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In response to the proposed State Budget, CSDA Chief Executive Officer Neil McCormick urged
Governor Gavin Newsom to include special districts and their more than 120,000 front-line workers in the state’s remaining $800 million in COVID-relief funding.

McCormick stated, “Our fire protection, healthcare, water, sanitation, port, childcare, and other service providers have yet to receive the direct access to funding that other government agencies, as well as businesses and non-profits, have received.”

He continued, “CSDA is eager to resolve this oversight and looks forward to working with the Administration and State Legislature to ensure special district essential workers and the vulnerable communities they serve throughout California receive equitable access to these important relief funds.”

On January 8, Governor Newsom unveiled his $202.1 billion budget proposal for the 2021-22 fiscal year. While the impact of the COVID-19 pandemic reverberated throughout the presentation, Governor Newsom sought to emphasize that the initiatives to be undertaken by his administration in the coming weeks and months were part-and-parcel with the state's economic recovery.

A recurring trend leading up to the release of the budget was the widespread belief that the COVID-19 pandemic would put enormous pressure on the state's budget, wiping away the once-touted budget surplus that was included in Governor Newsom's January 2019 budget presentation. However, the budget situation appears to remain in flux – according to an article by Gabriel Petek from the state's Legislative Analyst's Office:

As of spring 2020, a near consensus held that economic fallout from the coronavirus disease 2019 pandemic would inflict a massive fiscal shock on California. Policymakers adjusted accordingly, adopting the 2020‑21 budget on a series of cautious assumptions that reflected a new and arguably warranted pessimism. To date, however, the recession has had a muted effect on tax collections while the surge in demand for state-funded safety net services has been less than anticipated. Largely as a result of these better-than-budgeted trends, we estimate in our recent report, The 2021‑22 Budget: California’s Fiscal Outlook, that a sizeable revenue windfall is taking shape. The magnitude of this unexpected windfall is such that it could produce an unprecedented near-term budget surplus. Looking ahead, however, we also identify the emergence of a new ongoing deficit beginning in the budget year (2021‑22). This fiscal gap persists and widens through the remainder of our outlook period (2024‑25). [emphasis added]

An overarching focus of Governor Newsom’s budget presentation was equity, demonstrated by investments in vulnerable and disadvantaged communities. Social and environmental justice was a common thread throughout the Governor's proposals aimed at advancing the public's health, promoting COVID-19 recovery and job creation, and funding climate-related infrastructure improvements to make communities more resilient.

Governor Newsom’s budget proposal covered many areas; some of those of interest to special districts and local agencies, listed below by category, include the following:

• Environment
• Climate Change and Adaptation
• Water
• Federal CARES Act Funding
• Labor and Human Resources
• Transportation and Infrastructure
• Revenue Outlook

ENVIRONMENT

The Budget proposes a $1.5 billion strategy to achieve the state’s zero-emission vehicle goals by 2035 and 2045, including securitizing up to $1 billion to accelerate the pace and scale of the infrastructure needed to support zero-emission vehicles.

The Budget proposes a $1.37 billion Cap and Trade Expenditure Plan for existing programs, including several actions for 2020-21. The Budget provides $325 million one-time to support the Community Air Protection Program (AB 617). This support includes grants to community-based organizations, implementation funding for local air districts, and incentives for cleaner vehicles and equipment. The Budget also includes funding necessary to maintain full implementation of the Safe and Affordable Drinking Water Program. The Cap-and-Trade Expenditure Plan also includes $635 million one-time dedicated to reducing emissions from the transportation sector, the largest source of California’s greenhouse gas emissions. Key programs target truck, bus, off-road, and agricultural vehicles. These programs also reduce harmful air pollutants that have a disproportionate impact on disadvantaged populations in both urban and rural communities. Other programs proposed for funding include targeted incentives for low-income consumers to retire older, higher-polluting vehicles in favor of new or used zero-emission or cleaner vehicles, as well as support for mobility pilot projects that respond to community-identified transportation needs in low-income and disadvantaged communities. The Budget includes $355 million ($200 million ongoing) for multiple land-based carbon removal programs, including $30 million one-time for the Healthy Soils Program to provide grants for on-farm soil management practices that sequester carbon and $23 million one-time for the Urban Forestry Program.

