities, including $4 million General Fund for those at the University of California and $7 million for those at the California State University, as well as $10 million Proposition 98 General Fund for those at California community colleges. In addition, the budget includes a new allocation of $670,000 ongoing in Mental Health Services Act (Prop. 63) funding to address mental health needs of immigrants and refugees.

The 2018-19 budget agreement does not include funding for other proposals to address the needs of immigrants that had been introduced in the Legislature. These included proposals to extend Medi-Cal eligibility to undocumented immigrant young adults (which would have cost an estimated $125 million in 2018-19 and $250 million ongoing) and to undocumented seniors (which would have cost an estimated $75 million in 2018-19 and $150 million ongoing), as mentioned above (in the section titled “Budget Package Aims to Address Health Care Affordability and Financing, but Includes None of the Policy Expansions Advanced by the Legislature”), and to extend eligibility for the CalEITC to immigrant workers who file taxes with an Individual Taxpayer Identification Number (ITIN), as mentioned above (in the section titled “Budget Agreement Strengthens the CalEITC”).

Budget Package Dramatically Increases State Funding for the 2020 Census

The 2018-19 budget includes $90.3 million in state funding for the 2020 federal census, more than double the $40.3 million proposed by the Governor in January. Funding will support the California Complete Count Committee, which oversees census outreach, awareness, and coordination efforts — particularly for hard-to-count residents. The committee was created after the undercount of the state’s population in the 1990 decennial federal census. This undercount likely resulted in California losing a seat in the US House of Representatives as well as about $2 billion in federal funding over a 10-year period. This funding in the 2018-19 budget package aims to ensure an accurate count of California’s population through statewide coordination of a multiyear, multilingual campaign.

There are a number of issues that raise concerns about the 2020 Census. First, federal funding for the 2020 Census has not been adequate to fully prepare for the count. Second, the US Census Bureau has significantly changed the way in which it plans to administer the 2020 survey, and the agency will be hiring far fewer field workers to follow up with households who are late to respond. Third, the Trump Administration has announced that it will be adding a citizenship question to the census, which could depress response rates given the administration’s virulent attitude toward immigrants.

The decennial census is an important tool that provides indispensable social and economic data about the state and the country. The census count also determines how federal dollars are distributed to states and how many seats each state has in the House of Representatives. It is in California’s best interest to ensure that the 2020 census is as accurate as possible, a goal reflected in this state funding for census outreach, awareness, and coordination.

Budget Includes New Funding to Address Homelessness and Proposes Future Investment in Affordable Housing

California has nearly 25% of the nation’s population of homeless individuals, with an estimated 134,000 homeless residents as of January 2017. More than two-thirds of California’s homeless residents are unsheltered, sleeping in locations such as in a vehicle, in a park, or on the street. The 2018-19 budget agreement dedicates a share of the higher-than-projected revenues received this year to address homelessness, incorporating proposals introduced by both the Governor and the Legislature. These include significant one-time investments as well as some smaller new ongoing expenditures. Specifically, the budget:

Allocates $500 million to one-time Homeless Emergency Aid block grants. These grants will be available to localities that declare a local shelter crisis (or receive a waiver of that requirement). Grants can be used for one-time activities to address homelessness that may include, but are not limited to, “prevention, criminal justice diversion programs to homeless individuals with mental health needs, and emergency aid,” with at least 5% of funds dedicated to addressing the needs of homeless youth. Of the total amount available for these block grants, $350 million will be administered through existing Continuum of Cares (local homelessness planning bodies), of which $250 million will be distributed according to a formula based on the size of the local homeless population, and an additional $100 million will be distributed based on each locality’s share of the total statewide homeless population. The remaining $150 million in block grants will be awarded to cities that have a population of 330,000 or more, with these grants proportionate to the size of the local homeless population.

Increases funding for two CalWORKs programs that assist homeless families. The budget agreement adopts the proposal in the Governor’s May Revision to increase funding for these two ongoing programs. The CalWORKs Housing Support Program, which helps families secure permanent housing, receives an additional $24.2 million in 2018-19, increasing to an additional $48.4 million in 2019 and beyond (for total ongoing funding of $95 million annually). The CalWORKs Homeless Assistance Program, which provides up to 16 days per year of temporary housing for homeless CalWORKs participants via vouchers for temporary shelter or hotels/motels, receives an additional $8.1 million in 2018-19 in order to raise the daily voucher rate, so that a family of four would be allowed $85 per night rather than the current $65 per night, beginning January 1, 2019.

Dedicates $15 million in one-time funding over three years for a pilot program to prevent and address homelessness among seniors. The budget adopts the Governor’s May Revision proposal to create the Home Safe Pilot Program, housed within Adult Protective Services, which will provide funds to address homelessness among seniors. Funds are available to counties that provide a local match.

Increases General Fund dollars on a one-time basis to address homelessness among domestic violence survivors and youth. The budget adopts the proposal in the Governor’s May Revision to allocate an additional $10 million to support domestic violence shelter services and an additional $1 million to support homeless youth shelters through the Office of Emergency Services.

Makes a one-time $50 million allocation to the Department of Health Care Services to provide services for homeless individuals with mental illness. The budget adopts the Governor’s May Revision proposal to allocate one-time funds for county mental health services for homeless individuals. Counties will submit requests for funds, and allocations will consider the local number of homeless individuals with serious mental illness, county population, and the population of homeless individuals with recent criminal justice system involvement.

The budget agreement also adopts the proposal in the Governor’s May revision to dedicate $500,000 to expand staffing and provide ongoing support for the Homeless Coordinating and Financing Council, which was created in 2016 to identify and oversee implementation of homeless programs at the state level. The Council will be elevated from its current location within the Department of Housing and Community Development (HCD) to its own department-level status within the Business, Consumer Affairs, and Housing Agency.

A final homelessness item included in the budget agreement does not allocate new funding, but rather provides that the No Place Like Home program will be placed on the November 2018 statewide ballot for voter validation. This program was developed as a legislative proposal and dedicates $2.0 billion in bond proceeds, to be repaid with funds from the Mental Health Services Act (MHSA), for permanent supportive housing for individuals with mental illness who are homeless or at risk of homelessness. Though the Governor signed the legislation in July 2016, it has not been implemented due to a legal challenge asserting that MHSA funds cannot be used for this purpose. Voter validation of this use of MHSA funds would allow the program to proceed. The budget agreement includes a provision that $1.2 million General Fund will be loaned to HCD, which the Governor had proposed in his May Revision to allow the Department to issue an initial Notice of Funding Availability prior to November. This way, if voters approve the No Place Like Home measure, the first funding awards can be announced by December. The November ballot will also include the $4 billion bond for affordable housing that was part of the legislative housing package signed in September 2017. With the No Place Like Home proposal on the ballot as well, voters will be asked to approve two major housing-related bond measures in November.

In addition to the above provisions related to homelessness, the 2018-19 budget agreement includes details of the first-year allocations from the Building Homes and Jobs Trust Fund, which is funded by the new real estate recording fee created last year by Senate Bill 2 (Atkins) as part of the 2017 legislative housing package. Half of the recording fee funds available for local assistance in this first year ($122.6 million) are dedicated to supporting housing planning by local jurisdictions. The remaining $122.6 million available for local assistance in 2018-19 are dedicated to addressing homelessness, and the budget agreement allocates $56.3 million of these funds to Continuum of Cares to support specific eligible activities to prevent and address homelessness. Another $56.3 million of these funds are allocated to the Housing for a Healthy California program, which supports interim and long-term housing for homeless individuals who receive Medi-Cal, are eligible for Supplemental Security Income, are eligible to receive services that promote housing stability, and are likely to improve their health with supportive housing. The budget agreement also allocates $10 million of the recording fee funds to specific homelessness projects in Orange County and Merced County.

