GABRIEL PETEK
LEGISLATIVE ANALYST
OCTOBER 2019
California Spending Plan
The 2019‑20 Budget:
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
Table of Contents
Budget Overview .................................................................1
Evolution of the Budget ............................................................4
Major Features of the 2019‑20 Spending Plan ..........................................6
Tax and Other Revenue Policy Changes ...........................................6
Debt and Liability Payments ....................................................8
Programmatic Spending .......................................................9
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
1
Each year, our office publishes the California
Spending Plan to summarize the annual state
budget. This publication provides an overview of
the 2019‑20 Budget Act, then highlights major
features of the budget approved by the Legislature
and signed by the Governor. All figures in this
publication reflect actions taken through July 16,
2019, but we have updated the narrative to reflect
actions taken later in the legislative session. In
addition to this publication, we have released a
series of issue-specific, online posts (for example,
a post on Health and Human Services issues) that
give more detail on the major actions in the budget
package.
BUDGET OVERVIEW
Spending
Figure 1 displays the administration’s July
2019 estimates of total state and federal
spending in the 2019-20 budget package. As
the figure shows, the budget assumed total state
spending of $208.9 billion (excluding federal and
bond funds in 2019-20), an increase of 2 percent
over revised totals for 2018-19. General Fund
spending in 2019-20 is $147.8 billion—an increase
of $5.1 billion, or 4 percent, over the revised
2018-19 level. This increase is lower than it would
be otherwise because the budget attributes
several billions of dollars in new expenditures
to 2018-19 rather than 2019-20. Special fund
spending is roughly flat from 2018-19 to 2019-20.
Proposition 98 Funding Rises Steadily.
Proposition 98 (1988) established a constitutional
minimum annual funding requirement for
K-14 education. The minimum funding amount
grows over time based upon various factors,
including changes in General Fund revenue, per
capita personal income, and student attendance.
The state meets the funding
requirement using a combination
of state General Fund and
local property tax revenue.
Total Proposition 98 funding
for 2019-20 is $81.1 billion,
an increase of $2.9 billion
(3.7 percent) from the revised
2018-19 level (Figure 2, see next
page). For 2018-19 and 2019-20,
the approved funding equals
the minimum requirement. For
2017-18, funding is $117 million
above the minimum requirement.
Budget Commits $21.5 Billion in Discretionary
General Fund Spending. After accounting
for constitutionally required spending (such
as Proposition 98 funding for K-14 education)
and added costs to maintain existing policies
and programs, we estimate the Legislature
had $21.5 billion in discretionary General Fund
resources to allocate in the 2019-20 budget. The
spending plan devotes this surplus to four major
purposes (Figure 3, see next page). These are:
(1) $9 billion to pay down some state debts and
liabilities, (2) $4 billion in new ongoing programmatic
spending, (3) $6.5 billion in one-time programmatic
spending, and (4) $2.1 billion in optional reserves.
(Optional reserves include the $1.4 billion ending
fund balance in the state’s discretionary reserve.)
Ongoing Spending Grows to $6 Billion at
Full Implementation. The cost in 2019-20 of
new discretionary ongoing program spending
is $4 billion. This is higher than the amount
other recent budgets allocated to new ongoing
spending from an available surplus. In particular,
the 2016-17 budget allocated $300 million to
Figure 1
Total State and Federal Expenditures
(Dollars in Millions)
Revised
Enacted
2019‑20
Change From 2018‑19
2017‑18 2018‑19 Amount Percent
General Fund $124,756 $142,693 $147,781 $5,087 4%
Special funds 49,655 61,226 61,093 -134 —
Budget Totals $174,411 $203,920 $208,874 $4,954 2%
Bond funds $2,905 $7, 3 9 9 $5,904 - $1,494 -20%
Federal funds 92,352 100,007 106,303 6,296 6
Note: Reflects administration estimates of budgetary actions through July 16, 2019.
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
2
new ongoing spending and the 2018-19 budget
allocated $1.3 billion. Further, our estimates suggest
the full implementation cost of the new 2019-20
discretionary ongoing commitments is $5.9 billion.
Some of this increase results from the budget
instituting new ongoing spending increases midway
through the fiscal year, such that the full-year cost
of the change occurs in 2020-21. For example, the
budget provides rate increases for most Department
of Developmental Services (DDS) service providers
beginning on January 1, 2020 and funds additional
full-day preschool slots beginning on April 1, 2020.
In other cases, the cost of an ongoing policy
changes over time. For example, the spending
plan reduces counties’ share of costs for In-Home
Supportive Services (IHSS), resulting in escalating
costs to the state’s General Fund, which increase
by hundreds of millions of dollars over the period.
That said, included in this estimate of ongoing
spending are a number of program expansions that
are subject to suspension, as described in the next
paragraph. If the program suspensions occur, new
ongoing spending in the budget package (in full
implementation) is $4.2 billion.
Budget Makes Several Augmentations
Subject to “Suspension.” The spending plan
also makes a number of ongoing program
augmentations subject to suspension on December
31, 2021. In these cases, statute directs the
Department of Finance (DOF) to calculate whether
General Fund revenues will exceed General Fund
expenditures—without suspensions—in 2021-22
and 2022-23. If DOF determines revenues will
exceed expenditures, then the programs’ ongoing
expenses will continue. Otherwise, the expenditures
are automatically suspended. Figure 4 summarizes
the 20 ongoing expenditures in the 2019‑20 Budget
Act that are subject to this suspension language.
Altogether, the full-year cost of these suspensions
are $1.7 billion. These budget items also include
language that indicate the Legislature intends
to consider alternative solutions to restore the
program expansions if the suspension takes effect.
