Capitol Beat – California’s 40th Governor and His Budget

Aaron Read and Randy Perry
Legislative Advocates
Aaron Read & Associates, LLC

It was a busy start of the year for our newly elected governor, Gavin Newsom. On Sunday, January 6, he hosted a family day at the California Railroad Museum in Old Sacramento and an evening concert benefiting those impacted by the California wildfires. The following day, he and his family took center stage at his inauguration ceremony, and just three days later, Newsom unveiled his first budget as governor of California.

The proposed $209 billion “California for All” budget includes a $144 billion General Fund (a 4% increase over the $138 billion spending plan former Governor Jerry Brown signed in June), and predicts a $21.4 billion surplus from robust tax collections and slower growth of state health-care costs. It’s the largest projected surplus since 2000, according to state finance officials. The 2019–20 budget increases funding for public schools and health-care programs. It also includes significant one-time spending to combat the state’s homelessness issue and prepare for future natural disasters.

The governor kicked off his press conference by saying, “I know it’s rote and cliché to say it’s a reflection of our values, but it is a reflection of our values.” He continued, “It is demonstrable that these dollars attach to real people and real people’s lives.” Newsom appears to be taking a page from Brown’s budget playbook, which targets as much new spending as possible toward one-time expenditures that don’t carry a long-term cost; 86% of his spending is for one-time efforts.

The above statement, coupled with his decisive victory in November, seems to imply that the governor views his victory as a clear mandate to pursue a capacious agenda that will focus efforts on young children and poor families while continuing to pay down debt and increase the state’s Rainy Day Fund.

Here are some highlights from Newsom’s proposed budget:

  • A nearly $2 billion plan to support low-income children, with much of the money earmarked for construction of child-care facilities and kindergarten classrooms
  • A $1 billion “working families’ tax credit,” more than double the size of the state’s existing tax break for low-income workers
  • Expansion of tax-break eligibility to those who earn up to $15 an hour, estimated by the administration to add up to 400,000 additional families
  • Request that lawmakers increase monthly welfare assistance grants under the state’s CalWORKS program
  • Bolstering of efforts to help ease California’s housing and homelessness crises, with $500 million to be set aside to help local governments build shelters and add services to help the homeless
  • $4.8 billion in optional payments to the state’s primary pension funds, CalPERS and CalSTRS, both of which have significant unfunded liabilities. The additional money from the state could help them reduce the rates they charge to schools and local governments.
  • Tax credits for working families. Newsom wants to double California’s earned-income tax credit and offer it to hundreds of thousands of more households. He’d also increase the value of CalWORKS grants for low-income families.
  • $1.3 billion for projects that spur housing development, including tax credits for developers building housing for low- and moderate-income families
  • Waiving state-mandated environmental reviews for housing projects that would help homeless Californians
  • A proposed $1.4 billion for higher education, the bulk of which, about $400 million, would go to the community college system with the goal of making tuition free for two years
  • An investment of $500 million in infrastructure to provide more child care and $750 million for kindergarten programs

The budget continues to build additional reserves beyond the $13.5 billion currently set aside in the Budget Stabilization Account (commonly called the Rainy Day Fund). A recent opinion by the Legislative Counsel concluded that supplemental payments made in prior years do not count toward calculating the 10% of General Fund tax revenues target set in the Constitution. Consistent with this opinion, the budget continues to make required deposits in the Rainy Day Fund.

Budget Impact on Public Safety: POST

In 2014–15, funding for the Commission on Peace Officer Standards and Training (POST) began decreasing significantly, driven by a decline in criminal fine and fee revenues, which were its primary funding source. In response, POST has been forced to significantly scale back its support for local law enforcement training. For example, it has reduced or eliminated reimbursement payments for local law enforcement agencies to attend training courses. In addition, POST has also postponed updating curricula that it believes need revisions to reflect current best practices.

The governor’s budget includes $14.9 million from the General Fund to restore POST to its historical budget level prior to the decline in fine and fee revenues. This funding will allow POST to restore many of the program cuts it was forced to make in recent years. It will also be used to implement new training curricula and update existing ones so that courses reflect current best practices in areas such as verbal communication and listening skills, cultural awareness and diversity, de-escalation techniques, and engagement with individuals suffering from mental health or homelessness issues. In addition, the budget includes $20 million from the General Fund to make permanent a one-time augmentation included in the 2018 Budget Act for training on use of force, de-escalation and engaging with individuals experiencing a mental health crisis.

The Budget Cycle

Newsom’s proposed budget sets the stage for the next phase of the state’s ongoing budget development cycle for the 2019–20 fiscal year, which begins on July 1. This will include further discussions with the administration, legislative hearings, meetings with legislators and their staff, updated state revenue numbers in April, a May revision of the governor’s proposed budget, and then an intensive period of legislative activity to pass a balanced budget by the June 15 constitutional deadline. Lastly, the “Big Three” (governor, speaker and pro tem) will meet to finalize the budget. PORAC’s hope is that the increased funds to POST in the governor’s budget remain, so that POST receives the necessary funding for critical training.

With legislators already proposing more than $40 billion in new spending, it will be interesting to see if the new governor continues to invoke Brown’s warning to save for the economic downturn that he believed was always right around the corner — or will Newsom succumb to the pressures from the Legislature to increase spending on their priorities as well?