The 2024-25 Budget: CalWORKs

2024-25 BUDGET The 2024-25 Budget: CalWORKs GABRIEL PETEK | LEGISLATIVE ANALYST | MARCH 2024 SUMMARY In this brief, we provide some basic background on the California Work Opportunity and Responsibility to Kids (CalWORKs) program followed by an overview and assessment of the Governor’s CalWORKs budget proposals. The Governor’s budget proposes about $7 billion in annual CalWORKs funding in 2023-24 and 2024-25. Governor’s Budget Projects Caseload and Grant Increases. The administration estimates CalWORKs caseload growth of about 5 percent from 2023-24 to 2024-25. Additionally, the administration estimates a CalWORKs grant increase of 0.8 percent effective October 2024 (triggered and funded by local revenue growth). Both estimates appear reasonable at this time. Governor’s Budget Includes $293 Million in Ongoing CalWORKs Reductions. The administration proposes ongoing reductions to funding for CalWORKs county administration, subsidized employment, family stabilization services, and intensive case management. All reductions (except those to intensive case management) are proposed to begin in 2023-24. The proposed reductions to subsidized employment and family stabilization would eliminate all funding for the two CalWORKs programs. The Governor’s budget also proposes withdrawing all available funds from the Safety Net Reserve and signals the state’s intent to apply for an upcoming federal pilot. Issues for the Legislature to Consider. The Governor’s CalWORKs solutions largely focus on program elements that support families with higher needs. While comprehensive outcome information on these programs is not available, these particular reductions could create additional barriers to employment for these families. If the Legislature chooses to preserve these programs, it could instead begin exploring opportunities to right-size funding for some CalWORKs programs or components given the significant budget problem. In general, we recommend the Legislature exercise caution when assessing the proposed current year reductions to CalWORKs funding, as many of the Governor’s proposed current-year solutions within CalWORKs are unlikely to materialize in full. We also recommend the Legislature begin considering potential responses to upcoming federal changes, which will impact various CalWORKs components in 2025-26. BACKGROUND CalWORKs was created in 1997 in response of eligible family members, and income. Families to the 1996 federal welfare reform legislation that living in high-cost coastal counties such as Los created the federal Temporary Assistance for Angeles and San Francisco receive grants that Needy Families (TANF) program. CalWORKs is are about 5 percent larger than similar families administered by counties and overseen by the living in inland counties such as Fresno and state Department of Social Services (DSS). Shasta. In general, grant sizes increase as family CalWORKs Provides Cash Assistance and size increases and grant sizes decrease as family Supportive Services to Low-Income Families. income increases. In 2023-24, the administration CalWORKs grants vary based on region, number estimates the average CalWORKs grant amount www.lao.ca.gov 1 2024-25 BUDGET to be $1,021 per month across all family sizes the state sales tax and vehicle license fee accrue and income levels. CalWORKs recipients are to a special fund with a series of subaccounts often also eligible to receive supportive services which pay for a variety of health and human and resources, such as subsidized child care, services programs. Under state law, sufficient employment training, mental health counseling, revenue growth in the Child Poverty and Family and housing assistance. Supplemental Support Subaccount triggers an Federal, State, and County Governments increase in CalWORKs cash grant amounts. In Share Program Costs. Federal law allows for the past, this account funded grant increases of some state flexibility in the use of federal TANF 5 percent in 2013-14 and 2014-15, 1.43 percent funds. California receives $3.7 billion annually for in 2016-17, 5.3 percent in 2021-22, 11 percent in its TANF block grant, over $2 billion of which goes 2022-23, and 3.6 percent in 2023-24. In addition, to CalWORKs (the remainder helps fund aid for this account has funded the repeal of the maximum some low-income college students and various family grant policy starting in 2016-17. The account small human services programs). To receive its continues to fund each of these changes annually. annual TANF block grant, the state must spend a If, in any given year, account funds are insufficient maintenance-of-effort (MOE) amount from state and to fully fund these prior changes, the remaining cost local funds to provide services for families eligible for that year is covered by General Fund. for CalWORKs. This MOE amount is approximately Grants Based on Number of Eligible Family $3 billion annually (which can be spent directly on Members, Not Overall Family Size. Monthly CalWORKs or other programs that meet federal CalWORKs grant amounts are set according to requirements). State and federal CalWORKs funding the size of the assistance unit (AU). The size of the generally is allocated to the counties, all of whom AU is the number of CalWORKs-eligible people directly serve eligible families. in the household. Grant amounts are adjusted Funding for Counties Determined Through based on AU size—larger AUs are eligible to Single Allocation Formula. The state provides receive a larger grant amount—to account for the counties with a “single allocation” to