featured graphic for California State Legislative Analyst's Office during COVID-19

Legislative Analyst updates report on State budget effects

The non-partisan Legislative Analyst’s Office has updated their report on effects of recent federal actions on the California State budget.

The report’s introduction states:

As the Legislative Analyst noted in a recent Fiscal Perspective, California could face a budget problem as a result of the coronavirus emergency. As the public health crisis has unfolded, this possibility seems increasingly likely. In a recent post, we described the state’s reserves available to address such a budget problem. However, the state has another source of support in this area: new funding from the federal government. This post discusses the sources of a potential budget problem related to the coronavirus disease 2019 (COVID-19) emergency and how recent federal legislation could help address some of the sources of a problem.

It lists potential budget problems:

  • Higher than anticipated direct costs to respond to public health emergency — for example, the purchase of ventilators and personal protective equipment.
  • Higher than anticipated indirect costs — for example, the huge jump in the number of Californians filing for unemployment benefits.
  • Lower revenue than anticipated — for example, sales tax whacked by consumers cutting back on spending because they are suddenly unemployed.

It lists and describes major sources of federal funds that could help the State cope with the problems listed. The list does not contain all available federal help, but includes:

  • Coronavirus Relief Fund aid to States based on population.
    • An estimated $5.8 billion in aid to local California governments with a population of at least 500,000. For example, Orange County is eligible for $555.4 million in aid.
    • An estimated $9.5 billion in potential direct State aid.
    • Funding is aimed at helping with higher costs, not with loss of revenue.
  • A temporary 6.2% increase in the federal government’s share of the cost of Medicaid, including Medi-Cal and In-Home Supportive Services. “Of all the federal funding changes described in this post, this change provides the broadest budgetary benefit.”
  • “Given the magnitude of initial unemployment claims received so far, the state UI Trust Fund likely will become insolvent…” — federal aid includes funding administrative costs and expanded benefits plus interest-free loans.
  • A federal stabilization fund to offset adverse effects on education institutions from Kindergarten through college.

The reports conclusion states:

Federal action will mitigrate some of the State’s potential problems, but does not significantly address the major source of budgetary strain. However, only a small portion of the federal funding allocated to date—additional Medi-Cal funding—will assist the state with the most significant source of budgetary strain that likely will result from the COVID-19 emergency: lower revenues. While the state has accumulated a historically significant amount of reserves to help address a potential budget problem, additional federal action to support the economic and revenue consequences of this emergency could be warranted.

Editor’s comment: The Governor and State Legislature will contort themselves to avoid cutting programs in order to make the State’s budget work. They should stop the contortions and start looking for programs to trim.