2009-10 California Spending Plan: The Budget Package · October 2009 mac Taylor Legislative Analyst...

October 2009

mac TaylorLegislative Analyst

The Budget Package

2009-10 California Spending Plan

LAO Publications

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The 2009-10 Budget Package

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Contents

Chapter 1

Key Features of the 2009‑10 Budget PackageBudget Overview ...........................................................................1

Evolution of the Budget .................................................................7

Chapter 2

Revenue Provisions ......................................................................17

Chapter 3

Expenditure HighlightsProposition 98 .............................................................................22

K-12 Education ............................................................................27

Higher Education .........................................................................31

Health .........................................................................................35

Social Services and Labor ..........................................................44

Judiciary and Criminal Justice .....................................................56

Resources and Environmental Protection ...................................60

Transportation .............................................................................66

Local Government .......................................................................69

Other Major Provisions ................................................................72

Legislative Analyst’s Office

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Legislative Analyst MacTaylor...........................................................................................................445-4656

Deputy Legislative Analysts DanielC.Carson................................................................................................ 319-8303 MichaelCohen.................................................................................................... 319-8301

State and Local Finance Director:PaulWarren...................................................................................... 319-8307

State Administration Director:JasonDickerson................................................................................. 319-8361

Education, K-12 Director:JenniferKuhn.................................................................................... 319-8332

Education, Higher Director:SteveBoilard..................................................................................... 319-8331

Health Director:ShawnMartin................................................................................... 319-8362

Social Services Director:ToddR.Bland.................................................................................... 319-8353

Criminal Justice Director:AnthonySimbol................................................................................ 319-8350

Transportation, Business, and Housing Director:Chi-MingDanaCurry..................................................................... 319-8320

Resources and Environmental Protection Director:MarkNewton.................................................................................... 319-8323


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Chapter 1

Key Features of the 2009‑10 Budget Package

Budget OverviewTotal State and Federal Funds SpendingThe2009-10statespendingplanwasenactedintolawonFebruary20,2009,andsubstantialamendmentstothatplanwereenactedonJuly28,2009.Bothofthesepackagesincludedvariousamendmentstothe2008-09spendingplan(originallyenactedinSeptember2008)inordertobenefitthestate’soverallfinancialcondition.

General and Special Fund Spending Down 15 Percent From Two-Years Ago. AfterconsideringboththeFebruaryandJulybudgetpackages(includingtheGovernor’sline-itemvetoes),the2009-10statespendingplanincludestotalstatebudgetexpendituresof$110billionfromtheGeneralFundandspecialfunds,asshowninFigure1.Thisconsistsof$85billionfromtheGeneralFundand$25billionfromspecialfunds.Spendingfromthesefundsin2009-10willbe$20billion—15percent—lessthanitwasin2007-08.Inaddition,thebudgetassumesspendingfrombondfundsofnearly$10billionasthestatecontinuestoallocatemoneysfromthe$43billionbondpackageapprovedattheNovember2006election.Figure2(seenextpage)showsGeneralFundspendingin2007-08,2008-09,and2009-10bypolicyarea.

Figure 1

Total State and Federal Funds Expenditures

(Dollars in Millions)

Change From 2008-09

Fund Type Actual

2007-08 Estimated

2008-09 Enacted 2009-10 Amount Percent

General Fund $103,000 $91,547 $84,583 -$6,964 -7.6% Special funds 26,674 26,530 25,123 -1,407 -5.3

Budget Totals $129,659 $118,077 $109,706 -$8,371 -7.1%

Selected bond funds $8,405 $14,158 $9,539 -$4,619 -32.6%

Federal funds $56,211 $76,629 $93,636 $17,007 22.2%


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Big Increase in Stimulus Funds From Federal Government. While stateexpendituresdeclinein2009-10,federalfundsspendingwillincreasedra-matically,asshowninFigure1.FederalstimulusfundingprovidedbytheAmericanRecoveryandReinvestmentAct(ARRA)islargelyresponsiblefortheincreaseinspendingfromfederalfunds—from$56billionin2007-08to$77billionin2008-09andanestimated$94billionin2009-10.(ThePresi-dentsignedARRAintolawonFebruary17,2009,astheLegislatureandtheGovernorconcludedconsiderationoftheFebruarystatebudgetpackage.)

The Condition of the General FundFigure 3 summarizes the estimated General Fund condition for 2007-08through2009-10.

2008-09: Large Revenue Drops and a Year-End Deficit.AtthetimetheGov-ernorsignedtheoriginal2008‑09 Budget Act onSeptember23,2008,GeneralFundrevenuesandtransfersin2008-09wereexpectedtototal$102billion—justslightlylessthanthetotalrecordedin2007-08.Despiteover$1billionof2008-09taxincreasesenactedaspartoftheFebruary2009budgetpackage,therecessiontookamassivetollonstaterevenues.AsshowninFigure3,only$84billionofGeneralFundrevenuesandtransferswererecordedduring2008-09—18percentlessthanestimatedinSeptember2008.IntheFebruaryandJulybudgetpackages,theLegislatureandtheGovernortookactiontoreducespendinginresponsetotherevenuetrend.Becauseoftheseactions,2008-09GeneralFundspendingwillbeover11percentlessthanthetotalestimatedwhenthe2008-09budgetwasfirstpassedinSeptember2008.

BecausetheLegislaturedidnotreduce2008-09spendingasmuchasthedeclineinrevenuesthatmaterializedduringthefiscalyear,thestateended2008-09withasignificantdeficit—thelargestyear-endshortfallinthestate’sreserveeverrecorded.AsshowninFigure3,thestate’sGeneralFundreservehadanegativebalanceofabout$4.5billionasofJune30,2009.Despitespend-

Figure 2

General Fund Spending by Major Program Area

(In Millions)

Actual

2007-08 Estimated

2008-09 Enacted 2009-10

K-12 Education $39,825 $32,356 $33,745 Higher Education 11,823 10,138 10,495 Health 19,906 18,794 16,077 Social Services 9,432 10,009 8,876 Criminal Justice 13,059 12,778 9,032 All other 8,954 7,472 6,358

Totals $103,000 $91,547 $84,583


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ingmorethanittookin,thestatecontinuedoperationsthroughavarietyofcashmanagementmeasures,asdiscussedintheboxonpage5.

2009-10: Large Operating Surplus Projected in Order to Rebuild a Reserve.Thebudgetplanprojectsrevenuesandtransfersofabout$90billionandexpendituresof$85billion in2009-10.Theresulting$5billionoperatingsurplusisnecessaryforthestatetoaddressthe$4.5billioncarry-indeficitdiscussedaboveandrebuildasmall$500millionreservebyJune30,2010.DueinlargeparttothetaxincreasesenactedaspartoftheFebruarybudgetpackage,revenuesandtransfersareexpectedtogrowfrom$84billionin2008-09to$90billionin2009-10—anincreaseof6.5percent.Budgetedex-pendituresdeclinefrom$92billionto$85billion—adropof7.6percent.Asdescribedlaterinthisreport,budgetedrevenuesandexpendituresin2008-09and2009-10includeavarietyofone-timeandtemporarymeasures—suchasfederalARRAfundswhichreduceGeneralFundexpenditures—thatmakemultiyearbudgetcomparisonsunusuallydifficult.

Solutions Adopted During the Budget ProcessFigure 4 (seenextpage) shows thebudget solutionsadopted during the2009-10budgetprocess.Asdescribedabove,thesesolutionsaffectedboththe2008-09and2009-10statebudgets.Oftheroughly$60billionofGen-eralFundbudget solutionsadoptedby theLegislature,about$15billion(including$10billionofspendingmeasuresandover$1billionofnewtaxrevenues)affectedthe2008-09budget,and$45billion(including$22billion

Figure 3

General Fund Condition As of the July 2009 Budget Revisions


2009-10

2007-08 2008-09 Amount Percent Change

Prior-year fund balance $4,549 $4,071 -$3,379 Revenues and transfers 102,522 84,097 89,541 6.5% Total resources available $107,071 $88,168 $86,162

Expenditures $103,000 $91,547 $84,583 -7.6% Ending fund balance $4,071 -$3,379 $1,579

Encumbrances 1,079 1,079 1,079

Reserve $2,992 -$4,458 $500

Budget Stabilization Account — — — Special Fund for Economic

Uncertainties $2,992 -$4,458 $500


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Figure 4

General Fund Solutions Enacted During 2009-10 Budget Process

(In Billions, 2008-09 and 2009-10 Combined)

February Budget

Packagea

July Budget

Package Totals

Spending-Related Solutions Reduce Proposition 98 spending to the minimum guaranteed funding level $8.4 $6.1 $14.5 Reduce health and social services spending 1.7 3.4 5.0 Furlough state workers, delay June 2010 payroll by one day, and reduce

other employee costs 1.2 1.8 3.0

Reduce higher education spendingb 0.9 2.0 2.9 Redirect local redevelopment funds to offset state spending — 1.7 1.7 Redirect transportation funds 0.7 0.9 1.6 Reduce corrections and rehabilitation spending 0.6 0.8 1.4 Reduce other spending and other spending-related measures 1.1 1.4 2.6 Subtotals ($14.5) ($18.0) ($32.5)

Temporary Tax Increases Increase sales tax by 1 cent through end of 2010-11 $5.8 — $5.8 Increase personal income tax (PIT) rates by 0.25 percentage point through

tax year 2010 3.7 — 3.7

Increase vehicle license fee by 0.5 percent through end of 2010-11 2.0 — 2.0 Reduce PIT dependent credit through tax year 2010 1.4 — 1.4 Create new tax credits -0.4 — -0.4 Subtotals ($12.5) (—) ($12.5)

One-Time Revenue Measures and Transfers to the General Fund Increase schedules for payroll withholding by 10 percent — $1.7 $1.7 Assume that parts of State Compensation Insurance Fund can be sold — 1.0 1.0 Accelerate receipts of PIT and corporation tax estimated payments — 0.6 0.6 Increase other revenue receipts or transfers in 2009-10 — 0.2 0.2 Subtotals (—) ($3.5) ($3.5)

Federal Stimulus Funds $8.5 —d $8.5

Borrowing Suspend Proposition 1A to borrow local government property taxes — $1.9 $1.9 Borrow from various special fund accounts $0.3 0.2 0.5 Subtotals ($0.3) ($2.2) ($2.5)

Total Solutions $35.9 $23.7c $59.5 a Amounts listed as scored at the time of enactment of the February package. Actual solution totals may have changed subsequently. These

changes, including lower revenue estimates, generally were incorporated into estimates related to the July package. b Not including Proposition 98 spending solutions related to community colleges. c In addition to the $23.7 billion of solutions listed, the administration's scoring of the July package reflected as solutions (1) a reduction in the

targeted reserve by $418 million compared to the legislative leaders' prior budget agreement and (2) $118 million of reduced 2008-09 spending unrelated to the budget package.

d A portion of the Proposition 98 and higher education solutions above will be offset by the availability of federal stimulus funds.


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Cash ManagementCash Management Measures Included in Both Budget Packages.Throughoutthe2009-10budgetprocess,thestate’sbudgetproblemsanddisruptionsintheworldwidecreditmarketscontributed toseriousproblemswithCalifornia’sstategovernmentcashflows—that is, the state’sability tomakepaymentson time. In response, theLegislatureincludedcashflowmanagementmeasuresinboththeFebruaryandJulybudgetpackages.TheLegislaturechosetodelaybillionsofdollarsinpayments(largelyforK-14education)tolaterwithinthe2009-10fiscalyear.Inaddition,theFebruarybudgetpackageaddedabout$3billioninborrowablespecialfunds—internalstateresourcesavailabletobridgeseasonallowsintheGeneralFund’scashflow.Moreover,thebudgetarychangesinthetwopackagesalsobenefittedthestate’sabilitytomakeitsscheduledpaymentsontime.

Controller Delayed Payments in February 2009 and Issued IOUs in July and August 2009. TheFebruaryandJulybudgetpackageswerenotenactedearlyenoughtopreventtheControllerfrom:(1)delayingover$3billionofscheduledpayments(mainlytaxrefunds)inFebruary2009and(2)issuing449,000registeredwarrants(alsoknownasIOUs)foratotalof$2.6billionofpaymentsinJulyandAugust2009.TheFebruary2009delayedpaymentsgenerallywerepaidinMarch2009,andtheIOUswereabletoberedeemedbyrecipientsbeginningonSeptember4,2009.ThiswasonlythesecondtimesincetheDepressionthatthestateissuedIOUsforsomeofitsbudgetedpayments.Ineffect,theIOUsforcedrecipients(suchasstatevendorsandlocalgovernments)toprovidethestatewithaloaninvoluntarily.TheIOUswereredeemablewithinterest,paidata3.75percentannualrate.“Prioritypayments”—includingschool,payroll,anddebtservicepayments—werenotsubjecttoIOUs.

About $9 Billion of Cash-Flow Borrowing Projected in 2009-10.As theLegisla-turebeganconsiderationoftheGovernor’sMaybudgetproposals,officialswarnedlawmakersthat,absentcorrectiveactionbytheLegislature,thestatemightneedtoseeka2009-10cash-flowborrowingintheunprecedented(andunlikely)amountofover$23billioninordertopayallofitsbillsontimethroughoutthefiscalyear.AsaresultoftheJulybudgetpackage,thatamountwaswhittleddowntoabout$10billion,accordingtoestimatespreparedbytheadministrationinAugust2009.Theadmin-istrationalsosoughtandreceivedlegislativeapprovalforanadditional$1.7billionofdelaysinpaymentsnowscheduledinearly2010(principallyforhighereducationandinSeptemberbudgetlegislation).TheadministrationestimatestheseSeptemberactionswillreducethestate’s2009-10revenueanticipationnoteborrowingrequire-mentstoabout$9billion.


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ofspendingmeasuresandabout$11billionfromincreasedtaxes)affectedthe2009-10budget.

Spending-Related Solutions.About$32.5billionofthesolutionsaffectedstatespending.Thesemeasureswillresultinservicereductionsacrossstategovernment and many parts of local government as well. The solutionsinclude:

· Reduced Proposition 98 Spending for K-14 Education.Byfar, thelargest single group of solutions adopted during the budget pro-cess—totaling$14.5billion—broughtProposition98spendingforK-14educationdowntoitsminimumguaranteedfundinglevelundertheStateConstitution inboth2008-09and2009-10.Thereductionsareoffsetbyschooldistricts’receiptof$6billioninfederalARRAfundsin2008-09and2009-10.Inaddition,requirementsattachedtomanycategoricalfundingprogramswererelaxedtogivedistrictsincreasedprogramandfinancialflexibility.

· Other Budgeted Solutions.InadditiontobudgetsolutionsaffectingProposition98expenditures,the2009-10spendingplanincludessolu-tionsaffectinghealthandsocialservicesspending($5billion),stateemployeecompensation($3billion),appropriationstotheuniversitysystems($2.9billion),andvirtuallyeveryothercategoryofGeneralFundspending.(MoredetailsoftheseactionsareprovidedinChap-ter3.)

Temporary Tax Increases.IntheFebruarybudgetpackage,theLegislatureenactedseveraltemporarytaxincreases,aswellassomenewtaxcredits.In2008-09and2009-10combined,thesetaxchangeswereestimatedinFebruarytoincreaseGeneralFundrevenuesbyanetamountof$12.5billion.(ThesearealsodescribedinmoredetailinChapter2.)

One-Time Revenue Measures and Transfers to the General Fund. Inad-ditiontothetaxincreasesintheFebruarybudgetpackage,theLegislatureandtheGovernoragreedtovariousadditionalrevenuemeasures—mainlyone-timeintheirbenefittotheGeneralFund—intheJulybudgetpackage.Thesemeasurestotalabout$3.5billionin2009-10.(ThesearedescribedinmoredetailinChapter2.)

Federal Stimulus Funds. The February budget package took account ofexpectedfundsresultingfromARRAthatcouldoffsetGeneralFundex-pendituresin2008-09and2009-10.Thesefederalstimulusfunds—describedinmoredetail inChapter3—werebudgetedat the timeof theFebruarybudgetpackagetototalabout$8.5billion.Mostofthesefundswillnotbeavailabletohelpbalancethestatebudgetafter2009-10astheARRAfundsareone-timeinnature.

Borrowing.Thebudgetpackageincludesabout$2.5billionofborrowingtohelpreturnthe2008-09and2009-10statebudgetstobalance.Thelargest


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singleprovisionconsistsof$1.9billiontobeborrowedfromcity,county,andspecialdistrictpropertytaxes,whichwillbeusedtooffsetstateGeneralFundspendingforeducationandotherprograms.The$1.9billionloanisauthorizedthroughtheLegislature’ssuspensionofProposition1A(2004).

evOlutiOn Of the BudgetThe2009-10budgetprocesswashighlyunusual.Because2008-09revenueswereseverelyaffectedbytherecession,lawmakersandtheGovernorworkedtoaddressboth2008-09and2009-10annualbudgetdeficitssimultaneouslyfromNovember2008throughJuly2009.

November 2008 Special SessionOnNovember6,2008,justtwodaysafterthegeneralelection,theGovernorcalledaspecialsessionoftheLegislaturetodealwithmajoreconomicandbudgetdevelopmentsthathadoccurredinthesixweekssinceheandtheLegislatureagreedtotermsofthe2008-09budget.

A Huge Deterioration in Revenue and Economic Forecasts. In Septem-ber2008,whentheGovernorsignedthe2008‑09 Budget Act,thestatehadaprojectedreserveof$1.7billionattheendof2008-09.BythetimeoftheGovernor’sNovember2008specialsessionproclamation, theadministra-tionreportedthatitexpectedrevenuesfor2008-09tofallshortoforiginalprojectionsby$11billion.Intotal,itestimatedthestatewouldend2008-09witha$9.5billionshortfallifnocorrectiveactionsweretaken.Inaddition,theadministrationadjusteditspreviousprojectionof2009-10staterevenuesdownwardby$13billionandsaidthestateneededtoadoptabout$22.5bil-lioninbudgetsolutionsforthetwofiscalyearscombinedinordertokeeptheGeneralFundintheblack.

Governor’s November 2008 Proposals.TotalbudgetsolutionsproposedintheGovernor’sNovember2008packageequaled$24.9billionover2008-09and2009-10combined.Themajorityofthesolutionsoverthetwo-yearpe-riod—totalinganestimated$14billion—consistedoftaxincreases.Majorcomponentsofthepackageincluded:

· A1.5centincreaseinthesalesandusetaxforthreeyears.

· Expansionsofthesalesandusetax(SUT)tovariousservices.

· Impositionofanoilseverancetax.

· A$2.5billionmidyearreductionin2008-09Proposition98spendingrelatedtothelargedropinprojectedGeneralFundrevenues.

· Reductions inSupplementalSecurityIncome/StateSupplementaryPaymentgrants.

Legislative Session Ended Without a Budget Agreement.The2007-08bien-niallegislativesession(includingtheNovemberspecialsession)cametoanendonNovember30.Norevisedbudgetagreementwasreachedbythatdate.


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December 2008 Special SessionsNew Special Session Called as 2009-10 Legislature Begins Its Work. OnDe-cember1,2008,thefirstdayofthe2009-10Legislature,theGovernordeclaredafiscalemergencypursuanttohispowersunderProposition58(2004)andcalledaspeciallegislativesession.TheGovernorreiteratedhisestimateofa2008-09revenueshortfallofabout$11billionandnotedouroffice’sestimateduringNovember2008thatthebudgetproblemoverthetwo-yearperiodof2008-09and2009-10couldtotal$28billion.TheGovernorcontinuedtoadvancethemajorelementsofhisNovember2008specialsessionproposals.

Cash Situation Becomes Major Concern During December 2008.DuringDe-cember2008,statefinancescontinuedtheirsteepdecline.Duelargelytothemountingdeclinesinrevenues,thePooledMoneyInvestmentBoardvotedonDecember17,2008,toceaseadvancingmoneytoabout2,000bond-fundedprojects.Inthesubsequentweeks,thiswouldcausemanysuchprojectstogrindtoahalt.(Thatfundinghaltwouldcontinueformanyprojectsuntilthestateresumedgeneralobligationbondsalesandsecuredover$13bil-lioninfinancingfrominvestorsinMarchandApril2009.)OnDecember30,2008,theStateControllerannouncedthathewouldbegindelayingmanycategoriesofstatepaymentsorissuingIOUsasearlyasFebruary1,2009,duetothelackofsufficientstatecashresourcesiftheLegislatureandtheGovernordidnotreachagreementonreturningthebudgettobalance.TheControllereventuallytookactiontodelayover$3billioninscheduledstatepaymentsinFebruary2009,butthestatedidnotissueIOUsatthattime.

December Legislative Package Was Vetoed by the Governor.OnDecember18,2008,theLegislaturepassedabudgetpackageaddressingaportionofthestate’sthen-identifiedbudgetshortfall—similarinscopetotheGovernor’sspecialsessionproposals.Manyspendingreductionsinthevetoedlegisla-tivepackageweresimilartoproposalsmadebytheGovernor,althoughinsomecases—particularlyinthehealthandsocialservicesareas—thead-ministration’sreductionsatthetimewentfurtherthantheLegislature’s.TheLegislaturealsopassedapersonalincometax(PIT)surcharge,achangeinincometaxwithholding,a0.75centincreaseinthesalestax,andaconversionofthegastaxtoafee.TheLegislature’sDecember2008packagewaspassedonamajorityvote(asopposedtoatwo-thirdsvote)onthepremisethatthepackagewasnotanettaxincrease.TheGovernorimmediatelyannouncedhisintentiontovetotheDecember2008legislativepackage,andhedidsoformallyonJanuary6,2009.

Another Special Session Called. Following the Legislature’s actions de-scribedabove, theGovernorusedhisProposition58authority todeclareanotherfiscalemergencyonDecember19,2008,andhecalledanotherspecialsession.TheGovernoralsodirectedhisadministrationtodevelopaplantogointoeffectinFebruary2009tofurloughstateemployeesbytwodayspermonthinordertogeneratebudgetarysavings.(Thefurloughplanwentinto


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effectonFebruary1,2009,followingaSuperiorCourtjudge’srejectionofalawsuitchallengingit.)

January 2009 Governor’s Budget ProposalsGovernor Released Outline of 2009-10 Budget Proposal Nearly Two Weeks Early.OnDecember31,2008,theGovernorreleasedtheoutlineofthead-ministration’s2009-10budgetproposalsnearlytwoweeksbeforethetypicalJanuary10deadline.(Becausetheadministrationreleasedthedetailsoftheproposalintheensuingdays,werefertotheseastheGovernor’sJanuary2009budgetproposals.)

Huge Additional Budget Problems Forecast by the Administration.Updat-ingfullyitsrevenueandexpenditureestimates,theadministrationestimatedinitsJanuary2009packagethatthestatewouldfaceadeficitof$39.6billionattheendof2009-10.ComparedtoitsNovember2008estimate,theadmin-istrationannouncedthatitexpected$7billionlessinrevenueover2008-09and2009-10combined.Inaddition,themagnitudeoftherevenuedrop,aswellastheyear-to-yearchangeinrevenues,affectedtheadministration’scalculationof the2009-10Proposition98minimumguarantee,making itabout$3.5billionhigherthanouroffice’sNovember2008estimate.

Governor’s Package of Proposed Budget Solutions Grows to $41.7 Bil-lion.Generally,theGovernorincludedhisNovember2008specialsessionproposalsinhisJanuary2009budgetproposals,butthevalueofseveraloftheseoptionswasreducedtoreflectthedelayinenactingthem.Intotal,hisproposed$41.7billionofbudgetsolutionsin2008-09and2009-10consistedof$17.5billionofspending-relatedactions,$14.2billionofrevenueincreases(primarilytaxincreases),and$10billionofborrowing.Themajornewpro-posalsincluded:

· Aproposaltoborrow$4.7billionthroughissuanceofrevenuean-ticipationwarrants(RAWs)thatwouldbeappliedtoeliminatetheyear-end2008-09GeneralFunddeficit.

· AreductioninthevalueofthePITdependentcreditbeginningin2009.

· DeferringProposition98costsin2008-09to2009-10.

