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Gov. Gavin Newsom Must Act On His First California Budget By Midnight Tonight. Here’s What’s In It.

Andrew Nixon / Capital Public Radio

Gov. Gavin Newsom presents his revised 2019 budget proposal.

Andrew Nixon / Capital Public Radio

California Gov. Gavin Newsom asked for so much in his first state budget that he spent nearly two hours discussing it with reporters in January.

Nearly six months later, he’s about to get much of what he wanted.

Newsom has until midnight Thursday to act on the $214.8 billion budget bill that lawmakers sent him earlier this month. The spending package also includes more than 25 other measures known as “trailer bills,” a handful of which have yet to reach the governor’s desk and all of which face later signing deadlines.

As of Wednesday afternoon, the budget deal wasn’t fully cooked. Newsom, Assembly Speaker Anthony Rendon and Senate President pro Tem Toni Atkins were still negotiating provisions related to housing and homelessness funding.

But as we await action from the governor — including any potential line-item vetoes — the vast majority of what’s in the spending plan is now clear. Here are some highlights:

Health Care

Some of the most noteworthy provisions of the budget deal are in health care.

California is poised to become the first state in the nation to help middle-class consumers purchase health insurance on an exchange created under the Affordable Care Act.

Starting January 1, Covered California will begin offering subsidies that could average more than $100 a month to Californians who earn between 400 and 600 percent of the federal poverty level. That’s between roughly $50,000 and $75,000 for individuals, and between $103,000 and $155,000 for families of four. The state will also expand its subsidies to lower-income consumers.

But to help pay for the new subsidies, the state will create its own health insurance mandate and penalty, replacing the federal fine for not carrying insurance that was terminated two years ago.

That means starting next year, if you can afford health insurance but choose not to get it, you’ll be charged a $695 penalty or 2 percent of your household income — whichever is larger — when you pay your taxes. The fine is half as big for minors without insurance.

Meanwhile, California’s low-income health care program, Medi-Cal, will begin next year offering coverage to income-eligible young adult immigrants up to age 26 living in the state illegally. Currently, Medi-Cal only covers undocumented children up to age 18.

Finally, lawmakers granted Newsom’s wish to move the Department of Juvenile Justice from the state’s prison system to its Health and Human Services Agency.

Education

The spending plan will begin funding Newsom’s push toward universal pre-kindergarten by increasing preschool slots for income-eligible four-year-olds. There’s also money for child care: new slots and higher provider rates for all ages, funded largely through cannabis tax revenues under voter-approved Proposition 64.

There’s record-high funding of $81 billion for K-through-12 schools and community colleges under California’s constitutional school funding formula known as Proposition 98. Per-pupil spending on K-12 students will rise to just under $12,000 — up nearly $5,000 from the low point during the Great Recession, but still only 41st of the 50 states.

And California’s public universities are big winners, too, getting several hundred million dollars in ongoing spending increases. That includes $50 million for the University of California to enroll 4,860 new in-state undergraduate students, and $85 million for the California State University system to enroll 10,000 more in-state undergraduates.

In-state students, meanwhile, will soon have access to a second free year of community college tuition, as well as expanded financial aid for UC and CSU schools.

Housing And Homelessness

This is the final sticking point in negotiations ahead of Thursday’s midnight deadline.

Although the broad outlines of the budget’s funding for housing and homelessness are clear — a combined $2.75 billion — Newsom and Democratic legislative leaders have yet to work out some crucial details.

The spending plan includes $500 million to construct roads, water and sewage at infill development sites where housing can’t yet be built, and $650 million for local governments in homelessness emergency aid.

But Newsom has pushed to withhold transportation funding from local governments that don’t meet their housing goals — using money from the 2017 gas tax increase known as SB 1 as leverage. That’s drawn fierce opposition from lawmakers.

“There is discussion to figure out how to really incentivize housing and to look at a variety of proposals to do that,” Assembly Budget Committee chairman Phil Ting said earlier this month after lawmakers approved the main budget bill. “Having said that, SB 1 dollars are not one of them.”

The governor’s office says it’s working with the Legislature “on a package of measures” to address the housing crisis.

But there’s disagreement between Senate and Assembly Democrats over how to allocate the emergency homelessness aid between counties, the state’s largest cities, and regional organizations that coordinate efforts to reduce homelessness known as “continuums of care.”

Budget Reserves

California’s projected $21 billion surplus is a far cry from the red ink that plagued the state during the Great Recession — at one point, California faced a $40 billion deficit.

But the nonpartisan Legislative Analyst’s Office has projected that even a modest recession could plunge the state back under water unless California stashes away $40 billion in reserves.

Under the budget deal, the state is only projected to end the 2019-20 fiscal year with a combined $19.2 billion in reserves — of which $16.5 billion would be in California’s “rainy day fund” established by voters when they approved Proposition 2 in 2014.

Bottom line: California’s financial shape is light years ahead of the dark days a decade ago, but only halfway to becoming stable enough to withstand the next recession.

Clean Drinking Water

The agreement rejects a controversial Newsom proposal to create a new fee to clean up unhealthy drinking water in disadvantaged Central Valley communities. Instead, it assigns money to a new safe drinking water fund with revenues from the state’s cap-and-trade program.

That funding source has drawn criticism from some environmental groups, who argue cap-and-trade revenues are required to be used to reduce greenhouse gas emissions. They could end up suing the state.

“You’re making sure that people who are already suffering from lack of clean water are likely going to be suffering from more air pollution than necessary,” said Kathryn Phillips with Sierra Club California.

But backers of the proposal are ecstatic that the problem is finally being addressed.

“The fact that it’s 2019 and we are on the verge of securing every human’s right to water is both long overdue and is a historic moment,” said Jonathon Nelson with the Community Water Center.

And some Democratic lawmakers are relieved to not have to vote on a broad-based drinking water fee in addition to other state revenue increases when California has a $21 billion surplus.

911 Fee

Speaking of revenue increases: The budget deal includes Newsom’s proposal to reshape and grow California’s fee on landlines and cell phones to modernize the state’s 911 system. Democrats used their legislative supermajorities to reach the necessary two-thirds threshold for a fee increase.

California’s Office of Emergency Services asked for the new fee structure to build a “next generation” emergency response system with text and data capabilities.

Republicans acknowledged the need to modernize California’s emergency response system. But he slammed the vote for a new fee, given the state’s massive surplus.

“We could easily fund this program from the general fund, instead of asking Californians to pay more — many of whom are already struggling to pay their bills every day,” Asm. Jay Obernolte (R-Hesperia) said.

But Democrats argued the way we communicate — and pay for communication services — has changed, driving the need for a modern, sustainable 911 system.

“We don’t always have a surplus in California. But we will always have emergencies,” said Asm. Christy Smith (D-Santa Clarita).

The current fee varies for each user and relies far more on landlines than cell phones. Starting January 1, the state will instead charge a flat monthly fee on every cell phone and landline — starting at 34 cents but authorized up to 80 cents. Prepaid mobile phones will be charged that same amount at the time of purchase.

Tax Conformity And The Earned Income Tax Credit

In one of the thorniest sticking points during budget negotiations, the governor persuaded lawmakers to approve a series of tax law changes that will net the state more than $1 billion a year.

The legislation conforms parts of the state’s tax code with federal law under President Trump’s “Tax Cuts and Jobs Act,” which Congress passed in 2017.

Most of the new revenue will pay for the state’s existing Earned Income Tax Credit for low-income, working Californians — and a broad expansion of that credit that the governor proposed earlier this year.

Newsom had to pressure reluctant Assembly members who feared they’ll face political attacks accusing them of raising taxes.

After its passage, the governor praised the Legislature for advancing “good economic policy that puts more than a billion dollars back in the pockets of working families and small business operators throughout California.”

Business and tax groups don’t oppose California tax conformity, and neither did some Republicans. But Obernolte called out Democrats for cherry-picking which tax changes to include.

“The items that this bill selects to conform with seem very selectively chosen to maximize state revenue rather than an honest effort to conform to federal tax law,” Obernolte said.

Most Democrats supported the bill, but some supporters criticized the exclusion of immigrants who live in California illegally.

“For this act to truly be working families’ tax relief, it should support all families, and not short-change low-income households across California,” said Asm. Eloise Gómez Reyes (D-San Bernardino).

Paid Family Leave

The budget deal includes another Newsom priority: the extension of paid family leave benefits from six weeks to eight. The governor has argued how crucial it is for new parents to be able to bond with their babies.

The state currently pays to replace up to 70 percent of a worker’s wages while he or she is on leave, funded through a payroll tax deducted from employee paychecks.

Many Republicans opposed the paid family leave extension and argued that payroll tax deduction could go up.

“That will result in about $60 less in the pocket of every single California worker in the next year,” Obernolte said. “Now, that might not be a lot of money to you or to me, but for some of our constituents, that $60 a year is a lot of money.”

The budget package also funds a task force to study ways for the state to extend paid family leave up to six months.

Also Of Note …

The spending plan includes a 3 percent pay raise for members of the state’s influential prison guards union, which was blasted by the nonpartisan Legislative Analyst’s office for having “no evident justification.”

And lawmakers authorized the state to pay the next president of the California Public Utilities Commission more than $250,000. That’s nearly twice the salary of the current president, who  was appointed in 2014 to lead the powerful agency that regulates electric utilities like PG&E and telecom giants like AT&T. And it’s nearly $100,000 more than the salary of the governor’s most recent appointment to the CPUC.

CapRadio’s Ezra David Romero contributed reporting on the governor’s proposal to use cap-and-trade revenue for a clean water fund.

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