A final housing-related provision in the 2018-19 budget agreement is a proposal to allocate future state dollars to support affordable housing development. As described above (in the section titled “Budget Package Brings Constitutional Rainy Day Fund Balance to Its Maximum Level”), the budget includes an optional deposit into the state’s constitutionally-required “rainy day fund” in order to bring the rainy day fund balance up to its constitutional maximum of 10% of General Fund tax revenue in 2018-19. In future years, if the rainy day fund balance remains at this maximum level, the “overflow” revenue that would have been required to be set aside in the rainy day fund must be spent on infrastructure instead, and housing qualifies as infrastructure under the applicable definition. The 2018-19 budget agreement specifies that if “overflow” infrastructure funds are available in fiscal years 2019-20 through 2021-22, the first $415 million of these funds shall be used for state buildings and their deferred maintenance. Any “overflow” infrastructure funds beyond this first $415 million shall be split evenly between spending on rail infrastructure and spending on affordable housing development through the Multifamily Housing Program. Though this future spending plan for “overflow” funds is outlined in this year’s budget, policymakers in future years can choose to follow this plan or allocate these funds differently, as long as any “overflow” funds are spent on items that qualify as infrastructure.

Budget Agreement Includes a $1.4 Billion Plan for Allocating Cap-and-Trade Revenues

Established by the California Global Warming Solutions Act of 2006 (Assembly Bill 32), California’s “cap and trade” program sets a statewide limit on the emission of greenhouse gases and authorizes the Air Resources Board to auction off emission allowances. Proceeds from these auctions are deposited in the state’s Greenhouse Gas Reduction Fund (GGRF), with these funds generally invested in activities that seek to reduce greenhouse gas emissions. The budget package allocates $1.4 billion in GGRF revenues in 2018-19, with 80% of these funds ($1.1 billion) going to three state entities: the Air Resources Board ($845 million), the Department of Forestry and Fire Protection ($195 million), and the Energy Commission ($80.5 million). The remaining funds are allocated primarily to the Department of Food and Agriculture ($104 million) and the Strategic Growth Council ($60 million).

Budget Agreement Creates a Roadmap for Reducing the Capacity of the State Correctional System if the Number of Incarcerated Adults Continues to Decline

In recent years, California has made substantial progress in reducing the number of adults incarcerated at the state level. This reduction has resulted largely from a series of criminal justice reforms adopted by state policymakers and the voters — reforms that came on the heels of a 2009 federal court order that required California to reduce overcrowding in state prisons and established a prison population cap. (This court order is still in effect.) The Governor’s Administration anticipates that state-level incarceration will continue falling in the near term, which will allow California to end the use of out-of-state prisons by early 2019. Currently, well over 2,000 Californians are housed in facilities in Arizona and Mississippi because there is no room for them in state prisons in light of the court-imposed prison population cap.

The 2018-19 budget package establishes a roadmap for reducing the capacity of the state correctional system if the number of prisoners continues to decline. The top priority is to close “private in-state male contract correctional facilities that are primarily staffed” by workers who are not employed by the California Department of Corrections and Rehabilitation (CDCR). If there are further declines in state-level incarceration, the CDCR would be required to reduce “the capacity of state-owned and operated prisons or in-state leased or contract correctional facilities, in a manner that maximizes long-term state facility savings, leverages long-term investments, and maintains sufficient flexibility to comply with the federal court order to maintain the prison population at or below 137.5% of design capacity.”

In addition, the 2018-19 budget agreement:

Provides $50 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, $25 million is available for rental assistance, $15 million will be used to upgrade existing buildings that will be used to house formerly incarcerated adults, and $9.4 million is set aside “to support the warm hand-off and reentry” of people transitioning out of prison. Nearly all of the remaining funds will be used to support program administration.

Provides $37.3 million to establish a new Youth Reinvestment Grant Program to support local “trauma-informed” diversion programs for minors. The BSCC will distribute the vast majority of funds (94%) through a competitive grant process to cities and counties, which must provide a match of between 10% and 25%. Local jurisdictions then must pass through most of these funds to CBOs to “deliver services in underserved communities with high rates of juvenile arrests.” Services must include education, mentoring, and mental and behavioral health services, along with “diversion programs and alternatives to arrest, incarceration, and formal involvement with the juvenile justice system.” The remaining Youth Reinvestment Grant Program funding will go to Indian tribes (3%) or be used to support program administration (3%).

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College attainment is associated with higher incomes for individuals, greater revenue for the state and local governments, and improved outcomes for communities such as lower crime rates and better health.[1] The 21^st-century economy requires more individuals with at least a college degree. Research suggests that California will experience a deficit of 1 million college-educated workers by the year 2030.[2] Students in California — and economically disadvantaged students in particular — face many obstacles to obtaining a college degree. This Brief is the first in a series highlighting some of these barriers and addressing policy solutions that help make college affordable and accessible for more low- and middle-income Californians.

Abstract

Many college students across the state experience food and housing insecurity. State and federal public supports have not kept pace with rising costs of living, leaving many students unable to meet their basic needs such as food and housing. Students facing housing and food insecurity are more likely to experience poor academic, health, and mental health outcomes. Policymakers can better support students by increasing Cal Grant student aid, improving on-campus awareness of and access to available food assistance, providing campuses with funding to help students who are experiencing homelessness and/or food insecurity, and boosting access to affordable housing.

Several Programs Aim to Support Low-Income Students’ Basic Needs

Students pursuing a college degree face two main costs: tuition and fees charged by the institution and student-related living expenses such as housing, food, transportation, and books and supplies (referred to as “nontuition and fees”). Of these living expenses, housing and food are two of the most “basic needs” that some students struggle to afford. Many low-income students qualify for grant aid that covers the cost of their tuition and fees. There are also a number of federal, state, and campus-based programs that are intended to help students pay for basic living expenses, such as housing and food. In California, these include:

The Cal Grant B access award. This grant provides low-income students with a “living allowance” to help pay for basic expenses. In 2018-19, the maximum annual award amount is $1,672.[3]
CalFresh food assistance. CalFresh — California’s version of the federal Supplemental Nutrition Assistance Program (SNAP) — is one of the most important tools to reduce poverty and hunger. The maximum monthly amount of CalFresh assistance is $192 for a single person, although students receive less if they have earnings from work.[4] In 2017, AB 214 (Weber) was signed, requiring the California Student Aid Commission (CSAC) to provide written notice to certain Cal Grant recipients that they may be eligible for CalFresh benefits.
Campus food pantries. Each of the 23 California State University (CSU) campuses operates a food pantry or food distribution program, stemming from the 2016 Basic Needs Initiative. This initiative aims to identify and implement solutions to support students’ basic needs, with a focus on food and housing insecurity.[5] The University of California’s (UC) Global Food Initiative also commits funding to establish food pantries at each of the UC’s nine undergraduate campuses.[6]
Hunger Free Campus Initiative. This program was created as part of the 2017-18 state budget agreement and supports the CSUs and UCs in addressing student hunger. The initiative provides funding to designated “hunger free campuses” that establish “meal sharing” programs, on-campus food pantries or regular food distributions, and a designated campus employee to help ensure students have the information they need to enroll in CalFresh.[7]
Homeless student liaisons on all campuses. Assembly Bill 801 (Bloom), signed in 2016, requires the CSU (and encourages the UC) to establish a liaison to help homeless students apply for financial aid and navigate other system resources available to them. These resources could include priority registration, selecting courses, finding housing, and information about work opportunities.

Existing Support for Low-Income Students Falls Short

The existing web of federal, state, and campus-based support programs for students has not kept pace with rising living expenses, leaving many low-income students struggling to pay the rent and put food on the table. For example, since 2006, the median rent in California has increased by 44%, whereas the maximum Cal Grant B award has gone up by only 8% (Figure 1). This means that rent accounts for a greater share of students’ budgets, reducing their ability to cover other basic necessities. In fact, more than 1 in 10 CSU students (11%) and 1 in 20 UC students (5%) reported experiencing homelessness over the past year.[8] While the state has made efforts to assist homeless students through AB 801, there has been no funding attached to this legislation, making implementation difficult for some schools.

Available food assistance also fails to meet students’ needs. While more than 4 in 10 students at both institutions reported experiencing food insecurity (42% at CSU; 44% at UC), few receive CalFresh benefits.[9] Recent studies at the CSU and UC indicate that African American and first-generation students experience the highest rates of food insecurity and homelessness.[10] Many low-income students are denied CalFresh assistance because the federal SNAP law requires students to work at least 20 hours a week or qualify for an exemption.[11] The federal eligibility guidelines and exemptions for SNAP are complicated and difficult for administrators and students to understand, resulting in the underutilization of CalFresh.[12] In addition, many students are unaware of CalFresh and other on-campus services such as food pantries.[13]

While housing costs vary, state aid to support students’ basic needs remains constant (and low) across the state.[14] The maximum Cal Grant B access award of $139 per month, combined with the maximum monthly CalFresh assistance of $192, covers less than one-quarter of basic housing and food costs in two of California’s highest-cost regions; Los Angeles/South Coast and the San Francisco Bay Area (Figure 2).[15] For instance, a low-income student at UCLA is eligible for a maximum $331 in aid, but could face monthly food and housing costs of $1,414.

