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Governor Newsom Introduces Proposed California Budget for 2021-22

January 8, 2021

This morning, Governor Gavin Newsom presented his proposed $227 billion budget for the 2021-2022 fiscal year, of which $164.5 billion is from the General Fund. The Governor’s proposed budget relies heavily on one-time expenditures, avoiding long-term liabilities, since the State’s out year projections predict reduced revenues. Additionally, the Governor made it clear federal COVID-19 relief assistance is expected to increase spending and that he would work with the Legislature to allocate federal funds as they become available.

The budget reflects $34 billion in budget resiliency – budgetary reserves and discretionary surplus – including: $15.6 billion in the Proposition 2 Budget Stabilization Account (Rainy Day Fund) for fiscal emergencies; $3 billion in the Public School System Stabilization Account; an estimated $2.9 billion in the state’s operating reserve; and $450 million in the Safety Net Reserve. The Administration is predicting a $15 billion surplus.

This proposed budget prioritizes the Governor’s goals of economic recovery, equity, climate resiliency and emergency response. Governor Newsom was clear that every budget allocation was made in an effort to achieve these four goals.

  1. Sustainable Agriculture

Governor Newsom was clear in his press conference that sustainable agriculture achieves the joint goals of addressing climate change and equity in historically disadvantage communities.

The proposed budget aims to advance Climate Smart Agriculture by investing in:

  • Funding Agricultural Replacement Measures for Emission Reductions (FARMER)—$170 million one-time Greenhouse Gas Reduction Fund ($90 million in 2020-21 and $80 million in 2021-22) for the Air Resources Board to provide funding that supports the replacement of agricultural harvesting equipment, agricultural pump engines, tractors, and other equipment used in agricultural operations to reduce greenhouse gas emissions.
  • Healthy Soils Program—$30 million one-time Greenhouse Gas Reduction Fund ($15 million in 2020-21 and $15 million in 2021-22) for the Department of Food and Agriculture to provide grants for on-farm soil management practices that sequester carbon.
  • Climate Catalyst Fund—$50 million one-time General Fund to the California Infrastructure and Economic Development Bank (IBank) to support Climate Smart Agriculture loans to advance projects that may include but are not limited to: methane reduction; equipment replacement; water efficiency; healthy soils; circular economies; on-farm bioenergy; energy efficiency for food processing; and renewable energy systems and energy storage for agricultural operations.

The Administration is supporting local communities and the agriculture industry transition to sustainable groundwater use by aligning state investments and policies to enable implementation of the Sustainable Groundwater Management Act allocating:

  • Sustainable Groundwater Management Act Grants—$60 million one-time General Fund ($30 million in 2020-21 and $30 million in 2021-22) to the Department of Water Resources for grants to support economic mitigation planning and groundwater implementation projects across critically over-drafted basins.
  • State Water Efficiency and Enhancement Program Grants—$40 million one-time General Fund ($20 million in 2020-21 and $20 million in 2021-22) to the Department of Food and Agriculture to provide incentives that help farmers reduce irrigation water use and reduce greenhouse gas emissions from agriculture pumping.

The Administration proposed a four-year phased in mil assessment increase. The mil will be tiered based on EPA hazard designations, with the pesticides with highest toxicity being assessed the highest. At the end of the four years, those products will be paying approximately 45 mils. There will also be new money for DPR air monitoring and enforcement.

Lastly, the proposed budget includes $6.7 million one-time General Fund ($3.35 million in 2020-21 and $3.35 million in 2021-22) to contract with the University of California Cooperative Extension to provide direct technical assistance and grants to technical assistance providers and small, mid-sized, and underserved farmers.

  1. Equity and Economic Recovery

The budget includes a total of $384.6 million to support farmers with technical assistance, regulatory changes, and climate smart agriculture investments.

The budget also proposes a broad-based recovery package to support businesses, individuals and job creation both during the pandemic and as the State recovers. It totals $14 billion, including $3.5 billion in immediate relief for individuals and small businesses disproportionately impacted by the pandemic.

