California state budget (2008-2009)

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The California 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.[1],[2],[3] 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."[4]

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.[5] 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.[6] A grand total of $31 billion in cuts were made before the budget was finalized.[7]

[edit] Finalized budget

The governor signed a final budget bill on July 27, 2009 that included several vetoes. The governor restored approximately $656 million to the reserve fund and made several budget cuts including: $80 million from child welfare programs, $61 million in county funding to administer Medi-Cal, $52 million from AIDS prevention, $50 million to Healthy Families, and $6.2 million more from state parks.[5]

On Monday, July 20, 2009, state lawmakers reached an agreement to close the state's $26.3 billion deficit. In total the state of California will see $15 billion in spending cuts. Specifically, general fund spending was reduced from $92 billion to $88 billion, the lowest spending level since 2005.Although the plan includes severe budget cuts, the budget plan does not include new tax increases. The Senate and the Assembly are expected to vote on July 23 to finalize the agreement.[8]

  • As of early July 2009, the legislature failed to agree on how to close the budget gap. State officials said that in light of the failure, state offices will have to close 3 days out of every month to save money and will have to start issuing IOUs for approximately $50 million in bills.[9]
    • Less than a month after announcing the use of IOUs, California officials said that they are close to finalizing the state's budget for FY 2010. "Getting this budget agreement enacted will be a big step forward, but our state still has a lot of hard work and sacrifice ahead before we are out of the woods," state Treasurer Bill Lockyer. [10] As of July 28, California had issued 209,000 IOUs worth $1.1 billion.[11]
  • In the same week that the Legislature failed to come to a decision on the state budget, the Assembly Business and Professions Committee unanimously approved Assembly Bill 1506. The bill aims at alleviating the impact that State IOUs might have on people and business owners. If accepted by the entire Assembly and the Senate, the bill would allow for those who receive IOUs to use the IOUs to pay the state.[12]

[edit] 2009 budget spending plan

Note: A significant portion of this section was created using the California Budget Project's research compiled in the document Governor Signs Budget Plan Governor Scharzennegger signed a plan, on February 2009, which he drafted along with the California State Legislative leaders to reduce the $41 billion gap in funding for the state budget.[13]The plan comes at a total of $41.6 billion.[14]

The plan includes:

  • $30.3 billion to balance the 2009-10 budget
  • $11.3 billion to close the gap for the 2008-2009 budget
  • $14.9 billion in spending reduction
  • $12.5 billion in increased revenues
  • $7.9 billion in federal funding from the President's stimulus bill
  • $5.4 billion in new borrowing
  • the governor vetoed $1.3 billion in total spending
  • $134.4 million in internal borrowing from several special funds.
  • an anticipated $5.0 billion from the sale of bonds backed by the State Lottery when Proposition 1C, one of the ballot measures citizens of California will be voting on May 19.[14]

[edit] Budget background


Legislators at budget debates
Main article: State budget websites and analysis

California's Fiscal Year begins on July 1st. The state has had tremendous difficulty balancing the budget as evidenced by Governor Schwarzenegger's signing of the budget in September, 85 days after the fiscal year had already begun.[15],[16]

The San Francisco Chronicle noted on December 14, 2008, "California is bleeding so much money that without a sweeping fix, the state's budget deficit will reach an unprecedented $40 billion in the next 18 months, a huge gap that many officials agree can't be bridged without increasing tax revenue."[17],[18]

The California Budget Project estimates that, between October 2007 and October 2008, the number of unemployed Californians increased by over half a million, reaching a level of over 2.3 million, a sign of the economic downturn in the state. This economic down-turn is not unique to California: the National Governor's Association and the National Association of State Budget Officers predict that states' spending, on the whole, will decrease for the first time since 1983.[19],[20] As of February 2009, California's unemployment rate is at 9.3%, the highest unemployment has been since August 1993. [21] As one author suggests, "If what it takes to fix California -- to fix everything about the way it raises money and spends it -- is to let it wreck itself first, then maybe we have to let that happen."[22]

[edit] Budget figures, 2000-2009


John Chiang, State Comptroller speaks on
budget crisis

The following table provides a history for California's budgeted and actual expenditures from the General Fund.

