GOVERNOR BROWN ANNOUNCES 2017 - 2018 MAY REVISE

 

Today, Governor Brown released his 2017 - 2018 May Revise, reflecting many of the same priorities introduced in the Governor's original January budget proposal. This includes his steadfast commitment to fiscal prudence and a caution to stop any new spending, warning against a dismal fiscal outlook. Despite January projections, there has been an increase of $2.2 billion in tax revenues. This has allowed the Governor to salvage formally proposed budget cuts, including restoring $500 million to child care programs, and providing a $1.4 billion increase to K-12 expenditures. The Governor has also proposed to reduce pension liabilities through a $6 billion supplemental payment to CalPERS. Missing from the Revise is the many federal funding unknowns, which is sure to dictate the construction of a final budget in June.

 

Some of the federal decisions weighing heavily on California's budget include the potential overhaul of the federal healthcare system. The State is profoundly reliant on federal funding for State enacted healthcare programs including, Covered California and Medi-Cal. Nearly 70 percent of Medi-Cal costs are covered by federal funding, and the expansion costs of Medi-Cal were found to be miscalculated. An elimination or severe reduction in federal funding would be challenging to overcome. Also adding to a potential decrease in federal funding is the threat of reduced federal allocations to "sanctuary" cities and/or states. The Administration has claimed that local law enforcement found not to be collaborating with federal authorities would be in danger of losing federal grants and other federal resources allocated to states. There are several bill proposals in the legislature, and local city ordinances, that could jeopardize funding to individual cities and the state.

 

Despite these federal funding unknowns, the Revise confirms other State spending priorities. Just last month, the Governor signed SB 1, the "Road Repair and Accountability Act of 2017". In January, the Governor's budget acknowledged that the State's transportation and highway maintenance was at a near $6 billion shortfall. The Governor's January proposal outlined $4.2 billion for transportation funding over the next 10 years, reliant on the support of gas and vehicle tax increase revenues. SB 1 fulfilled this mission with a $52.4 billion 10-year investment towards highway maintenance and transportation infrastructure, and created the same revenue mechanism. Most notable for cities, is the allocation of 50 percent of the proposed $52.4 billion investment for cities' local transportation and infrastructure needs. The biggest change for cities will come from the new reporting and maintenance of effort requirements for local governments to receive newly provided grant funding. These reporting requirements are still in the process of development. ACC-OC will use this time to work with SB 1 stakeholders to ensure that our cities' input and interests are communicated and considered for adoption in the final reporting structure.

 

In the Governor's January budget proposal Orange County was especially affected by the shift in costs from the State to the counties for In-Home Supportive Services (IHSS) Maintenance of Effort (MOE) programs, including the cessation of the Coordinated Care Initiative (CCI). The County is dependent on this cost sharing arrangement and had been put in the position of finding a way to absorb this $37.8 million budget gap. The Governor's May Revise restores the share-of-cost structure for counties by allocating $400 million to mitigate some county cost burdens. The Governor's Administration has also committed to continuing discussions with counties over the cost of IHSS programs due to the volatile nature of 1991 Realignment revenues.

 

In addition to these May Revise updates, h ig h lig h t e d below are the status reports, and changes to the Governor's original budget proposal reflected in the Revise. These policies have been selected as being the most relevant or having the most effect on local governments and cities.

 

Local Government
This May Revise did not change the winding down of redevelopment agencies, and retained the allocation of an additional $733 million for cities in general purpose revenues over the 2016 - 2018 years. Cities are still forecasted to receive a portion of the $900 million in additional, ongoing property tax revenues, providing local governments the flexibility to fund key public services.

The Revise still allocates 2020 Census data collection grants ranging from $7,500 - $125,000 to cities and counties. Grant allocation will be based on housing transactions within a cities' jurisdiction over the 2010 - 2016 years, to receive this allocation each city must register with the Census Bureau and provide necessary materials and data.

