state budget – Public Policy Institute of California

What COVID-19 Budget Cuts Mean for Public Safety Spending

State funding aimed at programs and supervision for some jail inmates in jails and others on probation will drop sharply as a result of the COVID-19 crisis. While spending on the state correctional system will decrease less than 1% under recently announced cuts to the California state budget, funding for counties may drop 24%.

Probable cuts now loom over local budgets as well, and spending on local public safety may fall significantly. Although lower jail populations during the pandemic could create budget savings, there may also be a higher need for re-entry and community-based services as released individuals return to communities.

In 2011, California enacted sweeping changes to its correctional system to address federal court orders to alleviate severe overcrowding in the prison system. This public safety realignment shifted correctional responsibilities for tens of thousands of offenders, from state prison and parole systems over to county sheriff and probation departments.

To fund the shift, the state created the local community corrections account, with money drawn from a dedicated portion of state sales tax revenue. Voters issued a constitutional guarantee for that portion of tax revenue when they passed Proposition 30 in November 2012. But while the percentage of revenue was guaranteed, the actual amount of sales tax collected can vary. The amount is now changing because of the COVID-19 crisis.

Counties were meant to use these funds to provide supervision and programming to individuals who were realigned from the state to the counties. More specifically, the state expected counties to fund cost-effective, evidence-based programming that improved offender rehabilitation and public safety in local communities. Such programming might include day reporting centers, expanded jail training programs, or specialized courts that handle individuals with drug dependency or mental health disorders.

Each county had the freedom to implement programs that best suited their situation. Community Corrections Partnerships (CCPs)—headed by the chief probation officer, with representatives from law enforcement, health and human services, and community organizations—provide realignment plans and recommend where to allocate funding.

Realignment funding grew 47% from $930 million in 2012–13 to $1.37 billion in 2018–19. In state budget estimates from before COVID-19, sales tax revenue rose steadily, with the local community corrections fund expected to increase to $1.54 billion for fiscal year 2020–21.

However, the pandemic weakened the economy—in updated state budget estimates, the governor predicted a drop in sales tax revenue of more than 27% for 2020–21. The local community corrections account is now estimated to receive only $1.17 billion—a 24% decrease from the earlier estimate and 14% below the 2018–19 fiscal year.

Because revenues are paid to counties monthly, local agencies will feel the effect of sinking revenues almost immediately. The fiscal situation undoubtedly poses challenges for successful community re-entry programs; it is more important than ever to evaluate policies and programs that to lead to cost-effective solutions.

Public Higher Education in California Faces a Fiscal Crisis

[vc_row][vc_column][vc_column_text]As the coronavirus pandemic continues to disrupt California’s economy, the Newsom administration is projecting a $54 billion decline in state revenues for the 2021 fiscal year and revising the budget accordingly. California’s public universities—which do not have dedicated funding streams or constitutional protections—face disproportionately large funding cuts. So far, the federal government has provided some emergency relief to mitigate the pandemic’s unprecedented impact on higher education. Without additional support, however, the state’s public colleges might have to reduce student access and services.

During the Great Recession, a drop in state revenues of $40 billion in 2009 led to cuts equaling roughly one-third of state funding for the University of California (UC) and California State University (CSU) systems (on a per student basis). Consequently, tuition doubled at UC and CSU, faculty and staff were laid off or furloughed, and critical capital improvements and maintenance were deferred.

In turn, students faced reduced access to courses, higher student-faculty ratios, increased costs, and fewer support services. As the economy improved, the state was able to increase allocations to the state’s colleges. As a result, UC and CSU admitted thousands of additional students, graduation rates went up, and the number of degrees awarded increased substantially.

Early evidence suggests that the global pandemic could have an even more dramatic fiscal impact on public higher education in California. In the short-term, public colleges face critical revenue shortages: now that students have been sent home and instruction has moved online, revenues from auxiliary enterprises (housing, food, parking, etc.) have evaporated. In addition, UC has suspended elective surgeries at its medical centers and is incurring costs associated with research and treatment of the coronavirus. CSU has projected revenue losses of $337 million for the spring semester, while UC projects a $500 million loss for the month of March alone.

In the longer-term, the systems may find it challenging to raise additional revenues. The percentage of out-of-state students—who pay higher tuition—is now capped at 18% for the five most popular UC campuses, and enrollment of international students is likely to decline due to visa and travel restrictions. Endowment funds are shrinking and tuition increases are controversial. Moreover, unprecedented levels of unemployment will increase demand for federal, state, and institutional financial aid programs.