· Recognizing$5billionoflotterysecuritizationproceedsoriginallyproposedforvoterapprovalalongwithpassageofthe2008-09budget,aswellasotherbudgetsolutionsrequiringvoterapproval.

February 2009 Budget PackageEarliest Budget Act Passage in Modern California History.OnFebruary19,2009,theLegislatureapprovedthe2009‑10 Budget Act,amendmentstothe2008‑09 Budget Act,andrelatedlegislation.TheGovernorsignedthemeasuresonFebruary20.ThelistofbillsincludedintheFebruarybudgetpackage


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canbefoundattheendofthischapter.Aswediscussedinourpublication,The Fiscal Outlook Under the February Budget Package,theearlypassageofthe2009-10budgetwasunprecedented.

Package Includes $41.7 Billion of Solutions.TheFebruarybudgetpackageincluded$41.7billionofbudgetsolutionstocloseanapproximately$40bil-lionshortfallandbuildupareservethatwasthenprojectedtobe$2.1billionbytheendof2009-10.(The$41.7billionfigureincludedabout$6billionofmeasures—principallyincludedproceedsfromtheproposedlotterysecu-ritization—whichwerelaterrejectedbyvotersand,therefore,arenotlistedinFigure4.)Thefourmaincomponentsofthepackagewere:

· Spending Reductions. The package included about $15 billion ofspending-relatedbudgetsolutions,thelargestofwhichinvolvedK-12educationfunding.

· Temporary Tax Increases.Thepackageincludedabout$12.5billionoftemporarytaxincreases,principallytheresultofincreasedratesfortheSUT,thevehiclelicensefee,andthePIT.Thetaxincreaseswerescheduledtoremainineffectforabouttwoyearsunderthepackage.Thebudgetpackage,however,specifiedthatifvotersapprovedPropo-sition1A(ameasuretomakechangestostatebudgetpractices)attheMay19,2009specialelection,thetaxincreaseswouldbeextendedforeitheroneortwoyears.

· Borrowing. As described above, the February budget package as-sumedthatvoterswouldapprove$5billionofborrowingfromfu-turelotteryprofits,whichrequiredpassageofProposition1CattheMay19,2009,specialelection.

· Federal Stimulus Funds and the Federal Funds Trigger.TheFebru-arybudgetpackageassumedreceiptof$8.5billioninfederalfundsfrom ARRA to help balance the budget. In addition, because theexactamountoffundsthestatewouldreceivetooffsetGeneralFundexpenditureswasunknownatthetimetheFebruarybudgetpack-age was passed, legislation provided that if the Treasurer and theDirectorofFinancedeterminedthatmorethan$10billionofARRAfundswouldbeavailabletooffsetGeneralFundspendingthroughJune30,2010,then$2.8billionofspendingreductionsandtaxincreasesinthebudgetpackagewouldnotgointoeffect.Thiswasknownasthefederalfunds“trigger.”(OnMarch27,2009,theTreasurerandtheDirectorofFinancedeterminedthatthestatewouldreceivelessthan$10billionofARRAfundstooffsetGeneralFundspendingduringthespecifiedtimeperiod.)

Governor’s May 14 Budget ProposalsLarge New Budget Problem Identified. The Governor released his MayRevisiononMay14,identifyinganew$15.5billionbudgetproblem.Over$12.5billionofthisproblemrelatedtoprojecteddropsinrevenuesrelatedto


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therecessionin2008-09and2009-10.Thesedeclinesaffectedallmajortaxes.Inaddition,variousotherchangescontributedtoanadditional$3billionofbudgetaryproblems,includinga$1.3billionlowerpropertytaxforecastthataffectedstateProposition98obligationsanda$1.1billionincreaseinhealthandsocialservicescostsrelatedtoprogramcaseloads.

Proposals Included $14.5 Billion of Solutions. TheGovernor’sMay14pack-ageincludedabout$14.5billionofbudgetsolutions,assumingthatvotersapprovedPropositions1Athrough1EonMay19.Thelargestproposalwastoissue$6billionofRAWsandapplythemtoreducingthe2008-09year-endbudgetdeficit.TheGovernoralsoproposedtoreduceProposition98fundingby$1billionin2008-09and$2billionin2009-10andtoreduceUniversityofCalifornia(UC)andCaliforniaStateUniversity(CSU)fundingbyacom-bined$1billionin2008-09.Theproposalsincludedanarrayofcutsinhealthandsocialservicesandtheproposed$1billionsaleofStateCompensationInsuranceFund.TheGovernor’spackageincludedaproposed$1.1billionGeneralFundreserveattheendof2009-10—downfromthe$2.1billionas-sumedintheFebruarybudgetpackage.

Contingency Proposals Included to Address Possible Failure of Special Election Measures. On May 14, the Governor also announced an addi-tional$6.8billionofcontingencymeasurestoaddressthepossiblefailureofPropositions1Athrough1EontheMay19ballot.Theadditionalmeasuresincluded$2.3billionmoreofProposition98fundingreductionsover2008-09and2009-10,thesuspensionofadifferentballotmeasurealsodesignatedasProposition1A(2004)toborrowabout$2billionoflocalgovernmentprop-ertytaxes,additionalcutsinthecorrectionsbudget,andvarioushealthandsocialservicescuts,suchas$302millionofsavingsfromlimitingIn-HomeSupportiveServicesprogrambenefits.TheGovernorproposedincreasingPITwithholdingschedulesby10percenttoproduceanestimated2009-10budgetarybenefitof$1.7billion.

May 19 Special Election and Its AftermathVoters Reject Propositions 1A Through 1E.VotersrejectedPropositions1Athrough1EattheMay19,2009specialelection.Inadditiontothelossof$5billioninlotterysecuritizationfunds,thedefeatofthespecialelectionmeasuresresultedinthelossofover$800millionofassumed2009-10budgetsolutionsrelatedtoearlychildhooddevelopmentandmentalhealthfunds.

Governor’s May 26 Budget ProposalGovernor Changes Position on Budgetary Borrowing. On May 21, theGovernorissuedastatementindicatinghehaddirectedhisadministrationtodevelop“additionaloptionstocutstatespendingsothatwecaneliminatetheneedtoseekborrowingintheformofaRAW.”Inmakingthisdecision,theGovernorciteddiscussionswithlegislativeleadersandfederalofficials(whoannouncedonMay21thatadditionalextraordinaryassistancetothestatewasunlikely),aswellastheresultsoftheMay19specialelection.


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Administration Proposes $5.5 Billion of Additional Budget Solutions.Tomakeupforthelossofthe$5.5billionRAWfromitsbudgetproposal,theadministrationproposedanadditional$5.5billionofGeneralFundsolu-tionsonMay26,2009.TheMay26proposalsincludedtheeliminationoftheCaliforniaWorkOpportunityandResponsibilitytoKids(CalWORKs)andHealthyFamiliesPrograms(HFP);redirectionoflocalgastaxfunds;addi-tionaluniversitybudgetcuts;eliminationofnewCalGrantawards;deletionofGeneralFundsupportforstateparks;andanarrayofhealth,corrections,employeecompensation,andotherspendingactions.

Governor’s May 29 Budget ProposalAdministration Shifts Position to Address Possible $3 Billion Revenue Overestimate.InourMay21reviewoftheGovernor’soriginalMayRevi-sionproposals,wedescribedtheadministration’sMayrevenueestimatesas“reasonable”butnotedthatourrevenueestimatesfor2009-10wereabout$3billionlessthantheadministration’s.Inresponsetoourlowerrevenueestimates,onMay29theadministrationreleasedanotherroundofbudgetsolutions totaling$2.8billion toaddress thispossibleadditional revenueproblem.

Proposed $2.8 Billion of Additional Actions Affects Various Areas.TheGovernor’sMay29proposalsincludeda$680millionreductioninProposi-tion98fundingtoreflectthelowerrevenueestimates,$550millionfromrealigningstateandcountycosts,and$470millionfromapermanent5per-centbasesalaryreductionforallstateemployees.

Governor’s May Proposals Included Cumulative Total of $24 Billion of Solutions.Essentially,theGovernor’sfinalsetofMayproposalsincludedeachoftheproposalsmadeonMay14,May26,andMay29.Cumulatively,theseproposalsproduced$3.1billionofbudgetaryrelieffor2008-09and$20.8billionofrelieffor2009-10,foratotalof$24billionoverthetwofiscalyearscombined.OnJune5,2009,theadministrationestimatedthatitspro-posalswouldleavethestatewithaGeneralFundreserveof$4.5billionattheendof2009-10excludingitsacknowledged$3billionpotentialoverestimateofGeneralFundrevenues.(Inotherwords,iftheadministrationhadreduceditsrevenueestimateby$3billionatthattime,theestimatedreserveunderitspackagewouldhavebeen$1.5billionattheendof2009-10.)

Conference Committee PackageConference Committee Meets in May and June.AconferencecommitteeconsistingoffiveSenatorsandfiveAssemblyMembersbeganpublicmeet-ingsonMay21,2009,toconsidertheGovernor’sMayRevisionproposals.TheconfereesadoptedasetofproposedbudgetrevisionsonJune16,2009.

Conference Package Rejects Several Key Administration Proposals.Theconferencecommitteepackagerejectedseveraladministrationproposals,includingproposedeliminationsofCalWORKs,HFP,andnewCalGrant


13

awards.BorrowingfromlocalgovernmentsthroughsuspensionofProposi-tion1A(2004)wasrejected.A5percentbasesalarycutforstateemployeeswasrejected,althoughtheconferencecommitteecontinuedtoscoresavingsfromatwo-daymonthlyfurloughofessentiallyallstateemployeesandaddedameasuretodelaytheJune30,2010statepayrollonedaysoabout$1billionincostscouldbeattributedtothe2010-11fiscalyear.

More Revenues, Less Expenditure Solutions Than Governor’s May Pro-posals. Theconferencepackageincludedalargerrevenuepackage—totaling$7.7billion—thanthat intheGovernor’sMayproposals, including$2bil-lionfromrequiringincometaxwithholdingforpaymentstoindependentcontractors, $1 billion from increasing cigarette taxes by $1.50 per pack,$800millionfrominstitutinga9.9percenttaxoneachbarrelofextractedoil,and$200millionfromestablishingaparkaccesstaxonCaliforniavehiclestopreserveparkfunding.Includedinthe$15.5billionofspending-relatedsolutionsproposedbytheconferencecommitteewerecutsinvirtuallyeveryareaofstategovernment,although—inmanycases,suchasinhealthandsocialservices—thesecutsweremuchlessthanproposedbytheGovernor.Theconference committeepackage included$5.5billionof reductions inProposition98funding,aswellas$2billioninuniversitycuts—generallymiti-gatedbyreceiptoffederalARRAfundsbytheeducationalinstitutions.TheconferencecommitteepackagefailedtopasseitherhouseoftheLegislature.

Governor’s July 1 Budget ProposalAnother Special Session Called, and Another Furlough Day Ordered.OnJuly1,2009,theGovernordeclaredanotherfiscalemergencypursuanttoProposition58andinitiatedanotherspecialsessionoftheLegislature.Inconjunctionwiththedeclaration,theGovernororderedstateemployeestotakeanotherfurloughday—bringingthetotalnumberoffurloughdaystothreepermonthforessentiallyallexecutivebranchemployees—andreducedtheir pay by an additional amount of approximately 5 percent. EffectiveJuly1,moststateofficeswereorderedclosedonthefirstthreeFridaysofmostmonths,knownas“furloughFridays.”(Previously,stateworkersgenerallychosetheirownfurloughdayswithmanagerialapprovalandstateofficesdidnotclose.)

Another $4.9 Billion of Solutions Proposed.OnJuly1,theadministrationupdateditsrevenueestimatestoacknowledgeofficiallythatrevenueswouldbe$3billionlessthanitprojectedonMay14.Inaddition,theadministrationstatedthattheLegislature’sfailuretoenactseveralproposedsolutionsbytheendofthe2008-09fiscalyear—principallyrelatedtoK-12andhighereducation—haderoded$5.3billionofpossiblesavingsinthe2008-09and2009-10budget.Tooffsetthisloss,theadministrationproposedthefollow-ingnewsolutions:


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· Suspending the Proposition 98 Minimum Funding Guarantee. TheGovernorproposedsuspendingtheProposition98minimumfundingguaranteein2009-10toachieve$3billionofsavings.

· Retroactive Cuts to UC and CSU.TheGovernorproposedimplement-inghisproposed2008-09cutstoUCandCSUonaretroactivebasistotaling$1.4billion.

· Scoring Savings From Third Furlough Day.The Governor imple-mentedthethirdmonthlyfurloughdayunderhisexecutivepower,as described by the Superior Court decision upholding his initialfurloughorderinFebruary.InhisJuly1budgetproposal,heproposedscoring$425millionofsavingsin2009-10fromthisaction.

Governor Lowers Reserve Target to $1.1 Billion.UnderhisJuly1budgetproposalsandrevenuerevisions,theGovernorloweredhisreservetargetto$1.1billionattheendof2009-10.

July 2009 Budget PackageLegislature Passes Package, but Rejects Solutions Totaling Over $1 Bil-lion. Following several days of debate, the Legislature adopted furtherrevisionstoboththe2008-09and2009-10budgets,aswellasaccompanyinglegislation(listedinFigure5),onJuly24.Measuresnegotiatedbythelegis-lativeleadersandtheGovernorincludedabout$24billionofsolutionsandanestimated$900millionreserveattheendof2009-10.TwokeymeasuresthatemergedfromthesenegotiationsdidnotreceivetherequirednumberofvotestopasstheAssembly.Thesemeasureswere(1)aproposedloanof$1billionofgasolineexcisetaxrevenuefromcitiesandcountiestotheGen-eralFundin2009-10and2010-11forreimbursementoftransportation-relatedbondpaymentsand(2)authorizationforaleaseworthabout$100millionin2009-10foroildrillinginfederalwatersnearSantaBarbara.Byapprovingtheremainingmeasures,theLegislatureadoptedbudgetrevisionsthatleftthestatewithaslightprojecteddeficitintheGeneralFundreserveattheendof2009-10.

Governor’s Line-Item Vetoes and Subsequent Constitutional Challenges.OnJuly28,2009,theGovernorsignedtheJulybudgetpackageandannouncedline-itemvetoestoreducebudgetedGeneralFundspendingby$489mil-lion,principallyinhealthandhumanservices.Inadditiontothevetoes,theadministrationannounced$118millionofreduced2008-09spendingitems,suchaslower-than-expectedinterestpaymentsfromtheGeneralFund.Afterconsidering theseadjustments, theadministrationestimated theGeneralFundreserveattheendof2009-10wouldtotal$500million,asshowninFigure 3. The Legislative Counsel subsequently opined that because theLegislaturehadstructuredmostofthesebudgetrevisionsasreductionstoexistingappropriationsapprovedinFebruary,theydidnotcomprisean“itemofappropriation”subjecttotheGovernor’sline-itemvetopowerunderthe


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StateConstitution.Subsequently,thePresidentproTemporeoftheSenateandothersfiledsuitagainsttheGovernorchallengingtheconstitutionalityoftheline-itemvetoes.OurreportlistsassavingstheGovernor’sline-itemvetoes(sincethisannualreportusuallyisbasedonestimatesoftheDepart-mentofFinance).Wenote,however,thatspendingwouldreturntoitshigherlevelsifthevetoesareoverturnedbythecourts.

Figure 5

2009-10 Budget and Budget-Related Legislation

Bill Number Chapter Author Subject

February Budget Package SBX3 1 1 Ducheny 2009-10 Budget Act SBX3 2 2 Ducheny Changes to 2008-09 Budget Act SBX3 4 12 Ducheny Education SBX3 6 13 Ducheny Human services SBX3 7 14 Ducheny Transportation SBX3 8 4 Ducheny General government SBX3 10 15 Ducheny Proposition 1E SBX3 14 16 Ducheny Prison facilities SBX3 15 17 Calderon Tax credits and sales factor SBX3 19 7 Ducheny Elections SBX3 20 3 Maldonado State Controller SBX2 3 1 Florez Farm equipment and air quality SBX2 4 2 Cogdill Design-build and public private partnerships SBX2 7 4 Corbett Residential foreclosures SBX2 9 7 Padilla Prevailing wage SBX2 10 8 Oropeza Vehicle license fee (VLF) and rental cars SBX2 11 9 Steinberg Judicial employment benefits SBX2 12 10 Steinberg Court facilities financing SBX2 15 11 Ashburn New home purchase credit SBX2 16 12 Ashburn Horse racing SB 6 1 Maldonado Open primaries statutory changes SCA 4 2 Maldonado Open primaries proposition SCA 8 3 Maldonado Proposition 1F ABX3 3 18 Evans VLF, income tax, and sales tax increases ABX3 5 20 Evans Health ABX3 11 6 Evans Special election ABX3 12 8 Evans State lottery ABX3 13 9 Evans Cash management ABX3 15 10 Krekorian Tax credits and sales factor ABX3 16 5 Evans Federal fund trigger ABX3 17 11 Evans Proposition 1D ACAX3 1 1 Niello Proposition 1A ACAX3 2 2 Bass Proposition 1B ABX2 5 3 Gaines Alternative work week ABX2 7 5 Lieu Residential foreclosures ABX2 8 6 Nestande California Environmental Quality Act

Continued


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September Budget-Related LegislationAdditional Measures Passed During Session’s Final Days.Duringtheclos-ingdaysofits2009regularsession,theLegislaturepassedseveraladditionalbudget-relatedmeasureslistedinFigure5.Theseincludeseveral“cleanup”bills,aswellaslegislationaffectingprisons,HFP,andschools.

Figure 5 (continued)

Bill Number Chapter Author Subject

July Budget Package ABX4 1 1 Evans Changes to 2009-10 Budget Act ABX4 2 2 Evans Education ABX4 3 3 Evans Education finance ABX4 4 4 Evans Human services ABX4 5 5 Evans Health ABX4 6 6 Evans Medi-Cal ABX4 7 7 Evans Public social services: statewide enrollment process ABX4 8 8 Evans CalWORKs policy; IHSS fraud; COLA changes ABX4 9 9 Evans Developmental services ABX4 10 10 Evans Transportation ABX4 11 11 Evans Public resources ABX4 12 12 Evans State government ABX4 14 13 Budget Committee Property tax revenue allocations ABX4 15 14 Gaines Property tax revenue allocations; Proposition 1A payback ABX4 17 15 Budget Committee Revenue acceleration ABX4 18 16 Budget Committee Tax compliance ABX4 19 17 Evans In-home supportive services ABX4 20 18 Strickland Reorganizations and consolidations ABX4 21 19 Evans State contracts ABX4 22 20 Evans Asset management ABX4 25 24 Evans Surplus state funds ABX4 26 21 Budget Committee Community redevelopment fund shift SBX4 13 22 Ducheny Courts/public safety SBX4 16 23 Ducheny Cash deferrals SB 63 21 Strickland Integrated Waste Management Board SB 90 22 Ducheny Supplemental appropriations

September Budget-Related Legislationa SBX3 18 — Ducheny Corrections ABX3 37 — Evans Cash deferrals SB 72 — Budget Committee Payroll deferral and CalPERS health plans SB 73 — Budget Committee Various fee provisions SB 75 — Budget Committee Court fees and pensions/furloughs SB 84 — Steinberg Quality Education Investment Act provisions AB 1383 — Jones Medi-Cal: hospital payments and quality assurance fees AB 1422 157 Bass Healthy Families; Medi-Cal managed care plan tax

a These bills passed the Legislature but have not been acted upon by the Governor as of the date this report was prepared.


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Chapter 2

Revenue ProvisionsThe2009-10budgetpackagecontainsseveralmajorrevenue-relatedchanges,includingmorethan$10billionintemporarytaxincreasesand$1billionfromthesaleofstateworkers’compensationinsurancebusiness.Figure1displays the revenue assumptions underlying the 2009‑10 Budget Act, bysource.GeneralFundrevenuesareestimatedat$89.5billion,anincreaseof$5.4billion,or6.5percent,fromtherevised2008-09level.Increasesinpersonalincometax(PIT),salesandusetax(SUT),andvehiclelicensefee(VLF)revenuesin2009-10aretheresultoftaxincreases,asdescribedbelow.

2009-10 Revenues.The2009-10estimatesforthedifferentrevenuesourcesarebasedontheDepartmentofFinance(DOF)economicforecastanditsestimateoftheimpactofpolicychangesthatweremadeaspartofthebudgetpack-age—withoneexception.Figure1showsa“revenueforecastadjustment”downwardof$3billionin2009-10.ThisadjustmentreflectstheassumptionadoptedinthebudgetthatfinalGeneralFundrevenuesforthefiscalyearwillbe$3billionlowerthanestimatedintheMayRevision(basedontheLegislativeAnalyst’sOffice’sMayforecast).Rather thanalter itsbaseline

Figure 1

2009-10 Budget Act General Fund Revenues


Change From 2008-09

2007-08Actual

2008-09 Revised

2009-10 Budget

Act Amount Percent

Personal income tax $54,182 $43,824 $48,868 $5,044 11.5% Sales and use tax 26,613 24,288 27,609 3,321 13.7 Corporation tax 11,849 9,682 8,799 -883 -9.1 Insurance tax 2,173 2,041 1,913 -128 -6.3 Vehicle license fee — 360 1,657 1,297 360.3 Other tax 463 456 461 5 1.1 Other revenues 6,005 2,398 2,705 307 12.8 Transfers 1,237 1,048 529 -519 -49.5 Revenue forecast

adjustment — — -3,000 -3,000 —

Totals $102,522 $84,097 $89,541 $5,444 6.5%


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revenueforecastforindividualtaxsources,however,DOFincludesthereduc-tionasanetadjustmenttorevenues.Ifthe$3billiondoesnotmaterialize(asassumedinthebudget),totalcollectionsfromPIT,SUT,andtheothermajorrevenuesourceswouldbelowerthanshowninthefigure.

2008-09 Revenues.The2008-09revenuesinFigure1alsodifferfromthedepartment’sMayRevisionestimates.BecausebudgetdiscussionscontinuedwellintoJuly,actualcollectionsdatafromMayandJuneaffectedtherevenuepicture.Receiptsin2008-09werelowerthanestimatedbyDOFintheMayRevisionbyabout$1.9billion,partiallyoffsetby$1.3billion in increasestoprior-yearrevenueamounts.Figure1reflectsdownwardadjustmentstoDOF’s2008-09revenuetotalsforPIT(about$1.5billion),SUT($324million),andcorporationtaxes($101million)toaccountforthelowerreceiptsinMayandJune2009.

Tax Rate IncreasesAsnotedabove,the2009‑10 Budget Actreflectsmorethan$10billioninesti-matedrevenuesresultingfromfourtemporarytaxincreases.ThesechangeswereadoptedaspartoftheFebruarypackage,andtwooftheincreasesalsoaffected2008-09revenues.TheestimatedrevenuegainsfromthesehikesareshowninFigure2.Asthefigureillustrates,thetemporaryincreasesareexpectedtogenerate$10.3billioninadditionalrevenuesin2009-10.Asare-sultofthecontinuingstrugglesofthestate’seconomy,thisestimateisabout$1billionlowerthanwhenthetaxeswereadoptedinFebruary.In2010-11,thetotalrevenueexpectedfallsto$8.1billion,assomeofthetaxincreasesexpirehalfwaythroughtheyear.Below,webrieflydescribethefourincreases.

One-Cent SUT Increase. Theincreaseinthestate’sSUTbecameeffectiveApril1,2009—raisingthestate’sGeneralFundrateto6percentandtheaver-agestateandlocalratetoalmost9percent.ThehigherratewillendonJune30,2011.Thebudgetassumesadditionalrevenuesof$4.4billionin2009–10fromthischange.

