2019-20 State Budget: Responsible, with Lots of Bold One-Time Investments

On January 10th, 2019, Governor Gavin Newsom released his proposed 2019-20 State Budget that would fund state government for the 12-month period starting July 1, 2019.

State spending next year would total just over $209 billion, with $144.2 billion in general fund and $59.5 billion special funds spending.  Another $5.4 billion in state bond spending makes up the difference.  This is about a 4% increase over current fiscal year spending.  State general fund revenue is booming.  According to the governor, there is $21 billion in surplus revenue.  In November, the LAO had predicted a $15 billion surplus.  This is in addition to the $16 billion held in the state’s rainy day fund and other reserve accounts.  The Newsom proposed budget will sock an additional $1.8 billion into the rainy day fund alone.

The governor preached responsible budgeting while also touting his many well-publicized new budget initiatives.  

On the fiscal responsibility front he sounded much like Jerry Brown in recent years.  He said his Administration is preparing for the inevitable next recession, plans to build the largest state budget reserve in history, and noted that his new budget initiatives are largely one-time funding proposals.  

The governor spent the rest of his time outlining what he called bold investments in California’s future, including plans to increase access to affordable health care and prescription drugs, address the housing and homelessness crisis, and provide universal preschool for four-year-olds, among other expansions in education funding.  

Here is the quick rundown on a few items that will specifically interest ACSS members:

State Employee Compensation

The budget proposal includes $1.2 billion in new funding for increased employee compensation, higher health care costs for active employees, and the state’s contribution to prefund retiree health care costs for active employees.  Employee compensation costs will no doubt go up in the go up in the final budget.  The budget summary notes the Administration will begin negotiations with 5 of the state’s 21 bargaining units, representing Attorneys and Administrative Law Judges, Correctional Officers, Public Safety, Stationary Engineers, and Psychiatric Technicians, whose contracts will expire in late June or early July 2019.  The Highway Patrol Officers, whose contract expired in July 2018, will also be in negotiations.

Building Budget Resiliency and Paying Down Unfunded Retirement Liabilities

The governor’s proposal dedicates a large part of the surplus revenue to making $13.6 billion in one-time payments to pay down retirement liabilities and loans taken during the Great Recession.  This includes $4 billion to eliminate debts and reverse deferrals, $4.8 billion to build reserves, and an additional $4.8 billion to pay down unfunded retirement liabilities.  Of most importance, the proposed budget includes a $3 billion supplemental payment, in addition to the statutorily required $6.8 billion contribution, to CalPERS.  The additional $3 billion will save the state $7.2 billion over the next 30 years in required pension costs.  The proposed budget also makes a supplemental $1.8 billion payment to CalSTRS.  

State Health Care/Retiree Health Care

In total, the state is projected to spend approximately $5.8 billion on health, dental, and vision care benefits in 2018-19 for more than 850,000 state employees, retirees, and their family members.  Of that, $3.5 billion covers the costs for active employees and $2.3 billion covers retirees.

The budget summary repeats again that the State has negotiated contracts with each of the 21 employee bargaining units, which included joint prefunding for retiree health benefits.  These provisions have also been extended to supervisors and managers.  The 2019-20 proposed budget contributes $577 million to cover the state’s prefunding obligation next year.  If all goes as expected, the CalPERS trust that is managing prefunding health care contributions is expected to take over retiree health care payments from the general fund in 2045.   

State Employee Position Increases

The budget projects the hiring of an additional 2,835 state employee positions in 2019-20 for a total of 215,821.    

The Governor’s complete budget summary and draft budget can be found here: www.ebudget.ca.gov.

As we delve into more of the details, we will report on any new positions and increased funding proposals for departments outlined in the full budget or if there are other proposals that impact ACSS and its members.  Please let us know if you have any questions.