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California state budget

California's lawmakers approved a FY2012 budget on June 28, 2011^[1], that included $15 billion in spending cuts. Gov. Jerry Brown signed the budget into law on June 30, 2011, the day before the start of the fiscal year.^[2] Gov. Brown vetoed the first budget approved by the legislature on June 15, 2011.^[3] Gov. Brown said on May 12, 2012, the state faces an estimated $16 billion budget gap.^[4]

As of May 2021, revenue collections by the state fell $3.5 billions short of budget estimates.^[5][6] As part of the budget plan, cuts took effect Jan. 1 because revenue fell $1 billion short of projections for the year.^[7] As of May 2012,

California has a total state debt of approximately $612,054,955,000, when calculated by adding the total of outstanding official debt, pension and other post-employment benefits (OPEB) liabilities, Unemployment Trust Fund loans, and 2011 budget gap. ^[8]

[edit] Fiscal Year 2013 State Budget

Assembly budget officials anticipate a state budget deficit in the range of $5 billion to $8 billion in FY2013, according to a memo from November 2011,^[9] but others project a deficit for FY2013 isof$13 billion.^[10][11] Gov. Jerry Brown had initially projected a $3.1 billion deficit. The increase was attributed to several different factors, including uncertainty over legal challenges, additional demand for public programs and a less optimistic view of the economy for FY2013.^[9] Gov. Jerry Brown said Nov. 10, 2011, that plummeting state revenues in 2012 probably portend deeper budget cuts for FY2013.^[12]

The governor hopes voters pass a $6.8-billion tax hike that will be on the ballot in November, but he said that even if such an increase passed, the state would have to make budget reductions.^[10] That ballot initiative would boost income taxes on those earning at least $250,000 and raise levies on sales to 7.75 percent from 7.25 percent.^[13]

Contracts with all 12 public employee unions, representing 182,000 workers in total, are in place prior to the start of the fiscal year and are good for FY2013, expiring in July 2013.^[14]

[edit] Governor's Proposed Budgets

On May 14, 2012, in light of a projected $16 billion budget gap, Gov. Brown unveiled a revised, $91.4-billion spending plan.^[15] The governor proposed a 5% cut in payroll costs, as a result of reducing the state workweek to 38 hours, worked over four days. It would save $839 million overall, but only about $402 million of that savings would come from the $91 billion general fund and it is unclear if unions would agree to the change.^[16] Brown's proposed budget would reduce the state workforce to about 216,000, down from 225,000 workers in 2007-08 and about 4,000 fewer than last year.^[16]

The governor said that steep cuts in social services were needed, although legislators have been resistant to such cuts. Some of the cuts include:

• cutting $1.2 billion from MediCal, which means slicing funds for hospitals and nursing homes;^[15]
• $1.3 billion in reductions to welfare and child care;^[15]
• temporary reductions in court funding.^[15]

His plan also includes some borrowing and transferring money dedicated funds to help pay the bills. He pleaded with voters to increase taxes that are on the ballot in November 2012, which he said would generate $5.9 billion in new revenue.^[17] Gov. Brown warned that if those taxes were not approved, there would be an extra $6.1 billion in cuts,^[15] most of which would be to K-12 education.^[17]

A summary of Gov. Brown's initial proposed FY2013 budget prepared by the state budget office can be found here.

The governor's proposal would the number of state agencies from 12 to 10 through a series of mergers and reorganizations. The California Emergency Management Agency, for example, would lose its cabinet status and instead report directly to the governor. It also reduces the state's workforce by some 3,000 positions, mostly from the Department of Corrections and Rehabilitation. The governor's proposal also includes eliminating 39 departments, offices, boards and commissions and wiping out nine state programs.^[18]

The budget is officially $137.3 billion total, with a general fund budget of $92.6 billion, $39.8 billion in special funds and approximately. $5 billion in bond funds. The proposed budget as presented, however, does not include $70 billion in federal funds and public pension payouts of approximately $50 billion. State expenditures will be close to a quarter-trillion dollars. ^[19]

The state Legislature’s policy analyst said on Feb. 27, 2012, that the governor's proposed budget may overestimate revenue by as much as $6.5 billion through June 2013.^[20] This is in spite of the $2.5 billion that the state Legislative Analyst's Office said the state could receive from 2012-17 as a result of the Facebook initial public offering.^[21]

[edit] Fiscal Year 2012 State Budget

• See past state budgets

Gov. Brown said on May 12, 2012, the state faces an estimated $16 billion budget gap.^[22] Reasons the deficit is so large include:

• tax collections have not come in as high as expected;
• the economy did not grow as rapidly as lawmakers expected when they drafted he budget;
• lawsuits and federal requirements have blocked billions of dollars in state cuts.

The general fund of the state budget is approximately $90 billion but the state actually spends more than $250 billion when $70 billion in federal funds, plus special funds (such as gasoline taxes), state employee pension payouts and borrowed bond funds are included.^[23] General fund spending at its lowest level since the 1972-73 fiscal year when measured as a share of the state's economy. ^[24]

The state is approximately $3.5 billion behind for this fiscal year as of May 2012,^[25] and the budget gap will be larger than the $9.2 billion estimated in January 2012.^[26] In March 2012, there was a shortfall of $233.5 million in revenue, 8.2 percent below projections, according to the state controller John Chiang.^[27] the state would be about $3.5 billion behind for this fiscal year

State leaders had to find $3.3 billion to ensure California has enough cash to pay for priority programs between Feb. 29 and April 13, and the state then borrowed the money. The governor's administration attributed the spending gap to courts blocking health and welfare cuts, as well as overestimating early savings in prison costs from redirecting inmates to counties. Leaders plan to borrow additional money from special state accounts, including several dedicated to transportation; delay Medi-Cal payments; and take out another loan from Wall Street. The state borrows money every fiscal year because it received tax payments in the spring.^[28]

