HomeMy WebLinkAboutLetter from Senator Aanestad 06.23.08 - Governor's revisions a
SENA FOR
SAM AANESTAD
F , )lNrtI si r•,AIAS_ Dlsr
June 2;j„ 2oo8
1 lonorable Curt Josiassen, Chair
CountN, of Butte
25 County- Center Drive
Orm ille, CA 95965
Deal' Curt :
Attached please find a cope of the Highlights and Analysis of the
Governor's May Revision of the 2008-09. This document sti n narizes as
Well as prol'ides detailed information on the budget we are currently, working on
in Sacramento. As a leader in Four communitN-, I thought this would be beneficial
in understanding the information the Legislature is using to work through the
budget process.
Thank N'ou for serving the citizens of- the C.oLmtZ' of Butte . As always, if there is
ever anything we can assist N'ou with, please do not hesitate to call.
B st 1Zeg, ds,
SAM AANLSTAI)
Senator, Fourth District
I
. F,
J --
Highlights and Analysis
of the Governor's May
Revision of the 2008-09
F rr ; h
Budget
CALIFORNIA
Senate
Republican Caucus
'i
OF
Senator Sam Aanestad
4th Senate District
Table �� Contents
. ���.&� ��o
EXECUTIVE St MMARN --------------------------------------------------.|
[XPLN|N[\KES........................................................................................................................................... ..........................5
LO IT AN0|tXPLAN----------- ....................................... ........................................................................
o
GENERAL [[N|) REVENUE y()u[<'AS[-- ..................................................................................................................
h
S|ATE%Q>E DEBT------ .............................................................................................................................................
H
ED[('1TUAN-------------------...................................................................................................................Y
U|G]{EN E|vUCUTNN---- ...........................................................................................................................................| |
HEALTH AND 8lnHAN SERVICES...................................................................................................................................|2
HEALTH-------------..........................................................................................................................................|3
HCAt%N SERVICES--------------- .................................................................................................................|h
TRANSPORTATION----.—.............................................................................................................................................|Y
RESOURCES, ENVIRONMENT AND ENERGY--------- .................................................................................D
yiBi|CSA[[[y AND JUDICIARY -------------------------------------------22
DEPARTMENT 0[(Y>NKE{]l )NHAND BEDAUm]|'AllwN-------..............................................................23
S[.A[E\\|UL iSS[ES............................................................................................................................................................Z5
GE NEKALG0VE R NnItNl.................................................................................................................................................. h
ATTACHMENT \ ---_---.----.------'-------------------------------- U
4m SENATE K|WUQ|CT STAFF ASSUCNVIENlN—. .......................................................................................................U
r
Budget Briefs
SENATOR SAM AANESTAD
I �
° 4' Senate District
Ti hli hts and Analysis of
the Governor's May
�'CALIFlORNIAldt
�i� Revision
Republican CauCUS May 16, 2008
Executive Summary
The 2008-09 May Revision echoes the deterioration of the state and national economy.
Weakness in the housing market, sluggish job growth, and smaller gains in personal income have
combined to significantly worsen the economic outlook and expand California's structural deficit. As
projected by the Governor, the $14.5 billion General Fund shortfall that existed at the time the
Governor's January Budget was released has now grown by $7.6 billion. The Governor has proposed
a myriad of solutions to bring the budget into balance, and many of them are unpleasant. For
Republicans there are many proposals that will require serious consideration and deliberation. There
are objectionable spending reductions, fee increases, and borrowing proposals, but the most
controversial proposal is a plan to modernize and securitize the state lottery coupled with a possible
sales tax increase trigger (see page 6). The following chart summarizes the scope of the problem as
defined by the Governor, and his proposed solutions.
Table 1
Summary of the Governor's Plan
(Dollars in millions)
Scope of the Problem
At Governor's January Budget -$14,479
Plus New May Revision Workload Costs -$7,594
Plus New May Revision Policy Costs -$195 A common criticism
Plus Proposed Reserve Amount -$2,009 has been that this is `'
Total Projected Deficit(BY and CY) -$24,277 an "all-cuts` budget, �4"
Minus Special Session Solutions $7,043 but it is clear that t
Remaining Deficit at May Revision -$17,234
nearly ha/f(48°/a)
Proposed Solutions
of the solutions are "
Governor's January Revenue Solutions $5,499 revenue related.
Minus Adopted Special Session Solutions -$3,559
May Revision Revenue Solutions $6,190 I
Total Revenue Solutions $8,130
Governor's January Expenditure Solutions $10,451
Minus Adopted Special Session Solutions -$3,484
May Revision Expenditure Solutions $2,137
Total Expenditure Solutions $9,104
Operating Deficit with Proposed Solutions $0
I
�
Major Tax Increase L/nneoessary — Based on certain conditions, the Governor proposes a
one-percent sales tax increase that could generate $6 billion of new revenue (assuming it does
not further damage an already fragile economy). The tax would be triggered if voters do not
approve a ballot initiative to modernize the state lottery. Hovvevor, responsible spending coupled
with o prudent use of existing underutilized fund sources and assets (og surplus property,
Mental Health Services Fund. First 5hunds). and common sense reforms for education, state
Qovernrnent, and economic stability already proposed by Republicans vvnu|d better serve the
people of California.
�
Maximize the LWttery — The May Revision assumes the availability of $15 billion of "Lottery
Bond" proceeds over n throe year period (roughly $5 billion per year) if m constitutional
amendment to modernize the lottery and make it more efficient and profitable is approved by
voters. Unfnrtunato|y, this appears to be another temporary Ox to an ongoing structural problem
that will eventually bring about the return of the structural operating deficits that Republicans
have been trying ineliminate. (See Lottery section unPage 6.)
�
Operating Deficit Scenarios — Depending on a variety of factors such as the amount of real
ongoing spending reductions and the success or failure of the Governor's budget roh)rrn
proposal, the level of operating deficits will vary. It appears that under any scenario the
Governor's May Revision plan will not permanently solve the problem. The "workload" deficit
reflects state spending absent any proposed solutions. The other two scenarios assume all of
the Governor's revenue and expenditure solutions are Gdopted, but one also assumes the
Governor's budget reform proposal isapproved todiminish the deficit.
Chart
�
Operating Deficit Comparison
�
(Dollars in millions)
�
$5.000
� .
� $O �
�
|
�
<$5.000
-$10,000
-$15.00O �
. �
� -$20.000 �
2007'08 2008-03 2009-10 2010-11 2011'12
� m0peoting Deficit (Workload) nOperating Deficit (Absent Budget Reform)
b]Operating Deficit (As oumingBudget Reform) � �
Key Points (Continued):
, Expenditures On the Rise — Absent the $12.6 billion of expenditure "solutions" (spending
peductiono, fund shiKn, deharra|e, etc.) proposed by the Governor. state General Fund
spending would soar past $113 billion im20O8-08. which isnearly $1Obillion higher than the
current fiscal year. Even with the Governor's spending reductions the proposed expenditures
are more than $25 billion higher than just five years ago. There should be no doubt that
California has aserious spending problem. (Seo Expenditures section on Page 5.)
Spending Increases by Agency
Over the Past Five Years
(Dollars in millions)
2003-04 to 2008-09
AGENCY 2003-04 2008-09 Change % change
Legislative, Judicial, Executive $ 2,544 $ 3,792 $ 1,248 49.1%
State and Consumer Services $ 462 $ 566 $ 104 22.5%
Resources S 950 S 1,624 $ 674 70.9%
Health and Human Services S 22,762 S 29,800 $ 7,038 30.9%
K-12 Education $ 29333 S 41,145 $ 11,812 40.3%
Higher Education $ 8,780 S 11,758 $ 2,978 33.9%
Labor& Workforce Development $ 113 S 97 $ (16) -14.2%
Vehicle License Fee Offset S 3,125 S - (3,125) -100.00%
~ Includes $O.1Billion of(]Ffor VLF Backfill
�
Underlying Revenue Growth /s S/nmobh — The May Revision projects revenues will grow by
over 6 percent in 2007-08 and nearly 2 percent in 2008-09. This assumes the adoption of
several proposals that would better be characterized as borrowing rather than true revenue.
Adjusting the Governor's revenue projections to bettor reflect underlying revenue growth it
appears that they are relatively flat ($982 billion in 2007-08 and $95.5 billion for 2008-09).
Unfnrtunate|y, revenues simply cannot keep pace with the souring expenditure grovvth, and
previous overly optimistic revenue projections are not holding up under the current economic
conditions. (3mo Revenues sec//on on page 0 )
]
Key Points (Continued):
Education Spending Increases - Funding for K-12 education gets relatively generous
treatment in this lean budgetary environment, rising to $50.4 billion. From 2003-04 to 2008-09,
K-12 Proposition 98 spending will have grown by over $8.5 billion, while average daily
attendance has fallen by over 50,000 students (see chart below). Some will argue that
even this is inadequate, but ask them to explain why an $8.5 billion increase is not sufficient to
support a quality education to a shrinking student population.