cover most increased financial needs of larger families. As of costs associated with CalWORKs aside from December 2023 (when the most recent analysis cash assistance. The single allocation consists of was conducted), about 40 percent of CalWORKs three main components—eligibility determination cases included everyone in the family (and thus and administration, employment services, and the AU size and the family size were the same). Cal-Learn case management (Cal-Learn provides In the remaining 60 percent of cases, though, one additional services to pregnant and parenting or more people in the family were not eligible for teens participating in CalWORKs). Counties can CalWORKs and therefore the AU size was smaller shift funds between the multiple single allocation than the family size. components. The eligibility determination and Family Members May Be Ineligible for administration component (which is about CalWORKs for Several Reasons. Most one-third of the overall single allocation) commonly, people are ineligible for CalWORKs increases or decreases in set increments based because they (1) exceeded the lifetime limit on on caseload changes. This formula recognizes aid for adults (currently 60 months), (2) currently most administrative services are provided by are sanctioned for not meeting some program full-time county employees and counties cannot requirements, or (3) receive Supplemental rapidly change their staffing levels in response to Security Income/State Supplementary Payment changing caseload. Specifically, administrative (SSI/SSP) benefits (state law prohibits individuals funding changes occur when CalWORKs caseload from receiving both SSI/SSP and CalWORKs). increases or decreases by about 20,000 families. Additionally, individuals may be ineligible due Under State Law, Local Revenue Growth to their immigration status. Undocumented Automatically Triggers Grant Increases. immigrants, as well as most immigrants with legal Following a major realignment of state and local status who have lived in the United States for fewer responsibilities in 1991, some funds generated by than five years, are ineligible for CalWORKs. 2 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Many Adult CalWORKs Participants Must • Increasing the lifetime limit for adults Meet Work Requirements. Most adults receiving receiving aid from 48 months to 60 months CalWORKs assistance must be employed or beginning May 2022. (The lifetime limit had participate in specified activities intended to previously been reduced from 60 months to lead to employment, known as “welfare-to-work” 48 months in 2011.) (WTW) activities. Counties have flexibility in what • Increasing the earned income disregard for types of WTW activities and services they provide CalWORKs applicants and participants (or to participants. the amount applicants and participants can The Federal Government Measures Program earn monthly before further income affects Success Through Work Participation Rate their CalWORKs eligibility) from $90 to $450 (WPR) Requirements. The federal TANF program for applicants (beginning in March 2023) places heavy emphasis on states’ WPR, or the and from $225 to $600 for participants. percentage of adult participants engaging in The increase for participants implemented required WTW activities. Under federal rules, at over multiple years, beginning in June 2020 least 50 percent of all families and 90 percent of and reaching $600 in June 2022. two-parent families receiving TANF/MOE-funded • Beginning January 2022, increasing the cash assistance must work or engage in WTW amount of child support that could be “passed activities for 20 to 35 hours per week, depending through” to CalWORKs families from $50 to on their family makeup. States that do not meet $100 a month for one child families, and from these WPR requirements may face federal $50 to $200 for larger families (those with two financial penalties. or more children). (Under state and federal State Recently Made Major Augmentations law, additional child support payments made to CalWORKs. Among the most notable changes beyond this pass-through level are retained by made to CalWORKs in the past four budgets were: the state as reimbursement for the state and federal costs of CalWORKs.) • Providing an ongoing 10 percent General Fund grant increase. (The increase was • Increasing the additional monthly stipend first implemented as temporary in October provided to pregnant CalWORKs participants 2022. It was scheduled to remain in effect from $47 to $100, and allowing women to until September 30, 2024 unless funds were become immediately eligible for CalWORKs appropriated to extend the increase. The end upon verification of their pregnancies date was removed in 2023, making the grant (as opposed to waiting until the second increase ongoing.) trimester). The eligibility change occurred on July 1, 2021, and the enhanced stipend began May 1, 2022. www.lao.ca.gov 3 2024-25 BUDGET BUDGET OVERVIEW Overall CalWORKs Funding Remains Below, we summarize the Governor’s budget and Relatively Flat Year Over Year. As shown provide more detail on the proposed reductions. in Figure 1, the Governor’s budget proposes Year-Over-Year Changes in General Fund $6.97 billion in total funds ($307 million General Largely Stem From Unspent TANF Funds. Fund) for CalWORKs in the current year, a net Figure 2 shows how CalWORKs costs are shared decrease of $66 million total funds (1 percent) between federal, state, and local revenue sources. relative to 2022-23. The reduction is the net effect The figure demonstrates how