Gov. Gavin Newsom discusses his revised 2020-2021 state budget during a news conference in Sacramento, Calif., Thursday, May 14, 2020. (AP Photo/Rich Pedroncelli, Pool)
Gov. Newsom Releases Grim May Budget Revision
In presenting a bleak 2020-2021 May budget revision this week, Governor Gavin Newsom said the COVID-19 health crisis led to a “steep and unprecedented economic crisis” where the state must confront a $54.3 billion budget shortfall while Californians face enormous job losses with over 4.6 million filing unemployment claims since March.
Overall state revenues declined an average of 22 percent due to fewer sales, corporate and personal income tax revenues.
The governor said his budget emphasizes public health, safety and education as well as investments in a “safe and quick economic recovery.”
To deal with the massive shortfall, the May revision proposes to cancel new initiatives proposed in the January budget, reduce spending, draw down reserves, borrow from special funds, increase efficiencies and temporarily increase revenues.
Agricultural Programs
Agriculture and water-related programs are impacted by the budget revision. Please note the information below is not a comprehensive list of all programs in the budget affecting Ag Council members.
Cap & Trade Expenditure Plan
Crucial climate programs utilized by many Ag Council members derive funding from the cap and trade program. Cap and trade auction funds are sent to state programs within the California Department of Food and Agriculture (CDFA), the California Air Resources Board (CARB) and other state entities where grant dollars become available to the ag community through a competitive application process.
Due to current economic upheaval and uncertainty, cap and trade revenues are anticipated to be lower. Governor Newsom creates a “pay-as-you-go” mechanism in the budget revision to authorize expenditures based on actual cap and trade proceeds, so exact funding amounts will be determined at a later date.
Ag Council thanks the governor for explicitly incorporating two key programs vital to agriculture within the proposed cap and trade expenditure plan in the May revision – ag diesel emissions reductions and safe drinking water.
Governor Newsom specifically prioritizes the FARMER program, which provides matching grant dollars to farmers to slash diesel emissions from farm equipment in order to improve air quality in many disadvantaged communities.
Safe and affordable drinking water is also prioritized in the governor’s cap and trade plan to ensure clean water for Californians. The program is helping people in low income and disadvantaged communities who do not have safe water to drink.
It is our understanding that the CDFA dairy methane reduction programs and the Healthy Soils program would be funded in the coming budget year contingent upon the amount of discretionary dollars available in the cap and trade program to be determined at a later time.
Unfortunately, the State Water Efficiency & Enhancement Program (SWEEP) is not receiving funds at this time. The Food Production Investment Program (FPIP) also does not receive funding in the proposal.
Water
In the category of the Sustainable Groundwater Management Act (SGMA),the proposed budget in January had $40 million in General Fund dollars to support communities in transitioning to sustainable groundwater use. That funding is being pulled back and instead the Department of Water Resources intends to allocate $26 million of existing Proposition 68 bond funds to local agencies in critically overdrafted basins to assist in covering the cost of implementation projects.
Special Funds
Special funds could be an area of concern for agriculture. Special funds include receipts from levies allocated for particular state functions, including pest programs. Given that the governor announced that the state plans to borrow from special funds, there is concern about what this could mean for certain agricultural programs, and we are seeking answers in this area.
How does the budget plan to address the shortfall?
Given the dire budget situation, the governor said he is “not arguing to resolve the $54 billion shortfall overnight. We are looking at a multiyear strategy.”
Use of state reserves accounts for about 16 percent, or $8.8 billion, of the funding solution in the governor’s May revision, including:
- Pulling $7 billion from rainy day reserve funds and additional reserve funds in subsequent budget years;
- Using $450 million from a safety net reserve fund recently created; and,
- Prop 98 guarantee funds will be used for public education.
Appropriations dollars from the federal CARES Act approved by Congress and signed into law are in the governor’s plan to help close about 15 percent of the budget gap.
In regard to new proposals from the January budget, Governor Newsom said “the overwhelming majority of those proposals are being pulled back” and that represents yet another 15 percent of the governor’s budget plan.
Governor Newsom proposes to borrow and transfer dollars from special funds and defer certain payments. This would account for 19 percent of the shortfall and could be of concern if special funds for agriculture are targeted.
The governor also said he will limit tax credits; thereby, providing another 8 percent toward a budget solution.
Trigger Cuts
About 26 percent of the shortfall would be made up of trigger cuts in the plan starting on July 1. The cuts could be offset if the federal government moves forward with additional assistance to state and local governments. The proposed reductions include:
- 10 percent cut in funding for public education, including colleges;
- Reductions in Medi-Cal and in-home supportive services;
- $30 million budget decrease for state parks;
- 10 percent reduction in state employee compensation from current pay levels; and,
- A reduction in state operations over the next two years, such as suspension in travel, purchases and nonessential contracts.
Next Steps
The Legislature is considering the governor’s state budget plan in a series of Senate and Assembly Budget Committee hearings. Legislators must approve and send their budget to the governor by June 15. Ag Council will participate in this process by advocating for our members’ priorities throughout the coming weeks.
Capitol Farm Connection Podcast
This Week’s Woes
In Ag Council’s most recent Capitol Farm Connection podcast, our team covers workers’ compensation, the state budget and food bank donations.
To listen to the latest episode, please click HERE.