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Governor Releases May Revise Budget with New One-time Funding for Homelessness, Mental Health and Infrastructure

Economic Forecast Projects 174,000 Housing Units Annually by 2021

May 11, 2018
Gov. Jerry Brown held a press conference on Friday, May 11 to release his revised FY 2018–19 budget proposal for the fiscal year that begins July 1.
Known as the May Revise, the proposal includes $137.6 billion in General Fund spending and a total spending amount of $199.3 billion. Pointing to his usual charts showing California’s boom and bust cycles, dependence on capital gains taxes and spending history, the Governor repeated his fiscal prudence mantra while warning of the inevitability of the next recession. FY 2018–19 marks the Governor’s 16th and final budget and he expressed a desire to leave the state’s finances in order as he completes his fourth term in office.
With revenues expected to come in higher than what the Governor projected in January, he continues to prioritize building reserves and one-time spending. He proposes to fully fund the Rainy Day reserve at $13.8 billion by the end of FY 2018–19, with an additional $3.2 billion into the state’s traditional budget reserve. The May Revise allocates $4 billion in new one-time spending to address some of California’s most urgent needs.
In response to requests for additional funding to address homelessness, led by mayors of California’s 11 largest cities and supported by the League, the Governor proposes an additional $359 million in spending to address homelessness. He characterized this as a “bridge” to provide upfront funding before the state has revenues derived from a recent tax on various real estate transactions through last year’s SB 2 (Atkins) and proceeds from a $4 billion housing bond pending on the November ballot enacted by SB 3 (Beall). The Governor emphasized that addressing homelessness is more than sending extra money to cities and that California needs a framework to help the homeless get needed mental health and addiction treatment. While the May Revise contains less funding than the proposals pending in the Legislature, it is encouraging to see the Governor willing to negotiate with the Legislature and local governments on this important issue. 
The Governor is also proposing to end the legal uncertainty associated with the No Place Like Home program by asking voters to approve an amendment to Proposition 63, the Mental Health Services Act. The proposed ballot measure would ask voters to validate that funding from Prop. 63 can be used to fund a $2 billion bond for permanent supportive housing for homeless individuals or those at risk of becoming homeless, who need mental health services. The Governor views that this is a more expedited path than the courts.
The other one-time funding allocations in the May Revise are $2 billion for deferred maintenance on state infrastructure including courts, universities, state facilities and flood control; and $312 million for mental health services.
In addition to homelessness, the League requested one-time funding in three areas: $100 million for disaster preparedness, prepositioning and mutual aid; $100 million for organic waste diversion; and $100 million for the Transformative Climate Communities program. The May Revise does not include additional funding in these three areas, however, continued discussions by the Legislature on these proposals are expected.
During the press conference, the Governor expressed concern about the pending ballot measure to take away SB 1 transportation funds and also alluded to another proposal anticipated to be on the ballot that would create additional uncertainty for local governments (presumably the American Beverage Association and California Business Roundtable-sponsored measure that would significantly limit local tax and fee authority). 
When asked about pensions, the Governor said that “the story is not over.” He stressed that there will be a number of developments in the next few years, including court decisions, that could make significant changes to the pension system. The Governor, who signed the Public Employees’ Pension Reform Act in 2012, noted that these reforms will have a greater impact each and every year as the workforce brings on new employees. The May Revise summary references the pressure from pensions on local governments. However, in the Governor’s remarks, he warned that the state is not in a position to bail out cities and counties on pension challenges. 
While housing was not discussed during the press conference, the budget document reveals favorable news on housing starts. Annual residential building permits are projected to increase to 174,000 by 2021. This is a dramatic increase from prior-recession levels and brings production levels near the state’s identified annual need of 180,000 units.
Details on budget areas of importance to cities are outlined below.
The Governor’s May Revise indicates that net housing production in 2017 was 85,000 when factoring in loses due to natural disasters which destroyed 13,000 units. However, it is forecasted that annual residential building permits will likely increase to around 174,000 by 2021. This is a dramatic increase and brings production levels near the state’s identified annual need of 180,000 units to keep pace with population growth.
The Governor’s document acknowledged that it will take time for the many policy changes made in 2017 to be fully implemented and begin to have an effect on the housing market. For more information about the 15-bill “Housing Package”, please see the League’s 2018 Guide to New Housing Law in California.
It is unfortunate that the May Revise does not include any new funding specifically for affordable housing. Instead, it highlights possible future funding, if voters approve the $4 billion Veterans and Affordable Housing Bond Act of 2018, which will appear on the November 2018 ballot.