Figure 2

Temporary Tax Increases Included in the 2009-10 Budget Package

(In Millions)

2008-09 2009-10 2010-11

Sales and use tax: 1 cent increase $1,126 $4,411 $4,637 Vehicle license fee: 0.5 percent increase 360 1,657 1,690 Personal income tax (PIT): 0.25 percentage point increase in marginal rates — $2,833 $1,101 Reduction of the PIT dependent credit — 1,439 702

Totals $1,486 $10,340 $8,130


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The PIT Rate Increase. Thischange increaseseachof theseven PITtaxratesbyone–quarterof1percent.Forexample,thetopPITratein2008formosttaxpayerswas9.3percent.Withthisincrease,thetopratewillnowbe9.55percent.Similarly, the lowest ratewill increase from1percent to1.25percent.Thechangeintheratesisassumedtobringin$2.8billioninadditionalrevenuesin2009-10.Thisrateincreaseiseffectiveforthe2009and2010taxyears.

The VLF Increase.TheLegislatureincreasedtheVLFfrom0.65percentto1.15percentaspartofthebudgetpackage.Ofthisincrease,0.15percentisdedicated to localpublic safetyprograms,with theremainderdepositedintothestate’sGeneralFund.TheVLFisessentiallyapersonalpropertytaxoncarsandtrucks.ThischangebecameeffectiveinMay2009,therebygeneratingasmallamountofrevenuesin2008-09.For2009-10,thebudgetassumes this provision will raise revenues by $1.7 billion. The VLF rateincreaseendsonJune30,2011.

Reduction in the Dependent Credit.Thischangereducesthedependentcredit($309in2008)tothesamelevelasthepersonalcredit($99in2008).The budgetassumes the reduction in thedependent creditwill increaserevenuesby$1.4billionin2009–10.Thisreductionisineffectforthe2009and2010taxyears.

Other Revenue ChangesThe2009-10budgetpackagecontainsanumberofotherchangestothestate’srevenuebase.Figure3(seenextpage)summarizestheserevisions.In2009-10,thenetincreasefromtherevisionsis$3.1billion.Asthefigureshows,mostoftheincreasesareone-timerevenueaccelerationsorsalesofassetsthatboost2009-10receipts,butprovidenoorrelativelysmalllong-termincreases.Inaddition, thebudgetpackage includesseveralnewcredits thatreducerevenuesin2009-10and2010-11.Theserevisionsarediscussedbrieflybelow.

Personal Income Tax.ThebudgetpackageincludestwoPITrevenueac-celerationsthatgeneratealmost$2billionin2009-10.Thesechangesdonotincreasetheamountoftaxesowed.Instead,theyseektocollecttheexistingtax liabilities earlier in the year. For instance, the budget increases sug-gestedincometaxwithholdingratesforindividualsby10percent(effectiveNovember2009).Thebudgetassumesanadditional$1.7billionin2009-10fromthischange.Asa result,unless individual taxpayersmakemanualadjustmentstotheirwithholding,theywillseelargerincometaxdeductionsfromtheirmonthlypaychecks.Bypayingmoreduringtheyear,however,individualswillpaylessinApril2010tosettletheir2009taxesortheywillreceivelargerrefunds.

Thepackagealsoassumesanadditional$250millioninPITrevenuesfromapermanentrevisioninhowindividualsarerequiredtocalculateestimated


20

payments.Priortothe2010incomeyears,paymentswererequiredquarterly,generallyinequalamounts.(The2008‑09 Budget Act“front-loaded”thepay-mentsin2009.)Thebudgetpackagemakesadditionalchangesbeginningwiththe2010incomeyear,adoptingasystemofthreepaymentseachyear,cominginApril,June,andDecember.TheAprilpaymentequals40percentof theexpected tax liability, and the JuneandDecemberpaymentequal30percenteach.

Corporate Income Tax.Corporate taxpaymentsalsoareaffectedby thechangeinestimatedpayments,resultinginanexpectedincreaseof$360mil-lioninrevenuesin2009-10.Thebudgetpackagealsoincludesseveraltaxreductions forcorporations.Threenewcreditswereauthorized:

· Employment Credit. The employment credit has the largest fiscalimpactin2009-10,reducingGeneralFundrevenuesbyanestimated$264 million. The employment credit provides $3,000 for each netnewhirein2009or2010.Thecreditisdesignedtoprovidefirmsthatareexpandinganincentivetohiremoreworkers.Thiscredit(whichalsoisavailabletosmallbusinessthroughaPITcredit)iscappedat$400millionoveritslife.

· Film and New Home Credits.Thebudgetpackagealsoestablishestwoothertemporarycredits:afilmcreditthatprovides$500million

Figure 3

Other Tax Changes, 2009-10 Budget Act

(In Millions)

2008-09 2009-10 2010-11

Personal Income Tax Increased withholding — $1,700 $98 Revised estimated payment schedule — 250 25 Increased enforcement — 29 29 Employment tax credit — -66 -10 Subtotals — ($1,913) ($142)

Corporate Income Tax Revised estimated payment schedule — $360 $70 Employment tax credit -$15 -264 -40 Optional single sales factor — — -260 Other new credits — -11 -56 Subtotals (-$15) ($85) (-$286)

Sales tax—increased enforcement — $138 $243

Sale of state workers’ compensation insurance business

— $1,000 —

Totals -$15 $3,136 $99


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inpersonalorcorporatetaxcreditsforqualifiedactivitiesbeginningin2011-12,and$100millionincreditsofupto$10,000forindividualswhobuynewlybuilthomesbyMarch2010.These twocreditsareexpectedtoreduceGeneralFundrevenuesby$11millionin2009-10.

TheLegislaturealsoenactedlegislationaspartoftheFebruarypackagethatpermanentlygivesmultistateormultinationalcorporationsanotheroptionfordeterminingtheproportionofprofitsthatissubjecttoCalifornia’scorpo-ratetax.Currently,companiesmustuseathree–partformulathatincludestheproportionoftotalcompanysales,workforce,andpropertythatisattrib-utabletoitsCaliforniaoperations.ThenewlegislationallowscompaniestheoptiontouseonlysalestodetermineincomeattributabletoCalifornia.This“singlefactor”optionbecomeseffectiveforthe2011taxyearand,therefore,hasnoimpactonrevenuesin2008–09or2009–10.Thischange,however,isexpectedtoreducestaterevenuesby$260millionin2011–12,reachingabout$1billionannuallyoverthelongrun.

Sale of State Compensation Insurance Fund (SCIF) Activities.Thebudgetassumes$1billioninone-timerevenuesin2009-10fromthesaleofapartofthestate’sSCIFbusiness.TheSCIFisapubliclyrunworkers’compensa-tioninsurerthatwascreatedasthe“insureroflastresort”forbusinessesin California. The state also contracts with SCIF to administer workers’compensationbenefitsforinjuredstateemployees.LegislationenactedwiththebudgetauthorizestheadministrationtosellcertainareasofSCIF’sbusi-ness.Thebudgetassumessuchasalewouldoccurbytheendofthe2009-10fiscalyear.(TheInsuranceCommissionerfiledsuitinAugusttoblockthesale.Amongotherthings,hehasclaimedthesaleofpartsofSCIFcouldthreatenitssolvency.)


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Chapter 3

Expenditure HighlightsProPosition 98Proposition98fundingconstitutesaboutthree-fourthsoftotalfundingforchildcare,preschool,K-12education,andtheCaliforniaCommunityCol-leges(CCC).Inthissection,wereviewmajorProposition98decisionsfor2008-09and2009-10,identifyoutstandingProposition98fundingobligations,anddiscusstheK-12andchildcarebudgetsinmoredetail.Inthe“HigherEducation”section,wediscussthecommunitycollegebudgetinmoredetail.

Major Proposition 98 Budget DecisionsBelow,weexplaintheeffectofrevenuechangesontheProposition98fund-ingrequirementfor2008-09and2009-10anddescribetheFebruaryandJulyProposition98packages.Figure1showsthevariousbudgetreductionsmadefor2008-09and2009-10.

February Proposition 98 Package Reflects Initial Drop in Revenues. Duetotheongoingdeteriorationofthestate’seconomicsituation,GeneralFundrevenuesfor2008-09weresignificantlylowerthanestimatedintheSeptem-ber2008‑09 Budget Act.ThisrevenuedeclineresultedinadecreaseintheProposition98fundingrequirement(commonlyknownasthe“minimumguarantee”).Inresponsetothedropintheguarantee,thestate,aspartoftheFebruaryspecialsession,reduced2008-09Proposition98spendingto$50.7billion,adecreaseof$7.3billion.TheFebruaryreductionsincludeda$2.4billioncuttobaseprograms,primarilyfromK-12revenuelimitsandcategoricalprograms.Theremaining$5billioninProposition98reductionsreflectedfundingswapsanddeferrals,whichwerenotintendedtoaffectbaseprogramsin2008-09.TheFebruarypackagealsoapprovedanadditional$700millionreductionto2009-10spending.Thisreductionalsowasprimar-ilyfromK-12revenuelimitsandcategoricalprograms.

July Package Reflects Continued Deterioration of Revenue Situation. TheJulypackagemadeadditionalProposition98reductionstoboth2008-09and2009-10.DuetoafurtherdeclineinGeneralFundrevenues, theProposi-tion98fundingrequirementfurtherdecreasedforbothyears.Asaresult,thespendinglevelsapprovedinFebruarywere$1.6billionhigherthantheestimatedminimumguaranteein2008-09and$4.5billionhigherthanthe2009-10estimate.TheJulypackagereducesProposition98spendingtothe


23

revisedestimatesoftheminimumguaranteeforbothyears.For2008-09,thepackagemadeadownwardaccountingadjustmenttorecognize$1.6billioninK-12cashdisbursementsthathadnotyetbeenprovidedtodistrictsatthetimeofenactment.Thebulkofthesefunds(withtheexceptionof$90million)arepaidtoschooldistrictsin2009-10instead.Thenew2009-10reductionsinclude$2.7billioninbasereductionsand$1.8billioninpaymentdeferrals.

Various Factors Mitigate Significant Drop in Proposition 98. Figure 2(seenextpage)showstheeffectofallthereductionsmadetoProposition98spendingin2008-09and2009-10.Asshowninthefigure,theJulypackageprovides$49.1billionin2008-09and$50.4billionin2009-10.Bycomparison,Proposition98spendingin2007-08totaled$56.6billion.Variousfactorshelpmitigate this significant drop in Proposition 98 spending. Most notably,

Figure 1

Proposition 98 Package

(In Millions)

2008-09

September Spending Level $58,086

February Package Reduce base K-12 revenue limits -$944 Reduce most categorical programs across the board -944 Rescind K-14 cost-of-living adjustment -287 Other -210 Defer certain K-14 payments -3,244 Retire settle-up obligation -1,101 Use special funds for Home-to-School Transportation -619

February Spending Level $50,738

July Package Revert unallocated categorical funds -$1,606 Baseline adjustments -30

Final Spending Level $49,102

2009-10

February Package Backfill February 2008-09 one-time solutions $4,614 February baseline adjustments 253 February reductions -702

July Package Backfill additional 2008-09 one-time solutions $1,888 Reduce K-12 revenue limits -3,953 Defer K-12 revenue limit payments -1,679 Provide 2008-09 unallocated categorical funds 1,516 Other K-12 adjustments 290 Make various child care reductions -102 Make various community college reductions -813

July Spending Level $50,415


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Californiaistoreceivemorethan$6billioninfederalstimulusfundsfromtheAmericanRecoveryandReinvestmentAct(ARRA)forK-14education(discussedinmoredetailinthe“K-12Education”and“HigherEducation”sections).Inaddition,thestateallowedschooldistrictsaccesstomorethan$3billioninpreviouslyrestrictedreserves—resultinginalikeincreaseinsome districts’ general purpose funding. Lastly, the state also providedschooldistrictsandcommunitycollegeswithsubstantiallymorediscretionoverpreviouslyrestrictedcategoricalfunding,aswellasloosenedcertainstateprogramrequirements.Forexample,thestateallowedschooldistrictstoreducetheacademicyearuptofivedays.(Theseflexibilityprovisionsarediscussedinmoredetailbelow.)

Maintenance FactorDuring2008-09,adisagreementaroseregardingtheimplementationofthe“maintenancefactor”provisionsinProposition98.InyearswhenstateGen-eralFundrevenuesgrowrelativelyslowly,Proposition98typicallyallowsthestatetoprovidealowerleveloffundingthanotherwiserequired.Thoughthestatecanspendatthelowerfundinglevel,itmustkeeptrackofthedif-ferencebetweentheamountthatotherwisewouldhavebeenrequiredandtheactualfundingprovided.Thisdifferenceisknownasthemaintenancefactor.Infutureyears,thestatemakespaymentsbaseduponaformulathatisintendedtoacceleratefundinguntilitreachesthelevelitotherwisewouldhavebeenabsenttheearlierreduction.Atthecloseof2007-08,thestatehadanoutstandingmaintenancefactorobligationof$1.4billion.

2008-09 Scenario Leads to Uncertainty. WhenbudgetandeconomicdatawasupdatedaspartoftheFebruarypackage,anunprecedentedProposi-

Figure 2

Proposition 98 Funding

(In Millions)

2007-08

Final 2008-09 Revised

2009-10 Revised

K-12 Education General Fund $37,752 $30,028 $31,194 Local property tax revenue 12,592 13,033 13,439 Subtotals ($50,344) ($43,062) ($44,634)

California Community Colleges General Fund $4,142 $3,918 $3,722 Local property tax revenue 1,971 2,016 1,947 Subtotals ($6,112) ($5,934) ($5,669)

Other Agencies $121 $106 $112

Totals, Proposition 98 $56,577 $49,102 $50,415


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tion98scenarioarose.AlthoughtheProposition98minimumguaranteewasclear,themaintenancefactorobligationcreatedin2008-09wasunclear.DifferinginterpretationsoftheConstitutionledtoadisagreementwhethermaintenancefactorwascreatedincertainlow-growthGeneralFundsitua-tions.Underoneinterpretation,a$9.3billionmaintenancefactorobligationwasbelievedowed(a$7.9billionobligationcreatedin2008-09,plustheexist-ing$1.4billionobligation).Underasecondinterpretation,onlytheprior-year$1.4billionobligationwasowed,withnonewobligationcreatedin2008-09.

July Package Resolves the Issue on a One-Time Basis. AspartoftheFeb-ruarybudget,theLegislatureandGovernoragreedtoresolvetheissueonaone-timebasisbyplacingProposition1BontheMay2009ballot.Voters,however,rejectedthemeasure.Similarly,theJulybudgetpackageincludesastatutorychangethataddressestheissueonaone-timebasis.TheJulypackageestablishesan$11.2billionmaintenancefactorobligationasofthecloseof2008-09(theobligationincreasedasaresultofadditionalProposi-tion98reductionsinJuly).AswithProposition1B,theJulypackagedoesnotaddresssimilarsituationsinthefuture.

“Other” Outstanding Funding Obligations The state currently has several other outstanding Proposition 98-relatedfundingobligations.Severaloftheseobligations,highlightedinFigure3,canbefundedfromwithintheannualProposition98appropriation.Theseinclude“deferrals,”unpaidmandateclaims,andtherevenuelimit“deficitfactor.”Attimes,thestatealsocanhaveK-14obligationsthatarepaidontop

Figure 3

Proposition 98-Funded Obligations Grow to $15 Billiona

(In Millions)

2007-08 2008-09 2009-10

Deferrals K-12 education $1,103 $4,007 $5,685 Community colleges 200 540 703 Subtotals ($1,303) ($4,547) ($6,388)

Mandatesb K-12 education $621 $808 $1,003 Community colleges 300 355 405 Subtotals ($921) ($1,163) ($1,408)

K-12 Revenue Limits — $2,978 $7,270

Totals $2,224 $8,687 $15,066 a Reflects cumulative obligations at year end. These obligations are paid from within the Proposition 98

appropriation. b Estimates based on existing mandate claims as well as actions taken by the Commission on

State Mandates.


26

oftheProposition98appropriationusingotherstateGeneralFundmonies.Currently,thestatehasonesuchobligationrelatingtoaK-14programitcre-atedin2006-07.Thesespecificobligationsarediscussedinmoredetailbelow.

Deferrals to a Subsequent Fiscal Year.In2001-02,thestateachievedabudgetsolutionbydeferring$1.3billioninK-14educationcoststothesubsequentfiscalyear.Thesedeferralsresultedindistrictsreceivingsomestatefundsafewweekslaterthannormal(inearlyJulyratherthanlateJune).Toachieveadditionalbudgetsolutionsaspartofthisyear’sbudgetprocess,thestateapproved$3.2billion innewdeferralsof schooldistrictandcommunitycollegepaymentsfor2008-09and$1.8billionfor2009-10.Asaresultofalltheseactions,atotalof$6.4billioninProposition98funds,12percentoffundingfor2009-10,willnotbeprovideduntil2010-11.

Mandates.Since2001-02,thestatehasnotfundedtheannualongoingcostsofschoolandcommunitycollegemandateclaims.Essentially,thestatere-quiresschoolsandcollegestoundertakecertainactivitieseachyearwithoutprovidingthemimmediatereimbursement.Despitea2008SuperiorCourtdecisionquestioningtheconstitutionalityofdelayingmandatereimburse-ments,the2009‑10 Budget Actcontinuesthispractice.Weestimate2009-10costsforK-14mandatesareabout$245million.(Thisfigure,however,couldeasilydoubleonceseveralcostlymandateclaimsfinishthemandatedetermi-nationprocess.)Coupledwiththebacklogofmandateclaimsfrompreviousyears,weestimatethestatewillend2009-10withoutstandingK-14mandateclaimstotaling$1.4billion.

Revenue Limits. Statelawrequiresschooldistrictstoreceiveannualcost-of-livingadjustments(COLA)totheirrevenuelimitsaswellascertaincat-egoricalprograms.Thoughthestatesuspendedthisstatutoryrequirement,itcreatedadeficitfactorforK-12revenuelimits.ThedeficitfactorisintendedtotrackboththeforegoneCOLAaswellasbaserevenuelimitreductions.Inessence,thedeficitfactorcreatesastatutorycommitmenttouseProposi-tion98fundsatsomepointinthefuturetoraiserevenuelimitstotheleveltheywouldhavebeenabsentthe2008-09and2009-10reductions.Asshowninthefigure,thebasereductionsandforegonerevenuelimitCOLAtotalalmost$7.3billionin2009-10—$7.1billionforschooldistricts(resultinginadeficitfactorof18.4percent)and$140millionforcountyofficesofeducation(resultinginadeficitfactorof18.6percent).

Quality Education Investment Act (QEIA). The QEIA, established byChapter751,Statutesof2006(SB1133,Torlakson),appropriatedatotalofroughly$2.8billionoveraseven-yearperiod.Thestateprovided$300mil-lion in2007-08andwasscheduledtoprovide$450million($402millionforK-12educationand$48millionforCCC)everyyearthereafteruntiltheobligationwaspaidinfull(through2013-14).ThesepaymentsweretobemadeoutsideofannualProposition98spending.TheJulypackagerequiredthe2009-10QEIApaymenttobemadefromwithinProposition98spending.ThisresultedindistrictswithQEIAschoolsessentiallyshiftingsomerevenue


27

limitfundingtotheaffectedschoolsitestocoverprogramcosts.TheJulypackagealsoextendedtheQEIApaymentscheduleforanadditionalyear(until2014-15),therebylengtheningthelifeoftheprogram.SenateBill84,(Steinberg)(Governor’sactionpendingattimeofpublication)makesafurthermodification—essentiallyrequiringdistrictstoshiftrevenuelimitfundingtotheaffectedschoolsitesonlyupondeterminationbytheSuperintendentofPublicInstructionandtheDirectorofFinancethatanequivalentamountofadditionalfederalorstategeneralpurposefundshadbeenidentifiedtobackfilltheloss.Regardlessofwhetherthesegeneralpurposefundsmate-rialize,districtswithQEIAschoolswillreceiveProposition98fundingtocoverprogramcosts,whilealsobeingencouragedtoaccessfederalschoolimprovementfunding.

“Settle-Up” Obligation Retired. In2002-03and2003-04,theProposition98constitutionalfundingrequirementendedupbeinghigherthantheamountofProposition98 fundingappropriated.Asa result, the state incurredasettle-upobligationtotaling$1.1billionacrossthetwoyears.AspartoftheFebruarypackage,however,thestateprovided$1.1billiontoschooldistrictsin2008-09toretiretheentiresettle-upobligation.

K-12 educatiOnMajor Budget DecisionsFigure4 (seenextpage)displaysall significant fundingsources forK-12educationfor2007-08,2008-09,and2009-10.ThefigureshowsthattotalK-12fundingin2009-10is$66.7billion.Thisisa2.6percentdeclinefrom2008-09anda6.2percentdeclinefrom2007-08.ThedeclineinongoingProposition98funding is larger—11percent from2007-08.Thesignificantreductions tostatefunding,however,aremitigatedbyvariousfactors—includingfederalstimulus funding, funding swaps, deferred rather than eliminated pay-ments,accesstorestrictedreserves,categoricalflexibility,andloosenedstaterequirements,asdiscussedinmoredetailbelow.

July Package Includes Further 2008-09 K-12 Reductions. Tofurtherreducespending to the 2008-09 minimum guarantee, the July package makes a$1.6billiondownwardaccountingadjustmenttoreflectK-12cashdisburse-mentsnotyetmadetodistricts.(Inturn,thesereductionslowerthe2009-10guarantee.)Ofthesefunds,$1.5billionissubsequentlypaidtoschooldis-trictsin2009-10.

Makes 2009-10 Reductions Mostly From K-12 Revenue Limits. In theFebruarybudgetpackage,K-12programmaticreductionsfor2008-09weresplitbetweenrevenuelimitsandcategoricalprograms.AspartoftheJulypackage,however,2009-10reductionsweremadeprimarilyfromrevenuelimits.Specifically,theJulypackagereducesrevenuelimitsacross-the-boardby$4billion.Ofthisamount,$1.5billionisreducedonaone-timebasistobackfillthecategoricalreductionsfrom2008-09.


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Significant Increase in K-12 Payment Deferrals. Thestatereliedsignificantlyonpaymentdeferralstoachievebudgetandcashsolutionsin2008-09and2009-10.AsshowninFigure5,the2009-10budgetincludes$5.7billionininter-yeardeferralsforK-12education.Thesearepaymentdeferralsthatarenotpaiduntilthenextfiscalyear,therebyachievingone-timeProposition98savings.Thestatealsoadopted$6billioninintra-yeardeferrals—paymentdeferralsthatarepaidoffwithinthefiscalyear.Thesedeferralsshiftvariouspaymentstoimprovethestate’scashsituationinitscash-poormonths,buttheydonotproduceannualbudgetsavings.

Federal Stimulus Funds for EducationFederalstimulusfundingwillhelpschooldistrictsmitigatethereductionsanddeferrals adopted in the Februaryand Julypackages. InApril 2009,thestatereceiveditsfirstinstallmentoffederalstimulusfundingaspartofARRA,whichincludedover$2.6billionin“stabilization”fundingtosupportK-12education(aswellas$537millionforhighereducation).Thestabilizationfundsareintendedtohelpmitigatecutsinstatefunding.Sometimeduring2009-10,thestateislikelytoreceivetheremainderofitsARRAstabilizationfunding(totaling$1.8billionforallofeducation).Inanticipationofthisad-

Figure 4

K-12 Education Fundinga

(In Millions)

2007-08

Final 2008-09 Revised

2009-10 Revised

Proposition 98 State General Fund $37,752 $30,028 $31,198 Local property tax revenue 12,592 13,033 13,439b Subtotals, Proposition 98 ($50,344) ($43,062) ($44,637)

Other General Fund Teacher retirement $1,535 $1,044 $1,153 Bond payments 1,993 2,211 2,416 Other programs 1,522c 2,109d 280 State lottery funds 859 806 806 Federal funds (ongoing) 6,484 6,786 7,077 ARRA funds — 3,788 2,280

Otherd 8,432 8,694 8,074 Subtotals ($20,824) ($25,438) ($22,086)

Totals $71,168 $68,500 $66,723 a Includes funding for child care and development programs as well as adult education. b Includes $850 million in funds redirected from redevelopment agencies on a one-time basis. c Includes spending for Quality Education Investment Act. d Includes special funds, local debt service, and other local revenues.