The state transfers money from funds intended for specific expenses in order to keep the state's day to day operations running. Gov. Brown signed a bill on Feb. 3, 2012 that expands the ability to borrow from dedicated funds, which will make $865 million available to help keep the state in the black through early March 2012.^[29]

Cuts

Gov. Jerry Brown announced on Dec. 13, 2011, $1 billion in budget cuts as part of the first tier of cuts built in to the state budget should revenue fall below what lawmakers planned.^[10] This is the first tier of cuts, and a second tier could be triggered should revenue fall $2 billion below hoped for levels. The first tier of cuts announced by the governor will take effect on Jan. 1, 2012, and they include:

• $100 million cuts to both University of California and California State University systems, which are in addition to the $650-million hit each took in the current budget,
• $330 million reduction to school budgets, including $248 million that pays for buses,
• $100 million in cuts to services for the developmentally disabled,
• $100 million reduction for workers who care for the sick and elderly in their homes, although a federal judge recently issued a temporary order against such cuts in a lawsuit filed preemptively.^[10]

Tier 2 cuts, should they be required, will cut an additional $1.9 billion, including $1.54 billion to the state's K-12 education system, which is expected to knock a many as seven days off the 2011-2012 public school year.^[30]

The state spent $1.7 billion more than budgeted through October 2011 and revenue was $810.5 million less than budgeted in October, bringing the total to 6.2 percent below expectations for July 1 through Oct. 31, according to released Nov. 10, 2011 by Controller John Chiang.^[31] The budget includes a series of cuts to be activated if revenue falls below certain levels when the shortfall reaches $1 billion, and additional cuts are triggered if the shortfall grows to $2 billion.^[32] All together, spending cuts of $2.5 billion would be triggered if the money doesn’t materialize. ^[33] At a $1 billion shortfall, in-home services for the elderly and disabled will be cut, university budgets would be reduced by $200 million, community-college fees will increase $10 per unit. Should the deficit reach $2 billion, the school year would be shortened by seven days to save $1.54 billion and $248 million in home-to-school busing subsidies would end. If necessary, those second-tier cuts would begin Feb. 1.^[32] The state will determine if those cuts are required in mid-December after the Department of Finance and the Legislative Analyst's Office release separate revenue forecasts for the remainder of FY2012.^[34] Those cuts would take effect Jan. 1.^[32][31]

[edit] Passage of Budget

On June 27, 2011, the legislature passed a budget that the state Senate leader called the "most austere budget we have seen in a generation."^[35] Gov. Jerry Brown signed the budget into law on June 30, 2011, the day before the start of the fiscal year.^[36] With a spending plan in place prior to the start of FY2012, the state can proceed with the sale of $5 billion in short-term debt in August, according to the state treasurer's office.^[36] General Fund spending totals $85.9 billion, a 6.1‐percent reduction from FY2011.^[37] A 60-page Budget Summary prepared by the California Department of Finance can be found here.

The first budget passed by lawmakers was vetoed by the governor and deemed "unbalanced" by the Comptroller. Lawmakers approved a FY2012 budget on June 15, 2011, and sent it to Gov. Jerry Brown.^[38] who vetoed it. He refused to sign the budget bill because it "contains legally questionable maneuvers, costly borrowing and unrealistic savings."^[39] Democrats passed the bill, which they were able to do without Republican support thanks to the end of the supermajority requirement as a result of the November 2010 election. (see below) Republicans opposed the budget, saying it was unbalanced, gimmick-ridden and poor policy.^[38]

On June 28, 2011, Democrats and the governor reached a budget deal that does not include the renewed tax hikes that the governor had been pushing to put before voters. The deal assumes $4 billion dollars in fresh revenue, from varied sources such as an increase in the vehicle registration fee and the Amazon tax on online retailers. Should the assumed revenue fail to materialize, serious service cuts would have to be made. Republicans did not support the plan. This budget relies on some of the gimmicks included in the first budget draft, including deferring billions of dollars in school payments into FY2013.^[40]

The legislature and the governor reduced the original $26.6 billion budget gap by $11.2 billion for FY2012, mostly through budget cuts.^[41]

Amazon Tax

The budget plan also includes a new sales tax on online retailers like Amazon.com, requiring them to collect the state's 7.25% sales tax from customers. The tax, which would allow California to collect taxes from any online retailer that has nexus with an affiliate site in California, would bring in an estimated $200 million a year.^[42] Amazon.com and Overstock.com said they would drop their affiliates and challenge the law in court. ^[43] Amazon.com and California reached a compromise under which lawmakers agreed to permit Amazon to delay collecting taxes for a year in exchange for Amazon dropping its battle to overturn the law. ^[44] Gov. Brown signed the bill into law on Sept. 23, 2011.^[42]

Corporate sales tax revision proposal

When revenues failed to meet the expectations on which the budget was based, Gov. Brown proposed reverting state sales tax formulas to the way they were computed before 2009. That would require large companies that sell their goods in California, but do not employ many Californians, to pay more in sales taxes and could generate $1 billion that the governor would then use to give new tax credits to companies that do employ Californians.^[45]

K-12 Education

By law, school spending accounts for about 40% of state spending. Gov. Brown and legislators converted more than $5 billion to local funds, thus evading that requirement and reducing the education calculation. The teachers union agreed to the funding plan in exchange for the guarantee that teachers would not be laid off and state officials agreed to pay back the missing $2 billion if a broad tax measure fails at the ballot in 2012. A group of school boards and administrators decided to sue in September 2011.^[46]

Budget Cuts

Brown agreed to $650 million in cuts, or about 23 percent, to the UC and Cal State systems. ^[47]