The Budget proposes a recovery package to support businesses, individuals and job creation both during the pandemic and as the state recovers. It totals $14 billion, including $3.5 billion in immediate relief for individuals and small businesses. The $14 billion recovery package includes the following components, among others:

Zero-Emission Vehicle Investments—The Budget includes $465 million one-time Cap and Trade funds to improve access to new and used zero-emission vehicles, including passenger cars and trucks, medium- and heavy-duty vehicles, and off-road equipment. The Budget includes additional investments in existing transportation equity programs such as Clean Cars 4 All, Clean Mobility Options, and Financing Assistance, as well as heavy-duty vehicles programs such as the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project and the Clean Off-Road Equipment Voucher Incentive Project. These investments will be further complemented by the Low Carbon Fuel Standard-funded Clean Fuel Rewards program, which provides a consumer incentive for plug-in passenger vehicles using existing revenue generated by utilities and existing funds in the Clean Vehicle Rebate Project. The Budget also proposes to extend existing fees scheduled to sunset in 2024 to support incentive programs to accelerate the turnover of existing light-, medium-, and heavy-duty vehicles and equipment, including off-road construction and agricultural equipment and locomotives.

Delayed Property Tax Assessment of Zero-Emission Vehicle Charging and Fueling Stations—The Budget proposes statutory changes to exclude the construction or addition of electric vehicle charging and hydrogen fueling stations completed by January 1, 2024 from the definition of accessible new construction for ten years. This proposal would create additional incentives for investment in zero-emission vehicle charging and fueling stations.

Infill Infrastructure Grant Program—The Budget includes $500 million General Fund for the Infill Infrastructure Grant Program. The Administration is asking the Legislature to take early action on $250 million of the Infill Infrastructure Grant investment in 2020-21.

The Budget also proposes governance and fiscal reform for the Department of Toxic Substances Control that will provide for the support needed in the long term to address future cleanups of orphan sites and the reduction of harmful toxic substances in the environment. This effort will be comprised of three core elements: 

• Fee Authority—The Budget proposes statutory changes to authorize the Board to utilize a public fee-setting process, with spending levels subject to the budget process.
• Hazardous Waste Control Account Fee Restructure—The proposed statutory language will streamline the existing fee structure and will provide the Board with the ability to set fees through a public process. The Budget also proposes a $22.5 million one-time General Fund backfill for this Account.
• Toxic Substances Control Account—The Budget proposes statutory changes that would authorize the Board to adjust the environmental fee through a public process. The Budget also proposes a $13 million one-time General Fund backfill for this Account.

The Budget includes $3.75 million ongoing (General Fund through 2023-24, transitioning to Department of Pesticide Regulation Fund in 2024-25) for the Department of Food and Agriculture to continue development of Integrated Pest Management (IPM) strategies, including the Interregional Research Project No. 4, Proactive IPM, and the Biologically Integrated Farming Systems grant program. These programs support non-conventional pest management technologies for specialty crops, research exotic pests that are likely to arrive in California to proactively identify mitigation strategies and provide outreach of biologically integrated plant-based farming systems that reduce chemical insecticide use.

The Budget also includes $8 million ongoing (General Fund through 2023-24, transitioning to Department of Pesticide Regulation Fund in 2024-25) to the Department of Food and Agriculture to expand CSU and UC research and extension capacity for IPM through cooperative agreements. The Budget proposes to replace the current flat-fee mill assessment on pesticide sales with a risk-based tiered mill assessment, assessing a higher fee on higher toxicity pesticides, which will be phased-in over four years. Phased in over four years, this tiered fee will fund the following:

IPM—$20 million ongoing to expand IPM practices across California, including (1) investments in IPM research, education and extension programs to support sustainable pest management; (2) bolstering the University of California and California State University IPM programs to support grower implementation of safer alternatives to high-risk pesticides; and (3) support for other state-level IPM programs.

Strengthened Enforcement and Air Monitoring—$16.5 million ongoing to enhance enforcement of pesticide use laws and regulations to improve worker and community health and safety. The Budget increases funding to support local enforcement by County Agricultural Commissioners and also provides resources to increase air monitoring for pesticides, generating data to identify pesticide exposures and guide regulatory efforts.

