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SCG Analysis: Breaking Down Governor Newsom's 2021-2022 January Budget Proposal

Monday, January 25, 2021

By: SCG Public Policy Team 

 

OVERVIEW

Governor Gavin Newsom’s 2021-2022 January budget mirrors the triage conditions we see across the country as it simultaneously attempts to meet the emergency needs created by the COVID pandemic, respond to the perennial needs of Californians, and manage a tenuous political landscape. Newsom’s January 2021-22 budget is a record-setting $227 billion, $5 billion more than last year’s proposed budget and $30 billion more than the $196 billion budget approved in 2020-21. The additional $5 billion in the proposal consists of COVID relief, including massive one-time funding to address emergent needs in addition to proposed investments in health care, education, small business, and social safety net programs. 

While we expected 2020-21 to be a deficit year due to the various crises, it surprisingly is positioned to yield a surplus of between $15 and $30 billion. California’s massive budget cuts did not occur as predicted. Additionally, even though California did not receive about $14 billion in expected Federal relief, other Federal programs helped mitigate the state’s additional expenses. Also, tax revenues were much higher than expected because many high-wage earners were not negatively affected by the COVID pandemic as low wage earners were. The stock market also remained robust because, as Governor Newsom put it, “Folks at the top are doing pretty damn well.” While the 2021-22 fiscal year is forecasted to have a moderate surplus under this proposal, the following three years are expected to produce deficits, primarily due to the utilization of “rainy day” funds and spending from 2020 through 2022.

Also, unique to 2021-2022 is an emergency request to approve the $5 billion portion of the budget designated for immediate COVID relief resources. The remaining part of the Governor’s proposed budget is simply a starting point for negotiations that will continue until the official budget is approved in June 2021. 

 

Jump to a Section: Economic Security and Equitable RecoveryHealthcare & Human ServicesEnvironment and Climate ChangeNonprofit/Small Business | Justice SystemHomelessness & Housing | Education | COVID-19 Response

 

Economic Security and Equitable Recovery 

As the state begins to recover from the economic downturn caused by the pandemic, it’s investments and relief must prioritize all Californians, especially low-income families, individuals, and communities of color, to rebuild equitably and anew. In this proposal, the Administration includes immediate relief for families and individuals, including: 

  • Golden State Stimulus: The state would provide $600 tax refunds to eligible families and individuals who qualify for the California Earned Income Tax Credit (CalEITC) program, which could be disbursed as early as February 2021. This proposal builds off last year’s budget agreement, which expanded the CalEITC to families and individuals who file taxes with Individual Taxpayers Identification Numbers (ITIN). These tax filers are also eligible to receive the Golden State Stimulus tax refunds. The state allocates $2.4 billion for this stimulus program. 
  • Food Banks: The budget includes a one-time $30 million funding to support regional food banks, tribal organizations, and other emergency food assistance providers, to alleviate food insecurity amongst low-income communities. This amount supplements the latest federal relief package that allocated $400 million nationwide for Emergency Food Assistance Programs. 
  • California Food Assistance Program (CFAP): CFAP provides food assistance to immigrant families ineligible for CalFresh or other federal relief programs. The budget includes $11.4 million in funding to ensure eligible households can receive the maximum amount of assistance until December 2021. 
  • Expansion of California Work Opportunity and Responsibility to Kids (CalWORKS): CalWORKS, the state-administered Temporary Assistance for Needy Families (TANF), receives a total of $9.3 billion in combined local, state, and federal funding, with $7.4 billion allocated for program expenditures and the remaining $1.9 billion designated for other programs, such as Child Welfare Services and Foster Care. The governor is calling for a grant increase of 1.5 percent in assistance payout levels effective October 2021. Due to COVID-19, the budget also suspends the accrual of months in which a household receives CalWORKs benefits from counting towards the CalWORKS 48-month time limit until May 2022. 

