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Breaking Down the Governor's Proposed 2020-21 Budget

Wednesday, February 19, 2020

On January 10, 2020, Governor Gavin Newsom submitted his 2020-21 State Budget proposal to the Legislature. Seyron Foo, SCG’s Vice President, Public Policy and Government Relations, has provided an overview of the proposals in the budget most likely to impact the philanthropic sector. 

The following is an abridged version of the presentation Seyron shared with SCG’s Corporate Leadership Council on January 23, 2020. 


We’re at the beginning stages of the Governor’s proposed 2020-21 State Budget. The final budget will be passed by the Legislature and signed by the Governor on June 15, 2020. This means that the budget can still be shaped by organizations, philanthropists, and the Legislature. This overview will cover the trends we believe will be the most impactful to philanthropy: housing & homelessness, anti-poverty, disaster preparedness, workforce development, K-12 education, and the Cal Fresh Benefits. 

Revenue Forecast

The Governor’s budget is in effect a $220 billion proposal. California’s main revenue sources come from the Personal Income Tax, the Sales & Use Tax, and the Corporate Income Tax. Currently, the state budget has a $6 billion surplus due to the increase in corporate tax revenue. This is about $5 billion more than the previous year. In terms of collection, the Personal Income Tax was down by $1.5 billion and the Sales & Use Tax held steady. 

It is important to consider how substantially the decline in the Personal Income Tax might impact the budget in the years to come, as it accounts for about 60% of all state revenue. As we see volatility in the stock market, we’ll likely see how the state government will be able to provide key services. The good news is that California has learned from past experiences and has put away $21 billion into a “rainy day” fund over the last few years to safeguard vital services from such volatility.

Housing & Homelessness 

Since 2006, rents have increased by about 16%, while median annual earnings have only increased by 2.1%. Today, about 50% of Californians are rent-burdened, which means that they pay more than 30% of their income to rent. There’s a connection here in terms of what is affordable and isn't affordable and how that can contribute to homelessness in California. To address housing specifically, the Governor’s budget proposes $500 million for the low-income housing tax credit, the same amount as last year. The Governor has also cited about $4.5 billion dollars in private funding, mainly from technology companies in the Bay Area. So while Apple and Facebook have committed billions of dollars to affordable housing projects in their regions, we're not seeing any money for construction from the state budget aside from what was included last year.

To address homelessness in California, the Governor is proposing a $750 million one-time investment to a pooled fund known as the California Access to Housing and Services Fund. The fund will have three core features: rental subsidies, affordable housing units, and board and care facilities. As of now, the Governor has stated that the funds will be dispersed according to performance-based contracts with the state and regional administrators. This fund is based on the innovative work in Los Angeles County’s Flexible Housing Subsidy Pool which grew out of a partnership between LA County, The Conrad N. Hilton Foundation, Weingart Foundation, and LA Care. 

But what does dispersing this much money look like? The unique feature of this proposal is that the Governor is asking philanthropy, corporations, and private individuals to contribute into this fund. The Legislative Analyst’s Office has raised questions about this approach because it’s new for the state government to propose mixing a public state fund with private philanthropic dollars. In addition, the Legislative Analyst's Office has questions about the fund's location in the Department of Social Services rather than in the Department of Housing and Urban Development. Dr. Mark Ghaly, California’s Secretary of Health and Human Services has shared his perspective that because the social safety net is such a core component of successful housing, its location in the Department of Social Services makes the most sense in bringing together different streams of funding. Since the launch of the fund, two companies have committed $45 million: Blue Shield of California and Kaiser Permanente. 

Anti-Poverty

The earned income tax credit (EITC) is a key component of the governor's budget to address anti-poverty. There are currently three million eligible tax filers in the state. Last year, the Governor expanded the program to reflect the increase in the minimum wage. This year, the program will not be expanded and so it will remain as a $1 billion tax credit to families. Although advocates have pushed for the inclusion of undocumented immigrants who file their taxes through their individual taxpayer identification number to be included in the program, the Governor's budget has not included them this year. 

Disaster Preparedness 

Wildfires are a huge focus for the Governor this year. His budget includes a proposal for the creation of a Wildfire Forecast Center that will seek to better predict fire weather systems. There’s also a $2.2 billion investment proposal to increase our state-wide firefighter capacity to 677 positions over the course of five years. Lastly, the budget includes a pilot program that will provide funding for home-hardening improvements to make homes more resistant to fire hazards to low-income communities in areas of high fire risk. 

Workforce Development 

On the workforce development side, the Governor is introducing the new Department of Better Jobs and Higher Wages, which will consolidate the workforce functions across different agencies in labor and workforce development. The idea is that the programs from the Employment Development Department and the Department of Industrial Relations will come together with the goal of aligning data and policy for the state's workforce training programs. 

K-12 Education 

California is unique in that education funding is already pre-committed by Proposition 98, which means that about half of all the fungible dollars in the general fund are already committed to education. However, early childhood education is not necessarily a part of Prop 98’s funds. The Governor is responding to this by proposing the creation of a new Department of Early Childhood Development which will bring together different funding streams into one agency. It will be interesting to see how the Governor attempts to combine funds that are separately managed like the Department of Education which is managed by a whole independently elected constitutional officer, the State Superintendent.

The Governor is also continuing his commitment to increasing Universal Preschool for eligible families. Currently, there are 30,000 eligible families who are unable to receive state preschool. Last year, the Governor committed 10,000 slots, and this year he's creating another 10,000 slots. At this pace, it is likely he will achieve his version of a universal preschool for eligible families by the end of 2022. 

On the K-12 side, we're seeing the highest-ever funding at a per-pupil level, with the current funding being approximately $5,600 higher than it was nine years ago. An increase in the local control funding formula (LCFF) of $1.2 billion dollars will focus on students with special education needs, students with disabilities, and students who are coming from the child welfare system. 

Cal Fresh Benefits 

Four million Californians — ten percent of our state population — receive Cal Fresh benefits. Within that ten percent, six in ten are children, families, people with disabilities, and older adults. Federal action has changed several eligibility requirements for Cal Fresh, and advocates project that we will see people lose or reduce their food benefits. Additionally, now that the “public charge” rule has taken effect, we’re going to see a decline in enrollment from eligible immigrant populations who have long received the benefits. We're seeing that people are uncertain about enrolling themselves or their children in Cal Fresh because they’re afraid it’s going to affect their immigration status, their citizenship application, or prevent them from renewing their green card. All this means that there’s going to be more pressure on our local food banks. The Governor has responded by proposing a one-time support of $20 million to local food banks. 

 

To read the Governor’s full budget summary, visit The Department of Finance’s California Budget 2020-21 website
 

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