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ditionalfederalsupport,the2009‑10 Budget ActprovidesARRAstabilizationspendingauthorityof$600millionforK-12education,and$130millionforCCC. (The division of funds among educational segments could changeslightlyasthestatefinalizesitssecond-roundapplication.Toallowthestatetomoreeasilymakeadjustments,thefederalfundsspendingauthorityinthebudgetisgreaterthantheamountoffundingactuallyavailable.Moredetailonhighereducationfundingisincludedinthe“HigherEducation”section.)

Additional Stimulus Funds for Low-Income Students and Students With Disabilities. TheARRAalsoprovidesadditionalstimulusfundingforstatestosupporteducationalprogramsservinglow-incomestudentsandstudentswithdisabilities.InApril2009,Californiareceivedauthorityforthefirsthalfof this funding—$540 million for low-income students and $613 millionfor studentswithdisabilities.The2009‑10 Budget Act includesadditionalspendingauthorityfortheotherhalfofavailablefunding.Californialikelywillreceiveauthorityfromthefederalgovernmentfortheremainderofthisfundinginthesummerof2009.

Figure 5

Deferrals of K-12 Education Payments

(In Millions)

Inter-Year Deferrals

Deferrals Established Prior to 2008-09 $1,103

New Deferrals Enacted in February Budget Package (to begin in 2008-09) Increase size of existing K-12 June-to-July deferral $334 Shift K-3 class size reduction payment from February to July 570 Shift some K-12 revenue limit and categorical payments from February to July 2,000 Subtotal ($2,904)

New Deferrals Enacted in July Budget Package (to begin in 2009-10) $1,679

Total Inter-Year Deferrals $5,686

Intra-Year Deferrals

Deferrals Enacted in February Budget Package Shift some K-12 payments from July to October $1,000 Shift some K-12 payments from August to October 1,500 Subtotal ($2,500)

New Deferrals Enacted in July Budget Package (to begin in 2009-10)a Shift some school district revenue limit payments from July to December $1,000 Shift some school district revenue limit payments from August to October 1,500 Shift some school district revenue limit payments from November to January 1,000 Subtotal ($3,500)

Total Intra-Year Deferrals $6,000 a The state also adopted a 5-5-9 payment distribution method, which aligns state payments more closely with local costs.


30

Greater Flexibility for the Next Several YearsInaddition to the changes in spending, the Februaryand July packagesalsomadeseveralsignificantpolicychangestoloosenrestrictionsandgiveschooldistrictsmorediscretioninmakingspendingdecisions.Amongthelargerchanges,thestateeliminatedspendingrestrictionsforanumberofcategorical programs, postponed the requirements that school districtspurchasenewtextbooks,andallowedschooldistrictstoreducethelengthoftheschoolyear.Figure6providesacomprehensivelistofthesechanges.

Programmatic Per Pupil Funding Changes Moderately“Programmatic”fundingreflectstheamountofresourcesschooldistrictshaveavailabletospendeachyearafteraccountingforfundingswaps,pay-mentdeferrals,andotherfundingsources(suchasARRAfunds).Whentheseadjustmentsaretakenintoaccount,thechangeinper-pupilfundingfrom2007-08levelscouldrangefromanincreaseofroughly3percenttoadecreaseofroughly3percent.

Figure 6

K-12 Flexibility Provisions Included in 2008-09 and 2009-10 Budgets

2008-09 to 2012-13 (Unless Otherwise Noted)

Provision Description

Flexibility in Use of Categorical Program Funding Creates categorical "flex item" whereby districts can use funds from roughly 40 programs for any purpose.

Lesser Penalties for Exceeding K-3 Class Size Reduction Program Guidelines

Allows districts to exceed 20 students per K-3 classroom without losing as much funding as under previous penalties.

Reduced Requirement for Routine Maintenance Deposit

Lowers the percentage districts must set aside for maintenance of school buildings from 3 percent to 1 percent of expenditures. Districts with facilities in good repair are exempt from any set-aside requirement.

Elimination of Local Spending Requirement to Qualify for State Deferred Maintenance Match

Eliminates requirement that districts spend their own funds on deferred maintenance in order to qualify for state dollars.

Access to Categorical Fund Balances Allows districts to spend leftover categorical funding from 2007-08 or prior years for any purpose (except in seven pro-grams). (2008-09 and 2009-10 only.)

Postponement of Instructional Material Purchase Timeline

Postpones requirement that districts purchase new instructional material packages.

Reduced Instructional Time Requirements Provides school districts option to reduce length of school year by as many as five days.

Sale of Surplus Property Allows districts to use the proceeds of surplus property sales for any purpose if property was purchased entirely with local funds.


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Child Care and DevelopmentThe July budget package includes nearly $3.1 billion for child care anddevelopment(CCD)in2009-10.Ofthattotal,nearly$2.6billionisforCCDprogramsadministeredbytheCaliforniaDepartmentofEducation(CDE).TotalCCDfundingdecreasedbyjustover3percentcomparedtotherevised2008-09levelofspending.

Programmatic Reductions. Mostoftheyear-to-yearreductioncanbeattributedtopolicychangesintheCaliforniaWorkOpportunityandResponsibilitytoKids(CalWORKs)programthatareexpectedtoreducedemandforStage1childcarein2009-10.TheJulypackagealsoeliminatestheExtendedDaypro-gram(whichservesschool-agechildrenfromlow-incomefamiliesbeforeandafterschool),effectiveAugust31,2009,toachieve$27millioninsavings.Theapportionmentsandnumberofchildrenexpectedtobeservedintheremain-ingCCDprogramswereheldvirtuallyflatfrom2008-09levels.

higher educatiOnThebudgetprovidesa totalof$10.5billion inGeneralFundsupport forhighereducationin2009-10(seeFigure7,nextpage).Whilethisreflectsanincreaseovertherevised2008-09leveloffunding, it isabout$1.3billion(11percent)lessthantheamountprovidedin2007-08.MuchofthedeclineinGeneralFundsupportisoffsetwithone-timefederalfundingprovidedthroughARRA.Inaddition,allthreepublicsegmentswillreceiveadditionalnewfundingasaresultofstudentfeeincreases.Whenallmajorfundingsourcesareconsidered,highereducationfundingfor2009-10exceeds2007-08fundingby$555million,or3.3percent.(SeeFigure8,nextpage.)

UC and CSUOverall Funding.AsshowninFigure7,the2009-10budgetprovidesUniversityofCalifornia(UC)with$2.6billion,andCaliforniaStateUniversity(CSU))with$2.3billion,inGeneralFundsupport.Theseamountsreflectreductionsofabout20percentfrom2007-08levels.However,asshowninFigure8,thetwosegmentswillreceiveincreasesof5.8percentand7.4percent,respectively,onaprogrammaticbasiswhenothermajorfundingsuchasARRAfundingandstudentfeerevenueareconsidered.(TheexactamountoffederalARRAfundshadnotbeendeterminedatthetimethereportwasprepared.)

Thefigures reflect2009‑10 Budget Actprovisionsreverting$1.5billion in2008-09GeneralFundsupportfromUCandCSU.About$64millionofthisunallocatedreductionoriginallytooktheformofcutstheGovernorimposedthroughanexecutiveorderinfall2008.

Student Fees.For2009-10,UCandCSUhaveenactedfee increasesof9.3percentand32percent,respectively.Theenactedbudgetassumesthesefeeincreaseswillprovideadditionalrevenueof$166millionforUCand$366mil-lionforCSU(Atthetimethispublicationwasprepared,theUCRegentswereconsideringafurtherfeeincreasefor2009-10.)Becausefeerevenueisunrestricted,thefeeincreaseseffectivelyoffsetGeneralFundreductions.


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Bothsegmentsplantodirectaboutathirdofthisnewrevenuetoaugmentcampus-basedfinancialaidfortheirstudents.

Enrollment.Thebudgetdoesnotspecifyanexpectedlevelofstudenten-rollmentforUCandCSU,nordoesitspecifya“marginalcost”associatedwithenrollingadditionalstudentsattheuniversities.Inbudgethearings,UC indicated that it expects to enroll about 2,300 fewer new freshmen,andabout500moretransferstudents,in2009-10comparedto2008-09.TheCSUindicateditintendstoadmitnostudentsinspring2010,thustrying

Figure 7

Higher Education Funding

(General Fund Dollars in Millions)

Change From 2007-08

2007-08 2008-09 2009-10 Amount Percent

University of California (UC) $3,257 $2,420a $2,636 -$621 -19.1%California State University (CSU) 2,971 2,156a 2,338 -633 -21.3 California Community Colleges 4,170 3,948 3,736 -434 -10.4 Hastings College of the Law 11 10 8 -2 -22.2 Student Aid Commission 867 897 967b 101 11.6 California Postsecondary Education Commission 2 2 2 — -4.1 State Library 49 47 44 -5 -10.6 Bond debt service 496 594 759 263 52.9

Totals $11,823 $10,074 $10,491 -$1,332 -11.3%a Reflects reductions made through Governor’s executive order of $33.1 million for UC and $31.3 million for CSU. b Reflects Governor’s veto of $6.3 million from state operations.

Figure 8

Higher Education Programmatic Supporta


Change From 2007-08

2007-08 2008-09 2009-10 Amount Percent

University of California $4,876 $4,449 $5,161 $285 5.8%California State University 4,205 3,721 4,518 313 7.4 California Community Colleges (CCC) 6,693 6,791 6,504 -189 -2.8 Hastings College of the Law 37 43 45 8 21.4 Student Aid Commission 962 1,031 1,105 144 15.0 California Postsecondary Education Commission 2 2 2 — -4.1 State Library 49 47 44 -5 -10.6

Totals $16,824 $16,083 $17,379 $555 3.3%a Includes General Fund, state lottery funds, federal stimulus funding, student fee revenues, and Student Loan Operating Fund. Does not reflect

funding deferrals. Figures for CCC also reflect local property taxes counted toward Proposition 98.


33

toreduceoverallenrollmentbyabout40,000students.ThebudgetdirectsthesegmentstoreportbyMarch15,2010onwhethertheymettheir2009-10enrollmentgoals.

Academic Preparation Programs.TheLegislaturerejectedtheGovernor’sproposaltoeliminatefundingforacademicpreparation(outreach)programs.Instead,theenactedbudgetcontainslanguagerequiringthesegmentstolimitanyredirectionoffundingfromtheseprogramstoanamountproportionatetotheiroverallreductioninGeneralFundsupport.

California Community CollegesTheJuly2009-10budgetpackageprovides$3.7billioninGeneralFundsup-portforCCC.Thisis$434million(10.4percent)lessthanthe2007-08level.However,someof this fundingpaysforcosts incurred indifferentfiscalyears.Also,CCCreceivessubstantialfundingfromothersources,primarilylocalpropertytaxes.Whenallfundingsourcesareconsideredandcountedtowardtheyearinwhichcostsareincurred,CCC’s2009-10programmaticfunding totals $6.5 billion, which is $189 million (2.8 percent) less than2007-08,or$287million(4.2percent)lessthan2008-09.

Proposition 98. Like K-12 education (but unlike the universities), CCC’sGeneralFundsupportandlocalpropertytaxrevenuearesubjecttoPropo-sition98.For2009-10,CCCreceives$5.7billioninProposition98support,whichis11.2percentoftotalstateProposition98spending.Thisreflectsareductionof$265million(4.5percent)fromtherevised2008-09level.Inad-dition,thebudgetpackageestablishesamaintenancefactorobligationforCCC(aswellasK-12)forpaymentsinfutureyears.Proposition98spendingisdiscussedinmoredetailinthe“Proposition98”sectionofthischapter.

Deferrals. AsshowninFigure3,in2008-09,theLegislatureadded$340milliontotheexisting$200millioninCCCfundingdeferrals.Thus,whilecommunitycollegesincurredcostsforcertainprogramsin2008-09,theydidnotactuallyreceivethesedeferredstatepaymentsuntilearly2009-10.Thebudgetpackagedefersanadditional$163millionfrom2009-10to2010-11,therebycreatinganongoingdeferralof$703millionannually.

No New Funding for Enrollment or Cost-of-Living Increases.ThebudgetprovidesneitherenrollmentgrowthnoraCOLAforCCCin2009-10.ThisisthesecondconsecutiveyearthatcommunitycollegeshavenotreceivedaCOLA.

Base Apportionment Reductions. Thebudgetreflectscutstotaling$140mil-lion(about2percent)toProposition98GeneralFundsupportforCCCappor-tionments(general-purposemonies).Thisincludesanunallocatedreductionof$130millionaswellas$10millioninsavingsfromtheeliminationoftheCaliforniaHighSchoolExitExamremediationprogram.

Local Property Tax Backfill. Thebudgetincludesatotalof$63.3millioninGeneralFundsupporttopartiallycompensateforanestimated$116.7milliondropinCCC’slocalpropertytaxrevenuesin2009-10fromearlierestimates.


34

Figure 9

Budget Package Creates "Flex Item" for Many California Community College Categorical Programs

Programs Included In Flex Item Programs Excluded From Flex Item

Academic Senate Basic Skills Initiative Apprenticeship CalWORKsa Student Services Campus Child Care Tax Bailout Disabled Students Program Career Technical Education Initiative Extended Opportunity Programs and Services Economic Development Financial Aid Administration Equal Employment Opportunity Foster Care Education Program Matriculation Fund for Student Success Part-Time Faculty Compensation Nursing Grants Part-Time Faculty Health Insurance Telecommunications and Technology Services Part-Time Faculty Office Hours Physical Plant and Instructional Support Transfer Education and Articulation a CalWorks = California Work Opportunity and Responsibility to Kids.

Thisbackfillisderivedfromtwosources:(1)aredirectionof$58.3millioninfundspreviouslyintendedforenrollmentgrowth,and(2)a$5millionreappropriationofunspentfundsfromprioryears.

Student Fees. Thebudgetpackageincreasedenrollmentfeesfrom$20perunitto$26perunit,whichreturnedstudentfeesbacktotheir2006level.Thesehigherfeesareexpectedtogenerate$80millioninadditionalrevenueforCCC,therebymitigatingtheimpactofreducedProposition98supportforapportionments.Lower-andmiddle-incomestudentsarelargelyshieldedfromthefeeincreasebyCCC’sfeewaiverprogramandrecentlyexpandedfederaltaxcredits.

Workload-Reduction Provision. Thebudgetpackageincludesaprovisionthatpermitscommunitycollegestoreducethenumberofstudentstheyservein2009-10inproportiontothenetreductioninbaseapportionmentfund-ing.AnotherprovisionexpressestheLegislature’sintentthatanyresultingworkloadreductionsbelimitedasmuchaspossibletoareasotherthanbasicskills,workforcetraining,andtransfer-levelcoursework.

Categorical Cuts and Flexibility. ThebudgetpackagereducesProposition98supportforcategoricalprogramsbyatotalof$263millioncomparedwithrevised2008-09levels.Thebudgetassumesthat$130millionofthisreductionwillbebackfilledbyfederalstimulusfunding,foranetreductionof$133mil-lion.Inordertobetteraccommodatethesecuts,12ofCCC’s21categoricalprogramsweremovedtoa“flexitem”(seeFigure9).From2009-10though2012-13,districtsarepermittedtotransferfundsfromcategoricalprogramsintheflexitemtoanyothercategoricalspendingpurpose.


35

California Student Aid CommissionThebudgetpackageprovides$967millioninGeneralFundsupportfortheCaliforniaStudentAidCommission(CSAC),whichreflectsa$70millionincreasefrom2008-09anda$101millionincrease(11.6percent)from2007-08.Inaddition,thebudgetprovidesCSACwith$32millionfromtheStudentLoanOperatingFundtohelpcoverCalGrantcosts.

Rejection of Governor’s Proposals. The Legislature rejected the Gover-nor’sproposalstophaseouttheCalGrantprograms.Instead,theenactedbudget fully funds projected Cal Grant awards in both the competitiveandentitlementprograms.ThebudgetpackagealsodoesnotincludetheGovernor’sproposalsto(1)decentralizetheadministrationofCalGrantstothecampusesand(2)eliminateCSACandtheCaliforniaPostsecondaryEducationCommissionandtransfersomeoftheirfunctionstoanexecu-tiveagency.TheGovernorinturnvetoed$6.3millionfromCSAC’ssupportbudget,andsignaledawillingnesstorestore$4.3millionofthisamountiftheLegislatureenactsadecentralizationplan.ThevetoeliminatesabouthalfofCSAC’ssupportbudget,whichcouldaffectitsabilitytoadministerstatefinancialaidprograms.

Capital OutlayThe2009-10spendingplanauthorizesthesegmentstospend$263millioningeneralobligationbondfundingforavarietyofcapitaloutlayprojects.Astheonlysegmentwithasubstantialremainingbalanceofauthorizedgeneralobligationbonds,thecommunitycollegesreceivedthemajorityofthecapitaloutlayappropriations—$216million for17newprojectsand8continuingprojects.TheLegislaturerejectedtheGovernor’sproposaltouselease-revenuebondstofundnewcapitaloutlayprojectsatUCandCSUandprovidedfundingforonlythoseprojectsthatcouldbecompletedusingremaining,authorizedgeneralobligationbonds.Thespendingplanalsocontainedreappropriationsformanyprojectsapprovedinpreviousyearsincluding:

· NumerousprojectsthatexperienceddelaysduetothePooledMoneyInvestmentBoard’sfreezeonloandisbursementsduring2008-09.

· $10millionforthenewLifeSciencesResearchandNursingEducationfacilityatCharlesDrewUniversity.

· TheHeliosEnergyResearchFacilityatUCBerkeleythatwasdelayedduetochangesintheproject’sscope.

healthThe2009-10spendingplanprovides$16.1billionfromtheGeneralFundforhealthprograms.Thisisadecreaseof$2.7billion(14.5percent)comparedtotherevisedprior-yearspendinglevelandadecreaseof$3.8billionfromthe2007-08 level,asshowninFigure10 (seenextpage).Thesespendingreductionsresultinlargepartfromfederaleconomicstimuluslegislationthatincreasedthefederalmedicalassistancepercentage(FMAP)in2008-09


36

and2009-10.TheFMAPisthefederalformulausedtodeterminetheamountoffederalmatchingfundsthestatereceivesforMedi-Calandcertainsocialservicesprograms.Partofthereductioninhealthspendingrelatestolo-calgovernmentfinancingshiftsdiscussedlaterinthischapter.SignificantprogramreductionswerealsomadebytheLegislatureandtheGovernortovarioushealthprograms.TheamountsshowninFigures10and11alsoreflectabout$270millioningubernatorialvetoesthatarethesubjectofpendinglitigation.ThekeyaspectsofthebudgetpackagearediscussedbelowandsummarizedinFigure11.

Medi-CalThe spending plan provides about $10.9 billion from the General Fund($38.7billionallfunds)forMedi-Callocalassistanceexpenditures.Thisisadecreaseofalmost$2billion,or15.3percent,inGeneralFundsupportforMedi-Callocalassistancecomparedtotherevisedprior-yearspendinglevel.Wediscussthemostsignificantspendingchangesbelow.

Additional Federal Funds.Thespendingplanassumesasignificantincreaseinthereceiptoffederalfunds,whichreducestheoveralllevelofGeneralFundspending.UnderARRA,CaliforniabenefitsfromanenhancedFMAP,whichadjuststhefederalsharefrom50percentminimumFMAPformostservicesto61.59percent.TheenhancedFMAPbeganinOctober2008andwillcontinuethroughDecember2010.ItmainlyaffectsGeneralFundexpen-diturelevelsforMedi-CalbenefitsprovidedbytheDepartmentofHealth

Figure 10

Major Health Programs and Departments—Spending Trend

(General Fund, Dollars in Millions)

Change From 2008-09 to 2009-10

2007-08 2008-09 2009-10 Amount Percent

Medi-Cal—local assistance $14,036 $12,888 $10,910 -$1,977 -15.3%Department of Developmental Services 2,548 2,561 2,391 -170 -6.6 Department of Mental Health 1,931 1,961 1,857 -104 -5.3 Healthy Families Program—local assistance 387 391 225 -166 -42.5 Department of Public Health 362 353 199 -154 -43.6 Other Department of Health Care Services programs—

local assistance 181 184 122 -62 -33.7

Department of Alcohol and Drug Programs 285 283 189 -94 -33.2 Emergency Medical Services Authority 13 12 9 -3 -25.0 All other health programs (including state support) 163 161 175 14 8.7

Totals $19,906 $18,794 $16,077 -$2,717 -14.5%

Health Program Spending Temporarily Paid From: General Fund offset due to FMAP changes — $2,380 $3,747 $1,368 57.5%Local government finance shift — — 565 565 —


37

Figure 11

Major Changes—State Health Programs 2009-10 General Fund Effect

July Budget Actions, Unless Otherwise Noted (In Millions)

Program Total

Medi-Cal Assume federal actions to reduce program funding requirements -$1,000.0 Continue unspecified reduction to reflect past program spending trends -323.0 Eliminate certain optional benefits for adults (February) -122.2 Reduce payments to hospitals ($54.2 million in February) -109.0 Freeze long-term care rates -90.0 Implement changes to reduce prescription drug costs -66.1 Governor’s veto of county administration funding -60.4 Redirect Proposition 99 funds to Medi-Cal from various health programs -50.0 Expand anti-fraud efforts -46.8 Impose limits on Adult Day Health Care -28.1 Suspend cost-of-living adjustment for county administration (February) -24.7

Other Department of Health Care Services Programs Reduce funding for community clinics ($25 million from Governor’s vetoes) -$35.1

Public Health Reduce HIV/AIDS programs ($52.2 million from Governor’s vetoes) -$85.7 Reduce Maternal, Child, and Adolescent Health programs and domestic violence shelters ($28.2 million

from Governor’s vetoes) -40.9

Suspend immunization local assistance on one-time basis -18.0 Reduce other public health programs -9.6

Healthy Families Programa Various reductions (unallocated $124 million, application assistance $4.6 million, Governor’s veto—$50 million) -$178.6

Department of Mental Health Eliminate funding for services that are not federally required -$64.0 Defer AB 3632 mandate payments -52.0 Eliminate state funding for new programs in Early and Periodic Screening, Diagnosis, and Treatment (EPSDT) -28.0 Defer EPSDT state funding for 2006-07 county cost settlements until 2010-11 -15.8 Reduce state funding for Caregiver Resource Centers ($4.1million from Governor’s vetoes) -7.6 Coleman bed expansion at Salinas and Vacaville psychiatric programs 25.3 Implement Emily Q. v. Bonta ruling in EPSDT 19.0

Department of Developmental Services Savings proposals developed through a workgroup process ($100 million in February) -$334.0 Governor's veto of community program services for children up to age five -50.0

Department of Alcohol and Drug Programs Eliminate some Proposition 36 funding -$90.0 Reduce Drug Medi-Cal provider reimbursement rates by 10 percent -8.8

Emergency Medical Services Authority Reduce state funding for California Poison Control System -$3.0 a Figures do not include augmentations or reductions approved in post-budget actions.


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CareServices(DHCS),butalsoaffectscomponentsoftheMedi-CalProgramadministeredbyotherhealthdepartmentsasshowninFigure12.ThebudgetassumesthattheenhancedFMAPwillprovide$2.4billionin2008-09and$3.7billionin2009-10infederalrelieffortheMedi-CalProgram.

Savings From Increased Federal Flexibility.Thebudgetplanassumes$1bil-lioninGeneralFundsavingsfromthereceiptofadditionalfederalfundsandobtainingadditionalflexibilitytoreduceprogramcosts.Thisincludesthepossibilitythatthefederalgovernmentwillreimbursethestateforcostsofcare fordisabledbeneficiarieswhoshould insteadhavereceivedtheircareunderthefederalMedicareprogram.Savingsmayalsobeachievedthroughotherchangesbeingsoughtbythestateinthewayfederalauthori-tiesadministertheprogram.

Funding Shifts.Thespendingplanincludes$565.2millioninfundingfromalocalgovernmentfinanceshifttosupportMedi-Cal.Wediscusstheshiftofthesefundsinmoredetailinthe“LocalGovernment”sectionofthischap-ter.Inaddition,$50millionintobaccotaxrevenuesfromtheProposition99ballotmeasureapprovedbyvotersinNovember1988wereredirectedfromvarioushealthprogramstosupportMedi-Cal.

