The 2016-17 Budget

California Spending Plan


Other Major Provisions

Housing for the Homeless

No Place Like Home Program. The budget package establishes the $2 billion No Place Like Home Program to construct and rehabilitate permanent supportive housing for those with mental illness who are homeless. The program authorizes the issuance of bonds backed by personal income tax revenues raised under the Mental Health Services Act (Proposition 63 of 2004). These funds are allocated as follows:

  • $1.8 Billion for a Competitive Grant Program. The Department of Housing and Community Development (HCD) will administer a competitive grant program to fund construction and rehabilitation of supportive housing.
  • $200 Million on a Per Capita Basis. The HCD also will divide $200 million among counties to fund supportive housing projects based on counties’ shares of the state’s homeless population.

These programs will be administered over a number of years. The 2016–17 Budget Act appropriates $268 million and 10.4 positions at HCD for these purposes in 2016–17.

Emergency Solutions Grant Program. The budget package also allocates $35 million to HCD for the California Emergency Solutions Grant Program. Under this program, HCD will award grants to local governments and nonprofits to provide a variety of services to those who are homeless, including rapid rehousing, shelters, essential services, and homelessness prevention activities. In addition, the budget allocates $10 million to the Office of Emergency Services to fund specialized services for homeless youth in certain counties.

Employee Compensation

Labor Agreements Significantly Increase State Annual Costs . . . As part of his 2015–16 budget proposal, the Governor introduced his goal of using the collective bargaining process to implement a funding plan for retiree health benefit liabilities. Specifically, the Governor proposed that (1) the state and employees each regularly contribute an equal amount of money to prefund retiree health benefits and (2) retiree health benefits be reduced for future state employees. Since January 2015, the Legislature and affected union members have ratified memoranda of understanding that implement the Governor’s plan for five of the state’s 21 bargaining units. These employees and their managers represent about 30 percent of the state’s workforce and 40 percent of the state’s General Fund payroll costs. Our analyses of these agreements are available on our website.

In order to achieve the Governor’s goal at the collective bargaining table, the state agreed to provide various pay and benefit increases for these employees in the near–term. The pay and benefit increases established by these agreements—along with the state contributions to match employee payments to a retiree health funding account—represent a significant new budgetary commitment for the state with both near– and long–term effects. The budget package assumes that these new costs will be $603.2 million ($336.1 million General Fund) in 2016–17. Recognizing that the administration actively is bargaining with 15 other bargaining units, the budget sets aside about $500 million ($200 million General Fund) in 2016–17 to pay for increased costs resulting from possible future agreements. If the Legislature and affected union members ratify similar agreements for these 15 bargaining units before July 1, 2017, (1) the state’s costs in 2016–17 could be hundreds of millions of dollars higher than currently appropriated in the budget and (2) by 2019–20, the state’s annual employee compensation costs could be billions of dollars higher than costs in 2016–17.

. . . But Likely Would Reduce State Costs in a Few Decades. The recently ratified labor agreements will institute a new arrangement to begin addressing the large unfunded state liabilities for retiree health benefits. While the administration’s plan seems to be to keep making pay–as–you–go benefit payments for many years, the new arrangement would—within the next few years—begin to fund “normal costs” each year for the future retiree health benefits earned by today’s employees. The agreements will deposit these payments in invested accounts that will generate earnings and gradually reduce unfunded liabilities over the next three decades or so. (In addition to the regular payments to prefund retiree health benefits established by these labor agreements, the Legislature amended the 2015–16 Budget Act to deposit $240 million as a one–time payment to retiree health prefunding accounts as part of Chapter 2 of 2016 [AB 133, Committee on Budget].)

Statewide Infrastructure

State Office Buildings. The budget package creates a new fund—the State Project Infrastructure Fund—and transfers $1 billion into this fund from the General Fund (with an additional $300 million in 2017–18). The new fund is continuously appropriated for the renovation and construction of state buildings. The initial projects identified to be supported from this fund are two new office buildings in Sacramento (one of which would replace the current Natural Resources building) and a new or remodeled annex to the State Capitol building. The administration expects to spend $10.1 million on the initial stages of these projects in 2016–17. The budget package includes budget trailer legislation, which governs the use of the fund and requires certain notifications and reporting to the Legislature.

