Keenan Blog

Governor Strikes Deal For On-Time Budget

June 17, 2019

In what has been an unusual accomplishment in recent years, Governor Gavin Newsom and the State Legislature’s Budget Conference Committee have come to an agreement to pass a $214.8 billion budget before the June 15 deadline. Among the highlights of the spending agreement are pension relief for California schools, an expansion of the Earned Income Tax Credit (EITC), and provisions to subsidize health care coverage to a wider segment of the population. The governor announced the deal on June 9th and the Legislature passed the 2019-2020 Budget on June 13th, sending it back to the Governor for his signature.

Schools are expected to receive a break on pension costs. The proposal seeks to lower pension rate contributions by one percent of next year’s projection for teacher retirement plans. The target for projected pension rates in the 2020-2021 fiscal year would be lower by 0.7 percent. A budget allocation of $850 million over two years would be used to pay down California school long-term pension liabilities, which would also lower future pension rates to districts by about 0.3 percent. The education budget also includes a spending increase of 3.4 percent to $12,018 on each K-12 student for the fiscal year.

Following the devastating wildfires at the end of 2018, the new budget includes additional funding for Cal-Fire to improve prevention and response. The department will receive approximately $68 billion for additional equipment and specialized personnel, including several air tankers the state will take over from federal resources. This is in addition to the Governor’s Executive Order on Wildfires that we highlighted in a blog post on June 12th.

Under the health care category, the state would broaden subsidized premiums to families with incomes between four and six times the federal poverty level. A family of four earning annual household income of up to $150,500 could receive assistance with monthly health insurance premiums. The budget also provides for coverage to approximately 90,000 undocumented low-income adults and makes adults ages 18 to 25 eligible for Medi-Cal. Funding for several Medi-Cal services, including vision and hearing care, eliminated during the recession ten years ago, are now being restored. Some of the added coverage expansion would be paid for through a tax on individuals without health insurance that replaces the federal individual mandate eliminated by Congress in the 2017 tax reform act.

As part of the budget deal, the governor abandoned his plan to impose a water utility tax to pay to clean up drinking water systems serving about one million Californians. Instead, $100 million will be allocated from funds to reduce greenhouse gases will be spent to remedy these water quality issues. The justification for redirecting the money relates to the need to truck in bottled water to affected communities.

The new budget will also extend Paid Family Leave, which allows employees time off to care for a family member or bonding with a new child, from six weeks to eight weeks. The proposal also includes increasing the income replacement from 60 percent to 90 percent of wages. The state disability insurance (SDI) employee payroll tax will be increased by 0.1 percent, or an average of $62 annually per employee, to fund these additional leave benefits.

The EITC increased proposed by the governor would provide an additional $1,000 to qualifying families and raising the maximum annual income threshold to qualify up to $30,000. The EITC enhancements would cost the state about $1.2 billion annually. The Legislature may revise these increases during their consideration of the bill, so it is likely that these provisions will change.

Now that Governor Newsom has received the budget from the legislature, he will have 12 days to review the final bill before signing it. He may veto certain provisions, so some of this information may be subject to change. Additionally, lawmakers are still working out final details of some aspects of this budget, and they will be working on trailer bills in the coming days and weeks. We will continue to monitor the completion of the budget process and will provide an update on any significant revisions. Please check the Briefings section on our website for periodic updates on legislation that may impact our clients’ insurance programs.

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.