Unspecified Reduction. ThebudgetplanincludesanunspecifiedreductioninMedi-Callocalassistanceof$323millionfromtheGeneralFund.Com-parableamountsofsavingsforthispurposewereinitiallyassumedinthe2007-08and2008-09budgetplans,althoughthesavingswerenotachievedin2008-09.

Elimination of Optional Benefits. TheFebruary2009budgetpackageelimi-natedcertainoptionalbenefitsforadultseffectiveJuly2009forGeneralFundsavingsof$122.2million.Thebulkofthesavingscomefromtheelimina-tionofadultdentalservices,butsavingsalsocomefromtheeliminationofopticianservices,incontinencecreamsandwashes,audiology,acupuncture,andotherservices.

Reductions in Hos-pital Payments. TheFebruarybudgetplanincludes a 10 percentreductiontodesignat-edpublichospitalratesto achieve savings of$54.2 million for theGeneralFund.Anad-ditional $54.8 millionin General Fund sav-ings were achievedin July through (1) a10percentreductionin

Figure 12

FMAP Savings in Health-Related Departments

(In Millions)

Department/Program 2008-09 2009-10

Medi-Cal $2,137.1 $3,159.5Developmental Services 188.9 304.8Mental Health 42.9 259.4Alcohol and Drug Programs 10.6 23.4

Totals $2,379.5 $3,747.1 FMAP = federal medical assistance percentage.


39

paymentstoprivatehospitals($23.9million),(2)redirectingtheDistressedHospitalFundandhospitalstabilizationfunds($23.9million),and(3)reduc-ingratesforsmallandruralhospitalsby10percent($7million).

Freeze on Long-Term Care Facility Rates and Expanded Fees.Thespend-ingplanfreezesrateadjustments thatwouldotherwiseoccur forcertainlong-termcarefacilitiesforGeneralFundsavingsof$90million.Inaddition,thebudgetplanexpandsqualityassurancefeeassessmentsoncertainlong-termcarefacilitiestoincludeMedicarerevenues,resultinginincreasedstaterevenueof$17 millionin2009-10.

Changes to Reduce the Cost of Prescription Drugs.The spendingplanincludesseveralchangesinpharmacypracticestoreducethecostofpre-scriptiondrugsandachievetotalGeneralFundsavingsofabout$66million.Thesechangesinclude:(1)payinglowerdrugreimbursements($37million),(2)requiringpharmacyproviderstobillatlowerrates($22.5million),(3)re-quiringeligibleentitiestouse“340B”programdrugpricing($3.8million),and(4)performinga“therapeuticcategoryreview”ofantipsychoticdrugstoseewhicharemostcost-effective($1.5million)andrequiringdrugmanufac-turerstopaycertainrebatesforHIV/AIDSandcancerdrugs($1.3million).

Reduction in Funding for County Administration. Thebudgetplanincludessavingsof$24.7millionGeneralFundfromthesuspensionofacost-of-livingadjustmentforcountyadministration.TheGovernorvetoedanadditional$60.6millionfromtheGeneralFundforcountyadministrationofMedi-Cal.

Expansion of Anti-Fraud Efforts. Thebudgetplanassumesthateffortstoreducefraud,waste,andabuseintheareasofadultdayhealthcare(ADHC),physician services, and pharmacy will achieve General Fund savings of$46.8million.

Limits on ADHC.ThespendingplanadoptsseveralmodificationstotheADHCbenefittoachieve$28.1millioninGeneralFundsavings.Thechangesinclude:(1)athreedayperweekcaponservices,(2)standardsonmedicalnecessitythatwillbedevelopedthroughaworkgroupprocess,(3)on-siteprocessingoftreatmentauthorizationrequests,and(4)afreezeonproviderratesasofAugust2009.Someofthesesavingsmaynotberealizedduetoapreliminarycourtinjunctiononthethreedayperweekcap.

Development of Plan for Changes to Eligibility Processing. ThebudgetauthorizesthedevelopmentofaplantocreateacentralizedeligibilityandenrollmentprocessforMedi-Cal,CalWORKs,andtheSupplementalNutritionAssistanceProgram(formerlytheFoodStampProgram).Thedevelopmentoftheplanincludesstakeholderinvolvement,andimplementationoftheplanrequireslegislativeapproval.

Improvement of Care Coordination and Long-Term Cost Containment. ThebudgetplangivesDHCSbroadauthoritytoimplementademonstrationprojectintendedtoaccomplishaseriesofgoals,including:


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· Strengtheningthe“safetynet”ofhealthcareforthepoor.

· Improvinghealthcarequalityandoutcomes.

· RestructuringthedeliveryofservicestobemoreresponsivetothemostvulnerableMedi-Calbeneficiaries,suchastheaged,blind,anddisabled.

Theadministrationestimatesthatsavingsof$400millionannuallytotheGeneralFundcouldbeachievedby2012-13throughthisefforttoprovideearlierandmoreappropriatehealthcaretopatients.

Other DHCS ProgramsElimination of Community Clinic Programs. State funding for variouscommunityclinicprogramswaseliminatedforGeneralFundsavingsof$35.1million.ThisamountreflectstheGovernor’svetoof$25million.Theaffected programs included Indian Health, Seasonal, Agricultural, andMigratory Workers; Rural Health Services Development; and ExpandedAccesstoPrimaryCare.

Department of Public HealthIntotal,thespendingplanprovidesabout$199millionfromtheGeneralFund($2.9billionallfunds)fortheDepartmentofPublicHealth.Thisreflectsadecreaseofabout$153millionor44percentfromtheGeneralFund($49mil-lionfromallfundsources),comparedtotherevisedprior-yearspendinglevel.Thebudgetreflectsanumberofreductionsinpublichealthspending.

HIV/AIDS Programs. The budget reduces General Fund spending onHIV/AIDSprogramsbyatotalof$85.7million.Ofthistotal,$33.5millionwasapprovedbytheLegislatureasapackageofcutstoHIV/AIDSprograms.Theseincludedcutsto:(1)therapeuticmonitoring,educationandpreven-tion,homeandcommunity-basedcare,surveillanceandepidemiology,andhousing($4.6million);(2)stateoperationsintheOfficeofAIDS($3.4mil-lion);and(3)theAIDSDrugAssistanceProgram(ADAP)($25.5million).TheLegislaturebackfilledalmostallofthereductiontoADAPwithADAPRebateFundmonies.

Inadditiontothesecuts,thegovernorvetoed$52.2millionfromHIV/AIDSlocalassistanceprograms.ThiseliminatedtheremainingGeneralFundsup-portforavarietyofprograms,includingtherapeuticmonitoring,educationandprevention,homeandcommunity-basedcare,andhousing,aswellastheEarlyInterventionProgramandHIVcounselingandtesting.Asaresult,allremainingstatefundingisnowdevotedtosupportHIV/AIDSsurveil-lanceandepidemiology,andADAP.

Maternal, Child, and Adolescent Health (MCAH) and Domestic Violence Shelters.Intotal,thebudgetplanreducesspendingforMCAHprogramsby$20.5millionfromtheGeneralFund,andfordomesticviolencesheltersby$20.4millionfromtheGeneralFund.TheLegislaturereducedspendingforMCAHprogramsby$8.6millionandfordomesticviolencesheltersby


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$4.1 million. The Governor then vetoedan additional $11.9 million fromMCAHlocalassistanceprogramsand$16.3millionfromdomesticviolenceshelters.ThesevetoeseliminatedallremainingGeneralFundsupportfortheMCAHprogramanddomesticviolenceshelters.

Proposition 99 Programs. The spending plan reduces Proposition 99spendingbyeliminatingfundingforuncompensatedemergencycareandreducingfundingforasthma,breastcancerscreening,andotherprogramsaspartofthe$50millionshiftoffundstosupporttheMedi-CalProgramdiscussedabove.

Immunization and Other Reductions. The budget plan suspends localassistance funding for immunization programs in 2009-10 for savings of$18milliontotheGeneralFund.Inaddition,theplanmakesGeneralFundreductionstootherpublichealthprogramsforsavingsof$9.1million.Theseinclude:(1)denialofacapitaloutlaybudgetrequestforstatelaboratoryim-provements($3.1million),(2)areductioningrantstoAlzheimer’sDiseaseResearchCenters($3.1million),and(3)suspensionofpreventativedentalservicestolow-incomechildren($2.9million).

Healthy Families ProgramIntotal,theJulybudgetpackageprovidedabout$225millionfromtheGen-eralFundfortheHealthyFamiliesProgram(HFP),whichisadministeredbytheManagedRiskMedicalInsuranceBoard(MRMIB).ThisreflectedanetGeneralFunddecreaseofabout$166million,or42percent,comparedtotherevisedprior-yearspendinglevel.TheFebruarybudgetinitiallyincreasedfundingtoHFPforcaseloadadjustmentsbyabout$13million,butthisaug-mentationwasmorethanoffsetbyareductioninGeneralFundsupportfortheHFPofalmost$179million.Thesefiguresdonotreflectthesignificantpost-budgetchangestotheHFPdiscussedbelow.

InMay, theGovernorproposedeliminationofGeneralFundsupport forHFP.TheLegislaturerejectedtheGovernor’sproposalandinsteadadoptedareductionof$124millionfromtheGeneralFund,alongwithbudgetbilllanguagedirectingMRMIBtoseekassistancefromphilanthropicandotherorganizationstomaintainfundingfortheprogram.Supportforcertifiedap-plicationassistancewasalsoeliminatedbytheLegislatureforGeneralFundsavingsof$4.6million.Subsequently, theGovernorvetoedanadditional$50millionofGeneralFundfromHFP.

Severalactionssubsequenttoadoptionofthebudgetpackageareexpectedtolargelyrestorefundingfortheprogramin2009-10.Theseactionsinclude:(1)acontributionof$81.4millionfromtheCaliforniaChildrenandFami-liesCommission(alsoknownasFirst5California)forcoverageofchildrenup to age five, (2) estimated program savings of $17.5 million from pre-miumandco-paymentincreasesforfamiliesenrolledintheprogram,and(3)estimatedfundingof$97millionfromatemporarygrosspremiumstaxonMedi-Calmanagedcareplansthatwouldbeinplaceuntil2011.Changes


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toco-paymentswouldbemadethroughregulation,whilethegrosspremi-umstaxandchangestoHFPpremiumswouldbeimplementedthroughpost-budgetlegislation—Chapter157,Statutesof2009(AB1422,Bass).Thistaxmeasureisexpectedtoraiseabout$157millionfortheGeneralFundin2009-10.Itspecifiesthat38percentoftheserevenues(about$60million)are to be continuously appropriated to augment the Medi-Cal Program,whiletheremaining62percentofrevenues($97million)arecontinuouslyappropriatedtosupportHFP.

MRMIB—Other ProgramsTheLegislaturereducedProposition99fundingfortwoprogramsbycutting(1)$6.6millionfromtheMajorRiskMedicalInsuranceProgram,thestate’shigh-riskhealthinsurancepoolprogram,and(2)$4.9millionfromtheAc-cessforInfantsandMothers(AIM)healthinsuranceprogramforpregnantwomen.ThesereductionswerepartofalargerredirectionofProposition99fundstosupporttheMedi-CalProgram.Also,Proposition99fundingforAIMwasreducedby$28.5milliontoreflectone-timesavings in2009-10fromimplementationofanewmethodologyforpaymentstohealthplans.

Department of Mental HealthThe spending plan provides about $1.9 billion from the General Fund($3.5billionfromall fundsources)fortheDepartmentofMentalHealth(DMH).Thisisanetdecreaseofabout$104millionfromtheGeneralFund,or5.3percent,comparedtotherevisedprior-year levelofspending.Thereductions to DMH community programs are partly offset by spendingincreasesthatareprovidedmainlyforstatehospitaloperations.

Reduction to Mental Health Managed Care.Thespendingplanprovides$113.3 million General Fund for support of the Mental Health ManagedCare program, a decrease from the revised prior-year spending level of$72.3millionGeneralFund,or39percent.Thisdecreasereflectsa$64mil-lionreductioninstatefundingforcertainservices aswellasadjustmentsduetoincreasedFMAPunderARRA.

Reduction to Early and Periodic Screening, Diagnosis, and Treatment (EPSDT).Thespendingplanprovidesabout$349millionGeneralFundforsupportofEPSDT,anetdecreasefromtherevisedprior-yearadjustedspendinglevelofabout$30million,or8percent.Thisdecrease includesanassumptionthat$28millioninEPSDTsupportwillcomefromcountyProposition63fundsratherthanthestateGeneralFund,thedeferraluntil2010-11of$15.8millionforprior-yearcountycostsettlements,andFMAPadjustments.ThesereductionsareoffsetbyotherGeneralFundspendingincreases,including$19millionforcompliancewiththeEmily Q. v. Bontaruling,whichrequiresDMHto implementanine-pointplan to increasecountyuseoftherapeuticbehavioralservices.

Assembly Bill 3632 Mandate Funding Deferred. Thespendingplanincludes$52millionGeneralFundintheDMHbudgettopayformentalhealthser-


43

vicesprovidedtochildrenenrolledinspecialeducationasdirectedunderso-calledAB3632programs.Thisrepresentsadecreaseof$52millionGeneralFundor50percentcomparedtorevisedprior-yearspendinglevels.

Caregiver Resource Centers Reduced. ThespendingplanreducesfundingforCRCsby$7.6million,orabout72percent,ascomparedtorevisedprior-yearspendinglevels.TheCRCsprovideservicestocaregiversofafamilymemberwithacognitiveimpairmentsuchasrespiteandcounseling.ThebudgetreflectstheGovernor’svetoof$4.1millioninadditiontoa$3.5mil-lionlegislativereductiontotheCRCs.

State Hospitals/Long-Term Care Services. The spending plan providesabout$1.2billionfromtheGeneralFundforstatehospitaloperationsandlong-termcareservicesforthementallyill,a$66.2millionincreaseinGen-eralFundresourcesoverrevisedprior-yearspendinglevels.Thisincludes$25.3millionfortheexpansionofmentalhealthbedsforprisoninmatesintheSalinasandVacavillepsychiatricprograms,$24.4millioninincreasedlease-revenuedebtservicepaymentsforDMHfacilities,andcostsduetoprojectedcaseloadgrowthandotherprogramchanges.Thespendingplanalsoachieves$8.3millionGeneralFundsavingsintheSexOffenderCom-mitmentProgramduetoreducedcostsforevaluationsandcourttestimony.

Department of Developmental ServicesThebudgetprovides$2.4billionfromtheGeneralFund($4.7billionfromallfundsources)forservicesforindividualswithdevelopmentaldisabilitieswhoareclientsofdevelopmentalcenters(DCs)andregionalcenters(RCs).Thisamountstoanetdecreaseofabout$170million,or6.6percent,inGen-eralFundsupportcomparedtotherevisedprior-yearspendinglevel.ThedecreaseinGeneralFundspendingfortheDepartmentofDevelopmentalServices (DDS) is largelydue to increased federal fundsprovidedunderARRAandtheadoptionofseveralproposalstoachieveadepartmentsav-ingstargetof$334million.Thesespendingreductionsarepartlyoffsetbyincreasesforcaseload,costs,andutilizationofservices.Wedescribetheseproposalsinmoredetailbelow.

Savings in Community Programs. Thespendingplanincludesatotalof$2.1billionfromtheGeneralFundforcommunityservicesforthedevel-opmentallydisabled.ThisreflectsadecreaseinGeneralFundsupportofabout $126 million, or 5.8 percent, over the revised prior-year spendinglevel.Workingwithvariousstakeholdergroups,DDSdevelopedavarietyofproposalstogenerate$334millioninGeneralFundsavingsin2009-10.Forexample,$60millioninsavingswouldcomefromobtainingadditionalfederalMedicaidfundsforcertainservices. Inaddition,theGovernorvetoed$50millionfromthecommunityprogramsbudgetforservicesprovidedtochildrenuptoagefiveanddirectedDDStorequestreplacementfundsfromtheFirst5Commission.Thespendingplanincludessavingsof$26.6milliontotheGeneralFundduetotheavailabilityofadditionalfederalfundsfor


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California’sEarlyStartprogramunderARRA.TheDDSwasalsorequiredtodevelopanewservicemodelthatprovidesconsumerswithan“individualchoicebudget”thatallowsRCclientstochoosetheservicestheywantwithinafixedbudget.

Net Reduction in DCs. The spending plan includes about $301 millionfromtheGeneralFundfortheDCs,adecreaseinGeneralFundofabout$27million,or8.3percent, compared to the revisedprior-year spendinglevel.ThisdecreaseinGeneralFundspendingismainlyduetothedelayofseveralcapitaloutlayprojects,andfromtheclosureoftheSierraVistaCommunityFacility.

Department of Alcohol and Drug ProgramsThebudgetprovidesabout$189.5millionfromtheGeneralFund($478.9mil-lionallfunds)fortheDepartmentofAlcoholandDrugPrograms.Thisisadecreaseof$93.8millionfromtheGeneralFund,or33.1percent,comparedtotherevisedprior-yearspendinglevel,thatisduemainlytoreductionsinfundingfortheProposition36andDrugMedi-Calprograms.

Proposition 36 Programs Reduction.Thespendingplanincludestheelimi-nationof$90millioninGeneralFundsupportfromtheSubstanceAbuseandCrimePreventionAct(alsoknownasProposition36),whilemaintaining$18millioninGeneralFundsupportfortheOffenderTreatmentProgram,whichalsoservesProposition36offenders.Thesespendingreductionsare,ineffect,partlyoffsetwith$45millioninone-timefederalByrneMemorialJusticeAssistanceGrantfundsfortheOffenderTreatmentProgram.

Drug Medi-Cal Reduced. Thespendingplanincludesanacross-the-board10percentreductionintheratespaidtoDrugMedi-Calprovidersthatisestimatedtoachieve$8.8millioninGeneralFundsavings.ThespendingplanalsoincludesadjustmentsduetoincreasedFMAPunderARRA.

Emergency Medical Services Authority (EMSA) Thespendingplaneliminates$3million,orone-halfofthecurrentGeneralFundsupport,fortheCaliforniaPoisonControlSystem(CPCS).TheEMSAiscurrentlyattemptingtosecurealternativesourcesoffundinginordertocontinueCPCSoperationsthrough2009-10.

SOcial ServiceS and laBOrGeneralFundsupportforsocialservicesprogramsinthe2009-10budgettotals$8.9billion,areductionof$1.1billion(11percent)comparedtotherevisedprior-yearlevel.Mostofthisdecreaseisfromgrantreductionsforre-cipientsintheSupplementalSecurityIncome/StateSupplementaryProgram(SSI/SSP),eligibilityandservicerestrictionsforrecipientsofIn-HomeSup-portive Services (IHSS), reduced funding for child welfare services andfostercare,andadditionalavailablefundsfromARRA.Figure13showsthe


45

changeinGeneralFundspendingineachmajorsocialservicesprogramordepartment.ThebudgetplanalsoachievedsomesignificantGeneralFundsavingsonlaborprograms,whichwediscusslaterinthissection.

Savings From ARRA.For2008-09,ARRAprovidedabout$800millioninfederalfundswhichwereusedtooffsetGeneralFundcostsforsocialservicesprograms.In2009-10,ARRAfundingisprojectedtoincreasetoabout$1bil-lion.Figure14(seenextpage)showsARRAfundingusedtooffsetGeneralFundspendingbyprogramarea.

Summary of Other Major 2009-10 Budget Changes.Figure15(seenextpage)summarizesthemajorprogrammaticchangestosocialservicesprogramswhichwereincludedintheFebruarybudgetandtheJulyrevisedpackagecomparedtoprior law.ThebudgettotalsreflecttheGovernor’svetoesofapproximately$125millioninfundingforchildwelfareservices,Depart-mentofAgingprograms,andIHSS,someofwhicharenowthesubjectofpendinglitigation.

TheamountsshowninFigure15generallyreflecttheongoingannualsav-ingsfromthepolicychanges.ForsomeofthechangesinCalWORKsandIHSS,however, theamountsshownoverstate the impact in2009-10.Thisisbecausethefederalgovernment—underARRA—istemporarilypickingupagreatershareofprogramcosts,therebyreducingthevalueofGeneralFundsavingsin2009-10fromservicereductions.(Thefootnotestothefig-ureprovideadditionalinformationregardingthisinteractionwithARRA.)AlthoughFigure15showsatotalGeneralFundsolutionof$2.1billion,the

Figure 13

Major Social Services Programs and Departments—Spending Trend


Change From 2008-09 to 2009-10

2007-08 2008-09 2009-10 Amount Percent

SSI/SSP $3,623.5 $3,637.2 $2,968.4 -$668.8 -18.4%CalWORKs 1,481.7 1,981.6 2,015.3 33.7 1.7 In-Home Supportive Services 1,686.5 1,588.0 1,255.2 -332.8 -21.0 Child Welfare Services/Foster Care/Adoptions Programs —a 1,639.6 1,485.4 -154.2 -9.4 County administration and automation 451.0 509.4 571.1 61.7 12.1 Department of Child Support Services 326.3 353.0 279.8 -73.2 -20.7 Department of Rehabilitation 55.3 56.4 58.1 1.6 2.9 Department of Aging 62.2 45.1 33.4 -11.7 -25.9 All other social services programs —a 198.5 209.6 11.2 5.6

Totals $9,432.4 $10,008.8 $8,876.3 -$1,132.5 -11.3%a Data not available.


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netGeneralFundsavingsin2009-10wouldbeabout$1.8billionafterac-countingfortheinteractionwithARRA.

Elimination of Automatic COLAs and Other Long-Term CalWORKs Changes.PriorlawrequiredthatthemaximummonthlygrantsforSSI/SSPandCalWORKsbeadjustedeachyeartoreflectthechangeintheCaliforniaNecessitiesIndex.Beginningwith2010-11,budgetlegislationeliminatesthisautomaticadjustment.EffectiveinJuly2011,thebudgetplansubstantiallymodifies the CalWORKs program by increasing the magnitude of sanc-tionsimposedfornoncomplianceandreducingthenumberofconsecutivemonthsanadultmayreceivecashassistance.Theselonger-termchangesarediscussedintheboxonpage49.

SSI/SSPThebudgetprovides$3billion from theGeneralFund forSSI/SSP.Thisisanoveralldecreaseof$669million(18percent)infundingcomparedtotherevised2008-09spendinglevel.ThisdecreaseisprimarilytheresultofreducingCOLAsrelatedtograntsforindividualsandcouples.

Changes to COLAs.InJanuary2009,recipientsofSSI/SSPreceivedafederalCOLAwhichincreasedthefederallyfundedSSIportionofthemonthlygrantby$37forindividualsand$55forcouples.PursuanttotheFebruarybud-getpackage,thestate-fundedSSPportionofthegrantwasreducedinMay2009bythesesameamounts.Thisisreferredtoas“notpassing-through”thefederalCOLA.AsshowninFigure16(seepage48),thisactionreducedmaximummonthlygrantsforindividualsfrom$907to$870andgrantsforcouplesfrom$1,579to$1,524.ThisactionisexpectedtoresultinGeneral

Figure 14

ARRA-Related Savings for Major Social Services Programs

(In Millions)

Program Area 2008-09 2009-10

FMAP Relief

In-Home Supportive Services -$296.3 -$366.8 Adoptions Assistance Program -22.4 -32.0 Foster Care -9.7 -11.2 Foster Care Waiver -6.2 -8.7 Multipurpose Senior Services Program -4.0 -5.3

Other Relief

Temporary Assistance for Needy Families Emergency Contingency Fund

-$474.9 -$578.3

Child Support -20.4 -27.7

Total ARRA General Fund Benefit -$833.9 -$1,030.0 ARRA = American Recovery and Reinvestment Act; FMAP = federal medical assistance percentage.


