Today, Thursday May 14th, Governor Newsom held his daily briefing with a different focus, a focus on the State’s budget, as the Governor released the May Revise to his proposed 2020-21 Fiscal Year budget for the State of California. You can find the full summary of the May Revise here.
Governor Newsom began by acknowledging the efforts and hard work of the previous Administration. He cited that under Governor Brown’s fiscal leadership over the last two terms and with the talents of legislative leaders, the State of California is in much better fiscal shape than any other recession. He stated that all of us are going to be dealing with challenges that we haven’t faced in some time.
Traditionally, the May Revise is an opportunity for the Governor to make revisions and changes to his proposed budget based on April income tax revenues that were collected. However, this year has been anything but normal.
The Governor firmly stressed that California has a path forward and that “California's history has been marked by periods of great challenge—brought on by global conflict and change, by natural disasters, and by economic crises. California's history has also been one of innovation, ingenuity, resiliency, and resurgence. The COVID-19 pandemic and the recession that has accompanied it pose a new challenge for the state. California will overcome this challenge as it has overcome challenges in the past. The state, its businesses and its families will recover and will emerge stronger and more resilient. The May Revision takes a balanced and focused approach. It directs actions to stop the spread of COVID-19; protects core functions like public health, public safety and public education; and supports those facing the greatest hardships. It proposes actions to support a safe, swift and robust economic recovery. It is a responsible fiscal plan for California as it navigates the path to recovery.”
The State Legislature must pass a budget by June 15th to present to the Governor for him to sign by June 30th.
Overall, the proposed 2020-2021 budget utilizes reserves, Federal funding, and cuts to close the projected budget deficit… including “a lot of sacrifices” as the proposal also includes cutting state employee pay by 10%. The Governor stated, “none of us in state government will be immune from tightening our belts and helping to support the cause and helping those most in need.”
Highlights of the Governor’s May Revision:
Covid-19 Impact on State Budget
Job losses and business closures are sharply reducing state revenues. Compared to the January forecast, General Fund revenues are projected to decline over $41 billion. This revenue drop, combined with increased costs in health and human services programs and the added costs to address COVID-19, leads to a projected budget deficit of approximately $54 billion before the changes proposed in the May Revision. Without the actions below, the out-year structural deficit would be approximately $45 billion annually.
Balanced Approach to Closing the Budget Gap
• Cancel $6.1 billion in program expansions and spending increases, including canceling or reducing a number of one-time expenditures included in the 2019 Budget Act. It also includes redirecting $2.4 billion in extraordinary payments to California Public Employees' Retirement System (CalPERS) to temporarily offset the state’s obligations to CalPERS in 2020-21 and 2021-22. It further reflects savings from the Administration’s direction to agencies to increase efficiency in state operations now and into the future.
• Draw down $16.2 billion in the Budget Stabilization Account (Rainy Day Fund) over three years and allocate the Safety Net Reserve to offset increased costs in health and human services programs over the next two years. The May Revision reflects the withdrawal of $8.3 billion, including $7.8 billion from the Rainy-Day Fund and $450 million from the Safety Net Reserve in 2020-21.
• Borrow and transfer $4.1 billion from special funds.
• Temporarily suspend net operating losses and temporarily limit to $5 million the amount of credits a taxpayer can use in any given tax year. These short-term limitations will generate new revenue of $4.4 billion in 2020-21, $3.3 billion in 2021-22, and $1.5 billion in 2022-23 to increase funding for schools and community colleges and maintain other core services.
• Reflect the Administration’s nationwide request of $1 trillion in flexible federal funds to support all 50 states and local governments and identifies reductions to base programs and employee compensation that will be necessary if sufficient federal funding does not materialize.
The Governor articulated in his press release today that the following strategies will be used in the May Revise:
• Using Cares Act Funds Strategically (May Revise, page 4)
The May Revision proposes to use federal CARES Act funds to support schools, strengthen local public health preparedness and response, and support health and human services at the local level in response to the COVID-19 pandemic.
• Protecting Public Health, Public Safety and Public Education (May Revision, page 5)
The May Revision protects public health and public safety. It provides needed funds to contain the spread of COVID-19 and its effects.
