Blog Viewer

In response to the proposed State Budget, CSDA Chief Executive Officer Neil McCormick urged Governor Gavin Newsom to partner with special districts as the Newsom Administration moves to confront the threats California faces. McCormick stated, “Governor Newsom’s budget proposal rightly confronts the many challenges of our time: climate change, wildfires, drought, and housing, all of which require thoughtful approaches built from the ground up. The locally focused experts in California’s special districts are hard at work every day tackling these issues facing our communities and we look forward to working with the Governor and State Legislature to build on our partnership in these proposed investments.”

On January 10, Governor Newsom unveiled his $286.4 billion budget proposal for the 2022-23 fiscal year, dubbed the “California Blueprint”. Despite mounting concerns surrounding the Omicron Variant of the Coronavirus, Governor Newsom sought to project a strong fiscal foundation for his budget blueprint.

Governor Newsom’s ambitious budget hopes were buoyed by recent developments in California’s revenues: according to the Legislative Analyst’s Office (LAO), the state was witnessing an “unprecedented growth in revenues,” particularly the state’s largest three tax sources, 1) personal income taxes, 2) corporation taxes, and 3) sales taxes. As the LAO explained:

Revenue collections have grown rapidly in recent months. For example, September 2021 collections from the states three largest taxes were 40 percent higher than September 2020 and almost 60 percent higher than September 2019. As a result of this surge, collections so far this fiscal year are already over $10 billion ahead of 2021-22 Budget Act ... assumptions. Underlying the recent surge is a meteoric rise in several measures of economic activity. Retail sales have posted double digit growth during 2021. Stock prices have doubled from their pandemic low last spring. Several major firms have posted historically high earnings.

With revenues surging, there was the very real possibility that the state would have to remit money back to California taxpayers as a result of the requirements posed by the state appropriation limit – a possibility that was realized when Governor Newsom stated his Administration would put forward a plan to address these requirements at the May Revision, due to exceeding the limit by an estimated $2.6 billion.

Well-positioned to make significant investments in his top priorities, Governor Newsom delineated what he believed to be California’s existential threats: 

Of particular note to special districts were the second, third, and fourth topics. Issues of note are listed below by category, which include the following: 

• Property Tax
• Cybersecurity
• Disaster Preparedness and Response
• Drought, Climate Change, and Extreme Weather Response
• Green Energy, Zero Emission Vehicles, and Transportation
• Labor and Human Resources

PROPERTY TAX 

Preliminary data for the secured property tax roll indicates that property tax collections increased 5.3 percent in 2020-21, which is modestly below the average growth of the prior five years of 5.9 percent but still in line with historical norms. Assessed value growth is estimated based on statistical modeling and evaluations of real estate trends. The median sales price of existing single-family homes increased 22 percent from 2019-20 to 2020-21. The sharp rise in home prices partly reflects a larger than usual share of high-end homes sold as many wealthy households purchased a larger home or second vacation home. Given the expectation of higher interest rates as signaled by the Federal Reserve, and as the mix of homes sold reverts back to pre-pandemic levels, housing price growth is expected to moderate to the pre-pandemic rate of around 5 percent per year.

A property’s assessed (taxable) value generally increases more slowly than its market value. When a property is sold, its assessed value is adjusted to its market value. As a result, property sales often result in large increases in taxable value. Fewer properties were transferred in 2020-21 than expected at the 2021 Budget Act, leading to fewer taxable value reassessments. The forecast assumes transfers will continue to be slow in 2021-22 as demand softens due to decreasing housing affordability and increasing interest rates. Following a brief rebound in 2022-23, the long-term trend of transfers slowly declining is expected to continue.

Statewide property tax revenue growth rates are largely unchanged from the 2021 Budget Act as the lower transfers were offset by higher prices. Property Tax revenues are estimated to increase 6.2 percent in 2021-22 and 6.1 percent in 2022-23, compared to 6.1 percent for 2021-22 and 6.1 percent for 2022-23 projected as of the 2021 Budget Act. Approximately 42 percent ($37 billion) of 2022-23 property tax revenues will go to K-14 schools. This includes $2.9 billion that schools are expected to receive in 2022-23 pursuant to the dissolution of redevelopment agencies.

CYBERSECURITY 

The Five-Year Infrastructure Plan released with the Governor’s Budget includes approximately $39 million, under the federal Infrastructure Investment and Jobs Act (IIJA), above existing funding levels available to/through the state for cybersecurity grants to state and local governments.  These additional funds are anticipated to be made available under a new funding formula, with additional as-yet-determined funds anticipated to be made available. The administration is also seeking flexibility to provide matching funds to take advantage of other IIJA funding opportunities.