Community Engagement—$1.5 million ongoing to support community engagement, particularly with pesticide-impacted disadvantaged communities, to seek input from agricultural communities and farmworkers during the transition to safer pest management practices.

CLIMATE CHANGE AND ADAPTATION

The Administration is developing a spring proposal to strengthen the Governor’s Office of Emergency Services' (OES) ability to respond to emergencies and support recovery efforts, especially in vulnerable communities. Building on significant investments in the state's firefighting capabilities, the Budget adds $143 million General Fund to support 30 new fire crews, and also includes $48 million to continue phasing in Black Hawk helicopters and large air tankers.

The Budget proposes an additional $1 billion to support a coordinated forest health and fire prevention strategy that maximizes technology and science-based approaches to protect state forestlands. The Budget proposes $323 million for early action in the spring to start these forest health and fire prevention projects before the next fire season. The Budget includes an additional $282 million General Fund for Cal OES for the following targeted investments:

• California Disaster Assistance Act (CDAA)—$256.1 million one-time General Fund to assist local governments in serving their communities during, and in the wake of, emergency events. This funding will be used to repair, restore, or replace public real property damaged or destroyed during disaster events or reimburse local governments for eligible costs associated with emergency activities undertaken in response to a state of emergency proclamation by the Governor.
• California Earthquake Early Warning System—$17.3 million one-time General Fund to support the California Earthquake Early Warning System. Following years of research and development, initial operation of the system began in October 2019 and is anticipated to be fully operational statewide by June 2021. The system continues to be integrated with critical infrastructure facilities, such as manufacturing, hospitals, schools, transportation systems, and public safety offices.
• Regional Hazardous Materials Response—$3.6 million ongoing General Fund to build the state’s ability to respond to regional emergencies involving hazardous materials. California has 12 Regional Hazardous Material Response teams positioned throughout the state to respond to hazardous material incidents. These teams are specially equipped to be immediate response resources to mitigate these types of emergencies.
• Deferred Maintenance—$5 million one-time General Fund to address identified deferred maintenance needs, as described in the Five-Year Infrastructure Plan.

Additionally, the early action package proposes $25 million one-time General Fund in 2020-21 for Cal OES ($21.9 million) and the Department of Forestry and Fire Protection ($3.1 million) to support implementation of a home hardening pilot grant program.

The Budget also includes $1 billion for a comprehensive package of resources to increase the pace and scale of forest health activities and decrease fire risk, including $581 million for CAL FIRE in 2020-21 and 2021-22. The $1 billion Wildfire and Forest Resilience Expenditure Plan includes the following investments, among others:

• Resilient Forests and Landscapes—$512 million to enhance wildfire resilience across California’s diverse landscapes by thinning forests, replanting trees and utilizing prescribed fire, which will also improve biodiversity, watershed health, carbon sequestration, air quality, and recreation. Programs include a forest health grant program, support for post-fire watershed recovery, a direct investment for Tribes, support for small landowners to sustainably manage their forest lands, and a targeted investment to better manage state landholdings.
• Wildfire Fuel Breaks—$335 million for the Department of Forestry and Fire Protection (CAL FIRE) and the California Conservation Corps to complete at least 45 to 60 strategic fuel break projects each year over the next several years. This funding builds on the success of the 35 emergency fuel reduction projects completed in 2019. Grant funds will enable local communities to develop their own fire safety projects. Targeted regional investments will provide technical support to develop cross-jurisdictional regional plans, identify projects, prepare those projects and then receive targeted grants for project implementation.
• Community Hardening—$38 million to increase the resilience of the state’s most fire-vulnerable communities. The Budget supports educational programs, defensible space outreach, and basic retrofits for homes of low-income Californians. The Administration will explore leveraging opportunities with the federal government to enhance home hardening efforts.
• Science-Based Management—$39 million to support rigorous monitoring and robust scientific inquiry necessary to achieve effective, long-term forest health and restoration in the face of a dynamic environment of high-severity wildfire and climate change.
• Forest Sector Economic Stimulus—$76 million to invest in innovative projects and workforce preparedness in the forest sector.

The Budget also includes statutory changes to make $200 million of Cap-and-Trade funding for CAL FIRE’s forest health and fire prevention programs available for an additional five years, beyond the existing 2023-24 sunset date specified in Chapter 626, Statutes of 2018.

