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Report

First Look: Governor Confronts Unprecedented Challenges Amid COVID-19

A Budget Center Analysis of Governor Newsom's Revised 2020-21 Budget Proposal

May 2020 | By California Budget & Policy Center

Executive Summary

On May 14, 2020, Governor Gavin Newsom released the May Revision to his proposed 2020-21 state budget. Our state is facing unprecedented challenges as a result of the COVID-19 crisis – an estimated $54 billion state budget shortfall for the current (2019-20) and next (2020-21) fiscal years, a rapid increase in unemployment, and millions of Californians in need of assistance as they confront new challenges to paying rent, buying groceries, and covering the costs of basic needs. The health and economic hardships are especially striking for Black and Latinx Californians, women and children in low-income households, and undocumented Californians.  

In response to these challenges, the Governor’s revised budget proposes to use a multi-pronged strategy to close the state’s budget shortfall. This strategy includes: 

  • Canceling new spending proposed in January and canceling or reducing spending included in last year’s budget act ($8.4 billion). This includes canceling $6.1 billion in program expansions and spending increases proposed in January as well as one-time spending included in the 2019-20 budget. It also includes redirecting a $2.4 billion supplemental payment to the California Public Employees’ Retirement System (CalPERS) included in the 2019-20 budget. 
  • Drawing down reserves ($8.6 billion). The proposal withdraws $7.8 billion from the state’s primary reserve, the Budget Stabilization Account (BSA); $450 million from the Safety Net Reserve, and $377 million from a reserve for K-12 schools and community colleges.
  • Internal borrowing, transfers, and deferrals ($10.4 billion). This includes borrowing and transfers from special funds ($4.1 billion), deferral of payments in the Local Control Funding Formula (LCFF) for K-12 education ($5.3 billion), and deferral of apportionments to the California Community Colleges ($992 million). 
  • Generating new revenues ($4.4 billion). The Governor’s proposal would temporarily suspend net operating losses that businesses can report against their taxes and limit the amount of tax credits a business can use in any year to $5 million. Both short-term limitations (through 2022-23) would primarily affect medium-size and large corporations and would generate $4.4 billion in additional revenues.  
  • Using available federal funds ($8.3 billion). The May Revision would apply federal CARES Act funds already made available to the state to support public schools, public health, and public safety. 
  • Triggering cuts to ongoing spending if additional federal fiscal relief is not provided ($14 billion). The Administration calls for $14 billion in cuts to ongoing programs and employee compensation, which can be avoided if sufficient additional federal fiscal relief is provided. Notable trigger cuts would include:
    • Nearly $7 billion in funding for K-12 schools and the Local Control Funding Formula (LCFF);
    • $2.8 billion in reduced employee compensation costs by requiring all collective bargaining units to reduce pay by 10%;
    • $1.6 billion for various health programs;
    • $1.1 billion for the California Community Colleges; 
    • $850 million for CalWorks;
    • $780 million for CSU and UC;
    • $707 million to support child care providers and infrastructure;
    • $490 million for preschool spaces and provider payment rates;
    • $270 million for courts and the judiciary;
    • $217 million for IHSS; and
    • $34 million for SSI-SSP.

This strategy – if federal relief is forthcoming and the trigger cuts are avoided – allows the Administration to largely maintain funding for programs and supports that provide cash assistance and critical services to Californians with low-incomes who are disproportionately affected by the health and economic effects of the crisis. Most notably, the May Revision includes ongoing support for the California Earned Income Tax Credit (CalEITC) and maintains support for eligibility and grant levels for CalWORKs and SSI-SSP. Support is also largely maintained for Medi-Cal, with some rollbacks of policies enacted in prior years.

The May Revision underscores the fundamental importance of receiving additional federal fiscal relief to avoid cuts to other vital services. 

At the same time, the urgency of this moment requires that the state do more than cover budget shortfalls. Amid the economic and fiscal realities presented by the COVID-19 crisis there is an opportunity to address long-standing economic inequities built into state systems and the tax code. Raising additional revenue must be considered for the state to respond to the public health crisis and the economic crisis – both of which require significant public investment. Supporting our communities and people now will help address the immediate crisis, position the state for a return to growth, and move our state toward an economy that is inclusive of all Californians. 

The following sections summarize key provisions of the Governor’s May Revision. Please visit the Budget Center’s Economic, Health & COVID-19 webpage for our latest commentary and analysis.

Contents

Budget Overview

Economic Security

Health 

Homelessness & Housing

Education 

Corrections & Justice

Emergency & Environmental Response 

Budget Overview

Economic Outlook Anticipates a Deep Recession Followed by a Slow Recovery

California’s economic outlook has changed dramatically since the Governor’s initial 2020-21 budget proposal, as the US economy entered into a recession in March. The Administration’s revised economic forecast expects this recession to be more severe than the Great Recession in terms of lost jobs and wages. Specifically, the Administration expects California’s unemployment rate to reach 24.5% in the second quarter of 2020, with 4.8 million people out of work – more than double the number of unemployed Californians at the worst point of the Great Recession. People with lower incomes are expected to shoulder much of this job loss. Additionally, the Administration projects that total wages and salaries in California will fall by 12.8% ($170 billion) in 2020, or about twice the drop that occurred during the Great Recession. Recovery from this recession is expected to be “gradual, fairly measured, and restrained,” according to the Administration, with the number of jobs in California not returning to pre-recession levels for six years – only one year faster than the recovery from the Great Recession.

Revised Budget Projects Revenues Will Be More Than $40 Billion Lower than Forecast in January, and Proposes $4.4 Billion in Revenue Solutions

The COVID-19 crisis and the extraordinary measures that have been taken to limit the spread of the virus have caused estimates of state revenues to plummet. The Administration forecasts that General Fund revenue will be $43 billion lower – before transfers – over the 3-year budget window (reflecting fiscal years 2018-19 through 2020-21) than projected in the Governor’s January budget proposal absent any policy actions to increase revenue. In contrast, the Legislative Analyst’s Office estimates that revenue over the budget window will be between $26 billion and $39 billion lower than the Governor’s January projections, depending on the trajectory of the economic recovery from the COVID-induced recession.

The Administration’s estimate of the overall decline mainly reflects decreased revenue estimates of:

  • $33 billion in personal income taxes, reflecting lower taxable wages due to high unemployment, lower capital gains due to declines in the stock market forecast, and lower proprietorship income.
  • $10 billion in sales and use taxes, reflecting lower consumer spending and business capital investment.
  • $5 billion in corporation taxes, reflecting lower corporate profits.