the share of total of the expiration of one-time augmented Housing CalWORKs costs covered by the state General Fund Support Program funding along with multiple versus federal TANF funds can swing from year to proposed reductions in current-year funds. The year. As mentioned, federal law requires a minimum budget proposes $6.98 billion in total CalWORKs amount of General Fund and local spending on funds ($1.3 billion General Fund) in 2024-25, a CalWORKs and related programs. If actual caseload net increase of $12 million total funds (less than is lower than what is budgeted for, the state 1 percent) relative to the 2023-24 revision. This may be unable to immediately spend all General overall increase is largely due to projected caseload Fund and TANF appropriated for CalWORKs. growth offset by newly proposed reductions. Much of these unexpected savings materialize as As described below, the increase in General Fund unspent federal funds, or “TANF carryforward.” spending is related to lower TANF carryforward. Figure 1 CalWORKs Budget Summary All Funds (Dollars in Millions) Change From Change From 2022-23 to 2023-24 Proposed to 2023-24 Proposed 2024-25 Proposed 2023-24 2024-25 2022-23 Proposed Proposed Amount Percent Amount Percent Number of CalWORKs Cases 331,161 348,599 354,117 17,438 5% 5,518 2% Cash Grantsa $3,868 $4,302 $4,413 $434 11% $112 3% Single Allocation Employment Services $1,278 $1,153 $1,086 -$125 -10% -$67 -6% Cal-Learn Case Management 11 11 11 — -1 — 1 Eligibility Determination and Administration 628 506 414 -122 -19 -$92 -18 Subtotals ($1,917) ($1,670) ($1,511) (-$247) (-13%) (-$160) (-10%) Stage 1 Child Care $532 $648 $709 $116 22% $61 9% Other Allocations Home Visiting Program $101 $105 $106 $4 4% $1 1% Housing Support Programb 285 95 95 -190 -67 — — Expanded Subsidized Employment 134 — — -134 -100 — — Family Stabilization 52 — — -52 -100 — — Mental Health and Substance Abuse Services 130 130 130 — — — — Subtotals ($702) (330) (331) (-$372) (-53%) ($1) (—) Otherc $18 $20 $19 $2 12% -$1 -6% Totals $7,037 $6,971 $6,983 -$66 -1% $12 0.2% a Does not include the cost of an estimated 0.8 percent grant increase funded by certain realignment revenues, which the Governor’s budget projects beginning in October 2024. We roughly estimate this would increase cash grants by about $27 million in 2024-25. b The 2022-23 to 2023-24 decrease in Housing Support Program funding is due to the expiration of one-time funding. c Primarily includes various state-level contracts. 4 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Figure 2 CalWORKs Funding Sources (Dollars in Millions) Change From Change From 2023-24 2022-23 to 2023-24 Proposed to 2024-25 Proposed Proposed 2023-24 2024-25 2022-23 Proposed Proposed Amount Percent Amount Percent Federal TANF block grant funds $3,394 $3,516 $2,618 $122 4% -$898 -26% • TANF carryforwarda 767 902 — 135 18 -902 -100 General Fund 612 307 1,296 -305 -50 989 322 Realignment funds from local 909 786 671 -123 -14 -115 -15 indigent health savings Realignment funds dedicated to 909 1,143 1,197 235 26 54 5 grant increases Other county/realignment funds 1,213 1,219 1,201 5 — -18 -1 Totals $7,037 $6,971 $6,983 -$66 -1% $12 0.2% a TANF carryforward is a non-add line item for display purposes only. This amount is included in federal TANF block grant funds. TANF = Temporary Assistance for Needy Families. TANF carryforward can be used in future years to This projection may change in May, when offset General Fund spending (as long as more data on previous and current-year TANF MOE spending is maintained), as described next. expenditures are available. Due to challenges in estimating caseload during Governor Proposes Reductions of the COVID-19 pandemic, the 2020-21 to 2022-23 $230 Million in 2023-24, Increasing to spending plans overestimated CalWORKs caseload $293 Million in 2024-25 and Ongoing. by 7 percent to 41 percent each year. About The Governor’s proposed current-year reductions $770 million and $900 million in TANF carryforward include (1) $40.8 million General Fund in single funds were available in 2022-23 and 2023-24, allocation administration funding, (2) $134.1 million respectively, due to these overestimations. General Fund in Expanded Subsidized The decrease in CalWORKs General Fund spending Employment, and (3) $55 million General Fund in from 2022-23 to 2023-24 is explained largely by Family Stabilization (which increases to $71.2 million this increase in carryforward (which offset some in 2024-25). Proposed ongoing reductions General Fund), along with the expiration of some beginning in 2024-25 include the same reductions one-time funds. The Governor’s budget projects no as 2023-24 (accounting for a full year of savings) TANF carryforward will be available in 2024-25. and $47 million General Fund in employment services intensive case management funding. Details on each proposal are provided below. www.lao.ca.gov 5 2024-25 BUDGET CALWORKS CASELOAD Caseload Continues to Fluctuate After most recent estimate for 2023-24. Though our Extended Period of Decline. Figure 3 shows how independently forecasted caseload estimates often CalWORKs caseload has changed since 2019-20. diverged widely from the administration’s in the Following the onset of the COVID-19 pandemic past, at this time our two offices’ estimates are in spring 2020, CalWORKs caseload began what similar. We will revisit this estimate in the spring was a historically anomalous decrease given high when additional data are available. unemployment. (We discuss this in previous posts, in which we conclude the decrease likely was related to extraordinary Figure 3 federal and state aid offered to CalWORKs Caseload Has Fluctuated in Recent Months low-income individuals in response to the pandemic.) This decline continued until September 2021, 400,000 the month during which a 350,000 federal bonus for Unemployment Insurance benefits expired. 