Figure 2
Proposition 98 Funding by Segment and Source
(Dollars in Millions)
2017‑18
Final
2018‑19
Revised
2019‑20
Enacted
Change From 2018‑19
Amount Percent
Funding by Segment
K-12 education $66,839 $68,973 $71,243 $2,270 3.3%
Community colleges 8,737 9,173 9,437 264 2.9
Proposition 98 reserve — — 377 377 —
Totals $75,576 $78,146 $81,056 $2,910 3.7%
Fund Source
General Fund $52,951 $54,445 $55,891 $1,446 2.7%
Local property tax 22,625 23,701 25,166 1,464 6.2
Note: Reflects estimates of budgetary actions through July 16, 2019.
How the 2019‑20 Budget Package
Allocates a $21.5 Billion Surplus
Figure 3
One-Time
Debt-Related
Spending
One-Time
Programmatic
Spending
Ongoing
Spending
Reserves
Note: Reflects budgetary actions through July 16, 2019.
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
3
Revenues
Figure 5 displays the
administration’s revenue
projections as incorporated into
the June 2019 budget package.
The budget package assumes
$143.8 billion in General Fund
revenues and transfers in 2019-20,
a 4 percent increase over revised
2018-19 estimates. All together,
the state’s three largest General
Fund taxes—the personal income
tax (PIT), sales and use tax, and
corporation tax—are projected to
increase 3 percent.
The Condition of the
General Fund
Figure 6 (see next page)
summarizes the condition of the
General Fund under the revenue
and spending assumptions in the
June 2019 budget package, as
estimated by DOF.
Total Reserves Are
$19.2 Billion Under Spending
Plan. As shown in Figure 6, the
budget package assumed that
2019-20 will end with $19.2 billion
Figure 4
Programs or Augmentations Subject to Suspension
(In Millions)
Program or Augmentation
Full‑Year General Fund
Savings Resulting
From Suspension
Proposition 56 Medi-Cal provider payment increases $861
IHSS 7 percent service hour restoration 358
DDS service provider rate increases (including DOR) 250
Medi-Cal optional benefits restoration 41
DDS uniform holiday schedule 30
Family Urgent Response Team 30
Senior nutrition 18
Funding for housing for foster youth 13
Emergency Child Care Bridge program 10
Extension of Medi-Cal coverage for post-partum mental health 9
Child Welfare public health nursing early intervention 8
Foster Family Agency rate increase 7
Student financial aid during the summer (CSU) 6
No Wrong Door Model 5
STD prevention 5
HIV prevention and control 5
Hepatitis C virus prevention and control 5
Student financial aid during the summer (UC) 4
Expansion of screening and intervention to drugs other than
alcohol
3
Total $1,666
IHSS = In-Home Supportive Services; DDS = Department of Developmental Services; and DOR = Department of
Rehabilitation.
Figure 5
General Fund Revenue Estimates
(Dollars in Millions)
Revised
Enacted
2019‑20
Change From 2018‑19
2017‑18 2018‑19 Amount Percent
Personal income tax $93,776 $98,304 $102,413 $ 4,109 4%
Sales and use tax 24,974 26,100 27,241 1,141 4
Corporation tax 12,313 13,774 13,133 -641 -5
Subtotals ($131,063) ($138,178) ($142,787) ($4,609) (3%)
Insurance tax $2,569 $2,643 $2,868 $226 9%
Other revenues 1,862 2,092 2,159 67 3
Transfer to BSA -4,094 -3,551 -2,158 1,393 -39
Other transfers and loans -284 -1,315 -1,851 -537 41
Totals, Revenues and Transfers $131,116 $138,046 $143,804 $5,758 4%
BSA = Budget Stabilization Account.
Note: Reflects administration estimates of budgetary actions through July 16, 2019.
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
4
in total reserves. This consists of: (1) $16.5 billion in
the Budget Stabilization Account (BSA), the state’s
constitutional reserve; (2) $1.4 billion in the Special
Fund for Economic Uncertainties (SFEU), which
is available for any purpose including unexpected
costs related to disasters; (3) $900 million in the
safety net reserve, which is available for spending
on the state’s safety net programs like California
Work Opportunity and Responsibility to Kids
(CalWORKs); and (4) $377 million in the state’s
school reserve.
The 2018‑19 Budget Act enacted a reserve
level of $15.9 billion. As such, the 2019-20 reserve
level of $19.2 billion represents an increase of
about $3.3 billion. The increase results from the
net effect of four factors: (1) required deposits of
$2.7 billion into the BSA under the constitutional
rules of Proposition 2 (2014); (2) an optional
deposit of $700 million into the safety net reserve;
(3) a first-ever deposit into the school reserve,
as described below; and (4) a reduction of
$550 million, relative to the enacted 2018-19 level,
in the state’s SFEU.
State Makes First Ever Deposit Into School
Reserve. In addition to changing the rules
regarding deposits into the BSA, Proposition 2 also
established a constitutional reserve account within
Proposition 98. The purpose of this reserve is to
set aside some Proposition 98 funding in relatively
strong fiscal times to mitigate funding reductions
during economic downturns. The 2019-20 budget
makes the first ever deposit into this account. The
$377 million deposit is mainly the result of relatively
strong capital gains revenue and certain other
required conditions being met for the first time.
EVOLUTION OF THE BUDGET
Governor’s January Budget Proposal
On January 10, 2019, Governor Newsom
presented his first state budget proposal to the
Legislature.