These declines are partially offset by expected payments from the federal government related to the COVID-19 crisis and California wildfires. Additionally, the Governor proposes several tax measures that will raise an estimated $4.4 billion in General Fund revenue in 2020-21. Namely, the proposal would:

  • Temporarily suspend Net Operating Loss (NOL) deductions for businesses with income above $1 million (for the 2020, 2021, and 2022 tax years). NOLs arise when a business has losses and deductions that exceed its taxable income, and can generally be “carried forward” to offset the business’ taxable income in future years.
  • Temporarily limiting the amount of tax credits that a business can claim to $5 million (for tax years 2020, 2021, and 2022).
  • Allow an exemption from the $800 minimum tax in the first year of business for partnerships, limited liability companies (LLCs), and limited liability partnerships (LLPs). This proposal would cost an estimated $50 million in 2020-21, which is reflected in the $4.4 billion estimate of revenue solutions, and $100 million in 2021-22 and 2022-23.

After incorporating the proposed budget solutions, as well as a $7.8 billion transfer from the Budget Stabilization Account (the “rainy day fund”) and other transfers, the May Revision reflects General Fund revenue for 2020-21 that is $14.2 billion lower than forecast in the January budget, and $6.4 billion lower than the enacted 2019-20 budget. Additionally, estimated revenues for 2019-20 have been revised down by $7 billion from the enacted 2019-20 budget. In the longer-term, the Administration forecasts that General Fund Revenue from the three primary tax sources – the personal income tax, sales and use tax, and corporation tax – will begin to grow in 2021-22 but will still remain lower than its 2018-19 level in 2023-24.

Finally, the revised budget maintains the Governor’s January proposal to create a new “vaping tax” of $2 per 40 milligrams of nicotine beginning in 2021. The revenues from this tax, estimated to total $33 million in 2020-21, will not go into the General Fund but would be deposited into a new special fund to be used to offset some Medi-Cal costs, support the administration of the tax, and combat the underground market for vaping products.

May Revision Draws Down Reserves to Help Cover Budget Shortfall

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”).

BSA funds may be withdrawn in the event of a budget emergency, including an economic downturn. However, the entire balance cannot be removed immediately — only the amount needed to address the budget emergency may be withdrawn, subject to the additional limitation that a withdrawal may not exceed 50% of the BSA balance in the first year of a budget emergency. In the second consecutive year of a budget emergency, all of the funds remaining in the BSA may be withdrawn. Funds that are taken out of the BSA may go toward any purpose determined by the Legislature. For example, these dollars could be used for health care services, subsidized child care for working families, cash assistance for people with low incomes, K-12 schools, and any number of other public services and systems.

Prop. 2 also established a new state budget reserve for K-12 schools and community colleges called the Public School System Stabilization Account (PSSSA). Prop. 2 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 section on Prop. 98).

Additionally, the 2018-19 budget agreement created a new Safety Net Reserve, which holds funds that can be used to maintain benefits and services for people enrolled in CalWORKs and Medi-Cal in the event of an economic downturn.

Currently, the state’s reserves consist of:

  • $16.2 billion in the BSA;
  • $377 million in the PSSSA; and
  • $900 million in the Safety Net Reserve.

The May Revision proposes to draw down $8.6 billion from these reserves, including:

  • $7.8 billion from the BSA;
  • $377 million from the PSSSA; and
  • $450 million from the Safety Net Reserve.

The remaining funds in the BSA and the Safety Net Reserve would be available for use in future fiscal years.

Each year, the state also deposits additional funds into a “Special Fund for Economic
Uncertainties” (SFEU). The SFEU serves as a buffer against unanticipated revenue shortfalls or spending increases. The May Revision proposes an SFEU balance of $2 billion by the end of 2020-21.

Economic Security

Administration Fails to Extend the CalEITC to Excluded Californians

Hundreds of thousands of Californians with low incomes are excluded from the California Earned Income Tax Credit (CalEITC) and Young Child Tax Credit (YCTC) because they file their taxes with federally issued Individual Taxpayer Identification Numbers (ITINs). These Californians are also excluded from the federal EITC and recent federal supports that will provide economic relief to people struggling financially due to the COVID-19 recession, including enhanced unemployment benefits and federal recovery rebates. As a result, the after-tax incomes of children whose parents file using ITINs are far lower than those of children whose parents have identical earnings from work but who file using Social Security Numbers.

Although the COVID-19 crisis has highlighted the urgent need for policymakers to address racial and ethnic inequities due to state and federal policy choices, the Governor’s May Revision does not extend the CalEITC or YCTC to these excluded Californians. The revised budget simply maintains these credits for the 2020 tax year, with no changes in eligibility or credit size.

May Revision Withdraws Proposal to Extend Medi-Cal to Undocumented Seniors and Leaves Out Extension of CalEITC to ITIN filers

California has the largest share of immigrant residents of any state, and half of all California workers are immigrants or children of immigrants. Given the prominence of immigrants in California’s population and the state’s economy, recent and ongoing federal actions that limit immigration, aggressively enforce immigration laws, and seek to exclude immigrant communities from economic relief have significant negative implications for California. 

The May Revision maintains important proposals that the Governor unveiled in January, including establishing the Social Entrepreneurs for Economic Development Initiative and funding to monitor compliance with Assembly Bill 1747 (Gonzales, Chapter 789 of 2019), that limited the use of the California Law Enforcement Telecommunications System (CLETS) for immigration enforcement purposes. However, the Governor misses key opportunities to support Californians most in need during the COVID-19 pandemic. Specifically, the May Revision:

  • Withdraws the Governor’s January proposal to expand comprehensive Medi-Cal coverage to seniors regardless of immigration status.
  • Fails to extend the California Earned Income Tax Credit (CalEITC) and Young Child Tax Credit (YCTC) to Californians who file taxes with federally issued Individual Taxpayer Identification Numbers (ITINs).
  • Withdraws the $5.8 million funding increase proposed in January for Dreamer Resource Liaisons at Community Colleges.
  • Reverts $4.7 million appropriated in the 2019-20 budget for the Immigration Justice Fellowship Program.

While California continues to make strides to provide support and create safe communities for immigrants, it is crucial that state leaders support undocumented Californians during the COVID-19 crises. State policymakers must step up to fill the gap in federal relief efforts that have left out Californians who are undocumented.

Federal and State Emergency Funds Have Supported Subsidized Child Care, but Trigger Cuts Would Significantly Reduce State Funding

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, keeping families across California afloat. The state and federal government have taken action during the COVID-19 pandemic to support the subsidized child care and development system during this health and economic crisis, and the May Revision takes these actions into account. 

For instance, to support families, Governor Newsom’s Administration has waived the fees for families who were receiving subsidized care prior to the pandemic through June 30, 2020. Governor Newsom has also provided 20,000 limited-term subsidized child care spaces – prioritizing essential workers who earn lower wages and certain at-risk populations. These spaces are funded with $50 million from Senate Bill 89 – emergency legislation enacted in March 2020 to fund COVID-19 response efforts. The state also helped to set up nearly 500 pop-up child care programs for employers of essential workers.

