Overview of the 2020-21 Budget Bill
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OVERVIEW OF THE 2020-21 BUDGET BILL Senate Bill 808 As Introduced on January 10, 2020 Senate Committee on Budget and Fiscal Review Senator Holly J. Mitchell, Chair TABLE OF CONTENTS BUDGET OVERVIEW ..............................................................................................................1 SUBCOMMITTEE NO. 1 ON EDUCATION K-14 EDUCATION ............................................................................................................1-1 HIGHER EDUCATION ........................................................................................................1-18 SUBCOMMITTEE NO. 2 ON RESOURCES, ENVIRONMENTAL PROTECTION, ENERGY AND TRANSPORTATION RESOURCES .....................................................................................................................2-1 TRANSPORTATION ...........................................................................................................2-28 SUBCOMMITTEE NO. 3 ON HEALTH AND HUMAN SERVICES HOMELESSNESS ...............................................................................................................3-1 HEALTH ...........................................................................................................................3-14 HUMAN SERVICES ...........................................................................................................3-48 SUBCOMMITTEE NO. 4 ON STATE ADMINISTRATION AND GENERAL GOVERNMENT STATE ADMINISTRATION AND GENERAL GOVERNMENT .................................................4-1 LABOR .............................................................................................................................5-13 SUBCOMMITTEE NO. 5 ON CORRECTIONS, PUBLIC SAFETY AND JUDICIARY CORRECTIONS, PUBLIC SAFETY AND LABOR ...................................................................5-1 APPENDIX TIMELINE FOR THE 2020-21 SENATE BUDGET BILL .........................................................i ASSIGNMENTS OF THE SENATE BUDGET COMMITTEE STAFF ..........................................ii CALIFORNIA STATE BUDGET HISTORY ...........................................................................iii FISCAL SCHEDULES: GENERAL FUND REVENUES ....................................................................................iv GENERAL FUND NON PROPOSITION 98 EXPENDITURES ..........................................v GENERAL FUND PROPOSITION 98 EXPENDITURES ..................................................vi GENERAL FUND MULTI-YEAR FORECAST ..............................................................vii DEBT AND LIABILITIES ...........................................................................................viii PROPOSITION 2 RAINY DAY FUND ..........................................................................ix Overview of the 2020-21 Budget Introduction Budget Overview INTRODUCTION The Governor has proposed a budget for the 2020-21 fiscal year that includes General Fund resources of $156.9 billion and expenditures of $153.1 billion. Based on the budget proposal, the General Fund would end the 2020-21 fiscal year with an unencumbered reserve of $1.6 billion. The budget also includes deposits of $2.0 billion to the Budget Stabilization Account (BSA), resulting in an expected balance in this account of $18.0 billion at the end of the budget year and $110 million to the Public School System Stabilization Account (PSSSA), bringing its balance to $487 million. The Governor’s budget does not include an additional deposit into the Safety Net Reserve, maintaining the $900 million balance currently in this reserve. The General Fund continues to be in a relatively strong position. According to the Legislative Analyst’s Office’s (LAO) Overview of the Governor’s Budget, the Governor has a $5.9 billion surplus to allocate in the 2020-21 budget. The Governor’s near term revenue estimates from the state’s three largest taxes are very close to those of the LAO’s in their November 2019 Fiscal Outlook. In allocating this surplus, the Governor balances the majority of this surplus among the state’s discretionary reserve and one-time and ongoing spending. Specifically, the Governor proposes a year-end balance in the Special Fund for Economic Uncertainties of $1.6 billion, $2.5 billion for one-time or temporary priorities, and $1.4 billion in ongoing commitments (growing to $1.8 billion upon full implementation). Overall, General Fund spending in 2020-21 is expected to increase by $5.3 billion from the revised 2019-20 budget act. When accounting for all funds, including special funds and bond funds, the Governor’s budget proposes $222.2 billion in total expenditures. California’s fiscal strength remains strong due in large part to efforts in recent years to