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May Revise Cuts Billions, Confronts COVID-19

By Vanessa Gonzales posted 05-19-2020 10:17 AM

  

Newsom_May_rev_budget.jpgOn Thursday, May 14, Governor Gavin Newsom presented his May Revision to the California State Budget. Governor Newsom called for substantial cuts to most of the state programs and projects proposed back in January, including funding related to climate resiliency and payments toward the state’s unfunded public employee pension liabilities. However, the Governor advanced increased spending toward emergency preparedness and efforts to confront the COVID-19 pandemic.

 

As previewed by the Assembly Budget Committee, “[t]he 2020-21 budget in California will have to adjust to the realities of the impact of COVID-19 on [the] State. The immediate needs in response to the disaster force us to pause important work and priorities that predated the pandemic.” Further, the Assembly anticipated “needing to adopt a budget that will include sizable reductions to services, including in areas that have been traditionally been priorities for investment over the last decade.” These expectations matched the realities of the Governor’s May Revise.

 

Despite the sobering projections, certain programs within the budget would continue.

 

Climate Resiliency

The January climate budget included $12 billion over the next five years. Three key areas of the climate budget were a proposed climate resilience bond, cap-and-trade expenditures to continue the transition to a carbon-neutral economy, and a new Climate Catalyst Fund.

 

  • Climate Resiliency Bond: The Governor is no longer endorsing a climate bond being placed on the ballot in November of 2020, which was proposed as a $4.75 billion climate resiliency bond, due to the debt service of a general obligation bond against the General Fund. (Note: the effort in the Assembly continues to move forward as of this writing and has been repositioned as an “Economic Recovery, Wildfire Prevention, and Safe Drinking Water Act.”)

 

  • Sustainable Groundwater Management Act (SGMA): January SGMA proposals have been withdrawn from the Governor’s budget, including a $40 million General Fund investment. The Department of Water Resources will allocate $26 million of existing Proposition 68 bond funds to local agencies in critically overdrafted basins to help defray the cost of implementation projects. Additional funding for SGMA-related projects may be considered for inclusion in future infrastructure investments.

 

  • Cap and Trade Expenditure Plan: A $965 million Cap and Trade Expenditure Plan, which included a $25 million ongoing investment to provide support for programs, including support for the Fifth California Climate Change Assessment, remains but has been reconfigured to a “pay as you go” program based on actual Green House Gas Reduction Fund auction proceeds to authorize budget act expenditures based on actual proceeds received at each quarterly auction. Additionally, as proceeds are anticipated to be much lower, the proposed budget mechanism will prioritize initial auction proceeds for the following programs:

 

  • Air Quality in Disadvantaged Communities: Assembly Bill 617 Community Air Protection Program and agricultural diesel emission reduction.
  • Forest Health and Fire Prevention, including implementation of the requirements of Chapter 391, Statutes 2019 (Assembly Bill 38).
  • Safe and Affordable Drinking Water.

 

  • Climate Catalyst Fund: The January budget proposal included a $1 billion General Fund investment ($250 million in 2020-21, with additional funding in later years) for a Climate Catalyst Fund. This has been withdrawn from the Governor’s budget for this and future years. However, the Administration notes it remains committed to leveraging private capital to support a Climate Catalyst Fund.

 

Cutting Green Tape

The May Revision continued to prioritize funding for the Cutting Green Tape proposal in the Department of Fish and Wildlife, proposing $4 million to increase the scale and pace of restoration work, incorporate efficiencies into grant programs, and incorporate the use of programmatic permitting options.

 

Emergency Preparedness

The January budget proposal continued to build on emergency response and preparedness funding priorities from 2019-20, including improving the resiliency of the state's critical infrastructure, minimizing impacts of public safety power shutoff (PSPS) events, and wildfire prevention efforts.

 

  • Wildfire Forecast and Threat Intelligence Integration Center: The January budget included $9 million ($8.8 million General Fund) and 22 positions across Cal OES, the Department of Forestry and Fire Protection (CAL FIRE), the Military Department, and the Public Utilities Commission to begin implementation of the Wildfire Forecast Center. The May Revise maintains $2 million General Fund to enhance the state’s emergency response capabilities through improved forecasts for tracking and predicting critical fire weather systems, which improves situational awareness of fire threat conditions in real-time, reduce this proposal by $6.8 million General Fund across various departments.

