California state budget

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Gov. Arnold Schwarzenegger estimated on January 9, 2009 California faces a staggering $41.6 billion 2-year deficit going into FY 2010 during his address to the California State Legislature. The term “fiscal crisis” was given new meaning as Gov. Schwarzenegger called upon the Legislature to, “act decisively to bring our state back from the brink of financial catastrophe.”^[1] According to December 2009 reports, California faces a, 2010-2011, a one-year deficit of $20.7 billion.^[2][3] During Gov. Arnold Schwarzenegger's state of the state address for 2010, he cited drops in revenue, court decisions and litigation, and state program increases as the main reasons behind the large state deficit.^[4]

The governor's proposed budget aims to close an estimated $19.9 billion budget gap with $8.5 billion in spending cuts and $6.9 billion in federal funds. The proposed budget estimates a $82.9 billion total budget for FY 2010-2011.^[5] The state of California has also retained CB Richard Ellis in order to sell 17 state-owned buildings, as of December 17, 2009. According to reports U.S. Senator Dianne Feinstein's husband is the chairman of CB Richard Ellis.^[6]

In January 2010 State Controller John Chiang recommended that the state legislature must make a decision regarding the governors recommended $9 billion in budget cuts. If the cuts aren't approved, said Chiang, then the state will run out of funds by April 1. The budget cuts are estimated to put $1.3 billion in the state's checking account.^[7] In January, the Gov. Schwarzenegger traveled to Washington, D.C. to request $6.9 billion in federal funds, however, according to U.S. Sen. Barbara Boxer the amount of federal aid the state is scheduled to receive is closer to $1.45 billion.^[8][9]

A compromise budget with a mixture of tax increases, cuts in services, and borrowing was passed in February of 2009 to close the historically high gap.^[10] California voters overwhelmingly defeated 5 of the 6 budget measures put to them as part of the February budget plan in the May 2009 election, with the sole exception of a ballot measure to prohibited pay raises for members of the State Legislature, the Governor, and other state officials during deficit years.^[11]

[edit] Budget Background

California’s fiscal year starts July 1. The Governor is required to present the Legislature with a proposed budget by January 10 and the Legislature to pass a budget by June 15. A two-thirds majority is required to pass the budget in the Legislature.^[12] The California Legislature went well past the June 15th deadline into late July of 2009. Over the past 10 years state spending from state sources has more than doubled in nominal terms (not adjusted for inflation).^[13]

The California controller delayed payments in February 2009 and issued IOUs in July and August 2009. The February and July budget packages were not enacted early enough to prevent the Controller from: (1) delaying over $3 billion of scheduled payments (mainly tax refunds) in February 2009 and (2) issuing 449,000 registered warrants (also known as IOUs) for a total of $2.6 billion of payments in July and August 2009. The February 2009 delayed payments generally were paid in March 2009, and the IOUs were able to be redeemed by recipients beginning on September 4, 2009. This was only the second time since the Depression that the state issued IOUs for some of its budgeted payments. In effect, the IOUs forced recipients (such as state vendors and local governments) to provide the state with a loan involuntarily. The IOUs were redeemable with interest, paid at a 3.75 percent annual rate. “Priority payments”—including school, payroll, and debt service payments—were not subject to IOUs.^[14]

Governor Schwarzenegger and legislative leaders formed the Commission on the 21st Century Economy (COTCE) to suggest changes and reforms for more reliable and stable state revenues. The Commission released its report on September 29, 2009.^[15]

[edit] Budget spending

Over the past 10 years state spending from state sources has more than doubled in nominal terms (not adjusted for inflation), and during the current governor's tenure state spending from state sources has risen almost 40 percent^{[16] [17]}:

Note: California's legislators have declined to put details of the state's spending online.

General Fund Spending by Major Program Area (In Millions)^[18]

[edit] Accounting Principles

Elaine M. Howle has been California State Auditor since 2000. The Auditor and her office report to the Joint Legislative Audit Committee (JLAC), a 14-member committee comprised of seven Senators and seven Assembly Members or through legislation.^[19] The California State Auditor’s Office publishes its audit reports online.

The Institute for Truth in Accounting (IFTA) rates California “Tardy” in filing the state’s Comprehensive Annual Financial Report (CAFR) – The annual report of state and local governmental entities. IFTA rated 22 states timely, 22 states tardy, and 6 states as worst. IFTA does not consider California’s CAFRs, and those of the other states, to be accurate representations of the state’s financial condition because the Generally Accepted Accounting Principles (GAAP) basis does not include significant liabilities for the pension plans and for other post employment benefits, such as health care.^[21] California’s State Controller is responsible for filing the CAFR. John Chiang was elected State Controller in November of 2006.^[22]

[edit] Accounting transparency checklist

Comprehensive Balanced budget Timeliness Usability

[edit] The good

• The website has Comprehensive Annual Financial Report (CAFR) dating back to 1999.
• It provides supplements to the budget workup, such as notes.
• An independent auditor’s report is published within the CAFR.^[23]
• The CAFR compares estimated and actual budgetary numbers on page 175 of the document.
• The budget is posted using organized and consistent methods of financial reporting.
• California law requires a balanced budget and prohibits a deficit at the end of the year to be carried over to the following year.
• It includes all costs incurred by the government, including future liabilities. (for example on page 180 of the document)

[edit] The bad

• The CAFR is posted in a PDF format, so it’s not searchable online.

[edit] 2009-2010 budget crisis

The California State Legislature passed substantial amendments to the budget in July 2009. Gov. Schwarzenegger responded to the July legislation by using his line-item veto powers to produce a final FY 2010 budget with a $500 million surplus to be used as a reserve.^[24]

California’s FY 2010 General Fund budget has $90 billion in revenues and transfers with $85 billion in expenditures. The $5 billion surplus will pay the $4.5 billion deficit from FY 2009 and leave a $500 million reserve. General Fund expenditures were $103 billion for FY 2008 and $92 billion for FY 2009.^[25]

The size of the 2-year deficit for all funds (FY 2009 & FY 2010) estimated in January of 2009 to be $41.6 billion grew to almost $60 billion by July of 2009. The February 2009 budget package included $14.5 billion in spending reductions, $12.5 billion in temporary tax increases, $8.5 billion in federal stimulus funds, and $0.3 billion in borrowing for a total of $35.9 billion.^[26]

The July of 2009 budget package added $18 billion in spending cuts, $3.5 billion in one-time measures and transfers, and $2.2 billion in borrowing. The combined February and July budget packages closed the entire 2-year gap by $59.5 billion.^[27]

[edit] Proposed budget cuts

According to reports the proposed FY 2011 total budget is estimated to be $118.8 billion. The general fund, however, is $82.9 billion, $3.1 billion less than the previous year. Proposed budget cuts include cuts to health, social services and transportation programs. Additionally, state workers' salaries will be reduced and corporate tax breaks will be rolled back.^[28]

Proposed budget cuts are outlined below:

• Health and human services: a total of $2.9 billion cut, which includes a $950 million cut to the in-home supportive services program for the disabled.^[28]
• State employee salaries: a 5% across the board cut and 5% increase in employee contributions to pension funds. Additionally, should federal funding fall short an additional 5% pay cut will be implemented. A total of $1.6 billion in savings.^[28]
• Prisons: the proposed budget includes cuts in the form of health care reductions, moving nonviolent state inmates to county jails - a total of $1.2 billion in cuts.^[28]
• Education: spending on education will not increase or decrease under the proposed plan but instead remain at the $48 billion level. On the other hand state university systems are scheduled to receive a $225 million increase.^[28]
• Transportation: millions of dollars are expected to be eliminated from the transportation fund in light of a plan to eliminate the fuel sales tax and increase the per-gallon excise tax on gasoline.^[28]

[edit] 2008-2009 budget crisis

The state budget, according to Governor Arnold Schwarzenegger on January 16, 2009 was in a "state of crisis". Schwarzenegger added that the $42 billion dollar deficit "is a rock upon our chest and we cannot breathe until we get it off." Only four months prior state officials projected a smaller deficit of $8 billion.^[29],^[30],^[31] In reaction to California's 22% budget gap, one of the highest in the country, Business Week dubbed the state as a state that "couldn't pay for itself."^[32]

On July 27, 2009 Gov. Schwarzenegger signed a $85 billion spending plan. The governor opted to use a line-item veto to restore $656 million to the state reserve fund; funds that he said are necessary during tough times.^[33] The California Legislature approved a budget a week prior but the plan fell short by approximately $1.1 billion because the state Assembly prevented cuts to local transportation and oil drilling off the coast of Santa Barbara.^[34] A grand total of $31 billion in cuts were made before the budget was finalized.^[35]

• See California state budget (2008-2009) for more information.

[edit] Ideas about budget deficit

• The state budget is based on assumptions about future revenue: According to California's 2004-2005 state finance director Tom Campbell, the source of the long-term problem is that assumptions of future revenue are unreliable, and when they prove wrong, the spending has already been committed.^[36]

• Productivity drain: According to Devin Nunes, a congressman from California, one source of the problem is that the "entrepreneurs, investment capital and the hardy workers who made it a global leader in agriculture, technological innovation and scientific research" are fleeing the state because it has an unattractive tax and regulatory burden. California has the sixth-highest tax burden in the country.^[17]

• Significant increases in compensation of state and local government employees: Michael Haley of the Napa Valley Taxpayers Alliance points out that the funds required for the expanded pension and compensation of government employees that began in 2000 "are more than we can ever hope to collect in taxes, even with large tax increases, and it centers around the state’s main expense, employee compensation". Haley also notes that during the Gray Davis tenure, pension promises were unsustainable: "Safety personnel can now retire with 90 percent or more of their highest salaries at age 50, and other employees can retire with 75 percent or more at age 55."^[37]

