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May Budget Revise Displays Sharp Shift in Spending Priorities

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May 27, 2020

Governor Gavin Newsom’s May Budget Revision revealed $19 billion less in expenditures than his previous January proposal – an illustration of the shift in spending for the state caused by the COVID-19 pandemic. There is a degree of uncertainty in the projection since tax revenues are unknown after the filing deadline was moved to July 15.

The May Revision protects public health and public safety and provides needed funds to help contain the spread of COVID-19 and its effects, while sharply cutting other budgets to accommodate the shift in priorities.

The CCC is glad to report that the revised budget maintains the newly expanded California Earned Income Tax Credit (CalEITC), which puts a billion dollars in the pockets of working families with incomes under $30,000, including a $1,000 credit for eligible families with children under the age of 6.

The 2020-21 budget also contains $75 million for the ONE CA program, which provides immigration services, including deportation defense, naturalization, counsel for unaccompanied minors, and other immigration-related legal services.  This includes $10 million for CA Community Colleges.

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, along with 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. 

The revised proposal borrows and transfers from the state’s Budget Stabilization Account (Rainy Day Fund) over three years and the Safety Net Reserve to offset increased costs in health and human services programs over the next two years. For the fiscal year 2020-21, 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. It also borrows and transfers $4.1 billion from special funds.

The revised budget is also heavily reliant on federal assistance to reverse some of the proposed cuts, using 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.

The Governor also announced 10 percent salary cuts for all state employees, himself included.