The governor used his line-item veto on the budget to cut $270 million in spending, mostly from railway projects. The governor also trimmed money from state commissions on higher education and women, eliminated funding for a data system to track teacher performance and further reduced court spending.^[48]

The budget delays the payment of billions in bills, including the payment of $2.8 billion owed to schools and community colleges until the following fiscal year, and forgoes debt repayments. The budget also relies on the state receiving $700 million for Medi-Cal fro the federal government, although those funds are not guaranteed. The budget also raises car registration fees and local sales tax rates and institutes sales tax on sales via online retailers, such as Amazon.com, a tax expected to generate $200 million. The budget cuts $150 million in funding to the state's court system, which comes in addition to a $200 million reduction approved three months prior.^[38]

Federal Funds

California will receive $79.2 billion in federal federal funds over FY2012, which amounts to 38% of total state spending.^[49]

[edit] Budget Fallout

Court System

The statewide trial court budget committee, as well as an appellate court leadership group, announced a series of budget-cutting recommendations to deal with a $350 million judicial branch reduction approved by the state Legislature and Gov. Jerry Brown. In addition to the 8.8 percent cut, the groups are recommending a one-year suspension in the launching of a statewide computer management system, a 9.7 percent funding cut for the California Supreme Court and Courts of Appeal, and a 12 percent reduction in funding for the California Judicial Council and its staff arm, the Administrative Office of the Courts. ^[50] The court's budget was originally $3.505 billion before the cumulative $350 million in cuts agreed upon by the Legislature and Gov. Brown. That dropped the overall court budget to $3.155 billion. ^[51]

With additional state budget cuts, the war over priorities continued, focusing on what the critical judges said was a bloated AOC bureaucracy that was consuming too much money and was being shielded from the cuts being imposed on local trial courts.^[52]

Elections

Under the budget, counties are no longer mandated to process all voter registration applications they receive by mail or to send out vote-by-mail ballots to anyone who wants one. Although counties still could provide these services, and many probably will, they will not be reimbursed by the state. The measures will save $33 million.^[53]

Community Colleges and Universities

A 9.6 percent tuition increase for University of California schools was approved by a 14-4 vote of the UC Regents Board. The hike is the second tuition increase for UC students in the past eight months -- an eight percent increase was already added in November. The tuition increase will only affect about 55 percent of current students, according to UC officials, because of financial aid options given to students whose family income is less than $80,000 per year. The new fees will cover 26 percent of a $1 billion budget shortfall the UC system faces next year. The remaining funds will be made up through cuts to campus services and increased enrollment of out-of-state and international students, who pay higher tuition than California residents. ^[54] Under the new tuition rates, and including all required fees, California resident undergraduate students will pay $13,218 per year and out-of-state students will pay $36,096. Graduate students in academic programs will pay slightly less, but their tuition will still be raised by 9.6 percent, to $12,824 for Californians and $27,926 for non-residents. ^[55]

At San Francisco State University, enrollment over the last five years has stayed relatively constant at just under 30,000, but the same number of students must make do with 16 percent fewer instructors -- a decline of 61 tenured or tenure-track faculty members and 216 lecturers, according to The San Francisco Chronicle. The article describes a professor holding a lottery to figure out who can get the last few spots in a class, and a physical plant so behind on repairs that people must wear hats and gloves in class for a few weeks in winter as the boilers slowly heat up. ^[56]

Deep cuts to California’s higher education system mean the state’s community colleges may turn away as many as 670,000 students, said Jack Scott, chancellor of the system. The state university system has taken a hit of $650 million and the community college system has had its funding cut by $400 million so far this year. Both systems have raised their prices already, but warn that more cuts may be on the way. Community colleges (which have had $129 million in state funding delayed already) will lose another $100 million and CSU another $30 million if state revenue falls more than $1 billion below budget estimates. ^[57]

A bill allowing illegal immigrants to use public funds to pay for college, strongly supported in spirit by Gov. Brown, may hit a financial brick wall due to the state's fiscal crisis. A Brown spokeswoman said the administration supports the general principal behind AB 131, but it will take a long hard look at the bill considering the deep fiscal challenge of a $26 billion budget gap. ^[58]

The Senate and Assembly has released member-by-member spending records ^[59]

School Opening Delayed

A new LA high school, with a construction price tag of $105 million will not open in order to save the school district $3 million annually. However, the school district still will have to pay $1 million for maintenance and security at the facility, which includes wireless Internet, a robotics lab, digital smart boards in every classroom, and a top-notch performance hall. ^[60] Voters in 2007 overwhelmingly approved a $196-million bond measure to construct and equip the high school and to make other school improvements.

General Assembly Expenses

Assemblyman Anthony Portantino (D-La Cañada Flintridge) is demanding that the Assembly release the budgets for each office, so the public can see who was spending — or overspending — what. Assembly officials argue that those records can be withheld under an exemption in the California Public Records Act for drafts and notes by lawmakers and their staff. The Times and other newspapers are suing to compel the Assembly to release the budgets. ^[61]

Following Portantino's request, the Assembly released legislators' budget figures, but the documents offer an incomplete and at times contradictory picture. For example, they show some rank-and-file Republican lawmakers -- in the minority party -- with more lavish budgets than the Assembly speaker or the Democratic heads of powerful committees. According to the publicly released documents, total spending for Assembly lawmakers was $62.7 million for the 12 months ending last November -- $24.8 million directly for lawmakers and $37.9 million for caucuses and committees. ^[62] Portantino introduced a bill that will force state lawmakers to disclose their staff budgets for the upcoming year and their year-to-date expenditures to the public. ^[63] Portantino accused Assembly leadership of "cooking the books" and misleading the public in expenditure records. California Common Sense said its computer analysis shows that numerous employees were moved off the rolls of member expenditures into leadership, committee, caucus, overhead or other accounting entities.The result is that member expenditures for personal staff were underreported by $2.75 million, according to the nonprofit political analysis group. ^[64]

