Governor Gavin Newsom and Democratic legislative leaders announced June 22 that they reached an agreement on the 2020-21 state budget, and three days later the Senate voted to approve 18 budget trailer bills to implement the deal.

The Senate’s approval of AB 89 (Ting), “the budget bill junior,” came Thursday evening with a party-line 29-11 vote. The budget passed June 15 by the Legislature (SB 74) relied heavily upon possible receipt of federal funds to balance the budget. The new budget agreement instead relies upon updated baseline and forecast adjustments to revenue and expenditures with specified triggers should revenue not come to fruition, Senate Budget and Fiscal Review Committee Chair Holly Mitchell said.

”This budget agreement includes total general fund expenditures for the 2020-21 fiscal year of $133.9 billion and would maintain a reserve of $11.4 billion,” Mitchell said. “This bill represents a thoughtful and responsible budget agreement.”

Senate Budget Vice Chair Jim Nielsen criticized the budget process and the lack of transparency in negotiations. The budget agreement was negotiated behind closed doors between Democratic leaders with little committee vetting.

The Assembly is scheduled to meet today at 1 p.m. to consider the bills, which are expected to sail through the house given its large Democratic majority.

The agreement includes the three-year suspension of the net operating loss deduction and $5 million-per-year limit on utilization of tax credits that were approved by the Legislature earlier this month. Those tax changes, retroactive to January 1, constitute a tax increase of $9.2 billion over three years on California businesses.

Newsom is expected to sign the tax increase legislation (AB 85, Assembly Budget Committee) soon. Under Article IV, section 10 of the state constitution, he has until June 29 to sign or veto the bill. If he does not act on the bill by then, it will become law without his signature.

The remainder of the budget provisions announced this week fill some of the holes in the skeletal budget bill approved by both houses on June 15 – the constitutional deadline for doing so or losing pay. However, Assembly Speaker Anthony Rendon, Senate President Pro Tem Toni Atkins and Newsom said in a written statement that “more work remains ahead” and it is “imperative” for the federal government to send COVID-19 relief funds to California.

The budget includes:

  • No Cuts to K-12 Education. The budget provides a small increase in spending for K-12 schools and community colleges, with $12 billion in deferred spending.
  • University Spending Conditioned on Federal Funds. For the University of California, $470 million in funding is conditioned upon the receipt of federal funds. Similarly, the California State University will rely on federal funds for $500 million.
  • No Cuts for Health Programs. The budget maintains spending for Medi-Cal, In-Home Supportive Services and other health programs, regardless of whether the federal government provides additional funds. The budget assumes optimistic enrollment and cost projections to save approximately $1 billion on paper.
  • No Layoffs of Certain School Employees. The budget includes special job protection for teachers and three areas of work by classified school employees: custodial work, nutrition and transportation. Under these provisions, schools will not be allowed to lay off the workers even if schools transition to “distance learning” and significantly reduce their need for janitors, cafeteria workers and bus drivers.
  • No Pay Cut for State Workers. Newsom’s proposal for a 10 percent pay cut was not included in the final budget. Instead, approximately 96,000 state workers represented by the Service Employees International Union (SEIU) will receive two “personal leave program” (PLP) days. Under the plan, the state will avoid budgeting $2.8 billion in employee pay in the current budget. Workers will continue working their regular schedule for lower pay, but will be credited with hours that will be compensated later. According to an SEIU description of the plan, the PLP time can be used, or “may be cashed out upon separation from state service” (presumably at a higher pay rate).
  • Unemployment Surcharge on Employers. The budget also contains expanded COVID-19 unemployment insurance benefits for unemployed Californians. The state already has begun borrowing from the federal CARES Act unemployment insurance loans, and Mitchell said those loans will be repaid via a surcharge on employers.

The agreement was announced via a press release that did not include any details.

The governor held a press conference shortly after the press release was issued, but focused solely on COVID-19 issues and declined to answer reporters’ questions about the budget.

The media and general public had access to the new budget legislation later in the day, thanks to Proposition 54 – the CalTax-supported transparency initiative approved by voters in 2016. That initiative requires bills to be available for public review for at least 72 hours before their final vote in either house.