Pension Sustainability
The state has a projected $291 billion in long-term retirement related costs. In spite of the enactment of the Public Employee’s Pension Reform Act (PEPRA), equal prefunding of retiree health for state workers and the $6 billion prefunding allocation to CalPERS in last year’s budget, California’s unfunded liabilities continue to rise — by $15 billion since the release of the January budget alone. The May Revise expressed confidence that the state can continue to manage its retirement risk until major cost-savings from PEPRA are realized, but cautioned that local governments are not as well positioned and face even greater budgetary pressures due to rising employer contributions.
Homelessness has been a major topic this year in the Legislature. Discussions began in February, when the mayors of the 11 largest cities in California submitted a letter to former Senate pro Tem Kevin de Leόn and Speaker Anthony Rendon asking for immediate focus and significant assistance from the state to address the homelessness problem facing nearly every city in California. Soon after, three Legislators brought forward homelessness funding proposals:
  • AB 3171 (Ting) Homeless Persons Services Block Grant — Establishes the Local Homelessness Solutions Program for the purpose of providing $1.5 billion to cities to create innovative and immediate solutions to the problems caused by homelessness.
  • Assembly Member Chiu Budget Request Letter $1 billion — $500 million for programs that target chronically homeless and $500 million for the Multifamily Housing Program for affordable housing development.
  • SB 912 (Beall) Housing: Homelessness Programs and Affordable Housing — allocates $2 billion from the General Fund to the Department of Housing and Community Development for various homelessness programs and affordable housing.
The Governor's focus on addressing homelessness at the local level is one of the bright spots. The May Revise makes it clear that he believes that homelessness is fundamentally a local government responsibility, with cities responsible for the zoning and siting of housing and counties responsible for the provision of health and social services. The League agrees that local jurisdictions are best positioned to address homelessness and identify solutions to meet local needs, as long as adequate resources are made available by the state.
 The May Revise proposes $359 million in one-time spending and $64 million in on-going allocations:
  • Create a one-time Homelessness Emergency Aid block grant of $250 million administered through Continuum of Care (federal HUD designations) for cities, counties, and Joint Powers Authorities that declare a local shelter crisis and identify city-county coordination. Grants can be used for emergency housing vouchers, rapid rehousing, and emergency shelter construction, among other activities.
  • Provide one-time funding of $1 million through the California Office of Emergency Services (Cal OES) to augment the Homeless Youth and Exploitation Program for homeless and exploited youth shelters that serve unaccompanied minors.
  • Increase funding by $10 million through Cal OES for additional domestic violence service providers for projects that include emergency “safe” homes or shelters for victims and their families.
  • Provide a one-time augmentation of $50 million for the Department of Health Care Services to provide counties with funding for intensive outreach, treatment and related services for homeless persons in need of mental health services, as referenced in the Health and Human Services Chapter.
  • CalWORKS Housing Support Program — an increase of $24.2 million to help CalWORKs families secure permanent housing. With an additional augmentation in FY 2019–20, the total program funding will increase from $47 million to $95 million annually. This program provides counties with flexibility to address the needs of each family, including move-in assistance, temporary rental subsidies, and intensive case management.
  • CalWORKS Homeless Assistance Program — an increase in daily payment rate for temporary assistance for families who are homeless of face imminent eviction. This program provides up to 16 days of temporary housing each year for eligible families. The May Revise includes $8.1 million in FY 2018–19 and $15.3 million in FY 2019–20.
  • Home Safe Pilot Program — $15 million on a one-time basis to fund a pilot program with Adult Protective Services. This program provides housing related support to seniors experiencing homelessness or at risk of losing their home by providing temporary rental or utility assistance, housing repairs, landlord mediation, and case management. This program requires local match.
  • Provides $500,000 and three positions to expand the Homeless Coordinating and Financing Council. The council will work in collaboration with stakeholders to evaluate grant proposals for the Emergency Homeless Aid Block Grant.  
As discussed above, the Governor in his May Revise proposes placing the No Place Like Home program, which earmarks a portion of Prop. 63 (2004) mental health dollars to fund a $2 billion bond to help house homeless mentally ill people, on the November 2018 ballot. This would allow voters to validate the bond instead of waiting for validation from the courts. It is important to note that the No Place Like Home program has been waiting for the courts to validate since it passed in 2016.
Transportation, Communications and Public Works
In addition to the existing and ongoing transportation funds local governments receive monthly from the Highway Users Tax Account, the Governor’s May Revise includes $2.8 billion in new SB 1 revenues for state and local transportation funding in FY 2018–19. Nearly identical to the figures reported in January, the May Revise highlights the transportation programs below slated for the following allocations.
  • $1.2 billion for local streets and roads, including $600 million for cities and $600 million for counties.
