Report

First Look: 2019-20 Budget Includes Balanced Investments, Leaves Opportunities to Improve the Economic Well-Being of More Californians

Executive Summary

On June 27, Governor Gavin Newsom signed into law the 2019-20 state budget, an agreement with state legislative leaders that makes a series of investments in creating economic security and opportunities for Californians, while also fostering the state’s fiscal health.

The budget includes revenues and transfers of $146 billion for 2019-20. This represents an increase of more than $4 billion over the enacted 2018-19 budget, driven largely by the state’s continued economic growth.

The budget package includes a mix of one-time and ongoing investments vital to low- and middle-income Californian’s economic prosperity, including: a significant expansion of the state’s Earned Income Tax Credit (CalEITC), additional investments in early childhood development, extending paid family leave, continuing to expand health coverage, boosting investments in the K-12 and state higher education systems, and promoting greater access to mental health services. The 2019-20 budget also provides funding for housing affordability and to address homelessness, recognizing that the high cost of housing continues to burden and destabilize many Californians. These proposals, individually and in combination, will significantly improve the health and well-being of millions of Californians, most notably low- and middle-income people of color, immigrants, and women and children.

The 2019-20 budget also continues to bolster the state’s fiscal resilience by building up reserves and paying down state debts and liabilities. While the budget package expands a variety of programs, some of these investments could sunset within a few years, providing state leaders with an opportunity to revisit these investments depending upon the state’s economic and fiscal conditions.

These proposals – a combination of one-time and ongoing investments, building up reserves, and paying down debts – represent a mostly balanced approach to managing the state’s fiscal health, while leaving opportunities to further enhance the state’s fiscal resilience and extend support to more Californians in future years. The 2019-20 budget leaves room to further improve the economic and social well-being for all Californians, including older adults and people with disabilities, working immigrants who file their taxes and who are left out of the CalEITC expansion, and low-income immigrant adults who remain locked out of access to state-subsidized health care coverage.

The following sections summarize key provisions of the 2019-20 budget. Please check the Budget Center’s website for our latest commentary and analysis.

Use the links below to browse individual sections:

Revenue & Tax Credits

Fiscal Resiliency

Economic Security

Health

Education

Criminal and Juvenile Justice

Other Key Priorities 

Revenue & Tax Credits

Budget Agreement Projects Increased Revenues Due to Continued Economic Growth and Partial Conformity to 2017 Federal Tax Law

The budget package assumes General Fund revenues and transfers of $146 billion for 2019-20 (before the deposit to the Budget Stabilization Account – the state’s constitutional rainy day fund). This represents an increase of $4.4 billion over the enacted 2018-19 budget. The projected increase is driven primarily by higher expected personal income tax revenues.

Additionally, the budget agreement includes a package of tax changes expected to raise General Fund revenues, on net, by “conforming” in full or in part to selected provisions of the recently revised federal tax code. This tax conformity package limits some tax breaks for businesses and higher-income households and increases tax simplicity for small businesses. The package will increase General Fund revenues on net by an estimated $1.6 billion in 2019-20 and $1.3 billion in future years, according to the Administration. These revenues are intended to more than cover the $1 billion cost of the expanded California Earned Income Tax Credit (CalEITC) (see CalEITC section). Since the combined tax conformity/CalEITC package is estimated to raise General Fund revenues, it results in a higher Proposition 98 guarantee for K-14 education funding in 2019-20 (see Prop. 98 section).

Specifically, the tax conformity package in the enacted budget:

  • Limits higher-income taxpayers’ deductions for business losses. The amount of business-related losses taxpayers can deduct from their other sources of income to reduce their tax liability will be limited to $250,000 ($500,000 for married couples filing jointly). Taxpayers can carry forward disallowed losses to offset income in future tax years, but the cumulative losses for each tax year are still subject to the $250,000/$500,000 limit.
  • Limits “like-kind exchanges” for higher-income individuals and businesses. The ability of corporate and individual taxpayers to defer taxes on gains from the exchange of a business- or investment-related property for a similar property will be limited to exchanges of real estate and no longer allowed for personal property exchanges. Individual taxpayers with incomes up to $250,000 ($500,000 for married couples filing jointly, heads of household, and surviving spouses) are exempt from this limitation.
  • Eliminates Net Operating Loss (NOL) carrybacks. Corporate and individual taxpayers will no longer be able to use NOLs to reduce their tax liability for previous tax years. (NOLs occur when a taxpayer’s total tax deductions exceed total income for the tax year and are generally related to losses from operating a business.)
  • Limits business deductions for high executive pay. Businesses will no longer be able to deduct compensation above $1 million for their top executives, regardless of whether the compensation is “performance-based.”
  • Limits deductions for large financial institutions. Banks with assets above $50 billion will no longer be able to take deductions for Federal Deposit Insurance Corporation (FDIC) premiums, and the deductions will be limited for banks with assets between $10 billion and $50 billion.
  • Simplifies taxes for small businesses. Businesses with gross receipts up to $25 million will be able to use a simpler accounting method for tax purposes and are exempted from several accounting requirements to which larger businesses are still subject. (Previously, most of these exceptions only applied to businesses with gross receipts up to $5 million.)

The tax conformity package also includes a number of smaller tax changes for individuals and businesses. Notably, the budget agreement does not include the Governor’s proposals to limit business deductions for fringe benefits or to provide state tax incentives for investments in Opportunity Zones. (To encourage economic development in low-income communities, the 2017 federal tax law allows for tax breaks on investments in economically distressed census tracts that states have designated as Opportunity Zones.) However, the budget package assumes that Opportunity Zones legislation will be enacted later this year, and so it reflects an estimated loss of $100 million in General Fund revenues for 2019-20, according to the Administration. The budget agreement also includes the Governor’s May Revision proposal to exempt diapers and menstrual products from the sales tax in 2020 and 2021, resulting in revenue losses to the state and local governments. However, as required by law, the state will reimburse the “Local Revenue Fund 2011” – which provides counties with funds for certain criminal justice, mental health, and social service programs – to make up for estimated revenue losses due to the sales tax exemptions.

Back to Top

Budget Significantly Expands California Earned Income Tax (CalEITC)

The 2019-20 budget significantly expands the California Earned Income Tax Credit (CalEITC) – a refundable state tax credit that boosts the incomes of low-earning workers and their families, helping them afford necessities like food and utilities. This expansion, which will take effect in tax year 2019 (for which filing begins in 2020), largely reflects the expansion proposed by the Governor. Specifically, the budget:

  • Increases the income limit to qualify for the CalEITC to $30,000. This is roughly equal to full-time, year-round earnings for a worker earning $15 per hour, which will be the state’s minimum wage as soon as 2022 and is currently or soon will be the local minimum wage in many parts of the state. For families with qualifying children, the income limit will rise modestly, from $24,950 currently to $30,000. For workers without qualifying children, the income limit will increase substantially, from $16,750 to $30,000. The income limit will remain at $30,000 through the year in which the state minimum wage reaches $15 per hour, then will be annually adjusted for inflation. The Administration estimates that raising the income limit to $30,000 will extend the credit to an additional 1 million tax filers next year, bringing the total number of tax filers estimated to benefit from the credit to 3 million.
  • Increases the size of the CalEITC for tax filers with annual earnings toward the higher end of what is needed to qualify for the credit currently. Specifically, the tax filers who will receive a larger credit include those with:
    • Three or more qualifying children and annual earnings over around $14,300;
    • Two qualifying children and annual earnings over around $14,100;
    • One qualifying child and annual earnings over about $9,400; and
    • No qualifying children and annual earnings over about $4,300.

Currently, these tax filers are eligible for relatively small credits: less than about $260 for those with qualifying children and less than about $100 for those with no qualifying children. Beginning in tax year 2019, these filers will be eligible to receive up to about $500 if they have qualifying children and up to $200 if they have no qualifying children. These increases are smaller than what the Governor originally proposed.

  • Creates a “young child tax credit” that provides an additional $1,000 to families who qualify for the CalEITC and have at least one child under age 6. The $1,000 young child tax credit will be available to families with annual earnings between $1 and $25,000. Families with earnings over $25,000 and less than $30,000 will receive a young child tax credit of less than $1,000. (Specifically, the credit will “phase out” from $1,000 at $25,000 of earnings to $0 at $30,000 of earnings.) The Governor originally proposed phasing out the young child tax credit beginning at $28,000 of earnings. The earnings limit where the young child tax credit begins to phase out ($25,000) will be annually adjusted for inflation beginning the year after the state minimum wage reaches $15 per hour.