• Drop in revenue: The immediate source of the short-term problem is that state revenues declined by more than 8 percent from September 2008-December 2008. State Controller John Chiang said on January 16 that unless additional cash is forthcoming "the State will be $346 million in the red at the end of February, and $5.2 billion in the red in April."^[38]

• Increase in spending: California's state spending has ballooned in the last decade at a rate much higher than the rate of inflation and rate of population growth in the state. According to Tom Campbell, California's finance director in 2004-2005, if the 1999-2000 budget of former California governor Gray Davis had been increased over the next decade by a factor representing the inflation rate and California's population growth in that time, California would now be experiencing a budget surplus, rather than a deficit even with the recent revenue decline due to the state's economic recession.^[36] Instead, California has had a 50% spending increase over the past five years.^[39]

[edit] Budget transparency

Main article States with spending online

California currently has no statewide, official spending database online, despite multiple, recent attempts to pass legislation that would create one. However, Assembly Member Kevin de León introduced AB 400, a bill that would bring partial transparency to California's state spending. It was be heard on June 23, 2009 and was re-referred to the California Senate's Committee on Appropriations.^[40] In addition, on June 19, 2009, California launched a transparency website that details government contracts of $5,000 or more.^[41] Visit the new government transparency site by clicking here.

Twenty other states have put their spending online since 2007.

• In light of California lawmaker's success in coming to a budget agreement, the National Taxpayers Union said that although they are pleased that lawmakers have not added new tax increases, they are concerned about fiscal reform in the state. Real fiscal reform, they said in a statement, "will not be achieved until we control government spending, and the only way to do that is if citizens know where their tax money is going- not simply by employing accounting gimmicks to make the numbers look good." The organization is advocating for the approval of AB 400. ^[42]

[edit] Website evaluation

Budget Usability Elected Officials Administrative Officials Ethics Audits Contracts Lobbying Public records Taxes

Ca.gov is the website for the state of California.

• Main article: Evaluation of state websites

[edit] The good

• Site has a search function and is easy to navigate.
• Budget is published.^[43]
• Financial audit reports are posted.^[44]
• State officials are listed in the "California Roster" with contact information.^[45]
• Current state contracts are published.^[46]
• Information on state taxes is provided.^[47]
• State ethics commission information is available.^[48]
• Information on how to make public records requests is provided.^[49]
• Information provided on registered lobbyists and reports.^[50]

[edit] The bad

• Does not provide information on state-paid lobbying and agency lobbying contracts.
• Does not provide detailed, downloadable, information on individual contracts entered into by Departments/Agencies with vendors for IT and non-IT services and consulting services.
• Does not provide detailed information on payments to vendors that can be compared to salaries for state employees.
• Does not update contract information on a regular basis.
• Does not include dollars allocated for contracting in State budget.

[edit] Economic Stimulus Transparency

• The American Recovery and Reinvestment Plan of 2009 designated $787 billion to be spent throughout the U.S. Of that $787 billion stimulus package, it is estimated that 69%, or over $541 billion, will be administered by state governments.^[51]

• It is estimated that California will receive at least $17.3 billion in federal funding.^[52] In the next two years, that number is expected to be approximately $85 billion.^[53]

• The economic recovery website for California is available here.

[edit] Error in ARRP

On November 16 and 17, 2009, many errors were found in the $747 billion plan that showed the plan set aside money for districts that do not exist. According to Recovery.gov, the plan shows its funds will go to 884 Congressional Districts, though there are only 435.^[54][55]

The ARRP website claims to have to created jobs in 9 Congressional Districts in California that do not exist.^[56]

[edit] Transparency evaluation

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database.

Criteria for evaluating spending databases

State Database	Searchability	Grants	Contracts	Line Item Expenditures	Dept/Agency Budgets	Public Employee Salary
Reporting transparency
E Budget

[edit] Supporters of online budget

On March 18, 2008, Americans for Tax Reform sent a letter to Californian legislators, urging them to support SB 1494, the Taxpayer Transparency Act of 2008, which was sponsored by Sen. Tom McClintock.^[57]

[edit] Public employee salaries

• The Los Angeles Daily News published this study of LA city employees salaries: SOARING $ALARIES: A TWO-PART SERIES, and offer this database of city employee pay. The Daily News also posted this Los Angeles Unified School District Salaries database.

• The Sacramento Bee provides this Search for a state worker's salary database for 2007/2008.

• Here are the California Department of Personnel Administration's Pay Scales.

[edit] See also

[edit] External links

[edit] Budget links

[edit] Additional reading

[edit] References

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	v • d • e State of California Sacramento (capital)
Transparency	Public Records Act | Open Meeting Act | Government corruption reports | Transparency Legislation | Open Records procedures | Transparency Advocates |
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Government	California State Constitution | Executive | House of Representatives | Senate | Local officials | Public school system |
Judiciary	California Supreme Court | Courts of Appeal | Superior Courts | District Courts | Judicial selection in California | Judicial News |
Ballot Measures	2008 Ballot measures | 2008 local ballot measures | City and county ballot initiatives | School district bond issues | Laws governing initiatives | Recall process |