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This May Revision stands in stark contrast to the budget of one year ago when COVID-19 first threw the Governor's budget proposal into disarray. Compared to a projected budget deficit of $54 billion a year ago, the state now has a projected $75.7 billion surplus. Combined with over $25 billion in federal relief, this supports a $100 billion California Comeback Plan—a once-in-a-lifetime opportunity to not only speed the state's recovery from the pandemic, but to address long-standing challenges and provide opportunity for every California family—regardless of their income, race, or ZIP code. 

In this blog post, we will go over key investments in:

Overall Budget Structure

The May Revision includes $24.4 billion in reserves—critical to a strong fiscal foundation, as last year clearly demonstrated. The reserve funds include: $15.9 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies,$450 million in the Safety Net Reserve, $4.6 billion in the Public School System Stabilization Account, and an estimated $3.4 billion in the state’s operating reserve.

The May Revision continues to pay down the state’s long-term retirement liabilities and reflects $3.4 billion in additional payments required by Proposition 2 in 2021-22 and $7.9 billion in additional payments over the next three years. The improved revenue forecast also allows for the elimination of $2 billion in proposed program suspensions that were delayed at the Governor’s Budget. Additionally, for some bargaining units, employee compensation reductions and pay deferrals will end automatically by provisions of their agreements, and the California Department of Human Resources is inviting the remaining bargaining units through collective bargaining to discuss revising these agreements. 

While the economic outlook and revenue have improved dramatically, the same budget resiliency that helped the state through the pandemic will continue to be critical to protect programs in the future and to prepare the state for emergencies. The forecast does not project large structural deficits; however, risks to the economic forecast remain—new coronavirus variants, vaccine hesitancy, higher inflation if disrupted supply chains cannot support increased consumer demand, and a stock market decline that would impact state revenues. These risks, together with the one-time nature of the federal funds and new revenue, constrain the state’s ability to significantly expand ongoing commitments.

The State Appropriations Limit, or “Gann Limit,” caps the amount of revenues from proceeds of taxes that can be appropriated by the state, which constrains state spending and requires revenues over the two-year limit to be allocated evenly between schools and taxpayer refunds. The Governor’s Budget projected that the state could exceed the limit over the 2018-19 and 2019-20 two-year period by $102 million. Based on final revenues, the limit for that two-year period was not exceeded. However, the May Revision projects that the limit for the 2020-21 and 2021-22 fiscal years will be exceeded by $16.2 billion. This estimate will continue to be revised until May 2023. The May Revision allocates $16.2 billion to comply with the limit, including tax refunds through a Golden State Stimulus and allocating half of the funds to K-14 schools in 2022-23. Given the uncertainty around the calculation of the limit in future years, the multi-year projections do not assume additional payments.

Key Charts

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Education

The May Revision includes total funding of $121.7 billion ($70 billion General Fund and $51.7 billion other funds) for all K-12 education programs, the highest level of funding in California's history. Per-pupil funding is also at the highest levels ever, totaling $13,977 per pupil in Proposition 98 General Fund and $21,152 per pupil when accounting for all funding sources.

California for All Kids

Public schools hold the promise of serving as the hubs for California communities, a source of shared local pride and engagement, and the foundation for providing all children with opportunity. The potential of public schools to drive positive change and reduce societal inequities is immense. It is time to re-envision the K-12 public educational experience by directing historic levels of funding to schools, improving outcomes for all young Californians and ensuring the future prosperity of the state. The May Revision utilizes this opportunity by proposing the California for All Kids Plan, a five-year strategy for public school investment that offers every child in California the comprehensive support necessary to reach their full potential.

The California for All Kids Plan invests aggressively in equity. Nearly two out of every three of the state’s school-age children have a family income that qualifies them for free and reduced-price school meals (less than or equal to 185 percent of the federal poverty level). These children are less likely to have access to enrichment opportunities and comprehensive services like many of their peers, including stable health care and mental health services, access to technology, consistent opportunities for a variety of engaging and enriching extracurricular activities, and educators that are well-prepared to meet their needs. Public schools serve a central role in closing these historic and structural opportunity gaps. The California for All Kids Plan provides a roadmap to equip schools to do this work, specifically by achieving all of the following by 2025-26:

Notable Funding Allocations

Housing & Homelessness

California’s statewide housing shortage has been decades in the making—long before the COVID-19 Pandemic. In recent years, the state has made significant investments to bolster much-needed affordable housing production through tax credits, housing-related infrastructure grants, and financing loans. The pandemic further exacerbated the statewide housing shortage and impacted housing affordability.

The May Revision promotes and maintains stable housing through additional and expanded rental assistance, foreclosure prevention, and down payment assistance investments. Moreover, to continue the momentum on housing production, the Administration also proposes innovative ways to further plan, produce, preserve, and enhance the state’s supply of long-term affordable housing. The following May Revision concepts build upon the $750 million in investments proposed in the Governor’s Budget, for a total 2021-22 housing package of $9.3 billion. 