The Administration estimates that these changes to the CalEITC will reduce state personal income tax (PIT) revenue by about $600 million, bringing the total cost of the credit to about $1 billion. As discussed above, the budget agreement conforms to several federal tax law provisions that are expected to raise $1.6 billion dollars next year and $1.3 billion per year thereafter, which is more than what is needed to cover the full cost of the CalEITC.

Although the new revenues generated by the tax conformity package exceed the cost of the expanded CalEITC, the budget agreement does not extend the credit to low-earning immigrants and their children who are currently ineligible because they use a federally-issued Individual Taxpayer Identification Number (ITIN) to file taxes. Both legislative budget committees included this relatively low-cost provision in their budgets, but it was not included in the budget deal.  As a result, hundreds of thousands of low-income workers and their children will remain excluded from the CalEITC.

In addition to expanding the credit, the budget deal provides $10 million to the Franchise Tax Board (FTB) to maximize claims of the CalEITC. This is equal to the amount of support provided last year and double the amount the Governor proposed. The budget agreement specifies that these funds “shall be allocated in a manner that emphasizes nonprofit and community-based organizations that provide increase awareness of the California Earned Income Tax Credit and that provide free tax preparation services.”

The budget deal also directs the FTB to work with the Legislature and the Department of Finance “to determine the feasibility and form of a structure for providing advance payments to recipients of the Earned Income Tax Credit.”

Back to Top

Fiscal Resiliency

Budget Package Continues to Build Up Reserves to Bolster State Fiscal Resilience

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

The enacted 2019-20 budget includes a total transfer of $2.2 billion to the BSA for 2019-20, which will bring the reserve’s balance to $16.5 billion by the end of the fiscal year. Prop. 2 requires that when the BSA balance has reached its constitutional maximum of 10 percent of General Fund tax revenues, any additional dollars that would otherwise go into the BSA must be spent on infrastructure, including spending on deferred maintenance. However, while the BSA has already reached this maximum, the enacted budget assumes that constitutionally required deposits will continue to be made because the account’s current balance was achieved in part through supplemental payments in prior years.

The enacted budget also includes a deposit of $377 million into the PSSSA, the first time such a deposit would be made into this reserve.

Additionally, the 2018-19 budget agreement created the Safety Net Reserve Fund, which holds funds that can be used to maintain benefits and services for CalWORKs and Medi-Cal participants in the event of an economic downturn. The 2019-20 budget includes $900 million in the Safety Net Reserve.

Each year, the state also deposits additional funds into a “Special Fund for Economic Uncertainties” (SFEU). The budget package includes an SFEU balance of $1.4 billion.

Taking into account the BSA, PSSSA, Safety Net Reserve, and SFEU, the enacted budget builds state reserves to a total of $19.2 billion in 2019-20.

Back to Top

Enacted Budget Prioritizes Paying Down Debts

The 2019-20 budget prioritizes paying down state and local unfunded pension liabilities and paying off outstanding budgetary debt incurred during the Great Recession and its aftermath.

The enacted budget continues to include required and supplemental contributions to two state-run retirement systems: the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). CalPERS and CalSTRS, like many retirement systems, are not funded at levels that will keep up with future benefits, resulting in the state needing to make higher annual contributions in order to pay down unfunded liabilities.

Beyond statutorily required contributions, the enacted budget provides $3.0 billion in supplemental pension payments to CalPERS: $2.5 billion in the current (2018-19) fiscal year along with an additional $500 million for fiscal years 2020-21 ($265 million), 2021-22 ($200 million), and 2022-23 ($35 million).

In the case of CalSTRS, the budget package devotes an additional $2.9 billion toward the state’s share of CalSTRS unfunded liabilities: $1.1 billion in 2019-20, $802 million in 2020-21, $615 million in 2021-21, and $345 million in 2022-23. These funds come from Prop. 2 allocations (see Reserves section) that are required to be set aside for reducing state liabilities.

In addition, the enacted budget includes a one-time $3.1 billion non-Proposition 98 payment to CalSTRS and CalPERS to reduce schools’ (local educational agencies and community colleges) shares of unfunded liabilities in response to prior changes in contribution levels and pressures confronting employers. This includes $2.2 billion to CalSTRS on behalf of schools and $904 million to CalPERS for payments relating schools. Overall, the supplemental payments on behalf of schools will free up local dollars for investment in education, allow employers to pay down retirement obligations, or close budget deficits.

The enacted budget also pays off all remaining outstanding budgetary debts and deferrals incurred during the Great Recession.

Back to Top

Economic Security

Budget Strengthens Investments in CalWORKs

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for over 740,000 low-income children while helping parents overcome barriers to employment and find jobs. In recent years, state policymakers have taken steps to increase economic security for CalWORKs families. This year, the 2019-20 budget agreement:

  • Raises the CalWORKs asset limit. Under current law, families are ineligible for CalWORKs if they own a vehicle worth more than $9,500. They are also ineligible if they have more than $2,250 in assets such as in a checking or savings account (or $3,250 if a family member has a disability or is age 60 or older). This restriction can prevent families from saving for unexpected emergencies. Effective January 1, 2021, a car’s value may reach $25,000 and the asset limit rises to $10,000 (or $15,000 if a family member has a disability or is age 60 or older). These amounts will be increased annually.
  • Increases the value of the earned-income disregard (EID). The EID is the amount of a CalWORKs recipient’s gross monthly earnings that is overlooked when their grant levels are calculated. State law exempts the first $225 of monthly earnings, then 50% of the remainder. Without an increase in over two decades, the value of the EID has fallen behind the rising cost of goods and services, as well as a growing minimum wage. Effective June 1, 2020, the EID will rise to $500, which would allow CalWORKs parents to earn more while remaining eligible. Policymakers decided against ensuring that the EID will keep pace with inflation, instead opting for two further increases to $550 and $600, in 2021 and 2022 respectively.
  • Increases the maximum CalWORKs grant. The annualized maximum CalWORKs grant has been well below the deep poverty threshold (50% of the federal poverty line) for over a decade. Effective October 1, 2019, the 2019-20 budget agreement provides $334.9 million General Fund to raise grants based on the size of the assistance unit (AU), which is the number of people in the household who are eligible for CalWORKs. In low-cost counties, grants for a one-person AU (which represents over a quarter of all CalWORKs cases) will increase to 50% of the federal poverty line and to 47% for all other AU sizes. In high-cost counties, grants for a one-person AU (which represents over a quarter of all CalWORKs cases) will increase to 53% of the federal poverty line and to 49% for all other AU sizes.

Back to Top

Budget Package Extends the Duration of California’s Paid Family Leave Program

The California Paid Family Leave (PFL) program allows caregivers to take up to six weeks of paid time off to care for a family member or bond with a newborn or adopted child. Birth mothers are generally allowed another six weeks to recover from the birth, for a total of 12 weeks. The PFL program is funded entirely by workers’ contributions to the state’s Disability Insurance program. These contributions are deposited into a special fund that provides 60% to 70% of a worker’s weekly earnings based on income when a worker takes family leave.

The 2019-20 budget agreement extends the duration of the PFL program from six weeks to eight weeks, effective July 1, 2020. In order to ensure that the special fund that pays PFL claims can provide additional benefits, the state would reduce the minimum reserve balance requirement. The budget agreement also states that the Governor’s Office will work with a task force to provide recommendations on how to extend the duration of the PFL program to six months, with special consideration to job protections for workers and a higher wage replacement specifically for low-wage workers. The task force recommendations are due to the Legislature by November 2019.

Back to Top

Subsidized Child Care Programs Receive Significant Investment

Subsidized child care allows parents with low and moderate incomes to find jobs and remain employed, feeling secure that their children have a safe space to learn and grow. These programs provide a critical service, helping families across California make ends meet. The 2019-20 budget agreement makes a significant investment in the state’s subsidized child care programs. Specifically, the spending plan:

  • Provides $153.3 million to add spaces for additional children. Using a mix of General Fund, special funds, and federal funds, the spending plan creates 12,546 new slots and boosts access to subsidized care for foster children in the 2019-20 state fiscal year. Specifically, the budget agreement:
    • Adds 3,086 General Child Care slots with $50 million General Fund effective July 1, 2019. According to legislative documents, these slots are to be funded with Proposition 64 Cannabis Tax Fund dollars in future years.
    • Adds 8,162 Alternative Payment Program (AP) slots with $80.5 million Prop. 64 dollars. These slots will not be restricted to school-age children, as indicated in the administration’s May Revision.
    • Adds 1,298 AP slots with $12.8 million federal funds effective July 1, 2019. The legislature rejected the Governor’s plan to create a pilot emergency child care program and redirected these funds to create additional slots in the AP program.
    • Invests $10 million General Fund in the Emergency Child Care Bridge Program for Foster Children, which provides access to child care vouchers for abused and neglected children. This funding will be suspended on December 31, 2021 unless General Fund revenues reach a certain threshold.
  • Provides $50 million Prop. 98 for after-school care. The spending plan provides an additional $50 million for the After School Education and Safety Program (ASES), which offers expanded learning for elementary and middle-school students in schools with a higher share of low-income students. The boost in funding is for increased daily per-pupil rates.
  • Provides $56.4 million General Fund to implement a 12-month eligibility period for certain CalWORKs families. The budget agreement extends 12-month eligibility to families participating in CalWORKs Stage 1 child care. CalWORKs Stage 1 child care is the only program within the state’s subsidized child care and development system that did not have this benefit.
  • Provides $245 million in one-time funds for child care facilities. The budget agreement creates a new infrastructure grant program. This program will provide grants to licensed child care and preschool providers in order to boost their capacity to serve more children. Funds will be used for the renovation, retrofitting, or expansion of facilities and are to be disbursed over a four-year period. The grant program will prioritize providers offering subsidized child care or preschool programs in areas with a higher level of unmet need. Finally, the existing Child Care Revolving Loan Program will be eliminated, with the remaining balance transferred to this new facilities grant program and the Inclusive Early Education Expansion Program.
  • Provides $195 million one-time General Fund for child care workforce development.The budget package creates a new Early Learning and Care Workforce Development Grants Program. Funds will be distributed over a four-year period to existing local quality improvement partnerships based on each county or region’s need for early learning and care professionals, the local cost of living, and the number of low-income families in the county or region. Funds are to be used for a variety of expenses, such as tuition, supplies, transportation, child care, and professional coaching.
  • Provides $20 million one-time General Fund for data systems.The spending plan includes $10 million to improve the existing data framework for the state’s subsidized child care and development system. The 2019-20 budget agreement also includes $10 million for data collection and implementation of child care organizing.
  • Provides $11.3 million to support the administration of subsidized programs. The 2019-20 budget package includes $11.3 million to boost administrative capacity. This includes $2.8 million ongoing for new staff positions at the California Department of Education, $2.2 million one-time funding for the establishment of an Early Childhood Policy Council to advise state leaders on how to expand and improve the state’s subsidized child care and development system, and $6.3 million one-time to augment activities funded by the federal Preschool Development Grant.
  • Provides $5 million one-time General Fund for a “Master Plan for Early Learning and Care.”As discussed earlier, the budget package authorizes the Secretary of Health and Human Services, Executive Director of the State Board of Education, and the Superintendent of Instruction to contract with one or more nongovernmental organizations to conduct research on five topics: 1) a fiscal framework to expand the state’s subsidized child care and development system 2) a needs assessment for early care and education facilities 3) a needs assessment for subsidized early care and education for low-income families 4) a plan to boost the quality of subsidized care, and 5) a plan to move towards universal prekindergarten for three- and four-year-olds. The final report or series of reports will be due by October 1, 2020.

While the 2019-20 budget agreement makes a large down payment on the future of the state’s subsidized child care and development system, the final budget package does not adopt the most recent Regional Market Rate Survey – which would boost rates for many child care providers. The spending plan also does not adopt legislative proposals to create a more coherent rate system or to boost rates for license-exempt providers, some of whom are paid less than the minimum wage.

Back to Top

Budget Includes Investment to Increase Access to Child Savings Accounts for our Youngest Californians

A Child Savings Account (CSA) is a long-term savings account established for children as early as birth that builds assets over time. CSAs are generally seeded with an initial deposit from a government agency or another sponsoring organization, then built with contributions from family, friends, or the child. Once the child reaches adulthood, the savings are typically used for higher education, though they can also support homeownership or other asset-building investments. As such, CSAs can help make college more affordable and accessible, especially to children from low-income families.

The budget includes a one-time investment of $50 million General Fund to initiate new CSA programs and expand existing programs. Of these funds, $25 million will create a new program in the State Treasury called the California Kids Investment and Development Savings Program with the purpose of increasing access to higher education. The other $25 million will go the Student Aid Commission to implement and administer the Child Savings Account Grant Program, which will support local governments and non-profit organizations in establishing or expanding local CSA programs.

Back to Top

Budget Package Promotes Additional Investments in Services and Supports for
Seniors and People with Disabilities

The 2019-20 budget package takes continued steps to invest in California’s older adults and residents with disabilities following significant cuts to services for these populations during and after the Great Recession. Efforts this year focus on funding programs that provide quality housing options and support for low- and middle-income seniors and people with disabilities, as well as bolstering social safety net programs available to this population. Specifically, the revised budget:

  • Boosts support for programs that provide caregiver services to seniors and people with disabilities. The budget package continues to suspend – through December 31, 2021 – implementation of the 7% cut to In-Home Supportive Services service hours that was enacted during the Great Recession, which never fully took effect. This action was allocated $357.6 million General Fund in 2019-20. The budget also provides a rate increase of up to 8.2% for developmental services providers at a General Fund cost of $125 million in 2019-20 and $250 million in 2020-21. The rate increase will then be suspended on December 31, 2021, unless the Administration finds that the General Fund can accommodate for two additional fiscal years.
  • Continues to increase funding for programs targeted at helping seniors and people with disabilities stay in their homes and find housing. The Multipurpose Senior Services Program will receive $29.6 million ($14.8 General Fund) over the next three years to provide home and community-based services for seniors who are eligible for Medi-Cal. The budget also provides $25 million General Fund to the Housing Disability Advocacy Program, which helps individuals with disabilities who are experiencing homelessness to find housing and apply for disability benefits.
  • Reforms Medi-Cal’s eligibility rules to eliminate the “senior penalty.” This action removes the primary obstacle that prevents tens of thousands of low-income adults, age 65 or older, from accessing critical health care services through Medi-Cal at no cost, creating parity between older and younger adults. The budget package includes $63 million ($31.5 million General Fund) to raise Medi-Cal’s eligibility limit to 138% of the federal poverty line for people who are 65 years or older who participate in the Medi-Cal Aged, Blind, and Disabled program.
  • Provides an additional $17.5 million for the Senior Nutrition Program. This includes catered meals as well as the Meals on Wheels program. This funding will be suspended on December 31, 2021 unless the Department of Finance determines that projected General Fund revenues will reach a certain threshold.
  • Allocates funding to help ensure the proper care and safety of seniors who live in long-term care facilities. The budget agreement appropriates $4.2 million in 2019-20 and $5.2 million annually thereafter for the Long-Term Care Ombudsman Program, which investigates and resolves complaints regarding quality of care and abuse in long-term care facilities. The funding is specifically allocated for quarterly visits to skilled nursing facilities and residential care facilities for the elderly.
  • Misses an opportunity to boost income support for seniors and people with disabilities. The budget package lacks a state increase for Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants, which help well over 1 million low-income seniors and people with disabilities to pay for housing and other basic necessities. These grants are funded with both federal (SSI) and state (SSP) dollars. A decade ago, state policymakers began making deep cuts to the SSP portion of these grants to help close budget shortfalls. These cuts reduced SSP grants for both individuals and couples to the minimum levels allowed by federal law and eliminated annual state cost-of-living adjustments (COLAs). While the state provided a discretionary 2.76% COLA for the SSP portion of the grant in January 2017, there have been no further increases. With no state COLA scheduled for 2019-20, the state’s SSP portion will remain frozen at $160.72 for individuals and $407.14 for couples.

Back to Top

Budget Agreement Addresses Housing Affordability Through One-Time Funding, Tax Credits, and Regulatory Changes

More than half of California renter households pay more than 30% of their income toward rent, making them housing cost-burdened, and high housing costs are a key driver of California’s high poverty rate. The 2019-20 budget agreement adopts a multi-pronged state-level approach to address California’s housing affordability crisis, including one-time funding, an expansion of tax credits that finance affordable housing development, and regulatory changes. Total new expenditures related to housing funds and tax credits are unchanged from the proposal in the Governor’s May Revision, but some of the regulatory changes approved as part of the budget agreement are different from the May proposal.

The enacted budget provides $1 billion in new one-time grant and loan funding for housing development. Following the Governor’s May Revision proposal, the budget agreement allocates $500 million in one-time General Fund for the Infill Infrastructure Grants Program, to fund infrastructure needed to support development of higher-density and mixed-income housing in infill locations. The agreement also includes $500 million in one-time funds to be transferred to the California Housing Finance Agency (CalHFA) to finance low- and moderate-income housing, with $200 million available in 2019-20 and the remainder to be allocated over the following three fiscal years. The budget agreement also expands the allowed uses of some existing state housing funds. The budget removes the matching funds requirement for the Joe Serna, Jr. Farmworker Housing Grant Program and allows funds from the Local Housing Trust Fund Matching Grant Program to be allocated to Native American tribes and available for development or rehabilitation of Accessory Dwelling Units (ADUs). The budget also expands the allowed uses of funding available through the CalHOME program, which supports homeownership programs for lower-income households and which received $300 million from last year’s Proposition 1 housing bond. The budget agreement permits CalHOME funds to be used as well for development or rehabilitation of ADUs and to address housing needs of low- and moderate-income disaster victims.

