Legislature Passes Budget, Agreement with Governor Still Pending - June 16, 2020

As expected, the Legislature passed an “on-time” budget today, despite not having a budget agreement in place with the Governor. The main budget bill, SB 74, as well as a small number of budget trailer bills, will now be submitted to the Governor. This action allows the Legislature to meet its Constitutional June 15th deadline to pass a balanced budget, but it does not mean that we have a final budget in hand. We won’t have that final budget until the budget negotiations between the two parties are completed and this budget is amended.
This afternoon, both houses of the Legislature began their floor sessions that, after a much briefer than usual period of statements about the budget by members, ended in the passage of three bills: 
  • SB 74, the Legislature’s version of the Budget Act of 2020
  • AB 76, the current year K-14 bill that includes Proposition 98 settle-up funds, as well as the $1.9 billion June to July deferral for both K-12 and the community colleges
  • AB 85, that enacts the tax policy changes, including the suspension of net operating loss provisions for high income individuals and businesses, proposed by the Governor and included in the Legislature’s budget plan to mediate revenue losses
The Legislature did make some K-12 changes in SB 74, relative to the budget plan that they announced last week. For example, SB 74 now allocates $163.2 million in federal Elementary and Secondary School Emergency Relief (ESSER) Funds as follows:
  • $45 million to existing Community School models
  • $112.2 million for school meal reimbursements during summer and COVID-19 closures
  • $6 million for professional development through the U.C. Subject Matter Projects 
The Legislature’s package, as shown in a new Assembly Floor Report on the budget, will also now include an additional flexibility provision that “maintains instructional day requirements but allows flexibility for instructional minutes in 2020-21 School Year,” though we are trying to clarify whether this flexibility references longer day/longer year requirements, minimum day requirements, physical education minutes requirements, something else, or all of the above. The Legislature also plans to continue to adopt the May Revision’s clarifications regarding excess ERAF calculations, but reject the proposed penalties on county auditors that deviate from those calculations.
All three bills will now be transmitted to the Governor for his consideration. It is quite likely that the Governor will sign the two current year bills (AB 76 and AB 85), since both the Governor and the Legislature are in agreement on the policy changes implemented by these bills, and since these current year changes must be enacted prior to the end of the fiscal year. The fate of SB 74, the main Budget Act, is less certain, since it is still unclear what the extent of the disagreement is between the Legislature and the Governor, or in what part(s) of the budget that disagreement exists.
There appear to be five main scenarios that we could be facing now – two of those now seem to be unlikely, and three seem possible. For the unlikely scenarios, first the Governor could sign the Budget Act as it has been passed by the Legislature; however, if that was going to happen, then we would have already heard that the parties had reached this agreement. Second, no agreement between the parties is reached, the Governor chooses not to sign the Budget Act within 12 days of receipt, and inaction by the Governor would mean that the Budget Act would go into effect after that 12-day period. There are few (if any) good reasons for the Governor doing this rather than simply signing the Budget Act within the 12-day window.  
The more plausible scenarios include a Gubernatorial veto of the Legislature’s Budget Act, or a quick agreement with the Legislature that makes a veto unnecessary.
If an agreement between the Governor and the Legislature were reached quickly, then the Legislature could quickly follow SB 74 with a new budget bill that either implements the full budget agreement or that amends those sections of SB 74 that would be changed by the agreement. If it is a new Budget Act, the Governor would likely veto SB 74 and sign the new bill. If the new bill simply amends SB 74, then the Governor could sign SB 74 first and sign the new bill after that; thus the new bill would overwrite those sections of SB 74 that did not conform to the budget agreement. Remember that any new bill would have to be in-print for 72 hours before the Legislature could bring it up for a vote.
In the case of a veto with no agreement, (unless there was an unlikely veto override by the Legislature) the state would not enact a budget until an agreement between the Governor and the Legislature was in place that would allow a new Budget Act, and additional budget trailer bills, to be passed and signed into law. 
Another scenario is one that has been used in the past, but is not one that normally comes to mind: the Governor could simply return the bill to the Legislature, unsigned, prior to the close of his 12-day window. In that case, the Legislature could choose how to proceed. The Legislature could hold the bill until an agreement was reached, and then amend the bill prior to sending it back to the Governor. Alternatively, the Legislature could instead, once again, send the bill to the Governor; this would restart the Governor’s 12-day signing clock and buy some time for additional negotiations. Obviously, the decisions that will be made by the Governor and by the Legislature in the coming days or weeks will be driven not only by the issues in the budget, but also by the public relations and political ramifications of those decisions.
These possible scenarios aside, we are still waiting to hear more about how negotiations between the Legislature and the Governor are progressing. There are numerous reports from different sources, including some media, on how those negotiations will impact K-12. For example, there is some reason to believe that the parties are very close to an agreement, and that the Governor may prevail on the assumption about forthcoming federal funds. This would mean that budget adjustments are made now and possibly rescinded later if the federal funds arrive. There may also be a compromise on the question of cuts versus deferrals that would lean towards deferrals but included the 2020-21 COLA being cut or eliminated. There are also reports that additional federal funds, that are already available to the state, may be directed toward education. At this point, however, there is no confirmation of these compromises or any other reports. 
For now we mainly remain hopeful that there is quick resolution to whatever remaining issues of disagreement exist between the Legislature and the Governor, and that whatever agreement or compromise is revealed favors K-12 education as much as is possible. As we have up to now, we will continue to keep you up to date as more information is available. As always, if you have any questions, feel free to contact any of the partners or staff at Capitol Advisors.
Gerry Shelton
Capitol Advisors Group