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Recessionary State Budget and Trailer Bills Sent to Governor’s Desk

June 26, 2020
Legislature Passes FY 2020–21 State Budget, Rejecting Many Proposed Cuts, but with Pared Down Spending to Address State’s Deficit
Update: Gov. Gavin Newsom signed the 2020 Budget Act into law on Monday, June 29. 

The California State Assembly gave final approval to a budget package Friday evening, including numerous budget-related bills that further the implementation of the FY 2020-21 State Budget. 

The California State Senate gave their stamp of approval Thursday. The budget package is now on its way to Gov. Gavin Newsom’s desk.
The budget in its totality largely rejects the cuts proposed in the Governor’s May Revision and instead balances itself against a projected $54 billion shortfall on the potential of federal assistance, deferrals, and significant use of budget reserves. The budget-related bills reflect a provisional compromise between the Legislature and Governor in anticipation of an August revision following the reporting of state income tax receipts in mid-July.  
The League will continue to fight for resources that cities need to address revenue loss related to the COVID-19 pandemic response and recovery. Read League Executive Director Carolyn Coleman's response to the FY 2020-21 State Budget package.
Budget highlights of interest to cities:
Budget Act of 2020 (SB 74)
This bill is the 2020 Budget Act which provides for FY 2020-21. Notably, this bill includes the following provisions:
Trigger Cuts
If California does not receive at least $14 billion in additional federal assistance by Sept. 1, the following “trigger solutions” may occur:
  • $2.7 billion more from the rainy day fund and Safety Net Reserve.
  • $1.3 billion one-time benefit from reinstatement of a longstanding deferral of state payments to CalPERS, including from state special funds.
  • $5.9 billion of increased deferrals to Proposition 98 (K-14 education) funding.
  • $600 million reduction to the county realignment backfill in the budget plan (leaving $400 million of county backfill remaining).
  • $770 million of university reductions ($370 million for University of California and $400 million for California State University systems).
  • $100 million of reductions to the judicial branch budget.
  • At least $1.5 billion in state employee compensation reductions for represented employees through the collective bargaining process.
  • Potentially another $1.6 billion from reinstatement of the one-day June payroll deferral that was instituted during the last recession (this change would be optional at the direction of the Department of Finance Director).
Federal CARES Act Funding
Allocation of $500 million to cities for homelessness, public health, public safety, and other services to combat COVID-19 pandemic as follows:
  • $225 million directly to cities with a population greater than 300,000 that did not receive a direct allocation from the federal CARES Act. Allocation based on the city’s population.
  • $275 million to cities with a population less than 300,000. Allocation based on the city’s population. No city shall receive less than $50,000.
Funding to local governments is contingent on the local jurisdiction’s adherence to federal guidelines, stay-at-home requirements, and the Governor’s Executive Orders. AB 89  updates these provisions to clarify Executive Orders since March 19, 2020, and all California Department of Public Health orders, directives, and guidance issued in response to the COVID-19 pandemic. Local governments must certify compliance to the Department of Finance. Once certified, the State Controller will allocate funding directly to a local government upon the order of the Director of Finance. If funds are not expended by Sept. 1, the Department of Finance may reallocate those funds to other activities related to COVID-19.
Homelessness Funding
Provides additional funding to support existing homelessness programs including $300 million to the Homeless Coordinating and Financing Council.
Allocates $550 million through the Department of Housing and Community Development for acquisition or acquisition and rehabilitation of motels, hotels, or hostels; master leasing of properties; acquisition of other sites and assets; conversion of units from nonresidential to residential in a structure with a certificate of occupancy as a motel, hotel, or hostel; purchase of affordability covenants and restrictions for units; and the relocation costs for individuals who are being displaced as a result of rehabilitation of existing units. 
Transportation Funding
Rejects the Governor’s May Revision proposal to transfer $130.5 million in interest earnings from the State Highway Account (SHA) to the General Fund.
California Office of Emergency Services
Allocates $50 million one-time General Fund for Community Power Resiliency to support additional preparedness measures that bolster community resiliency and includes budget bill language reflecting the Legislature’s priorities in this area.
Allocates $2 million General Fund for the Wildfire Forecast and Threat Intelligence Integration Center, consistent with Chapter 405, Statutes of 2019 (SB 209), reducing the proposal by $6.8 million General Fund across various departments. 
Department of Parks and Recreation
Rejects the $30 million General Fund ongoing baseline cut to the Department of Parks and Recreation scheduled to begin FY 2021-22.
Department of Water Resources
Approves $18 million General Fund and $10 million Prop. 68 for the New River Project.