The 2019-20 budget includes a significant expansion of the state’s Low Income Housing Tax Credit (LIHTC) program. These state tax credits support affordable housing development, pairing with federal housing tax credits to reduce housing developers’ project costs. The budget increases the state LIHTC program by $500 million in 2019-20 and up to $500 million ongoing, upon an annual appropriation by the Legislature, with the requirement that first “the California Tax Credit Allocation Committee has adopted regulatory reforms aimed at increasing production and containing costs.” Up to $200 million of these tax credits may be allocated for mixed-income housing projects that receive financing from the Mixed-Income Loan Program administered by CalHFA. The budget agreement also allows tax credits from the existing state LIHTC program to be used for deeper subsidies for housing undergoing substantial rehabilitation that serves households with very low incomes, to help preserve the existing stock of affordable housing. Other provisions in the budget agreement expand opportunities for affordable housing developers to use the option to “certificate” LIHTC credits (or resell the credits to third-party investors), which increases the value of the credits.

The budget agreement includes regulatory changes, funds for planning, and incentives and penalties to improve planning for housing and to incentivize local jurisdictions to accommodate housing. Related provisions include:

  • In January, the Governor proposed “revamping” the current system used by the state to set housing production goals for regions and local jurisdictions, the Regional Housing Needs Assessment (RHNA) process. The budget agreement includes the intent to do this, but maintains the extended timeline proposed in the May Revision, with recommendations for the new RHNA methodology and process required to be developed by December 31, 2022.
  • The enacted budget follows the Governor’s May Revision proposal in allocating $250 million one-time General Fund to support planning by local jurisdictions and regional entities to accommodate housing development and meet housing production goals. The budget agreement does not add school districts and county offices of education to the jurisdictions eligible for these planning funds, as proposed in the May Revision.
  • To hold local jurisdictions accountable for accommodating housing production, the Governor had proposed withholding transportation funds available through Senate Bill 1, the Road Repair and Accountability Act of 2017 (the “gas tax”) from jurisdictions that were not meeting goals for housing planning and production. The enacted budget does not adopt this proposal. Instead, the budget agreement establishes financial penalties for jurisdictions that fail to comply with requirements to plan to accommodate their designated fair share of housing. However, these penalties would only be applied after a judge found a jurisdiction out of compliance and the jurisdiction failed to correct the problem over the following 12 months. If the jurisdiction continued to refuse to comply, a judge could also appoint an agent to take actions needed to bring the jurisdiction into compliance. The budget agreement also includes the intent to reward local jurisdictions that proactively accommodate housing. Jurisdictions that are complying with required housing plans and demonstrate “prohousing” local policies would receive preference for specified competitive state housing and infrastructure programs.

The budget agreement also allocates $20 million one-time funding, as proposed in the Governor’s May Revision, for legal aid for renters to resolve landlord-tenant disputes. These funds will be distributed as grants to nonprofit legal aid organizations through the Judicial Branch’s Equal Access Fund.

In addition, the budget includes $8 million for housing for young adults, with priority for those who are former foster or probation youth, ongoing at least through December 31, 2021, and $5 million one-time for housing navigators to help young adults secure and maintain housing, with priority to current foster youth.

Back to Top

Budget Includes Significant Funding to Address Homelessness

California has nearly 25% of the nation’s population of homeless individuals, with an estimated 134,000 homeless residents as of January 2017. The enacted budget includes significant one-time funding as well as some ongoing funding to address the needs of individuals who are homeless or at risk of homelessness:

  • $650 million General Fund one-time funds for local jurisdictions to support homeless emergency aid. This funding total matches the Governor’s May Revision, but the allocation of these funds is slightly different from the May proposal, with $275 million for cities with a population of 300,000 or more, $175 million for counties, and $190 million for Continuums of Care (allocation of the remaining $10 million is not specified). Funds will be allocated based on the share of homeless individuals in each jurisdiction according to the 2019 homeless point-in-time count. Eligible uses for the funds are broad, including rental assistance, security deposits, and rapid re-housing; operations of shelters, navigation centers, and permanent supportive housing; outreach and service coordination; jobs programs; hotel/motel conversions; and new navigation centers and emergency shelters based on demonstrated need. At least 8% of funds must be used to serve homeless youth.
  • $100 million one-time General Fund, administered through the Department of Health Care Services, for the Whole Person Care Pilots Program, as well as $20 million one-time funding for counties that do not currently operate these programs to allow them to provide similar services. (The $20 million for counties without pilots is from the General Fund, not from the Mental Health Services Fund as proposed in the Governor’s May Revision.) These programs coordinate health, behavioral health, and social services, including housing, for targeted individuals, with priority for individuals with mental illness who are homeless or at risk of homelessness (see also the Health section).
  • $25 million General Fund for the Housing and Disability Advocacy Program (HDAP), which assists homeless individuals with physical or mental disabilities in applying for federal Supplemental Security Income (SSI) disability benefits by providing outreach, case management, benefits advocacy, and housing supports.
  • $40 million General Fund (including $25 million ongoing) to address basic needs, including homelessness and housing insecurity, among college students at the California State University and University of California, as proposed in the Governor’s May Revision (see also the CSU and UC section). The budget also allocates $9 million ongoing and $3.9 million one-time to address basic needs and housing insecurity among students at California’s community colleges (see also the CCC section).
  • $25 million one-time General Fund (available over three years) to address homelessness among families involved in the child welfare system, through the Bringing Families Home Program.
  • $14.7 million General Fund in 2019-20 and $27.6 million ongoing to increase flexibility in the CalWORKs Homeless Assistance Program, which provides up to 16 days of temporary homeless assistance. The budget agreement removes the requirement that families must use these days consecutively.

The budget agreement also includes a regulatory change to facilitate the development of homeless navigation centers. Local jurisdictions will be required to allow a streamlined “use by right” review process for proposals to develop new low barrier homeless navigation centers in nonresidential areas that allow multifamily housing and in areas zoned for mixed use. These navigation centers are defined as “a Housing First, low-barrier, service-enriched shelter focused on moving people into permanent housing that provides temporary living facilities while case managers connect individuals experiencing homelessness to income, public benefits, health services, shelter, and housing.” This requirement will remain in place until January 1, 2027.

Back to Top

Budget Package Includes Full-Scope Medi-Cal for Young Adults, but Misses Key Opportunities to Support State’s Immigrant Residents

California has the largest share of immigrant residents of any state, and half of all California workers are immigrants or children of immigrants. The 2019-20 budget agreement makes important strides to support immigrant communities. Specifically, the budget:

  • Provides a total of $98 million to extend full-scope Medi-Cal to 19 to 25-year-olds regardless of immigration status. Implementation begins January 1, 2020 and will cover an estimated 90,000 undocumented young adults in the first year.
  • Includes roughly $25 million one-time General Fund appropriation for the Rapid Response Program. The Department of Social Services will administer this program, which will provide contracts or grants to nonprofit and community-based service providers responding to immigration-related emergencies.
  • Allocates $5 million for two pilot projects. The funding will provide mental health services to immigrants and asylum seekers facing legal proceedings and will develop a family reunification navigator to connect undocumented minors and their families with services in the community.
  • Creates the Cal Grant B Service Incentive Grant Program. The spending plan provides $9 million General Fund to offer up to 2,500 awards to undocumented students. The grant will provide up to $1,500 per semester or $1,000 per quarter.
  • Extends eligibility for Competitive Cal Grant awards to undocumented students. Competitive Cal Grants support students who attend college more than a year after high school graduation and meet certain income and GPA requirements.

Despite important advances in access to health, legal services, and higher education, there were critical missed opportunities on behalf of California’s immigrant residents. Proposals to expand Medi-Cal to seniors as well as to all adults regardless of age were not included. Additionally, as mentioned in the CalEITC section, while significant expansions were made, immigrant workers who file taxes with an Individual Taxpayer Identification Number (ITIN) were excluded from receiving this credit. These choices leave many immigrant families more vulnerable to economic hardship.