California's COVID-19 Rent Relief Program: The federal American Rescue Plan Act of 2021 (ARPA) provided for an additional $2.6 billion to California for both state and local entitlement jurisdictions for a total of $5.2 billion in federal rental relief aid. The May Revision includes statutory amendments to maximize the use of available federal funds for rental, utilities, and housing-related expenses to help as many Californians as possible stay housed, while bolstering the economic resiliency of those hardest hit by the pandemic. Additionally, the state continues to utilize $331 million in National Mortgage Settlement funds for mortgage assistance. The state is also preparing to utilize $1 billion from ARPA Homeowner Assistance Funds to the California Housing Finance Agency (CalHFA) to provide additional mortgage assistance, principal reductions, and qualified housing-related charges to provide housing stability.

Homeowner & Renter Legal Assistance: As homeowners and renters continue to face economic challenges caused by the pandemic, the May Revision includes $20 million in federal ARPA Coronavirus State Fiscal Recovery Funds for the next three years ($60 million total) to the Judicial Council to continue providing legal assistance grants to over 100 legal service and self-help organizations.

Increasing Housing Production: The May Revision proposes $1.75 billion one-time federal ARPA funds to help support HCD affordable housing projects. This will help more than 6,300 units of shovel-ready affordable housing move forward quickly rather than accumulating costs while waiting for a potential future tax credit. This effort will be combined with other homelessness proposals mentioned later in this Chapter.

Accessory Dwelling Unit Financing: To foster greater economic recovery and affordable housing, the May Revision includes an additional $81 million one-time federal ARPA funds to expand CalHFA’s ADU program to inject a total of $100 million in available financing for ADUs. Because ADUs have quicker local approvals, this proposal will further expedite low-cost production and more quickly increase the housing units statewide.

Promoting Homeownership: As the state economy recovers, the affordability crisis continues, and first-time homebuyers, particularly from disadvantaged communities, struggle to purchase a home. To encourage economic recovery, resiliency, and equity, the May Revision includes $100 million one-time federal ARPA funds to CalHFA to expand its First Time Homebuyer Assistance Program, which helps first-time homebuyers with making a down payment, securing a loan, and paying closing costs on a home. The May Revision proposes to expand the program to lower-income households and expand CalHFA’s lender network to help address the wealth gap, particularly in disadvantaged areas throughout the state.

Homeslessness: Over the past several years, the state has invested billions of dollars to provide critical housing supports and services to local jurisdictions for the homelessness population. The May Revision builds substantially on this investment by providing an additional $4.7 billion reflecting a comprehensive approach to ending family homelessness, expanding access to housing, and providing additional housing supports for vulnerable populations. The following May Revision concepts add to the $2.1 billion in investments proposed in the Governor’s Budget, for a total 2021-22 homelessness package of $6.8 billion.

The COVID-19 Pandemic also provided a creative opportunity for the state to provide shelter for at-risk individuals to avoid being exposed to or contracting COVID-19. Project Roomkey allowed for unused hotels and motels to provide temporary non-congregate shelter during the pandemic, and similar properties across the state were made available to be acquired and converted into permanent housing through the Homekey Program. The state and local jurisdictions must use this opportunity to continue providing housing and providing supportive services to the state's most vulnerable populations.

Ending Family Homelessness: According to the 2020 Point-In-Time count, families are the fastest-growing segment of Californians experiencing homelessness. The May Revision includes proposals that would address family homelessness over five years by making significant investments in affordable housing for low-income families with children while simultaneously investing in safety-net programs (including CalWORKs), and health services by leveraging Medicaid.

Supporting Vulnerable Populations: With the number of elderly homeless Americans expected to triple in the next decade and to meet the complex needs of people with disabling conditions, the May Revision includes investments in new and existing programs administered by the Department of Social Services.

Health & Human Services

The Health and Human Services Agency oversees departments and state entities that provide health and social services to the most vulnerable and at-risk Californians. The Agency is leading the response to the COVID-19 Pandemic along with the Governor’s Office of Emergency Services. The May Revision includes $207.7 billion ($54.2 billion General Fund and $153.5 billion other funds) for all health and human services programs. 

The May Revision proposals transform the behavioral health system for children and youth, support vulnerable and homeless families, build an age-friendly state for older Californians, and provide care to the most marginalized. These proposals independently help bolster critical safety net programs that support and empower Californians. Taken together, these investments advance the health and well-being of all Californians, as well as their social and economic mobility.

