Governor Gavin Newsom released his proposed 2022-23 state budget on January 10, drawing on a second year of stronger-than-expected revenues to call for a series of emergency investments to respond to the public health effects of COVID-19 and a combination of one-time and ongoing investments to provide greater support for the health and economic well-being of Californians. The proposed $213 billion General Fund spending plan includes total reserves of $35 billion.

The state’s fiscal health presents state leaders with an opportunity in the 2022-23 state budget to address California’s great paradox: How can a state with such wealth also be home to immense poverty where so many Californians are blocked from comprehensive health care, affordable housing, stable jobs, paid sick leave, reliable child care, and quality higher education?

The governor’s budget proposal would make progress by providing comprehensive Medi-Cal for Californians who are undocumented and ages 26-49, providing cash assistance for low-income Californians through state tax credits, investing in homelessness prevention and housing, investing in behavioral health, and committing additional funding across education systems, from early learning to K-12 to higher education.

The governor’s proposals leave open the possibility of additional urgent and ongoing investments. As state leaders deliberate on the 2022-23 state budget, other priority investments that should move forward include but are not limited to:

Extending temporary economic support to families, including a larger amount of aid for Californians who are undocumented and excluded from federal support;
Expanding cash support for Californians without children;
Significantly increasing investments in rebuilding the child care system, particularly supporting providers who have struggled to stay open and parents who can’t find affordable care for their kids so they can go to work;
Providing additional paid sick leave so workers can follow public health guidelines during the pandemic and increasing paid family leave benefits;
Fast-tracking planned investments in the social safety net, such as Medi-Cal expansion and increases in SSI-SSP grants, currently not scheduled to begin until 2024 and within the means of the state to start earlier;
Expanding CalWORKs to include children in all eligible households;
Monitoring K-12 funding and enrollment formulas to ensure students and schools are not harmed by attendance shifts as a result of the pandemic;
Providing ongoing funding for people experiencing homelessness; and
Boosting ongoing investments in public health.

The governor’s proposal also includes a number of proposals for tax breaks for businesses that are unnecessary or deserve further scrutiny. Most notably, the administration proposes to spend $3 billion over the next two years to unnecessarily pay a federal unemployment insurance loan, which amounts to a tax break that primarily benefits larger businesses and corporations.

State leaders must also figure out how to manage the state’s constitutional spending limit — or Gann Limit — that holds the state back from building a better future that is especially critical for Californians with low incomes, people of color, immigrant Californians, and women. The administration is leaving details of how the state will manage the spending limit to the May Revision.

With the 2022-23 state budget proposals, state leaders can ensure corporations and the wealthy are not the only ones who reap the benefits of the state’s strong economy. This First Look report outlines key pieces of the 2022-23 budget proposal, and examines how the governor and the Legislature can expand upon the governor’s proposals to invest in the people who have put their own health and well-being at risk to keep our communities running and move California forward.

Budget Overview

Governor’s Budget Assumes Continued Economic Recovery, but Significant Risks

Nearly two years into the COVID-19 pandemic, the state is experiencing a continued, but uneven, economic recovery. The budget proposal notes that as of November 2021, California had added back about 70% of jobs that were lost in March and April of 2020. Low-paying industries that were hardest hit in the early days of the pandemic — such as leisure and hospitality — have been recovering more slowly than high-paying industries. The governor’s economic outlook projects that the state will regain all of the jobs lost by the end of 2022, while the hardest hit low-paying industries will not fully recover until early 2023.

The state saw strong growth in average wages in 2021 despite the return of many low-paying jobs. The administration notes that employers have had to raise wages to attract workers in the face of lower labor force participation due to workers’ pandemic fears, child and dependent care obligations, and searches for better jobs. Wage gains are expected to continue, even after accounting for inflation, but at a lower rate as labor force participation improves and inflation slows down.

The outlook assumes that the federal infrastructure package enacted in late 2021 will provide a modest boost to jobs in the state beginning this year, but does not assume the enactment of the federal “Build Back Better” plan. Additionally, the economic outlook was finalized prior to the emergence of the COVID-19 Omicron variant so it does not account for potential economic disruptions related to Omicron or future variants, such as ongoing weak labor force participation and supply-chain delays.

The administration also highlights other ongoing risks to the economic outlook, including the potential for a stock market drop, the effects of climate change, unaffordable living costs and increasing inequality, and changing demographics such as the aging of the population and lower fertility and migration rates.

Governor’s Proposal Reflects Strong Revenue Growth and Includes Tax Changes

Although the COVID-19 pandemic has been devastating to many Californians, the state has recently experienced unprecedented revenue growth due to factors including surging incomes among the wealthy, the booming stock market, steep growth in corporate profits, and strong retail sales. Accordingly, the administration estimates that General Fund revenues across the three-year budget window spanning 2020-21 through 2022-23 will be $28.7 billion higher than estimated in the enacted 2021-22 budget, before accounting for transfers such as to the state’s rainy day fund.

The administration projects that total General Fund revenues before transfers will be $197.6 billion in the upcoming budget year. For the state’s three largest revenue sources, the proposal projects 2022-23 General Fund revenues of:

$130.3 billion in personal income taxes,
$32.2 billion in sales and use taxes, and
$23.7 billion in corporation taxes.

Additionally, the proposed budget assumes that General Fund revenues for the current 2021-22 fiscal year will total $193.8 billion — $12.2 billion higher than projected in the June budget.

The governor cautions that these revenue projections assume continued economic growth and that risk factors discussed in the Economic Outlook section could threaten the expectation of continued revenue growth.

The governor’s budget includes several proposed tax policy changes that would affect some individuals and businesses, most of which are reflected in the governor’s revenue projections.

Proposed tax changes for individuals include:

Improvements to the Young Child Tax Credit, as outlined in the Economic Security section, estimated to cost $74 million for the 2022 tax year.
Creation of a $1,000 tax credit for certain former foster youth with low incomes, as described in the Economic Security section, estimated to cost about $20 million annually.
Extended income tax payment plans for low- and middle-income households, which would allow participating tax filers to make installment payments on their 2019, 2020, and 2021 taxes until the end of September 2023 without incurring penalties or interest. Eligible filers must have incomes below $75,000 for single filers or $150,000 for couples filing jointly.

Proposed tax changes for businesses include:

Elimination of the temporary limitation on business tax credits and net operating losses — enacted in the 2020-21 budget package — one year earlier than planned, estimated to decrease General Fund revenues by $5.5 billion in 2022-23.
Creation of a new temporary tax credit for companies investing in climate change mitigation technologies that are headquartered in California, costing approximately $250 million annually for three years.
Creation of a new temporary tax credit for companies developing green energy technologies and agreeing to share profits with the state, costing $100 million annually for three years.
Exemption from taxable income of federal COVID-relief grants for restaurants and venue operators provided through the American Rescue Plan. The proposal would also allow these businesses to deduct expenses related to these grants for tax purposes, Total estimated cost: Nearly $500 million over several years, including $130 million in 2021-22 and $144 million in 2022-23.

Additionally, the governor proposes pausing the inflation adjustment for gas and diesel excise taxes scheduled to go into effect in July 2022, meaning these tax rates would not change for 2022-23. This pause is estimated to reduce special fund revenues that support state and local transportation projects by $523 million in 2022-23. The governor has indicated an intention to backfill the loss of local revenues with other funds.

While some of the governor’s tax proposals would improve equity in the state by increasing support for Californians with low and middle incomes, more detail will be needed on the business tax proposals to determine whether they are appropriately structured and targeted to help struggling businesses and employees and to incentivize new investments in combating climate change rather than providing a windfall to businesses that would have made these investments anyway. These are critical questions because revenues forgone to tax breaks represent dollars that could otherwise have supported investments to improve the health, economic, and social well-being of Californians who have been hit hard by the pandemic and who were blocked from prosperity long before the pandemic — including Californians with low incomes, many Californians of color, immigrants, and LGBTQ+ Californians.

Stronger-Than-Expected Revenues Allow State to Build Reserves to $35 Billion

California has a number of state reserve accounts, some of which are established in the state’s Constitution to require deposits and restrict withdrawals, and some of which are at the discretion of state policymakers.

Prop. 2 sets the maximum size of the BSA at 10% of General Fund Revenues and, if the limit is reached, any dollars that otherwise would have gone into the BSA would have to be spent on infrastructure, including spending related to deferred maintenance.

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

The BSA is not California’s only reserve fund. Each year, the state deposits additional funds into a “Special Fund for Economic Uncertainties” (SFEU). Additionally, the 2018-19 budget agreement created the Safety Net Reserve Fund, which holds funds that can be used to maintain benefits and services for CalWORKs and Medi-Cal participants in the event of an economic downturn.

Stronger-than-expected revenue collections result in changes to the BSA, PSSSA, and SFEU balances for the current fiscal year (2021-22) and also affect projections for 2022-23. The administration projects:

A total BSA balance of $19.3 billion in 2021-22, growing to $20.9 billion in 2022-23;
A PSSSA balance of $6.7 billion 2021-22, growing to $9.7 billion in 2022-23; and
An SFEU balance of $20.5 billion in 2021-22, which partly reflects the state’s receipt of unanticipated revenues amid the pandemic, dropping to $3.1 billion for 2022-23.

The administration’s proposal for 2022-23 leaves the Safety Net Reserve at its 2021-22 level of $900 million.

The governor’s proposal estimates that the BSA “is now at its constitutional maximum (10% of General Fund revenue), resulting in a required $2.4 billion in infrastructure investments in 2022-23.”

Taking into account the BSA, PSSSA, Safety Net Reserve, and SFEU, the governor’s proposal would build state reserves to a total of $34.6 billion in 2022-23.

Gann Limit Impact on Spending Priorities Is Uncertain — Clarity Expected in May

One of the biggest unknowns in the governor’s proposed budget is how the Gann Limit will affect budget and policy choices during the 2022-23 budget cycle. The Gann Limit, also known as the State Appropriations Limit, is a constitutional spending cap approved by voters via Proposition 4 in a 1979 special election. The cap is tied to California’s 1978-79 spending level and is adjusted each year for changes in population and per capita personal income, as explained in the Budget Center’s new Gann Limit Q&A.

If the state exceeds the Gann Limit over a two-year period, the Legislature must spend the revenue over the limit in specific ways — providing half to taxpayers and the other half to K-12 schools and community colleges. State policymakers have limited options to structure budgets to avoid exceeding the limit. For example, they can spend more on things that are excluded from the limit, such as emergency response and infrastructure projects, which can include housing.

According to current estimates, the state exceeded the Gann Limit by $19 billion in 2020-21 and is expected to be under the limit by $16.4 billion in 2021-22. The difference — $2.6 billion — is the amount by which the state is currently projected to surpass the Gann Limit over these two fiscal years combined. In contrast, current estimates suggest the state will not exceed the Gann Limit across the next two-year period: 2021-22 and 2022-23. However, all of these estimates will change as new revenue, personal income, and other numbers become available.

The governor does not outline a plan for addressing the Gann Limit as part of his proposed budget. Instead, the administration plans to release “an updated calculation” of the Gann Limit as well as “proposals to address it” as part of the governor’s May Revision. It is very likely that the next set of Gann Limit estimates will show the state substantially outstripping the limit across multiple years, especially if state revenues continue to exceed projections. Under this scenario, the governor and legislative leaders would need to decide how to address the “excess” revenues in ways that are consistent with the Gann Limit’s constitutional limitations.

In addressing the Gann Limit, state leaders should prioritize investments to improve the health, economic, and social well-being of Californians who have been hit hard by the COVID-19 pandemic and who were blocked from prosperity long before the pandemic — including people with low incomes, many people of color, immigrants, and LGBTQ+ Californians. For example:

If policymakers choose to boost spending on infrastructure — the governor and legislative leaders have already advanced proposals — they should include significant investments in housing, which (as noted above) can be counted as infrastructure for the purpose of the Gann Limit. Our state’s inadequate supply of affordable housing is perhaps the greatest challenge facing Californians with low incomes and Black and Latinx Californians.
If policymakers choose to provide tax refunds, these payments should be targeted to Californians with low incomes, who struggle with our state’s high cost of living, as well as to Californians who are undocumented, who are blocked from many public supports that other residents can access to meet basic needs.

Even if state policymakers are able to manage within the spending cap over the next year or two, the Gann Limit’s restrictive rules mean that many kinds of ongoing expenditures would be off the table or much harder to sustain, such as big new investments in affordable child care and health care. The Gann Limit also challenges state leaders’ ability to simply maintain current service levels, as the Budget Center explains in this Q&A. Since the spending cap is in the California Constitution, state leaders would need to ask voters to approve any changes to it. Substantially reforming or — better yet — repealing the Gann Limit would allow the state to make the bold investments needed for all Californians to share in the state’s wealth.

Health

Proposed Budget Bolsters COVID-19 Response Efforts

As the state approaches two years into the COVID-19 pandemic, a contagious variant of the virus (Omicron) continues to spread across California communities. The recent surge in cases and hospitalizations are a stark reminder that the pandemic is not yet over. Recognizing this ongoing health threat, the administration proposes additional funding to bolster vaccination and booster efforts, expand testing capacity, and support health care workers. The administration proposes a total of $2.7 billion to mitigate the spread of the virus and protect the health of Californians. Of this amount, the administration requests the legislature to include $1.4 billion in an early action package before the June budget.

Overall, the proposed $2.7 billion COVID-19 response package includes:

$1.2 billion to improve the state’s testing capacity. This funding would allow testing sites across the state to expand their hours of operation as well as their capacity. The funding would also be used to distribute antigen tests to local health departments, community clinics, and county offices of education and schools.
$583 million to increase vaccination uptake among Californians. Working in partnership with ethnic media outlets and community-based organizations, the administration aims to provide information about COVID-19 vaccines and boosters. This funding would also support in-home vaccination and testing programs as well as provide free transportation to vaccination appointments.
$614 million to support health care systems and frontline workers.
$200 million to enhance the state’s emergency response and public health capacities, including staffing and information technology for state-level operations.
$74 million to support services for newly arrived migrants and border communities, such as vaccinations, testing, and isolation and quarantine services.
$36 million to expand statewide contact tracing, which is a practice that public health workers use to identify and notify people who have been exposed to someone who has tested positive for COVID-19.

Governor Proposes Much-Needed Public Health Investments

The California Department of Public Health protects and promotes the health of all Californians through infectious disease control, chronic disease prevention, and more. Yet despite its important responsibilities, funding for this department has not kept pace with the cost of responding to ongoing and emerging health threats. Due to chronic underfunding in public health, counties and cities across the state were not adequately prepared to respond to COVID-19 and many communities suffered as a result. Most notably, communities of color experienced higher rates of illness and death due to historic and ongoing structural racism that deny many communities the opportunity to be healthy and thrive. The intersection of the pandemic and structural racism has underscored the need to address the root cause of health disparities.

The governor’s proposed budget includes the following public health investments:

$235.2 million for disease surveillance readiness and maintenance of IT operations at the state level. Specifically, this funding is for the Department of Public Health to maintain and operate technology and data platforms and applications in 2022-23, both for the ongoing COVID-19 response and for future disease outbreaks.
$200 million ongoing General Fund for public health infrastructure at the local level. Under this proposal, local health jurisdictions would receive a minimum base allocation of $350,000 to support workforce expansion, data collection and integration, and partnerships with health care delivery systems and community-based organizations.
$100 million General Fund annually for public health infrastructure at the state level. This funding would establish a new Office of Policy and Planning to assess current and emerging public health threats. It would also support other core functions, such as emergency preparedness, the public health workforce, and public health communications.
$55 million for opioid overdose prevention and surveillance. This funding would also improve the Department of Public Health’s ability to collect and analyze data on drug overdoses.
$50 million ongoing General Fund to expand home visiting services and the California Black Infant Health Program, both of which aim to improve maternal and child health outcomes.

This funding would provide much-needed support for public health infrastructure and health promotion programs. Ensuring that counties and cities have the resources needed to overcome COVID-19 and other health threats is vital to address this pandemic and future public health needs.

However, state leaders can do more to advance health equity. Given that structural racism continues to have a profound impact on the health and well-being of many communities across the state, the governor’s administration and other state leaders can employ a variety of strategies to combat the effects of historical and ongoing racist policies and practices. Such strategies include declaring racism a public health crisis at the state level and establishing dedicated funding to support community-based organizations, clinics, and tribal organizations in their efforts to advance health equity.

Governor Calls for Expanding Medi-Cal to All Undocumented Immigrants

Building on the federal Affordable Care Act (ACA), California has substantially expanded access to health coverage in recent years. For example, more than 14 million Californians with modest incomes — nearly half of whom are Latinx — receive free or low-cost health care through Medi-Cal (California’s Medicaid program), several million more than before the ACA took effect. Another 1.4 million Californians receive federal subsidies to reduce the cost of coverage purchased through Covered California, our state’s health insurance marketplace. Nonetheless, many Californians — including immigrants who are undocumented — remain uninsured, while those with health coverage often face high monthly premiums and excessive out-of-pocket costs, such as copays and deductibles, when they seek health care services.

The governor’s proposed budget:

Expands — no sooner than January 2024 — Medi-Cal eligibility to undocumented immigrants ages 26 to 49, the last group excluded from coverage. In recent years, California has expanded eligibility for comprehensive Medi-Cal coverage to certain immigrants who qualify for the program except for their immigration status. This includes children and young adults up to age 25 as well as adults age 50 and older. However, undocumented adults ages 26 to 49 continue to be excluded from Medi-Cal coverage even though they otherwise qualify. The governor proposes to close this eligibility gap by extending full-scope coverage to these adults no sooner than January 1, 2024. This expansion is estimated to cost $819.3 million ($613.5 million General Fund) in 2023-24, rising to $2.7 billion ($2.2 billion General Fund) at full implementation. These figures include the cost of providing In-Home Supportive Services to newly eligible adults who are anticipated to enroll in the program.
Reduces the premiums that many Californians pay for Medi-Cal coverage. These are Medi-Cal enrollees whose incomes are “marginally above” the cut-off for no-cost Medi-Cal and who therefore must pay a monthly premium to access Medi-Cal services. The governor proposes to reduce these premiums for around 500,000 Medi-Cal enrollees, a group that includes pregnant women, children, and working people with disabilities. The proposed budget includes $53.2 million ($18.9 million General Fund) to implement this proposal in 2022-23, rising to $89 million ($31 million General Fund) annually thereafter.
Calls for creating “equity payments” for Medi-Cal providers. The governor includes one-time funding of $400 million ($200 million General Fund) for equity payments in the Medi-Cal program. These payments are intended to promote patient-centered models of care, advance equity, and improve quality in children’s preventive care, maternity care, and integrated behavioral health care, according to the governor’s budget summary.
Includes several proposals to maintain and improve availability of reproductive health care services. These proposals include reducing administrative barriers to medication abortion services; adding the human papillomavirus vaccine as a covered benefit under the Family PACT program, effective July 1, 2022; providing one-time funding of $20 million General Fund for scholarships and loan repayments to help boost the number of reproductive health care services providers; and providing one-time funding of $20 million to help reproductive health care facilities improve their security.
Rescinds the decade-old 10% Medi-Cal payment reductions for eight categories of providers. These eight categories are: nurses of all types, alternative birthing centers, audiologists and hearing aid dispensers, respiratory care providers, select durable medical equipment providers, chronic dialysis clinics, non-emergency medical transportation providers, and emergency medical air transportation providers. The proposed budget includes $20.2 million ($9 million General Fund) in 2022-23 and $24 million ($10.7 million General Fund) annually thereafter to eliminate the 10% rate cut for these providers. The state rescinded this reduction for other categories of providers in prior years.
Continues to envision the establishment of an Office of Health Care Affordability. The 2021-22 budget included funding for this new office, but legislation to establish it did not pass last year. This office would be charged with addressing health care cost drivers and improving affordability of health coverage.

Proposed Budget Sets in Motion Robust Medi-Cal Reform Initiatives

This year the administration is moving forward with implementing the ambitious Medi-Cal reform effort known as CalAIM (California Advancing and Innovating Medi-Cal) that was originally introduced in 2019. In late 2021, California received the federal authority needed to implement these reforms through the approval of the CalAIM Section 1115 demonstration and CalAIM Section 1915(b) waivers. The initiatives outlined build on previous pilot programs targeted to coordinate physical health, behavioral health, and social services in a patient-centered manner with the goal of improving health and well-being through Medi-Cal. CalAIM also aims to improve quality outcomes, reduce health disparities, reduce complexity across all delivery systems, and implement value-based initiatives and payment reform.

The main goal of these changes is to better support millions of Californians enrolled in Medi-Cal — particularly those experiencing or at-risk of homelessness, children with complex medical conditions, children and youth in foster care, Californians involved with the justice system, and older adults — who often have to navigate multiple complex delivery systems to receive health-related services.

The proposed budget allocates $1.2 billion ($435.5 million General Fund) in 2021-22, $2.8 billion ($982.6 million General Fund) in 2022-23, $2.4 billion ($876.4 million General Fund) in 2023-24, and $1.6 billion ($500 million General Fund) in 2024-25 for CalAIM reforms. Key initiatives added this year focus on justice-involved Californians, including:

$50 million total funds ($16 million General Fund) in 2022-23 to implement CalAIM justice-related initiatives, and an additional $561 million over five years for related capacity building efforts. This funding supports resources and capacity efforts that will help implement mandated pre-release Medi-Cal application processes in county jails and youth correctional facilities. It also supports the coordination of targeted medical, behavioral health, social service, and reentry services for qualifying people who are incarcerated prior to their release.
$1.3 billion total funds over five years for the development of Enhanced Care Management (ECM) and Community Supports in CalAIM through the Providing Access and Transforming Health (PATH) initiative. PATH provides funding for capacity building to community-based organizations, counties, and other local providers as the implementation of Enhanced Care Management and Community Supports begins. These efforts also support effective pre-release care for justice-involved populations, particularly through the expansion of ECM, to close the gap for Whole Person Care pilot programs that are currently serving previously incarcerated Californians with complex needs.

Other CalAIM initiatives that are set to begin in 2022-23 include:

The development of a Foster Care Model of Care to support the complex medical and behavioral health needs of foster youth.
Mandatory managed care enrollment for eligible beneficiaries that qualify for both Medi-Cal and Medicare.
Required long-term care coverage by all managed care plans.

Proposed Budget Includes Funding to Launch Behavioral Health Initiatives

Behavioral health services — mental health care and/or treatment for substance use — are primarily provided by California’s 58 counties, with funding from the state and federal governments. Even before the pandemic, millions of Californians were coping with mental health conditions or substance use disorders and too many also confronted challenges in accessing care. As a result of the pandemic and economic recession, many Californians experienced stress, grief, isolation, depression, and other hardships. Long after businesses and schools reopen and economic recovery progresses, the work to support Californians’ mental health and well-being will be far from over.

