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The 2017-18 Budget: California Spending Plan

Legislative Analyst's Office · lao-3694 · Report · 2017-10-18

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The 2017-18 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 18, 2017 2017-18 BUDGET i Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET TABLE OF CONTENTS Chapter 1: Key Features of the 2017-18 Budget Package Budget Overview ��1 Major Features of the 2017-18 Spending Plan ��3 Evolution of the Budget ��5 Chapter 2: Spending by Program Area Proposition 98 ��7 Overview ��7 K-12 Education ��9 California Community Colleges ��15 Child Care and Preschool ��19 Higher Education ��24 Health ��31 Human Services ��36 Action on the Coordinated Care Initiative ��42 Continuation of Major Components of the CCI ��42 Changes to IHSS Cost Sharing ��42 Natural Resources and Environmental Protection ��47 Cross-Cutting Issues ��48 Natural Resources ��52 Environmental Protection ��56 Transportation ��59 Judiciary and Criminal Justice ��62 Other Provisions ��67 www.lao.ca.gov Legislative Analyst’s Office ii 2017-18 BUDGET Legislative Analyst’s Office www.lao.ca.gov (916) 445-4656 Legislative Analyst Mac Taylor State and Local Finance Corrections, Transportation, and Environment Jason Sisney Anthony Simbol Brian Brown Carolyn Chu Drew Soderborg Sara Cortez Justin Garosi Ashley Ames Ann Hollingsheada Ross Brown Seth Kerstein Rachel Ehlers Ryan Miller Paul Golaszewski Nick Schroeder Helen Kerstein Brian Uhler Anita Lee Brian Weatherford Shawn Martin Ryan Millendez Education Caitlin O’Neil Jennifer Kuhn Jonathan Peterson Ryan Anderson Tom Van Heeke Edgar Cabral Health and Human Services Natasha Collins Mark C. Newton Jason Constantouros Virginia Early Ginni Bella Navarre Judy Heiman Chas Alamo Dan Kaplan Jackie Barocio Kenneth Kapphahn Ben Johnson Paul Steenhausen Brian Metzker Lourdes Morales Sonja Petek Ryan Woolsey Administration, Information Services, and Support Sarah Kleinberg Tina McGee Sarah Barkman Izet Arriaga Karry Dennis Fowler Sarah Scanlon Michael Greer Jim Stahley Vu Chu Anthony Lucero Sandi Harvey Rima Seiilova-Olson a General Fund Condition analyst, Spending Plan “Chapter 1” coordinator. iii Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Chapter 1: Key Features of the 2017-18 Budget Package Each year, our office publishes the California discuss budget actions approved by the Legislature Spending Plan to summarize the annual state after June 15, 2017. In late July, for example, the budget. This publication discusses the 2017-18 Legislature passed and the Governor approved, an Budget Act and other major budget actions extension of authority for the Air Resources Board approved in 2017. In general, it reflects budgetary to implement the state’s cap-and-trade program actions that the Legislature has taken through from 2020 to 2030. September 2017. In some cases, as noted, we BUDGET OVERVIEW State Spending General Fund Revenues Figure 1 displays the administration’s June Figure 2 (see next page) displays the 2017 estimates of total state and federal spending administration’s revenue projections as in the 2017-18 budget package. As shown in the incorporated into the June 2017 budget package. figure, the budget assumed total state spending of The administration projects $125.9 billion in $180 billion (excluding federal and bond funds), an General Fund revenues and transfers in 2017-18, a increase of 7 percent over revised totals for 2016-17. 6 percent increase over revised 2016-17 estimates. General Fund spending in the budget package The state’s “Big Three” General Fund taxes—the is $125.1 billion—an increase of $3.7 billion, or personal income tax (PIT), sales and use tax, 3 percent, over the revised Figure 1 2016-17 level. Special Total State and Federal Fund Expenditures fund spending increased $8.5 billion, or 18 percent, (Dollars in Millions) over the revised 2016-17 Change From Revised 2016-17 level, largely as a result Enacted 2015-16 2016-17 2017-18 Amount Percent in increased special General Fund $114,465 $121,421 $125,096 $3,675 3% fund spending related Special funds 42,100 46,343 54,891 8,547 18 to transportation and Budget Totals $156,565 $167,765 $179,987 $12,222 7% Medi-Cal. Selected bond funds $3,644 $6,573 $3,269 -$3,303 -50% Federal funds 90,690 96,195 107,498 11,303 12 Note: Reflects administration estimates of budgetary actions through June 2017. www.lao.ca.gov Legislative Analyst’s Office 1 2017-18 BUDGET Figure 2 General Fund Revenue Estimates (Dollars in Millions) Change From Revised 2016-17 Enacted 2015-16 2016-17 2017-18 Amount Percent Personal income tax $78,735 $83,161 $88,821 $5,660 7% Sales and use tax 24,871 24,494 24,470 -25 — Corporation tax 10,460 10,210 10,894 684 7 Subtotals, “Big Three Taxes” ($114,066) ($117,865) ($124,185) ($6,320) (5%) Insurance tax $2,562 $2,483 $2,538 $55 2% Other revenues 2,236 1,706 1,453 -253 -15 Transfer to BSA -2,093 -3,014 -1,773 1,241 -41 Other transfers and loans -1,111 -501 -522 -21 4 Totals, Revenues and Transfers $115,661 $118,539 $125,880 $7,341 6% Note: Reflects administration’s revenue projections, as incorporated into the 2017-18 state budget plan in June 2017. BSA = Budget Stabilization Account. and corporation tax—are projected to increase is an increase of about $2.6 billion in total reserves 5 percent. compared to revised 2016-17 levels. This essentially The PIT estimate for 2017-18 reflects a means the General Fund is projected to have $140 million revenue loss associated with the $2.6 billion more in available resources compared expansion of the state Earned Income Tax Credit to spending in 2017-18, with that $2.6 billion excess (EITC) to self-employment income and taxpayers used to build reserves in the two accounts. with incomes of up to $22,300. The Condition of the General Fund Figure 3 General Fund Summary Figure 3 summarizes the condition of the General Fund under the revenue and spending (In Millions) assumptions in the June 2017 budget package, 2016-17 2017-18 Revised Enacted as estimated by the Department of Finance. Prior-year fund balance $4,504 $1,622 This shows that estimated state General Fund Revenues and transfers 118,539 125,880 revenues ($125.9 billion) exceed total General Fund Expenditures 121,421 125,096 expenditures ($125.1 billion). Ending fund balance $1,622 $2,406 Encumbrances 980 980 As shown in Figure 3, the budget package SFEU balance 642 1,426 assumed that 2017-18 will end with $9.9 billion in total reserves, as of June 2017. This consists of: Reserves SFEU balance $642 $1,426 (1)$1.4 billion in the state’s discretionary reserve, BSA balance 6,713 8,486 the Special Fund for Economic Uncertainties Total Reserves $7,355 $9,912 (SFEU), and (2) $8.5 billion in the state’s mandatory SFEU = Special Fund for Economic Uncertainties (the General Fund’s discretionary budget reserve); and reserve, the Budget Stabilization Account, which is BSA = Budget Stablization Account (the General Fund’s mandatory budget reserve). governed by the terms of Proposition 2 (2014). This 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET MAJOR FEATURES OF THE 2017-18 SPENDING PLAN The major features of the 2017-18 budget Control Funding Formula as well as $887 million package are shown in Figure 4 and briefly described in one-time discretionary grants. For community below. We discuss these and other actions in more colleges, the budget provides a $340 million detail in “Chapter 2.” Proposition 98 increase for apportionments. In Allocates New Proposition 98 Funding addition to these general purpose augmentations, Primarily for Discretionary Activities. In 2015-16 the budget includes various other targeted and 2016-17, the Proposition 98 minimum Proposition 98-funded initiatives, including ones guarantees have dropped from June 2016 estimates designed to improve student outcomes, increase due to lower-than-expected General Fund revenue. student financial aid, and address maintenance The budget plan funds above the revised estimates backlogs. of the minimum guarantees in both years, not Allocates $2.8 Billion in New Transportation reducing funding for any school or community Revenues. Chapter 5 of 2017 (SB 1, Beall) college programs from the June 2016 levels. The increases existing fuel taxes and creates two 2017-18 guarantee, which builds upon the higher new vehicle charges to support existing and new levels of funding provided in the two previous transportation programs. It also repays monies years, is $3.1 billion (4.4 percent) above the revised loaned in the past to the General Fund from 2016-17 funding level. The budget plan funds at this various transportation accounts. Consistent with estimate of the minimum guarantee in 2017-18. the provisions of SB 1, the budget allocates the bulk Of the year-over-year increase, $2.1 billion is of the new revenues to highway maintenance and covered by state General Fund and $991 million rehabilitation ($846 million), local streets and roads is covered by local property tax revenue. For K-12 ($646 million), transit ($635 million), congested education, the budget provides a Proposition 98 and trade corridors ($450 million), and bicycle and funding increase of $1.4 billion for the Local pedestrian projects ($100 million). Figure 4 Major Features of the 2017-18 Spending Plan Major General Fund and Special Fund Spending Actions • Allocates $3.1 billion in higher Proposition 98 funding for schools and community colleges. • Allocates $2.8 billion in new transportation revenues. • Dedicates $546 million in Proposition 56 revenues to Medi-Cal provider rates and reimbursements. • Allocates $2.6 billion in cap-and-trade revenues. • Provides $400 million to counties through new In-Home Supportive Services cost sharing agreement. • Increases on-going General Fund spending for universities and student financial aid by $475 million. • Increases child care and preschool spending by $301 million. Major General Fund Revenue Changes • Expands the EITC program to include self-employed and taxpayers with incomes up to $22,300. Other Major Changes • Makes $6 billion supplemental payment to CalPERS using a loan from state cash balances. • Replaces pay-as-you-go funding for state office buildings with lease revenue bond financing. EITC = earned income tax credit. www.lao.ca.gov Legislative Analyst’s Office 3 2017-18 BUDGET Uses a Portion of Proposition 56 Revenues is counted toward annual required debt payments to Increase Medi-Cal Provider Rates and under Proposition 2 (2014). Reimbursements. The spending plan allocates to Establishes New In-Home Supportive Services Medi-Cal around $1.3 billion in revenues related Program (IHSS) Cost Sharing Agreement. The to Proposition 56 (2016), which raised state taxes budget creates a new maintenance-of-effort (MOE) on tobacco products. In 2017-18, the spending plan for counties’ share of IHSS costs. The new MOE dedicates $546 million of these revenues to fund significantly increases counties’ IHSS costs in increases in physician, dental, and other healthcare 2017-18 relative to 2016-17. The budget provides provider payments. The remaining $711 million ongoing state General Fund support and additional supports anticipated spending increases from realignment revenue (which consists of sales taxes growth in the Medi-Cal program between 2016-17 and vehicle license fee revenue) to partially offset and 2017-18. The budget package also provides up this increase. Specifically, the 2017-18 budget to $800 million in these revenues for increases in includes $400 million from the General Fund to provider payments in 2018-19, but these future assist counties in meeting their share of IHSS costs. amounts may be adjusted by the Department of Over the next five years, the General Fund support Finance based on the state’s fiscal condition. is expected to gradually decline to $150 million. In Allocates $2.6 Billion in Cap-and-Trade addition, the budget makes a number of changes Revenues. The budget allocates an estimated to realignment revenue streams, including the $2.6 billion in cap-and-trade revenues. Consistent temporary redirection of health and mental health with current law, about $1 billion is estimated to be realignment revenues to pay for counties’ IHSS costs. continuously appropriated to certain transportation Expands the State EITC Program. The 2017-18 and housing programs, although this amount budget expands the state Earned Income Tax Credit depends on revenue collected in 2017-18. The to taxpayers with self-employment income and budget plan allocates an additional $1.6 billion to to include taxpayers with incomes up to $22,300, various programs, including programs intended significantly increasing the number of taxpayers to reduce emissions from vehicles and heavy duty eligible to claim the tax credit. The administration equipment, forestry and fire prevention activities, estimates the increase in EITC claims will reduce and projects to reduce emissions from agricultural revenues by $140 million in 2017-18. activities. Increases Ongoing General Fund for Makes $6 Billion Supplemental Payment Universities and Student Financial Aid by to CalPERS Loan. The budget package makes $475 Million. The budget provides $331 million a one-time $6 billion supplemental payment to is for the universities and $144 million is for CalPERS to reduce the state’s unfunded liabilities financial aid programs administered by the associated with pension benefits earned by California Student Aid Commission. The key current and past state employees. This should budget components for the California State reduce annual state pension costs. To make this University ($243 million) and University of payment, the budget uses a loan from the state’s California ($88 million) are general purpose base cash balances in the Pooled Money Investment increases and funding for enrollment growth. Account (PMIA), which is essentially the state’s The key financial aid budget components are checking account. The budget also makes an initial (1) funding for cost and caseload increases in repayment of $146 million toward the loan, which the Cal Grant program and (2) funding to fully 4 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET implement the Middle Class Scholarship program. funding to update the income eligibility threshold (The final budget package rejects the Governor’s to use the most recent State Median Income (SMI) January proposal to phase out the Middle Class instead of the SMI used in 2007-08. Scholarship program.) In addition to funding Replaces Pay-As-You-Go Funding for State increases, the budget sets numerous expectations Office Buildings With Bond Funds. The 2016-17 for the universities, such as improving budget budget package established the State Project transparency and oversight of the University of Infrastructure Fund (SPIF) and provided $1 billion California’s Office of the President and providing from the General Fund to the SPIF in 2016-17—as students greater access to their nearby California well as an additional $300 million in 2017-18—with State University campuses. the intent that the funding be used to construct Increases Child Care and Preschool Spending two new office buildings in the Sacramento Above Multiyear Budget Agreement. The budget area and to renovate or replace the State Capitol increases child care and preschool programs by Annex. The 2017-18 budget transfers $851 million $310 million from the revised 2016-17 level. This from the SPIF to the General Fund. To replace increase is largely due to implementing the second the transferred funding, the budget authorizes year of a four-year budget agreement. As part of this the use of $851 million of lease revenue bonds to agreement, the 2017-18 budget contains substantial finance the construction of the two new state office increases in reimbursement rates and funds an buildings. The budget also eliminates the transfer additional 2,959 full-day State Preschool slots at local of $300 million from the General Fund to the SPIF education agencies. In addition to implementing that was slated to occur in 2017-18. the budget agreement, the 2017-18 budget includes EVOLUTION OF THE BUDGET January Budget Proposed $3.2 Billion in May Revision: Higher Revenues, More Budget Solutions. In preparing the 2017-18 budget, Spending for Schools. Relative to January, the the administration concluded that the state’s administration’s estimates of revenues associated fiscal condition has worsened. In January, the with the “Big Three” state taxes were up $2.1 billion administration’s estimates suggested that, absent across 2015-16, 2016-17, and 2017-18 combined. new budget solutions, the state faced a budget deficit In addition to required spending increases under of $1.6 billion at the end of 2017-18. To address the Proposition 98 minimum guarantee, the May this, the Governor’s Budget included more than Revision proposed a discretionary increase of $3.2 billion in actions to reduce General Fund $1.6 billion for schools and community colleges spending growth. The most significant of these across the three fiscal years. This resulted in actions was related to the Proposition 98 minimum $2.2 billion in proposed increases for schools and funding guarantee for schools and community community colleges over the period. The Governor colleges. The Governor’s Budget also eliminated also proposed other discretionary increases, a $400 million set-aside for affordable housing, including $400 million in assistance to counties to cancelled a scheduled transfer of $300 million for offset some of their cost increases associated with the the replacement of state office buildings, and delayed termination of the Coordinated Care Initiative (CCI). child care rate augmentations. www.lao.ca.gov Legislative Analyst’s Office 5 2017-18 BUDGET Final Budget Package Includes $9.9 Billion Budget Package Signed by Governor. The Reserve. The Legislature passed the final budget Governor signed the 2017-18 Budget Act and package on June 15, 2017. Total reserves in the final other budget-related bills between June 27, 2017 budget package were about $200 million lower and September 28, 2017. These bills are detailed than reserves proposed by the Governor in the May in Figure 5. The Governor did not veto any Revision. The budget package also reflected various appropriations in the 2017-18 Budget Act. choices that shifted spending priorities compared to the Governor’s proposal. Figure 5 Budget savings resulted 2017-18 Budget Related Legislationa from (1) shifting nearly $1 billion funding for Bill Number Chapter Subject the renovation and Signed in June 2017 replacement of state AB 97 14 2017-18 Budget Act AB 99 15 K-14 Education and Child Care office buildings from AB 102 16 State Board of Equalization Reorganization General Fund to bond AB 103 17 Public Safety funds, and (2) counting AB 107 18 Developmental Services AB 111 19 State Government $398 million in repayments AB 115 20 Transportation of weight fee loans toward AB 119 21 State Government Proposition 2, which AB 120 22 2017-18 Budget Act: Augmentation SB 85 23 Education freed up a like amount of SB 89 24 Human Services General Fund resources. SB 90 25 In-Home Supportive Services Maintenance-of-Effort Correspondingly, the final SB 92 26 Public Resources SB 94 27 Cannabis budget deal reflects higher SB 96 28 State Government spending for provider rates Signed After June 2017 and reimbursements in AB 109 249 Amendments to the 2017-18 Budget Act Medi-Cal, an expansion AB 114 38 Public Health of the state EITC AB 126 65 Health and Human Services AB 129 250 Education program, and additional AB 130 251 Health and Human Services augmentations for UC and AB 131 252 Taxation CSU. The final budget plan AB 133 253 Cannabis regulation AB 134 254 Amendments to the 2017-18 Budget Act also reflects a long-standing AB 135 255 Transportation interpretation of the state SB 84 50 Public Employees Retirement Fund: State Employer Contributions Supplemental Payment appropriation’s limit with SB 88 51 State Government some limited modifications SB 97 52 Health and does not include a SB 103 95 Transportation SB 107 53 Amendments to the 2016-17 Budget Act significant change in the SB 108 54 Amendments to the 2017-18 Budget Act limit proposed by the SB 110 55 Energy efficiency grants for schools Governor in his January SB 112 363 State government SB 113 181 Amendments to the 2017-18 Budget Act budget proposal. SB 117 180 Elections a Includes budget bill and “trailer bills” identified in Section 39.00 of the 2017-18 Budget Act that were enacted into law. Also includes SB 107, which amends the 2016-17 Budget Act. 6 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Chapter 2: Spending by Program Area PROPOSITION 98 State budgeting for schools and community is determined by three main formulas (known as colleges is based primarily on Proposition 98, tests) and various inputs, including General Fund approved by voters in 1988 and amended in revenue, per capita personal income, and K-12 1990. In this section, we provide an overview attendance. The state can spend at the minimum of Proposition 98 changes under the enacted guarantee or any level above it. Spending above the budget package. We then highlight Proposition 98 minimum guarantee one year typically becomes spending changes specifically for K-12 education part of the base for calculating the minimum and community colleges. On the “EdBudget” guarantee the next year. If the minimum guarantee portion of our website, we post dozens of increases after budget enactment due to updated tables containing additional detail about the inputs, the state owes a “settle-up” obligation. Proposition 98 budget (as well as the child care and In some years, the state also creates or pays higher education budgets). “maintenance factor.” Maintenance factor is created when General Fund revenue is weak relative to per Overview capita personal income and is paid when General Proposition 98 Establishes Minimum Fund revenue is stronger. Spending Level. Proposition 98 establishes a 2015-16 and 2016-17 Minimum Guarantees minimum spending requirement commonly called Down but Total Spending Up Slightly. Figure 1 the minimum guarantee. The minimum guarantee shows how estimates of the minimum guarantee Figure 1 Tracking Changes in the Minimum Guarantee and Spending (In Millions) 2015-16 2016-17 June 2016 June 2017 Change June 2016 June 2017 Change Minimum guarantee $69,050 $68,671 -$379 $71,874 $71,316a -$558 Proposition 98 spending $69,050 $69,103 $53 $71,874 $71,390 -$484 Settle-up payment for LCFF — — — — 514 514 Total Spending $69,050 $69,103 $53 $71,874 $71,903 $29 a Reflects amount that would be required to fund the minimum guarantee and provide a $405 million statutory supplement, consistent with the June 2016 budgetary approach. The June 2017 budget plan notwithstands the supplement. LCFF = Local Control Funding Formula. www.lao.ca.gov Legislative Analyst’s Office 7 2017-18 BUDGET and Proposition 98 spending have changed (4.4 percent) from the revised 2016-17 level. For from the June 2016 to June 2017 budget plans. 2017-18, the state funds at the estimate of the The 2015-16 minimum guarantee has decreased minimum guarantee. This estimate builds upon $379 million due to lower-than-expected General the higher levels of spending provided in 2015-16 Fund revenue. Proposition 98 spending that year, and 2016-17. (Had the state not funded above the however, has increased $53 million due to various guarantee in those two years, the 2017-18 guarantee minor adjustments involving the Local Control would have been $542 million lower.) Test 2 is the Funding Formula (LCFF) and community college operative test in 2017-18, with the change in the apportionments. The 2016-17 minimum guarantee guarantee attributable to a 3.7 percent increase in per has decreased $558 million, again due to lower capita personal income and a 0.05 percent decline estimates of General Fund revenue. Proposition 98 in K-12 attendance. The increase in the guarantee spending that year has decreased by $484 million, also reflects a maintenance factor payment of but total spending, including a settle-up payment $536 million. Under the administration’s estimates, of $514 million, is up slightly ($29 million) from the the state would end 2017-18 with an outstanding June 2016 level. The settle-up payment allows the maintenance factor obligation of $900 million. state to cover some 2016-17 LCFF costs using funds About One-Third of Increase Covered With set aside for Proposition 2 (2014) debt payments. In Higher Property Tax Revenue. Of the total both 2015-16 and 2016-17, Proposition 98 spending Proposition 98 spending provided in 2017-18, is above the calculated minimum guarantees. $52.6 billion is state General Fund and $21.9 billion 2017-18 Spending Up $3.1 Billion Over Revised is local property tax revenue. From 2016-17 to 2016-17 Level. Figure 2 shows Proposition 98 2017-18, state General Fund increases $2.1 billion spending for each segment from 2015-16 through (accounting for about two-thirds of the $3.1 billion 2017-18. In 2017-18, total spending across all increase in spending) and property tax revenue segments is $74.5 billion, an increase of $3.1 billion increases by $1 billion. The primary factor Figure 2 Proposition 98 Spending by Segment and Source (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Final Revised Enacted Amount Percent Preschoola $885 $975 $1,122 $148 15.0% K-12 Education General Fund $43,074 $43,955 $45,763 $1,808 4.1% Local property tax 17,047 18,133 18,981 848 4.7 Subtotals ($60,121) ($62,089) ($64,745) ($2,656) (4.3%) California Community Colleges General Fund $5,384 $5,473 $5,654 $181 3.3% Local property tax 2,631 2,768 2,911 142 5.1 Subtotals ($8,016) ($8,242) ($8,565) ($324) (3.9%) Other Agenciesa $82 $85 $91 $6 7.4% Totals $69,103 $71,390 $74,523 $3,134 4.4% General Fund $49,425 $50,488 $52,631 $2,143 4.2% Local property tax 19,678 20,902 21,892 991 4.7 a Consists entirely of General Fund. 8 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET explaining the growth in property tax revenue 2016-17 Budget Act level. The budget increases is the projected 5.3 percent growth in assessed funding per student by $450 (4.3 percent) over the property values, which is similar to the average 2016-17 Budget Act level, bringing Proposition 98 growth rate over the past 20 years. funding per student up to $10,863. Budget Plan Notwithstands Statutory Package Includes Mix of Ongoing and Supplemental Payment Through 2020-21. A One-Time Spending. As Figure 3 shows (see law enacted in 1990 requires the state to provide next page), the budget includes $2.4 billion in a supplemental appropriation when Test 3 is augmentations for K-12 education. Of these the operative test for calculating the minimum augmentations, $1.5 billion are ongoing increases guarantee and school funding otherwise would and $930 million are one-time initiatives. In grow less quickly than the rest of the state budget. addition to these changes, the budget package The budget plan notwithstands the supplemental includes $328 million in one-time initiatives appropriation through 2020-21. Under the funded from other sources. (Of this amount, administration’s estimates, this has no effect on $325 million is from Proposition 98 reversion school funding in 2017-18 because Test 3 is not dollars and $3 million is from a settle-up payment. operative. In the latter three years of the period, Of the reversion dollars, $114 million is for a fund the administration estimates that notwithstanding swap primarily relating to special education.) the supplement will reduce required Proposition 98 The budget also authorizes $593 million from spending by $440 million in 2018-19, $300 million Proposition 51 (2016) general obligation bond in 2019-20, and $110 million in 2020-21. (These proceeds for school facilities. We describe major estimates are highly sensitive to a variety of K-12 spending and programmatic changes below. assumptions, particularly growth in General Fund In the box on page 15, we describe changes to the revenue and per capita personal income.) To the state’s school district reserve cap policy. extent the state provides a lower level of funding in General Purpose Funding these years, it will have a corresponding increase in its maintenance factor obligation. Accelerates Implementation of LCFF for Spending Package Reduces Outstanding School Districts and Charter Schools. The budget Settle-Up Obligation by $603 Million. This provides an additional $1.4 billion ongoing payment reduces the state’s outstanding settle-up Proposition 98 funding for this purpose, bringing obligation from slightly above $1 billion to total LCFF funding for school districts and charter $440 million. Of the $603 million provided, the schools to $57.3 billion, a 2.7 percent increase budget plan allocates $514 million for covering over the revised 2016-17 level. The administration 2016-17 LCFF costs, $86 million for the community estimates this funding will result in the college guided pathways initiative, and $3 million LCFF-target level being 97 percent-funded. School for the Career Technical Education Incentive Grant districts and charter schools may use LCFF monies program. The state budget package scores all of the for any educational purpose. settle-up spending as a Proposition 2 debt payment. Augments LCFF Funding for Some County Offices of Education (COEs). The budget provides K-12 Education $7 million ongoing Proposition 98 funding for an $64.7 Billion Proposition 98 Funding for K-12 increase to the district services portion of the COE Education in 2017-18. The budgeted 2017-18 level is LCFF. Specifically, the budget increases COE LCFF $2.7 billion (4.3 percent) more than revised 2016-17 targets by an amount equal to (1) $18,697 for each level and $2.2 billion (3.6 percent) more than the school district located in the county (bringing total www.lao.ca.gov Legislative Analyst’s Office 9 2017-18 BUDGET provided, metrics to Figure 3 measure progress towards 2017-18 K-12 Proposition 98 Changes achieving these goals, (In Millions) and specific actions the 2016-17 Revised Spending $62,089 COE will take to meet Technical Adjustments its goals. Each plan also Make LCFF adjustments $151 must describe how the Make other adjustments 64 COE will work with other Adjust categorical programs for changes in attendance -3 entities, including other Subtotal ($215) COEs, the California Policy Changes Increase LCFF funding for school districts and charter schools $1,362 Department of Education Provide per-student discretionary grants (one time) 877 (CDE), and the California Provide cost-of-living adjustment for select categorical programsa 65 Collaborative for Augment funding for after school programs 50 Educational Excellence— Support classified employees interested in becoming teachers (one time) 25 Fund Career Technical Education Pathways program 15 to support school Expand refugee student services (one time) 10 districts in their county. Add mandated reporter training to mandates block grant 8 Chapter 15 also requires Increase LCFF for county offices of education 7 the Superintendent of Provide professional development for bilingual teachers (one time) 5 Create free online history/social science curriculum (one time) 5 Public Instruction (SPI) Support Southern California Regional Occupational Center (one time) 4 to provide assistance to Fund online educational resources 3 a COE if the SPI finds Fund Equity Performance and Improvement Teams (one time) 3 merit in an LCAP-related Fund California-Grown School Meals Program (one time) 2 Develop electronic LCAP template and dashboard application (one time) 0.4 complaint filed against the Subtotal ($2,441) COE or one of the districts Total Changes $2,656 in the county. 