Back to Top

Health

New State Premium Subsidies Created and Medi-Cal Coverage and Benefits Expanded

Building on the federal Affordable Care Act (ACA), California has substantially expanded access to health coverage in recent years. For example, more than 13 million Californians with modest incomes receive free or low-cost health care through Medi-Cal (California’s Medicaid program) — several million more than before the ACA took effect. Another 1.1 million Californians with incomes up to 400% of the federal poverty line — $48,560 for an individual in 2019 — receive federal premium subsidies to reduce the cost of coverage purchased through Covered California, our state’s health insurance marketplace. Despite these gains, around 3 million Californians remain uninsured, health care costs continue to rise, and many people face both high monthly premiums and excessive out-of-pocket costs — such as copays and deductibles — when they use health care services.

In order to increase the number of Californians with health care coverage and help make that coverage more affordable, the 2019-20 budget package:

  • Creates state subsidies to reduce the cost of health insurance purchased on the individual market. The budget provides $428.6 million General Fund to support “premium assistance subsidies” during the 2020 coverage year for certain households that buy health insurance through Covered California. Of this total funding, about 83% will be used to provide subsidies to two groups of households: 1) those with incomes at or below 138% of the federal poverty line or 2) those with incomes between 400% and 600% of the poverty line. The remaining roughly 17% of the initial funding will go to households with incomes between 200% and 400% of the federal poverty line. Some of the revenue to pay for these subsidies will come from a new state penalty on Californians who do not obtain comprehensive health coverage (see next bullet). These subsidies will remain in effect for three years — coverage years 2020 to 2022 — and the level of funding provided for them will be determined through each year’s state budget process.
  • Establishes a state requirement for Californians to carry health insurance or pay a penalty. The ACA included an “individual mandate” to encourage young and healthy people to buy health insurance. The goal was to create healthier “risk pools” and keep premiums lower than they otherwise would be if only older and sicker people signed up for coverage. With limited exceptions, people who failed to comply with this requirement had to pay a penalty to the federal government. However, Congress and President Trump eliminated the individual mandate penalty as of January 1, 2019. The budget agreement creates an individual mandate at the state level, effective January 1, 2020. Californians, with some exceptions, will be required to obtain comprehensive health care coverage or pay an “Individual Shared Responsibility Penalty.” Revenues from this penalty will be deposited into the state’s General Fund.
  • Expands eligibility for comprehensive Medi-Cal coverage to undocumented adults, ages 19 through 25, who otherwise meet the program’s requirements. States are prohibited from using federal dollars to provide full-scope Medicaid coverage to undocumented immigrants. States, however, may use their own funds to provide such coverage. In 2016, California expanded full-scope Medi-Cal coverage to undocumented children and youth through age 18 who meet all other eligibility requirements, including income limits. The budget agreement extends this policy to undocumented Californians who are ages 19 through 25, effective no sooner than July 1, 2019.
  • Reforms Medi-Cal’s eligibility rules to eliminate the “senior penalty.” This action removes the primary obstacle that prevents tens of thousands of low-income adults, age 65 or older, from accessing critical health care services through Medi-Cal at no cost, creating parity between older and younger adults. Specifically, the budget package includes $124.9 million ($62.4 million General Fund) to raise Medi-Cal’s eligibility limit to 138% of the federal poverty line for people who are 65 years or older who participate in the Aged and Disabled program.
  • Extends, from 60 days to one year, the duration of Medi-Cal eligibility for postpartum care for women who are diagnosed with a mental health condition. A maternal mental health condition occurs during pregnancy or after giving birth and includes, but is not limited to, postpartum depression. However, this expansion will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
  • Includes funding to support Medi-Cal outreach and enrollment. The budget provides $29.8 million ($14.9 million General Fund) to the state Department of Health Care Services to help boost awareness of Medi-Cal and encourage eligible Californians to sign up for the program.

In addition, the 2019-20 budget agreement:

  • Restores several optional Medi-Cal benefits that were eliminated during the last economic downturn. The budget agreement restores audiology, speech therapy, and podiatric services as well as incontinence creams and washes as covered Medi-Cal benefits, effective no sooner than January 1, 2020. Optometric and optician services will also be restored on or after that same date — a change was adopted a couple of years ago. The budget package provides $17.4 million General Fund in 2019-20 and assumes ongoing annual costs of $40.5 million to restore these benefits. However, these optional benefits will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
  • Recasts the “Council on Health Care Delivery Systems” as the “Healthy California for All Commission” and enlarges the commission’s charge to include a focus on single-payer financing. Created in 2018, the Council on Health Care Delivery Systems was charged with developing, by October 2021, a plan for reforming the health care system, including outlining “steps necessary to achieve a unified financing system.” This council is now called the Healthy California for All Commission, and its charge encompasses consideration of how California can move toward adopting “a single-payer financing system.” Moreover, the commission’s membership has been increased from five to 13: eight appointed by the Governor, two appointed by Senate Rules Committee, two appointed by the Speaker of the Assembly, and the secretary of the California Health and Human Services Agency (who is a gubernatorial appointee). The commission is required to produce two reports, with the first due by July 1, 2020 and the second by February 1, 2021.
  • Allocates $885.8 million in Proposition 56 revenues for a broad range of payment and rate increases for Medi-Cal providers. Approved by California voters in 2016, Prop. 56 raised the state’s excise tax on cigarettes by $2 per pack and triggered an equivalent increase in the state excise tax on other tobacco products. These increases took effect on April 1, 2017. Prop. 56 requires most of the revenues raised by the measure to go to Medi-Cal. The payment and rate increases provided by the 2019-20 budget package will go to a broad range of health providers, including doctors, dentists, facilities that provide services to people with developmental disabilities, women’s health and HIV/AIDS providers, and certain pediatric day health care facilities. In addition, these Prop. 56 dollars will fund “developmental screenings for children, trauma screenings for children and adults, provider training for trauma screenings, and family planning services provided through Medi-Cal.” These investments will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
  • Provides $250 million in Prop. 56 funds to develop value-based payment (VBP) strategies financial incentives for health care providers in order to help improve the quality and efficiency of Medi-Cal managed care. The Department of Health Care services is charged with developing VBP programs that aim to improve 1) behavioral health integration, 2) prenatal and postpartum care, 3) chronic disease management, and 4) quality of care and outcomes for children. The $250 million allocated for this purpose will be available through June 2022, with $70 million of this amount dedicated to behavioral health integration. However, these incentive payments will be suspended on December 31, 2021 unless the Department of Finance projects that General Fund revenues will reach a certain threshold.
  • Expresses the Legislature’s intent to enact a managed care organization (MCO) provider tax. Governor Newsom and state legislators were at odds this year over whether to seek an extension of California’s tax on health insurance plans — or MCOs — which took effect in 2016 and ultimately expired on July 1. The Governor advocated for letting this tax expire, whereas key lawmakers in the Assembly and Senate wanted to extend it. While it was in effect, the MCO tax generated a net General Fund benefit of well over $1 billion per year, with these freed-up dollars used to boost state support for public systems and services, including health care programs. In the end, the Governor agreed to seek federal approval of an updated MCO tax. However, because the MCO tax is no longer in effect, the 2019-20 budget package does not assume any revenues from it.
  • Establishes the Office of the Surgeon General within the California Health and Human Services Agency. In January, the Governor issued an executive order creating a state-level position of Surgeon General and named Dr. Nadine Burke Harris as the first person to serve in this role. The budget agreement establishes this position – and its related office – in law and requires that “the appointment of the Surgeon General shall be subject to confirmation by the Senate” effective July 1, 2019.

Back to Top

2019-20 Budget Aims to Increase Access to Behavioral Health Services and Improve Behavioral Health Outcomes

Behavioral health services in the state are primarily provided by counties’ mental health systems, with funding from the state and federal government. These systems confront many challenges, such as shortages of mental health providers and rising homelessness—a substantial share of homeless individuals experiences mental health conditions and/or substance use disorders. The 2019-20 budget includes funding to address these challenges and improve health outcomes. Specifically, the budget:

  • Includes $110 million for mental health workforce programs. Of this amount, $35 million one-time General Fund and $25 million one-time Mental Health Services Fund will go towards the 2020-25 Workforce Education and Training Five-Year Plan. This program aims to address the shortage of mental health practitioners in the public mental health system. In addition, the budget includes $50 million one-time General Fund to support mental health workforce development programs, including $2.65 million for scholarships to primary care doctors to enroll in the University of California Primary Care Psychiatric Fellowship and $1 million for grants to mental health professionals formerly in the foster care system.
  • Includes funding to hire behavioral health counselors in acute care hospitals. Specifically, $20 million one-time General Fund will be allocated to the State Department of Health Care Services to support the hiring of trained behavioral health counselors in emergency departments of acute care hospitals to screen patients and offer referral to mental health or substance use disorder programs.
  • Increases funding to improve mental health outcomes for students. Specifically, the budget includes $50 million one-time Mental Health Services Fund in 2019-20 and $10 million thereafter to encourage collaboration between county mental health or behavioral health departments and K-12 schools. The funds will be awarded through a competitive grant program to facilitate access to mental health services. The budget also includes $7 million one-time increase in Proposition 63 funds to create a grant program for colleges, in collaboration with county behavioral health departments, to establish or improve access to mental health services and early identification or intervention programs. For more information about student mental health services, please see the higher education section.
  • Allocates funding for early psychosis research and treatment. Specifically, the budget includes $20 million one-time Mental Health Services Fund for projects that demonstrate innovative approaches to intervene when a young person has experienced a first episode of psychosis. Early treatment of psychosis increases the chance of a successful recovery.
  • Includes $100 million one-time General Fund for Whole Person Care Pilot Programs. These programs, which are administered through the Department of Health Care Services, coordinate health, behavioral health, and social services for individuals, with priority to individuals with mental illness who are homeless or at risk of homelessness. The budget also includes a one-time augmentation of $20 million General Fund for counties that do not currently operate Whole Person Care Pilot Programs to allow additional counties to provide similar services.