The Administration is also supporting child care providers in various ways during the pandemic, such as allocating $50 million from SB 89 for cleaning supplies and personal protective equipment for providers who remain open and serving essential workers, children with disabilities, or certain at-risk populations. This funding is available to providers that offer subsidized child care and to providers that do not. In addition, the state is also providing payment to subsidized providers on a short-term basis even if they close or serve fewer children. 

In addition to state actions, the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act provided $3.5 billion in one-time supplemental funds for the Child Care and Development Block Grant. California received $350.3 million of this additional funding. Federal statute requires states to supplement state funding for subsidized child care – not to replace funding. However, the state can use this federal funding for reimbursement for actions already taken to respond to the pandemic. The May Revision proposes to use $144.3 million of the federal CARES Act child care funding to cover the costs of the aforementioned state actions. The May Revision would allocate the remaining $206 million in federal funds in the following way:

  • $125 million for one-time stipends for subsidized child care providers. These stipends would target providers who remain open during the pandemic in recognition of the increased cost of providing care. The May Revision does not provide details on the value of the stipend.
  • $73 million for additional access to subsidized care. The May Revision does not provide details on whether or not this includes additional spaces for children or if the funding is meant to extend the duration of the term-limited 20,000 spaces mentioned above. 
  • $8 million to waive family fees through June 30, 2020.  

The May Revision also proposes to use $53.3 million in increased federal funding for subsidized child care from the 2020 federal appropriations bill to provide 5,600 child care spaces in the Alternative Payment Program.

However, the May Revision also proposes $707.4 million in trigger cuts that could harm child care providers even while they provide care for essential workers’ children. In turn, this could jeopardize families’ access to subsidized care. These cuts will go into effect on July 1, 2020 if the federal government does not provide additional fiscal relief to the state during this COVID-19 health and economic crisis. These cuts would include:

  • $408 million for child care infrastructure ($363 General Fund and $45 million federal funds). The 2019-20 budget act included $440 million in one-time funding for child care facilities and workforce development. The May Revision would cut nearly all of this funding absent federal assistance.
  • $223.8 million General Fund from a 10% reduction in provider payment rates. These cuts would affect both the Regional Market Rate for voucher-based providers and the Standard Reimbursement Rate for providers who contract directly with the state. 
  • $100 million Prop. 98 for the After School Education and Safety Program. This program offers expanded learning and care for elementary and middle-school students in schools with a higher share of students with low incomes. This cut would erase gains made in recent years to boost provider payment rates, and would return the rates per student to the same level they were in 2006 – even though programs would be expected to serve the same number of students. This is despite increased program costs due to the rising minimum wage and other operating expenses.
  • $35.9 million General Fund for decreased enrollment in CalWORKs Stage 2 and Stage 3 child care.  
  • $25.3 million General Fund by suspending the cost-of-living adjustment. For providers who contract with the state, this would be a cut in the payment rate. For voucher-based child care, this would mean fewer spaces for children. 
  • $14.4 million General Fund for planning and policy. Absent federal action, the May Revision would cut $10 million in one-time funding for a child care data system that was part of the 2019-20 budget agreement. The May Revision would also reduce funding for the Early Childhood Policy Council by $4.4 million, which would leave $2.2 million to be used in 2020-21 and 2021-22.

Lastly, the May Revision would alter the proposal included in the Governor’s January Proposal to create a new Department of Early Childhood Development under the California Health and Human Services Agency. Instead, the May Revision proposes to consolidate all child care programs within the California Department of Social Services, effective July 1, 2021. (Currently, subsidized child care programs are administered by both the Department of Social Services and the Department of Education.) This modified proposal would be funded with $2 million General Fund.

The Administration’s May Revision Maintains Recent Investments in CalWORKs Grants, Makes Cuts to Some Services

The California Work Opportunity and Responsibility to Kids (CalWORKs) program provides modest cash assistance for low-income children while helping parents overcome barriers to employment and find jobs. Even before the COVID-19 crisis, CalWORKs primarily served children of color, who faced higher rates of economic insecurity than did white children. Now, with millions of California workers – especially workers of color – facing unemployment or lost wages due to the public health emergency, CalWORKs is a particularly critical source of support.As a result of the economic downturn, the Administration anticipates a significant increase in the average monthly number of CalWORKs families in 2020-21. To support these additional families, the Administration provides $82.3 million in General Fund and federal Temporary Assistance for Needy Families (TANF) dollars to facilitate enrollment. Additionally, the Governor’s May Revision maintains grants at the increased levels determined in the 2019-20 budget agreement and withdraws his January proposal to provide additional grant increases. The revised spending plan also withdraws the proposal to increase the amount of child support payments that are passed through to CalWORKs families and to pursue statutory changes to forgive uncollectible child support debt.Finally, the Administration proposes a total of $850 million General Fund in trigger cuts to various CalWORKs services in 2020-21, unless the federal government provides additional funding. The May Revision:
  • Cuts employment services and child care by $665 million General Fund in anticipation of reduced use of those services.
  • Reduces expanded subsidized employment by $134 million General Fund.
  • Scales back funding for home visiting by $30 million General Fund.
  • Ends funding for the CalWORKs Outcomes and Accountability Review (Cal-OAR) performance measurement system, though counties may continue implementing this system on their own. This proposal would yield a General Fund reduction of $21 million. 

Two Key Supports for Seniors and People With Disabilities – IHSS and SSI/SSP – Would Face Trigger Cuts Under the May Revision

The May Revision includes trigger cuts to two key safety net supports for seniors and people with disabilities: In-Home Supportive Services (IHSS) and Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants. IHSS helps around 560,000 Californians with low incomes remain safely in their own homes, preventing the need for out-of-home care. SSI/SSP grants help well over 1 million Californians with low incomes to pay for housing and other necessities. These grants are funded with federal (SSI) and state (SSP) dollars.

The trigger cuts proposed for IHSS and SSI/SSP would take effect unless California receives additional federal funding to help close the state budget shortfall. Specifically, the Administration proposes to:

  • Reduce IHSS consumers’ hours of care by 7%, for a General Fund reduction of $205 million in 2020-21. This change would take effect in January 2021. By reducing hours of care, this proposal would result in a pay cut for IHSS providers, who are mainly women and people of color.
  • Reduce the state’s SSP grant by the same amount as the pending federal SSI increase, for a General Fund reduction of $33.6 million in 2020-21. This change would take effect in January 2021. Because the SSP portion would go down while the SSI portion would rise, this change would have “no impact on the grant amount” that people receive, according to budget documents.