January Budget Proposal Reflected a
Significant Surplus. We estimate that—at the
time of the January budget—the Governor had
$20.1 billion in discretionary resources available to
allocate in the 2019-20 budget process. (This surplus
figure is lower than what we reflected in our report,
The 2019‑20 Budget: Overview of the Governor’s
Budget, due in part to an accounting error in the
Governor’s budget.) This remarkable surplus was the
result of a number of factors: higher-than-expected
revenue growth over multiple years and
lower-than-anticipated spending on some programs,
most notably Medi-Cal. In January, the Governor
proposed a total reserve level of $18.5 billion.
Governor Allocated Most of the Surplus
Toward One-Time Debt and Spending Purposes.
The Governor proposed allocating half of that
surplus toward repaying state debts—including
pension liabilities and budgetary debts. The
Governor also proposed spending an additional
$5 billion on one-time or temporary programmatic
spending. These one-time proposals focused on
early education and child care, as well as housing
and homelessness. The January budget proposed
$2.7 billion in new ongoing programmatic spending.
Figure 6
General Fund Condition Summary
(In Millions)
2018‑19 2019‑20
Prior-year fund balance $11,419 $6,772
Revenues and transfers 138,046 143,804
Expenditures 142,693 147,781
Ending fund balance $6,772 $2,796
Encumbrances $1,385 $1,385
SFEU balance $5,387 $1,411
Reserves
BSA balance $14,358 $16,516
SFEU balance 5,387 1,411
Safety net reserve 900 900
School reserve — 377
Total $20,645 $19,204
SFEU = Special Fund for Economic Uncertainties and BSA = Budget
Stabilization Account.
Note: Reflects administration estimates of budgetary actions through
July 16, 2019.
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
5
These increases focused on additional spending for
the universities, various human services programs—
including CalWORKs and IHSS—and health.
Governor Proposed Partial Tax Conformity
Package, Expanded EITC, and Did Not Extend
MCO Tax Package. The Governor’s January
budget proposal included a plan to make changes
to the state tax code that would conform to
some provisions of the federal tax code. Taken
altogether, these changes would raise revenue. The
administration also proposed expanding the state’s
Earned Income Tax Credit (EITC), which would
reduce revenue. The administration coupled these
proposals together—listing potential tax conformity
actions for the Legislature to consider and
expressing its intent that the state adopt enough
of these provisions to cover the cost of the existing
EITC program and the proposed expansion.
Meanwhile, the Governor did not propose renewing
the tax on managed care organizations (MCOs).
Governor’s May Revision
May Revision Reflected Slightly Better
Budget Position. Despite the remarkable size
of the estimated surplus available to allocate in
January, the May Revision reflected a slightly
better budget picture with a surplus that was
larger by $800 million. This increase was the net
result of a variety of factors, including somewhat
higher revenues (offset by higher constitutional
requirements) and slightly lower baseline spending.
Governor Allocated an Additional $1.3 Billion
in New Programmatic Spending in May Revision.
In the May Revision, the Governor proposed
reducing discretionary reserves and using new
required Proposition 2 debt payments for a portion of
the Governor’s January discretionary debt proposal.
This reduction and shift in spending enabled the
Governor to allocate a total of $1.3 billion in new
programmatic spending in May. The Governor
generally used this additional funding to expand
one-time and ongoing programmatic commitments.
Governor Proposed New Sunsets for Existing
Programs in 2021-22. In putting together the May
Revision proposals, the administration identified
a multiyear budget deficit under its own budget
estimates and proposals. Consequently, coupled
with the program expansions, the Governor
proposed to “sunset” three major categories of
existing program expenditures. Expenditures made
temporary included provider payment increases in
Medi-Cal, a restoration of previously reduced IHSS
service hours, and new supplemental rate increases
for developmental services providers. The Governor
continued not to propose reauthorizing the MCO
tax package in the May Revision.
June Budget Package
The Legislature passed the final budget package
on June 13, 2019. The Governor signed the
2019‑20 Budget Act and 15 other budget-related
bills on June 27, 2019. These bills—as well as
other budget-related legislation passed later in
the legislative session—are listed in Figure 7 (see
next page). The Governor vetoed $5.3 million in
General Fund appropriations in the 2019‑20 Budget
Act, including a $2.8 million appropriation for the
El Dorado County Courthouse and a $2.5 million
augmentation for the Public Employment Relations
Board.
Final Budget Reflected Partial Tax Conformity,
EITC Expansion, and Intent for MCO Tax
Package. In their respective packages, neither
house adopted the Governor’s partial tax conformity
plan but both houses planned a reauthorization
of the MCO tax package. The final spending
plan includes most of the Governor’s partial tax
conformity proposals and an expansion of the state
EITC, which is similar to the proposed version at
the time of the May Revision. Finally, the spending
plan (including actions taken later in the legislative
session) reauthorizes the MCO tax in 2019-20.
Final Budget Includes Suspension Language,
Rather Than Sunset Provisions. Instead of the
automatic sunset provisions proposed by the
Governor in the May Revision, the 2019‑20 Budget
Act reflects a number of automatic suspensions,
which however would not occur if the General Fund
condition is somewhat better than the administration
currently projects. (These suspensions were
described in the “Budget Overview” section of
this report.) The dollar value of these contingent
program suspensions is $1.7 billion.
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
6
MAJOR FEATURES OF THE 2019‑20 SPENDING PLAN
This section describes the major features of
the 2019-20 spending plan. These are organized
into three areas: (1) tax and other revenue policy
changes, (2) debt and liability payments, and
(3) programmatic spending changes.