Back to Top

Budget Package Invests in Health Care Workforce Development

Policymakers have become more and more aware of the growing shortage in California’s health care providers, which is partially due to the expansion of Medi-Cal and the state’s rapidly aging and increasingly diverse population. Within the next 10 years it is estimated that the state will lack 4,100 primary care clinicians, 600,000 home care workers, and will only have two-thirds of the psychiatrists needed, according the California Future Health Workforce Commission. To address the rising demand, the 2019-20 budget agreement provides:

  • $120 million in Proposition 56 funds to continue the Medi-Cal Physicians and Dentists Loan Repayment Act Program. Physicians and dentists may apply for loan repayment assistance up to $300,000 if they agree to maintain a patient caseload consisting of at least 30% Medi-Cal beneficiaries for five years.
  • $60 million ($25 million Mental Health Services Fund and $35 million General Fund) for the 2020-2025 Workforce Education and Training Programs, which aim to address the shortage of mental health practitioners in the public mental health system. Regional Partnerships who receive the funds are required to provide a 33% local match.
  • $50 million General Fund to increase support for mental health workforce programs to be administered by the Office of Statewide Health Planning and Development. This includes $2.65 million for a Primary Care Clinician Psychiatry Fellowship Program and $1 million specifically for mental health professionals previously in the foster care system.
  • $1.3 million from the General Fund to supplement the $38.7 million Proposition 56 revenue previously allocated to develop residency programs at hospitals throughout the state. This brings the total for these efforts to $40 million. The funds will be administered and operated by the University of California in partnership with Physicians for a Healthy California.

Back to Top

Funding Increased for Home Visiting and Black Infant Health Programs

In the 2019-20 budget agreement, the state invests a total of $65.3 million to support infant and maternal well-being. Currently, the California Department of Public Health (CDPH) receives federal funding to administer home visiting programs for pregnant and newly parenting families who are at risk for adverse childhood experiences. The enacted budget allocates $45.9 million to CDPH to expand home visiting outside of CalWORKs, which represents the state’s first financial investment in home visiting for non-CalWORKs families. State policymakers have also invested $19.4 million to support the Black Infant Health program, which aims to improve black infant and maternal health through group support services and case management. Of that amount, $13 million may also support the California Perinatal Equity Initiative’s work to address racial disparities in infant mortality.

Back to Top

Education

Funding Boosted for the California State Preschool Program and Full-Day Kindergarten

State policymakers have taken steps in recent years to expand access to full-day early learning opportunities for young children. The 2019-20 budget agreement continues this trend. Specifically, the budget package:

  • Provides $300 million one-time General Fund for the Full-Day Kindergarten Facilities Grant Program. The $300 million is to be used over a three-year period, but grants administered during the first two years will be restricted to public schools that are transitioning from part-day to full-day kindergarten programs. Priority will be given to school districts with either a large number of students eligible for free or reduced-price meals or districts that are experiencing “financial hardship.”
  • Provides $31.4 million General Fund to increase the number of full-day slots in the California State Preschool Program (CSPP). The budget agreement adds 10,000 full-day preschool slots, effective April 1, 2020, for providers that are not Local Education Agencies (LEA).
  • Shifts $309.3 million in Proposition 98 General Fund for the CSPP to the non-Prop. 98 General Fund. Recent expansion of the CSPP has been directed to LEAs, but many LEAs have been unable to serve more children in the program. Shifting funds out of the Prop. 98 General Fund will free up funding for non-profit providers that have the capacity to serve additional children.
  • Expands eligibility requirements to increase access to the CSPP. The CSPP offers both part-day and full-day programming. The part-day programs operate for a few hours during the day and roughly nine months of the year. Full-day CSPP programs offer “wraparound” services that provide subsidized child care for the remainder of the day and throughout the entire year. Eligibility for the part-day program is based on family income. To be eligible for the full-day program, families must also demonstrate that they are working or attending school. To increase access to a full-day, full-year program, the budget package eliminates the parental work and school requirement for wraparound child care services. However, priority for the full-day CSPP will still be given to families with the lowest incomes and to families with parents who are working or in school. For providers operating within a school district where 80% or more of students qualify for free or reduced-price meals, children living in that district that would otherwise not be eligible may enroll after all other eligible children have been enrolled. This is effective January 1, 2020.
  • Provides $5 million one-time General Fund for a “Master Plan for Early Learning and Care.” As discussed earlier, the budget package authorizes the Secretary of Health and Human Services, Executive Director of the State Board of Education, and the Superintendent of Instruction to contract with one or more nongovernmental organizations to conduct research on five topics: 1) a fiscal framework to expand the state’s subsidized child care and development system; 2) a needs assessment for early care and education facilities; 3) a needs assessment for subsidized early care and education for low-income families; 4) a plan to boost the quality of subsidized care; and 5) a plan to move towards universal prekindergarten for three- and four-year-olds. The final report or series of reports will be due by October 1, 2020.

Back to Top

Increased Revenues Boost the Minimum Funding Level for Schools and Community Colleges, Budget Package Includes First-Ever K-14 Education Rainy Day Fund Deposit

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of funding for K-12 schools, community colleges, and the state preschool program. State General Fund revenues can affect the Proposition 98 guarantee and estimates of 2019-20 revenues in the budget agreement reflect the Legislature’s decision to conform to several federal tax law provisions, which as discussed earlier will provide a net increase to the state General Fund after funding an expansion of the California Earned Income Tax Credit (CalEITC). Overall, the 2019-20 budget package assumes a Prop. 98 funding level of $81.1 billion in 2019-20, $78.1 billion in 2018-19, and $75.6 billion in 2017-18, the same levels assumed in the Governor’s May Revision. The budget agreement projects that a deposit of $377 million into the Public School System Stabilization Account (PSSSA) will be required in 2019-20, which would be the first made into this state budget reserve for K-12 schools and community colleges. The budget package changes the process for finalizing prior-year Prop. 98 spending by eliminating the cost allocation schedule established by the 2018-19 budget agreement. As a result, when the final Prop. 98 guarantee ends up lower than estimated the state would not be able to adjust the Prop. 98 funding level downward, but in years when the final Prop. 98 guarantee ends up higher than estimated the state would be required to adjust the Prop. 98 funding level higher to meet the constitutional funding requirement. The overall effect of these changes means the risk associated with the uncertainty in the annual Prop. 98 guarantee will shift from K-12 school and community college districts to the state.

The largest share of Prop. 98 funding goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to approximately 6.2 million students in grades kindergarten through 12. The 2019-20 budget agreement increases funding for the state’s K-12 education funding formula – the Local Control Funding Formula (LCFF), to support special education services, and to reduce school districts’ spending obligations for retirement costs (see above). Specifically, the budget agreement:

  • Increases LCFF funding by $2.0 billion. The LCFF provides school districts, charter schools, and COEs a base grant per student, adjusted to reflect the number of students at various grade levels, as well as additional grants for the costs of educating English learners, students from low-income families, and foster youth. The increase in LCFF funding reflects a 3.26% cost-of-living adjustment (COLA) and results in $63 billion in total LCFF funding. The budget package caps increases to the LCFF related to continuous appropriation of LCFF COLA that will reduce the financial risk to the state budget if the COLA for LCFF and other programs exceed growth in the annual Prop. 98 minimum funding guarantee.
  • Boosts special education funding by $645 million. The budget agreement rejected the Governor’s proposal to allocate a proposed $696.2 million increase in special education funding to school districts with large shares of disadvantaged students, such as those with disabilities. Instead, the budget agreement provides $492.7 million for a new special education early intervention preschool grant and $152.6 million to increase funding for special education local plan areas (SELPAs). The new preschool grant will be allocated to school districts based on the number of children ages 3 through 5 that receive special education services, excluding students enrolled in kindergarten or transitional kindergarten. The budget package makes ongoing funding for the early intervention preschool grant and the increase in support for SELPAs contingent upon changes to state law that are designed to improve the academic outcomes of students with disabilities.
  • Provides $141 million to fund COLAs for non-LCFF programs. The budget agreement includes a 3.26% COLA for several categorical programs that remain outside of the LCFF, such as special education, child nutrition, and American Indian Education Centers.
  • Provides $38.1 million in one-time funding to establish the Educator Workforce Investment Grant Program. The budget agreement directs the California Department of Education and the California Collaborative for Educational Excellence to establish a process for awarding grants to institutes for higher education or nonprofit organizations with expertise in providing professional learning for K-12 educators. The budget agreement provides funding for the grant program through 2022-23 and allocates $22.1 million for professional learning for educators in several areas including social-emotional learning, $10 million for professional learning activities designed to implement the California English Learner Roadmap, $5 million for special education-related professional development, and $1 million for administrative costs.