Chart 2
Prop 98 Spending Increases While
Average Daily Attendance Falls
$60.0 -- — — — 6,000,000
$50.0 5.980,000
$40.0 5,960,000
$30.0 5,940,000
$20.0 5,920,000
$10.0 5,900,000
$0.0 — —._ --- 5,880,000
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
—K-12 Prop 98 Spending K-12 avtg daily attendance '
4
Expenditures
u_ ~ures
The May Revision proposes to increase General Fund expenditures for the 2007'08 Deoa| year by
$1.3 billion (about 1 percent) compared to the 2007-08 Budget Aut. Even after special session
reductions - it is still growing. Sirni|ar|y, despite over $2 billion of new expenditure "solutions," 2008-08
expenditures still grow by $838million (about 1 percent) over the Governor's January Budget proposal.
It is important to recognize that, despite much angst over massive spending neductinns, the true year-
to-year decline
eapto-yoordec|ine in spending is about 1,0 percent ($17 biUion), and even less if compared to the 2007
Budget Act ($500 million or less than 0.5 percent). This in a very different story than the "draconian"
10'percentocnnss-the'boendreductions.
Table
General Fund Expenditures by Agency
2007 2007-08 May
Agency Budg t Act Revise Change % change
Legislative, Judicial, Executive $3,792 $3,920 $128 3%
State and Consumer Services $577 $598 $21 4%
Business, Transportation & Housing $1,567 $1,502 -$65 4%
Resources $1,674 $1,877 $203 12%
Environmental Protection $90 $89 _$1 _1%
Health and Human Services $29,719 $29,726 $7 0%
Corrections and Rehabilitation $9,836 $10,173 $337 3%
K-12 Education $41,341 $42,507 $1,166 3%
Higher Education $11,980 $11,819 -$161 _1%
Labor and Workforce Development $103 $105 $2 2%
General Government $1,579 $1,227 -$352 -22%
Totals $102,258 $103,543 $1,285 1%
2008-09
Governor's 2008-09 May %
Agency Budget Revision _ Change change
Legislative, Judicial, Executive $3,787 $3,792 $5 0%
State and Consumer Services $608 $566 -$42 -7%
Business, Transportation & Housing $1,680 $1,635 -$45 -3%
Environmental Protection $86 $88 $2 2%
Health and Human Services $29,298 $29,800 $502 2%
Corrections and Rehabilitation $10,268 $10,139 -$129 _1%
Higher Education $11,699 $11,758 $59 1%
Labor and Workforce Development $98 $97 _$1 _1%
General Government $2,407 $1,192 -$1,215 -50%
Totals $100,998 $101,836 $838 1%
5
Lottery and Tax Plan
The Big Spin
The May Revision includes a proposal that would place before the voters a November 2008 ballot
initiative that would "modernize" the California Lottery in order to securitize revenue (ie., sell the rights
to a portion of the future revenue stream from the Lottery for cash upfront) neou|dn0 from G speculative
improvement in the performance of the lottery. The details of this proposal are not yet ovai|ab|e, but it
appears that the enhanced profitability of the lottery in expected to be generated from increased
advertising and new games currently not permitted. The Department of Finance has indicated that
video lottery terminals would not be included as part of the enhanced lottery experience.
This plan to securitize the lottery in projected to result in $15 billion of revenue over three years (roughly
$5 billion per year) to be deposited in @ newly created Revenue Stabilization Fund (RSF) Of this
amount, $5.1 billion would be transferred to the General Fund as revenue for 2008'09. The balance
would be used to support ongoing state General Fund expenditures through 3010-11 // /S not clear
how the state would maintain those ongoing program costs after the lottery proceeds are spent,
but it seems 0Yek/ the rasm// would be m $5 b/8/mn budget hole.
The "Fail Safe"/Tax Increase Trigge
Since the ability to balance the state budget for the next three yearn would be dependent upon the
lottery proceeda, which in turn vvVu|d be dependent upon voter approval and VV8|| Street investors. the
Governor proposes a back-up plan that includes a tax trigger if the lottery plan does not come to
fruition. Specifically, the Governor proposes a temporary 1 percent ($'OM s@/es tax increase. Some
estimates suggest this tax increase could generate $6 billion of new General Fund revenue. Huvvevor,
given the potential Of such a tax increase to stifle economic activity, it is possible that the $O billion
estimate is significantly overstated.
According to the Administration, this ''trigger" is similar to the mechanism established by Chapter 10.
Statutes of 1883, which was signed into |avv by Governor Deukmejian. Under this mechanism, the
Director of the Department of Finance would determine whether RSF hos o sufficient balance for
transfer to bring General Fund revenues up to o projected long-term average of General Fund revenue
growth. If the RSF balance is insufOoient, a temporary one-cent ($.01) sales tax increase would be
triggered. The triggered increase vvOu|d remain in effect until the RSF reaches the targeted fund
balance (15 percent of General Fund tax revenues) or until June 30. 2011. whichever occurs first.
Once this mechanism is no longer in effeot. Californians may eventually receive tax rebates that in the
aggregate will be equal to the amount of revenues cO||8cted, but it is not clear if or when such rebates
would ever occur. The Administration hes not provided detail regarding potential tax rebates, an that
would be left uptothe Legislature.
General Fund Revenue Forecast
The Department of Finance continues to paint a positive picture, forecasting positive revenue growth
in 2007-08 and 2008-09. even though it has announced a $8.0 billion decrease in the General Fund
revenue projection. For the current year (2007-08). the May Revision estimates that revenues have
grown to $101.2 billion or 6.1 percent over 2006-07. For 2008-09. the May Revision estimates revenue
growth Vf$1 O billion (1.8 percent) over 2007-08.
6
ffow/ever, the May Revision numbers for both the cunard year and budget year are higher than
underlying revenue growth.
~
Current year revenue estimates include $5.0 billion that is not true General Fund revenue, including
$3.3 billion from the oa|c of remaining Economic Recovery Bonds. $1.5 billion that would be
transferred to the General Fund from the Budget Stabilization Account (rainy day fund), and a
$175million accrual tothe current year.
,
Budget year revenues include nearly $7,5 billion of borrowing, including 851 billion of "Lottery
Bond" proceeds, $574 million of loans from various special funds. $75 million of special fund
tnansfors, and a $1.6 billion accrual tothe budget year.
When we remove "revenue" so|uhons, current year revenues are projected to be $96.2 biUion, vvNnh is
an increase of $795 million (0.8 percent) above the 2006-07 revenue level of $95.4 billion. Without
''rovonuo^ ao|utions, budget year revenues are projected to be $05.5, which is e decrease of
$G73million (minus O.7percent) from 2OO7-08
The following chart provides a breakout of underlying General Fund revenue projections, after adjusting
the Administration's projections to remove ''revenue solutions" that are not truly General Fund revenue.
Table
General Fund Revenue Projections
(dollars in millions)
Revenue Source 2006-07 2007-08 2008-09
Personal Income Tax $51,941 $54088 S53,733
Sales & Use Tax $27.445 $27,100 S27,361
Corporation Tax $117158 $10,135 $11,039
Insurance Tax $2.178 S2,171 $2,029
Alcoholic Beverage Tax S334 $334 $341
Cigarette Tax S115 $114 $114
Other Revenues $2,261 $6.036 S2,534
Transfers _$19 $1,212 S5,836
Total Revenue $95,413 $101,190 $102,987
Govemor's Growth Rate 6.1% 1.8%
Governor's Revenue Solutions $4,982 S7,452
Underlying Revenue Growth $95,413 $96,208 $95,535
Underlying Growth Rate 0.8% -0.7%1
General Fund revenues and transfers represent 70.8 percent of total state revenue and the ''Big 3^
state taxes (Personal |ncVrnc Tax. Sales and Use Tax, and Corporations Tax) account for 89.5 percent
of all General Fund Revenues. Estimates of General Fund revenue for 2008-09 include the following
main components:
,
Personal Unoonna Tax (PUT)--$53.7 Billion. PIT revenues represent 52.2 percent of all General
Fund navenues, and are forecasted to be $53.7 billion in 2009'09. down 05 percent from
$54.1 billion in 2007-08 and down $2.7 billion from the Governor's Budget estimate of $56.5 billion.
The PIT fmnncmmt continues to include u questionable one-time acceleration of $1.3billion from
bringing the tax revenue accruals into conformity with Generally Accepted Accounting Principles.
~-
Sales 2k Use Tax (SUT)--$27.4 Billion. SUT revenues provide 28.6 percent ofall General Fund
revenuoo, and are forecasted to be $274 billion in 2008-08. up 1.0 percent from $27.1 billion in
2OO7-OOand down nearly $1 9biUionfronnthmGovornor'sBud8mtostirna(eof $292bi||ion
7
� Corporation Tax (CT)--$11.0 Billion. CT revenues are expected to contribute 10.8 percent of all
General Fund nrvenuos, and aro forecast to be $11 billion in 2008-09. up 8.9 percent from
$101 billion in 2007-08 and down by nearly $900 million from the Governor's Budget estimate of
$11.S billion.
The CT forecast also continues to include questionable one-time accelerations of $175 million in
2007-08 and 8525 million in 2008-09 from bringing the tax revenue accruals into conformity with
Generally Accepted Accounting Principles.
PropertV Tax Growth
MistorioaUy, property taxes have been a very stable source of revenue for local governments, and |Vco|
government property tax revenues grew quite significantly beginning in 2000-01 However. given the
current conditions in the real outaka market, the May Revision reflects @ combined $839.1 million
decrease to property tax revenue esUnnahne over 2007-08 and 2008'09 As 8 result of this decreased
property tax revenue, the May Revision increases General Fund spending by $252 million in 2007-08
and $O77million in2008-O9tomeet Proposition 98requirements.