300,000 Caseload has fluctuated since 250,000 September 2021. At its highest level since 2020-21, caseload 200,000 remained about 20,000 families 150,000 below pre-pandemic levels. Caseload Estimate Appears 100,000 Reasonable. The administration 50,000 estimates an average monthly CalWORKs caseload of about 354,000 households in 2024-25— 2019-20 2020-21 2021-22 2022-23 this represents a roughly 5 percent increase compared to their 2024-25 AUTOMATIC GRANT INCREASE Administration Estimates 0.8 Percent Grants Still Not Estimated to Meet Grant Increase. The administration estimates a Legislature’s Goal for All Recipients. As part CalWORKs grant increase of 0.8 percent effective of the 2018-19 Budget Act, the Legislature set a October 2024. This increase is triggered and will goal to increase CalWORKs grants to 50 percent be funded by revenue growth in the Child Poverty of the federal poverty level (FPL) for a family and Family Supplemental Subaccount (rather that is one person larger than the AU size (to than General Fund, this is realignment funding). account for CalWORKs households in which the The administration plans to recalculate the actual family size is larger than the CalWORKs estimated grant increase at the May Revision based AU). As shown in Figure 4, a grant increase of on updated revenue and caseload projections, so 0.8 percent would raise grants for all AU sizes the potential cost of a 0.8 percent increase is not in high-cost counties to between 43 percent yet included in the 2024-25 budget. We estimate and 48 percent of the FPL for a family one this grant increase would cost about $27 million in person larger than the AU size, and to slightly 2024-25 (with an annual cost of about $37 million). lower levels for families in lower-cost counties. 6 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Figure 4 Governor's Budget Estimates 0.8 Percent Increase to CalWORKs Grants Low-Cost Counties Before 0.8 Percent After 0.8 Percent Increase Increase AU As Share As Share Sizea Amount of FPLb Amount of FPLb 1 $693 41% $699 41% 2 881 41 888 41 3 1,112 43 1,121 43 4 1,342 44 1,353 44 5 1,573 45 1,586 45 High-Cost Counties Before 0.8 Percent After 0.8 Percent Increase Increase AU As Share As Share Sizea Amount of FPLb Amount of FPLb 1 $732 43% $738 43% 2 927 43 934 43 3 1,171 45 1,180 45 4 1,412 46 1,423 47 5 1,654 47 1,667 48 a Assistance unit size is the number of family members who are eligible for CalWORKs. b Share of 2024 federal poverty guideline for a family size that is one person larger than the AU size. AU = assistance unit and FPL = federal poverty level. www.lao.ca.gov 7 2024-25 BUDGET After accounting for the estimated 0.8 percent Grant Increase Estimate Appears increase, we estimate the additional cost to raise Reasonable. Our office independently forecasts all grants to 50 percent of the FPL for a family CalWORKs grant increases triggered by growth one person larger than the AU would be about in realignment revenue (a share of state sales tax $920 million in 2024-25 (partial year) and about and vehicle license fee revenues dedicated to $1.2 billion annually thereafter (although this cost counties). While our estimates have differed from would grow as FPL or caseload increase). the administration’s previously, at this time our two offices’ estimates are similar. We will revisit this estimate in the spring when additional revenue and caseload data are available. GOVERNOR’S MAJOR CALWORKS BUDGET PROPOSALS ELIMINATE FAMILY Proposal Eliminates All Funding for FS Program. The Governor’s budget proposes STABILIZATION FUNDING a reduction to FS funding of $55 million in Family Stabilization (FS) Program Provides the current year and $71.2 million in 2024-25 Services and Support to CalWORKs Families and ongoing. This program is subject to an in Crisis. Implemented in 2013, FS provides appropriation by the Legislature. About $52 million intensive case management and services for total funds were appropriated for the program CalWORKs recipients experiencing destabilizing in 2022-23 and $55 million total funds were crisis situations that interfere with their appropriated in 2023-24. WTW participation. Qualifying situations include, but are not limited to, homelessness or Figure 5 imminent risk of homelessness; Family Stabilization Provides a Variety of Interventions unsafe conditions due to domestic violence; and untreated or undertreated behavioral 62% needs, such as mental health or substance abuse-related Other services vary by county and therefore cannot needs. In 2022-23, about be broken out further. Some examples include 4,100 households participated in transportation assistance, family counseling, eviction prevention, and parenting classes. FS monthly. Figure 5 breaks down the types of FS services provided by frequency (households may 26% receive more than one FS service at any given time). Additionally, about 25 percent of FS households 9% received homelessness support 3% through the program, such as hotel, rental, security deposit, or Other Mental Health Domestic Abuse Substance Abuse Services Services Services Services utility payment assistance. 