3001 - 4 Pages due within 48 Hrs Budget Simulation: California Budget Challenge
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3001_LataBudget_Simulation_222.docx4 Pages
at least 3 that including the simulation website
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Due 26th March
Budget Simulation: California Budget Challenge (50 Points)
Complete the California Budget Challenge available at https://www.budgetchallenge.org/pages/home. As you complete the simulation, read all the pros and cons of each choice and make notes about why you were persuaded to make the choices that you did in relation to your policy goal(s). After completing the simulation, write 3-4-page describing your policy goal(s), your decisions, and why you made them as well as a reflection on the challenges you faced in completing the simulation.
I have completed the simulation. The policies that I chose has a blue check. All the other information came from each simulation.
K-12 Education
For additional information, view our California Budget Basics series here .
The level of state funding for K-12 is based on Proposition 98, which was passed in 1988 and establishes an annual minimum funding guarantee for both K-12 and community colleges (referred to collectively as K-14 education). The amount of the guarantee is calculated using a complex formula, but is generally dependent on how much General Fund revenue the state receives each year—meaning the minimum funding level will be higher in years when revenue is higher, and vice versa.
Due to the state's low property taxes (following the passage of Proposition 13 in 1978), California schools rely more heavily on state funding than the national average. Prop 98 enables school funding to keep pace with economic growth and enrollment—the latter of which is expected to be essentially flat or even decline over the next five years. Prop 98 funding constitutes over 70 percent of total K-12 funding (and about two-thirds of total community college funding), and the funds set aside under Prop 98 must be spent on education as opposed to other programs. Since Prop 98 funds must be spent on education, options that spend Prop 98 funds are shown as No Budget Change since they do not impact the General Fund budget.
Funding for K-12 education is allocated according to the Local Control Funding Formula (LCFF), which gives each school district a base grant that is then augmented based on the number of English-learners, low-income students, and youth in foster care in a given district. The state has allocated over $24.6 billion in additional ongoing resources through the formula since its enactment in 2013. A recent study found the increased revenue through the LCFF improved graduation rates—that a $1,000 increase in district per-pupil revenue from the state in grades 10-12 led to a 5.3% increase in high school graduation rates, on average.
May Revision Update
General Fund revenues following the May Revision are significantly lower than in January as a result of the COVID-19 pandemic and recession. Since changes in General Fund revenue affect the minimum funding guarantee through Prop 98, the May Revision assumes the Prop 98 guarantee has dropped by more than $17 billion below levels estimated in January—even after a $1.8 billion boost to the Prop 98 guarantee due in part to a proposed suspension of certain tax credits. Specifically, the May Revision estimates the Prop 98 funding guarantee in $70.5 billion in 2020-21, which is $13.6 billion below the levels assumed in the January budget.
To mitigate the impact on funding for K-14 schools, the May Revision proposes temporary changes to business tax credits that will generate $4.4 billion in General Fund revenues, of which $1.8 billion would go to schools. It would also allocate $4.5 billion in federal funds to support K-12 education and proposes to withdraw all of the funding from the Public School System Stabilization Account (PSSSA), which was projected in the January proposed budget to be $524 million. The Governor proposes an additional reduction in Prop 98 funding of $6.5 billion, representing a 10% cut in funding for the LCFF, as a trigger cut.
Alternatively, the Legislature’s plan for the budget includes no Prop 98 trigger cuts, and instead if federal funds do not materialize, an additional $5.3 billion of school and community college funding will be converted to a deferral, which preserves funding for current programs. The advantage of these IOUs, known as deferrals, is that districts wouldn’t have to cut their budgets; they could count on the money, but it would be delivered late. Until districts are paid back, they would be forced to borrow money short-term—from their own reserve funds (if they have a sufficient amount), from county offices of education (those that are willing), or from private lenders, at interest rates that would vary based on risk.
K-12 Education Key Facts
*as of February 2020
· District Size: The smallest district (Panoche Elementary in San Benito County) serves 3 students and the largest district (Los Angeles Unified School District) serves more than 400,000 students
· Overall, there are approximately 5.9 million public school students across 944 school districts
· Charters: There are currently 1,299 charter schools across the state accounting for 11% of total public school attendance
· Student Spending: When per-pupil spending is adjusted for cost of living, California’s per-pupil spending is $10,821 compared to $12,756 for the national average
· California saw the largest increase in per-pupil spending of any state in the nation (26.6%) between 2014 and 2017
· Teacher Employment: The statewide student-to-teacher ratio has been dropping for several years, to about 21:1, which is comparable to the pre-recession level
· Teacher Compensation: The average salary of a school district teacher is approximately $82,000, an increase of about $4,000 (5%) over 5 years earlier
· Average compensation ranges from a low of $69,927 in Plumas County to $105,705 in Santa Clara County
· Special Education: The share of students identified for special education services statewide has increased from 11 percent to 13 percent over last 10 years, though funding has remained largely stagnant when accounting for inflation
Early Childhood Education
For additional information, view our California Budget Basics series here .
Early childhood education in California consists of subsidized childcare (ages 0-3) and the state preschool program (ages 3-4) for families with qualifying low-incomes. The California State Preschool System is the largest state-funded preschool program in the nation, and administered through local educational agencies, colleges, community-action agencies, and private nonprofit agencies. An estimated 515,113 children are expected to be served by the various early childhood education programs in California in 2020-21, 2.8% more than in 2019-20 and 7.9% more than in 2018-19.
State policymakers have taken steps in recent years to expand access to full-day early learning opportunities for young children, including funding additional spaces in the California State Preschool Program and creating grant programs for early learning facilities. The May Revision would allocate $5 billion toward childcare and the state preschool program in 2020-21, which is decrease of 7.4% from the $5.4 billion proposed in January.
May Revision Update
The May Revision reaffirms the Governor’s commitment to early learning, but in the absence of additional federal funding during the health and economic crisis, would make a number of cuts to the state preschool program. These trigger cuts include:
· $160 million for 20,000 preschool slots
· $130 million for preschool spaces at local education agencies (school districts) that has not yet been spent due to a lack of demand
· $200 million to reduce the reimbursement rate for childcare and preschool providers that contract directly with the state by 10%
Alternatively, the plan proposed by the Legislature would prevent the 10% reduction to the reimbursement rate for childcare and preschool providers. Both the Governor and the Legislature propose allocating $125 million for stipends to providers of childcare for essential workers, and children who have special needs, are homeless, in foster care or at-risk for domestic violence.