2017-18 Enacted Spending $64,745 Funds One-Time a Applies 1.56 percent increase to special education, child nutrition, services for foster youth, adults in Discretionary Grants. correctional facilities, and American Indian education. LCFF = Local Control Funding Formula and LCAP = Local Control and Accountability Plan. The largest one-time augmentation for K-12 funding per district to $131,808) or (2) $80,000, education is $877 million whichever is higher. This change to the formula that local education agencies (LEAs) may use for any results in additional funding for the 40 percent of educational purpose. Funding is based on average COEs currently funded at but not above their LCFF daily attendance ($147 per ADA). If an LEA has targets. unpaid mandate claims, funding counts toward those Requires All COEs to Develop Plans for claims. As most LEAs do not have any such claims, Supporting School Districts. Trailer legislation we estimate only about one-third ($268 million) of (Chapter 15) requires all COEs to develop plans the funding will end up reducing the K-12 mandates specifying how they will support their school backlog. We estimate the K-12 mandates backlog will districts. In these plans, COEs, at a minimum, be $799 million at the end of 2017-18. are to specify how they will provide support to (1) all districts in developing their Local Control Teacher Workforce and Accountability Plans (LCAPs) and (2) any Funds Second Round of Grants for Helping district deemed low performing. Each COE plan Classified Employees Become Teachers. Chapter 29 must include goals for each type of district support of 2016 (SB 828, Committee on Budget and Fiscal 10 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Review) created a program to assist classified encourage more teachers to obtain bilingual school employees (such as instructional aides and authorizations and teach in bilingual settings. library assistants) in completing their bachelor’s Takes Various Actions Relating to Teacher degree and pursuing a teaching credential. The Misconduct Reviews. The 2016-17 budget package program provides grants of up to $4,000 per provided CTC with $7.8 million in Teacher participant per year. The grants are intended to Credential Fee revenue to address higher ongoing help cover education costs. The state initially workload and costs for the Office of the Attorney provided the program with $20 million one-time General (AG) to review serious teacher misconduct Proposition 98 funding, providing grants for up cases. The AG was unable to hire all anticipated to 1,000 participants. The 2017-18 budget package additional staff in 2016-17, resulting in $4.5 million includes an additional $25 million one-time carried forward to 2017-18. The 2017-18 budget Proposition 98 funding, providing grants for up to package also requires the AG to report quarterly 1,250 participants. on the status of its backlog of teacher misconduct Creates Two New Teaching-Related Programs. reviews. The budget redirects $11 million one-time federal Career Technical Education Title II local assistance funding to establish the California Educator Development program to help Funds Third and Final Year of Career LEAs attract and support teachers, principals, and Technical Education (CTE) Incentive Grant other school leaders. Program. The 2015-16 budget package created The budget also provides $5 million one-time a three-year competitive grant program to Proposition 98 funding for a new program to New Agreement on School District Reserve Cap Legislature and Governor Adopt Cap Policy in 2014. In 2014, as part of final budget negotiations, the state enacted trailer legislation capping school district reserve levels under certain conditions. Specifically, school district reserves were to be capped at between 3 percent and 10 percent of annual General Fund expenditures (depending upon district size), with the caps being operative if the state made a deposit (of any size) into the state school reserve during the previous year. (Proposition 2 established the state school reserve in 2014.) Under the policy, a district facing extenuating circumstances could apply to its county office of education for an exemption from the cap. Even with this possible exemption, many school districts expressed serious concern with the cap policy, believing the caps would negatively affect their fiscal health. Legislature and Governor Agree to Amend Policy. In September 2017, the Legislature approved several modifications to the reserve caps. Under the modified policy, all basic aid school districts and districts with 2,500 or fewer pupils are exempt from the caps. (As of 2016-17, the districts qualifying for this exemption account for about 60 percent of districts in the state and about 10 percent of statewide attendance.) For every other district, the modified policy raises the cap to 10 percent of its annual General Fund expenditures. Under the modified policy, the caps only apply if, during the previous year, the balance in the state school reserve exceeds 3 percent of the total Proposition 98 funding allocated for school districts. The caps then remain in effect until the balance of the state school reserve no longer exceeds 3 percent. www.lao.ca.gov Legislative Analyst’s Office 11 2017-18 BUDGET promote CTE at secondary schools. As designed, however, extends the date for schools to use this state funding for the program decreases funding by one year, to June 30, 2019, and sets rules over the three-year period, as local match for how any remaining uncommitted funds are to requirements increase. In 2015-16 and 2016-17, be used. The first $75 million in remaining funds is the state provided $400 million and $300 million, earmarked for school districts and COEs to replace respectively, for the program. Consistent with or retrofit school buses. The next $100 million is the authorizing legislation, the 2017-18 budget earmarked for a competitive grant program to provides $200 million for the third and final year provide K-12 LEAs with low- and no-interest loans of the program. (Of this amount, $197 million for energy projects. Any funding still remaining is is Proposition 98 reversion funds and $3 million to be distributed as grants to K-12 LEAs according is from a settle-up payment.) In 2017-18, grant to Proposition 39 rules. recipients are required to provide a total of Augments After School Education and Safety $400 million in local matching funds. (ASES) Program. Proposition 49, passed by Provides Funding for CTE Pathway the voters in 2002, requires the state to provide Program Directly to CDE. The budget provides $550 million in Proposition 98 funds annually for CDE with $15.4 million ongoing Proposition 98 the ASES program. The budget increases ASES funding to support efforts linking secondary and funding by $50 million (9 percent)—bringing total postsecondary CTE. The funding formerly was funding to $600 million. provided to the California Community Colleges Increases Funding for Tobacco Use Prevention (CCC) Chancellor’s Office, which in turn passed Education. As required by Proposition 56 (2016), through the funds to CDE. The basic rules of the budget provides $32 million in new cigarette the program remain unchanged. In the past, the tax revenue to support tobacco use prevention department has used the funds for California education in California schools. The funds are to be Partnership Academies ($9.3 million) and various allocated in accordance with the existing Tobacco other activities (a combined $6.1 million), including Use Prevention Education program administered funding CTE student organizations and virtual by CDE. CTE counselors. Makes Various Adjustments to K-12 Mandates Earmarks Funding for Southern California Block Grant. The 2017-18 budget package adds Regional Occupational Center (SCROC). The two new mandates to the K-12 mandates block budget provides a total of $10 million over four grant. The first mandate requires schools to years to SCROC—$4 million in 2017-18, $3 million provide trainings on the detection and reporting in 2018-19, $2 million in 2019-20, and $1 million of child abuse. For this mandate, the budget adds in 2020-21. The state funds are intended to support $8.5 million ongoing Proposition 98 funding to the SCROC’s general operations. block grant. The second mandate requires schools to administer the California Assessment of Student Other Changes Performance and Progress computer-based exam. Specifies Use of Remaining Proposition 39 Though this mandate is added to the block grant, Funds and Extends Energy-Efficiency Programs the budget does not include additional block grant Indefinitely. The budget provides $423 million funding for it. Proposition 98 funding for energy-efficiency Applies Cost-of-Living Adjustment (COLA) to projects at schools and community colleges. This Certain Programs. In addition to these changes, reflects the fifth and final year of Proposition 39 the budget provides a 1.56 percent COLA for both (2012) funding. Trailer legislation (Chapter 55), the K-12 and community college mandates block grants and establishes a statutory COLA for them 12 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET moving forward. These block grants have not the California History/Social Science Project, to received a COLA since they were originally created create a free online K-12 curriculum for history/ in 2012-13. The cost of providing the COLA in social science. The curriculum must include 2017-18 is $3.5 million and $503,000 for the K-12 primary and secondary sources, lesson plans, and and community colleges block grants, respectively. other instructional materials. In addition, the The budget also applies a 1.56 percent COLA to curriculum must use archival and digital resources several other state categorical programs—special of state and federal institutions. The curriculum education, Child Nutrition, the Foster Youth must be made available to teachers by July 1, 2019. Services Coordinating Program, the American Extends District of Choice Program by Six Indian Early Childhood Education program, and Years, Makes Several Changes. This program American Indian Education Centers. The total cost allows students to transfer to any school district of providing a COLA for these five programs is that has deemed itself a District of Choice. If $61 million. oversubscribed, these districts must use a lottery Expands Refugee Student Services. The budget to select transfer students. Trailer legislation provides $10 million one-time Proposition 98 (Chapter 15) extends the program—which was funding for the Department of Social Services set to expire July 1, 2017—to July 1, 2023, and (DSS) to provide grants to districts serving notable modifies the program in several ways. Regarding numbers of refugee students. Specifically, the the lottery, Districts of Choice are to give priority program is limited to districts in counties that to low-income students and children of military DSS labels as “refugee-impacted.” Currently, personnel. Compliance with lottery procedures DSS identifies ten such counties. The grant funds are to be verified as part of districts’ annual audits. will be provided on a competitive basis to three Regarding outreach, each District of Choice is to cohorts over the next three years, with each cohort post application materials, deadlines, and lottery receiving a total of $3.3 million (supplementing an information on its website, in some cases posting existing federal grant that has provided $1 million the information in multiple languages. In addition, annually the past several years). Grants will fund a District of Choice must provide each home extra services for refugee students, such as tutoring (sending) district a preliminary list of approved and counseling. transfer applications by February 15 and a final Funds Two Initiatives Relating to History/ list by May 2. Regarding oversight, each District Social Science. The first initiative provides of Choice is to register with its county board of $10 million unspent prior-year Proposition 98 education and CDE beginning in 2018-19. Districts funding for a COE or consortium of COEs to that fail to register and submit required data will create an online repository of resources to help not receive funding for their transfer students. schools implement new history/social science and Chapter 15 also reduces funding for students health curriculum frameworks. Funding would be transferring into basic aid districts from 70 percent available for three years and is intended to focus to 25 percent of the funding those students would on particular components of history/social science have generated in their home districts. (specifically the Armenian genocide; labor issues; Makes Various Other Adjustments. The lesbian, gay, bisexual, and transgender issues; 2017-18 budget package also makes various other and civic education) and particular components changes to K-12 programs, including: of health (specifically sexual harassment and • K-12 High Speed Network (HSN). The violence prevention). The second initiative provides budget replaces $8 million ongoing $5 million one-time Proposition 98 funding for the Proposition 98 funding for the K-12 HSN California Historical Society, in partnership with www.lao.ca.gov Legislative Analyst’s Office 13 2017-18 BUDGET with $8 million unspent funding from the is to give grant priority to LEAs with high Broadband Infrastructure Improvement shares of low-income students and English Grant program. learners. • K-12 HSN Infrastructure Upgrades. • Training Relating to New Science Chapter 15 requires the K-12 HSN to Standards and Assessments. The budget develop a methodology for identifying and uses $502,000 in anticipated one-time prioritizing Internet infrastructure upgrade savings from the state’s testing contract to projects exceeding $25,000. The K-12 conduct statewide trainings for teachers HSN must submit the newly developed related to new science standards and method to CDE, the Legislature, and the assessments. The trainings are to help Department of Finance by December 15, teachers understand and teach the new 2017, and begin using the methodology in science standards. The state plans to begin 2017-18. using the new science assessment in spring 2019. • Augments Existing Environmental Education Program. The budget • LCAP E-Template and California provides $4 million unspent prior-year School Dashboard. The budget provides Proposition 98 funding for the California $400,000 one-time Proposition 98 funding Regional Environmental Education to the San Joaquin COE to undertake Community (CREEC). The CREEC is a two specified activities: (1) $350,000 to network of COE staff that helps schools develop an electronic LCAP template that integrate environmental literacy into the will streamline the process of creating, K-12 curriculum. editing, reviewing, and publicly posting LCAPs; and (2) $50,000 to develop a mobile • Online Educational Resources. The budget application to support the California provides $3 million ongoing Proposition 98 School Dashboard. The Dashboard is funding for the State Librarian to make a website that provides information on online educational resources publicly school and district performance based on available. The budget provides the funding the indicators included in the state’s new to Riverside COE to spend upon the accountability system. direction of the State Librarian. • Report on Full-Day Kindergarten. • Creates Equity and Improvement Teams. Chapter 15 requires our office to submit The budget provides $2.5 million one-time a report by March 1, 2018 that includes Proposition 98 funding for two or more options for incentivizing full-day COEs to assist LEAs in closing achievement kindergarten and differentiated funding gaps in California’s public schools. rates for full-day and part-day kindergarten. • Fresh School Meals. The budget provides $1.5 million one-time funding to create State Operations the California-Grown Fresh School Funds Instructional Quality Commission Meals Grant Program. The program will Activities. The budget includes $948,000 one-time provide grants to at least 13 LEAs. Trailer non-Proposition 98 General Fund to support the legislation (Chapter 250) specifies that CDE activities of the Instructional Quality Commission. 14 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Specifically, the funding is for the commission projects. The budget also reappropriates the to create a model curriculum for ethnic studies, remaining balance of $1.7 million General Fund update standards in world languages and visual provided in the 2016-17 Budget Act to construct and performing arts, create computer science a middle school activity center at the California content standards, complete the health curriculum School for the Deaf in Fremont. framework, and adopt instructional materials for Establishes New Audit Rules. Chapter 15 history/social science and science. These activities shifts audit responsibilities for state-funded school are required due to recently adopted legislation. facility projects from the Office of Public School Reduces Funding for Bus Driver Training Construction to local independent auditors. Program. The CDE’s Bus Driver Training program Moving forward, the local auditors are to review is funded with State Penalty Fund monies and facility expenditures to ensure that they comply fee revenue. The budget reduces total funding with the rules of the state’s School Facilities for the program from $1.7 million in 2016-17 to Program. The State Allocation Board has enacted a $1.4 million in 2017-18 (an 18 percent reduction). regulatory change requiring districts to sign grant State Penalty Fund revenue for the program agreements prior to receiving state funding that decreases from $1.6 million in 2016-17 to $838,000 specify allowable project expenditures. in 2017-18 (a 48 percent decrease). In response Increases Maximum Grant for Charter School to the drop in special fund revenue, Chapter 15 Facility Grant Program. Under this program, the expands CDE’s authority to charge course fees. state provides certain charter schools with grants Whereas CDE formerly could charge course fees to help defray the cost of renting and leasing school only to transit bus drivers, moving forward it facilities. Previously, the state provided applicants also may charge course fees to school bus drivers, with grants equal to either $750 per student or pupil activity bus drivers, and farm labor bus 75 percent of their annual facilities costs, whichever drivers. Due to some combination of raising fees was lower. Trailer legislation (Chapter 23) updates and expanding the group of program participants the $750 per-student amount to $1,117 and applies a assessed fees, the budget assumes fee revenue will COLA moving forward. The 2017-18 increase is the increase from $117,000 in 2016-17 to $275,000 in first increase in the per-student amount since the 2017-18 (a 135 percent increase). The budget also program was created in 2001. assumes that CDE will use $276,000 of existing California Community Colleges program reserves in 2017-18—leaving a reserve of about $325,000 at year end. $8.6 Billion Proposition 98 Funding for CCC in 2017-18. The budgeted 2017-18 level is School Facilities $324 million (3.9 percent) more than the revised Provides First Installment of Proposition 51 2016-17 funding level and $270 million (3.3 percent) Bond Funding for School Facilities. Passed by more than the 2016-17 Budget Act level. The budget the voters in November 2016, Proposition 51 increases funding per full-time equivalent (FTE) authorizes the state to sell $9 billion in general student by $363 (5.2 percent) over the 2016-17 obligation bonds—$7 billion for schools and Budget Act level, bringing Proposition 98 funding $2 billion for community colleges. The state plans per FTE student up to $7,416. to issue $593 million of these bonds for K-12 facility Package Includes Mix of Ongoing and projects in 2017-18. This would fully fund the state’s One-Time Spending. As Figure 4 shows (see list of $368 million in already approved facility next page), the budget includes $584 million in projects, as well as $225 million in additional community college augmentations, partly offset www.lao.ca.gov Legislative Analyst’s Office 15 2017-18 BUDGET Apportionments Figure 4 2017-18 CCC Proposition 98 Changes Funds 1 Percent Enrollment Growth. (In Millions) The budget provides 2016-17 Revised Spending $8,242 $58 million for 1 percent Technical Adjustments enrollment growth Remove one-time spending -$177 systemwide. In addition, Make other adjustments -84 Subtotal (-$260) the budget adjusts for enrollment declines that Policy Changes Augment apportionments (above growth and COLA) $184 districts experienced in Provide COLA for select programsa 104 2016-17 and anticipated Fund deferred maintenance and instructional equipment (one time) 70 enrollment restoration Fund guided pathways initiative (one time)b 64 in 2017-18. (If its Fund 1 percent enrollment growth 58 Increase Full-Time Student Success Grant 25 enrollment declines in Create Community College Completion Grant Program 25 a given year, a district’s Fund Innovation Awards (one time) 20 funding correspondingly Augment Online Education Initiative 10 declines the following Fund emergency student aid 7 Develop statewide integrated library system (one time) 6 year. Districts, however, Augment Part-Time Faculty Office Hours Program 5 generally have three years Provide direct state support for veterans resource centersc 5 to restore enrollment Provide direct state support for Umoja Programc 3 up to earlier levels and Subtotal ($584) Total Changes $324 earn back the associated 2017-18 Enacted Spending $8,565 funding.) After adjusting a Applies 1.56 percent increase to apportionments, Extended Opportunity Programs and Services, for declining enrollment Disabled Students Programs and Services, CalWORKs student services, mandates block grant, and (-2.1 percent) and support for certain campus child care centers. Applies 1 percent increase to financial aid administration. Of the total increase, $98 million is for apportionments. restoration (1.3 percent), b Budget also includes $86.3 million in settle-up funding for this purpose, for a total of $150 million. c In addition to the amounts reflected in the table, these programs might receive indirect state funding the budget supports net through other community college student support programs. enrollment growth of COLA = cost-of-living adjustment. 0.2 percent, representing about 2,200 FTE. by $260 million in reductions largely due to the Funds 1.56 Percent COLA. The budget includes removal of prior-year, one-time spending. Of $98 million to provide the statutory 1.56 percent the augmentations, $417 million are ongoing COLA for apportionments. The budget also increases and $167 million are one-time initiatives. includes $5 million to provide a 1.56 percent In addition to these changes, the budget COLA for five categorical programs: (1) Extended includes $123 million in one-time initiatives Opportunity Programs and Services, (2) Disabled funded from other sources ($86 million from a Students Programs and Services, (3) CalWORKs settle-up payment and $37 million from 2015-16 Student Services, (4) the mandates block grant, and Proposition 98 dollars). The budget also authorizes (5) Child Care Tax Bailout (which supports campus $17 million from Proposition 51 general obligation child care centers that serve as teaching labs for bond proceeds for community college facilities. We early childhood education students). Additionally, describe major CCC spending and programmatic it includes $1 million to provide a partial COLA for changes below. financial aid administration. 16 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Provides Additional Unrestricted Funds Other Ongoing Programmatic Increases Beyond Growth and COLA. The budget includes Funds Common Course Management System. a $184 million apportionment increase that The budget augments the CCC Online Education districts may use for any educational or operational Initiative by $10 million, bringing ongoing annual purpose. Trailer legislation (Chapter 23) rescinds funding to $20 million. The new funds primarily existing Chancellor’s Office authority to allocate will pay for ongoing subscription costs for all any higher-than-anticipated local property tax or colleges to use Canvas, the CCC’s common course fee revenues as unrestricted funds to colleges. This management system. authority rarely has been used by the Chancellor’s Augments Part-Time Faculty Office Hours. Office because prior-year excess revenues typically The budget adds $5 million, bringing total funding are reappropriated through the budget process. for this program to $12 million. The program reimburses districts that compensate part-time Financial Aid faculty members for office hours related to their Augments Full-Time Student Success Grant. teaching assignments. Districts must provide a The budget provides $25 million to increase the one-to-one match for state funds. maximum annual Full-Time Student Success Grant Directly Funds Umoja Program. The budget from $600 to $1,000 per award. The state created provides a new $2.5 million ongoing state this grant in 2015-16 to provide additional aid appropriation for the Umoja program, which seeks to CCC students who enroll in 12 or more credit to close achievement gaps by promoting awareness units per term and qualify for Cal Grant B and of African and African-American culture. (The Cal Grant C awards. In 2017-18, Cal Grant B and program already exists on 45 campuses but, to Cal Grant C awards for CCC students are $1,672 date, it has received only one-time student equity and $1,094, respectively. The full-time grant of funding.) $1,000 is an add-on to these amounts. Creates New CCC Completion Grant. The Guided Pathways budget includes $25 million for a new Community Funds Guided Pathways Initiative. The budget College Completion Grant. As set forth in provides $150 million one time for an initiative Chapter 23, the grant provides an additional $2,000 focused on helping colleges (1) integrate myriad annually for Full-Time Student Success Grant existing student success programs and services; recipients who develop a comprehensive education (2) build their internal capacity for data analysis, plan and enroll in 15 or more credit units per leadership, planning, and program implementation; term. The Chancellor’s Office is required to submit and (3) develop structured academic course a report to the Legislature by April 1, 2019 that sequences for all entering students. includes information about associated program Allocates 90 Percent of Funds Directly to enrollment and outcomes. Colleges, Reserves 10 Percent for Statewide Increases Cal Grant C Awards for CCC Assistance. Of the $135 million designated for Students. The budget includes $1.7 million to double colleges, the Chancellor’s Office is to allocate the Cal Grant C book and supply award from $547 80 percent on a formula basis and the remaining to $1,094 for CCC students. (Cal Grant C recipients 20 percent as a fixed base grant for each college. To who attend other institutions will continue to qualify for funds, colleges must demonstrate their receive a book and supply award of $547.) commitment to implementing guided pathways by attending a state workshop and submitting specified letters and work plans. Funding is to www.lao.ca.gov Legislative Analyst’s Office 17 2017-18 BUDGET be allocated in stages, based on each college’s and accreditation of neighboring El Camino progress toward implementing guided pathways. Community College District. In June 2017, Colleges may use the funds for one-time purposes, Compton College regained initial accreditation such as faculty and staff release time, professional as a college under El Camino’s governing development, coordination and communication, authority. Over the coming year, the Compton and information system upgrades related to Community College District will work to restore pathways implementation. The Chancellor’s Office core oversight and operational functions as a has broad discretion in deciding how to use the prerequisite to seeking accreditation under its remaining$15 million designated for statewide own authority. The district identified certain assistance. costs associated with these efforts, including Includes Accountability and Reporting purchasing a new information system, supporting Requirements. Chapter 23 requires the Chancellor’s associated personnel, conducting extra outreach, Office to develop indicators to measure the success and re-establishing a police department and of the initiative. By July 1, 2018 and annually personnel commission. Chapter 23 appropriates thereafter for four more years, the Chancellor’s $11.3 million one-time funding for these efforts. Office must report on these indicators and provide (The appropriation results from repurposing information about participating colleges’ work some 2015-16 Proposition 98 funds.) Chapter 23, plans, use of funds, and implementation progress. however, requires the district’s governing board to perform the duties of the personnel commission Other One-Time Initiatives until July 1, 2029, at which time the district is to Funds Additional Innovation Awards. The have paid off an emergency state General Fund budget provides $20 million one-time funding for loan dating back to 2006. Chapter 23 also protects community college innovation awards. The state the district’s budget from any drop in enrollment previously funded innovation awards in 2014-15 (compared to the 2017-18 level) for four years (providing $50 million for all three public higher following the college’s accreditation under the education segments) and 2016-17 (providing authority of its own governing board. $25 million solely for community colleges). Funds Development of Statewide Integrated Chapter 23 creates a similar award program for Library System (ILS). The budget provides 2017-18. Like the 2016-17 awards, the 2017-18 $6 million (one time) for the CCC Technology program is to prioritize innovations that both Center to procure and operate an ILS. Typical address specified groups of underrepresented functions of an ILS include acquiring and cataloging students and use technology to improve instruction books and other materials, providing ways for and support services. The new program is different, library users to search catalogs and access materials, however, in that it eliminates the award committee and tracking the circulation of these materials. appointed by the Governor and Legislature and Several Other One-Time Augmentations. tasks the Chancellor’s Office with making award Chapter 254 amended the budget act to provide decisions directly. The Chancellor’s Office is to $7 million for emergency financial aid to students submit interim and final reports on these awards by who qualify for aid under the California Dream January 1, 2020 and 2022, respectively. Act. In addition, Chapter 23 funds various other Provides Special Appropriation for Compton one-time initiatives using repurposed 2015-16 Community College District. Following the loss Proposition 98 funds. It provides $8 million for of its accreditation in 2006, Compton College workforce grants to community college districts in has operated as a “center” under the supervision distressed economic areas. It provides $7 million for veterans resource centers. Of this amount, 18 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET $5 million is to establish or enhance centers existing vice chancellor position that has been that meet specified standards and $2 million vacant for some time. The remaining $454,000 is for Norco College to expand the capacity of is reimbursement authority for two research its center as well as establish mechanisms for