Health

The May Revision Provides Funding for Public Health, But Falls Short of What is Needed to More Adequately Respond to COVID-19 and Prepare for Future Threats

The Department of Public Health has been at the forefront of protecting and promoting the health of Californians during the COVID-19 pandemic. The Department’s efforts include issuing a stay-at-home order, ramping up testing for the virus, and increasing hospital capacity. The Governor’s revised budget includes a modest increase in funding for public health, totaling $3.2 billion ($209.1 million General Fund) in 2020-21 for the Department. Specifically, the May Revision:

  • Directs $3.8 billion federal funds from the Coronavirus Aid, Relief, and Economic Security (CARES) Act to protect public health and safety, including $1.3 billion to counties for public health, behavioral health, and other health services and $450 million to cities for public safety and to support Californians experiencing homelessness. There is no state funding included in the budget for local public health departments.
  • Maintains and increases the Department’s disease surveillance and identification workforce. This includes a proposed increase of $5.9 million General Fund for 2020-21 and $4.8 million General Fund ongoing to increase testing capacity and to purchase equipment and supplies for COVID-19 testing. These resources will also support emergency coordination, communication, and response as well as provide ongoing support for public health laboratory capacity and disease surveillance.
  • Maintains funding for infectious disease prevention and control, including $5 million General Fund each for STD, HIV, and hepatitis C virus prevention and control.

Public health officials throughout the state have expressed that more support is needed to adequately bolster public health infrastructure during the COVID-19 pandemic. Additional funding for local health departments could help to increase contact tracing, further expand testing, and acquire personal protective equipment. Investing in public health infrastructure and ensuring that health care professionals have the supplies they need to treat patients with COVID-19 is critical to slowing the spread of the virus as well as mitigating the overall threat to population health. California and federal leaders must work together to provide the resources and coordination needed to help communities adequately respond to the virus and to prepare for future threats.

The Governor’s Revised Budget Scales Back Proposals to Improve Medi-Cal and Misses a Key Opportunity to Advance Health Equity

As the COVID-19 pandemic and economic downturn continue to cause hardship for many Californians, our health programs are more important than ever. In response to a rise in unemployment, more Californians are expected to qualify for Medi-Cal (California’s Medicaid program), which currently provides free or low-cost health care to nearly 13 million Californians with modest incomes. This number is projected to increase to 14.5 million by July 2020 due to COVID-19-related unemployment. In addition, many Californians whose incomes are too high to qualify for Medi-Cal will continue to have access to subsidized health insurance through Covered California, with many eligible for new state premium subsidies that took effect this year. While the state’s major health coverage programs would largely remain intact under the Governor’s proposal, the May Revision does include significant reductions to health services that could worsen health outcomes as well as undermine efforts to advance health equity, which is especially critical to address in the midst of this pandemic.  

Due to the budget shortfall, several proposals that the Governor advanced in January are now rescinded. For example, the Governor has:

  • Withdrawn his plan to expand full-scope Medi-Cal to all income-eligible seniors (age 65+) regardless of immigration status. In recent years, California has expanded eligibility for comprehensive Medi-Cal coverage to children and youth through age 25 who are undocumented. While the Governor’s revised budget maintains Medi-Cal eligibility for these groups, older Californians who are undocumented remain locked out of comprehensive health coverage at a time when preventive health services and treatment for chronic health conditions are needed most. This includes seniors, who are most at risk of severe illness from COVID-19 and even death. Having regular access to health care services may help to improve one’s health status, thereby improving the chances of recovering from COVID-19.
  • Delayed CalAIM (California Advancing and Innovating Medi-Cal), an ambitious effort to reform Medi-Cal by coordinating physical health, behavioral health, and social services in a patient-centered manner. The revised budget delays the implementation of this initiative, resulting in a decrease of $695 million ($347.5 million General Fund) in 2020-21. 
  • Canceled the Behavioral Health Quality Improvement Program, which would have supported counties in improving their behavioral health systems. While dropping this proposal will reduce General Fund spending by $45.1 million in 2020-21 and $42 million in 2021-22, it may come at a long-term cost. Behavioral health services – mental health care and/or treatment for substance use – are primarily provided by California’s 58 counties, with funding from the state and federal governments. Before the COVID-19 pandemic, Californians with behavioral health conditions confronted many challenges in accessing services that are delivered by multiple complex systems. The increased stress, grief, isolation, and depression, especially among Black and Latinx Californians – who have been disproportionately impacted by the current crisis – highlight the need to prepare for a possible behavioral health crisis on the horizon.

In addition to January proposals that have been withdrawn, the revised budget proposes to halt the implementation of certain policies that were enacted during the 2019-20 legislative cycle. For example, the Governor proposes to:

  • Roll back the expansion of postpartum mental health services in Medi-Cal, part of the 2019-20 budget agreement. This expansion is intended to extend the duration of Medi-Cal eligibility for postpartum care for an individual who is diagnosed with a maternal mental health condition to one year after giving birth. The Governor’s proposal would reduce General Fund spending by $34.3 million in 2020-21.
  • Cancel a planned reform to Medi-Cal’s eligibility rules that would have benefited seniors with low incomes. Medi-Cal applies different rules to seniors and younger adults in determining eligibility for no-cost health care services – rules that put seniors at a disadvantage. The income cut-off for people who are 65 or older is just 123% of the federal poverty line, compared to 138% of the poverty line for people who are under 65. Seniors who fall into this coverage cap (the “senior penalty”) must pay a deductible that can amount to hundreds of dollars per month to access Medi-Cal services. The 2019-20 budget package reformed Medi-Cal’s eligibility rules to eliminate the senior penalty. However, this new policy has not yet been implemented, and the Governor now proposes to change state law to keep the senior penalty in place. The Governor’s proposal would reduce General Fund spending by $67.7 million in 2020-21 and would cause the state to lose an equivalent amount of federal funding.

The Governor also proposes trigger cuts to numerous health care-related programs unless the state receives additional federal funding to help close the state budget shortfall. Specifically, the Administration proposes to: 

  • Reduce Medi-Cal adult dental benefits and eliminate other benefits to reduce General Fund spending by $54.7 million in 2020-21. The “optional” Medi-Cal benefits that would be eliminated include audiology, speech therapy, optometry, occupational and physical therapy, pharmacists’ services, intervention and referral services for substance use, and diabetes prevention programs.
  • Redirect $1.2 billion in Proposition 56 tobacco tax funds to offset General Fund costs for Medi-Cal instead of its intended use: boosting payments for doctors and other Medi-Cal providers. In other words, this proposal would use Prop. 56 revenues to pay for typical, year-over-year cost increases in Medi-Cal, which would help to address the state’s General Fund budget shortfall. This proposal would continue to use a small amount of Prop. 56 funds (about $67 million) for a limited set of rate increases, including for home health providers, certain pediatric facilities, and trauma screenings.
  • Eliminate Community-Based Adult Services (CBAS) and the Multipurpose Senior Services Program (MSSP) for a combined General Fund reduction of $129 million in 2020-21. Eliminating CBAS would reduce General Fund spending by $106.8 million in 2020-21 and $255.8 million ongoing. Eliminating MSSP is projected to reduce General fund spending by $22.2 million in 2020-21 and $21.8 million ongoing. 
  • Remove payment adjustments for Federally Qualified Health Centers to reduce spending by $100 million ($50 million General Fund). 
  • Reinstate the Medi-Cal Estate Recovery Program to reduce General Fund spending by $16.9 million beginning in 2020-21. Through this program, DCHS seeks to recover Medi-Cal costs from the estates of certain deceased beneficiaries. 
  • Terminate a supplemental payment for Martin Luther King, Jr. Hospital to reduce General Fund spending by $8.2 million in 2020-21 and $12.4 million ongoing.
  • Maintain county administration funding at 2019 levels to reduce spending by $31.4 million ($11 million General Fund).
  • Cancel the Family Mosaic Project to reduce General Fund spending by $1.1 million ongoing.This program provides behavioral health services and intensive case management for children with serious emotional problems who have been removed from their homes or are at risk of out-of-home placement in San Francisco County. 
  • Eliminate ongoing funding for the Song-Brown Healthcare Workforce Training Program to reduce General Fund spending by $33.3 million ongoing. The Administration proposes to not implement the 2019-20 budget action to make state funding for the Song-Brown program ongoing. This program provides grants to support primary care residency training programs in California.