Following the release of the expense report, multiple newspapers across California came out in support of the transparency legislation. The Legislature operates under the Legislative Open Records Act, which is more restrictive than the California Open Records Act that other public agencies follow. The Legislature releases figures for the previous year each November, but is not required to disclose the current office budgets in real time. Each lawmaker is given a base budget of about $263,000. But many receive hundreds of thousands more in augmentations — lumped together with committee budgets and party leadership posts. ^[65]

California Prison Medical Salaries

Almost 100 doctors, dentists and other medical practitioners in the state earned at least $300,000 in 2010 to work behind bars. California prison doctors earn more than counterparts in New York, Texas and Florida. ^[66]

California prison officials say they’ve had to boost wages to comply with federal court orders and because of the difficulty recruiting doctors to work in crowded facilities filled with violent offenders. One psychiatrist earned $566,029 last year, including overtime and extra-duty pay. California taxpayers shelled out $770 million to medical, dental and mental-health staff to care for convicts in 2010. ^[67]

Gold Mining

Critics of a legislative plan to halt gold mining in California say the action will put 4,000 miners out of work and cost the state $23 million in unemployment, as well as associated revenue streams. ^[68] The mining has been halted due to opposition from environmentalists who say the machines used in gold dredging harm the spawning grounds of salmon.

Public libraries

The legislature addressed the state's deficit by reducing spending for libraries by half, and cutting aid to universities and colleges, state parks, child care, and programs for the poor. It also passed a proposal to shift tens of thousands of inmates from state prisons to local jails.^[69]

School Superintendent

At least one California superintendent who is approaching retirement is refusing to take his full pay over the last three years of his contract. Fresno School Superintendent Larry Powell has agreed to give up $800,000 in salary. Until his term expires in 2015, Powell will run 325 schools and 35 school districts with 195,000 students, all for less than a starting California teacher earns. Powell asked his board to allow him to return $288,241 in salary and benefits for the next three and a half years of his term. He technically retired, then agreed to be hired back to work for $31,000 a year — $10,000 less than a first-year teacher — and with no benefits. ^[70]

Internet Taxes

Gov. Jerry Brown signed a law requiring out-of-state electronic retailers to collect sales tax on purchases from California customers as part of a larger state budget package. The sales tax bill Brown signed was intended to produce an estimated $317 million a year in new state and local government tax revenues. However, some online retailers, including Amazon, are not happy with the new bill. Amazon terminated its relationship with thousands of California-based affiliates. Executive Director Rebecca Madigan of the Performance Marketing Association doesn't think that type of revenue will be seen by the state anytime soon. ”The devastation of this law has been immediate,” said Madigan. “There are 25,000 affiliates in California that got hit by this law. About 25 percent of them were making a full-time living (as an affiliate to Amazon).” ^[71] Amazon terminated the contracts of all 25,000 affiliates through an email. Those 25,000 affiliates in California paid about $124 million in state income taxes in 2009, which the state may lose because of this new law. ^[72]

In response to the law requiring online businesses to collect state sales tax being signed, Amazon and Overstock.com both announced that they will be closing all of their affiliate programs in California. The move calls into question whether the state will be able to generate the $317 million a year it anticipated from the online sales tax.^[73]

[edit] State Credit Rating

Following the passage of the state budget, Standard and Poor's boosted California's credit outlook to stable from negative, and then on Feb. 14, 2012, it raised the outlook on the state's credit to positive.^[74]

While S&P maintained its A- rating, the lowest for any state, on California's $71.7 billion of general-obligation debt outstanding, the revision means a downgrade is less likely. The rating company said passage of the budget mitigated the potential for a cash shortage that weighed on its outlook. The revision reflects a budget that's "light on smoke and mirrors and with real spending cuts and revenue increases that are credible," said Josh Gonze, who helps oversee about $6.5 billion in municipal-bond assets as a co-portfolio manager at Thornburg Investment Management Inc. ^[75]

[edit] Groups Fight Back, Some Challenge Budget in Court

Cities asked the California Supreme Court in July 2011 to halt a $1.7 billion state overhaul of redevelopment agencies.^[76] The court ruled, however, that lawmakers legally eliminated the local offices that subsidize construction in blighted areas. The ruling was seen as a victory for Gov. Brown, who asked lawmakers to eliminate redevelopment agencies after criticizing them for using property tax dollars to subsidize private development.^[77]

Other groups also challenged the legality of the state budget in court. School officials, including those at the L.A. Unified School District, filed suit in September claiming that lawmakers illegally manipulated California's voter-approved education funding formula to shortchange them by $2 billion. A coalition of disability-rights activists also filed suit as well to block nearly $100 million in cuts to services for the developmentally disabled.^[78]Sen. Ted Gaines, R-Roseville, filed a referendum to block a $150 annual fire fee on rural homeowners. ^[79]

Another proposed referendum seeks to overturn a budget-related bill that would allow local redevelopment agencies set to be eliminated to continue to exist if they provide extra funding for schools and local governments. Proponents of both proposals have to collect the signatures of 504,760 registered voters to secure a spot on the next statewide ballot. If they qualify, the laws will be suspended until the election is held. ^[80]

Corcoran is one of two dozen health care advocates in Washington urging the Obama administration to reject Medi-Cal cuts California relied on to balance its budget. The cuts include a 10 percent cut in rates paid to Medi-Cal providers, such as doctors, pharmacies and clinics. The group, the Alliance for Patient Care, also opposes new Medi-Cal patient co-pays, including $5 for a clinic visit and $50 for emergency room services, as well as a seven-visit soft cap on doctor visits. Medi-Cal serves nearly 7.7 million low-income children, parents and adults with disabilities or other needs. ^[81] Additionally the state asked permission to charge co-pays for doctor visits, prescription drugs, non-emergency visits to emergency rooms and hospital stays; and limit doctor visits to seven per year unless a doctor certifies the need for more.^[82]

