How the Proposed 2020-21 May Revise Impacts Kids

Governor Newsom’s May Revise budget proposal, revealed on May 14, proposes dire budget cuts to early childhood, education, health and child welfare. While we recognize the extraordinary fiscal situation that the state faces, if enacted, these cuts will have a devastating impact on California children. A review of the cuts affecting children across our issue areas is below:

 

Early Childhood

Proposed reductions to families with young children include:

  • $1.1 billion in proposed reductions to early care and education programs including $407.8 million in reductions to state preschool and $662.4 million in reductions to child care, via decreases to reimbursement rates and slot decreases, as well as a sweep of unspent one-time funds for facilities and workforce development that were part of the 2019-20 budget.
  • $34.5 million in proposed reductions to home visiting programs including a $30 million decrease for the California Department of Services CalWORKs Home Visiting Program and a $4.5 million reduction in the California Department of Public Health Home Visiting and Black Infant Health Programs.
  • Among other general reductions to health programs, the Governor also proposes to rescind an expansion of postpartum mental health services within Medi-Cal which will save $34.3 million.

(It is important to note that the budget is being structured so that these reductions would be offset by federal funding, if it is available.)

The May Revise also proposes to:

  • Use California’s $350 million in federal CARES Act funding for COVID-19 related child care activities for child care for essential workers, family fee waivers, and provider payment protection, including some backfill of current state expenditures.
  • Consolidate the state’s early learning and child care programs under the Department of Social Services, instead of creating a stand-alone Department of Early Childhood Development, as was proposed in January.

K-12 & Higher Education

Under the proposal, funding to Proposition 98 (K-12 schools, community colleges and TK) would be cut by $19 billion compared to the funding proposal made in January. At the same time, K-12 schools would receive around $6 billion in federal funds from CARES Act sources. However, these $6 billion can’t be used to backfill the $19 billion in cuts because federal law requires that they be used to address specific COVID-19 related additional costs and resulting learning losses.

In addition, the Governor is relying on the federal government to provide fiscal relief for state budgets which would allow the cuts to schools to be smaller. During the Great Recession, the federal government did provide some relief for schools (around $6 billion) in a combination of general purposes, Title I and special education funds. While those funds were sorely needed, the federal funds were one-time and ran out before the state was on solid fiscal ground. So, while federal funds for the State are desperately needed, if protections are not put in place, we could be reliving the past where schools received disproportionate funding cuts, backfilled with some extra federal funds, but then being left with very low funding for years to come. And, that may be the best-case scenario under this proposed budget, because while the House has acted to support states, it is unclear whether the Senate and President will be supportive.

The proposal does help address the disproportionate learning loss of students that has occurred over the last couple of months. It proposes $4.4 billion in CARES Act funds to address learning loss, however, if the funding is cut to the levels proposed in this budget, those extra funds would represent one small step forward followed by several large leaps back.

Proposition 98 cuts to the minimum and a small promise of a faster recovery in out years.

The Revision proposal reflects significant changes to Proposition 98 (PreK-12 and community colleges) in the current and budget years, totaling $19 billion. With a revenue proposal that would generate additional funding, the May Revision would lower the actual cuts to schools to $17.5 billion – around $4 billion in the current and prior year, and $13.5 billion lower in 2020-21. Figure 1 shows the main proposed reduction in preK-12 education funding compared to the Governor’s January budget proposal.

Figure 1. May Revision Main Proposed Reductions to PreK-12 Education

Reductions from January Budget  Amount
 Reduction in LCFF6.5
 LCFF Deferrals3.4
 Rescinded Budget proposals2.8
 Cuts to Categoricals0.4
 Preschool0.2
 Total13.2

Local Control Funding Formula faces both budget cuts and deferrals. The Local Control Funding Formula (LCFF) would face a 10% reduction or $6.5 billion in total, from $64 billion down to $57.5 billion. Because of this reduction, there is a window that opens for districts to lay off teachers that will run through the middle of August. As funding for LCFF is reduced, some districts may consider actions not in the best interest of students with the greatest needs. It is more important than ever that funding provided to support low-income students, English learners and foster youth actually benefit from those funds (and this tracks with our   fiscal transparency proposals we are co-sponsoring to implement recommendations by the State Auditor).

