ITUP Blog: Budget Update – Governor’s 2021-22 Budget Proposal: Key Highlights

February 18, 2021

By Katie Heidorn, Garrett Hall, and Marissa Kraynak

Budget Update – Governor’s 2021-22 Budget Proposal: Key Highlights

On January 8, 2021, Governor Gavin Newsom released his Fiscal Year (FY) 2021-22 Budget proposal of $227.2 billion ($164.5 billion General Fund (GF)). The budget prioritizes continued responses, supports, and relief related to the COVID-19 pandemic and economic recovery from the COVID-19 related recession with major spending proposals in education, health and human services, housing and homelessness, and labor and business areas.

In November 2020, the Legislative Analyst Office (LAO) released their 2021-22 Fiscal Outlook predicting a $26 billion windfall, or one-time surplus, for this budget, and predicted a structural deficit in FY 2021 – 22 and growing to approximately $17 billion by FY 2024-25. They recommended that the Governor and Legislature spend $13 billion of the windfall in one-time spending and that they put the other $13 billion into a rainy-day fund. The Governor’s Budget similarly projects a surplus—termed “budget resiliency” of $34 billion, as well as a structural deficit in the coming years:  $7.6 billion deficit in FY 2022-23, growing to $11.6 billion in FY 2024-25.

This blog highlights key health and human services proposals in the FY 2021-22 budget as well as proposals that improve health equity and address the social determinants of health. Following the summary of key budget highlights, we discuss what to expect during the months between now and the May Revision, when the Governor will release a revised budget before it ultimately is signed into law this summer. We also include links to resources on where to find budget change proposals, trailer bill language, department specific budget highlights, and more.

Key Highlights to Watch from the Governor’s FY 2021-22 Budget Proposal

1. Continued COVID-19 Pandemic Response

Overall COVID-19 Emergency Response: Overall, the Governor’s Budget estimates that California will have spent $13 billion total funds ($2.5 billion GF) in FYs 2020-21 and 2021-22 on the pandemic response. For more information, including charts of pandemic spending, see the Budget Summary: COVID-19 Pandemic Response.

Vaccine Distribution: California has approved two COVID-19 vaccines that are now available. The Budget proposes over $300 million as an initial estimate for vaccine distribution.[i] This allocation will include $31.7 million ($10.8 million GF) in FY 2020-21 and $315.7 million ($107.4 million GF) in FY 2021-22 to cover vaccine administration costs for Medi-Cal providers administering the vaccine to their covered population.[ii] Additionally, these monies will also include funds for a public awareness campaign aimed at increasing vaccine adoption. For more information, visit the Governor’s Vaccinate ALL 58 page .

Public Health Emergency Response Measures: The budget includes $820.5 million in FY 2021-22 for the California Department of Public Health (CDPH) to continue efforts combatting COVID-19. [iii] These efforts include supports for testing capacity, data-driven investigation, response and prevention of COVID-19, and coordination with local partners. [i]

2. Fiscal Outlook for Medi-Cal Program

The state’s Medicaid program, Medi-Cal, is administered by the Department of Health Care Services (DHCS). The Governor’s proposal includes a Medi-Cal budget of $117.9 billion ($22.5 billion GF) in 2020-21 and $122.2 billion ($28.4 billion GF) in FY 2021-22.

Impact of Increased Enrollment in Medi-Cal: At the onset of the pandemic in 2020, the Department of Finance (DOF) predicted a 2 million person increase to the Medi-Cal program [iv] as a direct result of job loss and financial insecurity caused by the COVID-19 pandemic. Lower-than-expected Medi-Cal enrollment, enhanced Federal Medical Assistance Percentage (FMAP), [v] and other savings together lead to lower expectations in the Medi-Cal program of approximately $1.2 billion GF in FY 2020-21 compared with allocations in the 2020 Budget Act. [i]

However, the Budget still assumes that Medi-Cal caseload will continue to grow consistently through December 2021. The average Medi-Cal caseload is estimated at about 14 million in FY 2020-21. In FY 2021-22, the budget assumes that the average Medi-Cal caseload will increase to about 15.6 million, an 11.7 percent increase from FY 2020-21, with associated cost increases of $13.5 billion total funds ($4.3 billion GF). By these estimates, about 40 percent of the population will be covered by Medi-Cal in FY 2021-22. [i][ii]

3. Medi-Cal Programs—Impacts on Consumers and the Delivery System

California Advancing and Innovating Medi-Cal (CalAIM) Implementation: Effective January 1, 2022, the budget proposes $1.1 billion ($531.9 million GF) for FY 2021-22 and $1.5 billion ($755.5 million GF) in FY 2022-23 to implement this initiative.[ii] CalAIM, which builds upon the successes of waiver demonstration programs such as Whole Person Care, the Coordinated Care Initiative, Health Homes, and public hospital system delivery transformation, will identify and manage member risk while focusing on whole person care and addressing the social determinants of health and make Medi-Cal less complex while increasing  flexibility within the program. CalAIM proposes to improve quality outcomes, reduce health disparities, and drive delivery system transformation. For more information on the CalAIM proposal, check out DHCS’s webpage and ITUP’s Health Policy Essential: CalAIM.