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Figure 15

Major Changes—State Social Services Programs 2009-10 General Fund Effect

(In Millions)

Program

February Budget

Package

July Budget

Package Totals

SSI/SSP Withhold pass-through of federal January 2009 COLA -$362.9 — -$362.9 Reduce grants by 2.3 percent -233.8 — -233.8 Make additional grant reductions for individuals (5.5%) and couples (0.6%) — -$109.3 -109.3 Suspend June 2010 state COLA -27.0 — -27.0 Recognize CAPI savings from federal SSI/SSP eligibility change -24.6 — -24.6

CalWORKs Reduce county block grant funds for child care and employment services — -$419.4 -$419.4 Reduce grants by 4 percent -$160.3 — -160.3a

Suspend July 2009 COLA -79.1 — -79.1a

Achieve grant savings from earnings related to expanded subsidized employment — -64.0 -64.0a

Suspend pay-for-performance county incentive program -40.0 — -40.0 Replace Employment Training Funds with General Fund — 15.0 15.0

In-Home Supportive Services (IHSS) Net savings from anti-fraud initiatives — -$162.0 -$162.0b

Target services to most vulnerable recipients — -102.3 -102.3b

Reduce state participation in wages and benefits to $10.10 per hour -$98.1 — -98.1b

Eliminate share-of-cost buyout program -1.7 -41.1 -42.8 Reduce administrative funding for public authorities — -13.3 -13.3

Child Welfare Services Governor's veto to reduce funding to counties — -$80.0 -$80.0 Implementation costs for federal requirements — 17.7 17.7 Reduce Transitional Housing Plus Program — -5.0 -5.0

Foster Care Reduce foster care group home and agency rates by 10 percent — -$26.6 -$26.6b

County Welfare Automation Delay Los Angeles automation system reprocurement -$14.6 — -$14.6 Reduce M&O funding for county automation systems — -$8.5 -8.5

Community Care Licensing One-time federal funds to license and inspect child care homes — -$5.3 -$5.3 Ten percent fee increase — -2.1 -2.1

Department of Child Support Services Reduce child support automation system upgrades -$36.1 -$0.5 -$36.6 Eliminate General Fund backfill of previous federal fund reduction — -27.7 -27.7

Department of Aging Eliminate Linkages and community-based programs — -$10.4 -$10.4

Totals -$1,078.2 -$1,044.7 -$2,122.9 a Because of interaction with federal relief funds, savings for 2009-10 overstated by a factor of four. b Because of interaction with federal relief funds, savings for 2009-10 overstated by roughly 20 percent. COLA = cost-of-living adjustment; CAPI = Cash Assistance Program for Immigrants; M&O = maintenance and operation.


48

Fundsavingsof$61millionin2008-09and$363millionin2009-10.Inad-dition,theFebruarybudgetdeletedtheJune2009stateCOLAthatwouldotherwisehavebeenprovidedforSSI/SSPrecipients.Thisisanticipatedtoresultinsavingsof$27millionin2009-10and$312millionin2010-11.

Grant Reductions. The budget includes two other grant reductions forSSI/SSPrecipients.Thefirstisa2.3percentreductiontoindividualsandcoupleseffectiveJuly2009.Thesecondisa0.6percentreductionto indi-vidualgrantsanda5.5percentreductiontocouplesgrantseffectiveOctober2009.Wenotethatthegrantreductionforcouplesbringstheirgrantstotheminimumamountallowableunderfederallaw.Thecombinedsavingsfromthesetworeductionsis$340millionin2009-10.

Combined Impact on Grants.Intotal,thesechangesreducemaximumgrantsforindividualsby$62permonth(about6.8percent)andcouplesby$172permonth(about11percent)betweenJanuary2009andOctober2009.Thestate-fundedSSPportionofthegrantdecreasedby27percentforindividualsand30percentforcouplesoverthistimeperiod.

Effect of Federal Law Changes on Cash Assistance Program for Immi-grants. The state-only funded Cash Assistance Program for Immigrants(CAPI) provides a monthly cash grant to legal immigrants who meetSSI/SSPeligibility requirementsbutarenototherwiseeligible to receiveSSI/SSPduetotheirimmigrationstatus.Recentfederallawincreases,bytwoyears,theamountoftimecertainCAPIrecipientsareeligibletoreceiveSSI/SSP.Accordingly,thebudgetassumestemporarystatesavingsofabout$25millionin2009-10.

Figure 16

SSI/SSP Maximum Monthly Grants in 2009

January May July October

Individuals SSI $674 $674 $674 $674 SSP 233 196 176 171

Totals $907 $870 $850 $845

Percent of Povertya 100% 96% 94% 94%

Couples SSI $1,011 $1,011 $1,011 $1,011 SSP 568 513 478 396

Totals $1,579 $1,524 $1,489 $1,407

Percent of Povertya 130% 126% 123% 116% a Compares grant level to federal poverty guideline. Poverty guideline is from 2009 U.S. Department of

Health and Human Services guidelines.


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Longer-Term CalWORKs Policy Changes

EffectiveJuly2011,budgetlegislationmakessignificantchangestoCalWORKssanctionpolicies,timelimits,andeligibilityrules.Whenimplemented,thesechangesarelikelytoresultinongoingGeneralFundsavingspotentiallyinthelowhundredsofmillions.

Limit to 48 Consecutive Months of Aid. Currently, able-bodiedadultsaregenerallylimitedto60monthsofaid.Onceanadultreaches60months,thefamily’sgrantisreducedbytheamountattributabletotheadult,andthechildrencontinuetoreceiveaidinaprograminformallyknownasthesafetynet.Budgetlegislationlimitsadultreceiptofaidto48consecutivemonths.After48months,theadultisremovedfromthecaseandthechildrencontinuetobeaidedinthesafetynet.After“sittingout”foroneyear,theadultcanrejointhecaseforuptooneyearandthefamily’sgrantisrestored,assumingtheadultavoidsprogramsanctions.

Self-Sufficiency Reviews.Currently,aidedadultsmustberecerti-fied for eligibility with an in-person interview each year. BudgetlegislationrequiresadultsinCalWORKscaseswhoarenotmeetingparticipationrequirementstoinsteadmeetwithacountysocialoremploymentworkereverysixmonths.Thepurposeofthereviewistodeterminebarrierstoparticipationandhelpconnecttherecipienttoappropriateservicesandresources.Iftheadultdoesnotattendthereview,thefamily’sgrantisreducedby50percent.

Increase in Sanctions for Noncompliance.Currentlywhenanadultdoesnotmeetworkparticipationrequirements,thefamily’sgrantisreducedbytheamountattributabletotheadult(leavingthefamilywithagrantequalthe“child-only”portionoftheoriginalgrant).Bud-getlegislationrequiresimpositionofadditionalfinancialsanctionsiftheadultdoesnotcomplywithworkparticipationrequirements.Specifically,ifthenoncompliancepersistsforanadditional90days,thefamily’sgrantisreducedto75percentofthechild-onlygrant.Ifthenoncompliancepersistsforanother90days,thenthegrantisreducedto50percentofthechild-onlygrant.Beforeimposingtheseadditionalfinancialsanctions,countiesmustreviewandassesseachcasetoidentifybarrierstoparticipationandmakegoodfaitheffortstoremediateanybarriersidentified.

Time in Sanction Counts Toward Time Limit. Currently, duringthoseperiodsforwhichanadultisbeingsanctioned,theirtimeonaiddoesnotcounttowardthe60-monthtimelimit.Pursuanttobudgetlegislation, anymonthsaCalWORKs recipient spends in sanctionstatuswillcounttowardthe48-and60-monthtimelimitsontheiraid.


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CalWORKsDespiteacaseloadincreaseofabout15percent,GeneralFundsupportforCalWORKs in the2009-10budgetplanremainedessentiallyflatatabout$2billion.Thisisbecausethebudgetplanincludedabout$700millioninbudget reductions and because of an increase in federal Temporary As-sistancetoNeedyFamilies(TANF)EmergencyContingencyFunds(ECF)providedpursuanttotheARRA.ThebudgetplanrejectedtheGovernor’sMayproposaltoeliminatetheCalWORKsprogram.

Grant Reduction. The budget package deleted the July 2009 COLA andreducedgrantsby4percent.Theseactionsareexpectedtoresultintotalprogram savings of about $240 million. Figure 17 shows the combinedmaximummonthlygrantsandfoodstampsforafamilyofthree in low-andhigh-costcounties.Asthefigureshows,despitethegrantreduction,arecipient’scombinedgrantandfoodstampsishigherasofJuly2009thanitwasinJanuary,duetotheincreaseinfoodstampsallotmentspursuanttoARRA.Thefigurealsoshowshowthecombinedmaximumgrantandfoodstampscomparetothefederalpovertyguidelineforafamilyofthree.

Reduction and Prioritization of County Block Grant Funds. Thebudgetachievesabout$420millioninsavingsbyreducingcountyblockgrantfundsforwelfare-to-workservices($162million)andchildcare($215million),andrevertingcountyblockgrant funding from2008-09 to theGeneralFund($43million).BudgetlegislationstatestheLegislature’sintentthat$375mil-lioninblockgrantreductionscontinuethroughtheendof2010-11.

Becauseofthesereductions,therewillnotbesufficientfundingforcountiestoprovideservicestoalleligibleCalWORKsrecipients.(Therearesufficientfundstopaygrants.)Tohelpcountiesprioritizeresourcesgiventhisreduc-

Figure 17

CalWORKs Maximum Monthly Grant and Food Stamps Family of Three, 2009

January April July

High-Cost Counties Grant $723 $723 $694 Food Stamps 423 486 495

Totals $1,146 $1,209 $1,189 Percent of Povertya 75% 79% 78%

Low-Cost Counties Grant $689 $689 $661 Food Stamps 433 496 505

Totals $1,122 $1,185 $1,166 Percent of Povertya 74% 78% 76%

a Compares grant level to federal poverty guideline. Poverty guideline is from 2009 U.S. Department of Health and Human Services guidelines.


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tioninfunding,budgetlegislationexemptsfamilieswithachildunderagetwo,orwithtwoormorechildrenundertheageofsix,fromworkparticipa-tionrequirements.Budgetlegislationalsoprovidesthat,foranymonthforwhicharecipienthasbeenexcusedfromworkparticipationrequirementsduetolackofsupportservices,thecasedoesnotcounttowardthestate’s60-monthtimelimitfortheirreceiptofcashaid.Finally,thebudgetincludesintentlanguageindicatingthatcountiesshouldberelievedfrompayinganyfederalpenaltiesresultingfromthestate’sfailuretomeetstatewideworkparticipationrequirementsduetothesefundingreductions.

Subsidized Employment Initiative Utilizes New Federal Funds.TheARRAcreatedtheTANFECF.Thisnewfundingstreamprovides80percentfederalfinancialparticipationincostsforongoingbasicassistance(cashgrants),andcertainotherpurposes,whichexceedthecorrespondingcostsduringFFY2006-07.Budgetlegislationauthorizescountiestousethesefederalfundsincombinationwithcountyandotherlocalfundstocreatesubsidizedemploy-mentpositionsforCalWORKsrecipients.Thebudgetincludes$275millioninECFforthisinitiativeandreflectsgrantsavingsofabout$64millionduetothehigherearningsofrecipientswhoareemployedinthesenewpositions.

Other 2009-10 Budget Changes.Thebudgetplansuspendspay-for-perfor-manceincentivepaymentstocountiestoavoid$40millionincosts.Finally,thebudgetreducesEmploymentTrainingFundsupportforCalWORKsby$15million,resultinginanidenticalGeneralFundcost.

IHSSThe budget decreases General Fund support for IHSS by $333 million(21percent)in2009-10comparedtotherevised2008-09spendinglevel.Thesesavingsaremostlyduetoreductionsinstateparticipationinwages,servicereductionsandeliminations,aplannedexpansionofIHSSanti-fraudactivi-ties,andthereceiptofadditionalARRAfunds.Thesesavingsarepartiallyoffsetbyacaseloadincrease.

Reduction in State Participation in Wages.InJanuary,theGovernor’sbud-getproposedtodecreasestateparticipationinproviderwagesandbenefitsfrom$12.10perhourtotheminimumwage($8.00)plus$0.60forbenefits.InFebruary, theLegislaturereducedstateparticipationinIHSSproviderwagesandbenefitsto$10.10perhoureffectiveJuly1,2009.ThisreductionisestimatedtosavetheGeneralFundabout$98millionin2009-10.However,inlateJune,afederaljudgeissuedaninjunctiontostoptheproposeddecreasein state participation in wages for providers until the state performs ananalysisofthepotentialimpactsofsuchawagereduction.(Thisinjunctionwasstillineffectatthetimethisanalysiswasprepared.)Asaresult,despitecurrentlaw,thestateisstillparticipatingincombinedwagesandbenefitsofupto$12.10perhour.Foreachmonththestatecontinuestoparticipateatthislevel,theestimatedsavingsfromthereductioninstateparticipationinwagesiserodedbyabout$8.2million.


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Service Reductions and Eliminations.TheGovernorproposedtoelimi-nateIHSSservicesforallbutthemostimpairedrecipients(resultinginareductionofnearly90percentoftheIHSScaseload),fortotalGeneralFundsavingsofroughly$700million.Instead,theLegislatureadopted,effectiveSeptember2009,severalchangestoservicesandeligibilitythatwereinitiallyestimatedtoresultinGeneralFundsavingsofabout$73millionin2009-10.ThefirstreductiontargetsdomesticandrelatedcareservicestothemostimpairedIHSSrecipients.ThesecondeliminatesallIHSSservicesfortheleastimpairedIHSSrecipients.Forbothofthesereductions,theLegislatureadoptedexceptionsforcertainrecipientswhomeetspecifiedcriteria,butauthorizedtheGovernortowaivetheseexemptionsunderspecifiedcondi-tionsiftheyputfederalIHSSfundingatrisk.Ultimately,theGovernorcitedtheseconditionsinvetoinganadditional$28.9millionfromthefinalbudgetpackage.Intotal,thesavingsfromtheseproposalsareestimatedtobeabout$102millionin2009-10.However,theDepartmentofSocialServices(DSS)recentlyannouncedthatimplementationwillbedelayed.Foreachmonthofdelay,thesavingsareerodedbyabout$8.5million.

IHSS Anti-Fraud Initiatives. The 2009-10 budget includes several anti-fraudactivitiesthatareestimatedtosaveabout$162millionfortheGeneralFund.Theseactivitiesinclude(1)fingerprintingofrecipientsandproviders,(2)authorizationofunannouncedhomevisitstoverifydeliveryofservices,and(3)theimpositionofcivilpenaltiesforfraudulenttimecards.

Elimination of Share of Cost (SOC) Buyout Program.Thebudgetelimi-natestheSOCbuyoutprograminIHSSeffectiveOctober2009.About9,300recipientsareexpectedtolosethestatebuyoutasaresultofthisreduction,whichisestimatedtosave$42.8millionin2009-10.

Public Authority Administration Reduction. TheIHSSpublicauthoritiesessentially represent the county in provider wage negotiations. Besidescollective bargaining, the primary responsibilities of public authoritiesinclude(1)establishingaregistryofIHSSproviderswhohavemetvariousqualification requirements, (2) investigating the background of potentialproviders,(3)establishingasystemtoreferIHSSproviderstorecipients,and(4)providingtrainingforprovidersandrecipients.In2009-10,theGovernorproposed$23.3millionGeneralFundforsupportofthepublicauthorities.TheLegislaturereducedGeneralFundsupportforpublicauthorityadmin-istrationby$4.7million.TheGovernorsubsequentlyvetoedanadditional$8.6million,foratotalreductionofabout$13.3million.

Children’s ProgramsThebudgetprovidesacombinedtotalof$1.5billionfromtheGeneralFundforFosterCare,ChildWelfareServices(CWS),adoptions,andadoptionas-sistance.Thisisanoveralldecreaseof$154million(9.4percent)infundingcomparedtotherevised2008-09spendinglevel.ThisdecreaseisprimarilytheresultofareductiontocertainFosterCarerates,avetooffundingfor


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CWS,andatemporaryincreaseinfederalfunds(throughARRA)tooffsetGeneralFundcostsinFosterCareandadoptionassistance.

CWS Reductions. TheGovernor’svetoreducedCWSfundingtocountiesby$80million(10percent)fromtheGeneralFund.ThebudgetalsoreducesGeneralFundsupportby$5millionfortheTransitionalHousingPlusPro-gram,whichprovideshousingservicestoemancipatedfosteryouth.

Implementation Costs for Federal Requirements. The budget provides$13millionfromtheGeneralFundtosupporttheProgramImprovementPlan(PIP),whichisrequiredbecausethestatedidnotmeetCWSperformancestandardsinafederalreview.Thebudgetalsoprovides$4.7millionfromtheGeneralFundtocoverimplementationcostsforthefederalFosteringConnectionstoSuccessandImprovingAdoptionsAct.

Foster Care. Thebudgetincludesa10percentreductiontoFosterCaregrouphomeandfosterfamilyagencyrates,effectiveOctober2009,forGeneralFundsavingsof$26.6million.

County Welfare AutomationDelay in Los Angeles Eligibility and Determination, Evaluation, and Reporting System (LEADER) Replacement. BydelayingforsixmonthsthedevelopmentoftheLEADERreplacementsystem,oneofthefourwelfareautomationconsortia,thebudgetachievesGeneralFundsavingsofabout$15million.

Ten Percent Reduction to County Welfare Automation Systems.Thebudgetreducesfundingby10percentfortheoperationandmaintenanceofthefourwelfareconsortiasystems($4.5millionGeneralFund)andtheChildWelfareServices/CaseManagementSystem($4millionGeneralFund).

Development of Centralized Eligibility. BudgetlegislationauthorizestheStateDepartmentofHealthCareServicesandtheStateDepartmentofSocialServicestoimplementacentralizedeligibilityandenrollmentprocessforCalWORKs,theMedi-Cal,andtheFoodStampprograms.ThisproposalisdiscussedearlierintheHealthsectionofthischapter.

Community Care LicensingThebudgetprovides$31.1millionfromtheGeneralFundfortheCommunityCareLicensingprogram.This isanoveralldecrease in fundingofabout$6million(16percent)comparedtothe revised2008-09fundinglevel.Thisdecreaseisprimarilytheresultof(1)a10percentfeeincreaseforfacilities,whichresultsinGeneralFundsavingsof$2.1millionand(2)aone-time$5.3millionincreaseinfederalfundstooffsetGeneralFundcostsforlicens-ingandinspectingfamilychildcarehomes.

Department of Child Support ServicesThebudgetprovides$280millionfromtheGeneralFundfortheDepartmentofChildSupportServices(DCSS).Thisisanoveralldecreaseinfundingof


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about$73million(21percent)comparedtotherevised2008-09fundinglevel.ThisdecreaseisprimarilytheresultofGeneralFundrelieffromARRAandreductionsinthecostofautomationprojects.

Augmentation for Child Support Enforcement Staff. ThebudgetincludesaproposalestimatedtoresultinanetGeneralFundbenefitofabout$500,000in2009-10bymaintainingcountychildsupportenforcementstaffing.Spe-cifically,thebudgetincludesan$18.7million($6.4millionGeneralFund)augmentationforDCSSforthispurpose,whichisassumedtoincreasechildsupportcollectionsandthereforeincreaseGeneralFundrevenuesbymorethantheaugmentation.

New Fee on Certain Families.BeginninginJanuary2008, inaccordancewiththeFederalDeficitReductionActof2005,thefederalgovernmentbeganassessinganannualfeeonthestateof$25forcertainchildsupportcases.Thefeeapplieswhenever$500ormoreiscollectedonbehalfofachildsup-portfamilywhohadneverreceivedpublicassistance(referredtoas“never-assisted”cases).Statefundshavebeenusedtocoverthisfeeinrecentyears,and$3.7millionisprovidedforthispurposeinthe2009-10budgetplan.NewbudgetlegislationauthorizesDCSStobegincollectingtheannual$25servicefeefromthecustodialparentinnever-assistedchildsupportfamilieseffectiveOctober2010,ineffectreimbursingthestateforthesecosts.

General Fund Savings From Suspending Backfill. ThefederalDeficitRe-ductionActof2005eliminatedthestates’ability tousefederal incentivefundstodrawdownafederalmatch.Inordertomaintainthelevelofchildsupportenforcement,theLegislaturehasbeenbackfillingthelostfederalfundswithGeneralFundmonies.TheARRAtemporarily(fromOctober2008toSeptember2010)restoresstates’abilitytousefederalincentivefundstodrawdownotherfederalmatchingfunds.Inresponsetothischange,thebudgetactremovestheGeneralFundbackfill,whichsavesabout$28mil-lionin2009-10.

Reductions to the Child Support Automation System Budget.InFebru-ary,theLegislaturerejected$36millioninGeneralFundsupportproposedforvarioussystemupgrades.Additionally,inJuly,theLegislaturefurtherreducedby10percentthemaintenanceandoperationsbudgetforthesystemforanadditionalsavingsof$500,000.

Department of AgingThebudgetprovides$33.4millionfromtheGeneralFundfortheDepart-mentofAging.Thisisanoveralldecreaseofabout$11.7million(26percent)infundingcomparedtotherevised2008-09fundinglevel.Thisdecreaseisprimarilytheresultof(1)theeliminationoftheLinkagesprogramand(2)theeliminationofstatesupportforcommunity-basedservices.

Elimination of Linkages.TheLinkagesprogramprovidescasemanagementservicesthatlinkelderlyandimpairedclientstoservicestoassisttheminremainingintheirowncommunities.Insteadofadoptinganadministration


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MayRevisionproposaltoeliminatestatefundingfortheLinkagesprogram,theLegislaturereduceditsGeneralFundsupportby$2.5millionandadoptedlegislationtoprioritizeLinkageservicesforindividualslivinginpoverty.TheGovernorsubsequentlyvetoedadditionalfundingfromLinkagestoachieveatotalof$6.1millioninGeneralFundsavings—effectivelyeliminatingstatesupportasofOctober2009.

Elimination of Community-Based Services Programs (CBSP).TheGov-ernor’sMayRevisionproposedtoeliminatestatefundingforCBSPasofOctober2009.TheseprogramsincludetheSeniorCompanion,BrownBag,Alzheimer’sDayCareResourceCenter,andRespiteprograms.TheLegis-latureapprovedareductionofabout$1.7millionfromtheGeneralFundintheseprograms.TheGovernorsubsequentlyvetoedadditionalfundingfromCBSPtoachievetotalsavingsofabout$4million—effectivelyeliminatingstatesupportasofOctober2009.

Multipurpose Senior Services Program (MSSP).TheLegislaturerejectedtheGovernor’sMayRevisionproposaltoeliminateMSSP,whichprovidescasemanagementservicesforelderlyclientstopreventordelayinstitutionalplacement.However,duetothereceiptofFMAPreliefunderARRA,GeneralFundsavingsof$5.3millionwereachievedinMSSPin2009-10.

Labor ProgramsDepartment of Industrial Relations Thebudgetprovides$27.6millionfromtheGeneralFundfortheDepartmentofIndustrialRelations(DIR).Thisisanoveralldecreaseofabout$41.3million(60percent)infundingcomparedtotherevised2008-09spendinglevel.ThisdecreaseisprimarilytheresultoftheimplementationofnewassessmentsonemployersthatmakethemajorityofDIR’sactivitiesemployerfee-funded,ratherthansupportedbytheGeneralFund.

Department Becomes Mostly Fee-Supported. Currently,Californiaemploy-ersmustpayfiveseparateassessments(annualsurcharges)thatareaddedtotheirworkers’compensationpremiumstosupportvariousactivitieswithinDIR,includingcomponentsoftheworkers’compensationprogramandsomeworkplacesafetyandhealthactivities.

InMay,theGovernorproposedto:increasetheassessmentfeesfortheDi-visionofOccupationalSafetyandHealth(DOSH)programs,createasixthassessmenttosupporttheactivitiesoftheDivisionofLaborStandardsEn-forcement(DLSE),andincreasestaffinginDIRby183positionstoincreaseenforcementactivities.Essentially,theseincreasedassessmentswouldmakeDOSHandDLSEcompletelyfeefunded,ratherthanfundedbytheGeneralFund.TheLegislatureadoptedtheproposedchangestotheassessments,butrejectedtheGovernor’sproposaltoincreasestaffing.Thebudgetplanincreasesassessmentsonemployersbyabout$70million.Thebudgetestab-lishesasunsetdatefortheincreasedassessmentsofJuly2013.