How Are Students Impacted by Food and Housing Insecurity?

Unmet basic needs threaten student’s health, well-being, and academic achievements. Food and housing insecurity among college students are associated with poor health and mental health symptoms such as depression and anxiety. Food insecurity also coincides with lower academic achievement and higher rates of “inactive days,” where usual activities are stymied by poor physical or mental health.[16] Students who are concerned about their unmet basic needs often take on additional paid work to cover expenses. These students may enroll part-time, drop courses, or skip semesters — resulting in longer time to graduate and higher costs.[17]

Policy Solutions

Efforts to reduce the gap between students’ basic needs and available support have progressed, as noted earlier, through state support and programs offered by the CSU and UC systems, but there is still considerable room for improvement. California policymakers should:

Increase the Cal Grant B access award. Living expenses for many students exceed tuition and are the least supported by aid. Increasing the Cal Grant B access award and considering the geographic cost of living when setting award levels might allow students to limit their work hours, which in turn could help to increase the number of students graduating on time and reduce costs.
Improve on-campus awareness of and access to food assistance. Improving awareness about CalFresh benefits and establishing application assistance on every public college campus would help facilitate enrollment of eligible students into CalFresh. Expanding awareness about on-campus food pantries and meal sharing programs could also increase the utilization of available supports.
Provide campuses with funding to help students who are experiencing homelessness and/or food insecurity. AB 801 requires certain campuses to establish liaisons for homeless students and former foster youth. However, there is no funding attached to this requirement, making it difficult for many campuses to comply. Providing funding for AB 801 would help campuses carry through the Legislature’s intent and better serve the needs of students. In addition, the Legislature could require all CSU’s to participate in the Hunger Free Campus Initiative, which provides funding to campuses that are helping students with food insecurity.
Increase access to affordable housing. Statewide, policies that promote more housing production for all income levels and increase the production of affordable housing for low-income communities could help lessen the burden of high housing costs. At the campus level, requiring CSUs and UCs to prioritize low-income and homeless students for on-campus housing would ensure that resources are allocated to students with the greatest needs.

Conclusion

The costs associated with a college degree have risen significantly in recent years. Available state and federal aid have not kept pace with these increases, leaving many students unable to afford basic living expenses. Students who have unmet basic needs have lower health and academic outcomes and take longer to complete college and enter the workforce. In order to meet the need for more college-educated workers, state leaders should invest in programs that ensure all students have their basic needs met while striving for a college degree.

Endnotes

[1] Noah Berger and Peter Fisher, A Well-Educated Workforce Is Key to State Prosperity (Economic Analysis and Research Network: August 22, 2013).

[2] Hans Johnson, Marisol Cuellar Mejia, and Sarah Bohn, Will California Run Out of College Graduates? (Public Policy Institute of California: October 2015).

[3] California Student Aid Commission (CSAC) 2018-19 Cal Grant Programs accessed from https://www.csac.ca.gov/sites/main/files/file-attachments/g-30_2018_cal_grant_comparison.pdf on May 9, 2018.

[4] Maximum monthly CalFresh benefits are annually established by the federal government. Current benefit levels are for federal fiscal year 2018, which ends on September 30, 2018. Earnings from work and other types of income reduce the amount of CalFresh benefits that an individual may receive.

[5] The Basic Needs Initiative was created by the CSU in 2016.

[6] The UC Global Food Initiative was created in 2014 to address the issue of food insecurity on UC campuses and throughout the world. For a discussion of strategies to address students’ basic needs, see University of California, Global Food Initiative: Food and Housing Security at the University of California (December 2017).

[7] “Meal sharing” programs encourage college students to donate unused meal credits to students who need them and any remaining credits to the on-campus food pantry.

[8] University of California, Global Food Initiative: Food and Housing Security at the University of California (December 2017), and Rashida Crutchfield and Jennifer Maguire, Study of Student Basic Needs (California State University: January 2018).

[9] University of California, Global Food Initiative: Food and Housing Security at the University of California (December 2017), and Rashida Crutchfield and Jennifer Maguire, Study of Student Basic Needs (California State University: January 2018).

[10] University of California, Global Food Initiative: Food and Housing Security at the University of California (December 2017), and Rashida Crutchfield and Jennifer Maguire, Study of Student Basic Needs (California State University: January 2018).

[11] For a more detailed discussion, see Responding to the College Hunger Crisis (Western Center on Law and Poverty: February 2018).

[12] AB 214 (Weber), signed in 2017, clarified student eligibility for CalFresh; however, conversations with key stakeholders reveal that limited campus staff and education for students result in continued confusion. California’s Department of Social Services does not collect statewide data on student enrollment in CalFresh. One report estimates that 78% of college students in California are eligible for CalFresh and do not receive assistance. See Young Invincibles, Rethinking SNAP Benefits for College Students (February 2018).

[13] More than half (52%) of CSU students surveyed were unaware of a food pantry located on their campus and 40% had never heard of CalFresh. Rashida Crutchfield and Jennifer Maguire, Study of Student Basic Needs (California State University: January 2018).

[14] This analysis focuses on state support only. Many low-income students are eligible for federal Pell Grants, which can be used to pay for living expenses. The average Pell Grant award was $3,740 in 2016-17.

[15] Figure 2 reflects the regional “Fair Market Rent” (FMR) for a studio apartment, which includes utilities, combined with the US Department of Agriculture’s Low-Cost Food Plan for a single adult – This food plan currently costs $268 per month. Regional FMRs are weighted by county population. Current FMRs will remain in effect through September 30, 2018.

[16] Rashida Crutchfield and Jennifer Maguire, Study of Student Basic Needs (California State University: January 2018).

[17] California Community Colleges Student Mental Health Program, Meeting Basic Needs to Support Students’ Mental Health and Success (September 2017) accessed from http://www.cccstudentmentalhealth.org/docs/CCCSMHP-Students-Basic-Needs-Fact-Sheet.pdf on May 9, 2018.

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Executive Summary

On May 11, Governor Jerry Brown released the May Revision to his proposed 2018-19 state budget. The Governor forecasts revenues $8.0 billion higher — over a three-year window — than projected in January, mostly reflecting higher tax collections due to strong economic growth and stock market gains.

Most of the additional revenues are set aside to build up reserves, pay down budgetary debts, and make one-time investments in infrastructure. The May Revision provides $6.1 billion for reserves and paying down debt — $3.5 billion as constitutionally required by Proposition 2 (2014), with half deposited in the rainy day fund and half used to pay down debts — and an additional, discretionary $2.6 billion deposit to the rainy day fund. The Administration also sets aside $3.2 billion for other uncertainties in a separate reserve fund. State reserves would total $17.0 billion by the end of 2018-19. The May Revision also provides $2 billion in one-time investments in deferred maintenance of infrastructure.

The May Revision makes several improvements over the January proposal. It expands eligibility for the California Earned Income Tax Credit (CalEITC) to young adults and seniors who are currently excluded, broadening the reach and impact of this important credit. Other notable improvements include allocating some of the higher-than-expected revenues to one-time spending for addressing homelessness and providing mental health services. Like the January proposal, the May Revision calls for funding to fully implement the Local Control Funding Formula for K-12 education.

However, and especially in light of the significant discretionary funds available due to strong revenues, the May Revision leaves much room for additional investments in individuals, families, and communities across California. The revised budget does not include new proposals to address housing affordability or the large unmet demand for subsidized early care and education — two areas that make up the largest share of many household budgets. It also continues to underinvest in the welfare-to-work system (CalWORKs) and basic income support for low-income seniors and people with disabilities (SSI/SSP). And, while the revised budget maintains marginal increases for the state’s higher education systems, it does so against a backdrop of increasing needs and decades of state disinvestment.

As the Governor and the Legislature work toward a budget agreement in the coming weeks, there is ample room to strike a better balance between saving for a rainy day and investing in Californians.

The following sections summarize key provisions of the Governor’s revised 2018-19 budget.

