Governor Newsom’s May Revision to the California Budget

 Keenan Blog

Governor Newsom’s May Revision to the California Budget

May 14, 2019

On May 9, 2019, Governor Gavin Newsom presented his first revised state budget to the California Legislature. This May Revision provides updates on the administration’s estimates of revenues, as well as changes to some January budget proposals and new proposals developed by the Governor’s office.

This blog post covers some of the provisions included in the May Revision, which may be of interest to Keenan’s clients. In general, K-14 schools do well under this budget, and the state appears to be poised to make new investments in both early childhood education and health care.

Big Picture

The May Revision revenue estimate has increased by approximately $3.2 billion, before accounting for transfers. After accounting for transfers, revenues are up over $1.1 billion for 2018-2019 and $1.2 billion for 2019-2020. The budget proposed by Governor Newsom includes $213.6 billion in spending (approximately $147 billion General Fund (GF) spending, $60.9 billion Special Funds, and $5.7 billion Bond Funds).

Prop. 98 Funding

Total K-14 Prop. 98 funding at the May Revision:

  • $75.6 billion in 2017-2018 (up by $78.4 million from January Budget proposal)
  • $78.1 billion in 2018-2019 (up by $278.8 million from January Budget proposal)
  • $81.1 billion in 2019-2020 (up by $389.3 million from January Budget proposal)

K-12 Schools

  • $101.8 billion total funds ($58.9 GF; $42.9 billion Special Funds, Bond Funds and federal funds)
  • Increased funds for Special Education:
    • $696.2 ongoing Prop. 98 GF for special education ($119.2 million more than January budget proposal and 21% increase year-over-year)
    • $500k one-time, non-Prop. 98 GF to increase Local Education Authorities’ (LEAs’) ability to draw down federal funds for medically related special education services and to improve the transition of 3-year-olds with disabilities from regional centers to LEAs
  • Cost-of-Living Adjustment (COLA) of 3.26% for 2019-2020 applied to Special Education, Child Nutrition, Local Control Funding Formula (LCFF) and other programs (down from 3.46% estimate in January)
  • LCFF base grants of $7,702-$93,29 per ADA, depending on grade span
  • May Revision adds $150 million one-time non-Prop. 98 GF to reduce CalSTRS employer contribution rate to 16.7% in 2019-2020 (without Governor’s proposed funding, employer contribution rate for CalSTRS in 2019-2020 would be 18.13%)
  • $16 million allocation for computer science-- $15 million for broadband infrastructure and $1 million over four years to fund a statewide computer science coordinator at the State Board of Education
  • $10 million one-time non-Prop. 98 GF to plan for and develop a longitudinal data system to connect student data from education providers, K-12s, colleges, employers and health and human service agencies.
  • Additional year of funding for Classified School Employee Summer Assistance Program—would allow eligible classified employees of participating LEAs to have 10% withheld from paychecks during the 2019-2020 school year to be paid out during the summer. State provides 100% match of employee contributions.
  • K-12 workforce investments:
    • $89.9 million one-time non-Prop. 98 GF to provide approx. 4,500 loan assumptions of up to $20k for newly credentialed teachers to work in high-need schools for at least 4 years
    • $44.8 million one-time non-Prop. 98 GF to provide training and resources for classroom educators
    • $13.9 million ongoing federal funds for professional learning opportunities for K-12 administrators

Charter Schools

The May Revision proposes a number of policies to “level the playing field” between charters and traditional K-12s:

  • Prohibits charter schools from discouraging students from enrolling in a charter school or encouraging students to disenroll from a charter school on the basis of academic performance or student characteristic, such as special education status.
  • Prohibits charter schools from requesting a pupil’s academic records or requiring that a pupil’s records be submitted to the charter school prior to enrollment.
  • Creates a process for families of prospective and current charter school students to report concerns to the relevant authorizer.
  • Requires the California Department of Education to examine the feasibility of using data from the California Longitudinal Pupil Assessment Data System (CALPADS) to identify charter school enrollment disparities that may warrant inquiry and intervention by corresponding authorizers.