The 2020 Budget Act included statutory changes to establish the Climate Catalyst Fund, a financing tool to provide revolving loans for climate-related projects. The Budget includes $47 million one-time General Fund in 2020-21 in the wildfire and forest resilience package and $50 million one-time General Fund to the California Infrastructure and Economic Development Bank (IBank) to support Climate Smart Agriculture loans to advance projects that may include but are not limited to: methane reduction; equipment replacement; water efficiency; healthy soils; circular economies; on-farm bioenergy; energy efficiency for food processing; and renewable energy systems and energy storage for agricultural operations.

The Budget reflects Newsom’s purported commitment to improving management of natural and working lands to advance the state’s climate change goals of achieving carbon neutrality, expanding carbon sequestration, and building climate resilience across the state’s diverse landscapes. To that end, the Budget makes the following investments:

• Restoration of Natural Areas and Ecosystems—$248.6 million
  • $125 million one-time Proposition 68 for the Natural Resources Agency to support multi-benefit water quality, water supply and watershed protection and restoration projects.
  • $79.9 million one-time from various bond funds for the Wildlife Conservation Board to support multi-benefit ecosystem and watershed protection and restoration projects including, but not limited to, the Lower American River Conservancy Program, the Pacific Flyway program, and Wildlife/Fish Passage programs.
  • $43.7 million in 2021-22, and a total of $69.6 million over five years, from various fund sources for the Department of Water Resources to support restoration projects through the Riverine Stewardship and San Joaquin Restoration programs, ecosystem enhancement projects in the Delta, and a plan to increase watershed resilience in the San Joaquin Basin.
• Flood Management—$183 million
  • $81 million in 2021-22, and a total of $102.3 million over three years, from various bond funds for the Department of Water Resources Delta Levees System Integrity Program.
  • $67 million in 2021-22, and a total of $224.9 million over four years, General Fund for the Department of Water Resources to leverage $1.8 billion in federal funding for the flood risk reduction American River Commons Features project.
  • $28.5 million one-time Proposition 68 for the Department of Water Resources to support collaborative flood risk management.
  • $6.5 million in 2021-22, and a total of $9.5 million over three years, Proposition 1 for the Department of Water Resources to support emergency flood response in the Delta.
• Coastal Protection—$6.5 million
  • $6.5 million in 2021-22, and a total of $17.4 million over two years, Proposition 68 for the Natural Resources Agency/Ocean Protection Council to support projects that improve biodiversity and climate resilience by increasing coastal and marine ecosystem health.

WATER

The Budget proposes $100 million one-time General Fund, which includes $50 million as part of the Administration’s proposed early action to support water efficiency projects and a transition to sustainable groundwater; the $100 million includes:

• Sustainable Groundwater Management Act Grants—$60 million one-time General Fund ($30 million in 2020-21 and $30 million in 2021-22) to the Department of Water Resources for grants to support economic mitigation planning and groundwater implementation projects across critically over-drafted basins. Historic groundwater laws enacted in 2014 require local agencies to bring basins into sustainable conditions within 20 years of implementing their sustainability plans. This additional funding for existing Department grant programs is intended to help local agencies address known data gaps, plan and implement projects, and address deficiencies in initial groundwater sustainability plans.
• State Water Efficiency and Enhancement Program Grants—$40 million one-time General Fund ($20 million in 2020-21 and $20 million in 2021-22) to the Department of Food and Agriculture to provide incentives that help farmers reduce irrigation water use and reduce greenhouse gas emissions from agriculture pumping.

Additional state investments in regional water resilience include:

• Flood Preparedness—$183 million in 2021-22, $365.2 million over the next four years, from various fund sources to leverage $1.8 billion in federal funds for the flood risk reduction American River Common Features project, the maintenance and strengthening of levees, the support of emergency flood response activities in the Sacramento-San Joaquin Delta (Delta), and the support of collaborative flood risk management.
• Deferred Maintenance—$75 million one-time General Fund for critical levee repair projects to enhance the state’s resilience to catastrophic flooding.
• Delta Resilience—$43.7 million in 2021-22, $69.6 million over the next five years, from various fund sources to support ecosystem restoration and watershed resilience work on the San Joaquin River and for projects that improve water quality or ecological conditions within the Delta.