Statewide �� ���
�����
The state continues to face significant debt issues related both to existing General Obligation dab1,
budgetary solutions debt, and proposed new General Obligation debt. As noted be|ovv, prior to current
year the state would have had approximately $20.0 billion worth of debt related to prior year borrowing
solutions and other General Fund obligations. In addition. approximately $42.2 billion worth of General
Obligation bonds (authorized between 1970 and 2004) are currently outstanding. Beginning in
2008-09. the {3enarm| Fund is obligated to more than $02.7 billion of debt, and the May Revision
proposes topay nearly $O.5billion toretire that debt.
Table
Statewide Debt
(Dollars in Millions)
Existing Debt
Budgetary Debt Solutions Debt New Debt Payments
Economic Recovery Bonds $6,055 $3,313 $1,527
Tobacco Securitization Bonds $7,752
Proposition 42 Loans $655 $83
Non-education Mandate Prnts S739 ($75)
Special Fund Loans $749 $574 $32
Prop 98 Settle-up $1,101 $150
CTA Lawsuit Settlement $2,384 $450
Paterno Lawsuit Settlement $278 $62
Tribal Gaming Bond $871 $100
Lottery Bonds $15,000
Total $20,583 $18,887 $2,403
Infrastructure Bonds $42,152 $11,000 $4,038
Total Debt $62,735 $29,887 $6,4411
In comparing this chart to the debt obligations as of the Governor's Budgei, we note three significant
changes (highlighted inred) that will increase the state's budgetary debt obligations. The May Revision
proposes to:
8
� Delay a $75 million payment on prior year obligations for ekaks mandated local programs.
According to Proposition 1A and related statutns, the state must pay rnondahm obligations
incurred prior to 2004 within 15 years.
~
Borrow $574.3 million from various special funds. To qualify as a loan nphnn, funds were
required in have at least $5 million nasorvn, show that there vvnu|d be no impact on supported
prograrns, fen increases would not be naquinod, and no repayment would be needed prior to
2010'11 (See Attachment/\ for acomplete listing nyborrowing Sou/ccs.)
�
Borrow $15 billion by securitizing the proceeds of modernized |oUory. The May Revision
proposes to securitize future revenues resulting from the improved performance of the |oMery, to
be deposited in a new Revenue Stabilization Fund At this time we do not have exact debt
service figures related to securitizing the |ottnry. However, we estimate that borrowing $15
billion (at a 5 percent interest rate) would require principal and interest payments of
approximately $1 billion annually to fully repay the lottery securitization by 2033-34 (25 years).
Education�~ on
Governor withdraws his proposal to suspend Proposition 98. The Governor proposes to maintain
2007-08 Proposition SO spending at the post-special-session level of $56,6 bi||ion, which is about $000
million above the minimum guarantee. For 2008-09, his January proposal to provide $55.6 billion
rises in the May Revision byover $1 1 billion, to $56.8 bi||ion, which under his revenue assumptions
equals the nninirnurn guarantee and thus would not require a suspension. Under the May Revision
proposal, year-over-year Proposition 98 spending would rise byroughly $2OO million from 2007-08 to
2008-09 (although total spending, including one-time funds, would fall by about $800 million). The table
hm|ovv details the changes in proposed Proposition 98 funding and estimated per-pupil expenditures
between the Governor's January Budget and his May Revision.
Table
Proposition 98 and Per-Pupil Funding
2007-08(S in billions) Jan 10 Budget May Revision Difference
Proposed Prop 98 Funding $56709 $56,576 1 ,
General Fund $41.707 $41,827 $0,120
Local property taxes $15.001 $14.749
Minimum guarantee $55.652 $55.774
Over/underappropriation $1 057 $0.802
K-12 Prop 98 per-pupil funding $8,558 $8,509
K-12 total per-pupil funding $11,935 $11,997
2008-09 is in billions) Jan 10 Budget May Revision Difference
Proposed Prop 98 Funding $55639 $56.769 $1130
General Fund $39593 $41.399 $1.806
Local property taxes $16.046 $15.370
Minimum guarantee $55639 $56.769
Over/underappropriation $0.000 $0.000
K-12 Prop 98 per-pupil funding $8,458'; $8,610
K-12 total per-pupil funding $11,626 $12,000
9
General purpose funding restored; most categorical reductions continue. The Governor spends
most nfhis $1.1 billion augmentation to Proposition 98 programs on revenue limits ($840 million) and
opoda| education (about $340 million). He continues to propose the same across-the-board cuts to
other categorical programs aswere proposed in January.
No COLA. The statutory COLA rate for K-14 education has increased from 4.94 percent in January to
5.86 percent in May- However, the May Revision continues the January proposal to suspend funding
for the 2008-09 COLA. Tofully fund the C[)LA, in addition to the May Revision as presenbad, would
require that the Legislature overappropriate the Proposition 98 guarantee by over $3 billion.
Public Transportation Account (PTA) used for home-to-school transportation. Consistent with
the recent court decision inthe case nfShaw u Chiang, the May Revision uses $593 million in PTA
and "spillover" funding to reimburse the General Fund for home-to-school transportation cVsts,
including those of the State Special Schools for the blind and deaf, thus creating General Fund savings
ofthe same amount. This action has noeffect nnProposition S# spending nor onthe guarantee.
Average daily attendance still indecline. The Administration estimates 2OO7-08ADA growth a1
-0.11 percent in May, up from '0.49 percent in Jenuary, u change of roughly 24.000 students. It
continues topredict adecline in2OO8-09ADA of-O.52percent.
Deferred maintenance reduced. Funding for deferred maintenance is reduced by $223 nni||inn, to
roughly 840 nni||ion, which will be restricted to districts with hardship oremergency facility conditions.
Local budgetary flexibility enhanced. To help school districts get through this lean budget year. the
May Revision relaxes several ofthe usual operating restrictions. Specifically, it
�
Authorizes districts to transfer categorical funding into general purpose apportionments to the
extent necessary to increase apportionments by two percent over the prior year.
�
Reduces the usual required three percent annual contribution to "restricted reserves for routine
maintenance" 10two percent.
�+
Allows for the transfer of unspent categorical funds to local unrestricted general funds where not
otherwise prohibited by state or federal law.
Increases allowable transfers between categorical block grants.
�-
Eliminates the local match requirement inthe deferred maintenance program.
Reduces n*u*rva requirements so that districts can hold |oSS in reserve without incurring a
"quo|ified^ or ''negutive" budget rating (indicating that a district may not or will not be able to
meet future financial obligations).
This flexibility will be useful at the local |eve|, but care should be taken to ensure that districts do not
use it to reduce services to students to make room fordistrirt+wide salary increases.
Child care. The May Revision includes the following adjustments to the Governor's January budget for
child care programs administered bythe Department ofEducation:
Replaces $25.5 million traditionally paid from the Temporary Assistance for Needy Families
(TANF) reserve with Proposition 98funding
�
Provides $20 million for increased caseload in CalWORKS Stage 2 and Stage 3 child care
Increases provider rates tO reflect regional market rates effective January 2009, but caps them
atthe75mpVrCmnti|eofpriv@tenn8rketrmtes (inste@dVfthHourrentO5mparcenb|eC8p)
School toci|dv arnar8mnoy repairs. Consistent with the settlement of the case ofEliazor Williams vs
State ofCalifhn//e. the May Revision provides $100 million in Proposition 98 Reversion Account funds
for emergency repair projects at schools whose students score in the lowest three deciles of the
Academic Performance Index (located mostly inlow-income anaas\.
Higher Education
California Community Colleges. The May Revision includes several adjustments tothe Community
Colleges' budQet, most notably including the following:
,
Adds $59million inreapprppriatedfunds along with about $Omillion inunexpected student fee
revenue tobackfill the colleges' 2O07'ORproperty tax shortfall
~
Adds about $139million tPoffset falling property tax revenues in2OO8'09
~ Adds 835.5 million to support enrollment growth of 1.87 percent, up from one percent in January
�
Adds G572.000 for a foster care training program to avoid the loss of$700,000 in federal
matching funds, but leaves in place the January acpnss-tho'boe'd cuts tothe colleges' other
categorical programs
r
Proposes categorical flexibility similar to that proposed for K-1 2 education, wherein the colleges
could transfer funds between three part-time faculty programs and between five student
services programs.
University of California. The May Revision augments UC's General Fund budget by $98.5 rni||iVn
beyond the amount included inthe January budget, thus holding its General Fund support level from
year to year, at $3.26 billion. It also assumes that UC will raise student fees by the 74 percent already
being considered by the UC Rogonts, but no highor.
California State University. Similar to its proposal for UC. the May Revision augments CSU'n
General Fund budget by $970 million beyond the January level, thus holding its General Fund support
level from year to year, at $2.97 billion. Also similar to the UC proposa|, it assumes that CSU will raise
student fees bythe ten percent already under consideration by the CSU Trustnes, but no higher.
