Governor Newsom Signs 2020 Budget Act

SACRAMENTO – Governor Gavin Newsom yesterday signed the 2020 Budget Act – a $202.1 billion spending plan that strengthens emergency response, protects public health and safety, and promotes economic recovery while closing a $54.3 billion budget shortfall caused by the COVID-19 recession.

“In the face of a global pandemic that has also caused a recession across the world and here in California, our state has passed a budget that is balanced, responsible and protects public safety and health, education, and services to Californians facing the greatest hardships,” said Governor Newsom. “I thank Pro Tem Atkins, Speaker Rendon and both houses of the Legislature for their continued partnership and leadership during this challenging moment in our state’s history.”

The Budget makes critical investments to save lives and promote economic recovery by continuing critical purchases of personal protective equipment and other safeguards necessary to safely reopen the economy during the COVID-19 pandemic. It protects public education and supports Californians facing the greatest hardships – since the pandemic is having a disproportionate impact on lower-wage workers, communities of color, and is further exacerbating income inequality. Finally, the Budget supports job creation, economic recovery and opportunity by recognizing and supporting the critical role small businesses play in job creation in the state.

The COVID-19 pandemic has impacted every sector of the state’s economy and has caused record high unemployment – almost 1 in 5 Californians who were employed in February were out of work in May – and further action from the federal government is needed given the magnitude of the crisis. The Governor continues his efforts to secure $1 trillion in flexible federal aid to state and local governments across the country. This additional support is critical to mitigate the worst effects of the public health crisis, encourage recovery, and support Californians in need.

Following are key provisions of the 2020 Budget Act:

Strengthening Emergency Response and Protecting Public Health

The Budget reflects estimated spending of $5.7 billion to respond directly to the COVID-19 pandemic. Expenditures include personal protective equipment necessary to reopen the economy, hospital surge preparation, and other expenditures to support populations at greater risk of contracting COVID-19. Under federal law, at least 75 percent of these expenditures will be reimbursed by the federal government. The Budget also includes a $716 million reserve within the Special Fund for Economic Uncertainties so the state can respond quickly to the changing conditions of the COVID-19 pandemic.

The Budget also strengthens the state’s emergency preparedness in other areas: new investments in wildfire prevention and mitigation, including $85.6 million to CAL FIRE for firefighting resources and surge capacity and $50 million for community power resiliency. The Budget also supports the new state Earthquake Early Warning Program, integrates the Seismic Safety Commission into the California Governor’s Office of Emergency Services, and significantly expands efforts to address cybersecurity threats.

The Budget also includes support for counties that are on the front lines of addressing the public health impacts of the pandemic. Of the $9.5 billion in Coronavirus Relief Fund received by the state, $4.5 billion is allocated to local school districts, $1.3 billion is allocated to counties, and $500 million to cities. The Budget also includes $750 million General Fund to provide support for counties experiencing revenue losses due to the pandemic. Funds are available for all counties in compliance with federal guidance and state health requirements on COVID-19 response. If sufficient federal funds are made available by October 15, 2020, the Budget provides an additional $250 million in support to counties in protecting programs serving vulnerable populations.

Protecting Public Education

The Budget takes a combination of steps to offset the more than $10 billion in revenue loss to K-14 schools caused by the COVID-19 recession, and defers $12.9 billion in payments into the next fiscal year to preserve programs and provide K-14 schools the resources needed to safely reopen. The state has also committed to purchasing personal protective equipment and other supplies needed to reopen schools safely.

The Budget also allocates a total of $5.3 billion to mitigate learning loss and support the immediate needs of students and schools, with a focus on students disproportionately impacted by the pandemic. The Budget also redirects $2.3 billion designated for long-term unfunded pension liabilities to reduce school (district) employer contribution rates in the next two years. Finally, the Budget commits to making supplemental appropriations above the Proposition 98 guarantee for several years starting in 2021-22, which will accelerate General Fund support for schools over the multi-year forecast period.

Supporting Californians Facing the Greatest Hardships

The Budget takes several steps to support Californians facing the greatest hardships by maintaining eligibility for the Medi-Cal program – including the expanded senior eligibility enacted in the 2019 Budget Act – and preserving optional benefits and Proposition 56 provider rate increases in the budget year. The Budget also maintains In-Home Supportive Services (IHSS) service hours and developmental services rates at current levels for the budget year. It includes an increase in the overall maximum Supplemental Security Income/State Supplemental Payment grant by passing the federal cost-of-living adjustment on to recipients. The Budget maintains CalWORKS eligibility and grant levels and extends the time limit for aid to adult recipients from 48 months to 60 months.

The Budget also protects programs for working families and students, preserving last year’s expansion of the state Earned Income Tax Credit (including the Young Child Tax Credit) and expanding eligibility to include undocumented filers with a child under the age of six. It also preserves the Covered California health insurance subsidies for middle-income households enacted in the 2019 Budget Act, and protects Cal Grants at current levels of eligibility, including the new Cal Grant for students with dependent children.

The Budget also prioritizes funds to mitigate homelessness and takes a new approach by allocating $600 million for Project HomeKey to acquire permanent housing through the purchase and renovation of motel properties throughout the state. The Budget also includes $300 million General Fund to cities, counties, and continuums of care to support efforts to reduce homelessness.

Promoting Economic Recovery

Since small businesses will play a critical role in California’s economic recovery, the Budget provides an additional $75 million for loan loss mitigation and reducing the cost of capital for small businesses to address gaps in available federal assistance. These funds will be administered by the California Infrastructure and Economic Development Bank. The Budget also expands the $800 Minimum Franchise Tax exemption for first-year corporations to all businesses – removing a barrier to small business creation for all types of small businesses.

Balanced Approach to Closing the Budget Gap

In January, the state was projecting a surplus of $5.6 billion; by the May Revision, the state confronted a budget deficit of $54.3 billion – a four-month swing of $60 billion caused by the COVID-19 recession. The Budget takes a balanced approach to closing the $54.3 billion budget deficit and sets aside $2.6 billion in the Special Fund for Economic Uncertainties, including $716 million for the state to respond quickly to the changing conditions of the COVID-19 pandemic.

The Budget is balanced through the following steps:

  • Reserves – The Budget draws down $8.8 billion in reserves from the Rainy Day Fund ($7.8 billion), the Safety Net Reserve ($450 million), and all funds in the Public School System Stabilization Account.
  • Triggers – The Budget includes $11.1 billion in reductions and deferrals that will be restored if at least $14 billion in federal funds are received by October 15. If the state receives a lesser amount between $2 billion and $14 billion, the reductions and deferrals will be partially restored.
  • Federal Funds – The Budget reflects $10.1 billion in federal funds that provide General Fund relief – including $8.1 billion that have already been received.
  • Revenues – The Budget generates $4.4 billion in new revenues in FY 2020-21 by temporarily suspending the use of net operating losses and temporarily limiting to $5 million the amount of business incentive credits a taxpayer can use in any given tax year.
  • Borrowing/Transfers/Deferrals – The Budget includes $9.3 billion in special fund borrowing and transfers, as well as other deferrals for K-14 schools. (Approximately $900 million in additional special fund borrowing is associated with the reductions to employee compensation and is contained in the trigger.)
  • Cancelled Expansions, Updated Assumptions and Other Solutions – The remaining $10.6 billion of solutions includes:
    • Cancelling multiple program expansions and anticipating increased government efficiencies.
    • Higher ongoing revenues above the May Revision forecast.
    • Lower health and human services caseload costs than the May Revision estimate.

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