Early Childhood Education Key Facts
*as of February 2020
· Post-Recession Funding: Funding for both childcare and preschool was cut dramatically during the Great Recession, but has been increasing every year since 2014-15 and reached pre-recession levels (inflation-adjusted) in 2018-19
· Expanding Access: In 2019, the state raised the income eligibility limit from 70% of the State Median Income (SMI) to 85% of SMI, adjusted for family size—in 2019-20, 85% of SMI for a family of four was $80,623 per year ($6,710 monthly income)
· High Cost of Childcare: The cost of childcare is high in California (11th-highest cost state in the nation)—from a median annual cost of $15,300 for infants under age 2 to $10,200 for children ages 2-5 at a licensed childcare center
· A single parent with an annual income of $52,076 would pay nearly half of his or her income on the cost of care for an infant and preschool-age child without access to subsidized care
· In a family with two working parents earning low wages, each parent would have to work 147 hours per week to avoid paying more than the federally-recommended 7% of income on the cost of childcare for their infant
About Community Colleges
For additional information, view our California Budget Basics series here .
California Community Colleges (CCCs) are the largest system of higher education in the nation, serving roughly one-quarter of the nation’s community college students. The CCCs provide basic skills, vocational, and undergraduate transfer education with 73 districts, 115 campuses, and 78 educational centers. CCCs enroll nearly two-thirds of all undergraduates in the state.
As it is with K-12 education, California community colleges are funded through Proposition 98, which sets a minimum funding guarantee based on General Fund revenue that must go to K-14 education. The enrollment fee is $46/unit, so average tuition is $1,380 per year for full-time-equivalent (FTE) students. The state last raised the CCC enrollment fee in July 2012, and the 2019-20 budget extended a 2nd year of free tuition to first-time, full-time students.
May Revision Update
Notably, the May Revision would maintain two years of free tuition at community colleges for first-time, full-time students. It also proposes to maintain current Cal Grant eligibility rules. Cal Grants are financial aid awards that don’t need to be paid back and are awarded each year to hundreds of thousands of students at community colleges, as well as CSU, UC and private campuses.
The Governor proposes to cut funding by 10% to the community colleges if the federal government does not allocate additional money to cover their costs—about $1 billion is needed to offset those cuts fully. The Legislature’s plan avoids those cuts, even if additional federal funding isn’t made available, by converting the amount needed to a deferral that would need to be paid back in future years. Deferrals are essentially IOUs issued by the state, in this case to the community college system. Under this proposal, the amount that California Community Colleges would defer would double from $662 million to $1.3 billion.
Under the Governor’s plan, total spending on community colleges would be $14 billion in 2020-21, a decrease of 10.3% from January and 11.4% lower than the 2019-20 level. Per-student funding would be around $12,800 in 2020-21, down from around $14,000 in January.
California Community Colleges Key Facts
*as of February 2020
· Enrollment: In 2018-19, CCCs awarded over 98,000 certificates and 186,000 degrees, and transferred over 103,000 students to four-year institutions
· 29% of UC graduates and 51% of CSU graduates started at a community college
· Workforce Development: According to the Public Policy Institute of California (PPIC), California will face a shortage of 1 million holders of college degrees and certificates needed to fuel its workforce by 2025
· They estimate that 38% of all jobs in California will depend on workers with at least a bachelor’s degree, but only 33% of workers will have one
· The average lifetime earnings of a graduate with an associate’s degree is $1.6 million—$400,000 more than a high school graduate
· Taxpayer Benefit: In addition to graduates earning more, taxpayers benefit from investments in CCCs—taxpayers receive $4.50 for every $1 invested in students who graduate from a CCC
· Compared to Other States: California is one of only four states that increased per-student funding for higher education (two- and four-year colleges) between 2008 and 2018, along with Hawaii, North Dakota, and Wyoming
About UC & CSU
For additional information, view our California Budget Basics series here .
California has two public four-year university systems—California State University (CSU) and University of California (UC). CSU provides undergraduate and graduate education to roughly 481,000 students on 23 campuses, and UC provides undergraduate, graduate, and professional education to about 285,000 students on 10 campuses. Assuming that the UC Board of Regents and CSU Board of Trustees do not raise tuition rates this year, undergraduate tuition will be $11,442 at UC and $5,742 at CSU in 2020-21—the same level it has been since 2018-19. The average campus fee is estimated to increase by 5% in 2020-21, to $1,524 at UC and $1,675 at CSU.
The state’s primary financial aid program is the Cal Grant program that provides financial aid awards to students who meet specified eligibility requirements and who attend one of the state’s qualifying public institutions or independent and private institutions. Students who are ineligible for the Cal Grant entitlement program can compete for financial aid awards available through the Cal Grant competitive program. Costs for the program have increased dramatically in recent years (particularly since the Great Recession) due to an increased number of students participating in the program, and UC and CSU tuition increases. Since 2012-13, total funding for the Cal Grant Program has grown by $890 million, a roughly 58 percent increase.
The Golden State Teacher Grant Program (GSTG) encourages students to consider earning a teaching credential and teach in a high-need field, at a priority school, in California for four years, within five years after completing a teacher preparation program. The program awards grants of up to $20,000 to over 4,400 eligible students across California. Applicants must agree to all terms and conditions of the GSTG program or be required to repay the grant.
May Revision Update
The May Revision proposes to maintain current Cal Grant eligibility rules. Cal Grants are financial aid awards that don’t need to be paid back and are awarded each year to hundreds of thousands of students at community colleges, as well as CSU, UC and private campuses. However, if additional federal funding isn’t received, the Governor’s plan would institute a trigger cut that reduce the state’s share of funding for UC and CSU by 10%. To fully offset those costs would be $376 million for UC and $404 million for CSU. In January, the Governor had proposed increasing funding for each system by 5%.
Unless that federal funding occurs, the UC and CSU systems are likely to face difficult choices in coming months about possible tuition increases, pay cuts and reductions in academic programs and services not seen since the Great Recession. Total General Fund spending for both systems would be $8.3 billion in 2020-21, a decrease of 3.5% from $8.6 billion proposed in January.