Student Financial Aid. The May Revision makes two major changes tothe budget nithe Student Aid
Commission:
r
It deletes $80 rni||iVn in "p|ooeho|dor" funding provided in January for the Ca|Grant program to
cover potential student fee increases beyond 7.4 percent at UC and ten percent at CSU. The
Governor now anticipates that the haa increases will not exceed those pmrcmnteges, so the
$8Omillion can bedeleted
�
It creates General Fund savings by using $223 million in federal TANF funding to fund
Co|Grants, thus freeing up the same amount of Gmnmns| Fund to be used in satisfaction of
federal TANF "maintenance of effort" requirements. This swap has no practical effect on
Ca|Gnsntfunding and will betransparent tVthe students who receive the grants.
EdFundsale deferred. In May 2007, the Governor proposed tosell the EdFundto reap oone-time
benefit ofabout 81 billion. In January 2008, he lowered the estimated sale price to $500 million. The
May Revision continues to score the sale at $500 rni||ion, but defers the anticipated receipt of funds
until 2009-10.
Health and Human Services
The Governor's May Revision proposes expenditures of $29.8 billion General Fund for all of Health and
Human Services in 2008-09. This represents on increase of $502 million over the Governor's January
Budget, and an increase of$74 million, or 0.2 percent, above the revised 2007-08 level.
The increased coats are primarily in Medi-Cal and social service ppognanns, and include increased
Medi-Cal managed care rates ($192 rniUion) and decreased savings from the Governor's budget
balancing reductions due k} the delay inenacting the reductions ($450 million). These increases are
offset bysignificant new reduction proposals in |n'Horno Supportive Services (|HSS) and SS|/SSPthat
vvVu|d save the state $489 million. Additionally, the May Revision proposes to reduce Medi-Cal
services to certain immigrant groups (both legal and illegal) for savings of $87 rniUion, enact stricter
onno||rnen1 processes for illegal immigrants for savings of $42 rniUion, and to reduce the allowable
income level fora subset ofMedi-Cal recipients for savings of $31 million.
Despite the various reduction proposals included in both the Governor's January Budget and the May
Revision, Health and Human Services General Fund expenditures are still $4.5 billion above what they
would have been had programs grown at the S@rnw rote as inflation and population since 1998-80. as
shown in the chart below. Certain pnngrann3. such as Medi-Cal, Regional Centers, and |n-Horne
Supportive Services continue tngrow atsignificant rates. The Governor's proposals bostem the growth
within Medi-Cal and IHSS are encouraging Hovvevnr, it is essential that substantial programmatic
reforms are enacted in 2008-09 as California cannot continue to sustain the growth in these programs.
Chart
Health and Human Services General Fund Spending
(Dollars in billions)
1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
99 00 01 02 03 04 05 06 07 08 09
General Fund Spending 1998-99 Expenditures Increased for Inflation/Population Growth
* 7he208] 04Guneru/F-^mdrel7ec/xonc'//mexuvi/gr /broccroo//ocuxhoccuon/i\- (,D/ 6/8i/o) unJon6onrcd
/eJe/o/fiscu/re/iof(,K566./ m///ion) /n the 3&/o\'Cal pro4nzm.
Health
Department of Health Care Services
Medi-Cal
The May Revision includes $37.2 billion ($13.9 billion General Fund) to fund the Medi-Cal Program,
which reflects an increase of $1.2 billion ($316 million General Fund), or 3.3 percent, above the
Governor's January Budget. Caseload is estimated to be 6.59 million beneficiaries, which represents
an increase of 23,000 over the Governor's Budget and a decrease of 50,000 from the revised 2007-08
level. The increase in costs is primarily due to increased managed care rates ($192 million) and
decreased savings from various budget balancing reductions due to delaying enactment of the
reductions from March to July ($177 million). The May Revision proposes several additional program
reductions, including limiting Medi-Cal benefits to legal and illegal immigrants, enacting stricter
enrollment processes for illegal immigrants, and rolling back an eligibility expansion instituted in 2000.
Despite these new proposals, the various reductions proposed as part of the Governor's January
Budget, and the 10% provider rate reduction enacted as part of Special Session, Medi-Cal General
Fund expenditures are still $2.1 billion above what they would have been had expenditures grown at
the same rate as inflation and population since 1998-99 (see chart below).
Chart 4
Medi-Cal General Fund Expenditures
(Dollars in billions)
Gap = $2.1 Billion
$15
$14
$13
$12
$11
$10
$9
$8
$7
$g - -
1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
99 00 01 02 03 04 05 06 07 08 09
General Fund Spending —+-1998-99 Expenditures Increased for Inflation/Population Growth
The 2003-04 General Fund reflects one-time savings for accrual-to-cash accounting ($1 billion) and enhanced
federal fiscal relief($566.1 million) in the Medi-Cal program.
The May Revision contains several significant new proposals, including:
New Benefit Limits for Immigrants. The May Revision includes savings of$86.7 million to reduce the
level of benefits provided to new qualified immigrants (legal immigrants who have been in the country
for less than five years) and Permanent Residence Under Color of Law immigrants (illegal immigrants
whom the US Citizenship and Immigration Services are aware of but are not actively pursuing
1)
deportation of). Cunerd|y, both immigrant groups recoivafuU'uoope Medi-Cal, and this proposal would
nrduPo benefits hothe same level provided to undocumented innnnignants, which includes ornorAenry
scn/icns, pregnancy-related services, long-term caro, and breast and cervical cancer treatment.
Better Enforcement mfEligibility Requirements for Illegal Immigrants. The May Revision proposes
to limit eligibility for illegal immigrants tothe month inwhich emergency sen/ices are needed for savings
of $42 million General Fund. Federal |avv requires states to provide emergency services to illegal
immigrants, while California |uvv further aUnvvs illegal immigrants to receive pregnancy-related services,
long-term uaro, and breast and cervical cancer treatment. Under current Medi-Cal ru|oS, i||e0u|
immigrants can establish eligibility at any time, regardless of whether they are in need of emergency
sarvices, and can receive restricted-Medi-Cal for u year from the date of application. The
Administration believes that limiting eligibility to the month in which emergency services are received
will better ensure that illegal immigrants do not receive services which they are not entitled to.
Rollback Recent Eligibility Expansions. The May Revision includes savings of $31 million General
Fund as 8 result of rolling back the allowable income level for 1931(b) applicants from 100% of the
federal poverty level (FPL) to the Ca|VV(}RK8 |eve|, which is approximately 68% FPL, and reinstating
the 1OOhour work rule without regard toincome. Both the income expansion and the elimination ofthe
100 hour rule were implemented in 2000. The 1931(b) program provides Medi-Cal coverage tofamilies
with children that do not receive CG|VVOF7KS. This proposal is expected to reduce caseload by 104.000
adults in 2000-09; children will not be impacted. These changes will only apply to new applicants, and
full-year savings wf $342million (43O.0DOadults) will not beachieved until 2O11 12
Hospital Rata Reduction. The May Revision proposes to reduce the reimbursement rate tngeneral
acute hospitals for inpatient Services that do not have m contract with the Medi-Cal program for savings
of $22.5 rni||inn ($11.25 million General Fund). As part of Special Session, non-contract hospital rates
were reduced to cost minus 10 percent. This proposal would reduce rates to either cost minus
1Opercent nrthe average contract rate minus 5 percent, whichever is less. The Administration states
that this change is necessary to ensure that the hospitals do not drop out of the Medi-Cal program.
Most rural hospitals would be exempt from this cut.
Other Department of Health Care Services Issues:
Significant Increases im the Genetically Handicapped Persons Program. The May Revision
includes 869.6 million ($47.5 million General Fund) for the Genodr0||y Handicapped Persons Progrom,
which reflects an increase of $19.5 million General Fund, or 69 percent, over the Governor's January
Budget. The increase is primarily attributable togrowth in caseload and costs totreat hemophiliacs.
Program costs are highly dependent on the types of cases as the top ten cases (2% of caseload)
account for almost 35% of program costo. In fact, one case is expected to cost the state over
$1Omillion in2U07-08.
Department of Public Health
Reduced Cigarette and Tobacco Tex Revenues. The May Revision projects that Cigarette and
Tobacco Products Surtax Fund-Proposition 88 revenues will decrease by $15 million to $320 million.
Consequently, the Administration proposes to reduce funding for the California Healthcare for Indigents
Program and the Rural Health Services Program from $34.8 million to $24.8 rniUinn. 8 28% reduction.
These programs provide funding tocounties t0 reimburse private physioiana, emergency physicians,
and hospitals for uncompensated care.
Managed Risk Insurance Board
Costs Remain Constant in the Healthy Families Program. The May Revision includes
81.1 billion ($389.9 million E)enona| Fund) for the Healthy Families Progrenn, which reflects on increase
of $2.1 million General Fund, or 0.5 pnrcnnt, above the Governor's January Budget and a decrease of
1.5percent from the revised 3007-08 level. Caseload is estimated to be 935.482 beneficioriea, which
represents a decrease of 18,770 from the Governor's Budget and an increase of 55,000, or 6-2 percent,
over the revised 2007-08 level. Costs are expected to decline in 2008'09 as a result of several budget
balancing reduction proposals that the Legislature has yet to take action on.