Approves the withdrawal of $35 million of General Fund for the Tijuana River Project.
Budget Act of 2020 (Budget Bill, Jr.) (AB 89)
This bill contains major revisions to the Budget Act of 2020 (SB 74) reflecting the negotiated agreement between the Legislature and Governor. The items of relevance to cities are:
  • Housing, Community, and Economic Development
    • Allocates $45 million to the Department of Housing and Community Development for moderate income housing.
    • Allocates $203 million to offset reverted 2019 housing funding.
    • Reverts $453 million of General Fund and $250 million of Self-Help Housing fund funding appropriated to the Department of Housing and Community Development in 2019.
  • Environmental Quality
    • Clarifies language that allows local governments to access $50 million for community power resiliency projects, such as purchasing backup power generators. Local governments are eligible to access these funds if they update the portion of their local emergency plan that speaks to power shutoff events, or attest they will update the section of their local emergency plan that speaks to shutoff events when they next update their plan.
    • Authorizes the Director of the Office of Emergency Services to contract with an operational observer to monitor the efforts of Pacific Gas and Electric Company to prepare for the 2020 wildfire season; implement measures to mitigate the risk of wildfire ignitions from utility infrastructure; and reduce the use, scope, and duration of public safety power shutoffs.
    • Allows the Department of Finance to loan $50 million to the “Golden State Energy” utility for the purposes of establishing Golden State Energy in the event that Pacific Gas and Electric fails to exit bankruptcy.
  • Public Safety
    • Includes $250 million for county public safety realignment sales tax revenue backfill.
    • Eliminates a reversion of unspent CalFire funding in the 2018 and 2019 budgets.
    • Increases funding to the Department of Corrections and Rehabilitation funding:
      • $18.7 million General Fund to reflect May Revision proposals.
      • $13.3 million for psychiatric registry services.
      • $137 million to fund capital projects.
  • Transportation, Communications, and Public Works
    • Allocates $1.3 million to move the Alfred E. Alquist Seismic Safety Commission to the Office of Emergency Services.
  • Revenue and Taxation
    • Maintains $500 million in CARES Act funding for cities allocated in SB 74 with populations under 500,000 persons and adds additional clarity as follows:
      • $275 million to cities with a population less than 300,000 on a per capita basis relative to the population of the cities in this parameter.
      • $225 million to cities with a population greater than 300,000 that did not receive a direct allocation from the CARES Act. The funds will be allocated on a per capita basis relative to the population of the cities in this parameter.
      • No city will receive less than $50,000.
      • Excludes cities with populations above 500,000 that received funds directly from the CARES Act.
      • Requires cities to complete certification documents attesting to local compliance with state public health orders and executive orders issued by the Governor related to COVID-19.
      • The funds are to be used towards public health, public safety, homelessness, and other services to combat COVID-19. It is important to note that to-date the budget measures do not restrict use of these funds further than the CARES Act guidance issued by the U.S. Treasury Department.
  • Governance, Transparency, and Labor Relations
    • CalPERS
      • SB 90 (Chapter 33, Statutes of 2019) included a supplemental pension payment of $3 billion toward the state’s share of its unfunded liabilities with the hopes of maximizing savings over 30 years. Of this amount $2.5 billion was paid to CalPERS in 2019, and instead of being applied over several years, will instead be applied to the next two budget years to produce more immediate savings and a reduction in the state’s retirement contribution. The remaining unspent $500 million will be directed to support core programs due to the ongoing fiscal challenges the state faces.
    • AB 5 enforcement
      • The budget continues to fund the Governor’s January proposals of $22 million to enforce compliance with AB 5 (Chapter 296, Statutes of 2019). The Department of Industrial Relations would receive $17.5 million to increase access to workers’ compensation and to adjudicate labor law violations; the Employment Development Department would receive $3.4 million for staff training and to increase hearings and investigations; and the Department of Justice would receive $780,000 for investigations.
    • Unemployment Insurance
      • The budget includes increased expenditure authority in 2020-21 of $38 billion, (approximately $34 billion federal funds) for Unemployment Insurance.
      • The budget also includes tax-relief for employers whose employees have been laid off or had hours reduced because of COVID-19. The relief includes a potential two-year delay to any employer tax increases for unemployment insurance.
Budget Act of 2019: Augmentation (AB 75)
This bill, the 2020 Supplemental Appropriations Bill, provides budget augmentation for unforeseen state costs that occurred in the 2019-20 fiscal year, primarily related to wildfire and other natural disaster response.
Education Finance: Apportionments (AB 76)
This measure implements deferrals and appropriations to make changes to the Prop. 98 Guarantee without cutting K-12 and Community College education funding.