TAX AND OTHER REVENUE
POLICY CHANGES
Expands the EITC. The EITC is a PIT provision
that is intended to reduce poverty among
California’s poorest working families by increasing
Figure 7
Budget‑Related Legislation
Bill Number Chapter Subject
Legislation Passed Before July 16, 2019
AB 74 23
The 2019‑20 Budget Act
AB 101 159 Housing
AB 110 80 Amendments to the 2019-20 Budget Act
AB 111 81 Wildfire safety and insurance
SB 75 51 Early education and K-12 education
SB 76 52 Settle up and COLA (education finance)
SB 77 53 Higher education
SB 78 38 Health
SB 79 26 Mental health
SB 80 27 Human services
SB 81 28 Developmental services
SB 82 29 State government
SB 83 24 Employment
SB 84 30 Political Reform Act of 1974: Online filing system
SB 85 31 Public resources
SB 87 32 Transportation
SB 90 33 Public Employees’ Retirement
SB 92 34 Taxation
SB 93 35 Amendments to the 2018-19 Budget Act
SB 94 25 Public safety
SB 95 36 Courts
SB 96 54 Emergency telephone users surcharge
SB 103 118 Employment
SB 104 67 Health
SB 105 37 Corrections facilities
SB 106 55 Amendments to the 2019-20 Budget Act
Legislation Passed After July 16, 2019
SB 109 363 Amendments to the 2019-20 Budget Act
SB 112 364 State government
SB 113 668 Housing
AB 114 413 Education finance
AB 115 348 Managed care organizations
AB 118 859 Employment
AB 121 414 Human services
COLA = cost of living adjustment.
Note: This figure includes budget and trailer bills identified in Section 39.00 of the 2019-20 Budget Act that were enacted into law. For this reason, it
excludes AB 91 (Burke) which made changes to state income tax laws and SB 200 (Monning) that created the Safe and Affordable Drinking Water
program. This list does include, however, SB 93, which amended the 2018-19 Budget Act.
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
7
their after-tax income. The 2019-20 budget
plan expands the state’s EITC in three ways:
(1) increases the income eligibility limit to $30,000
for all filers, (2) provides a new additional credit of
$1,000 for eligible filers with at least one dependent
under age six, and (3) increases the credit amount
for filers with earnings toward the higher end of the
2018 eligibility range. These changes are estimated
to reduce General Fund revenue by about
$600 million per year. The budget also includes
$10 million for grants to expand awareness of the
EITC.
Makes Changes to Individual and Business
Tax Provisions (Partial Tax Conformity). The
budget package includes legislation that makes
11 changes to state income tax laws that, in
general, adopt—or “conform” to—recent changes
to similar federal tax laws. The most significant
provisions affect businesses and
certain kinds of business income.
Some of the changes will reduce
state taxes for the affected
filers while other changes will
increase them. Figure 8 lists the
conformity provisions and their
estimated revenue effects. In all,
these provisions are expected to
increase General Fund revenue by
$1.6 billion in the budget year.
Creates Sales Tax Exemptions
for Menstrual Products and
Children’s Diapers. The budget
package creates two new sales
tax exemptions: one for menstrual
products and another for children’s
diapers. These exemptions apply
to the full amount of the state and
local sales tax. The administration
estimates that these exemptions
will reduce state and local sales
tax revenue by $76 million per year
($35 million General Fund). The
budget package includes annual
transfers from the General Fund to
the Local Revenue Fund 2011 to
offset estimated revenue losses to
counties/cities resulting from the
new exemptions. These exemptions
go into effect on January 1, 2020 and expire on
January 1, 2022. The budget package requires our
office to submit reports reviewing the effectiveness
of these exemptions—based on criteria included in
the statute—by January 1, 2021.
Provides for Additional Future Affordable
Housing Tax Credits. The budget increases
by $500 million the state’s low-income housing
tax credit program which provides tax credits to
builders of rental housing affordable to low-income
households. Of this total, $200 million is set aside
for developments that include affordable units for
both low- and lower-middle-income households.
(Because these credits would not be claimed until
well after 2019-20, the General Fund condition
figures displayed in this report do not reflect the
costs of these expanded credits.)
Figure 8
Individual and Business Tax Provision Changes
(Partial Tax Conformity)
(In Millions)
Tax Provision
Estimated Change in Revenue
2019‑20 2020‑21
Limits noncorporate business losses $1,300 $850
Eliminates like-kind exchanges of personal and
intangible property for single filers earning more than
$250,000 ($500,000 for joint filers)
238 200
Eliminates net operating loss carrybacks 200 190
Limits deductions of Federal Deposit Insurance
Corporation premiums paid by banks
65 55
Eliminates differences between state and federal law
regarding the tax treatment of corporate mergers and
acquisitions (Section 338 election)
38 60
Eliminates the performance-based compensation
exception from existing limits on business deductions
of executive pay
32 29
Repeals “technical termination” of partnerships 10 5
Modifies rules regarding contributions to Achieving
Better Life Experiences (ABLE) accounts
—
a
—
a
Allows individuals to convert an educational savings
account (529 plan) to an ABLE account without
incurring a penalty
—
a
—
a
Excludes the discharge of student loan debt in case of
death or disability from taxable income
—
a
—
a
Increases to $25 million the annual revenue threshold
for certain simplified tax accounting rules for small
businesses
-280 -110
Net Change in Revenue $1,602 $1,278
a
Estimated revenue reduction of less than $1 million.
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
8
Creates a State Individual Health Insurance
Coverage Mandate. Beginning in 2020,
budget-related legislation creates an ongoing state
requirement—known as the “individual mandate”—
that most individuals maintain health insurance
coverage or pay a penalty. The individual mandate
is expected to result in additional individuals taking
up health coverage. The mandate also generates
revenue, estimated at $317 million beginning in
2020-21 and growing over time.