specialists and an attorney. Colleges and third awarding course credit for prior military services. parties (such as research organizations) will be able Chapter 23 also provides $4.5 million to support to use the services of these individuals on a fee-for- mental health services and training, $2.5 million service basis. to address student hunger at community colleges, Exempts Office From Competitive Bidding $2.5 million to help colleges comply with state Under Certain Conditions. Specifically, Chapter 23 and federal requirements regarding preventing exempts the Chancellor’s Office from competitively sexual harassment and violence, and $1 million for bidding new district contracts of $20 million or less the CCC Academic Senate to support the course (Proposition 98 funding) and all renewal district identification numbering system. contracts. The legislation sunsets this exemption on July 1, 2022. State Operations Facilities Increases Chancellor’s Office Staffing. The budget provides six new positions and $1.1 million Provides Physical Plant and Instructional in additional resources to improve the Chancellor’s Support Funding. The budget package includes Office’s capacity to provide leadership and expertise $70 million one-time funding that districts to colleges. The augmentation is based on a review may use for scheduled maintenance and certain of central operations conducted by staff from other infrastructure-related purposes, as well as the Department of Finance and Chancellor’s replacement of instructional equipment and library Office over the course of spring 2017. Of the total materials. The funds are allocated to districts based augmentation, $618,000 is General Fund. This on their FTE enrollment. amount is to support two additional information Funds Planning for 15 New Capital Outlay technology specialists, a new administrator to Projects. The budget allocates $17 million for the oversee guided pathways implementation, and preliminary planning phase for 15 capital outlay a second deputy chancellor who will fill an projects. The funds are from Proposition 51. CHILD CARE AND PRESCHOOL Budget Act Provides $4 Billion for Child Higher Spending Predominantly Due to Care and Preschool Programs. Of this amount, Reimbursement Rate Increases. As Figure 6 shows $2 billion is for preschool programs, $1.9 billion (see page 25), higher reimbursement rates account is for child care programs, and $93 million is for for the vast majority of the year-over-year funding support programs. As Figure 5 shows (see next increase, with additional slots, new eligibility page), the 2017-18 Budget Act augments these rules, and various other adjustments comprising programs by a total of $310 million (8.3 percent) the remainder of the increase. We discuss these from the revised 2016-17 level. Proposition 98 augmentations in greater detail below. General Fund covers the bulk of this increase Reimbursement Rates ($164 million), with additional non-Proposition 98 General Fund ($104 million) and federal funds Increases Standard Reimbursement Rate ($42 million) comprising the rest of the increase. (SRR) 11 Percent From Effective 2016-17 Rates. www.lao.ca.gov Legislative Analyst’s Office 19 2017-18 BUDGET The state funds State Preschool, General Child a 5 percent rate increase approved in 2016-17 and Care, a portion of Migrant Child Care, and Care $93 million is for an additional 6 percent rate for Children with Severe Disabilities through increase. The bulk of the SRR increase goes to direct contracts based on the SRR. The 2017-18 support the State Preschool and General Child Care budget provides $160 million to increase the SRR programs. The new rate for a full-day, center-based by 11 percent. Of this increase, $68 million is for State Preschool slot is $11,433 per year, whereas the Figure 5 Child Care and Preschool Budget (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Revised Reviseda Enacted Amount Percent Expenditures CalWORKs Child Care Stage 1 $334 $418 $361 -$57 -14% Stage 2b 419 445 519 74 17 Stage 3 257 284 306 21 8 Subtotals ($1,010) ($1,147) ($1,185) ($38) (3%) Non-CalWORKs Child Care General Child Carec $305 $308 $360 $52 17% Alternative Payment Program 251 283 292 10 3 Migrant Child Care 29 31 35 4 12 Bridge program for foster children — — 19 19 — Care for Children With Severe Disabilities 2 2 2 —d 12 Infant and Toddler QRIS Grant (one time) 4 — — — — Subtotals ($611) ($623) ($708) ($85) (14%) Preschool Programse State Preschool—part dayf $425 $447 $503 $55 12% State Preschool—full day 555 627 738 111 18 Transitional Kindergarteng 691 739 755 17 2 Preschool QRIS Grant 50 50 50 — — Subtotals ($1,721) ($1,863) ($2,046) ($183) (10%) Support Programs $76 $89 $93 $4 4% Totals $3,418 $3,722 $4,032 $310 8% Funding Proposition 98 General Fund $1,576 $1,713 $1,878 $164 10% Non-Proposition 98 General Fund 885 984 1,088 104 11 Federal CCDF 573 639 635 -4 -1 Federal TANF 385 385 427 42 11 Federal Title IV-E — — 4 4 — a Reflects Department of Social Services’ revised Stage 1 estimates. Reflects budget act appropriation for all other programs with adjustment for section letters. Specifically, reflects midyear $15.9 million fund shift from General Child Care and CalWORKs Stage 3 into the Alternative Payment Program. 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 preliminary LAO estimates for 2016-17 and 2017-18. QRIS = Quality Rating and Improvement System; CCDF = Child Care and Development Fund; and TANF = Temporary Assistance for Needy Families. 20 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET new rate for a full-day, center-based General Child market costs for child care every two years and Care slot for a preschool-aged child is $11,360 per typically sets the RMR such that families in every year. The 11 percent rate increase applies to centers, county can use their vouchers to access a certain family child care homes, and all age groups. percentage of child care providers in their areas. Increases Regional Market Rate (RMR) Beginning January 1, 2017, the state increased the for Many Voucher Providers. The state also reimbursement rates for providers from rates based funds child care through the California Work on a mix of data from the 2005 and 2009 surveys Opportunity and Responsibility to Kids to the 75th percentile of the 2014 survey, ensuring (CalWORKs) and Alternative Payment programs, subsidized families could access three-fourths of which operate using a voucher system based on the child care providers in their areas. Beginning the RMR. The state conducts surveys of regional January 1, 2018, the rates are set to increase to the Figure 6 2017‑18 Child Care and Preschool Changes (In Millions) General Fund Federal Change Prop. 98 Non‑Prop. 98 Funds Total Reimbursement Rates Increases SRR 6 percent starting July 1, 2017 $61 $32 — $93 Increases SRR to cover cost of rate increase adopted in 2016‑17 44 24 — 68 Annualizes RMR increase initiated January 1, 2017 — 45 $12 57 Increases RMR to the 75th percentile of the 2016 regional market survey starting — 32 8 41 January 1, 2018a Annualizes 5 percent license‑exempt rate increase initiated January 1, 2017 — 9 2 11 Subtotals ($104) ($143) ($22) ($269) Slots Annualizes State Preschool slots initiated April 1, 2017 $24 — — $24 Creates Emergency Child Care Bridge Program for Foster Children — $15 $4 19 Provides 2,959 full‑day State Preschool slots at LEAs starting April 1, 2018 8 — — 8 Subtotals ($31) ($15) ($4) ($51) Caseload and Cost of Care Makes changes to eligibility and family reporting requirements — $25 — $25 Adjusts Transitional Kindergarten for changes in attendance and LCFF $17 — — 17 Provides 1.56 percent COLA to certain child care and preschool programs 16 $13 — 29 Makes statutory adjustment to non‑CalWORKs slotsb ‑4 ‑3 — ‑7 Makes CalWORKs caseload and average cost of care adjustments — 24 ‑$100 ‑76 Subtotals ($29) ($59) (‑$100) (‑$12) Other Adjustments Increases funding for quality improvement activities — — $9 $9 Funds YMCA of West San Gabriel Valley facility — $2 — 2 Replaces state funds with federal funds — ‑113 113 — Removes one‑time funding from prior year — ‑1 ‑6 ‑7 Subtotals (—) (‑$113) ($116) ($3) Totals $164 $104 $42 $310 a Includes a temporary hold harmless provision so that no provider receives less in 2017‑18 than it received in 2016‑17. b Reflects 0.4 percent decrease in the birth‑through‑four population. SRR = Standard Reimbursement Rate; RMR = Regional Market Rate; LEA = local education agency; LCFF = Local Control Funding Formula; and COLA = cost‑of‑living adjustment. www.lao.ca.gov Legislative Analyst’s Office 21 2017-18 BUDGET 75th percentile of the 2016 survey. Both of these rate staff are to help foster families access increases were accompanied by temporary hold services on an ongoing basis through harmless provisions giving providers the higher of the state’s regular subsidized child care the new or old rates. Trailer legislation (Chapter 15) programs. specifies that after December 31, 2018, all rates • Fund R&Rs to offer training to child care be set at the 75th percentile of the 2016 survey. providers on how best to serve the unique The 2017-18 budget provides $57 million to fund needs of foster children. the RMR rate increases initiated January 1, 2017 and $41 million for the RMR increases starting Trailer legislation (Chapter 24) does not specify January 1, 2018. how funds will be allocated across these three purposes or across counties. Participation in the Slots program is optional at the county level. Funds Additional State Preschool Slots. The Makes Changes to Eligibility Criteria and budget provides $24 million to annualize the cost Family Reporting Requirements. The budget of 2,959 preschool slots added April 1, 2017. The includes $25 million reflecting the combined effect budget also provides $8 million for 2,959 new of increasing the eligibility thresholds and changing full-day State Preschool slots at local education reporting requirements for families. Currently, to agencies (LEAs) starting April 1, 2018. This slot be eligible for care, parents must be working or increase represents the second of three equal in school and earn below 70 percent of the State batches of State Preschool slots that the Legislature Median Income (SMI) as calculated in 2007-08. and the Governor agreed to add as part of the This threshold equates to $42,216 for a family of 2016-17 multiyear budget agreement. three. The budget package updates to using the Establishes Emergency Child Care Bridge most recent SMI as well as establishes different Program for Foster Children. The budget provides entry and exit eligibility thresholds. Families would $19 million ($15 million non-Proposition 98 be eligible to enter the program if they have below General Fund and $4 million federal funds) 70 percent of the 2015 SMI ($52,076 for a family of to establish the Emergency Child Care Bridge three) and continue receiving assistance as long as Program for Foster Children, beginning January 1, their income is below 85 percent of SMI ($63,235 2018. This program will be jointly administered for a family of three). This change increases the by the Department of Social Services (DSS) and number of CalWORKs Stage 2 and Stage 3 slots. county welfare departments. The program’s This is because some families that otherwise would overarching intent is to allow foster families to have stopped receiving subsidized child care due access immediate child care slots until ongoing to increases in their income will continue to be slots become available in the regular subsidized served. In addition to expanding income eligibility, child care system. On an ongoing annual basis, the the budget package allows families to report program is to receive $38 million for three related information necessary for determining eligibility purposes: only once a year unless changes in income make them ineligible. Under the new policy, families • Fund emergency child care vouchers will not be required to report any changes in lasting up to one year for participating hours at work or in school between the annual foster families. eligibility determinations. Previously, families • Support additional staff at Resource and were required to report any change in income or Referral (R&Rs) agencies. The additional work hours—even if the change did not affect their 22 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET eligibility for care—within five days or lose their a 2.7 percent increase funding from the Local subsidy. This reporting change has the effect of Control Funding Formula, offset by a slight increasing CalWORKs child care costs, as families expected decrease in TK average daily attendance. with reduced work hours may access longer hours Swaps State With Federal Funds. The state of care. (In the non-CalWORKs programs, which receives federal funding for child care and are capped, increasing the eligibility thresholds and preschool through the Temporary Assistance for changing reporting requirements have the effect Needy Families (TANF) program and the Child of lengthening the time that some families receive Care and Development Fund (CCDF). The budget care while increasing the number of other families allocates an additional net $113 million from these that are waiting to receive care.) sources in 2017-18, offsetting a like amount of state General Fund expenditures. The change is due Other Budget Actions to a $120 million increase in TANF funds for the Makes Adjustments to CalWORKs Child Care. CalWORKs Stage 2 program offset by a $7 million The budget adjusts CalWORKs child care down by decrease in available CCDF funds. The additional $76 million compared to the revised 2016-17 level TANF funds are due to lower overall CalWORKs due to changes in caseload and the underlying cost costs coupled with more realignment-related of care. (Changes in the types of care families use funding for CalWORKs. Both factors work to free affect the average cost of care, independent from up TANF funds for CalWORKs Stage 2 costs. the rate increases described above.) The bulk of Policy Changes the year-over-year decrease ($63 million) is due to changes in cost of care relative to 2016-17 budget Changes Licensing Requirements for State estimates. The reduction results from lower average Preschool Programs Run by LEAs. Currently, cost of care in Stage 1 and Stage 3, offset by a slight all State Preschool programs are required to be increase to average cost of care in Stage 2. The licensed. To be licensed, providers must meet remaining year-over-year decrease ($13 million) certain health and safety standards, referred to as is due to caseload changes. Specifically, Stage 1 Title 22 standards, which are established by DSS. and Stage 3 drop by a combined 3,048 cases, offset State Preschool programs also are required to meet partly by an increase of 1,830 Stage 2 cases. various other health, safety, and programmatic Makes Statutory Adjustments to standards, referred to as Title 5 standards, which Non-CalWORKs Child Care and Preschool are established by the California Department of Programs. The budget provides $29 million to fund Education (CDE). Trailer legislation (Chapter 15) a 1.56 percent cost-of-living adjustment (COLA) exempts State Preschool programs run by LEAs for non-CalWORKs child care programs and the from Title 22 licensing standards beginning State Preschool program. For the programs that July 1, 2019. It also requires our office to convene receive the SRR, the COLA augments the rate a workgroup to discuss what Title 22 standards that providers receive. In the Alternative Payment should be added to Title 5 to ensure LEAs continue program, however, the COLA goes to create extra to meet essential health and safety standards. child care slots. The budget also makes a $7 million Allows Part-Day State Preschool Programs to downward adjustment to these programs reflecting Serve Children With Special Needs Over Income an estimated 0.4 percent decrease in the birth- Threshold. Chapter 15 allows part-day State through-four population in California. Preschool programs to serve children with special Augments Transitional Kindergarten (TK). needs who do not meet the income-eligibility The budget adds $17 million for TK, reflecting criteria as long as all eligible and interested children www.lao.ca.gov Legislative Analyst’s Office 23 2017-18 BUDGET are served first. Under current law, part-day federal McKinney-Vento Homeless Assistance Act. State Preschool programs are allowed to fill up to This change expands the definition of homelessness 10 percent of their slots with children from families to include children who are temporarily staying with incomes up to 15 percent over the income- with other people due to loss of housing as well eligibility limit. Pursuant to Chapter 15, children as children who are sleeping in a shelter, in with special needs from families above the income transitional housing, or places not designed as threshold would not count toward this existing sleeping accommodations. limit. Allows Providers to Accept Electronic Aligns the State Definition of Homelessness Applications for Child Care. Chapter 15 allows With the Federal Definition. Currently, children providers to accept electronic applications and can be deemed eligible for subsidized child care signatures from families applying for subsidized if they are homeless and a parent needs to access child care or State Preschool. Previously, providers child care while looking for permanent housing. were required to collect paper applications with Chapter 15 changes the definition of homelessness handwritten signatures. so that it is the same as the definition used for the HIGHER EDUCATION In this section, we discuss notable budget student tuition and fee revenue, and $55 million changes for the California State University (CSU), (0.8 percent) is lottery funding. Total core funding University of California (UC), Hastings College increases by $307 million (4.7 percent) over 2016-17. of the Law (Hastings), California Student Aid Provides $243 Million (7 Percent) Ongoing Commission, and the California State Library. General Fund Base Increase. As Figure 8 shows, $157 million is an unrestricted base augmentation, California State University which CSU intends to use primarily to cover costs Total Core Funding of $6.9 Billion in 2017-18. of collective bargaining agreements ratified by the As Figure 7 shows, $3.7 billion (54 percent) is CSU Board of Trustees in spring 2016. In addition, state General Fund, $3.1 billion (45 percent) is the budget designates a total of $85 million for the Figure 7 California State University Core Funding by Source (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Actual Revised Enacted Amount Percent General Fund Ongoinga $3,271 $3,479 $3,722 $243 7.0% One time 5 110 23 -87 -79.0 Subtotals ($3,276) ($3,589) ($3,745) ($156) (4.3%) Tuition and feesb $3,022 $2,963 $3,115 $151 5.1% Lottery 58 55 55 — — Totals $6,357 $6,607 $6,914 $307 4.7% a Includes funds for pensions and retiree health benefits. b Includes funds that CSU uses to provide tuition discounts and waivers to certain students. In 2017-18, CSU plans to provide $704 million in such aid. 24 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET following augmentations: Figure 8 (1) $39 million for 2017-18 California State University General Fund Changes increased pension costs, (In Millions) (2) $21 million for higher retiree health care costs, 2016-17 Revised Spending $3,588.5 (3) $20 million to serve Ongoing Augentations 2,487 (0.7 percent) more Unrestricted base increases: Funding per Governor’s original long-term plan $131.2 resident FTE students in Redirected savings from Middle Class Scholarship modifications 26.0 2017-18 compared with Subtotal ($157.2) 2016-17, and (4) $5 million Restricted base increase: for higher lease-revenue Pension adjustment $39.3 debt service for previously Retiree health benefits adjustment 21.0 approved capital projects. Enrollment growth 20.0 Lease-revenue bond debt service adjustment 5.1 The budget also provides Subtotal ($85.4) CSU with $2 million One-Time Initatives ongoing from the State Graduation Initiative $12.5 Transportation Fund for Palm Desert center 3.0 transportation research, Hunger-free campus program 2.5 pursuant to Chapter 5 of California Dream Loan Program 2.0 Equal employment opportunity programs 2.0 2017 (SB 1, Beall). Open educational resourcesa 1.0 Designates Subtotal ($23.0) $23 Million General Remove one-time funding provided in prior year -$87.0 Fund for One-Time Other adjustments -22.6 Initiatives. The budget Total Changes $156.1 also funds CSU for various 2017-18 Enacted Spending $3,744.6 one-time initiatives: a Funding authorized pursuant to Chapter 633 of 2015 (AB 798, Bonilla). (1) $12.5 million for CSU’s Graduation Initiative; it plans to fund 12 of these projects in the budget (2) $3 million for CSU San Bernardino’s Palm year using $1 billion in university revenue bonds. Desert satellite campus to expand student outreach The associated annual debt service is estimated to be and faculty resources; (3) $2.5 million for campuses about $50 million. CSU indicates it will support this to address student hunger; (4) $2 million for debt service using existing funds. This is possible campuses to create or expand equal employment because CSU freed up a like amount of monies opportunity programs, which represents the second from expiring debt on other projects as well as consecutive year of funding; and (5) $1 million for restructuring outstanding State Public Works Board open educational resources (a project previously debt. authorized but receiving funding over multiple Higher Tuition to Go Into Effect in Fall years). In addition, Chapter 254 amended the 2017. In March 2017, the CSU Board of Trustees budget act to provide $2 million to augment adopted the following systemwide tuition levels funding for a CSU loan program for certain for 2017-18: (1) $5,742 for resident undergraduate undocumented students. students, a $270 (4.9 percent) increase; (2) $6,660 for Authorizes CSU to Fund 27 Capital Outlay credential programs, a $312 (4.9 percent) increase; Projects. The state authorizes CSU to undertake (3) $7,176 for graduate (master’s level) programs, 27 projects totaling $1.6 billion. CSU indicates that www.lao.ca.gov Legislative Analyst’s Office 25 2017-18 BUDGET a $438 (6.5 percent) increase; and (4) $11,880 funds and indirect cost recovery on federal and undergraduate nonresident supplemental tuition, state research grants) that UC allocates for its a $720 (6.5 percent) increase. In addition, tuition education programs. Total core funding increases for each of CSU’s doctoral programs increases by $284 million (3.4 percent) over 2016-17. 6.5 percent. CSU expects to collect an estimated Provides $131 Million (4 Percent) General $151 million in additional gross revenue Fund/Proposition 56 Base Increase. As Figure 10 ($109 million in net revenue) resulting from the shows, the budget provides UC $81 million in tuition increases and enrollment growth. CSU new unrestricted General Fund support. The intends to use $75 million of the increase for the remaining $50 million base increase is associated Graduation Initiative, with the remainder used for with a Proposition 56 (2016) implementation various other operational purposes. decision. Specifically, the budget package provides Requires CSU Trustees to Submit Report and $50 million in Proposition 56 funding (including Approve New Policies. The budget package requires $10 million carried over from 2016-17) for graduate the CSU Board of Trustees to report in the budget medical education at UC, freeing up $50 million in year on plans to (1) reduce excess course-taking General Fund formerly dedicated for that purpose. by students; (2) change assessment and placement The shift would change the mix of funding but practices; and (3) enact policies that give first not the total funding level for graduate medical priority for impacted programs to local students, education. The shift would result in unrestricted as well as automatically redirect admissions General Fund support increasing a total of applications of students who are denied admission $131 million. to an impacted program. Sets Expectations on Receiving $50 Million. The 2017-18 budget conditions $50 million of University of California the base increase on UC meeting numerous Total Core Funding of $8.5 Billion in 2017-18. expectations. Many of these expectations pertain As Figure 9 shows, $3.5 billion (42 percent) is state to implementing recommendations made by General Fund, $4.6 billion (54 percent) is student the State Auditor in an April 2017 report. The tuition and fees, and $396 million (4 percent) audit report recommends that the UC Office is from other revenue sources (such as lottery of the President (UCOP) implement certain improvements relating to Figure 9 budgeting, transparency, University of California Core Funding by Source and accountability by April 2018. The (Dollars in Millions) remaining budget Change Over 2016‑17 2015‑16 2016‑17 2017‑18 expectations attached to Actual Revised Enacted Level Percent the $50 million increase General Fund are enrolling at least one Ongoing $3,135 $3,279 $3,367 $88 2.7% new transfer student for One time 124 262 177 ‑85 ‑32.5 Subtotals ($3,259) ($3,541) ($3,544) ($3) (0.1) every two new freshmen, Tuition and feesa $4,087 $4,393 $4,623 $229 5.2% completing activity-based Other core funds 318 309 360b 51 16.6 costing pilot programs Lottery 38 36 36 — — at three campuses, Totals $7,665 $8,243 $8,527 $284 3.4% a adopting a policy that Includes funds that UC uses to provide tuition discounts and waivers to certain students. In 2017‑18, UC plans to provide $1 billion in such aid. prohibits UC from b Includes $50 million in Proposition 56 funding designated for graduate medical education. making supplemental 26 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET retirement payments for Figure 10 any newly hired senior 2017-18 University of California General Fund Changes managers, and disclosing (In Millions) more UCOP fiscal and program information. The 2016-17 Revised Spending $3,540.6 Ongoing Augmentations Department of Finance is Unrestricted base increasea $81.2 to release the $50 million Graduate student enrollment growth 5.0 if UC provides sufficient San Joaquin Valley PRIME programb 1.9 evidence by May 1, 2018 Summer Institute for Emerging Managers and Leaders 0.3 Subtotal ($88.4) that it made a good faith One-Time Initiatives effort to satisfy all of these Pension liabilities $169.0 expectations. Hunger-free campus program 2.5 Creates New Line Marine mammal rescue 2.1 Equal employment opportunity programs 2.0 Item for UCOP in State California Dream Loan Program 1.0 Budget. The state budget Remove one-time funding provided in prior year -261.6 itemizes funding for Subtotal (-$85.0) UCOP, implementing one Totals $3.4 of the recommendations 2017-18 Enacted Spending $3,544.0 from the April 2017 a Does not include additional $50 million in freed-up General Fund due to providing $50 million in Proposition 56 funds for graduate medical education. audit report. Specifically, b The original $1.9 million appropriation in the revised 2015-16 budget (pursuant to Chapter 2 of 2016, the budget earmarks AB 133, Committee on Budget) was unspent and carried forward to 2016-17. The 2017-18 budget resumes base funding for the program. $349 million General PRIME = Program in Medical Education. Fund for the office. This amount is an estimate of least 500 of the 1,500 additional undergraduate what UCOP would raise if it continued its recent students to be new transfer students. The budget practice of charging each campus an “assessment” does not designate funding this year to support to reimburse a portion of its costs. (The amount 2018-19 enrollment growth but indicates that the includes $52 million for UCPath, UC’s new payroll state and UC are to share the associated cost in system.) The state budget includes provisional 2018-19. To cover UC’s share of the 2018-19 cost, language prohibiting UCOP from charging this the budget expects UC to identify options for assessment in 2017-18 and requiring UCOP to redirecting funds from UCOP’s existing programs. certify that overall campus revenue will be greater To this end, UC is to consult with the Legislature in 2017-18 than the prior year. The line item reflects and Department of Finance and submit redirection less than half of UCOP’s total budget, which is options by December 1, 2017. Regarding graduate comprised of numerous other restricted and enrollment, the budget provides $5 million for UC unrestricted revenue sources. Accounting for all to enroll 500 more resident graduate students in funding, the budget for UCOP’s administration and 2017-18 over the 2016-17 level. systemwide programs is $798 million in 2017-18. Authorizes UC to Undertake Seven New Sets Undergraduate and Graduate Enrollment Capital Outlay Projects Totaling $111 Million Expectations. Regarding undergraduate in State Funding. Six of these projects (totaling enrollment, the budget expects UC to enroll 1,500 $61 million in state funding) would correct seismic more students in 2018-19 over the 2017-18 level and and life-safety deficiencies for specific academic to enroll at least one new transfer student for every building at the Los Angeles, San Francisco, and two new freshmen. That is, the budget expects at Berkeley campuses. The other project (associated www.lao.ca.gov Legislative Analyst’s Office 27 2017-18 BUDGET with $50 million in state funding) is to construct for precision medicine, reflecting the third year of a new science building at the Irvine campus. UC funding; and (2) $300,000 ongoing for a summer estimates the annual debt service for these projects business leadership seminar for undergraduate to be $7.2 million. To finance these projects, students from Historically Black Colleges and UC will sell university bonds and then pay the Universities and Hispanic-Serving Institutions. In associated debt service using its main state General addition, the budget makes three notable special Fund appropriation. fund augmentations: (1) $82 million (including Authorizes Additional $50 Million for $18 million carried over from 2016-17) in Deferred Maintenance. In addition to these Proposition 56 funding for tobacco-related disease seven projects, the administration authorizes UC research; (2) pursuant to Chapter 249, $11 million to use $50 million in university bond funding one time (budgeted in the Office of Planning and for other facility efforts. Of the $50 million, Research) from the Greenhouse Gas Reduction $15 million would fund a team of experts to visit Fund for research on reducing carbon emissions; each campus and assess the current condition of and (3) $5 million from the State Transportation academic facilities. The remaining $35 million Fund for transportation research pursuant to would fund deferred maintenance projects. Chapter 5. UC estimates the annual debt service for these UC Approved Student Tuition and Fee projects to be $4.2 million. In an associated action, Increases. In January 2017, the UC Board of Regents corresponding trailer legislation (Chapter 23) adds approved tuition and fee increases. Specifically, for deferred maintenance to the list of allowable types the 2017-18 academic year, it raised systemwide of state-supported capital outlay projects. tuition to $11,502, a $282 (2.5 percent) increase; Provides $177 Million for One-Time it raised the Student Services Fee to $1,128, a $54 Initiatives. The bulk of this funding— (5 percent) increase; and it raised undergraduate $169 million—is to help address unfunded nonresident supplemental tuition to $28,014, liabilities for UC’s Retirement Plan. It reflects the a $1,332 (5 percent) increase. In addition, the third consecutive