Also affecting local governments is the passage of Prop 64, the legalization of recreational marijuana. In January's budget proposal, the Governor proposed the implementation of one regulatory structure for cannabis activities addressing both medical and recreational marijuana use, funded by a $52.2 million budget allocation. The May revise provides for an additional $43.2 million allocation, totaling to a $94.6 million State investment in cannabis regulation. Even though this appropriation doesn't go directly to local governments, this structured regulatory plan will affect the oversight framework for city implementation, as well. Due to this increase, the funding for the government agencies and departments overseeing cannabis regulations has slightly changed. To view the outlined dollar distributions towards each agency, click here.

The May Revise addresses local public safety by increasing the flexibility on how cities use 2016's $25 million Community Based Transitional Housing program funds. The program allows cities and counties to apply for funds that would be allocated to for-profit and non-profit businesses providing transitional housing and services to offenders released from the criminal justice system. Additionally, due to Prop 57 post release schedules, there has been an increase of $4.4 million dollars for county probation departments to manage the surge in those leaving the criminal justice system, totaling a $15.4 million State investment.

The 2017 January proposal touched briefly on the Sustainable Groundwater Management Act of 2014 (SGMA). The May Revise maintains the ability for the State to act if a local agency was not properly protecting their groundwater basins, which could negatively impede on local control and regional actions.

Housing
The Governor has continued to leave the challenge of addressing affordable housing in the hands of the Legislature by providing outlined principles that he has proposed through the budget, including: streamline housing construction, lower per-unit costs, production incentives, accountability and enforcement, no impact to the general fund, and specified source funding. There have been several bills introduced related to affordable housing, but none have been identified as the vehicle to accomplish the needs of addressing the affordable housing shortfall being faced by our State, nor have any proposals completely aligned with the Governor's budget proposal parameters.

There is still the potential for a legislative proposal to be introduced through a gut-and-amend process, or a budget trailer bill. The likelihood of this is uncertain, as the legislature has accomplished one of the two major policy priorities remaining from the last legislative session by passing the long-awaited transportation bill package. Addressing affordable housing may have to wait until next year - in year two of this two-year legislative session. The issues related to homelessness and housing affordability remain as key policy issues for the Association. It's important that a potential housing solution balance the needs of meeting housing demands without diminishing local control. You can read ACC-OC's suggestions to the Governor on his Streamlining Affordable Housing Approvals proposal from 2016, here.

Transportation
As previously mentioned, SB 1 by Senator Beall, has been signed into law. The Road Repair and Transportation Investment Package creates a $52.4 billion 10-year investment partially dedicated to fixing local streets and transportation infrastructure, including $2 billion to support local "self-help" communities, like the County of Orange.

The revenue sources will come from new taxes and fees associated with vehicle and fuel use, including; $7.3 billion by increasing diesel excise tax by 20 cents, $3.5 billion by increasing diesel sales tax, $24.4 billion through a 12-cent increase in gasoline tax, a Zero Emission Vehicle Fee, and General Fund loan repayments. In addition to identifying funding and revenue sources, the Road Repair and Transportation Investment Package includes transportation reforms ranging from enhanced Caltrans oversights and efficiencies, to empowering the California Transportation Commission (CTC). In the County region, according to the Orange County Transportation Authority, SB 1 has the potential to double transit and local streets and roads funding, create revenue for commuter rail, provide new grant programs, and create funds for active transportation.

ACC-OC will work closely with our local transportation partners to support solutions that work best for the continued investment within our cities' and County's transportation infrastructure. To view annual SB 1 allocations to Orange County cities, click here. Read the Road Repair and Transportation Investment Package Bill, here.

Overall, the Governor's 2017 May Revise is adjusted to reflect a $124 billion general fund budget, and maintains a $1.5 billion increase to the rainy-day fund. Also, even though revenues are higher than originally reported, the State is still grappling with a $3.3 billion revenue shortfall. The legislature will have until June 15th to review the May Revise and negotiate a final budget. As budget decisions progress the ACC-OC will make regular updates, and analyze the effects of the Legislature's actions on local government. Should you have any questions please contact Legislative Affairs Director, Diana Coronado at [email protected] or at (714) 953-1300.

Click here to view the Governor's 2017-2018 May Revise
Click here to view the Governor's 2017-2018 January Budget Summary
Click here to view Governor's press release