Download full report (PDF) or use the links below to browse individual sections of this report

Economic Outlook/Revenue: May Revision Reflects an Improved Fiscal Outlook
Reserves and Budgetary Debt Repayments: The Governor’s Revised Proposal Continues to Maximize the State’s Rainy Day Fund and Build Up State Reserves
Infrastructure: May Revision Prioritizes One-Time Infrastructure Investments
California Earned Income Tax Credit (CalEITC): May Revision Strengthens the CalEITC
Housing: May Revision Proposes New Funding to Address Homelessness
Immigration: Governor’s Revised Budget Proposes No New Funding to Address Needs of Immigrants
Prop. 98 and K-12 Education: Increased Revenues Boost the Minimum Funding Level for Schools and Community Colleges
Community Colleges: Administration Proposes Adjustments to New Funding Formula for California Community Colleges and Offers Details on Online Community College
CSU/UC: Governor Maintains Modest Funding Increases for CSU and UC
Mental Health: Revised Budget Boosts State Investments in Mental Health Services
Health: Revised Budget Includes No Major Changes to State Health Policy
Home Visting: Governor Maintains Proposal for CalWORKs Home Visiting Pilot Initiative, but Does Not Expand Eligibility
Early Care and Education: May Revision Does Not Provide Funding for Additional Subsidized Child Care Slots With State or Federal Funds
No New Investments (CalWORKs and SSI/SSP): Revised Budget Makes No Investments in CalWORKs or in SSI/SSP Cash Assistance for Low-Income Californians
Criminal Justice: May Revision Highlights Modest Decline in Incarceration, Includes New Funding to Expand Hepatitis C Treatment

May Revision Reflects an Improved Fiscal Outlook

The Governor’s revised budget reflects an improved fiscal outlook, with General Fund revenues over the three-year “budget window,” from 2016-17 to 2018-19, expected to be about $8.0 billion higher than projected in January. After accounting for transfers, which include loan repayments as well as required and discretionary transfers to the state’s rainy day fund (the Budget Stabilization Account), General Fund revenues are expected to be $7.6 billion higher than projected in January.

The May Revision projects that all three major sources of General Fund revenues will be higher than in January, with personal income tax (PIT) revenues up by about $4.4 billion, sales and use tax (SUT) revenues up by $744 million, and corporation tax (CT) revenues up by over $2.5 billion. Higher PIT revenues reflect the combination of higher projected capital gains and wages, particularly among highly paid workers. Increased SUT revenues reflect, in part, greater business investment due to recent federal tax law changes, while higher CT revenues are due to several factors, including higher projected corporate profits and the repatriation of foreign earnings as a result of recent federal tax changes.

The Legislative Analyst’s Office’s (LAO) updated fiscal outlook projects significantly higher revenues than the Administration. Specifically, the LAO projects that General Fund revenues over the three-year budget window will exceed the Governor’s January forecast by $10.8 billion — $2.7 billion higher than the Administration’s May Revision projection. After accounting for transfers, the LAO projects that General Fund revenues will exceed the Governor’s January forecast by $10.2 billion — $2.6 billion higher than the Administration’s May Revision projection. These differences largely reflect the fact that the LAO expects PIT revenues to be $3.7 billion higher than does the Administration, largely due to higher capital gains and wages. The LAO’s higher PIT revenue projection is offset by lower projected SUT and CT revenues (by $757 million and $88 million, respectively).

The Governor’s revised budget continues to caution that the state’s improved fiscal outlook is subject to a number of risks that the Administration believes pose greater threats now than in January. These include the risk of a national recession coming at a time when many people have yet to fully recover from the prior downturn; the risk of an increase in import tariffs, which could hit California particularly hard since many of the state’s businesses depend on international trade; and the risk of a stock market correction, which could disproportionately affect California since stock market gains over the past decade have been driven by technology companies in the state. In addition, the Administration notes that while its forecast assumes that recent federal tax changes will temporarily boost the national economy, these gains will likely come at a cost over the long-term by dampening future economic growth and exacerbating income inequality.

The Governor’s Revised Proposal Continues to Maximize the State’s Rainy Day Fund and Build Up State Reserves

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 will be deposited into the rainy day fund, and the other half will be used to reduce certain state liabilities (also known as “budgetary debt”).

Based on the Governor’s revenue projections for 2018-19, Prop. 2 would constitutionally require the state to deposit $1.75 billion into the BSA (and to use an additional $1.75 billion to repay budgetary debt). In addition, the Governor proposes to make an optional, one-time supplemental transfer of $2.6 billion from the General Fund to the BSA. (The total transfer to the BSA would be $4.4 billion: $1.75 billion as required by the state Constitution, plus the $2.6 billion supplemental transfer.) As a result, the BSA would grow to a total of $13.8 billion by the end of the 2018-19 fiscal year.

Under the scenario outlined by the Governor, the BSA could reach its constitutional maximum of 10% of General Fund tax revenues in 2018-19. When this limit is reached, Prop. 2 requires that any additional dollars that would otherwise go into the BSA be spent on infrastructure, including spending on deferred maintenance. In other words, Prop. 2 prohibits these additional dollars from being allocated to ongoing programs and services.

The BSA is not California’s only reserve fund. Each year, the state deposits additional funds into a “Special Fund for Economic Uncertainties” (SFEU). For 2018-19, the Governor proposes to leave $3.2 billion in this fund. Including this fund, the Governor’s proposal would build state reserves to a total of $17.0 billion in 2018-19.

One additional implication of the Governor’s proposal is that the $2.6 billion supplemental transfer to the BSA may not be readily available to help the state meet needs created by future developments, such as federal budget cuts. In order to access the BSA funds, the Governor would need to declare a “budget emergency,” defined by Prop. 2 as a disaster or extreme peril, or insufficient resources to maintain General Fund expenditures at the highest level of spending in the three most recent fiscal years, adjusted for state population growth and the change in the cost of living. After a budget emergency has been declared, a transfer to the BSA could be suspended or reduced only through a bill passed by a majority vote of each house of the Legislature.

May Revision Prioritizes One-Time Infrastructure Investments

The Governor’s revised budget calls for $2 billion in one-time infrastructure investments to address deferred maintenance of state facilities. The Administration estimates that the state has $20 billion in liabilities for deferred maintenance, not including roads and highways. The proposed funding includes $630 million for improvements to state office buildings in Sacramento; allocations for state higher education systems — the California Community Colleges system ($143.5 million), the California State University ($100 million), and the University of California ($100 million); $174 million for state corrections facilities; $100 million for flood control and levee improvements; $100 million for courts; $100 million for state hospitals; and $100 million for state park facilities, in addition to other allocations across a range of state agencies and facilities.

May Revision Strengthens the CalEITC

The Governor’s May Revision proposes to strengthen 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. Specifically, the revised budget:

Extends the CalEITC to low-earning young adults and seniors who are currently ineligible for the credit. Since the CalEITC was created in 2015, it has conformed to the age requirements of the federal EITC. This means that workers with incomes low enough to qualify for the state credit and who are not living with qualifying children cannot benefit from the CalEITC if they are younger than age 25 or older than age 64. The May Revision eliminates this age requirement, allowing childless adults and non-custodial parents who are just starting out in the workforce, as well as those who are working beyond the traditional retirement age, to qualify for this state tax credit beginning in tax year 2018. Last year, Minnesota lowered the age requirement for that state’s EITC to 21, and last month Maryland’s Legislature approved, and the Governor is expected to sign, legislation to lower the age limit for that state’s EITC to 18. In addition, several federal proposals in recent years have called for changing the federal EITC age requirements for childless workers and noncustodial parents.

Raises the income limit to qualify for the CalEITC. The 2017-18 budget increased the income limit to qualify for the CalEITC for workers with qualifying children to about $22,300 — equivalent to just over a full-time, year-round salary at a $10.50-per-hour minimum wage. This minimum wage applied to workers at large businesses in 2017 and has applied to workers at small businesses since January 2018. The May Revision further raises the CalEITC income limit for workers with qualifying dependents to $24,960 — the equivalent of a full-time, year-round salary at a $12-per-hour minimum wage, which will apply to workers at large businesses in 2019 and at small businesses in 2020. Last year’s budget also increased the CalEITC income limit for workers without qualifying children to about $15,000, and the May Revision further boosts this limit to $16,800. Both of these changes also would go into effect beginning in tax year 2018.