The administration recognizes the toll on health and well-being that COVID-19 has taken, particularly on children and youth. This year, the administration proposes funding for the Children and Youth Behavioral Health Initiative, which aims to transform California’s behavioral health system for all children and youth in California. The administration’s budget proposal includes the following in 2022-23 as part of the Children and Youth Behavioral Health Initiative:

$450 million General Fund for school behavioral health partnerships and capacity to increase the number of students receiving behavioral health services in school settings.
$429 million General Fund for evidence-based behavioral health practices.
$230 million General Fund for the Behavioral Health Services and Supports Platform and related e-Consult service and provider training.
$87 million ($41 million General Fund) to implement dyadic services effective January 1, 2023. Dyadic behavioral health visits are provided for the child and caregiver or parent at medical visits and are intended to provide screening for behavioral health conditions and referrals for appropriate follow-up care.

The proposed budget also includes:

$1.5 billion General Fund ($1 billion in 2022-23 and $500 million in 2023-24) for behavioral health bridge housing to support people experiencing homelessness and serious behavioral health conditions. The funding would be used to purchase and install tiny homes and provide operational supports in bridge housing settings. See the Homelessness and Housing section for more information.
$135.1 million ($67.6 million Mental Health Services Fund and $67.5 million federal funds) to extend Medi-Cal provider training to treat and prevent Adverse Childhood Experiences, which are defined as traumatic events that occur before age 18. This funding would be available over a three-year period.
$108 million ($16 million General Fund) to increase access to community-based mobile crisis intervention services through a new mandatory Medi-Cal benefit as soon as January 1, 2023. The benefit would be implemented through county behavioral health delivery systems by mobile crisis teams in the community. Under the American Rescue Plan Act of 2021, this benefit qualifies for 85 percent federal funding.
$96 million General Fund to expand the medication assistance treatment program. Medication-assisted treatment is the use of medications as well as counseling and behavioral therapies to provide a “whole-patient” approach to treating substance use disorders.
$93 million General Fund in 2021-22 and $571 million General Fund ongoing to support early stabilization and community care coordination as well as the expansion of diversion and community-based restoration capacity for individuals who have been determined by a court to be incompetent to stand trial.
$86 million one-time opioid settlement funds for opioid prevention and treatment. Of this amount, $50 million would be used for a public awareness campaign targeted towards youth on opioids and fentanyl risk, $26 million would be used for provider training on opioid treatment, $5 million would be dedicated to opioid surveillance, and $5 million would be used to distribute naloxone to homeless service providers.
$7.5 million General Fund ($6 million ongoing) to improve emergency response for individuals experiencing a mental health crisis. This funding would be used to implement the national suicide and mental health crisis phone number (988) and system.

These investments in our behavioral health system are critical, especially now. The governor’s proposal to transform the behavioral health system for children and youth would increase access to prevention and early intervention services. Expanding access to behavioral health services helps Californians thrive and it can also reduce hospitalization or even incarceration due to behavioral health conditions.

Homelessness & Housing

Governor’s Proposals Focus on Encampments and Behavioral Health Needs

Everyone needs a safe place to live as the most basic foundation for health and well-being. Yet more than 161,000 Californians were experiencing homelessness at the last point-in-time count. Homelessness has devastating effects on individuals’ physical health and mental health and creates serious barriers to maintaining a job or participating in other aspects of community. There are also deep inequities in who experiences homelessness in California, with Black, American Indian, and Pacific Islander Californians disproportionately affected, as well as LGBTQ+ individuals.

The 2021-22 state budget included approximately $12 billion to address homelessness over the 2021-22 and 2022-23 fiscal years. The governor’s current budget proposal adds another $2 billion over two years. New proposals focus on two areas:

$500 million one-time General Fund to address homeless encampments, specifically “for jurisdictions to invest in short- and long-term rehousing strategies for people experiencing homelessness in encampments.” More details about allowed uses of these funds will be important for understanding whether these efforts would effectively and respectfully address the housing and support service needs of Californians living in encampments.
$1.5 billion General Fund over two years for immediate housing and treatment services for unhoused individuals with serious behavioral health issues. These funds would be administered through the Department of Health Care Services’ Behavioral Health Continuum Infrastructure Program, and would address immediate needs through interim housing such as tiny homes or other bridge housing settings such as assisted living facilities (see the Behavioral Health section). While some interim housing is needed within the homeless services system to meet urgent housing needs, the most effective approach to addressing homelessness among individuals with serious mental health needs combines supportive services with permanent housing, which can include leased units as well as deed-restricted units.

Homelessness intersects with many other issues and systems, and the governor’s budget proposal includes items in various other areas that aim to prevent homelessness or address the needs of specific subpopulations of unhoused individuals, particularly individuals with serious behavioral health issues and individuals exiting incarceration. These proposals include:

Adding mobile mental health and substance use crisis services as a new Medi-Cal benefit (see the Behavioral Health section).
Providing transitional reentry housing for adults leaving state prisons who are at risk of being unhoused, by continuing the Returning Home Well Program (see the State Corrections section).
Connecting adults leaving incarceration with Medi-Cal health coverage and encouraging “warm hand-offs” to behavioral health services, to reduce the risk of poor outcomes including homelessness, as part of CalAIM (see the CalAIM section).
Coordinating health care with behavioral health and social services for Medi-Cal participants, through the Enhanced Care Management and Community Supports components of CalAIM (see the CalAIM section).
Increasing state capacity to serve individuals with serious mental health issues determined incompetent to stand trial (IST) (see the Behavioral Health section).

Governor Proposes $2 Billion in New One-Time Resources to Increase Affordable Housing

Safe and stable housing is a fundamental basic need, but many Californians struggle to maintain stable housing because of unaffordable housing costs. Renters, people with low incomes, Black and Latinx Californians, and Californians who are undocumented are especially likely to pay an unaffordable amount for housing. As of December 2021, about 1 in 5 California adult renters with household incomes below $50,000 reported being behind on rent payments.

The governor’s budget proposal includes $1.5 billion one-time General Fund to boost funding in several programs that support affordable housing development and preservation, with a focus on infill locations near jobs, schools, and other amenities in order to also address climate and equity goals. These investments include:

$500 million for the Infill Infrastructure Grant program ($225 million in 2022-23 and $275 million in 2023-24) administered by the Department of Housing and Community Development (HCD).
$300 million for the Affordable Housing and Sustainable Communities program ($75 million in 2022-23 and $225 million in 2023-24) for infill and compact development that reduces greenhouse gas emissions. These funds are proposed in addition to the annual cap and trade auction funds that support this program, projected at $314 million for 2022-23.
$100 million for affordable housing development and adaptive reuse on excess state land ($25 million in 2022-23 and $75 million in 2023-24).
$100 million for per-unit adaptive reuse incentive grants ($50 million in 2022-23 and $50 million in 2023-24) to be paired with other state housing funds to remove barriers to converting sites to residential use, prioritizing sites in downtown locations.
$200 million for loans to develop mixed-income rental housing ($50 million in 2022-23 and $150 million in 2023-24), through the California Housing Finance Agency (CalHFA).
$200 million for the Portfolio Reinvestment Program to preserve at-risk affordable housing in downtown areas ($50 million in 2022-23 and $150 million in 2023-24), administered by HCD.
$100 million for the Mobilehome Park Rehabilitation and Resident Ownership Program ($25 million in 2022-23 and $75 million in 2023-24), administered by HCD, to preserve and develop affordable mobilehome parks.

The proposed budget also allocates an additional $500 million for Low-Income Housing Tax Credits (LIHTC), continuing the annual boost to the LIHTC allocation for the fourth year running. Following through on a commitment from 2021-22, the budget also includes $750 million one-time General Fund for public colleges and universities to develop or acquire housing for low-income students, as the second installment of a total proposed $2 billion over three years.

In addition to these funding proposals, the governor proposes to help local governments meet state mandated housing and climate goals by working “in partnership with local governments… to identify land across California that is well situated for diverse, new downtown-oriented housing types.” This process is expected to identify sites that would be eligible for state infill development funding and streamlining opportunities.

Not included in the governor’s proposal is any funding for emergency rental assistance for struggling renters, despite the fact that requests for help from California’s COVID-19 Emergency Rental Assistance Program now total more than the $5.2 billion in federal funds initially provided to the state. California may receive some additional federal funding for this purpose, but if federal funds do not close the gap, many renters with low incomes will risk losing their housing.

Economic Security

Administration Proposes Ending Work Requirement for Young Child Tax Credit

California’s Young Child Tax Credit provides up to $1,000 annually to help families with low incomes and young children pay for basic needs, such as food and diapers. More than 8 in 10 people who are eligible to benefit from this tax credit are people of color, and nearly 6 in 10 are women. Last year, this credit provided an average of $931 to over 420,000 families. To qualify for the credit, families must have annual earnings between $1 and $30,000 and at least one child age 5 or younger. Families who do not have work earnings are excluded from the credit.

The administration proposes ending the work requirement for the Young Child Tax Credit, allowing families with no annual work earnings to qualify for a $1,000 credit as long as they meet other eligibility rules. Budget documents state that “young children living in households with no earned income are just as deserving of being protected from poverty as are children living in households with low income.” This proposal is projected to cost $55 million annually, implying that they expect 55,000 families to newly qualify for the credit.

Work requirements have a long racist and sexist history in the United States and contribute to racial and gender inequities in who lives in poverty. By removing a racist and sexist barrier to the Young Child Tax Credit, this proposal will increase equitable access to one of California’s most critical cash supports for families with children.

This proposal would likely make California the first state to end the work requirement for a state child tax credit. Federal policymakers temporarily ended the work requirement for the federal Child Tax Credit last year, but the Senate has been unable to secure enough votes to approve legislation that the House passed last fall that would end the work requirement permanently.

Governor Newsom also proposes annually adjusting the Young Child Tax Credit for inflation so that it keeps up with rising prices starting in the 2022 tax year. The credit has not been adjusted for inflation since it was created in 2019, and without annual inflation adjustments, it will lose value over time, helping families less each year. California’s other refundable tax credit, the California’s Earned Income Tax Credit (CalEITC), has been adjusted for inflation each year since it was created in 2015. The administration estimates that this proposal will cost $19 million for the 2022 tax year.

Administration Proposes Creating Tax Credit for Former Foster Youth

The proposed budget includes a new refundable tax credit for former foster youth modeled after the Young Child Tax Credit. Specifically, this credit would provide a $1,000 credit to young adults ages 18 to 25 who were in the foster care system at some point at age 13 or older and would otherwise qualify for California’s Earned Income Tax Credit (CalEITC). The administration estimates that this new credit will cost $20 million annually, implying that they expect it to benefit 20,000 young adults each year.

This proposal would reduce poverty among current and former foster youth, increasing their long-term financial health, according to John Burton Advocates for Youth. Transition-age foster youth experience high rates of poverty due to high unemployment and low annual earnings. A Santa Clara County pilot program that provided free tax assistance to current and former foster youth showed how refundable tax credits, like the CalEITC, are important tools for boosting the incomes of transition-age youth, helping them to maintain housing, stay in school, and pay for basic needs like food.

The Proposed Budget Makes No Improvements to the CalEITC

California’s Earned Income Tax Credit (CalEITC) is a refundable state tax credit that helps millions of families and individuals with low earnings from work pay for basic needs, such as food. The administration does not include any proposals to strengthen or expand the CalEITC.

Advocates for the CalEITC would like California to increase the size of the credit for workers without dependents in their home, who comprise more than 7 in 10 CalEITC recipients. Nearly half of these individuals receive less than $100 from the CalEITC and many do not qualify for the federal EITC despite their low earnings.

Governor’s Proposals Expand Support for Immigrants

California has the largest share of immigrant residents of any state and is home to an estimated 2 million to 3.1 million individuals who are undocumented. Half of all California workers are immigrants or children of immigrants. About 1 in 4 of these immigrant workers are employed in an industry highly affected by the COVID-19 economic shutdown. Among California’s undocumented workers, approximately 1 in 3 are employed in an industry highly affected by the COVID-19 economic shutdown, according to Budget Center estimates.

The governor’s proposal builds on important supports provided to immigrants in the 2021-22 budget. Specifically the 2022-23 proposed budget:

Expands comprehensive Medi-Cal coverage to all undocumented Californians starting no sooner than January 2024. In recent years, California has expanded eligibility for comprehensive Medi-Cal coverage to undocumented immigrants up to age 25 who otherwise qualify for the program. The 2021 budget made adults age 50 and older eligible for Medi-Cal coverage starting May 2022. The governor’s budget proposes to expand comprehensive Medi-Cal coverage to undocumented adults ages 26 to 49 starting no sooner than January 1, 2024. The expansion in the proposed budget is estimated to cost $819.3 million ($613.5 million General Fund) in 2023-24, rising to $2.7 billion ($2.2 billion General Fund) at full implementation, including In-Home Supportive Services (IHSS) costs. (See Coverage, Affordability, and Access section.)
Ends the exclusion of undocumented adults, age 55 and older, from food assistance program. Administrative estimates show an additional $40 million General Fund in 2022-23 to continue the expansion of the state-funded basic nutrition assistance through the California Food Assistance Program (CFAP) to undocumented adults over the age of 55. CFAP provides state-funded food assistance to “qualified” immigrants who are not eligible for CalFresh, California’s Supplemental Nutrition Assistance Program (SNAP). While the proposal extends CFAP to adults over the age of 55, it pares back the framework for broader CFAP expansion in the current year (2021-22) budget. (see Food Assistance section.)
Provides funding to support newly arrived migrants and communities near the California and Mexico border. $74 million one-time General Fund is set aside for the California Department of Public Health for “humanitarian efforts,” including sheltering, testing, vaccines, and support services for newly arrived migrants.
Invests in immigrant workforce development programs. The proposal includes $30 million to expand the English Language Learner pilots in the Integrated Education and Training Programs, $20 million for the Employment Training Panel to expand workplace literacy training, and $10 million to expand earn-and-learn community change career pathways for community college students, including immigrant students.
Supports undocumented students at California Community Colleges. The governor’s proposal allocates $20 million one-time Proposition 98 for emergency financial assistance to eligible AB 540 students.

The governor’s budget proposal misses an opportunity to extend temporary economic support through additional stimulus payments to Californians who are undocumented and have been excluded from most support programs, including standard unemployment insurance as well as expanded COVID-19 federal relief. In the 2021-22 budget, the governor included initial resources and committed to expanding CFAP to “individuals regardless of immigration status”. The administration’s proposal to expand this support to adults age 55 and older is an important step, but falls short of ensuring all Californians have access to food assistance. More than half of children in undocumented immigrant families live in poverty. Policymakers can end this xenophobic and racist exclusion of immigrants from a crucial support they need to avoid hunger. Prioritizing the urgent needs of undocumented immigrants and their families is an important opportunity for California’s policymakers to make our support systems more equitably inclusive, to make our state’s economy more resilient, and to lead in this time where the state has the resources.

Proposed Budget Continues CalWORKs Investments But Falls Short on Grants

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for children from low-income households while helping parents overcome barriers to employment and find jobs. Even before the COVID-19 crisis, CalWORKs primarily served children of color, who faced higher rates of economic insecurity than did white children. As millions of California workers – especially workers of color – lost their jobs or saw reduced wages due to a long-term public health emergency and recession, CalWORKs is a particularly critical source of support.

The governor’s proposed budget:

Increases the maximum CalWORKs grant but does not lift all CalWORKs children out of deep poverty. Monthly CalWORKs grants are adjusted according to the number of people in the household who are eligible for CalWORKs. At least one family member is ineligible for cash assistance in about 55% of CalWORKs cases because they have exceeded the 48-month time limit (extended to 60 months in 2020-21), have not met work requirements, or due to their immigration status. After over a decade of inadequate grants, state policymakers in recent years have raised the maximum CalWORKs grant above the deep poverty threshold (50% of the federal poverty line) for many children in CalWORKs. However, these prior increases left children who share resources with ineligible family members living in deep poverty. Even as the administration proposes a 7.1% increase to the maximum grant (with an estimated cost of $200.7 million in 2022-23), the proposed budget continues to keep these children well below the deep poverty threshold.

The proposed budget also makes changes to child support collections for former CalWORKs families (see Child Savings Accounts and Child Support section).

Budget Proposal Implements Child Savings Accounts and Boosts Child Support Pass-Through

The 2021-22 budget included nearly $2 billion in one-time funds to establish college savings accounts for public school students in grades 1-12 who are defined as low-income under the state’s K-12 Local Control Funding Formula, with larger investments for foster youth and students experiencing homelessness. This CalKIDS program (California Kids Investment and Development Savings Program) is administered through the ScholarShare Investment Board. The governor’s proposed budget begins the ongoing implementation of this plan, allocating $170 million ongoing General Fund to add savings accounts for incoming first-grade cohorts of students, while adding $5 million one-time and $5.2 million ongoing General Fund to support outreach and implementation costs. The existing CalKIDS program also establishes college savings accounts for all California newborns.

The proposed budget also redirects more collected child support to former CalWORKs parents. When one CalWORKs parent has primary custody of a child, the non-custodial parent must provide child support payments. For formerly assisted families, outstanding child support debt that is collected does not go to the families but rather goes to the state, county, and federal governments as “reimbursement” for the costs associated with the CalWORKs program. The administration now proposes to allow former CalWORKs families to receive the money themselves. Under this change, these families will receive an estimated annual total pass through of $187 million. State leaders should build on this change to end racist policies that block Black, Latinx, and other families from economic security by also passing through 100% of child support payments to current CalWORKs and Medi-Cal recipients and ending the state’s collection of interest on child support debt.

Budget Proposal Pares Back Plan to Provide Food Assistance to Immigrants

The governor’s budget proposal includes a number of provisions to combat food insecurity in California. This includes $50 million one-time General Fund for the CalFood program, which provides emergency resources for food banks. Food banks have been a critical resource to curb food hardship during the pandemic.

Additionally, administrative estimates show $40 million General Fund in 2022-23 to continue the expansion of the state-funded basic nutrition assistance through the California Food Assistance Program (CFAP). The 2021-22 budget agreement included initial resources to expand CFAP to undocumented Californians who are excluded from the federal Supplemental Nutrition Assistance Program, known as CalFresh in California. However, the budget proposal would limit this expansion to just undocumented Californians who are age 55 or older. More than half of children in undocumented immigrant families live in poverty. Completing this expansion to include Californians of all ages who face food insecurity, regardless of immigration status, is necessary to truly dismantle racist and xenophobic barriers and to address gaps in federal aid.

Finally, in order to maintain the governor’s pledge to support the caregiving economy, the final budget agreement should boost state support for child care providers offering free meals to children and families through the federal Child and Adult Care Food Program. Currently, state law includes racist and sexist pay penalties that offer less state support per meal to child care providers — overwhelming women and disproportionately women of color — than to public schools.

Governor Assumes a 24% Increase to State SSP Grants in 2024

Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help well over 1 million low-income seniors and people with disabilities to pay for housing and other necessities. Grants are provided to individuals and couples and are funded with both federal (SSI) and state (SSP) dollars. State policymakers made deep cuts to the SSP portion of these grants in 2009 and 2011 to help close budget shortfalls caused by the Great Recession. Except for a small increase provided in 2017, the recession-era cuts to SSP grants remained in effect for more than a decade.

State leaders changed course last year and adopted a substantial (24%) increase to SSP grants that took effect on January 1, 2022. The maximum monthly SSP grant for individuals jumped from $160.72 to $199.21. For couples, the maximum monthly SSP grant rose from $407.14 to $504.64. Also as part of the 2021-22 budget package, state leaders committed to providing an additional increase to SSP grants in January 2024, subject to funding being provided in the 2023-24 state budget.

The governor:

Does not call for an increase to the state’s portion of SSI/SSP grants in 2022-23. Even with the 24% increase to SSP grants that took effect on January 1, the maximum SSP payment for individuals — $199.21 — falls far short of the level it would have reached — more than $360 — if state leaders had consistently adjusted this grant for annual changes in the cost of living since 2008, according to Budget Center calculations. In other words, grants have not kept pace with the cost of living in California due to state policy choices. Nonetheless, under the governor’s proposed budget, the state’s SSP portion of SSI/SSP grants would remain frozen throughout the upcoming 2022-23 fiscal year.
Assumes the state’s SSP portion of SSI/SSP grants will increase by an additional 24% in 2023-24, as envisioned in the 2021-22 budget package. As noted above, state leaders committed — as part of the 2021-22 budget package — to providing an additional SSP grant increase during the 2023-24 fiscal year. Under the governor’s assumption of a 24% increase, the maximum SSP grant for individuals would rise from $199.21 to about $247 on January 1, 2024. For couples, the maximum monthly SSP grant would increase from $504.64 to nearly $626. The administration estimates a half-year cost of $296 million General Fund in 2023-24, rising to a full-year cost of $593 million in 2024-25.

Proposal Funds New Child Care Spaces With Federal COVID-19 Relief Dollars

The governor’s proposed budget uses federal COVID-relief dollars to increase the number of subsidized child care spaces across the state. Since the beginning of the pandemic, California has received more than $5 billion in one-time federal COVID-relief dollars specifically for child care meant to stabilize children, working parents, and providers during pandemic. The administration proposes to use $823.7 million dollars — roughly one-third of the remaining relief funds — for 36,000 additional child care spaces.

Other child care investments in the proposed budget include:

$35.6 million for support programs. This includes $25 million for the California Child Care Initiative Project to increase licensed family child care capacity for infants and toddlers in areas without providers and $10.6 million for the California Infant and Early Childhood Mental Health Consultation program.
$7.9 million for early care and education data systems. This includes $4.8 million General Fund for the initial design of a child care data system, as well as $3.1 million federal funds to support early childhood data initiatives.

COVID-19 and its consequences are far from over, yet the budget proposal fails to maintain policy changes implemented in the past year to support families and providers during the pandemic, such as waiving family fees for working parents and supporting providers when the virus impacts attendance or forces sites to temporarily close.

Finally, state and federal leaders have never provided enough funding to provide subsidized child care for all children in eligible families or to pay providers offering subsidized care fair and just rates for this critical work. President Biden’s Build Back Better plan proposes significant new investments to expand subsidized child care, but the ability of Congress to pass this piece of legislation is uncertain. In order to stabilize the subsidized child care system during the current crisis, ensure continuity of care for families, and support the caregiving economy, state leaders will need to commit to additional, ongoing funding in the 2022-23 fiscal year and beyond.