DEBT AND LIABILITY PAYMENTS
A major feature of the spending plan is a
package of payments aimed at addressing the
state’s outstanding debts and liabilities. Figure 9
summarizes this package.
Allocates $2.2 Billion in Constitutionally
Required Debt Payments. In addition to rules on
deposits into reserves, Proposition 2 requires the
state to make minimum annual payments to pay
down certain eligible debts and liabilities. These
minimum requirements are based
on a set of formulas. In general,
requirements are higher when
estimates of the upcoming year’s
revenues—particularly those from
capital gains—are higher. The
total Proposition 2 debt payment
requirement was $2.2 billion in
the 2019-20 budget package.
In addition, the spending plan
dedicates an additional $9.1 billion
to repay state debts on a
discretionary basis (Figure 9).
Makes $5.9 Billion in Additional
Unfunded Liability Payments.
State employee pension benefits
are administered by the California
Public Employees’ Retirement
System (CalPERS). Teachers,
administrators, and other certified
employees of school districts earn
pension benefits from the California
State Teachers’ Retirement System
(CalSTRS). Other school district
employees, such as clerical
staff, also earn pension benefits
administered by CalPERS. The state and school
districts each have full responsibility for their
respective CalPERS’ unfunded liabilities associated
with their own employees. In the case of CalSTRS,
the state and school districts share responsibility for
the system’s total unfunded liability (about one-third
is the responsibility of the state and two-thirds of
the districts).
The spending plan allocates $5.9 billion General
Fund to pay down unfunded pension liabilities
on behalf of both the state and school districts
(some of which is counted toward the state’s
Proposition 2 debt payment requirements). In
particular, the spending plan dedicates:
• $3.6 Billion to Address State’s Unfunded
Liabilities. The spending plan uses
$2.5 billion in General Fund monies to pay
down the state’s CalPERS unfunded liability.
The spending plan also devotes $1.1 billion
General Fund to reduce the state’s share
of the CalSTRS unfunded liability, as part
Figure 9
Debt and Liability Repayment Proposals in
2019‑20 Budget Package
(In Millions)
Liability Type . . . Liability Owed by . . .
Discretionary
Payments
Proposition 2
Debt Payments
Retirement Liabilites
CalPERS State $2,500 —
CalSTRS State — $1,117
CalSTRS School districts 1,640 —
CalPERS School districts 660 —
OPEB State — 260
UCRP Universities 25 —
Subtotals ($4,825) ($1,377)
Budgetary Debts
Pension deferral State $707 —
Payroll deferral State 973 —
Special fund loans State 1,283 —
Weight fee loans State 886 —
Settle up State 296 $391
CalPERS borrowing plan State — 390
Subtotals ( $ 4,14 5) ($781)
Totals $8,970 $2,158
Note: This table excludes $850 million in pension-related budget relief for school districts, which
we describe in the section on programmatic spending.
OPEB = other post-employment benefits and UCRP = University of California Retirement Plan.
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
9
of the state’s Proposition 2 debt payment
requirements.
• $2.3 Billion to Address School Districts’
Unfunded Liabilities. The spending plan also
devotes $1.6 billion General Fund to reduce
the school districts’ share of the CalSTRS
unfunded liability and $660 million General
Fund to address the school districts’ CalPERS
unfunded liability.
Repays $4.9 Billion in Outstanding Budgetary
Borrowing. Budgetary borrowing consists
of debts the state has incurred in the past to
address its budget shortfalls. The spending plan
uses $4.9 billion ($781 million is counted toward
Proposition 2) to fully repay most remaining
budgetary borrowing, most of which falls into three
categories: (1) deferrals, (2) loans, and (3) settle up.
In particular, the spending plan uses $1.7 billion
to undo two budgetary deferrals: one related to
state employee payroll and one related to state
pension payments. The spending plan also uses
$2.2 billion to repay all remaining outstanding
special fund loans, including $886 million to
fully repay the state’s outstanding “weight fee
loans,” which are loans to the General Fund
from a fund receiving transportation weight fee
revenues. Finally, the spending plan makes a
$687 million “settle up” payment related to meeting
Proposition 98 requirements in certain years prior
to 2017-18. (Upon making this payment, the state
will have paid all outstanding settle-up.) With these
actions, the state has addressed nearly all of its
remaining “Wall of Debt”—a term used by the prior
administration to refer to the state’s outstanding
budgetary liabilities. The remaining items on the
Wall of Debt (as it was defined in the 2013‑14
Governor’s Budget) include nearly $3 billion to undo
all of the deferrals related to the Medi-Cal program
and $1.5 billion in outstanding mandate costs to
local governments and school districts.
PROGRAMMATIC SPENDING
The major General Fund and special
fund programmatic spending actions in the
2019-20 budget package are shown in Figure 10
and briefly described below. We plan to discuss
Figure 10
Major Programmatic Spending Actions in the 2019‑20 Budget Package
Education
Provides $2 billion (Proposition 98 General Fund) for LCFF.
Provides $646 million (Proposition 98 General Fund) for various special education augmentations.
Uses $850 million (General Fund) to cover a portion of districts’ CalPERS and CalSTRS pension payments in 2019-20 and 2020-21.
Provides $1.3 billion (all funds) for early education programs ($469 million ongoing).
Increases funding for CSU by $713 million General Fund ($392 million ongoing).
Increases funding for UC by $416 million General Fund ($246 million ongoing).
Health and Human Services
Increases monthly CalWORKs grants ($332 million General Fund in 2019-20, $442 million General Fund ongoing).
Increases most DDS service provider rates ($126 million General Fund in 2019-20, $253 million General Fund ongoing).
a
Expands health care coverage and increases affordability ($550 million General Fund in 2019-20).
