Weideman Group Update
May 14, 2020
Governor Gavin Newsom released his updated state budget proposal for fiscal year 2020-2021 (referred to as the May Revise). California began 2020 with a strong economy, historic reserves, a structurally balanced budget, and a projected surplus of $5.6 billion. However, the Department of Finance (DOF) now predicts revenue declines of $41.2 billion due to job losses and business closures. This is combined with an expected $7.1 billion in caseload increases for health and human services programs and other expenditures of approximately $6 billion - the majority in response to COVID. DOF now estimates that the overall budget deficit is approximately $54.3 billion, of which $13.4 billion occurs in the current budget year (2019-2020) and $40.9 billion in the 2020-21 budget year (which begins July 1, 2020). For reference, this overall deficit is nearly 37% of the General Fund spending authorized in last year’s budget.
Consistent with the state’s constitutional obligation to enact a balanced budget and the prohibition against issuing long-term bonds to finance deficits, the May Revision proposes to cancel new initiatives proposed in the Governor’s Budget, cancel and reduce spending included in the 2019 Budget Act, draw down reserves, borrow from special funds and temporarily increase revenues. It also reflects savings from the Administration’s direction to agencies and departments to increase efficiency and streamline existing efforts. Finally, the May Revise reflects reductions needed to address the remaining budget gap in the event the federal government does not provide states and local governments additional necessary funding to support public health, safety and education, and a safe, swift economic recovery. While under the May Revise the budget would be balanced next year, a significant structural out-year deficit would remain, increasing to over $16 billion by 2023-24.
Here are some highlights from the Governor’s May Revise:
- Cancels $6.1 billion in program expansions and spending increases, including one-time expenditures included in the 2019 Budget
- Utilizes $16.2 billion from the Rainy Day Fund over three years
- Borrows $4.1 billion from special funds
- Reallocates $2.3 billion previously going towards unfunded pensions will be redirected to schools
- Preserves existing funding for the Department of Public Health and a number of safety net programs such as:Child care slots (and expands slots for first responders)
- Earned Income Tax Credit
- Eligibility for Medi-Cal subsidies offered through Covered California
- $716 million General Fund set-aside for additional COVID-19 response in the budget year
- CARES Act funding to local governments to support COVID-19 efforts such as homelessness, public safety, and public health
- Temporarily suspends net operating losses and temporarily limits to $5 million the amount of credits a taxpayer can use in any given tax year.
As for CalChiro, we have identified the following May Revision changes that might be of interest:
- The May Revision assumes that Medi-Cal caseload will increase due to economic conditions thus increases the Medi-Cal budget from $99.5 billion in 2019-20 to $112.1 billion in 2020-21
- Withdraws the implementation of the California Advancing and Innovating Medi-Cal (CalAIM) Initiative, resulting in a decrease of $695 million in 2020-21
- Absent additional federal funds, the May Revise eliminates Optional Benefits – audiology, incontinence creams and washes, speech therapy, optician/optical lab, podiatry, acupuncture, optometry, nurse anesthetists services, occupational and physical therapy, pharmacy services, screening, brief intervention and referral to treatments for opioids in Medi-Cal, and diabetes prevention program services, for a total General Fund savings of $54.7 million
- Managed Care Organization (MCO) Tax – A decrease of $1.7 billion General Fund in 2020-21 associated with the April 2020 federal approval of revised MCO tax
- Augment the small business guarantee program by $50 million for a total increase of $100 million to fill gaps in available federal assistance.
Beginning Monday of next week, the Assembly and Senate Budget Subcommittees will begin an accelerated deliberation process leading up to the full Budget Committees releasing their respective spending plans. Once each house’s spending plans are finalized, the differences will be reconciled against the Governor’s proposal and a final balanced budget will be voted on and sent to the Governor by June 15th.