 

The older adult population is the most vulnerable demographic to the health and economic impacts of COVID-19. On January 6, 2021, the Administration released the Master Plan on Aging, a collaboration between government agencies, older adult advocates, community-based organizations, and philanthropy (including SCG members SCAN Foundation), to map out the future of healthy and dignified aging across the state. While the Master Plan identifies the need for equitable and affordable aging, this budget does not adjust the State Supplementary Payment. The State Supplementary Payment is California’s contribution to the federal Supplemental Security Income amount designed to match the rising cost of rent, food, and healthcare for low-income older adults and people with disabilities. 

The Governor has elevated several investments and initiatives to ensure an equitable economic recovery through workforce development, livable wages, and workplace protections. These initiatives include: 

  • Workforce Development Board: The budget calls for $25 million for the High Road Training Partnership (HRTP) to increase and retain workforce training collaborations between employers, non-profits, and training institutions for apprenticeship pathways. It also includes $407 million in federal funds to improve training and apprenticeship pathways.  
  • Increase CalOSHA inspectors: To ensure a vibrant and secure workforce amid the pandemic, the Governor calls for a mid-year $11.4 million increase to hire more CalOSHA inspectors and investigate workplace health violations. 
  • Enforcing SB 1159 - Workers Compensation: Under SB 1159, employees who contract COVID-19 from their workplace are eligible to access worker’s compensation benefits. The budget allocates an additional $8.6 million to the Department of Industrial Relations (DIR) to implement and enforce SB 1159 statewide, 
  • Creation of the Department of Better Jobs and Higher Wages: The budget calls for creating a new state department to consolidate and streamline various workforce development programs and initiatives across different labor agencies. 

 

Healthcare & Human Services 

The pandemic has highlighted the extreme health disparities in our state resulting from systemic racism and historic disinvestment in low-income and rural communities and communities of color. Governor Newsom’s budget reflects increased expenditures for the state’s healthcare system due to increased caseloads caused by the pandemic. 

  • Medi-Cal Expenditures: Medi-Cal, the state’s Medicaid program, is anticipated to cover over 15.6 to 16.1 million Californians this fiscal year. This increase in caseloads, primarily due to the economic impacts of COVID-19 and households losing employer-provided health plans, is estimated to increase the state’s Medi-Cal expenditures by $13.5 billion. The budget calls for the following under Medi-Cal: 
  • Telehealth Expansion: The proposal includes $94.8 million to make telehealth services and monitoring a permanent Medi-Cal benefit
  • Postpartum Medi-Cal Eligibility: The Administration will delay the sunsetting of the Medi-Cal Postpartum Eligibility provision from December 2021 to 2022 in this proposal. 

 

California Advancing and Innovating in Medi-Cal (CalAIM): Last year, the Administration delayed its plans to initiate CalAIM in the 2020-21 budget due to the economic contraction from COVID-19. This year, Governor Newsom has allocated $1.1 billion for the launch of CalAIM. Many of our funders deeply involved with the intersection of health equity, housing, and homelessness are excited for the state’s renewed framework for whole-person care that involves better coordination and service delivery of Medi-Cal programs. 

  • Office of Health Care Affordability: The budget also includes an $11.2 million initial investment to create the Office of Health Care Affordability within the Office of Statewide Health Planning and Development. The new office would be responsible for increasing transparency in the cost and quality of medical services, establish cost targets for providers, and enforce compliance to those targets. 
  • Dignified and Healthy Aging: In less than a decade, 1 in 5 Californians will be 65 years of age or older. This significant demographic shift requires a statewide, coordinated response to this group’s unique economic and medical needs. The combination of the economic uncertainty from COVID-19 and the high percentage of older adults, especially people of color, living in poverty in California, makes this group highly susceptible to housing and food insecurity. To this end, the Administration has included these investments: 
  • Adult Residential Facilities (ARF) and Residential Care Facilities (RCF): $250 million will be provided in one-time funding to the Department of Social Services to acquire and repurpose property for older adults. The Administration specifies the goal to keep older adults securely housed and add 5,000 beds across the state.
  • Office of Medicare Innovation and Integration: The budget includes the Administration’s intent to create an Office of Medicare Innovation and Integration to provide better analysis methods and data-driven plans better to expand access to Medicare for low to middle-class older adults. 