• Supporting Californians Facing the Greatest Hardships (May Revision, page 5)
The COVID-19 Recession is making the effects of wage disparity even worse and is having a disproportionate impact on families living paycheck to paycheck. The May Revision prioritizes direct payments to families, children, seniors and persons with disabilities.
• Enhancing Government Efficiency (May Revision, page 6)
Historically, state government has been slow to adopt modernizations in the workplace. But the COVID-19 pandemic has forced a massive experiment in telework and allowed state managers, led by the Government Operations Agency, to rethink business processes. This transformation will allow for expanded long-term telework strategies, increased modernization and delivery of government services online, reconfigured office space, reduced leased space, and when possible, flexible work schedules for employees.
The Administration is working to deliver more government services online. This includes expanding the Department of Motor Vehicles’ virtual office visits pilot to other departments and agencies with more face-to-face interactions with Californians. The Office of Digital Innovation will continue to assist agencies and departments in automating processes to increase value and provide greater convenience for the public.
Nearly all state operations will be reduced over the next two years. Nonessential contracts, purchases, and travel are suspended. Departments have been directed to fill only the most essential vacant positions.
• Supporting Job Creation, Economic Recovery And Opportunity (May Revision, page 7)
During this time of unprecedented unemployment, the Administration will work in partnership with the Legislature to help get people back to work and support the creation of good-paying jobs. It will develop proposals and actions to support a robust and equitable recovery both in the near term and the long term. To this end, the Administration is considering options to support job creation including: assistance to help spur the recovery of small businesses and the jobs they create, support for increased housing affordability and availability and investments in human and physical infrastructure. Any investments and actions will focus on equity, shared prosperity and long-term growth. The Administration is committed to working with colleges and universities to build on their experience with distance learning and develop a statewide educational program that will allow more students to access training and education through distance learning. This will allow non-traditional students who are working and parenting the opportunity to complete coursework at their own pace and after hours.
California Senate President pro Tempore Toni G. Atkins (D-San Diego) and Senate Budget and Fiscal Review Committee Chairperson Holly J. Mitchell (D-Los Angeles) issued the following statements reacting to Governor Gavin Newsom’s May revision:
Senate President pro Tempore Toni G. Atkins: “As someone who came to the Legislature while California was still struggling in the Great Recession, I know how important it is during this current budget emergency that we build on lessons learned and avoid mistakes of the past. The revised proposal put forward by Governor Newsom shows a challenging path ahead—but a path made more manageable by the decade of responsible budgeting and sound fiscal practices we put in place. The Governor’s proposal aligns well with the Senate’s budget approach, especially our effort to avoid damaging cuts and middle-class tax increases that can make the economy worse. The Senate will continue our work on the budget, our Economic Recovery Plan, and our Renter/Landlord Stabilization plan, and we will consider the elements of the Governor’s new proposal as we move forward with our public and transparent budget process.”
Senator Holly J. Mitchell: “I want to thank Governor Gavin Newsom and his administration for presenting us with their revisions to the 2020-2021 state budget. While details are still unfolding, the budget proposal is grounded in harsh realities and painful choices brought on by the COVID-19 pandemic. While we are in a better position than ever to weather a recession, if we do not receive additional federal assistance to make up for the significant decline in revenue caused by the COVID-19 crisis, it will be difficult for California to manage the current budget shortfall in a manner that will not have devastating effects on families across our state. Now more than ever, we need the federal government to build those bridges that will allow us to cross the troubled waters we are in before additional cuts are made. My Senate colleagues, especially those on the Senate Budget and Fiscal Review Committee, staff, and I will work hard with the Assembly to add to the Administration's take and to fine-tune the nuts and bolts of the budget in the next few weeks – to create a California where all children thrive.”
Key milestones – COVID-19 Numbers – as of today (5.14.20)
- 73,164 confirmed cases of COVID-19 in California
- 3,032 death from COVID-19 (an increase of 3.3%)
- 1,104,651 in total have been tested in California since testing began
- Hospitalizations decreased by 40 from Tuesday (a -1.2% decrease)
PPE Distributed statewide to date – as of today (5.14.20)
- N-95 Respirators – 45,465,936
- Procedure masks – 39,522,782
- Gowns – 1,133,083
- Face Shields – 4,121,060
- Gloves – 16,071,443