Veto Requested For The Portion Of The State Budget That Affects Biomedical R&D And NOL Tax Credits

Governor Gavin Newsom and the state Legislature have agreed to a state spending plan that avoids billions of dollars in permanent cuts to public schools and health care programs but imposes pay cuts to state workers and other programs to cover an estimated $54.3 billion budget deficit brought on by the coronavirus pandemic.

The agreement announced Monday does not include Newsom’s proposed permanent cuts to public schools and health care programs, which would have made fewer low-income older adults eligible for government funded health insurance and eliminated programs aimed at keeping people out of nursing homes.

Instead, the state will delay about $12 billion in payments to public schools to future budget years. This gives school districts the authority to go ahead and spend the money — either by borrowing or pulling from their reserves — and the state will pay them back later.

Unless the federal government supplies billions of dollars in aid by Oct. 1, state employee salaries will be slashed by 10% and the University of California and California State University systems will take a combined $602 million hit.

CLSA has actively been engaged with efforts to curtail the impact of budget cuts on the life sciences sector.  In particular, the suspension of the research and development tax credit and the net operating loss carryovers.  Both programs provide economic incentives for growth and are often vital for smaller life sciences companies.

We submitted a veto request letter for the portion of the budget specific to the Net Operating Loss (NOL) rules and Research and Development (R&D) tax credit.  CLSA intends to keep pushing for changes for as long as there is an opportunity to impart changes this year and as the economy continues to improve.  The federal relief funds may provide some relief to the state that would allow for some restoration of these incentives, particularly around work being done to address the COVID pandemic.