Governor Newsom’s May budget revision includes a 10% cut for each public higher education system. The revised budget proposal also reduces state financial aid for students who attend nonprofit private colleges from $9,084 to $8,056 per year. The budget proposal does allow UC and CSU to redirect some restricted revenues and to refinance debt at historically low interest rates. However, without additional revenue–whether through federal or state support, or tuition increases—it will be difficult to improve access, quality, and student success in the coming years.[/vc_column_text][/vc_column][/vc_row]

Video: Californians and Education

In the era of COVID-19, about eight in ten adults fear getting sick, and 80% expect bad economic times ahead. At a virtual briefing on Thursday, PPIC researcher Alyssa Dykman said the drop in consumer confidence “is unprecedented in the history of the PPIC survey.”

The event featured Dykman, who presented attitudes on K–12 education, funding, and policy preferences along with concerns over the coronavirus pandemic in the latest PPIC statewide survey. PPIC President and CEO Mark Baldassare supplied deeper context for key findings and responded to online questions.

Approval ratings have hit rare numbers: at 78%, approval has surged for Governor Newsom’s handling of K-12 education, and at 92%, public school parents express overwhelming support for school district handling of school closures. COVID-19, however, has shaken support for school bonds, with about half or fewer adults and likely voters saying it’s a good idea now for state government to fund school construction projects.

Baldassare underscored Californians’ concerns around health and finances, stating that two-thirds of adults are worried about both. Many say their lives are disrupted and about half say the stress is affecting mental health.

What do these concerns mean for California schools? “People are giving state leadership and local leadership a lot of leeway in how they respond to the public health and economic crisis,” Baldassare said. But the state will see its first test of this extraordinary support in May, when the governor submits a revised budget that will reflect revenue loss from a sharp economic downturn.

That may also lead to roadblocks for state and local school funding in November. In the March primary, “the defeat of most of the local school bond measures really caught a lot of people by surprise,” Baldassare said. “It was difficult to pass school funding measures.” At the moment Californians are hesitant to commit more funding to schools, which may impact voting on the split-roll property bond measure and others in the November election.

The survey offers several takeaways around planning for California public education. “We’ve never had anything like the school closures that are taking place,” Baldassare said. He reflected that Californians may reconsider the value of teachers going forward, including whether “teachers have the resources they need in order to do the job,” and noted that the public may have “a new understanding of the important and difficult role teachers play every day in the lives of public school children.”

Californians also may now recognize the struggles of vulnerable students, especially in terms of online access.

“It is going to be a test of Californians’ political will,” Baldassare said, “the degree to which we are committed to improving student outcomes, particularly among the large numbers of English language learners and low income students across the state.”

School Funding, COVID-19, and the 2020 Election Year

This post is excerpted from Mark Baldassare’s prepared remarks for the PPIC Statewide Survey virtual briefing on April 23, 2020.

State funding for K–12 public schools will take center stage when Governor Newsom unveils revisions to the state budget in a few weeks. The growing fiscal toll of the COVID-19 crisis is likely to affect school funding plans as a deep economic recession looms. K–12 schools have the largest share of the state General Fund, and many Californians say it is their top priority for state spending. Still, California voters seem to be pulling back their support for school funding on ballot measures.

One of the biggest surprises in the March 3 primary was the defeat of the Proposition 13 state school bond (53% voted no). The last time a state school bond failed to pass was back in 1994. Proponents have tried to explain away this loss as confusion caused by the number 13—the same as the notorious anti-tax initiative that passed in 1978.

However, outcomes of local school bond measures point to a different story. Bucking recent trends, 63% of local school bonds on the March primary ballot failed to reach the 55% threshold needed to pass. It may be that early anxieties about COVID-19 resulted in voter caution about extending debt. In the absence of exit polls to validate this theory, the April PPIC Statewide Survey sheds light on what may have happened. It also offers sobering news for efforts to convince voters to support school funding measures in the November election.

First, though, let’s dispense with the notion that views about school funding have fundamentally shifted. Today, 55% of California likely voters say that state funding for their local public schools is not enough. And 53% would vote yes on a state school bond while 50% would vote yes on a local school bond. Moreover, 53% percent would vote yes on a split roll property tax to fund local public schools—a measure that appears headed for the November ballot. All of these results today are similar to those last April, suggesting that basic attitudes about school funding are fairly stable.

But current conditions appear to be having a strong effect on the timeframe for public support. Our survey was conducted from April 1 to 9—roughly a month from the primary and a few weeks into stay-at-home orders. We find that most likely voters say it is a “bad idea” to issue state (54%) or local (54%) school bonds at this time. Majorities of Californians without children in public school agree (bad idea: state 56%, local 57%). Fewer than half across the state’s regions say it is a good idea to issue these bonds now. Only those with children in public school think that it is a good time to issue state (57%) or local school bonds (58%).