DISASTER PREPAREDNESS AND RESPONSE 

$5.8 million will be provided to enhance Cal OES’s regional response capacity and key partnerships with local governments and other local stakeholders. Regional disaster response and recovery capacity have been stretched thin by more frequent and higher intensity disasters. These resources will increase disaster resilience capacity based on each region’s unique needs.

The blueprint provides 13 regional collaboratives with $5 million each from the Community Economic Resilience Fund (CERF), established by SB 162 (Cmte on Budget and Fiscal Review). This funding will be used for planning purposes; planning grants are part of the first phase of the program and will guide phase II, which will comprise $500 million in implementation grants.

DROUGHT, CLIMATE CHANGE, AND EXTREME WEATHER RESPONSE 

As part of the Governor’s drought response package, the budget proposal includes $180 million for grants to large urban and small water suppliers to improve water efficiency, address leaks, reduce demand, provide water use efficiency-related mapping and training, support turf replacement, and maintain a drought vulnerability tool, helping to achieve the Governor’s 15 percent voluntary water conservation target and as local water districts adapt to forthcoming efficiency standards.

Additionally, $145 million is allocated for local emergency drought assistance and grants to local water agencies facing loss of water supplies. $40 million is included to increase regional capacity to repurpose irrigated agricultural land to reduce reliance on groundwater while providing community health, economic well-being, water supply, habitat, renewable energy, and climate benefits. $30 million to provide grants to water districts to fund planning, engineering, water availability analyses, and construction for groundwater recharge projects. $20 million has been allocated to bolster the State Water Efficiency and Enhancement Program (SWEEP), which provides grants to implement irrigation systems that save water on agricultural operations.

An additional $10 million was proposed to provide mobile irrigation labs, land use mapping and imagery, irrigation education, and direct assistance to small farmers and ranchers who have experienced water cost increases of more than 50 percent. Of note, $250 million has been proposed as a drought contingency set aside to be allocated as part of the spring budget process, when additional water data will be available to inform additional drought needs; this particular allocation is reportedly going to prove especially sensitive to the views of the California State Legislature.

The Governor’s budget proposal includes funding to support multi-benefit and nature-based solutions, address impacts of extreme heat, and to build ocean and coastal and community resilience; this funding includes $100 million to cool communities through nature-based solutions, such as expanding tree canopy and green infrastructure projects. Additionally, the funding proposal includes $25 million to reduce the impacts of extreme heat and the urban heat island effect; $25 million to support vulnerable residents experiencing extreme heat, wildfires, power outages, flooding, and other emergency situations brought about by the climate crisis; and $25 million to accelerate energy efficient upgrades in low-income households.

The Budget includes approximately $382 million in 2022-23 associated with the following investments: 

• Immediate drought response for communities and fish and wildlife and strengthened long-term water resilience for natural systems.
• Improved resilience of the state’s forests and wildlands to withstand long-term climate threats, protection for wildfire-vulnerable communities, and reduced near-term wildfire risks.
• A range of multi-benefit and nature-based solutions that deliver on Executive Order N-82-20 to combat climate change, expand outdoor access, and protect biodiversity.
• Community greening initiatives that support the state’s climate goals and equity goals.
• Scaled support for climate smart agriculture planning and practices.
• Protection for the ocean and California’s coasts through restoration projects and improved community planning.
• Community economic resilience funding that creates economic opportunity in nature-based sectors such as agriculture, forestry, and climate restoration.

The 2021 Budget also included $768 million one-time General Fund over two years to support implementation of the state’s Natural and Working Lands Climate Smart Strategy and 30x30 Pathways strategy.

Concerning coastal resilience, the budget proposal includes $350 million for coastal wetland protection and restoration, and projects that build coastal resilience, as well as $50 million for projects that protect and restore healthy ocean and coastal ecosystems, including estuarine and kelp forest habitat, the state’s system of marine protected areas, and to build climate-ready fisheries.

The proposal includes $325 million associated with the second year of investments that align economic resilience with the state’s climate goals, empower tribal and vulnerable communities, and support the leadership capacity of tribal, regional and local governments and stakeholders. These investments include $165 million to support catalytic projects that serve as a model for equitable, community-driven infrastructure investments in the most disadvantaged communities of California; $135 million to provide direct investment in communities through capacity building grants, tribal, local and regional adaptation planning, and implementation of resilience projects; and $4.7 million ongoing to empower Californians to take climate action through service positions, volunteer opportunities, or individual action.

Further, the budget proposal includes $150 million to provide funding that supports the replacement of equipment used in agricultural operations, $85 million to provide grants for on-farm conservation management practices designed to sequester carbon within the soil, $48 million for livestock methane reduction programs, $25 million to support Climate Smart Agriculture loans, $22 million to fund technical assistance grants for the development of plans to focus on carbon and water actions, and $15 million for implementation of pollinator habitat and forage on working lands in partnership with private landowners and federal, state, and local entities.