[edit] Gov. Brown's Proposed Budget

After being sworn into office in January 2011, Gov. Brown said he wanted a new budget within 60 days, which did not happen. Five months later, Democrats passed a budget bill on the day of the deadline before they would forfeit salaries and expense reimbursements for failing to present a budget bill to the governor.^[83] The governor then vetoed the bill. He ultimately signed the budget into law on June 30, 2011, the last possible day to do so.^[36]

[edit] Negotiations with the Legislature

Budget negotiations between the legislature and Gov. Brown broke down after Republican lawmakers blocked his deficit-cutting budget plan which was based on asking voters to extend $9.3 billion in higher taxes and fees in a June ballot. To make it on to the ballot, the issue needed the approval of two-thirds of the Legislature, requiring at least four Republican lawmakers to go be approve, and Brown did not get the four Republicans he needed. ^[84] After it was clear that the governor was not winning over the Republicans, Senate leader Darrell Steinberg broke off from the governor and said he would rather the Legislature pass billions in tax extensions which the governor could then sign into law and avoid a public vote.^[85] Brown planned to use the $9.3 billion in taxes in his $84.6 billion budget for FY2012, which would mean that he could avoid making additional cuts to education and public safety.^[84]

Negotiations were complicated by reports in early May 2011 of an unexpected $2 billion in tax revenue, prompting Republicans to say that the governor's proposed tax increases are unnecessary. Democrats countered that the increased revenue is not guaranteed to last. ^[86]

After negotiations broke down, Brown shifted his focus to placing tax initiative on the ballot in Fall 2011, although some union leaders urged the legislature to impose taxes because they doubt whether voters would a fall ballot measure.^{[41] [87]} The governor wants the Legislature to call a special election in September. Under his plan, voters would decide whether to renew a half percent increase in the vehicle license fee and a 1 percent hike in the state sales tax for five years. They also would vote on whether to revive a quarter percent increase in the personal income tax, which already has expired, for four years starting in 2012. ^[88]

The governor missed his self-imposed deadline for a budget deal and continued to negotiate with Republican senators for nearly three more weeks to the exclusion of alternative budget strategies before conceding that they could not agree on the tax measure central to his budget.^[89]

[edit] Tax Extension Plan

California's finances improved due to a $6.6 billion boost in revenue that Brown said he would use to bolster school spending and help reduce the remaining budget gap. Brown would also fill the gap with revenue by extending tax increases. Brown's plan places him between anti-tax Republicans and Democrats chafing at the prospect of deeper spending cuts. ^[90]

In June Senate Democrats proposed to push the expiration date of temporary taxes Gov. Brown wants back a year. Brown said the bridge financing is needed to preserve revenue pending the outcome of a yet-to-be-determined statewide referendum on whether to keep the taxes for five years. Republicans say the extensions would harm California’s economy. ^[91] Those temporary taxes are set to expire July 1. Republican lawmakers said they will concede to allowing voters to have a say in the extension of the tax. Republicans settled on a core package of policy overhauls to be enacted if a tax deal can be forged, which includes a restraint on state spending. In addition, public employees would have the option of a retirement package that would include a 401(k), according to legislative staffers who spoke on condition of anonymity because budget negotiations are still in progress. ^[92]

Without the tax revenue, Brown warned deeper cuts to schools and public safety will be necessary. Republicans would not agree to temporarily extend the taxes, and would only approve a statewide ballot measure if Democrats agree to additional referendums on curbing public employee pensions, business and environmental regulations and a new cap on state spending. ^[93] Republicans wanted a ballot measure that would dismantle the existing state pension system that guarantees benefit levels regardless of investment returns.

GOP Budget Proposal

California Republicans released a list of alternative budget proposals including a spending cap, pension reform and regulatory reforms. The documents propose a spending cap of prior-year actual spending adjusted by changes in population and inflation, and reform for regulations, including the California Environmental Quality Act. ^[94] A hybrid pension system in which equal costs are shared by the employer and employee is also proposed, as well as pension caps of $106,000 for those with Social Security and $119,000 for those without. No special pays, overtime or accrued leave would count for pension calculations, and people would not be allowed to work for a public entity while collecting a pension from the same agency. ^[95]

[edit] Revised Proposal

On May 16, 2011, the governor proposed a revised budget. The revised budget increases general fund spending from the governor's prior proposal, from $84.6 billion in January to $88.8 billion in the revised proposal. Total state spending, including federal money and revenue dedicated to specific programs, would rise to $132.5 billion, which is $5 billion higher than FY2011.^[96]

The revised budget proposal pegs the deficit at $9.6 billion through June 30, 2012, but also is assumes that the state will also take in $3.6 billion more in FY2012 than it did in FY2011. The revised budget would eliminate 5,500 state jobs and 43 boards and commissions. ^[97]

The governor still includes the 1 percent sales tax extension and the 0.5 percent vehicle license fee extension after June, when the rates are slated to decrease but would delay the 0.25 income tax surcharge until 2012 and remain until 2015.^[97] If the taxes are not extended, the Brown administration says it will be necessary to cut $5 billion from schools and community colleges.^[96]

He retooled his approach to enterprise zone tax credits for employers, and instead of eliminating them the governor would limit the credits to new hires.^[97]

Brown’s plan relies on keeping a 1 percentage-point boost in the retail-sales levy, to 8.25 percent, and a 0.5 percentage point increase in auto registration fees to 1.15 percent of a vehicle’s value. It also seeks to extend a reduction of the annual child tax credit to $99 from $309. ^[98]

[edit] Initial Proposal

The governor in January 2011 proposed a budget under which, with cuts and taxes, the state would spend $84.6 billion from the general fund.^[99]

The governor said he wanted lawmakers to approve a budget within about 60 days, despite the fact that the budget process can typically drag on for up to eight months.^[100] However, on March 9, 2011, he asked lawmakers for more time to reach a compromise^[101] and no agreement had been reached as of the start of May 2011.

