Despite speculation about bold moves â in a far left direction, even for this blue state â Gov. Gavin Newsom and legislative Democrats actually landed a budget Thursday thatâs surgical about new taxing while still keeping promises to help poor Californians and working families.
Under the $214.8 billion spending plan, the state inched closer to universal health coverage, expanding Medi-Cal to all low-income young adults regardless of immigration status. State lawmakers also charted a course to increase tax credits to the working poor and boost subsidies to middle-income Californians to buy health coverage. There were significant investments in early education and housing, also, while a portion of the surplus was diverted to pay down pension liabilities.
But while Democrats began the year with a surplus of ideas for taxing Californians, only a few strategic levies survived the negotiation process, specifically a fine on individuals who donât have health insurance under a state mandate. Thereâs even a little tax relief: Parents, for instance, will get a temporary tax exemption on diapers.
One hitch? The devil is in the details, some which have yet to be worked out. Though Democrats met their deadline for a balanced spending plan, most of the underlying policy to enact the budget wasnât taken up â and may not be for weeks. Call it a learning curve: This was the new governorâs first time negotiating with seasoned legislative leaders who know how to count votes. Look for more action in coming trailer bills.
Hereâs what you need to know about Californiaâs new budget:
Yes to health care for undocumented young adults. Not yet on health care for all.
The Legislature agreed to the governorâs plan to expand Medi-Cal, the stateâs Medicaid program for low-income people, to young adults ages 19-25. Itâs a step toward offering free health care to all undocumented adults since the state already makes Medi-Cal available to children regardless of immigration status.
The Senate had proposed going further by offering Medi-Cal to undocumented seniors 65 and older. However, none of the leaders backed offering health care to all low-income immigrants.
The state expects an estimated 90,000 young adults could gain coverage when the benefit begins next year. Already, 76,000 have registered for a limited version of Medi-Cal that covers emergency services and prenatal care available to low-income people regardless of immigration status. The price tag for this expansion? About $98 million a year.
Itâs worth noting the state also affirmed its commitment to restoring optional Medi-Cal benefits. During the recession, coverage for audiology, optical, podiatry, speech therapy and incontinence creams had been taken away.
Obamacare lives: A $695 state mandate to carry health coverage
Starting next year, California will join New Jersey, Vermont and the District of Columbia in requiring residents carry health coverage or face a $695 state penalty â a fine that will go up each year with inflation.
The state individual mandate aims to replace the federal one that Republicans repealed in their effort to dismantle the Affordable Care Act. The administration says California needs to act because without a mandate, the number of Californians without coverage â 10.4% in 2016 â will go back up. Separately, a study conducted by the University of California estimated the uninsurance rate will rise to 12.9% by 2023, or 4.4 million people, without state action.
Money raised from the penalties, about $1 billion over three years, will be used to give bigger subsidies to those who purchase private insurance through the stateâs health coverage exchange, Covered California.
Newsom and lawmakers hope to expand assistance to 190,000 middle-income Californians making between $48,000 to $72,000 a year, according to Health Access California, a health advocacy group.
Fear of recall = Not many new taxes
The budget includes a plan to impose a fee â that still needs to be voted on â of no more than 80 cents a month on each telephone line to help digitize the stateâs 911 system, which is still analog. The next generation system would improve call delivery, better location data and incoming text capability.
Senate Pro Tem Toni Atkins says she would have liked to use discretionary funds rather than greenhouse gas reduction funds to provide clean water in the Central Valley but called it a compromise. (Judy Lin/CALmatters)
Other than that and the health care mandate, lawmakers opted against most of the new taxes proposed early in the session. In fact, California parents and women will get a sales tax exemption on diapers and menstrual products (though only for two years).
Notably rejected, given the stateâs current $21.5 billion surplus, was Newsomâs push for a 95-cent tax on most residential water bills to fund clean drinking water initiatives in the Central Valley. Instead, the Legislature worked out a deal to clean up toxic water by diverting money generated from big polluters under the stateâs cap and trade program.