$482 million is included to enhance wildfire resilience across California’s diverse landscapes by thinning forests, replanting trees, expanding grazing, and utilizing prescribed fire, to attempt to improve biodiversity, watershed health, carbon sequestration, air quality, and recreation. $100 million is included to help recover critical watersheds burned in catastrophic wildfires, and $382 million is included for CAL FIRE and the California Conservation Corps to complete strategic fuel breaks projects over the next several years, with funding included to replenish fire prevention grant funds which will enable local communities to develop their own fire safety projects. $110 million is included for targeted regional investments that will include technical support to develop cross‑jurisdictional regional plans, identify projects, and support project implementation.

The Governor’s budget proposal also advances the state’s circular economy by investing $65 million to support implementation of goals to reduce short-lived climate pollutants, including advancing organic waste infrastructure, edible food recovery, and non-organic waste recycling.

GREEN ENERGY, ZERO-EMISSION VEHICLES, AND TRANSPORTATION 

The Governor’s budget proposal includes significant funding to further the state’s Clean Energy Investment Plan, fostering and deploying technologies to address key energy needs for diverse and reliable sources of electric power, the decarbonization of buildings, agriculture, and industry by scaling up new technologies designed to drive down consumer costs. To this end, the budget proposal includes $380 million over two years to invest in long duration storage projects throughout the state to support grid reliability, $100 million to advance the use and production of green hydrogen, $210 million (over two years) to accelerate industrial sector decarbonization, $85 million to accelerate the adoption of energy technologies at California food production facilities, and $45 million to create the Offshore Wind Energy Deployment Facility Improvement Program and activities to advance the capabilities of deploying offshore wind energy in federal waters off California.

The proposal invests an additional $6.1 billion over five years to increase access to the benefits of clean transportation and increases the money targeted for heavy-duty market acceleration. Of note, investments in the area include $935 million to add 1000 zero-emission short-haul (drayage) trucks and 1700 zero-emission transit buses, $1.1 billion for zero-emission trucks, buses, and off-road equipment and fueling infrastructure, and $400 million to enable port electrification. The proposal includes an additional $419 million to support sustainable community-based transportation equity projects that increase access to zero-emission mobility in low-income communities.

The proposed budget includes $2 billion for hydrogen and electric fuel cell electric vehicle charging stations, with $600 million included for the construction of 5000 high-powered, public D/C vehicle fast chargers, and $300 million for a grant program for the construction of at-home ZEV chargers.

The Governor's budget proposal includes $9.1 billion over two years for transportation programs and projects that align with climate goals, advance public health and equity, and improve access to opportunity. To this end, proposed investments include $750 million for projects to transform the state’s active transportation networks, improve equity, and support carbon-free transportation options, including funding for: Active Transportation Program projects, the Reconnecting Communities: Highways to Boulevards Pilot Program, and bicycle and pedestrian safety projects.

An additional $400 million in included for climate adaptation projects that support climate resiliency and reduce infrastructure risk. $2 billion is included to invest in high-priority transit and rail infrastructure projects to improve rail and transit connectivity between state and local/regional services, including projects on shared corridor routes.

$1.2 billion is proposed for port-related high-priority projects that increase goods movement capacity on rail and roadways serving ports and at port terminals, including railyard expansions, new bridges, and zero-emission modernization projects.

LABOR AND HUMAN RESOURCES 

The Budget includes statutorily required state contributions to the CalPERS pension system.  The Budget also reflects $3.5 billion in constitutionally required Proposition 2 debt repayment funding to further reduce the state’s CalPERS unfunded liability. This is anticipated to reduce the state’s costs over time, it does not affect the contributions of special districts nor their unfunded actuarial liabilities. The impact this may have on the total funded status of the CalPERS Fund is unknown at this time.

Last year, $600 million was allocated to the Community Economic Resilience Fund (CERF) for regional strategies that support economic and workforce transitions caused by the COVID-19 Pandemic, climate change, and other factors. The Budget complements this effort with $450 million General Fund over three years starting in 2023-24 to support local governments as local economies adjust, and $50 million General Fund to establish a fund for displaced oil and gas workers as the state continues to phase out oil production.  This investment may create funding opportunities for losses experienced by local governments as part of the transition to renewable energy.

The Budget includes a $60 million General Fund over three years to restart the grant program within the California Workforce Development Board’s Low Carbon Economy Workforce.  This program is intended to identify needs and capacity for adaption due to climate change and responses to climate change, and create related career pathways.

The Budget includes $110 million for a goods movement training campus, created to support workforce resilience in the face of supply chain disruption and accelerate the deployment of zero emission equipment and technologies.

The Budget includes a three-year investment of $1.7 billion to support labor and workforce development in the care economy, including various career pathway and training programs in the health care field.