Education

Proposed Early Learning Plan Continues Implementation of Transitional Kindergarten

The 2021-22 budget agreement included a multi-year plan to expand the state’s existing transitional kindergarten program (TK) to all four-year-olds in the state. TK is a two-year kindergarten program offered at local educational agencies (LEA) to children turning five between September 2 and December 2 of each year. The proposed budget includes more than $1 billion for the second year of the multi-year plan, including:

$639.2 million General Fund to expand TK to younger children. Specifically, the eligibility window would extend to all children turning five between September 2 and February 2 — instead of December 2 — a two-month extension. The General Fund dollars would be shifted to the Proposition 98 guarantee, permanently increasing funding for TK-12 schools and community colleges, while restricting General Fund spending by the same amount for other priorities.
$383 million Prop. 98 to add additional staff to TK classrooms. Current student-to-teacher staffing ratios in the TK program do not reflect research-based ratios for high-quality preschool programs. Hiring additional staff will more closely align staffing ratios with the California State Preschool Program (CSPP) — offered at LEAs and community-based organizations for children from families with low and moderate incomes — but still does not align with high-quality benchmarks.

The governor’s budget proposal also makes significant changes to the CSPP. First, the budget proposal would require state preschool providers to ensure that at least 10% of children in their care have a disability. Second, providers would be required to offer additional supportive services for children who are dual language learners. To offset these costs, the proposal provides an additional $308.4 million ($197.8 million Prop. 98 and $110.6 million General Fund) to increase payment rates for providers providing care to children with disabilities and children who are dual language learners. The budget also includes $500 million one-time Prop. 98 for the Inclusive Early Educational Expansion Program, which provides funds to local education agencies to build or modify facilities. Finally, the proposed budget would change eligibility rules, so that providers could enroll two-year-olds, if all older children are served. In addition, once a family is determined to be eligible, the 12-month eligibility period would be extended to 24 months. Children with disabilities will be categorically eligible for the CSPP.

Increased Revenues Boost the Minimum Funding Level for K-14 Education

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of annual funding for K-12 schools, community colleges, and the state preschool program. The governor’s proposed budget assumes a 2022-23 Prop. 98 funding level of $102 billion for K-14 education, $8.2 billion above the 2021-22 funding level of $93.7 billion estimated in the 2021-22 budget agreement. The Prop. 98 guarantee tends to reflect changes in state General Fund revenues and estimates of 2020-21 and 2021-22 General Fund revenue in the proposed budget are higher than those in the 2021-22 budget agreement. The governor’s budget proposal assumes a 2021-22 Prop. 98 funding level of $99.1 billion, $5.3 billion above the level assumed in the 2021-22 budget agreement, and a $95.9 billion 2020-21 Prop. 98 funding level, $2.5 billion above the level assumed in the 2021-22 budget package. Following an agreement in the 2021-22 budget package, the 2022-23 budget proposal would increase the percentage of General Fund revenues guaranteed for the Prop. 98 guarantee in so-called “Test 1” years from 38.02% to approximately 38.4% to accommodate enrollment increases due to the expansion of transitional kindergarten. This “rebenching” of the Prop. 98 guarantee would increase the Prop. 98 minimum funding level by $639.2 million in 2022-23, reflecting the addition of an estimated 56,000 transitional kindergarten students.

Based on projections in the governor’s budget, the state is required to deposit $9.7 billion into the Public School System Stabilization Account (PSSSA) – the state budget reserve for K-12 schools and community colleges – $3.1 billion in 2020-21, $3.6 billion in 2021-22, and $3.1 billion in 2022-23 (see Reserves section). Because the PSSSA balance is projected to exceed 3% of the total K-12 share of the Prop. 98 minimum funding level in 2021-22, current law would prevent K-12 school districts from maintaining more than 10% of their budgets in local reserves beginning in 2022-23.

Significant Funding Boost Proposed to Expand Learning Opportunities for Students

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 roughly 6 million students in grades kindergarten through 12. The governor’s proposed budget significantly increases ongoing funding for the Expanded Learning Opportunities Program and the state’s K-12 education funding formula – the Local Control Funding Formula (LCFF) – and one-time funding for several programs such as school transportation. Specifically, the governor’s proposed budget:

Increases ongoing funding for the Expanded Learning Opportunities Program (ELOP) by $3.4 billion. The 2021-22 budget agreement provided $1.8 billion in initial funding for the ELOP to provide additional learning time for students before or after school, as well as outside of the traditional school year, and allocated higher per pupil amounts for school districts, charter schools, and COEs with concentrated poverty above 80%. In addition to increasing ongoing funding for the ELOP, the governor’s budget proposes $937.4 million in one-time funding to integrate arts and music enrichment opportunities into the ELOP as well as to support the acquisition of infrastructure and equipment.
Increases LCFF funding by approximately $3.3 billion. The LCFF provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. The governor’s proposal provides $2.1 billion to fund a 5.33% cost-of-living adjustment (COLA) for the LCFF. Because many school districts are experiencing reductions in average daily attendance (ADA) and LCFF base grants are calculated based on ADA, the governor also proposes to change “the LCFF calculation to consider the greater of a school district’s current year, prior year, or the average of three prior years’ ADA.” The administration estimates $1.2 billion in ongoing costs to make this change. According to the Assembly Budget Committee, total LCFF funding would reach $70.5 billion in 2022-23.
Provides $1.5 billion in one-time funding to support career pathway programs. The governor’s proposal would provide these dollars over four years to support programs focused on technology, health care, education, and climate-related fields. The governor’s proposal notes that “these programs are predicated on developing local partnerships” that include school systems, higher education institutions, and employers.
Provides $1.5 billion in one-time funding for school transportation. The governor’s proposal would provide these dollars over three years to mitigate the environmental impact of school bus fleets. The governor’s proposal would prioritize funding for small and rural school districts, charter schools, and COEs and those with high-concentrations of English learners, foster youth, and students from low-income families.
Provides $1.3 billion in one-time non-Prop. 98 General Fund for K-12 school facilities. Because the administration expects Prop. 51 bond funding will be exhausted in 2022-23, the proposed spending plan provides this funding in 2022-23 and also proposes $925 million in one-time General Fund spending in 2023-24 to support new construction and modernization projects through the School Facilities Program.
Provides more than $1 billion to expand school nutrition programs. The governor’s proposal provides $596 million to fund a requirement included in the 2021 budget agreement that all public schools provide two free meals per day to any student regardless of income eligibility in 2022-23. The governor’s proposal requires all schools eligible for a federal provision to fund universal free meals – the “Community Eligibility Provision” – to apply for that funding in order to maximize reimbursement by the federal government and then commits the state to pay for any unreimbursed costs. The governor also proposes $450 million in one-time funding over three years for kitchen infrastructure and equipment and $30 million in one-time non-Prop. 98 General Fund dollars over two years to expand farm to school demonstration projects.
Provides $700 million in one-time funding to create an early literacy initiative. The governor’s proposals would provide $500 million over five years in grants for literacy coaches and reading specialists in “high-needs schools” to assist struggling readers and $200 million to establish a grant program to create or expand multi-lingual libraries.
Increases ongoing funding for special education by $500 million. The governor’s proposal includes several changes to the special education funding formula such as calculating base funding allocations at the local educational agency (LEA) level rather than the special education local plan area (SELPA) level and allocating mental health funds to LEAs rather than SELPAs.
Provides $500 million in one-time funding to expand “dual enrollment.” Dual enrollment allows high school students to take college-level courses that count for high school graduation and college credit. The governor’s proposal would provide these dollars over four years to increase student access to “dual enrollment opportunities that are also coupled with student advising and support services.”
Provides $295 million to fund COLAs for non-LCFF programs. The governor’s proposed budget funds a 5.33% COLA for several categorical programs that remain outside of the LCFF, including special education, child nutrition, and American Indian Education Centers.

Proposal Misses Opportunity to Provide More Direct Support to CCC Students

A portion of Proposition 98 funding provides support for California Community Colleges (CCC), the largest postsecondary education system in the country, which serves high percentages of students of color and students with low incomes. CCCs prepare approximately 1.8 million students to transfer to four-year institutions or to obtain training and employment skills.

The proposed budget includes $325 million Proposition 98 to support the CCC’s goals of expanding opportunities for students to transfer to four-year institutions, complete a degree in a timely manner, and to better align the system with the state’s workforce needs as part of their “multi-year roadmap.” Notable investments include:

$105 million one-time to support the implementation of a common course numbering system across all community colleges.
$100 million ongoing for students that are now eligible for the Student Success Completion Grant as part of the Cal Grant expansion (see Student Aid section for further details).
$65 million one-time for colleges to implement legislation that ensures that students are placed on a transfer pathway for their intended major.

Moreover, the budget proposes to continue supporting CCC’s efforts to increase enrollment and retention rates (CCCs have seen a significant decrease in enrollment from pre-pandemic levels), provide emergency financial assistance to some students who are undocumented, and provide funding for deferred facility maintenance.

Specifically, the proposed spending plan:

Provides $409.4 million ongoing for a cost-of-living adjustment (COLA) for apportionments. The proposal represents a 5.33% cost-of-living adjustment (COLA).
Includes $387.6 one-time for deferred maintenance. These funds are intended to make progress in clearing a backlog of more than $600 million in deferred maintenance and also support energy efficiency projects.
Provides $200 million ongoing to expand healthcare coverage for part-time faculty. This proposal expands the Part-Time Faculty Health Insurance Program to allow community college districts to expand coverage.
Allocates $150 million in one-time funds to support student retention and enrollment efforts. This investment is intended to continue to fund strategies to increase retention and enrollment rates — the 2021-22 enacted budget provided $120 million one-time for the same purposes.
Includes $130 million one-time over three years to support vocational pathways in healthcare for English language learners. $30 million is for 2022-23, $50 million is for 2023-24, and $50 million is for 2024-25.
Allocates $20 million one-time for emergency financial assistance grants for AB 540 students. Under California law AB 540, certain students classified as nonresident (including students who are undocumented) are exempt from paying nonresident tuition. This proposal includes eligibility requirements that are still unclear.

The proposed budget misses an opportunity to provide additional direct support to students at the community colleges. The pandemic has had severe impacts on community college students — particularly for students with low-incomes and students of color — which is evidenced in the large declines in enrollment from pre-pandemic levels. Additionally, the administration’s failure to enact Cal Grant reform (see Student Aid section) means that additional investments are necessary to support student needs at the community colleges.

Proposed Budget Provides Multi-Year Investments in the CSU and the UC

California supports two public four-year higher education institutions: the California State University (CSU) and the University of California (UC). The CSU provides undergraduate and graduate education to roughly 477,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 290,000 students on 10 campuses.

For the CSU, the administration proposes a multi-year budget through 2026-27 focused on increasing enrollment, raising graduation rates and closing graduation gaps, increasing affordability of on-campus housing, and halving the cost of instructional materials by 2025. These investments include:

$304.1 million ongoing General Fund, including $211.1 million for a 5% increase in operating costs, $81 million to increase undergraduate enrollment for California residents, and $12 million to support foster youth.

For the UC, the administration also proposes a multi-year budget through 2026-27 focused on increasing enrollment, raising graduation rates and closing graduation gaps, reducing the cost of instructional materials, and achieving debt-free education by 2030. These investments include:

$304.1 million ongoing General Fund, including $200.5 million for a 5% increase in operating costs, $98.8 million to increase undergraduate enrollment for California residents and to offset revenue losses from replacing out-of-state students with in-state students, and $6 million to support foster youth.

Proposed Budget Invests in Cal Grants and Middle Class Scholarship

Cal Grants are the foundation of California’s financial aid program for students with low and middle incomes pursuing higher education in the state. Cal Grants provide aid for tuition and living expenses that do not have to be paid back. The budget summary estimates that over 500,000 financial aid grants will be awarded to students in the 2022-23 academic year.

In order to support California’s higher education students and increase college affordability, the proposed budget includes:

$515 million additional ongoing General Fund for the Middle Class Scholarship. This program supports students at the University of California (UC) and at California State University (CSU), including students who are pursuing a teaching credential. Additional funding targets reducing students’ total cost of attendance.
$300 million one-time General Fund for the Learning-Aligned Employment program. This program, established in the 2021-22 budget, funds UC, CSU, and California Community College (CCC) students to partner with external employers to promote career development and professional networking opportunities for students, prioritizing students from underrepresented communities, with a particular focus for STEM fields.
$100 million additional ongoing Proposition 98 for the Cal Grant entitlement program. The 2021 Budget Act eliminated the age and time out of high school requirements from the Cal Grant entitlement program that have barred many CCC students from receiving an award. This funding is expected to support an estimated 170,000 awards to newly eligible CCC students in the 2022-2023 academic year.
$20 million one-time Proposition 98 for emergency financial assistance to support eligible AB 540 students, including undocumented students at CCCs.

The governor can continue to support students with low and middle incomes by pursuing reforms to Cal Grant that streamline and eliminate remaining barriers that prevent more students from accessing state financial aid. In addition, more investments are needed to adequately address non-tuition costs. Ensuring Californians have access and resources to attend and thrive in the state’s higher education institutions broadens opportunities for individuals and families and strengthens our state’s workforce to drive long-term economic growth.

Justice System

Governor Does Not Propose to Close Additional State Prisons

More than 99,500 adults who have been convicted of a felony offense are serving their sentences at the state level, down from a peak of 173,600 in 2007. American Indian, Black, and Latinx Californians are disproportionately represented in state prisons — a racial disparity that reflects implicit bias in the justice system, structural disadvantages faced by these communities, and other factors. Among all incarcerated adults, most — 94,674 — are housed in state prisons designed to hold fewer than 82,000 people. This level of overcrowding is equal to 116% 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. California also houses over 4,800 people in facilities that are not subject to the cap, including fire camps, in-state “contract beds,” and community-based facilities that provide rehabilitative services. The sizable drop in incarceration has resulted both from 1) a series of justice system reforms enacted by voters and state leaders and 2) changes adopted in 2020 to further reduce prison overcrowding in response to the COVID-19 pandemic, such as suspending intakes from county jails and implementing early releases.

The proposed budget:

Does not call for the closure of additional state prisons. California recently closed the state prison in Tracy and was on track to shut down the Susanville prison by the end of June 2022 until litigation filed by the city of Susanville halted the process. In the meantime, the governor does not propose to target more prisons for closure even though the Legislative Analyst’s Office estimates that California could close as many as five prisons over the next several years. Closing additional prisons, particularly those with costly, decaying infrastructure, would not only generate substantial state savings but also continue to reduce our state’s overreliance on incarceration, which is not necessary to make neighborhoods and communities safer.
Anticipates that the prison population will temporarily rise before resuming its long-term decline by 2024-25. The prison population is estimated to increase by about 8,300 by 2022-23, primarily because the state has been transferring people to prison who were temporarily being held in county jails in order to reduce the risk of COVID-19 transmissions in the state prison system. However, current estimates also suggest that the prison population will soon resume its long-term decline, falling to roughly 100,400 by 2024-25.
Expands access to substance use treatment in prisons. The governor proposes to expand the Integrated Substance Use Disorder Treatment Program, which was implemented in 2020 to deliver treatment and interventions to incarcerated adults with substance use disorders. This expansion would be funded with $126.6 million General Fund in 2022-23, rising to $162.5 million ongoing.
Proposes to continue providing emergency housing services to adults who are at risk of being unhoused when they leave prison. The Returning Home Well Program, which was created in response to the COVID-19 pandemic, would continue for another three years at a cost of $10.6 million General Fund annually. These resources would “support continuation of the program while also providing the opportunity to assess the ongoing needs of the release population,” according to the governor’s budget summary.
Increases incarcerated adults’ access to higher education through a partnership with the California State University. Bachelor’s Degree Programs would be created at seven prisons for an initial cost of $5 million General Fund and an ongoing cost of $4.7 million. These programs would be available to incarcerated adults who successfully complete their prison-based community college program.

Proposed Infrastructure Increases to Courts and Juvenile Facilities

All California counties play a key role in the state’s local correctional system by operating jails and supervising adults and juveniles on probation. While many counties have continued to follow COVID-19 emergency guidelines, including through temporarily lowering bail schedules and reducing the number of people held in custody, county jails still house roughly 59,000 adults on a given day. Since 2011, state-to-county “realignment” made counties responsible for managing certain adults who had traditionally been housed in state prisons and supervised by state parole officers upon their release. Recently, juvenile justice realignment also transferred responsibility for youth who are wards of the state to counties. The California Department of Corrections and Rehabilitation Division of Juvenile Justice (DJJ) will no longer house juveniles, with limited exceptions, and is scheduled to close on June 30, 2023. The local correctional system is also accompanied by California’s 58 county-based trial courts that supplement the foundation of the state’s judicial branch – ruling on both civil and criminal cases.

This year the administration proposed focusing on continuing efforts to support current programs and funding additional infrastructure projects, including:

$263 million ($135.8 million General Fund and $127.2 million Public Buildings Construction Fund) for the acquisition or building of five courthouses. These will be located in the counties of Fresno, Solano, Los Angeles, Plumas, and San Luis Obispo.
$100 million one-time General Fund for the Board of State and Community Corrections to improve county-operated juvenile facilities. These funds are intended for facilities to build their capacity to support youth with a variety of needs, focusing on trauma-informed care, restorative justice, and rehabilitative programming.
$50 million ongoing General Fund to backfill an estimated loss of revenue to trial courts from expanding the ongoing fines and fees reduction pilot program. Newly proposed statutory budget language would qualify court-imposed civil assessments for this program and reduce them from a maximum of $300 to $150. Civil assessment fees are placed on individuals charged with traffic, misdemeanor, or felony charges who fail to appear in court or pay a fine.
$42.6 million General Fund in 2022-23 and $42.3 million ongoing for 23 superior court judgeships, which fill all remaining judgeship vacancies allowed under current law.
$34.7 million General Fund in 2022-23 and $40.3 million in 2025-26 ongoing to continue the modernization of court operations through various technological initiatives sparked by the pandemic.

Governor’s Proposed Crime Reduction Plan Lacks Equity Considerations

Over the years, California has adopted various justice system-related reforms that moved away from “tough on crime” sentencing laws while still ensuring public safety. These reforms, passed through legislative action and voter approval, have led to sustained decreases in overall crime and prison population rates. Yet despite the relatively low and stable crime rates California has experienced, the administration introduced “cracking down on crime” proposals this year targeted at retail theft and other crimes that do not explicitly account for the potential enforcement disparities that may arise. Structural racism and its compounding factors still lead to the overpolicing of communities of color, racial profiling, sentencing disparities, and racial disparties in the state’s prison population which the proposed funding allocations fail to recognize.

The governor’s proposed budget allocates $356 million General Fund over three years, including $132 million in 2022-23, for various law enforcement efforts to address retail theft and provide some relief to small businesses. The proposal for this funding does not state how equity implications and implicit biases will be taken into consideration during enforcement and training. The major funding allocations include:

$85 million annually through 2024-25 in competitive grants for local law enforcement to increase enforcement, task force participation, staffing presence at retail locations, diversion and supervision of people accused of committing retail theft, and retail theft training.
$20 million one-time General Fund for grants to small businesses affected by retail theft.
$10 million annually through 2024-25 for competitive grants to local District Attorneys to establish retail theft prosecution teams.
$6 million in 2022-23 to provide a total of $15 million annually for the California Highway Patrol to permanently expand their Organized Retail Theft Task Force.

The governor also proposed additional public safety-related funding, such as:

$25 million one-time General Fund to create a competitive grant program to boost local gun buyback programs and provide awareness about gun and youth violence.
$20 million one-time General Fund to expand the California Military Department’s existing drug interdiction support efforts in federally designated High Intensity Drug Trafficking Areas.

Workforce & Small Business

Proposed Budget Includes Several Investments Targeted to Small Businesses

In addition to the business tax proposals outlined in the Revenues section — which do not appear to be exclusively targeted to small businesses — the governor proposes investments of additional state dollars and the allocation of federal funds to help small businesses recover from the pandemic and to support entrepreneurs and startups.

The proposed budget includes:

$130 million in additional one-time General Fund dollars for the Small Business COVID-19 Relief Grant Program. This program was launched in December 2020 and demand continues to exceed capacity. These new funds would be added to $20 million in unallocated funds from the set-aside for nonprofit cultural institutions, so a total of $150 million would be available to businesses that have applied for but not yet received grants.
$40 million in one-time General Fund dollars to waive filing fees for new businesses registering between July 2022 and June 2023.
$20 million in General Fund dollars over four years to expand the Innovation Hub (iHub) program with a focus on inclusive economic growth. The iHub program was relaunched as part of the 2021 budget package, which included $2.5 million one-time General Fund to provide grants for the establishment of 10 regional iHubs — partnerships between research institutions, economic development organizations, business or workforce organizations, venture capital networks, and local governments — to support entrepreneurs and startups in the science and technology sectors. The additional funding would expand the number of iHubs to 13 and provide grants of up to $100,000 for five new businesses incubated at each iHub. The administration states that these grants would encourage science and technology business creation in underserved areas.
$20 million in one-time General Fund dollars for grants to small businesses that have experienced retail theft to assist them in repairing or replacing infrastructure.
$6 million in General Fund dollars in 2022-23 and $23 million ongoing for the Technical Assistance Expansion Program. This program was established in the 2018 budget agreement to provide grants to small business technical assistance centers to expand consulting and training services to more underserved business groups, including businesses owned by women, people of color, and veterans and those serving low-wealth, rural, and disaster-impacted communities. The initial funding commitment of $17 million annually over five years will expire in 2022-23, and the governor proposes to increase the funding level to $23 million in 2022-23 and to permanently support the program at that level.

The budget proposal also indicates that of the $1.2 billion in federal State Small Business Credit Initiative funds the state is expected to receive through the American Rescue Plan, it plans to allocate $1 billion to existing programs administered by the California Infrastructure and Economic Development Bank (IBank) and the State Treasurer’s office to increase small businesses’ access to financing. The governor proposes allocating the remaining $200 million to establish a Venture Capital program at IBank to focus on underrepresented venture capital managers and business owners, socioeconomically disadvantaged areas of the state, and climate equity.

Many of the administration’s small business proposals indicate a focus on underrepresented business groups and underserved communities, which could contribute to a more equitable state economy if these businesses and communities are prioritized and the programs help to break down structural barriers faced by entrepreneurs and small business owners who are people of color, women, people from disadvantaged communities and other “historically underserved” groups.

Workforce Proposals Primarily Target Climate Change and the Care Economy

To help workers struggling to secure jobs or shift industries, and to create pathways to jobs in various sectors, the governor’s proposed budget includes a number of investments focused on workforce development.

Several of these investments are also aimed at supporting the state’s efforts to combat the climate crisis and the ongoing transition to clean energies, including:

$265 million to support the transition from oil and gas to other industries. The proposal includes $200 million over two years for the Department of Conservation to seal oil and gas wells, $50 million for a pilot fund intended to support displaced oil and gas workers, and $15 million for a well-capping workforce pilot to train displaced oil and gas workers.
$235 million for training programs and grants across various climate-related industries. The budget proposes $110 million over three years for a Goods Movements Training Center, $60 million over three years for the Low Carbon Economy Workforce grant program, $35 million one-time for the University of California to establish climate-focused regional training hubs, and $30 million one-time over two years for community colleges to support workforce development in wildfire and forest resilience.