 

Older Populations: Notable, the Administration has omitted its Medi-Cal expansion to undocumented seniors age 65 and older. The Administration included this plan in the January 2020-2021 budget proposal but retracted it from the May Revised Budget due to the economic impacts of COVID-19. As we have witnessed, the risks of exposure and susceptibility to the COVID-19 virus are higher amongst older adults, especially within immigrant communities excluded from receiving federal assistance and the past COVID-19 relief packages. Expanding full-scope Medi-Cal services to undocumented older adults comes at a time when affordable and a stable source of preventative and chronic healthcare is critical to their health and well-being amidst a pandemic. 

 

Behavioral Health: The pandemic has made clear the need for and disparate access to behavioral health services, especially at a time where safer at home orders, distance learning, and financial stresses have defined our reality. This budget proposal includes investments into county health departments and capacity and information sharing infrastructure with schools to address the rising need for behavioral health services. Some key highlights include: 

  • $400 million to increase the number of students accessing behavioral health services through Medi-Cal managed plans, in partnership with county health services and K-12 schools.  
  • $25 million in one-time funding to provide grants to the Mental Health Student Services Partnership program, which funds partnerships between schools and county health departments.
  • The budget also includes $750 million in competitive grants for counties to strengthen the behavioral health services continuum ranging from acute, emergent services to rehabilitative programs. Grants may be used to acquire and rehabilitate real estate properties for behavioral health treatment centers to reduce the number of at-risk and unhoused individuals and increase the number of available beds. 

 

Environment and Climate Change 

This year, on top of the pandemic, California saw its most widespread devastation from wildfires. The reality of climate change demands bold steps and effective policies to mitigate further damage to our environment. 

  • Wildfire Resiliency: The Administration has proposed $1 billion for wildfire resilience and disaster preparedness. Investments include: 
  • Increase Fire Personnel: The budget includes $143 million to hire more firefighting personnel across the state. Last fall, the Governor signed legislation that would reduce barriers to former inmates seeking careers in fire or other emergency response. 
  • Forest Management and Prevention: $512 million will be dedicated to improving landscapes across California to strengthen wildfire resilience. Tactics include forest thinning, prescribed fire, and other management methods. 

 

Cap-and-Trade: The proposal also unveils a $1.37 billion Cap-and-Trade spending plan. 

  • AB 617 (Community Air Protection Program): $325 million would be used for targeted air monitoring, emission reduction programs, and incentives for cleaner vehicles for communities at disproportionate risk of air pollution. 
  • Transportation and Zero-Emission Vehicles: Last fall, Governor Newsom signed an executive order that requires all cars manufactured and sold in the state to be zero-emission vehicles. To this end, $635 million will be dedicated to reducing carbon emissions from cars, trucks, and off-road and other transportation vehicles. The budget includes funding for sales tax exclusion incentives and infrastructure for manufacturers and the Clean Cars 4 All trade-in program, which encourages low to middle-class households to trade in their older, higher-polluting vehicles. 

 

Nonprofit/Small Business

The Governor’s 2021/2022 proposed budget includes numerous investments designed to support small businesses and nonprofit organizations. Some of these investments are in direct response to the immeasurable challenges created by the COVID pandemic, while others are an advancement on previous resources aimed at these sectors. The budget includes more than a billion dollars to support struggling businesses and nonprofits through tax credits and cash grants. Intertwined throughout these supports for small businesses are workforce proposals that create and retain jobs for California’s workers.

 

Proposals included in the “Early Action Package.”

The COVID-19 Relief Grant Program includes an investment of $575 million. This program provides grants of up to $25,000 for small businesses and nonprofit organizations that have been impacted by COVID-19.  The grants will prioritize industries, communities, and geographies that have been disproportionately affected by the pandemic. Included in this program is $25 million for small cultural institutions such as museums and art galleries.