Fiscal Year General Fund Budgeted General Fund Actual Change (%)
2000-2001 $78,815,938,057[23] $78,052,900,000[24] n/a
2001-2002 $78,763,416,398[25] $76,751,700,000[24] (2)%
2002-2003 $76,721,738,911[26] $77,482,100,000[24] 1%
2003-2004 $71,136,964,450[27] $78,345,200,000[24] 1%
2004-2005 $78,681,001,033[28] $79,804,000,000[24] 2%
2005-2006 $90,025,959,859[29] $91,591,500,000[24] 15%
2006-2007 $101,260,997,500[30] $101,413,000,000[24] 11%
2007-2008 $102,258,193,000[31] n/a* n/a
2008-2009 $103,400,760,000[32] n/a* n/a

*Actual expenditure data is not yet available for Fiscal Years 2007 and 2008.

[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[24] [33]:

California Spending, Years in Comparison
FY 1997-1998 FY 2003-2004 FY 2007-2008
State spending $68.5 billion $104.2 billion $144.8 billion
Federal money $31.6 billion $52.5 billion $59.5 billion

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

[edit] Ideas about why the crisis exists

  • 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.[34]
  • 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.[33]
  • 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."[35]
  • 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."[36]
  • 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.[34] Instead, California has had a 50% spending increase over the past five years.[37]

[edit] Impact of budget woes

See also: State budget crisis, 2009-2010 and California 2009 impact of budget woes
  • 238,000 state employees must take unpaid furlough on the first and third Fridays of each month. According to the LA Times, this "clears the way for the biggest rollback of the state payroll in decades."[38]
  • The crisis increased California's likelihood of receiving a significant portion of any federal economic stimulus. "All told, Congressional estimates show that California’s two-year take from the House version of the bill, which was approved on Wednesday, could top $32 billion, or nearly $1,000 a resident. The State Finance Department puts the number even higher, at $37 billion."[39] Assuming the state receives this amount of money, California is where "the federal stimulus will be put to its sternest test. The infrastructure and energy projects, high-tech job creation, rural outreach and low-income benefits included in the proposal make the state a proving ground where nearly all the plan’s potential benefits, and pitfalls, converge."[40]
  • 10,000 state employees will be laid off on February 17, 2009.[41][42]

[edit] Proposed actions

See California 2009 budget crisis, proposed reforms

Before the budget deal proposed by Governor Schwarzenegger and the legislature, a number of alternative solutions were offered. Among these were higher taxes, cutting spending, including education spending, and other alternatives. These also include a four-point structural plan to end the problem of a budget deficit proposed by U.S. House Representative Devin Nunes.

[edit] Republican support

Main article: California budget: Republicans in favor of tax increases

Three GOP State Assemblymen (Mike Villines of Clovis, Roger Niello of Fair Oaks and Anthony Adams of Hesperia) and three GOP Senators (Abel Maldonado of Santa Maria, Roy Ashburn of Bakersfield and Dave Cogdill of Modesto) voted for the budget plan that was signed by Schwarzenegger.[43] This was especially noteworthy, as three Republican votes in each house secured the two-thirds super majority required by California for a supermajority in passing the budget. [44]

There were signs of this change of heart. On January 22, some Republican state legislators backed away from a "no new taxes" pledge that the GOP caucus espouses. Assemblyman Anthony Adams, R-Hesperia, said, "(We must be able) to tell constituents, 'Look, we had to raise taxes, we had to go forward, but we've fundamentally altered the way in which Sacramento is going to be budgeted – and we will not have these problems again because of it'".