Other investments task state agencies — the Labor and Workforce Development Agency and the California Health and Human Services Agency — with coordinating workforce development investments in the care economy and health-related fields. Major proposals include:

$350 million for new community health workers. These funds are intended to support recruitment, training, and certification for 25,000 community health workers by 2025.
$340 million for high road training partnerships in “family-sustaining” health care jobs. This proposal focuses on training and career development for people with “barriers to employment” through collaboration among various entities.
$270 million to increase the number of nurses and other health professions.
$210 million to support social worker pipelines. The funds are intended to support training programs and provide financial assistance in the form of scholarships and stipends.

The budget proposal also includes several investments to support the educator workforce, including:

$46 million one-time General Fund to increase the number of teachers. $36 million are intended for waiving certain teacher examination and credentialing fees and $10 million to provide grants to higher education institutions to implement teacher preparation programs that integrate a bachelor’s degree and a teacher credential in one pathway.

Additional workforce development proposals include $50 million one-time to support English learners with language literacy and other skills used in the workplace.

Administration Proposes Unnecessary Payment on Federal Unemployment Insurance Loan

Millions of California workers turned to unemployment insurance benefits in 2020 and 2021, after suddenly losing their jobs as COVID-19 moved through homes and communities. These benefits helped Californians pay for basic needs, such as food and rent, while they could not work.

California had to borrow billions of dollars from the federal government to pay for the unemployment benefits workers needed in 2020 and 2021. This was largely because, for decades, California had not required businesses – particularly large, profitable corporations – to cover the true cost of state unemployment benefits for their workers.

California businesses finance unemployment benefits for their workers by paying annual payroll taxes. These taxes generate revenues that are deposited into the state’s unemployment insurance fund and are available to pay benefits whenever workers lose their jobs through no fault of their own. In California, employer payroll taxes are based on only the first $7,000 of each employee’s annual pay. This is the lowest “taxable wage base” allowed under federal law, and just four states have bases this low.

California’s base has been frozen at just $7,000 since 1983 even though wages have increased substantially since then. As a result, businesses currently pay payroll taxes on just 12% of the average California worker’s earnings – the smallest share in the nation. This severely limits the amount of revenue California can generate for unemployment benefits and is a key reason the state had to borrow money from the federal government to pay for these benefits over the past two years. The taxable wage bases in 16 states are at least half of average annual earnings, and most of these states paid for unemployment benefits during the pandemic without federal loans.

The administration proposes using $3 billion General Fund over two years ($1 billion in 2022-23 and $2 billion in 2023-24) to pay down a portion of the state’s outstanding federal loans for unemployment benefits.

This proposal amounts to an unnecessary business tax break that would take $3 billion away from addressing Californians’ urgent needs at a time when families and communities are still reeling from a nearly two-year-long pandemic and are now grappling with the economic and health impacts of another COVID-19 surge. Specifically, this proposal:

Would essentially provide an across-the-board tax break for businesses that haven’t been paying enough in taxes to cover the true cost of unemployment benefits for their workers for decades. It would especially benefit large businesses, including profitable corporations, which are paying less than half the amount in state taxes, as a share of their income, than they did a generation ago largely due state policymakers’ decision to provide tax cuts and other breaks.
Is unnecessary because there is already a sensible process in place for paying off the state’s unemployment debt. Under federal law, California businesses will pay off this debt very gradually through small increases in the federal payroll tax rate. It makes sense that businesses are responsible for paying off this debt since it largely resulted from decades of employers not paying enough in taxes to support the unemployment benefits their workers need. Businesses’ first payment toward the debt will be due in 2023 and will amount to just $21 per employee for the entire year, the equivalent of a 0.07% of a full-time minimum wage worker’s annual earnings. The federal payroll tax will increase in each subsequent year, resulting in businesses paying an additional $21 per employee per year until the debt is paid off.
Will not benefit any California business for many years. The Legislative Analyst’s Office analyzed a similar proposal included in the governor’s revised budget last May and estimated that the earliest businesses would have benefited was in 2030, well after the economic effects of the pandemic on businesses are likely to have subsided.

The governor indicated that one rationale for this proposal is to reduce how much small businesses will pay in increased federal payroll taxes in future years. But the benefits of the proposal would primarily benefit larger businesses and corporations years from now. If the administration wants to provide short-term assistance to small businesses – particularly those struggling to stay afloat amid the pandemic – there are better alternatives that could provide aid directly to those businesses this year.

The administration also includes $470.1 million one-time General Fund to pay the forecasted interest payment on the federal loans the state took out to pay for unemployment benefits that are due in September 2022. Interest payments on these loans are traditionally paid for out of the state’s General Fund.

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Workers need paid time off during a pandemic to abide by public health guidelines, stop the spread of illness, and care for family members. California’s temporary COVID-19 supplemental paid sick leave – approved by the state Legislature – is an important public health tool that provides workers with up to 80 hours of paid time off to care for their health or family members’ health.¹ Unfortunately, COVID-19 supplemental paid sick leave ends September 30, 2021, even though community transmission of the virus remains high in many counties across the state. Policymakers can take urgent action to renew COVID supplemental sick leave to support California workers and families, keep communities healthy and safe, and ensure local economies can continue to recover from the pandemic.

Under the state’s standard paid sick days law, many workers in California have access to just 24 hours of paid time off per year. Three days of paid time off does not provide enough time for workers to adhere to current state and federal pandemic guidelines without fear of losing wages or even their jobs. Moreover, California’s standard paid sick time does not allow enough time for working parents to take time off from work when unvaccinated children are sent home from school or child care after a COVID-19 exposure or when they are experiencing virus symptoms. COVID-19 supplemental paid sick leave has been vital for workers who become sick, need to get the vaccine, or when children have to remain home from school or child care due to pandemic-related disruptions in child care.

Overall, more than 1 in 5 adults in California lived in households with children that experienced a disruption in child care due to the pandemic (22%) this past spring and early summer. Californians of color were far more likely to experience disruptions in care, with 25% of adults of color living in households with children who were unable to attend child care due to the pandemic, as compared to 16% of white Californians. Women and Californians with low incomes were also more likely to live in households experiencing pandemic-related disruptions in child care compared to other California households with children.

Even with COVID-19 supplemental paid sick leave, 26% of adults in households with a disruption in care took unpaid time off to care for children who were unable to attend child care. Similarly, 18% of adults in households with children either left their job or were fired from their job because of a disruption in care.

Without COVID-19 supplemental paid sick leave, California will lose an important tool to promote public health and safeguard workers’ economic security. State policymakers should maintain the state’s COVID-19 supplemental paid sick leave for the duration of the pandemic, with workers’ bank of paid time off replenishing on October 1, 2021. This is especially critical for workers with low wages and part-time workers – disproportionately women and Californians of color – who are far less likely to have employer-provided leave benefits that assist with families’ health, economic, and emotional well-being. Workers must be able to stay home when they are ill, getting vaccines, or experiencing COVID-19-related disruptions in child care. After the pandemic, policymakers should require employers to provide additional paid sick days for workers – beyond 24 hours – to maintain the health of the state’s workforce and economy. Caring for Californians cannot stop now and must continue to promote public health and foster workers’ economic security.

Covid-19

Poverty & Inequality

¹COVID-19 supplemental paid sick leave is only available to workers in organizations with more than 25 employees.

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Executive Summary

California is home to renowned public university systems, educating thousands of students every year and helping them build strong futures for themselves and their communities. The right to education is fundamental to the well-being of students and the larger society as research shows that more education can promote healthier lives and is associated with better employment prospects. Due to these benefits, California prospers when its high school students continue their education and attend college. With estimates showing about 40% of jobs in California will require a bachelor’s degree in less than a decade, access to higher education is critical to California’s prosperity.

However, California is failing to set students up for this future. This report shows that California’s public universities do not provide equal access to higher education based solely on merit. This problem is due in part to course requirements that create an inequitable barrier to admission for many students who do not have an equal opportunity to fulfill them successfully. The report also explores data concerning which students are most affected by this barrier and offers recommendations for how the universities and public high schools can improve college access for all of California’s students to build a stronger future for young people and communities.

In this report learn more about:

CSU and UC Base Eligibility for Admission on Completion of Specific Courses
How Discrepancies Among High Schools, CSU, and UC Requirements Put Burden on Students
Course Requirements Inconsistent with High School Standards Create an Inequitable Barrier to CSU and UC
Disparities in Satisfying CSU and UC Course Requirements Reflect Societal and Educational Inequities
Policymakers Can Improve CSU and UC Access by Reforming Course Requirements

Education

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Introduction

As we enter the 2021-22 fiscal year, state leaders have reached a “nearly final” budget agreement, though some details still remain to be finalized and additional budget-related bills will be acted upon in the new fiscal year. According to legislative summaries, the budget framework includes $196 billion in General Fund spending for 2021-22, a significant increase over the revised 2020-21 General Fund budget of $166 billion. The agreement assumes a total reserve balance of $25 billion across the state’s four budget reserves: the Budget Stabilization Account, the Public School System Stabilization Account, the Special Fund for Economic Uncertainties, and the Safety Net Reserve. The framework contains actions to prevent the budget from exceeding the state’s constitutional spending cap (the “Gann Limit”). It is estimated that the budget will remain under the Gann Limit, meaning the state would not be required to issue taxpayer refunds and make supplemental payments for K-14 education (though the agreement maintains the governor’s proposal to make additional Golden State Stimulus payments, as described below). However, this situation could change if actual revenue collections are significantly higher than current projections.

This report highlights selected elements of the budget framework that represent significant advancements to improve the lives of Californians with low and middle incomes — including women, immigrants, and American Indian, Asian, Black, Latinx, and Pacific Islander Californians and other Californians of color. We also highlight areas where the budget framework falls short of this goal and the work still to be done by policymakers to ensure that all Californians are able to not only survive but thrive in their communities.

The 2021-22 budget framework:

Provides a second round of Golden State Stimulus (GSS) payments, with larger payments for families with low incomes that include undocumented Californians. The budget framework includes $8.1 billion for Californians with income of up to $75,000, with payments of $500, $600, $1,000, or $1,100 depending on filing status. Larger payments for some undocumented Californians will help to reduce income inequities caused by the racist and xenophobic exclusion of our undocumented neighbors, family members, and friends from federal pandemic aid.

Still to be done: Reducing inequities created by policies that deny benefits to undocumented Californians and their families. For example, providing a larger California Earned Income Tax Credit (CalEITC) to undocumented Californians would help to reduce income inequities caused by the exclusion of undocumented residents from the federal EITC and stimulus payments.

Commits to invest $300 million in public health programs in 2022-23. While this investment is much-needed, the delay in providing the funding until 2022-23 misses an opportunity to urgently bolster public health infrastructure at the local level — including information systems, workforce, and health promotion programs — as well as other health equity measures. Due to chronic underfunding in public health systems, counties and cities across the state were not adequately prepared to respond to COVID-19 and many communities suffered. In particular, Black, Latinx, and Native Hawaiian and Pacific Islander Californians experienced higher rates of illness and death. These inequities are the result of historic and ongoing structural racism that deny many the opportunity to be healthy and thrive.

Still to be done: Negotiations between policymakers, advocates, and stakeholders to ensure that the committed funds are allocated to local public health departments and other efforts to advance health equity. In addition, state policymakers should declare racism as a public health crisis. This declaration would be an important first step in dismantling the systems of racism that create inequalities in health for Californians.

Provides $1 billion annually in flexible local funding to address homelessness for each of the next two years, with the intent to continue support in future years “based upon performance and need.” Major multi-year flexible state funding is important to sustain new projects and support existing effective local efforts to provide long-term solutions for Californians experiencing homelessness. The budget includes other substantial homelessness investments including $2.75 billion for Project Homekey (to acquire and rehab hotels and other buildings as housing for individuals experiencing homelessness); significant two-year boosts to programs that address homelessness among specific populations (like families and seniors); and one-time funds to acquire and stabilize behavioral health care and board and care facilities that may serve individuals exiting or at risk of homelessness.

What we still need to know: Many implementation details are unavailable. Looking ahead, it will be important to sustain effective local efforts to address homelessness, making it critical that state leaders follow through on their stated intent to continue support in future years.

Extends the state eviction moratorium to September 30 and adjusts the emergency rental assistance program to cover 100% of back rent and prospective rent for eligible tenants. This extension is critical because California’s recent job gains still have not reached many low-wage workers and Black and Latinx workers. The rental assistance changes aim to remove participation barriers and implementation challenges that have prevented aid from being distributed quickly. Eligible low-income renters can receive up to a total of 18 months of support. After the moratorium ends, legal procedural protections will prohibit evictions for nonpayment of rent unless landlords have applied for rental assistance and were denied or tenants did not complete their portion of the application.

Still to be done: Many renters with low incomes will still be struggling after September and may need additional support, given that many faced unaffordable rents even before the pandemic and a full jobs recovery may take many more months. Monitoring progress of the rental assistance program will also be important. State leaders should be prepared to extend the moratorium further if more time is needed to ensure assistance is reaching struggling renters.

Expands comprehensive Medi-Cal coverage for income eligible-adults age 50 and over, regardless of immigration status. This is a critical advancement in improving access to health care for approximately 235,000 Californians and using state money to fund vital health care, as federal policy prohibits states from using federal dollars to provide comprehensive health coverage to undocumented immigrants, including seniors, through the Medicaid program.

Still to be done: Extending Medi-Cal eligibility for undocumented Californians age 26 to 49 and thereby putting an end to racist and exclusionary policies that block Californians from accessing vital health services. By advancing this policy change along with investing in other equitable health policies that focus on the well-being of communities of color, policymakers can ensure all Californians have the opportunity to be healthy and thrive.

Eliminates the Medi-Cal asset test for seniors and people with a disability. Ending this unfair and racist policy will help advance health equity in California and ensure more people have access to health care. The asset test limits seniors and people with disabilities to assets of no more than $2,000 for individuals and $3,000 for couples — a restriction that had not changed since 1989. The asset test weakens a household’s financial stability and discourages savings as people may be compelled to spend down in order to qualify for Medi-Cal.

Still to be done: California can eliminate the asset test in other important safety net programs, including the Medicare Savings Programs.

Takes the first step to end the exclusion of undocumented Californians from basic food assistance by making the state-funded California Food Access Program (CFAP) more inclusive. This change moves toward ensuring that all Californians can meet their basic need for food. Necessary changes to data systems will begin immediately, with “targeted enrollment” to provide nutrition benefits to low-income Californians who are undocumented planned to begin in 2023-24. The specific criteria for who would be eligible would be decided closer to implementation. The budget agreement will also reduce hunger by providing free meals for all students attending K-12 public schools — the first state in the nation to do so — and by providing funds to food banks that play a critical role in putting food on families’ tables.

Still to be done: The budget outlines the intention to fund implementation of the CFAP expansion in future years. It will be important for state leaders to follow through on that commitment. Moving beyond “targeted” implementation to include all Californians who face hunger and are now excluded from support may require additional resources.

Dramatically increases spaces for children in subsidized child care programs, adding 120,000 spaces in 2021-22 — roughly double the spaces in non-CalWORKs child care programs that were funded in the 2020-21 budget agreement. Among other investments, administrative and legislative documents also report that the budget agreement will include a long-overdue increase in provider payment rates for providers offering subsidized child care and for the California State Preschool Program.

What we still need to know: Details on the early care and education package are unavailable, and it is unclear how or if all providers in the state’s mixed delivery system will benefit from the increased rates. It also is unclear what share of federal COVID-19 child care relief funds state leaders will be utilizing in the 2021-22 budget agreement. Designed to stabilize child care providers and families during the pandemic, these funds may not reach Californians in a timely fashion if state leaders fail to take action.

Strengthens California Work Opportunity and Responsibility to Kids (CalWORKs) program, a core safety net for families with children. Steps to shore up CalWORKs include partially aligning income eligibility standards for applicants and recipients; increasing support for pregnant people; expanding services for families experiencing homelessness; and modestly increasing grants, among other actions.

Still to be done: Fully closing the gap between applicants and recipients, so that more families may be eligible for assistance and increasing grants so that children living with family members ineligible for CalWORKs do not continue to live in deep poverty.

Expands college savings accounts for children. The 2019-20 budget established the California Kids Investment and Development Savings Program (CalKIDS) to create college savings accounts for children from families with low incomes born after July 2020, with the goal of helping to make higher education more affordable and accessible. The 2021-22 budget agreement expands on that investment by providing $1.8 billion in federal funds and $107.8 million ongoing General Fund to support CalKIDS. The agreement also establishes a new program in CalKIDS for first graders enrolled in public school and defined as “low-income” by the Local Control Funding Formula (LCFF). The new program would provide $500 in seed funding for each student, with youth involved in the foster care system or who experience homelessness receiving an additional $500 deposit.

Dramatically increases the Local Control Funding Formula (LCFF) concentration grant and funding for several K-12 education programs. In addition to providing $3.2 billion to fund a 5% cost-of-living increase for the Local Control Funding Formula (LCFF), which provides K-12 school districts, charter schools, and county offices of education a base grant per student, adjusted to reflect the number of students at various grade levels, the budget agreement provides $1.1 billion to increase LCFF concentration grants from 50% to 65% of the base grant starting in 2021-22. The boost in the LCFF concentration grant would support local educational agencies (LEAs) in which English learners, students from low-income families, and foster youth comprise more than 55% of total enrollment for the purpose of increasing school staffing.

The budget agreement also provides approximately $3 billion in one-time funding for community school grants for LEAs to develop new and expand existing networks of community schools, which provide integrated educational, health, and mental health services to students, as well as $1.5 billion in one-time funding for professional development training resources for teachers, administrators, and other in-person staff.

Makes college more affordable for students in low-income households by investing in need-based financial aid. The budget agreement expands the Cal Grant program — California’s financial aid program for low- and middle-income students — by eliminating the age and time out high school requirements that have barred many community college students from receiving an award. The $154 million dollar investment will support an estimated 133,000 community college students starting in 2021-22. The agreement also invests $515 million to establish an affordability framework for Cal Grant students attending California’s public universities. These investments will provide much-needed financial aid to support students’ basic needs such as housing and food.

Still to be done: A full restructuring of the Cal Grant program to adequately address non-tuition costs, reduce and eliminate student debt for low-income students, and simplify the program overall.

Rejects the unnecessary deposit into California’s unemployment fund, which would have given a tax break to businesses – including the largest, most profitable corporations – that for decades have not paid enough into the fund to support the unemployment benefits that workers need. This deposit proposed by the governor would not have provided any immediate aid to businesses recovering from the pandemic, nor would it have substantially reduced California’s interest payments on its federal unemployment insurance loan.

Still to be done: Avoid wasting state money on a deposit into the unemployment fund when large corporations don’t need another tax break and that money could be better spent addressing the basic needs of Californians. If state leaders want to avoid taking out federal unemployment loans in the future, they could follow the lead of states like Washington and Oregon and ensure that businesses contribute enough into the fund to support the benefits that workers need when they lose work.

Backtracks on the Legislature’s prior commitment to plan for closing more state prisons. The substantial decline in the state prison population over the past year has given California an opportunity to close more state-owned prisons — beyond the two that are currently scheduled for closure — and to redirect the savings to other state services. The nonpartisan Legislative Analyst’s Office estimates that California can close as many as five state prisons over the next several years. The Legislature’s original version of the 2021-22 budget bill, passed on June 14, included provisions requiring the governor to develop a prison-closure plan, including identifying “at least four prisons” that are “the strongest candidates for closure.” However, amendments to the budget bill passed on June 28 delete these provisions. While the administration could still develop a prison-closure plan, it is no longer required to do so by the 2021-22 budget package, representing a significant step back in the state’s effort to downsize its massive carceral system.

While much is already known about what is included in the nearly final budget agreement, a considerable amount of work remains to be done to finalize the details for a range of budget policies and what those policies will mean for Californians, particularly individuals and families disproportionately harmed by the pandemic. State leaders will continue to advance the 2021-22 state budget in the coming weeks, providing further opportunities to address gaps in the policies outlined in this report and improve the lives of Californians.

The state budget process is cyclical, and attention will soon turn to preparing for the 2022-23 state budget amid economic conditions that are expected to continue to improve over the next couple of years, likely resulting in continued growth in state revenues. State leaders will have opportunities to further invest in Californians, but will have to manage and address the potential constraints imposed by the state’s disco-era spending limit to ensure that our state can undo longstanding inequities and ensure that all Californians can thrive.

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Introduction

California adopted a series of justice system reforms in the 2010s that substantially reduced mass incarceration. Did these reforms also help to reduce long standing racial disparities in state prisons — disparities that reflect the disproportionate incarceration of Black and Latinx residents as well as other Californians of color? This report answers this question by examining changes in state-level incarceration during the 2010s for both men and women through the lens of race and ethnicity. While incarceration declined nearly across the board, by the end of the 2010s men and women of color generally continued to be incarcerated at higher rates than white men and women, and racial disparities generally widened.

Ending racial disparities in incarceration will require sustained efforts — including action from policymakers at all levels of government — to advance antiracist policies that can address the legacy of past discrimination as well as ongoing racism that continues to harm Californians of color, both within and outside of the justice system.

Justice System

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All California children, parents, workers, and community members should have the support they need to meet their basic needs for food, shelter, and other necessities. Yet Californians who are undocumented immigrants, or who have undocumented family members, are blocked from full access to the supports that other Californians can turn to when struggling to meet basic needs. State and federal policies uphold exclusionary practices against undocumented Californians despite them being deeply embedded in our communities and economy. This exclusion, rooted in racism and xenophobia, is one reason why undocumented Californians and their family members are more likely to live in poverty. Even before the COVID-19 pandemic, California children in families that include undocumented immigrants were an estimated three to four times more likely to be growing up in families struggling to meet their basic needs than children in non-immigrant families.

One basic support that fails to include undocumented Californians is the federal Supplemental Nutrition Assistance Program (SNAP), known as CalFresh in California. CalFresh is a key resource to help families put food on the table. Californians who are undocumented are completely blocked from access to CalFresh, and mixed-status families are only eligible for reduced benefits due to federal rules.

State policymakers can correct this inequity by including undocumented children and adults in state-funded basic nutrition assistance through the California Food Assistance Program (CFAP). CFAP provides benefits identical to CalFresh for some non-undocumented immigrant Californians who are excluded from CalFresh by federal rules. The choice by state policymakers to extend CFAP benefits to undocumented Californians would ensure that policies with xenophobic and racist roots do not block Californians from the support they need to avoid hunger.

Policymakers can make other choices, as well, to reduce policy-driven inequities in basic economic security based on immigration status, including extending access to comprehensive health coverage through Medi-Cal regardless of immigration status, and providing much larger Golden State Stimulus payments to mixed-status and undocumented families who were blocked from federal COVID-19 stimulus and unemployment insurance benefits. These choices would provide support for undocumented Californians, who are valued community members, and help ensure all Californians are able to meet their basic needs.