Bergeson-Peace Infrastructure and Economic Development Bank (IBank) (AB 78)
This bill establishes a Climate Catalyst Revolving Loan Fund at the IBank to receive funds from non-state governmental entities and private sources. The Climate Catalyst Fund will provide loans for climate catalyst projects that further the state's climate goals.
  • Defines “climate catalyst projects” as any building, structure, equipment, infrastructure, or other improvement that furthers California’s climate goals, activities that reduce climate risk, and the implementation of low-carbon technology and infrastructure.
  • Does not make a budget appropriation to this fund. 
Human Services Omnibus (AB 79)
This bill contains significant changes to CalWORKS, CalFresh, Child Welfare, and the Department of Aging, including provisions that predicate program funding based on actual state revenue receipts.            
Public Health Omnibus (AB 80)
This bill implements actions taken affecting the Departments of Health Care Services, Insurance, Managed Health Care, Public Health, State Hospitals, the California Health Benefit Exchange, and the Office of Statewide Health Planning and Development.
  • Requires health care service plans, health insurers, a city or county that offers self-insured or multiemployer-insured plans, and other specified mandatory and voluntary entities to submit health care data to the Health Care Payments Data Program.
Public Health Funding: Health Facilities and Services (includes MCO tax) (AB 81)
  • This bill specifically reauthorizes the skilled nursing facilities quality assurance fee, and provides counties temporary flexibility in the implementation of the Mental Health Services Act in light of the COVID-19 pandemic.
State Government (AB 82)
This bill implements the following actions related to state administration:
  • Establishes the Social Entrepreneurs for Economic Development (SEED), which provides entrepreneurial training, microgrants, technical assistance and support, and outreach and education to individuals who have limited English proficiency or are undocumented to establish or maintain a small business in the state.
  • Deletes the requirement that grants from the Broadband Infrastructure Grant Account do not include funding for costs of broadband infrastructure already funded by the federal Connect America Fund program or other similar federal public programs.
  • Makes statutory changes to allow the California Public Utilities Commission to provide matching funds through the California Advanced Services Fund to broadband providers as they pursue funding from federal programs. 
  • Shifts sworn investigators from the Division of Investigations to the Bureau of Cannabis Control in the Department of Consumer Affairs, and allows non-peace officers to provide investigative services for enforcement activities of cannabis regulations. 
  • Delays the implementation of the Responsible Beverages Act from July 1, 2021, to July 1, 2022, to provide relief to licensees of the Department of Alcoholic Beverage Control.
Housing (AB 83)
This bill includes the following provisions and funding for housing, homelessness, and tenants:

Homeless Housing, Assistance, and Prevention (HHAP) program - Round 2
  • Creates a Round 2 of HHAP funding in the amount of $300 million. These funds must be used on evidence-based solutions that address and prevent homelessness.
  • Allocates $300 million as follows:
    • $90 million to Continuums of Care (CoC).
    • $130 million to each city, or city that is also a county that has a population of 300,000 or more as of Jan. 1, 2020.
    • $80 million to counties.
  • Allows a city, city and county, or single CoC to apply jointly with a counterpart entity or entities.
Applications for Round 2 program allocations will be available no later than Nov. 30, 2020 and shall be due to the Homeless Coordinating and Financing Council (HCFC) no later than 60 days from the date HCFC makes those applications available.