  • $355 million for State Transit Assistance.
  • $330 million for the Transit and Intercity Rail Capital Program.
  • $200 million for the State-Local Partnership Program.
  • $100 million for the Active Transportation Program. 
  • $75 million in one-time loan repayments.
  • $25 million for Local Planning Grants.  
  • $1.2 billion for maintenance of the state highway system known as the State Highway Operation and Protection Program.
  • $400 million for bridges and culverts.
  • $306 million for trade corridor enhancements.
  • $250 million for commuter corridors.
  • $25 million for freeway service patrol.  
As mentioned in the League’s January budget summary, it is important to note the increase in FY 2018–19 funding of $1.2 billion compared to FY 2017–18’s partial year of funding of $445 million, divided equally between cities and counties. City and county funding will rise to approximately $1.5 billion by the next fiscal year and grow over the following years when adjusted for inflation and as all the revenue increases go into effect.
State Infrastructure Investments
The Governor’s May Revise includes $630 million in general funds for office building projects in Sacramento, including demolition of the State Printing Plant and renovations to three other state buildings. In addition, one-time funding of $1.06 billion from the General Fund, $143.5 million in Prop. 98 General Fund, and $7 million in funds from the Motor Vehicle Account is available for deferred maintenance needs for some of the following purposes and state departments:
  • $143.5 million for California’s Community Colleges.
  • $174 million for the Department of Corrections and Rehabilitation.
  • $100 million for levee repairs through the Department of Water Resources.
  • $100 million for the Judicial Branch.
  • $100 million for the Department of State Hospitals.
  • $100 million for the California State University.
  • $100 million for the University of California.
  • $100 million for the Department of Parks and Recreation.
  • $60 million for the Porterville Facility, Department of Developmental Services.
  • $50 million for the California Military Department.
  • $50 million for the Department of Veteran Affairs.
  • $10 million for the Network of California Fairs.
  • $8 million for the Office of Emergency Services.
  • $5 million for the California Highway Patrol.
  • $4 million for the Department of Food and Agriculture.
  • $4 million for the Department of Forestry and Fire Protection.
  • $2 million for the Department of Motor Vehicles.
  • $2 million for the California Conservation Corps.
  • $2 million for the California Science Center and Expo.
  • $1 million for the Hastings College of Law.  
Wildfire Response and Recovery
The wildfires in late 2017 in Northern and Southern California were the most lethal and destructive in state history. Because the full magnitude of costs and needs had not been established by the time the Governor released his January budget, it included just $419.1 million for recovery, response and preparation activities. The May Revise reflects additional proposed funding for such activities.
The League has worked with a coalition of fire services and local government organizations to seek $100 million in additional funding for local fire services, including prepositioning, modernizing the state’s Mutual Aid System and upgrading notification systems. While the May Revise does not include additional funding for these purposes, the League and other stakeholders continue to urge the Legislature to include such funds in its budget proposal.  
The Governor’s May Revise proposes additional funding for wildfire response and recovery in the following areas that are key for local governments:
  • California Disaster Assistance Act funding — An increase of $49.5 million General Fund over January for a total of $121.7 million in California Disaster Assistance Act funding to repair, restore, or replace public real property damaged or destroyed by a disaster, and to reimburse local government costs for emergency activities during a state of emergency.  
  • Local Property Tax Backfill — $32.8 million General Fund to backfill property tax revenue losses that cities, counties, and special districts will incur in FY 2017–18 and FY 2018–19 because of the 2017 wildfires and mudslides. Of this the Revise proposes $21.8 million for Northern California jurisdictions and $11 million is for Southern California jurisdictions.  
  • Debris Removal Cost Share — $29.1 million General Fund to waive the local match for Northern California counties’ share of debris removal costs.  
  • Situational Awareness and Collaboration Tool — $678,000 ($353,000 General Fund plus $325,000 reimbursement to Cal OES) to manage and train local agencies using the tool to coordinate disaster response efforts, including but not limited to, evacuations, warnings, and shelters.  
  • 9-1-1 Modernization — $15 million to modernize the state’s 9-1-1 system (see First Responder Communications in the Public Safety section for details).  
  • California Disaster Assistance Act — $11.2 million ($2.8 million General Fund plus $8.4 million Federal Trust Fund) to administer recovery programs including the CDAA and federal disaster programs.  
  • Volunteers — $675,000 General Fund for workers’ compensation benefits for injured volunteers or survivors.  
  • CalRecycle — $1.3 million from the Integrated Waste Management Fund for CalRecycle to lead a disaster recovery and debris removal team to respond to disaster events, train internal staff, support local agency requests for technical assistance, and assist with disaster response and debris removal plans.  