[edit] Democrat support

The California Constitution, like that of ten other states, requires a 2/3rds vote in both houses of the state legislature to impose a new tax. Democrats enjoy a significant majority in both houses of the legislature, but not a 2/3rds majority, meaning they would need three GOP votes in both the Senate and Assembly to garner the two-thirds supermajority needed to pass a budget. Had Republicans blocked a tax hike (which they did not) preferring to solve the crisis through spending cuts and restraint, Governor Schwarzenegger would have the option of striking a deal with legislative Democrats to collect signatures on a citizen initiative to raise taxes. California citizens can vote to increase their own taxes by a simple majority vote, and Schwarzenegger as governor has the authority to call a special election to vote on initiatives.[34],[45]

[edit] Ballot measures

Main article: California 2009 ballot propositions

The budget solution included six ballot measures that were voted on in May 19. However, any tax and spending plans that alter previous ballot propositions can only be implemented if the state's voters agree.[46]

On May 19, only one measure was approved while five measures were defeated. Proposition 1F eliminates salary increases for state officers in years with a projected budget deficit.[14]

[edit] Constitutional amendments

There are two proposed constitutional amendments to the California constitution that change the rules for elected officials. Proposition 1F amends the constitution to eliminate salary increases for government officials. Another measure, the Senate Constitutional Amendment 4 would adopt a system in which all candidates of every party running for a state or congressional office would be listed on a single ballot in a primary election. This is called an "open primary" system, and is slated to be on the June 2010 ballot in California.

Proposition 1A also amends the constitution.

[edit] Previously proposed ballot initiatives

Past suggestions included:

  • The package of tax increases that was proposed in December by the Democrats and vetoed by Schwarzenegger.
  • Schwarzenegger's alternative tax increase plan: an oil tax, a temporary 1 1/2-cent sales tax hike and a nickel-a-drink increase in the alcohol tax.
  • A request to voters to suspend a portion of funding required for after-school programs by Proposition 49 from 2002.

Mark DiCamillo, director of California's Field Poll, has said that uncertainty about how voters will react to ballot-box tax increases is appropriate: "People don't like taxes that affect them directly, like a gas tax or an income tax. They don't mind taxes on tobacco, drinking, rich people and things like that."[45]

[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.[47] In addition, on June 19, 2009, California is schedule to launch a transparency website that details government contracts of $5,000 or more.[48] 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. [49]

[edit] Economic Stimulus Transparency

  • The Economic Recovery and Reinvestment Act 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.[50]
  • It is estimated that California will receive at least $17.3 billion in federal funding.[51] In the next two years, that number is expected to be approximately $85 billion.[52]

[edit] Transparency evaluation

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database; California has no such database but this chart can be helpful in providing guidelines for what to include in such a database, should the state legislature agree to create one.

Criteria for evaluating spending databases
State DatabaseSearchabilityGrantsContractsLine Item ExpendituresDept/Agency BudgetsPublic Employee SalaryExemption Level
Nonen/an/an/an/an/an/an/a

[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.[53]