To help address projected structural deficits, the Legislature assumed in the 2020 Budget Act the suspension of various health and human services investments effective July 1, 2021 and December 31, 2021. Given the improved revenue outlook, the Governor’s Budget proposed to delay the suspensions for one year. The May Revision proposes to eliminate the suspensions. These suspensions include, but are not limited to, Proposition 56 supplemental payment increases, reversing the 7-percent reduction in In-Home Supportive Services hours, and Developmental Services provider rate increases. 

Transforming the Behavioral Health System for Children & Youth

The pandemic has exacerbated behavioral health conditions for children and youth. Absent action, these conditions will grow and intensify with more young people emerging with untreated anxiety, depression, psychosis, and new substance use disorders. Half of all lifetime cases of diagnosable mental illnesses begin by age 14 and three fourths of all lifetime cases of diagnosable mental illness begin by age 25. Historically the adolescent substance use disorder system in California has been under-scaled. Addressing these needs is vital to California’s recovery.

The children’s behavioral health system needs more focus on prevention, increasing the number of behavioral health professionals, providing more crisis services, and adding acute care services and beds. Coordination between systems must also be improved to avoid delays or barriers to services. The most glaring behavioral challenges are borne inequitably by communities of color, low-income communities, LGBTQ+ communities, and in places where adverse childhood experiences are widespread and prominent. 

The goal is to transform California’s behavioral health system for children and youth into a world-class, innovative, and prevention-focused system where all children and youth are routinely screened, supported, and served for emerging and existing behavioral health needs. To realize this goal, the May Revision includes $1 billion from the federal American Rescue Plan Act's Coronavirus State Fiscal Recovery Fund (ARPA) in 2021-22, $1.7 billion ($1.3 billion ARPA, $300 million General Fund, and $100 million Federal Trust Fund) in 2022-23, and $431 million ($300 million General Fund) ongoing for the Children and Youth Behavioral Health Initiative. (Some of these amounts also relate to proposed changes to the Behavioral Health Continuum Infrastructure proposal described under the Department of Health Care Services.)

Services developed under the Initiative will be provided to children and youth age 25 and younger, available statewide (in both commercial plans and Medi-Cal), evidence based, culturally competent, and equity focused. Services will address a broad and complex range of issues affecting mental and emotional well-being, including alcohol and other substance use, stress, trauma, grief, anxiety, and psychological disorders. Connecting children and youth to these services will be a set of interactive tools available via virtual platform 24 hours a day, seven days a week. In short, the Initiative will identify children who need help early, provide services where and when needed, and make programs and services available to meet their needs. Furthermore, supports will be provided for young people facing challenges at home or who are having difficulty forging positive and supportive adult relationships.

The May Revision also includes the following augmentations related to behavioral health for children and youth:

Building an Age-Friendly State for Older Individuals

The pandemic disproportionately harmed older and other at-risk adults and strained aging and disability services. Older adults have accounted for unprecedented death rates—particularly among Latino, Black and Asian Pacific Islander communities and those living in nursing homes. Intensified social isolation has been especially burdensome. The suffering experienced by and pressures placed on older adults, people with disabilities, caregivers, service providers, and advocates during this time have made implementing parts of California’s Master Plan for Aging even more urgent.

The Master Plan for Aging applies the lessons learned during the pandemic, which has highlighted the need to embrace new ways to support older adults, people with disabilities, and communities of color. The Master Plan for Aging calls for California communities to build a California for All Ages where people of all ages and abilities are engaged, valued and afforded equitable opportunities to thrive as we age. Consistent withthe Master Plan for Aging, the May Revision makes investments in order to realize the promise of an age-friendly state. The May Revision proposes: 

Department of Health Care Services: To further the Medi-Cal program's ability to address some of the most complex challenges facing Californians' most vulnerable neighbors, the May Revision builds on the California Advancing and Innovating Medi-Cal (CalAIM) proposal. This proposal recognizes the opportunity to provide for non-clinical interventions focused on a whole-person care approach that targets social determinants of health and reduces health disparities and inequities.

The broader system, program, and payment reforms included in CalAIM allow the state to take a population health, person-centered approach to providing services with the goal of improving outcomes for all Californians. Attaining such goals will have a significant impact on an individual’s health and quality of life and, through iterative system transformation, will ultimately reduce the per-capita costs over time.

The Medi-Cal budget is $115.6 billion ($21.5 billion General Fund) in 2020-21 and $123.8 billion ($27.6 billion General Fund) in 2021-22. The May Revision assumes that caseload will increase by approximately 7.1 percent from 2019-20 to 2020-21 and increase by 6.6 percent from 2020-21 to 2021-22. Medi-Cal is projected to cover approximately 14.5 million Californians in 2021-22, over one-third of the state’s population. 

