In summary

Unless California gets billions in federal money, state workers will lose about 10% of their paychecks and the two university systems will lose a combined $602 million.

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The work of crafting a pandemic-era state budget was never going to make California Democrats happy. The question, as soon as the economic fallout from the coronavirus became evident this spring, wasn’t whether there would be cuts, but rather, who would take them and how deep they would go. 

The answer, detailed in an agreement Democratic lawmakers and Gov. Gavin Newsom reached to close a $54 billion deficit, is that middle-class families are likely to feel the biggest burden, while the neediest Californians are largely — though not completely — spared. 

Unless the federal government comes through with billions of dollars in stimulus funds, state government employees will lose about 10% of their compensation, and California’s two university systems will lose a combined $602 million, raising the possibility of tuition increases. On the other hand, programs that help people who are homeless, elderly or dependent on the government for health insurance — as well as funding for K-12 schools and community colleges — will not suffer most of the cuts that Newsom proposed last month

Given the speed with which the pandemic tanked California’s economy — Newsom projects unemployment will peak at 24.5% this year — and the associated rush to negotiate a spending plan, the budget agreement “seems like a reasonable compromise,” said Chris Hoene, executive director of the California Budget and Policy Center, which advocates for economic policies that benefit low- and middle-income Californians.

“But in the context of what California needs right now, it feels like it falls far short.” 

The plan includes some deferrals and accounting maneuvers, as well as suspension of a tax break on businesses that raises about $4.4 billion. But it does not include any major tax increases, which many progressives are pushing for on the November ballot. Though Democrats hold about 75% of legislative seats, raising taxes remains difficult in the statehouse, with many Democrats from swing districts reluctant to support them. Consideration of even a relatively small tax on vaping products that Newsom proposed was put off until later this summer. 

“We’ve got a quandary where we have state leaders operating in a ‘let’s get through this right now’ mode, where the urgency of the (recession) requires more significant responses,” Hoene said.

“They are in austerity mode.”

“The UC and CSU are going to be forced to balance their budget on the backs of talented qualified students.”

Audrey Dow, Campaign for College Opportunity

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In turning to the universities to shore up the budget, the state is effectively putting the squeeze on a slice of the government that relies on a paying customer: the student. Though the universities have not yet said how they’ll respond to the loss, history suggests that tuition increases are probably on the horizon.

“The UC and CSU are going to be forced to balance their budget on the backs of talented qualified students,” said Audrey Dow, senior vice president of the Campaign for College Opportunity, an advocacy group that supports expanding access to higher education. “Tuition will likely be raised and enrollment will be even further reduced at a time when families can least afford it and when California’s economy can least afford it.” 

For the most part, students from the poorest families would not feel the impact of tuition increases at the universities because they are covered by financial aid. Students from middle-class families get less aid, and are therefore more likely to feel the brunt of any hikes.

Less money at the universities also means fewer spots for undergraduate students — and more competition to get into UC and Cal State schools. Dow said CSU could set higher standards for admission or for certain majors.

Families of state government workers are also likely to feel a pinch. The average state worker salary is around $73,000, according to the state controller, and the budget agreement calls for reducing compensation overall by 10%. Exact details will be worked out with each union. So far, the prison guards union has agreed to a 4.5% pay cut and the largest state worker union has agreed to a 9.2% pay cut. In both cases, salary increases scheduled for July will be delayed for two years, and workers will get some paid time off as part of the deal.

Here are other key takeaways about the budget agreement: 

Cut now and hope Uncle Sam delivers

The agreement reflects a compromise between Newsom, who sought $14 billion in cuts unless the federal government delivered stimulus funds by July 1, and lawmakers, who wanted to make fewer cuts and delay them until the fall. The plan makes the cuts now — slashing $602 million from higher education, $150 million from the courts and $2.9 billion from state employee salaries — but promises to rescind them if federal funding comes through by October 1. 

“Californians are doing their part – now it’s imperative for our federal partners to pass a responsible and comprehensive relief plan so states and local communities can continue to keep Americans safe while leading our national economic recovery,” Newsom and the Legislature’s Democratic leaders said in a joint statement.

Preserve services for the neediest Californians

Lawmakers rejected Newsom’s proposals to slash health and social services that are credited with keeping some low-income Californians out of nursing homes. The final agreement does not reduce hours for in-home health aides, cut meal programs for seniors, defund dental care for Medi-Cal patients, or eliminate health programs that serve more than 47,000 low-income, medically fragile seniors and disabled people. 

“I literally just cried my eyes out — these are happy tears,” said Debbie Toth, president and CEO of Choice in Aging, a nonprofit that offers adult day health services to 320 seniors in Contra Costa, Napa and Solano counties.

Programs to alleviate homelessness also were largely shielded from cuts. (One notable exception: a $250 million reduction to a program that helps build low- and moderate-income housing.) Democratic legislative leaders secured $300 million in homelessness aid for local governments that was missing from Newsom’s post-pandemic housing proposals.

And the budget agreement doubles down on Newsom’s gambit to seize a silver lining amid the pandemic: cheap motel rooms for people without homes. California will spend $550 million in federal dollars to buy as many hotels as it can before the aid expires December 31. The plan is for counties, cities and nonprofits to convert those hotels into more permanent housing solutions for the states’ 150,000 homeless residents—a process that is often time consuming and expensive.

Limited help for undocumented immigrants

Long before the coronavirus hammered the economy, a political tug-of-war had been playing out over how much the state should spend to help undocumented immigrants. In the boom times of the last few years, California expanded the Medi-Cal health insurance program for the poor to cover undocumented children and young adults. 

This year, Newsom and the Legislature were negotiating over two key proposals: a $64 million expansion of the Medi-Cal health insurance program to cover undocumented seniors over age 65, and a $65 million tax break for undocumented workers with low incomes and a child under age 6. 

In the end, they struck a compromise, agreeing to the tax break for undocumented working parents, but not the health care expansion for undocumented seniors. The budget says the state will expand Medi-Cal to cover undocumented seniors in the future, when the long-term fiscal outlook improves.

“I know we can’t win everything in this economic environment, but it’s disheartening,” said state Sen. Maria Elena Durazo, a Los Angeles Democrat who has been a key player in the push for health care for undocumented seniors.

“What do I say to them? Other than to say, ‘When things get better.’”

CalMatters reporters Ana Ibarra, Matt Levin, Barbara Feder Ostrov, and Mikhail Zinshteyn contributed to this report.

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Laurel Rosenhall

Laurel covers California politics for CalMatters, with a focus on power and personalities in the statehouse. Her stories explain political dynamics in the Capitol and examine how money, advocacy and relationships...