Lastly, the Golden State Stimulus is a tax refund for low-income households intended to provide cash support to families who are most likely to have suffered economically from the COVID-19 pandemic. Regardless of income, all Californians pay a variety of taxes, including on the purchase of taxable goods. Totaling $2.4 billion, this proposal would refund $600 of those taxes to all 2019 taxpayers who received a California Earned Income Tax Credit (Cal EITC) in 2020 as well as to 2020 taxpayers with individual tax identification numbers (ITINs) who receive a Cal EITC in 2021.

III. COVID-19 Response

The COVID-19 response includes the following core response efforts that have been critical to mitigating the spread, preparing and expanding the health care system for a surge of cases, and providing for the necessary supports to reopen schools:

  • PPE and other procurements
  • Laboratory testing
  • Contact tracing
  • Health corps
  • Hospital surge preparation
  • Hotels for health care workers
  • Community engagement

The Administration’s budget has proposed $4.4 billion related to COVID-19 relief, of which the breakdown is as follows:

  • $2 billion: Testing
  • $473 million: Contact tracing
  • $372 million: Vaccines roll-out
  • Additional funding for state response
  1. Climate Resiliency

The budget proposes a $1.5 billion comprehensive strategy to achieve the state’s zero-emission vehicle goals by 2035 and 2045, including securitizing up to $1 billion to accelerate the pace and scale of the infrastructure needed to support zero-emission vehicles.

  1. Emergency Response and Preparedness

After an unprecedented wildfire season in 2020, this budget prioritizes increasing CAL FIRE’s staffing and response capabilities. Under the California Emergency Services Act, the California Governor's Office of Emergency Services (Cal OES) serves as the state’s leadership hub during all major emergencies and disasters. This includes responding, directing, and coordinating state and federal resources and mutual aid assets across all regions to support the diverse communities across the state.

The budget includes $282 million General Fund for Cal OES for the following targeted investments:

  • California Disaster Assistance Act (CDAA)—$256.1 million one-time General Fund to assist local governments in serving their communities during and in the wake of emergency events. This funding will be used to repair, restore, or replace public real property damaged or destroyed during disaster events or reimburse local governments for eligible costs associated with emergency activities undertaken in response to a state of emergency proclamation by the Governor.
  • California Earthquake Early Warning System—$17.3 million one-time General Fund to support the California Earthquake Early Warning System.
  • Regional Hazardous Materials Response—$3.6 million ongoing General Fund to build the state’s ability to respond to regional emergencies involving hazardous materials. California has 12 Regional Hazardous Material Response teams positioned throughout the state to respond to hazardous material incidents.
  • Deferred Maintenance—$5 million one-time General Fund to address identified deferred maintenance needs, as described in the Five-Year Infrastructure Plan.

The Department of Forestry and Fire Protection (CAL FIRE) provides resource management and wildland fire protection services covering over 31 million acres. It operates 234 fire stations and also staffs local fire departments when funded by local governments. CAL FIRE contracts with county agencies in six counties to provide wildland fire protection services. The budget includes $2.9 billion ($2 billion General Fund) and 8,735 positions for CAL FIRE.

The budget proposes $124.5 million in ongoing General Fund, and $24.2 million in one-time General Fund in out-years for related capital outlay costs for CAL FIRE and the California Conservation Corps (CCC) to support 30 additional fire crews, including 16 seasonal firefighter crews and 14 CCC crews. Additionally, $1 billion has been allocated to implement the Wildfire and Forest Resiliency Strategy, which will streamline forest management and ensure that CAL FIRE is prepared to respond to wildfires.

  1. Conclusion

The Governor closed his presentation ensuring Californians that “we are in a better fiscal footing than we could have imagined months ago.” Now that the budget has been introduced, the Legislature will begin holding committee hearings on the items proposed in anticipation of the May budget revision. The Legislature will then have until June 15 to finalize the budget and send it to the Governor for his signature.

To view the entire budget proposal, click here. For any questions, please reach out to Louie Brown at lbrown@kscsacramento.com.

Kahn, Soares & Conway, LLP provides the foregoing for informational purposes only and it is not intended as legal advice. Using this information or sending electronic mail to Kahn, Soares & Conway, LLP or its attorneys does not create an attorney-client relationship.

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