8 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET LAO Assessment ESE caseload dropped significantly at the height of the COVID-19 pandemic due to worksite Eliminating FS May Disproportionately and restrictions, but began rebounding in 2021-22. Negatively Impact Families in Crisis. Because County representatives indicate some counties counties have some flexibility in the administration have been focused on reengaging participants and of local FS programs, limited data exist on employers in the program. While ESE caseload has statewide program outcomes. However, anecdotal not yet reached pre-pandemic levels, participation evidence suggests some counties’ FS services continues to increase in 2023-24. have helped recipient families exit unsafe situations, secure stable housing, avoid WTW sanctions, Proposal Eliminates All CalWORKs and address barriers to work. In the absence of Subsidized Employment Funding. The Governor’s identifying alternative resources, eliminating the budget proposes to eliminate $134.1 million in FS program would likely limit the amount of support ESE funding in 2023-24 and ongoing. Recent and types of services counties can provide to their spending plans provided about $134 million in highest-need CalWORKs clients. ESE funding annually. LAO Assessment ELIMINATE SUBSIDIZED ESE Elimination May Impact Employment EMPLOYMENT PROGRAM and Earnings of Some CalWORKs Recipients. Counties Have Flexibility in Administration of As mentioned, about 1,240 individuals participated Local ESE Programs. The Expanded Subsidized in ESE each month in 2022-23. Additionally, ESE Employment (ESE) program provides optional has helped some participants secure higher-paying funding to counties (above what is provided in the employment. According to the administration, single allocation) for local subsidized employment amongst 2019-20 ESE participants statewide, programs and partnerships. ESE replaced the the median quarterly income before program original CalWORKs Subsidized Employment participation was about $2,600. While participating Program (which was implemented in 2008) in 2013 in ESE, these participants’ median quarterly and is now the only CalWORKs program providing income was about $4,000 and after exiting it was dedicated subsidized employment funding. about $5,300. Counties may fully or partially subsidize the wages of some CalWORKs recipients for six months REDUCE CALWORKS to a year—making it less costly for an employer ADMINISTRATIVE FUNDING to hire a CalWORKs participant compared to a non-CalWORKs participant. As of December 2020, Proposal Eliminates Ongoing $40.8 Million 52 counties were participating. Augmentation to Administrative Component of Single Allocation. The administration proposes Counties determine locally which CalWORKs eliminating the augmentation to the eligibility and participants to prioritize for subsidized employment administration component of the single allocation opportunities. For example, some local programs (which has been provided annually since 2021-22) target CalWORKs recipients with little or no work beginning in 2023-24. Figure 6, on the next page, history, those experiencing barriers to work (such as shows how the proposal would reduce county limited English proficiency, arrest history, or lack administrative funding in 2023-24, 2024-25, and of job skills), or students completing educational ongoing, as well as how overall single allocation or vocational programs. Program goals generally funding would decrease due to this reduction and include promoting skill development and helping other proposals. When coupled with the expiration participants obtain and transition to unsubsidized of one-time funds, administration component employment. In 2022-23, about 1,240 individuals funding would decrease by over 30 percent from participated monthly, or about 1 percent of all 2022-23 to 2024-25. CalWORKs recipients with WTW requirements. www.lao.ca.gov 9 2024-25 BUDGET Figure 6 Both Administrative Component and Overall Single Allocation Would Decrease (In Millions) Other Single Allocation Componentsa Eligibility Administration Ongoing Supplement Eligibility Administration Temporary Supplement $2.0 Eligibility and Administration Component 1.5 1.0 0.5 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Proposed Proposed a Prior to 2021-22, CalWORKs stage one child care funding was a component of the single allocation. For purposes of this display, we have excluded this component from “Other Single Allocation Components” in 2019-20 and 2020-21. Eligibility and Administration Funding additional funding to expand the availability of Methodology Due for Triennial Assessment. intensive case management and defined intensive The methodology for the eligibility and case management as consisting of at least ten administration component of the single allocation hours of county staff time per month. The funding is scheduled to be reassessed in consultation and minimum time requirement were designed to with counties and the County Welfare Directors ramp up over four years, with the time requirement Association for 2024-25 and every three years beginning at 6.25 hours in 2021-22 and increasing thereafter. The administration indicated it plans to by 1.25 hours annually until 2024-25. In 2023-24, reevaluate the eligibility worker rate and funding for the minimum time requirement for intensive cases applications independent of caseload. While the was 8.75 hours and was scheduled to increase Governor’s budget does not include funding related to ten hours in 2024-25. The Governor’s budget to the triennial assessment, the administration plans proposes an ongoing hold on this increase. to reassess in the May revision. The administration