Together, these two changes to the CalEITC are expected to benefit over 700,000 households and reduce General Fund revenues by about $60 million in 2018-19, according to the Administration.

As in January, the Governor’s proposal does not provide any additional funds to maintain or expand community-based efforts to promote the CalEITC in order to boost credit claims. The May Revision also does not appear to provide any state funds to expand free tax preparation services for low-income tax filers.

May Revision Proposes New Funding to Address Homelessness

California has nearly 25% of the nation’s population of homeless individuals, with an estimated 135,000 homeless residents as of January 2017. More than two-thirds of California’s homeless residents are unsheltered, sleeping in locations such as in a vehicle, in a park, or on the street.

The Governor proposes using some of the higher revenues reflected in the May Revision to address homelessness, including significant new one-time investments as well as some smaller new ongoing expenditures. Specifically, the May Revision:

Allocates $250 million General Fund to one-time Emergency Homeless Aid Block Grants. These grants would be administered through existing Continuum of Cares (local homelessness planning bodies) and would be available to localities that declare a local shelter crisis. Grants could be used for activities such as emergency housing vouchers, rapid re-housing, construction of emergency shelters, or use of armories to house homeless individuals.

Increases funding for two CalWORKs programs that assist homeless families. CalWORKs is California’s welfare-to-work program. The CalWORKs Housing Support Program, which helps families secure permanent housing, would receive an additional $24.2 million General Fund in 2018-19 (for total funding of $71.2 million), increasing to an additional $48 million in 2019-20 and beyond (for total ongoing funding of $95 million annually). The CalWORKs Homeless Assistance Program, which provides up to 16 days per year of temporary housing for homeless CalWORKs participants via vouchers for temporary shelter or hotels/motels, would also receive an additional $8.1 million General Fund in 2018-19, increasing in 2019-20 to an additional $15.3 million in ongoing funding. This increased funding would be used to raise the daily voucher rate, so that a family of four would be allowed $85 per night rather than the current $65 per night, beginning January 1, 2019.

Dedicates $15 million General Fund in one-time funding over three years for a pilot program to prevent and address homelessness among seniors. The Home Safe Pilot Program would be housed within Adult Protective Services and would be available to counties that provide local matching funds.

Increases General Fund dollars on a one-time basis to address homelessness among domestic violence survivors and youth. The Office of Emergency Services would receive an additional $10 million to support domestic violence shelter services and an additional $1 million to support homeless youth shelters.

Makes a one-time $50 million General Fund allocation to the Department of Health Care Services for services for homeless individuals with mental illness. Counties would be able to use the funds for multidisciplinary teams providing intensive outreach, mental health treatment, and related services, modeled on the types of programs that the state funded in earlier years through Assembly Bill 2034 of 2000 and its precursor Assembly Bill 34 of 1999. (Note: This allocation also is discussed in the later section on funding for mental health.)

The Governor’s revised budget also proposes $500,000 General Fund to expand staffing and provide ongoing support for the Homeless Coordinating and Financing Council, which was created in 2016 to identify and oversee implementation of homeless programs at the state level. The Council would be elevated from its current location within the Department of Housing and Community Development to its own department-level status within the Business, Consumer Affairs, and Housing Agency.

A final homelessness proposal in the May Revision does not allocate new funding, but rather proposes that the No Place Like Home program be placed on the November 2018 ballot for voter validation. This program was developed as a legislative proposal and dedicates $2.0 billion in bond proceeds, to be repaid with funds from the Mental Health Services Act (MHSA), for permanent supportive housing for individuals with mental illness who are homeless or at risk of homelessness. Though the Governor signed the legislation in July 2016, it has not been implemented due to a legal challenge asserting that MHSA funds cannot be used for this purpose. Voter validation of this use of MHSA funds would allow the program to proceed. The Governor further proposes a $1.2 million General Fund loan to the Department of Housing and Community Development in order to issue an initial Notice of Funding Availability prior to November so that if voters approved the No Place Like Home measure, the first funding awards could be announced by December. The November ballot will also include the $4 billion bond for affordable housing that was part of the legislative housing package signed in September 2017. With the No Place Like Home proposal on the ballot as well, voters will be asked to approve two major housing-related bond measures in November.

Homelessness is a key area the Governor identifies for investment of additional revenues in the May Revision, with a total of $358.8 million General Fund in increased spending proposed for 2018-19 as well as a $64.1 million proposed increase in ongoing spending for 2019-20 and beyond, in addition to the No Place Like Home proposal. While representing a significant boost over current state spending on homelessness, the Governor’s proposal falls short of the investment proposed by the Legislature, where proposals to dedicate up to $1.5 billion (in the Assembly) and $2.0 billion (in the Senate) to address homelessness and develop affordable housing are pending. Notably, the Governor does not propose increased state investment in affordable housing more generally, despite noting that California’s median home price is now more than twice the national price.

Governor’s Revised Budget Proposes No New Funding to Address Needs of Immigrants

California has the largest share of immigrant residents of any state, and immigrants make up a third of the state’s workforce. Given the prominence of immigrants in California’s population and the state’s economy, recent and ongoing federal actions to limit immigration and aggressively enforce immigration laws particularly impact California. The Governor’s January budget included a continuation of increased funding for legal services for immigrants, to assist undocumented unaccompanied minors, and for the Attorney General’s office to address federal actions. The May Revision retains these expenditures but proposes no additional new spending to address the needs of immigrants. This contrasts with the priorities of the Legislature, which has proposed several important expansions of services and supports for undocumented immigrants, including extending Medi-Cal eligibility to undocumented young adults and extending eligibility for the CalEITC to immigrant workers who file taxes with an Individual Taxpayer Identification Number (ITIN).

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

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of funding for K-12 schools, community colleges, and the state preschool program. Changes in state General Fund revenues tend to affect the Prop. 98 guarantee, and the May Revision’s estimates of 2016-17, 2017-18, and 2018-19 revenues are up compared to those made in January’s budget proposal. As a result, the May Revision assumes a 2018-19 Prop. 98 funding level of $78.4 billion, $68 million above the level assumed in the Governor’s proposed budget. The May Revision also assumes Prop. 98 funding levels of $75.6 billion in 2017-18 and $71.6 billion in 2016-17, up $407 million and $252 million, respectively, from the levels assumed in January.

The May Revision proposes to change how the final funding level guaranteed under Prop. 98 is certified. Despite the requirement under current law to certify a final calculation of the annual Prop. 98 guarantee within nine months of the end of a fiscal year, the final Prop. 98 funding level has not been certified since 2008-09. The May Revision proposes establishing “a revised certification structure” that would include certifying the Prop. 98 guarantee for 2009-10 through 2015-16 as well as creating a new mechanism intended to certify the final Prop. 98 funding level more quickly to “increase certainty around the payment of future certification settlements, and provide the state with additional budgeting flexibility.”

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 May Revision proposes to increase funding for the state’s K-12 education funding formula — the Local Control Funding Formula (LCFF) — and, like the January proposal, would provide sufficient dollars to reach the LCFF’s target funding level in 2018-19. The revised budget also increases funding to pay off outstanding state obligations to school districts. The May Revision:

Provides an additional $320 million, for a total of $3.2 billion, to fully implement the LCFF. 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 May Revision’s proposal to increase LCFF funding is sufficient for all K-12 school districts to reach a target base grant in 2018-19 (all COEs reached their LCFF funding targets in 2014-15).

Boosts one-time funding by $286 million, for a total of $2.0 billion, to reduce mandate debt the state owes to schools. Mandate debt reflects the cost of state-mandated services that school districts, charter schools, and COEs provided in prior years, but for which they have not yet been reimbursed.

Increases funding by $27.3 million for the English Language Proficiency Assessment for California (ELPAC). The May Revision proposes to use these one-time dollars to convert the ELPAC to a computer-based assessment from one that is paper-based as well as to develop a computer-based alternative for children with exceptional needs.

Provides $15 million in one-time funding to expand the state’s Multi-Tiered Systems of Support (MTSS). The revised budget provides funding to the Orange County Department of Education jointly with the Butte County Office of Education to contract with a to-be-identified California higher education institution to expand the state’s MTSS with the goal of fostering positive school climate in both academic and behavioral areas.