Homelessness & Housing

Governor Proposes Using Federal COVID-19 Funds to Address Homelessness by Purchasing Motels, But No State Spending for Homeless Services

California has more than 25% of the nation’s population of homeless individuals, with an estimated 151,278 homeless residents as of January 2019. More than two-thirds of California’s homeless residents are unsheltered, sleeping in locations such as in a vehicle, in a park, or on the street, where they face particularly severe health risks from COVID-19. In January, the Administration highlighted homelessness as a key challenge facing California and a major focus for new state spending, proposing to allocate $750 million one-time General Fund to support a broad range of strategies to address the needs of individuals experiencing homelessness. The May Revision withdraws this January proposal in response to the changed fiscal and policy context due to the COVID-19 outbreak.

The Governor notes that since the start of the pandemic, the state has allocated $150 million to local jurisdictions and the Department of Social Services to help reduce the spread of COVID-19 among Californians experiencing homelessness and to safely house homeless individuals at highest risk of harm from the virus. This state spending has been reimbursed through federal dollars for COVID-19 response. In part these funds supported the launch of Project Roomkey, an initiative to provide safe isolation housing for especially at-risk homeless individuals in motel or hotel rooms. Federal Emergency Management Agency (FEMA) funds for COVID-19 response support most of the operating costs of this program, leveraged by local government funds.

Moving forward, the Governor proposes no General Fund spending for housing or services to address homelessness. Instead, the May Revision proposes utilizing $750 million total in federal COVID-19 funds allocated to the state. These include the $150 million already spent as described above, plus an additional $600 million specifically to purchase hotels and motels currently used for Project Roomkey and to provide related technical assistance. These hotel/motel properties would then be owned and operated by local governments or nonprofit providers to house homeless individuals on an ongoing basis. The May Revision does not address how the operations of these properties would be supported once FEMA funds to address COVID-19 are no longer available.

To strengthen coordination of the state’s efforts to address homelessness, the May Revision includes a modest investment of $1.5 million General Fund ongoing and 10 permanent positions to more fully staff the Homeless Coordinating and Financial Council. The revised budget defers or withdraws state investments that were proposed in January to address the mental and behavioral health needs of Californians experiencing homelessness, including the CalAIM initiative to transform Medi-Cal (see the Health section).

Governor Maintains Boosted Housing Tax Credits, But Rolls Back Unallocated Housing Production Funds

More than half of California renter households paid more than 30% of their income toward rent before the COVID-19 outbreak, and high housing costs are a key driver of California’s high poverty rate. Extensive job losses resulting from the COVID-19 public health crisis threaten to increase the number of Californians who struggle to afford their housing costs.

To support the production of affordable housing, the Governor’s May Revision preserves the $500 million expansion of the state’s Low Income Housing Tax Credit (LIHTC) program to maintain LIHTC expenditures at the boosted level adopted in the 2019-20 budget. These state tax credits support affordable housing development, pairing with federal housing tax credits to help cover housing developers’ project costs. The Administration also notes that new federal funds to support critical infrastructure, disaster relief, and housing development are now available to the state through the Community Development Block Grant program to address unmet needs related to the 2017 and 2018 wildfires and related to COVID-19.

At the same time, the Governor proposes recapturing roughly $565 million in grant funds that had been targeted for housing production in the 2019-20 budget, but had not yet been allocated to specific projects. These funds include $250 million originally intended to support mixed-income housing development, $203 million to support infill infrastructure development, and $115 million in other housing program funds.

The May Revision includes funding for foreclosure prevention that comes from a court decision last year that found that the state previously improperly diverted to the General Fund $331 million intended for a special fund to assist California homeowners affected by the mortgage crisis during the Great Recession. The Administration now proposes spending the bulk of these funds ($300 million) on mortgage assistance and housing counseling through the California Housing Financing Agency, with the remaining $31 million to support housing-related legal aid through grants to legal aid services organizations, administered by the Judicial Council.

Education

May Revise Retracts Dollars for Kindergarten Facilities, and Would Cut Funding for Early Learning without Additional Federal Assistance

State policymakers have taken steps in recent years to expand access to full-day early learning opportunities for young children, including funding additional spaces in the California State Preschool Program and creating grant programs for early learning facilities. The May Revision reaffirms the Governor’s commitment to early learning, but in the absence of additional federal assistance during the COVID-19 health and economic crisis, would make a number of cuts to the California State Preschool Program. These trigger cuts include:

  • $289.4 million for preschool spaces. This would include $159.4 million General Fund for spaces provided by community-based organizations – 10,000 of which were scheduled to begin on April 1, 2020 and 10,000 of which were to be available on April 1, 2021. This trigger cut would also include $130 million for preschool spaces in local education agencies that has not been spent due to a lack of demand.
  • $200.3 million to the California State Preschool Program provider payment rate. State preschool providers contract directly with the state and are reimbursed based on the Standard Reimbursement Rate. The May Revision would make a number of cuts to these providers’ rates, including:
    • A 10% decrease in the Standard Reimbursement Rate ($94.6 million Propositon 98 and $67.3 million General Fund). 
    • A suspension of the 2.31% cost-of-living adjustment ($20.5 million Prop. 98 and $11.6 million General Fund).
    • Elimination of a 1% add-on to the Standard Reimbursement Rate for providers offering full-day state preschool programs ($3.3 million Prop. 98 and $3 million General Fund). 

In addition, the Administration proposes to “sweep” funding provided in the 2018-19 and 2019-20 budget agreements for Kindergarten facilities. Three hundred million of this funding remains unused – out of $400 million total. The May Revision would retract these dollars in order to fund other items in the budget. 

