California's Devastating Budget Shortfall Means Pain For Schools, Health Care, More
Gov. Gavin Newsom has released his May budget revision, showing the impact of the coronavirus pandemic on California's finances moving forward. Read highlights and deeper reporting below, or watch the full budget presentation above.
DIG DEEPER: Early Childhood Education | Employment and Workforce | Environment | Higher Education | Housing | Mental Health and Health Care | Prisons | K-12 Schools | Social Safety Net | Transportation/Infrastructure
2020-2021 PROPOSED BUDGET
Here's where we stand:
- The new numbers forecast a 9.3% decrease from last year's general fund budget
- There's a 5.4% decrease in the overall budget.
- This reflects a 22.3% drop in revenue from the governor's budget proposed in January, Newsom said.
The new budgets:
- It's now a $133.9 billion general fund budget
- And a $203.3 billion overall budget.
The nitty gritty:The drop in revenue is due to three major categories:
- lower revenues from personal taxes
- corporate taxes
- sales taxes
Sales taxes will take the biggest hit, Newsom said. Sales tax revenues are projected to be down 27.2% due to people not being able to make purchases the way they were before the coronavirus epidemic. Personal income tax revenues are projected to be down 22.5%, corporate tax revenues down by 22.7%.
The bottom line:
The projected deficit is $54.3 billion, a projected 37% shortfall, Newsom said. One bit of good news, Newsom said the state is in an economically healthier budget position than it has been in the past and has faced bigger shortfalls. In 2003, there was a 45% shortfall. In 2009, the shortfall was 58% or roughly $60 billion. As recently as 2011, the state had to handle a nearly 31% shortfall.
The governor reiterated something he's been talking about during his daily news conferences: that, before the coronavirus pandemic hit, California had a $5.6 billion projected surplus. There was also record low unemployment and almost 10 years of consecutive job growth.
"As painful as the state's budget may be, personal budgets for so many of you watching are even more devastating," Newsom said in a press conference. "You've exhausted your savings, your credit has been completely destroyed, you are desperate to get a sense of not only your fate, but our collective future."
PULLING BACK ON PROPOSED PROGRAMS
Newsom said that 26% of the deficit will be made up by cuts to existing programs. He called on President Trump to sign the House of Representatives' Heroes Act, saying that if Trump signs that act, these cuts will automatically be undone.
This budget pulls back on proposals Newsom made in January to expand preschool-for-all programs, expand health care to more of those without coverage, and more.
"The overwhelming majority of those proposals, we are now pulling back," Newsom said.
That's 15% of filling the budget deficit.
CUTS TO SCHOOLS
There will be a $19 billion impact on public education with a 10% cut made to local funding, Newsom said. A previous $645 million commitment to special needs children will not be cut but plans to expand special education will be delayed.
"Nothing breaks my heart more than seeing people with physical and emotional disabilities, people so often left behind and forgotten, falling even further behind," Newsom said.
CUTS TO HEALTH CARE
Health care subsidies for the middle class will be preserved in the new budget but health care reimbursements will be affected. Some areas will be cut, Newsom said, and the state isn't in a position to make further expansions.
A MASSIVE INCREASE IN UNEMPLOYMENT PAYOUTS
Since March 12, 4.6 million Californians have filed for unemployment — the worst unemployment figures since the Great Depression, Newsom said. The state projects unemployment peaking at above 24.5%, with 18% unemployment for the budget year.
During the previous "Great Recession," unemployment peaked at 12.3% in the third quarter of 2010, with 2.2 million people out of work.
A MULTI-YEAR STRATEGY TO USE UP THE RAINY DAY FUND
The 2019-2020 budget had a $21.5 billion operating surplus, Newsom said, with $4.5 billion used to eliminate debt and a $16 billion rainy day fund — the largest in California history.
Responding to the coronavirus pandemic will take several years and most of that surplus, Newsom said.
His proposal pulls $8.8 billion from the state's reserves this year — it makes up for 16% of the shortfall, Newsom said. That includes $7.8 billion from the state's $16.2 billion in reserves in its first year, with $5.4 billion from the reserves in the second year, and $2.9 billion in year three.
That ends up using the entire reserve, phased over three years.
"Because no matter what we do this year, it won't be enough to address the shortfall next year," Newsom said.
He stressed the need to balance the budget each year, as required by the state's constitution. The new state budget needs to be passed by July 1.
Another state reserve account, the safety net reserve, has $900 million in it. The governor's proposal uses $450 million of that in this budget year, and $450 million next year.
There's also a Proposition 98 guarantee reserve for K-14 education, with $524 million available — all of that will be pulled this year to pay down the deficit.