Permanent Telehealth Flexibilities: The budget proposes $94.8 million ($34.0 million GF) to make permanent and expand certain telehealth flexibilities permitted during the COVID-19 pandemic, notably including the addition of remote patient monitoring services.[i] See ITUP’s Telehealth Fact Sheet for more information on flexibilities.[ii] See the Administration’s Telehealth Proposal for more information on the proposal.

Expansion of Medi-Cal Eligibility to Seniors Aged 65 and Over Regardless of Immigration Status Not Included:  The 2020 Budget Act Public Health Omnibus Trailer Bill, AB 80, Chapter 12, Statutes of 2020, included language that prioritized extending Medi-Cal coverage to seniors age 65 and older, regardless of immigration status, after several years of positive fiscal projections for the state’s Special Fund for Economic Uncertainties. Funding for this item was not included in the Governor’s FY 2021 – 22 Budget Proposal.

Medi-Cal Rx: The budget includes $219.9 million ($70.2 million GF) in costs in FY 2020-21 and savings of $621.7 million ($238.2 million GF) in FY 2021-22 associated with the carve-out of Medi-Cal pharmacy benefit from managed care to Fee-for-Service (FFS). [i] This means the Medi-Cal FFS system will pay for and deliver Medi-Cal members’ pharmacy benefits, instead of their Medi-Cal managed care plans. The budget proposed Medi-Cal Rx to be effective April 1, 2021; however, on February 17, DHCS announced that Medi-Cal Rx implementation will be delayed until at least May 2021.

Proposition 56 Supplemental Payment Programs: The budget proposes a 12-month delay in the suspension of Proposition 56 programs [i] because of an improved revenue outlook from what was estimated in the Budget Act of 2020[vi]. The budget proposal includes $3.2 billion ($275.3 million GF, $717.8 million Proposition 56 Funds, and $2.2 billion federal funds) for these programs in FY 2021-22. These programs are funded by an increase in taxes on the sale of tobacco products and fund a variety of directed supplemental payments to Medi-Cal providers, including physician services, dental, developmental screenings, adverse childhood experiences (ACEs) screenings, and family planning services. Effective July 1, 2022, the Budget proposes to suspend Proposition 56 spending, with some exceptions.

4. Budget Proposals Impacting the Health Care Delivery System

Office of Health Care Affordability, Health Information Exchange, and Department of Health Care Affordability and Infrastructure:  The Budget includes $11.2 million in FY 2021-22, $24.5 million in FY 2022-23, and $27.3 million in FY 2023-24 and ongoing from the Health Data and Planning Fund to establish the Office of Health Care Affordability. [i] The Administration also plans to submit a proposal in the spring recasting the Office of Statewide Health Planning and Development and the proposed Office of Health Care Affordability under the umbrella of a Department of Health Care Affordability and Infrastructure. Finally, the Administration envisions an environment where health plans, hospitals, medical groups, testing laboratories, and nursing facilities—at a minimum, as a condition of participating in state health programs such as Medi-Cal, Covered California, and CalPERS—contribute to, access, exchange, and make available data through the network of health information exchanges for every person. [ii]

Partnerships to Increase Student Access to Behavioral Health Services: To improve the mental well-being of children and adolescents, the budget proposes one-time funding of $400 million ($200 million GF) to implement an incentive program through Medi-Cal managed care plans, in coordination with county behavioral health departments and schools to build capacity statewide to increase the number of students that access preventative and early intervention behavioral health services. [i]

5. Proposals to Advance Health Equity and Address the Social Determinants of Health

Continuous Glucose Monitors: The budget proposes $10.9 million ($3.8 million GF) to include continuous glucose monitoring systems as a covered Medi-Cal benefit for beneficiaries ages 21 and older with Type 1 diabetes, effective January 1, 2022. [ii] Diabetes is a condition that disproportionately affects communities of color. In California, diabetes prevalence is highest in Black (14.4 percent) and Latinx (12.4 percent) communities and nationwide data shows an even higher rate in Native communities (16.4 percent); the prevalence of diabetes in the general California population is only 10.1 percent. [vii] Continuous glucose monitors improve diabetes management and outcomes, subsequently improving quality of health care and life.