Decline in Revenues Reduces the Minimum Funding Level for Schools and Community Colleges

Approved by voters in 1988, Proposition 98 constitutionally guarantees a minimum level of funding for K-12 schools, community colleges, and the state preschool program. Changes in state General Fund revenues tend to affect the Prop. 98 guarantee, and the May Revision’s estimates of 2019-20 and 2020-21 revenues are significantly lower than estimates made in the January budget proposal. As a result, the May Revision assumes the Prop. 98 guarantee has dropped more than $17 billion below levels estimated in January, even after a $1.8 billion boost to the Prop. 98 guarantee due in part to a proposed suspension of certain tax credits. Specifically, the May Revision estimates the Prop. 98 minimum funding guarantee is $77.4 billion in 2019-20 and $70.5 billion in 2020-21, $4.2 billion and $13.6 billion below the levels assumed in the January budget, respectively. Because the 2019-20 Prop. 98 guarantee is less than the 2018-19 Prop. 98 funding level, the Governor’s revised budget reflects the required withdrawal of the entire $377 million in the Public School System Stabilization Account – the state’s “rainy day fund” for K-12 schools and community colleges. 

To address the massive reduction in the Prop. 98 guarantee, the Governor’s May Revision proposes a new state obligation that would boost Prop. 98 spending above the constitutional minimum funding level beginning in 2021-22 and “in each of the next several fiscal years.” The new funding obligation would designate 1.5% of General Fund revenues each year to provide additional Prop. 98 funding “up to a cumulative total of $13 billion.” Currently, Prop. 98 requires K-12 schools and community colleges to receive a minimum of approximately 38% of General Fund revenues. The May Revision proposal to boost Prop. 98 funding above the minimum guarantee would help increase Prop. 98 spending to 40% of state General Fund revenues by 2023-24.

May Revision Proposes Cuts and Funding Deferrals for K-12 Schools, Allocates Federal Dollars to Help Address Funding Shortfalls

The largest share of Prop. 98 spending goes to California’s school districts, charter schools, and county offices of education (COEs), which provide instruction to approximately 6.2 million students in grades kindergarten through 12. The Governor’s May Revision proposes reducing 2019-20 Prop. 98 spending below the level that was anticipated in January. Moreover, the revised budget proposes 2020-21 Prop. 98 spending that is below the 2019-20 Prop. 98 spending level. To address these funding shortfalls, the Governor’s May Revision cuts K-12 education spending, defers spending for the state’s K-12 education funding formula – the Local Control Funding Formula (LCFF), allocates federal dollars to support K-12 education, redirects funding for pension obligations, and withdraws proposals to increase funding for, and establish new, K-12 education programs that were made in his January budget. Specifically, the Governor’s May Revision:

  • Includes more than $6.7 billion in trigger cuts to K-12 education absent additional funding from the federal government. The Governor’s May Revision proposes a $6.5 billion cut to LCFF funding in 2020-21, which would be reduced if the state receives additional federal assistance to backfill the proposed cut. 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. Without additional federal dollars, the May Revision also proposes cuts to several K-12 education programs including:   
    • K-12 Strong Workforce Program – $79.4 million;
    • Career Technical Education Incentive Grant Program – $77.4 million; and
    • Adult Education Block Grant – $66.7 million.
  • Defers $5.3 billion in LCFF payments until 2021-22. The May Revision proposes deferring LCFF payments to school districts: $1.9 billion from 2019-20 to 2021-22 and $3.4 billion from 2020-21 to 2021-22. A payment deferral allows the state to authorize a level of school district spending that the state cannot afford in that year. Deferrals provide the state with one year of savings, which occurs in the initial year of a deferral, without requiring school districts to reduce their spending. If a deferral continues beyond one year, such as the proposal to defer $1.9 billion from 2019-20 to 2021-22, the state does not achieve additional savings, or incur additional costs, in subsequent years that payments are deferred. This is because in any year, the added cost of paying for the deferral from the prior year is offset by the savings from deferring the same amount into the next year.
  • Allocates $4.5 billion in federal funding to support K-12 education. Recent federal actions have provided funding to support state and local government responses to the COVID-19 pandemic. The May Revision proposes allocating $4 billion from the Coronavirus Relief Fund and $355 million from the Governor’s Emergency Education Relief Fund to school districts to address learning loss related to COVID-19 school closures. The May Revision specifies that these funds can be used for several purposes, including extending the instructional school year, providing additional academic services for students, and addressing barriers to learning such as by providing mental health services and professional development to help teachers and parents support distance-learning for students. The May Revision also proposes to allocate the state’s share of the Elementary and Secondary Emergency Relief funds ($164.7 million) to support a variety of activities intended to mitigate the impact of the COVID-19 pandemic.
  • Reallocates $2.3 billion in non-Prop. 98 payments to provide K-12 school and community college districts fiscal relief. The May Revision proposes to redirect payments that were intended to reduce CalSTRS’ and CalPERS’ long-term unfunded liabilities and instead to use the funding to reduce employer contribution rates toward CalSTRS and CalPERS in 2020-21 and 2021-22.
  • Withdraws almost $2 billion in spending proposals that the Governor made in his January budget. For example, the Governor has withdrawn:
    • $900.1 million in one-time funding for educator recruitment, preparation, and training programs;
    • $300.3 million in one-time funding that would have established “opportunity grants” to assist the state’s lowest-performing schools and school districts;
    • $300 million in one-time funding that would have established community school grants;
    • More than $120 million to fund a cost-of-living adjustment in 2020-21 for several categorical programs that remain outside of the LCFF, including special education, child nutrition, and American Indian Education Centers; and  
    • $70 million for school nutrition programs.
  • Maintains special education funding proposed in January. The Governor’s January budget proposed increasing special education funding as part of a multi-phase, multi-year process that included a new special education base rate funding formula that would continue to be allocated to Special Education Local Plan Areas (SELPAs). 

Funding Significantly Adjusted for the California Community Colleges

A portion of Proposition 98 funding supports 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 Administration intends to pursue various statutory changes to help the CCCs address COVID-19 related impacts, including: 

  • Allowing the CCCs to use non-lottery restricted fund balances. To access these funds, the CCCs would be required to protect funding for programs and services that serve underrepresented students and to increase the number of students served through online courses and programs. 
  • Exempting direct expenses related to COVID-19 from the 50 Percent Law, under which districts must spend at least half of their unrestricted funds on salaries and benefits for instructional faculty. This exemption does not include reduced revenue.

In the May Revision, the Governor also makes several adjustments to his January proposal. These adjustments include: 

  • Increasing Prop. 98 General Fund support by $130.1 million to offset declining property tax revenues.
  • Cutting support for students’ non-tuition cost-of-attendance expenses. The January proposal provided $11.4 million Prop. 98 General Fund to establish and support food pantries at community colleges and $10 million one-time funding to develop and implement the Zero-Textbook-Cost Degree Program, which would have eliminated the cost of textbooks for certain degrees and certificate programs. The May Revision proposes statutory changes to support food pantries with available Student Equity and Achievement Program funding. The Administration proposes eliminating the Zero-Textbook-Cost Degree program entirely.
  • Reducing support for undocumented and immigrant students by $5.8 million Prop. 98 General Fund. The Governor had proposed these funds for Dreamer Resource Liaisons and other student support services for immigrant students. The Administration now proposes statutory changes to provide these services with available Student Equity and Achievement Program funding. The revised spending plan maintains the January proposal for $10 million to support legal services for undocumented students, faculty, and staff on community college campuses. 
  • Deferring a total of $662 million Prop. 98 General Fund spending. $330 million would be deferred from 2019-20 to 2020-21 and $332 million would be deferred from 2020-21 to 2021-22.