Another 19% of the budget deficit will be filled by borrowing from special funds, Newsom said, and another 8% comes from net operating losses and tax credits that the state wants to tighten up, Newsom said.
The CARES Act will help cover 15% of the state's deficit, Newsom said. He thanked House Speaker Nancy Pelosi, bipartisan support in Congress, and President Trump for that assistance.
Newsom noted that coronavirus has opened eyes to new possibilities for efficiency. He said that 97% of the DMV's transactions are virtual now, and the DMV can be reimagined. The state doesn't need as many cars, as many cell phones, as large a travel budget, and spending as much on conventions, Newsom said.
There will be an increase in the amount of Cal Fire personnel, Newsom said. He said the hots are getting hotter and dries getting drier thanks to climate change. He spoke from a fire department during his Wednesday press conference to stress the need for public safety.
LATEST CORONAVIRUS NUMBERS
Over the past day, 98 Californians died due to coronavirus, with 2,023 new coronavirus positives.
— Mike Roe
READ THE FULL SUMMARY HERE:
You can also read more details on the revised budget here.
Below we'll have deeper breakdowns of the different budget categories from our beat reporters.
Gov. Newsom’s updated budget sends stimulus money towards housing programs, even as it nixes others and paints a grim picture of the state’s housing crisis.
California expects to receive $532 million in CARES Act funding for housing and homelessness programs, which will be routed towards “acquiring housing for people experiencing homelessness, as well as securing low- and moderate income housing in response to the COVID-19 pandemic.”
That funding could also pay for construction after the pandemic is over. Programs to help Californians pay mortgages and to provide legal aid to renters will also see a combined $331 million, with most of that money going towards homeowners.
Other programs could see cuts, or “reversion,” as the budget puts it. Among them: $250 million in mixed-income development money in coming years, and $200 million in grants for denser development.
Some priorities are left untouched: a half-billion in low-income housing tax credits will continue to spur housing development.
The May Revise holds out little hope for immediate solutions to the state’s housing crisis. It predicts that a smaller number of Californians will be able to afford homes, driving an increase in renting that will further strain the state’s rental market. The state is also expected to build fewer homes amid rising unemployment. And rising temperatures and climate-change-fueled wildfires could scare off housing and business development across the state.
— Aaron Mendelson
California law closely ties funding for K-12 education and community colleges to state revenues. Since state revenues have fallen off so sharply, schools’ revenue base has taken a hit of more than $15 billion, state officials said.
Because of this, Gov. Newsom proposes to cut roughly $6.5 billion — about 10% — from the Local Control Funding Formula, the formula for funding K-12 education.
During his press conference, Newsom said this funding would not be taken out of the portion of the funding formula that gives extra support to schools that serve higher numbers of low-income students, English learners and foster youth.
Newsom also proposes offsetting the dropoff in revenue by deferring roughly $5.8 billion in payments to school districts over the next 14 months — a return to a Great Recession-era tactic to help solve cash flow problems for the state.
But Newsom also proposed temporary relief for schools, including using $4.4 billion in additional federal coronavirus relief dollars to help schools. He also proposed giving schools an additional cut of ongoing state revenues starting in 2021-’22 “to avoid a permanent decline in school funding.”
Los Angeles County Superintendent of Schools Debra Duardo said she was most concerned by the 10% reduction — or $6.5 billion — to the Local Control Funding Formula baseline.
“What I hope that we don't see — and unfortunately, is often the first thing that we see when there are cuts to education — is cuts to support services, so cuts to our number of counselors and nurses and social workers and some of the things that are outside of the classroom,” she said. “Those are things that I think are critical, especially after dealing with a pandemic like this.”
$4.4 billion from the CARES Act will be put into education to help make up for learning loss due to coronavirus. That includes the possibility of extending the school year, Newsom said.
Instead of paying down long-term pension obligations, $2.3 billion of scheduled payments will go to help in education as well. Billions from several other sources will go toward education as well, adding up with the rest to $10.1 billion.
The state is committing 1.5% of the state's general fund, which averages about $2 billion per year and up to $4.6 billion a year, as a supplemental payment to education funding each year, Newsom said.
— Kyle Stokes
The governor didn’t spare higher education from cuts. All three public higher education systems will be affected if the legislature approves Newsom’s plans. Newsom’s proposing a $338 million cut in funding to the University of California’s operating budget and a $398 million cut to that of the California State University system. Both amounts represent a 10% cut. The 115-campus California Community College system would undergo a $740 million cut.
Higher education leaders struck a “we’re all in this together” tone after the numbers were announced.