Housing and Homelessness
Provides $1 billion to fund programs that facilitate the construction of affordable housing.
Includes $650 million in one-time grants for a variety of programs that address homelessness.
Provides $250 million in planning grants to local governments and other entities.
Other
Allocates $2.9 billion from the GGRF for various programs.
Provides roughly $700 million for various disaster-related purposes.
Establishes the Safe and Affordable Drinking Water Program ($100 million GGRF and $30 million General Fund).
a
Subject to suspension language.
LCFF = Local Control Funding Formula; DDS = Department of Developmenal Services; and GGRF = Greenhouse Gas Reduction Fund.
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
10
these and other actions in more detail in a series of
forthcoming publications this fall.
K‑14 Education
Provides a Few Notable Ongoing
Proposition 98 Augmentations. As described
earlier, under the spending plan, Proposition 98
funding for 2019-20 increases $2.9 billion
(3.7 percent) from the revised 2018-19 level. The
spending plan devotes the largest share of this
increase—$2 billion—to school districts to cover
changes in student attendance and provide a
3.26 percent cost-of-living adjustment (COLA)
for the Local Control Funding Formula (general
purpose per-student funding). The budget also
provides two augmentations related to special
education: (1) $493 million for school districts
based on the number of three- and four-year old
children identified with disabilities affecting their
education and (2) $153 million for special education
agencies with average or below average per-pupil
funding rates. For community colleges, the
budget provides $255 million to cover enrollment
growth and provide a 3.26 percent COLA for
apportionments (general purpose per-student
funding).
Pays a Portion of Districts’ Pension Costs
for the Next Two Years. The spending plan also
provides additional monies to school districts
outside of the Proposition 98 funding requirement
by paying a portion of districts’ pension costs
for the next two years. School districts’ pension
contribution rates for both CalPERS and CalSTRS
have been rising and are set to continue increasing
for at least the next few years. For CalSTRS,
the budget provides $606 million for the state to
pay a portion of districts’ costs (reducing district
contribution rates by about 1 percent of payroll
in 2019-20 and 2020-21). Similarly, the budget
provides $244 million for the state to cover a
portion of districts’ CalPERS costs (reducing district
rates by about 1 percent of payroll in 2019-20
and 2020-21). Although district pension rates will
continue to rise, the increases will be slower than
previously projected. (As described earlier, the state
also provides school districts with long-term relief
by paying down unfunded CalSTRS and CalPERS
pension liabilities.)
Early Education
Makes Significant Augmentation for Early
Education Programs, With Notable Increase
in Non-CalWORKs Slots. The budget package
provides an additional $963 million in state and
federal funds for early education programs,
increasing spending 21 percent over the revised
2018-19 level. About half of this additional
spending is for ongoing purposes. Of the ongoing
spending increases, $301 million is for more
non-CalWORKs slots. (All major child care and
preschool programs received an increase in slots,
including the State Preschool program, which
received an expansion similar to the Governor’s
proposal.) Within the $301 million is $50 million
in one-time funding for additional General Child
Care slots, with the intent to replace this funding in
the future with growth from cannabis tax revenue
(Proposition 64 [2016]).
Increases CalWORKs Child Care Caseload
and Cost. The budget package provides
$112 million ongoing for expected cost increases
in CalWORKs child care. The most notable of
these cost increases are due to certain changes in
the rules applying to CalWORKs Stage 1 families.
Specifically, the budget package grants all Stage
1 families full-time child care and verifies their
eligibility for care only once each year (rather than
continually throughout the year). The rest of the
CalWORKs child care cost increase is due primarily
to the ramping up effect of changes the state made
to Stages 2 and 3 eligibility rules a few years ago.
Funds Various One-Time Early Education
Initiatives. The budget provides $493 million for
one-time child care and preschool initiatives. The
budget package also provides $263 million to help
child care providers construct or renovate facilities
and $195 million to improve and expand child care
and preschool workforce training. Both the facility
and workforce initiatives spread available funds
over the next four years. The remaining one-time
spending is for various initiatives, including
$20 million for data improvement efforts. (The
budget also provides $300 million for additional
facility grants to help convert part-day kindergarten
to full-day programs.)
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
11
Higher Education
Increases California State University (CSU)
Funding Substantially. The budget increases
ongoing General Fund support for CSU by
$392 million (9.9 percent) and provides $321 million
for one-time initiatives. The budget plan assumes
no increase in student tuition charges, with core
ongoing funding for CSU (General Fund and tuition
revenue combined) increasing 6.2 percent. The
largest ongoing augmentation is for faculty and
staff compensation. The budget also funds a
2.6 percent enrollment growth (10,000 additional
full-time equivalent resident undergraduates
over estimated 2018-19 enrollment). The
largest one-time augmentation is for addressing
deferred maintenance at CSU campuses. The
remaining one-time spending involves a dozen
other initiatives, including additional student food
and housing assistance as well as funding to
study the need for and feasibility of building new
CSU campuses in certain regions of the state
(specifically Chula Vista, Concord, Palm Desert,
San Joaquin County, and San Mateo County).
Also Increases University of California (UC)
Funding Substantially. The budget package
increases ongoing General Fund support for
UC by $245 million (7 percent) and provides
$218 million for one-time initiatives. As with
CSU, the budget plan assumes no increase
in student tuition charges, with core ongoing
funding for UC increasing 4 percent. Nearly half
of UC’s ongoing General Fund augmentation
is for covering operational cost increases,
including negotiated salary increases for
represented employees and health care cost
increases for active employees and retirees. The
remainder of the ongoing augmentation is for
2.6 percent undergraduate enrollment growth
(4,860 additional full-time equivalent students
in 2020-21 over the 2018-19 level), grants to
physician residency programs, and expansion of
various student services (including student food
and housing assistance). About two-thirds of the
one-time augmentation is for addressing deferred
maintenance at UC campuses. The remaining
one-time funds are for numerous other initiatives,
including start-up funding for new extended
education programs and a pilot program to test
new K-12 special education diagnostic services.