Tax Increases

The governor initially wanted to use a special election on June 7, 2011, before the constitutional deadline of June 15 for the Legislature to send the governor a budget,^[101] California voters will be asked to extend tax hikes that the legislature approved two years ago for another five year.^[99] Those tax hikes include increasing the retail sales tax by 1% to 8.25%, a 0.25% increase in the state personal income tax, and a 0.5% increase in the vehicle licensing fee to 1.15%of a vehicle’s value and a reduction of the state’s child tax credit to $99 from $309.^[99][101] The legislature would have to act by the end of March for the election to take place and on Feb. 2 when there had been little action by the legislature, Brown warned GOP lawmakers against impeding a referendum that would allow voters to decide on extended income, sales and car levies to help close a $25-billion budget shortfall.^[102] The Governor indicated that if the taxes were not approved he would push for the full $25 billion in budget cuts.^[103]

Public-sector unions, including the California Teachers Association, indicated they would pay for the media campaign in support of passage for the taxes.^[103]

[edit] Cuts

Under the proposed budget, the state's welfare program would be reduced by half, universities would receive $1 billion less, and funding would be reduced for care for the elderly at home.^[104]

Other spending cuts in the budget include^[99]:

• $1.7 billion from Medi-Cal
• $1.7 billion from redevelopment agencies
• $1.5 billion from CalWorks, the welfare to work program
• $1.4 billion to higher education

Both nonprofit and for-profit providers of adult day care are likely to be cut as a result of planned cuts in California’s state budget, causing about 35,000 people to lose out on those services. Adult day care is an optional benefit under federal Medicaid rules, so if your state is parceling out what it is able to pay for through Medicaid, optional services lose out. ^[105]

Funding to K-12 education is not cut under the budget, but the governor warned that unless the tax increases continue for five years, cuts to education may be necessary.^[104]

The nonpartisan Legislative Analyst's Office said that the employee compensation savings detailed in Gov. Brown's FY2012 proposed budget would not amount to the $580 million that Brown said it would.^[106] Brown said he believes that adding a cheaper option to the employee health insurance menu would cut costs by $72 million, but the analyst thinks that estimate is high given that the aging state work force is unlikely to switch to a plan with fewer benefits.^[106]

In order to save the state some funds Gov. Brown shut off nearly 30,000 state funded cell phones. As of June 1, Brown's administration had snagged 29,348 state cellphones, which is 44 percent of all those issued to employees in offices under the governor's direct control. Brown is shooting for a 50 percent cut, despite some departments pleading with the governor to keep the issued phones. A 50 percent cut would amount to nearly 34,000 phones and save the state $13 million a year. ^[107]

The budget situation may force California to ground its jumbo fire-fighting plane. The state spent $7 million annually to keep the jet tanked up and ready to fight wildfires at a moment's notice. ^[108]

Expenditures

The expenditures in the proposed budget include:^[99]

Revenue

In addition to the tax increase proposal discussed above, the budget includes revenues from a variety of sources:^[99]

The plan combines austere spending with extended tax hikes, meaning that both parties will face painful choices that Brown says are necessary to truly resolve the state's massive budget problem.^[100] Brown wants to slash virtually every state-funded program to help balance California's massive deficit, in many cases resurrecting cuts sought by Gov. Arnold Schwarzenegger that lawmakers did not accept.^[109] The plan includes deep cuts to state services, including university systems and welfare programs, as well as asks voters to extend temporary tax hikes on vehicles, income and sales that are set to expire next year. The plan also would eliminate many tax breaks and subsidies.^[100] Brown would restrict Medi-Cal access, divert low-level offenders to county jails and cut deeply into California State University and the University of California.^[109]

The governor has pledged to trim his office budget by 25%.^[100] As part of that effort he eliminated the state Office of Inspector General, responsible for overseeing more than $50 billion in federal stimulus money.^[110]

Another source of revenue is unclaimed funds. There is $6.1 billion cache of dormant savings accounts, store credits and forsaken royalty payments that has only grown since 2007 in California. The boom is a boon for California’s general fund, where the stray cash is deposited and used as a sort of no-interest loan to pay salaries and expenses -- a cushion that has helped keep the state afloat while state politicians wrestled over a $10 billion budget deficit. ^[111]

Restructuring Saying that California's government has become too centralized, Gov. Brown proposed restructuring the state and local government relationship by shifting many services now offered by the state to cities and counties.and its tax revenue hasn't kept pace with residents' expectations. The restructuring would return some of California's government structure to the way it was prior to the passage of Proposition 13 in 1978.^[112]

Criticisms

A new report indicates the Los Angeles Unified School District squanders more than $500 million a year on an academic-improvement strategy that has consistently proven to be ineffective. ^[113]

The school system spends 25 percent of its teacher payroll ($519 million a year) to compensate teachers for completing graduate coursework. However, such training has shown no overall benefit in improving student performance, said Kate Walsh, president of the Washington-based National Council on Teacher Quality, which conducted the research.

Other report findings included:^[114]

• Only a third of Los Angeles teachers graduated from a school ranked as either “most” or “more” selective.
• “Perverse incentives” may dissuade principals from being overly critical of poorly performing teachers, which, over time, makes it difficult to dismiss these instructors: “The online evaluation system, includes a pop-up warning telling principals who have selected ‘needs improvement’ for 3 or more of the 27 indicators to contact Staff Relations and present documentation to reinforce the ratings.”
• Administrators who “have not diligently collected evidence, or feel that pursuing a negative rating will take too much time … may decide it is not worth the effort." According to the report, “there should be a high burden of evidence and feedback for every rating — both negative and affirmative.”
• Principals don’t take advantage of flexibility and authority they already have in hiring and evaluating teachers.