“The University of California recognizes the unprecedented challenges California is facing in the wake of COVID-19,” said UC President Janet Napolitano in a written statement, “and regrets that Gov. Newsom was put into a position to steeply reduce the University’s budget in response to the State’s dramatically diminished revenues. Regardless, UC stands with the governor and the legislature to help lift the State out of this economic crisis.”
Newsom said his plan would protect funding for higher education programs such as the two years of free tuition for community college students, and UC Riverside’s medical school, among others.
A decade ago UC and CSU made up for recession-era cuts by raising tuition. The increase proved very unpopular and inspired then-Governor Jerry Brown to push a moratorium on increases in the two university systems. Days before the proposed cuts were announced, CSU chancellor Tim White said tuition would not change for the fall but said nothing about increases after that.
— Adolfo Guzman-Lopez
EARLY CHILDHOOD EDUCATION
Gov. Newsom had aspired to make publicly funded preschool available to every child in California starting with 20,000 new slots over the next two years.
"The overwhelming majority of those proposals, we are now pulling back," Newsom said Thursday.
As California works to expand subsidized child care to essential workers and at-risk children, it could reduce payments to early childhood workers. Specifically, the maximum state reimbursement rate for child care providers and the payments state preschool providers receive will be cut 10% in the revised budget.
The budget also gives us an idea of how California could spend the $350 million in federal CARES Act funding for early childhood programs.
- $144.3 million for costs related to California's emergency legislation, such as continuing to pay some providers who are reimbursed by the state for caring for children from low-income families who are absent during the pandemic
- $125 million for one-time payments to subsidized providers who care for children from low-income families during the coronavirus pandemic.
- $73 million to increase child care for essential workers and at-risk children.
- $8 million to waive the fees some families pay for subsidized child care until June 30, 2020.
Newsom also said he hoped to streamline the complex system that oversees and funds early childhood programs in the state through a new state agency. A nonpartisan agency tasked with advising the legislature previously recommended rejecting the proposal.
The revised budget calls instead for moving early learning and child care programs currently managed by the Department of Education to the Department of Social Services and includes $2 million to help make it happen.
Child care in California could be dramatically reshaped during the coronavirus pandemic.
More than 60% of the state's child care programs will not survive a closure of more than a month, according to a survey by UC Berkeley's Center for the Study of Child Care Employment.
Many child care programs, 57%, have also laid off or furloughed staff. These workers often make close to minimum wage - a 2017 L.A. County report found early educators earn an average of $14.65 an hour.
-- Mariana Dale
MENTAL HEALTH AND HEALTH CARE
Under Gov. Newsom’s revised budget proposal, Southern California governments would get significant amounts of federal coronavirus relief aid.
The city and county of Los Angeles together would receive nearly $2 billion. Orange County would get more than $600 million, Riverside County would get nearly $500 million, and San Bernardino County would receive more than $400 million.
Newsom said a number of new projects or expansions of existing ones will have to be set aside unless more federal aid is forthcoming, such as the expansion of dental benefits for adults on Medi-Cal.
Some initiatives are being shelved regardless, such as the governor’s plan to expand Medi-Cal to include mothers going through postpartum depression.
The overall Medi-Cal caseload is projected to spike, largely because of job losses and other fallout from the pandemic. The revised budget assumes 14.5 million people will be on Medi-Cal by July, 2 million more than there would have been absent COVID-19.
— Robert Garrova
SOCIAL SAFETY NET
In his revised budget the governor kept plans to extend the California Earned Income Tax Credit to more low-income workers in households making under $30,000. Certain families with children under the age of 6 could get an additional $1,000 credit.
What the governor did not do is extend the CALEITC program to workers who don’t have legal immigration status, dashing the hopes of advocates who argue that these immigrants contribute substantially to the state’s tax base.
Immigrants without legal status who are 65 and over also took a hit in the revised budget, which would withdraw a proposal to expand full-scope Medi-Cal to them for a savings of $112.7 million. This is coverage that’s not just for emergencies, but includes a range of services including dental and eye care. However, extended Medi-Cal coverage for immigrant children and young adults remains intact.
— Josie Huang
The coronavirus precautions and economic slump have drastically reduced driving by both consumers and businesses. That means a lot less gas is being sold -- and the gas that is being sold costs less. It also means that gas and fuel taxes and vehicle fees are down, cutting a key source of transportation funding.
The revised budget would spend $25.6 billion on transportation, approximately a 2% cut, and only about a half-billion dollars less than what was proposed in January.