Health and Human Services
Reauthorizes the MCO Tax. From 2016-17 to
2018-19, the state imposed a tax on MCOs that
generated a net General Fund benefit (excluding
the effects of constitutional spending requirements)
of over $1 billion annually. The spending plan
reauthorizes the MCO tax—for three and one-half
years—under a broadly similar structure as the
previous tax. As with the previous MCO tax, the
reauthorized tax is a tiered, per-member, per month
tax on the Medi-Cal and commercial enrollment
of MCOs. Unlike the previous MCO tax package,
the reauthorized MCO tax is not accompanied
by reductions to other taxes paid by the health
industry. Because the MCO tax is imposed on
Medicaid services, it must be approved by the
federal government. Since federal approval is not
certain, revenues from the reauthorized MCO tax
remain unallocated in the spending plan.
Increases Monthly CalWORKs Grants. The
spending plan includes $332 million General Fund
in 2019-20 to increase the CalWORKs maximum
grant levels, beginning October 1, 2019. (This
amount corresponds to three-quarters of the
full-year cost of the increase.) This will increase
grants to between 47 percent and 50 percent of
the federal poverty level (FPL) for all CalWORKs
families. In addition to the grant increase, the
spending plan includes $6.8 million in 2019-20 to
raise the CalWORKs earned income disregard—
the amount a family may earn before their
CalWORKs grant is reduced by 50 cents for each
additional $1 of income—from $225 to $500.
(Costs associated with this change are expected
to increase to nearly $100 million General Fund
annually in future years.) This change effectively
increases grants for families who earn more than
$225 per month.
Increases DDS Service Provider Rates. The
spending plan provides $126 million from the
General Fund ($208 million total funds) in 2019-20
for rate increases for most DDS service providers.
Specifically, these increases are provided to those
identified as needing a rate increase in a recently
completed study of the rate-setting system,
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
12
conducted per Chapter 3 of 2016 (AB 2X 1,
Thurmond). Rate increases are effective January 1,
2020 (and contingent on federal approval), thus,
2019-20 costs represent half-year costs. The
annualized cost is $253 million General Fund
($416 million total funds). Most rates will increase
by 8.2 percent, while some rates will increase by a
lower percentage. The rate increases are subject to
the suspension language discussed earlier.
Expands Health Care Coverage and Increases
Affordability. The 2019-20 spending plan includes
several actions related to expanding health care
coverage and making it more affordable. First,
the spending plan provides new state subsidies
to reduce the cost of coverage purchased
through Covered California for households with
incomes up to 600 percent of the FPL, at a cost
of $429 million (General Fund) in 2019-20. These
subsidies will be available beginning in January
2020 and continue for three years—through the
end of calendar year 2022—after which time they
will sunset. (The spending plan offsets the costs
of these new state subsidies using increased
revenues from the new state individual mandate, as
described in the section on tax and other revenue
policy changes.) In addition, the spending plan
includes several actions to expand enrollment
in comprehensive, no-cost health coverage
through Medi-Cal, the state’s largest health
coverage program for low-income residents. Most
significantly, the spending plan includes $74 million
from the General Fund ($98 million total funds)
in 2019-20 to expand comprehensive Medi-Cal
coverage to all income-eligible adults ages
19 through 25 regardless of immigration status.
Housing and Homelessness
Provides Funding for Affordable Housing.
In addition to expanding the affordable housing
tax credit described earlier, the budget funds two
major programs that facilitate the construction of
affordable housing:
• Mixed-Income Housing Loans. The spending
plan allocates $500 million to the California
Housing Finance Agency’s Mixed-Income
Loan Program, which provides loans to
builders of housing targeted at low- and
middle-income households.
• Infrastructure Funding. The plan also
allocates $500 million to the Infill Infrastructure
Grant program administered by the California
Department of Housing and Community
Development (HCD). This program helps
to fund infrastructure needed to support
higher-density housing built on infill sites—
that is, sites within already developed
communities.
Provides Funding to Address Homelessness.
The budget includes $650 million for one-time
grants to local governments to fund a variety of
programs and services that address homelessness.
This funding is divided among the state’s 13 most
populous cities, counties, and Continuums of
Care—local entities that administer housing
assistance programs within a particular area, often
covering a county or group of counties.
Provides Funding to Support Local Planning
for Housing. The budget provides $250 million for
planning grants to local governments and regional
planning entities. These grants are to be used for
planning for the sixth cycle regional housing need
assessment process and other planning activities
that facilitate the development of housing. Funding
is made available through HCD by application.
Creates a New Process for Housing Element
Compliance. The budget package creates a new
judicial process by which cities and counties can
be fined for failing to comply with housing element
law. Moreover, the courts could appoint an agent of
the court to bring the jurisdiction’s housing element
into compliance. (As of this writing, this bill was still
awaiting signature from the Governor.)
Creates New Incentives for Adopting
“Pro-Housing” Policies. The budget package
creates new incentives for cities and counties to
adopt pro-housing policies. Cities and counties that
adopt these policies would receive additional points
in the scoring of their applications for certain state
grant programs. The budget package tasks HCD
with creating criteria to identify pro-housing policies
that reflect differences between rural, urban, and
suburban jurisdictions.
