Final Budget Agreement Keeps Lid on New Spending

The Governor and legislative leaders announced on Tuesday, June 13 that they had reached an agreement on a $125 billion budget for the 2017–18 fiscal year. The legislative vote on the spending plan was pending as Alert went to print, but details were not expected to change from the broad outlines in the announcement.

Update: The main budget bill was passed to the Governor on Thursday, June 15, on a vote of 28-10 in the Senate and 59-20 a few hours later in the Assembly.

Like the Governor’s May budget proposal, the final plan continues to add to the state’s Rainy Day Fund, bringing the total to $8.5 billion in 2017–18, which is 66% of the constitutional target.

The budget announcement warns of uncertainty about federal actions that “could send the state budget into turmoil,” including defunding health care for millions of Californians and ending deductions for state taxes.

Final Budget Highlights

The budget news release describes the highlights as follows:

• Repairing Infrastructure: The budget accelerates $2.8 billion toward fixing roads, strengthening overpasses and bridges, and building mass transit.

• Increasing School Funding: The allocation for K–14 schools is expected to grow to $74.5 billion in 2017–18, a 58% increase over six years. An additional $1.4 billion next year for the Local Control Funding Formula will make implementation of the formula 97% complete.

A total of $14.5 billion in General Fund monies for higher education includes additional funds to expand capacity for California students at the state’s public institutions, create guided pathways for students to earn degrees and credentials and keep attendance costs low. The University of California is held accountable for implementing needed reforms to its cost structure so the system remains sustainable over the long term.

• Reducing Pension Liabilities: The budget includes supplemental payments to the California Public Employees Retirement System (CalPERS) with a loan from the Surplus Money Investment Fund, part of the state’s short-term savings account. The payment is estimated to save the state $11 billion over the next two decades while continuing to reduce unfunded liabilities and stabilizing state contribution rates.

• Expanded Earned Income Tax Credit: The budget expands California’s Earned Income Tax Credit (EITC) to support more working families, including self-employed parents, in line with the federal EITC. It also expands income ranges to help families working up to full-time at the newly increased minimum wage benefit from the program. The expansion makes more than 1 million additional households eligible to claim the credit. For the 2015 tax year, nearly 400,000 households claimed the credit.

• Medi-Cal Funding: California will continue its large investments in the Medi-Cal program, including new revenue from Proposition 56, the tobacco tax increase approved by voters in November 2016, to serve millions of people who rely on the program for health care.

Once enacted, the final budget will be available to view at