year of such payments. As with board increased supplemental tuition for several the previous two payments, the $169 million is professional degree programs, including business, scored as a Proposition 2 (2014) debt payment. medicine, and nursing programs. For affected The budget also provides one-time funding for professional programs, increases ranged from four other purposes: (1) $2.5 million for campuses $150 (1.9 percent) to $2,124 (5 percent). The board to address student hunger; (2) $2.1 million for also began applying a supplemental tuition charge a grant program at the Davis campus to assist of $6,000 to two existing graduate programs (an marine mammal rescues, representing the third engineering program at Berkeley and an urban consecutive year of funding; (3) $2 million for equal planning program at Irvine), resulting in a $6,336 employment best practices, representing the second (52 percent) increase in total tuition and fees for consecutive year of funding; and (4) $1 million resident students in those programs. UC expects to one time for the California Dream Loan Program, collect an estimated $229 million in additional gross pursuant to Chapter 254. revenue ($194 million in net revenue) resulting from Several Other Notable Augmentations. The the tuition increases and enrollment growth. budget includes various other General Fund, Hastings College of the Law special fund, and policy adjustments affecting UC. Specifically, it includes two other notable Total Core Funding of $56 Million in 2017-18. General Fund adjustments: (1) $10 million one time Of this amount, $41 million (74 percent) is gross (budgeted in the Office of Planning and Research) tuition and fee revenue, $13 million (23 percent) is 28 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET state General Fund, and $1.6 million (3 percent) is $1.0 billion (46 percent) is federal Temporary other funding, such as investment income, that the Assistance for Needy Families (TANF) funding, college allocates for its education programs. (The and $23 million (1 percent) is state special funds General Fund amount does not include debt service and reimbursements. Financial aid spending for general obligation bonds, which is estimated from these sources increases a net of $143 million to be $1 million in 2017-18.) Though the 2017-18 (7 percent) from the revised 2016-17 level. Ongoing budget provides the law school a $1.1 million spending increases $144 million and one-time (9.2 percent) unrestricted General Fund base spending increases $546,000. These increases increase, the increase is offset by a $2.6 million are offset by $2.3 million in reductions to state decline in other core funding. After accounting for operations due to backing out prior-year one-time all changes, core funding decreases $1.4 million funding. Year over year, General Fund support (2.5 percent) over 2016-17. increases by $25 million whereas TANF support Core Spending of $64 Million. Of this amount, increases by $118 million. $22 million (35 percent) is for instruction-related Covers Higher Cal Grant Costs. The budget expenses, such as faculty salaries and benefits; increases Cal Grant funding by a total of $19 million (30 percent) is for tuition discounts $125 million in 2017-18. Three factors comprise to students; $12 million (19 percent) is for this increase. Updated Cal Grant participation administration and executive management; and the estimates account for $74 million of the increase. remaining $10 million (16 percent) is for Hastings’ Participation is expected to increase 6 percent in other operating costs. Hastings’ budget continues 2017-18 over 2016-17. Another $49 million reflects an initiative begun in 2015-16 to offer larger higher Cal Grant costs for students attending CSU tuition discounts in an effort to attract additional ($28 million) and UC ($21 million). These changes higher-performing students. Hastings’ tuition conform to CSU’s and UC’s scheduled tuition discounts are budgeted to increase by $2.9 million increases (5 percent and 2.5 percent, respectively). (17.9 percent) over 2016-17. This increase is largely Lastly, $1.7 million reflects a doubling of the offset by operational and other savings identified by Cal Grant C book and supply award for CCC the college, with overall core spending expected to students. The financial aid budget also includes increase $431,000 (0.7 percent) from the 2016-17 level. $5.6 million from the College Access Tax Credit Resulting Deficit of $8 Million. Due largely Fund. These monies provide a $2 increase to the to the school’s decision to increase spending on Cal Grant B access award, raising this piece of the tuition discounts, Hastings has incurred operating award to $24. This amount supplements the base deficits in recent years. The school anticipates Cal Grant B award of $1,648, bringing the total running an $8.3 million deficit in 2017-18, a Cal Grant B access award to $1,672. $1.9 million increase over the estimated deficit Maintains Private, Nonprofit Cal Grant in the 2016-17. Hastings plans to fund this deficit Award Amount, Adds Reporting Requirement. by drawing down its reserve. The school projects The 2012-13 budget amended state law to lower it will end 2017-18 with a reserve of $10 million, Cal Grant A and B awards for students attending a significant drop compared to its reserve of private, nonprofit institutions from $9,084 to $26 million at the end of 2014-15. $8,056 starting in 2014-15. Subsequent budget actions have postponed the scheduled reduction. Student Financial Aid Trailer legislation (Chapter 23) again postpones Provides $2.3 Billion for Student Financial the reduction for one additional year. Chapter 23, Aid in 2017-18. As Figure 11 shows (see next page), however, adds intent language that private, $1.2 billion (53 percent) is state General Fund, nonprofit colleges and universities participating www.lao.ca.gov Legislative Analyst’s Office 29 2017-18 BUDGET Figure 11 California Student Aid Commission Budget (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Actual Revised Enacted Amount Percent Expenditures Local Assistance Cal Grants $1,861 $1,986 $2,111 $125 6% Middle Class Scholarships 44 74 96 22 30 Assumption Program of Loans for Education 14 10 7 -3 -27 Chafee Foster Youth Program 11 14 14 — — Student Opportunity and Access Program 8 8 8 — — National Guard Education Assistance Awards 2 2 2 — — Other programsa 1 1 1 —b -7 Subtotals ($1,941) ($2,095) ($2,240) ($144) (7%) State Operations $14 $17 $15 -$2 -11% Totals $1,955 $2,112 $2,255 $143 7% Funding General Fund $1,419 $1,163 $1,188 $25 2% Federal TANF 521 926 1,043 118 13 Otherc 16 23 23 —b —b a Includes Cash for College, Child Development Teacher and Supervisor Grants, Graduate Assumption Program of Loans for Education, John R. Justice Program, Law Enforcement Personnel Dependents Scholarships, and State Nursing Assumption Program of Loans for Education for Nursing Faculty. b Less than $500,000 or 0.5 percent. c Includes College Access Tax Credit Fund, Student Loan Authority Fund, and other federal funds. TANF = Temporary Assistance for Needy Families. in the Cal Grant program make a good faith effort ScholarShare Investment Board to implement a to enroll more low-income students, enroll more new college savings program. Trailer legislation transfer students, and offer more online courses. (Chapter 250) requires the board to consider options Chapter 23 requires these institutions to report on for encouraging low-income families to participate progress towards meeting these goals by March 15 in the program, including automatically enrolling of each year. students in the program through partnerships with Maintains Middle Class Scholarship. The state school districts, nonprofits, and other entities. first funded the Middle Class Scholarship program Makes Various Other Changes and in 2014-15. The program provides partial tuition Adjustments. The budget package also: coverage for students who do not qualify for Cal • Includes $546,000 one-time funding for Grants but have household incomes and assets each the California Student Aid Commission under $156,000. The program was designed to be (CSAC) to continue working on replacing phased in over four years, with award amounts its online grant delivery system. Of the gradually increasing over the period. Trailer proposed $546,000, $296,000 is to allow legislation (Chapter 250) includes $96 million CSAC to continue contracting with an for full implementation of the program, up from external project management team and $74 million in 2016-17. $250,000 is for required contracting with Funds College Savings Program. The budget the Department of Technology. provides $3 million one-time funding to the 30 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET • Contains small adjustments in $6 million, $3 million is for grants to community participation and award amounts to groups and other organizations participating in several financial aid programs, including the California Civil Liberties Public Education the Assumption Program of Loans for Program. The grants are to help groups develop Education, the State Nursing Assumption education resources relating to the internment of Program of Loans for Education, the Child Japanese Americans during World War II, with Development Teacher and Supervisor priority for projects that link this experience with Grant Program, the John R. Justice Loan other populations facing civil rights violations. Assumption Program, and the Law The State Library may allocate these funds over Enforcement Personnel Dependent Grant the next three fiscal years. The state has provided Program. The budget decreases by a total of one-time funding for these grants five times over $3 million due to these adjustments. the past ten years. The remaining $3 million is for local libraries to expand the Career Online California State Library High School program—a high school diploma program for adults that the state first funded Total State Library Funding of $55 Million. with one-time monies in 2015-16. (As mentioned Of this amount, $34 million (almost two-thirds) earlier, the budget also provides $3 million ongoing is state General Fund, $18 million is federal funds, Proposition 98 funding for the State Librarian and $2.5 million is special funds. Of state General via Riverside County Office of Education to make Fund, $16.9 million is for assistance to local online educational resources publicly available.) libraries and $17.5 million is for state operations Three Increases to State Operations. Of the and facilities. The budget includes $6.5 million in $541,000 increase for state operations, $326,000 new General Fund spending—$6 million for local is ongoing and $215,000 is one time. Specifically, library assistance and $541,000 for state operations. the budget provides $137,000 ongoing to fund an This spending increase is offset by $5.4 million in assistant bureau chief position in the State Library various downward technical adjustments, resulting Services Bureau. The budget also provides $189,000 in a net year-to-year General Fund increase of ongoing to cover subscription costs associated with $1.1 million (3 percent). the State Library’s data management system. In Funds Two One-Time Initiatives for Local addition, the budget provides $215,000 one time to Libraries. The entire $6 million increase in local upgrade the State Library’s cataloging and search- library assistance is for one-time initiatives. Of the engine functionalities. HEALTH Overview of Spending. The spending plan (see next page). These include, among others, (1) the provides $21.7 billion General Fund for health creation of General Fund savings through the programs. This is a relatively modest increase of use of Proposition 56 (2016) resources to support about $200 million, or 1 percent, compared to some of the anticipated spending increases from the revised 2016-17 spending level, as shown in year-over-year growth in the Medi-Cal program, Figure 12 (see next page). This year-over-year net (2) increased General Fund spending in the increase reflects a number of major actions and Children’s Health Insurance Program (CHIP) policy changes adopted by the Legislature as part due to an assumed loss of federal funding, (3) the of the 2017-18 spending plan, as shown in Figure 13 restoration of previously eliminated adult dental www.lao.ca.gov Legislative Analyst’s Office 31 2017-18 BUDGET Figure 12 Major Health Programs and Departments—Spending Trends General Fund (Dollars in Millions) Change From 2016-17 to 2017-18 2016-17 2017-18 Amount Percent Medi-Cal—local assistance $18,940 $19,518 $577 3% Department of State Hospitals 1,795 1,502 -293 -16 Department of Public Health 153 136 -17 -11 Other Department of Health Care Services (DHCS) programs 365 265 -100 -27 Office of Statewide Health Planning and Development — 33 33 —a Emergency Medical Services Authority 9 9 — — DHCS—state administration 207 210 3 1 Totals $21,469 $21,673 $204 1% a Infinite Increase. benefits under Medi-Cal, and (4) savings generated Department of Health Care Services (DHCS)— in the Department of State Hospitals (DSH) due Medi-Cal to the transfer of responsibility and funding for Overview. The spending plan provides inpatient psychiatric programs from DSH to $19.5 billion General Fund for Medi-Cal local the California Department of Corrections and assistance expenditures administered by DHCS. Rehabilitation (CDCR). Figure 13 Major Actions—State Health Programs 2017-18 General Fund Effect (In Millions) Program Amount Medi-Cal—Department of Health Care Services Uses Proposition 56 monies to pay for year-over-year program growth -$711.0 Assumes reduction in federal Children’s Health Insurance Program funding 369.0a Repeals scheduled transition of Newly Qualified Immigrants into Covered California 48.0 Restores full adult dental benefits 34.8 Funds CA-MMIS continuing operations and replacement 2.7 Establishes medically-tailored meals pilot program 2.0 Implements Palliative Care Program 1.3 Abolishes Major Medical Risk Insurance Fund -47.0 Office of Statewide Health Planning and Development Maintains the expansion of residency programs for primary care physiciansb $33.3 Department of Public Health Provides one-time funding for operation of Parkinson’s Disease Registry $1.7 Department of State Hospitals Transfers inpatient psychiatric programs to CDCR -$254.0 Expands incompetent-to-stand-trial treatment capacity 10.3 Activates additional beds at Metropolitan State Hospital 7.8 a Includes a small portion of special funds from the Perinatal Insurance Fund. b The Legislature initially appropriated $100 million General Fund over three years, starting in 2016-17, for this program. The spending plan instead reflects the expenditure of these funds beginning in 2017-18. The Governor had proposed to repeal the full $100 million appropriation. CA-MMIS = California Medicaid Management Information System and CDCR = California Department of Corrections and Rehabilitation. 32 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET This is an increase of $577 million, or 3 percent, Medi-Cal in 2017-18. Of this amount, $546 million compared to the revised 2016-17 spending level. is dedicated to fund increases to provider Spending in 2016-17 was about $1.2 billion higher payments, and the remaining $711 million will than the 2016-17 budget appropriation. The higher support anticipated spending increases from spending in 2016-17 compared to the appropriation year-over-year growth in the Medi-Cal program. is the net result of a variety of factors, including Figure 14 summarizes the Proposition 56 Medi-Cal (1) a miscalculation of the costs and savings spending package. associated with the Coordinated Care Initiative The plan for distributing the physician and (CCI) and (2) the unanticipated payment in 2016-17 dental services provider payment increases has of funds to the federal government for prescription been developed by DHCS and submitted for federal drug rebates. approval, which at the time of this publication Medi-Cal General Fund spending between remains pending. These payment increases will 2016-17 and 2017-18 would have grown at a higher take the form of supplemental payments targeted rate if not for the availability of higher special fund toward certain provider types and certain physician revenues used to support the Medi-Cal program and dental services. in 2017-18 compared to 2016-17. These special We note that budget-related legislation funds include revenues from the managed care stipulates that all increases to provider payments organization tax, the hospital quality assurance using Proposition 56 funding in 2018-19—that fee, and Proposition 56. A portion of these higher are intended to total up to $800 million—may be revenues reflects the timing of payments, rather adjusted by the Department of Finance based on than an increase in ongoing revenues. We discuss the state’s fiscal condition. some of the major policies that were adopted as Restores Full Adult Dental Benefits Beginning part of the 2017-18 Medi-Cal budget below. January 1, 2018. The spending plan restores Proposition 56 Spending Package. Pursuant full adult dental benefits in Medi-Cal beginning to the requirements of Proposition 56, a voter- January 1, 2018—by restoring benefits (such as gum approved initiative that raised state taxes on treatments and partial dentures) that had been tobacco products, the spending plan allocates eliminated—at a cost of $34.8 million General Fund around $1.3 billion in Proposition 56 revenue to ($73 million ongoing). (In 2013-14, some adult dental Figure 14 Proposition 56 Medi-Cal Spending Plan (In Millions) 2017-18 Increases to provider payments Physician servicesa $325 Dental servicesa 140 Women’s healthb 50 Intermediate Care Facilities for the Developmentally Disabledb 27 HIV/AIDS Waiver Programb 4 Subtotal ($546) Revenue dedicated to fund growth in existing Medi-Cal program $711 Total $1,257 a Physician and dental services provider payments could be increased to up to about $720 million in 2018-19 (bringing total 2018-19 Proposition 56 funding for increased provider payments to $800 million). After 2018-19, physician and dental services provider payments will be reevaluated. b Payment increases are intended to be ongoing. www.lao.ca.gov Legislative Analyst’s Office 33 2017-18 BUDGET benefits that had been eliminated, such as cleanings newly created Health Care Services Plans and and fillings, were restored.) The spending plan Penalties Fund, also administered by DHCS. Once also schedules the restoration of optical benefits in the Health Care Services Plans and Penalties Medi-Cal beginning January 1, 2020, at an ongoing Fund covers all estimated MRMIP expenses, the cost of $26.3 million General Fund. Both of these spending plan estimates a General Fund savings benefits are optional Medi-Cal benefits—meaning of $47 million in 2017-18 from using the fund’s the state is not required to provide the benefit, but remaining balance and ongoing revenue to cover may do so with a federal financial participation, overall Medi-Cal expenses. under federal Medicaid law—that were fully Assumes Reduction in Federal CHIP eliminated during the recession. Funding. CHIP is a joint federal-state program Repeals the Scheduled Transition of Newly that provides health insurance coverage to Qualified Immigrants (NQIs) From Medi-Cal to children in low-income families, but with incomes Covered California. Legislation enacted in 2013 too high to qualify for Medicaid. Beginning required that, in addition to conforming state in federal fiscal year (FFY) 2015-16, the ACA law to several Patient Protection and Affordable authorized an increased federal medical assistance Care Act (ACA) regulations, NQIs eligible for percentage (FMAP)—or federal cost share—for full-scope Medi-Cal as a result of the ACA optional CHIP through FFY 2018-19. (An FFY runs from expansion transition from the state-only Medi-Cal October 1 through September 30.) Under the program into subsidized coverage through Covered ACA, California’s CHIP FMAP increased from California. (This transition had been delayed 65 percent to 88 percent. The ability of California until January 1, 2018.) The spending plan reflects to draw down federal CHIP funds at this higher the Legislature’s decision to no longer pursue the FMAP, however, is dependent on Congress’ transition of all NQIs to Covered California, at decision regarding the appropriation of funding a cost of $48 million General Fund in 2017-18 for CHIP beyond FFY 2016-17, as Congress has ($100 million ongoing). only appropriated funding for CHIP through FFY Abolishes the Major Risk Medical Insurance 2016-17. The spending plan assumes CHIP funding Fund (MRMIF), While Continuing the Major is reauthorized in FFY 2017-18, but at a 65 percent Risk Medical Insurance Program (MRMIP). FMAP in California instead of the 88 percent MRMIP, which was originally conceived as the FMAP authorized by the ACA. At this lower state’s high-risk pool, provides health insurance FMAP, DHCS estimates the state will spend an coverage to individuals who, prior to the ACA, additional $369 million (mostly General Fund) in could not obtain coverage or were charged 2017-18 (relative to what it would have spent at the unaffordable premiums in the individual health ACA-enhanced FMAP of 88 percent). insurance market because of their preexisting Provides Funding for Continued Operation conditions. MRMIF pays for any MRMIP costs in of Existing California Medicaid Management excess of what MRMIP enrollees pay in the form Information System (CA-MMIS) and for Early- of premiums, deductibles, and copayments. As a Stage Development of a Replacement System. The result of the ACA’s prohibition on health insurers spending plan provides $2.1 million General Fund denying coverage based on preexisting conditions, to convert 21 limited-term positions to permanent MRMIP enrollment has steadily declined in recent positions for maintenance and operations for years. The spending plan abolishes the MRMIF CA-MMIS, Medi-Cal’s fee-for-service payment and transfers its remaining fund balance and processing system. In addition, the spending plan any ongoing revenue from the Managed Care provides $575,000 General Fund to support seven Administrative Fines and Penalties Fund into a permanent positions at DHCS to begin early-stage 34 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET development of a CA-MMIS replacement system. General Fund spending for DPH will decline from The spending plan also gives the administration $153 million to $136 million, or by 11 percent. increased expenditure authority of up to This year-over-year decrease in General Fund $2.5 million General Fund to implement the spending is largely the result of one-time spending Advantage Collections Application module of the augmentations in 2016-17 that are ending. In replacement project, which will assist Third Party addition, $3.4 million in Proposition 56 revenues Liability business processes within DHCS. will offset General Fund spending in DPH’s Oral Health Program. (The spending plan also reflects Behavioral Health various funding and policy changes for DPH to Revises State Policy Related to Reversion of implement regulations and issue manufacturer Unused Local Mental Health Services Act (MHSA) licenses under the state’s medical and recreational Funding. The spending plan includes budget- marijuana laws, which we describe in the “Other related legislation revising the state’s reversion Major Provisions” section of this report.) policy for unused county MHSA funding. The Expenditure of Proposition 56 Revenues. MHSA, approved by voters in 2004, generally The spending plan includes $226.1 million requires unused county MHSA funding to revert and 57 positions from Proposition 56 (tobacco to the state after three years and be made available tax) revenues to implement the provisions of for use by other counties. To date, the state’s Proposition 56 related to DPH programs, as follows: MHSA reversion policy has not been enforced and • $181.1 million for the Tobacco Control counties have built up large balances of MHSA Branch to fund media campaigns, provide funding potentially subject to the state’s reversion grants to local health departments and policy. The budget-related legislation would make other organizations, and conduct program a number of changes to the state’s MHSA reversion evaluation in an effort to prevent and policy. Among other changes, these include: reduce tobacco use. (1) holding counties harmless for unused MHSA funds potentially subject to reversion for fiscal • $37.5 million for the Oral Health Program years prior to 2017-18, (2) requiring counties to to develop a statewide infrastructure to submit a plan to spend down current balances of promote oral health education and disease unused MHSA funds by July 1, 2020, (3) extending prevention and treatment. the reversion period from three years to five years • $7.5 million for tobacco law enforcement for small counties, (4) requiring reverted funds efforts, specifically DPH’s Stop Tobacco to be reallocated to other counties for the same Access to Kids Enforcement (STAKE) purposes for which they were originally allocated, Program. Funding will enable DPH to and (5) resetting the reversion period start date for double the number of annual retailer county innovation funding to the date that the state compliance checks (to 5,600) that it approves a county’s innovation plan, rather than conducts to prevent tobacco sales to date in which the funds are allocated. minors and establish a grant program and training program for local law enforcement Department of Public Health (DPH) agencies. The spending plan provides approximately Office of AIDS. The spending plan reflects $3.2 billion from all fund sources for DPH various policy changes and an increase of programs, up from about $2.9 billion in 2016-17 $5.2 million from federal funds and drug rebate (a 10 percent increase). Under the budget plan, funds for the Office of AIDS to: (1) improve client www.lao.ca.gov Legislative Analyst’s Office 35 2017-18 BUDGET health outcomes by implementing standards of a $10.3 million General Fund augmentation care at HIV Care Program providers and a Clinical to expand IST patient treatment capacity. This Quality Management Program and (2) increase includes (1) $7.2 million to activate a 60-bed the number of enrollment workers and improve Admission, Evaluation, and Stabilization (AES) the enrollment process for Office of AIDS program Center in the Kern County jail and (2) $3.1 million participants. In addition, budget-related legislation to expand Jail-Based Competency Treatment clarifies eligibility for the HIV Pre-Exposure (JBCT) programs to additional counties. In Prophylaxis Program (PReP)—a program to addition, the budget package includes budget trailer prevent HIV infections—to include those who are legislation to authorize DSH—rather than trial uninsured. court judges—to place IST patients in the AES Center and JBCT programs. Department of State Hospitals (DSH) Other Adjustments. The budget provides Under the budget plan, General Fund spending $7.8 million from the General Fund to activate for DSH will be about $1.5 billion in 2017-18, a additional beds at DSH-Metropolitan. In decrease of $293 million, or 16 percent, from the addition, the budget provides $5.7 million from revised 2016-17 level. The year-over-year net decrease the General Fund to construct a new courtyard is largely due to the transfer of responsibility and at DSH-Coalinga, as well as reappropriates funding for inpatient psychiatric programs from $11.5 million that was appropriated in prior years DSH to CDCR. For more information on this to renovate existing units at two DSH hospitals into transfer, please see the “Judiciary and Criminal Enhanced Treatment Units designed specifically for Justice” section of this report. violent patients. Additional Incompetent- to-Stand-Trial (IST) Treatment Capacity. The budget provides HUMAN SERVICES Overview of Spending. The 2017-18 spending California Work Opportunity and plan provides over $13 billion from the General Responsibility to Kids (CalWORKs) Fund for human services programs. As shown The spending plan provides a total of in Figure 15, this is only $13 million more than $5.2 billion from all funds to support the revised estimates for these programs in 2016-17. CalWORKs program in 2017-18, a decrease of This relatively flat year-over-year General Fund $21 million (0.4 percent) relative to estimated support for human services programs is largely spending in 2016-17. This small year-over-year the result of various fund shifts that have had the decrease reflects the net effect of roughly effect of reducing General Fund support for the $120 million in costs from new augmentations, an programs in 2017-18 without reducing their overall additional $120 million in costs from the full-year funding levels. The General Fund savings achieved implementation of previously approved policy by these fund shifts is offset by increases in human changes (primarily the repeal of the maximum services caseloads, costs per case, and targeted family grant rule), and roughly $260 million in programmatic augmentations. Figure 16 (see savings due to declining caseloads. Within the page 42) shows the major policy changes adopted by total funding amount, the spending plan provides the Legislature as part of the 2017-18 spending plan. $445 million from the General Fund to support These changes are discussed in more detail below. 