 

  • Wildfire Protection – Home Hardening: The May Revision proposes to withdraw $101.8 million ($26.8 million General Fund) for Cal OES and CAL FIRE for implementation of the home hardening pilot grant program authorized by Assembly Bill 38 of 2019. Infrastructure investments to improve the resiliency of vulnerable communities will be considered as part an overall infrastructure plan. The May Revision maintains a $8.3 million Greenhouse Gas Reduction Fund appropriation for CAL FIRE to meet defensible space-related and other requirements pursuant to AB 38.

 

  • California Disaster Assistance Act (CDAA): $16.7 million one-time General Fund to increase the amount of funding available through CDAA was proposed in January. The May Revise proposes a total of $38.2 million one-time General Fund (maintaining $16.7 million included in the Governor’s Budget and an additional $21.5 million) to increase the amount of funding available through the CDAA, which is used to repair, restore, or replace public real property damaged or destroyed by a disaster or to reimburse local governments for eligible costs associated with emergency activities undertaken in response to a state of emergency proclaimed by the Governor. This augmentation increases total CDAA funding available in the Budget to $100.8 million.

 

  • Community Power Resiliency: A proposed $50 million one-time General Fund to support additional preparedness measures that bolster community resiliency remains in the May Revise. This proposal will support a matching grant program to help local governments prepare for, respond to, and mitigate the impacts of power outages and these measures will support critical services including schools, county election offices, and food storage reserves. Special districts were explicitly eligible in the Budget Change Proposal included in the January budget and CSDA will work to ensure special districts continue to have access to any proposed funds that move forward.

 

COVID-19 Response

The May Revise includes some funding for cities and counties for COVID-19 response from the state’s allocation of CARES Act funding but does not include special districts.

 

The CARES Act provides a direct allocation of $9.5 billion to California and $5.8 billion to cities and counties with populations over 500,000 (includes 15 counties, 5 cities, and the city and county of San Francisco). CARES Act funding has been determined through treasury guidance to provide relief to states and local governments at the city/county level of government and the state has used that guidance and allocated $450 million to cities and $1.3 billion to counties to be used toward homelessness, public health, public safety, and other services to combat the COVID-19 pandemic.

 

Broadband

To identify which areas of the state lack sufficient access to broadband, and to inform the state’s infrastructure grants and to better position for federal grants, the May Revision includes $2.8 million and 3 positions in additional resources from the Public Utilities Commission Utilities Reimbursement Account for the Commission to enhance its broadband mapping activities and will offer statutory changes to meet these goals.

 

CalPERS Supplemental Payment

Last year, when the State of California was experiencing budget surpluses, the Governor and the Legislature made accelerated payments towards the State’s unfunded pension liabilities which currently sit at $167 billion. The State sent $2.5 billion to CalPERS through Senate Bill 90.

 

However, now that the State is facing a $54.3 billion budget shortfall, the Governor is asking the Legislature to pass a budget that claws that money back and uses it to pay the State’s regular unfunded liability costs to CalPERS over the next two years. While no other public agency that has been making additional payments towards their unfunded liabilities can repurpose their payment, the State included specific claw back language in AB 90 allowing the State this unique authority.

 

This proposal, if passed, would result in immediate savings of $2.5 billion to the State over the next two years, while simultaneously eliminating any long-term unfunded liability savings by the previously approved down-payment. When the State passed SB 90, it touted a long-term savings to the State of $8 billion due to reduced interest payments on unfunded liability, which also increased the overall total funded status of CalPERS by a few percentage points. That long-term savings will go unrealized with the shifting of these funds and CalPERS's overall funding level will be reduced. However, the May Revise suggests that the immediate needs outweigh the long-term costs.

 

Property Taxes

California counties committed to cancel penalties and charges related to late payments on a case-by-case basis for primary residences that may arise due to hardships arising from COVID-19, which is reflected in the 2019-20 preliminary data for the budget.  Even so, according to the May Revise, statewide property tax revenues are expected to grow 3.5 percent in 2020-21. This anticipated growth in property tax revenue is 2.2 percentage points lower than the 5.7 percent growth project in the Governor’s January Budget due to increased delinquencies, which typically rise in a recession.

 


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