Absent additional federal funding, the Administration also proposes a total of $1.1 billion Prop. 98 General Fund in trigger cuts to the CCCs in 2020-21. For example, some of these cuts include:

  • $167.7 million ongoing for cost-of-living adjustments.
  • $83.2 million, including $40.4 million in one-time funding to support apprenticeship programs, the California Apprenticeship Initiative, and to expand access to work-based learning programs.
  • $68.8 million for the Student Equity and Achievement Program. The remaining funds for this program will now also support the community college food pantries and Dreamer Resource Liaisons for undocumented students, as mentioned above.
  • 31.9 million intended for enrollment growth even as the Administration anticipates an increase in enrollment due to the economic downturn.

The May Revision Significantly Adjusts Funding for CSU and UC

California supports two public four-year higher education institutions: the California State University (CSU) and the University of California (UC). The CSU provides “undergraduate and graduate education to roughly 481,000 students on 23 campuses, and the UC provides undergraduate, graduate, and professional education to about 285,000 students on 10 campuses.

The Administration intends to pursue statutory changes to allow both the CSU and the UC to use non-lottery restricted fund balances to address COVID-19 related impacts. To access these funds, the CSU would be required – and the UC encouraged—to prioritize underrepresented students and to increase the number of students served through online courses and programs. 

At the CSU, the revised spending plan withdraws the following from the January proposal:

  • $199 million ongoing General Fund. These funds would have supported operational costs, enrollment growth, and the Graduation Initiative, which seeks to improve graduation rates and eliminate opportunity and achievement gaps.
  • $6 million one-time General Fund. These funds would have been directed toward the development and expansion of degree and certificate completion programs to support those with some college but no degree.

The Administration also proposes a total of $404 million General Fund in trigger cuts to the CSU in 2020-21, unless the federal government provides additional funding. To this end, the May Revision:

  • Cuts support for the CSU by 10%. This cut represents a reduction of $398 million ongoing General Fund.
  • Decreases financial aid for the summer term by $6 million General Fund. These funds would have provided summer-term financial aid to low-income students, including undocumented students through June 2023.

At the UC, the Governor makes several adjustments from his January proposal, including: 

  • Providing $11.3 million ongoing General Fund for operational support at UC Riverside Medical School. The Governor had previously proposed providing $25 million ongoing for both operational support and enrollment growth.
  • Providing $1.2 million ongoing General Fund to support the UC San Francisco School of Medicine Fresno Branch Campus in partnership with UC Merced. These funds represent a reduction from the Governor’s earlier proposal of $15 million for an expansion.
  • Eliminating various proposals, including: 
    • $169.2 million ongoing General Fund for undergraduate enrollment growth, operational costs, and student support services.
    • $4 million one-time General Fund to support degree and certificate completion programs. 

Absent additional federal funding, the Administration also proposes a total of $376.4 million General Fund in trigger cuts to the UC in 2020-21. To this end, the May Revision:

  • Cuts support for the UC and other UC entities by 10%. This cut represents a reduction of $372.4 million ongoing General Fund. 
  • Decreases financial aid for the summer term by $4 million General Fund. These funds would have provided summer-term financial aid to low-income students, including undocumented students through June 2023.

Cuts to Golden State Teacher Grant Program and Student Debt Loan Workgroup and Outreach Proposed

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 Administration estimates an increase in Cal Grant Program costs of nearly $12 million in 2019-20 and a decrease of about $350,000 in 2020-21 due to revised participation estimates. The May Revision includes an increase of nearly $600 million General Fund in 2020-21 for Cal Grants. This covers a similar decrease of $600 million in federal TANF dollars, now shifted to the state’s CalWORKs program, which provides cash assistance for low-income children while helping parents overcome barriers to employment and find jobs. This is a technical shift that has no programmatic effect on Cal Grants.

The May Revision makes significant adjustments to the 2019-20 budget agreement and the Governor’s January proposals, including:

  • Withdrawing $88.4 million General Fund for the Golden State Teacher Grant Program, which is nearly all of the one-time total allocated in the 2019-20 budget agreement ($89.8 million). The program was designed to provide funding for up to 4,487 grants of $20,000 for teachers committed to teaching for four years in “high-need” subjects, including bilingual education, STEM, and special education, in schools that have a high percentage of teachers with “emergency-type permits.” However, the May Revision proposes allocating $15 million one-time federal Special Education funds available to maintain grants to special education teachers only. 
  • Withdrawing $15 million one-time General Fund to support the Child Savings Accounts Grant Program out of $25 million provided to the California Student Aid Commission (CSAC) in the 2019-20 budget agreement. The CSAC funding is intended to implement and administer the Child Savings Account Grant Program.
  • Reducing the maximum Cal Grant award for students at private nonprofit institutions from $9,084 to $8,056. 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. Since the levels determined by the state were not met, the May Revision reflects a decrease of $8.9 million General Fund.
  • Cutting support for the Student Debt Loan Workgroup and Outreach by $4.5 million General Fund. The funds were meant to support the student loan working group and create grants to public colleges to notify students of available loan repayment options. The revised proposal no longer includes grants to higher education institutions, but maintains funding to support the working group.
  • Eliminating $1.8 million General Fund proposal to support newly leased space for the California Student Aid Commission’s headquarters.

Corrections & Justice 

Governor Proposes to Close Two State-Operated Prisons in the Next Three Years

Roughly 117,100 adults who have been convicted of a felony offense are serving their sentences at the state level, down from a peak of around 173,600 in 2007. More than 7 in 10 adults incarcerated at the state level are Black or Latinx – a racial disparity that reflects implicit bias within the criminal justice system, structural disadvantages faced by these communities, and other factors. While California has recently taken steps to slow the spread of COVID-19 in state prisons, these facilities remain severely overcrowded, operating at 128% of their capacity. However, the prison population is expected to continue declining in the coming years, creating opportunities for state policymakers to close correctional facilities. The May Revision:

  • Proposes to begin closing two state-operated prisons in the next three years. One facility would be closed beginning in 2021-22; the second, beginning in 2022-23. “These closures will be achieved through various actions that will further reduce the prison population through rehabilitation,” according to budget documents. These prison closures are projected to result in state savings of $100 million in 2021-22, $300 million in 2022-23, and $400 million ongoing.
  • Reflects the Administration’s plan to close all state-level correctional facilities for men that operate under contracts with the state. The last remaining private state-level contract facility is expected to be closed in 2020. The three remaining public state-level contract facilities are expected to be closed by July 2022. 
  • Proposes to cap state supervision for most parolees at 24 months. Some parolees would be able to “establish earned discharge” at 12 or 18 months. This proposal would generate General Fund savings of about $23 million in 2020-21, rising to $76 million in 2023-24.

