Last week, the California State Legislature moved to approve the state’s budget package, Assembly Bill 89, which was signed by the Governor yesterday. Previously, both chambers had passed a “placeholder” budget on June 15 to meet a constitutionally-mandated deadline. In addition to AB 89, the Legislature passed nearly a dozen trailer bills needed to implement provisions of the budget.
COVID-19 continues to dominate much of the discussion related to the budget process; on June 25, Governor Gavin Newsom issued a proclamation of a budget emergency to make additional resources available to fund the state’s ongoing emergency response to the pandemic, preparing for an increase in expenditures to support a potential hospital surge and to provide necessary services to vulnerable populations.
Delays arose in negotiating a follow-up budget proposal related in part to cuts to state worker pay. A joint statement from Assembly Speaker Anthony Rendon and Senate President Pro Tempore Toni Atkins read in part:
A key update to the Legislature’s [June 15] version is that we now explicitly anticipate budget savings achieved through the collective bargaining process in the event anticipated federal funds do not materialize. We encourage labor unions to engage and finalize agreements with the Administration prior to July 1. Savings through the collective bargaining process are critical to maintaining the state’s fiscal health, in the event additional federal support does not materialize.
While cuts related to state worker pay initially proposed by Governor Newsom have been revised, the compromised budget package still includes alterations to various programs based on the receipt of federal funds. According to the Senate Budget and Fiscal Review Committee, AB 89 differs from the previous budget agreement by:
- Not relying on additional Rainy Day Funds, Safety Net Reserve Funds, or the Public Employee Retirement System deferral if additional funds do not materialize; the agreement relies upon updated baseline forecast adjustments to revenues and expenditures and an increased Proposition 98 deferral; and
- Changes from the “trigger down” approach included in SB 74 to a “trigger up” approach, where funding is only provided if additional federal funds are received by October 15, 2020.
Total General Fund expenditures for the 2020-21 fiscal year within AB 89 are estimated to be $133.9 billion. In addition, reserves would be approximately $11.4 billion, including $2.6 billion within the regular reserve fund, $450 million in the Safety Net Reserve fund, and $8.3 billion in the Rainy Day Fund.
In terms of local government COVID-19 response, the Legislature's budget sent to the Governor does include limited CARES Act appropriations to cities and counties, but not to special districts. The state's appropriation of that funding is consistent with the US Treasury guidelines, which do not delegate special districts as eligible. Special thank you to all the districts that have written a letter supporting H.B. 7073 to make special districts eligible for future funding from the federal government. If you haven’t written a letter yet, you can find a sample letter on CSDA’s website in the Take Action section.
CSDA was tracking several items in the budget and two priorities that CSDA advocacy staff were actively working on have successfully made it to the Governor:
Community Power Resiliency Funding: SB 74 included the $50 million appropriation accessible to local governments to assist in preparing for deenergization events and specifically included special districts who operate critical facilities and infrastructure as eligible to apply for the grant funds. However, the budget control language for this item was written in a way that was burdensome and could have required changes to an emergency plan to include power outage events prior to receipt of funds, which would have been unrealistic for some local agencies, or would have required submission of an emergency plan in full to CalOES, which could have compromised security and created confidentiality issues. CSDA worked with local government partners, the administration, and legislative budget staff to get this control language amended. Our requested amendments were included in AB 89. Local agencies now must submit only that portion of an emergency plan that deals with deenergization events or must certify that they will include plans for power outage events at the emergency plans next update. Look for more information in coming months on how to apply for these grants.
Paradise Irrigation District (PID) Funding Reversion: The Governor's budget proposed reverting $7.3 million from PID second year funding that was authorized in last year's appropriations. CSDA joined with a host of supporters to advocate for this funding to be maintained and the final version of the budget sent to the Governor restores this second-year funding to PID.
While special districts were fortunate to have at least two positive measures in the budget, several other measures that districts did not support were also passed. Below is a summary of a couple of those measures:
Education finance: education omnibus budget trailer bill: SB 98 which currently affects just five counties; San Francisco, San Mateo, Santa Clara, Napa and Marin, but could set a statewide precedent for the future passed on Monday. This bill is a straggler behind the bulk of other budget trailers bills that that could cost special districts significant revenue. The Core of the issue is a disagreement between local county officials and the state on how to calculate what is known as “excess ERAF” of funds local agencies contribute to the Educational Revenue Augmentation Fund in excess of what is required to the fund schools.
This provision occupies only a small fraction of the larger measure. CSDA is concerned only with Section 84 amending Section 97.2 of Rev & Tax Code where the measure assigns the state controller the power to issue new guidelines in the debate of how property tax, if any, should be distributed to those agencies who paid monies in excess of what the schools in those counties are entitled to.
While the measure has been positively amended, due to a robust advocacy effort by local agencies, it still has major deficiencies;
- Taking Funding from Counties, Cities and Special Districts - The excess ERAF funds are distributed to local agencies, impacting their ability to provide critical public services like police, fire, and flood protection, as well as social services, libraries, and more.
- APA Exemption for “Guidance” with the Force of Law - The new guidelines will be exempt from compliance with the Administrative Procedures Act (APA).
- Retroactivity Fundamentally Unfair - The language makes counties accountable to a guidance now for the 2019-20 fiscal year even though the guidance may not be issued by the State Controller until December 31, 2020.
- May Conflict with existing legislation - AB 169 (Wiggins) empowered local agencies to contribute to a best practices framework in compliance the APA.
- Potential conflict with Proposition 1A (2004) - In 2004 the voters enacted Proposition 1A, which prohibits the Legislature from reducing the share of property tax revenues going to cities, counties, and special districts, and moving those shares to schools under most circumstance.
Change in ownership: nonresidential active solar energy systems: AB 105 was passed by the Senate and is currently in the Assembly Committee on Revenue and taxation. If passed, it will:
- Make nonresidential active solar energy systems personal property, not an improvement for purposes of taxation.
- Solar energy systems constructed or installed prior to January 1, 2025, will not be taxed until there is a change of ownership.
- This only takes affect if the “split roll” or commercial property re-assessment ballot fails in November.
While the Legislature has now passed its follow-up to the placeholder budget passed earlier this month, the state will likely need to revisit these conversations later on in the year, particularly in October when the deadline for federal funding approaches. CSDA will continue to monitor these developments as they arise and keep its members informed. Be sure to subscribe to the Advocacy News Blog to receive updates and stay up-to-date with the most timely information.