CA
California State Budget: Final Compromise Floor Report
Author: Assembly Budget Chair John Laird
Published on Sep 15, 2008 - 4:13:05 PM

Sept. 15, 2008 - On July 8, 2008, the Conference Committee completed its work on the budget for 2008-09, and this work product, the Conference Report, is reflected in AB 1781. Despite being a responsible and balanced budget plan, the Conference Version of the budget did not receive the required 2/3 support in the Legislature.

Since the close of the Conference Committee, various attempts at compromise have been made, including a variation of the Conference Version voted on in the Assembly, a new "August Revise" put forth by the Governor, a variation of the August Revise voted on in the Senate, and a proposal put forth by the Legislative Republicans.

Until now, no alternative to the Conference Version has garnered the necessary support for final passage. This report outlines what appears to be the Final Compromise for the Budget Act of 2008.

In total, the August Revise contains $106.4 billion in available General Fund resources, $104.3 billion in General Fund expenditures, and a reserve of $1.2 billion.

Key Changes from the Conference Version:

- Additional Reductions Proposition 98. Reduces Proposition 98 funding by about $800 million below the Conference Version. However, this level of funding is about $1.3 billion more than proposed by the Governor in the May Revision and about $2.1 billion than proposed by Legislative Republicans.

- Alternative Revenue Package. Replaces the Conference Revenue package in accordance with the following:

Eliminates the upper income tax increase, the corporate tax increase, the dependant credit reductions, and the income tax indexing freeze (reduces revenues by about $7.1 billion).
Reduces the Conference Amnesty proposal in accordance the with Governor's August Revise proposal, which generates a net of $360 million (about $1.2 billion less than Conference Version).
Adds the Governor's Accrual proposal that was in the May Revision, but not adopted by the Conference Committee (adds about $1.9 billion).
Increases income tax withholding (adds about $1.6 billion).
Expands the NOL suspension proposal to also limit various incentive credits for two years (adds about $900 million).
Makes various other revenue accelerations to corporations and the wealthy (adds about $2.3 billion).

- Deeper Cuts. Makes deeper cuts in public transit ($217 million), delaying the Medi-Cal Rate restoration to March 1, 2009 ($210 million), shifting additional funds from Redevelopment Agencies ($350 million), deferring the Proposition 98 "Settle-up" payment ($150 million), and modest reductions to county administration support ($34 million).

- Increased Spending. Spends more than the Conference Version by restoring over $400 million to Corrections, $105 million for local law enforcement programs, $221 million for Medi-Cal as a result of the lawsuit, $51 million to backfill the loss of Emergency Response Initiative (ERI) funds, and $98 million as a result of increased fire costs.

- No Emergency Response Initiative (ERI). Rejects the Governor's proposal for an insurance surcharge to generate revenues to fight forest fires, floods, earthquakes and other emergencies. This results in increased General Fund spending to partially backfill the loss of the ERI funds, but also results in less emergency services being available.

- Budget Reform. Includes budget reform similar to that proposed by the Legislative Analyst, by increasing the size of the Budget Stabilization Account and restricting all so-called "April Surprise" revenue. In addition, the budget provides expanded statutory mid-year powers to the Governor.

- Lottery Securitization. Includes a lottery securitization proposal that will generate $5 billion in debt relief in 2009-10 and likely more in the following year.


Key Highlights of the Final Compromise:

Reserve

- Contains a reserve of $1.2 billion in 2008-09, and a modest out year projected shortfall of $1.5 billion.

Revenues

- Includes $9.3 billion in revenue solutions:

$1.9 billion from suspending the NOL and limiting other incentive credits for two years.

$855 million in various Special Fund loans and transfers to the General Fund.

$1.9 billion from accrual accounting changes.

$360 million from the LLC acceleration.

$360 million from a modified tax amnesty proposal.

$1.6 billion from withholding increases.

$2.3 billion from various accelerations from corporations and wealthy taxpayers.

Reform

- Includes budget reform that in part is based on the ideas first put forth by the Legislative Analyst.