Property Exchange for Affordable Housing
  • Allows state properties to be exchanged for another property or other properties belonging to a local government if:
    • The Department of Housing and Community Development has determined that the property or properties proposed to be conveyed to the state are suitable for the purpose of affordable housing.
    • The Director of the Department of General Services makes a finding that the exchange is in the best interest of the state.
    • Defines “affordable housing” to have the same meaning as Section 50052.5 of the Health and Safety Code.
Planning and Zoning Law
  • Revises the requirements for a unit to qualify for inclusion in a committed assistance program, including extending long-term affordability covenants and restrictions that require the unit to be available at affordable housing costs for at least 55 years. Authorizes units in a motel, hotel, or hostel that are converted from nonresidential to residential to count towards a jurisdiction's adequate sites, if specified conditions are met, including that the unit is part of a long-term recovery response to COVID-19, and authorizes spaces in specified mobile home parks.
  • Revises the definition of “committed assistance” to instead require the city or county to enter into a legally enforceable agreement during the period from the beginning of the projection period until the end of the fourth year of the planning period that obligates sufficient available funds or other in-kind services.
Building Homes and Jobs Trust Fund
  • Extends the deadline for a jurisdiction to encumber its SB 2 planning dollars to Dec. 31, 2020, and expend those funds no later than Dec. 31, 2023.
Local Early Action Planning Grants
  • Extends until Jan. 31, 2021, the time that a jurisdiction may request an allocation of funds for the Local Early Action Planning Grants.
Project Roomkey
  • Allocates $550 million through the Department of Housing and Community Development for acquisition or acquisition and rehabilitation of motels, hotels, or hostels; conversion of units from nonresidential to residential; and the relocation costs for individuals who are being displaced as a result of rehabilitation of existing units. Project Roomkey is a collaborative effort to secure hotel and motel rooms for vulnerable people experiencing homelessness. It provides a way for people who do not have a home to stay inside to prevent the spread of COVID-19.
  • Requires funds from the federal CARES Act to provide housing for individuals and families who are experiencing homelessness or who are at risk of homelessness be disbursed in accordance with the Multifamily Housing Program, including grants to cities, counties, and other local public entities for the following:
    • Acquisition or rehabilitation of motels, hotels, or hostels.
    • Master leasing of properties.
    • Acquisition of other sites and assets, including purchase of apartments or homes, adult residential facilities, residential care facilities for the elderly, manufactured housing, and other buildings with existing residential uses that could be converted to permanent or interim housing.
    • Conversion of units from nonresidential to residential in a structure with a certificate of occupancy as a motel, hotel, or hostel.
    • The purchase of affordability covenants and restrictions for units.
    • Relocation costs for individuals who are being displaced as a result of rehabilitation of existing units.
    • Capitalized operating subsidies for units purchased, converted, or altered with funds provided by this section.
  • Requires that any project using funds received from the federal CARES Act for any of the purposes specified above shall be deemed consistent and in conformity with any applicable local plan, standard, or requirement, and allowed as a permitted use, within the zone in which the structure is located, and shall not be subject to a conditional use permit, discretionary permit, or to any other discretionary reviews or approvals.
California Environmental Quality Act (CEQA) Exemption
Provides a CEQA exemption for Project Roomkey projects, until July 1, 2021, if all of the following requirements, if applicable, are satisfied:
  • No units were acquired by eminent domain.
  • The units will be in decent, safe, and sanitary condition at the time of their occupancy.
  • The project proponent requires all contractors and subcontractors performing work on the project to pay prevailing wages for any rehabilitation, construction, or alterations.
  • The project proponent obtains an enforceable commitment that all contractors and subcontractors performing work on the project will use a skilled and trained workforce for any rehabilitation, construction, or alterations.
  • The project proponent submits to the lead agency a letter of support from a county, city, or other local public entity for any rehabilitation, construction, or alteration work.
  • Any acquisition is paid for exclusively by public funds.
  • The project provides housing units for individuals and families who are experiencing homelessness or who are at risk of homelessness.
  • Long-term covenants and restrictions require the units to be restricted to persons experiencing homelessness or who are at risk of homelessness, which may include lower income, and very low income households, for no fewer than 55 years.
  • The project does not increase the original footprint of the project structure or structures by more than 10 percent. Any increase to the footprint of the original project structure or structures shall be exclusively to support the conversion to housing for the designated population.
Low Income Housing Tax Credit
  • $500 million in new State Low Income Housing Tax Credits for 2020-21. Increasing available state tax credits for low-income housing is an investment in affordable housing in California. 
Homeowner and Tenant Protections
  • Allocates $300 million to be administered by the California Housing Finance Agency for the purpose of providing housing counseling services to homeowners, former homeowners, or renters, and provide mortgage assistance to households, including borrowers who own residential properties with four or fewer units.
  • Allocates $31 million to Judicial Council for qualified legal services projects and support centers to provide eviction defense or other tenant defense assistance in landlord-tenant disputes, including pre-eviction and eviction legal services, counseling, advice and consultation, mediation, training, renter education, and representation.
Public Employment and Retirement (AB 84)
This bill makes conforming changes to reflect budgetary decisions related to the payment plans for CalPERS and CalSTRS.
  • Ensures the statutorily required payment rates for teachers are decreased to reflect the state’s additional contributions to cover the state’s share.
  • Implements the Personal Leave Program (furloughs) for state employees consistent with their relevant bargaining unit decisions and for all non-represented employees.
  • Revises the payment and distribution schedule of the state’s PERS contribution to reflect the usage of planned advance payments to be available for the next two budget years to cover the state’s required contributions.
State Taxes and Charges (AB 85)
This bill makes several changes to tax law that improves reporting, limits tax credits, and extends sales tax exemptions. 
  • Requires used car dealers to remit the sales tax from a vehicle sale to the Department of Motor Vehicles with the registration fee. This change is projected to increase by millions state and local revenues from these transactions.
  • Extends the sales and use tax exemption for diapers for infants, toddlers, and children, and menstrual hygiene products from Jan. 1, 2022 to July 1, 2023.
Transportation (AB 90)
This bill implements actions related to transportation:
  • Institutes a two-year hold harmless provision for transit operators that receive state funding and whose ridership levels have been negatively impacted by COVID-19.
  • Eliminates financial penalties for non-compliance with transit funding efficiency measures in the Transportation Development Act and the State Transit Assistance Program.
  • Requires aviation fuel retailers to provide to the California Department of Tax and Fee Administration quarterly information on revenue from aviation fuel taxes beginning Jan. 1, 2020.
Public Resources: Omnibus Trailer Bill (AB 92)
This bill implements an omnibus related to resources. Specifically this measure:
  • Authorizes the State Water Resources Control Board (SWRCB) to issue a certificate or statement before completion of an environmental review, which is required under CEQA, if SWRCB determines that waiting until completion of the environmental review poses a substantial risk of waiver of the state’s certification authority under federal water quality control laws.
  • Requires SWRCB, to the extent authorized by federal law, to reserve authority to reopen and revise the certificate or statement as appropriate based on the information provided in the environmental review document.
Personal Income Tax: Earned Income Tax Credit (EITC); Young Child Tax Credit; Federal Individual Taxpayer Identification Number (AB 93)
This bill extends the EITC and Young Child Tax Credit, beginning on or after Jan. 1, 2020, to parents of young children who have a federal individual taxpayer identification number.