[3m|aV Implementation of Medi-Cal/Healthy Families Self-Certification of Income. The May
Revision proposes to delay implementation of SB 437 for an additional year for savings of $15.3 million
General Fund. As part of last years budget negotiations, the Governor vetoed $32.1 million
($15.4 million General Fund) related to implementation of SB 437 (EscuUa, 2008). which allows
individuals to self-certify income and assets in Medi-Cal and the Healthy Families Program. SB 437
received no Republican votes because of intent language that all children (including undocumented
immigrants) have publicly-funded health care coverage and because self-certification opens the door to
fraud and abuse The Governor's January Budget had included $32.4 million ($15.3 million General
Fund) ioimplement SB4J7
Department of Mental Health
Salinas Vm||my State Prison Psychiatric Program Expansion. The May Revision includes $6.7
million General Fund to expand the Salinas Valley State Prison Psychiatric Program by 64-beds This
expansion is necessary to comply with the Coleman court Special Master, which expects the facility io
begin admitting new patients by December 2008 The wait list for the Salinas Valley State Prison
Psychiatric Program is currently 111 padnnts, and this expansion will increase the number of beds from
170to240.
Department of Developmental Services
Closure mfAgnmxxsDevelopmental Center Delayed Again. The May Revision includes Budget Bill
Language to roappropriate 2007'08 General Fund savings to 2O08-O9tofund the cost of consumers
who will remain atAgnmvvs poet the June 30. 2008 closure date. &gnewa was originally set to be
closed July 2005. and this is the third time the Administration has delayed its closure. The
Administration has provided |iNo information on how long this additional delay will be, how many
consumers will beimpacted, orwhat the costs will be. The Department ofFinance notes that the actual
amount required for roupprnphation will be based on the number ofconsumers still residing atAgnevvn
in 2008-09. but is currently anticipating y reappropriation of$22 million.
Regional Center Costs Continue to Outpace Caseload. The May Revision includes $3.9 billion
($2.4 billion General Fund) to fund Regional Cantens, an increase of $150 million ($48 million General
Fund) or3.O percent above the Governor's January Budgot, and an increase of12 percent General
Fund over the revised 2007'08 level. The cost increase is primarily driven by increased utilization and
service coabs, as caseload is estimated to grow by only 3.8 percent. This is consistent with the
program's growth over the past ban yearn: costs have increased by an average of 12.5 percent
ennueUy, while caseload has only increased hy45 percent annually.
Despite this pattern, the Administration proposes no meaningful prngnarnnnado reforms to reduce long-
term grovvh, and instead proposes to continue the existing cost containment nneauunaa that have failed
to significantly reduce expenditures- The gap between actual expenditures and what expenditures
would have been had they grown at the rah: of inflation and population continues to vvidon, as
demonstrated bythe chart below-
Chart 5
Regional Centers General Fund Spending
(Dollars in millions)
Gap $1.4 Billion
$500 IL
1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
99 00 01 02 03 04 05 06 07 08 09
Lm=General Fund Spending 1998-99 Expenditures Increased for Inflation/Population Growth
��u00a�� Services
'
Human
Department of Social Services
Ca|VVORKs. The Governor's May Revision provides $6.7 billion total funds for California Work
Opportunity and Responsibility to Kids (Ca|VVORKS) programs, $300 million less than the Governor's
January Budget. Absent proposed prnQnann ohangnS, o8ae|nad inexpected to be 459,744 in 2008-09.
which represents on increase of 8.844 recipients or 1.9 percent above the Governor's January Budget.
If all proposed program changes were accepted, caseload would decline to 386,870 for 2008-09.
Reform Proposals Continue. The Governor's May Revision continues t0assume savings from
the Ca|VVORKsreform proposals originally included in the Governor's January Budget. The May
Revision GSsunnms $136 million in savings erosion due tothe delay in implementation from June
2008 to October 2008 for the full family sanctionS, modifications to the safety net progrern, and
the establishment of time limits for families with drug felons and Other ineligible adults. Total
savings assumed in2OO8-Ogare now approximately $33Omillion.
�- Fund Shift for Maintenance of Effort Dollars. The May Revision reflects the exchange of
TANFfunds for General Fund in TANF'qua|ifvinQ programs outside the Department ofSocial
Services (DSS). Shifting TANF funds into other programs a||OvvS the state to utilize the General
Fund within the Ce|VVORKS prOgrGnn, thereby meeting federal maintenance-of-effort (M(JE)
requirements without increasing overall General Fund expenditures. The programs receiving
TANF funds in exchange for General Fund include the Ca|Grants program ($223 million),
Juvenile Probation program ($151.8 million), Emergency Assistance Foster Care ($50.4 million),
and an increase in the Title XX transfer to the Department of Developmental Services
($22.2 rniUinn).
Additionally, the Administration is proposing to transfer $5 million in TANF funds to the Boys and
Girls Club in order to count an estimated $88 million in additional expenditures as excess MDE
within the Ca|VV[)RKs program. This proposal appears to he a viable use of program dollars to
enhance federal funding while contributing to the state's required contribution level.
,
Reductions Necessary to Maintain KWinirnurn Maintenance of Effort. The Governor's May
Revision proposes to suspend the Co|VV(}RKaJu|y 1. 2008 cost ofliving adjustment (C[>LA),
resulting in total savings o( $131 million in 2008-09. Savings of $20 million were already scored
in special session when the COLA was delayed until October 1. 2008. which leaves additional
savings of $111 million in200O-O9.
The May Revision also includes savings of$1O82million asaresult ofreducing the Co|VV(}RKs
rnaxinnunn aid payment by 5pen:ent. effective October 1, 2008. This vvnu|d result in 13.400
cases losing o|iUibi|ity, and could negatively impact the work participation rate by about
4 percent (current work participation rate is about 21 percent). Although having the state's work
participation rate decline is not an ideal outrnnno, the state is not even duoe to meeting the
50 percent work rate requirement, and achieving major savings seems an acceptable trade off.
Increasing county efforts for engaging noncompliant individuals and reforming the Co|VV[)RKs
program will help the state increase work participation and mitigate this loss.
Lastly, the May Revision proposes to reduce maximum state reimbursement rates from the 85m
to the 75m percentile of the regional market rate for Stage 1. 2 and 3 child care, for savings of
$19.4 rniUiVn, and to start adjusting state reimbursement rates upward every other year rather
than every year. This will flatten out the reimbursement rates paid by the state, with adjustments
coming less often.
, State Needs Increased Work Participation Levels. The Governor's May Revision proposes to
irnp|nnnant "self-sufficiency reviews" for non-participating Ca|VV(}RKs rccipients, generating
savings ofS59.7million. These reviews will be a required face-to-face meeting every six months
between the non-compliant recipient and the county worker. These reviews are intended to
assess what services or resources may be necessary to bring the recipient into compliance with
their vve|haro to work plan. Recipients nnenUnR the federal work participation requirements and
nnnneedy caretakers of foster children would be exempt from this requirement. If a recipient
fails to meet foce-to-facewith their county worker every six rnonths, they would be discontinued
from aid The DSS assumes 14.8O0families would bewillfully noncompliant and vvnu|d fail to
meet with their county worker. The May Revision includes $82 million for additional county
vvork|oad, but counties will likely argue the costs for additional time spent face-to-face would be
greater. It is important to nyrnernber, hovvevor, that the proposal would result in a reduced
number ofcases which translates into less workload for counties.
Additionally, the Governor's May Revision incorporates o proposal called Pro-Assistance
Employment Readiness Program (PAERS) originally included in the Legislative Analysts'
[>Oioe's Analysis of the Budget Bill. The PAERS pnoQnann creates a ''pre-Ca|VVDF<Ks" program
that is designed to accelerate efforts to assist applicants in securing employment, thereby
avoiding entry into Ca|VV{)RKa or developing u work plan as a condition of eligibility if the
applicant is unable to secure employment during the four month program. Although this
proposal does not generate uavings, it will help the state meet federal work participation
requirements.
Supplemental Security Income/State Supplementary Payment (SSI/SSP). The Governor's May
Revision proposes $3.5 billion General Fund for SSI/SSP in 2008-09. a docnaaoc of $213.4 million
General Fund below the Governor's January Budget. Caseload for the SSI/SSP program is projected
to he 1.274.000 in 2008-09. an increase of2 1 percent over the revised estimate of 1.247.575 for 2007-
08.
�- Retain January 2009 Federal SSI Cost of Living Adjustment. The Governor's May Revision
proposes to retain the January 2009 federal SSI cost of living adjustment (COLA) in the
SSI/SSP prograrn, resulting in savings of $108.8 million General Fund in 2008'09. and
annualized savings of $217.6 million General Fund. Even with the suspension of the state
COLA (included/nthe Governor's January Budget) and the withhold ofthe federal COLA,
California's grant levels for individuals and couples are projected to maintain rankings of
second and first/nthe nation, respectively.
�~
Cash Assistance Eliminated for NmnFmclera| Participants. The Governor's May Revision
proposes toeliminate the Cash Assistance Program for Immigrants asofAugust 2O08. resulting
in savings of $111.2 million General Fund in 2008-09. This program provides benefits to legal
immigrants that are not eligible for the federal program duo tntheir immigration status. Many of
these individuals were able to enter the U.S. because they had o sponsor that agreed to provide
for them (thus keeping the immigrant off public assistanco). but have since lost their sponsor
and are now onpublic assistance.
|n-Horne Supportive Services (IHSS). The Governor's May Revision proposes $1.5 billion General
Fund (a decrease of $110.7 million General Fund below the Governor's January Budget) for the IHSS
program in 2008'09. The caseload is estimated to be 415,589 recipients in 2008-09. an increase of
7`889 recipients or 1.8 percent above the Governor's January Budget.