In addition to LCFF cuts, the State would defer $1.9 billion in the current year, and an additional $3.4 billion in 2020-21 leading to part of April, May and June payments being deferred. When combined with the cuts above, districts will face a significant cash crunch next summer. Expect the number of school districts facing fiscal distress to increase dramatically next year – and deferrals disproportionately affect districts with low property wealth (which tend to have high proportions of students with the highest need).

Accountability for LCFF funding through the Local Control Accountability Plan (LCAP) and the school Dashboard are also subject to changes. There is an expected trailer bill proposal on how the LCAP will be reported for the next school year, and what data will still be collected this year and in the future.

Most of the Governor’s education proposals from January rescinded ($1.8 billion) plus cuts to existing categorical programs ($353 million)

The Governor had around $1.8 billion in proposed new spending mostly for teacher related initiatives, low performing schools and community schools. All of those proposals have been pulled back. In addition, the Administration proposes $353 million in cuts to existing categorical programs including: After School Education and Safety ($100 million), K–12 Strong Workforce Program ($79 million), CTE Incentive Grants ($77 million), Adult Education Block Grant ($67 million), and seven other small programs.

Actions taken to reduce the impact of funding reductions – Pension relief and flexibility

  • Changes Debt Reduction to District “Mortgage Payments” for CalSTRS and CalPERS. Last year’s budget scheduled $2.3 billion in payments to pay down STRS and PERS debts. The Governor proposes  to reprogram that funding to instead make part of school district’s annual payments to STRS and PERS. With an analogy to a home mortgage, the state will be making part of the district’s mortgage payments instead of paying off the principle. It provides budget relief to districts
  • Minor flexibility proposals put forward. The proposal includes a hardship exemption from deferrals, a slight reduction in required maintenance costs, increased ability for internal borrowing and the ability to sell surplus property.

Federal funds sold as backfills for Prop 98 cuts, but really dollars come with specific requirements including addressing learning loss mitigation

  • The May Revision proposes a one-time investment of around $6 billion. Children Now advocated for the State to provide additional funding for these purposes, so this is one small piece of good news in the budget. However, these one-time funds are to provide a higher level of service to address learning loss, and in no way substitute or backfill all of the cuts proposed in this budget.
  • $4.4 billion CARES Act Funds with State Discretion (from $4 billion federal Coronavirus Relief Fund+$355 million federal Governor’s Emergency Education Relief Fund) to LEAs to address learning loss related to COVID-19 school closures. Funds will be allocated to LEAs offering classroom-based instruction based on a formula that takes into account the share of students most heavily impacted by school closures, including students with disabilities, low-income students, English learners, youth in foster care, and homeless youth.Part of this funding is intended to address intensive instruction for addressing gaps in core academic skills, including math and science.
  • $1.6 billion in federal Elementary and Secondary School Emergency Relief funds – 90% to school districts on a federal formula basis to address any of 12 specific funding needs, and 10% ($164.7 million available for state discretionary uses:
    • ($100 million) Grants to county offices of education to develop networks of community schools, coordinating health, mental health and social services for high-needs students.
    • ($63.2 million) training and professional development for educators focused on mitigating opportunity gaps, addressing trauma-related health and mental health barriers to learning, and implementing distance learning and social distancing and other strategies.
  • $6 million in federal funds to support the California Subject Matter Projects to address learning loss in mathematics, science, and English/language arts resulting from the COVID-19 pandemic.

With regard to higher education, California’s public universities and community colleges stand to lose hundreds of millions of dollars absent additional federal funding. The budget proposal:

  • Includes a 10 percent reduction in general fund support from the state.
  • Maintains two-year free tuition waivers at the California Community Colleges but cuts funds to support campus food pantries and resources for undocumented students.
  • Preserves the Cal Grant Program, which includes last year’s expansion of financial aid for students with children.