Deferred Maintenance. The budget includes one–time spending totaling $688 million to address backlogs of deferred maintenance at various state facilities. Of the total, $485 million is from non–Proposition 98 General Fund and supports various entities, as shown in Figure 36. The budget also includes $185 million from budget–year and prior–years’ Proposition 98 funds for the California Community Colleges (CCC). This funding could be used to address deferred maintenance and instructional equipment needs. The CCC funding is described in more detail in the “Higher Education” section of this report. The remaining $18 million is from the MVA for the deferred maintenance needs at CHP and DMV. (By comparison, the 2015–16 Budget Act included a total of $268 million—$120 million in non–Proposition 98 General Fund support and $148 million in Proposition 98 funds—for these purposes.)

Figure 36

General Fund (Non–Proposition 98) Deferred Maintenance Funding

(In Millions)

Department/Program

Amount

Water Resources

$100.0

State Hospitals

64.0

Parks and Recreation

60.0

Corrections and Rehabilitation

55.0

Judicial branch

45.0

California State University

35.0

University of California

35.0

Developmental Services

18.0

Fish and Wildlife

15.0

Military Department

15.0

General Services

12.0

Veterans Affairs

8.0

Forestry and Fire Protection

8.0

State Special Schools

4.0

California Fairs

4.0

Science Center

3.0

Hastings College of the Law

2.0

Emergency Services

0.8

Conservation Corps

0.7

Food and Agriculture

0.3

San Joaquin River Conservancy

0.2

Total

$485.0

The budget requires that the administration provide the Legislature with a list of deferred maintenance projects to be funded from the General Fund (non–Proposition 98) and MVA prior to allocation of funds to the recipient departments. The budget also requires legislative notification for any changes to these lists.

Debt Service. The budget provides $7.8 billion from the General Fund and other funds for debt service payments in 2016–17. This represents an increase of 3 percent from 2015–16, and reflects additional debt service costs related to transportation, resources, community colleges, health, corrections, and other projects. The total includes $6.8 billion for general obligation bonds ($4.8 billion from the General Fund), and $962 million for lease revenue bonds ($626 million from the General Fund). Debt service payments for the University of California and the California State University are made directly from their main state support appropriations and are reflected in the above total.

SeismicRetrofits. The budget provides $13 million in one–time General Fund support for programs to encourage property owners to undertake seismic retrofits. Of this amount, $10 million is allocated to create a loan loss reserve program for residential property and small business owners through the California Pollution Control Authority. Additionally, $3 million is provided to the Department of Insurance for the Brace and Bolt program, which is administered by the California Residential Mitigation Program and provides homeowners with funds to implement seismic retrofits on residential buildings.

Office of Emergency Services (OES)

The budget provides OES with $1.4 billion (70 percent from federal funds) in 2016–17. This is a net increase of $40 million, or 3 percent, compared to the estimated spending level for 2015–16.

Tree Mortality and Drought. The budget provides an additional $52.2 million from the General Fund for the California Disaster Assistance Act (CDAA) to support local communities suffering from the effects of the drought. Of this amount, $30 million is to remove hazardous trees from public rights–of–way or that threaten public infrastructure. The remaining $22.2 million is to support other activities related to the drought, such as providing temporary water tanks or portable toilets to homes and communities without access to water. In addition to the funds provided for CDAA, the budget provides $4.5 million from the General Fund for OES staff to provide technical guidance and disaster recovery support related to the drought. (The drought funding provided in the budget is described further in the “Resources and Environmental Protection” section of this report.)

