Governor Gavin Newsom and Democratic legislative leaders announced February 17 that they have reached an agreement on portions of the state budget intended to help Californians who have been affected by the pandemic.

The stimulus package includes $9.6 billion in budget changes – spending increases and relief measures – including $4.7 billion directed to small businesses, according to Senator Nancy Skinner, chair of the Senate Budget and Fiscal Review Committee.

The deal – negotiated behind closed doors and not discussed during the numerous no-vote budget subcommittee hearings that took place prior to the announcement – was fast-tracked and is expected to be approved by the Assembly and Senate as early as Monday, while discussions continue on other provisions of the 2021-22 budget and possible changes to the current budget. The deal was approved by the Senate budget committee the day after it was released to the public.

In a press release, Newsom, Senate President Pro Tem Toni Atkins and Assembly Speaker Anthony Rendon described the agreement as a “compromise” that will “speed needed relief to individuals, families and businesses suffering the most significant economic hardship from the COVID-19 Recession.”

The plan “builds on the initiatives in the Governor’s state budget proposal to provide cash relief to lower-income Californians, increase aid to small businesses and provide license renewal fee waivers to businesses impacted by the pandemic,” the release stated. The agreement also “provides tax relief for businesses, commits additional resources for critical child care services and funds emergency financial aid for community college students.”

The plan, which the officials dubbed the “Immediate Action Agreement” includes:

  • A $600 one-time payment to households receiving the California earned income tax credit for 2020, as well as to taxpayers with Individual Tax Identification Numbers (ITINs) who were precluded from receiving the $1,200 federal payments issues last spring and the more recent $600 federal payments. The payments will be provided to the recipients “shortly after they file their 2020 tax returns,” Newsom and the legislative leaders said.
  • A $600 one-time grant to households enrolled in the state welfare program and recipients of Supplemental Security Income/State Supplementary Payment (SSI/SSP) benefits or Cash Assistance Program for Immigrants (CAPI). Grant payments for welfare recipients are expected by mid-April, while the delivery of SSI/SSP and CAPI grants “is currently under discussion with federal officials,” the press release stated.
  • More than $2 billion in grants up to $25,000 for small businesses impacted by the pandemic, and $50 million for “cultural institutions” including museums.
  • Partial conformity to federal tax treatment for loans provided through the Paycheck Protection Plan, allowing companies to deduct up to $150,000 in expenses covered by the PPP loan. All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. Larger firms that took out higher loans still would be subject to the $150,000 cap on deductibility. This tax treatment would extend to the Economic Injury Disaster Loans as well.
  • Two years of fee relief for approximately 59,000 restaurants and bars licensed through the state’s Department of Alcoholic Beverage Control (the fees range annually from $455 to $1,235). The agreement also reflects fee relief for more than 600,000 barbers and cosmetologists and businesses licensed through the Department of Consumer Affairs.
  • More than $400 million in new federal funds that will provide stipends of $525 per enrolled child for all state-subsidized child care and preschool providers serving approximately 400,000 children in subsidized care statewide.
  • Approximately $24 million for financial assistance and services through Housing for the Harvest, a program that supports agricultural workers who have to quarantine due to COVID-19.
  • A combined $35 million for food banks and to provide diapers to California families.
  • An additional $100 million in emergency financial aid for qualifying low-income community college students carrying six or more units, with award amounts to be determined locally and made available by early April.

The agreement also restores previously enacted reductions, effective July 1, for the University of California, California State University, the Judicial Branch, Child Support Services and for moderate-income housing programs.

Senator Scott Wilk, the new Senate Republican leader, said the budget agreement includes “Republican solutions for our struggling small business and nonprofit community.”

The budget agreement is contained in AB 85 (Assembly Budget Committee), described as the “budget bill junior,” and several trailer bills (AB 80, AB 81, AB 82, AB 83, AB 88 and SB 87).

AB 85 includes a controversial provision authorizing the state controller to pay $35 million for last year’s no-bid get-out-the-vote contract that former Secretary of State Alex Padilla – now a U.S. senator – awarded to a consulting firm that described itself as being part of “Team Biden.”

The firm, SKDKnickerbocker, represented numerous candidates in 2020, including candidates for congressional and state legislative races in California. The Howard Jarvis Taxpayers Association sued the state last year, alleging Padilla violated state contracting laws and that the consulting firm’s efforts were designed to benefit some candidates in the November election. That litigation is pending in court.

A Department of Finance official said the budget provision is a “technical cleanup” bill that “provides the technical authority” for the state controller to pay the firm using funds that were included in last year’s budget.

AB 85 was approved on a 12-3 party-line vote of the Senate Budget and Fiscal Review Committee.

In other budget news:

State Revenue Was $10.5 Billion Above Projections for First Seven Months of Fiscal Year. “Preliminary General Fund agency cash receipts for the first seven months of the fiscal year were $10.539 billion above the 2021-22 Governor’s Budget forecast of $106.524 billion,” the Department of Finance reported this morning. “Cash receipts for the month of January were $7.453 billion above the 2021-22 Governor’s Budget forecast of $18.208 billion.”

The department noted that $1.1 billion of the cash overage is due to the assumption in Newsom’s January budget that $1.1 billion in personal income tax refunds related to the “Golden State Stimulus” would be issued in January. The funds are included in the agreement that was announced this week.

Personal income tax cash receipts to the general fund for the first seven months of the fiscal year were $9.8 billion above forecast, sales and use tax receipts were $167 million above forecast, corporation tax receipts were $493 million above forecast, and insurance tax receipts were $86 million above forecast.