Some environmental groups questioned using clean air money to pay for drinking water, but supporters reasoned that water is being contaminated with arsenic and other toxic chemicals from the heavy use of fertilizers so it makes sense to draw the $100 million for cleanup from the agriculture industryâs portion of the greenhouse gas fund.
One issue that wonât be resolved this week is whether California will conform its tax code to match federal changes made by Republicans in 2017. Newsom is relying on the projected $1.7 billion increase in net revenue from that to expand the stateâs earned income tax credit, the centerpiece of his anti-poverty agenda.
Assembly Democrats in swing districts are skittish about limiting deductions and losses that can be claimed by some businesses. They know the fate of former Sen. Josh Newman, who was recalled from his Orange County seat after voting to raise Californiaâs gas tax. Tax conformity requires a two-thirds vote in the Legislature to pass, so the pressure is on.
Newsomâs best Jerry Brown: Paying debt and rainy day saving
Lawmakers embraced the governorâs proposal to use some of the surplus to make extra pension payments, a step Newsom says is necessary to tame the stateâs $256 billion retirement liability for state workers and teachers.
The Legislature approved supplemental payments of $3 billion to the California Public Employeesâ Retirement System and $1.1 billion to the California State Teachersâ Retirement System for the stateâs portion of unfunded liability.
To relieve school districts across the state, the Legislature will contribute a total of $3.15 billion toward paying down their liabilities and reducing their payroll contribution rates. One difference is where it will go.
Previously, Newsom had all the extra payments going to the teachers pension fund â a reaction, in part, to teachers strikes that erupted as he took office. Now a portion of that money will be doled out to CalPERS. The change was made in recognition that while teachers are members of CalSTRS, many other school employees from janitors to bus drivers belong in the stateâs other public employee pension fund.
Besides paying down Californiaâs âwall of debt,â as former Gov. Jerry Brown called it, the state is shoring up for a downturn â or in Newsom-speak, âbuilding budget resiliency.â The new budget carries a roughly $20 billion reserve from several rainy day funds. This amount, while hefty, would be easily wiped away in a downturn. According to the Legislative Analystâs Office, the state would need as much as $40 billion to cover the budget in a moderate recession.
Big spending on housing, but fight over where it goes
With new commitments topping $2 billion, the budget represents the most important action the governor has taken so far on housing and homelessness. The lionâs share will target the stateâs homeless population, including $650 million in grants for cities and counties to build and maintain emergency shelters and $100 million for wrap-around care for the stateâs most vulnerable residents. Another $500 million will go to quintuple the size of the stateâs affordable housing financing fund, plus hundreds of millions earmarked for cities to update their often outdated housing plans.
While lawmakers and Newsom have agreed to cut big checks, itâs not clear whoâll get the money and with what strings attached. Big city mayors and lawmakers want homelessness grants directed towards the stateâs largest 13 cities, while Newsom wants to spread out the money to include counties.
Newsom also wants to deny transportation funds to cities not building enough housing. As of Thursday, lawmakers were still negotiating a scaled-back version of the proposal. Another Newsom proposal that speeds construction of homeless shelters by sidestepping environmental laws also remains unresolved.
Lending a hand to working families
Expanding Californiaâs earned income tax credit has quickly become one of Newsomâs signature anti-poverty programs because it gives a cost-of-living refund to low-income working families. Lawmakers are poised to triple the program from $400 million to $1.2 billion to provide a $1,000 refund for families with children under 6 and expand income eligibility from $24,950 to $30,000.
San Francisco Assemblyman Phil Ting, who chairs the Assembly budget committee, calls Californiaâs new budget fiscally responsible while helping working families. (Judy Lin/CALmatters)
Anti-poverty advocates had wanted Newsom to include undocumented workers who file with individual taxpayer identification numbers instead of Social Security numbers. That proposal did not make the final version of the budget. Still, the administration estimates the current expansion will increase the number of beneficiaries from 2 million to 3 million households.