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
13
Criminal Justice
Implements an Integrated Substance Use
Disorder Treatment Program. The budget
provides $71 million General Fund for the California
Department of Corrections and Rehabilitation
(CDCR) to implement an integrated substance
use disorder treatment program within state
prisons. Funding will be used to support various
activities, including (1) expanding the provision
of medication-assisted treatment for opioid and
alcohol use disorder statewide, (2) additional
resources for reentry planning, and (3) an overhaul
of existing rehabilitation programs (such as
requiring contractors to use evidence-based
curricula).
Provides the “Prison to Community Pipeline”
Package. The budget provides $50 million in
ongoing General Fund resources to support various
rehabilitation and reentry programs. This includes
$37 million to the Board of State and Community
Corrections for grants to community-based
organizations to provide rental assistance and
other support services for individuals who were
previously incarcerated in state prison. (In 2019-20,
$4.1 million is set aside on a one-time basis for
grants to prepare inmates for parole hearings
using therapeutic counseling and to provide
reentry services for individuals exonerated in
California.) The remaining $13 million is for CDCR
to create therapeutic support groups within state
juvenile facilities ($8 million) and to provide grants
to nonprofit organizations to deliver in-prison
rehabilitation programs ($5 million).
Natural Resources and
Climate Change
Establishes the Safe and Affordable Drinking
Water (SADW) Program. The budget provides
$130 million—$100 million from the Greenhouse
Gas Reduction Fund (GGRF) and $30 million from
the General Fund—to establish a new SADW
program, which will provide local assistance to
communities and low-income households that are
served by water systems that do not provide safe
and affordable drinking water. The program will be
administered by the State Water Resources Control
Board and provide water systems—particularly
those in disadvantaged communities—with grants,
loans, contracts, or services to help them provide
safe and affordable drinking water. Allowable uses
of the funds include providing replacement water
on a short-term basis, as well as the development,
implementation, maintenance, and operation of
permanent solutions such as water treatment
systems and water system consolidations.
Beginning in 2020-21, this program will be
supported by 5 percent of the annual revenue into
the GGRF up to $130 million. Starting in 2023-24,
if GGRF revenues are not sufficient to generate
$130 million for the program, the General Fund will
be used to make up the difference.
Allocates Funding for Cap-and-Trade
Expenditure Plan. The spending plan allocates
a total of $2.9 billion from the GGRF for various
programs. This plan includes (1) $1.3 billion in
continuous appropriations, (2) about $221 million
in other existing spending commitments, and
(3) $1.4 billion in discretionary spending. The
major categories of discretionary spending
include promoting low-carbon transportation
($485 million), reducing air toxic and criteria
pollutants ($275 million), and forestry-related
activities ($221 million). Most of the discretionary
funding is allocated to programs that received
GGRF in prior years. However, some programs
would receive GGRF for the first time, including
$100 million for safe and affordable drinking water
(discussed above), $35 million for workforce
development activities intended to transition the
state’s workforce to a low-carbon economy, and
$10 million to promote local fire prevention and
response activities in the wildland-urban interface.
Other
Provides Funding for Disaster Preparedness,
Response, and Recovery. The budget package
provides roughly $700 million in state funding—
mostly from the General Fund and GGRF—for
various disaster-related purposes. Most of this
funding supports (1) fire and other emergency
response improvements, including communications
systems ($265 million); (2) implementation of a
recent package of legislation related to wildfires
($226 million); (3) assistance to local communities
recovering from recent disasters ($80 million);
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
14
and (4) efforts to mitigate the effects of power
shutdowns conducted by investor-owned utilities
($75 million).
Extends Paid Family Leave Program From Six
to Eight Weeks. The spending plan lengthens the
duration of the state’s Paid Family Leave program
from six weeks to eight weeks. (Leave benefits
are funded by a 1 percent payroll tax, paid by
employees, and can be used to bond with a new
child or care for a seriously ill family member.) In
addition to lengthening the duration of leave, the
spending plan reduces the required reserve level
in the Disability Insurance Fund—which disburses
paid family leave benefits—from 45 percent to
30 percent of annual disbursements. Lowering
the reserve requirement will have the effect of
temporarily reducing the contributions needed to
fund the state’s paid family leave program. On net,
relative to making no changes, the administration
estimates that lengthening the duration of leave by
two weeks will result in a 0.1 percent increase in
the payroll tax rate beginning in 2022.
Implements Improvements to Department of
Motor Vehicles (DMV) REAL ID Workload and
Operations. The budget includes $260 million
from the Motor Vehicle Account for DMV to
process driver licenses and ID cards that comply
with federal standards—commonly referred
to as “REAL IDs”—and to implement various
operational improvements. (This amount includes
$18 million in savings related to passing on
credit card fees to customers.) Specifically,
the budget includes: (1) $196 million for REAL
ID workload, (2) $29.5 million for operational
improvements (such as purchasing self-service
terminals), (3) $17.7 million for customer service
improvements (such as implementing a live chat
customer service system), and (4) $17 million for
technology improvements. Additionally, the budget
authorizes the Director of Finance to augment
the level of funding provided to DMV—following a
30-day notification to the Joint Legislative Budget
Committee—in order to further reduce customer
wait times at DMV field offices or to prevent these
wait times from increasing.
gutter
analysis full
www.lao.ca.gov
2019-20 BUDGET
15
gutter
analysis full
LEGISLATIVE ANALYST’S OFFICE
2019-20 BUDGET
16
LAO PUBLICATIONS
This report was prepared by Ann Hollingshead, with contributions from other staff in the office, and reviewed by
Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information
and advice to the Legislature.
To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are
available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento,
CA 95814.
gutter
analysis full