36 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET CalWORKs in 2017-18, a decrease of $284 million Funding Provided for New Educational (39 percent) relative to 2016-17. This decrease Incentives. The spending plan provides $4 million largely reflects a funding shift as additional from all funds on a one-time basis in 2017-18 to local funds from realignment are estimated to provide educational incentive payments in the be available to offset General Fund costs. Major CalWORKs program. Budget legislation specifies changes in CalWORKs funding and policy that, beginning in January 2018, CalWORKs included in the 2017-18 spending plan are described recipients may receive a one-time incentive award in greater detail below. of $500 for completing a high school diploma or Single Allocation Augmented Pending Revised its equivalent. CalWORKs recipients enrolling in Budgeting Methodology. The Governor’s May programs leading to a career technical education Revision proposed a year-over-year reduction in certificate, an associate’s degree, or bachelor’s 2017-18 of $245 million (13 percent) in county degree may receive a one-time stipend of $1,000. funding for CalWORKs administration and Incentive payments will be limited to the services—referred to as the “single allocation”—to amount appropriated in the budget, and funding reflect the declining number of families receiving for additional incentives in later years will be assistance as the state’s economy has improved. In contingent on appropriations in future budgets. response to concerns that this significant reduction Online CalWORKs Appraisal Tool (OCAT) would underfund county costs, the final spending to Be Integrated With County Case Management plan provides an augmentation of $109 million for Systems. The OCAT is a standardized appraisal the single allocation above the Governor’s May used by all counties to identify CalWORKs Revision, resulting in a smaller year-over-year recipients’ barriers to employment when they begin net reduction of $136 million (7 percent) in participating in employment services. The OCAT 2017-18. Budget legislation additionally directs is currently not integrated with other county case the development of a revised single allocation management systems, which has led to duplicative budgeting methodology. data entry and limited how information from the Figure 15 Major Human Services Programs and Departments—Spending Trends General Fund (Dollars in Millions) Change From 2016-17 to 2017-18 2016-17 2017-18 Amount Percent SSI/SSP $2,795.3 $2,890.8 $95.5 3.4% Department of Developmental Services 4,032.3 4,207.8 175.5 4.4 CalWORKs 728.8 445.0 -283.8 -38.9 In-Home Supportive Services 3,506.2 3,476.4 -29.8 -0.9 County Administration/Automation 810.8 773.5 -37.3 -4.6 Department of Child Support Services 315.0 314.3 -0.7 -0.2 Department of Rehabilitation 62.6 62.8 0.2 0.4 Child welfare servicesa 335.4 433.9 98.5 29.4 Department of Aging 36.0 33.8 -2.1 -6.0 All other social services (including state support) 450.0 447.1 -2.9 -0.6 Totals $13,072.3 $13,085.5 $13.2 0.1% a This includes state funding for nonrealigned child welfare services, such as the Kinship Guardianship Assistance Payment Program, Approved Relative Caregiver Program, and funding for the Continuum of Care Reform efforts. www.lao.ca.gov Legislative Analyst’s Office 37 2017-18 BUDGET OCAT can be used for program administration. performance measurement system for CalWORKs, The spending plan includes $3.7 million from all to be known as the CalWORKs Outcomes and funds in 2017-18 to begin the process of integrating Accountability Review (Cal-OAR). Pursuant to OCAT with county case management systems over this legislation, performance indicators related the next few years. to program goals will be developed and data on New Performance Measurement System these performance indicators will be collected Adopted. Budget legislation creates a new and published regularly. On a three-year cycle, Figure 16 Major Actions—Human Services Programs 2017-18 General Fund Effect (In Millions) Program Amount CalWORKs Augments county “single allocation” funding for services and administration $108.9 Provides one-time funding for CalWORKs educational incentives 4.0 Integrates Online CalWORKs Appraisal Tool with county automation systems 3.7 Establishes CalWORKs Outcomes and Accountability Review system 0.6 Discontinues fingerprint imaging requirementa — In-Home Supportive Services (IHSS) Provides support to counties for their share of IHSS costs 400.0 Codifies existing IHSS overtime exemptions 3.1 Child Welfare Services Funds continuation of Child Welfare Services-New System IT project 25.6 Establishes Emergency Child Care Bridge Program 15.5 Converts Approved Relative Caregiver Progam into statewide entitlement program 4.1 Increases number of public health nurses who oversee foster youth’s health care 3.8 Funds training to prevent unintended pregancies for foster youth 2.9 Creates psychotropic medication review program for foster youth 0.1 Immigration Expands Immigration Services Funding program 50.0 Food Assistance Augments funding for food banks through CalFood programb 8.0 Establishes drinking water pilot program 5.0 Other Department of Social Services Provides one-time disaster assistance related to Coyote Creek flooding 5.4 Provides one-time assistance for Poverello House social services agency 1.0 Developmental Services Covers lost federal funding for BHT for children without autism diagnosis 16.5 Provides one-time funding for Community Placement Plan program activities for DC movers 13.6 Provides one-time augmentation for development of safety net services and supports 7.5 Removes cap on respite services 5.6 Funds installation of a nitrate removal system at Porterville DC 3.7 Provides one-time augmentation for Best Buddies Program 1.6 Provides one-time funding for psychologist positions at RCs to provide BHT referrals 1.0 Increases departmental oversight of housing development projects 0.6 a Budget legislation discontinues the fingerprint imaging requirement no later than July 2018. The spending plan reflects no changes in funding related to this action in 2017-18. b Previously known as the State Emergency Food Asssitance Program. IT = information technology; BHT = Behavioral Health Treatment; DC = Developmental Center; and RC = Regional Center. 38 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET each county will use performance indicator In-Home Supportive Services (IHSS) data to (1) conduct a self-assessment to identify The 2017-18 spending plan includes $3.5 billion strengths and weaknesses in current practice and General Fund for IHSS, similar to revised estimates other factors that affect the county’s performance, of 2016-17 costs. The major changes to the IHSS (2) develop a system improvement plan that program include the (1) establishment of a new describes actions the county will take to improve IHSS state-county cost sharing structure and its performance relative to the indicators, and state-level collective bargaining appeals process, (3) provide annual progress reports to DSS on and (2) codification of existing IHSS overtime the implementation of the system improvement exemptions. plan. Budget legislation requires the Cal-OAR to Changes to IHSS Cost Sharing Structure be established by July 2019, and directs DSS to and Collective Bargaining Appeals Process. The convene a workgroup beginning in the fall of 2017 budget includes a number of changes to the IHSS to develop plans for how Cal-OAR will operate. The cost sharing arrangement between the state and spending plan includes $600,000 from all funds in counties, including shifting some costs from the 2017-18 to begin the development of Cal-OAR. state to counties, establishing a new county IHSS Fingerprint Imaging Requirement maintenance-of-effort (MOE), and providing Discontinued. The state currently requires some General Fund assistance to counties to meet adults applying for CalWORKs to have their the new MOE. In addition, trailer legislation fingerprint images taken and matched against allows counties and unions to appeal to the Public those of other applicants through the Statewide Employment Relations Board if they cannot reach Fingerprint Imaging System (SFIS) in order to a bargaining agreement, under certain conditions. identify instances where individuals might receive For background on the IHSS cost-sharing structure assistance under more than one case at a time and a discussion of the 2017-18 changes, see the (referred to as “duplicate aid”). Budget legislation “Action on the Coordinated Care Initiative” requires DSS, by November 2017, to provide options section. to the Legislature for implementing a new system of Codification of Existing IHSS Overtime verifying the identity of CalWORKs applicants that Exemptions. The 2017-18 budget provides is “non-biometric” (does not rely on the physical $3 million General Fund for various changes characteristics of applicants, such as fingerprints) to the IHSS overtime exemption policy. These as a way to detect potential duplicate aid. Pursuant changes include (1) codifying the existing IHSS to budget legislation, following the department’s overtime exemption policy, (2) removing a current report, the Legislature would adopt a new system time restriction on eligibility for one of the that would be implemented by April 2018, at which exemptions, (3) requiring a one-time notification point the fingerprint imaging requirement and the to providers potentially eligible for each exemption, state’s operation of SFIS would be discontinued. and (4) increasing the state’s role in processing In the event that a new identity verification system exemption requests. In addition, trailer bill is not implemented by April 2018, the fingerprint legislation allows recipients who were denied a imaging requirement and state’s operation of provider exemption to request a state hearing if the SFIS could continue until no later than July 2018. denial puts them at risk of losing services. Due to uncertainty about when the SFIS system would be decommissioned and the potential costs Child Welfare Services of an alternative identity verification system, the Establishes Emergency Child Care Bridge spending plan assumes costs from a full year of Program. The spending plan provides half-year operating SFIS in 2017-18. www.lao.ca.gov Legislative Analyst’s Office 39 2017-18 BUDGET funding of $15.5 million General Fund to establish and to conduct outreach and education in the Emergency Child Care Bridge Program. For immigrant communities relative to these remedies. greater detail on this program, please see the Child The spending plan provides an augmentation Care section earlier in this report. of $30 million from the General Fund on top of Converts Approved Relative Caregiver (ARC) base funding of $15 million for the Immigration Funding Option Program Into a Statewide Services Funding program, for a total of Entitlement Program. In 2014-15, the Legislature $45 million from the General Fund in 2017-18, established the ARC program to equalize foster and assumes that this augmentation will be care payment levels for foster caregivers regardless maintained through 2019-20. Budget legislation of whether the child in a foster caregiver’s care provides additional flexibility in what services is eligible for federal foster care payments. Prior can be funded through the program’s grants (for to ARC, relative caregivers for foster children example, legal defense of individuals subject to who were not eligible for federal foster care deportation proceedings will be an allowable payments—“ARC cases”—received CalWORKs activity for grant recipients) and also prohibits child-only payments, which are significantly less grant funds from being used to provide services to than foster care payments. Initially, the ARC individuals convicted of serious or violent felonies. program provided counties around $30 million Further budget legislation provides an additional General Fund annually to equalize foster care $20 million augmentation from the General payments between ARC cases and non-ARC cases. Fund (one time) for grants specifically to assist Participation in the program was optional at the individuals who have (or are seeking) immigration county level. Although the ARC program generally status under Deferred Action for Childhood equalized foster care payments, ARC recipients Arrivals (DACA). remained ineligible for two elevated foster care Food Assistance rates that were available for non-ARC cases—(1) the dual agency rate for individuals with developmental Funding for CalFood. The CalFood program disabilities and (2) the infant supplement available purchases food grown or produced in California to to foster children who have a child or children. The distribute to food banks in the state. The CalFood 2017-18 spending plan converts the ARC program program has received several one-time allocations from an optional program into a required statewide since it was created in 2011, most recently program, making it available in all counties and $2 million provided from the General Fund on tying total state ARC funding to statewide ARC a one-time basis in 2016-17. The spending plan caseload. Additionally, budget-related legislation provides $8 million from the General Fund for the extends eligibility for the dual agency rate and the CalFood program in 2017-18, with an expectation infant supplement to ARC families. In 2017-18, the of ongoing annual funding of $6 million. administration estimates ARC expenditures to be $36 million General Fund. Department of Developmental Services Under the budget plan, General Fund spending Immigration Assistance for DDS will increase more than 4 percent from Immigration Services Expanded. The about $4 billion in 2016-17 to about $4.2 billion Immigration Services Funding program provides in 2017-18. This year-over-year increase is largely grants to nonprofit organizations in the state to the result of caseload increases, changes in assist individuals applying for naturalization, service utilization, and costs associated with state deferred action, and other immigration remedies, minimum wage step increases. The budget includes 40 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET several policy changes as well as capital outlay at funding at the DCs. The spending plan provides Porterville Developmental Center (DC), together $13.6 million one-time General Fund ($25.7 million comprising about $50 million in General Fund total funds) to support the transition of consumers spending. at Sonoma, Fairview, and Porterville DCs to “Safety Net” Development. The spending community living situations. (This is in addition to plan provides a one-time augmentation of $67.9 million in total “base” CPP funding that has $7.5 million General Fund for DDS to develop historically been provided.) crisis stabilization and other safety net resources Removal of Cap on Respite Services. The for individuals with developmental disabilities. The spending plan provides $5.6 million General Fund department’s safety net plan will also be supported ($10.3 million total funds) to remove—beginning with $13.7 million repurposed from existing January 1, 2018—the cap on respite services that sources—$9.4 million from Community Placement was implemented in 2009 as part of a package of Plan (CPP) resources (primarily funded by the solutions to close the budget deficit at that time. General Fund), $1.3 million in rental proceeds from In 2018-19 and ongoing, the increased full-year the Harbor Village apartment complex adjacent to cost is estimated at $11.7 million General Fund Fairview DC in Costa Mesa, and $3 million from ($21.6 million total funds). The cap limited in-home existing Regional Center (RC) purchase-of-service respite to 90 hours per quarter and out-of-home funding. The overall plan includes development of respite to 21 days per fiscal year. The amount of two DDS-operated mobile acute crisis teams, five respite care needed will continue to be determined DDS-operated acute crisis homes, seven vendor- through the individual program planning (IPP) operated homes—three for people transitioning process. from the secured treatment program (STP) at Changes to Federal Funding for Behavioral Porterville DC and four for people transitioning Health Treatment (BHT) Resulting in Increased from Institutions for Mental Disease (IMDs)— General Fund Costs. For children under 22 whose and intensive wrap-around services for people IPP indicated a need for BHT (it is state policy to transitioning from Porterville STP or from IMDs. provide such services to this group of children), Crisis stabilization and safety net services take on DDS historically has received a federal share of particular importance for the system as the three cost to pay for these services. A recent change remaining DCs set to close between 2018 and made by the federal government in 2016 means 2021 (except for the STP at Porterville DC). The that federal funding for BHT will now be provided DC closures mean there will no longer be state- through Medi-Cal; however, to receive the benefit, operated “placements of last resort” for consumers a doctor must deem BHT as medically necessary. with the most challenging service needs. The new determination has led to an increase of Other Spending Changes Related to DC $16.5 million ongoing General Fund to pay for BHT Closures. DDS is in the process of completing the for children (about 4,000 in 2017-18) for whom a final phase of a decades-long transition from an doctor has not deemed BHT medically necessary, institutionally based system of service delivery but whose IPPs indicate a need for BHT. to a more integrated community-based system. Porterville DC Capital Outlay. The spending Costs have been incurred during the transition— plan includes $3.7 million one-time General Fund developing resources in the community for former to install a nitrate removal system at Porterville DC residents (including safety net services), DC (where the STP will remain open even after the facilitating closure of DC facilities, providing general treatment area closes in 2021). Porterville bonus incentives to retain DC staff for remaining DC relies on groundwater wells for its drinking DC residents, and offsetting the loss of federal water supply, yet the regional groundwater www.lao.ca.gov Legislative Analyst’s Office 41 2017-18 BUDGET basin is subject to unhealthy levels of nitrate of General Services (DGS) concluded the nitrate contamination. After completing a contracted removal system is the most effective solution. DGS study of mitigation alternatives, the Department estimates a May 2020 completion date. ACTION ON THE COORDINATED CARE INITIATIVE The Coordinated Care Initiative (CCI) behind the CCI, the Governor proposed and the was a joint state-federal demonstration project Legislature approved the continuation of major implemented beginning in 2012-13 designed components of the CCI. The 2017-18 Budget Act to improve the coordination of health care continues the following CCI components: and long-term services, as well as reduce the • Two-Year Continuation of cost of providing care, for seniors and persons Cal MediConnect. Cal MediConnect is a with disabilities. As part of the CCI, the state joint federal-state demonstration program implemented a statewide maintenance-of-effort that integrates Medi-Cal and Medicare (MOE) for In-Home Supportive Services (IHSS), benefits under Medi-Cal managed care thereby limiting counties’ costs for the program. for seniors and persons with disabilities Prior to CCI, counties paid 35 percent of the enrolled in both programs who opt to nonfederal share of IHSS costs. Statute gave the participate in the demonstration. Without Department of Finance (DOF) the authority to this extension, Cal MediConnect would terminate the CCI if it did not generate net General end in January 2018. Fund savings. The administration exercised this authority in January, thereby terminating CCI and • Two-Year Extension of Mandatory the IHSS MOE—returning counties to the original Enrollment of Dual Eligibles in Managed 1991 cost-sharing ratios for IHSS. Although the Care for Their Medi-Cal Benefits. Without administration terminated the CCI, as part of the this extension, this component of the CCI Governor’s January budget proposal, it proposed would end in January 2018. the continuation of certain components of the • Continued Integration of Long-Term CCI. In recognition of the increased cost on Service and Supports (LTSS) Other Than counties due to the termination of the IHSS MOE, IHSS Under Medi-Cal Managed Care. the Governor’s 2017-18 May Revision included a This includes skilled nursing facility care, proposal for a new, revised county IHSS MOE. community-based adult services, and the The 2017-18 Budget Act adopts the Governor’s multipurpose senior services program January proposal for maintaining certain (MSSP). Integration of MSSP under components of the CCI as well as the Governor’s managed care will occur in January 2020. May Revision proposal for a new IHSS cost-sharing plan. In this section, we describe the continuation Changes to IHSS Cost Sharing of certain CCI components and the new state- county cost-sharing arrangement for IHSS. Rather than return to the original 1991 realignment cost-sharing ratios for IHSS, the budget Continuation of Major package adopts the May Revision proposal to create Components of the CCI a new MOE for counties’ share of IHSS costs. The Efforts to Coordinate Care Maintained. new MOE significantly increases counties’ costs Recognizing the merits of the policy goals in 2017-18 relative to 2016-17. The budget provides 42 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET ongoing state General Fund support and additional calculated on a one-time basis. Moving realignment revenue to partially offset this increase. forward, the state and counties will work The budget package also requires DOF to reexamine together to determine an appropriate 1991 realignment as part of its 2019-20 budget budgeting methodology for setting county proposal. We discuss the specifics of the new MOE, administrative cost limits.) the revenue supporting the new MOE, and other • Future Increases in Cost. As shown in related changes below. Figure 17 (see next page), the new MOE will New IHSS MOE be increased in future years by adjustment factors that vary based on the year-to-year New MOE Uses Historical Cost-Sharing growth in realignment sales tax revenues, Ratio. Counties’ new IHSS MOE for 2017-18 is which generally reflect overall economic roughly $1.8 billion (compared to $1.1 billion in conditions. In years that realignment 2016-17). Specifically, the new MOE roughly reflects revenues decline—like during recessions— 35 percent of the nonfederal share of estimated IHSS there will be no increase to the new MOE and services costs and 30 percent of the nonfederal share counties’ costs will be the same year to year. of estimated administrative costs in 2017-18. These percentages reflect the historical 1991 realignment Revenues Supporting New MOE cost-sharing ratios for IHSS. (If 2017-18 actual costs are lower than estimated, the new MOE will General Fund Support and Additional be adjusted downwards. If actual costs in 2017-18 Realignment Revenues Support New MOE Costs. are higher, however, the MOE will not be adjusted As seen in Figure 17, General Fund support to upwards.) The enacting statute includes adjustments offset counties’ costs starts at $400 million in to the new MOE for the following: 2017-18 and goes down to $150 million over several • Wage Costs. The 2017-18 budget increases years. In addition, the budget package redirects the county IHSS MOE by the incremental some 1991 realignment revenues to partially cover county share of locally negotiated wage increased county IHSS costs. As seen in Figure 18 increases. Counties’ share of cost for (see page 49), and described in detail in the box locally negotiated wages will vary based on on page 50, under the existing 1991 realignment certain conditions. (More information on fiscal structure, IHSS only receives sales tax county wage increases and share of cost is growth, while vehicle license fee (VLF) growth is discussed below.) provided to other realignment programs. (Other realignment programs also receive sales tax growth • Administrative Costs. The 2017-18 when available.) To increase realignment funding spending plan limits the portion of the for IHSS, the implementing statute redirects VLF county MOE obligation that can be met by growth from other realignment programs to IHSS county administrative costs. To the extent for five years. For the first three years, almost all that actual county IHSS administrative VLF revenue growth is redirected to IHSS. In costs exceed MOE administrative costs the last two years, half of VLF revenue growth is limits, counties are responsible to pay redirected to IHSS. the difference, resulting in total county Despite Additional Revenue, Counties Will IHSS costs in excess of their MOE. (The Face Some Costs. While these additional sources portion of county MOE costs that can be of revenue significantly reduce the cost increase met by administrative costs in 2017-18 was to counties due to the new MOE, the budget does www.lao.ca.gov Legislative Analyst’s Office 43 2017-18 BUDGET Figure 17 Main Features of the Proposal 2022‑23 And 2017‑18 2018‑19 2019‑20 2020‑21 2021‑22 Onwards General Fund support to partially $400 million $330 million $200 million $150 million $150 million $150 million offset increased county IHSS costs Realignment revenue growth to All sales tax All sales tax All sales tax All sales tax All sales tax All sales tax partially offset increased county and VLF and VLF and VLF growth growth and growth IHSS costsa growth growth growth and half half of VLF of VLF growth growth Adjustment factor to maintenance‑ 0% 2.5 or 5% 0, 3.5, or 7% 0, 3.5, or 7% 0, 3.5, or 7% 0, 3.5, or 7% of‑effortb a A small portion of VLF growth will still be provided to the Child Poverty and Family Supplemental Support Subaccount in 1991 realignment. b Starting in 2018‑19, the adjustment factor will depend on the rate of growth in realignment revenues. If realignment revenues are negative, the adjustment factor will be zero. If the realignment revenues are less than 2 percent, the adjustment factor will be half of the highest possible percentage in that year. If the realignment revenues exceed 2 percent, the adjustment factor will be the highest possible percentage in that year. DOF forecasts the adjustment factor will be 5 percent in 2018‑19 and 7 percent in 2019‑20 and 2020‑21. IHSS = In‑Home Supportive Services; VLF = vehicle license fee; and DOF = Department of Finance. not cover all of counties’ IHSS costs. Counties will and Mental Health in 2017-18 (and these revenues need to find other revenue sources—likely their would have grown in the out years). Due to the county general funds—to cover these amounts. The decreased realignment funding to these programs, DOF estimates that these costs will be less than counties may have to provide local general fund to $200 million in 2017-18 and will increase in future support costs in these programs or make program years. reductions. Any additional county general fund Other 1991 Realignment Programs Will Not support would be in addition to the increased Receive Any Growth Funding Until 2020-21. Due county costs for IHSS described above. to the increased costs in IHSS and redirection Other Changes of VLF growth, no realignment revenue growth will be available for some other 1991 realignment Changes to Cap on State Participation in IHSS programs until 2020-21 (the Child Poverty and Wages and Benefits. Currently, state participation Family Supplemental Support Subaccount would in total IHSS county wage and benefit costs is continue to receive some VLF growth). The capped at $12.10. The 2017-18 budget package revenue growth these programs received in prior increases the state contribution cap to $1.10 above years—VLF revenue growth—will be redirected the state minimum wage once state minimum wage temporarily to cover IHSS costs (Steps Three and equals or exceeds $12.00. The enacting legislation Four in Figure 18). Starting in 2020-21, VLF growth applies historical state and county cost-sharing funding for these programs—Health and Mental ratios (65 percent state and 35 percent county) for Health—will be partially restored. Growth funding nonfederal wage and benefit costs at or below the from the VLF will be fully restored in 2022-23 and state contribution cap. If county wage and benefit onwards. Sales tax growth, however, likely will levels exceed the state contribution cap, however, not be provided to these programs for many years. counties are fully responsible for the nonfederal Absent these changes, counties would have received portion of wage and benefit costs above the cap. roughly $50 million in VLF growth for Health In 2017-18, counties’ individual MOEs reflect their 44 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET estimated share of the nonfederal cost of wages and Transition Phase for Counties Currently benefits based on their locally negotiated wages. In Above $12.10 in IHSS Wages and Benefits. The future years, counties’ MOEs will be increased to 2017-18 budget package institutes a temporary, reflect their share of cost for any additional locally alternative cost-sharing structure for wage negotiated wages increases. increases in counties with wages and benefits Figure 18 1991 Realignment Before 2017-18 Local Revenue Fund Revenue Collection VLF Growth Sales Tax Growth Base VLF Revenues Base Sales Tax Revenues Revenue 1 Allocation 2 Social Services Caseload Subaccount Subaccount 3 Health CMSP Subaccount Subaccount Remaining 18% Growth Family Support Subaccount 4 Mental Health General Growth About 40% Subaccount Subaccount $1.1 Billiona Sales Tax Growth About 40% CalWORKs MOE Subaccount Sales Tax Growth, Child Poverty and Family if Available, and Supplemental Support Subaccount VLF Growth a Funds transferred to the CalWORKs MOE Subaccount are provided from 2011 realignment funds. VLF = vehicle license fee; CMSP = County Medical Services Program; and MOE = maintenance-of-effort. www.lao.ca.gov Legislative Analyst’s Office 45 2017-18 BUDGET How 1991 Realignment Funds Flow Before and After 2017-18 How Funds Flowed Before 2017-18. Figure 18 shows how funds flow under 1991 realignment before 2017-18: • Step One: Fund the Base. Sales tax and vehicle license fee (VLF) revenues dedicated to 1991 realignment fund the “base.” Generally, the base reflects the funding the realigned programs received in the prior year. • Step Two: Sales Tax Growth to the Caseload and Social Services Subaccounts. Growth in sales tax revenue funds prior-year increases in county costs for the Social Services Subaccount programs (through the Caseload Subaccount). • Step Three: Growth to County Medical Services Program (CMSP). A portion of the remaining sales tax growth (if any) and the growth in the VLF goes to the CMSP, which then is allocated to the Health Subaccount. (The proportion of sales tax and VLF growth allocated to CMSP is based on formulas set in statute.) • Step Four: General Growth. The remaining growth from the sales tax (if any) and VLF is allocated to the General Growth Subaccount. Of the funds allocated to the General Growth Subaccount, 18 percent goes to the Health Subaccount, roughly 40 percent goes to the Mental Health Subaccount, and the remainder goes to the Child Poverty and Family Supplemental Support Subaccount (hereafter the Child Poverty Subaccount). In some years, the growth in sales tax revenue is not sufficient to fully fund changes in county costs for social services programs through the Caseload and Social Services Subaccounts (Step Two). As a result, in those years, counties do not receive sufficient funding through 1991 realignment to cover the growth in costs for those programs. Those unmet county costs are carried forward to the next year and any sales tax growth first goes to pay off that balance before paying any new growth. When the cost growth in the Caseload and Social Services Subaccounts equals or exceeds the amount of sales tax growth, the Health, Mental Health, and Child Poverty Subaccounts receive growth only from VLF. How Things Change in 2017-18. The 2017-18 budget package affects Steps Two, Three, and Four (described above) for five years. In particular, rather than only allocating sales tax growth to the Caseload Subaccount, In-Home Supportive Services (IHSS) also will receive almost all of VLF growth for three years. (A small portion of VLF growth will continue to flow to the Child Poverty Subaccount.) As a result, for three years, Health and Mental Health will receive no growth funds (Steps Three and Four). After three years, half of VLF growth will be allocated to IHSS. At that time, the Mental Health and Health Subaccounts will receive some growth funds. After two years of allocating half of VLF growth to IHSS, the 1991 realignment fiscal structure would revert to its pre-2017-18 form. Furthermore, 2016-17 sales tax growth for Health and Mental Health will be redirected to the Caseload Subaccount. In addition to allocating VLF growth to the Caseload Subaccount, sales tax growth will be allocated to counties in the year in which it is received to reimburse costs incurred in that year. (As seen in Step Two above, prior to 2017-18, sales tax growth paid prior year cost increases.) This sales tax payment acceleration will be ongoing. 