UC & CSU Key Facts
*as of February 2020
· Tuition Increases: The price of undergraduate tuition and fees, (adjusted for inflation) has increased six-fold at UC and at CSU by 15 times over the last 40 years
· Other Costs: The non-tuition cost-of-attendance has also been increasing—California students spend an average of $2,020/month (or $18,180 per 9-month academic year) on food, housing, books, supplies, and transportation
· In a 2016 survey, 40% of UC undergraduates reported they experienced food insecurity and 5% had experienced homelessness
· Financial Aid: About half of California’s undergraduates across CCC, UC, and CSU receive some type of financial aid
· About 391,000 students are expected to get Cal Grant financial aid in 2019-20
· Improving Graduation Rates: Graduation rates at CSU are slowly improving with the implementation of the Graduation Initiative 2025, with 27.7% of CSU students now graduating in 4 years, up from 15% in 2015
· At UC, about 60% of students graduate in 4 years and 80% in 6 years
· The most recent national average 4-year-graduation-rate is 42%.
· Capacity Constraints: Within the CSU system, 7 campuses are fully impacted (i.e. no room for new enrollment in any of the undergraduate programs)—about 32,000 eligible freshmen and transfer applicants were denied admission to their preferred CSU campus due to capacity issues in 2018
About Health & Human Services
For additional information, view our California Budget Basics series here .
Health & Human Services programs in California include traditional safety net programs, such as CalWORKs and SSI/SSP, and the state public healthcare system, Medi-Cal, which are funded through a mix of state and federal funds. The CalWORKs program is the state’s version of the federal Temporary Assistance for Needy Families (TANF), which provides temporary cash assistance to low-income families with children to meet basic needs. Supplemental Security Income/State Supplemental Payment (SSI/SSP) provides a monthly cash benefit to eligible aged, blind, and disabled persons—who meet the program’s income and resource requirements—to help with basic needs and living expenses. The SSI portion is funded by the federal government, and the state augments that money with the SSP grant.
Medi-Cal, California’s version of Medicaid, is a public health program that provides comprehensive health care services at no or low cost to low-income individuals. The CalHealthCares Program administers loan repayment on educational debt for California physicians and dentists who provide care to Medi-Cal patients.
May Revision Update
The administration also proposes to withdraw the January proposal to expand Medi-Cal to seniors aged 65+ with qualifying low-incomes, regardless of immigration status, at a cost of $80.5 million ($64.2 million General Fund) in 2020-21. The expansion will provide preventative care to an estimated 27,000 additional persons in the first year, and full implementation costs are projected to be approximately $350 million ($230 million GF) in 2022-23 and ongoing. The Legislature would not withdraw this plan, but would shift implementation to 2022. The Governor would also eliminate access to optional Medi-Cal benefits, such as dental, vision, or diabetes prevention, absent additional federal funding, while the Legislature would reject these cuts. Total General Fund spending would be $45.1 billion in 2020-21, a decrease of 1.1% from $45.6 billion proposed in January.
In October 2019, Governor Newsom’s administration announced a series of proposed Medi-Cal reforms that are now collectively referred to as “Medi-Cal Healthier California for All.” Transformation of the delivery system is necessary to improve outcomes for Medi-Cal beneficiaries as well as to achieve long-term cost avoidance (currently some enrollees may need to access six or more separate delivery systems for various Medi-Cal benefits). The goal of the proposed changes is to provide a wider array of services and supports for patients with complex and high needs through a more streamlined delivery system. The May Revision withdraws this January proposal given the lack of funds.
Health & Human Services Key Facts
*as of February 2020
· Medi-Cal: As of 2019, Medi-Cal covered 40% of all children, 50% of all people with disabilities, over 1 million seniors. Total 2020-21 caseload is 13 million Californians
· Since the implementation of the ACA, the uninsured rate in California has dropped by more than half to about 7% (or 3 million people), compared to a national average of 13.7%
· The state has expanded Medi-Cal eligibility to children and young adults under the age of 26 regardless of immigration status in recent years
· The caseload is anticipated to grow by 2 million people as a result of the pandemic and economic changes
· CalWORKs: Caseload is expected to be 358,090 (-1.4%) in 2020-21
· CalWORKs recipients are required to work or participate in work-related activities for 20-35 hours per week
· The current maximum grant amount is $888/month, or about 50% of the federal poverty level (FPL)—if indexed to inflation in 2007-08, it would be $983
· SSI/SSP: Caseload is expected to be 1.2 million people (-1.8%) in 2020-21
· Effective January 2020, the maximum grant levels are $944/month for individuals and $1,583/month for couples (92% and 115% of the FPL, respectively)
· Income Eligibility: The income cut-offs for eligibility vary by program and depend on household size:
· Medi-Cal: 138% of FPL, following Medi-Cal expansion under the ACA
· CalWORKs: Ranges from $391/month for a 1-person household to $1,431/month for 8-person household
· SSI/SSP: Must have little to no income and few resources—value of owned property must be <$2,000 if single (<$3,000 for couples), excluding the value of a home or car
About Criminal Justice
For additional information, view our California Budget Basics series here .
The criminal justice system includes the California Department of Corrections and Rehabilitation (CDCR) and the judicial branch. CDCR also supervises those released on parole and provides rehabilitation programs, such as education, career training, counseling, and substance abuse treatment, to help former inmates reintegrate into the community. The judicial branch consists of the state Supreme Court, courts of appeal, trial courts, and the Judicial Council (the rule-making arm of the California court system).
Overview of Bail Reform (Option #2)
The legislature passed SB 10 in 2018, which would have moved the state away from cash bail and set up pre-trial services offices to conduct public safety and flight risk assessments instead to determine if people should be released as they await trial for low-level offenses. The current average bail amount in California is $50,000—meaning those arrested need to pay that amount, on average, to the court or go to a bail bondsman who usually takes 10% ($5,000 in this case) in order to be released as they await their trials. This measure would call for the release of most people, or perhaps electronic monitoring, for example, if they don't pose a risk to public safety and are likely to show up to their court date—rather than based on ability to pay. It currently costs about $100 per day to keep someone in jail, and 60% of jail beds are filled by those awaiting trial, so there would likely be significant cost savings as a result of the reduced jail population, but the Department of Finance has not released any exact estimates. The bail bond industry successfully sued in 2019 to prevent implementation until voters decide via ballot measure in November 2020. The bail bond industry employed about 7,000 Californians as of August 2018 when SB 10 passed.