  • Schools — $14.4 million from the Federal Trust Fund to local educational agencies, including charter schools and private schools to assist with restarting school operations in areas that were affected by the disasters.  
  • Additional allocations are proposed for Cal OES and CalRecycle for staffing related to emergency coordination and hazard mitigation.  
The Governor also released a Forest Carbon Plan yesterday with proposed funding in today’s May Revise. For additional details, see the Environmental Quality section.
Environmental Quality
As a result of extending the Cap-and-Trade program through 2030, the state has garnered additional Cap-and-Trade revenues. These revenues are deposited into the Greenhouse Gas Reduction Fund (GGRF) and may be appropriated through the budget or other legislation. The January budget proposed a $1.25 billion GGRF expenditure plan and the May Revise proposes to spend an additional $50 million GGRF for the Forest Carbon Plan outlined below.
The League continues to seek additional appropriations of GGRF funds for the local fire services, waste diversion infrastructure, and the Transformative Climate Communities Program.
Forest Carbon Plan
Acknowledging the risks of wildfires and floods, the May Revise proposes funding for a newly released Forest Carbon Plan. The Forest Carbon Plan, released by the Governor with an accompanying Executive Order on May 10, sets forth a multi-prong strategy to improve forest health and increase forest resiliency to improve the health and resiliency of California’s forests. In addition to $160 million proposed in January’s Cap-and-Trade expenditure plan, the May Revise proposes $96 million to implement key recommendations of the Forest Carbon Plan through a yet-to-be-convened Forest Management Task Force.
The May Revise proposes funding for the following Administration priorities:
  • Prescribed Fire and Fuel Reduction — $26.8 million GGRF increase and 79 positions for CAL FIRE for six year-round crews to reduce fuel and to implement a forest health research and monitoring program (the Forest Carbon Plan recommends increasing prescribed fire and fuel reduction for CAL FIRE to treat 60,000 acres per year).  
  • Local Forest Restoration Grants:
    • $30 million increase from Prop. 68 if it is approved by voters in June 2018, for the Sierra Nevada Conservancy to support regional, landscape-level forest restoration projects in collaboration with federal and local agencies, including through the Watershed Improvement Program, as well as to fund Forest Carbon Plan recommendations.
    • $20 million GGRF increase for the Natural Resources Agency to provide block grants to support regional implementation of landscape-level forest restoration projects that leverage non-state funding. Expands the model of the Sierra Nevada Conservancy’s Watershed Improvement Program to the Northern, Coastal and Southern California regions.  
  • State Parks — $15 million increase from Prop. 68 for the Department of Parks and Recreation for restoration efforts in state parks, including coastal redwoods, central Sierra sequoias, coastal pines, and oak woodlands.  
  • Watershed Coordinator Grants — $1.9 million increase from the Environmental License Plate Fund for the Department of Conservation to provide grants to local entities to develop and implement watershed improvement plans.  
  • Markets for Wood Products — $2.3 million increase from the Timber Regulation and Forest Restoration Fund for programs that encourage markets for wood products, including (1) establishment of a Joint Institute for Wood Products Innovation; (2) financial support for mass timber and wood product manufacturing; and (3) grants for local jurisdictions to showcase the architectural design of mass timber buildings.  
Flood Control Infrastructure
The Governor proposed $295 million in new funding in the May Revise for flood control infrastructure in recognition of the more extreme weather events that are expected. Funding needs identified by the Central Valley Flood Protection Plan are estimated at $17–21 billion over 30 years for projects as well as operations and maintenance. The following are proposed major areas of increase funding:
  • Central Valley — $170 million for the state cost-share of the U.S. Army Corps of Engineers’ urban flood control projects for 200-year flood protection in the urban areas of the Central Valley.  
  • Deferred maintenance — $100 million to the Department of Water Resources for levee repairs with priority funding for critical and serious sites, including those damaged levees and infrastructure damaged in the 2017 storms.  
  • Operations and Maintenance — $25 million for incentives for ongoing levee maintenance, including cost-sharing with local agencies. Incentive would: (1) encourage regional governance to allow local entities to assess beneficiaries of the levee system; and (2) updating assurance agreements to clarify levee maintenance responsibilities. Funds may also be used for projects that reduce potential state liability.  
Community Services
Child Care
In January, the Governor proposed funding in keeping with a three-year plan to expand child care and preschool slots and increase rates after child care and preschool programs faced major cuts during the Great Recession.
The May Revise builds upon these investments with the following adjustments:
  • CalWORKS Child Care — $104 million increase for CalWORKS Stage 2 and 3 to reflect increased caseload and cost of care. The total costs estimate for Stage 2 is $559.1 million and Stage 3 is $398 million.  