State transportation revenues had doubled since the passage of the state’s new gas tax, known as SB 1. Gas taxes and vehicle fees were expected to bring in a total $12.7 billion for the coming 2020-2021 budget year, but the state is expecting less now. The budget revision projects the state will take in about a half-billion dollars less each year for the next four years.
This also means local governments that would normally get half of certain fuel tax revenues for their own projects will see less money and have to cut out some proposed street repairs.
The revised budget also has $3.6 billion in federal coronavirus relief funds going to public transit agencies around the state “to offset lost fares and revenue from sudden loss of ridership.”
— Sharon McNary and Ryan Fonseca
The governor’s revised budget emphasizes disaster preparedness, even in the face of a major budget shortfall.
The California Governor’s Office of Emergency Services – which coordinates disaster and recovery responses across the state – could see an additional $127 million. Cal Fire is looking at a potential $85.7 million increase to help it battle wildfires, which would include hiring 600 additional people before the peak of wildfire season.
Not everything escaped unscathed. Back in January, Newsom proposed a $100 million grant program to help people harden their homes against wildfires. For now, that program is done for.
Newsom’s proposed Climate Catalyst Fund – a program meant to provide loans to climate-friendly businesses – will no longer receive $250 million from the general fund in the coming year. California’s Legislative Analyst’s Office had recommended against the state adopting the program after it was first proposed in January.
— Jacob Margolis
The governor proposes maintaining the overall budget for the California Department of Corrections and Rehabilitation (CDCR) at $13.4 billion, the same amount he proposed in January. He is now proposing closing two state prisons in the next two years; in January he called for closing one in the next five years if the inmate population continued to decline.
The revised budget proposes closing one prison beginning in the 2021-22 fiscal year, and a second facility the following year. Newsom said officials are still in discussions regarding which prisons to shutter.
The governor said the closures would save the state $100 million in 2021-22, $300 million the following year, and $400 million in the future.
Around 117,000 people are currently incarcerated across 34 state prisons, public and private contract facilities, and re-entry programs. The inmate population has declined by nearly 10,000 inmates since last year.
Between March and May, the prison population decreased by over 5,000 inmates due to efforts to reduce overcrowding as the COVID-19 pandemic sweeps across some state prisons.
There are currently over 500 confirmed cases of the virus in the state prisons, according to the CDCR’s live tracker.
— Emily Elena Dugdale
EMPLOYMENT AND WORKFORCE
Newsom talked about the U.S. being in recession due to the coronavirus, with a 26.5% projected gross domestic product decrease in spring 2020.
California’s unemployment rate will average out to 18% over the course of 2020, according to the new state budget proposal. Unemployment rates that high have not been seen since the Great Depression. Against that backdrop, unemployment benefit payouts are projected to skyrocket by 650%.
Back in January, with a state unemployment rate of 3.9%, Gov. Newsom proposed putting $5.8 billion toward unemployment benefits. The new budget calls for $43.8 billion. The increase will be paid for by a combination of direct federal funding, federal loans and higher taxes on employers.
Gov. Newsom has said that already, about 4.6 million Californians have applied for unemployment benefits since mid-March. That’s close to one out of every four workers in the state.
The governor’s revised budget calls for adding close to 950 positions in the Economic Development Department, the agency that handles unemployment insurance claims.
— David Wagner
The SoCal Economic Stress Tracker is a data-driven look at how L.A.’s economy has been transformed by the coronavirus pandemic. The project stemmed from trying to quantify the effects of the pandemic aside from public health.
It’s based upon federal, state and city data which help tell the story of how the lives of Angelenos have been remade by the struggles of unemployment, the uncertainty of a next paycheck (or job to return to at all), and struggling to get by. It’s a snapshot of a local government trying to mitigate economic pain points caused by COVID-19 for the area’s most vulnerable residents.
HOW WE’RE REPORTING ON THIS
Reporter Aaron Mendelson is looking at the housing angle. Reporters Kyle Stokes, Adolfo Guzman-Lopez, and Carla Javier are covering education. Reporter Mariana Dale is reporting on the impacts to early childhood development programs. Reporter Robert Garrova is covering mental health and health care. Reporter Josie Huang is looking at the impact on the social safety net. Reporter Sharon McNary and LAist staff writer and producer Ryan Fonseca are looking at infrastructure and transportation. Reporter Jacob Margolis is looking at the budgetary implications for firefighting and climate change efforts. Reporter Sharon McNary is assessing the impact on infrastructure planning and funding. Reporter Emily Elena Dugdale is covering the impact on prisons. Reporter David Wagner will be looking at unemployment, labor and workforce development. And LAist staff writer and producer Mike Roe is anchoring our digital coverage.