Emergency relief of $70 million is proposed for individuals and small businesses from service industries that have been overwhelmingly affected by COVID shutdowns. Many of these businesses have been closed since March 2020 and include restaurants, bars, and salons. Organizations can obtain these funds through one-time fee waivers.
Lastly, the budget proposes $35 million to startup grants for entrepreneurs to create new small businesses. Grants will be up to $10,000 and would prioritize people of color, women, and immigrants.

The budget proposes the following supports for businesses and nonprofit organizations:

  • Main Street Small Business Tax Credit: The Administration allocates $100 million credit against state income or sales taxes for small businesses impacted by COVID-19. These resources aim to support in retaining and hiring employees. 
  • California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA): The budget proposes doubling the state’s investment in this program by providing a $100 million expansion. Under CAEATFA, businesses can exclude sales taxes if they are purchasing manufacturing equipment that utilizes alternative energy. 
  • California Infrastructure and Economic Development Bank (IBank): IBank would receive a $100 million investment with $50 million for small business loan guarantees and $50 million for broad support of IBank’s programs, with a focus on those that benefit underserved businesses. 
  • The California Rebuilding Fund: This California Rebuilding Fund, a partnership consisting of public, private, and philanthropic funds, would receive an additional $12.5 million to provide loans to small businesses. The fund is expected to provide $125 million in resources for small businesses.

 

Justice System

The Governor’s budget is proposing a program to allow individuals charged with traffic violations to avoid in-person appearances and pay fees online. This program focuses on supporting low-income individuals, providing discounts over 50% of fines and assessments, and the opportunity to participate in a fee payment plan. The amount of this budgetary proposal is $12.3 million, with the hopes of increasing the allocation and expanding the types of infractions included over the next few years. 

 

Homelessness & Housing

Addressing Homelessness:
With more than 25 percent of the state's population experiencing homelessness, Governor Newsome has proposed a series of one-time investments to "further develop a broader portfolio of housing needed to end homelessness." The funding includes acquiring and rehabilitating property for our most vulnerable communities. Though the budget does not propose a long-term funding strategy to address homelessness, it does focus on the need for permanent housing.

The proposed investments are as follows:

  • A $750 million one-time General Fund to continue acquiring and rehabilitating hotels/motels and other buildings through the Homekey Program. California will convert the acquired property into interim or permanent housing for individuals experiencing homelessness. $250 million will be available through early June.
  • A $750 million one-time General Fund is available over three years to acquire and rehabilitate behavioral health treatment and community-based residential facilities administered through the Department of Health Care Services via grants to counties. This funding will focus on providing individuals with behavioral health treatment. However, such grants will require a local match and the production of about 5,000 beds, units, or rooms.
  • A $250 million one-time General Fund will be available through the Department of Social Services to acquire and rehabilitate adult and senior facilities.

 

Focus on Housing:
Last year, Governor Newsom stepped up to protect renters impacted by the COVID-19 pandemic. In this year’s budget, Newsom has proposed an extension of the state eviction moratorium past its expiration date, January 31, 2021. In addition, a second federal COVID-19 relief bill enacts $2.6 billion in assistance for rent and utility expenses for low-income California renters, which aims to stabilize at-risk renters.

The 2021-22 proposed budget allocates one-time investments to support housing development. The new investment of $500 million towards the Infill Infrastructure Grant Program focuses on housing production while providing job opportunities. Afterward, a third round of $500 million will be allocated for low-income housing tax credits to help builders create affordable, low-income rental housing to ramp up affordable housing development. 

 

Education

Governor Newsom recognizes the importance of funding education, especially after the tremendous impact the pandemic has had on education and districts across the state.  In his 2021-22 budget, Newsom proposes a record $98.2 billion focused on reopening schools for grades TK-6, summer school, community colleges, and a 3 percent increase in funding allocation for UC and CSU school systems.