Provides $13.3 million in one-time funding to create the Community Engagement Initiative. The May Revision proposes to create this new initiative to build the capacity of communities and school districts to deepen community engagement with the goal of improving student outcomes.

Increases the cost-of-living adjustment (COLA) for non-LCFF programs. The revised budget provides an additional $10.6 million to fund a 2.71% COLA for several categorical programs that remain outside of the LCFF. This is an increase from the 2.51% COLA proposed in the January budget.

Administration Proposes Adjustments to New Funding Formula for California Community Colleges and Offers Details on Online Community College

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 Governor’s January budget proposal called for a new funding formula for CCC general-purpose apportionments and the establishment of a fully online community college. The May Revision proposes several adjustments to the new CCC funding formula and provides more details on the online community college proposal. The updated spending plan:

Provides an additional $104 million for the new CCC funding formula and adjusts apportionments. The May Revision includes a revised “hold harmless” provision that maintains funding for all CCC districts during 2018-19 and 2019-20 at no less than the amount of funding received in 2017-18, and provides $104 million in one-time discretionary funds for districts whose year-over-year increase in general-purpose apportionment funding would be less than 2.71%. The proposal also adjusts the apportionments to the three grant components: the base grant, the supplemental grant, and the student success incentive grant. The revision allocates funding as follows:
- - A 60% base grant for each district would be calculated using a three-year rolling average of the per-Full-Time Equivalent Student (FTES) funding rate. The January proposal had called for allocating 50% of the funding to the base grant.
  - A 20% supplemental grant would include considerations for: the number of low-income College Promise Grant fee waiver recipients over the age of 25; specified undocumented students qualifying for resident tuition; and all Pell grant recipients. The January proposal had called for allocating 25% of the funding to the supplemental grant.
  - A 20% student success incentive grant would consider the outcomes of economically disadvantaged students, student transfer rates to four-year institutions, wages of students who have completed a degree or certification program, and other factors. The January proposal had called for allocating 25% of the funding to this grant.

Outlines several provisions for the fully online community college. The May Revision offers more detail regarding the online college’s governance, collective bargaining, student success measures, and curriculum. The May Revision notes that the CCC Board of Governors would serve as the governing board of the online community college and that faculty and classified employees of the college would be represented by an existing CCC district for the purposes of collective bargaining. The plan also indicates that in the third year of operation, the online college would provide policymakers with a status report on student outcomes and outreach efforts for working adults. The revised spending plan also clarifies that the intent of the online college is to offer unique content that is not available at local campuses.

Decreases one-time funding for deferred maintenance and other CCC expenses by $131.7 million.

Increases apportionments for CCCs by $73.7 million. This increased Prop. 98 funding includes $46.9 million for FTES funding earned back by districts that had declining enrollment in the previous three-year cycle, $14.9 million to reflect unused enrollment growth funding in 2016-17, and $11.9 million to reflect a 2.71% cost-of-living adjustment (COLA) for apportionments.

Consolidates the Student Success and Support Program, the Student Success for Basic Skills Program, and the Student Equity Program into a single block grant. These three categorical programs, which target similar communities of students, would be integrated with the intent of increasing program flexibility.

Governor Maintains Modest Funding Increases for CSU and UC

The Governor’s revised budget maintains the funding levels proposed in January for the California State University (CSU) and the University of California (UC). The revision also proposes a new stipulation for addressing potential tuition increases at both institutions. Specifically, the revised spending plan:

Maintains the Governor’s January proposal to increase CSU funding by $92.1 million. The Administration expects the CSU to use these funds to make progress toward the CSU Graduation Initiative, which aims to increase graduation rates and eliminate opportunity and achievement gaps. The CSU is requesting a $283 million increase — $191 million higher than what the Governor proposes.

Maintains the Governor’s January proposal to increase UC funding by $92.1 million. UC is requesting $140 million above the Governor’s proposal for 2018-19. In addition, the 2017-18 budget package conditioned the release of $50 million in funding on the University providing evidence of meeting several budget and enrollment expectations by May 1, 2018. The Governor’s May Revision assumes the release of those funds, pending the UC Board of Regents approval of several remaining report items demonstrating that the expectations have been met.

Proposes a new stipulation for addressing the potential impact of tuition increases on Cal Grant and Middle Class Scholarship programs. The Governor’s January proposal did not reflect funding to cover increased Cal Grant costs that would result from potential tuition hikes at the CSU and the UC. The May Revise suggests reducing the primary appropriations for each system by the amount of estimated Cal Grant and Middle Class Scholarship program cost increases if tuition is increased in 2018-19.

Increases admission goals for private nonprofit institutions to maintain the maximum Cal Grant tuition awards. The Governor’s proposal maintains the maximum award for new students attending private nonprofits at $9,084, but adjusts the annual admissions goal for students who have earned an Associate Degree for Transfer (ADT) required to maintain the maximum award level. The revised spending plan requires the private nonprofit sector to admit at least 2,000 ADT students in 2018-19. The May Revision proposes increasing the admission goals in 2019-20 and 2020-21 to 3,000 students and 3,500 students, respectively — 500 more than the January proposal.

Revised Budget Boosts State Investments in Mental Health Services

Federal, state, and county support for mental health services in California totals about $8 billion per year. Even with this substantial funding, “many challenges remain in the mental health system,” the May Revision notes. To help address these challenges, the revised budget includes new state funding aimed at strengthening efforts to improve outcomes for people living with a mental illness. Specifically, the May Revision:

Proposes to repay $253.9 million, plus interest, that is owed to counties — an amount that the Governor “expects” counties to use to support mental health services for youth, “with an emphasis on teens.” This payment would settle a state debt related to certain mental health services for children that counties provided — as required by the state — from 2004 to 2011. The state failed to reimburse the counties for these services at the time.

Provides one-time funding of $55 million to support psychiatric graduate medical education programs. This funding would support programs serving Health Professional Shortage Areas or Medically Underserved Areas in rural areas of the state.

Provides one-time funding of $50 million to support county outreach and treatment for homeless persons with mental illness. These efforts would be “expected to result in earlier identification of mental health needs, prevention of criminal justice involvement, and improved coordination of care for this population at the local level,” according to the May Revision. Counties would be encouraged to match these state dollars with local as well as federal dollars, where appropriate.

Revised Budget Includes No Major Changes to State Health Policy

Recently, state lawmakers have expressed interest in expanding health care coverage options for undocumented immigrants as well as in boosting the affordability of coverage for middle-income families who purchase health plans on the individual market and face high premiums and cost-sharing. The Governor’s revised budget does not address either of these issues and focuses instead on maintaining the state’s existing health care commitments. Nonetheless, the May Revision does highlight two notable changes from the Governor’s initial budget proposal in January. The revised budget:

Reflects reduced General Fund costs for CHIP. The Children’s Health Insurance Program (CHIP) is a joint federal-state program that supports health insurance for almost 9 million children throughout the US during the course of a year, including over 2 million in California. Since late 2015, the federal government has paid 88% of CHIP costs in California; previously, the federal share was set at 65%. In January, the Governor assumed that Congress would immediately revert to the 65/35 sharing ratio when it reauthorized CHIP. However, Congress ultimately struck a 10-year deal that maintains the 88/12 sharing ratio through federal fiscal year (FFY) 2019 (which ends September 30, 2019). The federal share of CHIP costs will step down to 76.5% in FFY 2020 and then to 65% from FFY 2021 through FFY 2027. Compared to the Governor’s January proposal, the May Revision estimates combined General Fund savings of nearly $900 million in 2017-18 and 2018-19 due to Congress’ decision to temporarily extend the more generous federal sharing ratio.

Provides an increase of $70.4 million ($21.8 million General Fund) in 2018-19 to authorize treatment for all Medi-Cal patients ages 13 and older with Hepatitis C. The May Revision indicates that treatment would be provided “regardless of liver fibrosis stage or co-morbidity,” except for people who are expected to live less than one year.

Governor Maintains Proposal for CalWORKs Home Visiting Pilot Initiative, but Does Not Expand Eligibility

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for 830,000 low-income children while helping parents overcome barriers to employment and find jobs. CalWORKs is the state’s version of the federal Temporary Assistance for Needy Families (TANF) program.