Why? Californians have had their world shaken by the COVID-19 crisis. Since January there has been a 36-point increase in expectations for bad economic times in California over the next 12 months (42% to 78%)—sending us to depths of consumer pessimism not seen since the Great Recession. And right now, 74% percent are worried about negative impacts of the coronavirus on their personal finances.

This pessimism is likely to have profound implications for school funding measures on the November ballot. The state’s fiscal and economic problems will weigh heavily on voters’ minds when they are asked to make decisions on spending, taxes, and bonds. Many may be reluctant to ask taxpayers (like themselves) to foot the bill, or to increase commercial property taxes, to make up for shortfalls in school funding.

We can also expect a rocky road ahead for the governor and state legislature. Although our April survey found a steep rise in the governor’s and legislature’s approval ratings around handling K–12 public education, state leaders now face the prospect of having to cut back on popular plans to increase school funding. During the Great Recession, we saw the governor’s and legislature’s approval ratings tumble with state budget cuts to local schools.

Our surveys will be closely monitoring all of these dynamics as California heads toward a much-anticipated November presidential election.

The Coronavirus Pandemic Will Test the State’s Budget Reserves

As it grapples with the COVID-19 pandemic, California faces an uncertain fiscal future. This global crisis has caused a sharp decline in economic activity, exposing crucial sectors to heightened risk. As discussions continue about when and how to re-open the economy, it is clear that the state will have to respond to significant fiscal challenges.

The good news is that California has made important changes to its reserve policies since the Great Recession. The passage of Proposition 2 (2014) created the Budget Stabilization Account—the state’s rainy day fund—as well as the Public School System Stabilization Account, a separate reserve for K–12 districts and community colleges. In addition, Governor Brown and the legislature created the Safety Net Reserve Fund to shore up Medi-Cal and CalWORKs funding during downturns.

The bad news is that a severe recession is likely to pose significant budgetary challenges. Drawing from the state’s experience during several recent recessions, PPIC estimated the budget ramifications of mild, moderate, and severe recessions and the capacity of state reserves to fill gaps. We found that the state’s reserve balance—estimated to be $17.9 billion—is large enough to withstand a mild recession such as the dot-com bust in the early 2000s.

However, a long and/or severe recession like the early 1980s oil shock (which lasted four years), or the early 1990s slump and the Great Recession—both of which were much more severe and lasted five years—would create large budget gaps and require policymakers to make difficult decisions. (It is important to note that the estimated reserve balance relies on the 2019–20 enacted budget and that it will change when revenue estimates are updated in May.)

In the meantime, the federal government has stepped in. The Families First Coronavirus Response Act includes an increase in the federal share of Medicaid payments and reimbursements to states that are expanding public assistance programs. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides about $2.2 trillion; some aid goes directly to families, some goes to schools, and some to state and local governments. Additionally, two federal disaster declarations make many of California’s COVID-19 expenditures eligible for at least partial reimbursement.

Governor Newsom has requested additional federal assistance, including flexible aid to state and local governments, a further extension of unemployment insurance benefits, and expanded support for safety net programs, small businesses, K–12 and higher education systems, childcare, and broadband.

The state is also making significant changes to the 2020 budget process. The Department of Finance is drafting a “workload” budget for the May Revision that will set the baseline for the final budget to be enacted in June. This will limit spending increases while allowing for growth in programs—particularly safety net programs—that expect increased demand. The legislature will revisit the budget for an “August Revision” that reflects changes in the state’s financial condition. As these processes move forward, PPIC will continue to monitor California’s evolving fiscal challenges and steps being taken to address them.

Video: Fiscal Challenges of Declining Enrollment in California Schools

Enrollment declines in California’s public K–12 school system are expected to intensify in the coming decade. Districts with falling enrollment face financial pressures, as state funding falls along with the number of students they serve. Lower enrollment also has important implications for the state budget. At a lunchtime event in Sacramento last week, PPIC researcher Paul Warren outlined a new report on declining enrollment and a panel of experts offered state and local perspectives.

Warren explained that enrollment is falling in about half of California’s school districts. In the coming decade, declines will be significant in coastal areas—and in many of the state’s largest school districts. The state budget cushions the fiscal impact of declines in enrollment by delaying attendance-based funding cuts for one year. But enrollment declines are almost always long term, and district costs do not fall at the same rate as district revenues.