[edit] Business Climate

A growing number of California companies are seeking friendlier business environments outside of the Golden State. Companies are "disinvesting" in California at a rate five times greater than just two years ago, said Joseph Vranich, a business relocation expert based in Irvine. This includes leaving altogether, establishing divisions elsewhere or opting not to set up shop in California. The state has been ranked by Chief Executive magazine as the worst place to do business for seven years. ^[115]

Amazon.com wants voters to strike down the California law requiring the company to collect sales taxes. Wal-Mart, labor groups and other opponents could wage a costly, noisy battle against such a referendum, but large box-retailers such as Wal-Mart and some labor groups are opposed to the idea. Once state lawyers prepare a legal title and summary, Amazon will have to collect valid signatures from 504,760 registered voters and qualify the proposal for the ballot at least 31 days before an election, according to the secretary of state's office. ^[116]

[edit] Budget transparency

Main article States with spending online and Evaluation of California state website

• See sample transparency legislation at the Sunshine Standard

Article 4, Section 8(b) of the California state constitution requiring that “title” of a bill be read on three days in each house although the house may dispense of this provision with and that a bill cannot be passed unless printed and distributed to members in its entirety first. The constitution is silent as to the amount of time between printing and distribution and when a vote may take place.

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.^[117] In addition, on June 19, 2009, California launched a transparency website that details government contracts of $5,000 or more.^[118] Visit the 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. ^[119]

Following the passage of the 2011 budget, the Sacramento Bee hosted an online chat regarding the state's spending plan. The Bee's Kevin Yamamura callled the state's budget process "opaque." He said media members did not receive information on the budget until moments before it came to the legislative floor. ^[120]

[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
California State Controller's Office	Y	N	N	N	N	Y
E-Procurement	Y	N	Y	N	N	N
E-Budget	Y	N	N	N	Y	N

In November, 2011, Governor Jerry Brown ordered the shutdown of the State's Reporting Transparency Website. A message at the old site now direct's viewers to several other state sites that reportedly contain the same information previously displayed in one central location.^[121]

Despite pleading guilty to misusing public funds for golf, massages and paying off his personal credit card, California's highest-paid public pensioner will continue collecting his taxpayer-funded pension of almost $500,000 a year, the Los Angeles Times reports. Bruce Malkenhorst, 76, the former city manager of Vernon (pop. 92), avoids prison but faces three years' probation, $35,000 in fines and $60,000 in restitution to the industrial "city" (California's smallest) just south of L.A. proper. But Malkenhorst, who retired in 2005 and denied the charges for five years, keeps his $499,675 pension because only elected officials convicted of public corruption can have their pensions reduced or revoked. ^[122]

[edit] Fiscal Year 2011 State Budget

Find the state’s FY2011 Comprehensive Annual Financial Report (CAFR) compiled by the state government here.

California has the second highest debt per capita for general obligation borrpwing at $2,362 per person, and overall debt per capita according to some calculations is $19,800.^[123]

In Dec. 2010, the National Conference of State Legislatures said that the state faced a midyear shortfall of $6.128 billion, which represents 6.6% of the FY2011 state budget.^[124]

On December 6, 2010, then-Gov. Schwarzenegger called the legislature into special session.^[125] The governor proposed an austerity agenda that would eliminate state welfare and child-care programs, eliminate cash grants to the elderly and disabled, and cut vision coverage for children receiving government-subsidized healthcare because the state faces an estimated $6.1-billion deficit in the current fiscal year and a $25.4-billion shortfall over the next year and a half.^[125] Many Democratic legislators said they preferred to wait to act until Democrat Governor Jerry Brown takes office on Jan. 3.^[125] Schwarzenegger said his goal in calling a special session was to make the budget problem "a little bit easier" for Brown.^[125]

Governor Brown said that he would retain Ana Matosantos as budget director, a position she currently holds under Gov. Schwarzenegger.^[126]

On Nov.10, 2010, the Legislative Analyst's Office projected California's budget deficit to be $25.4 billion through June 2010.^[127] The day following that announcement, Gov. Schwarzenegger called a special budget session to begin on December 6, 2010, when new lawmakers are sworn into office.^[127] Before the session the Department of Finance plans to make its own estimate of the gap and a plan to close it.^[127] Democrats have said that they prefer to wait until Governor Jerry Brown is sworn in before making decisions about the state's $6 billion shortfall in this year's budget.^[128]

The legislature passed the $86.6 billion general fund budget on Oct. 8, 2010, 100 days after the start of FY2011.^[129] Despite the passage of the budget, days later the Senate leader announced that he would try to revise the budget when a new governor is sworn in in 2011.^[130] Darrell Steinberg said that his first priority after a new governor takes office next year will be to restore the almost $1 billion in social services cuts that were made as part of the FY2011 budget.^[130]

[edit] Budget Passed

Some of the 21 bills that make up the budget were not made published and available to the public prior to the vote.^[131][132] The delay in passing the FY2011 state budget is a record for the state, with the budget being 100 days late, later than its ever been in state history.^{[citation needed]}

The reserve in the budget is about $200 million, significantly less than the $1.2 billion reserve the governor had sought in his May proposal.^[133]

[edit] Vetoes

The governor signed the bill the day it was passed and used his line-item veto to eliminate $962.5 million billion in spending, $366 million coming from a one-time accounting maneuver that makes it possible to use federal funds to avoid cutting services.^[134] The vetoes include:

• A $256 million reduction in child care funds for low-income, former welfare-to-work participants who have found work^[134]

• An $80 million reduction in funds for child welfare services meant to boost efforts to investigate child neglect and abuse, meaning that funding for FY2011 remains at FY2010 level^[134]