A few highlights from the budget include a historic proposal of $4.6 billion for summer school and extra learning for students who have struggled with virtual education, special needs, and students experiencing housing insecurity. Focusing on our educators, a one-time $500 million is proposed for professional development programs focused on educator effectiveness, justice, implicit bias training, and social and emotional learning. The budget will allocate $250 million to address the teacher shortage by improving our educator pipeline through the Golden State Teacher Grant Program. As a reminder, Proposition 98 constitutionally guarantees annual funding for K-12, community colleges, and state preschool programs. Below is a breakdown of the proposed educational budget:

  • Transitional Kindergarten: A proponent of transitional kindergarten (TK), Governor Newsom proposes to invest $500 million in one-time funding to expand TK programs for younger students, rebuild existing facilities to use for TK and full-day kindergarten, and training for TK instructors.
  • K-12 & Community Colleges: Much of the Prop. 98 funding, $88.1 billion, is allocated for K-12 and community colleges, bringing the total spending to $89.2 billion. Focusing on K-12, the budget aims to repay deferred payments, expand learning time, and begin in-person instructions. The funding for community colleges also includes $250 million for emergency financial aid for students in need and experiencing housing and food insecurity.
  • CSU & UCs: The proposed $144.5 million CSU budget focuses on increasing resources for operational costs, providing basic needs for students experiencing homelessness, hunger, and financial insecurities, and addressing the digital divide as we continue with virtual learning. The UC $136 million budget similarly focuses on addressing operational costs, the digital divide, and the UC Programs in Medical Education expanding to American Indian communities.  

 

COVID-19 Response

Praised for its early response to the pandemic, California is now scrambling to contain the virus's transmission while also speeding up vaccine distribution. In response, the state continues to deploy federal, state, mutual aid, and private sector resources to support communities across the state.

  • Federal Relief: The fifth federal relief bill, Coronavirus Response and Relief Supplemental Appropriations Act, passed in December 2020 and extended unemployment insurance through March 14, 2021, provided a one-time direct relief payment to individuals and families, and allotted more business support through March 2021. States expect $100 billion to provide additional funding for testing, contact tracing, and vaccine distribution. However, it is imperative to acknowledge that support beyond this bill is critical for the recovery and rebuilding of our state.  
  • State Emergency Response: Vaccine Distribution: The budget includes over $300 million for vaccine distribution, including a public awareness campaign to increase vaccine outreach. The state will continue to partner closely with community partners and stakeholders to help plan and expedite a fair and equitable vaccine distribution. Vaccines remain limited and will be made available according to approved state guidelines. 
  • COVID-19 Pandemic Response: Throughout the budget, allocations for the pandemic indicate a focus on preparedness, response, and recovery. The budget focused on the procurement and distribution of personal protective equipment (PPE) and the establishment of Health Corps deployed to facilities across the state to address the surge, maintain hospital staff capacity, and implement programs to protect vulnerable populations. The current estimates of the COVID-19 Pandemic emergency response are about $13 billion. Federal funds are expected to offset the state's cost, which has offset the net General Fund.

 

Opportunities for Philanthropy

Despite the pandemic’s substantial social and economic repercussions, the past year has highlighted the strength of the partnership between philanthropy and government. From disaster resilience support to the inclusion of immigrants in COVID-19 relief to the wraparound services provided through Project Homekey, philanthropy has shown its remarkable ability to respond quickly and in thoughtful coordination with the state. Nevertheless, it is unlikely that California’s stronger than predicted revenue streams or even additional federal relief will prevent the state’s future deficits. Funders should anticipate how the impact of these deficits are likely to impact the communities they serve. Philanthropy alone cannot indefinitely fill the gap for critical social services programs affected by our state’s future cuts. This need will result in more calls for philanthropic investment in similar public-private partnerships.
 
For this reason, philanthropy must be active and bold in advocacy during the budget process. In this proposal stage of the budget, philanthropy and its nonprofit partners have the opportunity to engage and educate policymakers on innovative solutions and priorities until the state approves the final budget in June. Funders interested in learning more about advocacy related to the state budget and foundations’ legal limitations can find more information in this Primer on Advocacy for Funders by Bolder Advocacy. Contact our Public Policy team if you need further clarification on how funders navigate these advocacy guidelines. 

The Public Policy team at Southern California Grantmakers will closely monitor the budget process and provide updates on significant developments.

 

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