The budget agreement also includes provisions that prohibit charter schools from discouraging enrollment based on student characteristics, such as special education status, or requiring submission of a student’s academic records prior to enrollment.

Back to Top

Budget Agreement Increases Funding for Community Colleges

A portion of Proposition 98 funding provides support for California’s community colleges (CCCs), which help prepare over 2 million students to transfer to four-year institutions as well as obtain training and employment skills. The budget agreement increases funding for the community colleges and makes minor adjustments to the Promise Program and funding formula plans. Specifically, the budget:

  • Expands the Promise Program. The budget agreement includes $42.6 million for the California College Promise Program—the amount needed to support a second year of tuition-free college for first-time, full-time students.
  • Maintains a commitment to the Student Centered Funding Formula and extends the hold harmless provision. The 2018-19 budget created a new funding formula for CCC general-purpose apportionments. The Governor remains committed to the goals of the new formula and will work with the Chancellor’s Office and stakeholders to continue to explore revisions that further the goals of the formula. The budget makes minor adjustments to the formula, including extending the hold harmless provision by an additional year — ensuring that no district will receive less funding than they did in 2017-18 with cost-of-living adjustments every year until 2021-22.
  • Provides $13.5 million for deferred maintenance, instructional materials, and other activities.
  • Provides increased funding for students’ basic needs. The budget allocates an increase of $9 million ongoing General Fund for rapid rehousing and $3.9 million one-time funding for students basic needs.
  • Provides $7 million one-time funding for students’ mental health services.
  • Provides $4.8 million to support the improvement of workforce development programs at community colleges in Modesto, Bakersfield, Fresno, San Bernardino, and Norco.

Back to Top

Spending Plan Increases Funding for CSU and UC, Includes Additional Support for Nontraditional Students

The budget package significantly boosts funding for the California State University (CSU) and the University of California (UC). The budget agreement also provides support for undocumented students, food and housing insecure students, and formerly incarcerated students.

At the CSU, the spending plan:

  • Increases CSU ongoing funding by $361.4 million.
  • Provides $85 million for enrollment growth. The budget allocates $85 million to support the enrollment of an additional 10,000 full-time equivalent California resident undergraduate students in 2019–20 above the 2018–19 levels.
  • Provides $75 million for the Graduation Initiative, which seeks to improve graduation rates and eliminate opportunity and achievement gaps. Of this funding, $30 million is provided on a one-time basis and $45 million is ongoing.
  • Provides increased funding for students’ basic needs. The budget provides $15 million one-time funding for the Basic Needs Initiative and $6.5 million ongoing General Fund to support rapid rehousing for homeless and housing insecure students.
  • Provides $3 million one-time to support student mental health services.
  • Allocates $3.3 million for Project Rebound, which supports formerly incarcerated individuals. As a condition of receiving these funds, the budget requires CSU to report annually on the use of funds, program enrollment, and student outcomes.
  • Allocates $3 million to establish a Center to Close Achievement Gaps. The center will be located at one CSU campus and will provide resources and assistance to local educational agencies in order to eliminate gaps in academic achievement between K-12 students.
  • Provides $740,000 one-time General Fund for the First Star Foster Youth program at CSU Sacramento. First Star programs support foster youth with academic and life skills needed to successfully transition to higher education.

At the UC, the budget:

  • Increases ongoing UC funding by $248.8 million.
  • Provides $49.9 million for enrollment growth. The budget allocates $50 million to support the enrollment of an additional 4,860 California resident undergraduate students by 2020–21 above 2018–19 levels. Provides $10 million ongoing General Fund for the enrollment of 1,000 additional resident undergraduate students previously supported by one-time funds.
  • Provides increased funding for students’ basic needs. The spending plan allocates $15 million ongoing funding to address food and housing insecurity and provides an additional $3.5 million ongoing General Fund to support rapid rehousing for homeless and housing insecure students.
  • Dedicates $15 million one-time funding to develop or expand degree and certificate completion at UC extension centers.
  • Provides $5.3 million ongoing to increase student mental health resources.
  • Makes a one-time $250,000 allocation for Underground Scholars, which supports formerly incarcerated individuals at UC Berkeley.

Back to Top

Budget Package Provides Summer Financial Aid, Increases Cal Grants, and Extends Support to Undocumented Students and Student Parents

Cal Grants are the foundation of California’s financial aid program for low- and middle-income students pursuing higher education in the state. Cal Grants provide aid for tuition and living expenses that do not have to be paid back. The spending plan funds summer financial aid, increases Cal Grant support for nontraditional students, students with dependent children, and undocumented students. Specifically, the budget:

  • Increases Cal Grant awards for students with dependent children. The spending plan allocates $96.7 million ongoing General Fund to provide an access award for UC, CSU, and CCC students with dependent children. The access award provides $6,000 for current Cal Grant A and B student parents and $4,000 for current Cal Grant C student parents.
  • Increases the number of Competitive Cal Grant awards. Competitive Cal Grants support students who attend college more than a year after high school graduation and meet certain income and GPA requirements. The spending plan expands the number of available grants to 41,000. While this is a step up from the current level of 25,750, it still leaves nearly 300,000 eligible students without aid.
  • Extends eligibility for Competitive Cal Grant awards to undocumented students. The budget agreement repeals limitations that effectively barred undocumented students from receiving Competitive Cal Grants. Undocumented students will now be able to compete equally for the limited number of awards offered with their peers.
  • Creates the Cal Grant B Service Incentive Grant Program to support undocumented students. The budget agreement provides $9 million in General Fund to offer no more than 2,500 awards to undocumented students who receive a Cal Grant B award. The grant will provide up to $1,500 per semester or $1,000 per quarter.
  • Provides summer-term financial aid for UC and CSU students. The budget allocates $4 million to UC and $6 million to CSU to provide “summer-term financial aid” to eligible low-income California resident students, including undocumented students. Notably, no aid is allocated for students at California Community Colleges and private institutions and funding is conditionally suspended in two years.
  • Creates the Golden State Teacher Grant Program. The budget agreement rejects the Governor’s proposal to create a loan forgiveness program and instead allocates $89.8 million dollars in one-time funding to the California Student Aid Commission to administer a grant program. The funding will provide up to 4,487 grants of $20,000 for teachers committed to teach for four years in “high-need” subjects, including bilingual education, STEM, and special education, in schools that have a high percentage of teachers with “emergency-type permits.”
  • Revises timeline to meet Associate Degree for Transfers (ADT) goals. In order for students attending private nonprofit institutions to receive the maximum Cal Grant tuition award of $9,084, the institutions must meet certain goals determined by the state. The budget provides an additional year for institutions to increase the number of ADTs provided. Under the revised schedule, institutions will need to admit 2,000 ADT students in 2019-20, 3,000 students in 2020-21, and 3,500 students in 2021-22 and subsequent years.
  • Does not include funding to address the total cost of attendance — which includes food and housing. For many students, living expenses far exceed tuition and are the least supported by aid. Efforts to reform the state’s financial aid system to focus on these non-tuition costs have been a focus of the legislature and advocates, but remain unfunded in the budget agreement.