[edit] Public employee salaries

  • 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

  1. ↑ Mercury News, "How big is California's budget hole? Try these numbers on for size", January 15, 2009
  2. ↑ Schwarzenegger's Proposed 2009-2010 budget
  3. ↑ Reuters, "California's budget shortfall may top $8 billion", October 29, 2008
  4. ↑ Yahoo Finance, States That Can't Pay for Themselves, Oct. 8, 2008
  5. ↑ 5.0 5.1 Associated Press,"Schwarzenegger signs budget with more welfare cuts," July 28, 2009
  6. ↑ Los Angeles Times,"Schwarzenegger vetoes hundreds of millions in state spending, signs budget," July 28, 2009
  7. ↑ Imperial valley News,"Governor Schwarzenegger Signs Budget to Solve $24 Billion Deficit," July 28, 2009
  8. ↑ Reuters,"Governor Announces Deal to Balance Budget," July 21, 2009
  9. ↑ PBS,"Other News: After Budget Failure, California Begins Issuing IOUs," July 2, 2009
  10. ↑ Associated Press,"With Budget Fix Deal Reached, Lobbying Begins," July 21, 2009
  11. ↑ Wall Street Journal,"Schwarzenegger Signs California Budget After Making More Cuts ," July 28, 2009
  12. ↑ Associated Press,"Bill Would Force State To Accept Own IOUs," July 7, 2009
  13. ↑ SFGate.com, "Budget deal a stab at responsible policy", February 25, 2009
  14. ↑ 14.0 14.1 14.2 Governor Signs Budget Plan
  15. ↑ California Department of Finance
  16. ↑ Medical News Today, "Gov. Schwarzenegger Signs $143B California State Budget," September 26, 2008
  17. ↑ USA Today, "Official Spending Outpaces Revenue," July 31, 2008
  18. ↑ San Francisco Chronicle, "Budget crisis may lead to $40 billion deficit," December 14, 2008
  19. ↑ California Budget Project, "More Than 2.3 Million Californians Are Unemployed or Underemployed"
  20. ↑ National Governor's Association, "States Experience Extremely Tight Fiscal Conditions as National Recession Deepens," December 15, 2008
  21. ↑ ' 'Data Library, California Economic Development Department' Accessed February 6th, 2009
  22. ↑ Los Angeles Times, "California's budget breaking point," January 15, 2009
  23. ↑ 2000-2001 Final Budget Summary
  24. ↑ 24.0 24.1 24.2 24.3 24.4 24.5 24.6 24.7 Historical Data; Actual Budget Expenditures
  25. ↑ 2001-2002 Final Budget Summary
  26. ↑ 2002-2003 Final Budget Summary
  27. ↑ 2003-2004 Final Budget Summary
  28. ↑ 2004-2005 Final Budget Summary
  29. ↑ 2005-2006 Final Budget Summary
  30. ↑ 2006-2007 Final Budget Summary
  31. ↑ 2007-2008 Final Budget Summary
  32. ↑ 2008-2009 Final Budget Summary
  33. ↑ 33.0 33.1 Wall Street Journal, "Devin Nunes: California's Gold Rush Has Been Reversed", January 10, 2009
  34. ↑ 34.0 34.1 34.2 Los Angeles Times, "How to fix the California budget", December 26, 2008
  35. ↑ Napa Valley Register, "California's budget disaster", January 23, 2009
  36. ↑ California Progress Report, "Hundreds Protest Against Governor’s Spending Cut Proposals", January 17, 2009
  37. ↑ Wall Street Journal, "States of Distress: Our local politicians want $200 billion without any shaping up," 26 January 2009
  38. ↑ Los Angeles Times, "California is told to furlough employees," January 30, 2009
  39. ↑ New York Times, "A State With a Wish List for Stimulus Spending," February 1, 2009
  40. ↑ New York Times, "A State With a Wish List for Stimulus Spending," February 1, 2009
  41. ↑ New York Times, "California, Almost Broke, Nears Brink," February 16, 2009
  42. ↑ Wall Street Journal, "California Vies to Close Budget Gap Amid Dire Conditions," February 17, 2009
  43. ↑ The Sacramento Bee, "Schwarzenegger calls 6 GOP tax-backers 'great heroes'", March 3, 2009
  44. ↑
  45. ↑ 45.0 45.1 San Francisco Chronicle, "Voters may be asked to end state budget impasse", January 19, 2009
  46. ↑ San Francisco Chronicle, "Any OKd budget plan faces battle at ballot box", February 17, 2009
  47. ↑ "Current Bill Status: AB 400"
  48. ↑ Office of the Governor, "Gov. Schwarzenegger Furthers Commitment to Government Transparency," June 4, 2009
  49. ↑ National Taxpayers Union,"California Finally Agrees on Budget," July 22, 2009
  50. ↑ National Taxpayers Union, "A Letter to the Nation's Governors: Ensure Transparency and Accountability by Posting Stimulus Expenditures Online," March 10, 2009
  51. ↑ Wall Street Journal, "Stimulus Spending by State"
  52. ↑ recovery.ca.gov, "About Recovery.CA.gov
  53. ↑ Americans for Tax Reform, "Support the Taxpayer Transparency Act of 2008," March 18, 2008
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