California’s History-Making 2021–2022 State Budget: An Overview

Manatt, Phelps & Phillips, LLP

State policymakers enacted a balanced budget in June
but have significantly amended it since then with more changes to come

California Governor Gavin Newsom and the state Legislature enacted a $196 billion spending plan for FY 2021–22, the largest budget in state history. Buoyed by a record budget surplus estimated at $85 billion, including $26 billion in nonrecurring federal COVID-19 relief funds, the state’s spending plan is $30 billion larger than in FY 2020–21. Despite this record spending, policymakers continued the state’s conservative fiscal trend of the past decade and increased the state’s available reserves to $25.2 billion, paid down $2.3 billion in unfunded pension debt, and prioritized one-time spending over ongoing spending by allocating 85% of discretionary funding to one-time or short-term spending.

Figure-one-(002).jpgCA Department of Finance, eBudget Summary, Summary Charts.

The State Constitution requires the Legislature to pass a balanced budget by June 15 with a June 30 deadline for the Governor to sign or veto the Legislature’s budget. Usually, nearly all budget decisions are settled in time for the July 1 start of the state’s fiscal year, particularly since California’s voters amended the state constitution to allow the Legislature to pass spending bills with a simple majority vote. While it’s not uncommon to have a few loose ends, this year there were many decisions left to be made after the June 30 deadline, some of them because of COVID-19-related uncertainties and others because of the unprecedented revenue surplus—the depth of which was itself uncertain until a few weeks before the budget deadline, leaving little time to deliberate on the many ideas (and few details) presented by the Governor and Legislature for spending the windfall to spur the state’s economic recovery.

As negotiations extended into July, the “Big Three”—Governor Gavin Newsom (D), Assembly Speaker Anthony Rendon (D) and Senate President Pro Tempore Toni Atkins (D)—agreed on spending plans for public education and health care in time for the full Legislature to pass them before its Summer Recess began on July 16.

While some big-ticket items remain unresolved, including spending on climate change mitigation and high-speed rail, the Governor and the Legislature have already agreed on spending levels by major program area. This table provides an overview of those spending levels for 2021–22 and compares them to 2020–21 spending.

Figure-two-(002).jpgCA Department of Finance, eBudget Summary, Summary Charts.

The Big Three, with the backing of the heavily Democrat-controlled Legislature—three-quarters of California’s 120 state legislative seats are held by Democrats—agreed to increase General Fund (i.e., state tax-supported) spending by more than 18% and committed significant new funding to:

  • Achieving the largest per-pupil expenditure in state history for K-12 public education
  • Expanding Medi-Cal coverage to undocumented adults aged 50 years and older
  • Expanding subsidies for child care
  • Enabling local governments to combat homelessness
  • Extending the state’s eviction moratorium (until September 2021) and providing additional state funding relief for many tenants and landlords
  • Expanding broadband infrastructure in the state

Governor Newsom may be the first to know if a significant number of Californians disagree with the new budget. A gubernatorial recall vote is scheduled for September 14, and voters unhappy with state spending or other aspects of the Governor’s job performance will have an opportunity to vote to remove and replace him. However, it is far more likely than the vote will turn on less esoteric issues than the state budget—things like whether voters believe the Governor has managed the state well during the pandemic and whether the budget reflects their own political views.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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