Poverty & Inequality

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Executive Summary

On May 14, Governor Gavin Newsom released the May Revision to his proposed 2021-22 state budget, projecting $75.7 billion in additional revenues over the current fiscal year (2020-21) and budget year. The additional revenues are relative to projections in the enacted 2020-21 budget and include $38.1 billion in discretionary funds available to be allocated and $37.6 billion in constitutionally required obligations for K-12 schools and community colleges ($26.6 billion) as well as for reserves and paying down certain long-term liabilities ($11 billion). The large revenue gains are driven by high-income Californians and corporations thriving amid the COVID-19 pandemic. Federal and state cash assistance directed to Californians is also helping mitigate more dire expectations of economic decline from layoffs and evictions. In combination with direct federal aid from the American Rescue Plan (ARP: $27 billion), California’s state leaders have more than $100 billion in funds available to be invested over the current budget, and future years.

The governor proposes to make an array of investments to address the effects of the pandemic and lay the foundation for a more equitable California, including:

$8 billion in Golden State Stimulus payments to Californians earning less than $75,000 annually, including to immigrants who are undocumented.
Emergency rental assistance to cover 100% of back rent owed by Californians with low incomes and $2 billion in ARP funds for utility assistance for renters.
$12 billion in state and federal funds over two years to address homelessness.
Expanding eligibility for comprehensive Medi-Cal coverage to approximately 80,000 undocumented adults age 60 and older.
Significant increases in funding for K-12 education, including additional ongoing funding to support English learners, students from low income families, and foster youth.
Universal transitional kindergarten for all 4-year-olds in the state, phased in over four years.
100,000 new subsidized child care slots and financial assistance for child care providers using federal and state funds.
Increases in base and one-time funding for the state’s higher education systems.
Establishing college savings accounts for California children in families with low incomes.
$7 billion in ARP and state funds to address the digital divide.

While the governor’s revised 2021-22 state budget makes significant investments, California’s revenue outlook means policymakers can provide greater support and make bolder and even more equitable policy choices that meet people’s ongoing health and economic needs. This includes:

Providing ongoing funding for local public health departments critical to responding to the pandemic and future public health crises.
Allocating additional funding to undocumented Californians and their families to cover gaps in federal aid.
Expanding food assistance and comprehensive Medi-Cal coverage to all undocumented Californians, regardless of age.
Maintaining payment rates for workers who rely on California’s paid family leave and state disability insurance programs for their family care needs.
Reforming reimbursement rates to ensure that child care providers are paid fair rates.
Closing more state prisons, which disproportionately harm the lives of Black and brown Californians and waste state resources.

The May Revision also proposes expansions of tax credits and other assistance for businesses, some of which is poorly targeted and would not help the businesses that have been hardest hit by the pandemic.

State policymakers have an opportunity to put a budget plan in place that invests in the immediate and future health and economic security of all Californians, lays the foundation for a more equitable future, and in so doing, positions our state and communities to more quickly, equitably, and sustainably emerge from the recession and pandemic.

This report outlines key pieces of the 2021-22 budget proposal, with consideration for how the plan supports — or does not meet the needs of — Californians with low incomes, as well as women, Black Californians, Latinx Californians, American Indians, Pacific Islander Californians, Asian Californians, and other Californians of color.

Budget Overview

Economic Outlook: Governor’s Economic Outlook Has Improved but a Recovery Remains a Long Way Off
Revenue: Revised Budget Reflects Significantly Higher Revenues Than Previously Projected
Gann Limit: Governor’s Revised Budget Assumes the State Will Exceed Its Constitutional Spending Limit
Reserves: Stronger-Than-Expected Revenues Allow State to Build Reserves to $24 Billion
Unfunded Liabilities: May Revision Continues to Pay Down Unfunded Liabilities
Business-Related Tax Credits & Grants: Governor Proposes Expansions of Grants, Tax Credits, and Other Assistance for Businesses

Health

Public Health: The May Revision Misses Key Opportunity to Invest in Local Public Health Departments
Health Coverage & Access: May Revision Expands Comprehensive Medi-Cal Coverage to Older Adults Who Are Undocumented
CalAIM: Revised Budget Builds on Efforts to Improve Health Outcomes Through Medi-Cal Reform
Behavioral Health: Governor’s May Revision Provides Support for Californians’ Mental Health and Substance Use Disorder Needs

Homelessness & Housing

Homelessness: Governor Proposes $12 Billion to Address Homelessness by Acquiring Housing and Meeting Needs of Specific Populations
Housing: Governor Proposes Using Federal Funds to Help Struggling Renters and Develop Affordable Housing

Economic Security

Golden State Stimulus: Governor Proposes Second Golden State Stimulus for Californians with Low and Moderate Incomes
Universal Basic Income: Governor Proposes Investing in Basic Income Pilots
Immigration: Governor Proposes Extending Some Benefits to Immigrants Who Are Undocumented, Misses Opportunity to Fill Gaps in Federal Aid
CalWORKs: The Administration’s Revised Proposal Makes Some Adjustments to the CalWORKs Program, Anticipates Slow Caseload Growth
Food Assistance: May Revision Expands Investment in K-12 School Nutrition, Misses Opportunity to Expand Food Assistance to All Californians Regardless of Immigration Status
Child Care: May Revision Provides Partial Plan for Federal Child Care Relief Funds, Including 100,000 New Spaces for Children
Paid Family Leave & State Disability Insurance: May Revision Fails to Maintain Payment Rates for California Workers Who Need Paid Time Off
SSI/SSP & Proposals to Assist Seniors: Governor Proposes State Increase for SSI/SSP Grants, Makes Additional Investments in Services for Older Adults and People with Disabilities

Education

Early Learning: Universal Transitional Kindergarten Proposed in May Revision
Prop. 98: Increased Revenues Significantly Boost the Minimum Funding Level for Schools and Community Colleges
K-12: May Revision Dramatically Increases Funding for Several K-12 Education Programs and Boosts the LCFF Concentration Grant to 65%
California Community Colleges: The Revised Budget Expands Investments to Support the California Community Colleges
CSU & UC: The May Revision Increases Funding for the California State University and University of California, Including Support for New Initiatives
Student Financial Aid: Governor Proposes new Grant for Student Housing and Expands Funding for Golden State Teacher Grant Program
Child Savings Account: Revised Budget Includes Investment to Increase Access to College Through Savings Accounts
Digital Divide: The Revised Spending Plan Proposes a $7 Billion Dollar Investment to Address the Digital Divide in Learning
Workforce Development: Governor’s Workforce Development Proposals Include Higher Education Partnerships, Displaced Worker Support, and Regional Recovery Planning

Justice System

State Corrections: May Revision Does Not Propose to Close Additional State Prisons in the Coming Years
Fines, Fees & Courts: May Revision Expands Fines and Fees Alleviation for Californians With Low Incomes and Extends Funds for Select Judicial Programs

Other Proposals

Water Infrastructure and Drought Response: Governor Proposes Increased Investment in Water Infrastructure and Drought Response

Budget Overview

Governor’s Economic Outlook Has Improved but a Recovery Remains a Long Way Off

The governor’s revised economic outlook has improved since January and notes that both California and the nation have “started on the path to recovery” from the pandemic recession. However, the forecast also acknowledges that Californians face a long road ahead to recovery, particularly those who had been employed in the hardest-hit lowest-paying industries, like leisure and hospitality. California won’t gain back all of the jobs the state lost during the pandemic until mid-2023, according to the outlook, but for the leisure and hospitality industry, this won’t occur until the end of 2024 — three and a half years from now. The revised forecast also notes that a number of factors could slow the state’s economic recovery, including the possibility that the COVID-19 crisis worsens due to variants of the virus or vaccine hesitancy.

Revised Budget Reflects Significantly Higher Revenues Than Previously Projected

While the governor’s January budget proposal already projected that revenues over the budget window — covering fiscal years 2019-20 through 2021-22 — would exceed the projections included in the 2020 budget agreement, the Newsom administration is now estimating an even larger improvement in the revenue outlook. Specifically, the revised budget assumes General Fund revenues over the budget window will be $41.6 billion higher than estimated in January, after accounting for transfers, such as to the state’s rainy day fund. This includes upward revisions in the state’s three primary General Fund revenue sources of:

$38 billion in personal income tax revenues, largely reflecting the continued prosperity of high-income Californians, who contribute a large share of state revenues due to the state’s progressive tax system, and who have done well during the pandemic, as they have been able to continue working and reaping the benefits of stock market gains.
$4.5 billion in sales and use tax revenues, reflecting improved estimates of both consumer spending and business investment. Consumer spending has been buoyed by federal and state relief and has shifted away from services, which are generally not taxed, toward purchases of goods, which are generally taxed. Business investment is expected to be spurred by low interest rates and increased demand as the economy continues to recover.
$4.6 billion in corporation tax revenues, largely reflecting that the profits of large corporations, who pay the majority of corporate taxes, generally have not been hit as hard by the pandemic as previously anticipated and some, like tech companies, have done extremely well.

The revised budget includes some tax policy proposals and recently enacted tax policy changes that are incorporated into the governor’s revised revenue estimates for the current and subsequent fiscal years, including the Golden State Stimulus and new and expanded business tax breaks. The estimates also assume that the temporary suspension of Net Operating Losses and the limitation of business tax credits enacted through the 2020 budget agreement will not be lifted early. Additionally, the governor is proposing to make permanent the sales tax exemptions for menstrual products and diapers.

Looking at revenues on a year-to-year basis, General Fund revenues before transfers are estimated to be $179.3 billion in the current budget year (2020-21) and $181.7 in the upcoming budget year (2021-22), compared to $145 billion in 2019-20, an increase of nearly 25%.

Governor’s Revised Budget Assumes the State Will Exceed Its Constitutional Spending Limit

Voters in 1979 approved an amendment to the state’s Constitution, Proposition 4, creating a spending cap for the state, alternatively known as the State Appropriations Limit or the Gann Limit. Prop. 4 also created spending limits for all local governments. At the state level, the limit is tied to California’s 1978-79 spending, adjusted for changes in population and per capita personal income — even as the needs of Californians have dramatically changed since the disco era.

If this limit is exceeded over a two-year period, policymakers must divide revenue over that limit evenly between refunds to taxpayers and additional spending on K-14 education, unless they redirect some of those revenues toward spending categories that do not count toward the limit, such as capital spending or transfers to local governments. This means they lose the flexibility to spend those funds in ways that might address other ongoing needs of Californians, including health care, child care, and affordable housing. For an in-depth explanation of how the Gann Limit works, see the recent report released by the Legislative Analyst’s Office (LAO). For answers to frequently asked questions about the spending cap, see the Budget Center’s Gann Limit Q&A.

Due to the strong growth in revenues, the administration projects that the state will exceed the limit by $16.2 billion over the 2020-21 and 2021-22 fiscal years. The governor has proposed immediately meeting the tax refund requirement of the Gann Limit by providing an additional $8.1 billion in direct payments to Californians through a second round of the “Golden State Stimulus” that was originally enacted earlier this year, targeted to individuals and families with low and middle incomes (see Golden State Stimulus section). The remaining $8.1 billion in estimated “excess” revenues — an estimate that is likely to be revised over the next couple of budget cycles — would be allocated to K-14 education in 2022-23 (see Prop. 98 section).

The governor is proposing that the Legislature take one action to reduce, but not eliminate, the impact of the spending limit. Under current law, when school and community college districts exceed their spending limits, the state counts that excess spending toward its own limit. However, the state is not currently allowed to do the opposite: increase its own limit by the amount that other school and community college districts are under their limits. The administration’s estimate of the state spending limit for 2021-22 assumes that the Legislature will change the law and shift to the state the “room” that certain K-14 districts have under their limits. This change is estimated to reduce the amount by which the state will exceed its own spending cap by $4.6 billion. If the Legislature does not adopt this proposal or take other actions to change how the Gann Limit is implemented, the amount of revenues required to be returned to taxpayers and allocated as supplemental payments to K-14 education will be billions of dollars higher, based on current projections.

Providing direct relief to struggling Californians and ensuring that the state’s K-14 education system is adequately funded are laudable in a year of unprecedented challenges. However, the spending cap, if left unchanged, will threaten state leaders’ ability to support many basic services, such as health care, which have costs that are likely to rise faster than the growth in the state’s population and per capita income. Additionally, the limit could thwart policymakers’ ability to make major investments that require new revenues, such as health care for all Californians or ongoing investments to prevent and end homelessness in the state.

State leaders should explore the available options to change the Gann limit, including the revision proposed by the governor and other options covered by the LAO. Doing so would provide policymakers with greater flexibility to address the challenges facing Californians, which are not the same as those that existed in the late 1970s.

Stronger-Than-Expected Revenues Allow State to Build Reserves to $24 Billion

California voters approved Proposition 2 in November 2014, amending the California Constitution to revise the rules for the state’s Budget Stabilization Account (BSA), commonly referred to as the rainy day fund. Prop. 2 requires an annual set-aside equal to 1.5% of estimated General Fund revenues. An additional set-aside is required when capital gains revenues in a given year exceed 8% of General Fund tax revenues. For 15 years — from 2015-16 to 2029-30 — half of these funds must be deposited into the rainy day fund and the other half is to be used to reduce certain state liabilities (also known as “budgetary debt”). Prop. 2 also established a new state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA). The PSSSA requires that when certain conditions are met, the state must deposit a portion of General Fund revenues into this reserve as part of California’s Prop. 98 funding guarantee (see Prop. 98 section).

The current year (2020-21) budget projected drawing down $8.8 billion in reserves — $7.8 billion of $16.1 billion in available funds from the BSA; all of approximately $500 million in the PSSSA; and $450 million of the available $900 million in the Safety Net Reserve — based on projections of declining revenues due to the pandemic. The enacted budget also projected that $2.6 billion would remain in the SFEU as of June 30, 2021.

However, stronger-than-expected revenue collections result in changes to the BSA, PSSSA, and SFEU balances for the prior fiscal year (2019-20), the current fiscal year (2020-21), and projections in the May Revision. The revised budget estimates:

A total BSA balance of $12.5 billion in 2020-21, growing to $15.9 billion in 2021-22;
A PSSSA balance of $2 billion in 2020-21, growing to $4.6 billion in 2021-22; and
A staggering SFEU balance of $24.3 billion as of June 30, 2021, reflecting the state’s intake of unanticipated revenues, dropping to $3.4 billion by June 30, 2022.

While previously expected draw-downs of state reserves are restored and the total reserve levels increased, the May Revision leaves the Safety Net Reserve at its draw-down level of $450 million.

Taking into account the BSA, PSSSA, Safety Net Reserve, and SFEU, the governor’s proposal would build state reserves to a total of $24.4 billion in 2021-22.

May Revision Continues to Pay Down Unfunded Liabilities

The May Revision includes required contributions to state-run retirement systems: the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). CalPERS and CalSTRS, like many retirement systems, are not funded at levels that will keep up with future benefits guaranteed to workers, resulting in the state needing to make higher annual contributions in order to pay down unfunded liabilities. In recent budget agreements, state leaders have also agreed to make supplemental payments to the two systems in order to help pay down those unfunded liabilities.

The governor’s revised proposal includes required contributions to CalPERS ($6.1 billion total, $3.2 billion General Fund) and CalSTRS ($3.9 billion General Fund). In addition, the administration proposes to make one-time supplemental payments in 2021-22 to CalPERS ($1.9 billion, compared to $1.5 billion in the January proposal), while maintaining the governor’s January proposal of a one-time payment of $410 million to CalSTRS using funding required to be set aside by Prop. 2 for paying down budgetary debt. (see Reserves section for more on Prop. 2)

Governor Proposes Expansions of Grants, Tax Credits, and Other Assistance for Businesses

The governor’s proposals for business relief and economic development are very similar to his January proposal, with some additional proposed allocations of federal ARP funds. Specifically, the revised budget:

Includes an additional $1.5 billion in ARP funds for small business grants on top of the $2.5 billion approved last November and this February, bringing the total to $4 billion. The grants would be allocated in three new rounds, the first two of which would target businesses on the waiting list for previous rounds of funding.
Indicates the administration’s intention to apply for an estimated $895 million in ARP funds for the State Small Business Credit Initiative to assist small businesses in accessing capital.
Maintains the January proposal for a one-time $430 million increase to the California Competes Tax Credit, meant to incentivize businesses to create jobs in California. The proposal includes $250 million in ARP funds for a one-time California Competes grant program and $180 million for a one-time increase to the tax credit program.
Proposes $250 million in one-time ARP funds be used to provide assistance to California ports that have suffered revenue losses during the pandemic.
Maintains the January proposal to increase the Main Street Small Business Tax Credit by $100 million. The credit was created in 2020 and the total allocation was capped at $100 million, of which $47 million is left to be allocated, so in total $147 million would be available to allocate in a second credit round.
Maintains the January proposal for a one-time, $100 million expansion of an existing manufacturing sales tax exclusion, the California Alternative Energy and Advanced Transportation Financing Authority, doubling the size of the program for 2021-22.
Reduces the proposal for additional funding for the Infrastructure and Economic Development Bank (IBank) to provide loan guarantees and other supports for small businesses from $100 million to $70 million to reflect that additional assistance is expected to be available under the federally funded State Small Business Credit Initiative.
Proposes a one-time $30 million increase for the Film and Television Tax Credit to incentivize productions to relocate from outside the state.
Maintains the January proposal to create an elective tax on S corporations and an offsetting credit against the personal income taxes of the corporations’ shareholders. This is intended to allow business owners to avoid the $10,000 limit on federal deductions of state and local taxes created by the 2017 Tax Cuts and Jobs Act.

Additionally, policymakers recently enacted a law providing tax breaks to businesses who have had loans forgiven from the federal Paycheck Protection Program or received advance grants from the federal Economic Injury Disaster Loan program. This law excludes income from forgiven loans and advance grants from taxable income, and also allows businesses to deduct expenses covered with those loans or grants. This pair of tax breaks will reduce state revenues by an estimated $6.2 billion over six years.

While it is appropriate to provide relief to businesses that have been hit hard by the pandemic, some of these tax breaks are not well-targeted to those businesses and may not be effective in improving the state’s economy. Recent research has found that film tax credits do not have notable effects on a state’s wages, jobs or economy. And while the California Competes credit is better targeted than many other economic development incentives, there are still concerns about windfall benefits for businesses that would have created or maintained jobs in California even without receiving the credit. Additionally, recent research suggests that the positive employment effects of the California Competes credit are larger for workers living in areas with higher income and education levels than for those in areas with lower income and education levels. If the goal of expanding these credits is to promote economic recovery, the additional revenue lost to these expansions could be better targeted through other programs to help workers and businesses most in need of assistance.

Health

The May Revision Misses Key Opportunity to Invest in Local Public Health Departments

While the budget consists of state and federal funding for COVID-19 response, the May Revision does not include new investments for local public health departments. Due to chronic underfunding in public health systems, counties and cities across the state were not adequately prepared to respond to emerging health threats. Many communities suffered largely due to the state’s lack of preparedness. In particular, Black, Latinx, and Native Hawaiian and Pacific Islander Californians experienced higher rates of illness and death due to the virus. These health inequities are the result of historic and ongoing structural racism that deny many communities the opportunity to be healthy and thrive. The intersection of the COVID-19 pandemic as well as structural racism has underscored the need to strengthen public health systems.

Ensuring that California counties and cities have the resources needed to overcome COVID-19 as well as other threats to population health is vital — to address this pandemic and future public health needs. Public health officials throughout the state have expressed that much more support is needed to adequately bolster public health infrastructure at the local level, including information systems, workforce, and health promotion programs. State policymakers must provide ongoing and sustainable funding for local public health departments in order to overcome COVID-19 as well as other population health threats. Given that the goal of public health is to promote and protect the health of people and communities, state policymakers and public health leaders can also begin to minimize, neutralize, and dismantle the systems of racism that create inequalities in health for Californians.

May Revision Expands Comprehensive Medi-Cal Coverage to Older Adults Who Are Undocumented

Building on the federal Affordable Care Act (ACA), California has substantially expanded access to health coverage in recent years. For example, more than 13 million Californians with modest incomes — roughly half of whom are Latinx — receive free or low-cost health care through Medi-Cal (California’s Medicaid program), several million more than before the ACA took effect. Another 1.4 million Californians with incomes up to 600% of the federal poverty line ($76,560 for an individual) receive federal subsidies, state subsidies, or both in order to reduce the cost of coverage purchased through Covered California, our state’s health insurance marketplace. In addition, many more Californians may decide to purchase a subsidized Covered California plan in response to the generous new federal premium subsidies provided by the American Rescue Plan. Nonetheless, millions of people — including many immigrants who are undocumented — remain uninsured, health care costs are still rising, and many Californians continue to face high monthly premiums and excessive out-of-pocket costs, such as copays and deductibles, when they use health care services.

The May Revision:

Expands eligibility for comprehensive Medi-Cal coverage to seniors regardless of immigration status. Federal policy prohibits states from using federal dollars to provide comprehensive (“full scope”) health coverage to undocumented immigrants through the Medicaid program. States, however, may use their own funds to provide such coverage. In recent years, California has used this option to extend full-scope Medi-Cal coverage to undocumented immigrants under age 26 who otherwise qualify for the program. The Governor proposes to expand this state policy to include undocumented adults age 60 or older, no sooner than May 1, 2022. The administration estimates this proposal would extend “full-scope” Medi-Cal coverage to about 80,000 adults who are undocumented. This expansion would have a partial-year cost of $69 million ($50 million General Fund) in 2021-22, rising to a projected ongoing annual cost of $1 billion ($859 million General Fund). The governor’s proposal would continue to leave undocumented immigrants ages 26 to 59 without access to comprehensive Medi-Cal coverage. Upholding racist, exclusionary policies that block some undocumented Californians from vital health coverage is harmful to the state’s collective health and perpetuates racial health disparities. State policymakers should expand comprehensive Medi-Cal coverage to all undocumented Californians who are otherwise eligible for the program.

In addition, the governor’s revised budget:

Proposes to pursue a new federal option allowing states to extend, to 12 months, pregnancy-related, postpartum Medicaid coverage — well beyond the current 60-day limit. This five-year option, which takes effect on April 1, 2022, is included in the federal American Rescue Plan. Implementing this extension would cost $90.5 million ($45.3 million General Fund) in 2021-22 and approximately $362 million ($181 million General Fund) annually from 2022-23 to 2027-28.
Adds a doula benefit to the Medi-Cal program, effective January 1, 2022. This new benefit would cost $403,000 ($152,000 General Fund) in 2021-22 and approximately $4.4 million ($1.7 million General Fund) per year when the benefit is fully implemented.
Proposes to allow community health workers to provide benefits and services to Medi-Cal enrollees, effective January 1, 2022. This change would initially cost $16.3 million ($6.2 million General Fund), rising to around $201 million ($76 million General Fund) by 2026-27.
Provides $9.3 million General Fund to continue providing medically tailored meals as California prepares to implement the administration’s related CalAIM proposal. This one-time funding would support these meals “between the conclusion of the existing pilot program in 2021 and when medically tailored meals become available as an option for In-Lieu of Service (ILOS) under CalAIM,” according to the May Revision. (See CalAIM section.)
Proposes to establish Medi-Cal payment rates for audio-only telehealth, with the goal of continuing the telehealth flexibilities that have been available during the pandemic while also ensuring access to in-person care. Audio-only rates would be set at 65% of the standard fee-for-service rates. Providers could claim reimbursement for audio-only care so long as they 1) are located in California or “border communities” and 2) are able to provide in-person services to each Medi-Cal enrollee served by audio-only telehealth.