In January, the Governor proposed allocating $158.5 million in one-time TANF funds for a new CalWORKs home visiting pilot initiative, with $26.7 million in TANF dollars allocated in the 2018-19 state budget year and the remaining $131.8 million to be available through calendar year 2021. The proposed initiative would provide up to 24 months of home visiting for first-time CalWORKs parents under age 25, who would have to be either pregnant or parenting a child under age 2. (Participation in this new program would be voluntary.) These eligibility requirements would exclude many families, as the average CalWORKs household has two children and is headed by a 34-year-old caregiver. In the May Revision, the Governor does not propose expanding eligibility, as has been proposed by advocates.

May Revision Does Not Provide Funding for Additional Subsidized Child Care Slots With State or Federal Funds

State policymakers have taken steps in recent years to restore funding to California’s child care and development system, which was cut dramatically during and after the Great Recession. Despite these incremental increases, in the current fiscal year (2017-18) overall funding for these programs remains more than $500 million below pre-recession levels, after adjusting for inflation. As a result, the state is currently providing about 67,000 fewer subsidized slots for working families struggling to make ends meet.

The May Revision does not increase funding to provide additional families with subsidized child care, despite the state’s higher-than-expected revenues. The proposal maintains provisions included in the Governor’s January proposal, such as boosting reimbursement rates for providers that contract directly with the state; creating a “hold harmless” provision for voucher-based providers to ensure that they would not see a decrease in payment rates; and adding 2,959 full-day state preschool slots for Local Education Agencies (LEA), as stipulated in a multiyear plan included in the 2016-17 budget agreement. In addition, the May Revision:

Provides $104 million General Fund for CalWORKs Stage 2 and Stage 3 caseload adjustments. The 2017-18 budget agreement included $25 million to increase the decade-old income eligibility limits and implement a 12-month eligibility period. Based on communication with the Administration, the May Revision adjusts funding for CalWORKs Stage 2 and Stage 3 child care to reflect a larger-than-expected increase in caseload due to these provisions.

Adjusts funding for the proposed Inclusive Early Education Expansion Program by $42.2 million Proposition 98. The Governor’s initial budget proposal included one-time funding for a new grant program to increase access to inclusive subsidized early care and education programs by funding “infrastructure costs” such as facilities renovation or professional development. The January proposal included $42.2 million in Temporary Assistance for Needy Families (TANF) funds, which the state may not have been able to use for this type of program. The May Revision maintains the proposed funding of $167.2 million by backfilling TANF funds with Proposition 98 funds. This means that only LEAs are eligible to apply for the grant program, but the Administration is encouraging partnerships with non-LEAs. Grant funds would not be available to provide additional subsidized slots.

Finally, the May Revision does not reflect increased federal funding for subsidized child care that was part of the omnibus spending legislation for the 2018 federal fiscal year, signed by President Trump this past March. California is expected to receive about $232 million in additional federal funds. The Administration does not plan to include these funds in the 2018-19 budget agreement, but will instead conduct a stakeholder process in order to determine how to best use the funding in the future.

Revised Budget Makes No Investments in CalWORKs or in SSI/SSP Cash Assistance for Low-Income Californians

The Governor’s revised budget includes no new investments in two key programs that provide basic income support to help low-income families, seniors, and people with disabilities pay for basic living expenses, such as housing. Specifically, the May Revision:

Does not increase CalWORKs grants. The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for 830,000 low-income children while helping parents overcome barriers to employment and find jobs. The May Revision does not propose to reinstate the annual state cost-of-living adjustment (COLA) or otherwise increase CalWORKs grants — though such changes would be needed in order to reverse the state cuts that were made during and following the Great Recession. The maximum CalWORKs grant for a family of three is equal to just 41% of the federal poverty line (FPL), leaving it well below the deep-poverty threshold (50% of the FPL).

Does not increase the state (SSP) portion of SSI/SSP grants. Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help well over 1 million seniors and people with disabilities to pay for housing, food, and other basic necessities. Grants are funded with both federal (SSI) and state (SSP) dollars. State policymakers deeply cut the SSP portion during and following the Great Recession and have provided only one COLA in recent years — a modest 2.76% boost that took effect in January 2017. The state has not provided an increase since then, and the Governor’s revised budget would freeze SSP grants at their current level for another year.

May Revision Highlights Modest Decline in Incarceration, Includes New Funding to Expand Hepatitis C Treatment

Currently, more than 129,200 people who have been convicted of a felony offense are serving their sentences at the state level — down from a peak of around 173,600 in 2007. Most of the individuals who are currently incarcerated — over 114,600 — are housed in state prisons designed to hold slightly more than 85,000 people. This level of overcrowding is equal to 134.7% of the prison system’s “design capacity,” which is below the prison population cap — 137.5% of design capacity — established by a 2009 federal court order. (In other words, the state is in compliance with the court order.) In addition, California houses over 14,600 individuals in facilities that are not subject to the court-ordered cap, including fire camps, in-state “contract beds,” out-of-state prisons, and community-based facilities that provide rehabilitative services.

The sizeable drop in incarceration has resulted largely from a series of policy changes adopted by state policymakers and the voters in the wake of the federal court order. The most recent reform was Proposition 57, a 2016 ballot measure that provided state officials with new tools to address ongoing overcrowding in state prisons. Prop. 57:

Gave the California Department of Corrections and Rehabilitation (CDCR) broad authority to award sentencing credits to reduce the amount of time that people spend in prison.

Requires parole consideration hearings for state prisoners who have been convicted of a nonviolent felony and have completed the full term for their primary offense.

Requires juvenile court judges to decide whether a youth accused of a crime should be tried in adult court.

With the implementation of Prop. 57, the average daily number of incarcerated adults is projected to drop from 130,197 in 2017-18 to 126,890 in 2018-19 (a 2.5% decline), according to May Revision estimates. Moreover, the Administration anticipates that by reducing the number of incarcerated adults, Prop. 57 — along with other recent criminal justice reforms — will allow the state to end the use of out-of-state prison facilities by the end of January 2019. Currently, more than 3,200 Californians are housed in facilities in Arizona and Mississippi because there is no room for them in state prisons given the court-imposed prison population cap.

The May Revision contains a significant proposal to spend $317.4 million General Fund over the next three years, starting in 2018-19, to expand Hepatitis C treatment to all state prisoners who are infected with the virus. Currently, about 22,000 incarcerated adults carry the virus, with approximately 2,300 receiving treatment in the current year. The May Revision proposal would allow the remaining 19,700 prisoners to receive treatment over the next three years, at a state cost of $105.8 million per year.

California Budget

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Last month, the University of California (UC) and the California Community Colleges (CCC) announced a new partnership that guarantees admission to the UC for qualified community college students. This agreement follows in the footsteps of a similar admission guarantee between the CCC and the California State University (CSU) and marks a step in the right direction in terms of system-wide alignment that sets up successful pathways for all degree-seeking California students.

However, anyone who has looked at state spending on higher education may not be so optimistic. As we highlighted in a recent analysis, per student spending at the CSU and UC are well below pre-recession levels and are significantly below the funding request from each institution. Governor Brown’s 2018-19 budget proposal continues this trend, allocating a mere 3% General Fund base increase for both institutions. While state leaders deliberate over these marginal increases and whether the universities have been spending wisely the pennies they have been given, the future of California’s students and of our state’s economy hangs in uncertainty.

One of the greatest consequences of underfunding our public institutions of higher education is that thousands of students who are qualified for admittance to the CSU and UC do not attend because of capacity limitations. And while most of these students enroll elsewhere, thousands skip college completely. This state disinvestment in higher education landslides into an underdeveloped workforce that undercuts California’s economic competitiveness, weakens tax revenues, and diminishes the educational, career, and life outcomes for students.

More Students Are Graduating High School College-Ready, and More Are Applying to College

The good news is that California’s high school graduation rate is on the rise. Overall it has gone from 75% in 2009–10 to 83% in 2015–16, with annual increases in six straight years. Minority students have shared in these gains, with African American, Latino, and American Indian students experiencing the largest high school graduation rate improvements. Graduate rates among English language learners and low-income students have also increased. More good news: The percentage of high school students meeting the course requirements needed for admission to the CSU and the UC has increased from 35% in 2006 to 45% in 2016. Freshman and transfer applications to the CSU and the UC are also up. Applications for the CSU have increased 22% since 2011. The UC has seen application increases for thirteen consecutive years, with a 6% increase in the past year alone.

