JANUARY 11, 2021

Overview of the Governor’s
2021-22 Budget
PRESENTED TO:

Assembly Committee on Budget
Hon. Philip Y. Ting, ChairL E G I S L AT I V E A N A LY S T ’ S O F F I C E

The Governor’s $15.5 Billion Windfall
Comparing LAO to DOF Windfall Calculation
Our November Fiscal Outlook anticipated a windfall of $26 billion. Major
sources of differences are: Under Department of Finance (DOF) estimates, $5.6 billion more inreserves and debt payments required under Proposition 2 (2014).
 DOF includes $2.8 billion more in coronavirus disease2019 expenditures, net of federal reimbursements.
 DOF’s estimates of baseline spending on major Health and Human

Services programs higher by about $2 billion.
 Our office and DOF have very similar revenue estimates (DOF higher

by only $1.7 billion).

How the Governor Allocates the Windfall
How the Governor Allocates the$15.5 Billion Windfall by Program Area(In Billions)
Housing and Homelessness
Resources and Environment
Health and Behavioral HealthHigher Education
Business AssistanceCriminal Justice

One TimeOngoing

Human Services
Other0.5

L E G I S L A T I V E A N A LY S T ’ S O F F I C E

1.01.52.0$2.51

Proposition 98 Funding
More Than $19 Billion in New Spending for Schools and Community
Colleges. The Governor proposes to spend most of this amount on threemain priorities:
 Paying Down Deferrals ($8.4 Billion One Time). The budget pays

down $8.4 billion of the $12.5 billion in payments deferred in the June
2020 budget plan.
 Providing In-Person Instruction and Expanding Academic

Support ($6.6 Billion One Time). The Governor proposes immediate
action to provide $2 billion in one-time grants to incentivize schools
to offer in-person instruction for younger students and students withhigh needs, potentially as soon as February 16, 2021. The Governor
also proposes early action to provide schools with $4.6 billion ingrants to offer additional academic support for disadvantagedstudents.
 Funding Cost-of-Living Adjustments (COLA) ($2.2 BillionOngoing). This includes a 3.84 percent COLA for the Local Control
Funding Formula and a 1.5 percent COLA for other education
programs.
LAO Comment: Reflects a Reasonable Mix of One-Time and OngoingSpending. By having a substantial amount of one-time spending in 2021-22,
the Governor’s Proposition 98 package provides a cushion to protect ongoingprograms from volatility in the minimum guarantee.

L E G I S L A T I V E A N A LY S T ’ S O F F I C E

2LAO Comments
Recent Federal Action Should Inform State Actions. We recommend
the Legislature: (1) determine how to best target state funds to those notbenefiting from the federal assistance, and (2) strive to complement, rather
than duplicate, the federal activities.
Assessment of Governor’s Immediate Action Proposals. The
Governor’s budget includes $5 billion in actions he proposes the Legislature
adopt within the next few weeks:
 School Reopening Proposal ($2 Billion): We are concerned thisproposal might set unfeasible time lines.
 Tax Refunds for Low-Income Californians ($2.4 Billion): We think

this proposal could be more targeted.
 Small Business and Nonprofit Assistance ($575 Million): This

proposal is worth considering.
 Fee Waivers ($71 Million): This proposal is reasonable.

Framework for Considering $7.8 Billion in Early Action Proposals.
We recommend the Legislature ask the following questions about each early
action proposal. (1) Does the administration provide sufficient evidence of aproblem? (2) Is the proposal time sensitive? (3) Is the entire funding amounttime sensitive? (4) Is there sufficient detail in the plan to assess its potential
success?
Restoring Budget Resilience. We agree the state should remain
focused on the crisis at hand, but restoring most or all of the budget’s
resilience is important to address the state’s multiyear budget problem andhelp California weather the next unexpected downturn.

L E G I S L A T I V E A N A LY S T ’ S O F F I C E

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