State Government (AB 100)
This bill implements actions related to state administration:
  • Allows costs related to the administration of an election during the COVID-19 pandemic to be a reimbursable expenditure.
  • Establishes the Alfred E. Alquist Seismic Safety Commission as a separate unit within the Office of Emergency Services.
    • Maintains the requirement that the League of California Cities submit at least four members for consideration to serve on the commission.
Retirement Savings (AB 102)
This bill transfers enforcement responsibilities for the CalSavers program from the Employment Development Department to the CalSavers Retirement Board and the Franchise Tax Board and makes other technical updates to the program.

Unemployment Compensation Benefits: COVID-19 (AB 103)
This bill expands the flexibility of the state in administering the Unemployment Insurance program by:
  • Prohibiting unemployment compensation benefits paid to an unemployed individual from being charged against the reserve account of a tax-rated employer, unless the employer or an agent of the employer was at fault.
  • Allows the state to trigger onto the Federal-State Extended Benefit program using the Total Unemployment Rate, which would potentially provide up to 20 weeks of total Unemployment Insurance extended benefits to unemployed workers, funded 100 percent by the federal government
State Employment: State Bargaining Units (AB 119)
This bill ratifies the Memorandums of Understanding, or addenda or both between the state and 12 of its 21 bargaining units and makes related changes to employee compensation, other post-employment benefits and other technical adjustments.

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