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Figure 18

Judiciary and Criminal Justice Budget Summary


Change From 2008-09

Program/Department 2007-08 2008-09 2009-10 Amount Percent

Department of Corrections and Rehabilitation $10,011 $9,932 $8,708 -$1,224 -12.3% Judicial Branch 2,211 2,212 1,940 -272 -12.3 Department of Justice 400 331 350 19 5.7

Other criminal justice programsa 437 303 134b -169 -55.8

Totals $13,059 $12,778 $11,131 -$1,646 -12.9% Estimated General Fund Offsetc — — -$2,099 — — a Includes debt service on general obligation bonds, Office of Inspector General, Juvenile Justice Crime Prevention Act Grants, Small and Rural

Sheriffs Grants, and other programs. b Does not reflect the transfer of vehicle license fee revenue from the General Fund to the Local Public Safety and Protection Account.

c The budget package includes budget legislation authorizing the Director of Finance to use resources from a local government finance shift to offset General Fund spending for certain state programs. The director plans to use some of these resources for prisons ($588 million) and courts ($1.5 billion).

Employment Development DepartmentRedirect Workforce Investment Act (WIA) Funds to Offset General Fund.Thebudget redirectsa totalof$15millionofWIA job-trainingprogramfundstooffsetGeneralFundcostsforparoleeemploymentservicesprovidedbyCaliforniaDepartmentofCorrectionsandRehabilitation(CDCR).ThisincreasesGeneralFundsavingsby$5.5millioncomparedto2008-09.

Judiciary and criminal JuSticeThe2009-10budgetprovides$11.1billionfromtheGeneralFundforjudicialandcriminaljusticeprograms,includingsupportofongoingprogramsandcapitaloutlayprojects(seeFigure18).Thisisadecreaseofabout$1.6billion,orabout12.9percent,belowtherevised2008-09GeneralFundspendinglevel.Asdiscussedinthe“LocalGovernment”sectionofthischapter,thefundingfromalocalgovernmentfinanceshiftwouldoffsetabout$2.1bil-lioninGeneralFundcostsforstateprisonsandcourts, therebybringingtotalGeneralFundexpendituresforthesepurposestoabout$9billionin2009-10.Althoughnotreflectedinthefigure,GeneralFundcostsforstateprisonswouldalsobeoffsetwith federalARRAfunds—$727million in2008-09and$358millionin2009-10.Below,wehighlighttheothermajorchangesinthesebudgets.

Judicial BranchThebudgetprovidesabout$3.7billionforsupportofthejudicialbranch.Thisamountincludes$1.9billionfromtheGeneralFundand$499milliontransferredfromthecountiestothestate,withmostoftheremainingbalanceofabout$1.3billionderivedfromfine,penalty,andcourtfeerevenues.TheGeneralFundamountis$272million,or12.3percent,lessthantherevised


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2008-09amount.(ThisfiguredoesnotincludeadditionalGeneralFundsav-ingsfromoffsettingjudicialbranchcostswithalocalgovernmentfinanceshift.)Fundingfortrialcourtoperationsisthesinglelargestcomponentofthejudicialbranchbudget,accountingforabout84percentoftotalspending.

Court Operations. Asnotedabove, thesupportbudgetforcourtoperationsincludesalargelyunallocatedGeneralFundreductionof$272millionrelativetotherevised2008-09budget.Inaddition,thebudgetprovides$124millionlessthantheestimatedworkloadbudgetforthecourtsfor2009-10,primarilyby(1)continuingpermanentlyvariousreductionsinitiallyenactedonaone-timebasisfor2008-09(for$92millioninsavings)and(2)eliminatingthestateappropriationslimit(SAL)inflationadjustmentotherwiserequiredunderstatelawfortrialcourts($32million).TheLegislaturealsoapprovedbudgetlegislationtopermanentlyeliminatetheannuallyrequiredSALadjustment.Thebudgetassumesthatthetotalof$396millioninsavingsidentifiedabovewouldbeaccommodatedprimarilythroughtheclosureofcourthousesforonedaypermonthandrelatedfurloughsofcourtstaff,increasedcourtfees,andtheredirectionofvariousspecialfunds.Thebudgetalsoreflectstheeliminationof100newsuperiorcourtjudgeships.

Courts Capital Outlay.Thebudgetprovides$177millionforvariousnewandongoingcourtprojects.Thisamountincludes(1)$43millionfromtheStateCourtFacilitiesConstructionFundtocontinuefivepreviouslyapprovedcourthouseprojectsand(2)$100millionfromtheImmediateandCriticalNeedsAccount(ICNA)toacquiresitesfor13newcourthouseprojects.(InaccordancetoChapter311,Statutesof2008[SB1407,Perata],ICNAreceivesrevenuefromcertaincourtfeeandfineincreases.)Theremainingamountreflects$34millioninlease-revenuebondauthoritytoconstructthenewSusanvillecourthouse.

Corrections and RehabilitationThebudgetcontains$8.7billionfromtheGeneralFundforsupportofCDCR.Thisisanetdecreaseof$1.2billion,or12.3percent,belowtherevised2008-09level.(Thisfiguredoesnotincludeadditionalsavings,discussedabove,fromoffsettingCDCRexpenditureswithalocalgovernmentfinanceshift.)MajorchangestotheCDCRbudgetarediscussedbelow.

Adult Corrections. The2009-10budgetreflectsatotalof$1.2billioninsavingsinCDCR’sbudgetfromthesepolicyactionsaswellasfromotheradmin-istrativeandprogrammaticchangesinadultcorrections.First,thebudgetassumesthatabout$278millioninsavingswouldbeachievedin2009-10fromthespecificpoliciesapprovedinbudgetlegislation(SBX318,Ducheny)toreducetheinmateandparolepopulations.Thefivemajoractionsare:

· Parole System Changes ($179 Million). Thelegislationmakescertainparoleeswhohavenocurrentorpriorviolent,serious,orsexoffensesineligibleforrevocationtostateprisonbyCDCRforparoleviolations.


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(Also,inarelatedchange,thebudgetplanprovides$65million forin-creasedparolesupervisionforthemostseriousandviolentoffenders.)

· Additional Credits for Inmates ($42 Million). The legislation in-creasesthecreditsthatinmatescanearntoreducetheirstayinprison,suchasforcompletinganeducationalorvocationalprogram.

· Changes in Property Crime Statutes ($17 Million). Previously, apersoncouldbeconvictedofcertainpropertycrimes,andbeeligibletobesenttostateprison,ifthecrimeinvolvedcertaintypesofpropertyworthmorethanaspecifiedamountofmoney.Forexample,theftofcertainfarmcropsexceeding$100couldpreviouslyhaveresultedinastateprisonterm.Thismeasureadjusts thesedollaramounts(to$250,inthisexample)forpastinflation,whichwillmeanthatfeweroffenderswillbeeligibleforstateprison.

· Probation Incentive Program ($30 Million). Thebudgetpackage providesfiscalincentivestocountiestoreducethenumberofrevo-cationsofpersonsonprobationtostateprison.Theresultingprisonsavingsareexpectedtoexceedthecostsofthepaymentstocounties.

· Parolee Reentry Accountability Program ($10 Million). Underthisprovision,certainparoleeswithahistoryofsubstanceabuseormentalillnesswhoviolatetheirconditionsoftheirparolewillbereferredby thedepartment toa reentrycourtprogramdesigned to reducerecidivism.

TheLegislaturerejectedtwootheradministrationproposalswhichwouldhave(1)changedsentencinglawssothatcertainlower-levelcrimescouldonly be prosecuted as misdemeanors, making these offenders ineligibleforaprisonsentence,and(2)transferredcertaininmatesfromprisonandplacedtheminthecommunityonhousearrest.Thebudgetplanalsoas-sumesthatabout$618millioninsavingswillbeachievedfromothertypesofadministrativeandprogrammaticchanges.Theseinclude(1)thecom-mutationbytheGovernorofthesentencesofundocumentedimmigrantscurrentlyincarceratedinstateprison($182million),(2)reductionstoinmateandparoleerehabilitationprograms($175million),and(3)otherchangestoCDCRoperations,suchastheeliminationofcertainheadquarterspositionsandfundingforspecialbuildingrepairs($261million).

Takenaltogether,thepolicyactionsapprovedinSBX318andthevariousotheradministrativeandprogrammaticchangesareassumedtoachieveabout$900millioninsavings.Atthistime,itisunclearhowtheremaining$300millioninsavingsassumedinthebudgetwillbeachievedin2009-10.

Impact on the Inmate Population.Figure19showstherecentchangesandprojecteddeclineintheinmatepopulation.Absenttheadoptionofpolicychangesdiscussedbelow, thestate’s inmatepopulationwouldotherwisehavebeenprojectedtoincreasebyafewthousandinmatesin2009-10,due


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largelytoincreasedadmissionsfromcriminalcourts.However,thebudgetplan also reflects various actions discussed earlier to reduce the inmatepopulationbyroughly16,000inmatesin2009-10.Asaresult,thenetimpactontheinmatepopulationin2009-10isprojectedtobeadeclinebyabout14,000 inmates or 9 percent. When these policy changes have been fullyimplementedin2010-11,theyareexpectedtoreducetheinmatepopulationbyatotalof22,000inmates.Thebudgetplanassumesanetreductionin2009-10ofabout28,000or25percentinthenumberofadultparoleesundersupervisionduetorelatedpolicychanges.

Adult Correctional Health Services. ThebudgetincludesaGeneralFundaugmentationofabout$30millionforcompliancewithfederalcourtordersand settlements, such as mental health services under the Coleman case.However,thebudgetreflects$180.8millioninGeneralFundsavingsfroman unallocated reduction of 10 percent in the federal Receiver’s medicalservicesoperations.Inaddition,thebudgetassumes$50millioninsavingsin2009-10fromlimitingthereimbursementratespaidtoprivatecontractorsthatprovidemedicalcaretoinmatesoutsideofprison.

Corrections Capital Outlay. The budget includes $20 million from theGeneralFundand$16millioninlease-revenuebondauthorityforvariousCDCRcapitaloutlayprojects.Thebudgetalso reverts$20millionof the$300millionGeneralFundappropriationinitiallyprovidedinChapter7,

Inmate Population Projected to Decline in 2009-10

Figure 19

(As of June 30 of Each Year)

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

2000 2005 2010Projected


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Statutesof2007(AB900,Solorio),ameasureauthorizingadditionalprisonconstruction,totheGeneralFund.TheLegislaturealsoapprovedbudgetlegislationtomakevarioustechnicalchangestotheenactedlanguageofAB900intendedtohelptheprojectsmoveforward.Insigningthebudget,theGovernorvetoedstatutorylanguageadoptedbytheLegislaturetoprohibitCDCRfromencumberingfundsforthepreviouslyapprovedcondemnedinmatehousingcomplexatSanQuentinuntilspecifiedconditionsweremet.Thisvetoispartofapendinglegalchallengetovariousvetoestothe2009-10budgetlegislationmadebytheGovernorinJuly.

Local Assistance ProgramsAsdiscussedinChapter2,theLegislaturetemporarilyincreasedthevehiclelicensefeefrom0.65percentto1.15percentanddedicatedaboutone-thirdoftherevenues(0.15percent,or$497millionin2009-10)tovariouspublicsafetylocalassistanceprograms.ThesemonieswillineffectreplaceGeneralFundspendingfortheJuvenileProbationandCampsFundingProgram,theCitizens’OptionforPublicSafetyprogram,theJuvenileJusticeCrimePre-ventionActprogram,andlocaldetentionfacilitysubventions(bookingfees).

reSOurceS and envirOnmental PrOtectiOnThe2009-10budgetprovidesabout$7.8billionfromvariousfundsourcesfornaturalresourcesandenvironmentalprogramsadministeredbyeithertheNaturalResourcesAgencyortheCaliforniaEnvironmentalProtectionAgency.Thisisadecreaseof$2.1billion,or21percent,whencomparedtorevised 2008-09 expenditures. Most of this decrease reflects lower bondexpendituresforthebudgetyear,althoughthebudgetstillincludesamajorinfusion(around$2.1billion)ofavailablebondfundsfromvariousresources-relatedmeasures.Thebudgetsalsoincludeacombined$1.9billionfromtheGeneralFund.

Figures20and21compareexpendituretotalsforresourcesandenviron-mentalprotectionprogramsin2007-08,2008-09,and2009-10.Asthefiguresshow,GeneralFundexpendituresare lower in2009-10, largely reflectingmuchhigher-than-averageone-timeexpendituresforemergencywildlandfirefightingin2008-09,duetoparticularlyseverefireconditionsinthatyear.(Thisalsoaccountsformuchofthedecreaseinstateoperationsforresourcesprograms.)Thesignificantdecreaseinlocalassistanceandcapitaloutlayforresourcesprogramsislargelyduetoreducedbondexpenditures.Forenvi-ronmentalprotectionprograms,thespendingincreaseforstateoperationsandbondfundsmainlyreflects increasedspending fromProposition1Bbondfundsforairqualityimprovementsintradecorridors.

Resources and Environmental Protection Expenditures Bond Expenditure Summary. Thebudgetincludesabout$2.1billionfromanumberofbondfunds(mainlyPropositions50,84,1B,and1E)forvarious


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resourcesandenvironmentalprotectionprograms.SelectedhighlightsofthesebondexpendituresareshowninFigure22(seenextpage).

Figure 20

Resources Programs: Expenditures and Funding


Change From

2008-09 to 2009-10

2007-08 2008-09 2009-10 Amount Percent

Expenditures State operations $4,303.2 $4,926.1 $4,446.1 -$480.0 -9.7% Local assistance 697.2 1,402.1 744.5 -657.6 -46.9 Capital outlay 363.0 1,918.9 628.0 -1,290.9 -67.3

Totals $5,363.4 $8,247.1 $5,818.6 -$2,428.5 -29.5%

Funding General Fund $1,869.4 $2,021.0 $1,841.7 -$179.3 -8.9% Special funds 2,251.1 2,239.0 2,060.6 -178.4 -8.0 Bond funds 1,145.5 3,748.9 1,584.3 -2,164.6 -57.7 Federal funds 97.4 238.2 332.0 93.8 39.4

Totals $5,363.4 $8,247.1 $5,818.6 -$2,428.5 -29.5%

Figure 21

Environmental Protection Programs: Expenditures and Funding


Change From

2008-09 to 2009-10

2007-08 2008-09 2009-10 Amount Percent

Expenditures State operations $1,584.7 $1,260.5 $1,799.5 $539.0 42.8%Local assistance 480.3 363.1 184.6 -178.5 -49.2 Capital outlay 1.4 4.2 — -4.2 -100.0

Totals $2,066.4 $1,627.8 $1,984.1 $356.3 21.9%

Funding General Fund $90.9 $83.2 $73.5 -$9.7 -11.7%Special funds 1,053.2 1,143.6 1,197.3 53.7 4.7 Bond funds 739.3 224.5 514.1 289.6 129.0 Federal funds 183.0 176.5 199.2 22.7 12.9

Totals $2,066.4 $1,627.8 $1,984.1 $356.3 21.9%


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CALFED Bay-Delta Program. The CALFED Bay-Delta Program is aconsortiumof24stateandfederalagenciescreatedtoaddressanumberofinterrelatedwaterproblemsinthestate’sBay-Deltaregion.Thebudgetprovidesatotalof$297millioninstatefundsfortheCALFEDBay-DeltaProgramin2009-10,includingabout$16millionofreappropriations.Ofthistotalamount,thelargestprogramexpendituresarefortheexistingwaterconveyancesystem($89million)andleveesystemintegrity($56million).Fundingcomesmostlyfromvariousbondfunds($168million)andStateWaterProject(SWP)funds($115million).

Alternative Delta Conveyance.TheDepartmentofWaterResources(DWR)isprovided15limited-termpositionsfortheDeltaHabitatConservationandConveyanceProgram,withanestimatedcostof$2.6million(off-budgetSWPfunds).Thebudgetactrestrictstheuseofthesefundstoplanningworkloadrelatedtotheprogramandprohibitstheiruseforthephysicalconstructionofan“alternativeconveyancefacility.”Thistermreferstoinfrastructureforthetransportofwater(perhapsthroughanewcanalaroundtheDelta)asanalternativetothecurrentsystemoftransportingwaterthroughtheDelta.

SWP Positions and Recreation Funding.Ofthe111positionsproposedtobeaddedtoSWPin2009-10,thebudgetactincludesauthorityfor49SWPpositionsforstateoperationsandDelta-relatedprojects.TheLegislaturealsorejectedtheadministration’sproposaltousestatefunds(feerevenuesandbondfunds)topayfortheportionoftheSWP’soveralloperationsaswellasforcapitaloutlaycoststhatDWRhasallocatedtorecreation.However,asinpastyears,thebudgetincludesfunding(primarilyfromspecialfunds)foroperationsandmaintenanceofspecificSWPrecreationfacilitiesunderthebudgetsoftheDepartmentofParksandRecreation(DPR)andtheDepart-mentofBoatingandWaterways.

Federal Economic Stimulus Funding for Water Quality Projects.There-visedstatespendingplanincludes$283millioninfederaleconomicstimulusmoniesin2008-09and2009-10forwaterqualityimprovements.Thesemon-

Figure 22

Resources and Environmental Protection Bond Expenditures

(In Millions)

Program Area Budgeted

Expenditures

Water management and quality (including flood control projects and CALFED Bay-Delta Program)

$766

Air quality improvements in trade corridors 504 State and local parks 454 Conservation, restoration, and land acquisition 345


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iesarelargelyforgrantsandloanstolocalwateragenciesforwastewaterinfrastructure,andareadministeredthroughtheexistingCleanWaterStateRevolvingFund.Theusualstaterequirementforlocalmatchingfundswaswaivedinordertomeetfederalrequirementsfortheuseofthesefunds.

Climate Change. The budget includes about $48 million (mostly specialfunds)acrosstenstateagenciesforimplementationoftheGlobalWarmingSolutionsActof2006(Chapter488,Statutesof2006[AB32,Núñez]),tore-ducethestate’semissionofgreenhousegases(GHGs)to1990levelsby2020.Figure23liststheexpenditures,numberofpositions,fundingsources,and

Figure 23

AB 32 Implementation

2009-10 (Dollars in Thousands)

Agency Positions Expenditures Fund Source Activity

Air Resources Board 153 $32,414 Air Pollution Control Fund (APCF)a

Develop market-based compliance measures (including cap-and-trade), Low Carbon Fuel Standard regulations, and vehicular/industrial measures to create greenhouse gas (GHG) emission reductions.

Forestry and Fire Protection 8 6,876 Proposition 84 bond funds Award urban forestry management grants; staff support.

General Services 5 2,936 Service Revolving Fund Implement Green Building Initiative and Sustainability Program.

Secretary for Environmental Protection

6 1,764 General Fund, APCF, Motor Vehicle Account

Climate Action Team activities, including program oversight and coordination.

Department of Water Resources 9 1,636 Proposition 84 bond funds, State Water Project (SWP) funds

Evaluate impact of climate change on state’s water supply and flood control systems; SWP climate change/energy program activities.

Integrated Waste Managementb 6 1,312 Integrated Waste Management Account

Develop GHG emission reduction measures for landfills.

Energy Commission 5 610 Energy Resources Programs Account

Develop GHG emission reduction measures.

Secretary for Natural Resources 2 425 General Fund Adopt GHG emissions mitigation guidelines.

Food and Agriculture 2 343 Food and Agriculture Fund Develop GHG emission reduction measures.

Public Utilities Commission (PUC) 1 94 PUC Ratepayer Advocate Account

Monitor PUC implementation of AB 32.

Totals 205 $48,410 a Supported by a loan from the Beverage Container Recycling Fund, to be re-paid within three years. b Funding will be administered by new Department of Resources Recycling and Recovery following elimination of the board effective January 2010.


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activitiesfundedonanagency-by-agencybasisfortheimplementationofAB32in2009-10.Theseactivitiesincludethedevelopmentoftheregulationsto implementvarioussource-specificmeasures to reduceGHGs,and theawardofurbanforestrymanagementgrants.

Assembly Bill 118-Funded Programs. Thebudgetincludes(1)$102millionforfinancialincentivesadministeredbytheEnergyCommissiontoadvancealternativeandrenewablefuelvehicletechnologiesand(2)$44millionfortheAirResourcesBoard(ARB)toprovidegrantsandloanstoownersofheavy-dutydieselvehiclestoretrofitvehiclestoachieveearlycompliancewith regulations requiring reductions in emissionsof airpollutantsandGHGsfromthesevehicles.Theseexpendituresarefundedfromfeerevenues(smogabatement,vehicleregistration,andvesselregistrationfees)raisedpursuanttoChapter750,Statutesof2007(AB118,Núñez).Thebudgetalsoincludesatotalof$5millionofAB118fundsforDepartmentofForestryandFireProtection(CalFire),DPR,andtheDepartmentofFishandGametoretrofittheiron-roaddieselvehiclesincompliancewithARBregulations.

Hydrogen Highway. The Energy Commission has allocated $40 millionofitsappropriationofAB118moniesdiscussedabovetothedevelopmentofhydrogenrefuelingstations.TheGovernorvetoedbudgetactlanguagepassedbytheLegislaturethatwouldhaveprohibitedanyexpenditurefromthisappropriationforhydrogenrefuelingstationsin2009-10.Thisvetoisbeingcontestedinpendinglitigation.

Wildland Fire Protection Capital Outlay.Thebudgetincludes$290mil-lionofnewlease-revenuebondfundingforfireprotectioncapitaloutlayprojects—primarilytorestoreorreplaceexistingfacilities.

Emergency Wildland Fire Suppression. Thebudgetactincludes$182mil-lion fromtheGeneralFundthatisdesignatedspecificallyforemergencyfireprotection.Ashasbeenthecaseinpreviousyears,thebudgetactallowstheDirectorofFinancetoaugmentthisamounttopayforadditionalfireprotectionexpenses,asneeded.

No New Funding Sources for CalFire. Thebudgetdoesnot includeanynewsourcesoffundingforCalFire.Boththeadministration’sproposalfora4.8percentstatewidesurchargeonpropertyinsurancepremiumsandthelegislativeproposal fora feeonstructureowners inStateResponsibilityAreaswererejected.

General Fund Reduction for State Parks. Thebudgetincludesa$14mil-lionunallocatedreductioninGeneralFundsupportforDPR—adecreaseof11percentfromthelevelofsupportcontainedintheFebruaryenactedbudget. This includes a veto by the Governor of $6.2 million that is thesubjectofpending litigation.Basedonstatementsbytheadministration,


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thereductionswillnotleadtothecompleteclosureofanystateparkinthebudgetyear.AlegislativeproposaltoreplaceallGeneralFundsupportforDPRwithrevenuesfromanew$15annualvehicleregistrationsurcharge(entitlingvehicleregistrantstofreedailyaccesstostateparks)wasconsid-eredbutnotadopted.

California Conservation Corps.TheLegislaturerejected theGovernor’sJanuarybudgetproposal toeliminate theCaliforniaConservationCorps(CCC)andshiftitsfunctionstolocalconservationcorps(LCCs)overatwo-yearperiod.Instead,theenactedbudgetincludeslegislativeaugmentationstotalingabout$15million for theLCCs—$8.3million fromtheBeverageContainerRecyclingFund(BCRF)and$6.7millionfrombondfunds—forbeveragecontainerlitterreduction,workforcetraining,andotheractivities.

Beverage Container Recycling Program. Duetoaprojected$157milliondeficit intheBCRF, thebudgetreflectsgenerallyproportionalreductionstothevariousprogramsthatarefundedbytheBCRFthroughcontinuousappropriations(thatis,ongoingappropriationsmadeoutsideofthebudgetact).These includereducedpayments toLCCs(seediscussionabove), tocitiesandcountiesforrecyclingprograms,andtorecyclers.TheBCRFhasnowprovidedatotalof$518millioninoutstandingloanstotheGeneralFundandtotheAirPollutionControlAccount,including$134millioninadditionalloansthatareincludedinthe2009-10budget.