May Revision Update
The 2020-21 budget proposes total funding of $13.4 billion ($13.1 billion General Fund and $306.5 million other funds) for CDCR, up from $12.8 billion (+4.7%) in total funding in 2019-20, which the May Revision maintains. The average daily inmate population is projected to be 122,356 (a decrease of 1,180 from the January budget) and average daily parolee population of 56,966 (increase of 1,884 from January budget). These projections are prior to the proposals outlined below.
The May Revision continues the administration's plan to close all private in-state contract facilities for male inmates in 2020-21. The last private in-state facility, Golden Gate Correctional Facility, was set to close on April 30, 2020, but the contract was extended to the end of May 2020 to facilitate increased physical distancing as a result of the pandemic. The May Revision also reflects the administration's plan to phase out two of the remaining three male, public in-state contract correctional facilities by 2021 and the third by July 2022. The May Revision also plans to close one state-operated prison beginning in 2021-22 and a second facility starting in 2022-23. These closures are estimated to result in savings of $100 million in 2021-22, $300 million in 2022-23, and $400 million ongoing once finally implemented.
The May Revision also proposes withdrawing January proposals for a total of $162.9 million in General Fund savings and reducing roof replacement proposal from two to one roof in a Sacramento facility for General Fund savings of $40.6 million.
COVID Response: As a result of the pandemic, CDCR also initiated the release of inmates who were within 60 days of release at the beginning of April 2020 and who were not serving a current term for domestic violence, a violent felony, or required to register as a sex offender. As of May 6, 2020, the adult inmate population was 117,498 — compared to 122,941 as of March 25, 2020 — a reduction of 5,443 inmates. CDCR estimates that approx. 3,500 inmates will be held in county jails as a result of the suspension of intake for 60 days — once intake resumes, those inmates will be transferred to CDCR over a period of approx. 28 days.
Criminal Justice Key Facts
*as of February 2020
· Population Decline: The adult inmate population across the state’s 35 prisons and 42 conservation camps has been decreasing since a peak of 173,600 in 2007
· Between June 2011-2019, the inmate population declined by 23% and the parolee population by 44%
· Employment: CDCR employs approximately 57,000 people, about half of whom serve as correctional officers
· Recidivism: The recidivism rate (rate of those released from state prison who are subsequently convicted a new crime within 3 years of release) in California is 46.5%
· Of the 39,205 inmates released in 2014-15, 53.5% (20,970) had no convictions within 3 years of release
· Misdemeanor drug/alcohol crimes comprised the largest majority of all post-release convictions (21.7%)
· When offenders who had been identified as having a substance abuse treatment need and were released to parole completed in-prison Substance Use Disorder Treatment (SDUT), their 3-year conviction rate was 18.5%, compared to 50.1% for those that didn’t
· Increased Rehabilitation: The total capacity for all in-prison rehabilitative programs is 123,000 slots as of June 2019, 13% more than in June 2017
· Approximately 21,000 additional slots for post-release programs, roughly unchanged from June 2017
· Most in-prison program slots are education-related, while most post-release slots are for substance abuse treatment
About Housing & Homelessness
For additional information, view our California Budget Basics series here .
After decades of underproduction, California faces a staggering housing crisis. Fewer than 750,000 units were permitted between 2007 and 2019, accounting for only 40% of the projected need. Half of all renters are rent-burdened, meaning they spend more than 30% of their income toward housing, and nearly a third of all renters are severely rent-burdened (spending more than 50% of their income on housing). When housing costs are accounted for, California has one of the highest poverty rates in the nation. And the lack of affordable housing has directly contributed to the increased homelessness across the state. Local governments are ultimately responsible for land use decisions, and a lack of adequate planning for housing, lengthy local review processes, and other local decisions have created barriers to building more housing.
Over the last two years, the state budgets have included over $1.15 billion General Fund in direct homelessness funding to local governments and Continuums of Care e, including $500 million for the Homeless Emergency Aid Program (HEAP) and $650 million for the Homeless Housing, Assistance and Prevention Program (HHAP).
Even with the significant investments in housing made by the state to date, statewide, there is a significant gap between adequate zoning and adequate permitting of new housing units, with the number of units actually constructed falling even further short of need. According to the most recent numbers, local jurisdictions have permitted only 43% of the units needed to meet their housing needs, and only 33% of needed units have actually been constructed.
May Revision Update
Project Roomkey: The state has initiated Project Roomkey to provide emergency shelter for homeless most vulnerable to COVID-19 in hotel/motel rooms and trailers, and it is currently supported by the federal government through FEMA. Early in the pandemic, $100 million was allocated to local governments to help reduce the spread of COVID-19 among homeless using existing HHAP allocation formulas, and to implement social distancing and increased sanitation at shelters and to support Project Roomkey. As of mid-May, Project Roomkey and it’s county partners have secured ~15,600 hotel and motel units, of which more than 7,200 are occupied, and purchased and disbursed 1,305 trailers to local governments for the same purpose.
The May Revision proposes using $750 million in federal funding and directs the use of these funds to purchase hotels and motels secured through PR to term into permanent housing to be owned and operated by local governments or non-profit providers. It also includes $1.5 million GF ongoing and 10 permanent Homeless Coordinating and Financing Council positions to effectively carry out statutory mandates and strengthen its strategic coordination of the state’s efforts to address homelessness.
Other Housing: The May Revision also maintains the $500 million in low-income housing tax credits from the January budget to expedite housing development throughout the state by leveraging federal bonding capacity to create more opportunities for tax-exempt building of affordable housing.
The California Access to Housing Fund ( AB 3300 ): This bill would establish the California Access to Housing Fund and appropriate $2 billion each year to the Fund to address homelessness. The fund would provide short- and long-term rental subsidies, engage with landlords to secure units and negotiate individual client leases, provide tenancy support services, and coordinate case management with counties for those receiving rental subsidies to ensure they are enrolled in eligible public assistance programs. To the extent feasible, state funding will be coupled with the use of state properties to expedite the development of more affordable and supportive housing.
$1.1 billion (55%) of the funds would go to counties, $800 million (40%) would go to large cities, and $100 million (5%) would go to developers operating in unincorporated areas and cities that are otherwise ineligible. Counties would have to provide a 25% match from private, local, state, or federal sources (essentially, match the amount they receive from the state).