Increases the size of the Budget Stabilization Account (BSA)—the Prop. 58 “rainy day” fund—from 5% to 10% of General Fund revenues.

Captures "April Surprise" revenues not needed for Proposition 98 that come in five percent higher than projected and deposits them into the BSA.

Makes transfers out of the BSA more restrictive be requiring a stand alone statute.

Also provides additional statutory powers to the Governor to make mid-year reductions.

Education

- Increases school funding by about $1.3 billion above the May Revision. This results in about $3.0 billion in cuts below the workload budget level. The following chart illustrates the Final Compromise funding for Proposition 98 compared with the other Proposition 98 Proposals.

Workload Level $61.1 billion
Conference Version $58.9 billion
Final Compromise $58.1 billion
August Revise $57.8 billion
Legislative Republican $56.0 billion

- Funds the UC and CSU at the level proposed in the May Revision, which includes a $100 million increase for each above the January proposal.

- Restores full funding for Cal Grants, including $57 million for competitive Cal Grants that the Governor proposed cutting.

Health

- Restores the most difficult cuts proposed by the May Revision, including:

- Restoring nearly all of the 10 percent Medi-Cal rate cut adopted in the Special Session for most providers (doctors, nurses, dentists, home health providers, etc.), and half of the rate cut for pharmacy, managed care and long-term care facilities that do not pay the quality assurance fee (most nursing homes pay the fee and will receive a cost-based rate increase). These rate restorations will take effect on March 1, 2009 and will result in a total General Fund cost of $110 million.

- Restoring the Medi-Cal optional benefits. Of the restoration of $85.5 million, the adult dental restoration is $73.8 million.

- Restoring almost all cuts to Medi-Cal eligibility, by: rejecting the rollbacks in eligibility for poor families that penalize work and marriage; rejecting restrictions on services to legal immigrants and imposing monthly eligibility hurdles to emergency care for the undocumented; and rejecting the imposition of quarterly status reports for children and parents and instead adopting semi-annual status reporting for children, which is the current reporting requirement for parents.

- Rejecting the co-pay increase and reducing premium increases by half or more for children in the Healthy Families Program.

Human Services

- Makes tough cuts to human service programs, including cuts to SSI/SSP, CalWORKs, and other critical safety net programs.

- Restores other draconian cuts proposed by the Governor for the social safety net, including rejecting cuts to: children's services and foster care; CalWORKs kids eligibility; grant reductions; Federal SSI COLA; and IHSS.

- Makes cuts to county administration not included in the Conference Version.

Transportation

- Provides full funding of Proposition 42, which provides $1.4 billion for highway construction, local road maintenance, and public transit.

- Funds public transit at $100 million above the May Revision level, which is $217 million below the Conference Version.

- Provides funding for various Proposition 1B programs, including local transit, State and Local Partnership, and the Trade Corridor Improvement Fund.

- Includes the Governor's proposed $11 car registration fee increase to support the California Highway Patrol.

Natural Resources and Environmental Protection

- Provides funds for AB 32 to continue implementation of strategies to reduce greenhouse gas emissions in California.

Public Safety

- Achieves $14 million in savings from Corrections reforms.

- Restores cuts to COPS/Juvenile Justice program that are included in the Conference Version.

- Funds Booking Fees and Rural Sheriffs programs at the May Revision level.

Lottery Securitization

- Provides for the securitization of State Lottery revenues for debt relief purposes beginning in 2009-10.

- Generates an estimated $5 billion in 2009-10 and $5 billion in 2010-11, but are not expected to generate revenues or provide any budget relief in 2008-09.

- Deposits proceeds from the securitization into a new Debt Retirement Fund, and could be used for repaying budgetary borrowing (like transportation, education, and local government debts), bonded indebtedness, and payments to the BSA.

- Provides only modest changes to the lottery, such as increasing prize payouts, but proposes no new games or technology.

- Protects education, unlike the Governor's original proposal, from experiencing any financial loss.

© Copyright YubaNet.com