On Thursday, May 14^th, at noon PDT, Governor Gavin Newsom released his revised 2020-21 state budget proposal in lieu of holding his regularly scheduled COVID-19 press briefing.   

Today, Newsom did not mince words regarding the devasting fiscal impacts of COVID-19.  Amid the ongoing pandemic, California’s state budget has gone from surplus to shortfall.  Recall in January – just four months ago – when Newsom released his initial 2020-21 proposal, that plan called for a record-high $222.2 billion in spending.  At the time, the budget included a $5.6 billion surplus and specifically contained 3.5 percent more spending than lawmakers enacted for the current fiscal year which ends June 30^th. 

"These are not ordinary times,” Newsom acknowledged.  His revised budget reflects the latest, more grim, economic forecasts.  He took the podium with no notes and his presentation included  just four slides.  But Newsom also said the state had built up reserves in preparation.  Nevertheless, in spite of those reserves, California is still facing a projected deficit. 

Specifically,  Newsom’s revised budget proposal projects a revenue decline of 22.3 percent compared to January projections; $133.9 billion general fund, which is a 9.4 percent decrease from the Budget Act of 2019; $203.3 billion overall budget, 5.4 percent decrease from 2019.

Overall, the Governor’s press office stated, “The May Revision proposes to cancel new initiatives proposed in the Governor’s Budget, cancel and reduce spending included in the 2019 Budget Act, draw down reserves, borrow from special funds, temporarily increase revenues and make government more efficient.”

In taking a balanced approach to closing the budget gap, the May Revise specifically proposes to:

• Cancel $6.1 billion in program expansions and spending increases.
• Draw down $16.2 billion in the Budget Stabilization Account (Rainy Day Fund) over three years.
• Borrow and transfer $4.1 billion from special funds.
• Temporarily suspend net operating losses and temporarily limit to $5 million the amount of credits a taxpayer can use in any given tax year.
• Reflect the Administration’s nationwide request of $1 trillion in flexible federal funds to support all 50 states and local governments, and identifies reductions to base programs and employee compensation that will be necessary if sufficient federal funding does not materialize. 

The Governor’s office press release highlights the following:

• Protecting Public Health, Public Safety, and Public Education – $44.9 billion in General Fund support for schools and community colleges and $6 billion in additional federal funds to supplement state funding.
• Supporting Californians Facing the Greatest Hardships – Maintains the newly expanded Earned Income Tax Credit and maintains grant levels for families and individuals supported by the CalWORKs and SSI/SSP programs.  Prioritizes funding to maintain current eligibility for critical health care services in both Medi-Cal and the expanded subsidies offered through the Covered California marketplace.  Estimates unemployment insurance benefits in 2020-21 will be $43.8 billion – 650 percent higher than the $5.8 billion previously estimated.
• State Government Savings and Efficiency – Negotiations will commence or continue with the state’s collective bargaining units to achieve reduced pay of approximately 10 percent.
• Supporting Job Creation, Economic Recovery, and Opportunity – Proposes an augmentation of $50 million for a total increase of $100 million to the small business loan guarantee program to fill gaps in available federal assistance.

Some additional key points (from the summary document) of revised budget proposal include:

• Wildfire Mitigation Efforts – Overall, the Governor’s Budget and May Revision together contain 106 new positions and $30 million for the Commission to address issues related to utility-caused wildfires.
• Broadband Expansion – To identify which areas of the state lack sufficient access to broadband, the May Revision includes $2.8 million and 3 positions in additional resources from the Public Utilities Commission Utilities Reimbursement Account for the Commission to enhance its broadband mapping activities.
• AB 5 Enforcement –The May Revision maintains the Governor's Budget proposal to enforce compliance with AB 5, including $17.5 million for the Department of Industrial Relations, $3.4 million for the Employment Development Department, and $780,000 for the Department of Justice.
• California Consumer Financial Protection – The May Revision sustains the Governor’s Budget proposal for $10.2 million Financial Protection Fund and 44 positions in 2020-21, growing to $19.3 million and 90 positions ongoing in 2022-23, to revamp the Department of Business Oversight (DBO) as the Department of Financial Protection and Innovation.
• Department of Toxic Substances Control Reform – The May Revision maintains the Administration’s commitment to governance and fiscal reform for the Department of Toxic Substances Control.
• Climate Resilience – Governor is withdrawing the $250 million General Fund Climate Catalyst Fund proposal.
• Office of Environmental Health Hazard Assessment – Governor is withdrawing Evaluating Unassessed Chemicals Using Precision Prevention Methodologies $6 million General Fund Proposal.
• Department of Corrections and Rehabilitation – The May Revision proposes total funding of $13.4 billion ($13.1 billion General Fund and $311 million other funds) for the Department in 2020-21.  The May Revision proposes the closure of two adult institutions—one beginning in 2021-22 and a second beginning in 2022-23.  The closures are estimated to result in savings of $100 million in 2021-22, $300 million in 2022-23 and $400 million ongoing.  When asked, Newsom said the specific facilities have not been determined and this is still being negotiated.
• Cap and Trade Expenditure Plan – The May Revision maintains the Governor's Budget Cap and Trade Expenditure Plan, and establishes a “pay-as-you-go” budget mechanism to authorize budget act expenditures based on actual proceeds received at each quarterly auction.
• Department of Public Health – The May Revision maintains and increases the Department’s disease surveillance and identification workforce. Specifically, the May Revision proposes $5.9 million General Fund for 2020-21 and $4.8 million General Fund ongoing, to support laboratory staff to increase the laboratories’ testing capacity, and to purchase equipment and laboratory supplies that are specifically utilized for COVID-19 testing as well as other diseases.
• Caltrans Investments – While fuel tax revenues used to fund transportation projects are expected to drop by a total of $1.8 billion through 2024-25, the May Revision maintains current planning and engineering staffing levels to continue developing and designing previously programmed projects.
• State Support for Renters and Homeowners – The May Revision proposes to expend $331 million in National Mortgage Settlement funds for housing counseling, mortgage assistance and renter legal aid services.
• State Funding For Housing – The May Revision maintains the $500 million in low-income housing state tax credits in the Governor's Budget.
• Capitol Annex Projects – To reduce costs, the May Revision also proposes a transfer of $754.2 million from the State Project Infrastructure Fund to the General Fund. These funds were previously earmarked for the design and construction of a series of projects necessary for the renovation or reconstruction of the Capitol Annex.

The May Revise marks the start of what will be a month of negotiations with legislators.  The budget, with any legislative adjustments, must be finalized by June 15^th in time for the Governor to sign the package and the new fiscal year to begin on July 1^st.  

For more information, please see  http://www.ebudget.ca.gov/FullBudgetSummary.pdf.

Information provided by:

Naomi Padron

Legislative Advocate

McHugh Koepke & Associates

1121 L Street, Suite 103

Sacramento, CA 95814

(916) 930-1993

www.mchughgr.com