FEDERAL CARES ACT FUNDING

The 2020 Budget Act established a process to allocate $9.5 billion in Coronavirus Relief Fund (CRF) provided in the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, the largest of the bills enacted early in the COVID-19 pandemic. Based on data through September 30, the state had obligated or spent nearly $8.7 billion of the $9.5 billion authorized by the CARES Act and included in the 2020 Budget Act. While the deadline to spend to spend CRF was extended through December 31, 2021, the state has been finalizing the allocation and prioritization of the remaining $800 million in funds to pay for additional emergency response costs, public health expenses, and public safety payroll costs. Unfortunately, special districts have not been targeted to receive these funds as of yet.

LABOR AND HUMAN RESOURCES

The Budget includes language to allow the Department of Industrial Relations (DIR) to increase resources mid-year by up to $14.4 million and 70 positions for Cal/OSHA to hire additional workplace safety inspectors.

The Budget includes $8.6 million and 43 positions to implement and enforce recently enacted legislation related to COVID-19 workers’ compensation. Additional resources allow DIR to investigate workplaces that violate COVID-19 specific guidelines and regulate businesses for adequate personal protective equipment stockpiles for future crises.

The budget shifts prior payments the State has made towards offsetting their future long-term pension obligations both at CalPERS and CalSTRS towards their short-term obligations. The impact this may have on the total funded status of the CalPERS Fund is unknown at this time, but would likely be considered minor.

TRANSPORTATION AND INFRASTRUCTURE

The Budget continues to address the mobility options throughout the state by including nearly $1.3 billion to support transit and rail—including $667 million in State Transit Assistance, $487 million for the Transit and Intercity Rail Capital Program, and $107 million for the Low Carbon Transit Operations Program. To assist transit agencies and support economic recovery, the Administration continues to allocate CARES Act funding, expedite rural distributions, and work with the federal government to obtain ongoing federal support. The recent federal COVID-19 relief bill is expected to provide more than $2 billion in additional funding directly to local transit agencies. In addition, the Administration is recommending regulatory and reporting relief related to the Transportation Development Act on a permanent basis, allowing agencies to plan with more certainty and flexibility for the expenditure of state transit resources.

Many capital projects were paused in 2020 due to fiscal uncertainties related to the COVID-19 pandemic. The state’s 2021 Five-Year Infrastructure Plan (Plan) makes additional investments in an effort to contribute to California’s economic recovery. In addition to statewide investments in climate resilience and broadband programs, the Plan proposes $52 billion in state infrastructure over the next five years.

REVENUE OUTLOOK

The General Fund revenue forecast has improved relative to the 2020 Budget Act. As a result, before accounting for transfers such as to the Budget Stabilization Account, General Fund revenue is higher than the 2020 Budget Act projections by nearly $71 billion from 2019-20 through 2021-22. The Governor’s Budget reflects actual and anticipated reimbursements from the federal government totaling approximately $9.9 billion for reimbursement of costs associated with the state’s response to recent (2017, 2018, and 2020) wildfires and the COVID-19 pandemic.

The California Department of Finance believes revenue, including transfers, is expected to be $163 billion in 2020-21 and $158 billion in 2021-22. They attribute the projected increase since the 2020 Budget Act to three main factors: a less severe economic downturn than was anticipated at the 2020 Budget Act, a significantly greater unequal spread of the wage losses in the downturn between high-wage and lower-wage segments of the population, and a stronger stock market than was expected.

Statewide property tax revenues are estimated to increase 4.6 percent in 2020-21 and 5.6 percent in 2021-22, up from 3.5 percent in 2020-21 and 5.5 percent in 2021-22 at the 2020 Budget Act, due in large part to the assumption of a lower rate of delinquencies. Approximately 48 percent ($47 billion) of 2021-22 property tax revenues will go to K-14 schools. This includes $2.6 billion that schools are expected to receive in 2021-22 pursuant to the dissolution of redevelopment agencies.

Structural deficits loom in the state’s future, however; beginning in the 2022-23 fiscal year, the state faces a potential $7.6 billion structural deficit, increasing yearly after that.

The full budget summary can be accessed on the California Department of Finance’s website.

* Images taken from the Governor's 2021-22 State Budget presentation, January 8, 2021

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