Back to Top

Budget Agreement Lays Foundation for a Cradle-to-Career Educational Data System

The 2019-20 spending plan provides $10 million in one-time General Fund for the initial development of a statewide longitudinal “cradle-to-career” data system. This includes convening a workgroup with representatives from a variety of agencies and organizations, including health and human services, public and private higher education, and workforce development. This workgroup is tasked with developing two reports. The first will provide recommendations on the structure of the new data system and the second will provide recommendations on developing and administering the data system. These reports will be due to the Department of Finance and the Legislature on July 1, 2020 and January 1, 2021, respectively.
Back to Top

Criminal and Juvenile Justice

Budget Package Boosts Pay for State Correctional Officers, Creates a Panel to Recommend Changes to the State Penal Code

The budget agreement ratifies a one-year contract with the state correctional officers union. Among other things, this contract boosts pay for night and weekend shifts during 2019-20 and provides a 3% general salary increase effective July 1, 2020. (Correctional officers received a 5% pay raise on July 1, 2019, per the terms of the 2018-19 contract.) The new contract is projected to increase state costs for rank-and-file correctional officers by as much as $112 million in 2019-20 and by $195 million annually starting in 2021-22, according to the Administration. In a recent analysis, the Legislative Analyst’s Office found “no evidence to justify [the] pay increase” and noted that employee compensation is a “major…driver” of state corrections spending, which has continued to rise even as the number of adults incarcerated by the state has declined due to several criminal justice reforms.

The budget package also creates a new committee to examine and recommend changes to the state Penal Code. Recommendations will focus on simplifying and rationalizing criminal law and procedures, outlining alternatives to incarceration, and improving parole and probation. In addition, the committee “may recommend adjustments to the length of prison terms.” There is no timeline for the committee to deliver a complete set of recommendations. However, the committee is required to prepare an annual report that describes the work it has finished as well as any work it plans to do. The committee will be housed within the California Law Revision Commission and will consist of seven members: five appointed by the Governor plus one member of the state Senate and one member of the Assembly.

The 2019-20 budget agreement also reflects the fact that California recently ended – after 13 years – its use of out-of-state facilities to house state prisoners. California began transferring prisoners to facilities in other states in 2006 to help address severe overcrowding in state prisons. Since peaking at over 10,000 in the early 2010s, the number of California prisoners housed in other states gradually declined as criminal justice reforms were enacted and the state pursued a policy of ending the use of out-of-state facilities.

In addition, the 2019-20 budget agreement provides:

  • $71.3 million for an integrated substance use disorder treatment program in state prisons. The Governor proposed this new initiative as part of his May Revision with the goal of combatting “alcohol and opioid addiction-related issues” among incarcerated adults. This new program consists of 1) the use of medication-assisted treatment; 2) a redesigned curriculum for cognitive behavioral treatment; and 3) the development of treatment plans and appropriate pre-release transition planning for program participants.
  • $33 million to help formerly incarcerated adults transition back to their communities. The Board of State and Community Corrections (BSCC) will distribute these funds through a competitive grant process to community-based organizations (CBOs) to support people who have been released from prison. Of the total funding, $16.5 million is available for rental assistance and the remaining $16.5 million is set aside “to support the warm hand-off and reentry” of people transitioning out of prison.
  • $30 million for the California Violence Intervention and Prevention (CalVIP) Grant Program. The BSCC will distribute most of these funds ($29 million) through a competitive grant process to cities or CBOs, with $3 million set aside for cities with populations of 40,000 or less. The remaining $1 million (out of the total $30 million) is designated for the city of Los Angeles.
  • $8.8 million to establish two 60-bed reentry facilities for women in Los Angeles and Riverside and to expand a male reentry facility in Los Angeles County by 10 beds.
  • $5.5 million to help improve literacy rates among adults incarcerated in state prison. This effort will include remedial reading programs, literacy coaches, and English-as-a-second-language courses.
  • $5 million for a new California Reentry and Enrichment (CARE) Grant Program. Grants will go to CBOs that provide rehabilitative services to adults incarcerated at the state level. Grants will be awarded by a committee to be established by the California Department of Corrections and Rehabilitation.

Back to Top

Budget Agreement Shifts Responsibility for Justice-Involved Youth to Health and Human Services Agency, and Increases Funding for Youth Programming

Currently, California houses more than 700 justice-involved youth at the state level. The Division of Juvenile Justice (DJJ) within the California Department of Corrections and Rehabilitation (CDCR) is in charge of this select group. The budget package includes the Governor’s proposal to abolish the DJJ and shifts responsibility to a new “Department of Youth and Community Restoration” under the California Health and Human Services Agency (CHHS), effective July 1, 2020. The Administration suggests that this shift will help “distinguish between adult corrections and juvenile strategies”. This will better enable the state to provide these youth with “trauma-informed and developmentally appropriate services in order to support a youth’s return to their community, preventing them from entering the adult system, and further enhancing public safety.”

In addition, the budget agreement provides funding to prevent initial contact or recidivism of justice-involved youth into the criminal justice system, including:

  • $8 million to fund programming for therapeutic communities. This funding will “support community building strategies and create therapeutic environments” within youth facilities according to an email from the California Department of Corrections and Rehabilitation. It appears that this approach will rely on the tenets of the Missouri Model as well as other models that focus on addressing youths’ needs in smaller group settings, which presumably would be created within the state’s existing congregate facilities for justice-involved youth.
  • $10 million for the Tribal Youth Diversion grant program. These funds will be distributed by the Board of State and Community Corrections (BSCC) to support diversion programs for Tribal youth who disproportionately experience high rates of juvenile arrests, suicide, alcohol and substance abuse, and low high school graduation rates.
  • $5 million for the Youth Reinvestment Grant Program. This program distributes grants to cities and counties to fund educational, mentoring, and behavioral health services for “underserved communities with high rates of juvenile arrests.”

Back to Top

Other Key Priorities

Budget Package Increases Funding for 2020 Census Outreach

The 2020 Census is critical to California’s future. Census data determine the distribution of federal funds to local communities and the number of seats allocated in the U.S. House of Representatives for the state. California currently faces significant challenges to ensure an accurate count because of the state’s high “hard-to-count” population, such as foreign-born residents, renters, young children, and homeless individuals. In addition, certain actions by the US Census Bureau and the Trump Administration could potentially depress response rates in California. The Census Bureau plans to administer the 2020 survey with an internet-based approach and the agency reduced the number of local census offices and field workers. This is coupled with the anticipation that the Trump Administration would add a citizenship question to the Census, which could lead to a further undercount of the state’s population. However, on June 27, 2019, the US Supreme Court blocked the citizenship question from being added to the survey and returned the case to a lower federal court. On July 11th, 2019, the Trump Administration announced that it will be stepping back from including the question and is seeking to obtain citizenship data through other measures.

Nevertheless, the 2019-20 budget package appropriates an additional $87.9 million General Fund to increase participation rates for the 2020 Census. This brings the total support for this effort to $188.2 million. Within the allocated amount, $28 million is for specific outreach efforts, including language access resources, efforts by local governments and community-based organizations, and other related costs. An additional $2 million is for local education agency-based Census outreach strategies.

Back to Top

Budget Agreement Includes New Investments in Disaster Preparedness, Response, and Recovery

The budget package incorporates many of the Administration’s requests for funding to improve the state’s ability to prepare for, respond to, and recover from disasters like wildfires and earthquakes. Significant investments for the Office of Emergency Services include:

  • $75 million to help the state and local communities prepare for and respond to utility-lead public safety power shutdowns.
  • $50 million to be transferred into the State Emergency Telephone Number Account for upgrades to the state’s 9-1-1 system.
  • $29.9 million augmentation to California Disaster Assistance Act funding to repair, restore, and replace public property damaged or destroyed by a disaster and reimburse local government costs.
  • $25 million to support regional response and readiness, including the prepositioning of state and local fire and rescue resources to respond to disasters.
  • $20 million in one-time funds available through 2021-22 to assist state agencies that are “mission tasked” with responding to declared disasters.
  • $16.3 million to complete the Early Earthquake Warning System.

As part of the budget agreement, the legislature also approved the Governor’s proposal to restructure the state’s 9-1-1 fees to support the ongoing operations of the 9-1-1 system, including planning for and implementing new technology and services. The agreement replaces the existing fee structure with a monthly surcharge of up to $0.80 per line as well as a charge on prepaid mobile phones.

The budget agreement also provides $240.3 million for the Department of Forestry and Fire Protection (CAL FIRE) to enhance fire protection and prevention. This includes $127.2 million to enhance aviation resources, $67.5 million to expand surge firefighting capacity, $24.7 million to improve fire detection technology, $14.3 million to increase fire prevention and $6.6 million to support emergency responders. Consistent with wildfire legislation enacted in the fall of 2018, the budget includes $200 million from the Greenhouse Gas Reduction Fund for CAL FIRE forest management and prescribed burns and fuel reduction activities.

The budget deal also includes $10 million in one-time funds to assist communities affected by the 2018 Camp Fire in Butte County and $15 million for additional relief to local agencies affected by wildfires.

Back to Top