projects holding the time Proposal Also Reduces Anticipated Intensive requirement at 8.75 hours for 2024-25 and ongoing Case Management Funding. Counties receive will result in annual savings of about $47 million additional employment services funding through General Fund (as compared to what would the single allocation for “intensive cases,” or have been spent with the increase). Counties families requiring exceptional support to overcome would continue to receive $411 million for the barriers to employment. According to the 8.75 hours of intensive case management (through administration, in recent years, about 10 percent the employment services component of the of CalWORKs cases have been considered single allocation). intensive. The 2021-22 spending plan provided 10 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET LAO Assessment unspent single allocation funds from the 2022-23 Budget Act. (The total 2022-23 single allocation In Recent Years, Funding for the Single appropriation was about $1.9 billion.) These Allocation Eligibility and Administration unspent funds would naturally revert to the General Component Increased Despite Decreasing Fund in 2025-26. The 2023-24 spending plan Caseload. Between 2020-21 and 2022-23, also included the early reversion of $288 million the CalWORKs caseload decreased by over in unspent single allocation funds. Given counties 60,000 families, which normally would trigger consistently underspent total single allocation three consecutive years of $27.5 million in funding funds in recent years, along with the fungibility of decreases to the single allocation’s eligibility and single allocation funds between the components, administration component. However, in recognition counties may be able to fully fund current activities of the high level of uncertainty surrounding under the Governor’s proposal. caseload projections during the COVID-19 pandemic, the state did not decrease funding However, county representatives report the and instead provided both ongoing ($40.8 million proposed administrative component funding starting in 2021-22) and temporary ($27.5 million amount ($414 million in 2024-25 and ongoing) may for 2021-22 and $55 million for both 2022-23 be insufficient to cover administrative costs in and 2023-24) augmentations to the base level of some counties. Many administrative activities are administrative funding. statutorily required, so some counties may need to leverage other single allocation funds, especially Proposed Reductions Bring Funding Into from the employment services component, to Alignment With Methodology. The funding cover necessary administrative costs. Some augmentations to the administrative component counties report shifting funds in this way likely in 2021-22, 2022-23, and 2023-24 offset the would adversely affect the employment services caseload-driven reductions that would normally they are able to provide to CalWORKs participants. have occurred each year (under the existing funding methodology). Therefore, eliminating SAFETY NET RESERVE WITHDRAW these augmentations would bring current and budget-year funding into alignment with Budget Proposes $900 Million Withdrawal normal levels under the existing methodology. From Safety Net Reserve. The proposed (However, county representatives indicated $900 million withdrawal from the Safety Net Reserve without the augmentations mentioned above, reflects the entire balance of the reserve. the administrative component’s methodology LAO Assessment likely would not have kept up with growing local costs.) Additionally, since the methodology is Withdrawal May Be Inconsistent With scheduled to be reassessed at the May revision, Legislative Intent for Reserve. The Safety Net the normal funding level for 2024-25 may Reserve, established in 2018-19, was designed change. The Legislature might consider asking to help cover costs of increasing Medi-Cal and the administration if the currently proposed CalWORKs caseloads in the event of an economic reductions to the administrative component should downturn. Although caseloads under the Governor’s be viewed as placeholders until the reassessment budget are higher than anticipated in June, is complete. economic conditions likely do not yet match what the Potential Impact of Proposed Reductions Legislature envisioned when it created the reserve. Is Not Fully Clear. From 2021-22 to 2023-24, Moreover, the administration proposes the ongoing over $300 million in unspent single allocation reductions mentioned above despite withdrawing funds naturally reverted to the General Fund these reserves. Withdrawing the entirety of this each year. The Governor’s budget proposes the reserve, while simultaneously proposing reductions, early reversion of $336 million General Fund in may not be consistent with its original design. www.lao.ca.gov 11 2024-25 BUDGET Full Withdrawal Also Appears Inconsistent levels of those individuals six and 12 months after With Overall Approach to Using Reserves. program exit, and other indicators of family stability The Governor’s budget includes $13 billion in and well-being (which are yet to be determined by total reserve withdrawals. About 7 percent of the federal government). DSS expects to receive these proposed withdrawals are from additional information on the pilot requirements and the Safety Net Reserve. The remaining $12.1 billion how to apply in spring or summer 2024. The pilot is in proposed withdrawals are from the state’s expected to begin in October 2024. general-purpose reserve—the Budget Stabilization LAO Assessment Account (BSA). If the Governor declares a budget emergency, the state can withdraw up to half of the Reductions May Weaken California’s Pilot constitutional balance of the BSA. (The Legislature Application and, if Selected, Performance. also can withdraw the entire “discretionary” In recent years, California has broadened its balance of the BSA, which are funds added to CalWORKs goals to include program outcomes the reserve on top of required deposits.) The focused on long-term employment and family Governor proposes withdrawing half of the BSA’s well-being. While additional details are needed constitutional balance, $10.2 billion, and the on the pilot’s intended outcome measures, entire discretionary balance, $1.8 billion, while currently available information indicates some also proposing a full balance withdrawal from the outcome measures already used to evaluate the Safety Net Reserve. CalWORKs program may be included in the pilot. Eliminating or reducing funding for CalWORKs SIGNALS INTENT TO APPLY FOR A components or services designed to address these outcomes—such as family stabilization, subsidized FEDERAL PILOT OPPORTUNITY employment, and intensive case management—may Administration Plans to Apply for Federal limit the types of programs, services, and outcomes Pilot Focused on Program Performance California can highlight in its pilot application Measures. Up to five states selected for a new and, if selected to participate, how California federal pilot will test alternative performance might perform along these measures. However, measures to the WPR requirements. Participating without comprehensive outcome information states will not be required to meet the WPR on these programs, the size of the impact the requirements for the duration of the six-year pilot. proposed eliminations might have on the state’s Instead, we understand that performance of these pilot application and potential pilot performance is states’ TANF programs will be measured by the difficult to predict. percentage of work-eligible individuals employed six months after exiting the program, the earning OVERARCHING ISSUES FOR CONSIDERATION In this section, we describe overarching CURRENT- AND BUDGET-YEAR issues the Legislature might consider when CONSIDERATIONS evaluating these initial budget solution options Consider if Proposed Current-Year in the Governor’s budget for CalWORKs within Reductions Will Materialize. Limited information the framework of the estimated budget deficit. is currently available on county expenditures of We also provide other potential options for 2023-24 FS, ESE, and eligibility and administration legislative consideration. Finally, we raise issues for single allocation funding. We recommend consideration related to upcoming federal changes the Legislature ask the administration for an impacting the CalWORKs program. immediate update, as well as routine updates going forward, on the expenditure of these funds. 12 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET This information would provide the Legislature Different components of the program generally greater clarity on how much in unexpended support different outcomes (such as employment funds, if any, might be available to be reduced in services primarily supporting work participation the current year. FS funding was fully utilized in and family stabilization services supporting 2022-23, so if current-year spending continues with family well-being). The Legislature might begin no interruption and at a similar rate as previous considering if and how it would prioritize funding— years, the administration’s projected savings in the budget year and ongoing—amongst the from a current-year reduction to FS funds will not various supports and services the CalWORKs materialize. In contrast, counties spent about program provides, potentially with an eye towards $90 million of the $134.1 million in total funds minimizing negative impacts on outcomes it deems appropriated for ESE in 2022-23. While larger most important to the success of the program and percentages of annual ESE funds were generally its participants. expended before the COVID-19 pandemic, some Weigh Potential Out-Year Impacts of funds were left unspent in each of the last ten Reserve Withdrawal. As noted earlier, we and the years. If no legislative action is taken to halt current administration anticipate the state to face significant year ESE spending, some savings may materialize, budget deficits in future years. Maintaining but a full reduction of all 2023-24 ESE funds reserves now—by limiting their use—provides the will not occur. Legislature more tools in the future to balance the Consider Possible Opportunities to Right budget and avoid some reductions. Consequently, Size Funding for Program Components. we recommend the Legislature consider taking a We recommend the Legislature consider consistent approach across both the Safety Net opportunities to reduce funding for CalWORKs Reserve and the BSA. Specifically, we recommend programs and components with consistently using only half of the balance of the Safety Net unspent funds. For example, almost $40 million in Reserve now in order to preserve this tool for the ESE funds, on average, were left unspent annually future. Using all of the Safety Net Reserve may put over the last five years. While these unspent funds increased pressure on the General Fund if Medi-Cal will naturally revert back to the General Fund in the or CalWORKs caseloads begin increasing more future, continuing to fund program components rapidly in the future. in excess of historical