Implementation of the Master Plan for Aging: To better and more equitably serve the growing aging population in California, Governor Newsom released a Master Plan for Aging blueprint on January 6, 2021. California’s over-65 population is projected to grow to 8.5 million (20 percent of the population) by 2030; throughout the pandemic, nearly 80 percent of COVID-19 related deaths were age 65 or older. The budget proposes a $5 million GF placeholder allocation for spring proposals related to implementation of the Master Plan for Aging. [i]

Immediate “Early Action” Plan: The Governor’s Budget includes $14 billion in economic recovery proposals, including approximately $10 billion worth of proposals in FY 2020 – 21 and 2021 – 22 that the Governor requests that the Legislature approve earlier in the budget process than the typical consideration schedule. These “Early Action” requests include:

  • $2 billion for the safe re-opening of schools, prioritizing the youngest students (Transitional Kindergarten through 2nd grade) and students with the greatest needs;
  • $4.6 billion of Proposition 98 funds for extended learning time, including summer school; and,
  • $2.4 billion for “Golden State Stimulus” payments of $600 to nearly 4 million low-income Californians.

Housing and Homelessness—Continued Homekey Acquisitions: The budget proposes a $1.75 billion one-time GF to combat homelessness. Due to the success of the first round of Homekey acquisitions, the budget includes $750 million one-time GF to continue to support local government efforts to secure and rehabilitate property for long-term housing solutions. In the budget proposal, the Administration urges the Legislature to take immediate action to approve $250 million one-time GF in FY 2020-21 to continue funding Homekey projects.

Food Bank Availability: The budget proposes a one-time $30 million GF above program base funding levels for the Department of Social Services to fund existing Emergency Food Assistance Program providers, food banks, tribes, and tribal organizations. This one-time funding can mitigate increases in food needs among food insecure populations, often low-income and communities of color. The recently enacted federal COVID-19 response and relief bill includes increased funding for this program and CalFresh. [i]

Budget Process: What’s Next Betewen Now and May Revision

Legislative Budget Hearings: Between now and the release of the May Revision in mid-May, the Legislature’s Senate and Assembly Budget Committees and their policy-specific sub-committees will invite the Department of Finance and State Departments to present the Governor’s January Budget to those committees. They will also allow for stakeholders to provide public comment on the Governor’s proposals as well as present their own “stakeholder proposals”. In most cases, these committees will not take any action on the Governor’s budget proposals or on the stakeholder proposals and will instead “hold them open” until after the May Revision is released.

May Revision: The Governor, in mid-May, will release a revised budget and fiscal outlook.  At this time, the Legislature’s Budget subcommittees and Full Budget committees will meet and either approve or reject the Governor’s and stakeholders’ proposals. The Legislature and the Governor will then negotiate to produce a final budget.

Legislative Budget Hearings and a Balanced Budget: The Legislature is required to produce a “balanced budget” and send it to the Governor by Tuesday June 15, 2021. Due to the requirement that a bill be in print for at least 72 hours prior to legislative action, watch for the budget bill to be in print by Friday, June 11, so that it can be sent to the Governor on Tuesday, June 15, 2021.

Final Budget Release: After the budget bill passes through the Legislature, the Governor then has 15 days to sign it so that it will be law by Wednesday, July 1, 2021, the start of the new fiscal year. Additional bills called “trailer bills” that make statutory changes needed to implement the spending items in the Budget Bill will also move through the Legislative process and be signed by the Governor, although they do not have to be sent to the Governor by June 15.

Key Government Resources

Below, we’ve provided key places to find both summary level and detailed information on the state budget, as well as links to budget bill language (BBL), trailer bill language (TBL), and budget change proposals (BCPs).

Administration/Executive Branch Resources:

Legislative Resources:

Stay tuned for our next update on the May Revision!


[i] Department of Finance, Governor’s Proposed Budget Summary 2021-2022, January 2021.

[ii] Department of Health Care Services, 2021-22 DHCS Budget Highlights, January 2021.

[iii] Department of Public Health, 2021-22 CDPH Budget Highlights, January 2021.

[iv] Department of Finance, May Revision, Health and Human Services Budget Summary, May 2020.

[v] ITUP Blog, Key Items in the May Revise, June 2020.

[vi] Office of the Governor, Enacted Budget Summary, June 2020.

[viii] America’s Health Rankings, California Annual Report 2020 Data Set, Accessed February 2021.