California Budget ChallengeAbout Next 10Budget Overview

Budget Basics

The Current Situation

Governor Newsom released his proposed budget on January 10, 2020. The current economic expansion that began in 2009 following the Great Recession is the longest the U.S. has experienced since WWII. Economic growth is assumed to continue at a slowing pace through 2023-24. Risks that might affect national and state growth include trade disputes, market volatility, and a global economic slowdown, among others. The global outbreak of COVID-19 in early 2020 is likely to have an enormous impact on the eventual 2020-21 state budget, and more will be known when the Governor releases his May Revise to the budget in mid-May 2020.

While the unemployment rate in California is at a historic low of 3.5%, many households have seen stagnant wages coupled with rising costs of living. Real median household income, or the midpoint of household income, has barely changed in over 10 years—$75,200 in 2007 and $75,500 in 2018. When accounting for the cost of living, California has the highest poverty rate in the nation.

Given the economic outlook, the state is relatively good fiscal health with sufficient reserves to weather a mild recession over the coming years. Total reserves are estimated to be $21 billion at the end of 2020-21, with $18 billion of that in the Rainy Day Fund to be used for a budgetary emergency and $900 million for the Safety Net Reserve, which can be used to pay for Medi-Cal and CalWORKs in the event of a budget deficit. There has also been an emphasis on one-time spending vs. ongoing spending so as not to overcommit to new programs that would then need to be cut in the event of a downturn or recession.

Lastly, uncertainty at the federal level could impact California's budget outlook, particularly in the areas of healthcare and social welfare programs. A federal rule change to the food stamp program (officially called SNAP, or Supplemental Nutrition Assistance Program) will result in 200,000 Californians losing their food assistance benefits in April 2020, for example. As a result, the Governor is proposing new state funds to make up for the cuts and ensure low-income Californians have access to adequate nutrition. Similarly, changes to the Affordable Care Act (ACA) that result in significantly less federal funding for Medi-Cal would have very large consequences for Californians and the state budget. 

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