Renee Arkus, executive director of fiscal services for the Long Beach Unified School District, said that adjusting to lower enrollment hinges on knowing the speed and the spread of declines. Long Beach, the state’s third-largest district, has been experiencing declines for 15 years. “We’ve lost 25% of our population,” she said, adding that the district has been losing 1,500 to 2,000 student each year, and those losses have been spread across a number of schools.

Sara Bachez, assistant executive director of governmental relations for the California Association of School Business Officials, noted that declining enrollment is one of many fiscal pressures districts are facing. She cited a growing demand for special education, pension and health care costs, aging infrastructure, and the challenge of offering proper compensation for district staff.

Claudia Davis, associate superintendent of the Calaveras County Office of Education, highlighted the challenges that small districts face. Like Long Beach, Calaveras County has been experiencing declines for the last 15 years. But because Calaveras is a small county, it is challenging to find ways to reduce spending. “We have district offices with three people in them,” she said, so cutting staff would have a big impact: “The work has to get done regardless of the size of your district.”

Mike Fine, chief executive officer of the Fiscal Crisis and Management Assistance Team, pointed out that the fiscal challenges that Calaveras County faces are typical, as more than half of the state’s districts serve fewer than 2,500 students. In his view, the best guide to addressing these challenges is the Local Control and Accountability Plan (LCAP) that each district is required to develop. “We have to clearly define what are our core services that we can’t do without, and then everything else is up for discussion,” he said.

Most districts could benefit from state assistance in forecasting and responding to declining enrollment. As Arkus put it, long-term planning is “the only way that some districts can survive this.” And Davis noted that small districts don’t have the human capacity for exhaustive planning. “Long-term planning is difficult when you’re . . . just trying to keep the doors open.”

Californians Are Grappling with Homelessness

In his State of the State address last week, Gavin Newsom focused almost exclusively on homelessness—a significant long-term problem and major concern for state residents. In 2019, 150,000 Californians—more than a quarter of the US homeless population—were counted as homeless. California’s rate of homelessness rose to 38 per 10,000 residents, the third highest in the nation.

What is more, 72% of California’s homeless residents are unsheltered, living on the street or in parks and other makeshift spaces. And nearly three in ten self-report as chronically homeless—having been on the streets for more than a year.

Californians across the state are feeling the gravity of this issue. The latest PPIC Statewide Survey finds that more than 8 in 10 Californians see homelessness as a problem in their part of the state (86% adults, 89% likely voters).

Considering these numbers, it does not come as surprise that Governor Newsom has made homelessness a major focus. Citing the connection between chronic homelessness, mental health, and behavioral health, Newsom has underlined the importance of policies and investments that allow for “whole person” care. By linking current funding sources and asking lawmakers to expand the use of funds for services provided to the homeless population—especially those involved with the criminal justice system and at-risk foster youth—the governor hopes to improve and integrate these services.

The PPIC Statewide Survey finds that a full 70% of Californians—and 64% of likely voters—favor the governor’s proposed $1 billion budget expenditure to address homelessness. State leadership and investment are key, but there is only so much that can be done at the statewide level. Finding solutions to homelessness requires coordination between the federal, state, and local levels, as well as collaboration across sectors—including housing, health, and social services.

Governor Newsom Proposes New Investments in Math and Science Teachers

The governor unveiled his proposed 2020-21 budget last week, which includes record-high levels of K-12 and community college funding—a $3.8 billion dollar increase over last year. This includes $900 million for K–12 educator recruitment and development, building on a nearly $150 million investment from last year’s budget.

These new investments are an attempt to address the statewide teacher shortage, which is most acute in the high-need subjects of math and science (special education is also a high-need area). The hope is that these investments will pay dividends in improving the size and the quality of the teaching force in these subjects, which are important for college success and for jobs in the 21st century economy.

Most notably, the proposed funding includes one-time increases to address teacher shortages in key ways:

$350 million in competitive grants for teacher professional development
$193 million to address teacher shortages in high-need subjects
$175 million for residency programs to prepare and retain teachers in high-need subjects
$100 million to fund $20,000 stipends for teachers in high-need subjects at a high-need school for at least four years

Schools across the state face critical teaching shortages in math and science, leading many schools to increase their reliance on less-credentialed and less-experienced educators. Difficulty in staffing these subjects also means that some schools must reduce course offerings, impeding student access to math and science coursework. Indeed, the number of new math and science teaching credentials has not matched demand for such teachers in recent years. In fact, the number of new math credentials has actually fallen over the past two years, constraining schools in both hiring and course offerings.