46 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET currently above $12.10. For these counties, the state and are not to exceed $25 million statewide will share a portion of costs associated with wage annually. Loans are only available through 2019-20. increases that, in sum, do not exceed 10 percent of Forgiveness for Sales Tax their current wage and benefit level. For example, if Misallocations. Recently, DOF and others have a county is currently at $13 the state will participate identified issues in the Board of Equalization’s in wage increases up to an additional $1.30 over the distribution of sales tax revenue. The enacting next three years. MOE statute does not require counties to repay County Share of Costs Significantly Less for any over-allocation provided to 1991 realignment Local Wage Supplements to the State Minimum through 2015-16. Wage. Budget-related legislation limits the wage Appeals to Public Employment Relations and benefit costs for counties with bargaining Board (PERB) Available. The 2017-18 budget contracts that provide “local wage supplements.” package gives counties and unions the ability to Specifically, if a county links its local IHSS wage appeal to PERB and engage in mediation or a increases to increases in the state minimum wage, fact-finding process if a bargaining agreement is this will be considered a local wage supplement. In not reached by January 1, 2018. In addition, the the first year of a local wage supplement, counties department shall update the Legislature on the will pay their share of the wage increase and their status of all IHSS bargaining contracts by April 1, MOE will increase accordingly. All subsequent 2018. This provision is effective until January 1, local wage supplements will be paid entirely by the 2020. state General Fund (as long as wages do not exceed Reexamination of 1991 Realignment. The the state cap—minimum wage plus $1.10). 2017-18 budget-related legislation requires Loans to Counties Facing “Significant DOF, in consultation with the California State Financial Hardship.” In response to the increased Association of Counties and other affected costs to counties as a result of the new MOE, the parties, to reexamine 1991 realignment as part of budget-related legislation allows DOF to provide its development of the 2019-20 budget. Enacting loans to counties that demonstrate that they are statute requires DOF to report on a variety of experiencing significant financial hardship. The metrics including whether the realigned revenues loans will be low interest (not to exceed the rate are sufficient to meet the costs of the programs earned by the Pooled Money Investment Account) within 1991 realignment. NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION The budget package provides a total of primarily is related to a $3.6 billion decrease in $10 billion from various fund sources—the the amount of bond funds budgeted. (We note General Fund, bond funds, and various special that estimated bond expenditures for 2016-17 are funds—for programs administered by the somewhat inflated because of how prior-year bond California Natural Resources and Environmental appropriations are reflected in budget documents, Protection Agencies. This is a net decrease of about making year-over-year comparisons of bond $2.9 billion (22 percent) compared to 2016-17 spending difficult.) estimated expenditures. This reduction in spending www.lao.ca.gov Legislative Analyst’s Office 47 2017-18 BUDGET Cross-Cutting Issues in Figure 19, most of the spending is for programs intended to reduce mobile source emissions— particularly from heavy duty vehicles—forestry- Cap-and-Trade Expenditures related activities, or programs intended to reduce Chapter 135 of 2017 (AB 398, E. Garcia) emissions from agricultural activities. Many of the extended authority for the Air Resources Board programs receiving funding in 2017-18 have been (ARB) to implement the state’s cap-and-trade allocated GGRF in prior years. Some of new GGRF program from 2020 to 2030. State cap-and-trade allocations include: auction revenue is deposited in the Greenhouse • Local Air District Programs for Cleaner Gas Reduction Fund (GGRF). The spending plan, Engines and Equipment. The budget as revised in September 2017 legislation, allocates provides $250 million to local air districts nearly $2.6 billion from the GGRF for various as follows: 43 percent to the South Coast programs. We discuss the major parts of this Air Quality Management District, expenditure plan in more detail below. 32 percent to the San Joaquin Valley Continuous Appropriations ($1 Billion). The Unified Air Pollution Control District, budget assumes the state collects nearly $1.8 billion 20 percent to the Bay Area Air Quality in auction revenue 2017-18. Under legislation Management District, and 5 percent to passed in 2014, 60 percent of this revenue is the other smaller air districts. The air continuously appropriated to high-speed rail districts must use the funds for programs (25 percent), affordable housing and sustainable to encourage clean trucks and equipment, communities (20 percent), transit and intercity such as the existing Carl Moyer Program. rail capital (10 percent), and low carbon transit operations (5 percent). The 2017-18 budget • State and Local Fire Prevention Activities. makes one minor change to this calculation. It Consistent with AB 398, which suspended specifies that the $80 million from the GGRF the SRA fee and stated the Legislature’s used to backfill lost revenue from the suspension intent to use GGRF to backfill the lost of the State Responsibility Area (SRA) fee in revenue, the budget provides $80 million 2017-18 (discussed below) be subtracted before for SRA fire prevention activities. It also the calculation of the continuous appropriations. includes $25 million for grants to local After this adjustment, the budget assumes about fire departments for fire prevention and $1 billion would be continuously appropriated to response activities. these programs in 2017-18. However, this amount ultimately depends on future auction revenue, • Emission Reductions From Agricultural which is subject to uncertainty. Equipment and Food Processors. The Discretionary Spending ($1.6 Billion). Revenue cap-and-trade expenditure plan includes that is not continuously appropriated—sometimes $85 million for incentives to reduce referred to as discretionary spending—is available emissions from agricultural equipment and to be allocated through the annual budget act $60 million for a new program to encourage or other legislation. The budget includes nearly emission reductions from food processors. $1.6 billion in discretionary GGRF spending for various programs. This amount includes (1) over Drought and Drinking Water Expenditures $700 million of discretionary revenue collected Provides Total of $94 Million to Address in 2017-18 and (2) over $800 million that was Lingering Impacts From Multiyear Drought. collected, but unallocated, in prior years. As shown 48 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 19 2017-18 Cap-and-Trade Discretionary Spending (In Millions) Program Department/Agency Amount Mobile Source Emissions $810 Freight and heavy duty vehicle incentives Air Resources Board $320 Local air district programs for clean engines Air Resources Board 250 Clean Vehicle Rebate Project Air Resources Board 140 Low-income light duty vehicles and school buses Air Resources Board 100 Forestry $325 Forest health and fire prevention CalFire $200 SRA fee backfill CalFire/Conservation Corps 80 Local fire prevention grants Office of Emergency Services 25 Urban forestry CalFire 20 Agriculture $250 Methane reductions from dairies Food and Agriculture $99 Agricultural equipment Air Resources Board 85 Incentives for food processors Energy Commission 60 Agricultural renewable energy Energy Commission 6 Other Programs $187 Waste diversion CalRecycle $40 Urban greening Natural Resources Agency 26 Natural lands climate adaptation Wildlife Conservation Board 20 Low income weatherization and solar Community Services and Development 18 AB 617a implementation Air Resources Board 17 Wetland restoration Department of Fish and Wildlife 15 Climate and energy research Office of Planning and Research 11 Transformative Climate Communities Office of Planning and Research 10 Coastal climate adaptation Various agencies 6 Other administration Various agencies 24 Total Expenditures $1,572 a Chapter 136 of 2017 (AB 617, C. Garcia). SRA = state responsibility area; CalFire = Department of Forestry and Fire Protection; and CalRecycle = Department of Resources Recycling and Recovery. While a series of winter storms significantly therefore includes a total of $94 million to respond increased the amount of water available for to lingering drought impacts and drinking water both human and environmental uses—and led issues, as shown in Figure 20 (see next page). the Governor to declare an end to the drought Nearly all of the funding in this drought emergency—they were not sufficient to eliminate all package is provided from the General Fund on of the impacts from the state’s multiyear drought. a one-time basis. The only ongoing funding is For example, high rates of groundwater pumping $2.6 million for the Department of Fish and and depletion during the drought left some Wildlife to continue operating a network of fish communities—primarily in the Central Valley— and wildlife monitoring systems, in order to protect without a safe drinking water supply. The budget at-risk species during future droughts. www.lao.ca.gov Legislative Analyst’s Office 49 2017-18 BUDGET dead and dying trees. Figure 20 (Please see the write-up 2017-18 Drought Response and Drinking Water Funding on OES in the “Other (In Millions) Major Provisions” section Activity Department Amounta of this report for more Fire Protection and Tree Mortality information about the Expand/enhance fire protection CalFire $41.7b CDAA program.) Provide grants for fire protection CalFire 10.0c Funding to Improve Provide grants for counties to remove dead trees CalFire 6.0d Access to Safe Drinking Subtotal ($57.7) Drinking Water Water Can Be Used to Establish permanent drinking water solutions DWR $9.0 Address More Systemic Provide grants for drinking/wastewater solutions SWRCB 8.0 Issues. As shown in the Provide emergency drinking water OES 6.5 figure, $28.5 million is Provide CalFresh subsidies for drinking water DSS 5.0 Subtotal ($28.5) for four departments At-Risk Fish Protection to implement both Assist Delta smelt DWR $3.5e temporary and permanent Monitor at-risk fish DFW 2.6f solutions to drinking Subtotal ($6.1) Conservation and Water Rights water problems such as Conduct Save Our Water conservation campaign DWR $1.0 dry or contaminated Manage and enforce water rights SWRCB 0.6 residential wells. While Subtotal ($1.6) many of these problems Total $93.9 a have been caused or One-time General Fund unless otherwise noted. b Includes $3 million from State Responsibility Area Fund. exacerbated by the recent c From State Responsibility Area Fund. d drought, the funding Would cover some local funding requirements for the California Disaster Assistance Act program, and would be supplemented by some amount of additional funding through OES. may also be used in e Includes $900,000 from Harbors and Watercraft Fund. f communities facing Ongoing General Fund. CalFire = California Department of Forestry and Fire Protection; DWR = Department of Water more systematic issues Resources; SWRCB = State Water Resources Control Board; OES = Office of Emergency Services; DSS = Department of Social Services; and DFW = Department of Fish and Wildlife. with their drinking or wastewater systems. For As shown, the largest single expenditure example, the package ($42 million) is for the California Department of includes $5 million for a new pilot program at Forestry and Fire Protection (CalFire) to respond to the Department of Social Services to provide continuing above-average fire danger related in part supplemental CalFresh food benefits for families to the estimated 102 million trees that have died living in communities with contaminated drinking during the drought. (As discussed below, CalFire water to purchase bottled water. received additional ongoing resources to combat Sustainable Groundwater Management wildfire and tree mortality that were not part of the drought package.) The budget also provides Act (SGMA) Implementation $10 million for CalFire to provide grants for fire Enacted in 2014, SGMA represents the first prevention in State Responsibility Areas, and comprehensive statewide requirement to monitor $6 million to help counties meet their local funding and operate groundwater basins, with the goal requirement associated with the California Disaster of achieving long-term groundwater resource Assistance Act (CDAA) program—administered by sustainability. The budget includes $17.3 million the Office of Emergency Services (OES)—to remove 50 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET to continue implementing SGMA in 2017-18, of activities beginning in 2018-19. (These fees are which $15.8 million is ongoing. The funding is required under SGMA.) allocated across the two state departments charged Timber Regulation and with overseeing SGMA—the Department of Water Resources (DWR) and State Water Resources Forest Restoration Program Control Board (SWRCB). The budget provides $15.2 million for various DWR—Support Local Agencies in Planning activities supported from the Timber Regulation and Implementation ($15 Million). The budget and Forest Restoration Fund (TRFRF) in 2017-18. provides an ongoing $15 million General Fund Forest Restoration and Accountability augmentation for DWR to both continue and ($9 Million). The budget provides $9 million and expand its SGMA implementation activities. In 15 positions in 2017-18 (declining to $1.2 million 2017-18 and 2018-19, DWR will use the funding and seven positions in 2019-20 and thereafter) to to assist in the formation of local Groundwater support activities in three departments: Sustainability Agencies (GSAs), review alternative • Forest Restoration Grants ($7 Million). management plans submitted by qualifying GSAs, The budget includes $5 million for and collect and disseminate the data GSAs need to CalFire to support the California Forestry develop their local groundwater management plans. Improvement Program (CFIP), which In future years, the funds will be used for ongoing extends for one additional year the same activities such as providing technical assistance level of resources that CFIP has received for to GSAs, reviewing and evaluating local plans, the past two years. The budget also extends monitoring groundwater levels, and continued existing SWRCB grants for another two data collection and dissemination. The department years at their current funding level of will accomplish the proposed activities within its $2 million annually. existing position authority. SWRCB—Intervene in Areas That Fail to • State Operations ($2 Million). The budget Comply With SGMA ($2.3 Million). The budget includes about $1 million ($472,000 includes five new positions and $2.3 million ongoing) for the California Natural ($750,000 ongoing and $1.5 million on a one-time Resources Agency (CNRA) and CalFire to basis) for SWRCB to assume management support development of an online timber responsibilities of groundwater basins that failed harvest permitting system, $549,000 to to meet the statutory deadline to form GSAs by convert four limited-term positions at June 30, 2017. The ongoing funding and new staff SWRCB to permanent status, $300,000 will be used to establish a new SGMA Reporting annually for CNRA to continue existing Unit within SWRCB that will (1) identify pilot projects for an additional two groundwater users and usage rates within these years, and $149,000 for one additional “unmanaged” basins, (2) issue and collect fees, and support position at CNRA to assist in the (3) conduct enforcement efforts for noncompliance. development of ecological metrics and In 2017-18, these activities will be funded monitoring protocols. by a loan from the Underground Storage Tank Restore Nursery Operations ($4.9 Million). Clean-Up Fund to the Water Rights Fund. The budget includes $4.9 million ($2.1 million The budget assumes revenue from fees paid by ongoing) for CalFire to resume state nursery groundwater extractors in unmanaged basins will operations at the L.A. Moran Reforestation Center, be used to repay the loan to the Water Rights Fund which has been used in the past to support the in 2019 and provide ongoing support for program www.lao.ca.gov Legislative Analyst’s Office 51 2017-18 BUDGET reforestation of public and private forest lands, related documents—concurrently with a THP or especially those that have been damaged by fire, other type of harvest permit at the request of the flood, drought, insects, and disease. The center is applicant (with costs reimbursed by the applicant). expected to provide 300,000 seedlings annually. Natural Resources Monitoring Exemptions and Emergency Notice Provisions ($1.4 Million). The budget As shown in Figure 21, the budget includes includes $1.4 million ($1.2 ongoing) from TRFRF $5.7 billion (including $2.9 billion from the for CalFire to implement and subsequently monitor General Fund) for the support of various the effects of the following recent legislation: resources programs in 2017-18. This is a decrease (1) Chapter 583 of 2016 (AB 1958, Wood), which of $1.8 billion, or 23 percent, from the revised exempts the removal of non-oak trees for the 2016-17 spending level. Most of this reduction in purpose of restoring or conserving oak woodlands year-over-year spending is attributable to lower from being subject to a Timber Harvest Plan bond spending in 2017-18, particularly for DWR (THP); (2) Chapter 563 of 2016 (AB 2029, Dahle), (described in more detail below). The budget which requires the department to evaluate the also reflects a reduction of $221 million from Forest Fire Prevention Pilot that provides a THP the General Fund for resources programs, which exemption for specific tree removal activities primarily reflects reduced spending to address the that could reduce fire risk; and (3) Chapter 476 of effects of the state’s multiyear drought because 2016 (SB 122, Jackson), which requires CalFire to of the additional precipitation brought by winter prepare a record of proceedings—an official record storms in 2016-17. of all project application materials, reports, and Figure 21 Natural Resources Budget Summary (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Actual Estimated Budgeted Amount Percent Expenditures Department of Forestry and Fire Protection $1,306 $1,513 $1,636 $122 8% General obligation bond debt service 970 1,027 1,011 -15 -1 Department of Parks and Recreation 466 613 719 106 17 Department of Water Resources 916 2,009 572 -1,437 -72 Energy Resources Conservation 436 664 556 -108 -16 Department of Fish and Wildlife 408 496 468 -28 -6 Wildlife Conservation Board 116 502 145 -358 -71 California Conservation Corps 95 96 120 24 25 Department of Conservation 87 152 118 -33 -22 Coastal Conservancy 44 142 73 -69 -48 Other resources programs 157 256 298 42 16 Totals $5,002 $7,470 $5,716 -$1,754 -23% Funding General Fund $2,600 $3,078 $2,857 -$221 -7% Special funds 1,280 1,643 1,774 131 8 Bond funds 983 2,443 795 -1,648 -67 Federal funds 139 307 291 -16 -5 52 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET The Legislature also approved Chapter 852 Figure 22 of 2017 (SB 5, de León), which places a $4 billion 2017‑18 Solution to FGPF Shortfall general obligation bond on the June 2018 ballot. (In Millions) If approved by voters, the bond would provide additional funding—to be repaid from the General Source Amount Fund in future years—for a variety of natural Transfer from Lifetime License Trust Account $8.7 resources-related projects, including to expand or General Fund 5.1 Environmental License Plate Fund 4.0 improve state and local parks, protect watersheds Increase in commercial landing fees 0.9 and coastal habitats, improve flood protection, Total $18.7 provide clean drinking water, and protect against FGPF = Fish and Game Preservation Fund. the effects of climate change. Department of Water Resources (DWR) Department of Fish and Wildlife (DFW) The 2017-18 budget includes $572 million for The budget includes $468 million from various DWR, which represents a $1.4 billion decrease sources for DFW. This is a decrease of $28 million compared to the prior year. (These totals do (6 percent) compared to 2016-17, reflecting the not include the roughly $1.8 billion in annual removal of several one-time expenditures. payments from water contractors for DWR’s work Fish and Game Preservation Fund (FGPF). on the State Water Project, as those funds are not As shown in Figure 22, the budget includes appropriated through the annual budget act.) This $18.7 million from various sources to address year-to-year decrease is primarily due to the way an ongoing shortfall in the nondedicated bond funds are accounted for in the annual budget. account of the FGPF. This additional revenue Specifically, DWR had $1.7 billion in 2016-17 will allow the department to sustain current spending authority from bond funds appropriated activities supported by this account through the over the past several years, compared to the budget year, including enforcing the state’s laws roughly $400 million actually appropriated in the and regulations, protecting fish and wildlife 2017-18 Budget Act. resources, managing department-owned lands, Flood Management. The budget appropriates and regulating recreational hunting and fishing $111 million from Proposition 1 (2014) to DWR for and commercial fishing activities. Of the total flood management projects. As shown in Figure 23 amount provided, only $1.6 million—the $900,000 (see next page), these funds are spread across seven increase to commercial landing fees and $750,000 different expenditure categories, with roughly half of the $8.7 million in lifetime license revenues— of the total to be spent within the Sacramento-San represents ongoing funding. The budget package Joaquin Delta region. This amount represents also includes statutory changes associated with just over one-quarter of the total funding these two new sources of revenue: (1) a schedule ($395 million) set aside within Proposition 1 for detailing the new commercial landing fees for each flood management projects, leaving the remainder species and (2) elimination of the Lifetime License available for appropriations in future years. Trust Account and transfer of the existing account In addition to the Proposition 1 funding, the balance and future revenues from lifetime license budget approves $2.2 million from the General purchases directly into the FGPF nondedicated Fund annually for three years and nine new account and other relevant accounts. positions for the Central Valley Flood Protection Board to inspect and permit state-regulated levees. Budget trailer legislation also authorizes the www.lao.ca.gov Legislative Analyst’s Office 53 2017-18 BUDGET Office of Emergency Services to review Figure 23 emergency response plans and inundation Proposition 1 Funding for maps, and to coordinate emergency Flood Management Projects response drills.) (In Millions) San Joaquin River Fish Projects. The budget Program Category Amount provides $21 million from Proposition 13 (2000) Statewide for DWR to spend over five years for projects to Central Valley tributary projects $40.0 improve fish populations in the San Joaquin River Coastal watershed projects 9.0 Central Valley systemwide projects 7.0 watershed. Such projects could include restoring Subtotal ($56.0) river beds, banks, or floodways or removing Delta barriers within the river or its tributaries, with the Systemwide projects $20.0 goal of facilitating fish migration and improving Delta Levee Subventions Program 20.0 Delta Special Projects Program 10.0 spawning habitats. The budget also includes Emergency response projects 5.0 provisional language requiring DWR to report Subtotal ($55.0) to the Legislature on how these funds are being Total $111.0 utilized by March 1, 2018. These funds could be used for projects that board to set and charge fees to cover the cost of its implement voluntary settlement agreements regulatory activities. between the state and water users (such as irrigation Dam Safety. Spurred by damage to the Oroville districts and water agencies). Such agreements Dam spillway that occurred in February 2017, the are related to implementing the Bay-Delta Water budget package includes provisions to improve the Quality Control Plan and are intended to both safety of dams across the state. improve ecological flow and habitat for fish and • Budget trailer legislation requiring owners create water supply and regulatory certainty for of state-regulated dams to develop more water users. The budget package also includes extensive emergency response plans and two other appropriations that could be used to inundation maps, including for emergency support such voluntary settlement agreements: scenarios other than a total dam failure. (1) $40 million from Proposition 1 for DWR to The new statute also provides DWR with undertake multibenefit flood management projects additional authority to enforce compliance within Central Valley tributaries (as described with these requirements, including to earlier), and (2) $1.1 million ongoing General Fund impose fines. for DFW to help negotiate and implement projects resulting from such agreements. • $6.5 million and 12 positions for DWR to conduct more extensive dam and spillway Los Angeles River Conservancies inspections and review the aforementioned The budget package includes $98 million from emergency response plans and inundation Proposition 1 (2014) for two conservancies to maps. In 2017-18 these activities would undertake projects to restore the Los Angeles River. be supported by a General Fund loan to This fully appropriates the funding specified in the Dam Safety Fund, to be repaid and the 2014 water bond for this purpose. Specifically, sustained on an ongoing basis through the budget includes $49 million each for the increased fees paid by dam owners. (The Santa Monica Mountains Conservancy and the budget also provides $1.9 million from the San Gabriel and Lower Los Angeles Rivers and General Fund and four positions for the 54 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Mountains Conservancy, which focus on the operations at 2016-17 levels. Of that amount, upper and lower segments of the river, respectively. $12.6 million is from the SPRF fund balance. The Additionally, budget bill language requires that remaining $4 million in funding is provided from each conservancy use $6.5 million of its allotment Environmental License Plate Fund. on planning and implementation of projects jointly Department of Forestry and agreed upon by both conservancies. Fire Protection (CalFire) Department of Parks and Recreation (DPR) The budget includes $1.6 billion from various The budget includes $719 million from various fund sources to support CalFire, a net increase of fund sources to support DPR, a net increase about $122 million, or 8 percent, from the estimated of about $106 million, or 17 percent, from the 2016-17 level. This is primarily due to increased estimated 2016-17 level. This is primarily due to Greenhouse Gas Reduction Fund (GGRF) funding (1) $52 million in increased revenue to the State for forest health and fire prevention, partially Parks and Recreation Fund (SPRF) under Chapter 5 offset by decreased emergency drought spending of 2017 (SB 1, Beall), which directed any additional and estimated Emergency Fund expenditures. The revenue from increased motor vehicle fuel tax 2016-17 budget also included several one-time revenue attributable to off-highway recreational expenditures for CalFire, such as the procurement vehicles to SPRF; (2) one-time Proposition 40 of a new helicopter and equipment replacements. (2002) funding of $26 million for local Extended Fire Season. The budget provides assistance grants through the Youth Soccer and an increase of $42.4 million and 18.5 ongoing Recreation Development Program and Outdoor positions as well as 276 ongoing seasonal Environmental Education Facilities Program; and firefighters in order to expand the fire season for (3) an increase of $14.5 million from the General CalFire staffing earlier into the spring and later into Fund for hazardous mine remediation at three the fall, as well as provide increased coverage for parks under cleanup and abatement orders. winter fire suppression and fuel reduction activities. Improving State and Local Parks. The Hiring and Training Staff. The budget provides budget provides an additional $52 million from $14.2 million and 55 positions to address increased SPRF and $1 million each from the Off-Highway hiring and training demands. The 2015-16 Budget Vehicle Trust Fund and the Abandoned Watercraft Act included a similar level of funding on a Abatement Fund to improve state and local parks. two-year, limited-term basis in order to determine Specifically, this funding will be used for: (1) a local ongoing workload and appropriate corresponding assistance program to Jurupa Area Recreation and staff demands. Park District ($18 million), (2) repairs at state parks caused by recent storm damage ($16.4 million), California Energy Commission (CEC) (3) capital outlay projects that improve state park The budget provides $556 million for CEC in units ($15.1 million), (4) off-highway recreation 2017-18, a net decrease of $108 million (16 percent) and the reduction of boating hazards ($2 million), compared to estimated prior-year expenditures. (5) a pilot project intended to improve access and This year-over-year decrease largely reflects a transportation to state parks ($1.5 million), and difference between when funds are allocated and (6) the establishment of a recruitment and training when they are spent. A significant amount of program ($1 million). estimated spending in the prior year was from Baseline Funding to Maintain Operations. funds that were allocated, but unspent, in earlier The budget includes two, one-time funding sources years. totaling $16.6 million in order to maintain park www.lao.ca.gov Legislative Analyst’s Office 55 2017-18 BUDGET Energy Resources Program Account Even with these adjustments, annual ERPA (ERPA) Shortfall. The budget includes several expenditure authority is still about $8 million more adjustments—totaling $15.4 million—intended to than annual revenue. The fund is projected to have address a structural shortfall in ERPA, which is the a balance of about $11 million at the end of 2017-18. main fund that supports CEC operations. These Environmental Protection adjustments are: • Shift Funding Source for Certain As shown in Figure 24, the budget includes Activities ($5.5 Million). The budget $4.6 billion (mostly special funds) for the support shifts $4.8 million and 35 positions related of various environmental protection programs to alternative fuel and vehicle activities in 2017-18. This is a net decrease of $1.2 billion, from ERPA to the Renewable Fuel and or 20 percent, from the revised 2016-17 spending Vehicle Technology Fund. The budget also level. Most of this reduction in year-over-year shifts $622,000 and 3 positions related to spending is attributable to lower bond spending energy efficiency compliance from ERPA in 2017-18 by the State Water Resources Control to the Appliance Efficiency Enforcement Board. (As noted earlier, much of this reduction Subaccount. reflects how prior-year bond appropriations are reflected in budget documents, making • Align Expenditure Authority With Actual year-over-year comparisons of bond spending Spending ($9.9 Million). The budget difficult.) In addition, the budget includes an reduces contracting authority for power increase of $746 million in special fund resources plant siting activities by $4.9 million and for environmental programs. Most of this change includes a $5 million general reduction is related to increased spending from the GGRF in expenditure authority to more closely particularly for the Air Resources Board (ARB). align expenditure authority with actual expenditures in recent years. Figure 