 

Health

The May Revise includes the following affecting children’s health:

Withdrawn proposals and reverted funds:

  • Delay California Advancing and Innovating Medi-Cal (CalAIM) — The May Revision proposes to delay implementation of the CalAIM initiative, resulting in a decrease of $695 million ($347.5 million General Fund) in 2020-21. In addition, the May Revision removes $45.1 million General Fund in 2020-21 and $42 million General Fund in 2021-22 in associated funding for the Behavioral Health Quality Improvement Program.
  • Rescind Support for Hearing Aids — The May Revision proposes to withdraw this proposal to assist with the cost of hearing aids and related services for children without health insurance coverage in households with incomes up to 600 percent of the federal poverty level, for a savings of $5 million General Fund.
  • Mental Health Services Act Reform — The May Revision defers this proposal.
  • Community Schools Grants — The May Revision proposes to eliminate $300 million for community schools grants.
  • Office of Health Care Affordability — The May Revision defers this proposal.
  • 2019 Budget Act Reversions — The May Revision proposes to revert and reduce funding from various augmentations that were included in the 2019 Budget Act. These adjustments include reverting funding for behavioral health counselors in emergency departments, Medi-Cal enrollment navigators, and the Medical Interpreters Pilot Project. In addition, the May Revision proposes to eliminate the augmentation for caregiver resource centers. These changes result in General Fund savings of $25 million in 2019-20 and 2020-21, and $10 million in 2021-22.

Other adjustments (funding shifts), efficiencies (cost/rate reductions), and enhanced funding:

  • Proposition 56 Adjustments — Beginning in 2020-21, the May Revision proposes to shift $1.2 billion in Proposition 56 funding from providing supplemental payments for physician, dental, family health services, developmental screenings, and non-emergency medical transportation, value-based payments, and loan repayments for physicians and dentists to support growth in the Medi-Cal program compared to 2016 Budget Act. About $67 million in Proposition 56 funding would continue to support rate increases for home health providers, pediatric day health care facilities, pediatric sub-acute facilities, AIDS waiver supplemental payments, already awarded physician and dentist loan repayments, and trauma screenings (and associated trainings).
  • Managed Care Efficiencies — The May Revision proposes various changes to the way that managed care capitation rates are determined. These changes include various acuity, efficiency, and cost containment adjustments. These adjustments would be effective for the managed care rate year starting January 1, 2021, and would yield General Fund savings of $91.6 million in 2020-21 and $179 million in 2021-22, growing thereafter. Additionally, the May revision assumes a 1.5 percent rate reduction for the period July 1, 2019, through December 31, 2020, for General Fund savings of $182 million in 2020-21.
  • Enhanced Federal Funding — A decrease of $5.1 billion General Fund, associated with the assumed receipt of an enhanced Federal Medical Assistance Percentage (FMAP) through June 30, 2021. This includes federal funding reflected in the Department of Social Services and Department of Developmental Services budgets for Medicaid-covered services.
  • Managed Care Organization (MCO) Tax — A decrease of $1.7 billion General Fund in 2020-21 associated with the April 2020 federal approval of a revised MCO tax.
  • e-cigarette Tax — A decrease of $10 million General Fund in 2020-21, and $33 million General Fund ongoing beginning in 2021-22, associated with shifting un-allocated revenues from the proposed e-cigarette tax increase to support growth in Medi-Cal costs.
  • See K-12 & Higher Education section for additional investment in school-based mental health.

Child Welfare

The May Revision cuts $90.5 million from the child welfare services budget, including:

  • Eliminating the Family Urgent Response System, cutting $30 million.
  • Eliminating Foster Family Agency social worker rate increases, cutting $4.8 million.
  • Eliminating the Public Health Nurse Early Intervention Program in Los Angeles County, cutting $8.3 million.
  • Revising Continuum of Care Reform Rates, cutting $28.8 million. This proposal will not occur if the federal government provides sufficient funding to restore it.

Full Budget Summary: http://www.ebudget.ca.gov/FullBudgetSummary.pdf