California Budget Reflects ‘Pandemic-Induced Reality,’ Governor Says

SACRAMENTO, Calif. — The coronavirus pandemic doomed Gov. Gavin Newsom’s ambitious plans last year to combat homelessness, expand behavioral health services and create a state agency to control soaring health care costs.

But even as the pandemic continues to rage, California’s Democratic governor said Friday he plans to push forward with those goals in the coming year, due to a rosier budget forecast buoyed by higher tax revenue from wealthy Californians who have fared relatively well during the crisis.

Newsom’s $227.2 billion budget blueprint also prioritizes billions to safely reopen K-12 schools shuttered by the pandemic, $600 payments for nearly 4 million low-income Californians — in addition to federal stimulus payments — and coronavirus relief grants and tax credits for hard-hit small businesses.

However, his 2021-22 fiscal year spending plan does not include additional public health money for local health departments steering California’s pandemic response, which have been chronically underfunded. He vowed to support cities and counties by boosting state testing and contact tracing capacity, speeding vaccination efforts and funding state-run surge hospitals that take overflow patients.

Newsom said Friday his budget reflects a “pandemic-induced reality” with investments aimed at spurring California’s economic recovery by helping businesses and people living in poverty. Wealth and income disparities, he added, “must be addressed.”

But Democrats in control of the state legislature, county leaders and social justice groups say that will be difficult to achieve because Newsom’s spending plan does not sufficiently fund health and social safety-net programs.

And without additional public health money, local leaders worry California will not be able to adequately control the spread of the virus.

“County public health is drowning,” said Graham Knaus, executive director of the California State Association of Counties. “We are triaging right now between testing, contact tracing and vaccination, and it’s impacting the response to the pandemic.”

Newsom’s budget proposal is the first step in a months-long negotiation process with the Democratic-controlled legislature, which has until June 15 to adopt the state budget that takes effect July 1. Lawmakers have become increasingly frustrated with the governor’s response to the pandemic, including his unilateral spending decisions in response to the emergency. Newsom is also facing a burgeoning recall effort, backed by heavyweight Republicans such as former San Diego Mayor Kevin Faulconer, who is considering challenging Newsom in the 2022 California gubernatorial election.

Newsom said he expects to make some tough calls on spending even though the state anticipates a $15 billion budget surplus for the coming fiscal year, largely because a state fiscal analysis projected deficits in subsequent years.

“While we are enjoying the fruits of a lot of one-time energy and surplus, it’s not permanent and we have to be mindful of over-committing,” Newsom said, explaining why he didn’t include funding to expand Medicaid to more unauthorized immigrants.

Some lawmakers say they will nonetheless press Newsom to use higher-than-expected revenues — and perhaps seek new taxes — to expand health coverage to more Californians.

The following health care proposals factor heavily into Newsom’s 2021-22 budget proposal.

Covid Relief

Newsom committed $4.4 billion in his budget to vaccine distribution, increased testing, contact tracing and other short-term pandemic expenses. Because that spending is related to the public health emergency, the state expects at least 75% to be reimbursed by the federal government and insurance payments.

He also proposed $52 million to fund costs at state-run surge hospitals, including support staff. And he is asking lawmakers to sign off on a covid relief package that would provide funding before the start of the fiscal year in July. It would include $2 billion to help school districts reopen classrooms to in-person instruction beginning in February by paying for protective equipment, ventilation systems and adequate testing. It would also commit billions to economic recovery, such as stimulus payments for individuals, and grants and tax credits for struggling small businesses.

Newsom also wants to increase the budget for the Department of Industrial Relations by $23 million to fund up to 113 additional workplace inspectors at the California Division of Occupational Safety and Health to police health order violations at businesses and enforce workplace safety laws.

Transforming Medi-Cal

Spending for Medi-Cal, the state’s Medicaid program for low-income residents, is expected to grow in the coming year because of the economic impact of the pandemic — as is its enrollment. The program has roughly 13 million enrollees, or about one-third of the state population.

In the coming year, Newsom will also press forward with a major overhaul of Medi-Cal, through a project called CalAIM, to provide new benefits emphasizing mental health care and substance use treatment, and pay for some nontraditional costs such as housing assistance. The hope is the program would divert homeless and other vulnerable people away from expensive emergency room care and keep them out of jail.

State Medi-Cal officials estimate the program would cost $1.1 billion for the first year. The state is working with the federal Centers for Medicare & Medicaid Services to obtain approval for the program.

Newsom also wants to expand Medi-Cal benefits to cover over-the-counter cold medicine and blood glucose monitors for people with diabetes. His budget includes $95 million for a major expansion of telehealth services that would permanently provide higher payments for virtual doctor visits.

Controlling Health Care Costs

Newsom is proposing a new state agency, the Office of Health Care Affordability, which he said would help control health care costs. He budgeted $63 million over the next three years for the office, which would set health care cost targets for the health care industry — along with financial penalties for failing to meet future targets.

Powerful health industry groups said they are still assessing whether they will support the proposal. But some expressed concern last year when Newsom floated the idea. Doctors and hospitals routinely fight proposals in Sacramento that might limit their revenue.

Newsom acknowledged Friday the task would be “tough.”

Battling Homelessness and Food Insecurity

Newsom is proposing a one-time infusion of $1.75 billion to battle homelessness.

Of that, Newsom said, $750 million would help counties purchase hotels and transform them into permanent housing for chronically homeless people. Another $750 million would allow counties to purchase facilities to treat people with mental illness or substance use disorders. And $250 million would help counties purchase and renovate homes for low-income older people.

Newsom’s budget also includes $30 million to help overwhelmed food banks and emergency food assistance programs.

Lawmakers said they plan to negotiate for even more funding for homelessness and safety-net programs.

“We absolutely need to significantly increase our investment to address homelessness because the need is so intense,” said Assembly member David Chiu (D-San Francisco). “And I don’t think there’s a single legislator who isn’t incredibly concerned about the food insecurity we’re seeing: lines around the block for food banks in what should be the wealthiest state in the country.”

Expanding Health Coverage

Newsom did not include money in his proposed budget to expand Medi-Cal to unauthorized immigrants age 65 and older. He had previously promised to fund the proposal, estimated to cost $350 million per year once fully implemented, but he said Friday the state cannot afford to commit to ongoing costs with a projected budget deficit starting in fiscal year 2022-23. California already offers full Medicaid benefits for income-eligible unauthorized immigrants up to age 26.

Some lawmakers and health care advocates countered that providing health insurance for undocumented immigrants would save lives and reduce costs, especially during the pandemic, and vowed to continue to fight for the expansion.

“To say we are disappointed is describing it very lightly,” said Orville Thomas, a lobbyist with the California Immigrant Policy Center. “These are Californians dying and getting sick at disproportionate rates during covid.”

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.