Earthquake Early Warning System. The budget provides $10 million from the General Fund and four positions to support the initial implementation of a California Earthquake Early Warning System. This funding would be used for initial project costs, including (1) $6.9 million for capital costs for equipment and seismic stations, (2) $2.2 million for development of a public education and training plan, (3) $734,000 for staffing, and (4) $150,000 to develop a financial strategy for funding the system. The department estimates that the project will cost a total of $28 million to implement and $17 million annually thereafter to operate.

Emergency Operations and Critical Support. The 2016–17 budget provides an increase of $20 million from the General Fund and 54.5 positions to support a variety of activities across OES. As shown in Figure 37, the funding includes $10 million (one time) to provide additional fire engines to local fire departments, a total of $6.1 million for disaster coordination programs and staff, and $1.5 million for IT. Of the total funding, $3.5 million is available to OES no sooner than 30 days after providing the JLBC with additional financial information related to the Recovery Public Assistance Program.

Figure 37

Emergency Operations and Critical Support Funding

Program

Ongoing Positions

General Fund

Fire Response

Fire apparatus

$10,000,000

Fire and Rescue Branch staffing

7

1,712,000

Automated Vehicle Location

227,000

Fire apparatus operating costs and maintenance

102,000

Disaster Coordination

Statewide disaster programs

3,678,000

Law Enforcement Branch staffing

4

1,107,000

Regional response and readiness

6

879,000

Disaster Logistics Program

3

421,000

Technology

Information technology

1,030,000

Cal EOC support

3

495,000

Facilities

Regional Coordination Center

700,000

Fire Maintenance Shop lease

94,000

Other

Federal Emergency Management Program

Emergency Operations Incident Support Training

Public Safety Communications

28

Administrative support

3.5

Totals

54.5

$20,445,000

Human Trafficking Program. The budget provides $10 million from the General Fund on a one–time basis for the Human Trafficking Victim Assistance Program. This program was created in 2015–16 with $10 million in one–time Restitution Funds and provides grants to providers of comprehensive services for victims of human trafficking.

California Military Department (CMD)

The budget provides CMD with $205 million, about two–thirds from federal funds. This is a net increase of $19 million, or close to 10 percent, compared to the estimated spending level for 2015–16.

Armory Renovations. The budget provides $22 million (half from the General Fund and half from federal matching funds) to renovate CMD armories. Of this amount, $19 million is to complete the renovation of armories at Santa Cruz, Escondido, Eureka, and San Bernardino. These projects are some of the initial ones identified in the CMD Armory Strategic Plan, released in 2016. This plan envisions addressing the facility needs at the department’s 91 active armories by renovating roughly three per year. The plan also identifies a strategy for consolidating and divesting certain armories. The remaining $3 million is for the first phase of the renovation of the San Diego Readiness Center. (The total estimated project cost for the San Diego Readiness Center renovation is $12 million.)

Medical Marijuana Regulation

In 2015, the Legislature passed and Governor signed a package of three bills—Chapters 688, 689, and 719 (AB 243, Wood; AB 266, Bonta; and SB 643, McGuire)—that established a new regulatory framework for the medical marijuana industry. The legislation included a new structure for licensing and enforcing medical marijuana cultivation, product manufacturing, testing, transportation, storage, and distribution. The new laws also designated certain state departments to carry out these regulatory and enforcement responsibilities and authorized departments to collect licensing fees to cover regulatory costs. The legislation established a new state fund, the Medical Marijuana Regulation and Safety Act Fund (MMRSAF), into which licensing revenues would be deposited, as well as a $10 million loan from the General Fund.

The 2016–17 budget package includes additional funding to implement the 2015 legislation, as well as statutory changes related to the new regulatory structure.