Housing & Homelessness Key Facts
*as of February 2020
· Affordable Rental Shortage: About 1.3 million California renter households are “extremely low-income,” making less than $25k per year
· There is a shortage of approximately 1.4 million affordable and available rental homes—currently only 378,000 for very low-income and 287,000 for extremely low-income
· Preventing Loss of Home: LA placed an estimated 20,000 homeless people into housing last year, but the homelessness rate grew because even more people lost their place to live
· San Francisco officials say for every homeless person they house, another 3 fall into homelessness — helping people remain in their homes is a key part of addressing the homelessness crisis
· Crisis will likely get worse as a result of the COVID-19 pandemic
· Homeless Population: Of California’s estimated 150,000 person homeless population, 23% have a severe mental illness, 17% have a substance abuse disorder, 15% are families with children, and 8% are veterans with 34,000 chronically homeless
· Permanent Supportive Housing: Providing a highly subsidized apartment paired with supportive services is considered the only long-term homelessness solution by experts, but it’s the most expensive to build
· While emergency shelters cost an average of $75k per bed, the median cost of one supportive housing unit in LA is $530k and a new project in San Jose is estimated at $470k per unit
About Emergency Preparedness
For additional information, view our California Budget Basics series here .
While California is no stranger to natural disasters, the most persistent and devastating in recent years have been wildfires. A changing climate has lengthened the fire season in California—it has increased by 75 days across the Sierras—and 2018 brought the largest and most destructive fires in the state’s history. By the end of 2018, wildfires in California killed over 100 people, destroyed more than 22,700 structures, and burned over 1.8 million acres—more than double the most recent 10-year average of acres burned. The 2019 fire season was less destructive, but millions of residents across the state were subject to a series of power shutoffs in order to reduce the risk of powerline-caused wildfires.
More than 25 million acres of state’s wildlands are classified as under very high or extreme fire threat, and high housing costs in more developed parts of the state have pushed more residents into high risk areas. As the state works to address these risks, their ability to adequately prevent and respond to forest fires is complicated by the fact that the state only owns 3% of the 33 million acres of forestland across the state. The primary agencies in the state tasked with emergency response and preparedness are the California Governor’s Office of Emergency Services (Cal OES) and the California Department of Forestry and Fire Protection (Cal Fire), which deals with wildfires in particular.
May Revision Update
California Office of Emergency Services (Cal OES): Although the state is experiencing significant economic impacts from the COVID-19 pandemic and a decrease in state revenues, the May Revision reflects an additional $127 million for Office of Emergency Services (Cal OES) to enhance the state’s emergency preparedness and response capabilities. It also proposes to withdraw $101.8 million ($26.8 million GF) from Cal OES and Cal Fire for implementation of the home hardening pilot grant program. It does, however, maintain $8.3 million in cap-and-trade funding for Cal Fire to meet the defensible space and other requirements pursuant to AB 38 (2019).
Cal Fire: Forecasts indicate that 2020 is likely to be an active fire year given lower than average precipitation, snowpack, and fuel moisture levels (relative dryness of the vegetation that provides fuel for fires). Despite the significant budget shortfall, May Revise reflects an additional $90 million General Fund ($142.7 million ongoing) to further enhance Cal Fire’s capabilities for the 2020 fire season and beyond, including relief staffing and early ramp-up of 2020 fire season surge capacity and enable Cal Fire to implement the new wildfire prediction and modeling technology that was already procured. The May Revision withdraws January proposals worth $39.3 million General Fund related to direct mission support ($34.3 million) and a wildland firefighting research grant program ($5 million).
AB 3256 : This bill would put the Economic Recovery, Wildfire Prevention, Safe Drinking Water, Drought Preparation, and Flood Protection Bond Act of 2020 on the November 2020 ballot. If approved by the voters, it would authorize the issuance of bonds in the amount of $6.98 billion to finance projects for an economic recovery, wildfire prevention, safe drinking water, drought preparation, and flood protection programs. While there would be no budget impact in 2020-21, the bond would have a total cost of approximately $11.25 billion — $6.98 billion in principal and $4.27 billion in interest. Debt service costs would increase by $375 million General Fund annually until the bond is paid off.
Emergency Preparedness Key Facts
*as of February 2020
· Wildfire Risk: Of the 20 most destructive fires in state history, 19 of them occurred within the last 30 years and 10 since 2015
· 8 were caused by powerlines
· More than 2.7 million Californians live in very high-fire risk zones, from the northernmost part of the state down to San Diego County
· Cost: Altogether, the total cost of California’s 2018 fire season $24 billion (including $1 billion in firefighting costs) primarily from the destruction of homes and infrastructure
· The 2017 and 2018 fire seasons together caused an unprecedented $40 billion in damage
· Cal Fire: Provides resource management and wildland fire protection services covering 31 million acres through 234 state fire stations (and staff 568 local stations that are funded by local governments)
· Cal Fire employs over 6,100 full-time fire professionals, foresters, and administrators; 2,600 seasonal firefighters; 2,750 local government volunteer firefighters; 600 Volunteers in Prevention
· Conservation Camps: Cal Fire, in cooperation with the Department of Corrections, operates 43 conservation camps, commonly known as fire camps, across 27 counties that support state, local, and federal government agencies as they respond to natural disasters
· Inmates must volunteer for the fire camp program and Cal Fire also employs 2,600 seasonal firefighters
· Currently 3,100 inmates working at fire camps
About Other Spending
This section includes proposals in the Governor’s revised budget or from the Legislature that are not included in one of the other spending categories, and the topics vary from year to year.
Small Business Loan Guarantee Program (SBLGP)
The California Small Business Loan Guarantee Program (SBLGP) provides loans to small businesses to help create and retain jobs and invest in low-to-moderate income communities. As part of the Disaster Relief Loan Guarantee Program, small businesses located in California with 1 to 750 employees that have been negatively impacted or experienced disruption by COVID-19 are eligible to apply for loans. A loan guarantee mitigates the risk assumed by lending institutions by providing a guarantee that would repay up to 95% of the loan should there be a default. The funds are meant to help small businesses through this difficult time, and loan proceeds can be used for business continuance or to cure “economic injury” as a result of the pandemic. The loan can be guaranteed up to 7 years and cover up to 95% of the loan.
