Governor Gavin Newsom signed the 2020 Budget Act on June 29, rolling out a $202.1 billion spending plan that hopefully will tide us all over the financial struggles coming from the COVID19 recession

Since the “budget” is built on a stack of different pieces of legislation—20 separate bills this year—we’re going to take a high-level view today with a more in-depth study after the ink dries. 

While the new budget is “balanced,” according to the Governor, he and community leaders around the state are lobbying Washington for another $1 trillion in federal aid to state and local governments across the country. 

Part of the balancing act includes increased taxes raising $4.4 billion in new revenues in FY 2020-21 by temporarily suspending the use of net operating losses and temporarily limiting to $5 million the amount of business incentive credits a taxpayer can use in any given tax year.

For small companies, the budget provides an additional $75 million for loan loss mitigation and reducing the cost of capital to address gaps in available federal assistance. The California Infrastructure and Economic Development Bank handles this effort. The budget also eliminates the $800 Minimum Franchise Tax exemption for first-year corporations to help small business creation.

Closing the Gap

The budget-balancing act includes the following steps:

  • Reserves – The budget draws down $8.8 billion in reserves from the Rainy Day Fund ($7.8 billion), the Safety Net Reserve ($450 million), and all funds in the Public School System Stabilization Account.
  •  Triggers – It includes $11.1 billion in reductions and deferrals that to be restored if at least $14 billion in federal funds are received by October 15. If less federal money shows up, the reductions/deferrals may be proportionately restored.
  • Federal Funds – The plan reflects $10.1 billion in federal funds that provide General Fund relief – including $8.1 billion already received.
  • Borrowing/Transfers/Deferrals – The budget includes $9.3 billion in special fund borrowing and transfers, as well as other deferrals for K-14 schools. (Approximately $900 million in additional special fund borrowing includes with state employee pay cuts.)
  • Cancelled Expansions, Updated Assumptions and Other Solutions – The remaining $10.6 billion of solutions optimistically includes canceling multiple state program expansions, higher ongoing revenues as the economy reboots, and lower health and human services caseload costs than earlier estimates as the pandemic subsides.

It’s going to be a long, hard slog, so we expect the Legislature and the Governor to go over these numbers more than once this year, so stay tuned.

By Brendan Slagle, ECA President Email: [email protected]