Budget Includes Funding for Multiple Departments. As shown in Figure 38, the budget provides a total of $33.1 million ($13.4 million General Fund and $19.7 million special funds) and 134 positions to six state departments. First, the budget includes funding—primarily for the Department of Consumer Affairs (DCA), California Department of Food and Agriculture (CDFA), and Department of Public Health (DPH)—to develop and implement regulations for different parts of the medical marijuana industry. Second, the budget includes $8 million for DCA ($6 million) and CDFA ($2 million) to begin development of IT projects for licensing of industry participants and tracking of medical marijuana products. Third, the budget includes resources for the Department of Fish and Wildlife and State Water Resources Control Board (SWRCB) to reduce the environmental impacts of marijuana cultivation—such as on water quality and instream flows needed for fish spawning and migration.

Figure 38

2016–17 Funding to Implement Recent Medical Marijuana Legislation

(Dollars in Millions)

Department

Funding

Staffing

Major Responsibilities

General Fund

Special Fund

Total

DCA

$9.7a

$9.7

33

License and enforce marijuana distributors, transporters, dispensaries, and testing laboratories.

DFW

$7.7

7.7

31

Monitor and reduce environmental impacts of marijuana cultivation.

SWRCB

5.2

0.5b

5.7

35

Regulate the environmental impacts of marijuana cultivation on water quality and instream flows.

CDFA

5.4a

5.4

18

Regulate marijuana cultivation and issue licenses to growers.

DPH

0.5

3.4a

3.9

14

Regulate medical marijuana product manufacturers.

DPR

0.7c

0.7

3

Develop pesticide use guidelines for the cultivation of marijuana.

Totals

$13.4

$19.7

$33.1

134

aMedical Cannabis Regulation and Safety Act Fund.

bWaste Discharge Permit Fund.

cDepartment of Pesticide Regulation Fund.

DCA = Department of Consumer Affairs; DFW = Department of Fish and Wildlife; SWRCB = State Water Resources Control Board; CDFA = California Department of Food and Agriculture; DPH = Department of Public Health; and DPR = Department of Pesticide Regulation.

Increase in General Fund Loan. The budget includes an additional $8 million loan from the General Fund to the Medical Cannabis Regulation and Safety Act Fund (previously, MMRSAF). This loan is available to DCA and CDFA to implement the licensing and tracking IT systems described above.

Budget Trailer Legislation. The budget package makes various statutory changes to the 2015–16 legislative package. Specifically, Chapter 32 of 2016 (SB 837, Committee on Budget and Fiscal Review) includes the following provisions:

  • Name Changes. Changes references from “medical marijuana” to “medical cannabis” in various provisions, including the names of the special fund and DCA bureau created in the original legislation.
  • Licensing. Clarifies that licensing departments have authority to create license types, set license fees, and conduct enforcement related to licensees. Authorizes implementing departments to provide conditional licenses and establish deadlines for applying for licensure.
  • Testing Laboratory Licensing Authority. Shifts authority to license laboratories from the DPH to DCA.
  • Product Packaging and Safety. Adds requirements for labeling and child–proof packaging. Defines and prohibits misbranding and the sale of adulterated products.
  • Protection of Instream Flows. Provides a limited exemption to the California Environmental Quality Act for SWRCB to adopt guidelines designed to protect aquatic habitats from negative effects associated with diverting water for marijuana cultivation. These guidelines can include interim and long–term instream flow objectives, limits on diversions, and other requirements.

California Department of Food and Agriculture

The budget includes $409 million from various funds to support CDFA, which is a decrease of about $16 million, or 4 percent, from the revised 2015–16 budget. The decrease is due mainly to a technical adjustment downwards of $20 million to more accurately reflect federal funding levels. The budget includes funding for (1) the regulation of medical marijuana and (2) GHG reduction programs discussed earlier in this report.

Market Match Program. The budget includes $5 million from the General Fund for the Market Match Program. Chapter 442 of 2015 (AB 1321, Ting) created this program within the Office of Farm to Fork to award grants to certified farmers’ markets that increase the amount of nutrition benefits available to low–income consumers when purchasing fresh fruits, nuts, and vegetables grown in California.

California Public Utilities Commission (CPUC)

The budget provides a total of $1.6 billion for the CPUC from various funding sources. This amount is similar to the revised 2015–16 spending amount.

Lifeline Program. The budget includes $483 million (Universal LifeLine Telephone Service Trust Administrative Committee Fund) for the California Lifeline Program, which provides discounted telephone services to low–income households. This amount is roughly the same as the revised 2015–16 spending amount, but reflects a more than 150 percent increase in spending relative to 2013–14 spending ($192 million). The recent increases in the costs for the program are largely driven by an increase in program enrollment associated with expanding the program in 2014 to include wireless telephone service.

Division of Safety Analysis. The budget includes $1.7 million (Public Utilities Commission Utilities Reimbursement Account [PUCURA]) and 11 permanent positions to create a Division of Safety Analysis. Unlike existing safety and enforcement staff, the new division would participate as a party in official CPUC proceedings. This would allow the division to provide testimony and analysis related to safety that would be on the formal record at proceedings.

Funding for Outside Legal Counsel. The budget includes $6 million (PUCURA) to retain outside legal counsel for activities related to federal and state criminal investigations into the CPUC. The legal activities include preparing court filings and assisting the CPUC in producing documents relevant to the investigations. The Attorney General’s Office, which typically represents state agencies in legal matters, cannot represent the CPUC on this issue because it is leading the state criminal investigation into CPUC. In addition, the legal staff at the CPUC generally does not have relevant legal expertise related to criminal investigations. The total costs of the outside legal counsel are estimated to be $12.3 million. The CPUC indicates it is paying for the remaining $6.3 million out of its baseline state operations budget.

Funding for Arts

California Arts Council (CAC). The budget includes a one–time General Fund augmentation of $6.8 million for CAC. Of this amount, $6 million is for arts programs in underserved communities, and $800,000 is for a program to help inmates transition back into society. Additionally, the budget provides CAC with two positions and $4 million (increasing to $6 million in 2017–18) in additional authority to receive reimbursements from the California Department of Corrections and Rehabilitation to expand the Arts–in–Corrections program.

Other Arts Projects. The budget includes a $4.5 million General Fund augmentation for the following projects through the California Cultural and Historical Endowment: Pasadena Playhouse ($1 million), Excelsior Auditorium ($2 million), Lark Musical Society ($500,000), and Armenian Museum ($1 million).

Financial Information System for California (FI$Cal)

An Integrated Financial Management System. Over the last several years, the administration has been engaged in the design, development, and implementation (DD&I) of the FI$Cal Project. This IT project will replace the state’s aging and decentralized IT financial systems with a new system integrating state government processes in the areas of budgeting, accounting, cash management, and procurement. Since the project began, it has changed in scope, schedule, and cost from what was initially anticipated. These changes have been documented in special project reports (SPRs). In February 2016, the California Department of Technology approved the sixth SPR for FI$Cal. The changes to the project reflected in SPR 6 result in a 24–month schedule extension (to July 2019) and an increase in the project cost by $237 million ($125 million General Fund). This brings the total cost of the project to $910 million ($494 million General Fund).

The 2016–17 spending plan provides funds to (1) implement the changes proposed in SPR 6 and (2) establish a new state department to maintain and operate the FI$Cal system. In total, the 2016–17 spending plan provides $135 million ($96.3 million General Fund) for FI$Cal. Below, we provide additional details regarding the 2016–17 spending plan for FI$Cal.

Provides Funding for New Project Plan. The administration determined the risk of moving forward with an unrealistic project schedule for FI$Cal was too large and decided a different approach would be necessary in order to mitigate the risk of a significant disruption to the project in future years. The 2016–17 spending plan provides $92.5 million ($71.9 million General Fund) and 121 positions to continue the FI$Cal Project as proposed in the new project plan—SPR 6—which aims to reduce project risk by creating a more realistic time line. This position total includes 96 existing positions plus 25 new positions.

