Legislative Leaders Reach Deal on 2020 Budget Act, Negotiations Continue with Administration

On Wednesday, Senate and Assembly leaders reached an agreement on the 2020 Budget Act, largely adopting the Senate’s budget framework that was adopted last week. The deal reached by legislative leaders diverges in a series of areas, notably by rejecting numerous proposed funding reductions and/or eliminations in areas of health and human services and education. The budget package reached by legislative leaders allows the Legislature to forego the traditional Budget Conference Committee process in which legislators reconcile differences between the two houses’ budgets.

The legislature’s version of the budget utilizes the Newsom Administration’s budgetary framework, including major revenue assumptions and revenue proposals. However, the legislative package utilizes the Legislative Analyst’s Office (LAO) caseload estimates for Medi-Cal and CalWORKs, providing an estimated $3.6 billion in savings. Further, the legislative package includes provisions around the receipt of federal financial assistance, but unlike the Governor’s May Revision, the legislative package assumes federal financial assistance would be received to offset baseline General Fund costs. If federal financial assistance is not received, the legislative package includes “trigger reductions” which would take effect on October 1, 2020, allowing Congress more time to act on assistance for state and local governments.

If federal financial assistance is received by California, the legislative package would end with $1 billion more in reserves compared to the Governor’s May Revision, reject numerous May Revision proposals, and increase funding in several areas not included in the Governor’s May Revision. Among the augmentations included in the legislative package are $1 billion in county realignment backfill ($600 million would be withdrawn if no federal financial assistance is received), $350 million for local homelessness programs, and $65 million for an Earned Income Tax Credit (EITC) expansion.

If no federal financial assistance is received by California, the legislature proposes to take a substantially different approach in solving the state’s budget problem. In this case, the legislative package would withdraw less reserves from the Budget Stabilization Account (BSA) and designate up to $716 million in the Special Fund for Economic Uncertainties (SFEU) for COVID-19-related expenses as opposed to establishing a $2.9 billion COVID-19 contingency fund. The legislative package also relies more heavily on special fund loans and transfers and defers payments in other areas, including education. Other notable differences in the legislative package compared to the Governor’s May Revision include rejections of the Governor’s proposals to use Proposition 56 to fund Medi-Cal growth instead of supplemental provider payments, reduce rates of state preschool program and child care programs, eliminate housing and homelessness infill infrastructure funds, and implement a 10 percent reduction to state employee pay.

Of particular note to local health departments, the legislative package:

  • Rejects the Newsom Administration proposals to eliminate funding for CHDP county case management activities;
  • Rejects reduction of funding to the Black Infant Health (BIH) program;
  • Defers the Governor’s proposed e-cigarette nicotine-content-based tax to allow for further discussion and deliberation;
  • Provides $26.3 million General Fund for supplemental payments to non-hospital based clinics, as proposed in the Governor’s January Budget, to offset losses from changes to the 340B program;
  • Maintains the Governor’s January proposal to expand full-scope Medi-Cal coverage to all seniors age 65 and over regardless of immigration status, but delays the implementation date to January 1, 2022, with the ability for the governor to further delay implementation based on the budget at the time;
  • Rejects the Governor’s proposed elimination of Medi-Cal optional benefits;
  • Rejects the Governor’s proposed elimination of the multipurpose senior services program (MSSP) benefit and community-based adult services (CBAS); and
  • Rejects the Governor’s proposed elimination of rate carve-outs for FQHCs and RHCs.

The legislative package also includes modifications to the Newsom Administration’s proposed plan to distribute federal funds received from the Coronavirus Relief Fund. The legislature’s version approves $550 million for acquisition and/or rehabilitation of motels, hotels, or hostels, as well as other sites and assets for sheltering and housing. $500 million would be provided to cities and $1.289 billion, allocated based on population, would be provided to counties to be used for homelessness, public health, public safety, and other services to combat the COVID-19 pandemic.

To review the final legislative budget package, the Assembly Budget Subcommittee No. 6 on Budget Process, Oversight, and Program Evaluation met on Thursday to review the two-house budget package, receive presentations from the LAO and Department of Finance (DOF), and take public comment. A handout from the LAO detailing key differences between the legislative package and the Governor’s May Revision is available here and a video recording from the hearing is available here.

With the legislative package now finalized, negotiations between legislative leaders and the Newsom Administration are now underway and are expected to continue through the weekend. Recall, the Legislature must past a budget by the June 15 constitutional deadline. However, given the 72-hour in-print rule, the legislature’s budget bill must be in print by next Friday, June 12. An overview of the legislative budget package is available here.