24 Environmental Protection Budget Summary (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Actual Estimated Budgeted Amount Percent Expenditures Air Resources Board $698 $845 $1,629 $784 93% Resources Recycling and Recovery 1,687 1,588 1,601 13 1 State Water Resources Control Board 910 2,945 949 -1,996 -68 Department of Toxic Substances Control 220 249 280 31 12 Department of Pesticide Regulation 91 96 100 4 5 Environmental Health Hazard Assessment 18 21 22 1 5 General obligation bond debt 3 3 3 — -4 Totals $3,627 $5,746 $4,583 -$1,163 -20% Funding General Fund $225 $90 $95 $5 5% Special funds 2,669 3,335 4,079 744 22 Bond funds 396 1,936 25 -1,911 -99 Federal funds 337 384 384 — — 56 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Air Resources Board incentives to low-income households in certain areas of the state to retire The budget provides $1.6 billion for ARB in old vehicles and replace them with 2017-18, a net increase of $784 million (93 percent) zero-emission vehicles. compared to estimated prior-year expenditures. This year-over-year increase is largely because • Civil Penalties ($154 Million). The budget of higher programmatic expenditures from the provides $154 million (APCF) from the GGRF, which receives revenues generated by the civil penalties settlement to pay for a state’s cap-and-trade auctions. The budget includes portion of a new mobile source testing over $900 million from cap-and-trade expenditures facility in Southern California. for ARB. Southern California Consolidation Project. Implementation of Volkswagen (VW) The budget includes $413 million, including Settlement. In 2016 and 2017, ARB reached various $154 million from the APCF and $259 million legal settlements with VW related to the discovery from lease revenue bonds, to design and construct of “defeat devices” in VW diesel vehicles, which a new mobile source emissions testing laboratory were designed to control nitrogen oxide (NOx) in Riverside. The estimated project includes emissions during vehicle smog certification but over $100 million in vehicle testing equipment. then to illegally turn off those emissions controls Construction is scheduled to begin February during on-road driving. The budget provides the 2018 and the project is expected to be complete in following resources to implement the settlement: February 2022. • 2-Liter Vehicle Settlement ($2.3 Million). Zero- and Near-Zero Emission Warehouse The budget includes $2.3 million (Air Program ($50 Million). The budget includes Pollution Control Fund [APCF] and $50 million (Trade Corridor Enhancement Reimbursements) and 14 positions to Account) for a competitive funding program implement the 2-liter vehicle settlement, to encourage zero- and near-zero emission including (1) testing and monitoring technologies at warehouses. Funding will require VW vehicle modifications, (2) reviewing a one-to-one match. This program was part of the and approving VW’s plans for investing transportation funding package discussed in the $800 million in zero-emission vehicle transportation section of this report. infrastructure over ten years, and Agricultural Emission Reduction Program (3) allocating roughly $400 million over ($50 Million). The budget allocates $50 million— three years to programs that reduce NOx including $35 million from the Alternative emissions. Budget-related legislation and Renewable Fuels and Vehicle Technology also directs ARB, to the maximum Fund and $15 million from the Air Quality extent allowable under the settlement, to Improvement Fund—to provide incentives for ensure that at least 35 percent of funds cleaner agricultural equipment, such as harvesting benefit low-income and disadvantaged equipment, heavy duty trucks, and agricultural communities disproportionately affected water pump engines. (As discussed above, part of by air pollution. the cap-and-trade expenditure plan includes an • 3-Liter Vehicle Settlement ($25 Million). additional $85 million for these activities.) The budget also includes $25 million Local Air District AB 617 Implementation (APCF) from the 3-liter settlement to be ($27 Million). The budget provides $27 million used for the Enhance Fleet Modernization (APCF) to support local air districts’ Plus-Up Program, which provides implementation of Chapter 136 of 2017 (AB 617, www.lao.ca.gov Legislative Analyst’s Office 57 2017-18 BUDGET C. Garcia), which, among other things, requires Exide facility. (To the extent that DTSC recovers additional air pollution planning, monitoring, costs for investigation and cleanup from the parties and emission reduction activities in certain responsible for the contamination, these funds communities. These resources are primarily will be used to repay the loan from the General intended to fund local air district operations Fund.) These funds are available for transfer from and monitoring equipment. It does not include the General Fund to TSCA until June 30, 2018. The incentive funding for programs to encourage Department of Finance projects that $24 million emission reduction activities. However, the will be transferred in 2016-17 and $67 million will cap-and-trade expenditure plan includes be transferred in 2017-18. The budget also provides $250 million for local air district emission a $1.4 million loan annually for three years from reduction activities, which could be used to achieve the Lead-Acid Battery Cleanup Fund (LABCF) the emission reductions envisioned in AB 617. The for a third-party quality assurance contractor—as cap-and-trade expenditure package also includes specified in the final closure plan agreement—to an additional $17 million for ARB administrative oversee the Exide closure implementation. activities ($12 million) and technical assistance National Priorities List and State Orphan grants for local communities ($5 million) related to Sites. The budget includes $14.6 million to support AB 617 implementation. (1) the state’s share of cost for federal National Priorities List (NPL) sites and (2) the cleanup of Department of state-only orphan sites. This total is an increase of Toxic Substances Control (DTSC) $5 million from 2016-17 and includes $10.9 million The budget includes $280 million from various from the Site Remediation Account and a one-time funds to support DTSC, which is a net increase appropriation of $3.7 million from penalty of $31 million, or 12 percent, from the revised assessment revenues in the APCF ($2.7 million), 2016-17 level. This net increase primarily reflects the Department of Pesticide Regulation Fund an augmentation of $43 million in spending from ($500,000), and the Waste Discharge Permit Fund the Toxic Substances Control Account (TSCA) for ($500,000). This funding level complies with the Exide Technologies Facility Contamination Chapter 704 of 2016 (AB 2891, Committee on Cleanup Program, partially offset by a $12 million Environmental Safety and Toxic Materials) which General Fund reduction to reflect one-time funding (1) expressed the Legislature’s intent that funding provided in 2016-17 to retrofit the Argonaut Mine for hazardous waste cleanups be in an amount dam in Jackson. that is sufficient to pay for estimated costs at both Exide Cleanup Implementation. Exide federal NPL sites and at high-priority state-only Technologies operated a lead-acid battery recycling orphan sites. In addition, DTSC submitted to plant in the city of Vernon that ceased operations in the Legislature a report on DTSC’s estimated 2014 when DTSC notified Exide that its application hazardous waste cleanup costs, as required by for a new permit would be denied. Testing Chapter 704. indicates that releases of lead dust from the facility Lead-Acid Battery Recycling Act contaminated areas up to 1.7 miles from the facility Implementation. The budget includes $610,000 and impacted thousands of properties including from the LABCF to begin the investigation, private residences, parks, and schools. evaluation, and cleanup of contamination from Chapter 9 of 2016 (SB 93, de León) allows the lead-acid battery recycling facilities. Chapter 666 loan of up to $177 million from the General Fund of 2016 (AB 2153, Garcia), known as the Lead-Acid to the TSCA to use for activities related to the lead Battery Recycling Act of 2016, generally requires contamination in the communities surrounding the lead-acid battery purchasers and manufacturers to 58 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET pay a $1 per battery fee. Fee revenues are deposited reasonably suspected to have been contaminated by in the LABCF and may be used for certain purposes the operation of a lead-acid battery recycling facility such as (1) investigation, site evaluation, cleanup, and (2) to repay a $177 million General Fund loan to remedial action, removal, monitoring, or other provide funding for Exide-related activities. response actions at any area of the state that is TRANSPORTATION The spending plan provides $19.7 billion from • $846 million for state highway all fund sources for transportation programs. maintenance and rehabilitation. As shown in Figure 25, this is a net increase of • $646 million for local streets and roads. $3.1 billion, or 19 percent, when compared to the revised level of spending in 2016-17. This largely • $635 million for transit. reflects increased spending resulting from the transportation funding package contained in • $450 million for congested and trade Chapter 5 of 2017 (SB 1, Beall), as we discuss below. corridors. 2017 Transportation Funding Package. In • $100 million for bicycle and pedestrian April, the Legislature enacted SB 1 to increase state projects. funding for California’s transportation system. The legislation increases existing fuel taxes and • $71 million for state parks ($54 million) creates two new vehicle charges to support existing and agricultural programs ($17 million) and new transportation programs. It also repays from fuel tax revenues from off-highway monies loaned in the past to the General Fund vehicles. from various transportation accounts. As reflected in the spending plan, the legislation is expected • $66 million for other transportation-related to provide $2.8 billion from the new revenues and programs—such as local planning grants, loan repayments in 2017-18 as follows: freeway service patrols, and university transportation research. Figure 25 Transportation Program Expendituresa (Dollars in Millions) Change From 2016-17 Program/Department 2015-16 2016-17 2017-18 Amount Percent Department of Transportation $9,493 $9,637 $12,210 $2,573 27% California Highway Patrol 2,338 2,398 2,485 87 4 Shared revenues (local streets/roads) 1,422 1,343 1,835 493 37 Department of Motor Vehicles 1,128 1,080 1,112 32 3 High-Speed Rail Authority 1,111 1,171 1,096 -75 -6 State Transit Assistance 486 383 674 290 76 Other transportation programsb 110 582 313 -269 -46 Totals $16,088 $16,594 $19,725 $3,131 19% a Includes state General Fund, state special funds, state bond funds, federal funds, and reimbursements. b Includes California State Transportation Agency, California Transportation Commission, and Board of Pilot Commissioners. www.lao.ca.gov Legislative Analyst’s Office 59 2017-18 BUDGET In conjunction with SB 1, the Legislature decrease due to certain cost increases such as for passed separate legislation to amend the 2016-17 contract staff.) Additionally, budget bill language budget to provide an additional $927 million authorizes (1) Caltrans to reestablish 88 state staff from various existing fund sources for specific positions abolished in recent years and (2) the transportation projects located in Riverside Department of Finance (after notification to the County and certain parts of the Central Valley. The Joint Legislative Budget Committee) to increase budget assumes expenditures of $112 million in funding and positions if Caltrans fills at least 2017-18, with the balance occurring in future years. 400 unfilled capital outlay support positions. (Please see our recent report Overview of the 2017 Other Budget Augmentations. The budget Transportation Funding Package for more detailed also includes a total of $24.5 million in various information regarding SB 1.) other funding increases from the State Highway Account. This includes (1) $12 million (one time) Caltrans to replace information technology infrastructure, The budget plan for the California Department (2) $5.5 million (one time) for increased vehicle of Transportation (Caltrans) includes total insurance premiums, (3) $4 million ($2.2 million expenditures of $12.2 billion from all fund sources, limited term) to improve cyber security, an increase of $2.6 billion (or 27 percent) from the (4) $2.3 million in reimbursement authority revised 2016-17 level of expenditures. The increase and 14 two-year limited-term positions for legal from 2016-17 to 2017-18 primarily reflects the new services provided to the California High Speed Rail funding provided from SB 1. Authority, and (5) $737,000 in reappropriated funds Senate Bill 1 Implementation. The budget to match a federal grant for a study of a pay-at- provides Caltrans with a $1.9 billion increase the-pump road usage charge. from various fund sources related to SB 1 In addition, the budget includes provisional implementation. This includes $905 million language allowing Caltrans, upon the approval of for local assistance and $593 million for capital the Department of Finance and notification to the projects. It also includes $421 million and Joint Legislative Budget Committee, to spend up to 48 positions for maintenance, $17 million and $20 million in state funds (with up to $20 million 75 positions for project initiation documents, and in matching federal funds) on zero-emission $1 million and 8 positions for administration. vehicle charging stations. (All the positions are redirected from baseline California Highway Patrol (CHP) reductions to the capital outlay support program, which we discuss further below.) The budget provides $2.5 billion to fund CHP Capital Outlay Support. The budget makes operations. This is an increase of $87 million, or two adjustments related to capital outlay support. about 4 percent—mainly due to increases in funding First, it makes a $29 million baseline reduction for capital outlay projects—compared to the revised to Caltrans’ capital outlay support program for level of spending in 2016-17. Nearly all of this non-SB 1 workload. This includes an associated funding is from the Motor Vehicle Account (MVA), reduction in 283 personnel-year equivalents (PYE), which derives the majority of its revenue from including 243 state staff. Second, the budget vehicle registration fees and driver license fees. provides $38 million and 218 PYEs, including Field Office Replacement Projects. The budget 112 state staff, for capital outlay support related includes $144 million from the MVA to fund site to SB 1 workload. The net change is a $9 million acquisition for new CHP offices in Humboldt increase and a reduction of 65 PYEs, including and Quincy, and to construct new offices in 131 state staff. (Funding increases while PYEs El Centro, Hayward, Ventura, and San Bernardino. 60 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET In addition, the budget provides $500,000 for $5.2 million from the MVA) and ten positions on a advanced planning and site selection to replace up one-time basis in 2017-18 to develop and implement to two unspecified CHP offices. This funding is an automated electronic application process for part of the administration’s ongoing plan to replace new driver’s licenses and identification cards. These deficient CHP area offices. funds would also be used to implement recent Drug Recognition Expert Training. The budget legislation requiring the electronic submission includes $3 million from the Cannabis Control of specified voter registration information to the Fund to be used for training drug recognition Secretary of State that is collected from individuals experts. For more information on cannabis-related seeking new or renewed driver’s licenses or spending, please the “Other Major Provisions” identification cards or requesting a change of section of this report. address. Beginning in 2018-19, the department will receive $3.2 million from the General Fund on an Department of Motor Vehicles ongoing basis and 14 positions (two of which would The budget provides $1.1 billion for be limited to two years). Department of Motor Vehicles (DMV) operations, Field Office Replacement and Renovation about the same amount as in 2016-17. Nearly all of Projects. The budget includes $23 million to initiate this funding is from the MVA. or continue the replacement and renovation of the Driver License and Identification Card Reedley, Oxnard, Inglewood, Grass Valley, and San Federal Compliance. The budget provides an Diego Normal Street DMV field offices. The budget increase of $23 million and 218 positions in also includes $300,000 to plan for up to three future 2017-18 (and $46.6 million and 550 positions in renovation projects, as well as $4 million for the 2018-19) for the issuance of new driver licenses design and construction of perimeter fencing at and identification cards that comply with federal nine existing DMV field offices. standards for identity verification and security Other Transportation Programs features. Such federally compliant licenses and cards are required to access federal facilities or California Transportation Commission (CTC). to provide identification for boarding federally The budget provides CTC from various special regulated commercial aircraft. Full compliance is fund sources (1) $1.1 million and four positions expected to be completed over the next six years. for workload related to SB 1, and (2) $395,000 and AB 60 Ongoing Workload. Chapter 524 of 2013 two positions for workload associated with recent (AB 60, Alejo) requires the DMV to accept driver legislative changes to the Active Transportation license applications from persons who are unable Program. Additionally, budget trailer legislation to submit satisfactory proof of legal presence in authorizes the commission to allow local agencies the U.S., provided they meet all other application to pay up-front for certain state-funded projects and requirements and provide proof of identity later be reimbursed by the state. and California residency. The budget includes California State Transportation Agency. $8.6 million and 91 positions on an ongoing basis The budget provides the California State for workload from issuing AB 60 licenses. This Transportation Agency with $3.5 million (one level is significantly less than the resources initially time) from the General Fund for a grant to the provided on a temporary basis for AB 60 workload. Contra Costa Transportation Authority for Motor Voter Program. The budget provides planning, constructing, and operating an expanded $7 million ($1.8 million from the General Fund and autonomous vehicle testing facility. www.lao.ca.gov Legislative Analyst’s Office 61 2017-18 BUDGET JUDICIARY AND CRIMINAL JUSTICE The 2017-18 budget provides $13.1 billion from • Fine and Fee Backfill ($55 Million). The the General Fund for judicial and criminal justice budget provides $55 million (one time) to programs, including support for ongoing programs backfill an expected decline in 2017-18 fine and capital outlay projects, as shown in Figure 26. and fee revenue collected to support trial This is an increase of $190 million, or 1 percent, court operations. above the revised 2016-17 General Fund spending • Dependency Counsel ($22 Million). level. The budget provides a $22 million Judicial Branch augmentation to reduce court-ordered dependency counsel caseloads. The budget provides $3.6 billion for support of the judicial branch—an increase of $23 million • Equal Access Fund Program ($10 Million). (less than 1 percent) from the revised 2016-17 level. The budget provides $10 million annually This amount includes $1.7 billion from the General in 2017-18 and 2018-19 to the Equal Access Fund and $499 million from the counties, with Fund Program for the provision of legal most of the remaining balance from fine, penalty, services and assistance to indigent individuals and court fee revenues. The General Fund amount in civil case types. (Budget trailer legislation is a net decrease of $87 million, or 5 percent, from also requires that 25 percent of residual class the revised 2016-17 amount. Funding for trial action lawsuit funds be allocated to the Equal court operations is the single largest component of Access Fund Program.) the judicial branch budget, accounting for around four-fifths of total spending. • Health Benefits and Retirement Costs Trial Court Operations. The budget provides ($5 Million). The budget includes $1.3 billion General Fund for the support of trial $5 million for increased trial court health court operations—a decrease of $44 million (or benefit and retirement costs. 3 percent) from the revised 2016-17 level, generally • Case Management System Replacement due to the expiration of one-time augmentations ($4.1 Million). The budget provides provided in 2016-17. This General Fund amount two-year limited-term funding of includes the following augmentations: Figure 26 Judicial and Criminal Justice Budget Summary General Fund (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Amount Percent Department of Corrections and Rehabilitation $10,041 $10,827 $11,149 $322 3% Judicial branch 1,585 1,764 1,678 -87 -5 Department of Justice 198 223 227 3 2 Board of State and Community Corrections 68 109 63 -46 -42 Other criminal justice programsa 16 21 19 -2 -10 Totals $11,906 $12,945 $13,135 $190 1% a Includes Office of the Inspector General, Commission on Judicial Performance, Victim Compensation Board, Commission on Peace Officer Standards and Training, State Public Defender, funds provided for trial court security, and debt service on general obligation bonds. 62 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET $4.1 million in 2017-18 and $896,000 in Inpatient Psychiatric Programs. In recent 2018-19 to replace the Sustain Justice Case years, DSH provided intensive 24-hour inpatient Management System currently used in psychiatric care to inmates in three CDCR facilities. nine courts with the new eCourt Case The budget package transfers the responsibility for Management System. providing this care, as well as $254 million from the General Fund and nearly 2,000 positions, from In addition, the budget includes a $46 million DSH to CDCR. In addition, the budget provides reduction in General Fund support for trial $11.4 million from the General Fund to staff 74 court operations in 2017-18 in order to reflect the inpatient psychiatric program beds at the California availability of property tax revenue in accordance Medical Facility in Vacaville that were recently with Control Section 15.45 and Section 2578 of the activated by CDCR using existing resources. Education Code. Such funds are remitted to the Adult Correctional Population. Figure 27 (see state by counties that collect more property tax next page) shows the recent and projected changes than state law allows them to spend on education. in the inmate and parolee populations. As shown Capital Outlay. The budget provides in the figure, the prison population is projected to $31.3 million for various court construction decline slightly from about 130,000 inmates at the projects. This amount consists of (1) $18.2 million end of 2016-17 to about 125,000 inmates by the end of from the Immediate and Critical Needs Account 2017-18. The parole population is projected to increase (ICNA) for design and/or construction activities slightly from about 45,500 to about 48,800 parolees for three projects, (2) $7.9 million from the by the end of 2017-18. These trends are primarily Public Buildings Construction Fund for the due to the estimated impact of Proposition 57 (2016), final payments for four completed projects, and which we discuss in more detail below. (3) $5.2 million in 2017-18 (declining to $3.2 million Proposition 57. Proposition 57 made in 2018-19 and ongoing) from ICNA for the all nonviolent offenders eligible for parole payment of debt service for the New Santa Clara consideration, expanded CDCR’s authority to Family Justice Center. (ICNA receives revenue from award sentencing credits to inmates, and requires certain court fee and fine increases.) that judges decide in all cases whether juveniles Corrections and Rehabilitation should be tried in adult court. In April 2017, the Office of Administrative Law approved emergency The budget act provides $11.1 billion from regulations allowing CDCR to begin the nonviolent the General Fund for support of the California offender parole consideration process in July 2017 Department of Corrections and Rehabilitation and to expand sentencing credits (effective May (CDCR). This is a net increase of $322 million, 2017 for good conduct credits and August 2017 or 3 percent, above the revised 2016-17 level of for credits inmates earn through rehabilitation spending. This increase primarily reflects additional programs). The budget includes various funding costs related to (1) a shift of responsibility for adjustments to reflect the administration’s operating inpatient psychiatric programs in prisons implementation plan and its anticipated population from the Department of State Hospitals (DSH) to impacts. Figure 28 (see next page) summarizes CDCR, (2) debt service payments for construction these adjustments, which in total reflect a net projects, and (3) one-time roof repairs at three reduction of $32.8 million. prisons. This additional spending is partially offset Inmate Medical Care. The budget includes by various spending reductions, including reduced $2 billion from the General Fund for inmate medical spending for contract beds due to a decline in the care to comply with the federal court in the Plata v. inmate population. Brown case, an increase of $46 million, or 2 percent, www.lao.ca.gov Legislative Analyst’s Office 63 2017-18 BUDGET Figure 27 Adult Inmate and Parolee Populations Projected to Change Slightly As of June 30 Each Year Inmates 140,000 Parolees 120,000 100,000 80,000 60,000 40,000 20,000 2014 2015 2016 2017 2018 Estimated Projected above the revised 2016-17 level of spending. This Resources for Prison Enforcement Activities. includes (1) $7.8 million to provide janitorial The budget includes an $18 million General Fund services to new medical spaces at state prisons, augmentation to increase enforcement activities (2) $7.7 million for additional medical positions within state-operated prisons. This includes needed because of an increase in patient acuity $11.7 million to implement comprehensive video levels, (3) $7 million to implement various strategies surveillance programs at High Desert State Prison intended to improve the department’s ability to retain in Susanville and Central California Women’s physicians, (4) $6.7 million for additional nurses to Facility in Chowchilla to assist in investigations distribute inmate medications, and (5) $5.4 million to into staff misconduct, violent incidents, contraband implement a new health care appeals process. trafficking, and attempted suicides. The remaining $6.7 million is for CDCR to expand canine Figure 28 Proposition 57-Related Adjustments to CDCR Budget (In Millions) 2017-18 Staff and resources to implement new parole consideration process and credit policies $9.2 Inmate population reduction -54.5 Parolee population increase 10.6 Juvenile population increase 1.9 Total -$32.8 64 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET teams used for the detection of drugs and other activities required by the measure. This includes contraband to all state-operated prisons. (1) $9 million in revenues from 2016-17 that were Other Budget Adjustments The budget deposited after the enactment of Proposition 56 includes $35 million from the General Fund to in November 2016 and (2) $36 million in revenues replace roofs that were damaged by severe storms for 2017-18. Of the $45 million total, the budget at California Correctional Institution in Tehachapi, provides $7.5 million to enforce tobacco-related sale Pleasant Valley State Prison in Coalinga, and and distribution laws and $37.5 million to allocate Salinas Valley State Prison in Soledad. The budget to local law enforcement agencies for the support also includes a $15 million increase to convert and hiring of peace officers for various activities various housing units to different missions and (such as investigations intended to reduce the illegal security levels, in order to accommodate changes in sale of tobacco products to minors). the security requirements and needs of the inmate Legal Resources Related to Federal Actions. population. In addition, the budget provides a The budget provides two-year limited-term one-time $5 million General Fund augmentation funding of $6.5 million from the General Fund for additional resources and equipment for career and 31 positions for legal workload related to technical education programs. state responses to actions taken by the federal Capital Outlay. The budget provides an government. In addition, budget trailer legislation additional $81 million from the General Fund to specifies that if federal litigation involving the support various capital outlay projects in state California Secure Choice Retirement Savings prisons. Some of the most significant projects are Program arises and DOJ lacks sufficiently qualified to (1) renovate and upgrade medical clinic space at attorneys as defined by state law, the department Calipatria State Prison ($16.1 million), (2) develop must contract with qualified attorneys to represent preliminary plans to construct mental health crisis the state. The budget also provides $1 million from bed facilities at Richard J. Donovan Correctional the General Fund for DOJ to review county, local, Facility in San Diego and the California Institution or private detention facilities in California that for Men in Chino ($7.3 million), and (3) construct hold individuals pending their federal immigration a new potable water tank at Calipatria State Prison proceedings. DOJ must complete the first review ($6.9 million). and submit a report summarizing its findings to the Legislature by March 2019. Subsequent reviews are Department of Justice (DOJ) to be conducted through July 2027. The budget provides $630 million for support Board of State and Community Corrections of DOJ in 2017-18—an increase of $66 million, or 12 percent, from the revised 2016-17 level of The budget includes $157 million ($63 million spending. This amount includes $227 million from from the General Fund and $94 million from other the General Fund—a net increase of $3 million, funds) for the Board of State and Community or 2 percent, from the revised 2016-17 level of Corrections. This is a decrease of $63 million spending. This net increase primarily reflects (28 percent) relative to the revised 2016-17 level of increased General Fund support for legal resources funding, largely due to an expiration of various related to federal actions (as discussed later below), limited-term grants provided in prior years. which is partially offset by a one-time $5 million Grants to Local Law Enforcement. The budget General Fund unallocated reduction. includes a $20 million one-time General Fund Proposition 56. The budget provides a total augmentation to support a four-year violence of $45 million of Proposition 56 revenues to reduction pilot project in Orange County. the department for various law enforcement In addition, the budget includes a one-time www.lao.ca.gov Legislative Analyst’s Office 65 2017-18 BUDGET $11 million General Fund augmentation to Criminal Fines and Fees assist counties with a temporary increase in State Penalty Fund (SPF). In order to address the population supervised by county probation the continued decline of criminal fine and fee departments due to the release of prison inmates as revenue deposited into the SPF and the expiration a result of Proposition 57. of one-time offsets provided in 2016-17, the budget New Restrictions on Local Detention package eliminates existing statutory formulas Facilities. The Legislature adopted budget trailer dictating how SPF revenues are distributed and legislation that places various restrictions and instead appropriates specific dollar amounts requirements on local detention facilities. For directly to programs. As shown in Figure 29, the example, the legislation prohibits a facility that budget provides a total of $296 million for the provided in-person visitation as of January 1, support of various programs ($90.5 million from 2017 from converting to only video visitation. The the SPF and $205.5 million from other sources) in legislation also prohibits local law enforcement 2017-18—a reduction of $9.5 million from the total agencies from entering into a new contract or 2016-17 funding level. This includes the elimination expanding an existing contract with the federal of SPF funding support for three programs as well government to house certain individuals involved as a one-time $10.5 million General Fund backfill in federal immigration hearings. for two of these three programs. Figure 29 State Penalty Fund (SPF) Program Expenditures for 2016‑17 and 2017‑18 (In Thousands) Change From 2016‑17a 2017‑18 2016‑17 Other Other Program SPF Fundsb Total SPF Funds Total Total Victim Compensation $15,114 $105,120 $120,234 $9,100 $111,367 $120,467 $233 Various OES Victim Programsc 12,494 63,403 75,897 11,800 73,021d 84,821 8,923 Peace Officer Standards and Training 32,132 30,734 62,866 46,567 3,787 50,354 ‑12,512 Standards and Training for Corrections 17,418 3,717 21,135 17,209 100 17,309 ‑3,826 CalVIP (previously known as CalGRIP) 9,519 — 9,519 — 9,500e 9,500 ‑19 CalWRAP 5,217 — 5,217 3,277 — 3,277 ‑1,940 Motorcyclist Safety 250 2,941 3,191 — 3,191 3,191 — DFW employee education and training 401 2,526 2,927 450 2,688 3,138 211 Bus Driver Training 1,364 247 1,611 838 551 1,389 ‑222 Traumatic Brain Injury 998 64 1,062 800 314 1,114 52 Internet Crimes Against Children 1,008 — 1,008 — 1,000e 1,000 ‑8 Local Public Prosecutors and Public 850 33 833 450 — 450 ‑433 Defenders Training Totals $96,765 $208,786 $305,551 $90,491 $205,519 $296,010 ‑$9,541 a Estimated expenditures based on current law, historical budgeting practices, and best available data. b Includes one‑time funding to backfill reduction in SPF revenues—$19.6 million from the General Fund and $4.2 million from the Restitution Fund. c Includes Victim‑Witness Assistance Program, Victim Information and Notification Everyday Program, Rape Crisis Program, Homeless Youth and Exploitation Program, and Child Sex Abuse Treatment Program. d Includes one‑time $10 million General Fund augmentation for the Homeless Youth and Exploitation Program. e One‑time funding from the General Fund to backfill elimination of SPF support. OES = Office of Emergency Services; CalVIP = California Violence Intervention and Prevention Grant Program; CalGRIP = California Gang Reduction, Intervention, and Prevention Program; CalWRAP = California Witness Relocation and Assistance Program; and DFW = Department of Fish and Wildlife. 