Immigration
California is home to almost 11 million immigrants—the most of any state and about a quarter of the foreign-born nationwide. In 2017, 27% of California’s population was foreign-born, which is more than double the percentage in the rest of the nation. More than half (52%) of California immigrants are naturalized citizens, while another 25% have some other legal status and 23% lack documentation. From 2010 to 2017, the number of undocumented immigrants in the state declined from 2.9 million to 2.4 million. Immigrants in general also pay more than a quarter of the tax revenue collected by the state, while DACA recipients in particular pay close to $200 million in taxes each year. In California, 242,339 young people have received DACA status between 2012 and March 2017 (the latest year for which data are available), and they are estimated to contribute $11.6 billion in GDP annually.
Food Assistance
Prior to the public health crisis, about 4 million low-income Californians received more than $6 billion annually in federally-funded monthly food assistance through CalFresh, the state’s version of the Supplemental Nutrition Assistance Program (SNAP). About 3.7 million California students are eligible for free or reduce-priced meals, and about 900,000 Californian pregnant women, new mothers, and young children get more than $700 million in federally-funded nutrition assistance through the Women, Infants, and Children (WIC) Program. On March 20, 2020, Governor Newsom mobilized the National Guard to provide logistical support to the state’s food banks.
The second and third federal relief bills (H.R. 6201 and the CARES Act, respectively) increased funding for nutrition programs nationwide, and California’s share of additional funding through these expanded programs is likely to reach $1 billion.
About Income Tax
For additional information, view our California Budget Basics series here .
In addition to federal income taxes, Californians also pay personal income tax (PIT) to the state. There are currently 9 tax brackets, ranging from a marginal rate of 1% to 12.3%. Those with incomes greater than $1 million in a given year pay an additional 1% surcharge, called the Mental Health Services Tax, in which the funds go to counties to support mental health services—making the top marginal rate actually 13.3% for the highest earners. Revenues from the mental health services tax are estimated to be $2.4 billion in 2020-21, though counties are estimated to have $160 million in unspent funds as of February 2020. Capital gains income, such as income from stocks or bonds, is also included in the calculation of one’s personal income tax liability.
Rates & Brackets:
· 1 percent on the first $8,544 of taxable income
· 2 percent on taxable income between $8,545 and $20,255
· 4 percent on taxable income between $20,256 and $31,969
· 6 percent on taxable income between $31,970 and $44,377
· 8 percent on taxable income between $44,378 and $56,085
· 9.3 percent on taxable income between $56,086 and $286,492
· 10.3 percent on taxable income between $286,493 and $343,788
· 11.3 percent on taxable income between $343,789 and $572,980
· 12.3 percent on taxable income of $572,981 and above
Following the May Revision, income tax revenue is estimated to be $76.8 billion in 2020-21, a reduction of 25.6% from the $102.9 billion expected in January as a result of the COVID-19 recession, and now accounts for about 57% of all General Fund revenues. Given the difficulty of changing taxes in California through the legislature, there are no changes to the state’s income tax structure or rates in the proposed 2020-21 budget.
AB 1253 would impose a new 1% surcharge on adjusted gross income starting at $1 million, increasing to 3% for those who earn more than $2 million and rising to 3.5% for taxpayers with income above $5 million.
California Income Tax Key Facts
*as of February 2020
· Tax Base & Rate: California has the highest PIT rate in the U.S. for its wealthiest residents, and the share of total gross income going to the wealthiest (top 1%) in California has increased from 13.8% in 1993 to 24% in 2017
· Share of Taxes by Income Bracket: For the 2017 tax year, the top 1% of income earners paid over 47% of the PIT revenue in the state, while households making $50,000 or less make up nearly 60% of tax filings but paid only 2% of PIT revenue
· Consequently, changes in the income of a relatively small number of taxpayers (the top 1%) can have a significant impact on state revenues—when Facebook went public in 2012, senior employees like Mark Zuckerberg and early investors added an estimated $2.5 billion to state coffers
· The tech sector in particular has a large impact on the state’s tax volatility—the nine counties that make up the San Francisco Bay Area contribute 40 percent of personal income taxes but are home to only 20 percent of the state’s population
· Share of General Fund Revenue: In 1950-51, PIT revenue only accounted for 11.3% of General Fund revenues, compared to 59% from the sales tax. The relative shares of those have essentially flipped—67% from PIT vs. 18.4% from sales taxes—as of 2020-21. This is due in part to:
· The sales tax in California only applies to goods and not services, and the state’s economy has become much more service-based than goods-based over time
· The passage of Prop 30 in 2012, which increased income taxes and created the new brackets for higher-earners, led to larger tax receipts from the wealthiest Californians
· Capital Gains: Capital gains contributed $15.3 billion to General Fund revenue in 2019—the highest amount ever—and taxes attributable to capital gains made up 16.6% of PIT revenue in 2017 (latest year for which data available)
About Sales Tax
For additional information, view our California Budget Basics series here .
The sales tax in California is applied to most sales at stores, but notably only for the purchase of goods and not services. Most food, medicine, and utilities—necessities of life—are also exempt from the sales tax. Spending on services, which are mostly not subject to tax, is growing faster than the overall economy, so sales tax revenues have grown slower than the economy and represent a smaller share of overall revenue compared to decades past. In 2009, Governor Schwarzenegger proposed broadening the base to include some services—such as appliance repair, amusement parks, sporting events—but the legislature did not adopt that change.
The current sales tax rate is 7.25% is the highest statewide rate in the country, though the state is ranked 9th in combined state and local tax rates. Some local jurisdictions in California also levy their own taxes, which raises it as high as 10.5% in some parts of Los Angeles County, but the average rate when factoring in local taxes is 7.75%. The local tax share goes to local governments as opposed to the state. The sales tax is expected to generate $20.6 billion in 2020-21 following the May Revision as a result of the COVID-19 recession, a 27% reduction from the $28.2 billion expected in January. It now accounts for 15% of all General Fund revenues. Given the difficulty of changing taxes in California through the legislature, there are no changes to the state’s sales tax base or rates in the May Revision to the proposed 2020-21 budget.