spending levels may unnecessarily tie up funds that could otherwise CONSIDERATIONS FOR be used elsewhere or saved. We recommend the BEYOND THE BUDGET YEAR Legislature ask the administration for information The federal Fiscal Responsibility Act of 2023 on recent and historical annual expenditures (FRA) introduced multiple changes to TANF rules across CalWORKs programs and components with and requirements, including the creation of the consistent underspending. With this information, performance outcomes pilot mentioned above. the Legislature might have better clarity into if We discuss other key components of the legislation budget-year or ongoing savings could be created below. Additional details on these changes will by reducing funding for these programs to better be provided in our upcoming post: Overview of align with spending trends. the Federal Fiscal Responsibility Act’s Impacts Consider How Reductions Would Impact on CalWORKs. Long-Term CalWORKs Goals. In light of the Begin Considering Potential Responses to anticipated budget situation, we recommend Upcoming WPR Changes. As mentioned, state the Legislature evaluate its long-term goals for TANF programs must meet WPR requirements or the CalWORKs program. Any type of CalWORKs face financial penalties. A state’s WPR requirements funding reduction—including those proposed by are reduced via “caseload reduction credits” if the the Governor—could potentially impact program state’s caseload declined within a certain period outcomes and family and child poverty in California. of time. Currently, a state receives a reduction credit if its caseload has declined relative to 2005. www.lao.ca.gov 13 2024-25 BUDGET Beginning in October 2025, current caseload 2025-26. For example, the state could continue will instead be compared to 2015 caseload. to operate the WINS program as-is, regardless of The CalWORKs caseload was larger in 2015 than the upcoming change, by continuing to provide in 2005 or in recent years. Therefore, California $10 monthly benefits. Alternatively, California could likely will receive a significant caseload reduction plan to increase WINS monthly benefits in 2025-26 credit in 2025-26. This credit will lower California’s to $35 to align with the new federal requirement. WPR requirements and the associated risk of facing Finally, the Legislature could eliminate the WINS financial penalties. The Legislature might begin to program altogether beginning in 2025-26, reducing consider if and how it would like to respond to this about 125,000 WINS participants’ food benefits by change in 2025-26. For example, since the change $10 monthly, but generating about $25 million in may lessen the pressure on the state and counties annual General Fund savings. to meet higher WPR targets, it may present an opportunity to shift some of the state’s focus CONCLUSION towards other desired outcome measures or goals Assessing Proposed Reductions. As described for the CalWORKs program. in our Overview of the Governor’s Budget, the Consider Future Goals for Work Incentive Legislature faces difficult budget decisions this year Nutrition Supplement (WINS) Program. WINS, and likely more in the future. The administration has introduced in 2014, provides some working not offered justification around why the specific CalFresh households (low-income families CalWORKs program elements described above are receiving food assistance) with additional monthly proposed for reduction, aside from indicating they food benefits of $10. Currently, WINS costs are part of the overall package of budget solutions roughly $25 million annually. Because WINS is necessary to address the estimated budget deficit. an MOE-funded program, WINS households help Notably, across the budget, there are few program California meet its WPR requirements. However, areas where the Governor proposed ongoing the FRA set new rules for programs like WINS. programmatic cuts to established programs. Beginning October 1, 2025, working families The proposed ongoing CalWORKs reductions, enrolled in programs of this nature must receive alongside similar proposed ongoing reductions at least $35 in monthly benefits to be included to child welfare funding, are unique in this way. in state WPR calculations. As a result, starting in At the same time, given the significant budget 2025-26, WINS would only help the state meet its problem facing the state, ongoing programmatic WPR requirements if benefits were increased to reductions will be necessary. In addition, for any $35. This change would increase the annual cost of of the Governor’s proposed budget solutions the WINS to roughly $63 million. Legislature chooses to reject, it will need to solve WINS was established with a primary goal of for that portion of the budget problem in another boosting the state’s WPR and with a secondary way. Accordingly, we recommend the Legislature goal of providing additional benefits to working begin considering which solutions within the CalFresh families. This upcoming federal change CalWORKs program and across the budget might presents an opportunity for the Legislature to align best with its goals. reevaluate its goals for WINS moving forward. The Legislature might begin considering if and how it plans to respond to the change in 14 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET www.lao.ca.gov 15 2024-25 BUDGET LAO PUBLICATIONS This report was prepared by Sonia Schrager Russo, and reviewed by Ginni Bella Navarre and Carolyn Chu. 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, California 95814. 16 LEGISLATIVE ANALYST’S OFFICE