66 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Driver’s License Holds and Suspensions. Prior eliminates collection programs’ ability to use to 2017-18, state law authorized collection programs driver’s license holds and suspensions as a sanction to use various collection tools or sanctions against for such individuals. This sanction would remain individuals who fail to pay their criminal fines and available for individuals who fail to appear in court. fees or appear in court. Budget trailer legislation OTHER PROVISIONS Earned Income Tax Credit (EITC) structure at the lower end of the income range, but phases out the credit more slowly for those State EITC Adopted in 2015. The EITC is a tax filers with relatively higher annual incomes. personal income tax (PIT) credit that is intended The administration assumes that this provision of to reduce poverty among California’s poorest the expanded state EITC will extend eligibility to working families by increasing their after-tax approximately 800,000 additional tax filers and income. California adopted the state EITC in the reduce PIT revenues by roughly $70 million in 2015-16 budget package. The state EITC builds on 2017-18. the similarly structured federal EITC. The budget Expanded to Include Self-Employment package modifies the existing EITC in two ways. Income. Previously, the state EITC was limited Expanded to Higher Income Families. Figure 30 shows the amount of credit available Figure 30 to single filers under Expansion of the California EITC the prior law EITC and State Credit Amount for Single Filers, 2017 Tax Year the expanded EITC structures. As shown in $2,500 the figure, the prior law Two Children state EITC focused on families with the lowest Expanded EITC 2,000 incomes. Specifically, the Prior Law EITC credit phased out at $6,892 for single filers with no 1,500 qualifying children and $14,529 for single filers with two children. (The 1,000 Franchise Tax Board [FTB] annually adjusts these amounts for inflation.) 500 The 2017-18 budget plan No Children expands income eligibility to $15,009 for filers with no children and $22,310 for 5,000 10,000 15,000 20,000 $25,000 filers with two qualifying Annual Earned Income children. Generally, the EITC = Earned Income Tax Credit. expanded EITC keeps the www.lao.ca.gov Legislative Analyst’s Office 67 2017-18 BUDGET to wage income subject to withholding. This State Pensions meant that, under prior law, several hundred State Annual Contributions to CalPERS thousand self-employed tax filers were ineligible Expected to Increase. At its December 2016 to claim the prior California EITC. The 2017-18 meeting, the California Public Employees’ budget plan expands the state EITC to include Retirement System (CalPERS) board voted to self-employment income. Because it can be more change a key assumption used in calculating difficult for tax agencies to verify self-employment how much money employers and employees income than wages, the budget plan directs FTB to must contribute to the pension system each year. take measures to prevent improper payments. The Specifically, the board voted to lower the discount administration estimates this provision of the EITC rate from 7.5 percent to 7.0 percent over the next expansion will reduce revenues by an additional three years. This lower discount rate means that $70 million, for a total reduction in PIT revenues of CalPERS calculations of plan assets and liabilities about $140 million in 2017-18. will assume investments have lower returns. By assuming less money comes into the system Statewide Infrastructure through investment gains, the state will be required Debt Service. The budget provides $8.1 billion to contribute more money over the next few from various funds for debt service payments in decades to pay for higher normal costs and a larger 2017-18. This represents an increase of 5 percent unfunded liability. In 2017-18, the budget assumes from 2016-17, which primarily reflects additional the state contributes about $5.2 billion (about debt service costs related to bonds issued for K-12 one-half General Fund) to pay for non-higher education, judicial branch, and criminal justice education state employee pension costs. (In projects. The total includes $7.1 billion for general addition to pension costs, the budget assumes the obligation bonds ($4.8 billion from the General state spends about $2 billion in 2017-18 to pay for Fund), and $1 billion for lease revenue bonds health benefits received by retired state employees.) ($642 million from the General Fund). Makes Loan-Funded $6 Billion Supplemental Payment to CalPERS. In addition to the pension Employee Compensation costs discussed above, the budget package makes Labor Agreements Increase State Annual a one-time $6 billion supplemental payment to Costs. The state now has active memoranda of CalPERS to reduce the state’s unfunded liabilities understanding with all 21 state rank-and-file associated with pension benefits earned by current employee bargaining units. These agreements and past state employees. To make this payment, include provisions that will significantly increase the budget uses a loan from the state’s cash state annual costs for years to come to fund balances in the Pooled Money Investment Account, scheduled employee pay increases, the state’s the state’s checking account. Over the long term, contributions to prefund retiree health benefits as this plan is expected to reduce annual state pension a percentage of pay, increases in health care costs, costs—relative to what they otherwise would be— and other benefit cost increases. In 2017-18, the by lowering employer contributions. budget assumes that state costs to pay for salary Budget Plan Begins Repaying the Loan in and benefits (excluding retirement benefits) for 2017-18. Under the plan laid out in the budget rank-and-file employees and their managers will package, the General Fund and special funds with increase by $1.2 billion ($598 million General Fund). pension liabilities would share the costs of repaying the loan with interest. In 2017-18, the budget makes 68 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET an initial repayment of $146 million from the Starting on January 1, 2018, the new Office of Tax General Fund, which is counted toward annual Appeals will assume appellate responsibilities for required debt payments under Proposition 2 those programs and for taxes administered by (2014). Under the plan, special funds will repay the FTB. Staff and funding supporting the transferred General Fund in future years for their respective functions also will move to these new entities. shares of this repayment. Cannabis Regulation Funding for Information Security In 2015, the Legislature passed three state Strengthens Information Security Across laws (Chapter 688 [AB 243, Wood], Chapter 689 Various Departments. The 2017-18 spending [AB 266, Bonta], and Chapter 719 [SB 643, plan provides $4 million from the General Fund McGuire])—known collectively as the Medical ($13.9 million total funds) and 58 positions across Cannabis Regulation and Safety Act (MCRSA)— 12 departments to address identified information to provide a statutory framework for the state security vulnerabilities. The resources will to regulate the cultivation and sale of medical support various approaches to strengthening cannabis. In November 2016, voters approved information security based on the specific Proposition 64, which legalized the use of cannabis security vulnerabilities identified by each of the for nonmedical purposes by adults age 21 and departments. For example, departments will over, (2) created a new regulatory structure for the establish continuously operating security centers licensing and enforcement of nonmedical cannabis to monitor threats, develop mitigation plans to similar to the one created for medical cannabis reduce the risk of threats, and establish department under MCRSA, (3) included new excise taxes on policies and procedures to achieve security medical and nonmedical cannabis cultivation and compliance and train staff on information security retail sales to be administered by the Department procedures. of Tax and Fee Administration (previously BOE), and (4) created a new state entity—the Cannabis State Board of Equalization (BOE) Control Appeals Panel (Appeals Panel)—to hear Narrowed BOE’s Duties. The 2017-18 budget licensing appeals. Under these laws, state regulation package removed most of BOE’s administrative of commercial cultivation and retail sales of and appellate functions. BOE will retain its medical and nonmedical cannabis would begin constitutionally assigned duties, which are: January 2018. Additional Funding for Multiple Departments. • Adjustment of property tax assessments. The budget provides 373 new positions and • Assessment of property taxes on certain $101 million mostly from the Cannabis Control types of property. Fund—using loans from the General Fund—as well as various other special funds for cannabis • Assessment and collection of excise taxes regulation-related activities. Of this amount, on alcoholic beverages. $95 million is provided on a three-year, limited-term basis and $6 million is provided • Assessment of the insurance tax. on a one-year, limited-term basis. Figure 31 (see Assigned Duties to Two New Entities. Starting next page) summarizes the allocation of these on July 1, 2017, the new California Department additional resources across nine state departments. of Tax and Fee Administration assumed As shown in Figure 31, this is in addition to the administrative responsibilities for all of BOE’s baseline funding of $23 million initially provided tax and fee programs except those listed above. www.lao.ca.gov Legislative Analyst’s Office 69 2017-18 BUDGET in the 2016-17 budget. The $101 million increase Budget Trailer Legislation. The budget mainly supports (1) licensing and enforcement package makes various statutory changes largely activities for medical and nonmedical cannabis by intended to bring MCRSA and Proposition 64 into the Department of Consumer Affairs (DCA), the conformity and address various other issues related California Department of Food and Agriculture to the implementation of medical and nonmedical (CDFA), and the Department of Public Health cannabis regulations. Some of the major provisions (DPH); (2) development and implementation of of Chapter 27 of 2017 (SB 94, Committee on Budget cannabis-related information technology (IT) and Fiscal Review)—amended by Chapter 253 of systems by DCA, CDFA, and DPH; and (3) efforts 2017 (AB 133, Committee on Budget)—provide the to reduce the environmental impacts of cannabis following: cultivation by the Department of Fish and Wildlife • Allows for Vertical Integration, Including and the State Water Resources Control Board. The Self-Distribution. Generally allows for budget package also includes provisional language entities to hold multiple license types (such that (1) allows DCA and DPH to augment their as cultivation, distribution, and retail), resources upon notification to the Joint Legislative with the exception of testing laboratories. Budget Committee and (2) requires DCA, CDFA, Also includes language intended to prevent and DPH to provide quarterly briefings on their monopolies. cannabis-related IT projects. Figure 31 Summary of Cannabis-Related Funding in 2017-18 (In Millions) Funding Level Department Base Augmentation Total Primary Responsibilities Food and Agriculture $3.4 $28.6 $31.9 • License cultivators. • Implement track and trace information technology system. Consumer Affairs 4.1 26.4 30.5 • License distributors, testing laboratories, and retailers. Fish and Wildlife 5.8 17.2 23.0 • Monitor and reduce environmental impacts of cultivation. State Water Resources 6.7 9.8 16.5 • Regulate water-related Control Board environmental impacts of cultivation. Public Health 2.5 10.6 13.1 • License manufacturers. Highway Patrol — 3.0 3.0 • Train officers to become Drug Recognition Experts. Tax and Fee Administration — 2.7a 2.7 • Administer cannabis taxes. Pesticide Regulation 0.7 1.3 2.0 • Develop pesticide use guidelines for cultivation and conduct associated outreach. Cannabis Control Appeals — 1.0 1.0 • Hear cannabis licensing-related Panel appeals. Totals $23.1 $100.6 $123.8 a Department will redirect similar amount of existing resources to administer cannabis taxes. 70 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET • Creates System for Verification of Local in 2016-17 and an additional $300 million to be Permission to Operate. Requires state provided in 2017-18. This funding was expected licensing authorities to communicate with to fund three projects in Sacramento: (1) a new local governments to determine whether building at the current Food and Agriculture an applicant for licensure is compliant with Annex site on O Street (O Street Building), local ordinances. (2) a new Resources Building, and (3) either replacement or renovation of the State Capitol • Addresses Testing and Quality Assurance. Annex. These three buildings reflect the first step Includes various provisions related to the of the administration’s larger regional strategy to testing and quality assurance process, expand and improve state office buildings in the including creating a quality assurance Sacramento area over the next ten years. compliance monitor employed by DCA The 2017-18 budget transfers $851 million of to conduct random quality control the $1 billion that was appropriated to the SPIF inspections and verify compliance with in 2016-17 to the General Fund. The budget also state standards. approves the use of an equivalent amount of lease revenue bonds to finance the construction of the • Amends Tax Collection Provisions. O Street and new Resources buildings. The budget Requires all the cannabis excise taxes— package also eliminates the $300 million transfer including the excise taxes on cultivation from the General Fund to the SPIF that was and retail sales—to be remitted by the scheduled for 2017-18. cannabis distributor. Clarifies that this tax Printing Plant Demolition. The budget collection will happen when the product provides $909,000 from the General Fund to enters the commercial market (after the complete preliminary plans for a project to product complies with quality assurance). demolish the state’s existing printing plant. The Also specifies that the excise tax on retail total cost of the demolition is estimated to be sales shall be collected based on the average $16.4 million. Once the existing printing plant is market price rather than on gross receipts. demolished, the Governor plans to develop the site • Addresses Challenges of Cannabis-Related into a new state office building consistent with his Cash Payments. Requires the Secretary of plans for state office buildings in the Sacramento Business, Consumer Services, and Housing region described above. to work with various entities to ensure Department of Food and Agriculture that there is a safe and viable way to collect cash payments for taxes and fees related to The budget plan includes $525 million from cannabis. Requires the establishment of a various funds for support of CDFA in 2017-18. state office to collect fees and taxes in the This is a net increase of $74 million, or 16 percent, County of Humboldt, Trinity, or Mendocino. from the revised 2016-17 spending level. The net increase is mainly due to increased spending Sacramento Infrastructure Projects of (1) $21.2 million for various pest prevention programs, and (2) $28.6 million for cannabis- State Project Infrastructure Fund (SPIF) related regulatory activities (discussed in more Transfers. In adopting the 2016-17 budget package, detail elsewhere in this section). the Legislature established the SPIF and provided Pest Prevention Staffing Increase. The budget $1.3 billion from the General Fund to the SPIF includes a total of $4.4 million ($1.8 million over two years—$1 billion that was appropriated General Fund and $2.6 million Department of www.lao.ca.gov Legislative Analyst’s Office 71 2017-18 BUDGET Food and Agriculture Fund) in 2017-18, increasing grants to local fire departments in high fire-risk to $5.4 million ($1.9 million General Fund, areas; and (3) $6.5 million from the General Fund $2.9 million Department of Food and Agriculture on a one-time basis for OES to provide temporary Fund, and $570,000 reimbursements) annually water to communities that continue to suffer beginning in 2018-19, to enhance various elements from effects of the drought. (The fire and drought of the Plant Health and Pest Prevention Services funding provided in the budget are described (PHPPS) division’s pest prevention program. CDFA further in the “Resources and Environmental will establish 190.5 permanent positions (25.5 new Protection” section of this report.) positions and 165 positions shifted from temporary Victim Services and Other Non-Disaster to permanent status) in 2017-18 and an additional Related Local Assistance. The budget provides 3.5 permanent positions in 2018-19. an additional $17 million on a one-time basis The budget plan also provides $1.8 million to various victims programs operated by OES. in federal funds for 20 positions to enhance This includes (1) $10 million from the General the PHPPS division’s exotic pests mitigation Fund for a Homeless Youth Housing Program, capabilities by establishing emergency plant health as well as provisional language specifying how response teams. the funding shall be used; (2) $5 million from Asian Citrus Psyllid (ACP) and Pierce’s the General Fund for the Human Trafficking Disease. The budget includes a one-time increase of Victim Assistance Program, which provides $10 million from the General Fund to expand the grants to providers of comprehensive services for state’s response to ACP—an insect that spreads the victims of human trafficking; and (3) $2 million disease Huanglongbing to citrus trees. The budget ($1.5 million from the General Fund and $500,000 also includes a one-time increase of $5 million from from the Anti-Terrorism Fund) for the Nonprofit the General Fund to expand the Pierce’s Disease Security Grant Program, which provides grants Control Program to address the disease’s impact on to nonprofits at high risk of terrorist attack to pay grapevines. for physical security enhancements. The budget also modifies the funding level for various other Office of Emergency Services (OES) local assistance programs operated by OES that The budget provides OES with $1.3 billion have historically been funded by the State Penalty (more than three-quarters from federal funds) Fund. (The changes to State Penalty Fund-related in 2017-18. This is a net decrease of $114 million, programs are described in greater detail in the or about 8 percent, compared to the estimated “Judiciary and Criminal Justice” section of this spending level for 2016-17. (Most of this decrease report.) is related to the completion of the Proposition 1B Department of Consumer Affairs bond program.) Disaster- and Drought-Related Local The budget provides DCA with $653 million. Assistance. The budget provides an additional This is a net increase of $13 million, or about (1) $28.4 million from the General Fund for 2 percent, compared to the estimated spending California Disaster Assistance Act (CDAA) level for 2016-17. This includes $30.5 million for to provide disaster-related assistance to local regulation of commercial medical and nonmedical communities, such as for the 2017 winter storms cannabis as described in an earlier section of the and for the removal of dead and dying trees that report. pose a risk to public infrastructure; (2) $25 million BreEZe. The budget provides a total of from the Greenhouse Gas Reduction Fund for $19.8 million on a one-time basis in 2017-18 72 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET from various DCA special funds for the BreEZe Increased Funding for Labor Law project. The BreEZe project was proposed to be an Enforcement. The spending plan includes an integrated, web-enabled enforcement and licensing increase of $4.6 million from special funds in information technology (IT) system that would 2017-18 and 31 positions, growing to an ongoing replace various systems that have been in place at amount of $11 million (special funds) and all of the entities within DCA. It was proposed to 82.5 positions by 2019-20, for the Division of be completed in three phases (or “releases”), with Labor Standards Enforcement (DLSE) within the roughly half of the entities in the third release. In Department of Industrial Relations (DIR). This 2015, the state decided to cancel the project after significant increase in funding and positions is the second release. The funding provided will intended to allow DLSE to expand efforts to enforce support 43 positions and various contract and wage and hour requirements in labor law. other costs related to maintaining the BreEZe IT Funding for Implementation of Recent system for the first two releases. Workers’ Compensation Reforms. The spending plan includes an increase of $14.7 million California Military Department (CMD) from special funds in 2017-18 ($13.6 million The budget provides CMD with $184 million, ongoing) and 73 positions for the Division of about two-thirds from federal funds. This is a Workers Compensation in DIR to implement the net reduction of $29 million, or about 13 percent, provisions of recent legislation related to workers’ compared to the estimated spending level for compensation—Chapter 852 of 2016 (AB 1244, 2016-17. The budget for CMD also includes Gray) and Chapter 868 of 2016 (SB 1160, Mendoza). $142 million in lease revenue bond authority Funding will be primarily used to support activities to construct a new headquarters facility. The related to (1) a new process for suspending certain total estimated cost of the project—including medical providers, including those convicted of previously funded acquisition and performance fraud, from the workers’ compensation system; criteria phases—is $159 million. The project will (2) a new process for staying claims for payment consolidate headquarters staff that are currently (liens) of medical providers that have been divided among three leased buildings in the indicted or charged with fraud; and (3) various Sacramento region and address the security changes to “utilization review” practices that deficiencies of those facilities. workers’ compensation insurance providers and employers use to ensure that injured employees Labor Programs receive treatment that is consistent with treatment guidelines and to limit overutilization of medical Interest Payment for Federal Unemployment services. Insurance (UI) Loan. California’s UI trust fund One-Time Funding for Employment Services reserve was exhausted in 2009, requiring the state for Supervised Populations. The spending plan to borrow from the federal government to continue includes $2 million on a one-time basis from the payment of UI benefits. The balance of California’s General Fund for the Employment Development outstanding federal loans is declining and is Department to support the Supervised Populations estimated to be $1.4 billion at the end of 2017. The Workforce Training Grant program. Funding will state is required to make annual interest payments be distributed based on a competitive application on these federal loans. The 2017-18 spending plan process to local grantees that provide workforce includes $52 million from the General Fund to make training for supervised populations (such as the interest payment due in the fall of 2017. The individuals on parole or probation). federal loans are projected to be fully repaid in 2018. www.lao.ca.gov Legislative Analyst’s Office 73 2017-18 BUDGET Department of Veterans Affairs from the General Fund for the construction of a Southern California Veterans The spending plan for the California Cemetery, with $500,000 of the funding Department of Veterans Affairs (CalVet) includes being used to conduct preliminary studies $391 million from the General Fund in 2017-18, of a potential cemetery site. a decrease of $13 million over revised estimates for 2016-17. This amount is expected to be offset • Central Coast Veterans Cemetery. by $75 million from federal reimbursements for The 2017-18 spending plan provides Veterans Homes. $1.5 million from the General Fund to Changes to Veterans Homes Admissions and expand the existing Central Coast Veterans Level of Care Services. The State of California runs Cemetery, estimated to result in about eight residential Veterans Homes designed to serve 3,700 in-ground burial sites. older or disabled veterans, whose needs range from independent living with minimum supervision to Housing advanced medical care for residents with significant disabilities. State law and regulations prioritize Increases Funding for Housing Programs. The certain veterans for admissions, including Medal budget provides $28.25 million for various housing- of Honor recipients, homeless veterans, and former related programs: $20 million for local navigation prisoners of war. The budget plan expands priority centers, which provide temporary housing and case admissions to veterans with a 70 percent or higher management for homeless individuals; $8 million service-connected disability. These veterans, if placed for affordable housing for homeless and low-income in certain levels of care in the Veterans Homes, receive individuals and families in Los Angeles; and an increased federal reimbursement rate. There is $250,000 for migrant worker housing in Napa potential for increased revenues to the state resulting County. from the increased admission of veterans with a Housing Package. In September, the higher federal reimbursement rate. The legislation also Legislature passed a package of bills aimed at specifies legislative intent that any increased revenues ameliorating the state’s housing crisis. The package resulting from these changes remain in the CalVet includes two new sources of funding for affordable budget. However, the exact amount and timing of the housing programs. First, the package creates a $75 increased revenue is uncertain. charge on certain real estate documents. The bulk Capital Outlay. The 2017-18 budget includes of the proceeds would be allocated to cities and funding for various capital outlay projects in counties to fund affordable rental and ownership CalVet, using a combination of funding sources: housing for low-income and middle-income households. Second, the package places a $4 billion • Veterans Home of California, Yountville. general obligation bond on the November 2018 The 2017-18 spending plan provides a ballot. Should voters approve the bond, $1.5 billion total of about $40 million in lease revenue of the funds will go to low-income multifamily bonds, Veterans Homes bonds, and federal housing, $1 billion to veterans’ housing assistance, funds to renovate the steam distribution and the remainder divided amongst various and chilled water system and upgrade programs to fund a variety of housing and related the central power plant in the Yountville infrastructure. The housing package also includes Veterans Home. a variety of bills aimed at making it easier for • Southern California Cemetery. The housing developments to gain local approval. 2017-18 spending plan includes $5 million Changes include requiring streamlined approval of 74 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET certain multifamily housing in localities failing to expands this exemption to new types of equipment meet state housing goals and strengthening rules and businesses, effective January 1, 2018. It also that prohibit localities from denying or scaling delays the exemption’s expiration date from 2022 back projects that comply with local land use rules. to 2030. The administration estimates that the expansion of the exemption will reduce General Sales and Use Tax (SUT) Exemption Fund SUT revenue by $45 million in 2017-18 and Since 2014, California has exempted $89 million on an ongoing basis. Assembly Bill 395 certain sales of manufacturing or research and and AB 131/SB 116 establish an annual transfer development (R&D) equipment from the General from the Greenhouse Gas Reduction Fund to the Fund portion of the SUT. Assembly Bill 395 General Fund that would offset this revenue loss. www.lao.ca.gov Legislative Analyst’s Office 75 2017-18 BUDGET 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