Establishes Department of FI$Cal. 2016–17 budget–related legislation establishes the Department of FI$Cal to provide a permanent administrative structure and an ongoing maintenance and operation (M&O) function for FI$Cal. Additionally, budget–related legislation revises the current FI$Cal governance structure by providing broad authority to a newly created position—the Director of the Department of FI$Cal—to maintain and operate the system, while setting an advisory role for partner agencies that have been engaged in the DD&I of the project. The 2016–17 spending plan provides $42.6 million ($24.3 million General Fund) and 122 positions to support the Department of FI$Cal. This position total includes 99 existing project positions that will shift from DD&I to M&O responsibilities plus 23 new positions. When the department assumes complete responsibility for M&O of the FI$Cal system in 2019–20, the department is expected to cost $70.4 million ($40 million General Fund) annually and include 274 positions.

21st Century (TFC) Project

In 2004, the State Controller’s Office (SCO) proposed the TFC Project, the IT effort to replace the existing statewide human resources management and payroll systems used to pay roughly 260,000 state employees. The new system was intended to allow the state to improve management processes such as payroll, benefits administration, and timekeeping. In February 2013, SCO terminated its $90 million contract with the vendor after the project experienced various problems during the pilot stage. In November 2013, SCO filed a lawsuit against the vendor for breach of contract. The vendor later filed its own claims against SCO. Following nearly three years of litigation, the parties reached a settlement in June 2016.

Although Settlement Reached, Funds Litigation and Assessments. As part of the settlement, the vendor will pay SCO $59 million and the vendor will forego its own claims against SCO for $23 million. The settlement also prevents the parties from pursuing any additional litigation on this matter. Because the settlement was not reached in time to be incorporated in the 2016–17 budget, the spending plan provides limited–term funding of $4.8 million for eight positions to complete litigation efforts against the vendor. These funds were to support the trial phase, which was expected to begin in June 2016 and continue into 2016–17. In light of the settlement, the funds will not be needed for these purposes. Additionally, the 2016–17 budget includes limited–term funding of $2.4 million for eight positions beginning in January 2017 (when the litigation was expected to be completed) to assess opportunities for simplifying the state’s payrolling process to make development of a new human resources management and payroll system easier and to begin the evaluation of various alternatives for a new system.

Labor Programs

Interest Payment for Federal Unemployment Insurance (UI) Loan. California’s UI trust fund reserve was exhausted in 2009, requiring the state to borrow from the federal government to continue payment of UI benefits. The balance of California’s outstanding federal loans is declining and is estimated to be $4 billion at the end of 2016. The state is required to make annual interest payments on these federal loans. The 2016–17 spending plan includes $111 million (General Fund) to make the interest payment due in the fall of 2016. The federal loans are projected to be fully repaid in 2018.

Increased Oversight of the Labor Code Private Attorneys General Act (PAGA). The spending plan includes $1.6 million from the Labor and Workforce Development Fund ($1.5 million ongoing) to support nine new positions at the Department of Industrial Relations and one new position at the Labor and Workforce Development Agency to increase the state’s oversight of PAGA. This state law allows employees that bring private legal action to recover unpaid wages from an employer to additionally seek civil penalties for labor law violations that otherwise could only be recovered by the state.

One–Time Funding for Employment Services for Ex–Offenders. The spending plan includes $3 million from the General Fund on a one–time basis for the Employment Development Department and California Workforce Development Board to provide additional employment services for ex–offenders. These funds will be distributed based on a competitive application process to local grantees that serve the targeted populations.

Department of Veterans Affairs

The spending plan for the California Department of Veterans Affairs includes $387 million General Fund in 2016–17, an increase of $28 million over revised estimates for 2015–16. This amount is expected to be offset by $68 million from federal reimbursements for Veterans Homes. The General Fund increase includes funding for two budget–related policy changes:

  • Yountville Kitchen Renovation. The spending plan includes $6 million General Fund in 2016–17 to renovate the kitchen at the Yountville Veterans Home.
  • Additional Support for Connecting Veterans to Services. The spending plan includes $2.5 million General Fund to support increased efforts to connect veterans to federal, state, and community resources and benefits.