Even with significant reductions proposed (see be|Vvv), expenditures continuo to greatly exceed the
costs that would be incurred if they grew at the same rate as inflation and population.
Chart
|n'HonneSupportive Services Expenditures �
(Dollars in Millions)
|
$2,000 |
Gap $669 million
i $UJUU
�
$1,400
$1,100
$800 �
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
Actual General Fund Expenditures * 1998-99 Expenditures Increased for Inflation/Population Growth
18
� Governor Revamps Proposal to Reduce Hours. The Governor's May Revision backs off the
proposal to nnduon domestic and related services hours by 18 percent for all recipients and
instead proposes ineliminate domestic and related services, effective October 1. 2008. for only
those recipients that have a functional index score of 2 or 3. maintaining the services for those
ranked 4 or 5 The functional index score provides a measure of the consumer's independence
and need for assistance based on their physical limitations. The proposal would impact about
83.000 of the 415.589 r*cipients, and would result in savings of $52 million in 2008-09.
$73.3 million annually thereafter. This proposal would maintain services to those most critically
in need.
�
Another Attempt to Reduce State Participation in Wages. The Governor's May Revision
includes savings of $186.6 million General Fund in 2008-09 as a result of limiting state
participation in IHSS wages tominimum wage effective October 1. 2008 The proposal would
maintain the level ofparticipation for benefits at $0.60, bringing the rnaxinnurn state participation
level to $8.60 per hour. Counties negotiate the wage and benefit level with public authorities that
represent IHSS providers and the state is then required to pay for these negotiated vvG8es and
benefits /up to S12.10 per hour). Current statute allows counties to reopen negotiations if state
participation levels change, orcounties could choose tomaintain and fund agreements currently
in place. This proposal is a step in the right direction as the explosive growth in IHSS in recent
years is a direct result ofannual increases in provider wages. General Fund expenditures for
the IHSS program have grown nearly 200 percent from 1998-99 to the 2007 Budget Act, even
though caseload has only grown by458percent during the same time period.
�
Limit Those Receiving Share of Cost Buy-Out. The Governor's May Revision proposes to
eliminate the state's payment of the difference between the Medi-Cal and IHSS share of cost for
recipimnts, resulting in savings of $277 million General Fund in 2008-09. $37 million General
Fund annually thereafter. Under this pnoposa|, the state vvnu|d no longer pay the difference in
the share wfcost for those IHSS recipients with average functional index scores below 4 Of the
8.625 IHSS recipients benefiting from the proOrann, the most critically impaired (approximately
1.500 recipients) will remain eligible for the prngrarn, continuing to have the difference in their
share of cost paid for by the state. The average share of cost for those no longer eligible is $427
a month.
Child Welfare Services (CWS). The Governor's May Revision includes expenditures of $4 billion
($1.5 billion General Fund) in 2008-09. an increase of $OO million tn1u| funds compared to the
Governor's January Budget.
� TANF Fund Swap. The Governor's May Revision proposes to swap out $50 million General
Fund in the Emergency Assistance Foster Care program and use federal TANF monies instead,
allowing the General Fund to be spent within the Ca|VV(}RKs program where it can be counted
towards the state's maintenance of effort requirement.
Transportation
�� �^
n on
Public Transportation Account (PTA) Funds. The PTA receives funds from sales tax nndiesel fuel,
a portion of the sales tax increase provided by Proposition 1 1 1. Proposition 42, and the "spillover" sales
tax on gasoline. Currant |avv contains an arcane formula that requires the General Fund to transfer
sales tax revenues to the PTA under specified conditions. This transfer is often triggered during
periods ofhigh gasoline prices and is used to fund rail and mass transit projects. Due to high gasoline
prices there have been "spillover" revenues for the past six years and the May Revision revenues are
estimated to be $1.177 billion in 2008-09This is an increase of $268 nni||inn over the Governor's
Budget. /\ddibonoUy, revenues from sales taxes on diesel fuel are projected to increase by $124 million
while Proposition 42revenues are projected bodecnaasoby $53rniUionin2O08'O9.
PTA/Spi||ovarFunds Offer General Fund Relief. Current law requires specified sales tax revenues
on fuel go to the PTA, including half of the spillover sales tax revenues. The remaining half of spillover
revenues goes to the Mass Transportation Fund to reimburse the General Fund for transportation
related debt service and loan repayments.
The May Revision proposes to amend current |avv by funding the State Transit Assistance (STA)
Program at $306 million which is the same level as current year. The Governor's budget had proposed
to fund the STA a1 $743 million. Increased revenues from diesel fue|, spi||ovor, and amendments to
current law will allow for on additional $828 nni||iOn to be used to offset expenditures for K-12 home-to-
school transportation ($593 million) and debt service on current and prior year transportation-related
General Obligation bonds /$2J5nniUion\.
High-Speed F{oii SB 1108 (Murray, 2004) delayed placing a $9.95 billion general obligation bond
nnnasuna /foru high-speed n*i| system) before the voters, until November 2006. AB 713 (TonicV' 2008)
further delayed the general obligation bond nnnosurm until November 2008. The May Revision
proposes tofund $41.2million for the high-speed rail project aofnUVvvS:
�^ $10 million from the Public Transportation Account to sustain current engineering and project
management work and mobilize contract resources for all corridors, prior to the election.
�- $8.2 million from Proposition 116. the Clean Air and Transportation Act of189O. for additional
environmental studies and engineering work on the Fresno-to-Sacramento segment.
� $23 million appropriated from the Safe, Reliable High-Speed Passenger Train Bond Act for the
21«tCentury tocontinue work after the election.
The Governor is proposing amendments to the Act to ensure an appropriate balance between assuring
that expenditures of the bond funds will result in operational high-speed rail services and providing the
flexibility needed to attract federal and local govornnnent, as well as private sector participation in
[unding, constructiny, and operating the system. For the state to continue spending funds on a project
that will not be before the voters until November 2008 may not be prudent. Furthorrnore, this rail
system would cost as much as $40 billion. If ridership revenues are insufficient to cover the operating
costs, this project cou|dendup000tingtaxpayersrni||ionaofdo||unsinannua| subsidios.
Capital Outlay Support Staffing. The May Revision proposes to decrease the capital outlay support
program and bond-related workload byanet decrease Of$28million. This includes:
Decrease in state staff 0f247 positions and $27.5 million.
Decrease incash overtime of$92million.
Decrease of 22 contract positions-, however an overall increase nf84 1 million due to increased
contract costs.
�^
Increase of$O.6million inoperating expenses.
These reductions are related to unfilled positions that were provided as part of the 2007-08 Budget Act.
(}v8naU. the 12.085 proposed staffing level consists of 89 percent state staff and 11 percent contract
staff for the entire capital outlay support and bond-related activities.
20
Department of Motor Vehicles
REAL U0Demonstration Grant Program. The May Revision includes anaugmentation of $8.5million
in federal funds to support three separate projects that position the DMV to meet the requirements of
the federal REAL ID Act, as follows:
�
$1.6 million for Birth Certificate Verification Project
� $27million for Privacy and Security Enhancement Project
, $2.2 million for Information Access Control Solutions Project
Of the $1.8 million for Birth Certificate Verification, $1.3 million will be passed through to the
Department of Public Health (DPH) to provide OK4V with access to electronically indexed birth
certificate information stored in the OPH's database.
�� Environment
� � ��
n������������, �~K���K����00��~ ����� Energy
Emergency Response Initiative (Tax). The Governor's May Revision proposes to adjust its
assessment of the new tax on all residential and commercial property insurance statewide to fund
additional resources and backfill General Fund costs. Originally proposed asthe "Wildlife Firefighting
Initiative" in the Governor's January Budget, itis now renamed the "Emergency Response Initiative"
which covers not only firefighting artiviUos, but also earthquake and flood response. The new tax
proposal will be designated by zip code and be set at two levels based on differing risk:
~ 1.4 percent on those structures in areas designated as high-hazard zones in terms of
earthquukm, fira, or flood, as determined by The Office of Emergency Services ([)ES) and CAL
FIRE risk maps. This would result in an annual average con( of approximately $1260 per
household.
,
0.75 percent nnthose structures in |ow'hazardzonea. This would result in an annual average
cost ofabout $5.75per household.
In addition. e $30 million loan from the Restitution Fund would be used to backfill General Fund that the
new tax would not cover in the 2OO8'0Qfiscal year. Revenue for 2OU8-O9 is estimated at $09 million
and $138 million on-going It should be noted that the Legislative Counsel determined the Governor's
original proposal to be a tax not an assessment on property insurance policyholders. It is unclear if this
revised proposal would be viewed any differently-, however, that is the Governor's intention.
The new revenue would fund the following CAL FIRE activities:
�
$28.9 million and 1,100 seasonal firefighters to staff all 336 state fire stations.
,
$4.2 nni||iun and 3.8 positions to install GPS tracking on specific pieces of equipment. This
program will not beimplemented until 2OO9-1O
� 849 1 million in2OO8-O0iobackfill the budget balancing reductions toCAL FIRE,
� A 5-year expenditure plan totaling $148 million for the purchase of 11 new helicopters. The
purchases will begin in20OS-1O.