Revised Budget Builds on Efforts to Improve Health Outcomes Through Medi-Cal Reform

The administration sustains previously proposed funding for the ambitious reform effort known as CalAIM (California Advancing and Innovating Medi-Cal) that was originally introduced in 2019. This initiative builds upon previous pilot programs targeted to coordinate physical health, behavioral health, and social services in a patient-centered manner with the goal of improving health and well-being. CalAIM also aims to improve quality outcomes, reduce health disparities, reduce complexity across all delivery systems, and implement value-based initiatives and payment reform. The main goal of this initiative is to better support millions of Californians enrolled in Medi-Cal — particularly those experiencing homelessness, children with complex medical conditions, children and youth in foster care, Californians involved with the justice system, and older adults — who often have to navigate multiple complex delivery systems to receive health-related services.

The May Revision now allocates $1.6 billion total funds ($673 million General Fund) for 2021-22 and $1.5 billion total funds ($746.6 General Fund) in 2022-23 for CalAIM reforms. The administration proposes additional efforts within CalAIM that were not previously included in the January budget, such as:

$315 million one-time funds ($31.5 million General Fund) for Medi-Cal Population Health Management. Generally, this effort would centralize administrative and clinical data for the Department of Health Care Services, Managed Care Plans, counties, providers, beneficiaries, and other partners to support holistic delivery of care and reduce burden for Medi-Cal recipients. The proposed funds allocate $300 million total funds ($30 million General Fund) for local assistance funding and $15 million total funds ($1.5 million General Fund) for state operations.
$200 million one-time funds ($100 million General Fund) for the Medi-Cal Providing Access and Transforming Health (PATH). PATH supports are designed to help coordinate justice agencies and Medi-Cal coverage services 30 days prior for justice-involved Californians to ensure effective pre-release care.
$9.3 million one-time General Fund in 2021-22 for the Medically Tailored Meals Pilot Program expansion. These one-time funds are separate from the funding previously allocated to this program. It extends the services to select eligible Medi-Cal recipients until it becomes eligible as an option for In-Lieu of Service under CalAIM.

Substantial reforms to the Medi-Cal program as well as the level of federal funding that will be provided must be negotiated with the federal government through the Medicaid waiver process. As such, CalAIM implementation will depend on the availability of funding and federal approval.

Governor’s May Revision Provides Support for Californians’ Mental Health and Substance Use Disorder Needs

Behavioral health services — mental health care and/or treatment for substance use — are primarily provided by California’s 58 counties, with funding from the state and federal governments. Before the COVID-19 pandemic, Californians with behavioral health conditions confronted many challenges in accessing services that are delivered by multiple complex systems. The heightened stress, grief, isolation, and depression highlight the need to prepare for a possible behavioral health crisis on the horizon.

Recognizing the need to invest in behavioral health services, especially for children, the administration builds on initiatives that were included in the proposed budget to support behavioral health. Specifically, the revised budget includes:

Significant investments for the Children and Youth Behavioral Health Initiative, which aims to transform California’s behavioral health system for children and youth. The revised budget includes $1 billion from ARP in 2021-22, $1.7 billion ($1.3 billion ARP, $300 million General Fund, and $100 million Federal Trust Fund) in 2022-23, and $431 million ($300 million General Fund) ongoing. The goal of this initiative is to better connect children and youth to behavioral health care, invest in school-based services, and expand the infrastructure for providing behavioral health care. Some of these investments relate to the Behavioral Health Continuum Infrastructure Program, described below.
Increased funding for the Behavioral Health Continuum Infrastructure Program. In January, the Governor proposed $750 million one-time General Fund, available over three years, for competitive grants to expand the community continuum of behavioral health treatment resources. The May Revision provides an additional $10 million from the ARP and shifts $300 million General Fund to the ARP.
Additional support for youth in foster care. The revised budget includes about $39 million General Fund to assist counties with serving foster youth with behavioral health conditions.
Funding to treat and prevent Adverse Childhood Experiences (ACEs), which are defined as traumatic events that occur before age 18. The May Revision includes $12.4 million one-time General Fund for demonstration projects focused on researching, treating, and preventing ACEs.
An augmentation for the Mental Health Student Services Act Partnership Grant Program, which funds partnerships between county behavioral health departments and schools. The revised budget includes $30 million one-time Mental Health Services Fund for the Mental Health Student Services Act partnership grants.

Homelessness & Housing

Governor Proposes $12 Billion to Address Homelessness by Acquiring Housing and Meeting Needs of Specific Populations

California has more than 25% of the nation’s population of homeless individuals, with more than 160,000 homeless residents on a given night as of January 2020. Black Californians bear a disproportionate burden of homelessness, making up about 1 in 3 residents experiencing homelessness but only 6.5% of the overall state population. Recognizing the state’s serious homelessness challenge, which Californians consistently cite as a key concern, the governor identifies homelessness as a central focus of the May Revision. The budget proposal includes a total investment of approximately $12 billion over two years in state and federal funds to address homelessness.

The May Revision includes roughly $7 billion overall for acquisition and rehabilitation of three types of housing:

Hotels, motels, and other buildings, for conversion to interim or permanent housing for individuals experiencing homelessness, through the Homekey program, using a total of $3.5 billion in one-time funds over two years (an increase of $2.75 billion over the January proposal), including $1 billion targeted to housing for homeless families.
Behavioral health treatment facilities, with a total of $2.45 billion over two years (including $1.9 billion General Fund and $530 million ARP funds), more than tripling the total funds proposed in January.
Community board and care facilities serving seniors and adults, through a total of $1 billion over two years (including $550 million one-time General Fund and $450 million ARP funds). This represents an increase of $750 million over the January proposal.

While Homekey properties specifically serve people experiencing homelessness, it is not clear that these behavioral health or community care facilities would exclusively or primarily house individuals experiencing or at high risk of becoming homeless, as the Legislative Analyst’s Office noted in response to the January budget proposal.

Several proposed investments address homelessness among families with children:

$40 million one-time General Fund available over five years for “family homelessness challenge grants” and technical assistance through the Homeless Coordinating and Financing Council (HCFC) to help local jurisdictions develop plans to achieve functional elimination of family homelessness.
Two-year expansion of the CalWORKs Housing Support Program, which serves CalWORKs families experiencing homelessness, through $475 million General Fund in 2021-22 and 2022-23.
Two-year expansion of the Bringing Families Home program, which serves families experiencing homelessness in the child welfare system, through $280 million General Fund in 2021-22 and 2022-23.

Additional funding proposals address the needs of special populations of individuals experiencing homelessness:

Individuals currently housed in Project Roomkey non-congregate shelters: $150 million one-time General Fund to support these individuals in transitioning into permanent housing when full federal reimbursement for Roomkey operations sunsets, currently set for September 2021.
Individuals living in homeless encampments: $50 million one-time General Fund for HCFC to assist local governments with “resolving critical encampments” and transitioning individuals into permanent housing, and $2.7 million one-time General Fund for Caltrans Encampment Coordinators.
Individuals eligible for disability benefits through SSI/SSP: $175 million General Fund annually through 2023-24 for the Housing and Disability Advocacy Program, which provides benefits advocacy and housing assistance for this population.
Individuals served by Adult Protective Services: $100 million General Fund annually through 2022-23 for Home Safe, which provides housing supports for adults potentially in need or involved in Adult Protective Services.
Veterans who have been chronically homeless: $25 million General Fund one-time to provide on-site supportive services for formerly chronically homeless veterans living in supportive housing.

The governor’s proposal also emphasizes the need to increase accountability for the planning and implementation of homelessness resources, and proposes $5.6 million one-time General Fund for an HCFC assessment of existing local homeless service providers and state-funded homelessness programs.

Overall, the May Revision proposes substantial investments to address homelessness, which is appropriate given the scale of the challenge. Property acquisition, a major focus of the proposal, is also a productive use of significant one-time funds. At the same time, the budget proposal does not address how the ongoing operations of acquired properties would be supported. More broadly, the proposal does not address the need for long-term, flexible, streamlined, substantial funding to support local efforts to address homelessness, despite the fact that the Assembly and the Senate and advocates have identified this type of state support as a priority.

Governor Proposes Using Federal Funds to Help Struggling Renters and Develop Affordable Housing

Even before the COVID-19 recession, more than half of California’s renter households had unaffordable housing costs, with Black and Latinx Californians most likely to live in unaffordable housing. Job losses during the pandemic continue to be concentrated among lower-wage workers, who are least likely to have savings to cover housing costs in the face of lost income.

Federal funds are available to address the urgent needs of renters during the pandemic through the December Consolidated Appropriations Act and the more recent American Rescue Plan (ARP), which combined provided $5.2 billion for emergency rental assistance and back rent owed by Californians with low incomes. Governor Newsom proposes modifying the criteria for use of these funds to cover 100% of tenants’ back rent and rent due for several months into the future. The governor does not propose extending the state eviction moratorium beyond its current expiration date of June 30, 2021. The May Revision also proposes $2 billion in ARP funds for utility assistance for renters, including $1 billion for direct payments to water systems to cover water debt accumulated by households during the pandemic.

To address California’s long-term affordable housing shortfall, the governor’s proposal includes $1.75 billion in ARP funds for “shovel-ready” projects that are waiting for potential future state funding, representing more than 6,300 affordable housing units. The May Revision also proposes $4 billion one-time General Fund over two years to develop affordable student housing through the University of California, California State University, and California Community Colleges (see UC/CSU and CCC sections).

Additional housing investments proposed in the May Revision include:

Legal assistance for eviction and foreclosure prevention: $20 million ARP funds per year for the next 3 years ($60 million total) for legal aid services for tenants and mortgage holders, administered through the Judicial Council.
Regional housing planning and implementation for infill projects: $500 million ARP funds to provide grants to regional entities to plan and implement infill developments, through the Department of Housing and Community Development (HCD).
Affordable housing preservation: $300 million ARP funds to preserve affordability for HCD legacy projects.
First-time homebuyer assistance: $100 million ARP funds to expand the existing program administered by the California Housing Finance Agency (CalHFA).
ADU financing for low- and moderate-income property owners: $81 million ARP funds, added to $19 million allocated in the 2019-20 budget, for $100 million total, administered through CalHFA.
State excess land development: $45 million ARP funds for infrastructure for housing projects on state-owned land.
Seasonal farmworker housing: $30 million total one-time General Fund (an increase of $20 million from the January proposal) for deferred maintenance and habitability improvements.

Economic Security

Governor Proposes Second Golden State Stimulus for Californians with Low and Moderate Incomes

The governor’s revised budget proposes providing direct cash payments to Californians with incomes of $75,000 or less through a second Golden State Stimulus package. The administration expects around 9.9 million tax filers to benefit and expects these payments to cost just over $8 billion. Specifically, the second Golden State Stimulus would provide:

A $600 payment to tax filers who did not receive the first Golden State Stimulus payments. These are Californians who file taxes with Social Security numbers (SSNs) and have incomes between $30,000 and $75,000.
An additional $500 payment to Californians who file taxes with SSNs, have incomes of $75,000 or less, and have dependents.
A $1,000 payment to Californians who file taxes with Individual Taxpayer Identification Numbers (ITINs), have incomes of $75,000 or less, and have dependents. People who file taxes with ITINs, who are primarily undocumented Californians or mixed status families, were excluded from thousands of dollars in federal stimulus payments during the pandemic.

Under the governor’s proposal, the first and second Golden State Stimulus combined would provide a $1,100 payment to all Californians with low and moderate incomes who file with SSNs if they have dependents or a $600 payment if they do not. Californians who file with ITINs and have incomes of $30,000 or less would receive twice that amount — $2,200 for those with dependents or $1,200 for those without. Californians who file with ITINs and have incomes between $30,000 and $75,000 would receive a payment of $1,600 if they have dependents or $600 if they do not.

Although the governor’s proposal would provide larger payments to most Californians who file with ITINs, it would replace only a fraction of the federal stimulus payments these families and individuals were denied. For example, a two-parent family with two children that files with an ITIN was denied between $8,600 and $11,400 in federal stimulus, depending on whether the children had SSNs. Under the governor’s proposal, the first and second Golden State Stimulus combined would replace at most only about a quarter of the federal stimulus this family of four was unable to receive.

Moreover, undocumented Californians who are not supporting children are excluded entirely from the second Golden State Stimulus payment, even as they are barred from most public supports, including food assistance through CalFresh and refundable federal income tax credits.

The governor’s proposal also leaves out many undocumented Californians and mixed status families who have been unable to obtain or renew ITINs. The Internal Revenue Service (IRS) has a significant backlog of ITIN applications and advocates report that it is currently taking applicants at least 20 weeks for the IRS to process their applications. California could help more undocumented residents access the Golden State Stimulus, as well as tax credits including the California Earned Income Tax Credit (CalEITC) and federal Child Tax Credit by dedicating resources to help people apply for or renew ITINs. Alternatively, the state could accept a pending ITIN application or renewal as proof of eligibility for the state stimulus payments. In addition, California could supplement the Golden State Stimulus with payments to undocumented residents who do not yet have ITINs. Several states, including New York, have created “excluded worker” funds to replace the federal stimulus payments and/or unemployment benefits undocumented people have been denied, and they have not made reciept of these funds contingent on having an ITIN.

Governor Proposes Investing in Basic Income Pilots

The governor’s revised budget includes $35 million General Fund over five years for basic income pilot programs administered by cities or counties. Basic income programs provide regular cash payments to people with no requirements for how the money must be spent. With growing interest in the concept of basic income — also called guaranteed income — several pilot programs around the state and nation are currently underway or in the planning stages, and one, the Stockton Economic Empowerment Demonstration (SEED), just concluded. The revised budget specifies that in order to benefit from state funds, basic income pilots must match the state funds received and must target the program to Californians with low incomes.

As evidence grows that guaranteed income is good policy, the state should scale up such efforts by significantly expanding the state’s Earned Income Tax Credit (CalEITC), which could easily serve as a basic income program at the state level.

Governor Proposes Extending Some Benefits to Immigrants Who Are Undocumented, Misses Opportunity to Fill Gaps in Federal Aid

California has the largest share of immigrant residents of any state and is home to an estimated 2 to 3.1 million individuals who are undocumented. Half of all California workers are immigrants or children of immigrants. These Californians are deeply integrated into our communities, schools, and workplaces, but have been excluded from thousands of dollars in federal aid and other support programs to help families meet their basic needs during the pandemic, including the federal EITC and unemployment benefits. The state of California has made important strides during the pandemic to support undocumented Californians, and the governor’s revised budget proposes important expansions. Specifically, the May Revision:

Proposes a $1,000 payment to Californians who file taxes with Individual Taxpayer Identification Numbers (ITINs), have incomes of $75,000 or less, and have dependents. (See Golden State Stimulus section).
Expands eligibility for comprehensive Medi-Cal coverage to Californians age 60 or older regardless of immigration status. (See Health Coverage & Access section).
Provides $105 million one-time General Fund for the Rapid Response Fund to support migrant families at California’s southern border and other emergency responses.
Includes $50 million Proposition 98 General Fund to support vocational training and English as a Second Language programs at community colleges.
Allocates $25 million one-time General Fund for Deferred Action for Childhood Arrivals (DACA) and naturalization filing fees.
Proposes $20 million General Fund and $5 million Prop. 98 General Fund to support unaccompanied undocumented minors through legal services, the Opportunities for Youth pilot project, and the California Newcomer Education and Well-Being Project.

State policymakers must step up to fill the gap in federal relief efforts that have left out Californians who are undocumented. Under the governor’s proposal, the first and second Golden State Stimulus payments combined would replace only a fraction of the federal stimulus payments these families and individuals were denied. This proposal also leaves out many undocumented Californians and mixed status families who have been unable to obtain or renew ITINs. In addition, the administration misses an opportunity to expand both Medi-Cal and food assistance to all income-eligible Californians regardless of immigration status. California policymakers should lead in this time of crisis by prioritizing the urgent needs of undocumented immigrants and their families in order to make our support systems more equitable and our state’s economy more resilient.

The Administration’s Revised Proposal Makes Some Adjustments to the CalWORKs Program, Anticipates Slow Caseload Growth

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for low-income children while helping parents overcome barriers to employment and find jobs. Even before the COVID-19 crisis, CalWORKs primarily served children of color, who faced higher rates of economic insecurity than did white children. As millions of California workers — especially workers of color — have lost their jobs or seen reduced wages due to the public health emergency and recession, CalWORKs is a particularly critical source of support.

In his revised spending plan, the governor proposes allocating $6.8 billion in local, state, and federal TANF funds to support the CalWORKs program in 2021-22. This amount is a decrease from his January proposal of $7.4 billion as the administration projects slower caseload growth than previously anticipated.

The governor also proposes $142.9 million for a 5.3% grant increase, up from $50.1 million in January. This increase would not be funded through the General Fund but instead through the Child Poverty and Family Supplemental Support Subaccounts of the Local Revenue Fund.

In addition, the revised proposal makes changes to how the Department of Social Services collects overpayments due to administrative error. Instead of reducing a family’s aid payment by 10%, the administration proposes a 5% grant reduction. This change would apply to overpayments occurring between April 2020 through the end of the pandemic or June 30, 2022, whichever is sooner. The administration would also reduce the timeframe to identify overpayments for collection from 5 years to 2 years.

Finally, the May Revision includes funding to support CalWORKs families experiencing housing instability and homelessness in both the 2021-22 and 2022-23 state fiscal years (see Homelessness section). This support includes $475 million General Fund to expand the Housing Support Program and $280 million General Fund for families involved in the child welfare system who are experiencing homelessness.

May Revision Expands Investment in K-12 School Nutrition, Misses Opportunity to Expand Food Assistance to All Californians Regardless of Immigration Status

Food hardship has skyrocketed in California due to the COVID-19 health and economic crisis. This is particularly true for Black and Latinx Californians and other Californians of color who have been hit hard by the pandemic and are much more likely to not have enough food to eat. The governor’s proposed budget includes a number of food and nutrition proposals to help address food hardship in California but misses key opportunities to expand food assistance to all Californias regardless of immigration status. Specifically, the May Revision:

Includes $150 million ongoing Proposition 98 investment in K-12 school nutrition. Funding would go to local educational agencies that participate in one of the “federal universal meal provisions.” Participation in these programs allow schools to leverage federal funding to provide student access to free breakfast and lunch.
Proposes $100 million one-time Prop. 98 to support K-12 school kitchen upgrades and training for cafeteria staff.
Increases by $30 million ongoing Prop. 98 funds to support California Community Colleges students’ basic needs, including access to food. The additional funding would support colleges setting up basic needs centers and hiring basic needs coordinators.
Allocates $2 million ($1.1 million General Fund) to continue CalFresh outreach efforts targeting older adults. CalFresh is California’s version of the federal Supplemental Nutrition Assistance Program (SNAP), which provides food assistance to individuals and families with low incomes. The May Revision proposes to provide this funding in the upcoming 2021-22 fiscal year and assumes it would be ongoing, meaning that annual allocations would continue in subsequent fiscal years.

The May Revision misses a key opportunity to expand food assistance to all Californians regardless of immigration status. The California Food Assistance Program (CFAP) provides state-funded food assistance to “qualified” immigrants who are not eligible for CalFresh. However, undocumented Californians remain ineligible. Exclusion from basic supports, such as food assistance, is one reason Californians in families that include undocumented immigrants are more likely to live in poverty. Over half of children in undocumented households and nearly 40% of children in mixed status households lived in poverty in 2018 — poverty rates that are roughly 3 to 4 times higher than that for children in non-immigrant families. Policymakers have the fiscal space to dismantle these racist and xenophobic policies by extending food assistance to all Californians who are ineligible for federal benefits.

May Revision Provides Partial Plan for Federal Child Care Relief Funds, Including 100,000 New Spaces for Children

California’s subsidized child care and development system provides assistance for working parents with low and moderate incomes who are struggling to afford the cost of child care. During the pandemic, federal policymakers provided substantial funding to states to ensure that child care providers who were already operating on thin margins were able to keep their doors open and to ensure that working parents and children did not lose access to care. To date, California’s share of federal relief funding for child care totals $5.1 billion — $350 million from the CARES Act, $964 million from the Coronavirus Response and Relief Supplemental Appropriations Act, and $3.8 billion from the American Rescue Plan. The state has not yet allocated $579 million of Supplemental Appropriations Act funding or the ARP funding.

The May Revision proposes to use the remaining Supplemental Appropriations funding for the following:

$205.5 million for per-child stipends for subsidized child care and state preschool providers. This is the third round of stipends the state has administered with federal relief funds. Providers will receive $600 per subsidized child in their care.
$176.9 million for one-time stipends to all licensed child care providers in California. Family child care home providers will receive $3,500 and licensed centers will receive $3,500 to $6,500 based on licensed capacity.
$70 million to continue a “hold harmless” policy for 2021-22. Subsidized providers are typically paid based on attendance, not enrollment. This policy ensures that providers do not lose significant funding when children are absent due to the pandemic.
$60 million to waive family fees for eligible families through 2021-22. Some families receiving subsidized care pay a family fee for the service, which is often unaffordable for families barely getting by. The May Revision would waive these fees, but budget documents do not clearly define which families will be eligible for the waiver.
$31 million for providers accepting vouchers who have to temporarily close due to COVID-19. This funding is for providers who must close for health and safety reasons and can be used for up to 16 non-operational days during the 2021-22 fiscal year.
$25 million for the California Child Care Initiative Project. The aim of this project is to increase child care capacity for infants and toddlers in areas without providers via new licensed family child care homes. Federal funds for this project are available through September 30, 2023.
$10.6 million to enhance mental health consultations for providers. This funding is for the California Inclusion and Behavior Consultation services, which provides consulting support and assistance to providers to better equip them to help children and families navigate stress and trauma. Federal funds for this purpose are available through September 30, 2023.