Rejection of Oil Drilling Proposal. TheLegislaturerejectedtheadminis-tration’sproposaltoraiserevenuesbyenactinglegislationapprovingtheTranquillonRidgeoffshoreoil-drillingproject.Theadministrationestimatedthatthisproject,ifapproved,couldresultinstaterevenuesof$100millionin2009-10andatotalof$1.8billionoverthe14-yearleasetermoftheproject.

Energy Expenditures Federal Economic Stimulus Funding. Thebudgetpackageincludes$182mil-lioninfederalfunds—anincreaseofabout$160millionfrom2008-09—forenergy-relatedprograms.Thisincludesstate-administeredenergyefficiencyandconservationblockgrants(forstateandlocalpurposes)andtheStateEnergyProgram(whichfundsstateenergyefficiencyandrenewableenergyprograms).

Energy Research and Renewable Energy Incentives. Thebudgetincludes$74millionforenergy-relatedresearchanddevelopmentfundedthroughtheEnergyCommission’sPublicInterestEnergyResearchProgram.Italsoprovidesabout$69millionforproduction-basedincentivesandpurchaserrebatestopromoterenewableenergyundertheEnergyCommission’sRenew-ableEnergyProgram.ThisprogramisfundedfromtheRenewableResourceTrustFund,whichissupportedfromutilityratepayers.


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tranSPOrtatiOnThe2009-10spendingplanprovidesabout$17billionfromvarious fundsourcesfortransportationprograms.Thisisroughlythesameastheoveralllevelofspendingintheprioryear,asshowninFigure24.

Department of TransportationThe2009-10budgetplanincludestotalexpendituresof$13.6billionfromvariousfundsourcesfortheDepartmentofTransportation(Caltrans),ac-cordingtodepartmentalestimates.Thislevelofexpendituresishigherthanin2008-09—byabout$1.6billion(or13percent).Thehigherspendinglevelreflectstheplannedexpenditureoffederalstimulusfundsonlocalroads,andhighwayrepairandmaintenanceprojects.The2009-10budgetprovidesapproximately$5.7billionfortransportationcapitaloutlay,$3.6billionforlocalassistance,$1.5billionforcapitaloutlaysupport,andabout$1.4bil-lion forhighwayoperationsandmaintenance.Thebudgetalsoprovides$512millionfordepartmentadministration,$418millionforCaltrans’masstransportationandrailprogram,and$145millionfortransportationplan-ning.Thebalanceoffundinggoesforprogramdevelopment,legalservices,andotherpurposes.

Full Funding of Proposition 42.ConsistentwiththerequirementsofPropo-sition42,aMarch2002ballotmeasure,the2009-10budgetprovidesforthetransferofgasolinesales taxrevenuefromtheGeneralFundforvarioustransportationpurposes.Thetotaltransferisprojectedatabout$1.4billion.Thisamountistobeallocatedasfollows:

· $576millionfortheStateTransportationImprovementProgramtofundstateandlocaltransportationprojects.

· $576milliontocitiesandcountiesforlocalstreetsandroadsprojects.

· $288 million to the Public Transportation Account (PTA) for masstransportationpurposes.

Figure 24

Transportation Program Expenditures

(Various Fund Sources, in Millions)

Program/Department 2007-08 2008-09 2009-10

Department of Transportation $9,633 $12,011 $13,592 California Highway Patrol 1,729 1,834 1,881 Department of Motor Vehicles 895 1,027 941 High-Speed Rail Authority 17 43 139 State Transit Assistance 306 153 — Other expenditures 537 448 378

Totals $13,117 $15,516 $16,931


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Repayment of Past Proposition 42 Suspensions. Proposition1A(theballotmeasurewiththatdesignationpassedbyvotersinNovember2006),requiresthatProposition42suspensions thatoccurred in2003-04and2004-05berepaidwithinterestnolaterthanJune2016.Thebudgetincludes$83millionfromtheGeneralFundtopartiallyrepaytheoutstandingamount.Followingthisyear’spayment,abalanceofabout$500millioninProposition42loans(notincludinginterest)remainsoutstanding.

Continued Appropriations of Proposition 1B Bond Funds. Proposition1B,aballotmeasureapprovedbyvotersinNovember2006,authorizedtheissu-anceof$20billioningeneralobligationbondsforstateandlocaltransporta-tionimprovements.AllProposition1BfundsaresubjecttoappropriationbytheLegislature.Asshown in Figure 25,the2009-10budgetap-propriates a total ofabout $4.2 billion forvariousprograms.Thefunding will mainlybe used for capitaloutlayandlocalassis-tancepurposes.

L oa n F r o m St a t e Highway Account Would Help Gener-al Fund. The budgetloans $135 mill ionfrom the State High-way Account (SHA)to the General Fundtohelpthestate’sfiscalcondition. This loanwouldberepaidnolat-er than June30, 2012.(The impact to trans-portationprogramsofthisloanandtheuseoftransportationfundstohelptheGeneralFundwillbereviewedinour2010-11budget analysis.)

Special Transportation ProgramsSubstantial Public Transportation Funds Used to Help General Fund. ThePTAderivesitsrevenuesfromdieselsalestaxandportionsofthegasolinesalestax,including“spillover.”(Spilloveristheamountthatgasolinesalestaxrevenueatthe4.75percentrateexceedsthesalestaxrevenueamountgeneratedfromallothergoodsatthe0.25percentrate.)TheaccountalsoreceivesaportionoftheProposition42gasolinesalestaxrevenue.

Figure 25

2009-10 Appropriation of Proposition 1B Funds

(In Millions)

Program Total

Corridor Mobility Improvement $1,351 Local Streets and Roads 713 Trade Corridor Improvement 490 Public Transportation Modernization 477 Highway 99 Improvement 431 Air Quality 250 State Local Partnership 201 Transit Security 102 State Highway Operations and Protection 78 State Transportation Improvement 57 Local Bridge Seismic 31 School Bus Retrofit 3 Railroad Crossing Safety 1 Port Security —

Total $4,185 Note: Appropriations are through budget act and do not include statutory appropriations.


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FundsinthePTAarerequiredstatutorilytobeusedformasstransportationandplanningpurposes.Since2003-04,aportionofthePTAfundshavebeenusedeachyeartobenefittheGeneralFund.In2007-08,theMassTranspor-tationFund(MTF)wascreatedtoreceiveaportionofspilloverrevenuestobenefittheGeneralFundonanongoingbasis.ThebudgetpackagedirectsallspilloverrevenuestotheMTFtobeusedforGeneralFundrelief.The2009-10budgetusesabout$1billioninmasstransportationrevenuestobenefittheGeneralFund.Thisamountincludes$652millionfromspillovergasolinesalestaxrevenuestoMTFand$363millionfromPTA.Specifically,thebudgetplanassumesthattheGeneralFundwouldbehelpedinthefollowingways:

· Transportation Bond Debt Service.Thebudgetuses$652millioninspilloverrevenuesfromtheMTFtoreimbursetheGeneralFundfordebtserviceontransportationbonds,including$623millionincurredinprioryearsand$29millionincurrent-yeardebtservice.Inaddition,thebudgetprovides$225millioninPTAfundstopayfordebtserviceontransportationbondsincurredin2009-10.

· Regional Center Transportation. Thebudgetprovides$138millioninPTAfundstopayforthecostofregionalcentertransportation.

· State Transit Assistance.TheStateTransitAssistance(STA)programprovidesoperatingassistancethatisdistributedtolocalrailandbustransitoperatorsonaformulabasis.FundingfortheprogramcomesfromthePTAandspillover.InFebruary,theLegislaturereducedthe2008-09 funding level for theprogramby$153million inorder tohelpachieveGeneralFundrelief.Inaddition,Chapter14suspendedfundingforSTAforfourfiscalyearsfrom2009-10through2012-13.

High-Speed Rail AuthorityFunding Levels Increase Due to Passage of Bond Measure.InNovember2008, voters approved a statewide bond measure—Proposition 1A. Thismeasureauthorizesthestatetosell$9billioningeneralobligationbondstopartiallyfundthedevelopmentandconstructionofahigh-speedtrainsystem.The2009-10budgetprovides$139millioninProposition1AbondfundsfortheCaliforniaHigh-SpeedRailAuthoritytoplananddeveloptherailsystem,withone-halfofthefundingavailableonlyuponthesubmittalofarevisedbusinessplanbyDecember2009.Specifically,thebondfundsarebudgetedforthefollowinguses:

· Project-Level Planning and Management.About$105millionwouldbe spent for contract services to perform preliminary design andenvironmentalreviewfortheeightsegmentsoftherailsystem.

· Program Management and Other Services.About$27millionwouldbespentforcontractservicesforoverallprogrammanagement,aswellasroughly$5milliononvariousothercontractsincludingridership/revenueforecastsandfinancialconsultingservices.


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· Administrative Costs.About$2millionwouldbeforadministrativecostsandsupportoftheauthority.

California Highway Patrol and Department of Motor VehiclesThe2009-10budgetprovides$1.9billiontofundCaliforniaHighwayPatrol(CHP)operations,about$47million(or3percent)morethanin2008-09.Thefundingincludessupportfor240newhighwaypatrolofficers($25million),andfundsforanewcomputer-aidedofficerdispatchsystem($12million).ForDepartmentofMotorVehicles,thebudgetprovides$959millionforde-partmentaloperations,areductionof$67million(or6.6percent)comparedtothe2008-09 levelduetotheexpirationofone-timefundingforcapitaloutlayprovided in thepriorbudget.Thebudget includes$6.6million tosupportanewmultiyearcontractfortheproductionofsecurity-enhanceddriverlicenseandidentificationcards.Tocoverthecostofthenewcontract,driverlicensefeeswillincreaseby$2,beginning2010.Thebudgetincludesprovisionallanguageprohibitingthedepartment’suseoffacial-recognitionbiometricsoftwareaspartofthedriverlicenseissuanceprocess.Inlightofthestate’sfiscalcondition,theLegislaturerejectedapproximately$33mil-lionrequestedbythetwodepartmentsforvariouscapitaloutlayprojects.

Motor Vehicle Account (MVA).TohelpaddresstheGeneralFundcondi-tion,the2009-10budgetprovidesaone-timetransferof$70millionfromtheMVAtotheGeneralFund.UnlikeotherMVArevenues,thesefundsarenotrestrictedbyArticleXIXoftheStateConstitutionandthusareavailableforgeneralstatepurposes.

lOcal gOvernmentOverview of Local Government Revenue ShiftsThebudgetpackageprovidesmajorGeneralFundreliefbyredirectingtheuseoftwosourcesoflocalgovernmentfunds:(1)propertytaxesbyborrowingfundsundertheprovisionsofProposition1A(2004)and(2)redevelopmentdollars.Thepackageestablishesanewfundineachcounty—theSupplemen-talRevenueAugmentationFund(SRAF)—toreceive$3.6billionofresourcesrelatedtothesesources.Figure26(seenextpage)summarizesSRAFrevenuesourcesandinitialprogramallocations,asshowninthebudgetschedulespreparedbytheDepartmentofFinance(DOF).

Underthespendingplan,countyofficesofeducationserveasstatefiscalagents forawide rangeofprograms.Specifically,under thedirectionofDOF,countyofficesuseSRAFresourcestoreimbursethestatefortrialcourt,correctional,andotherstate-fundedservicesandcostsintheircounty.AnyresourcesremaininginSRAF,afterthesestatereimbursementsaremade(anestimated$850million),aretransferredtothecounty’sEducationalRevenueAugmentationFund(ERAF)forapportionmenttoK-12districts.TheERAFresourcesoffsetstate-requiredspendingforeducationunderProposition98.


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Proposition 1A Property Tax SuspensionThebudgetplansuspendsProposition1A(2004)andborrows$1.9billionofpropertytaxesfromcities,counties,andspecialdistricts.UndertheConsti-tution,thefundsmustberepaidbyJune30,2013.Undertheplan,revenuesequalto8percentofeachlocalagency’s2008-09propertytaxapportionment(excludingdebtlevies)areredirectedfromtheagencytoSRAF.

Joint Securitization Option.Thebudgetplanincludesawaytooffsetlossesbylocalgovernmentsduetothestateborrowing.Specifically,thebudgetplanauthorizesa jointpowersauthoritytoissue“Proposition1Areceivablenotes”(backedbythestate’srepaymentobligation)andusetheproceedstoreplacetherevenuesdivertedfromeachagencythatparticipatesinthesecuritization.Undertheplan,thestatepaysthefullcostofthesecuritiza-tion,includinginterestanddebtissuancecosts.LocalagenciesthatdonotchoosetoparticipateinthesecuritizationwouldbereimbursedbythestatefortheirpropertytaxdiversionbyJune30,2013,includinginterestataratesetbyDOF.

Hardship Provisions.LocalagenciesfacingsevereeconomicdifficultiesmayapplytoDOFforareductionoreliminationoftheirpropertytaxsuspen-sion.IfDOFapprovesanagency’shardshippetition,anyreducedproperty

Figure 26

SRAF Revenues and Initial Allocationsa

(In Millions)

Sources Proposition 1A property tax suspension $1,935 Redevelopment/schools fund shift 1,700 $3,635

Allocations

County Offices of Education Trial courts $1,511 Corrections 588 Medi-Cal 565 State general obligation bond debt service

(school construction) 120

$2,785

Educational Revenue Augmentation Fund K-12 apportionments $850

Total Allocations $3,635 a The spending plan gives DOF flexibility to revise SRAF allocations. SRAF = Supplemental Revenue Augmentation Fund; DOF = Department of Finance.


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taxamountwouldbereallocatedtootheragenciesinthecountysothatthetotalsuspensionamountinthecountyremainedunchanged.Thedepart-mentmaynotapprovesuspensionstotalingmorethan10percentofthetotalsuspensionamountinacounty.

Redevelopment/Schools Fund Shift Thebudgetpackagerequires redevelopmentagencies tomakepaymentstotaling$1.7billion(2009-10)and$350million(2010-11)toK-12schooldis-trictsservingstudentslivinginorneartheirredevelopmentareas.Redevel-opmentagenciesdepositthesepaymentsintoanewcountySupplementalEducational Revenue Augmentation Fund (SERAF) for allocation to thedesignatedschooldistricts.

TheseredevelopmentdepositsintoSERAF,inturn,triggerashiftinschoolfunds inamannersuchthatschoolswouldexperiencenonetchange intheir financial situation while the state benefits from the redevelopmentdeposits.Specifically,countyauditorsreduceeachschooldistrict’sbase(“AB8”)propertytaxallocationsbytheamountthedistrictreceivesfromSERAF.Thecountyauditordepositsthesebaseschoolpropertytaxrevenuesintothecounty’sSRAF.Asdescribedabove,countyofficesuseSRAFresourcestoreimbursethestateforavarietyofprograms.AllremainingSRAFrevenuesareshiftedtothecounty’sERAFforapportionmenttoschools.

Other Provisions.Tohelpredevelopmentagenciesfinancethesepayments,thebudgetplanallowsagenciestosuspendtheircontributionstotheirLowand Moderate Income Housing Funds or borrow these funds from theirparentcityorcounty.RedevelopmentagenciesthatfailtorestoreanyfundstotheirLowandModerateIncomeHousingFundsbyJune30,2015,how-ever,aresubjecttoa5percentincreaseintheirrequiredannualhousingset-aside(generallyincreasingtheset-asidefrom20to25percent).Agenciesthatmeettheirpaymentobligationunderthebudgetplanfor2009-10mayextendtheirtimelimitsforplaneffectivenessandreceiptoftaxincrementrevenuesbyoneyear.

State-Mandated Local ProgramsThespendingplansuspendsmostnon-educationmandates,withtheexcep-tionofcertainmandatesrelatingtolawenforcement,electionprocedures,openmeetingrequirements,andtaxcollection.Whenthestatesuspendsamandate,foroneyear(1)localgovernmentsarenotrequiredtoimplementitsrequirementsand(2)thestatemaypostponeitsobligationstopaytheaccumulated mandate bills. The spending plan also defers a scheduledpayment($88million)towardsretiringthestate’spre-2004non-educationmandatedebt(approximately$1billion).


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Williamson Act SubventionsThe spending plan reduced funding for Williamson Act subventions by20percent,or$8million.TheGovernorvetoedtheremaining$28millionofWilliamsonAct funds. (Thisveto issubject to the litigationdescribedinChapter1.)Underthisprogram,localgovernmentsenterintocontractswithlandownerstorestrictcertainpropertytoopenspaceandagriculturaluses.Inreturnfortheserestrictions,propertyownerspayreducedpropertytaxes.StateWilliamsonActsubventionsoffsetpartoftheselocalgovernmentpropertytaxlosses.

Other maJOr PrOviSiOnSEmployee CompensationBudget Assumes Savings From Governor’s Three-Day Furlough Order.BeginninginFebruary,theGovernororderedthefurloughofabout200,000executiveagencyemployeesfortwodayspermonth,reducingpayby9.2per-cent.TheGovernoraddedanadditionalfurloughdayinJuly,bringingthetotaltothreedayspermonthanda13.9percentreductioninpay.Currently,nearlyallstateemployees—withlimitedexceptions,suchasCHPofficersandcertainCalFirestaff—areprohibitedfromworkingonthreeFridayspermonth,resultinginmoststateofficesbeingclosed.The2009‑10 Budget Actassumesover$2.4billion($1.4billionGeneralFund)insavingsfromtheGovernor’s furlough orders and related employee compensation savingsmeasures.TheGovernor’sfurloughordersareunderreviewbythecourtsinvarioussuits initiatedbystateemployeeunions, theCaliforniaPublicEmployees’RetirementSystem(CalPERS),constitutionalofficers,andothers.Courtactionsandothermatterscouldaffecttheactualexpendituresavingsgeneratedbyfurloughs.

Limited Amounts for Increases in Employee Compensation.Whileoverallemployeecompensationcostsshoulddeclinein2009-10,priorstateemployeelaboragreementsprovideforincreasesinstatehealthpremiumcontribu-tionsforsomeworkers. Inparticular,statehealthcontributionsforsomeworkerswillriseduetoanaverageincreaseinCalPERSplanpremiumsof2.9percentin2010.ThebudgetbillpassedbytheLegislatureinJulyincludedalimitedamount—$118million($41millionfromtheGeneralFund)—forthesecostincreasesandothercostsassociatedwithpreviousagreements.TheGovernorreducedtheappropriationaspartofhisJulyvetoesto$63mil-lion($16millionfromtheGeneralFund)—withthebalancetobefundedoutofdepartmentalbudgets.Asofthedateofthispublication,20of21stateemployeelaboragreementshaveexpired.(TheexceptionistheagreementwiththebargainingunitcoveringCHPofficers,whichexpiresinJuly2010.)

Health Plan Funding Holiday Provides Some Relief.Thebudgetreflects$132millioninsavingsfromanemployeeandretireehealthplan“premiumholiday.”AuthorizedbytheCalPERSboardforitspreferredproviderorga-


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nization(PPO)healthplans,CalPERSwillwaivehealthcarecontributionsfromemployees,retirees,andpublicemployersfortwomonthsinthefallof2009becauseofexcessreservesinPPOplanaccounts.

Rural Health Care Subsidies Eliminated.ThebudgetpackageeliminatestheRuralHealthCareEquityProgram,whichsubsidizedPPOcostsforstateworkerswithoutaccesstolessexpensivehealthmaintenanceorganizationplans, forworkers in20of the state’s 21bargainingunits. (Anexceptioncontinuestheprogramonemoreyear—toJuly2010—forCHPofficers.)

Payroll Deferral Shifts One Payday to 2010-11.Thebudgetpackagereflectsbudgetsavingsfrommovingthefinalpaycheckofthefiscalyear(June30)tothefirstdayofthefollowingfiscalyear.Thisfacilitates$938millioninone-timeGeneralFundsavingsin2009-10.

Reorganizations and ConsolidationsAssumes $50 Million in Savings.Thebudgetpackageassumes$50millioninGeneralFundsavingsfromthereorganization,consolidation,andelimi-nationofseveraldepartments,boards,andcommittees.Figure27(seenextpage)showsactionsincludedinthepackage.

Information TechnologyInformation Technology (IT) Savings. The Legislature adopted controllanguagerequiringtheOfficeoftheStateChiefInformationOfficertosave$100millionGeneralFundfromstatewidereductionstoITbudgets.SavingsmaycomefromrenegotiatingITcontractsandconsolidationofITpurchasesandservices,amongotheractions.

Funding for 21st Century Project Reprocurement.Afterexperiencingnu-merousdifficultieswithitsprimevendor,theStateController’sOffice(SCO)projectstaffterminatedthevendorcontractinJanuary2009andbeganwork-ingonare-procurementstrategy.TheSCOstaffarecurrentlyinvolvedinatwo-stageprocurementtosecureanewprimevendor.Thebudgetincludesabout$25milliontofundfurtherprojectactivities.

Financial Information System of California (FI$Cal).Thebudgetplanin-cludesspendingauthorityof$80millionfromtheGeneralFundtocontinueprojectactivitiestobuildFI$Cal.Projectstaffindicateonlyabout$35millionofthatfundingwillbespentin2009-10—about$2millionfromaGeneralFundappropriationwiththeremaindercomingfromaGeneralFundloan.Additionally, abudgetactprovision requires the project to report to theLegislatureontheoutcomeofitscompetitivemultiplestageprocurementtosecureaprimevendor.

Procurement Process Changes.AmeasureintheJulybudgetpackageloos-enspriorcontractingrestrictionsthatpreventedafirmfrombiddingonanITprojectforwhichithadpreviouslyheldaconsultingcontractpertainingto


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thedevelopmentofthatproject’sscaleandscope.Thelegislationalsoallowsdepartmentstowithholdfromvendorslessthanthepreviouslyrequiredamountof10percentofthecontractpricesforcertaingoodsandservicesuntiltheirfinaldeliveryandacceptance.

Cost-of-Living IncreasesThebudgetpackageincludesstatutorylanguagethateliminatesautomaticCOLAsforCalWORKsandSSI/SSPgrantsandautomaticincreasesforstateoperations(suchasthestatecourts).Instead,decisionsonCOLAswouldbemadeonanannualbasis(generallyaspartofthebudgetprocess).

State Buildings and Surplus PropertyThebudgetpackagemakesanumberofchangestothewayinwhichthestatemanagesitsofficebuildingsandsurplusproperty.Thebudgetautho-rizestheadministrationtoenterintoadditionalleasesofstatepropertyand“lease-back”contractsforstatebuildings.Undertheselease-backcontracts,thestatewouldsellorofferalong-termleaseonastatebuildingtoaprivateentity.Generally, thesetypesofcontractswouldinvolvethestatepayinghighercostsoverseveraldecades(forrent)inexchangeforanup-frontcashpayment from theprivateentity. Inaddition, thepackageauthorizes theadministrationtoselltheOrangeCountyfairgrounds.

Figure 27

Reorganizations and Consolidations

Entity Action Result

Integrated Waste Management Board

Elimination Moves board functions and recycling functions of the Department of Conservation to new Department of Resources Recycling and Recovery

Bureau of Naturopathic Medicine Elimination Creates committee in Osteopathic Medical Board to provide oversight of natural medicine industry

Board of Geologists and Geophysicists

Elimination Moves function to Board for Professional Engineers and Land Surveyors

Structural Pest Control Board Reorganization Moves board from DCA to the Department of Pesticide Regulation

Bureau of Home Furnishings and Thermal Insulation and Bureau of Electronic and Appliance Repair

Consolidation Consolidates both boards under DCA

Inspection and Maintenance Review Committee

Establishment of Sunset Date

Forces review of committee and sets up possible elimination by 2012

Various IT programs in DTS, Telecommunications Division in DGS, and OIS

Consolidation Moves programs and some IT oversight authority to the Office of the Chief Information Officer

DCA = Department of Consumer Affairs; IT = information technology; DTS = Department of Technology Services; DGS = Department of General Services; OIS = Office of Information Security.

October 2009

mac TaylorLegislative Analyst

The Budget Package

2009-10 California Spending Plan

LAO Publications

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To request publications call (916) 445-4656. This report and others, as well as an E-mail subscription service, are available on the LAO’s Internet site at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814.

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