Absent the tax increase, the Governor proposes toclose 2Oforest fire stations, 11 conservation camps,
and one ho|itackbase. However, General Fund could continue to be used to keep these facilities open.
Additional revenues will go to OES and the Military Department. (See OESoocbon on the following
page-)
State Park Closures. The Governor's May Revision proposes $133million in funding to keep state
parks open. The proposal would fully restore the Governor's Budget reduction by providing
S11.Rmillion General Fund and $1.5 million from increased state park fees. The fee increases will
range from $1 h) $2 at selected state parks where the effect on attendance would be minimal.
Habitat Conservation Fund. The Governor's May Revision proposes to shift $20.4 million General
Fund for the Habitat Conservation Fund (HCF) to Proposition 1E Proposition 117, approved by the
voters in 1980. requires an annual transfer of $30 million to the HCF for the acquisition and restoration
of habitat. Proposition 1E provides $290 nni||inn for the enhancement of flood protection corriUors,
including projects that preserve the wildlife value of the properties. The Governor indicates that these
funds are eligible to meet the HCF requirements. This proposal is intended to be on-going or until
Proposition 1E funding of$290 million is depleted.
Public Sf^ ty and Judiciary
Office of EmergencV Services
Emergency Response Initiative (Tax). The May Revision restructures the ^VVi|d|and Firefighting
|niU8Uve" proposed in the Governor's Budget and renames it the "Emergency Response Initiative"
(ERI). The ERI would fund activities and resources for the {}fDCe of Emergency Smn/ioea (OES) and
the Department of Forestry and Fina Protection /CAL FIRE) similar tnthose proposed in the Governor's
Budget, beginning in 3008-09. but would delay implementation of the Military Department's ERI-related
proposals until 2009-10. due to a projected revenue shortfall. The ERI would create the Emergency
Response Account, administered by the DES, as e repository for revenues from o proposed tax on
property insurance policyholders. (}ES proposals to spend these new tax revenues total $3.7 million,
as follows:
� $1.9 million to backfill the General Fund budget-balancing reduction to the ()ES' Mutual Aid
Response section and its Warning Center and |T/Te|econnmunicodonsseotiono.
�- $1.3 million to fund the {}EG' administrative costs to collect the proposed tax from insurance
companies statewide.
� $480.000 to fund the increased maintenance and fuel costs of the 0ES' existing fleet of fire
engines and vehicles.
(For details on the proposed tax, as well as related spending proposals for CAL FIRE, awu the
Resources section nnthe previous pGge.>
Judicial Branch
New Trial Court Facilities Transferring tmthe State' The May Revision includes $1.7million General
Fund for facility maintenance and operations costs for additional square footage acquired in newly-
constructed court facilities that will transfer to the state without corresponding operational funding from
the counties.
Trial Court Funding Related to Change in the State Appropriations Limit (SAL). The May
Revision reflects an increase in the year-to-year percentage Change in the SAL from 4.80 percent to
4.95 percent. Although no augmentation is proposed in the May Revision, statute requires that the Trial
Courts' budget be adjusted to reflect this change, which would require an augmentation for the Trial
Courts of approximately $3.9 nni||i0n General Fund. Prosurnab|y, providing this increase would be
handled by the Legislature.
22
Department of Correct-ons and Rehabilitation
The May Revision includes a net reduction of $115.2 million General Fund for the cost of operations of
the Department of Corrections and Rehabilitation (CDCR), excluding proposals related to the
Receiver's activities. Changes inthe May Revision include:
Update on "Prison Reform" Measures
Early Release and Summary Parole. The Administration has withdrawn its imprudent proposal to
release |nvv-|ove| offenders prior to completion of their prison te/nne (early inmate release). However,
the Governor's proposal to discharge low-level parolees to summary (unsupervised) parole remains
intact. The Administration has altered its estimate of summary parole savings to capture related
operational and programmatic savings that were not identified in the Governor's Budget. The net effect
of these changes is a dncnaaaw to the Governor's proposed budget-balancing reductions (increase in
proposed expenditures) o[approximately $18O7million, asfo||uvvsi
~ Increase in expenditures of$256.4 million for the withdrawal of the early release proposal.
A_ Decrease in expenditures of $757 million due to the net of additional operational and
programmatic savings, offset by a savings erosion due to delayed implementation.
Given the public safety risks. the repeal of the Governor's early release proposal is good news.
Hovvever, it is unclear why the summary penn|e proposal remains. Statistica||y, it is evident that
parolees affected by this proposal will cnrnnnit new crimes that send them back to prison. Given the
potential risk to public safety, it may be prudent to obtain Corrections savings /n other ways.
Population Funding
Adult Population Estimate. Both adult institution and adult parole populations are on a downward
trend. The May Revision proposes net decreases of$27.9 million General Fund in the current year and
$78.2 million General Fund in the budget year related to changes in adult population estimates.
The estimated current year adult institution Average Daily Population (ADP) is 171.880. a decrease of
2.107 from the Governor's Budgot, and adult parole ADP is projected to be 126.456, a decrease of
2.887 The estimated budget year institution ADP is 170,641, a decrease of 6,380 from the Governor's
Budgmt, and parole ADP is projected to be 122.072, a decrease of 10,189.
Division of Juvenile Justice Population. The May Revision proposes o decrease of $8.6 million in
the current year and a reduction of $4.3 million in the budget year for juvenile population issues. These
reductions are not, howover, directly tied to ADP. |ns(ead, they reflect the elimination of baseline
contract funding for services to fmnna|o wards in secure placements outside of Division of Juvenile
Justice (DJJ) foci|itiesThe OJJ has been unable to locate a suitable provider and will not expend
contract dollars in 2007-08 or the first half of 2008-09. Population reflects an estimated 2008-09 ADP
of 1.847, an increase of 61 wards from the number projected in the Governor's Budget. The juvenile
parole population is estimated to be 1.871, an increase of 8.
23
Other Population-Related Requests:
Local Assistance Funding. The May Revision also includes anet decrease nf $583.00Oinlocal
assistance funding, as follows:
�
District Attorney Costs. $2.1 million for reimbursements to counties for costs of prosecuting
prison crimes ($13 million one-time funding for shortfalls from 2007-08. $776.000 to
permanently increase baseline local assistance funding).
�
Daily Jail Rate. $27 million decrease as a result of a projected decrease in claims for
incarcerating state inmates in county jails.
Academy Deactivation/Reductions. The May Revision proposes a net reduction of $591 million
General Fund to reflect the deactivation of the Correctional Training Center Annex in Stockton and
reductions to the operating levels of the adult and juvenile cadet academies in Galt.
Out-of-State Beds — Oversight Staff. The May Revision includes an increase of $1.9 million General
Fund to provide oversight for the Out-of-State Correctional Facility Program related to operational
suppod, educational and vocational compliance, facility inspections, and inmate discipline and appeals.
Warm Shutdown ofYouth Correctional Facility. The May Revision includes $775.000General Fund
to continue minimal levels of maintenance /vvarrn shutdown) at the B Paso D8 Robles Youth
Correctional Facility once it has been C|OS8d. The facility is scheduled to be shut down inAugust 2008
in response to recent ward population reduction mandates and enhancements to county custody and
parole responsibilities. Savings related to o|nainQ this facility are already reflected in the Governor's
Budget.
Consolidated IT Infrastructure Project (C|T|P) Scope Reduction. The May Revision proposes a
reduction of $37.4 million General Fund duo to more accurate cost modeling and a scope change that
removes healthcare IT infrastructure costs from C|T|P, since the Receiver will include healthcare
connectivity as part ofhis strategic plan.
Guard Tower Deactivations. The May Revision proposes a reduction of $2.8 million due to the
deactivation of guard towers at the California Men's Colony and the Sierra Conservation Centor, made
possible bythe activation ofelectrified fences.
Other CDCR Proposals
VVithdnmxva| of Community Work Cm*vvm Proposal. The May Revision withdraws the Governor's
Budget proposal related to the activation of inmate work orevvs, for a savings of $2.4 million General
Fund.
Local Assistance Funding. The May Revision proposes 1Vswap $151.0 million infederal Temporary
Assistance for Needy Families /TANF\ grant funding, currently included in the Department of Social
Services' (DSS) budget, for an equal amount of General Fund, currently included in the COCR'S
Juvenile Probation and Camps (JPC) budget. The proposed swap would address changes in TANF
regulations that restrict the DSS' ability to meet federal Maintenance of Effort requirements by providing
DSS with General Fund matching dollars while holding the JPC budget harmless.
(For more information on the TANF fund swap, see the DSS section on page 16 of this document.)
Activation of Stockton Reentry Facility. The May Revision also requests $11.7 million General Fund
to @Cdv@t9 the Stockton Reentry Facility (formerly the Northern California Women's Faci|ity), which is
24
currently in the process of being converted from a traditional institution to a reentry facility.
Construction isexpected U7bocompleted inJune 30O9.