May Revision Withdraws Local Correctional System Reforms, Maintains Fines and Fees Assistance for Californians with Low Incomes

California’s 58 counties play a key role in the state’s local correctional system – housing roughly 72,000 adults in county jails on a given day and supervising individuals on probation. The state’s correctional system underwent a series of reforms beginning with the state-to-county “realignment” that took effect in 2011, following a US Supreme Court order that required the state to reduce its prison population. Under realignment, counties are now responsible for managing certain adults who had traditionally been housed in state prisons and supervised by state parole officers upon their release. Additionally, California’s 58 trial courts supplement the local correctional system, and comprise the state’s judicial branch – ruling on both civil and criminal cases. Both are integral to the state’s legal system. 

While COVID-19 has created significant fiscal impacts for the state budget, the May Revision does preserve initial funding allocated in January for select services. The Administration specifically:

  • Maintains the online ability to pay pilot program administered through select county courts statewide, allocating $11.5 million General Fund in 2020-21.  This tool allows Californians with qualifying incomes to reduce their penalties by 50% or more and make payments over time for certain traffic fines and fees. 
  • Increases the fine and fee revenues backlog funding to $238.5 million one-time General Fund in 2020-21, in projection of lower revenues in 2019-20 and 2020-21.

Yet, key reforms in the Governor’s January proposal regarding local corrections and the judicial system were suspended. For instance, the May Revision:

  • Withdraws funding increases for adult probation services for individuals with misdemeanor convictions. These additional services were aimed to further diminish recidivism rates and promote public safety. This reduces proposed General Fund spending by $60 million annually for three years and $30 million General Fund in 2023-24.
  • Cancels additional funding for the California Community Corrections Performance Incentives Act of 2009. Under this law, also known as Senate Bill 678 (Leno, Chapter 608 of 2009), counties have financial incentives to reduce the number of individuals on felony probation who are sent to state prison. This results in a reduction of $11 million ongoing General Fund, but maintains the existing baseline funding of $112.7 million General Fund in 2020-21.
  • Removes reforms to limit felony and misdemeanor probation terms to two years and the allowance of earned discharge for individuals on probation. Currently, formal probation supervision normally lasts three to five years depending on the crime committed and the county in which individuals are convicted.
  • Reduces funding to support trial court operations.  This is expected to reduce ongoing General Fund spending by $107.6 million.

The Administration also proposes trigger cuts unless federal funding can be secured to allow for a balanced state budget. The Governor recommends to:

  • Cut Trial Court funding to reduce General Fund spending by $178.1 million in 2020-21 and ongoing, with an additional 5% operational expenses decrease of $28.1 million General Fund in 2021-22.
  • Eliminate the Adult Reentry Grant to reduce General Fund spending by $37 million. This grant is competitively awarded to community-based organizations to assist adults formerly incarcerated in a state prison.
  • Reduces state level judiciary funding to reduce General Fund spending by $23.3 million in 2020-21 and ongoing, with an additional 5% operational expense decrease of $10.6 million in 2021-22.
  • Revert funding for other various Judicial Branch Programs to reduce General Fund spending by $15.2 million. 
  • Decrease funding for the Department of Justice by $14 million ($4.3 General Fund).
  • Reduce funding for legal representation provided by the Office of the State Public Defender by $2.1 million in ongoing funding. The January proposal allocated $4 million General Fund in 2020-21 and $3.5 million annually ongoing.

Governor Proposes to End State Supervision of Justice-Involved Youth Beginning in 2021 and Realign Responsibility for These Youth to Counties

Counties are responsible for almost all justice-involved youth, but around 800 are housed at the state level. The Division of Juvenile Justice (DJJ) within the California Department of Corrections and Rehabilitation oversees these youth. The budget package for the current fiscal year (2019-20) abolished the DJJ and shifted responsibility for these roughly 800 youth to a new state-level department under the Health and Human Services Agency, effective July 1, 2020.

The May Revision proposes to change direction and transfer responsibility for these youth from the state to the counties. This plan would “enable youth to remain in their communities and stay close to their families to support rehabilitation,” according to budget documents. Under this proposal, the state would stop receiving justice-involved youth in January 2021 and begin closing state-level facilities as the current population gradually declines through attrition. The state would direct a portion of the savings to counties to fund their new responsibilities, and would provide additional funding for youth who have sex behavior or mental health treatment needs. These additional funds — $2.4 million in 2020-21 rising to $9.6 million ongoing — would be awarded to county probation departments through a competitive grant process through the Board of State and Community Corrections.

Emergency & Environmental Response 

May Revision Maintains Some Proposed Investments to Help the State Prepare for and Respond to Emergencies and Address Climate Change

The revised budget proposal recognizes that, while significant resources are needed to respond to the current COVID-19 crisis, Californians are still vulnerable to other types of disasters such as wildfires and earthquakes and the effects of climate change. Accordingly, the Administration continues to prioritize improving the state’s ability to prepare for and respond to such disasters and maintains some of the investments proposed in the January budget. These investments include but are not limited to:

  • $90 million General Fund ($142.7 million ongoing) to enhance the ability of the Department of Forestry and Fire Protection (CAL FIRE) to fight wildfires, primarily by providing for new permanent firefighting positions. This is down from the $120 million General Fund ($150 million ongoing) proposed in January.
  • $50 million one-time General Fund to support matching grants to local governments to ensure the continued operation of critical services like schools, food storage reserves, and county election offices during power shutdowns.
  • $38.2 million one-time General Fund for a California Disaster Assistance Act funding augmentation to reimburse local governments for costs of emergency activities incurred during a state of emergency or to repair or replace public property destroyed in a disaster. This reflects an increase from the $16.7 million proposed in January.
  • $9.4 million ($9.2 million General Fund) to expand the capacity of the Office of Emergency Services to prepare for and respond to disasters.

Additionally, the May Revision maintains the January budget’s proposed $965 million Cap and Trade spending plan, but proposes a pay-as-you-go mechanism to authorize expenditures based on actual proceeds of Cap and Trade auction in recognition of the uncertainty of future proceeds given current economic conditions. The proposal would prioritize funding for air quality in communities that have been historically underserved, forest health and fire prevention, and safe and affordable drinking water.

The May Revision withdraws the $250 million General Fund proposed in January to create a Climate Catalyst fund to provide loans for climate-related projects as well as the $26.8 General Fund proposed for a “home hardening pilot program” to provide assistance to make homes more wildfire-resistant. 

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