Thousands of Qualified Students Do Not Attend the CSU and UC Because Our Public Universities Cannot Accommodate Them

The bad news is that between the CSU and UC, around 40,000 qualified students are turned away from our public universities each year due to capacity limitations. This past fall the CSU denied admission to over 32,000 qualified students — approximately 21,000 freshman and 11,000 transfer students — due to a lack of capacity. In 2012, this “qualified-but-denied” CSU population was 22,000, which means there was an increase of over 10,000 denied students in just five years. While the UC does not technically “deny” any eligible student, qualified students who do not receive admission to their campus of choice are referred to the only campus with available space, UC Merced. In the fall of 2016, 8,153 UC-eligible freshman students were referred to UC Merced under this referral policy. Of those referred, only 106 submitted an intention to register at Merced. This means that over 8,000 eligible students applied to the UC, were accepted, and did not attend after being referred to Merced.

While most of the students who run into capacity limitations do attend a public or private university elsewhere, a significant number do not attend any college. For instance, CSU research indicates that, of the qualified-but-denied CSU students, between 7,000 and 8,000 — nearly 1 in 4 — were not found in national college databases. There are several reasons California should be concerned about this population of students.

The Potential Economic Returns of These Would-Be-College-Graduates Are Substantial

The positive life outcomes for college graduates are well documented and include higher incomes, better health, and improved social and economic mobility. The Public Policy Institute of California found that Californians with a bachelor’s degree earn $87,000 a year on average, more than double the $41,000 for those with only a high school diploma. One study from UC Berkeley suggests that for every $1 California invests in higher education, it will receive a net return on investment of $4.80 in terms of increased revenues (on taxed earnings of these graduates) and savings in social services spending and incarceration costs for students who graduate. The working-lifetime return to the state per student who completes a BA is estimated to be over $200,000. Based on these estimates, if 7,000 of the degree-seeking CSU qualified-but-denied applicants who didn’t attend college were to attend and graduate from the CSU, California would gain over $1.4 billion during their working-lifetime.*

Failing to Adequately Fund the CSU and UC Shortchanges California’s Students — and the California Economy

For years, the Legislature has debated how much to fund the CSU and UC, whether the institutions are spending funds efficiently, and what share of college costs the state should cover. Governor Brown’s 2018-19 budget proposal would provide a $92 million funding increase for each sector — with no designated funding for enrollment growth. Meanwhile, the CSU is requesting $191 million in additional funding, $40 million of which would support a 1% enrollment increase (about 3,600 full-time students), and the UC is requesting $140 million above the Governor’s proposal, with $5 million to support 500 new undergraduates. The relatively small disparities between what’s in Governor Brown’s proposed budget and the institution’s budget requests, which continues recent years’ trends, underscores that our state’s leaders have yet to come close to closing the gap between demand and capacity at the CSU and UC and for addressing the negative economic implications of those decisions.

California Needs a Better Vision

Recent improvements in high school graduation rates and college-readiness demonstrate progress strengthening school-to-career pathways and closing the opportunity gap. However, many students are still not benefiting from this progress. Every year thousands of qualified students are turned away from our public universities as a result of state leaders failing to invest in the CSU and UC — major engines of economic growth and opportunity for California students, communities, and the state. Current budget and policy conversations around higher education funding are often short-sighted and tend to overlook the reality that chronically underfunding our public universities leaves deserving students behind and also impedes our state’s economic growth. Instead, state leaders should turn their attention to crafting multi-year plans for investing in increased access and affordability in order to meet growing demand, and identifying the funding sources to make those investments possible. If California wants to be prepared to meet the workforce demands of the 21^st century, create pathways for upward social mobility, and retain the economic gains that stem from a highly educated workforce, it must significantly boost investments in the CSU and the UC.

* These estimates are based upon average historical state General Fund support per full-time-equivalent student using a 0% discount rate. Using a 2% discount rate, the return on investment is $2.80 for students who complete college. For details, see UC Berkeley, Institute for the Study of Societal Issues, California’s Economic Payoff (April 2012).

Education

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Californians Asked to Eliminate Transportation Funding Under Proposition 6

What Would Proposition 6 Do?

What Did Last Year’s Transportation Package (SB 1) Do?

What Would Passage of Proposition 6 Mean for Transportation and Other Public Services?

Does California Need Additional Funding for Transportation?

Is the Gas Tax a Fair Tax?

Are SB 1 Revenues Required to Be Spent on Transportation Improvements?

What Do Proponents Argue?

What Do Opponents Argue?

Conclusion

Endnotes

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California’s Persistent Poverty Crisis: 2024 Rates Remain Alarmingly High

Is California a Donor State? Here’s How Much It Pays to the Feds vs. What It Gets Back

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Map 1

Map 2

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California’s Persistent Poverty Crisis: 2024 Rates Remain Alarmingly High

How Federal and State Budget Cuts Threaten Latinx Californians

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State and National Leaders Must Do More to Promote Economic Security and Opportunity

High and Growing Housing Costs Drive Up California’s Poverty Rate

Federal Policy Proposals Threaten to Plunge More Californians Into Poverty

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California’s Persistent Poverty Crisis: 2024 Rates Remain Alarmingly High

How Federal and State Budget Cuts Threaten Latinx Californians

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Mothers Have Become Breadwinners in California

Women Are More Likely Than Men to Earn Low Wages

Women Are Overrepresented in Low-Wage Occupations

Women Are Still Paid Less Than Men

Policy Solutions to Boost Women’s Economic Security

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California’s Persistent Poverty Crisis: 2024 Rates Remain Alarmingly High

How Federal and State Budget Cuts Threaten Latinx Californians

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Executive Summary

Budget Package Brings Constitutional Rainy Day Fund Balance to Its Maximum Level

Budget Agreement Creates Two New Reserves

Budget Agreement Strengthens the CalEITC

Budget Package Creates New Process for Certifying Proposition 98 Minimum Funding Guarantee

Budget Supports Full Implementation of the Local Control Funding Formula (LCFF) for K-12 Education

Budget Agreement Moves Forward With New Community College Funding Formula and Online College

Budget Package Increases Funding for CSU and UC, While Making Several Adjustments Regarding Financial Aid Programs

Budget Package Uses Federal Funds to Provide Additional Subsidized Child Care Slots

Enacted Budget Takes Preliminary Steps to Raise CalWORKs Grants and Indicates Intent to Reinstate the State COLA

Enacted Budget Revises Governor’s Proposal for CalWORKs Home Visiting Initiative

Budget Agreement Ends the “SSI Cash-Out,” Allowing People Enrolled in SSI/SSP to Receive Federal Food Benefits for the First Time Since the 1970s

Budget Package Does Not Provide a State Cost-of-Living Adjustment for SSI/SSP Grants, but Sets the Stage for Annual Increases Beginning in 2022-23

Budget Package Aims to Address Health Care Affordability and Financing, but Includes None of the Policy Expansions Advanced by the Legislature

Budget Package Allocates More Than $1 Billion in Proposition 56 Tobacco Tax Revenues for Medi-Cal Provider Payment Increases and a New Loan Assistance Program

Budget Includes Some New Funding for Legal Services for Immigrants, but Leaves Other Immigrant-Focused Proposals Unfunded

Budget Package Dramatically Increases State Funding for the 2020 Census

Budget Includes New Funding to Address Homelessness and Proposes Future Investment in Affordable Housing

Budget Agreement Includes a $1.4 Billion Plan for Allocating Cap-and-Trade Revenues

Budget Agreement Creates a Roadmap for Reducing the Capacity of the State Correctional System if the Number of Incarcerated Adults Continues to Decline

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

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

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Abstract

Several Programs Aim to Support Low-Income Students’ Basic Needs

Existing Support for Low-Income Students Falls Short

How Are Students Impacted by Food and Housing Insecurity?

Policy Solutions

Conclusion

Endnotes

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Trends in Transitional Kindergarten Enrollment in California

How California Is Expanding Transitional Kindergarten

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Executive Summary

May Revision Reflects an Improved Fiscal Outlook

The Governor’s Revised Proposal Continues to Maximize the State’s Rainy Day Fund and Build Up State Reserves

May Revision Prioritizes One-Time Infrastructure Investments

May Revision Strengthens the CalEITC

May Revision Proposes New Funding to Address Homelessness

Governor’s Revised Budget Proposes No New Funding to Address Needs of Immigrants

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