Winners and Losers in Budget Deal

Back in February, Gabriel Petek of the California Legislative Analyst’s Office foreshadowed tough conversations that would loom in the months ahead for state lawmakers.

“To no one’s surprise, a severe recession generally will inflict greater fiscal stress on the state than a milder downturn,” Petek wrote.

In the months since, the novel coronavirus, or COVID-19, pandemic has opened a $54 billion state budget deficit, as opposed to the $6.7 billion surplus that Petek had projected for the state’s General Fund in December, with 4.1 million Californians receiving unemployment benefits as of June 20.

It was clear that lawmakers and Gov. Gavin Newsom would have to find some kind of compromise to pass a 2020-21 budget.

Here are some winners and losers in Santa Cruz County from the deal that state officials reached June 24—with the budget possible to change if the federal government provides a stimulus package by Oct. 1, according to Laurel Rosenhall of Cal Matters.

Losers

Higher education: Significant cuts to the University of California system and California State University systems could affect UC Santa Cruz.

The UC budget for the new fiscal year will be cut by 8.1 percent, or $300.8 million. (The CSU system will also see cuts of about $300 million.) The Legislative Analyst’s Office noted that the governor’s May revision to the budget had proposed that most of the UC cuts would come in reducing campus base operations by 10 percent.

In a June 30 budget update, the UC Santa Cruz Chancellor’s Office wrote that it was too soon to know how the cuts would be spread among the different UC campuses and that the school had only committed to not laying off employees through that day.

“Though we cannot guarantee there will be no indefinite layoffs, we are working diligently to be strategic and creative to ensure we minimize to the greatest extent possible the need to use that strategy to address fiscal shortfalls over the next two years,” Chancellor Cynthia Larive wrote. “I remain hopeful we will be able to utilize other means and can affirm that indefinite layoffs would be a last resort.”

For both systems, there’s been some talk that students could see tuition hikes to make up the shortfall.

“The UC and CSU are going to be forced to balance their budget on the backs of talented qualified students,” Audrey Dow of Campaign for College Opportunity told Rosenhall.

State employees: The State of California employs more workers in Santa Cruz County than any individual company. And with budget woes hitting the state, this could mean a return locally of the furlough days that defined the Great Recession.

Rosenhall wrote that state employees could lose roughly 10 percent of compensation “unless the federal government comes through with billions of dollars in stimulus funds.”

Gov. Newsom recommended the reductions. Incidentally, the Legislative Analyst’s Office had opposed them, saying in response to the governor’s May budget revision that it recommended “the Legislature take a more surgical approach where possible.”

Lawmakers eschewed this, though, opting for salary cuts which will total $2.9 billion.

Affordable housing: On June 18, Santa Cruz County approved using $3.4 million in state funds on affordable housing through 2024, according to Nicholas Ibarra of the Santa Cruz Sentinel.

This could place the county among local jurisdictions, with the San Francisco Chronicle reporting that despite the budget deal reached by state lawmakers will not include $250 million for an affordable housing program (unless Congress passes another relief package).

This came despite California’s housing shortage emerging in stark detail in recent years, with many working-class families and first-time buyers struggling to keep a roof over their heads.

At the same time, the LAO reported in its Spring Fiscal Outlook that building is slowing, with construction permits possible to fall from 111,000 in 2019 to as low as 64,000 this year, if the economy has an L rather than U-shaped recovery.

Winners

Taxpayers: Things are rough in Santa Cruz County right now, where “local sales-tax revenue is expected to dip by up to 25 percent, according to Ibarra on July 1.

This goes with broader trends across the state, with the LAO projecting in its Spring Fiscal Outlet issued May 8 that taxable sales could fall by roughly $100 billion annually from pre-pandemic levels.

Some progressives have wanted tax increases to address shortfalls. Even before the pandemic, there’s been talk in recent years of a proposed split-roll for Prop. 13 that “would raise taxes on warehouses, hotels, office buildings and other commercial properties by an estimated $11 billion a year for schools and local governments,” longtime columnist Dan Walters wrote in 2019 for Cal Matters.

But there apparently won’t be tax increases to address the deficit, at least for this budget cycle, with Rosenhall writing, “Though Democrats hold about 75% of legislative seats, raising taxes remains difficult in the statehouse, with many Democrats from swing districts reluctant to support them.”

K-12 education: Santa Cruz County School Superintendent Alfredo I. Velasquez notes on his website that “all summer camps sponsored by the SCCSSO will be cancelled.”

Things could be worse, though, with Gov. Newsom and lawmakers managing to reach a budget deal without any cuts to K-12 education.

“While not the increase that Newsom had sought in his pre-COVID-19 budget in January, there should be enough funding to assure the reopening of school this fall, Newsom said at a press conference Monday,” wrote John Fensterwald for EdSource.

Fensterwald quoted the governor as saying, “I think the funding will substantially exist. We think a lot of that anxiety is mitigated.”

The reopening deal includes $1 billion from the Coronavirus Aid, Relief, and Economic Security, or CARES Act.

Prior to reaching the deal, the Legislative Analyst’s Office had postulated in the Spring Fiscal Outlook that reducing funding to allowable levels under Prop. 88, rather than current service levels for kindergarten through community college, could save as much as $15.4 billion.

Health and social services: The Santa Cruz County Public Health Department’s website includes a five-year plan from 2018-23 with a number of different initiatives.

Back in May, the LAO cautioned against the state reducing health spending (which could flow to places like Santa Cruz County), writing in its Spring Fiscal Outlook:

“While the pandemic is ongoing, we recommend the Legislature consider whether the programmatic reduction under consideration could worsen the public health crisis or compound personal economic challenges facing Californians. Such actions include, for example, significantly reducing access to health care services.”

Six days later, Gov. Newsom still issued a revised budget calling for “deep cuts to education, health and social services,” according to Capital Public Radio. Lawmakers were able to avoid the level of cuts for health and social services that Newsom had proposed, though.

“It’s a tough budget for all of us,” Newsom told CapRadio. “The magnitude of the shortfall is unprecedented in the state’s history.”

Still, Santa Cruz County’s Public Health Department should be able to continue to pursue at least some of the initiatives in that strategic plan.