build the state’s reserves and pay down debts and liabilities. Although there are persistent risks – primarily from actions and policies of the federal government - our state is well positioned to mitigate the next economic downturn. However, as we have steadily built the state’s non-Proposition 98 General Fund, the Legislature may want to consider whether the level of Proposition 98 protection is sufficient. OVERVIEW OF GOVERNOR’S BUDGET PROPOSAL Overall Structure Overall, the Governor’s proposed 2020-21 budget includes $156.9 billion in General Fund revenues and other resources and $153.1 billion in total General Fund expenditures ($95.5 billion in non-Proposition 98 and $57.6 billion in Proposition 98 funds). The proposed budget would provide for a $1.6 billion unencumbered reserve balance in the Special Fund for Economic Uncertainties (SFEU), a $900 million Safety Net Reserve, a PSSSA balance of $487 million, and reflect $18.0 billion in the BSA (including a $2.0 billion deposit in the budget year). The Governor’s proposed 2020-21 budget includes significant one-time investments while committing $1.4 billion to new expenditures on an ongoing basis. Senate Committee on Budget and Fiscal Review Page 1 Overview of the 2020-21 Budget Introduction The General Fund budget details are summarized below. 2019-20 and 2020-21 General Fund Summary (Dollars in Millions) Revised Proposed 2019-20 2020-21 PRIOR YEAR BALANCE $8,497 $5,234 Revenues and transfers $146,486 $151,635 TOTAL RESOURCES AVAILABLE $154,983 $156,869 Non-Proposition 98 Expenditures $93,344 $95,510 Proposition 98 Expenditures $56,405 $57,573 TOTAL EXPENDITURES $149,749 $153,083 FUND BALANCE Encumbrances $2,145 $2,145 Special Fund for Economic $3,089 $1,641 Uncertainties Budget Stabilization Account $16,018 $17,977 Safety Net Reserve $900 $900 Public School System Stabilization $524 $487 Account Fiscal Stability The economic expansion coming out of the last downturn has now entered its 11th year, which is the longest period of sustained growth since World War II. The 2019 budget act continued a trend of building reserves and paying down budgetary debts and unfunded liabilities. Per the Governor’s Budget, California will have total reserves in the budget year of approximately $21 billion to help mitigate against the next economic downturn. However, managing a recession will still be challenging. The Governor’s Budget points out that even a moderate recession could result in revenue declines of nearly $70 billion and a budget deficit of over $40 billion over three years. The following chart from the Governor’s Budget displays such an impact of a moderate recession on General Fund revenues. Senate Committee on Budget and Fiscal Review Page 2 Overview of the 2020-21 Budget Introduction Besides the overarching uncertainty of when the next economic downturn will occur, the Governor’s Budget assumes federal approval of the Managed Care Organization (MCO) tax authorized in AB 115 (Committee on Budget and Fiscal Review) Chapter 348, Statutes of 2019 with revenues beginning to accrue in 2021-22. This revenue is an essential component in the proposed budget remaining structurally balanced through 2023-24. It is worth noting that federal government recently rejected California’s application for the MCO tax. However, the Administration has indicated the intent of the state addressing concerns raised by the federal government in an amended application. In addition, the Governor’s Budget forecast assumes that nearly $2 billion in expenditures that were subject to suspension on December 31, 2021, pursuant to the 2019 Budget Act, will now be subject to suspension on July 1, 2023. Although the Governor pushes these suspensions back 18 months, these expenditures are necessary to support critical programs and, as such, are difficult to assume as a necessary tool for balancing the budget through 2023-24. Senate Committee on Budget and Fiscal Review Page 3 Overview of the 2020-21 Budget Introduction BUDGET YEAR PROPOSED EXPENDITURES The proposed budget includes additional required programmatic increases and new spending. The table below summarizes the Governor’s proposed expenditures by program area. The largest expenditures by program are in K-12 education and health and human services. General Fund Expenditures Current and Budget Year (Dollars in Millions) Revised Proposed Change Program Area 2019-20 2020-21 K-12 Education $58,675 $59,639 $964 Higher Education 17,490 17,509 19 Health and Human Services 41,893 47,454 5,561 Corrections and Rehabilitation 13,432 13,387 -45 Business, Consumer Services, 1,465 348 -1,117 Housing Transportation 287 240 -47 Natural Resources 3,812 3,812 - Environmental Protection 672 140 -532 Labor and Workforce 186 159 -27 Development Government Operations 1,839 1,413 -426 General Government: