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The 2016-17 Budget: California Spending Plan

Legislative Analyst's Office · lao-3487 · Report · 2016-10-05

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The 2016-17 Budget: California Spending Plan MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • OCTOBER 2016 2016-17 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET TABLE OF CONTENTS Chapter 1: Key Features of the 2016-17 Budget Budget Overview ��1 Major Features of the 2016-17 Spending Plan ��3 Evolution of the Budget ��6 Chapter 2: Spending by Program Area Proposition 98 ��9 Minimum Guarantee ��9 Overview of New Spending ��10 K-12 Education ��12 California Community Colleges ��18 Child Care and Preschool ��23 Higher Education ��26 Health ��35 Human Services ��40 Resources and Environmental Protection ��50 Crosscutting Issues ��51 Resources ��57 Environmental Protection ��59 Transportation ��61 Judiciary and Criminal Justice ��63 Other Major Provisions ��68 www.lao.ca.gov Legislative Analyst’s Office i 2016-17 BUDGET Legislative Analyst’s Office www.lao.ca.gov (916) 445-4656 Legislative Analyst Mac Taylor State and Local Finance Education Jason Sisney Jennifer Kuhn Carolyn Chu Ryan Anderson Justin Garosi Edgar Cabral Ann Hollingsheada Natasha Collins Seth Kerstein Jason Constantouros Ryan Miller Virginia Early Nick Schroeder Paul Golaszewski Brian Uhler Judy Heiman Brian Weatherford Dan Kaplan Kenneth Kapphahn Corrections, Transportation, and Environment Sonja Petek Anthony Simbol Paul Steenhausen Brian Brown Drew Soderborg Health and Human Services Mark C. Newton Ashley Ames Ginni Bella Navarre Ross Brown Rachel Ehlers Amber Didier Paul Jacobs Callie Freitag Helen Kerstein Ben Johnson Anita Lee Brian Metzker Shawn Martin Lourdes Morales Caitlin O’Neil Ryan Woolsey Jessica Peters Meredith Wurden Jonathan Peterson Administration, Information Services, and Support Sarah Kleinberg Tina McGee Karry Dennis Fowler Izet Arriaga Sarah Barkman Michael Greer Sarah Scanlon Vu Chu Sandi Harvey Jim Stahley Rima Seiilova-Olson Anthony Lucero a General Fund Condition analyst, Spending Plan “Chapter 1” coordinator. ii Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Chapter 1: Key Features of the 2016-17 Budget Each year, the Legislative Analyst’s Office as noted, we discuss later budget actions approved publishes the California Spending Plan to during August 2016 by the Legislature. During summarize the annual state budget. This August, for example, the Legislature and the publication discusses the 2016-17 Budget Act and Governor agreed to spend certain cap-and-trade other major budget actions approved during 2016. funds. The budget totals include $400 million Unless indicated otherwise, figures and dollar (General Fund) for affordable housing even though amounts generally refer to budget actions passed the Legislature and Governor have not reached as part of the June 2016 budget package, as signed agreement on this spending. into law on June 27 and July 1, 2016. In some cases, BUDGET OVERVIEW State Spending is $122.5 billion—an increase of $6.9 billion, or 6 percent, over the revised 2015-16 level. Figure 1 displays total state and federal spending in the 2016-17 budget package as of June General Fund Revenues 2016. As shown in the figure, the budget at that Figure 2 (see next page) displays the revenue time assumed total state spending of $167.1 billion assumptions incorporated into the June 2016 (not including federal and bond funds), an increase budget package. The budget assumes $120.3 billion of 3.2 percent over revised totals for 2015-16. in revenues and transfers in 2016-17, a 2.8 percent General Fund spending in the budget package increase over 2015-16. The state’s “Big Three” Figure 1 Total State and Federal Fund Expendituresa (Dollars in Millions) Revised Change From 2015-16 Enacted 2014-15 2015-16 2016-17 Amount Percent Fund Type General Fundb $113,448 $115,571 $122,468 $6,897 6.0% Special funds 41,702 46,408 44,629 -1,779 -3.8 Budget Totals $155,149 $161,979 $167,097 $5,118 3.2% Selected bond funds $5,145 $7,786 $3,766 -$4,020 -51.6% Federal funds 90,049 96,129 95,908 -221 -0.2 a Does not reflect budgetary actions after June 2016, such as spending legislation related to the cap-and-trade program. The budget totals include $400 million (General Fund) for affordable housing even though the Legislature and Governor have not reached agreement on this spending. b Includes Proposition 30 Education Protection Account. www.lao.ca.gov Legislative Analyst’s Office 1 2016-17 BUDGET Figure 2 General Fund Revenue Assumptionsa (Dollars in Millions) Revised Change From 2015-16 Enacted 2014-15 2015-16 2016-17 Amount Percent Personal income tax $76,169 $79,962 $83,393 $3,431 4.3% Sales and use tax 23,682 25,028 25,727 699 2.8 Corporation tax 9,417 10,309 10,992 683 6.6 Subtotals, “Big Three” Taxes ($109,268) ($115,299) ($120,113) ($4,814) (4.2%) Insurance tax $2,445 $2,486 $2,345 -$141 -5.7% Other revenues 2,057 2,190 1,702 -488 -22.3 Transfer to BSA -1,606 -1,814 -3,294 -1,479 — Other transfers and loans -374 -1,159 -556 603 — Totals, Revenues and Transfers $111,789 $117,001 $120,310 $3,308 2.8% a Includes Proposition 30 Education Protection Account revenues. BSA = Budget Stabilization Account (Proposition 2 rainy day fund). General Fund taxes—the personal income tax, sales Proposition 2 (2014). As shown in the figure, the and use tax, and corporation tax—are assumed to June 2016 budget package assumed that 2016-17 increase at a slightly higher rate (4.2 percent). The will end with $8.5 billion in reserves. This total difference between these growth rates is attributable included required reserve deposits of $1.3 billion, to a decline in other revenues. This includes more an optional deposit of $2 billion in the BSA, and a sizeable “negative transfers” in 2016-17 (the result of discretionary increase in the SFEU of $0.6 billion. a larger deposit into the state’s rainy day fund) and As noted above, the budget numbers, including a decline in proceeds from the insurance tax (which the reserve estimates in Figure 3, assume the falls as a result of the managed care organization tax expenditure of $400 million from the General package adopted this year). Fund on affordable housing. Absent an agreement Reserves Figure 3 $8.5 Billion in Reserves in June 2016 Budget Packagea Figure 3 displays a breakdown of the total (In Billions) reserves assumed in the Reserves Assumed in 2015-16 Budget $4.6 2016-17 budget package, Required Reserves BSA true up deposit for 2015-16 —b as of June 2016. This BSA initial deposit for 2016-17 1.3 figure includes both Subtotal, Required Deposits ($1.3) reserves in the Special Optional Reserves 2016-17 proposed increase in SFEUc $0.6 Fund for Economic 2016-17 additional BSA deposit 2.0 Uncertainties (SFEU), Subtotal, Optional Reserves ($2.6) the state’s discretionary Total Reserve Balances $8.5 a reserve, and the Budget Reflects reserves assumed in June 2016 budget package. As described in the text, SFEU balance may be $400 million higher as the Legislature and the Governor have not reached agreement to spend Stabilization Account $400 million on affordable housing, as had been assumed in June 2016 budget package. b Budget act estimates a “true down,” resulting in a reduction of $39 million. (BSA), the state’s rainy c Amount by which SFEU grows relative to the 2015-16 budget plan. day reserve created by BSA = Budget Stabilization Account and SFEU = Special Fund for Economic Uncertainties. 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET to spend this amount, Figure 4 reserves may be higher General Fund Condition as of June 2016 Budget Packagea at the end of 2016-17 by a (In Millions) corresponding amount. Revised Enacted 2015-16 2016-17 The Condition of General Fund Condition the General Fund Prior-year fund balance $3,444 $4,875 Figure 4 displays the Revenues and transfers 117,001 120,310 Expenditures 115,571 122,468 condition of the General Ending fund balance $4,875 $2,717 Fund under the revenue Encumbrances 966 966 and spending assumptions SFEU balance 3,909 1,751 Reserve Balances in the June 2016 budget SFEU balance $3,909 $1,751 package, as estimated BSA balance 3,420 6,714 by the Department of Total Reserves $7,329 $8,465 Revenues and Transfers Finance. As described Personal income taxes $79,962 $83,393 above, 2016-17 ends Sales and use taxes 25,028 25,727 with $8.5 billion in total Corporation taxes 10,309 10,992 Other revenues 4,676 4,047 estimated reserves—up Subtotals, Revenues ($119,976) ($124,159) by $1.1 billion from the Transfers to BSA -$1,814 -$3,294 amount now estimated at Other transfers (net) -1,159 -556 the end of 2015-16. This Totals $117,001 $120,310 Spending shows that estimated state Proposition 98 (General Fund) $49,722 $51,050 General Fund revenues Non-Proposition 98 65,849 71,418 ($124.2 billion) exceed total Totals $115,571 $122,468 a General Fund expenditures Reflects Department of Finance estimates as of June 2016. Assumes the expenditure of $400 million (General Fund) for affordable housing even though the Legislature and Governor have not reached ($122.5 billion). Spending agreement on this spending. Includes Education Protection Account created by Proposition 30 (2012). BSA = Budget Stabilization Account and SFEU = Special Fund for Economic Uncertainties. includes both ongoing program costs and estimates—for example, if 2016-17 revenues are one-time items, such as $1 billion in state office higher or lower than the assumed level in Figure 2— building replacements. To the extent that revenues reserves will differ from this total. and spending differ from the June 2016 budget MAJOR FEATURES OF THE 2016-17 SPENDING PLAN The major features of the 2016-17 budget plan (“Discretionary” in this context excludes billions are summarized below. of dollars controlled by constitutional funding requirements, such as Proposition 98 and Discretionary General Fund Spending Proposition 2, and added costs to maintain existing In constructing the budget, the Legislature policies.) This allocation includes proposals made was faced with decisions over how to allocate by the Governor in January and May, which over $6 billion in discretionary resources. were later approved by the Legislature, as well www.lao.ca.gov Legislative Analyst’s Office 3 2016-17 BUDGET as legislative choices made in putting together package allocates $2.6 billion in discretionary the final budget package. Figures 5 and 6 show General Fund resources toward reserves. how the June 2016 budget package allocated over Sets Aside $1.8 Billion for One-Time $6 billion in discretionary General Fund resources, Infrastructure Spending. The budget sets aside prioritizing reserves and temporary spending. $1.3 billion over two years ($1 billion in 2016-17 Allocated $2.6 Billion to Increasing Reserve and $0.3 billion in 2017-18) for a new State Funds. In addition to the required reserves under Project Infrastructure Fund. These funds will be Proposition 2, the budget makes an additional continuously appropriated for the replacement deposit of $2 billion into the BSA, the state’s and renovation of various state office buildings. constitutional rainy day fund. The June 2016 The budget package also includes $485 million in budget package also grows budget reserves in the non-Proposition 98 General Fund resources to fund state’s discretionary reserve fund, the SFEU, by an various statewide deferred maintenance projects on a additional $0.6 billion. Together, the June budget one-time basis. Repeals the Figure 5 Maximum Family June 2016 Budget Package Allocates Over Grant (MFG) Policy. $6 Billion in Discretionary General Fund Resources The budget includes General Fund Budget Commitments by Type (In Billions) legislation repealing the MFG policy, which Reserves Makes extra rainy day fund deposit $2.0 specified that a family Grows discretionary reserve balance 0.6 enrolled in California Subtotal ($2.6) Work Opportunity and Temporary Spending Responsibility to Kids Replaces and renovates state office buildings $1.0 Funds statewide deferred maintenance projects 0.5 (CalWORKs) does not Increases funding for affordable housing-related programsa 0.5 receive a higher grant to Funds the IHSS service restoration 0.3 reflect the birth of a child Augments funding for drought-related activities 0.2 born after ten continuous Provides funding for local public safety package 0.1 Repeals maximum family grant policyb 0.1 months of assistance. The Provides grants for community services infrastructure 0.1 expected General Fund Adopts various other Conference Committee proposals 0.2 cost of the repeal of the Subtotal ($2.9) MFG policy in 2016-17 Ongoing Spending Commitments Augments funding for UC and CSU $0.3 is $97 million. These Sets aside funds for future collective bargaining processes 0.2 General Fund costs are Makes augmentations for CDCR and courts 0.1 anticipated to increase in Makes augmentations for SSI/SSP and DDS 0.1 Subtotal ($0.7) 2017-18, but to eventually Total $6.2 decline to zero as growth a Assumes the expenditure of $400 million (General Fund) for affordable housing even though the in certain county Legislature and Governor have not reached agreement on this spending. b Budget-related legislation specifies that growth in certain dedicated realignment funds be used in future realignment funds are years to reduce and eventually end the General Fund costs of this action. Note: Excludes spending on K-14 education, reserves, and debt (required by the California Constitution) used to pay these costs. and added costs to maintain existing policies. Figure also excludes some smaller spending proposals. Increases Funding IHSS = In-Home Supportive Services; CDCR = California Department of Corrections and Rehabilitation; and DDS = Department of Developmental Services. for Affordable Housing 4 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off Secretary Analyst MPA Deputy ARTWORK #160375 Chap 1_Key Features of the 2016-17 Budget Package 2016-17 BUDGET Programs. The budget provides one-time funding Figure 6 of $45 million for temporary housing assistance June 2016 Budget Package Emphasizes for homeless individuals. While the June 2016 Reserves, Temporary Spending budget passage set aside $400 million for affordable How Budget Allocates housing programs, this funding was contingent on $6.2 Billion in Discretionary Spending changes to state law to streamline local approval processes of certain multifamily housing projects Temporary that contain affordable housing units. Because Spendinga Optional these changes to state law were not adopted by Reserves the end of the 2015-16 legislative session, there is currently no budgetary authority to spend this $400 million. Without additional legislative action, this $400 million essentially will remain in the state’s discretionary budget reserve, the SFEU. Ongoing Increase in University Funding. The budget Spending provides $299 million in new ongoing state General a The Legislature and the Governor have not yet reached agreement on budget Fund support for the University of California authority to spend $400 million of this $2.9 billion in “temporary spending” on a one-time basis for affordable housing programs. (UC) and the California State University (CSU) Note: Excludes spending on K-14 education, reserves, and debt (required by combined. Of this amount, $144 million is for UC the California Constitution), and added costs to maintain existing policies. Figure also excludes some smaller spending proposals. and $155 million is for CSU. The additional funding is primarily for general purpose base increases and Mandatory General Fund Spending resident enrollment growth. The budget package includes spending Provides Public Safety Funding. The budget allocations driven by constitutional funding provides funding for various public safety requirements, such as Proposition 98 and programs on a one-time basis. This includes: Proposition 2. The major features of these $20 million for city law enforcement grants; mandatory items are discussed below. $15 million for a Law Enforcement Assisted Increase in Proposition 98 Funding. Due Diversion program; $10.2 million for Uninhabitable primarily to increases in state General Fund Police Station grants; and $10 million for mental revenue, the budget package revises estimates of the health treatment, substance abuse treatment, and Proposition 98 minimum guarantees for 2014-15 diversion programs otherwise funded through and 2015-16 upward by a combined $1.5 billion. Proposition 47. The budget package also includes The 2016-17 minimum guarantee is $2.8 billion some other one-time and ongoing spending for (4.1 percent) higher than the revised 2015-16 trial court security, counter-violence and gang level. The bulk of new ongoing and one-time activity prevention, and services for ex-offenders. Proposition 98 spending is distributed on a (As discussed below, the budget package authorizes per-student basis for locally determined priorities. $270 million in lease revenue bonds for replacing The package includes some new spending for and renovating county jails, a change from the specified state priorities, including the creation of a Governor’s request to allocate funds for this new ongoing community college workforce program purpose from the General Fund.) and a new one-time college readiness initiative. www.lao.ca.gov Legislative Analyst’s Office 5 2016-17 BUDGET Mandatory Reserve Deposits Under Other Spending Proposition 2. Proposition 2 requires the state to The budget package also authorizes spending make minimum annual deposits into the BSA, the from new bond funding: state’s rainy day fund. The budget includes a total • Authorizes $2 Billion for “No Place Like Proposition 2 reserve requirement in 2016-17 of Home” Supportive Housing Program. The $1.3 billion. Including optional reserves, as shown in budget package funds the construction Figure 4, the budget assumes 2016-17 will end with and rehabilitation of permanent supportive $8.5 billion in reserves. housing for homeless individuals with Mandatory Debt Payments Under mental illness using $2 billion in bonds. Proposition 2. In addition to a required BSA These bonds would be repaid using deposit, Proposition 2 requires the state to make revenues from the Mental Health Services minimum annual payments toward certain eligible Act (Proposition 63 of 2004), which state debts. The total amount of these required debt established a state personal income tax payments in 2016-17 is $1.3 billion. Figure 7 shows of 1 percent on taxpayers with annual how the 2016-17 budget package allocated these incomes of more than $1 million. debt payments. Most were directed toward repaying special fund loans to the General Fund. • Authorizes $270 Million in Bonds for County Jails. The budget package authorizes $270 million in lease Figure 7 revenue bonds that would Proposition 2 Debt Payments in 2016-17 fund grants to counties for (In Millions) replacing or renovating Amount county jails. These funds Special fund loan repayments and interest $627a will be awarded to eligible Proposition 98 settle up 218 counties primarily for University of California pensions 171 increasing program and State and CSU employee retiree health 278 Total $1,294 healthcare space. a Includes $173 million in repayments to the Transportation Congestion Relief Fund. EVOLUTION OF THE BUDGET January Budget Proposed Over $10 Billion year’s budget act. After satisfying constitutional Reserve. On January 7, 2016 the Governor requirements for higher reserves and spending on presented his 2016-17 budget proposal to the education, the Governor proposed $3.1 billion in Legislature. The budget included $168 billion extra reserve deposits, resulting in total reserves of state spending, including $123 billion in of $10.2 billion. The Governor also proposed General Fund spending and $45 billion in special some new spending commitments, in particular fund spending. The administration’s January $2.3 billion for one-time infrastructure spending. revenue estimates for 2015-16 and 2016-17 were May Revision: Lower Revenues, Lower up by billions of dollars compared to the prior Required Reserves and Debt Payments. April 2016 6 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET state revenues fell short of projections. As a result, MFG policy and various public safety programs. relative to the Governor’s January budget proposal, Subsequent changes made after the budget bill was the May Revision reflected a net $1.9 billion lower signed by the Governor will likely result in higher revenue estimate across 2014-15, 2015-16, and 2016-17 reserves than those assumed in the budget package. combined. Largely as a result, the administration’s Budget Package Signed by Governor. The estimate of required reserve deposits and debt Governor signed the 2016-17 Budget Act and other payments under Proposition 2 were $1.6 billion lower budget-related bills on June 27, 2016; July 1, 2016; in the May Revision relative to the Governor’s budget. September 13, 2016; and September 14, 2016. These Meanwhile, relative to January, the administration’s bills are detailed in Figure 8. The Governor did not estimate of the Proposition 98 minimum guarantee veto any appropriations in the 2016-17 Budget Act. was higher by a combined $626 million ($389 million Figure 8 General Fund) over 2014-15, 2016-17 Budget-Related Legislationa 2015-16, and 2016-17. Bill Number Chapter Subject Final Budget Package Passed in June 2016 Included $8.5 Billion SB 826 23 Budget Act of 2016 Reserve. The Legislature AB 1602 24 Higher Education passed the final budget AB 1603 25 Public Social Services Omnibus AB 1606 26 Developmental Services package on June 15, AB 1607 27 Medi-Cal: Hospitals: Quality Assurance Fee 2016. Total reserves in AB 1618 43 “No Place Like Home” Housing Program the final budget package AB 1622 44 Housing-Related Items SB 827 28 Budget Act of 2015: Augmentation were lower by only SB 828 29 K-14 Education and Child Care $36 million compared to SB 833 30 Health the Governor’s proposal in SB 836 31 State Government SB 837 32 State Government May. Various choices were SB 843 33 Public Safety made to shift spending SB 844 34 Correctional Facilities: Construction priorities compared to SB 848 35 State Employment the Governor’s proposal. Passed in August 2016 Budget savings resulted AB 1613 370 Cap-and-Trade: Greenhouse Gas Reduction Funds from (1) reduced spending Appropriations AB 1623 318 Amendments to the Budget Act of 2016 on state office buildings, AB 1624 319 Education (2) shifting funding AB 1625 320 Health and Human Services for the construction of AB 1627 321 State Employment: Memorandum of Understanding AB 1628 322 No Place Like Home Program: Financing local jails from General AB 1630 323 State Employment Fund to bond funds, and SB 831 338 Water Resources (3) reduced retiree health SB 835 344 State Government SB 838 339 Transportation spending due to lower than SB 839 340 Public Resources expected healthcare costs. SB 840 341 Public Resources: Energy Correspondingly, the final SB 859 368 Public Resources: Greenhouse Gas Emissions and Biomass budget deal reflected higher a Includes budget bill and “trailer bills” identified in Section 39.00 of the 2016-17 Budget Act that were spending for repealing the enacted into law. www.lao.ca.gov Legislative Analyst’s Office 7 2016-17 BUDGET 8 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Chapter 2: Spending by Program Area PROPOSITION 98 State budgeting for schools and community the 2016-17 minimum guarantee is $3.5 billion colleges is based primarily on Proposition 98, (5.1 percent) higher than the 2015-16 Budget Act approved by voters in 1988 and amended in 1990. level. Below, we provide an overview of Proposition 98 Two Key Drivers of Increase in 2016-17. funding and spending changes under the enacted Figure 10 (see next page) shows Proposition 98 budget package. We then highlight Proposition 98 funding for each segment. Total funding for all spending changes specifically for K-12 education segments in 2016-17 is $71.9 billion, a $2.8 billion and the California Community Colleges (CCC). In (4.1 percent) increase above the revised 2015-16 the “Higher Education” section of this report, we level. This change in the guarantee reflects discuss certain crosscutting CCC issues. On the 3.6 percent growth in the “Test 3 factor” combined Education portion of our website, we post many with a supplemental appropriation of $502 million. “EdBudget Tables” summarizing key components The Test 3 factor consists of 3.1 percent growth of the education budget. in per capita General Fund plus an additional 0.5 percent increase set forth in the State Minimum Guarantee Constitution. The supplemental appropriation Proposition 98 Funding Revised Upward ensures that the minimum guarantee grows at least Across Three-Year Period. Proposition 98 as quickly as the rest of the state budget. establishes a minimum funding requirement Increase Covered About Evenly From Higher commonly called the minimum guarantee. Figure 9 State General Fund and Local Property Tax shows the estimates of the minimum guarantee for Revenue. Of total Proposition 98 funding in 2014-15, 2015-16, and 2016-17. Compared with the 2016-17, $51.1 billion is state General Fund and estimates from June 2015, the 2014-15 and 2015-16 Figure 9 guarantees have increased Tracking Changes in the by $843 million and Proposition 98 Minimum Guarantee $641 million, respectively. (Dollars in Millions) These upward revisions are Change June June due primarily to increases 2015 2016 Amount Percent in state revenue relative 2014-15 $66,303 $67,146 $843 1.3% to the amounts assumed 2015-16 68,409 69,050 641 0.9 in last year’s budget 2016-17 — 71,874 3,465a 5.1 a package. The estimate of Reflects change from June 2015 estimate of 2015-16 minimum guarantee. www.lao.ca.gov Legislative Analyst’s Office 9 2016-17 BUDGET Figure 10 Proposition 98 Funding by Segment and Source (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Actual Revised Enacted Amount Percent Preschoola $664 $885 $975 $90 10% K-12 Education General Fund $44,251 $43,340 $44,465 $1,125 3% Local property tax 14,810 16,759 18,057 1,298 8 Subtotals ($59,061) ($60,099) ($62,522) ($2,422) (4%) California Community Colleges General Fund $5,025 $5,415 $5,528 $113 2% Local property tax 2,306 2,569 2,767 198 8 Subtotals ($7,331) ($7,983) ($8,295) ($311) (4%) Other Agenciesb $90 $82 $83 — — Totals $67,146 $69,050 $71,874 $2,824 4% General Fund $50,029 $49,722 $51,050 $1,328 3% Local property tax 17,117 19,328 20,824 1,496 8 a Beginning in 2015-16, includes $145 million for wraparound care formerly funded with non-Proposition 98 General Fund. b Includes state agencies providing direct instruction to K-12 students. Consists entirely of General Fund. $20.8 billion is local property tax revenue. From reducing the total outstanding obligation to 2015-16 to 2016-17, state General Fund increases by $155 million. In 2016-17, the budget assumes the $1.3 billion (accounting for slightly less than half state creates $746 million in new maintenance of the $2.8 billion increase in the guarantee) and factor. The amount of new maintenance factor local property tax revenue increases by $1.5 billion created is based on the difference between the (accounting for slightly more than half of the Proposition 98 Test 2 and Test 3 factors. In 2016-17, increase in the guarantee). The primary factor growth in the Test 2 factor (per capita personal explaining the growth in property tax revenue is income) is strong (5.4 percent) relative to growth in the strong 6.2 percent increase in assessed property the Test 3 factor (3.6 percent). values. In addition, the budget plan assumes Overview of New Spending property tax revenue increases by $419 million due to the triple flip ending, thereby completing Budget Package Contains Many Spending the shift of revenue from cities, counties, and Changes. Given the increases in the minimum special districts to school districts and community guarantee across the three-year period, the budget colleges. plan contains higher corresponding spending each New Maintenance Factor Created in 2016-17. year, as detailed below. In 2014-15, General Fund tax revenue increased by Higher 2014-15 Spending. Of the $843 million 11 percent over the prior-year level, resulting in a increase in the 2014-15 minimum guarantee, the maintenance factor payment of $5.7 billion—the bulk of the additional spending ($665 million) is largest payment the state has ever made. In 2015-16, discretionary funding provided on a per-student the budget assumes the state makes an additional basis, with funds scored to outstanding mandate maintenance factor payment of $379 million, claims for those local educational agencies (LEAs) 10 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET with such claims. As Figure 11 shown in Figure 11, the 2014-15 Proposition 98 Changesa remainder of the 2014-15 (In Millions) funds are designated for 2014-15 Spending as of 2015-16 Budget Act $66,303 eight other initiatives. Technical Adjustments $90 Higher 2015-16 Policy Changes Spending. Of the Provide K-12 mandates payments/discretionary funds $636 $641 million increase in Provide CCC mandates payments/discretionary funds 29 the 2015-16 minimum Accelerate progress of CCC online education initative 20 Provide grants for academic and behavioral supports 20 guarantee, more than half Fund charter school startup grants 20 of the additional spending Fund school water safety grants 10 ($386 million) also is Support California School Information Services 7 Conduct a teacher recruitment campaign 5 discretionary funding Fund K-12 High Speed Networkb 4 provided on a per-student Replace state’s standardized school district accounting system 3 basis and associated with Subtotal ($753) Total Changes $843 the mandates backlogs. As 2014-15 Spending as of 2016-17 Budget Act $67,146 shown in Figure 12, the a All items shown are funded on a one-time basis. remainder of the 2015-16 b Budget also includes $5 million in 2016-17 funds. funds are designated for eight other initiatives, the largest being $200 million Figure 12 to establish the College 2015-16 Proposition 98 Changesa Readiness Block Grant. Spending changes for (In Millions) 2015-16 also include 2015-16 Spending as of 2015-16 Budget Act $68,409 adjustments relating to Technical Adjustments -$25 property tax estimates, as Policy Changes Provide K-12 mandates payments/discretionary funds $310 discussed in the box on Establish College Readiness Block Grant 200 the next page. Provide CCC mandates payments/discretionary funds 76 Higher 2016-17 Fund CCEE for training and pilot program 24 Support classified school employees interested in teachingb 20 Spending. In 2016-17, Fund dropout and truancy prevention program 18 the guarantee increases Fund CTE Incentive Grant for Secondary Schoolsc 8 $2.8 billion. In addition, Improve CCC technology infrastructure 7 Increase funding for school breakfast programs 2 $1.2 billion is freed up Support school activities sponsored by the Special Olympics 1 from prior-year, one-time Subtotal ($666) spending, resulting Total Changes $641 in $4 billion in total 2015-16 Spending as of 2016-17 Budget Act $69,050 a available spending. Of All items shown are funded on a one-time basis. b Classified school employees include instructional aides, bilingual assistants, and library assistants. this amount, $3.3 billion c Budget also includes $292 million in 2016-17 funds. CCEE = California Collaborative for Educational Excellence and CTE = career technical education. is higher K-12 spending and $716 million is higher www.lao.ca.gov Legislative Analyst’s Office 11 2016-17 BUDGET community college spending. The largest increase in community colleges. The state budget package K-12 spending is a $2.9 billion augmentation for the scores this spending as a Proposition 2 debt Local Control Funding Formula (LCFF). The largest payment. increase in CCC spending is $200 million for a new K-12 Education Strong Workforce Program. As shown in Figure 13, the remainder of the 2016-17 funds are designated $63.3 Billion Proposition 98 Funding for for more than two dozen other initiatives. K-12 Education and Preschool Combined. This Additional $218 Million in Spending 2016-17 level is $2.5 billion (4.1 percent) more Associated With Settle-Up Payment. The budget than the revised 2015-16 funding and $3.7 billion plan also includes a $218 million settle-up payment (6.3 percent) more than the 2015-16 Budget Act related to meeting the Proposition 98 minimum level. The budget increases funding per student by guarantee for 2009-10. This payment reduces $440 (4.3 percent) over the 2015-16 Budget Act level, the state’s outstanding settle-up obligation to bringing Proposition 98 funding per student up to $1 billion. Of the $218 million provided, the budget $10,657. We discuss specific K-12 augmentations plan allocates $194 million for reducing the K-12 below. We discuss specific preschool augmentations mandates backlog and $24 million for deferred in the “Child Care and Preschool” section of the maintenance and instructional equipment at the report. Property Tax Shortfalls State Has Two Basic Ways of Addressing Changes in Property Tax Revenue. For school districts and county offices of education (COEs), the state provides the bulk of funding through a “continuous appropriation.” Under this method of budgeting, the state automatically adjusts General Fund spending to compensate for any changes in local property tax revenue that occur during the year. In contrast, for special education and community colleges, the state does not make automatic adjustments. However, the state through subsequent budget action typically provides General Fund backfills to address property tax shortages and reduces General Fund spending to address property tax surpluses. However, in some years, the state has chosen not to backfill a shortage and, in other years, the state has allowed a segment to keep a surplus and use it for one-time purposes. Budget Includes Backfills for Special Education and Community Colleges. The 2016-17 budget package revises estimates of property tax revenue in 2015-16 upward for school districts and downward for COEs, special education, and community colleges. Under the continuous appropriation, the state has already adjusted 2015-16 General Fund spending on school districts and COEs to offset the changes in their property tax revenue. For special education, the budget provides $27 million to backfill its property tax shortfall. For community colleges, the budget authorizes a backfill of up to $32 million. Trailer legislation requires the Director of Finance to calculate the final amount of the community college shortfall by April 2017. Any funding ultimately not needed for the backfill is to be distributed to community colleges on a full-time equivalent enrollment basis and made available for any locally determined, one-time purpose. If a community college has any unpaid mandate claims, its allocation will pay down a portion of its backlog. 12 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET New Spending Figure 13 Large Increase for 2016-17 Proposition 98 Changes LCFF. The $2.9 billion (In Millions) augmentation brings total 2015-16 Revised Spending $69,050 funding for implementing Technical Adjustments -$1,167 LCFF for school districts K-12 Education and charter schools Increase LCFF funding $2,942 up to $55.8 billion, a Fund CTE Incentive Grant for Secondary Schoolsa 292 Increase preschool funding rates 44 5.7 percent increase Fund truancy and dropout prevention program 9 over the revised 2015-16 Add 2,959 full-day preschool slotsb 8 level. The administration Fund High Speed Networkc 5 Support Exploratorium 4 estimates this funding Support Student Friendly Services 2 will close 54 percent of Improve web-based planning and reporting tools (year one of three) 1 the gap between current Remove augmentation for infants and toddlers with disabilities -30 Subtotal ($3,276) funding levels and LCFF California Community Colleges target rates, bringing Create Strong Workforce Program $200 LCFF to 96 percent of Fund deferred maintenance and instructional equipment (one time) 154 its full implementation Fund 2 percent enrollment growth 114 Provide apportionment increase (above growth and COLA) 75 cost. School districts and Extend CTE Pathways Initative for one yeard 48 charter schools may use Augment Basic Skills Initiativee 30 LCFF monies for any Fund Innovation Awards (one time) 25 Fund intersegmental college success partnerships 15 educational purpose. Restore funding for select student support programs 11 Significant Increase funding for Institutional Effectiveness Initiative 10 Discretionary One-Time Fund development of “zero-textbook-cost” degree programs (one time) 5 Increase ongoing support for technology infrastructure 5 Funding. The largest Provide technical assistance to adult education consortia (one time) 5 one-time augmentation Restore funding for part-time faculty office hours 4 for K-12 education is Improve systemwide data security 3 Fund digital instructional materials for incarcerated adultsf 3 $1.3 billion that LEAs Expand outreach and marketing 3 may use for any locally Extend Full-Time Student Success Grant to Cal Grant C recipients 2 determined purpose. Expand equal employment opportunity activities 2 Increase apprenticeship reimbursement rate 2 Funding would be Augment funding for systemwide Academic Senate —g distributed based on Subtotal ($716) average daily attendance. Total Changes $2,824 2016-17 Enacted Spending $71,874 If an LEA has unpaid a Budget also includes $8 million in 2015-16 funding for this purpose. Reflects year two of a three-year program. mandate claims, funding b Slots funded as of March 1, 2017. would pay all or a c Budget also includes $3.5 million in 2015-16 funds. d Budget sunsets the CTE Pathways Initative and folds funding into the Strong Workforce Program after 2016-17. portion of those claims. e In 2016-17, funds provide additional Basic Skills and Student Outcomes Transformation grants. In subsequent years, funds augment the Basic Skills Initative. As many LEAs do not f In recent years, the California Department of Corrections and Rehabilitation has purchased these materials with have any unpaid claims, non-Proposition 98 funds. g Provides $300,000. we estimate only about LCFF = Local Control Funding Formula; CTE = career technical education; and COLA = cost-of-living adjustment. half ($617 million) of the www.lao.ca.gov Legislative Analyst’s Office 13 2016-17 BUDGET funding provided would reduce the K-12 mandates that (1) provide information about how many of backlog. We estimate the outstanding K-12 their students have access to college preparatory mandates backlog will be $987 million at the end of classes, (2) identify how they will use the funds to 2016-17. increase college readiness, and (3) describe how Continues Second Year of Career Technical their college-readiness efforts align with their Education (CTE) Incentive Grant. The 2015-16 Local Control and Accountability Plans. Schools budget package created a three-year competitive must discuss their plans at a public meeting and grant program to promote CTE at secondary adopt their plans at a subsequent public meeting. schools and provided $400 million for the By January 1, 2017, schools also must submit first year of the program. Consistent with the reports to CDE about how they will measure the authorizing legislation, the 2016-17 budget provides impact of the grant funding on their students’ $300 million in second-year funding. Grantees are success in higher education. The department, in required to match these grant funds. As originally turn, must submit a report to the Legislature by designed, the program provided separate pools April 30, 2017 summarizing districts’ plans to of funding for large-, medium-, and small-sized track their performance. The department also must applicants, based on applicants’ average daily post annually on its website a list of high schools attendance in grades 7-12. The 2016-17 trailer that have low-income, English learner, and foster legislation eliminates those separate funding pools. youth students combined comprising more than In addition, it gives the California Department of 75 percent of their students. Education (CDE) authority to (1) review grantees’ Initiates New Activities of California expenditures on CTE each year to determine if they Collaborative for Educational Excellence (CCEE). have met their match requirement and (2) reduce The CCEE was established in 2013-14 to advise and future funding if the requirement has not been met. assist LEAs in improving student outcomes. The Creates New College Readiness Block Grant budget provides $29.6 million (one time) for the Program. The 2016-17 budget package includes CCEE to conduct two specific types of activities. $200 million in one-time funding for activities The CCEE must use at least $20 million to train designed to increase college-going rates among LEAs on how to use the evaluation rubrics. (By certain groups of students. Specifically, trailer October 2016, the State Board of Education must legislation requires CDE to allocate an equal adopt evaluation rubrics that help LEAs assess amount to schools for each low-income, English their strengths and weaknesses and help CCEE and learner, or foster youth high school student, with county offices of education (COEs) determine if no school serving at least one of these students LEAs need assistance.) The CCEE training must be receiving less than $75,000. The legislation specifies made available to all LEAs and can be provided to that schools can spend the funds through 2018-19. employees, parents, students, and other members of Allowable activities include increasing the number the community. The remainder of available funding of college preparatory classes high schools offer, (up to $9.6 million) is for the CCEE to create a pilot hiring college counselors, and paying for testing program that will help inform its efforts to assist fees and preparation materials. LEAs that are struggling. To the extent possible, the Requires Various Associated College pilot program is to include LEAs from all regions of Readiness Plans and Reports. As a condition the state. of receiving funds, schools must develop plans 14 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Supports New Dropout and Truancy Increases Grant Amount for Academic Prevention Program. Proposition 47, which was and Behavioral Supports. The budget provides approved by voters in November 2014, reduced $20 million on a one-time basis to help LEAs the penalties for certain crimes. The measure implement a statewide framework for supporting requires that the resulting state savings, as students with academic or behavioral issues. estimated by the Department of Finance (DOF), This funding is in addition to $10 million in be spent on designated programs beginning in one-time funding provided to the Orange County 2016-17. Of the savings, 25 percent must go to CDE Department of Education in 2015-16 to develop this for the new Learning Communities for School framework. Success Program, which provides competitive Funds Safe Drinking Water Grants. The grants to schools to reduce dropout and truancy. budget provides $9.5 million in one-time funding The administration currently estimates that for a grant program to improve the access to, $9.9 million in state savings will be available for and quality of, safe drinking water in child care, this new program. The budget package includes preschool, and K-12 facilities. The grant program an additional $18 million in one-time funds for will be operated by the State Water Resources the program, resulting in total program funding Control Board, in consultation with CDE. Trailer of $27.9 million. Of that amount, $27.1 million legislation specifies funds from the grant can be is Proposition 98 program funding; $493,000 used for the installation of water bottle filling is ongoing non-Proposition 98 General Fund stations or drinking fountain filters to remove for CDE to administer the new program; and contaminants. $300,000 is one-time Proposition 98 funding for Reinstates Funding for K-12 High Speed CDE to contract with an LEA that, in turn, would Network (HSN). The state funds the K-12 HSN coordinate regional meetings, conduct trainings, as an annual grant from CDE to the Imperial and provide technical assistance to grantees. COE to assist schools with network connectivity, Funds Charter School Startup Grants. The Internet services, and information sharing. The budget plan includes $20 million (one time) to 2015-16 budget provided no state funding for HSN, provide startup grants for charter schools that instead supporting the program through HSN’s are within one year of opening or have been reserve. The 2016-17 budget includes $8 million open for less than one year. Applicants may ($4.5 million ongoing and $3.5 million one time) receive grants of up to $575,000 each ($375,000 to support the network. To help address HSN’s each for nonclassroom-based schools) based on cash flow issues, trailer legislation requires CDE the budgets and justifications provided in their to release three-quarters of the grant by the end of applications. Charter schools located in low-income August and the remaining one-quarter by the end communities and counties with few or no existing of January. Budget language requires the grantee charter schools receive priority for funding. or its contractor, the Corporation for Education Trailer legislation requires CDE to exhaust the Network Initiatives in California, to report remaining available federal funds before allocating quarterly to DOF and the Legislature about the any state funds. (The CDE currently administers state and federal subsidies it receives as a result of a federally funded startup grant program that has the Broadband Infrastructure Improvement Grants an estimated carryover balance of approximately (BIIG), a program the state funded in 2014-15 and $20 million.) 2015-16. Budget language also specifies that the www.lao.ca.gov Legislative Analyst’s Office 15 2016-17 BUDGET HSN cannot spend any of the state and federal appropriation from $500,000 to $2.5 million. The subsidies resulting from the BIIG without DOF funding goes to Riverside COE, which, in turn, approval and notification to the Joint Legislative passes it through to the nonprofit California Budget Committee (JLBC). College Guidance Initiative (CCGI). The CCGI Provides Ongoing Support to the oversees a website that provides college planning Exploratorium in San Francisco. Trailer legislation tools to school districts, high school counselors, provides $3.5 million in ongoing Proposition 98 students, and parents. The CCGI indicates that the funding to the Exploratorium, a science museum additional funding would be used to expand the in San Francisco. This funding is intended to website’s college planning tools. support professional development for teachers Increases Funding for School Breakfast implementing the state’s new science standards. Programs. For many years, the state has This funding is provided as an add-on to the LCFF provided an annual appropriation of $1 million allocation for the San Francisco Unified School to help schools start or expand school breakfast District, which, in turn, must pass the funds programs. The 2016-17 budget provides a one-time through to the Exploratorium. augmentation of $2 million for these programs. Re-Initiates Replacement of Standardized Budget language specifies the funds may be Account Code Structure (SACS). The state uses spent over two years. The new funding will be the SACS system to collect financial data from prioritized for applicants that both (1) plan to start LEAs and meet various reporting requirements. or expand programs that serve breakfast during The state initially approved the SACS replacement the school day (“after the bell”) and (2) enroll high project in 2011. In 2014, the state approved a major proportions of students from low-income families. cost escalation of the project (from $5.9 million Continues Technical Assistance for Career to $21.2 million). In August 2015, the California Pathways Trust Grantees. The state provided a first Department of Technology nonetheless notified the round of Career Pathways Trust grants in 2014-15 JLBC that it was terminating the SACS replacement and a second round of grants in 2015-16. The project, citing insufficient funding. The 2016-17 competitive grants funded partnerships of schools, budget re-initiates the project, providing $3 million colleges, and workforce entities to strengthen in Proposition 98 funding for CDE to contract with career linkages. The 2016-17 budget designates a COE, which in turn would contract with a vendor $300,000 (Proposition 98) in carryover from the to replace SACS. The project is no longer required first round for CDE to continue its contract with to undergo the state’s standard review and oversight Napa COE and Napa Valley Unified School District process. Trailer legislation specifies that release to provide technical assistance to grantees. of the funds is contingent on CDE entering the Makes Various Adjustments to CDE Workload contract with a COE and receiving DOF approval, and Funding. The budget provides CDE with a with notification to the JLBC. The $3 million is $4.3 million augmentation (non-Proposition 98 intended to cover a portion of project costs, with General Fund and federal funds combined) to future budget requests funding remaining costs. support various new workload. Of this increase, Increases Funding for Student Friendly $3.1 million is one time or limited term and Services College Planning Website. The budget $1.2 million is ongoing. The largest single provides a $2 million ongoing augmentation augmentation is $1.2 million (one time federal for this program, raising the total annual state funds) for CDE to develop a new video series for 16 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET teachers focused on the state’s English learner Department of Social Services to administer the standards. Other notable augmentations include federal Commodity Supplemental Food Program. $423,000 (ongoing non-Proposition 98 General This program provides foods purchased by the Fund) for CDE to ensure schools understand U.S. Department of Agriculture to nonprofit the importance of providing appropriate organizations that prepare meals for low-income services to all English learners pursuant to the senior citizens. (Originally, CDE administered DJ v. California settlement and $362,000 (one the program because it also served low-income time, non-Proposition 98 General Fund) for the children.) Instructional Quality Commission to develop Teacher Workforce curriculum frameworks for science and health. (See our associated online EdBudget table for the Funds Several Teacher Workforce Initiatives. complete list of changes.) The budget funds three initiatives designed to Requires CDE to Expand Scope of increase the supply of K-12 teachers. All three Kindergarten Implementation Study. Chapter 723 initiatives are funded on a one-time basis and of 2014 (AB 1719, Weber) requires CDE to provide administered by the Commission on Teacher the Legislature with a statewide evaluation of Credentialing (CTC). The budget also funds kindergarten programs, including part-day and CTC for second-year implementation of certain full-day programs, by July 1, 2017. The 2016-17 activities. We describe each of these actions below. budget includes $150,000 in one-time funds for Provides Financial Assistance for Classified CDE to expand the scope of this evaluation. Trailer School Employees Interested in Teaching. The legislation expands the scope by requiring CDE to budget provides $20 million to LEAs for the estimate the average costs of part-day and full-day purpose of assisting classified school employees in kindergarten programs and provide options for completing their bachelor’s degree and pursuing incentivizing full-day programs, such as providing a teaching credential in a shortage area. Classified differentiated full-day and part-day funding rates. school employees include instructional aides, Creates Competitive Grant Program to bilingual assistants, and library assistants. LEAs Improve Math Readiness. In addition to changes in could provide up to 1,000 awards of up to $4,000 state funding, the budget designates $6.4 million in per year to help classified staff with education federal Title II carryover funds for a new program costs. The budget makes the funds available for designed to reduce math remediation among expenditure from 2016-17 through 2020-21. college freshmen. Trailer legislation specifies that Provides Grants to Encourage Four-Year CDE is to award five grants to partnerships of Integrated Programs. Some universities schools and institutions of higher education. The currently offer integrated programs that enable partnerships are to develop 12th grade math courses a participant to earn a bachelor’s degree and a and provide other supports. Priority will be given teaching credential within four years. The budget to partnerships that have high math remediation provides $10 million (non-Proposition 98 General rates. Fund) to expand the number of these programs Transfers Administration of Food Program. in California. The CTC is to competitively award The budget also transfers one position, $108,000 planning grants of up to $250,000 to universities federal funds for administration, and $4.5 million for supporting faculty release time for coursework federal program funds from CDE to the design, hiring program coordinators, creating www.lao.ca.gov Legislative Analyst’s Office 17 2016-17 BUDGET summer courses, and recruiting students. in unspent current-year funds. The 2016-17 Budget Integrated programs with a focus on issuing Act reappropriates these funds to hire additional credentials to special education, science, math, temporary AG staff in the upcoming year. and bilingual teaching candidates receive funding State Special Schools priority. Runs Recruitment Campaign Through Funds Deferred Maintenance at State Special California Center on Teaching Careers. The Schools (SSS). The budget includes a total of budget provides $5 million to reestablish a teacher $5.8 million to address deferred maintenance recruitment center. (From 1997 to 2003, the state issues at the SSS, which include two schools supported teacher recruitment activities through for the deaf, one school for the blind, and three such a center.) The center is to focus on recruiting diagnostic centers. Of these funds, $1.8 million qualified and capable individuals into the teaching is earmarked from the SSS operating budget, and profession, with priority given to recruiting $4 million is additional one-time funding. The SSS individuals into low-income schools and the fields have indicated they will use these funds to replace of special education, math, science, and bilingual roofs, install a new emergency communication education. The commission is to consult with all system at one of its schools for the deaf (Fremont), the education segments in establishing the specific and complete several smaller projects. Before goals and activities of the center. The CTC must expending these funds, the SSS reports a backlog of use a competitive bid process to select an LEA to $17 million in maintenance projects. operate the center. Funds New Activity Center on Fremont Funds Second-Year Implementation of Two Campus. The budget provides $1.7 million to CTC Projects. The budget includes $1.5 million construct a new middle school activity center at (non-Proposition 98 General Fund) to complete the California School for the Deaf in Fremont. This CTC’s work on streamlining the accreditation facility will host extracurricular activities for the data system. Last year’s budget package provided approximately 60 middle school students residing $3.5 million for this purpose. The budget also on campus. provides $1 million (non-Proposition 98 General California Community Colleges Fund) for CTC’s activities related to updating the teacher and administrator performance $8.3 Billion Proposition 98 Funding for assessments. The 2015-16 budget provided CCC in 2016-17. This is $311 million (3.9 percent) $4 million for this purpose. more than the revised 2015-16 funding level and Reappropriates Funding for Teacher $379 million (4.8 percent) more than the 2015-16 Misconduct Reviews. The 2015-16 budget package Budget Act level. The 2016-17 budget increases provided CTC with $3.9 million in teacher funding per full-time equivalent (FTE) student by credential fee revenue to address higher ongoing $245 (3.8 percent) over the 2015-16 Budget Act level, workload related to teacher disciplinary cases. bringing Proposition 98 funding per FTE student Specifically, the budget assumed CTC would face up to $6,624. These per-student amounts do not higher ongoing costs for the Office of the Attorney include $500 million for the Adult Education Block General (AG) to review serious disciplinary Grant, as most block grant funding is allocated cases. The AG was unable to hire all anticipated to providers other than community colleges. We additional staff in 2015-16, resulting in $2.4 million describe major CCC spending and programmatic 18 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET changes below. (Figure 11 through Figure 13 show quality of CTE and workforce programs leading all CCC spending changes.) to certificates, degrees, and other credentials. The ongoing funding is consistent with Apportionments recommendations of the Task Force on Workforce, Funds 2 Percent Enrollment Growth. Job Creation, and a Strong Economy, a group The 2016-17 budget includes $114 million to established by the Board of Governors (BOG) in accommodate 2 percent enrollment growth late 2014. systemwide. In addition, the budget adjusts for Emphasizes Regional Planning. Trailer enrollment declines that districts experienced in legislation requires community colleges to 2015-16 and anticipated enrollment restoration coordinate their CTE activities within seven in 2016-17. (If its enrollment declines in a given existing regional consortia. Each consortium, year, a district’s funding correspondingly declines consisting of all community colleges in the region, the following year. Districts, however, generally is to ensure that its offerings are responsive to have three years to restore enrollment up to earlier the needs of employers, workers, civic leaders, levels and earn back the associated funding.) After and students. To this end, each consortium must adjusting for declining enrollment (-1.1 percent) collaborate with local workforce development and restoration (0.7 percent), the 2016-17 budget boards, economic development and industry provides $95 million for net enrollment growth sector leaders, and representatives from civic of 1.6 percent, representing about 18,000 FTE and labor organizations within its region. Each students. consortium also must collaborate with LEAs, adult Provides $75 Million in Additional education consortia, and interested California State Unrestricted Funds. Colleges may use this ongoing University and University of California campuses apportionment increase for any educational or to improve program alignment. operational purpose, including hiring additional Requires Consortia to Develop Four-Year faculty, paying retirement costs, expanding Program Plans. Consortia must meet at least professional development, and maintaining annually to develop or update four-year program facilities. plans based on analyses of regional labor market Two Related Actions. Trailer legislation needs. Each plan must include: regional goals extends the time for the San Francisco Community aligned with performance measures under the College District to earn back funding from past federal Workforce Innovation and Opportunity Act enrollment declines. Specifically, trailer legislation (WIOA); a work plan, spending plan, and budget gives the district through 2021-22 to earn back for regionally prioritized projects identifying funding up to its 2012-13 enrollment level. Trailer the amounts allocated for one-time and ongoing legislation also authorizes basic aid districts to expenditure; and a description of the alignment receive an allocation of 2015-16 full-time faculty of the plan with other CTE and workforce plans funding. in the area, including the regional WIOA plan. The Chancellor’s Office will review the plans Workforce Programs and provide technical assistance to consortia not Provides $200 Million for New Strong meeting their goals. The Chancellor’s Office is Workforce Program. The purpose of the new to post regional plans on the CCC website and, program is to improve the availability and beginning January 1, 2018, annually submit www.lao.ca.gov Legislative Analyst’s Office 19 2016-17 BUDGET a report to the Governor and the Legislature eliminate barriers to hiring qualified instructors for on performance outcomes, disaggregated for CTE courses, including reevaluating the required underserved demographic groups. minimum qualifications for CTE instructors. The Allocates Funds to Regions and Districts. The legislation directs the Chancellor’s Office to consult budget directs the Chancellor to provide 40 percent with various stakeholders, including the CCC of program funds to the seven CTE regional Academic Senate and the California Workforce consortia and 60 percent directly to community Development Board, in developing these policies. college districts. Both pots of funding are for Legislation also directs the Academic Senate to supporting regionally prioritized initiatives aligned establish a CTE committee, with at least 70 percent with their CTE program plans. The legislation of members consisting of CTE faculty, to provide prohibits districts from using the new funds to recommendations on CTE issues. supplant existing support for CTE programs. The Extends $48 Million for CTE Pathways legislation permits the Chancellor to allocate up Initiative for One Year. The goal of this initiative to 5 percent of the funds to a community college is to help regions develop sustainable policies and district for statewide activities to improve and infrastructure to improve CTE pathways among administer the program. schools, community colleges, and regional business Requires Chancellor’s Office to Recommend and labor organizations. Beginning in 2017-18, Funding Allocations. For 2016-17, each region’s trailer legislation repurposes the funding for the and district’s funding allocation will reflect its Strong Workforce Program. share of (1) the state’s unemployed adults, (2) FTE Other Categorical Programs students enrolled in CTE courses, and (3) projected job openings. Each of these factors will determine Augments Basic Skills Funding. The budget one-third of that year’s allocation. Beginning in provides $30 million in 2016-17 for additional 2017-18, unemployment and CTE enrollment Basic Skills and Student Outcomes Transformation each will comprise 33 percent of the allocation, Program grants. Established last year as a one-time job openings will comprise 17 percent, and initiative, this program had more eligible applicants successful workforce outcomes (as evidenced by than available funding in 2015-16. That year, the WIOA performance measures) will comprise the Chancellor’s Office awarded $60 million to 17 percent. The Chancellor’s Office will provide its 43 eligible colleges. The 2016-17 funding will recommended funding allocation to DOF and the provide grants to another 21 eligible colleges that Legislative Analyst’s Office by August 30 of each did not receive an award last year due to limited year. Release of funds is subject to DOF’s approval. funding. The grants are for colleges to adopt or Requires Chancellor’s Office to Develop Certain expand the use of evidence-based models for Workforce Policies. Most notably, trailer legislation basic skills assessment, placement, instruction, requires the Chancellor’s Office to submit a plan and student support. Colleges may expend their by July 1, 2017 to (1) reduce the time required to grants over three years. Beginning in 2017-18, the gain local and state approval for a new course or $30 million is to be repurposed on an ongoing basis program to no more than one academic year and for the Basic Skills Initiative. (2) ensure portability of approved courses and Modifies Rules for Basic Skills Initiative. programs across colleges and districts. In addition, Trailer legislation refines the purposes of CCC’s the legislation directs the Chancellor’s Office to longstanding basic skills categorical program. 20 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET To date, funding has been for various activities Expands Institutional Effectiveness Initiative. intended to improve the outcomes of students The budget augments statewide professional needing basic skills help. Allowable activities have development activities by $8 million, bringing included curriculum planning and development, the total for this component of the program to advisement and counseling, and supplemental $20 million. The budget also augments technical instruction and tutoring. The new language assistance funding by $2 million, bringing the total continues to allow these activities while specifying for this component of the program to $7.5 million. four more allowable activities: (1) implementing or Budget language requires the Chancellor’s Office to expanding the use of evidence-based practices and report on the use of program funds by December 1 principles; (2) accelerating the adoption and use of of each year. open educational resources in basic skills English, Restores Student Support Programs and math, and English as a second language (ESL) Part-Time Faculty Office Hours to Pre-Recession courses; (3) collaborating with high schools and Funding Levels. The 2016-17 budget provides the California State University (CSU) campuses $8.7 million for the Student Services for California to better align remedial instruction among LEAs, Work Opportunity and Responsibility to Kids community colleges, and CSU campuses; and (CalWORKs) Recipients program, bringing (4) implementing assessment and placement funding for the program to $43.6 million. The practices that increase the likelihood students will budget increases the Fund for Student Success— be appropriately placed in college-level rather than which supports the Mathematics, Engineering, and remedial courses. Science Achievement; Puente; and Middle College Introduces Performance Funding Into High School programs—by $2.4 million, bringing Initiative. Trailer legislation also requires the total funding to $6.2 million. Additionally, the Chancellor, beginning in 2016-17, to use a new budget provides $3.7 million for part-time faculty method for distributing Basic Skills Initiative office hours, bringing total funding to $7.2 million. funding. To introduce an element of performance Augments Statewide Outreach and Marketing. funding, the new method allocates half of the The budget adds $2.5 million to the existing “I funding based on the district’s share of statewide Can Afford College” campaign, bringing the total BOG fee waiver recipients who initially enroll in to $5.3 million. The new funds are to expand a course below transfer level in English, math, or outreach to students from non-English speaking ESL and subsequently complete a college-level and bilingual households, market the CCC course in the same subject within one to two years. baccalaureate degree pilot programs, and increase (The Chancellor has discretion whether to weight awareness of CCC BOG fee waivers. the one-year and two-year measures equally or One-Time Funding assign a greater weight to one.) Another 25 percent is based on the district’s share of all BOG fee Provides Physical Plant and Instructional waiver recipients. The remaining 25 percent is Support. The budget includes $185 million that based on a district’s share of basic skills FTE districts may use for scheduled maintenance, students statewide who are in courses that employ special repairs, hazardous substances abatement, evidence-based practices specified in legislation. architectural barrier removal, seismic retrofit (The Chancellor may include other factors and projects up to $656,000, replacement of adjustments at his or her discretion.) instructional equipment and library materials, www.lao.ca.gov Legislative Analyst’s Office 21 2016-17 BUDGET and certain water conservation projects. (The limit community college districts establish or expand for seismic projects previously was $400,000.) The regional partnerships with school districts funds are allocated to districts based on their FTE and public universities. The general purpose enrollment. of the partnerships is to improve students’ Provides Discretionary/Mandates Backlog college preparation, participation, and success. Funding. The budget provides $106 million, Chapter 434 of 2016 (AB 1741, Rodriguez) distributed based on FTE enrollment, that districts establishes the program. may use for any educational or operational Provides Grants to Develop purpose. If community college districts have Zero-Textbook-Cost Degrees. The budget provides unpaid mandates claims, then the funds must first $5 million to create these degree pathways, which be applied to those claims. Because only 11 (of 72) allow students to complete an associate degree districts have outstanding mandates claims—and or CTE certificate program entirely by taking one district has more than half of all amounts courses that use only free, open educational outstanding—the backlog is reduced by only resources. Under this program, colleges will $14 million, leaving an outstanding backlog of compete for grants up to $200,000 each to offer a $272 million. zero-textbook-cost degree or certificate. To develop Funds Additional Innovation Awards. The the pathways, colleges will use multimember teams 2016-17 budget includes $25 million for community that include faculty, administrators, librarians, college projects designed to reduce the required instructional designers, and technology experts. time or total cost for students to complete degrees Colleges also may use grant funds to secure outside and credentials. Specifically, the legislation professional development and technical assistance. authorizes awards for curriculum redesign (such Trailer legislation prioritizes (1) the development of as the implementation of three-year bachelor’s a zero-textbook-cost degree for existing associate degrees), competency-based programs (such as degrees for transfer and (2) the use of existing open efforts to award credit for military education educational resources before creating new content. and training), and financial aid access (such as Participating colleges must strive to implement increasing the number of students applying for the degrees no later than fall 2018. The Chancellor aid). The legislation gives preference to projects must report to the Legislature and DOF by June 30, that improve outcomes for students from 2019 on the development and implementation of underrepresented groups or use technology in ways the program. The Chancellor’s Office may transfer that are not common in higher education. up to 10 percent of the funds for a community Accelerates Online Education Initiative. college district to administer the program, The budget provides $20 million to increase CCC including providing technical assistance to grant students’ access to and success in online courses. applicants and grantees. The initiative includes an online course exchange, Several Additional One-Time Augmentations. to be piloted in 2016-17, that enables students at any The budget includes $7 million to upgrade CCC community college to enroll in degree-applicable systemwide technology infrastructure. It also online courses at other colleges. includes $5 million spread over three years for Funds Development of Intersegmental statewide leadership activities, technical assistance, Regional Partnerships. The budget provides professional development, and program evaluation $15 million for a new grant program to help for adult education consortia. In addition, the 22 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET budget provides $2.5 million (non-Proposition 98 Capital Outlay General Fund) to support the Chancellor’s Office Reappropriates Construction Funds for coordination of inmate education partnerships Two Projects. Both projects require more time between community colleges and California to complete construction due to delays in earlier Department of Corrections and Rehabilitation project phases. The budget reappropriates facilities. Provisional language encourages the $33 million for various utility system upgrades at Chancellor’s Office to spend no more than $500,000 the College of the Redwoods, Eureka campus and of the inmate education funds per year, authorizing $13 million to replace an instructional building at the use of the funds through June 30, 2021. El Camino College’s Compton Center. CHILD CARE AND PRESCHOOL Budget Act Provides $3.7 Billion for Child based on the SRR. The 2016-17 budget provides Care and Preschool Programs. Of this amount, $68 million for a 10 percent increase to the $1.8 billion is for preschool programs, $1.8 billion SRR starting January 1, 2017. The bulk of this is for child care programs, and $89 million is for increase goes to support the State Preschool support programs. As shown in Figure 14, (see program ($44 million Proposition 98 General next page) the 2016-17 Budget Act augments these Fund) and General Child Care ($22 million programs by a total of $199 million (6 percent) non-Proposition 98 General Fund), with the from the 2015-16 Budget Act level. Proposition 98 remainder increasing rates for the other two child General Fund covers the bulk of this increase care programs. The new rate for a full-day, center- ($129 million), with additional federal funds based State Preschool slot is $10,596 per year, ($64 million) and non-Proposition 98 General Fund whereas the new rate for a full-day, center-based ($6 million) comprising the rest of the increase. General Child Care slot for a preschool-aged child Higher Spending Predominately Due is $10,530 per year. (The 10 percent rate increase to Reimbursement Rate and Slot Increases. applies to centers, family child care homes, and all As shown in Figure 15 (see page 25), higher age groups.) reimbursement rates account for the vast majority Regional Market Rate (RMR) Increases for of the year-over-year funding increase, with Many Voucher Providers. The state also funds additional slots and additional spending on two child care through CalWORKs and Alternative quality improvement activities accounting for Payment programs, which operate using a voucher the remainder of the increase. We discuss these system based on the RMR. The state conducts augmentations in greater detail below. surveys of the regional market costs for child care every two years. The state historically has set the Reimbursement Rates RMR such that families in every county can use Standard Reimbursement Rate (SRR) their voucher to access a certain percentage of child Increases by 10 Percent. The state funds State care providers in their areas. In 2015-16, providers Preschool, General Child Care, a portion of were reimbursed at the greater of (1) 104.5 percent Migrant Child Care, and Care for Children with of the 85th percentile of the 2009 survey deficited Severe Disabilities through direct contracts by 10.11 percent or (2) 104.5 percent of the www.lao.ca.gov Legislative Analyst’s Office 23 2016-17 BUDGET 85th percentile of the 2005 survey. The 2016-17 higher of the old or new rates. Trailer legislation budget provides $56 million to increase the RMR specifies that after July 1, 2018, all rates be set at the to the 75th percentile of the 2014 survey starting 75th percentile of the 2014 survey. January 1, 2017. (When the RMR is set at the 75th License-Exempt Rates Increase to 70 Percent percentile, a voucher covers the cost of all but the of Family Child Care Home Voucher Rates. most expensive quartile of providers in the area.) License-exempt providers are family, friends, The budget package includes a two-year hold and neighbors who provide child care to roughly harmless provision such that providers receive the one-third of all children in the CalWORKs and Figure 14 Child Care and Preschool Budget (Dollars in Millions) Change From 2015-16 2014-15 2015‑16 2016‑17 Actual Budget Acta Budget Act Amount Percent Expenditures CalWORKs Child Care Stage 1 $311 $410 $413 $3 1% Stage 2b 364 414 445 31 8 Stage 3 223 278 287 9 3 Subtotals ($899) ($1,103) ($1,146) ($43) (4%) Non-CalWORKs Child Care General Child Carec $274 $305 $324 $19 6% Alternative Payment Program 182 251 267 16 6 Migrant child care 28 29 31 2 5 Care for Children With Severe Disabilities 2 2 2 —d 5 Infant and Toddler QRIS Grant (one time) — 24 — — — Subtotals ($485) ($611) ($624) ($13) (2%) Preschool Programse State Preschool—part dayf $409 $425 $480 $54 13% State Preschool—full day 453 555 591 36 7 Transitional Kindergarteng 626 680 719 39 6 Preschool QRIS Grant 50 50 50 — — Subtotals ($1,537) ($1,710) ($1,840) ($129) (8%) Support Programs $73 $76 $89 $13 17% Totals $2,994 $3,500 $3,698 $199 6% Funding Proposition 98 General Fund $1,280 $1,565 $1,694 $129 8% Non-Proposition 98 General Fund 790 977 983 6 1 Federal CCDF 570 573 639 66 12 Federal TANF 353 385 383 -2 -1 a Reflects DSS revised Stage 1 estimates for cost of care and caseload. Reflects budget act appropriation for all other programs. b Does not include $9.2 million provided to community colleges for certain child care services. c General Child Care funding for State Preschool wraparound care shown in State Preschool—full day. d Less than $500,000. e Some CalWORKs and non-CalWORKs child care providers use their funding to offer preschool. f Includes $1.6 million each year used for a family literacy program at certain State Preschool programs. g Reflects estimates available at the time the 2016-17 budget was enacted. QRIS = Quality Rating and Improvement System; CCDF = Child Care and Development Fund; TANF = Temporary Assistance for Needy Families; and DSS = Department of Social Services. 24 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Alternative Payment programs. The state links (Beginning October 1, 2015, the 2015-16 budget rates for license-exempt providers to a percentage package increased the RMR for licensed providers of the rates for family child care homes accepting by 4.5 percent and increased license-exempt rates vouchers. The budget provides $14 million to from 60 percent to 65 percent of the family child increase license-exempt rates from 65 percent care home rates.) to 70 percent of the family child care home rates Trailer Legislation Contains Intent Statements starting January 1, 2017. Regarding Future Rate Changes. Trailer legislation Budget Package Annualizes Rate Increases states legislative intent to increase the SRR and Initiated Last Year. The 2016-17 budget also the RMR through 2018-19 to reflect higher costs includes $9 million to annualize RMR increases to providers resulting from increases in the for licensed providers and $5 million to annualize state minimum wage. Trailer legislation also license-exempt rate increases initiated last year. specifies legislative intent to link the RMR to the Figure 15 2016-17 Child Care and Preschool Changes (In Millions) Proposition 98 Other Funds Funds Total Reimbursement Rates Increases the Standard Reimbursement Rate 10 percent starting January 1, 2017 $44 $24 $68 Increases the Regional Market Rate to the 75th percentile of the 2014 regional market — 56 56 survey starting January 1, 2017a Adjusts Transitional Kindergarten for LCFF increases 39 — 39 Increases license-exempt rate from 65 percent to 70 percent of family child care home — 14 14 voucher rates starting January 1, 2017 Annualizes funding for Regional Market Rate ceiling increase initiated in 2015-16 — 9 9 Annualizes funding for 5 percent license-exempt rate increase initiated in 2015-16 — 5 5 Subtotals ($82) ($108) ($190) Slots Adjusts State Preschool for annualization of slots initiated in 2015-16b $31 $3 $34 Provides 2,959 full-day State Preschool slots at LEAs starting April 1, 2017 8 — 8 Increases non-CalWORKs slots for statutory growthc 1 1 2 Subtotals ($40) ($4) ($44) Other Increases funding for quality improvement activities — $12 $12 Creates three-year pilot program in Los Angeles County to fund training and wage — 1d 1 increases for 150 child care workers Removes one-time Infant and Toddler QRIS grant funds — -24 -24 Makes CalWORKs caseload and average cost of care adjustments — -25 -25 Other technical adjustments $7 -6 —e Subtotals ($7) (-$42) (-$36) Totals $129 $70 $199 a Includes a hold harmless provision so that no provider receives less than it received in 2015-16. b Annualizes the cost of 5,830 LEA and 1,200 non-LEA full-day State Preschool slots initiated January 1, 2015. c Reflects 0.13 percent growth in the birth-through-four population. d Uses $1.4 million in unspent prior-year Proposition 98 funds. e Less than $500,000. LCFF = Local Control Funding Formula; LEA = local educational agency; and QRIS = Quality Rating and Improvement System. www.lao.ca.gov Legislative Analyst’s Office 25 2016-17 BUDGET 85th percentile of the most recent market survey Budget Includes Additional Funding for based on available funding. Quality Improvement Activities. Federal law requires the state to spend a certain amount on Slots activities designed to improve the quality of child Budget Package Increases Funding for State care. Currently, the state allocates improvement Preschool Slots. The budget provides $34 million funds to resource and referral agencies, local for the State Preschool program to annualize the planning councils, licensing enforcement, and cost of preschool slots added January 1, 2015. The dozens of other programs that provide financial budget also provides $8 million for 2,959 new and technical support to child care workers and full-day State Preschool slots at LEAs starting assistance to parents. Due to recent changes in April 1, 2017. The Legislature and the Governor federal law and additional federal funds the state is have stated their intent to fund additional full-day receiving, the state is required to spend $12 million State Preschool slots in future years. more on quality improvement activities than last year, bringing total quality improvement spending Other Actions in 2016-17 to $89 million. The budget also provides Budget Makes Adjustments to CalWORKs $1.4 million one-time Proposition 98 General Child Care. The budget adjusts the CalWORKs Fund for the Los Angeles Trade-Tech Community child care budget down by $25 million compared College to provide job training, mentoring, and to the 2015-16 Budget Act due to changes in college courses to child care workers. These funds caseload and underlying cost of care. (Changes are available for expenditure through June 30, 2019. in the underlying cost of care do not include Budget Requires CDE to Develop New the rate increases in the 2016-17 budget. The Quality Improvement Expenditure Plan. Federal adjustments reflected here result from changes in law requires states to submit plans to the federal the age of children served, choices families make government describing how they will use their about settings, and the number of hours per week quality improvement funds. The 2016-17 budget children are in care.) The bulk of the decrease requires CDE to submit a new draft expenditure ($18 million) is due to overall CalWORKs child plan to the Legislature by February 1, 2017 and to care caseload projections for 2016-17 being revised the federal government by March 1, 2017. In the downward. The rest of the decrease is due to lower new plan, CDE is to (1) retain funding for resource average cost of care in Stage 1 in 2016-17. These and referral agencies, local planning councils, and decreases are partly offset by a slightly higher licensing enforcement and (2) prioritize funds for average cost of care in Stage 2. Quality Rating and Improvement Systems over other existing improvement activities. HIGHER EDUCATION $15.6 Billion in General Fund Support for $282 million (9 percent), Hastings College of the Higher Education. As shown in Figure 16, this is Law (Hastings) increases $3 million (27 percent), a $777 million (5 percent) increase from 2015-16. and CSU increases $275 million (8 percent). The University of California (UC) increases Financial aid programs administered by the 26 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET California Student Aid Commission (CSAC) and $145 million from various other sources (see increase $111 million (6 percent). Below, we provide Figure 17, next page). Of the new 2016-17 spending, detail on these four areas of the higher education $378 million is unrestricted and may be used at budget. We also describe three crosscutting higher UC’s discretion, with the remaining $206 million education actions and summarize spending restricted for specific purposes. Of state General changes for the California State Library. Fund increases, $125 million is unrestricted (reflecting a 4 percent base increase) and the University of California remainder is restricted. Total UC Spending of $28.7 Billion. Of total UC’s Plan for Unrestricted Funding Mostly UC spending, about one-quarter is covered by state for Compensation Increases. More than General Fund ($3.5 billion) and student tuition 60 percent ($239 million) of UC’s spending plan revenue ($3.2 billion) combined. About 30 percent is for employee compensation, including salary is covered by revenue generated from UC’s five increases, health benefit cost increases for active medical centers; 20 percent from self-supporting employees, and cost increases for pension and activities (such as housing, dining, parking, and retiree health benefits. Remaining ongoing academic extension fee revenue); 14 percent from augmentations planned by UC include support for federal, special, and local funds for research and academic quality initiatives, which include faculty student financial aid; and the remainder from recruitment, faculty salary increases, and increases various other sources, including investment to graduate student stipends; an increase in income, patent revenue, federal indirect cost nonresident enrollment; and facility maintenance. recovery, and philanthropy. Resident Enrollment Expectations and Spending for UC’s Core Education Program Funding. The 2015-16 budget established a goal for Increases $584 Million (9.3 Percent). Of this UC to enroll 5,000 more resident undergraduate amount, $282 million is covered by state General students in 2016-17 compared to 2014-15 levels. The Fund, $158 million from student tuition revenue, budget authorized DOF to augment UC’s budget Figure 16 Higher Education General Fund Support by Segmenta (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Actual Revised Enacted Amount Percent California Community Colleges $5,389 $5,853 $6,029 $176 3% California State University 3,018 3,297 3,572 275 8 University of California 2,991 3,259 3,541 282 9 California Student Aid Commissionb 1,922 1,998 2,110 111 6 California Institute for Regenerative Medicine 275 369 274 -95 -26 Awards for Innovation in Higher Education 50 — 25 25 N/A Hastings College of the Law 11 12 15 3 27 Totals $13,655 $14,789 $15,566 $777 5% a Includes state General Fund support for pensions (for community colleges and CSU), retiree health care (for CSU), debt service (for community colleges and Hastings), and deferred maintenance (for CSU, UC, and Hastings) that comes from outside the segments’ main budget act appropriations. b Includes Temporary Assistance for Needy Families and Student Loan Authority Fund support that directly offsets General Fund costs. www.lao.ca.gov Legislative Analyst’s Office 27 2016-17 BUDGET by $25 million (ongoing) Figure 17 in 2015-16 if UC could University of California Core Education Budget demonstrate by May 1, (In Millions) 2016 that it would achieve Revenuea Amount this enrollment goal. On 2015-16 Revised May 1, DOF determined General Fund $3,259 that UC provided sufficient Tuition and fees 3,028 Total $6,287 evidence the goal had 2016-17 Changes been met and released the General Fund $282 associated funding. The Tuition and feesb 158 2016-17 budget continues Otherc 145 Total $584 this practice for enrollment budgeting. Specifically, it 2016-17 Enacted General Fund $3,541 sets an expectation that Tuition and fees 3,186 UC enroll 2,500 more Total $6,726 resident students in 2017-18 Changes in Spending Amount as compared to 2016-17. UC’s Plan for Unrestricted Funds Similar to the structure General salary increases (3 percent) $152 Academic quality initiativesd 50 of last year’s budget, DOF Faculty merit salary increases 32 is authorized to release Operating expenses and equipment cost increases 30 $18.5 million to UC if Health benefit cost increases (5 percent) 27 Maintenance 25 it can demonstrate by Pension benefit cost increases 24 May 1, 2017 that it will Debt service for capital improvements 15 meet this enrollment goal. Nonresident enrollment growth (3.2 percent)e 14 Dream Loan Program 5 Budget language also Retiree health benefit cost increases 4 calls on UC to adopt a Subtotal ($378) policy that sets a limit on Restricted State General Fund nonresident undergraduate Proposition 2 payment for UC Retirement Plan (one time) $171 enrollment. In addition to Resident undergraduate enrollment growth in 2016-17 (3.4 percent) 50 Deferred maintenance (one time) 35 these actions, legislation One-time research and public service initiatives 29 enacted during the Second One-time student support and outreach initiatives 25 Extraordinary Session Resident enrollment growth in 2017-18 (1.1 percent) 19 Equal employment opportunity best practices 2 provided $1.9 million to Remove one-time, prior-year funds -124 serve 48 additional FTE Subtotal ($206) students in a medical Total $584 a education program jointly Includes all state General Fund. Reflects tuition after discounts. In 2016-17, UC is projected to provide $1.1 billion in tuition discounts. b operated by the Davis, Reflects increases in nonresident supplemental tuition (8 percent), the Student Services Fee (5 percent), and increased enrollment, offset by increases in discounts. Merced, and San Francisco c Reflects: (1) General Fund for enrollment growth UC intends to carry forward, (2) savings from administrative efficiencies, (3) increased revenue from investments, and (4) philanthropy. campuses. d For purposes such as increasing instructional support, reducing student-to-faculty ratios, recruiting faculty, increasing faculty salaries, and providing stipends to graduate students. UC indicates it will allow Largest One-Time campuses to determine how to spend the funds. e Augmentation Is for Funded from nonresident supplemental tuition. 28 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET UC’s Unfunded Pension Liability. The 2016-17 Berkeley providing support services for formerly budget provides $171 million for UC’s Retirement incarcerated students enrolled at that campus. Plan and scores it as a one-time Proposition 2 debt One-Time Funding for Research and payment. This is the second of such payments. Public Service. The budget provides one-time The 2015-16 budget provided UC $96 million augmentations to various UC initiatives that for the same purpose. The 2015-16 budget made advance the university’s research and public service that appropriation contingent upon UC adopting missions. Specifically, the budget package provides a pensionable salary limit for new employees augmentations for expanding entrepreneurship consistent with the limit specified under the and innovation activities; conducting precision Public Employees’ Pension Reform Act of 2013 medicine, firearm violence, and transportation (PEPRA)—$117,020 in 2016. By comparison, UC’s research; and providing aid to stranded or existing retirement plan had a limit of $265,000— entangled marine mammals. Figure 18 (see next the maximum allowed by the federal Internal page) provides further information on each of these Revenue Service. In March 2016, UC adopted augmentations. the PEPRA limit for new employees, along with Authorizes UC to Fund Merced 2020 Project. plans to redirect associated savings to new defined The project will add 917,500 assignable square contribution plans and accelerated pay down of feet of facility space (more than doubling existing UC’s unfunded liability. Upon its determination space) to the Merced campus. Through the that UC’s adopted plan met statutory requirements, expansion, UC Merced intends to accommodate a DOF released the first payment of $96 million to total of 10,000 FTE students by 2020, as compared UC in May 2016. to the 6,200 FTE students it served in 2015-16. The Three One-Time Augmentations for Student entire project costs $1.1 billion, with the portion of Support and Outreach. First, the budget provides the project associated with state-funded facilities UC $20 million for outreach and student services costing $527 million. To deliver the project, UC for low-income students, underrepresented will enter into a public-private partnership. UC will minorities, and students from schools with provide $400 million in bond funding for state- 75 percent or more low-income, English learner, eligible facilities, with the remaining $127 million and foster students. For that last category of in funding from debt issued by the partner. Once students, trailer legislation requires UC to develop construction is completed in 2020, the partner a plan and time line to increase the number of will operate and maintain the facilities for nearly admits, expand support services, and evaluate 30 years. Pursuant to Chapter 22 of 2015 (SB 81, the costs and benefits of providing application fee Committee on Budget and Fiscal Review), UC waivers. Second, the budget provides $4 million must use its own staff for routine maintenance. UC to develop at least 45 online college preparatory will use its General Fund appropriation to provide and advanced placement courses through UC’s ongoing payments for (1) the debt service on UC Scout program. Trailer legislation requires UC bonds; (2) routine maintenance conducted by its to report on the courses it plans to develop by staff; and (3) annual payments to the partner for its January 1, 2017 and then develop those courses debt service, operations, and maintenance costs. In by January 1, 2018. Third, the budget provides 2055, UC will assume responsibility for all facility $500,000 (for expenditure over five years) for the operations and maintenance. Underground Scholars Initiative, a group at UC www.lao.ca.gov Legislative Analyst’s Office 29 2016-17 BUDGET Figure 18 One-Time Funding for UC Research and Public Servicea (In Millions) Initiative Description Funding Innovation and Funding is pursuant to pending legislation which calls for each UC campus and the Lawrence $22.0 entrepreneurship Berkeley National Laboratory to expand programs and support services for entrepreneurs. The activities legislation requires UC to submit an annual report to the Legislature and the Department of Finance on these activities. Precision medicine Trailer legislation specifies funding is for supporting demonstration projects in both Northern and 10.0 research Southern California, to be selected by a committee of experts, and developing a public database of precision medicine assets (such as projects, data sets, and experts). The legislation requires an annual report, beginning January 1, 2017, updating the Legislature on the selected demonstration projects and a final evaluation once the projects are completed. Firearm violence Funding is to establish a Firearm Violence Research Center. Funding is available for expenditure 5.0 research over five years. Trailer legislation specifies that the center would support research on public policies related to firearm violence by (1) conducting its own research and (2) distributing small grants to other institutions for research. The legislation requires UC to report every five years (beginning December 31, 2017) on the program. Transportation policy Funding augments UC’s longstanding Institute of Transportation Studies. The budget act requires 3.0 research UC to develop an expenditure plan with the Transportation Agency and complete a review of the Project Resourcing and Schedule Management information technology system developed by the Department of Transportation. Marine mammal aid Funding reimburses the Wildlife Health Center at UC Davis for marine mammal stranding rescue 2.1 centers ($2 million) and a response team to disentangle whales caught in fishing gear and marine debris ($100,000). a All funding provided in the budget act. Funds flow through UC for every program listed except precision medicine research, for which funds flow through the Office of Planning and Research. All initiatives supported with state General Fund except for the transportation initiative, which is supported with monies from the Public Transportation Account in the State Transportation Fund. Trailer legislation refers to Chapter 24 of 2016 (AB 1602, Committee on Budget). Hastings College of the Law primarily to pay for deferred maintenance ($2 million). Combined, these two core funding Total Spending of $62 Million for Hastings. sources are down a net of $1.3 million. Hastings Of total Hastings spending, $22 million is covered is addressing the resulting $3.8 million operating from tuition revenue (after discounts), $15 million imbalance (stemming from $2.5 million in higher from state General Fund revenue, and $24 million expenditures and $1.3 million less in core revenues) from various other sources, including investment by drawing down its reserve. Hastings estimates income, federal grants, donations, and student ending 2016-17 with $1.2 million in remaining housing fees. reserves. $2.5 Million Increase in Spending for Hastings’ Lease Revenue Bond Funding for New Education Program. Student tuition and state Academic Facility at Hastings Increases by General Fund revenue are the primary sources $18.8 Million. The 2015-16 budget authorized of support for Hastings’ education program. $36.8 million in state lease revenue bonds to build Spending on Hastings’ education program increases a new academic facility on vacant land owned by $2.5 million (6.4 percent) in 2016-17 over the revised Hastings. The new facility is intended to replace an 2015-16 spending level. Tuition revenue, however, existing academic facility whose building systems declines by $4.6 million (17 percent) due to increases are reaching the end of their useful lives. Hastings in tuition discounts ($3.3 million) and a 3.7 percent will use a design-build procurement method drop in enrollment ($1.3 million). State General for the project. The 2016-17 budget increases Fund revenue increases by $3.3 million (27 percent), 30 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET funding for the project by Figure 19 $18.8 million (51 percent) California State University Core Education Budget but assumes no changes (In Millions) to the project scope or Revenuesa Amount schedule. The increase is to pay for higher-than- 2015-16 Revised General Fund $3,297 expected construction Tuition and fees 2,273 costs. Total $5,570 2016-17 Changes California State General Fund $275 University Tuition and feesb 24 Otherc 101 Total CSU Spending Total $400 of $9 Billion. Of total CSU 2016-17 Enacted General Fund $3,572 spending, about 40 percent Tuition and fees 2,297 is covered by state General Total $5,869 Fund ($3.5 billion); Changes in Spending Amount 25 percent is covered by CSU’s Plan for Unrestricted Funds student tuition revenue Employee compensation increase (5.2 percent) $171 ($2.3 billion); and the Resident enrollment growth (1.4 percent) 59 Employee health benefits 35 remainder is covered from Lease revenue debt serviced 8 various other sources, Pension benefitse 7 including self-supporting Maintenance of newly constructed facilities 1 Otherf 21 activities (such as housing, Subtotal ($301) dining, parking, and Restricted State General Fundg academic extension fee Pension benefitse $37 revenue) and federal Deferred maintenance (one time) 35 Graduation improvement plan (one time) 35 funding for financial aid. Retiree health benefits 12 Spending for CSU’s Open educational resourcesh 2 Core Education Program Equal employment opportunity best practices (one time) 2 Student Success Network 1 Increases $400 Million Remove one-time, prior-year funds -25 (7.2 Percent). Of this Subtotal ($99) amount, $275 million is Total $400 a covered by state General Includes all state General Fund. Reflects tuition after discounts. In 2016-17, CSU is projected to provide $671 million in discounts. b Fund, $24 million from Generated from 1.4 percent enrollment growth. c Includes some unspent funding from 2015-16 carried forward and some campus funds. student tuition revenue, d Part of a multiyear plan to provide ongoing funding for debt service on projects approved prior to 2014-15. The 2015-16 budget provided an increase of $7.3 million for this purpose. and $101 million from e Beginning in 2014-15, the state provides pension benefit adjustments based on CSU’s 2013-14 payroll various sources, including level and requires CSU to fund the remaining adjustment from its unrestricted funds. f Includes $15 million in one-time General Fund. CSU has not yet specified how it will allocate any of the carryover funds and $21 million. It has identified debt service on capital outlay and additional student success initiatives as possible priorities. reserves (see Figure 19). g Excludes $20,000 ongoing for financial aid to students participating in the Semester at Sacramento program, administered by the Center for California Studies. Of the new 2016-17 h Implements Chapter 633 of 2015 (AB 798, Bonilla). spending, $301 million is www.lao.ca.gov Legislative Analyst’s Office 31 2016-17 BUDGET unrestricted and $99 million is restricted. Of the (2) underrepresented minorities, and (3) first- increase in General Fund spending, $176 million generation college-goers. The DOF may not release is unrestricted and $124 million is restricted, the funding unless CSU submits the required plan with a technical adjustment of $25 million for by September 30, 2016. Second, the budget provides the removal of prior-year, one-time funding. Of $1.1 million ongoing to support a network of CSU’s unrestricted General Fund, $148 million working groups comprised of staff and employees. is associated with a 4.9 percent base increase The purpose of the network is to investigate the proposed in the Governor’s budget and the underlying causes of low graduation rates at CSU. remainder is associated with two conference The Education Insights Center, located at the committee augmentations ($15 million one time Sacramento campus, will administer this funding. and $12.5 million ongoing). Authorizes CSU to Fund 21 Capital Outlay Largest Ongoing Augmentation for Employee Projects. In addition to the above augmentations, Compensation Increases. CSU’s spending plan the state authorizes CSU to undertake a total contains funding for a 5.2 percent employee of $535 million in capital outlay projects. Of compensation increase and employee health benefit this amount, the state gives CSU authority to cost increases. Additionally, the state budget sell $473 million in systemwide bonds, with the provides direct funding for increases in CSU’s remainder of project funding coming from campus retiree health benefit costs and higher pension costs reserves. Over one-quarter of total project costs associated with CSU’s 2013-14 payroll level. CSU is for CSU’s systemwide improvement program, funds remaining pension cost increases (associated which provides some funding to every CSU with compensation above the 2013-14 payroll level) campus to support upgrades to building systems, using unrestricted funds. improvements to seismic and life safety systems, Resident Enrollment Expectations and and renewal of campus infrastructure. The Funding. The 2015-16 budget established a goal for remaining 20 projects include a total of eight new CSU to enroll 10,400 more resident FTE students buildings, building replacements, and building in fall 2016 as compared to 2014-15. Fall 2015 additions; ten building renovations primarily enrollment data released in January indicated that intended to address code deficiencies and improve CSU might achieve the entire enrollment goal in the seismic, fire, and life safety systems; and two major 2015-16 academic year. The 2016-17 budget sets an campus infrastructure upgrades at the San Diego expectation for CSU to increase resident enrollment and Sacramento campuses. The Supplemental by an additional 5,194 FTE students (1.4 percent) Report of the 2016-17 Budget Package contains a in 2016-17 over 2015-16. This enrollment growth is description of each of these projects. expected to cost $59 million (based on an estimated CSU Intends to Initiate a Few of These Projects marginal cost per student of $11,379). in 2016-17. As of June 2016, CSU indicated it will Two Notable Augmentations for Student initiate only the following projects in the coming Success and Support. First, trailer legislation year: (1) construction of a new science building appropriates $35 million one time to develop a plan at Dominguez Hills; (2) renovations of facilities to improve four-year and two-year graduation rates at Fullerton, Humboldt, and Long Beach; and for freshman and transfer students, respectively, (3) various smaller projects involving upgrades to and close gaps in graduation rates for three building systems, improvements to seismic and life groups of students: those who are (1) low income, safety systems, and other capital renewal. 32 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Crosscutting Issues UC and CSU must develop plans to produce 250,000 and 480,000 more bachelor’s degrees, respectively, One-Time Funding for Deferred Maintenance. by 2030 than they would under the Public Policy The budget contains a package of deferred Institute of California’s (PPIC’s) baseline projections. maintenance funding for several public agencies. These targets are based on a PPIC proposal to Among higher education agencies, the budget generate a total of 1 million more bachelor’s provides $35 million each to UC and CSU and $2 million to Hastings. These segments indicate degrees statewide by 2030. The CCC report is to identify fiscal and policy changes needed to align they will use their funding to replace roofs, associate degree and certificate attainment with upgrade building systems, and renew campus the California Strategic Workforce Development infrastructure. Each segment currently reports Plan. This plan sets forth a goal to produce 1 million significant maintenance backlogs. Reported backlogs associate degrees and certificates with demonstrable are $2.6 billion at CSU, at least $1.2 billion at UC, labor market value between 2017 and 2027. The and $8.4 million at Hastings. (As indicated earlier, CCC report also is to provide specific actions and the budget also provides $185 million for CCC recommendations to close attainment gaps for maintenance and equipment. The CCC reports a targeted subgroups over this period. current maintenance backlog in excess of $1 billion.) Two Items Related to Employment. First, the Financial Aid budget provides funding for Equal Employment $2.1 Billion for Financial Aid. Of this amount, Opportunity (EEO) programs. Specifically, $1.2 billion is from the General Fund, $926 million UC and CSU each receive $2 million General is federal Temporary Assistance for Needy Families Fund one time for this purpose. CCC receives (TANF) funding, and $24 million is from state $2 million ongoing Proposition 98 General Fund special funds and reimbursements. Financial aid and $2.3 million one time from a special fund to spending from these sources increases $118 million augment an existing EEO program, bringing total (6 percent) from the revised 2015-16 level. Of the funding to $5.1 million in 2016-17. Budget language increase, $116 million is ongoing and $2.3 million requires each segment to report to the Legislature is one time. Year over year, General Fund support and DOF by December 1, 2016 on the racial, ethnic, decreases by $293 million whereas TANF support and gender composition of its faculty and its efforts increases by $405 million, with a $7 million to improve EEO practices systemwide. (The budget increase from special funds and reimbursements. requires the CCC report annually thereafter for Provides $90 Million for Increased Cal Grant five years.) Second, the budget requires UC and Costs. This is a 5 percent increase from the revised CSU, by January 1, 2017, to (1) review policies and 2015-16 level, bringing funding for Cal Grants procedures pertaining to outside employment of to $2 billion in 2016-17. The increase is almost university executives and senior managers, and entirely due to a projected 5 percent increase in (2) report to the Legislature and DOF on any the number of awards. Renewal awards account changes made to those policies or procedures. for three-quarters of this growth. The growth in Plans to Increase Degree and Credential renewal awards is due to growth in new awards in Production. The budget act requires all three recent years. The budget also assumes two changes segments to submit reports to the Legislature and to maximum award amounts. First, the budget DOF by March 1, 2017 on how they will increase the assumes a $54 increase in the maximum UC number of degrees and certificates they produce. www.lao.ca.gov Legislative Analyst’s Office 33 2016-17 BUDGET award due to UC increasing its Student Services $6 million in 2015-16 to $9 million in 2016-17—a Fee by this amount. This increases Cal Grant costs 50 percent increase. Federal support is expected by $4.1 million. Second, the budget assumes the to remain flat at $5.6 million. The $3 million Cal Grant Access Award supplement increases augmentation is expected to provide awards to from $8 to $22 (on top of the base award amount an additional 922 students, bringing total grant of $1,648 per student). This increase is due to recipients up to an estimated 4,512 students. (CSAC College Access Tax Credit Fund revenues growing reports that over 1,100 eligible applicants did not from $1.8 million in 2015-16 to $5.1 million in receive awards in the most recent grant cycle due to 2016-17. Additionally, the budget increases the insufficient funding.) amount of federal TANF supporting Cal Grants by Increases CSAC State Operations Funding. $405 million and decreases General Fund by the The budget includes two items relating to CSAC’s same amount. This change is a fund swap and has information technology (IT) system. The budget no programmatic effect on the Cal Grant program. provides CSAC with $2 million ($1.4 million Adjustments to Funding for Middle Class one time and $526,000 ongoing) to address risks Scholarships. Statute sets forth state appropriations identified in a recent security audit of its current for Middle Class Scholarships. The 2015-16 budget IT system. Additionally, the budget provides CSAC package revised the statutory appropriations with $396,000 one time to continue planning a new down to reflect savings from the creation of IT system. The commission is expected to perform an asset ceiling and other modifications to the the second and third stages of the Department of program’s eligibility requirements. The 2016-17 Technology’s four-stage approval process for the budget package lowers the budget-year and new IT project in 2016-17. out-year statutory appropriations by $42 million Authorizes CSAC to Receive $500,000 One to reflect greater-than-expected savings from these Time From a Private Foundation. This would changes. Specifically, trailer legislation reduces allow the commission to conduct research the appropriation for 2016-17 from $116 million sponsored by the College Futures Foundation. to $74 million and the appropriations for 2017-18 The foundation is a private organization that and thereafter from $159 million to $117 million. funds initiatives to help low-income students in After making these adjustments, funding for the California attend and graduate from college. The program increases by $26 million from the revised scope of the arrangement between CSAC and the 2015-16 level. The year-to-year increase reflects College Futures Foundations is not yet determined. increased participation and the continued phase-in California State Library of higher award amounts. Increases Funding for Chafee Foster Youth Total State Library Spending of $53 Million. Grant Program. This need-based program provides Of total spending, $34 million (almost two-thirds) certain current or former foster youth with up to is from state General Fund, $18 million from $5,000 per year for college attendance costs at any federal funds, and $1 million from special funds. eligible postsecondary institution. (To be eligible, Of state General Fund, $18 million is for direct an institution must be participating in the federal operations and facilities, with $16 million for Pell Grant program.) The Chafee grant program is assistance to local libraries. The budget includes supported with state and federal funds. The budget $7.4 million in new General Fund spending— increases state support for the program from $561,000 for state operations and $6.8 million for 34 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET local library assistance. This spending increase Several Other Funding Increases. The budget is offset by $5.5 million in various downward provides $1 million (one time) for the State Library technical adjustments, resulting in a net to administer grants to individuals, organizations, year-to-year increase of $2 million. and education institutions through the California $4.8 Million Increase for Regional Library Civil Liberties Public Education Program. Cooperatives. Of this amount, $3 million is one The grants are to provide education about the time and $1.8 million is ongoing. This is in addition internment of Japanese Americans during World to the $1.9 million in ongoing funding that the War II, with priority for projects that link this cooperatives currently receive to promote resource experience to other populations facing civil rights sharing within and across regions. The budget violations. The State Library would work with directs the cooperatives to use the funding increase an advisory committee to select and administer to expand these efforts and adds language that the grants. The budget also provides $1 million allows libraries to adopt new technologies to share (one time) for the nonprofit California Historical resources. The California Library Services Board Society to increase access to exhibitions and public has discretion in how it allocates funding to the programs at its San Francisco and Los Angeles cooperatives. Following current practice, it intends facilities. It also provides $505,000 (ongoing) for to allocate the ongoing funding based on the number the State Library to purchase additional microfilm of people residing within each of the cooperative’s ($343,000), database subscriptions ($142,000), and boundaries. Trailer legislation requires the periodical and journal subscriptions ($20,000). cooperatives to report on how they spend one-time The budget includes $56,000 (ongoing) to pay for a funds, with additional reporting requirements 5 percent increase in rent and facilities costs at the relating to the expansion of digital libraries. State Library’s main library in Sacramento. HEALTH Overview of Spending. The spending plan Department of Health Care Services (DHCS)— provides $20.1 billion General Fund for health Medi-Cal programs. This is an increase of $447 million, The spending plan provides $17.8 billion or 2.3 percent, compared to the revised 2015-16 General Fund for Medi-Cal local assistance spending level, as shown in Figure 20 (see next expenditures administered by DHCS. This is an page). This year-over-year net increase reflects increase of about $243 million, or 1.4 percent, increases in the Medi-Cal caseload and in the compared to the revised 2015-16 spending level. cost of providing health care services to Medi-Cal Spending in 2015-16 was about $528 million lower beneficiaries, as well as some new health care than the 2015-16 budget appropriation. The lower initiatives and program expansions. Figure 21 (see spending in 2015-16 compared to the appropriation next page) shows the major policy changes adopted is the net result of a variety of factors, such as by the Legislature as part of the 2016-17 spending higher-than-expected prescription drug rebates and plan. These changes—which include the enactment lower-than-estimated managed care costs. of a revised managed care organization (MCO) tax Differences in Medi-Cal spending resulting in General Fund savings of $1.1 billion in between 2015-16 and 2016-17 are in large part the Medi-Cal—are discussed in more detail below. www.lao.ca.gov Legislative Analyst’s Office 35 2016-17 BUDGET Figure 20 Major Health Programs and Departments—Spending Trends General Fund (Dollars in Millions) Change in 2015-16 2016-17 Amount Percent Medi-Cal—local assistance $17,512 $17,755 $243 1.4% Department of State Hospitals 1,628 1,705 77 4.7 Department of Public Health 130 151 21 16.4 Other DHCS programs 209 268 59 28.1 Office of Statewide Health Planning and Development — 33 33 — Emergency Medical Services Authority 8 9 — 2.9 DHCS—state administration 188 201 13 7.1 Totals $19,675 $20,122 $447 2.3% DHCS = Department of Health Care Services. result of underlying cost drivers in the program, spending plan assumes that overall caseload such as changes to caseload and the cost of will grow by 4.8 percent compared to 2015-16. providing health care services. For example, the We discuss some of the major policies that were adopted as part of the Figure 21 2016-17 Medi-Cal budget Major Health Programs and Departments— below. Key Policy Changes Reflects MCO Tax 2016-17 General Fund Effect (In Millions) Funding That Resulted Program/Department Amount From Special Session. Chapter 2 of the 2015-16 Medi-Cal—Department of Health Care Services Savings resulting from revised MCO tax -$1,100.0 Second Extraordinary Savings from new federal limits on generic drug prices -130.0 Session (SB2X 2, Rate adjustments for certain long-term care providers 135.0 Hernandez), imposes Changes to asset recovery 26.0 Restoration of acupuncture benefit 3.7 a revised MCO tax on Behavioral Health most managed care plans. Infrastructure funding for public safety diversion programs $67.5 Revenues from the MCO Expansion of children’s mental health crisis services 10.0 tax are used, in part, Office of Statewide Health Planning and Development to create General Fund Expansion of residency programs for primary care physicians $33.3 savings in Medi-Cal. The Department of Public Health Additional funds for sexually transmitted disease prevention $5.0 spending plan reflects Reestablish Children’s Dental Disease Prevention Program 3.2 $1.1 billion in General Drug overdose prevention 3.0 Fund savings resulting Early detection and diagnosis of Alzheimer’s disease 2.5 Prevention funds for hepatitis B and C viruses 1.4 from the MCO tax in Enforcement funding for tobacco-related legislation 1.0 the Medi-Cal budget for Department of State Hospitals 2016-17. Activation of additional beds in Department of State Hospitals $18.1 Reflects Special Jail-based competency treatment expansion 4.2 Session Rate Adjustments MCO = managed care organization. 36 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET for Certain Long-Term Care Facilities. Chapter 3 health care providers of the Medi-Cal fee-for-service of the 2015-16 Second Extraordinary Session system. In 2011, DHCS contracted with a vendor to (AB2X 1, Thurmond), forgave certain payments (1) replace the legacy CA-MMIS with a modernized that distinct part skilled nursing facilities system, known as the CA-MMIS Replacement would have otherwise owed retroactively. The Project, and (2) take over the maintenance and legislation also eliminated certain Medi-Cal rate operation of the legacy CA-MMIS while the reductions for Intermediate Care Facilities for replacement project was underway. After four years the Developmentally Disabled and provided a of development, the vendor notified DHCS that it 3.7 percent rate increase for these providers. The would not complete the CA-MMIS Replacement cost of these rate adjustments is $135 million Project after experiencing significant schedule General Fund in 2016-17. Ongoing, these delays. This notification initiated a negotiation adjustments will cost roughly $13 million General between DHCS and the vendor regarding the terms Fund. (The cost in 2016-17 is substantially higher, of a settlement agreement, which was finalized in as it accounts for the one-time costs associated with April 2016. The settlement agreement stipulates that the forgiveness of the payments owed retroactively.) DHCS and the vendor agreed to discontinue work Reflects Extension of Section 1115 Waiver. In on the CA-MMIS Replacement Project. However, December 2015, the federal government approved the vendor will continue to maintain and operate a five-year extension of the state’s Section 1115 the legacy CA-MMIS through September 2019. waiver. The federal government grants states The spending plan provides limited-term funding flexibility in administering their Medicaid of $3.4 million General Fund for 24 positions to programs through “waivers,” such as those allowed (1) conduct various project closeout activities, under Section 1115 of the federal Social Security (2) begin the procurement for a new vendor to Act. When a state’s waiver request is approved by maintain and operate the legacy CA-MMIS, and the federal government, the state is permitted to (3) reevaluate the procurement approach to replace waive certain federal requirements on the basis the legacy system. that the waiver serves to further the purpose of Extends Hospital Quality Assurance Fee for the state’s Medicaid program. The extension of the One Year. The spending plan extends the hospital Section 1115 waiver includes roughly $7 billion in quality assurance fee to January 1, 2018. (It was federal funding for Medi-Cal over the five years previously scheduled to sunset on January 1, 2017.) associated with several new programs that the However, this fee extension does not have an state will implement through the waiver. Examples impact on the 2016-17 Medi-Cal budget. Rather, the of such programs include the Global Payment roughly $850 million in General Fund savings that Program that reforms financing provided to certain will result from the fee extension will likely occur public hospitals to treat the remaining uninsured in 2017-18, reflecting the timing of the required and the Whole Person Care Pilot that will provide federal government approval and Medi-Cal’s coordinated care for Medi-Cal beneficiaries who cash-basis budgeting. are high utilizers of services. Scores Savings Resulting From Revised Funds Closeout Activities Resulting From Federal Upper Limit for Generic Drug Prices. In California Medicaid Management Information April 2016, a revised federal rule went into effect System (CA-MMIS) Replacement Project limiting how much the fee-for-service Medi-Cal Settlement. The CA-MMIS processes payments to program can reimburse pharmacies for certain www.lao.ca.gov Legislative Analyst’s Office 37 2016-17 BUDGET generic drugs dispensed to beneficiaries. The new The grants will finance the acquisition or renovation upper limits are based on pharmacies’ average of new or expanded facilities and equipment, as well drug acquisition costs and are on net lower than as support diversion program startup or expansion the amount Medi-Cal was previously reimbursing costs. In addition to funding diversion services, the pharmacies, resulting in estimated General Fund grant funding is intended to expand services to sex savings of $130 million in 2016-17. trafficking victims, domestic violence victims, and Restores Acupuncture Benefit. The spending victims of other violent crimes. plan restores the acupuncture benefit in Medi-Cal Funding to Build a Continuum of Children’s at a cost of $3.7 million General Fund ($4.4 million Mental Health Crisis Services. The spending ongoing). Acupuncture is an optional Medi-Cal plan includes $30 million on a one-time basis to benefit—meaning the state is not required to build a continuum of children’s mental health provide the benefit under federal Medicaid law— crisis services. The funding consists of $16 million that was eliminated during the recession. from the General Fund—including a $6 million Scales Back Asset Recovery. The spending plan reappropriation—and $14 million in Mental scales back estate recovery as currently implemented Health Services Act (MHSA) state administration in Medi-Cal such that estate recovery is only funding. The funds will establish a grant program collected to the extent required by federal law, at administered by the Mental Health Services an annual cost of $26 million General Fund. Prior Oversight and Accountability Commission and the state law required recovery for nearly all Medi-Cal California Health Facilities Financing Authority, payments for individuals aged 55 or older at the to which counties will apply. The grant program time of receiving services (with certain exceptions). will support county efforts to build a full range of In contrast, federal law requires the state to seek children’s crisis services, including residential crisis recovery from a deceased individual’s estate beds that serve as an alternative to hospitalization, for payments for only a select group of services community-based intervention services, expanded provided by Medi-Cal, including nursing facility respite care, and crisis training for families. services, home- and community-based services, and State Resources to Maintain Suicide Hotline related hospital and prescription drug services. Funding at Current Level. The spending plan includes $4 million in one-time MHSA state Behavioral Health administrative funds to allow the state’s 11 crisis Expands Public Safety Diversion Programs. call centers that answer calls through the National The spending plan provides $67.5 million from Suicide Prevention Lifeline to maintain recently the General Fund on a one-time basis to establish introduced services that were previously funded a community infrastructure grant program with discretionary county MHSA funds. The administered by the California Health Facilities one-time funding is intended to temporarily Financing Authority. The competitive grant address an ongoing suicide hotline funding program will distribute funds to cities and counties shortfall until a permanent funding plan can be to increase capacity within local mental health, identified and selected. substance use disorder, and trauma-centered service Use of County MHSA Funds to Support facilities, with the intent that these expanded Statewide Homelessness Initiative. The spending facilities will serve as an alternative to incarceration plan reflects the No Place Like Home initiative, for individuals with behavioral health disorders. which was introduced by the Legislature and 38 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET incorporated into the Governor’s budget to Marijuana Regulation Safety Act, which we establish a $2 billion grant program primarily describe in the “Other Major Provisions” section of to support the construction and reconstruction this report.) of permanent housing for the state’s homeless Childhood Lead Prevention Program. The population with mental health needs. Revenue spending plan includes an increase of $8.4 million bonds whose debt service will be paid over time from the Childhood Lead Prevention Fund to with county MHSA funds will fund the initiative. support expanded childhood lead prevention (Budget-related legislation permits other funding activities, including funding for: (1) expanded sources to be used to finance the initiative as well.) services to children who have been exposed to lead The No Place Like Home initiative is discussed and (2) Geographic Information System mapping in greater detail in the “Other Major Provisions” of the locations of children with elevated blood lead section of this report. levels to help identify locations of lead exposure. Office of AIDS. The spending plan reflects Office of Statewide Health various policy changes and an increase of Planning and Development $9.6 million ongoing in federal and drug rebate Expands Primary Care Physician Residency funds to: (1) expand the Health Insurance Premium Programs. The spending plan provides $33 million Payment program to clients with employer- from the General Fund for each of the next based or family or dependent health insurance, three years to expand residency programs for (2) increase access to Pre-Exposure Prophylaxis primary care physicians. The majority of the (PrEP) to prevent human immunodeficiency funding—$82.5 million over three years—is virus (HIV) transmission in select demonstration dedicated to support new residency slots in medically counties, (3) develop a PrEP Affordability Program, underserved areas under the Song Brown Program, and (4) eliminate cost sharing for individuals while the remainder—$17.5 million over three enrolled in the AIDS Drug Assistance Program years—is intended to expand residency training in who have annual incomes between 400 percent and community-based Teaching Health Center programs. 500 percent of the federal poverty level. Legislative General Fund Augmentations Department of Public Health (DPH) for Expanded and New Program Activities. The The spending plan provides over $3 billion spending plan includes a total of $13 million— from all fund sources for DPH programs. This primarily one-time funding—in legislative General is an increase of $56 million, or about 2 percent, Fund augmentations that were approved by the compared to the revised prior-year spending Governor as follows: level. Of this total, the spending plan provides • $5 million on a one-time basis for sexually $151 million General Fund for DPH, an increase transmitted disease prevention. of $21 million, or 16 percent. This year-over-year increase in General Fund largely reflects a number • $3.2 million ongoing to reestablish the of relatively small program augmentations initiated California Children’s Dental Disease by the Legislature, as discussed below. (The Prevention Program. spending plan also reflects various funding and • $3 million on a one-time basis for drug policy changes for DPH to implement the Medical overdose prevention. www.lao.ca.gov Legislative Analyst’s Office 39 2016-17 BUDGET • $2.5 million on a one-time basis for early in the state hospitals and jail-based competency detection and diagnosis of Alzheimer’s treatment (JBCT) programs. disease. Activation of Additional State Hospital Beds. The budget plan includes an $18 million • $1.4 million on a one-time basis for General Fund increase for the activation of an prevention and treatment of the hepatitis additional 85 patient beds. This total includes B and C viruses. (1) $13 million for 60 beds primarily to treat incompetent to stand trial (IST) patients at • $1 million (increased to $2 million in DSH-Napa and (2) $5 million for 25 beds future years) for enforcement-related at DSH-Metropolitan to treat patients committed activities in implementation of recently under the provisions of the Lanterman-Petris-Short enacted tobacco legislation, (LPS) Act and currently housed at DSH-Patton. • $600,000 on a one-time basis for the This will allow DSH-Patton to accommodate Biomonitoring California program. (This additional IST patients. In addition, the budget program works to study environmental package includes $2 million in reimbursement chemicals in Californians to help assess authority for the activation of 11 beds effectiveness of public health and regulator at DSH-Metropolitan for LPS patients. Counties efforts to reduce chemical exposures.) will contract with the state for these beds for LPS patients. Department of State Hospitals (DSH) JBCT Program Expansion. The budget provides an additional $4 million from the General Under the budget plan, General Fund spending Fund to expand JBCT programs by up to 35 beds for DSH will be about $1.7 billion in 2016-17, an in two counties. These programs provide services increase of $77 million, or 5 percent, from the to IST patients in county jails. The counties had not revised 2015-16 level. The year-over-year increase been identified at the time the budget was enacted. is largely due to various plans to increase capacity HUMAN SERVICES Overview of Spending. The spending plan page 42) shows the major policy changes adopted by provides nearly $13 billion from the General Fund the Legislature as part of the 2016-17 spending plan. for human services programs. This is an increase These changes are discussed in more detail below. of $1.2 billion, or about 10 percent, compared to Department of Developmental Services the revised prior-year spending level, as shown in Figure 22. This is largely the result of higher Under the budget plan, General Fund spending spending in the Department of Developmental for DDS will increase from about $3.5 billion Services (DDS) and the In-Home Supportive in 2015-16 to nearly $4 billion in 2016-17, or by Services (IHSS) program, reflecting increased about 14 percent. This year-over-year increase funding related to special session actions for primarily reflects the impact of (1) rate increases developmental community services, caseloads, for various community services providers and costs per consumer, and labor costs. Figure 23 (see other augmentations authorized by special session 40 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET legislation, (2) increased community services one-time General Fund for the community services spending due to new policy changes as well as rate study that AB2X 1 requires DDS to submit to caseload increases and utilization changes, and the Legislature by March 2019. (Additional details (3) other workload-related adjustments. regarding special session actions related to the Significant Community Services Budget developmental services system can be found in Augmentations Due to Special Session Actions. The 2016-17 Budget: Analysis of the Department of The spending plan provides a total of $293 million Developmental Services Budget.) General Fund ($481 million total funds) for DDS Other Community Services-Related Spending to implement Chapter 3 of the 2015-16 Second Changes. In addition to the special session-related Extraordinary Session (AB2X 1, Thurmond), augmentations, the spending plan also includes which was signed by the Governor in March 2016. $52 million General Fund (about $80 million total (In June 2015, the Governor convened a special funds) for the following key spending changes legislative session to address various health and related to the community services system: human services issues, including the provision of • $26 million General Fund ($46 million sufficient funding for rate increases for community total funds) to implement a new rate for service providers serving individuals with Alternative Residential Model rate facilities developmental disabilities.) Assembly Bill 2X 1 and serving four or fewer individuals. the budget act collectively appropriated General Fund monies to implement AB2X 1—primarily • $13.4 million General Fund (about for salary and/or benefit increases for community $17 million total funds) to support service providers that devote most of their time to compliance of DDS, regional centers (RCs), providing direct care to consumers and other rate and community providers with new federal increases. The spending plan provides $3 million rules for home- and community-based Figure 22 Major Human Services Programs and Departments—Spending Trends General Fund (Dollars in Millions) Change 2015-16 2016-17 Amount Percent SSI/SSP $2,776.6 $2,872.2 $95.6 3.4% Department of Developmental Services 3,481.5 3,980.0 498.5 14.3 CalWORKs 699.8 704.9 5.1 0.7 In-Home Supportive Services 3,004.0 3,455.7 451.7 15.0 County Administration/Automation 809.7 830.1 20.5 2.5 Department of Child Support Services 314.3 314.2 -0.1 — Department of Rehabilitation 59.8 61.1 1.3 2.2 Nonrealigned children’s programsa,b 262.2 360.3 98.1 37.4 Department of Aging 33.4 35.8 2.3 7.0 All other social services (including state support) 321.1 358.1 37.0 11.5 Totals $11,762.4 $12,972.3 $1,209.9 10.3% a These include, among other programs, the Kinship Guardianship Assistance Payment Program, Approved Relative Caregiver Program, and funding for the Continuum of Care Reform efforts. b The 2015-16 General Fund includes a $50 million set-aside for a potential federal penalty. This penalty is currently being appealed. If the state does not ultimately have to pay the penalty, or pay a lesser amount, General Fund costs in this area would be less. www.lao.ca.gov Legislative Analyst’s Office 41 2016-17 BUDGET services, including resources for 21 program • $13 million General Fund ($17 million evaluator positions within each RC and four total funds) to support additional RC permanent positions at DDS headquarters. service coordinator positions to improve coordinator-to-consumer caseload ratios. Figure 23 Major Human Services Programs and Departments—Policy Changes 2016-17 General Fund Effect (In Millions) Program Amount Developmental Services Provider rate increases and other community services augmentations $293.0 One-time increase in Community Placement Plan program activities for DC movers 73.8 Establish new rate for certain residential facilities serving four or fewer individuals 26.0 Provide retention incentives for DC employeesa 20.1 Implementation of new federal requirements for home- and community-based services 13.4 Increased Regional Center support for improved coordinator-to-consumer caseload ratios 13.0 In-Home Supportive Services (IHSS)b Restore 7 percent service hours 265.8 SSI/SSP One-time funding to establish Housing and Disability Income Advocacy Program 45.0 Increase state-funded portion of grants by 2.76 percentc 36.5 CalWORKsd Repeal maximum family grant policyc 96.5 Increase child care reimbursementsc 19.4 Augment funding for Housing Support Program 12.0 Expand access to homeless assistance paymentsc 2.4 Food Assistance One-time funding for State Emergency Food Assistance Program 2.0 Immigration One-time augmentation for immigration assistance 15.0 Child Welfare Services Provide funding for Continuum of Care Reform efforts 120.3 Establish state grant program to prevent homelessness among child welfare families 10.0 Augment funding for the Commercially Sexually Exploited Children Program 5.0 Increase the foster care infant supplement 4.0 Augment funding for the Chafee Education and Training Voucher Program 3.0 Adult Protective Services (APS) One-time increase for APS social worker training 3.0 Department of Aging One-time augmentation for home-delivered meals program 2.0 a Funding is budgeted in overall state employee compensation budget and subject to collective bargaining. b We note that the 2016-17 budget includes a total of $437 million in IHSS (not included in this table) for a full year of compliance with new federal regulations for overtime for home care workers. The policy to comply with the new regulations was adopted as part of the 2014-15 budget, but was not implemented until February 1, 2016 due to federal litigation. The 2016-17 budget reflects the first full fiscal year that this policy will be implemented. c Effective January 2017. d We note that the 2016-17 budget includes $36 million ($1 million General Fund), not reflected in this table, for a 1.43 percent increase to CalWORKs grants, effective October 2016. The increase is provided pursuant to a determination by the Department of Finance that certain dedicated revenues are sufficient to fund the increase. DC = developmental center. 42 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET New Fiscal and Program Research Unit. (1) inventory and archiving of clinical and The spending plan provides $630,000 General historical records as well as relocation of Fund ($923,000 total funds) and seven permanent residents and their personal belongings positions to establish a Fiscal and Program Research at Sonoma DC, (2) independent monitor Unit. The budget also includes $300,000 General contracts at all three DCs, and (3) a Fund to develop and implement a plan to monitor, contracted property site assessment at evaluate, and improve the quality of community- Sonoma DC. based services through a “performance dashboard.” Required Reporting on Backfill Needed for Developmental Center (DC) Closure-Related Lost Federal Funding. Budget-related legislation Funding. On October 1, 2015, DDS submitted to requires DDS to report quarterly to the Legislature the Legislature for approval a plan for the closure of on the estimated General Fund backfill costs due Sonoma DC and on April 1, 2016 submitted plans to lost federal funds (estimated to be $32.4 million for the closure of Fairview DC and the general in 2016-17) from the decertification of the treatment area at Porterville DC. The spending intermediate care facilities (ICFs) at Sonoma DC plan provides resources as well as reflects related and failure to comply with federal settlement policy changes to move forward with these DC terms to continue funding. This legislation also closures, as follows: requires similar quarterly reporting for Fairview • $73.8 million one-time General Fund and/or Porterville DCs if the ICFs at these DCs ($78.8 million total funds) for the also lose federal funding related to decertification. Community Placement Program (CPP) The budget act also authorizes up to $32.4 million to support accelerated transitions for General Fund for the operation of ICFs at Sonoma individuals moving out of Sonoma, DC upon 30-day notice to the Legislature prior to Fairview, and Porterville DCs related to expenditure. planned closures. (This is in addition to Porterville DC Capital Outlay and Deferred $68 million in total “base” CPP funding Maintenance. The spending plan includes that has historically been provided.) an increase of $8.3 million General Fund in one-time funding to replace the secure treatment • $20.1 million one-time General Fund for area personal alarm locating system, as well as retention incentives for DC staff to help for the construction phase to upgrade the fire maintain continuity of services during the alarm system, at Porterville DC. In addition, the closure process. (This funding is subject to spending plan includes $18.2 million for deferred the collective bargaining process.) maintenance projects at Porterville DC, including • $10.1 million ongoing General Fund $10.1 million General Fund for replacement of the ($15 million total funds) through the boiler system and related projects. DC closure process for resolution In-Home Supportive Services and settlement of remaining workers’ compensation claims. The spending plan includes $3.5 billion General Fund for IHSS in 2016-17, an increase of • $5.3 million one-time and ongoing General $452 million (15 percent) over revised estimates for Fund ($7.1 million total funds) for other 2015-16. The majority of the year-over-year increase closure-related activities, including: is due to growth in caseload, hours per case, and www.lao.ca.gov Legislative Analyst’s Office 43 2016-17 BUDGET provider wages and benefits. The spending plan state implemented the new regulations for IHSS also reflects two key cost drivers—(1) the General providers on February 1, 2016 following delays Fund restoration of service hours associated with due to federal court action. The new regulations the IHSS 7 percent reduction in service hours for as require states to (1) pay overtime compensation— long as the newly-passed MCO tax is in place, and at one-and-a-half times the regular rate of pay— (2) a full year of Fair Labor Standards Act (FLSA) to IHSS providers for all hours worked that implementation, including newly defined provider exceed 40 in a week, and (2) compensate IHSS exemptions to the workweek cap. We describe these providers for time spent waiting during medical factors in more detail below. appointments and traveling between the homes of Restores IHSS Hours From 7 Percent IHSS recipients. Figure 24 compares the full-year Reduction With General Fund Tied to MCO Tax. costs in 2016-17 to the partial-year costs in 2015-16 The spending plan includes $266 million General for each component of FLSA implementation. Fund to restore the service hours associated with . . . Including Funding for Administratively the IHSS 7 percent reduction in service hours with Established Provider Exemptions to Workweek General Fund for as long as the recently passed Cap. As shown in Figure 24, the IHSS budget MCO tax is in place. The 2015-16 budget provided includes $22 million General Fund in 2016-17 one-time General Fund support of $241 million for exemptions to the 66-hour workweek cap to restore these hours. The MCO tax—which for certain providers with multiple recipients. was approved by the federal government in May The Department of Social Services (DSS) 2016—is expected to be effective through 2018-19. administratively established two types of (We note that budget-related legislation states that exemptions in response to federal guidance asking if the federal government rescinds its approval of states implementing workweek caps for IHSS-like California’s MCO tax for any reason, the General providers to institute exemptions in situations Fund support for the service hours associated with where the caps could lead to increased risk of the IHSS 7 percent reduction in service hours will institutionalization for the consumer. The first be eliminated.) exemption applies to IHSS providers who are—as Provides Full-Year Funding for of January 31, 2016—the parents of (or have a Implementation of New Federal Labor parent-like relationship with) two or more IHSS Regulations Affecting IHSS Providers . . . The consumers with whom they live. DSS estimates 2016-17 budget includes Figure 24 $437 million General Costs of Implementing New Federal FLSA Regulations Fund for compliance with new federal labor General Fund (In Millions)a regulations, an increase of Change From 2015-16 2016-17 2015-16 $188 million (75 percent) Overtime pay $145 $230 $85 over revised estimates Newly compensable work activities 70 180 110 for 2015-16. This increase Provider exemptions to workweek caps 4 22 18 reflects a full year of Administrative costs 31 4 -27 funding for compliance in Totals $249 $437 $188 a Dollar amounts in figure may not add due to rounding. 2016-17, compared to five FLSA = Fair Labor Standards Act. months in 2015-16. The 44 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET that 1,200 providers are eligible for this exemption for individuals and couples will change in 2017 in 2016-17. The second exemption is applied on a under the SSP grant increase. case-by-case basis for providers who work for two Establishes Limited-Term State Matching or more recipients for whom certain circumstances Funds for County Housing and Disability Income outlined by DSS (for example, a language barrier) Advocacy Program. The spending plan provides prevent the recipient from hiring another provider. $45 million General Fund in 2016-17 on a one-time DSS estimates that 5,000 providers will be approved basis—available to be spent over three years—to for this exemption in 2016-17. Both exemptions establish the Housing and Disability Income allow providers to work up to 90 hours per week Advocacy Program. Under this program, state (not to exceed 360 hours per month). funding will be awarded to counties that provide county matching funds to establish or expand Supplemental Security Income/ programs that help homeless individuals with State Supplementary Payment (SSI/SSP) disabilities apply for disability benefit programs, The 2016-17 budget includes $2.9 billion including SSI/SSP. These county-run programs General Fund for SSI/SSP, an increase of (sometimes called “SSI advocacy programs”) $95 million (3.4 percent) over revised expenditure perform outreach to individuals who may be estimates for 2015-16. This increase is largely eligible for disability compensation, and assist the result of two policy changes included in the them in navigating the application and appeals 2016-17 budget—(1) a 2.76 percent increase to the process. Budget-related legislation also requires state-funded SSP portion of the SSI/SSP grant, and participating counties to establish or expand (2) one-time funding of $45 million to establish the housing assistance programs for individuals Housing and Disability Income Advocacy Program. receiving these services. Increases State Portion Figure 25 of SSI/SSP Grants by SSI/SSP Monthly Maximum Grant Levelsa 2.76 Percent. The spending plan includes six months Change From 2015-16 2016-17b 2015-16 of funding ($37 million) Maximum Grant—Individuals from the General Fund SSI $733.00 $733.00 — to increase SSP grants by SSP 156.40 160.72 $4.32 the California Necessities Totals $889.40 $893.72 $4.32 Index—2.76 percent in Percent of federal poverty levelc 90% 90% — 2017—beginning January 1, Maximum Grant—Couples 2017. The annual cost of SSI $1,100.00 $1,100.00 — SSP 396.20 407.14 $10.94 this increase is estimated Totals $1,496.20 $1,507.14 $10.94 to be approximately Percent of federal poverty levelc 112% 113% — $74 million General Fund. a The maximum monthly grants displayed refer to those for aged and disabled individuals and couples living in their own households, effective as of January 1 of the fiscal year. Figure 25 displays how b Amounts for SSI reflect the assumption that the January 2017 federal cost-of-living adjustment (COLA) maximum monthly grants for the SSI portion of the grant will be zero. We note that the amount of the federal COLA for 2017 will be finalized in fall 2016. c Compares grant level to federal poverty guideline from the U.S. Department of Health and Human Services for 2016. www.lao.ca.gov Legislative Analyst’s Office 45 2016-17 BUDGET California Work Opportunity and DOF estimates that sufficient funds are available in Responsibility to Kids (CalWORKs) the subaccount to fully cover the costs of an increase. Aside from cash assistance costs covered with The spending plan provides a total of child poverty subaccount funds, the spending plan $5.4 billion from all funds to support the includes $1 million from the General Fund to pay CalWORKs program, a decrease of $130 million for program administration and services costs for a (2 percent) relative to estimated spending in the small number of families projected to remain assisted prior year. This year-over-year decrease primarily in CalWORKs longer than they otherwise would reflects the net effect of roughly $180 million because of the grant increase. in costs from new augmentations and roughly As displayed in Figure 26, the grant increase is $310 million in savings largely related to declining estimated to result in up to $10 in increased cash caseloads. Within the total funding amount, the assistance per month for a family of three with no spending plan provides $705 million from the other income. For many households, this increase General Fund to support CalWORKs, an increase will be partially offset by a small reduction in the of $5 million (less than 1 percent) over the prior family’s CalFresh food benefit (relative to what the year. Major changes in CalWORKs funding and food benefit would have been without the grant policy included in the 2016-17 spending plan are increase) because the CalWORKs grant is counted described in greater detail below. as income for purposes of determining CalFresh Grants Increased by 1.43 Percent. Effective benefit amounts. October 2016, budget legislation increases maximum Maximum Family Grant (MFG) Policy monthly CalWORKs grants by 1.43 percent. The Repealed. Since 1997, families receiving cost of additional cash assistance resulting from CalWORKs assistance have not received an this increase—$35 million in 2016-17 and roughly increase to their monthly grant to reflect the birth $47 million ongoing—is to be paid from the of any child born after more than ten months Child Poverty and Family Supplemental Support of continuous assistance (with some limited subaccount (hereafter “child poverty subaccount”), exceptions), pursuant to a provision of state law a special fund dedicated to providing CalWORKs known as the MFG policy. (In general, larger grant increases. Under current law, grant increases families receive larger CalWORKs grant amounts are automatically provided in years for which the to reflect greater basic needs, such that a family Figure 26 Monthly CalWORKs Grant and CalFresh Benefita Change Without Grant With Grant Increase Increaseb Amount Percent Grant $704 $714 $10 1% CalFresh benefitc 502 499 -3 -1 Totals $1,206 $1,213 $7 Grant as percent of the federal poverty level (FPL) 42% 43% Grant and CalFresh benefit as percent of FPL 71 72 a For a family of three with no other income that lives in a high-cost county. b Budget legislation provides a 1.43 percent grant increase effective October 2016. c CalFresh benefit amounts calculated using benefit amounts in effect during the 2016-17 federal fiscal year, which begins in October 2016. 46 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET affected by the MFG policy receives less assistance the CalWORKs program. First, the spending than it would if the child had been born before plan increases funding for the Housing Support ten months of continuous assistance.) Budget Program (HSP), which provides a capped amount legislation repeals the MFG policy effective of funding for interested counties to provide January 2017. When this action takes effect, it will housing assistance to CalWORKs families who are provide increased cash assistance to an estimated homeless or at imminent risk of homelessness. The 126,000 children in 93,000 families, at a total cost Governor’s January budget proposed to continue of $109 million (all funds) in 2016-17 and roughly funding HSP at $35 million (all funds) in 2016-17, $225 million annually thereafter. the same level of funding provided in the prior Budget legislation specifies that, when funds year. The spending plan includes an additional are available, the costs of repealing the MFG $12 million from the General Fund to increase total policy will be paid for from the child poverty funding for HSP to $47 million in 2016-17. subaccount—the same subaccount used to fund Second, budget legislation increases the grant increases, as described previously. When availability of certain payments that CalWORKs subaccount funds are not sufficient to cover the full families may receive under current law to obtain costs of repealing the MFG policy, the state General temporary shelter for up to 16 days and/or to obtain Fund will make up the difference. In 2016-17, an or maintain permanent housing. Currently, with a estimated $12 million is available from the child few exceptions, families may access such assistance poverty subaccount to fund the repeal of the MFG only once per lifetime. Effective January 2017, policy, leaving $97 million to be borne by the families will be able to receive this assistance once General Fund. The General Fund contribution to annually. The spending plan includes $2 million the cost of repealing the MFG policy is expected to from the General Fund to pay for additional increase in 2017-18 as the repeal will be in effect for assistance costs and automation system changes a full year. In subsequent years the General Fund resulting from this action in 2016-17. Full-year costs of the repeal are expected to decline as child costs of the action are estimated to be roughly poverty subaccount funds grow, until the ongoing $3 million. costs of the repeal are fully supported by the child Immigration Assistance poverty subaccount and General Fund support is no longer required. One-Time Augmentation for Federal Child Care Reimbursement Rates Increased. Immigration Assistance Program. The 2015-16 The spending plan includes $19 million from the budget package created the Federal Immigration General Fund to pay for the partial-year costs in Assistance program, which provides grants to 2016-17 of certain rate increases in Stage 1 child qualified nonprofit organizations in the state to care. The full-year costs for the rate increases assist individuals applying for naturalization, are about $39 million. For more information on deferred action, and other immigration remedies, these rate increases and their broader effect on the and to conduct outreach and education in state budget, see the “Child Care and Preschool” immigrant communities relative to these remedies. write-up in the “Education” section of this report. The Governor’s January budget proposed to fund Homeless Assistance Expanded. The spending the Federal Immigration Assistance program at plan includes increased funding for two actions $15 million (all funds) in 2016-17, the same level as related to assistance for homeless families in in the prior year. The spending plan maintains this www.lao.ca.gov Legislative Analyst’s Office 47 2016-17 BUDGET funding level and additionally includes $15 million foster parent recruitment, training, and support. from the General Fund to augment the program on The 2016-17 spending plan includes $130 million a one-time basis. General Fund ($170 million total funds) for CCR implementation with the funds going to county Child Welfare Services (CWS) child welfare, probation, and mental health Provides Funding for the Implementation of departments; DSS; and DHCS. The major spending the Continuum of Care Reform (CCR). In 2015, components for 2016-17 are: the Legislature passed legislation implementing • Additional Funding for Foster Parent CCR. The law, Chapter 773 of 2015 (AB 403, Stone), Recruitment, Training, and Support. made significant changes to the way the state cares Recognizing that new foster parents for children who have been removed from their are needed for CCR to meet its goal of home and placed into the state’s foster care system. eventually ending most group home Principally, CCR aims to increase the foster care placements, the 2016-17 spending system’s reliance on family-like settings rather than plan provides $43 million in General institutional settings like group homes. To achieve Fund devoted to recruiting, training, this, CCR ends group home placements for most and supporting foster parents. This is foster children and creates a new placement type, $26 million more than was provided in Short-Term Residential Therapeutic Programs, for 2015-16. children whose elevated behavioral and mental health needs require temporary placement in a • Funds New Rates Paid to Foster Parents therapeutic residential environment before they and Providers. Assembly Bill 403 gave can successfully transition into home-based DSS the authority to develop new monthly family placement settings. In conjunction, CCR foster payment rates that will take effect makes changes to ensure that (1) foster children in January 2017. The new rate structure receive medically necessary mental health services, generally increases the monthly payments (2) supportive services are accessible within foster parents and providers will receive home-based family settings, and (3) placement and under CCR and varies the specific payment supportive service decisions are made using a child amount by a child’s assessed level of need, and family-centered approach. Implementation rather than by age as is done under the of CCR’s many different components is currently existing rate structure. The spending plan underway at the state, county, and provider levels includes $33 million from the General in anticipation of many of AB 403’s changes taking Fund to fund six months of the costs of the effect on January 1, 2017. The administration new rate structure in 2016-17. expects that CCR implementation will require • Remaining CCR Funding Largely Aimed additional state funding in 2017-18 before at Improving Placement and Service anticipated CCR-related county savings reduce the Decisions. The remaining $54 million amount of state resources that must be provided in in General Fund included in the 2016-17 2018-19 and beyond. spending plan for CCR generally goes The 2015-16 budget provided $21.5 million toward improving placement and General Fund as initial funding for CCR supportive service decisions for foster implementation, the majority of which went to 48 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET youth, such as through the use of for limited flexibility in the event the project moves multidisciplinary case planning teams and faster than currently anticipated and (2) requires standardized assessment tools. DSS and OSI to provide regular updates on the project to the Legislature and stakeholders. Funds Development of Child Welfare Augments Funding for the Commercially Services-New System (CWS-NS) Project. The Sexually Exploited Children (CSEC) Program. CWS-NS Project will replace the existing Child The CSEC program was established in 2015 to Welfare Services/Case Management System (CWS/ provide prevention and intervention activities CMS), which is the statewide case management and services to children who are victims, or system currently supporting the state’s CWS at risk of being victims, of commercial sexual program. CWS workers throughout the state rely exploitation. Federal law requires certain CSEC on CWS/CMS for access to child, family, and other activities—for example, social worker training case-related information to make timely decisions, and notification of law enforcement—for missing perform effective case management, and ultimately and potentially exploited youth. Other activities, keep children safe and families intact. The existing such as specialized child welfare services for CSEC system is out of compliance with state and federal youth, are optional at the county level. Currently, requirements. 38 counties participate in the optional portion of In November 2015, DSS and the Office of the CSEC program. The spending plan includes a Systems Integration (OSI) announced a shift from $5 million General Fund augmentation on top of a traditional IT project development approach $14 million General Fund provided in 2015-16 for to an “agile” development approach for the the CSEC program. The $5 million augmentation is CWS-NS Project. Under the traditional approach, intended to extend county-optional CSEC services implementation of a new IT system does not begin to additional counties and expand CSEC services, until all phases of the project are complete (it often case management, and social worker training in takes several years to reach this point). In contrast, participating counties. the agile approach is built incrementally from Increases the Foster Care Infant Supplement. the start of the project and deployed module by Currently, a supplemental monthly foster care module. In April 2016, the California Department of payment, known as the infant supplement, is Technology approved a revised project plan—known available for foster youth who themselves have as special project report (SPR) 2 for the CWS-NS dependent children. In 2015-16, the infant Project based on the new agile development supplement augmented parenting foster youths’ approach. This SPR estimates a total project cost of monthly foster care payments by $411. The 2016-17 $421 million ($210 million General Fund) and full budget provides $4 million in General Fund to implementation by December 2019. The revised cost increase the infant supplement to $900 per month, and full implementation date are roughly the same making it roughly equal to the payments foster as the prior plan. The differences between the plans parents will receive for the foster children in their are in the approach and timing of specific activities care in 2016-17. throughout the project. The 2016-17 spending plan Establishes State Grant Program to Prevent provides $55.5 million ($30 million General Fund) Homelessness Among Child Welfare-Involved and 58 positions to continue the CWS-NS Project as Families. The spending plan includes $10 million proposed in SPR 2. We note that the 2016-17 budget in ongoing General Fund for DSS to establish a also includes budget-related legislation that (1) allows www.lao.ca.gov Legislative Analyst’s Office 49 2016-17 BUDGET competitive grant program known as Bringing and ensures continued federal funding. Although Families Home to combat homelessness among the policy had not been adopted when the 2016-17 child welfare-involved families. Participation in Budget Act was passed in June, the June budget the program is optional for counties, which must package assumed the continuation of federal apply to receive the funding and offer a one-to-one funding and provided $115,000 General Fund for county match. The funding is expected to support DSS state operations, which DSS will utilize to local services such as housing search assistance, implement the reporting policy adopted by the rental assistance payments, and long-term Legislature. supportive housing. Department of Aging Reporting Rules for Child Near Fatalities. The state was previously out of compliance with federal The budget provides $36 million General requirements for reporting on child near fatalities, Fund for the Department of Aging in 2016-17, an which are defined as cases where a child is in increase of $2 million General Fund above 2015-16. serious or critical condition as a result of abuse This increase represents a one-time augmentation or neglect. To continue receiving $4.8 million in of $2 million for home-delivered meals to seniors federal child abuse prevention funds, the state had and people with disabilities, estimated to result in to return to compliance with federal near fatality approximately 270,000 additional home-delivered reporting requirements. As part of the 2016-17 meals in 2016-17. The spending plan also includes budget, the administration proposed reporting $1 million (one time) from the State Health rules that would fulfill federal requirements and Facilities Citation Penalties Account for the preserve the $4.8 million in federal funding. The Long-Term Care Ombudsman program. This Legislature rejected the administration’s proposal maintains total funding for the Long-Term Care and in August passed an alternative proposal Ombudsman program at 2015-16 levels ($11 million in budget-related legislation that establishes a total funds). In 2015-16, the budget also included a statewide child near fatality reporting policy, one-time increase of $1 million for the Long-Term brings the state into compliance with federal law, Care Ombudsman program from this account. RESOURCES AND ENVIRONMENTAL PROTECTION The budget package provides a total of from the 2014 water bond (Proposition 1). Some $9 billion from various fund sources—the General of this decrease, however, is related to how bond Fund, bond funds, and various special funds—for funds are accounted for in the budget, making programs administered by the California Natural year-over-year comparisons difficult. In total, about Resources and Environmental Protection Agencies. half of the budget for resources and environmental This is a decrease of about $5.1 billion (36 percent) protection departments is from special funds, while compared to 2015-16 estimated expenditures. the General Fund supports another third of these Most of the reduction in spending is related to budgets. The remainder is supported by bond and estimated bond expenditures, such as expenditures federal funds. 50 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Crosscutting Issues significant uncertainty about the amount of revenue that will be collected in 2016-17. This Cap-and-Trade makes it unclear how much funding will be continuously appropriated in 2016-17, as well as State cap-and-trade auction revenue is how much 2016-17 revenue will be available for deposited in the Greenhouse Gas Reduction discretionary programs. As shown in Figure 27, Fund (GGRF) and is used for projects intended to the budget, as revised in August 2016 legislation, reduce greenhouse gas (GHG) emissions. Under includes $922 million in discretionary GGRF existing statute, 60 percent of annual cap-and-trade spending for various programs. This funding will auction revenue is continuously appropriated to be available regardless of how much revenue is high-speed rail (25 percent), affordable housing and generated from auctions in 2016-17 because the sustainable communities (20 percent), transit and GGRF began 2016-17 with a fund balance of nearly intercity rail capital (10 percent), and low carbon $1.4 billion. Some of the major programs receiving transit operations (5 percent). The remaining discretionary funds are described below. auction revenue is available to be allocated through Low Carbon Transportation ($363 Million). the annual budget act or other legislation. This The budget provides $363 million to the Air is sometimes referred to as noncontinuously Resources Board (ARB) for programs that provide appropriated, or discretionary, spending. incentives for low- or zero-emission vehicles and Recent auctions have varied greatly in equipment, including: the amount of revenue generated, resulting in Figure 27 2016-17 Cap-and-Trade Discretionary Spendinga (In Millions) Program Department or Agency Amount Low carbon transportation Air Resources Board $363 Incentives for heavy duty vehicles and off-road equipment (150) Clean Vehicle Rebate Project (133) Enhanced Fleet Modernization Program and “Plus Up” Pilots (80) Transformative Climate Communities Strategic Growth Council 140 Transit and Intercity Rail Capital Transportation Agency 135 Green infrastructure Natural Resources Agency 80 Agriculture Department of Food and Agriculture 65 Reduced methane from dairy and lifestock (50) Healthy soils (8) Agricultural water efficiency (8) Forestry Department of Forestry and Fire Protection 40 Forest health (25) Urban forestry (15) Waste diversion Department of Resources Recycling and Recovery 40 Low-income weatherization Department of Community Services and Development 20 Active transportation Department of Transportation 10 Residential woodstove replacements Air Resources Board 5 Other technical assistance and administrative costs Various 24 Total $922 a Does not include the 60 percent of 2016-17 revenue that will be continuously appropriated under current law. www.lao.ca.gov Legislative Analyst’s Office 51 2016-17 BUDGET • $150 million for heavy duty vehicles and Resources Agency for green infrastructure projects off-road equipment. that reduce GHG emissions and provide multiple benefits. For example, funds might be used for such • $133 million for the Clean Vehicle Rebate things as expanding public parks, implementing Project (CVRP), which provides rebates for stormwater collection projects, and developing new zero-emission vehicles, such as electric urban trails. At least 75 percent of the funds must and fuel cell cars. Budget-related legislation be allocated to projects located in, and provide also provides additional guidance on benefits to, disadvantaged communities. the structure of the CVRP, including specifying maximum income eligibility Climate Change Activities limits for electric vehicles ($150,000 for an Implementation of Recent Energy Efficiency individual tax filer and $300,000 for joint and Renewable Energy Legislation. Chapter 547 filers) and directing the ARB to increase of 2015 (SB 350, de León) expanded the state’s the rebate amounts by $500 for low-income renewable portfolio standard from 33 percent by households. 2020 to 50 percent by 2030 and established a state goal of doubling the amount of energy efficiency • $80 million for the Enhance Fleet savings by 2030. In addition, the legislation directs Modernization Program and the associated the California Energy Commission (CEC), the “Plus Up” Pilot, which provide incentives California Public Utilities Commission (CPUC), to retire older vehicles and replace them and the ARB to undertake various activities with cleaner ones. Rebates for replacement related to resource planning and transportation vehicles are available for new or used cars. electrification. Chapter 590 of 2015 (AB 802, Incentive amounts vary based on household Williams) made various other changes to energy income and type of replacement vehicle. efficiency activities, including establishing a Transformative Climate Communities statewide energy efficiency benchmarking program. ($140 Million). The budget provides $140 million The budget includes a total of $13.1 million to the Strategic Growth Council for a new program from various fund sources to implement SB 350 created by Chapter 371 of 2016 (AB 2722, Burke) and AB 802. Specifically, the budget provides the called the Transformative Climate Communities following: Program. The program funds the development and • $9.2 Million for CEC. The budget includes implementation of neighborhood-level community $7.6 million from the Air Pollution Control plans that include multiple GHG reduction Fund (APCF) and $1.6 million from the projects. Energy Resources Programs Account and Transit and Intercity Rail Capital 37.5 positions for CEC. These resources are ($135 Million). The budget provides $135 million for CEC to, among other things, (1) establish to the California Transportation Agency for the statewide energy efficiency savings targets Transit and Intercity Rail Capital Program. This and prepare assessments of savings on amount is in addition to the 10 percent of 2016-17 electricity demand on an hourly and seasonal revenue continuously appropriated to the program. basis, (2) administer an increased renewable Green Infrastructure Projects ($80 Million). portfolio standard for publicly owned The budget provides $80 million to the Natural utilities, (3) produce guidelines for integrated 52 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET resources plans from publicly owned utilities, and $2.5 million ongoing to identify climate change and (4) implement a statewide energy risks and adaption responses for the water sector. efficiency benchmarking program. ARB Regulatory Activities Intended to Reduce GHGs and Air Pollution. The budget provides a • $3.4 Million for CPUC. The budget includes total of $3.2 million (APCF) and 13 positions for $3.4 million from the Public Utilities ARB to conduct regulatory activities intended Commission Utilities Reimbursement to reduce GHG emissions and air pollutants. Account (PUCURA) and 23 positions for Specifically, the budget provides funding for: CPUC. These resources are for CPUC to, • Short-Lived Climate Pollutant (SLCP) among other things, administer a modified Strategy ($1.4 Million). The budget renewable portfolio standard for investor- includes five positions to develop and owned utilities and other load serving implement policies to reduce SLCPs, such entities, establish an integrated resource as methane and fluorinated gases. These planning process, and develop and oversee funds are only available after ARB approves new energy efficiency programs. the SLCP strategy required by Chapter 523 • $485,000 for ARB. The budget includes of 2014 (SB 605, Lara). ARB staff is $485,000 from the AB 32 Cost of expected to present a final SLCP strategy to Implementation Account and two the board in fall 2016. positions for ARB to (1) help analyze • Clean Truck and Bus Standards electric vehicle charging infrastructure ($1.2 Million). The budget includes four needs, (2) consult with CPUC and CEC positions to develop more stringent GHG on setting GHG targets for utilities as part and criteria pollutant standards for trucks of the new integrated resource planning and buses, as well as improve compliance process, and (3) conduct a study on barriers monitoring for existing standards. for low-income customers to access zero-emission transportation options. • Advanced Clean Cars Program Climate Change Research. The budget includes ($580,000). The budget includes four $23.5 million from the General Fund to support positions to develop regulations to increase climate change research activities. Of this amount, the number of zero-emission vehicles and $21 million is one time. A total of $18 million is to reduce criteria pollutants and GHGs allocated to the CEC for alternative transportation from light duty vehicles. fuel and vehicle technology research, including $15 million for a competitive grant program and Drought $3 million to provide a state match for federal Continued Response to Drought Impacts. alternative fuel research programs. The remaining Despite somewhat higher levels of precipitation $5.5 million is allocated to the Department of in the winter of 2016, many areas of the state Water Resources (DWR). This includes $3 million continue to experience the effects of multiple for research related to certain climate and weather years of drought conditions. The budget contains patterns that contribute to high-precipitation events $255 million to respond to these impacts, in California (also known as atmospheric rivers) which include dry residential wells in certain www.lao.ca.gov Legislative Analyst’s Office 53 2016-17 BUDGET communities, dead and dying trees across the $2.5 million ongoing to research the effects that state’s forests, and deteriorated habitats for fish and changing climate and weather might have on the wildlife. As shown in Figure 28, these funds are water sector (discussed in greater detail below); spread across eight state departments for a variety (2) $4.3 million one time—as well as $240,000 one of activities, with the largest amount going to time for the State Water Resources Control Board augment fire protection activities at the California (SWRCB)—to collect data and develop policy Department of Forestry and Fire Protection recommendations for long-term urban water use (CalFire). Most of these activities reflect the and conservation requirements; (3) $1 million one continuation of initiatives funded in recent years. time to provide local agencies with facilitation Of the drought-response funding shown in the services when necessary for working through figure, $223.7 million is from the General Fund and implementation issues related to the Sustainable $31 million is from special funds. Groundwater Management Act of 2014 (SGMA); Preparation for Potential Future Water (4) $1 million one time to collect statewide Shortages. The budget also provides a total of agricultural land use data that will inform local $12.6 million in General Fund mostly for DWR groundwater management plans pursuant to SGMA; to support several activities intended to prepare and (5) $550,000 ongoing to establish a Critical the state for droughts in future years. Specifically, Water Shortage Management Program that will the budget includes: (1) $3 million one time and develop state-level strategies for responding to future Figure 28 2016-17 Drought Spending Package (In Millions) Department Activity Amounta CalFire Expand and enhance fire protection $92.8b OES Remove dead trees on public lands 30.0 OES Provide emergency drinking water 22.7 DSS Provide food to drought-affected communities 18.4 SWRCB Conduct emergency drinking water projects 16.0c CalFire Remove and dispose of dead trees 16.0b DWR Conduct drought assistance and response 12.0 DFW Conduct emergency fish and stream activities 11.5d DWR Assist with drinking water shortages 10.0 CSD Assist drought-impacted farmworkers 7.5 SWRCB Monitor and enforce water rights and conservation 5.4 DFW Protect Delta smelt 4.2 OES Coordinate statewide drought response 4.0 DWR Implement Save our Water campaign 2.0 DFW Improve efficiency at wildlife refuges 2.0 CDFA Study economic impact of drought 0.2 Total $254.7 a General Fund unless otherwise noted. b Includes funding from the State Responsibility Area Fire Prevention Fund. c Clean-Up and Abatement Account. d Includes $2 million from Hatchery and Inland Fisheries Fund. CalFire = California Department of Forestry and Fire Protection; OES = Office of Emergency Services; DSS = Department of Social Services; SWRCB = State Water Resources Control Board; DWR = Department of Water Resources; DFW = Department of Fish and Wildlife; CSD = Department of Community Services and Development; and CDFA = California Department of Food and Agriculture. 54 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET dry periods. Additionally, the administration must Marine Mammal Protection submit a report to the Legislature by January 2020 The budget package, as revised in August 2016, summarizing lessons learned from the state’s contains trailer bill legislation that implements response to the current drought. various requirements related to orcas being held in captivity in the state, including prohibitions on Proposition 1 (1) captive breeding programs, (2) the import and As shown in Figure 29, the 2016-17 budget export of new orcas and related genetic materials appropriates about $1 billion from Proposition 1, into or out of the state, and (3) holding any new the $7.5 billion water bond voters approved in 2014. orcas in captivity. (The legislation does permit an Almost half of this total, $465 million, is from orca currently being held in captivity in the state the section of the bond dedicated to addressing to continue to be held and used for educational statewide obligations and agreements. As shown in presentations until its death.) Additionally, the the figure, this funding is allocated for four specific budget provides a total of $2.1 million for the UC water-related commitments into which the state Davis Wildlife Health Center to allocate grants has entered. The other $562 million is appropriated to rescue seals and sea lion pups stranded on for various other categories of projects specified in California beaches, and to help whales off the coast the bond, primarily for departments to continue of California that become entangled in fishing gear running competitive grant programs initiated with and marine debris. prior-year Proposition 1 appropriations. As shown in the figure, this includes $320 million for SWRCB Figure 29 to fund water-recycling 2016-17 Proposition 1 Appropriations projects. (Combined with (In Millions) the $292 million provided Implementing Activity Departments Amount in prior years, this fully allocates the funding Statewide Obligations and Agreements Klamath Hydroelectric Settlement Agreement CNRA $250.0 specified in Proposition 1 Central Valley Project Improvement Act CNRA 89.9 for water recycling.) Budget Salton Sea Restoration Act DWR 80.0 legislation also requires San Joaquin River Restoration Settlement Act DWR, DFW 45.0 Subtotal ($464.9) the California Natural Other Project Categories Resources Agency (CNRA) Water recycling SWRCB $320.3 to submit a report each Watershed and Delta restoration DFW 56.5 Integrated regional water management DWR 54.6 January from 2017 through Streamflow enhancement WCB 38.9 2021 that summarizes Ecosystem and watershed restoration Conservancies 33.0 Proposition 1 expenditures Coastal restoration CCC 32.9 Other Various 25.8 and funded projects, Subtotal ($562.0) as well as associated Total $1,026.9 outcomes, challenges, and CNRA = California Natural Resources Agency; DWR = Department of Water Resources; DFW = Department of Fish and Wildlife; SWRCB = State Water Resources Control Board; accomplishments. WCB = Wildlife Conservation Board; and CCC = California Coastal Conservancy. www.lao.ca.gov Legislative Analyst’s Office 55 2016-17 BUDGET Natural Gas Regulation—Aliso Canyon This amount also includes $2.1 million and seven positions to implement Chapter 14 On October 23, 2015, Southern California of 2016 (SB 380, Pavley), which requires Gas Company discovered a leak in one well CPUC to open a proceeding to determine within its Aliso Canyon storage field located the feasibility of minimizing or eliminating in the northern San Fernando Valley near the the use of the Aliso Canyon storage facility community of Porter Ranch. The company pumps while maintaining energy reliability in the natural gas underground at this field where it is region. stored until it is pumped up later and delivered to its customers. Homes in the areas surrounding • ARB. The budget provides $2.3 million the Aliso Canyon gas leak were evacuated, and ($1.4 million in one-time funds to at the request of residents and local officials, on purchase equipment) from OGGAF and January 6, 2016 Governor Brown declared the four positions to support neighborhood situation an emergency. On February 18, 2016, the air quality monitoring near oil and gas Aliso Canyon gas leak was sealed. In response to facilities. the Aliso Canyon gas leak, the Legislature took several actions intended to improve oversight of • CEC. The budget provides $1.7 million the natural gas industry and prevent future leaks. ($1 million in one-time contract funds) Specifically, the Legislature approved a total of from the Public Interest Research, $15 million and 46 positions as follows: Development, and Demonstration Fund and three positions to improve the • Department of Conservation (DOC). commission’s technical ability to monitor, The budget provides DOC with a total model, and analyze the interaction of of $7.2 million from the Oil, Gas, and California’s electricity and natural gas Geothermal Administrative Fund systems for grid reliability. (OGGAF). This includes $4.2 million ($681,000 in one-time funds to purchase • Office of Environmental Health Hazard equipment) and 20 positions for increased Assessment (OEHHA). The budget regulation of natural gas storage facilities. provides $350,000 from OGGAF and two The total also includes $3 million positions for OEHHA to support the ARB ($2.5 million in 2017-18) to contract for in its neighborhood air quality monitoring services to conduct and complete additional near oil and gas facilities. independent scientific studies in accordance The Legislature also passed budget legislation with recommendations from the California in August that authorizes OGGAF monies to Council on Science and Technology. now be used to support ARB and OEHHA. • CPUC. The budget provides $3.6 million Budget legislation also requires CEC to report by (PUCURA) and 17 positions to perform September 15, 2017 on a plan for tracking natural tasks related to the natural gas leak at Aliso gas and requires ARB to develop a model to Canyon—such as investigating its causes, estimate leaked and vented emissions of methane implementing measures to prevent future from natural gas infrastructure. leaks, and increasing inspection levels. 56 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Resources California Conservation Corps (CCC) The budget includes a total of about As shown in Figure 30, the budget includes $112 million ($64 million General Fund) for CCC, $5 billion (including $2.8 billion from the a net increase of about $16 million (16 percent) General Fund) for the support of various above estimated 2015-16 expenditures. This resources programs in 2016-17. This is a decrease change primarily reflects a one-time $20 million of $3.7 billion, or 42 percent, from the revised augmentation from the General Fund to renovate 2015-16 spending level. Most of this reduction in the Auburn residential center, partially offset by year-over-year spending is attributable to lower various baseline and technical adjustments. bond spending in 2016-17, particularly for DWR. Construction of New Residential Centers. In addition to this amount, the budget The budget includes $400,000 from the General includes $187 million from the General Fund for Fund for the acquisition phase of new residential deferred maintenance projects at several resources centers in Napa ($200,000), Pomona ($100,000), and departments. This includes $100 million for Ukiah ($100,000). (The administration projects it flood protection projects administered by DWR will spend a total of $84 million to complete these and $60 million for projects at state parks. More three projects, including costs for the acquisition information on deferred maintenance funding phase, preliminary plans, working drawings, provided in the budget is included in the “Other and construction.) This funding begins the Major Provisions” section of this report. implementation of a major expansion of residential Figure 30 Natural Resources Budget Summary (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Actual Estimated Budgeteda Amount Percent Expenditures Department of Forestry and Fire Protection (CalFire) $1,091 $1,429 $1,421 -$8 1% General obligation bond debt service 968 982 1,044 63 6 Department of Parks and Recreation 507 550 569 19 3 Department of Fish and Wildlife 408 498 484 -14 -3 Energy Resources Conservation 523 635 464 -170 -27 Department of Water Resources 692 3,518 421 -3,097 -88 California Conservation Corps 91 96 112 16 16 Department of Conservation 92 98 112 14 14 Wildlife Conservation Board 190 480 105 -375 -78 Coastal Conservancy 54 114 74 -40 -35 Other resources programs 131 255 190 -65 -26 Totals $4,746 $8,656 $4,998 -$3,658 -42% Funding General Fund $2,379 $2,714 $2,819 $105 4% Special funds 1,399 1,609 1,351 -257 -16 Bond funds 820 4,078 572 -3,506 -86 Federal funds 148 255 256 1 — a Includes $40 million from the Greenhouse Gas Reduction Fund provided to CalFire in Chapter 370 of 2016 (AB 1613, Committee on Budget). www.lao.ca.gov Legislative Analyst’s Office 57 2016-17 BUDGET centers as described in the administration’s Five-Year The provisional language also allows DOF, after Infrastructure Plan. Specifically, the plan proposes legislative notification, to augment CalFire’s budget a combined total of $171 million over the next five for capital outlay costs associated with studies, years from the General Fund and lease revenue acquisition, and preliminary plans for helicopter bond funds to (1) complete the construction of six facility modifications. new residential centers by the end of 2020-21 and Professional Standards Program. The budget (2) begin the acquisition and preliminary planning provides $4 million (mostly from the General phases for two additional residential centers that Fund) and 14 positions to establish a professional would begin construction after 2020-21. Some of the standards program in headquarters. This will proposed residential centers would replace current include a unit to provide additional oversight for nonresidential centers, while others would add internal investigations and adverse actions, as capacity in new locations. well as expand manager and supervisor training. Butte Fire Center (Magalia). The budget The positions will conduct administrative and includes $2.7 million General Fund and background investigations, provide more training 12.5 positions to operate a new CCC residential to managers and supervisors, and develop center in Magalia. This center was converted from guidelines to promote consistent application of an existing CalFire facility that was closed in 2004 penalties. The budget specifies that the program due to budget cuts. place an emphasis on the training and education of all employees and supervisors, include no Department of Forestry and Fire Protection more than three sworn peace officers, and The budget includes $1.4 billion (mostly include a working group of department and General Fund) to support CalFire, a net decrease of labor representatives to develop the training about $8 million, or 1 percent, from the estimated and education components. The department is 2015-16 level. also required to report to the Legislature on the Helicopters. The budget provides $12 million implementation and effectiveness of the program. from the General Fund for the department to Department of Parks and Recreation (DPR) purchase one helicopter in 2016-17. This will be the first new helicopter purchased as part of a The budget includes $569 million from various plan for CalFire to replace its entire helicopter fund sources to support DPR, a net increase of fleet in coming years, which is likely to cost at about $19 million, or 3 percent, from the estimated least a couple hundred million dollars. The budget 2015-16 level. This is primarily due to increased includes provisional language requiring CalFire capital outlay spending. to notify the Joint Legislative Budget Committee Baseline Funding and Off Highway Vehicle (JLBC) prior to the award of a procurement (OHV) Trust Fund Shift. The budget includes a contract on (1) the helicopter model being acquired, one-time augmentation of $17 million in State Parks (2) the cost per helicopter, (3) costs by fiscal and Recreation Fund (SPRF) authority to maintain year, and (4) the delivery schedule. The budget spending at current-year levels. (Similar one-time also allows DOF, after notification to the JLBC, increases were included in the past two budgets as to augment the amount budgeted for the first well.) The budget also includes a one-time transfer of helicopter based on the actual costs associated $31 million in fuel tax revenues to SPRF to support with procurement, fees, and related support costs. this augmentation, as well as to address a SPRF 58 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET structural shortfall. This money would otherwise in 2016-17. As shown in Figure 31, the budget have been deposited in the OHV Trust Fund to package includes various changes to address this support the state’s eight State Vehicular Recreation shortfall. Most savings are due to shifting activities Areas and other programs for OHV users. The previously funded by the ELPF to the General Fund department anticipates providing an ongoing ($6.5 million) or to special funds administered budgetary solution as part of the 2017-18 budget. by DPR ($3 million). For the Department of Pilot Projects. The budget provides $1 million Fish and Wildlife, the budget package removes for two new pilot programs within DPR in response $1.5 million in ELPF that had funded work related to recommendations made by the Parks Forward to incidental take permits under the California Commission. First, the budget provides $690,000 Endangered Species Act and institutes a new fee over two years from the State Parks Protection on permit applicants to support this work. The Fund (SPPF) to support the community liaison budget package also assumes increased revenue pilot project, which is intended to identify new of $1.5 million from a 5 percent increase in the ways to engage underserved and underrepresented environmental license plate fee. These changes are communities at two state parks. The effectiveness expected to increase revenues and decrease ELPF of the project will be evaluated by UC researchers expenditures by about $12 million annually. with funding provided by the State Parks Environmental Protection Foundation. Second, the budget provides $348,000 over two years from SPPF to support a history As shown in Figure 32 (see next page), interpretation pilot, which is intended to improve the budget includes $4 billion (mostly special historical interpretation programs at two state funds) for the support of various environmental parks through partnerships with UC Riverside and protection programs in 2016-17. This is a decrease UC Santa Barbara. The UC teams are responsible of $1.4 billion, or 27 percent, from the revised for evaluating the effectiveness of the projects. 2015-16 spending level. Most of this reduction in year-over-year spending is attributable to lower Environmental License Plate Fund (ELPF) bond spending in 2016-17, particularly for SWRCB. The CNRA administers the ELPF, which faced a projected shortfall of about $9 million Figure 31 Addressing the Environmental License Plate Fund Shortfall (In Thousands) Estimated Savings Action 2016-17 Ongoing Shift funding for TRPA to General Fund $3,998 $3,998 Shift DPR expenditures to SPRF 3,000 3,000 Shift second year funding for Climate Assessment to General Fund 2,500 — Shift some DFW costs for CESA permits to new fee 1,500 2,500 Increase license plate fee by 5 percent 1,500 2,500 Total Savings $12,498 $11,998 TRPA = Tahoe Regional Planning Agency; DPR = Department of Parks and Recreation; SPRF = State Parks and Recreation Fund; DFW = Department of Fish and Wildlife; and CESA = California Endangered Species Act. www.lao.ca.gov Legislative Analyst’s Office 59 2016-17 BUDGET Department of Substances Control Account (TSCA) to (1) test Toxic Substances Control (DTSC) approximately 1,000 properties in the community surrounding Exide, (2) develop a comprehensive The budget includes $267 million from various cleanup plan, and (3) begin cleanup of the funds to support DTSC, which is a net increase highest priority sites. In addition, Chapter 9 of of $46 million, or 21 percent, from the revised 2016 (SB 93, de León) allows the loan of up to 2015-16 level. This net change primarily reflects $177 million from the General Fund to TSCA to augmentations for the Exide Technologies cleanup use for activities related to the lead contamination and Argonaut mine retrofit, partially offset by in the communities surrounding the Exide various baseline and technical budget reductions. facility. (To the extent that DTSC recovers costs Exide Technologies Cleanup. Exide for investigation and cleanup from the parties Technologies operated a lead-acid battery responsible for the contamination, these funds recycling facility in the City of Vernon that ceased will be used to repay the loan from the General operations in 2014 when DTSC notified Exide that Fund.) These funds are available for transfer from its application for a new permit would be denied. the General Fund to TSCA until June 30, 2018. The Testing indicates that releases of lead dust from the DOF projects that $4.8 million will be transferred facility contaminated areas up to 1.7 miles from in 2015-16 and $42 million will be transferred in the facility and impacted thousands of properties 2016-17. including private residences, parks, and schools. Argonaut Mine Dam Retrofit. The budget During 2015-16, the Legislature approved includes $14.3 million from the General Fund on a increases in spending for Exide Technologies one-time basis to retrofit the Argonaut Mine Dam cleanup. In August 2015, the Legislature approved in Jackson. The U.S. Environmental Protection $7 million of emergency funding from the Toxic Figure 32 Environmental Protection Budget Summary (Dollars in Millions) Change From 2015-16 2014-15 2015-16 2016-17 Actual Estimated Budgeteda Amount Percent Expenditures Resources Recycling and Recovery (CalRecycle) $1,535 $1,692 $1,565 -$126 -7% State Water Resources Control Board 1,072 2,839 1,244 -1,595 -56 Air Resources Board (ARB) 496 554 772 219 40 Department of Toxic Substances Control 193 222 267 46 21 Department of Pesticide Regulation 87 92 100 8 9 Environmental Health Hazard Assessment 18 19 21 2 12 General obligation bond debt 3 3 4 — 11 Totals $3,405 $5,420 $3,974 -$1,446 -27% Funding General Fund $80 $223 $88 -$136 -61% Special funds 2,633 3,003 3,162 160 5 Bond funds 351 1,822 341 -1,482 -81 Federal funds 342 372 383 11 3 a Includes a total of $408 million from the Greenhouse Gas Reduction Fund provided to ARB and CalRecycle in Chapter 370 of 2016 (AB 1613, Committee on Budget). 60 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Agency and the U.S. Army Corps of Engineers State Water Resources Control Board finalized a study to assess the dam’s stability and The budget includes $1.2 billion to support concluded that the dam was structurally unstable SWRCB, a net decrease of $1.6 billion, or and had a significant chance of complete failure 56 percent, from the revised 2015-16 level. This with sustained rainfall. year-over-year change primarily reflects reductions Enhanced Permitting Capacity. The budget in bond funds of $1.5 billion—mainly from includes $3.6 million from the Hazardous Proposition 1 (2014 water bond). The budget Waste Control Account (HWCA) to support the also includes funding for regulation of medical conversion of eight limited-term positions to marijuana and for drought activities, which are permanent status and to provide 15 additional discussed in other sections of this report. permanent positions to enable DTSC to eliminate Drinking Water for Schools. The budget for the the existing backlog of permit applications and board includes $10 million from the General Fund complete most future decisions on hazardous waste for water bottle filling stations and point of use permits within two years. filtration systems to provide clean drinking water Replacement of Laboratory Equipment. in schools. The budget includes a one-time increase of $2 million from HWCA to procure laboratory and investigatory equipment used to enforce hazardous waste laws. TRANSPORTATION The spending plan provides $15.5 billion reduced spending is due primarily to a reduction in from various fund sources for transportation funding available for highway capital projects in the programs. As shown in Figure 33, this is a decrease California Department of Transportation (Caltrans). of $423 million, or 3 percent, when compared Vehicle Registration Fee Increase. The budget to the revised level of spending in 2015-16. The package, as revised in August 2016, includes Figure 33 Transportation Program Expenditures Various Funds (Dollars in Millions) Change From 2015-16 Program/Department 2014-15 2015-16 2016-17 Amount Percent Department of Transportation $9,045 $10,913 $9,719 -$1,194 -11% California Highway Patrol 2,100 2,288 2,276 -12 -1 High-Speed Rail Authority 2,206 755 1,686 931 123 Department of Motor Vehicles 1,075 1,121 1,101 -20 -2 State Transit Assistance 408 389 367 -22 -6 Transit Capital (Proposition 1B) 669 154 44 -110 -71 Other transportation programsa 117 335 339 4 1 Totals $15,620 $15,955 $15,532 -$423 -3% a Includes California State Transportation Agency, California Transportation Commission, and Board of Pilot Commissioners. www.lao.ca.gov Legislative Analyst’s Office 61 2016-17 BUDGET trailer legislation to (1) increase the base vehicle Capital Outlay Support Program. The budget registration fee by $10 (from $46 to $56) beginning includes $1.8 billion and 9,512 full-time equivalent April 1, 2017 and (2) index the fee to the California (FTE) staff to deliver highway capital outlay Consumer Price Index, allowing the fee to projects—a decrease of 191 FTEs from the 2015-16 automatically increase with inflation. Revenue from level through attrition. The savings from the the vehicle registration fee is primarily deposited reduced FTEs are more than offset by an increase into the Motor Vehicle Account (MVA) to support in funding to “true up” funding levels with actual the state’s activities to administer and enforce laws staff costs, resulting in a net increase of $9 million regulating the operation and registration of vehicles from 2015-16. used on public streets and highways. Federal Bridge Load Rating. The budget No Funding Package Approved to Increase provides $4.6 million in federal funds to help Transportation Funding. As part of the special Caltrans determine bridge “load ratings”—a rating legislative session on transportation, the Governor that specifies how much traffic a bridge can safely proposed a package of proposals to increase carry. Specifically, the funding will continue funding for transportation projects. These were 26 limited-term positions as permanent positions generally reflected in the Governor’s January and support various software improvements. The budget proposal for 2016-17. In adopting the Federal Highway Administration requires Caltrans budget package, the Legislature did not approve the to develop load ratings on all state and local bridges Governor’s proposals or other proposals to increase in California. The budget also requires Caltrans to transportation funding. report to the Legislature by March 1, 2017 on its Cap-and-Trade Funding. As discussed earlier efforts to complete bridge load ratings. in this report, the budget, as revised in August High-Speed Rail Authority (HSRA) 2016, also includes $135 million in cap-and-trade discretionary spending for the Transit and Intercity The budget plan includes total expenditures Rail Capital Program and $10 million for the Active of $1.7 billion for HSRA, roughly $1 billion above Transportation Program. the level of expenditures in 2015-16. The increase primarily reflects the shifting of some HSRA Caltrans workload and expenditures initially assumed to occur The budget plan includes total expenditures of in 2015-16. The total expenditures include $1.2 billion $9.7 billion from various fund sources for Caltrans, in proceeds of bonds authorized by Proposition 1A a decrease of $1.2 billion (or 11 percent) from the (2008), as well as $32 million in federal funds. The 2015-16 level of expenditures. The decrease reflects budget plan also assumes that $500 million in (1) a reduction in available federal transportation cap-and-trade auction revenues will be continuously funds and (2) the completion of most Proposition 1B appropriated to the project in 2016-17. (2006) projects administered by Caltrans. The budget California Highway Patrol (CHP) provides roughly $2.9 billion for transportation capital outlay, $2.2 billion for local assistance, The budget provides $2.3 billion to fund CHP $1.8 billion for capital outlay support, and $1.6 billion operations, about the same amount as in 2015-16. for highway maintenance. The balance of the funding Nearly all of this funding is from the MVA, which supports mass transportation and rail programs, derives the majority of its revenue from vehicle transportation planning, and other programs. registration fees and driver license fees. The 62 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET budget includes $30 million for site acquisition Legislature in 2015-16. The remaining $1.3 million and preliminary plans for four CHP area office is for preliminary plans to initiate a fourth DMV replacement projects (Hayward, El Centro, field office replacement project in San Diego. Ventura, and San Bernardino), as part of the Self-Service Terminals. The budget includes an administration’s ongoing plan to replace deficient ongoing increase of $8 million for DMV to expand CHP area offices. the use of self-service terminals, which allow DMV customers to process their vehicle registration Department of Motor Vehicles (DMV) renewal transactions at automated kiosks. The budget provides $1.1 billion for DMV Specifically, the DMV plans to place between 30 operations, about the same amount as in 2015-16. and 50 new terminals in businesses around the Nearly all of this funding is from the MVA. state (such as grocery stores or convenience stores), Field Office Replacement Projects. The budget in order to provide greater access to DMV services. includes $5.6 million for various phases of four The budget package also requires DMV to report to DMV field office replacement projects. Of this the Legislature on the outcomes of expanding the amount, $4.3 million is for the design phase of number of terminals as well as the department’s three DMV office replacement projects (Inglewood, long-term plan for the use of self-service terminals. Santa Maria, and Delano) approved by the JUDICIARY AND CRIMINAL JUSTICE The 2016-17 budget provides $12.6 billion from Judicial Branch the General Fund for judicial and criminal justice The budget provides $3.7 billion for support of programs, including support for ongoing programs the judicial branch—an increase of $293 million, and capital outlay projects, as shown in Figure 34. or 9 percent, from the revised 2015-16 level. This This is an increase of $518 million, or 4 percent, amount includes $1.7 billion from the General above the revised 2015-16 General Fund spending Fund and $499 million from the counties, with level. most of the remaining balance from fine, penalty, Figure 34 Judicial and Criminal Justice Budget Summary General Fund (Dollars in Millions) Change From 2015-16 Program/Department 2014-15 2015-16 2016-17 Amount Percent Department of Corrections and Rehabilitation $9,899 $10,151 $10,459 $308 3.0% Judicial branch 1,404 1,601 1,711 109 7.0 Department of Justice 190 206 216a 11 5.0 Board of State and Community Corrections 68 68 137 69 102.0 Other criminal justice programsb 22 19 40 21 108.0 Totals $11,584 $12,045 $12,563 $518 4.3% a Does not include settlement funding provided in Chapter 281 of 2016 (SB 1187, Lara). b Includes debt service on general obligation bonds, Office of the Inspector General, and State Public Defender. www.lao.ca.gov Legislative Analyst’s Office 63 2016-17 BUDGET and court fee revenues. The General Fund amount 2 percent of the total funds appropriated is a net increase of $109 million, or 7 percent, from for trial court operations for emergencies, the revised 2015-16 amount. Funding for trial unanticipated expenses, or budgetary court operations is the single largest component of shortfalls. Instead, the budget provides the judicial branch budget, accounting for around a one-time $10 million General Fund four-fifths of total spending. augmentation to fund a state level reserve General Fund Support for Trial Court that would be available to trial courts for Operations. The budget package includes a net emergencies. $79 million General Fund augmentation to trial The above augmentations are partially offset by court operations in 2016-17. This amount includes a $34 million reduction in General Fund support the following increases: for trial court operations in 2016-17 in order to • Court Innovations Grants Program reflect the availability of property tax revenue ($25 million). The budget provides a in accordance with Control Section 15.45 and one-time $25 million augmentation for a Section 2578 of the Education Code. Such funds are new Court Innovations Grant Program. remitted to the state by counties that collect more The program will provide grants on a property tax than state law allows them to spend on competitive basis to support trial and education. appellate court programs and practices that Improvement and Modernization Fund promote innovation, modernization, and (IMF). In recent years, the judicial branch’s IMF efficiency. experienced persistent operational shortfalls that steadily depleted the fund balance. (The IMF is a • Proposition 47 Workload ($21 million). judicial branch special fund that supports various The budget provides $21 million in 2016-17 projects and programs that broadly benefit the for trial courts to process resentencing and trial courts, such as information technology reclassification petitions from offenders [IT] projects.) To address this issue, the budget convicted of felonies that Proposition 47 includes a couple of actions to shift costs from the (2014) reduced to misdemeanors. IMF to the General Fund. For example, the IMF • Base Increase ($20 million). The budget currently provides $7 million annually to support includes a $20 million augmentation for the California Case Management System Version 3 trial court operations. Trial courts have full (CCMS V3) in four courts. (The CCMS V3 is a discretion in the use of these funds. civil, small claims, probate, and mental health case management system.) The budget provides funds • Health Benefit and Retirement Costs to replace this system (at a cost of $25 million over ($16 million). The budget includes three years). This will eventually eliminate the need $16 million for increased trial court health for the $7 million expenditure from the IMF. benefit and retirement costs. Capital Outlay. The budget provides $392 million for various court construction • State Level Reserve ($10 million). The projects. This amount consists of (1) $303 million in budget package eliminates a current lease revenue bond authority for the construction statutory requirement that the judicial or renovation of five previously approved projects branch maintain a statewide reserve of 64 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET (Willows, El Centro, Indio, Redding, and Sonora), housing units, (2) reduced funding for the basic (2) $85 million from the Immediate and Critical correctional officer academy, and (3) the use of Needs Account (ICNA) for design and construction fewer out-of-state contract beds for inmates. activities for ten projects, and (3) $4 million from Adult Correctional Population. Figure 35 ICNA for the modification of two existing court shows the recent and projected changes in the facilities in Los Angeles. (ICNA receives revenue inmate and parolee populations. As shown in from certain court fee and fine increases.) the figure, the prison population is projected to stabilize at about 129,000 inmates through the end Corrections and Rehabilitation of 2016-17. The parole population is projected to The budget act provides $10.5 billion from decline from 44,000 to about 43,000 parolees by the the General Fund for support of the California end of 2016-17. Department of Corrections and Rehabilitation. Rehabilitation Programming. The budget This is a net increase of $308 million, or 3 percent, includes a $64 million increase from the General above the revised 2015-16 level of spending. This Fund related to rehabilitation programming. This increase primarily reflects additional costs related includes (1) $21 million to expand substance use to (1) inmate medical care, (2) the expansion of disorder treatment services, (2) $16 million to inmate rehabilitation and alternative custody expand programs targeted at long-term offenders, programs, and (3) debt service on lease revenue and (3) $27 million to expand various other bonds. These increases are partially offset by programs (such as inmate education and vocation savings primarily related to (1) the conversion of programs) and support IT projects related to segregated housing units to general population rehabilitation programming. Figure 35 Inmate and Parolee Populations Projected to Stabilize As of June 30 Each Year 180,000 Inmates 160,000 Parolees 140,000 120,000 100,000 80,000 60,000 40,000 20,000 2011 2012 2013 2014 2015 2016 2017 www.lao.ca.gov Legislative Analyst’s Office 65 2016-17 BUDGET Inmate Medical Care. The budget includes 2015-16 level of spending. This amount includes $2 billion from the General Fund for inmate $216 million from the General Fund—an increase medical care to comply with the federal court in of $11 million, or 5 percent, from the revised the Plata v. Brown case, an increase of $54 million, 2015-16 level of spending. The budget includes or 3 percent, above the revised 2015-16 level 90 permanent positions and approximately of spending. This includes (1) $36 million for $24 million ($10 million from the General Fund modifications to the Electronic Health Record and $14 million from other funds) for DOJ to System, which will serve as the primary health implement legislation enacted in prior years and record for all inmates; (2) $12 million to implement to increase DOJ’s capacity to address increased a uniform medical supervisory staffing model at workload. This includes: (1) new workload related all state prisons; and (3) $7 million to augment to the required reporting of certain data by state janitorial services at the California Health Care and local law enforcement agencies ($10 million), Facility in Stockton. This increase was somewhat (2) increased enforcement activities related to offset by reductions in spending elsewhere, such as Medi-Cal fraud or elder abuse ($8 million), and on inmate pharmaceuticals. (3) enforcement activities related to the removal of Alternative Housing Programs. The budget firearms from prohibited persons ($5 million). includes $35 million from the General Fund to In addition, the budget provides 24 positions expand alternative housing for inmates. This and about $9 million on a limited-term basis from includes $32 million for the Male Community special funds to support various DOJ activities. Reentry Program, which provides beds in This includes 20 positions and $3 million annually community facilities that prepare inmates for over three years from the Gambling Control Fund transition out of prison. The remaining $3 million to address the current cardroom licensing backlog. is to expand the Alternative Custody Program Most of the remaining funds would come from to comply with a court order requiring that the the Firearms Safety and Enforcement Special Fund program serve male inmates. to support contracts with local law enforcement Segregated Housing Unit Conversion and agencies who remove firearms from prohibited Investigative Services Unit (ISU) Staffing. The persons with mental illness and with domestic budget includes a $22 million net General Fund violence restraining orders. reduction related to the conversion of segregated In addition to funding provided in the budget, housing units to less expensive general population the Legislature approved legislation in August— housing units. This includes (1) a $25 million Chapter 281 of 2016 (SB 1187, Lara)—to provide reduction resulting from the conversion of $37 million from the General Fund to DOJ for the segregated housing units currently holding around payment of a legal settlement to the Pauma Band 1,000 inmates to general population units and (2) a of Luiseno Mission Indians of the Pauma and $3 million increase for 22 positions for the ISU to Yuima Reservation. This settlement is in regards to investigate gang activity. payments that the tribe had previously made to the state for operating gaming devices in the state. Department of Justice (DOJ) Other Criminal Justice Programs The budget provides $575 million for support of DOJ in 2016-17—an increase of Board of State and Community Corrections $43 million, or 8 percent, from the revised (BSCC). The budget includes $223 million 66 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET ($137 million from the General Fund and for school truancy and dropout prevention, $85 million from other funds) for BSCC, which is and (3) 10 percent for victim services. The responsible for administering various public safety administration currently estimates that $39 million grants, overseeing local correctional standards, in state savings will be available for expenditure providing technical assistance to local criminal in 2016-17. Separate from the amount that will justice agencies, and collecting data. The budget be appropriated under Proposition 47, the budget includes $61 million in one-time General Fund includes one-time funding from the General Fund increases for local law enforcement grants. This of (1) $18 million for school truancy and dropout consists of (1) $20 million to cities to improve prevention and (2) $10 million for recidivism relations between police and high-risk populations reduction programs. (such as homeless individuals), (2) $15 million Criminal Fine and Fee Revenue. The budget for a pilot program that seeks to divert low-level includes various actions—such as expenditure prostitution and drug offenders into rehabilitation reductions, cost shifts, and cash flow loan services in lieu of jail and prosecution, authority—to address operational shortfalls (3) $10 million for police station infrastructure in and insolvency in various state funds resulting Fresno County, (4) $10 million for regional crime from declines in criminal fine and fee revenue. task forces, and (5) $5.5 million for the City of Such actions primarily include shifting nearly Salinas for violence and gang prevention efforts. $104 million in costs from various funds that The budget also provides an additional receive fine and fee revenue to the General Fund in $270 million in lease revenue bonds for adult 2016-17. This includes $75 million from the Trial local criminal justice facilities (such as jails) Court Trust Fund, $17 million from the Peace to be administered by BSCC. Of this amount, Officer’s Training Fund, $9 million from the IMF, $250 million will be allocated through a competitive and $3 million from the Corrections Training Fund. grant process, with projects that include mental Victim’s Compensation and Government health or rehabilitation program space receiving Claims Board (VCGCB). In adopting the 2016-17 greater priority. The remaining $20 million will be budget package, the Legislature adopted legislation allocated to Napa County to repair damages its jail to shift most of VCGCB’s responsibilities unrelated sustained in the 2014 earthquake. to victims—such as the Government Claims Proposition 47. Proposition 47 reduced the Program—to other state agencies, including penalties for certain crimes and requires that the the Department of General Services. Under the resulting state savings, as estimated by DOF, be legislation, VCGCB will be renamed the Victim spent on designated programs. Specifically, the Compensation Board and will continue to have measure requires the savings be continuously responsibility for some non-victim programs (such appropriated as follows: (1) 65 percent for as compensation of individuals wrongly convicted recidivism reduction programs, (2) 25 percent of crimes and the Good Samaritan Program). www.lao.ca.gov Legislative Analyst’s Office 67 2016-17 BUDGET OTHER MAJOR PROVISIONS Housing for the Homeless Employee Compensation No Place Like Home Program. The budget Labor Agreements Significantly Increase State package establishes the $2 billion No Place Like Annual Costs . . . As part of his 2015-16 budget Home Program to construct and rehabilitate proposal, the Governor introduced his goal of using permanent supportive housing for those with the collective bargaining process to implement a mental illness who are homeless. The program funding plan for retiree health benefit liabilities. authorizes the issuance of bonds backed by Specifically, the Governor proposed that (1) the personal income tax revenues raised under the state and employees each regularly contribute Mental Health Services Act (Proposition 63 of an equal amount of money to prefund retiree 2004). These funds are allocated as follows: health benefits and (2) retiree health benefits be reduced for future state employees. Since January • $1.8 Billion for a Competitive Grant 2015, the Legislature and affected union members Program. The Department of Housing have ratified memoranda of understanding that and Community Development (HCD) will implement the Governor’s plan for five of the administer a competitive grant program state’s 21 bargaining units. These employees and to fund construction and rehabilitation of their managers represent about 30 percent of the supportive housing. state’s workforce and 40 percent of the state’s • $200 Million on a Per Capita Basis. The General Fund payroll costs. Our analyses of these HCD also will divide $200 million among agreements are available on our website. counties to fund supportive housing In order to achieve the Governor’s goal at the projects based on counties’ shares of the collective bargaining table, the state agreed to state’s homeless population. provide various pay and benefit increases for these employees in the near-term. The pay and benefit These programs will be administered over increases established by these agreements—along a number of years. The 2016-17 Budget Act with the state contributions to match employee appropriates $268 million and 10.4 positions at payments to a retiree health funding account— HCD for these purposes in 2016-17. represent a significant new budgetary commitment Emergency Solutions Grant Program. The for the state with both near- and long-term budget package also allocates $35 million to HCD effects. The budget package assumes that these for the California Emergency Solutions Grant new costs will be $603.2 million ($336.1 million Program. Under this program, HCD will award General Fund) in 2016-17. Recognizing that the grants to local governments and nonprofits to administration actively is bargaining with 15 other provide a variety of services to those who are bargaining units, the budget sets aside about homeless, including rapid rehousing, shelters, $500 million ($200 million General Fund) in essential services, and homelessness prevention 2016-17 to pay for increased costs resulting from activities. In addition, the budget allocates possible future agreements. If the Legislature and $10 million to the Office of Emergency Services affected union members ratify similar agreements to fund specialized services for homeless youth in for these 15 bargaining units before July 1, 2017, certain counties. 68 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET (1) the state’s costs in 2016-17 could be hundreds budget trailer legislation, which governs the use of millions of dollars higher than currently of the fund and requires certain notifications and appropriated in the budget and (2) by 2019-20, the reporting to the Legislature. state’s annual employee compensation costs could Deferred Maintenance. The budget includes be billions of dollars higher than costs in 2016-17. one-time spending totaling $688 million to address . . . But Likely Would Reduce State Costs backlogs of deferred maintenance at various in a Few Decades. The recently ratified labor state facilities. Of the total, $485 million is from agreements will institute a new arrangement non-Proposition 98 General Fund and supports to begin addressing the large unfunded state various entities, as shown in Figure 36 (see next liabilities for retiree health benefits. While the page). The budget also includes $185 million from administration’s plan seems to be to keep making budget-year and prior-years’ Proposition 98 funds pay-as-you-go benefit payments for many years, for the California Community Colleges (CCC). the new arrangement would—within the next few This funding could be used to address deferred years—begin to fund “normal costs” each year for maintenance and instructional equipment needs. the future retiree health benefits earned by today’s The CCC funding is described in more detail in employees. The agreements will deposit these the “Higher Education” section of this report. The payments in invested accounts that will generate remaining $18 million is from the MVA for the earnings and gradually reduce unfunded liabilities deferred maintenance needs at CHP and DMV. (By over the next three decades or so. (In addition to comparison, the 2015-16 Budget Act included a total the regular payments to prefund retiree health of $268 million—$120 million in non-Proposition 98 benefits established by these labor agreements, General Fund support and $148 million in the Legislature amended the 2015-16 Budget Act Proposition 98 funds—for these purposes.) to deposit $240 million as a one-time payment The budget requires that the administration to retiree health prefunding accounts as part of provide the Legislature with a list of deferred Chapter 2 of 2016 [AB 133, Committee on Budget].) maintenance projects to be funded from the General Fund (non-Proposition 98) and MVA prior Statewide Infrastructure to allocation of funds to the recipient departments. State Office Buildings. The budget The budget also requires legislative notification for package creates a new fund—the State Project any changes to these lists. Infrastructure Fund—and transfers $1 billion Debt Service. The budget provides $7.8 billion into this fund from the General Fund (with an from the General Fund and other funds for debt additional $300 million in 2017-18). The new fund service payments in 2016-17. This represents an is continuously appropriated for the renovation increase of 3 percent from 2015-16, and reflects and construction of state buildings. The initial additional debt service costs related to transportation, projects identified to be supported from this fund resources, community colleges, health, corrections, are two new office buildings in Sacramento (one of and other projects. The total includes $6.8 billion which would replace the current Natural Resources for general obligation bonds ($4.8 billion from the building) and a new or remodeled annex to the General Fund), and $962 million for lease revenue State Capitol building. The administration expects bonds ($626 million from the General Fund). Debt to spend $10.1 million on the initial stages of these service payments for the University of California projects in 2016-17. The budget package includes and the California State University are made directly www.lao.ca.gov Legislative Analyst’s Office 69 2016-17 BUDGET from their main state support appropriations and are Office of Emergency Services (OES) reflected in the above total. The budget provides OES with $1.4 billion Seismic Retrofits. The budget provides (70 percent from federal funds) in 2016-17. This is a $13 million in one-time General Fund support net increase of $40 million, or 3 percent, compared for programs to encourage property owners to to the estimated spending level for 2015-16. undertake seismic retrofits. Of this amount, Tree Mortality and Drought. The budget $10 million is allocated to create a loan loss provides an additional $52.2 million from the reserve program for residential property and small General Fund for the California Disaster Assistance business owners through the California Pollution Act (CDAA) to support local communities suffering Control Authority. Additionally, $3 million is from the effects of the drought. Of this amount, provided to the Department of Insurance for the $30 million is to remove hazardous trees from public Brace and Bolt program, which is administered by rights-of-way or that threaten public infrastructure. the California Residential Mitigation Program and The remaining $22.2 million is to support other provides homeowners with funds to implement activities related to the drought, such as providing seismic retrofits on residential buildings. temporary water tanks or portable toilets to homes and communities without access to water. In addition Figure 36 to the funds provided General Fund (Non-Proposition 98) Deferred Maintenance Funding for CDAA, the budget provides $4.5 million from (In Millions) the General Fund for OES Department/Program Amount staff to provide technical Water Resources $100.0 guidance and disaster State Hospitals 64.0 Parks and Recreation 60.0 recovery support related to Corrections and Rehabilitation 55.0 the drought. (The drought Judicial branch 45.0 funding provided in the California State University 35.0 University of California 35.0 budget is described further Developmental Services 18.0 in the “Resources and Fish and Wildlife 15.0 Environmental Protection” Military Department 15.0 General Services 12.0 section of this report.) Veterans Affairs 8.0 Earthquake Early Forestry and Fire Protection 8.0 Warning System. State Special Schools 4.0 California Fairs 4.0 The budget provides Science Center 3.0 $10 million from the Hastings College of the Law 2.0 General Fund and four Emergency Services 0.8 Conservation Corps 0.7 positions to support the Food and Agriculture 0.3 initial implementation of San Joaquin River Conservancy 0.2 a California Earthquake Total $485.0 Early Warning System. 70 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET This funding would be used for initial project California Military Department (CMD) costs, including (1) $6.9 million for capital costs for The budget provides CMD with $205 million, equipment and seismic stations, (2) $2.2 million about two-thirds from federal funds. This is a for development of a public education and training net increase of $19 million, or close to 10 percent, plan, (3) $734,000 for staffing, and (4) $150,000 to compared to the estimated spending level for 2015-16. develop a financial strategy for funding the system. Armory Renovations. The budget provides The department estimates that the project will cost $22 million (half from the General Fund and a total of $28 million to implement and $17 million half from federal matching funds) to renovate annually thereafter to operate. CMD armories. Of this amount, $19 million is to Emergency Operations and Critical complete the renovation of armories at Santa Cruz, Support. The 2016-17 budget provides an increase Escondido, Eureka, and San Bernardino. These of $20 million from the General Fund and projects are some of the initial ones identified in 54.5 positions to support a variety of activities the CMD Armory Strategic Plan, released in 2016. across OES. As shown in Figure 37, the funding This plan envisions addressing the facility needs at includes $10 million (one time) to provide the department’s 91 active armories by renovating additional fire engines to local fire departments, roughly three per year. The plan also identifies a a total of $6.1 million for disaster coordination strategy for consolidating and divesting certain programs and staff, and $1.5 million for IT. Of the armories. The remaining $3 million is for the first total funding, $3.5 million is available to OES no Figure 37 sooner than 30 days Emergency Operations and Critical Support Funding after providing the JLBC Ongoing with additional financial Program Positions General Fund information related to Fire Response the Recovery Public Fire apparatus — $10,000,000 Fire and Rescue Branch staffing 7 1,712,000 Assistance Program. Automated Vehicle Location — 227,000 Human Trafficking Fire apparatus operating costs and maintenance — 102,000 Program. The budget Disaster Coordination provides $10 million from Statewide disaster programs — 3,678,000 Law Enforcement Branch staffing 4 1,107,000 the General Fund on a Regional response and readiness 6 879,000 one-time basis for the Disaster Logistics Program 3 421,000 Human Trafficking Victim Technology Information technology — 1,030,000 Assistance Program. This Cal EOC support 3 495,000 program was created in Facilities 2015-16 with $10 million Regional Coordination Center — 700,000 Fire Maintenance Shop lease — 94,000 in one-time Restitution Other Funds and provides Federal Emergency Management Program — — grants to providers of Emergency Operations Incident Support Training — — Public Safety Communications 28 — comprehensive services Administrative support 3.5 — for victims of human Totals 54.5 $20,445,000 trafficking. www.lao.ca.gov Legislative Analyst’s Office 71 2016-17 BUDGET phase of the renovation of the San Diego Readiness as statutory changes related to the new regulatory Center. (The total estimated project cost for the San structure. Diego Readiness Center renovation is $12 million.) Budget Includes Funding for Multiple Departments. As shown in Figure 38, the budget Medical Marijuana Regulation provides a total of $33.1 million ($13.4 million In 2015, the Legislature passed and Governor General Fund and $19.7 million special funds) signed a package of three bills—Chapters 688, and 134 positions to six state departments. First, 689, and 719 (AB 243, Wood; AB 266, Bonta; and the budget includes funding—primarily for SB 643, McGuire)—that established a new regulatory the Department of Consumer Affairs (DCA), framework for the medical marijuana industry. The California Department of Food and Agriculture legislation included a new structure for licensing and (CDFA), and Department of Public Health enforcing medical marijuana cultivation, product (DPH)—to develop and implement regulations for manufacturing, testing, transportation, storage, and different parts of the medical marijuana industry. distribution. The new laws also designated certain Second, the budget includes $8 million for DCA state departments to carry out these regulatory ($6 million) and CDFA ($2 million) to begin and enforcement responsibilities and authorized development of IT projects for licensing of industry departments to collect licensing fees to cover participants and tracking of medical marijuana regulatory costs. The legislation established a new products. Third, the budget includes resources for state fund, the Medical Marijuana Regulation and the Department of Fish and Wildlife and State Safety Act Fund (MMRSAF), into which licensing Water Resources Control Board (SWRCB) to revenues would be deposited, as well as a $10 million reduce the environmental impacts of marijuana loan from the General Fund. cultivation—such as on water quality and instream The 2016-17 budget package includes additional flows needed for fish spawning and migration. funding to implement the 2015 legislation, as well Figure 38 2016-17 Funding to Implement Recent Medical Marijuana Legislation (Dollars in Millions) Funding General Special Department Fund Fund Total Staffing Major Responsibilities DCA — $9.7a $9.7 33 License and enforce marijuana distributors, transporters, dispensaries, and testing laboratories. DFW $7.7 — 7.7 31 Monitor and reduce environmental impacts of marijuana cultivation. SWRCB 5.2 0.5b 5.7 35 Regulate the environmental impacts of marijuana cultivation on water quality and instream flows. CDFA — 5.4a 5.4 18 Regulate marijuana cultivation and issue licenses to growers. DPH 0.5 3.4a 3.9 14 Regulate medical marijuana product manufacturers. DPR — 0.7c 0.7 3 Develop pesticide use guidelines for the cultivation of marijuana. Totals $13.4 $19.7 $33.1 134 a Medical Cannabis Regulation and Safety Act Fund. b Waste Discharge Permit Fund. c Department of Pesticide Regulation Fund. DCA = Department of Consumer Affairs; DFW = Department of Fish and Wildlife; SWRCB = State Water Resources Control Board; CDFA = California Department of Food and Agriculture; DPH = Department of Public Health; and DPR = Department of Pesticide Regulation. 72 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Increase in General Fund Loan. The budget long-term instream flow objectives, limits on includes an additional $8 million loan from the diversions, and other requirements. General Fund to the Medical Cannabis Regulation and Safety Act Fund (previously, MMRSAF). This California Department of Food and Agriculture loan is available to DCA and CDFA to implement the The budget includes $409 million from various licensing and tracking IT systems described above. funds to support CDFA, which is a decrease of Budget Trailer Legislation. The budget about $16 million, or 4 percent, from the revised package makes various statutory changes to the 2015-16 budget. The decrease is due mainly to a 2015-16 legislative package. Specifically, Chapter 32 technical adjustment downwards of $20 million of 2016 (SB 837, Committee on Budget and Fiscal to more accurately reflect federal funding levels. Review) includes the following provisions: The budget includes funding for (1) the regulation • Name Changes. Changes references from of medical marijuana and (2) GHG reduction “medical marijuana” to “medical cannabis” programs discussed earlier in this report. in various provisions, including the names Market Match Program. The budget includes of the special fund and DCA bureau $5 million from the General Fund for the Market created in the original legislation. Match Program. Chapter 442 of 2015 (AB 1321, Ting) created this program within the Office of • Licensing. Clarifies that licensing Farm to Fork to award grants to certified farmers’ departments have authority to create markets that increase the amount of nutrition license types, set license fees, and benefits available to low-income consumers when conduct enforcement related to licensees. purchasing fresh fruits, nuts, and vegetables grown Authorizes implementing departments to in California. provide conditional licenses and establish deadlines for applying for licensure. California Public Utilities Commission (CPUC) • Testing Laboratory Licensing Authority. The budget provides a total of $1.6 billion for Shifts authority to license laboratories from the CPUC from various funding sources. This the DPH to DCA. amount is similar to the revised 2015-16 spending amount. • Product Packaging and Safety. Adds Lifeline Program. The budget includes requirements for labeling and child- $483 million (Universal LifeLine Telephone Service proof packaging. Defines and prohibits Trust Administrative Committee Fund) for the misbranding and the sale of adulterated California Lifeline Program, which provides products. discounted telephone services to low-income households. This amount is roughly the same as • Protection of Instream Flows. Provides the revised 2015-16 spending amount, but reflects a a limited exemption to the California more than 150 percent increase in spending relative Environmental Quality Act for SWRCB to to 2013-14 spending ($192 million). The recent adopt guidelines designed to protect aquatic increases in the costs for the program are largely habitats from negative effects associated with driven by an increase in program enrollment diverting water for marijuana cultivation. associated with expanding the program in 2014 to These guidelines can include interim and include wireless telephone service. www.lao.ca.gov Legislative Analyst’s Office 73 2016-17 BUDGET Division of Safety Analysis. The budget Other Arts Projects. The budget includes a includes $1.7 million (Public Utilities Commission $4.5 million General Fund augmentation for the Utilities Reimbursement Account [PUCURA]) following projects through the California Cultural and 11 permanent positions to create a Division and Historical Endowment: Pasadena Playhouse of Safety Analysis. Unlike existing safety and ($1 million), Excelsior Auditorium ($2 million), enforcement staff, the new division would Lark Musical Society ($500,000), and Armenian participate as a party in official CPUC proceedings. Museum ($1 million). This would allow the division to provide testimony Financial Information System and analysis related to safety that would be on the for California (FI$Cal) formal record at proceedings. Funding for Outside Legal Counsel. The An Integrated Financial Management System. budget includes $6 million (PUCURA) to retain Over the last several years, the administration outside legal counsel for activities related to federal has been engaged in the design, development, and and state criminal investigations into the CPUC. implementation (DD&I) of the FI$Cal Project. The legal activities include preparing court filings This IT project will replace the state’s aging and and assisting the CPUC in producing documents decentralized IT financial systems with a new relevant to the investigations. The Attorney General’s system integrating state government processes Office, which typically represents state agencies in the areas of budgeting, accounting, cash in legal matters, cannot represent the CPUC on management, and procurement. Since the project this issue because it is leading the state criminal began, it has changed in scope, schedule, and investigation into CPUC. In addition, the legal staff cost from what was initially anticipated. These at the CPUC generally does not have relevant legal changes have been documented in special project expertise related to criminal investigations. The total reports (SPRs). In February 2016, the California costs of the outside legal counsel are estimated to be Department of Technology approved the sixth SPR $12.3 million. The CPUC indicates it is paying for for FI$Cal. The changes to the project reflected in the remaining $6.3 million out of its baseline state SPR 6 result in a 24-month schedule extension (to operations budget. July 2019) and an increase in the project cost by $237 million ($125 million General Fund). This Funding for Arts brings the total cost of the project to $910 million California Arts Council (CAC). The budget ($494 million General Fund). includes a one-time General Fund augmentation of The 2016-17 spending plan provides funds to $6.8 million for CAC. Of this amount, $6 million (1) implement the changes proposed in SPR 6 and is for arts programs in underserved communities, (2) establish a new state department to maintain and $800,000 is for a program to help inmates and operate the FI$Cal system. In total, the 2016-17 transition back into society. Additionally, the spending plan provides $135 million ($96.3 million budget provides CAC with two positions and General Fund) for FI$Cal. Below, we provide $4 million (increasing to $6 million in 2017-18) in additional details regarding the 2016-17 spending additional authority to receive reimbursements plan for FI$Cal. from the California Department of Corrections and Provides Funding for New Project Plan. The Rehabilitation to expand the Arts-in-Corrections administration determined the risk of moving program. forward with an unrealistic project schedule 74 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET for FI$Cal was too large and decided a different timekeeping. In February 2013, SCO terminated approach would be necessary in order to mitigate its $90 million contract with the vendor after the the risk of a significant disruption to the project in project experienced various problems during the future years. The 2016-17 spending plan provides pilot stage. In November 2013, SCO filed a lawsuit $92.5 million ($71.9 million General Fund) and against the vendor for breach of contract. The vendor 121 positions to continue the FI$Cal Project as later filed its own claims against SCO. Following proposed in the new project plan—SPR 6—which nearly three years of litigation, the parties reached a aims to reduce project risk by creating a more settlement in June 2016. realistic time line. This position total includes Although Settlement Reached, Funds Litigation 96 existing positions plus 25 new positions. and Assessments. As part of the settlement, the Establishes Department of FI$Cal. 2016-17 vendor will pay SCO $59 million and the vendor will budget-related legislation establishes the forego its own claims against SCO for $23 million. Department of FI$Cal to provide a permanent The settlement also prevents the parties from administrative structure and an ongoing pursuing any additional litigation on this matter. maintenance and operation (M&O) function for Because the settlement was not reached in time to FI$Cal. Additionally, budget-related legislation be incorporated in the 2016-17 budget, the spending revises the current FI$Cal governance structure plan provides limited-term funding of $4.8 million by providing broad authority to a newly created for eight positions to complete litigation efforts position—the Director of the Department of against the vendor. These funds were to support FI$Cal—to maintain and operate the system, while the trial phase, which was expected to begin in setting an advisory role for partner agencies that June 2016 and continue into 2016-17. In light of have been engaged in the DD&I of the project. the settlement, the funds will not be needed for The 2016-17 spending plan provides $42.6 million these purposes. Additionally, the 2016-17 budget ($24.3 million General Fund) and 122 positions to includes limited-term funding of $2.4 million for support the Department of FI$Cal. This position eight positions beginning in January 2017 (when the total includes 99 existing project positions that litigation was expected to be completed) to assess will shift from DD&I to M&O responsibilities plus opportunities for simplifying the state’s payrolling 23 new positions. When the department assumes process to make development of a new human complete responsibility for M&O of the FI$Cal resources management and payroll system easier and system in 2019-20, the department is expected to begin the evaluation of various alternatives for a to cost $70.4 million ($40 million General Fund) new system. annually and include 274 positions. Labor Programs 21st Century (TFC) Project Interest Payment for Federal Unemployment In 2004, the State Controller’s Office (SCO) Insurance (UI) Loan. California’s UI trust fund proposed the TFC Project, the IT effort to replace reserve was exhausted in 2009, requiring the state the existing statewide human resources management to borrow from the federal government to continue and payroll systems used to pay roughly 260,000 payment of UI benefits. The balance of California’s state employees. The new system was intended to outstanding federal loans is declining and is allow the state to improve management processes estimated to be $4 billion at the end of 2016. The such as payroll, benefits administration, and state is required to make annual interest payments www.lao.ca.gov Legislative Analyst’s Office 75 2016-17 BUDGET on these federal loans. The 2016-17 spending plan funds will be distributed based on a competitive includes $111 million (General Fund) to make the application process to local grantees that serve the interest payment due in the fall of 2016. The federal targeted populations. loans are projected to be fully repaid in 2018. Department of Veterans Affairs Increased Oversight of the Labor Code Private Attorneys General Act (PAGA). The spending The spending plan for the California plan includes $1.6 million from the Labor and Department of Veterans Affairs includes Workforce Development Fund ($1.5 million $387 million General Fund in 2016-17, an increase ongoing) to support nine new positions at the of $28 million over revised estimates for 2015-16. Department of Industrial Relations and one new This amount is expected to be offset by $68 million position at the Labor and Workforce Development from federal reimbursements for Veterans Homes. Agency to increase the state’s oversight of PAGA. The General Fund increase includes funding for This state law allows employees that bring private two budget-related policy changes: legal action to recover unpaid wages from an • Yountville Kitchen Renovation. The employer to additionally seek civil penalties for spending plan includes $6 million General labor law violations that otherwise could only be Fund in 2016-17 to renovate the kitchen at recovered by the state. the Yountville Veterans Home. One-Time Funding for Employment Services for Ex-Offenders. The spending plan • Additional Support for Connecting includes $3 million from the General Fund on a Veterans to Services. The spending plan one-time basis for the Employment Development includes $2.5 million General Fund to Department and California Workforce support increased efforts to connect Development Board to provide additional veterans to federal, state, and community employment services for ex-offenders. These resources and benefits. LAO Publications The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 76 Legislative Analyst’s Office www.lao.ca.gov