Sales Tax Key Facts
*as of February 2020
· Share of Total General Fund Revenue: The sales tax used to generate nearly 60% of General Fund revenue in 1950-1951, but it continues to make up a declining share of total revenues due to the erosion of the sales tax base (as also referenced in the Income Tax section)
· Taxable sales as a percentage of personal income (essentially how much of a person’s income goes toward purchasing goods subject to the sales tax) has declined from over 50% in the late 1970s to 28% today
· Compared to Other States: Four states tie for the second-highest statewide sales tax rate at 7%: Indiana, Mississippi, Rhode Island, and Tennessee
· The lowest non-zero state-level sales tax is in Colorado (2.9%), followed by five states with 4% rates: Alabama, Georgia, Hawaii, New York, and Wyoming
· Largest Contributors: Motor vehicles and parts dealers were the largest contributors to the sales tax base in calendar year 2018, comprising around 12.7% of taxable sales, followed by food service sales (12%) and wholesale trade (11.6%)
About Corporation Tax
For additional information, view our California Budget Basics series here .
California imposes three types of income taxes on businesses: a corporation tax, a franchise tax, and alternative minimum tax. Nearly all businesses in the state are subject to at least one of these taxes, and the corporation tax applies to corporations and LLCs that elect to be treated as corporations. California corporations without taxable income are subject to the franchise tax. This section deals with the corporation tax specifically.
California has the 8th-highest corporation tax rate in the nation—a flat rate of 8.84%. The corporation tax rate also used to be higher—it was raised to 9.6% in 1980, lowered to 9.3% in 1987, and finally lowered to 8.84% in 1997. In the early 1980s, corporations that reported profit in California paid more than 9.5% of this income in state corporate taxes compared to just 4.4% in 2016 (the latest year for which data are available). California's state budget would have gained $10.6 billion more in revenue in 2016 if corporations paid the same share of their income in taxes as they did in 1981. Given the difficulty of changing taxes in California through the legislature, there are no changes to the state’s corporation tax structure or rates in the proposed 2020-21 budget.
The corporation tax is expected to generate $12.4 billion in 2020-21 following the May Revision, a reduction of 22.5% from the $16 billion expected in January. The May Revision maintains the Governor's January proposal to support new business creation and innovation by waiving the $800 minimum franchise tax for new businesses in the first year. It will also augment the small business guarantee program by $50 million for a total of $100 million to fill gaps in available federal assistance through the Paycheck Protection Program (PPP).
Tax Credits: It would also temporarily limit the use of certain business incentive deductions and Net Operating Loss Deductions for three years to generate $3.8 billion in 2020-21 in additional revenue. Business incentive tax credits directly reduce corporate tax liability and are generally intended to encourage a certain type of behavior, such as research and development, which may occur to a lesser extent in the absence of the credit. In 2018, businesses reduced their corporate tax liability by over $2.9 billion through the use of credits, with $2.4 billion from the research and development tax credit.
Businesses incur net operating losses (NOLs) for tax purposes when allowable deductions and losses exceed taxable income. Federal law allows businesses with NOLs to carry forward these losses indefinitely and deduct them against 80 percent of income earned in future years. In 2018, over $27 billion in NOL deductions were used, which could have reduced corporate tax revenues by over $2 billion.
Corporation Tax Key Facts
*as of February 2020
· Share of General Fund Revenue: The share of revenue from the corporation tax has been declining over time, and was 14.6% in 1980-81, due to rate decreases since that time
· Compared to Other States: 44 states levy a corporation tax, with rates ranging from 2.5% in North Carolina to 12% in Iowa on corporate net income greater than $250,000 (Iowa has a progressive, instead of flat, corporation tax structure wherein the rate paid increases with the amount of net income a corporation generates in a given year)
· Largest Contributors: Despite the relatively high rate, California has 53 Fortune 500 companies and is one of only three states with more than 50 (joining New York and Texas)
About Car Tax: Vehicle License Fees
To learn more, view our Budget Basics Series (PDFs).
The vehicle license fee (VLF) is imposed on vehicles registered in California that travel on public highways, and is only one of the fees and taxes on motor vehicles that owners pay when they renew their registration each year. These taxes are imposed in lieu of a local personal property tax on automobiles. The number of vehicles in the state, the ages of those vehicles, and their most recent sales price affect the amount of VLF collected. The forecast projects that there will 32.9 million registered vehicles in the state in 2020-21 (up from 32.8 million in 2019-20), and that 2.3 million new vehicles will be registered in the state in both 2019-20 and 2020-21. The revenue generated from the VLF is projected to be $3.1 billion in 2020-21, roughly unchanged from the previous year. Given the difficulty of changing taxes in California through the legislature, there are no changes to the state’s car tax structure or rates in the proposed 2020-21 budget.
The current VLF is 0.65% of a car’s value plus a graduated fee of $25 to $175 per vehicle depending on the car’s value. From 1948 through 1997, the VLF was 2%, and the legislature began a process of cutting the rate to 0.65% in 1998, which reduced revenues by $4.5 billion in 2006-07. When the dot-com bubble burst in 2003, Governor Gray Davis moved to reinstate the full of VLF of 2% to help a $38.2 billion deficit for 2003-04. Reinstating the full rate raised approximately $4 billion. For that reason, among others, including the California electricity crisis of 2000-01, Governor Davis was recalled in 2003 and replaced with Governor Schwarzenegger. In November 2003—just after his inauguration—Gov. Schwarzenegger signed Executive Order S-1-03, rescinding the vehicle license fee retroactive to October 1, 2003 and reducing the rate to 0.65%.
Car Tax Key Facts
· Recent Increase: The legislature temporarily increased the VLF to 1.15% in 2009 and directed most of the higher revenue to the General Fund to help offset a large deficit during the Great Recession
· The increase expired at the end of 2010-11 and the rate dropped back to 0.65% where it has remained since
· Recent Increase in Other Registration Fees: SB 1, passed in 2017, raised the gas tax and registration fees—on top of the 0.65% VLF, there is a new annual transportation fee of $25 to $175 based on the value of the vehicle ($25 for cars valued less than $4,999 and $175 for cars valued over $60,000)
· Impact on Local Government: If the VLF is reduced, state General Fund spending would be increased to pay local governments for lost VLF revenue—if the VLF is increased, the state would not have to cover this cost
About Property Tax
For additional information, view our California Budget Basics series here .
California property taxes are set based on Proposition 13, passed in 1978, which sets the property tax rate at 1% of the assessed value at the time that the property was last sold. The rate can increase 2% to keep up with inflation until the property is sold, at which point it is reassessed. As a result, most of the property in California is assessed for tax purposes at far less than current market value.