Community Colleges

  • Student Centered Funding Formula—The Administration plans to work with the Chancellor’s Office and stakeholders in the coming months to explore revisions, In the meantime, the hold harmless provision has been extended so that no district will receive less funding than they received in 2017-2018 with COLAs for each year until 2021-2022.
  • 0.55% in student growth funding for apportionments (same as January proposal)
  • $61 million in additional funds to offset anticipated local revenue shortfalls in 2019-2020, but no additional funds to address the estimated $228 million current-year shortfall in the general apportionment
  • One-time funds of $28.6 million for deferred maintenance, instructional equipment and water conservation projects
  • $45 million to expand the California College Promise program by an additional year (up $5.2 million from January proposal). This will pay for a year of free tuition for approximately 28,000 first-time FT college students)
  • COLA of 3.26% (down from 3.46% in January)

Early Childhood

Although the May revision proposes $10 million to develop a long-term strategic plan that will provide a road map for a more well-aligned comprehensive early learning and care system, the Governor has otherwise scaled back some of his early education proposals, as follows:

  • Preschool: As outlined in the January budget proposal, the May revision would add 30,000 full-year State Preschool slots for all eligible low-income 4-year-olds, but release date for first 10,000 slots moved to April 1, 2020 to allow time for the application process required to identify providers and enter into contracts. The release of the remaining 20,000 slots has been postponed with no estimated release date.
  • Kindergarten:
    • $600 million in one-time non-Prop. 98 GF to assist schools in constructing or retrofitting facilities to expand access to full-day kindergarten (down from $750 million in January proposal)
    • Increases state share of the facility grant from 50% to 75% to schools converting from part-day to full-day kindergarten.

Health Care

  • The Governor continues to propose a statewide individual mandate for health insurance.
  • The May revision includes a proposal for financial assistance through Covered California to qualified individuals with incomes between 400-600% FPL (about $100/month/qualified individual)
  • Increasing subsidies through Covered California for individuals with incomes between 200-400% FPL (about an extra $10/month/qualified individual in addition to federal subsidies)
  • $98 million to expand Medicaid (Medi-Cal) coverage eligibility to young adults aged 19 through 25, regardless of immigration status
  • $38.7 million Prop. 56 funds to develop residency programs at hospitals throughout California

Paid Leave

The May revision would expand the state PFL program for each parent to eight weeks of paid leave after the birth or adoption of a child.

Wildfire Prevention and Response

  • $797.6 million in additional funding to enhance emergency preparedness
  • $10 million one-time GF to support local communities affected by the Camp Fire
  • One-time $518,000 GF to reimburse cities, counties and special districts for 2018-2019 property tax losses resulting from 2018 wildfires (in addition to the $31.3 million approved in AB 72)
    • Corresponding K-14 losses of $530,000 will be backfilled under Prop. 98

Budget Reserves

The budget summary recognizes that revenue could decline nearly $70 billion in a recession and open a budget deficit of $40 billion over three years. The May Revision to the Governor’s Budget puts aside $15 billion toward “budgetary resiliency” including:

  • $4.5 billion to eliminate debts and reverse deferrals
  • $5.7 to build reserves
    • Total of $16.5 billion in reserves in 2019-2020
    • $389.3 million in Prop. 98 funding going to Public School Stabilization Account
  • $4.8 billion to pay down unfunded retirement liabilities

In the coming weeks, the Legislative Analyst’s Office (LAO) – the California Legislature’s Nonpartisan Fiscal and Policy Advisor – will conduct a multiyear budget analysis of the May Revision proposals. This report will provide an assessment—using the LAO’s revenue estimates—of whether the state budget has the capacity for the May Revision proposals. Given the higher level of ongoing spending proposed in this budget, the LAO has indicated that it believes the results of this analysis will be particularly critical this year as the Legislature evaluates the Governor’s budget package.

About Amy Donovan
Amy is Keenan's Vice President of Legislative and Regulatory Affairs, authoring the firm's Briefings and position papers on legislation, regulation and litigation that have an impact on the firm and its clients.