• A $133 million reduction for provision of mental health services to special education students^[134]

The budget also assumes $200 million in savings from fewer inmates and parolees and $75 million in savings from fewer In-Home Supportive Services recipients.^[135]

[edit] Pension Reform

The budget also includes a pension reform provision on which Schwarzenegger had insisted, meaning that state employees hired after Nov. 1 will receive lower pensions than those currently on the payroll.^[129][135]

[edit] Unemployment Insurance Deficit

The Unemployment Insurance Fund's deficit "is projected to increase to approximately $20 billion at the end of 2011."^[136] Legislative analyst Mc Taylor said that the fund is paying out more than $11 billion a year in benefits while employer generate just $4.5 billion in payroll taxes.^[136] The fund is currently reliant on loans from the federal government.^[136]

[edit] Revenue

The revenue estimates in the budget are $1.4 billion more because it uses projections from the nonpartisan Legislative Analyst's Office instead of the Department of Finance.^[135] The budget saves $1.2 billion in suspending the corporate net operating loss tax deduction.^[135] The revenue gains are somewhat reduced by three specific corporate tax cuts that will cost the state $118 million.^[135]The budget did not include in the Democrat's proposed "tax swap."^[135]

The budget counts $1.9 billion from loans and transfers from special funds and bond debt savings as revenue, and also assumed $1 billion from the sale of 11 state buildings that the state plans to lease back.^[135]

[edit] Budget Highlights

Some of the spending in the budget includes:

• $5.8 billion for the California Community College system, about $108 million more than last year, but $189 million will be deferred until the next fiscal year.^[133]

• $5.5 billion each for the University of California and California State University systems, an increase of about $250 million each over the previous year, along with $200 million each to make up for previous cuts.^[133]

• $1.6 billion in cuts to state employee pay and benefits.^[133]

• $5.4 billion in revenue from the federal government. Congress and President Obama, however, have approved only $1.3 billion to date.^[133]

• $1 billion increase in spending over the previous year, made possible by a revenue increase, lawmakers said.^[133]

• $43.8 billion for K-12 public education, a slight increase over the previous year, but $1.7 billion of that will be included in the FY2012 budget and paid out in July.^[133]

[edit] IOUs

At the end of the first quarter in the FY2012 budget year, the state owed thousands of vendors almost $3 billion.^[137] State Controller John Chiang said that a budget being signed by Oct. 9, 2010, may not forestall the issuance of IOU's.^[132] Invoices of more than $8 billion that have gone unpaid without a budget will have to be paid as soon as the budget is signed, putting the state in the red.^[132] Until a budget is passed, the state could use pay-you-later warrants to pay lottery winners, tax refunds, workers compensation claims and some child development benefits.^[137]

[edit] Federal Funds

California will receive approximately $3.1 billion from H.R. 1586, a $26 billion plan to give states money for Medicaid and education that the President signed into law on August 10, 2010.^[138]

H.D. Palmer of California's state Finance Department said the bill will send $1.2 billion directly to the schools and another $1.3 billion that can be used to help plug the state's $19 billion budget hole. The amount is about $500 million less than Schwarzenegger's budget proposal assumes.^[139] Jennifer Kuhn, the director of K-12 programs for the nonpartisan California Legislative Analyst's Office, said that while the federal money would help officials fill a lot of positions, it's uncertain whether those jobs would be filled in time for the new school year.^[139]

[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.^[140] In November 2010, voters will vote on Proposition 25, a ballot measure that would lower the vote threshold down from two-thirds, so that lawmakers could pass budgets with a simple majority.^[141]

Over the past 10 years state spending from state sources has more than doubled in nominal terms (not adjusted for inflation).^[142]

The California controller delayed payments in February 2009 and issued IOUs in July and August 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.^[143] As of August 2010, of the 450,000 IOUs totaling $2.6 billion that were issued, 66,350 remain uncashed, leaving $29 million of debt still outstanding, according to the state controller's office.^[144]

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.^[145]

[edit] Budget Reforms

The Assembly Budget Committee is considering a bill that would have lawmakers draft a budget that covers more than one year. ^[146] Another budget reform bill is also being debated in the legislature. That bill calls for a performance-based budget. Under the proposed legislation, the Legislature would oversee major expenditures, examining every program at least once every 10 years and look for ways to improve efficiency and reduce waste. During the review process, in cooperation with the governor and Legislature, specific goals would be set for every program with clear direction on results and greater public transparency. The governor and legislative leaders must be empowered to view the budget through a long-term lens by reviewing a two-year spending plan along with three- and five-year fiscal forecasts. Updates would have to be published on the state's forecasted fiscal condition before the budget vote and early in the subsequent fiscal year. ^[147]

[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^{[148] [142]}:

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

General Fund Spending by Major Program Area (In Millions)^[149]

General Fund^[150]

Fiscal 2010 Tax Collections Compared With Projections Used in Adopting Fiscal 2010 Budgets (Millions)^[150]

[edit] Accounting Principles

Main article: California government 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.^[151] 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.^[153] California’s State Controller is responsible for filing the CAFR. John Chiang was elected State Controller in November of 2006.^[154]

[edit] Stimulus

California has received $16.8 billion in federal funding.^[155]

[edit] Public Employees

Main article: California public employee salaries

Main article: California public pensions

According to 2008 Census data, the state of California and local governments in the state employed a total of 2,256,634 people.^[156] Of those employees, 1,584,459 were full-time employees receiving a net pay of $9,043,021,107 per month and 672,175 were part-time employees paid $969,357,807 per month.^[156] More than 55% of those employees, or 1,257,074 employees, were in education or higher education.^[156]

[edit] See also

[edit] External links

[edit] Budget links

[edit] Additional reading

[edit] References

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