Although the property tax is a local revenue source, the amount of property tax generated each year has a substantial impact on the state budget since local property tax revenues allocated to K-14 schools generally offset General Fund expenditures required under Prop 98. Preliminary data show statewide property tax revenues increased 5.8% in 2019-20, which is 0.6% lower than the 6.4% growth rate anticipated at the Governor’s January budget. California counties committed to cancel penalties and charges related to late payments that may arise due to hardships arising from COVID-19, which is reflected in the 2019-20 preliminary data. Property tax revenues are expected to grow 3.5% in 2020-21 following the May Revision, which is 2.2 percentage points lower than the 5.7% growth expected at the January budget due to increased delinquencies, which typically rise in a recession.
Split Roll: A measure has qualified for the November 2020 ballot that would require annual reassessment of non-residential commercial property (known colloquially as “split roll”). The LAO estimates the measure would generated $6.5 to $10.5 billion in increased property tax revenues, with the majority being allocated to cities, counties, special districts, and schools as prescribed under current law. It would exclude businesses whose California property holdings are worth less than $3 million and companies with 50 or fewer full-time employees.
Property Tax Key Facts
*as of February 2020
· Residential vs. Commercial Property: Residential property is responsible for 70% of property tax revenue and non-residential properties tend to be reassessed less often than homes because they are sold less often
· Some corporations use certain types of ownership transactions in order to avoid triggering an ownership change and reassessment
· Residential owner-occupied and residential rental/vacation properties generate approximately the same amount of property tax revenue—$20.9 billion for owner-occupied and $20.7 billion for rental in 2018
· Unintended Consequences: With property-tax revenue capped, local governments have imposed more sales, hotel and utility taxes, while also increasingly using development fees, which drives up the cost of new housing
· Impact fees, the charge for bringing public services to the new housing, have also been increasing, and as a result, California has the highest average impact fee for construction of a single-family home ($23,455)—almost three times as high as in other states
About Other Taxes
This section includes proposals to increase taxes that have come up over the years that are not included in one of the other revenue categories. Additional background information for some of the choices is provided below.
Oil Severance
Currently, a relatively small fee is imposed on each barrel of oil produced in the state to support regulatory programs. However, the state does not impose a severance tax on the production of oil and is the only oil-producing state not to do so. California is the 3rd-largest oil-producing state in the country as of 2019, behind Texas and Alaska, respectively. Alaska has an oil severance tax of 22.5 percent, while Texas' is 7.5 percent. The most recent attempt to pass an oil severance tax was SB 246 in 2019 that did not pass the legislature.
Alcohol Tax
Beer, wine and other alcoholic beverages are taxed in California, though generally the tax rates have not increased with inflation. The last time the alcohol tax was raised was in 1991, and the amount varies from $6.60 per gallon of distilled spirits greater than 100-proof, to $0.20 per gallon for beer and wine. California’s lowest rate of $0.20 per gallon is 28th-highest rate in the nation, with 27 other states and Washington D.C. charging more. Overall, the consumption of alcoholic beverages is expected to grow by 1.4% in 2019-20 and 2020-21 and generate $389 million in revenue in 2020-21 (up from $383 million in 2019-20).
Sports Betting
SCA 6 would put a measure on the November 2020 ballot to authorize sports betting in California and subject it to taxation. The ballot measure would authorize sports betting, including online or mobile sports betting, in California. The ballot measure would allow tribal casinos and licensed horseracing tracks to operate sports betting. The ballot measure would also authorize licensed gambling establishments to offer games played with cards or tiles in which participants wager against each other. It is anticipated to generate at least $500 million annually if passed and once the market matures.
California Earned Income Tax Credit (CalEITC)
The CalEITC is a cashback tax credit that puts money back into the pockets of low-income Californians. In its first year, the CalEITC boosted the income of about 385,000 families, who shared almost $200 million from the cashback credit. In 2019, more than 2 million people claimed the credit, totaling close to $395 million. In 2019, CalEITC was expanded to include a Young Child Tax Credit (YCTC) that provides an additional $1,000 additional for parents with at least one child younger than age 6 as of Dec. 31, 2019. In 2020, an estimated 400,000 California families are expected to benefit from the YCTC.
About Reserves
For additional information, view our California Budget Basics series here .
The California Constitution requires the legislature to pass a balanced budget each year, in which expected revenues meet or exceed expected expenditures. The state is also currently in the longest economic expansion since WWII, but economic growth is expected to slow over the next few years. This section lets you decide whether to put more money into reserves or paying down the state's unfunded liabilities with your remaining surplus after going through the spending and revenue options.
The state has two primary methods of maintaining balanced budgets—through operating surpluses (when revenues are higher than expenditures) and reserves, which act as saving accounts for state funds.
The state has three major General Fund reserves, though this section deals primarily with the Rainy Day Fund, or BSA, as detailed below, with additional background information on the other reserve accounts:
· The Budget Stabilization Account (BSA), also called the Rainy Day Fund: Governed by Proposition 2 (2014) and in which a certain share of General Fund revenues (usually around 1.5%) must be added to the BSA each year until it reaches the constitutional maximum of 10% of General Fund revenues
· The legislature is limited in when it can access these funds, and generally only can if the Governor declares a state of emergency (either budgetary due to a recession/deficit or as a result of a natural disaster)
· The May Revision proposes using $7.8 billion from the BSA to offset budget gaps as a result of the COVID-19 pandemic and recession
· The Special Fund for Economic Uncertainties (SFEU): The state’s general purpose reserve, which varies year to year, and the legislature has wide discretion to use the funds in the SFEU for any public purpose (functions more like a traditional savings account in which excess revenues are stored until they are allocated and spent)
· Because the California Constitution requires a balanced budget, the legislature cannot enact an SFEU balance that is less than zero, but once enacted, it will adjust upward or downward as actual revenues or expenditures differ from expectations
· Safety Net Reserve: Created in 2018-19 to fund the future costs of Medi-Cal and CalWORKs in the event of a recession—the balance is the Safety Net Reserve is $900 million as of 2019-20
· The May Revision proposes using $450 million from the Safety Net Reserve (maximum allowed; half of the current balance) to offset increased General Fund costs for Medi-Cal and CalWORKs as a result of the COVID-19 recession.