$figure - Demand Outpaces Supply for New Math and Science Teachers$

These continued shortages have important implications for student opportunities in STEM fields. For example, nearly one-third of high school graduates do not meet current UC and CSU requirements for science coursework, and many schools do not have the number of teachers required to offer three or four years of math and science to all interested students. Proposed increases to science eligibility requirements for UC admission—and for math requirements at CSU—mean that increasing the supply of qualified new math and science teachers is more essential than ever. Continued shortages will make it difficult to both accommodate this increased demand and to address equity gaps in the availability of high-quality math and science coursework.

In this light, the governor’s proposal provides reason for optimism. Increased funding for teacher recruitment and retention should help to encourage young adults to enter teaching and retain those who do. And more money for training and development should help to ensure that schools are able to choose among qualified teachers. Whether this will be enough to truly make a dent in the state’s teacher shortage remains to be seen; it depends crucially on whether these investments will be continued in future years or end up as one-time relics from a strong budget year.

Video: A Conversation with Assembly Speaker Anthony Rendon

When Anthony Rendon was elected to the California State Assembly in 2012, he thought he would focus on early childhood education. “I came to Sacramento after working in early childhood education for 20 years . . . probably thinking that I would work on that.” However, he continued, “You come here and you realize the extent to which all of these issues impact one another. I think it’s dangerous to isolate any single issues.”

As he noted in his conversation with PPIC’s Mark Baldassare last Thursday, Rendon has focused on many individual measures in this legislative session, including a recently signed bill to modify the criteria for police use of deadly force and a bill to address predatory lending. In the wake of the Gilroy shooting, he has also prioritized a package of gun control bills. He sees these measures as part of a broader focus on improving opportunity for all Californians.

Rendon became Speaker in 2016, when Jerry Brown was governor. At first, he found working with Brown to be “a little frustrating,” but “eventually, we did a lot together. . . . There was a very narrow focus, two or three things—criminal justice reform, climate change, but that was about it. Those are still the things he cares about.” Governor Newsom focuses on a wider range of issues. And, Rendon said, “He’s also more sort of open-ended. He’ll come in and say, ‘Hey, housing, what do you think?’”

One of the issues Newsom cares about is early childhood education—which is still a major priority for Rendon. While Brown “helped us to start down the path” to reinvesting in this area, “now we have a governor who believes that . . . it has a positive impact on families and communities and children.” Newsom’s belief translated into significant funding increases for early childhood education in this year’s budget. “The budget was phenomenal,” said Rendon. Early childhood education is particularly important, in his view, because it’s “not trying to fix something that’s already broken. It’s a way of addressing issues early on, it’s a way of breaking the cycle of poverty.”

Although the Democratic Party controls both the governor’s office and the legislature, Rendon believes it’s important to work with Republicans whenever possible. He sees some common ground on issues such as climate change and education—“the real issues that really impact Californians.” More generally, it is important that state leaders represent all Californians: “I want to be able to tell people . . . ‘I’m working for you.’”

Record Growth Puts Money in the Bank for California

This July marks the longest period of economic expansion in US history. For 121 months and counting, the national and state economies have experienced continuous growth.

One consequence of this sustained economic growth? An increasing stream of tax revenue flowing into the state’s treasury. This, in turn, has shaped a new state budget that contains record-breaking levels of spending.

In terms of fiscal sustainability, however, the most intriguing element of the new budget may be the dollars that weren’t spent. The budget that the legislature passed and governor just signed includes total budget reserves of more than $20 billion—also a record for the state.

The continued accumulation of budget reserves represents important progress toward preparing the state for an economic slowdown. Because of California’s tax structure, recessions hit the state’s budget particularly hard. Past recessions have caused deep drops in the level of General Fund dollars available, leading to a combination of spending cuts, tax increases, and borrowing to balance the state’s budget.

Building budget reserves should enable California to reduce the impact of a recession. Our estimates suggest that the current level of reserves would allow the state to weather the impact of a mild recession. However, they would be insufficient in the face of a moderate to severe downturn. In other words, there is still work to be done.

None of this matters if the economy never slows down. Just because the economy has gone up for so long, doesn’t mean it must fall—there is no equivalent to gravity when it comes to economics. But history suggests that recessions have a way of interrupting periods of growth. And there are some signs that clouds are gathering on the economic horizon: bond rate curves, drops in consumer confidence, and uncertainty surrounding tariffs and trade. At the same time, the stock market just finished a very positive first half of the year.

Forecasting the timing of the next recession is a much more difficult proposition than asserting that there will be one. The same could be said of California’s earthquakes. But as with earthquakes, the fact that we don’t know exactly when the next recession will hit shouldn’t stop the state from preparing for it.