The May Revision also provides a partial plan for the ARP dollars, but full details have not yet been provided. Specifically, the May Revision:

Provides $250 million one-time federal ARP funds for child care facilities in areas of the state with few providers. In response to the COVID-19 pandemic, the 2020-21 budget agreement eliminated $263 million for competitive facility grants that was part of the 2019-20 budget agreement. The May Revision restores nearly all of this funding with one-time federal dollars to build new facilities or retrofit existing facilities, but likely falls short of providing enough resources to address the documented need for child care facilities in the state.
Provides $10 million one-time ARP Funds for the Child Care Resource and Referral Program. This funding is meant to enhance the role of Resource and Referral agencies in regards to facilities, capacity, and data collection processes. Funding for the Resource and Referral Program has actually decreased over time, after adjusting for inflation, and additional ongoing funding is necessary to maintain services.

The May Revision also proposes to dramatically increase the capacity of the child care system and to fund a quality-improvement initiative, but details on these items were not provided in budget documents. This includes:

100,000 new subsidized child care spaces. Details are not available about how these spaces will be funded, how they will be distributed across programs, or if they are term-limited spaces. The Department of Social Services budget documents state that the Alternative Payment Program, the Migrant Alternative Payment Program, and the Emergency Child Care Bridge program will expand in October 2021 and the General Child Care Program will expand in April 2022.
$20 million federal funds for a multi-year quality improvement initiative. Led by the Department of Social Services, stakeholders will focus on quality improvement and supports while also addressing inequities. Details on the specific federal funding source was not provided.

The May Revision also commits a small amount of state funds to the subsidized child care system, including $83 million in Prop. 64 Cannabis Funds for 6,500 spaces, $6 million ongoing General Fund to modernize payment systems, and $4.8 General Fund to continue building a child care data system, but it is unclear if this system will connect or overlap with the governor’s Cradle to Career data system.

Federal relief funds are meant to stabilize the child care system after the tremendous shock of the COVID-19 health and economic crisis, and provide an opportunity for state leaders to rebuild the subsidized child care system in California from the ground up. However, ongoing state and federal funding is needed to ensure that families have access to affordable child care and providers and child care professionals are paid fair and just rates. The May Revision misses a key opportunity to align state commitments with ongoing needs.

May Revision Fails to Maintain Payment Rates for California Workers Who Need Paid Time Off

California’s paid family leave and state disability insurance programs allow workers to take paid time off from work to attend to their own health or that of a family member. The Disability Insurance Fund — funded entirely by California workers’ contributions — provides benefits to workers when care needs arise. Policymakers temporarily increased payment rates for these programs in 2018 from 55% of earnings to 70% for workers with very low pay and 60% of earnings for all other workers, including full-time workers paid the minimum wage. Governor Newsom’s paid family leave task force and Master Plan for Early Learning and Care both recommended that payment rates be increased even further — up to 90% for some workers to increase access for workers paid low wages. Without action, payment rates will revert to just 55% of earnings at the end of 2021. The COVID-19 pandemic has illustrated just how important paid time off from work is, but the administration’s revised budget does not maintain payment rates for these critical programs beyond 2021.

Due in part to the jobs lost during the recession, there has been a decrease in contributions to the Disability Insurance Fund. Based on the most recent fund forecast from the Employment Development Department released in October 2020, the Disability Insurance Fund balance may drop below a level considered adequate. To avoid insolvency, the administration typically increases taxes on workers, but Californians can’t afford a tax increase after weathering the COVID-19 health and economic crisis. The administration could avoid increasing taxes on workers by using state or federal dollars to provide a one-time deposit into the Disability Insurance Fund, but this provision is not included in the May Revision. Instead, Governor Newsom proposes to provide even more aid to businesses in the state by making a $1.1 billion deposit into the Unemployment Insurance trust fund using federal relief dollars. This frees employers from part of their obligation in future years.

Governor Proposes State Increase for SSI/SSP Grants, Makes Additional Investments in Services for Older Adults and People with Disabilities

Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants help well over 1 million low-income seniors and people with disabilities to pay for housing and other necessities. Grants are funded with both federal (SSI) and state (SSP) dollars. State policymakers made deep cuts to the SSP portion of these grants to help close budget shortfalls that emerged after the onset of the Great Recession in 2007. Since then, state policymakers have provided only one increase to the state’s SSP portion of the grant — a 2.76% boost that took effect in January 2017, resulting in monthly SSP grant levels of $160.72 for individuals and $407.14 for couples, which continue to remain in effect.

The governor proposes to boost — as of January 1, 2022 — the state’s maximum SSP grants to at least the levels that were in effect on January 1, 2011. For individual SSI/SSP recipients living independently, the maximum SSP grant on that date was $171. This means the governor’s proposal would raise the maximum monthly grant for individuals from the current $160.72 to $171 (a 6.4% increase). However, the governor’s proposal would still leave the maximum monthly SSP grant for individuals well below its peak level of $233 in 2009.

The governor proposes additional investments aimed at assisting older adults and people with disabilities. For example, the May Revision:

Proposes to expand comprehensive Medi-Cal coverage to income-eligible adults age 60 and older regardless of immigration status. The administration estimates this proposal would extend “full-scope” Medi-Cal coverage to about 80,000 adults who are undocumented. (See the Health Coverage & Access section.)
Proposes $500 million each year for the next two fiscal years — a total of $1 billion — to fund community care facilities serving seniors and other adults. These funds would be used to build, acquire, and/or rehabilitate these care facilities.
Proposes $175 million General Fund each year the next three fiscal years — a total of $525 million — to support the Housing and Disability Advocacy Program. This program assists people with disabilities who are experiencing homelessness.
Includes $106 million General Fund to help older adults recover from the isolation and health impacts of the pandemic. These funds would boost service levels provided by several programs — including Senior Nutrition, Senior Legal Aid, and Senior Digital Assistance — and would be available to be spent over three fiscal years.
Proposes $100 million General Fund each year for the next two fiscal years — a total of $200 million — to support the Home Safe program. This program provides health, safety, and housing supports to people involved in or at risk of involvement in Adult Protective Services. The governor also signaled his support for providing an additional $100 million for Home Safe in the 2022-23, which begins on July 1, 2022.
Includes $12.5 million General Fund in 2021-22 to address Alzheimer’s disease. These funds would be used for several purposes, including promoting public awareness and improving standards of care, and would be in addition to the $17 million for Alzheimer’s that the governor included in his January proposed budget.
Allocates $2 million ($1.1 million General Fund) to continue CalFresh outreach efforts targeting older adults. CalFresh is California’s version of the federal Supplemental Nutrition Assistance Program (SNAP), which provides food assistance to individuals and families with low incomes. The May Revision proposes to provide this funding in the upcoming 2021-22 fiscal year and assumes it would be ongoing, meaning that annual allocations would continue in subsequent fiscal years.

Education

Universal Transitional Kindergarten Proposed in May Revision

Transitional kindergarten is the first year of a two-year kindergarten program for children who turn five on or between September 2 and December 2 of the year they enter the program. Eligibility is based on age alone in public schools and is not dependent on family income. The governor’s revised budget proposes to implement a universal transitional kindergarten for all 4-year-olds in the state over a four-year period beginning with a planning period during the 2021-22 school year and ending with full implementation in 2024-25 school year.

The May Revision includes $250 million one-time Prop. 98 General Fund for planning and implementation grants for local education agencies in 2021-22, in lieu of the January budget proposal’s incentive grants. The May Revision also includes $10 million General Fund for the Department of Education to update the state’s preschool learning standards based on the most current research and to provide resources to pre-kindergarten teachers. Despite large gains in Prop. 98 funding, the Prop. 98 guarantee would be “rebenched” to cover the costs of the additional school year, shifting General Fund dollars into the Prop. 98 guarantee. The administration estimates that the cost to serve additional 4-year-olds in 2022-23 would be $900 million General Fund, expanding to $2.7 billion General Fund by 2024-25. The May Revision also includes funding in 2022-23 through 2024-25 to add another staff person in transitional kindergarten classrooms in an effort to provide more staff per child in each classroom. The administration estimates this additional staffing would cost $740 million Prop. 98 once the transitional kindergarten expansion is fully implemented in 2024-25.

While the May Revision would maintain funding for the California State Preschool Program – a program serving children from families with low and moderate incomes and operated by community-based organizations and local education agencies – it does not reinvest the significant amount of funding that was rescinded as a result of the pandemic. The administration does express an intent to develop a plan to transition the state preschool program to serve children younger than 4 years old in California.

Increased Revenues Significantly 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 2020-21 and 2021-22 revenues are significantly higher than those estimated in January’s budget proposal. As a result, the May Revision assumes a 2021-22 Prop. 98 funding level of $93.7 billion, $7.9 billion above the level assumed in the governor’s proposed budget, and a 2020-21 Prop. 98 funding level of $92.8 billion, $10 billion above the level assumed in January. The revised budget assumes a 2019-20 Prop. 98 funding level of $79.3 billion, slightly lower than the $79.5 billion funding level assumed by the governor in January. Revenue projections in the governor’s January budget proposal would have required deposits into the Public School System Stabilization Account (PSSSA) — the state budget reserve for K-12 schools and community colleges. The proposed budget assumed PSSSA deposits of $747 million in 2020-21 and $2.2 billion in 2021-22, which would have brought the PSSSA total to $3 billion. The revised budget’s increase in revenue projections require additional deposits to the PSSSA, which would bring the total PSSSA account balance to $4.6 billion in 2021-22. See the state reserves section.

May Revision revenue estimates exceed the state’s constitutional spending limit in 2020-21 and 2021-22, which would require a one-time payment to K-14 education that would supplement Prop. 98 funding and would be allocated to schools and community colleges based on K-12 average daily attendance and full-time equivalent community college students. The governor anticipates this payment will be provided in 2022-23 and total approximately $8.1 billion. See the state spending limit section.

To address the 2020-21 budget agreement’s reduction in Prop. 98 funding for K-12 schools and community colleges, last year’s budget package included a provision to supplement Prop. 98 funding beginning in 2021-22 by 1.5% of annual General Fund revenues. This new spending obligation was slated to continue until the total in supplemental payments reached $12.4 billion. Because of the significant increase in General Fund revenue projected in the governor’s proposed budget, the January spending plan proposed to eliminate the ongoing obligation, but included a one-time supplemental payment of $2.3 billion to K-14 education in 2021-22. The May Revision proposes to eliminate this one-time payment.

May Revision Dramatically Increases Funding for Several K-12 Education Programs and Boosts the LCFF Concentration Grant to 65%

The largest share of Prop. 98 spending goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to more than 6 million students in grades kindergarten through 12. The governor’s revised budget significantly increases K-12 spending above the level proposed in January, allocating funding to support a dramatic expansion of community schools, the return of schools to full-time, in-person instruction in 2021-22, and a boost in the state’s main grant for school districts and charter schools with large shares of disadvantaged students. Specifically, the governor’s May Revision:

Increases one-time funding for a total of $3 billion for community schools. Community schools provide integrated educational, health, and mental health services to students. The May Revision provides more than 10 times the $265 million proposed in the governor’s January budget for community school grants for school districts, COEs, and classroom-based charter schools to develop new and expand existing networks of community schools.
Proposes $2 billion in one-time funding for health and safety activities. The May Revision assumes a return to full-time, in-person instruction for the 2021-22 school year and would allocate this funding for any purpose that supports health and safety such as COVID-19 testing and vaccine initiatives, enhanced cleaning, improved ventilation, and salaries for in-person instruction including those for nurses and custodial staff.
Increases one-time funding for the Educator Effectiveness Block Grant for a total of $1.5 billion. The governor’s revised budget dramatically increases the $250 million proposed in the January budget and allows use of the dollars through 2023-24. The May Revision allocates this funding to school districts, COEs, and charter schools in an equal amount per their full-time equivalent certificated and classified staff for training resources in certain high-need topics such as accelerated learning and implicit bias training.
Increases Local Control Funding Formula (LCFF) by $1.2 billion. The LCFF provides school districts, charter schools, and COEs a base grant per student adjusted to reflect the number of students at various grade levels in these local educational agencies (LEAs). The governor’s May Revision would increase the cost-of-living adjustment (COLA) for the 2021-22 LCFF base grant from 3.84%, as proposed in the governor’s January budget, to 5.07%. The LCFF COLA proposed in the May Revision includes $520 million to provide a 1% discretionary increase to LCFF base funding.
Provides $1.1 billion in ongoing funding to increase LCFF concentration grants to 65% of the base grant. The LCFF also provides additional grants for the costs of educating English learners, students from low-income families, and foster youth, including so-called “concentration grants” for LEAs in which these students comprise more than 55% of total enrollment. The May Revision would increase concentration grants from 50% to 65% of the base grant in 2021-22 and states that LEAs that receive this additional concentration grant funding will be required to demonstrate how the dollars are being used to increase the number of certificated and/or classified staff on their campuses. The revised spending plan also includes $30 million in one-time funding for COEs to work with local partners to provide direct services to foster youth.
Provides an additional $1.1 billion to repay deferred payments to K-12 school districts. The 2020-21 budget agreement deferred $11.0 billion in payments for K-12 school districts until 2021-22. The payment deferrals allowed the state to authorize a level of spending by K-12 schools that the state could not afford in 2020-21, providing the state with one year of savings without requiring a reduction in K-12 education spending. The governor’s January budget proposed repaying $7.3 billion of the deferrals in 2021-22. The May Revision would increase the amount of this repayment to $8.4 billion, but would continue to defer $2.6 billion in payments until 2022-23.
Increases one-time funding by $950 million to improve the teacher pipeline over five years. The May Revision boosts the $225 million proposed in the January budget for several programs including:
- $450 million in Prop. 98 dollars for the Teacher Residency Program, a competitive grant program established in 2018 to recruit and prepare special education, science, technology, engineering, mathematics, and bilingual education teachers to teach in high-need communities. The revised budget states that these dollars could also be used to support “other grow-your-own teacher credentialing programs”;
- $400 million in non-Prop. 98 General Fund dollars for the Golden State Teacher Grant Program, a grant program for students enrolled in teacher preparation programs who commit to teach in “high-need” subjects, including bilingual education, STEM, and special education; and
- $100 million in Prop. 98 dollars for the California Classified School Employee Teacher Credential Program, which provides grants to K-12 school districts to recruit school employees to become classroom teachers.
Proposes $623 million in one-time funding for a Targeted Intervention grant. In addition to this proposed General Fund allocation, the May Revision would allocate $2 billion in federal funding, including $1.2 billion from the American Rescue Plan, for schools to provide interventions such as intensive tutoring to mitigate COVID-19 related impacts to K-12 education.
Proposes $250 million to attract and retain highly-qualified teachers as mentors. The revised budget proposes to use this one-time funding over five years to incentivize National Board Certified teachers that teach in high-poverty schools to serve as mentors for other instructional staff.
Proposes $250 million to support school meal programs. The revised budget includes $150 million in ongoing funding to encourage LEAs to participate in one of the federal universal meal programs that reduces the administrative burden associated with collecting school meal applications for schools that serve breakfast and lunch at no charge to all students. The May Revision also proposes $100 million in one-time funding to provide upgrades to school kitchens and training for cafeteria staff.
Provides $120.1 million to increase COLAs for special education and non-LCFF programs. The May Revision provides $117.7 million to increase the COLA for state special education funding from 1.5% to 4.05% and $2.4 million to increase the COLA for several categorical programs that remain outside of the LCFF to 1.7% from the 1.5% provided in January.

The May Revision includes a five-year plan for expanded instruction and enrichment for elementary school students in LEAs with the highest concentrations of low-income students, English learners, and foster youth. The Administration estimates that the cost to implement this proposal would be approximately $1 billion in 2021-22, growing to $5 billion in 2025-26. The May Revision suggests that the cost of the program would be incorporated into the LCFF concentration grant calculation once it is fully implemented.

The Revised Budget Expands Investments to Support the California Community Colleges

A portion of Proposition 98 funding provides support for California’s Community Colleges (CCCs), the largest postsecondary education system in the country. CCCs help prepare nearly 2.1 million students to transfer to four-year institutions or to obtain training and employment skills.

The 2021-22 revised budget proposes to fully pay down deferred state payments that were enacted in the 2020-21 budget, establishes basic needs centers at CCCs, and includes an investment in retention and enrollment efforts to address enrollment drops as a result of the pandemic. Specifically, the revised spending plan:

Includes approximately $327 million in one-time funds to pay down deferrals. The revised budget includes pay down of deferred payments to CCCs from 2021-22 to 2022-23.
Maintains the January proposal to provide $150 million one-time for emergency financial assistance to students. These funds are in addition to the $100 million that was included in the early action budget package to support students with financial need as a result of the pandemic. These dollars are intended to support students with emergency financial needs, including loss of employment.
Provides $185 million ongoing funding for a cost-of-living adjustment (COLA) for apportionments. The proposal represents a compounded 4.05% COLA that includes a 2020-21 COLA of 2.31% and a revised 2021-22 COLA of 1.7%.
Provides $115 million one-time funding to reduce the cost of instructional materials. This investment would support the development and implementation of zero-textbook-cost degrees and open educational resources.
Provides $100 million in one-time funds to support student retention and enrollment efforts. These funds are in addition to $20 million included in the state leaders’ early actions to support colleges that have been particularly affected by enrollment declines as a result of the pandemic.
Allocates $75 million one-time funding to expand dual enrollment. The investment would expand the College and Career Access Pathways dual enrollment model, which allows cohorts of high school students to take college-level courses on a high school campus.
Provides $52.4 million to support workforce development initiatives at CCCs. The administration includes an increase of $20 million one-time funds for CCCs to train and bridge students into quality jobs in collaboration with the California Workforce Development Board; $12.4 million ongoing to increase funding for the CCC’s Strong Workforce Program; $10 million one-time to increase funding for other work-based learning programs; and $10 million one-time to plan and implement competency-based education.
Allocates $50 million one-time funds for in-person instruction. The funds would provide grants to colleges for pandemic response efforts and a return to in-person instruction.
Provides an increase of $50 million ongoing funds to expand vocational training and English as a Second Language programs. The proposal expects that the programs will also enable students to enroll in certificate, credential, and degree programs.
Includes $30 million ongoing funds to establish basic needs centers. The centers would support CCCs students with their basic needs such as housing and food.

Other non-Proposition 98 investments include $4 billion one-time General Fund over two years to create additional student housing through grants to the University of California, California State University, and CCCs systems (see Housing section). In addition to housing, the revised spending plan includes $250 million in one-time General Fund for workforce development to be allocated to the Office of Planning and Research to provide grants for regional K-16 collaboratives (see Workforce Development section). Lastly, the administration includes $1 billion in one-time ARP dollars to support education and training for displaced workers via the Student Aid Commission (see Student Financial Aid section).

The May Revision Increases Funding for the California State University and University of California, Including Support for New Initiatives

California supports two public four-year higher education institutions: the California State University (CSU) and the University of California (UC). The CSU provides “undergraduate and graduate education to roughly 486,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 285,000 students on 10 campuses.

For the CSU, the revised spending plan proposes $373.4 million additional General Fund, including:

$74.4 million ongoing General Fund to support operational costs which, in addition to the $111.5 million proposed in January, constitutes a five percent increase in base resources.
$299 million General Fund to address reductions outlined in the 2020-21 enacted budget.

The governor also proposes one-time spending of $150 million in federal ARP funds to address deferred maintenance and energy efficiency and $25 million General Fund for construction of the CSU Northridge Center for Equity in Innovation and Technology.

For the UC, the Administration proposes $371.7 million additional General Fund, including:

$69.3 million ongoing General Fund to support operational costs which, in addition to the $103.9 million proposed in January, constitutes a five percent increase in base resources.
$302.4 million General Fund to address reductions outlined in the 2020-21 enacted budget.

In addition, the governor also proposes one-time spending of $150 million federal ARP funds to address deferred maintenance for UC campuses and $76.2 million General Fund to support animal shelters, dyslexia research, hate crime prevention for Asian Pacific Islander communities and other purposes.

Furthermore, to transition Humboldt State University into the state’s third polytechnic university, the May Revision provides $433 million one-time General Fund for a capital projects transition plan and $25 million ongoing General Fund for additional academic programs.

Lastly, the revised spending plan provides significant one-time funding across the CSU, the UC, and the California Community Colleges, including:

$4 billion General Fund for a low-cost student housing grant program to build new housing and convert commercial properties into housing, split between the 2021-22 and 2022-23 state fiscal years. The program would prioritize students who are under-represented or have low incomes, with the aim of reducing non-tuition attendance costs.
$1 billion General Fund to create an endowment to support career development, split between the 2021-22 and 2022-23 fiscal years.
$1 billion ARP funds for grants to support workers displaced by the COVID-19 recession in pursuit of postsecondary education, training, or starting a business. (See Student Financial Aid section).
$250 million General Fund to support regional K-16 collaboratives focused on pathways to employment and workforce needs.

Governor Proposes new Grant for Student Housing and Expands Funding for Golden State Teacher Grant Program

Cal Grants are the foundation of California’s financial aid program for low- and middle-income students pursuing higher education in the state. Cal Grants provide aid for tuition and living expenses that do not have to be paid back. Ensuring Californians have access and the resources to attend and thrive across the state’s higher education institutions broadens opportunities for individuals and families, as well as strengthens our state’s workforce to drive long-term economic growth. The May Revision maintains provisions in the January proposal to increase Cal Grant awards to students, including expansions to the Foster Youth Access Awards and Access Awards for Students with Dependent Children and funding to increase the number of Annual Competitive Cal Grants from 41,000 to 50,000.

Many students confront significant hardships to afford tuition and living expenses, including student-parents, current and former foster youth, undocumented students, and those from families with low incomes. To address the need for more affordable student housing, the governor’s revised spending plan includes $4 billion one-time General Fund to be allocated evenly between 2021-22 and 2022-23 fiscal years to establish a housing grant program. The California School Finance Authority would administer grants to the University of California, California State University, and California Community Colleges to build new housing or to acquire properties that could be renovated into student housing. Students with low incomes and under-represented students would receive priority access to new units.

The May Revision also allocates $1 billion one-time ARP funds to create a grant program for Californians displaced from their employment due to COVID-19. The California Student Aid Commission (CSAC) would establish a one-time grant program for workers to cover costs of educational and training programs or to start a business. The grant amounts would be determined by CSAC and at least half of the funds would be dedicated to workers with dependent children.

Finally, the governor’s proposal increases funding for the Golden State Teacher Grant Program by $400 million one-time General Fund. The administration’s proposal now totals $500 million to be allocated over the next 5 years. No more than $100 million could be spent each year to provide up to 5,000 grants of $20,000 for teachers committed to teaching for four years in “high-need” subjects, including bilingual education, STEM, and special education, in schools that have a high percentage of teachers with “emergency-type permits.”

Revised Budget Includes Investment to Increase Access to College Through Savings Accounts

A child savings account is a long-term savings account established for children as early as birth that builds assets over time. These accounts are generally seeded with an initial deposit from a government agency or another sponsoring organization, then built with contributions from family, friends, or the child. Once the child reaches adulthood, the savings are typically used for college and can help make higher education more affordable and accessible. In the 2019-20 budget, the governor provided funding to create a program in the State Treasury called the California Kids Investment and Development Savings Program for children from families with low incomes born after July 2020.