Capital Outla
Small Management Yards. The May Revision proposes $8.6 million for preliminary p|ans, working
dnsvvinga, and construction of the Srna|| Management Exercise Yards project. In order to comply with a
recent Coleman court order. CDCR must complete construction of these small management exercise
yards for inmates housed inAdministrative Segregation Units byJune 3O. 2008 The additional funds
are necessary for the Department to hire contract labor to complete the project by the new court-
ordered deadline, rather than using inmate labor as originally proposed.
nurt-ordoreddead|inm. ratherthonusinginrnete |oborosoriQina||ypropVoed.
The Department is simultaneously pursuing special legislation for the same purposo, in order to secure
the needed resources as soon as possible. In the event the special legislation is enacted prior to the
Budget Act, this May Revision augmentation would nolonger beneeded.
ChuckmxvaUa Wastewater Treatment Plant Funding. The May Revision proposes to delete
$25.3 million General Fund for the ChuokavvaUa Valley State Prison Wastewater Treatment Plant
Improvement project, and would instead fund the project using lease revenue bonds.
Prison Medical Care Receiver
CQCR Healthcare Budget Administered by the Receiver. The May Revision proposes to augment
the (|DCR's 2008-09 healthcare budge( by $8.6 million General Fund, bringing the total healthcare
budget toS1.420billion. This augmentation isnet oftwo proposals, asfollows:
,
An augmentation of$12.5 million to establish additional Supervising Registered Nurse positions.
� A reduction of $39 million to correct a technical error in the Receiver's Health Care Guarding
and Transportation proposal.
Statewide Issues
California Correctional Peace Officers Association. The Governor's May Revision no longer
includes funding for the ''|ast, best and final offnr" proposed by the Administration to the California
Correctional Poouo Officers Association (CCPDA) The Governor's January Budget included 8400
million between 2007-08 and 2008-09 for the offer. Since the offer is still ''on the tob|m." if an agreement
is reached legislation for the proposed memorandum of understanding (K4{}U) would need to include
approximately $210 million General Fund, which would then bepaid from the reserve.
Ca|PERS - Health and Dental Benefits. The Governor's May Revision includes additional funding nf
$3958 million ($179.1 million General Fund) for health and dental benefits in 2008-09 This includes
843.9 million General Fund for health and dental benefit increases that are included in the
Administration's ^|ast, best and final offer" to CCPOA.
Government Standards Accounting Board (GASB). States must now determine and report the long
term costs of non-pension benefit coats. which usually consist of health care coveragn, dental
coverege, vision coverage, life insurance. and long term oorm These are often referred toas "other
post employment benefit ob|igations " In o report released by the State Controller's Office (SCO) the
state's total unfunded 0ab///h/ for state retiree health benefits /s $47.80 b8lion, which represents
the total present value of future retiree health benefits for current S\Gtm retirees and employees. This
estimate does not include the University of California. The Governor's May Revision does not set-
25
aside money to be used for pre-funding the state's unfunded |iabi|iUes, but instead maintains the ^pay-
ao'you'go'' approach.
State Teachers' Retirement System (STIRS). The Governor's May Revision modifies the January
proposal for the 3TRS Supplemental Benefit Maintenance Account (SBM/\) to reflect the compromise
proposed this spring by the California Retired Teachers' Association. The revised proposal would do
the following:
Reduces vesting from 2.5 percent nfpayroll to 2.25 percent of payroll in exchange for
statutory, but non'vestod, increase in the purchasing power protection |nvc| to 85 percent
ofinitial retirement income.
%~
Retains the annual payment deferrals in the Governor's plan (annual payments would be
made inNovember and Apri|).
Delays interest payments bydeleting the 2OO8-09 payment and adding 2011-12 and a
2012-2013 payment ofinterest. This would produce additional Gonmns| Fund savings of
$OOmillion in2O08-OQ
The proposal would result in significant savings \othe statc, but does not obligate the state to increase
payments if inflation exceeds expectations. It vvi||, huvv*ver, place a new non-vested pressure on the
State to continue benefits at the 85 percent level (and increase State General Fund costs if inflation is
high).
Tribal Gaming Revenues. The May Revision includes revised projection of General Fund revenues
from Tribal Gaming that reflects an increase of $16.3 million (hnnn $4304 million to $448.7 million) over
the Governor's Budget projection. This revised projection reflects the net impact of addressing the
shortfall in the Indian Gaming Revenue Sharing Trust Fund with revenues from the Indian Gaming
Special Distribution Fund, rather than using General Fund revenues ($4Omillion General Fund revenue
incne@Se), and o delay in the ratification of the Sycuan Band of Kunneyaay Indians' compact by the
tribe's General Council ($23.7 million General Fund revenue decrease). Both of these revenue
changes are one time.
General Government
Franchise Tax Board
$1.1 million General Fund for the Filing Enforcement Program to contact approximately 00.000
persons who failed to file Personal |ncnnno Tax Returns. FTB expects to generate additional
General Fund revenues of$9 million in 2008-09 and $28 million in 2009-10 and ongoing.
Commission on State Mandates
� $75 million General Fund decrease to reflect a delay of the third payment of the 15-yaor payment
plan for mandate costs incurred prior to July 1. 2004. Statute requires these costs to be fully paid
by the 202O-21fiscal year.
Business Transportation and Housing Agency
�+ $2 rni||i0n General Fund transfer t0the California Economic Development Fund to support the San
Joaquin Valley Strategic Action plan. Funds would be used to match potential federal, |000|, and
private funds in 8 public-private partnership to promote economic dev8|OpnnDnt, workforce
development, education, transportation, land use and environmental issues.
26
Attachment 1
New Special Fund Loans Proposed in the May Revision
Fund Code Amount
Legislative,Judicial,Executive
Antiterrorism Fund 3034 $2,000
Sexual Habitual Offender Fund 0142 $1,000
False Claims Act Fund 0378 $6,000
Gambling Control Fund 0567 $10,000
California Debt and Investment Advisory Commission Fund 0171 52,000
California Debt Limit Allocation Committee Fund 0169 52,000
Tax Credit Allocation Fee Account(TCAFA) 0457 $10,000
Occupancy Compliance Monitoring Account,TCAFA 0448 $10,000
Totals,UE $43,000
State and Consumer Services Agency
Board of Barbering and Cosmetology Fund 0069 $10,000
Psychology Fund 0310 $2,500
Accountancy Fund 0704 $16,000
Contractor's License Fund 0735 $13,000
Contingent Fund of the Medical Board of California 0758 $6,000
Board of Registered Nursing Fund 0761 $2,000
Pharmacy Board Contingent Fund 0767 $1,000
Professional Engineers'and Land Surveyors Fund 0770 $4,000
Behavioral Science Examiners Fund 0773 $3,000
Vocational Nursing and Psychiatric Technicians Fund 0779 $1,000
Occupational Therapy Fund 3017 $3,000
Vehicle Inspection and Repair Fund 0421 $25,000
High Polluter Repair or Removal Account 0582 $40,000
Public School Planning,Design,and Construction Review Revolving Fund 0328 $60,000
Totals,SCSA $186,500
Business Transportation and Housing Agency
State Highway Account,Transportation Fund 0042 $200,000
Local Airport Loan Account 0052 S14,900
Motor Vehicle Fuel Account 0061 $8,000
Bicycle Transportation Account,Transportation Fund 0045 $6,000
Environmental Enhancement and Mitigation Program Fund 0183 $4,400
Historic Property Maintenance Fund 0365 $3,000
Pedestrian Safety Account,Transportation Fund 2500 $1,800
Financial Institutions Fund 0298 $1,500
State Corporations Fund 0067 $1,500
Mobilehome Park Revolving Fund 0245 $2,500
Mobilehome-Manufactured Home Revolving Fund 0648 $1,000
Joe Serna,Jr. Farmworker Housing Grant Fund 0927 $1,200
Housing Rehabilitation Loan Fund 0929 $12,900
Real Estate Appraisers Regulation Fund 0400 S16,600
Real Estate Fund 0317 $12,200
New Motor Vehicle Board Account 0054 $1,200
Total, BT&H $288,700
Resources Agency
Renewable Resource Trust Fund 0382 510,900
Oil Spill Prevention and Administration Fund 0320 513,000
Hatchery and Inland Fisheries Fund 3103 $4,000
California Waterfowl Habitat Preservation Account 0211 52,500
Total, Resources $30,400
Health and Human Services Agency
Hospital Building Fund 0121 S10,000
California Health Data and Planning Fund 0143 $12,000
Registered Nurse Education Fund 0181 $1,000
Occupational Lead Poisoning Prevention Account 0070 51,100
Drinking Water Operator Certification Special Account 0247 $1,600
Total,HHS $25,700
Total New Special Fund Loans $574,300
i
4th Senate District Staff Assignments
Mark Reeder, Chief of Staff
(916) 659-4004
Lisa Zea, Deputy Chief of Staff
(530) 470-1846
Name Title Phone
Linda Halderman, M.D. Senior Policy Consultant (916) 651-4004
Kathy Hilke Executive Assistant (916) 651-4004
Bill Bird Communications (916) 651-4004
Cheri Fry Executive Assistant (530) 470-1846
Marta Woodward Casework Manager (530) 470-1846
Christine Rydell Field Representative (530) 470-1846
Kim Davis Field Representative (530) 458-4161
Nadine Bailey Field Representative (530) 225-3142
Preston Dickinson Field Representative (530) 895-6088
For more information, please visit our website at
http://republican.sen.ca.gov/web/4/
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