The budget also will make it easier for low-income families with children to qualify for assistance, increasing the CalWORKs asset limit to $10,000 and the motor vehicle exemption to $25,000 â changes that will allow people to save and hang onto cars that can get them to work.
And parents of all incomes will get a longer paid family leave to care for new babies â 8 weeks, up from the current 6 weeks, starting in July of next year. The goal will be to boost the benefit to 90% of most wages, up from the current maximum of 70%.
The K-14 kids did all right
As required by law, the lionâs share of the budget goes to public schools, with nearly $102 billion in state money to be pumped into California classrooms and community colleges, plus another $389 million in a special reserve fund for schools. Though the figure is an all-time high, California is still viewed as lagging in per pupil spending, in part because of the high cost of living.
Democrats are also demanding more stringent oversight of charter schools, which can operate like private schools, tend to be non-union and have proliferated in big cities such as Oakland and Los Angeles. Newsom proposed prohibiting charter schools from blocking or disenrolling special education students who require more support for disabilities. Lawmakers readily embraced that change.
The budget includes $300 million to build more kindergarten classrooms in an effort to boost full-day kindergarten programs. Newsom had initially proposed $750 million but that was reduced after a study found most part-day kindergarten programs are in wealthier communities.
After-school programs will get a $50 million boost to the $600 million or so the state is currently spending. The money will help cover the cost of minimum wage increases enacted during Brownâs tenure.
So did the little ones
In emphasizing early education, Newsom and lawmakers agreed to expand day care and preschool slots by the thousands while investing in training for child care providers.
Newsom gets $50 million in seed money to start child savings accounts for college and post-secondary education. He initially asked that all of it go toward pilot projects with First 5 California and local governments but the Legislature is designating $25 million. The other $25 million will create a state program with the Scholarshare program in the Treasurerâs Office.
More free college and help for student parents
Newsom and legislators delivered on a $45 million promise to fund a second year of tuition-free community college for first-time, full-time students at campuses participating in the stateâs College Promise program.
Other big winners include students with children, who will be eligible to receive grants of up to $6,000 to help cover their familiesâ living expenses. The budget boosts by about 15,000 the number of competitive Cal Grants â a significant jump, but far less than the 400,000 qualified students who applied for the state scholarships last year and didnât receive them.
The University of California and California State University will receive money to increase enrollment, and waive tuition during the summer to help low-income students graduate faster. Lawmakers also set aside funds for campuses to combat hunger and homelessness, strengthen veterans resource centers, and provide more mental health counseling. A center at the University of California San Francisco is getting a $3.5 million earmark for dyslexia screening and early intervention.
Backers of the stateâs controversial new online community college fended off an effort to slash the collegeâs funding, clearing the way to enroll its first class this fall. And CSU will get $4 million to study five possible locations for a new campus: Stockton, Chula Vista, San Mateo, Concord and Palm Desert.
Lots for police training, a little for police records
Reflecting the Legislatureâs focus this year on reducing police shootings, the budget includes $20 million to train police officers on de-escalation tactics and how and when to use force. Outside the budget, bills to set a tougher standard for police to use deadly force and require more officer training are advancing through the Legislature, reflecting a compromise between civil rights advocates and law enforcement groups.
Attorney General Xavier Becerraâs office will get $155,000 to implement the new state law heâd been resisting: making law enforcement misconduct records public. Becerra will also have to report to the Legislature on how many requests his office processes and how much time is spent on that. A judge ruled in May that Becerra must produce the records; previously he had said he would not release them until the courts clarified whether he had to.
Powering down to cope with wildfires
Besides beefing up the stateâs firefighting capability and disaster preparedness, California will add powering down to its to-do list for coping with climate change-driven wildfires.
The budget doles out $75 million to state and local agencies whenever investor-owned utilities decide to shut off electricity during red flag weather warnings. One note: The Assembly added language to track how the money is used.
CALmatters reporters Matt Levin, Felicia Mello and Laurel Rosenhall contributed to this report.
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