Report

Analysis: 2021-22 State Budget

Plan Includes Significant Investments for Californians, Keeps State Under Gann Limit

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.