  • Cost-of-Living Adjustment — $4 million increase ($2.2 million Prop. 98 General Fund plus $1.8 non-Prop. 98 General Fund) over the January Budget proposal to reflect an increase in the cost-of-living.  
  • Temporary Assistance for Needy Families (TANF) — Proposes to backfill a loss of federal TANF funds that are no longer available using state Prop. 98 General Fund.  
Labor Relations

Workplace Discrimination and Harassment
In response to the highly publicized #METOO movement, the May Revise includes $1.4 million for the Department of Human Resources to establish a tracking system specific to data regarding complaints, judgments and settlements related to workplace discrimination and harassment across all state entities. A unit established within the Office of Civil Rights will be created to identify and monitor trends, patterns and problematic behavior as well as prepare executive and legislative reports on their findings.
Voting: Secretary of State
$134 million is allocated for voting systems replacement for counties.
First-Responder Communications
The Governor’s 2018 May Revise includes $15 million for a five-year plan for the State Emergency Telephone Number Account (SETNA) to modernize the state’s 9-1-1 system from analog to digital with a Next Generation 9-1-1 system and improve public safety communications during emergency events.

As reported in January, the Administration acknowledges that the current SETNA fee model is no longer sufficient to support the legacy 9-1-1 system or the buildout for the Next Generation 9-1-1 system. The budget would revise the fee structure to a per-subscription flat rate on all voice and data plans similar to other states, which is currently only charged on intrastate voice plans. Also noted in January, the Administration formally opted into the federal FirstNet program that aims to deliver a dedicated telecommunications spectrum to law enforcement and first responders.
Collectively, these proposals aim to provide the following benefits to the 9-1-1 system:
  • Public safety radio systems that link responders and dispatchers.
  • Redundancy and resiliency.
  • Enhanced disaster recovery.
  • Faster call delivery.
  • Improved routing accuracy and functionality.
  • Call overflow and backup functionality.
  • Updated geographic information capability and wireless location data.
  • Incoming text ability.
  • Improved public safety and emergency response capabilities.  
Department of Corrections and Rehabilitation
The May Revise emphasizes continuing progress on efforts to manage the prison population consistent with the federal court order to maintain that population at 137.5 percent of the correctional system’s design capacity. Three key measures were adopted in recent years in response to this issue: AB 109 (2011) shifted lower level offenders from state prison into county jails; Prop. 47 (2014) reclassified a host of felony offenses as misdemeanors; and Prop. 57 (2016) provided inmates with incentives in the form of good time credits for significant rehabilitation programming, granting courts discretion as to whether young offenders should be tried as adults, creating a parole consideration process for non-violent offenders who serve 100 percent of their baseline sentence. Collectively these changes have resulted in reducing the state prison population below the court-mandated 137.5 to 134.6 percent of design capacity. 
While such policy changes have benefited the state’s overcrowding problem, policy questions remain over its ultimate impact on public safety in communities. The May Revise projects that Prop. 57 will result in 5,800 fewer state inmates in FY 2018–19 and 11,200 fewer inmates in FY 2020–21.
The Governor’s budget in January contained an expansive summary of the Administration’s efforts to support various rehabilitation efforts and education programs designed to provide marketable job skills to prisoners, reduce substance abuse, and avoid recidivism. The May Revise proposes various funding augmentations to support additional training for correctional officers, improve counselor ratios, assist with medical transportation of prisoners, enact a pilot project to limit drug and contraband, expand psychiatry services, treat hepatitis C, and repair prison buildings.
Department of Justice
The May Revise contains several funding augmentations to support the following programs:
  • $10 million to implement the California Sex Offender Registry (SB 384, Chapter 541, Statutes of 2017) which mandates replacement of the lifetime sex offender registry with a tiered registration system beginning Jan. 1, 2021.
  • $14 million to support four investigation teams and one interdiction team to combat large-scale illegal cannabis activities.
  • $6 million to offset declines in fine and fee revenues that support the DNA identification fund.
  • $5.4 million to replace forensic equipment within the Bureau of Forensic Services.
  • $5.4 million to support two investigation teams to combat cybercrimes, white collar crimes and human trafficking.
  • $2.3 million to secure the Department of Justice and law enforcement data.    
Next Steps
While budget committee hearings have been underway in the Capitol, the May Revise will begin the more active budget committee hearing process. June 15 is the constitutional deadline for the Legislature to send the Governor its budget. The League will continue to examine the details of this budget proposal, committee hearings and provide addition information to cities as warranted.

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