The May Revision proposes:

Social Services: The Department of Social Services (DSS) serves, aids, and protects needy and vulnerable children and adults in ways that strengthen and preserve families, encourage personal responsibility, and foster independence. The Department’s major programs include CalWORKs, CalFresh, In-Home Supportive Services (IHSS), Supplemental Security Income/State Supplementary Payment (SSI/SSP), Child Welfare Services, Community Care Licensing, and Disability Determination. Effective July 1, 2021, child care and nutrition programs will transition from the California Department of Education (CDE) to DSS. The May Revision includes $42.2 billion ($14.7 billion General Fund) for DSS programs in 2021-22.

Child Care: The Administration proposes to make the largest expansion of its kind in child care access by adding 100,000 subsidized child care slots. Updated Proposition 64 cannabis tax revenues will provide an additional $83 million for child care slots in 2021-22 and 2021-22 ongoing. These funds will provide for an additional 6,500 new child care slots. Additional investments to strengthen the child care system include:

Department of Developmental Services: The Department of Developmental Services (DDS) provides individuals with developmental disabilities a variety of services that allow them to live and work independently or in supported environments. California is the only state that provides services to individuals with developmental disabilities as an entitlement. The May Revision includes $10.7 billion ($6.6 billion General Fund) and estimates that approximately 386,753 individuals will receive services by the end of 2021-22. 

Covered California:  The 2019 Budget Act included historic subsidies to help more low and middle class Californians afford health coverage through Covered California. In addition, the state created an individual mandate to obtain comprehensive health care coverage. For 2020-21 and 2021-22, ARPA provides more generous subsidies than the current state subsidy program, effectively eliminating the need for the state subsidies. The May Revision contains the following adjustments to the Covered California budget and individual mandate penalty revenue:

Golden State Stimulus II

Golden State Stimulus II (GSS II) expands the Golden State Stimulus program established through the immediate budget actions taken in February of this year. The stimulus is targeted to low- and moderate-income households; specifically, the GSS II program will provide stimulus payments to three groups: 

 

 

California's COVID-19 Rent Relief Program: In January 2021, the COVID-19 Tenant Relief Act, Chapter 2, Statutes of 2021 (SB 91) was signed, creating the California COVID-19 Rent Relief Program. This program provides up to $2.6 billion in federal rental assistance to those facing financial hardships as a result of the pandemic and extends the eviction protections through June 30, 2021. Subsequent to the state's program deployment in March 2021, the federal American Rescue Plan Act of 2021 (ARPA) provided for an additional $2.6 billion to California for both state and local entitlement jurisdictions for a total of $5.2 billion in federal rental relief aid.

The May Revision includes statutory amendments to maximize the use of available federal funds for rental, utilities, and housing-related expenses to help as many Californians as possible stay housed, while bolstering the economic resiliency of those hardest hit by the pandemic.

Additionally, the state continues to utilize $331 million in National Mortgage Settlement funds for mortgage assistance. The state is also preparing to utilize $1 billion from ARPA Homeowner Assistance Funds to the California Housing Finance Agency (CalHFA) to provide additional mortgage assistance, principal reductions, and qualified housing-related charges to provide housing stability. 

 Emergency Preparedness

Under the authorities of the California Emergency Services Act, the Office of Emergency Services (Cal OES) serves as the state’s leadership hub during all major emergencies and disasters. This includes responding, directing, and coordinating state and federal resources and mutual aid assets across all regions to support the diverse communities across the state. 

 Workforce Development

The May Revision includes $750 million one-time federal American Rescue Plan Act of 2021 (ARPA) funds for the Community Economic Resilience Fund (Fund), which will be established to support regional and local planning and implementation of strategies to adapt to and seize the opportunities that come with a changing economy. Building on the Administration’s Just Transition Roadmap, scheduled to be published in July 2021, the Fund will provide financial support to regional and local stakeholder collaboratives to plan and implement region- and industry-specific economic transition strategies, with a specific focus on supporting high road industries, quality job creation, and workforce strategies in those sectors or regions most affected by the state’s transition to carbon neutrality, such as Kern County.

Employment Development Department: The pandemic has exposed many of EDD’s antiquated processes and outdated infrastructure, resulting in a delay or inability for many Californians to access UI benefits. This has been especially true for those in hard-to-reach communities, including the seven million non-English speaking Californians. The May Revision includes the following investments to improve EDD’s infrastructure and claimants’ experiences:

 Transportation

he May Revision proposes significant investments in both new transportation infrastructure and maintenance of existing infrastructure. Building upon the more than $18 billion in investments proposed in the Governor’s Budget, the May Revision proposes over $11 billion of state investment in the transportation system to lead to an equitable recovery that will competitively position the state to pursue significant federal investment that aligns with the American Jobs Plan and other federal budget priorities. The investments will create quality jobs, accelerate new transportation options and better connectivity throughout the state, support clean transportation projects to achieve our climate goals, and attract new federal investment, often doubling the amount spent from state and local sources.