The 2021-22 revised spending plan includes approximately $2 billion one-time ARP funds to establish a new program, the California Child Savings Accounts Program. This program would create college savings accounts for first graders enrolled in public school and defined as “low-income” by the Local Control Funding Formula. The governor proposes providing $500 in seed funding for each student, with youth involved in the foster care system or who experience homelessness receiving an additional $500 deposit. The revised spending plan reflects the governor’s desire to continue to invest $170 million ongoing General Fund in accounts for future first graders, beginning in 2022-23. However, the revised spending plan does not expressly allocate the funding for these future investments.

The Revised Spending Plan Proposes a $7 Billion Dollar Investment to Address the Digital Divide in Learning

The pandemic has exposed the inequities in access to computers and high-speed internet, also known as the digital divide. Access to such technology is necessary to participate in education and other essential activities such as remote work, applying for jobs, virtual health appointments and accessing many other services. While efforts to narrow the divide have made some progress in access to devices for K-12 students, reliable access to the internet remains a major barrier, especially for households with low incomes.

The governor’s revised spending plan proposes $7 billion in ARP and state funds over three years to expand broadband access. The proposal is intended to expand statewide infrastructure necessary to reach unserved areas of the state, provide assistance to expand local networks through a new $500 million “Loan Loss Reserve Account,” and expand services in rural communities by providing $500 million in one-time ARP dollars to “entities” to “promote” access to broadband in rural areas.

While broadband infrastructure is necessary to reach many households, especially in rural areas of the state, the proposal does not specify how the investment will address affordability and other adoption barriers for Californians who do have broadband available. Other barriers to adoption, including lack of affordable services from internet providers, disproportionately bar low-income and Latinx Californians from access to high-speed internet even when it is available.

Governor’s Workforce Development Proposals Include Higher Education Partnerships, Displaced Worker Support, and Regional Recovery Planning

As of March 2021, California was still down more jobs than the state lost during the Great Recession, with job losses concentrated among workers with low wages and Black and Latinx workers hit hardest. If the recent pace of job recovery continues, it would take more than 18 months to close the job shortfall, and some jobs in some industries may never come back. To help workers struggling to secure jobs or shift industries as the economic recovery continues, the governor’s revised budget includes a number of proposals focused on workforce development.

Several of these proposals leverage the state’s public higher education institutions to provide worker education and training and create pipelines to jobs, including:

$1 billion General Fund to create an endowment to support “learning-aligned employment” through the University of California, California State University, and California Community Colleges (CCC) (see UC/CSU section).
$157 million one-time General Fund for new cooperative efforts between workforce programs and the CCC, as well as $52.4 million largely one-time funds to the CCC to implement and support workforce development initiatives (see California Community Colleges section).
$250 million one-time General Fund for K-16 regional collaboratives to support linkages between education and employment (see California Community Colleges section).

Additional workforce development proposals include:

$1 billion ARP funds to support education and training for displaced workers (see Student Financial Aid section).
$750 million one-time ARP funds for a Community Economic Resilience Fund to support regional and local planning and implementation of strategies to adapt to a changing economy, with a focus on high road industries, quality jobs, and sectors or regions most affected by the state’s transition to carbon neutrality.
$185 million to support various industry-based training strategies through the Workforce Board and Employment Training Panel (an increase of $160 million over the January proposal).
$200 million ARP funds for grants to cities and counties, administered by California Volunteers, to create or expand youth employment opportunities.

Justice System

May Revision Does Not Propose to Close Additional State Prisons in the Coming Years

Nearly 96,500 adults who have been convicted of a felony offense are serving their sentences at the state level, down from a peak of 173,600 in 2007. More than two-thirds of state prisoners are Black or Latinx individuals — a racial disparity that reflects implicit bias in the justice system, structural disadvantages faced by these communities, and other factors. Among all incarcerated adults, most — 91,881 — are housed in state prisons designed to hold fewer than 85,100 people. This level of overcrowding is equal to 108% 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. California also houses over 4,600 people in facilities that are not subject to the court-ordered cap, including fire camps, in-state “contract beds,” and community-based facilities that provide rehabilitative services. The sizable drop in incarceration has resulted both from 1) a series of reforms to the justice system enacted during the 2010s and 2) changes adopted in 2020 to further reduce prison overcrowding in response to the COVID-19 pandemic, such as suspending intakes from county jails and implementing early releases.

The May Revision:

Does not propose to close additional state prisons in the coming years. California owns and operates 34 state prisons. Two state prisons are scheduled to be shut down over the next 13 months: one in Tracy, in September 2021, and the other in Susanville, in June 2022. These closures are projected to result in state General Fund savings of around $270 million per year beginning in 2022-23. The May Revision does not propose to close additional state prisons even though the Legislative Analyst’s Office (LAO) has estimated California likely can close up to five prisons over the next few years — three more than are currently scheduled to be shut down.
Proposes $212.3 million General Fund, to be spent over three years, to install “fixed security” cameras at 24 state prisons. This technology will “transform surveillance across the prison system” and increase the state’s capacity to operate safe prisons, according to the May Revision. Fixed security cameras are being installed at several additional state prisons using other funds.This proposal also assumes ongoing state costs of $11 million per year.
Reports that only 4 out of 10 prison system employees have been fully vaccinated against COVID-19. Only 40% of prison system system staff (about 26,000) had received “complete courses” of the COVID-19 vaccine by April 30. In contrast, nearly two-thirds of incarcerated adults (around 62,000) had been fully vaccinated by that date. The state began distributing vaccines in December 2020.
Projects the state is on track to spend nearly $1.2 billion on COVID-19 activities in state prisons from the onset of the pandemic to the end of the current fiscal year (June 30, 2021). Moreover, the governor proposes to spend an additional $407.9 million on COVID-19 activities in prison during the upcoming 2021-22 fiscal year
Allocates $93 million General Fund in 2020-21 and 2021-22 combined and $36.8 million ongoing to support efforts to address staff misconduct and discrimination. This funding will allow the California Department of Corrections and Rehabilitation to implement a wide array of reforms, which largely come in response to a recent federal court decision.
Proposes to expand rehabilitative programming and make facility improvements at Valley State Prison, using Norway’s correctional model as a guide. This proposal includes several components, including installing modular buildings to accommodate additional educational and rehabilitative activities and adding vocational and career technical training opportunities. The governor proposes to spend $13.7 million General Fund in 2021-22 and $3 million ongoing to implement this plan.
Includes $3.1 million ongoing General Fund to help reduce a backlog of parole hearings as well as address the rising number of hearings. These funds would allow the state to boost the number of Board of Parole Hearings (BPH) commissioners from 17 to 21. The growing number of BPH hearings and the backlog are due to several factors, including court decisions, recent legislation making more incarcerated adults eligible for parole, and the high number of hearing postponements in 2020.

May Revision Expands Fines and Fees Alleviation for Californians With Low Incomes and Extends Funds for Select Judicial Programs

California’s 58 county-based trial courts are fundamental to the state’s Judicial Branch and justice system. County trial courts are the starting point for the majority of legal cases and process civil, criminal, family, probate, mental health, juvenile, and traffic cases. The revised budget acknowledges the financial strain that fines and fees place on Californians with low incomes. Specifically, the May Revision:

Allocates $300 million one-time federal ARP funds to establish a debt forgiveness program to eliminate debt on existing fines and fees for traffic and non-traffic infraction tickets issued between January 1, 2015 and June 30, 2021 for Californians with low incomes. Qualifying applicants can have 100% of their debt forgiven. These funds also cover implementation costs and compensation for the loss revenue for courts and local governments.
Maintains $12.3 million General Fund in 2021-22, increasing to $58.4 million ongoing General Fund by 2024-25 for the online ability-to-pay pilot program. These proposed funds are allocated to expand a pilot program statewide to allow Californians with qualifying incomes to reduce their penalties by 50% or more and make payments over time for certain traffic and non-traffic related fines and fees.

The administration also recognizes that the Judicial Branch had to make drastic changes, and even experienced periods of courthouse closures, due to the COVID-19 pandemic. To begin addressing case backlogs and expand evidence-based judicial services, the May Revision:

Restores $176.9 million for trial courts and $23.1 million for the state-level judiciary. These funds are intended for courts to re-open and process case backlogs exacerbated by COVID-19 safety closures.
Extends $140 million General Fund in 2021-22 and $70 million ongoing for the pretrial pilot program administered by the Judicial Council. These funds primarily target judicial education and technical assistance to increase safe and efficient pretrial releases, assist in ensuring court appearances, and ensure appropriate monitoring practices for those released.
Proposes $20 million ($60 million total) ARP funds annually for three years to support legal aid services for renters and homeowners for eviction and foreclosure prevention. (See also Housing)

Other Proposals

Governor Proposes Increased Investment in Water Infrastructure and Drought Response

All Californians are affected by the availability of clean and safe drinking water, decisions related to water management, and climate change, which makes the state more prone to severe droughts. The governor recently issued a drought emergency proclamation for 41 counties, representing 30% of the state’s population. The May Revision builds on the $757 million proposed in January to improve the state’s water infrastructure, drought response, and capacity to adapt to and recover from changed conditions. Specifically, the revised budget includes $4.35 billion to be spent over four years. This reflects $2.8 billion General Fund, $1.5 billion in ARP funds, and $10.5 million bond and special funds. About $3.5 billion would be spent in 2021-22. Some of the proposals included in this package are as follows:

$1.47 billion ($85 million General Fund and $1.39 billion federal funds) over two years for drinking water and wastewater infrastructure, with a focus on communities that have been historically disadvantaged. Funding will also be used for groundwater supply projects and planning, cleanup of contaminated groundwater, water recycling projects, and treatment systems on drinking water wells.
$989 million ($949 million General Fund, $30 million federal funds, and $10 million bond and special funds) to meet the state’s water supply needs and build the capacity to endure dry conditions.
$726 million General Fund to improve ecological conditions and help species cope with climate change.
$440 million General Fund over two years to better manage energy consumption tied to water management.
$371 million General Fund over two years to facilitate groundwater recharge, a critical water management practice. This funding will also be used to support flood risk reduction projects as well as advance studies with the goal of providing local water managers better data for local decision-making.

The May Revision also proposes $1 billion in ARP funds for direct payments to water systems to cover overdue payments on water bills accumulated by households during the pandemic. (See also Housing section.)

California Budget

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With COVID-19 cases plummeting and vaccine distribution expanding, businesses are picking up hiring. This is bringing hope that California has turned the corner on the pandemic and is setting a path forward for an economic recovery to finally take hold. But as the state begins to emerge from the recession, lawmakers must keep in mind that their policy choices will determine whether the recovery is inclusive of all people and builds toward an economy that works for everyone. The economic crisis amplified long-standing economic and health inequities, hitting Black, Latinx, and other Californians of color, as well as women, immigrants, and workers paid low wages much harder. These inequities will not disappear as the economy recovers unless lawmakers dismantle racist, sexist, and anti-immigrant barriers to opportunity and make investments that allow all Californians to share in the state’s prosperity.

Recent job gains are promising, but a massive job shortfall remains. The state gained 120,000 jobs in March 2021, following a gain of 156,000 jobs in February 2021. This marked the strongest job growth California had seen since June 2020. Yet the state still has a massive shortfall, with 1.5 million fewer jobs in March 2021 than in February 2020, just before the pandemic recession began. This means that California is still down more jobs than the state lost during the Great Recession. Moreover, even if the last two months of strong job gains continue each month going forward, it would take 18 months — until September 2022 — to close the job shortfall, replacing the jobs lost during the recession and adding the jobs that would have been created had there not been a recession. That’s a year after pandemic-related federal unemployment benefits are slated to expire.

Low-paying industries continue to face the largest job shortfall. Although the majority of California’s private-sector job gains in March were in the state’s lowest-paying industries, these industries still had 15% fewer jobs in March 2021 than in February 2020. In contrast, moderate- and high-paying industries each had just 5% fewer jobs. In fact, some of the lowest-paying industries still had massive job shortfalls in March: 90% of the arts, entertainment, and recreation jobs that California lost were still gone, as were 61% of the accommodation and food service jobs, and 68% of the “other services” jobs, which include jobs at barber shops, hair salons, and nail salons. Rehiring in these sectors could take time, and it’s possible that not all of the jobs that were lost will come back. For example, to the extent that office workers continue to work remotely after the pandemic ends, restaurants and other businesses near office buildings or downtown hubs may see fewer customers and won’t need as many employees as they did prior to the pandemic. Similarly, if companies continue to hold remote meetings and conferences, hotels and other businesses serving business travelers may not need to rehire as many workers.

The “official” unemployment rate significantly understates California’s jobs crisis, highlighting the need to track broader measures. The unemployment rate published monthly by the US Bureau of Labor Statistics (BLS) is typically used to assess conditions for workers. However, this measure has substantially understated the pandemic jobs crisis, prompting many economists to use alternative measures of unemployment that include people who want to work, but left the labor force after losing their jobs because other jobs weren’t available or weren’t safe, or because they had to care for children schooling from home or for sick family members (see technical note). Based on one such broader measure, about 1 in 10 Californians were out of work in March 2021 (10.3%) — notably higher than California’s “official” unemployment rate of 8.3%. In fact, a total of about 2 million Californians were unemployed in March based on this expanded measure — over 400,000 more than those counted in the official measure. Like the official unemployment rate, this broader measure has fallen significantly from its peak last spring, but remains about twice as high as it was in February 2020, just before the recession began.

Black and Latinx Californians remain considerably more likely to be out of work. One year into the recession, 15.3% of Black Californians and 13% of Latinx Californians were unemployed, based on the broader measure described above. This is considerably higher than the 9.7% unemployment rate for white Californians and 8.6% rate for Asian Californians. (Due to data limitations, it is not possible to present monthly unemployment figures for other Californians of color, such as Pacific Islanders, American Indians, and people who are multi-racial, or to disaggregate the data further to show, for example, the diverse range of experiences within Asian Californians. National data, however, show high unemployment among American Indians and Pacific Islanders during the recession.) Women were also more likely to be out of work than men, and national research has suggested that at least some of this disparity reflects mothers leaving the labor force because of remote schooling or child care responsibilities during the pandemic. Immigrants — who experienced greater job losses when the pandemic first began — were less likely to be unemployed one year into the recession than Californians who are not immigrants.

Layoffs during the pandemic reduced the earnings of the majority of Black and brown Californians. More than 60% of Black and Latinx households lost earnings during the pandemic, compared to well under half of Asian and white households. (Due to data limitations, it is not possible to present monthly unemployment figures for other Californians of color, such as Pacific Islanders, American Indians, and people who are multi-racial, or to disaggregate the data further to show, for example, the diverse range of experiences within Asian Californians.)

While striking, these job and income inequities are not new for Black and brown Californians; they are rooted in our nation’s history of structural racism. Even before the current jobs crisis, Black and American Indian Californians were about twice as likely to be unemployed as white Californians, and Latinx women were about one-and-one-half times as likely to be unemployed as white women. In addition, Californians of color — particularly women and those who are American Indian, Black, Latinx or Pacific Islander — earned considerably less than white men before the pandemic, even when working full-time, year-round. (See the employment and earnings component of the Women’s Well-Being Index for more information.) These inequities are the product of past and present racist policies and practices, including housing segregation, the underfunding of predominantly Black and brown public schools, mass incarceration, and employment discrimination — all of which make it difficult for many people of color to access good jobs and be paid fair wages.

Policymakers Must Create an Inclusive Recovery that Builds Toward a More Equitable Economy

There is growing optimism that a recovery from the economic crisis is finally underway for California. But the employment and income inequities that widened during the recession for Black and brown Californians, women, immigrants, and workers paid low wages will likely not disappear on their own as the state’s economy improves. To avoid returning to the deeply inequitable economy that predated the pandemic, state and federal lawmakers must make policy choices that foster an inclusive recovery and lay the foundation for a more equitable economy – one that ensures that Black, Latinx, and other Californians of color, women, immigrants, and Californians with low incomes share in the state’s economic gains and vast wealth.

To do this, federal policymakers must first not cut off too soon the economic supports, such as enhanced federal unemployment benefits, that are helping families meet basic needs during the crisis. Doing so would harm Black and Latinx Californians and others who continue to be hit hard by the pandemic and recession. In addition, state policymakers should provide much more financial support to undocumented Californians and their families, who have been excluded from nearly all economic relief during the pandemic.

Beyond responding to the immediate crisis, policymakers must better prepare for the next recession, for example by reforming the unemployment insurance system to ensure that workers receive the support they need when they lose work. Lawmakers also must prioritize equity in all policies and institutions so that all people can thrive. Some California current efforts that would help include:

Establishing an independent body to address systemic and institutional racism in order to ensure that the state plays a more active role in dismantling racial inequities that hold back Californians of color.

Investing in the state’s child care infrastructure and making paid family leave more accessible to people with low earnings to help reduce employment and pay inequities between women and men due to family care responsibilities.

Ensuring basic workplace protections, such as through the Health and Safety for All Workers Act and the Garment Worker Protection Act, as well as ending exclusions from public supports, such as full-scope Medi-Cal and the California Food Assistance Program in order to improve conditions for immigrants.

Lawmakers must also invest in better publicly accessible data because economic and health equity cannot be achieved if information on inequities affecting the lives of Californians is not collected. Major federal data, including monthly unemployment figures, do not allow for sufficient disaggregation for racialized communities or for intersectional analyses. In fact, the experiences of LGBTQ+ people are almost entirely absent from federal surveys. This renders the experiences of many communities invisible, making it difficult to show with data where policy change is needed or can be targeted to better serve Californians, especially LGBTQ+ Californians and many Californians of color.

Policies that address the economic and health needs of communities and dismantle structural racism, sexism, and other forms of discrimination can help California emerge from the pandemic recession to a more equitable economy where all Californians share in the state’s prosperity.

Technical Note

The “official” unemployment rate reported each month by the Bureau of Labor Statistics (BLS) is widely understood to have underreported the extent of joblessness during the pandemic. Consequently, many economists, including those at the Federal Reserve Board and the President’s Council of Economic Advisors, have published adjusted unemployment rates that are likely more accurate than the official BLS measure.

This report presents unemployment rates with two adjustments that should result in a more accurate measure of joblessness. Specifically, these unemployment rates:

Include people who were likely unemployed, but misclassified as employed. The BLS believes that during the COVID-19 recession a large number of workers who reported being employed, but absent from work, were in fact on temporary layoff and should have been counted as unemployed. Each month since March 2020, the BLS has estimated how many workers may have been misclassified in this way and reported what the national unemployment rate would have been had these workers been counted as unemployed. This report follows the BLS methodology for identifying potentially misclassified workers, which is described here, and adds these workers to the number of unemployed to calculate adjusted unemployment rates.

Include people who were not counted in the labor force because they did not look for work recently, but who want a job. To be officially counted as unemployed, workers must have made specific efforts to find employment in the past four weeks. If they did not, then they are counted as not in the labor force even if they want to work. This means that they are not included in the unemployment rate. However, many workers who lost their jobs during the COVID-19 recession did not search for work even if they wanted a job, particularly at the beginning of the recession when state-mandated business closures meant that there were far fewer jobs available. Moreover, California temporarily waived the requirement that unemployed workers search for jobs each week in order to receive unemployment benefits, recognizing that whole sectors of the economy had to be shut down in order to protect the public’s health. This analysis adds to the number of unemployed people who did not look for work in the past four weeks as long as they reported wanting a job, being available for work, and having looked for employment in the past year. This is a more conservative adjustment than the one made by the Federal Reserve Board, which counts all people who dropped out of the labor force since February 2020 as unemployed.

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First Look: Understanding the Governor’s Proposed 2022-23 State Budget

Contents

Contents

Budget Overview

Health

Homelessness & Housing

Economic Security

Education

Justice System

Workforce & Small Business

Budget Overview

Governor’s Budget Assumes Continued Economic Recovery, but Significant Risks

Governor’s Proposal Reflects Strong Revenue Growth and Includes Tax Changes

Stronger-Than-Expected Revenues Allow State to Build Reserves to $35 Billion

Gann Limit Impact on Spending Priorities Is Uncertain — Clarity Expected in May

Health

Proposed Budget Bolsters COVID-19 Response Efforts

Governor Proposes Much-Needed Public Health Investments

Governor Calls for Expanding Medi-Cal to All Undocumented Immigrants

Proposed Budget Sets in Motion Robust Medi-Cal Reform Initiatives

Proposed Budget Includes Funding to Launch Behavioral Health Initiatives

Homelessness & Housing

Governor’s Proposals Focus on Encampments and Behavioral Health Needs

Governor Proposes $2 Billion in New One-Time Resources to Increase Affordable Housing

Economic Security

Administration Proposes Ending Work Requirement for Young Child Tax Credit

Governor’s Proposals Expand Support for Immigrants

Proposed Budget Continues CalWORKs Investments But Falls Short on Grants

Budget Proposal Implements Child Savings Accounts and Boosts Child Support Pass-Through

Budget Proposal Pares Back Plan to Provide Food Assistance to Immigrants

Governor Assumes a 24% Increase to State SSP Grants in 2024

Proposal Funds New Child Care Spaces With Federal COVID-19 Relief Dollars

Education

Proposed Early Learning Plan Continues Implementation of Transitional Kindergarten

Increased Revenues Boost the Minimum Funding Level for K-14 Education

Significant Funding Boost Proposed to Expand Learning Opportunities for Students

Proposal Misses Opportunity to Provide More Direct Support to CCC Students

Proposed Budget Provides Multi-Year Investments in the CSU and the UC

Proposed Budget Invests in Cal Grants and Middle Class Scholarship

Justice System

Governor Does Not Propose to Close Additional State Prisons

Proposed Infrastructure Increases to Courts and Juvenile Facilities

Governor’s Proposed Crime Reduction Plan Lacks Equity Considerations

Workforce & Small Business

Proposed Budget Includes Several Investments Targeted to Small Businesses

Workforce Proposals Primarily Target Climate Change and the Care Economy

Administration Proposes Unnecessary Payment on Federal Unemployment Insurance Loan

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First Look: Understanding the Governor’s Proposed 2026-27 California Budget

Guía: Proceso de presupuesto estatal de California

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Timeline of Funding Cuts to Medi-Cal and CalFresh in California

More with Less: California’s Homelessness Spending Declines

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Executive Summary

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Trends in Transitional Kindergarten Enrollment in California

How California Is Expanding Transitional Kindergarten

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Introduction

The 2021-22 budget framework:

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First Look: Understanding the Governor’s Proposed 2026-27 California Budget

Guía: Proceso de presupuesto estatal de California

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Introduction

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Understanding Proposition 36

Crime in California Remains Well Below Historical Peaks

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Supporting Survivors: The Need for Stable Funding for Victim Services

How Policy Changes Are Affecting Women’s Economic Security in California

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Executive Summary

Contents

Budget Overview

Health

Homelessness & Housing