Red is the color of the "May Revise." A re-estimate of the condition of the recently enacted budget package, released by the Department of Finance on May 14, shows the budget to be $15.4 billion out of whack ($21.3 billion in the red if the propositions on Tuesday's ballot fail).
Governor Arnold Schwarzenegger declared that new taxes are off the table. "To look for new revenues is out of the question," he said. He added that after approving large tax increases in February, "That's it."
Asked about the possibility of partnering with Democrats on a majority-vote budget with tax-like "fees," he said he would not sign such a plan. "I'm not going there," he said.
This is the first time the governor has publicly come out against the majority-vote budget idea. Although he vetoed the Democrats' majority-vote budget last year, his stated reason for doing so was its failure to include budget reforms, not its lack of the constitutionally required two-thirds vote.
The governor proposed closing the budget deficit by eliminating a number of boards and commissions, borrowing, reducing the state workforce, selling off some state assets, reducing spending on education and social programs, reducing the prison population, and accelerating revenue collection.
Of interest to taxpayers is a proposal to merge the tax-collecting functions of the Franchise Tax Board, Board of Equalization and Employment Development Department.
|
Recap by Category of May Revision Proposals (Dollars in Millions) |
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|
|
Impact on GF Reserve |
|
|
|
|
|
2008-09 and Prior |
2009-10 |
Two-Year |
Percent to Total |
|
Reorganization/Consolidation |
$0.0 |
$50.0 |
$50.0 |
0.3% |
|
Program Savings |
2,020.0 |
3,539.6 |
5,559.6 |
38/2% |
|
Cuts Requiring Federal Waiver |
0.0 |
750.0 |
750.0 |
5.2% |
|
Revenue Accelerations/Fees |
0.0 |
988.9 |
988.9 |
6.8% |
|
Fund Shifts |
12.5 |
92.9 |
105.4 |
0.7% |
|
Other |
0.0 |
1,100.0 |
1,100.0 |
7.6% |
|
Borrowing |
0.0 |
6,000.0 |
6,000.0 |
41.2% |
|
Total |
$2,032.5 |
$12,521.4 |
$14,553.9 |
100.0% |
|
Change in Reserve (from $2 billion |
|
889.0 |
889.0 |
|
|
Total with Change in Reserve |
$2,032.5 |
$13,410.4 |
$15,442.9 |
|
|
Source: Sacramento
Bee, Governor's 2009-10 May Revision |
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The governor told a Capitol news conference: "Californians have a right to know the truth about the size of the problem our state is facing and the steps we will take to solve our deficit. That is why I am proposing two May Revision Budgets today to ensure the people of this state are informed and are not surprised by what is coming. With the continued global recession we face a certain $15.4 billion shortfall and, if $6 billion in February budget solutions are rejected on May 19, that number will increase to $21.3 billion."
Among the governor's proposals to address the $15.4 billion deficit:
· Obtaining up to $6 billion through a Registered Revenue Anticipation Warrant that will help the state avoid deeper cuts to vital state programs and services.
· Reducing K-14 education spending by $3 billion without violating Proposition 98's minimum spending guarantee. This could mean a school year shortened by 15 days. Schools will be given additional flexibility on budgets to minimize the impact.
· Reducing University of California and California State University budgets by $1.02 billion. (Cal-Tax: Maybe this will convince those in charge to curb excessive spending on administrators. See "Waste, Fraud & Mismanagement" item.)
· Creating savings in social, developmental and health care services, such as by reducing funding for Healthy Families, rolling back the rate increase for Family Planning Services, and reducing Medi-Cal payments to private hospitals by 10 percent.
· Reducing the state workforce immediately by 5,000 employees.
· Accelerating personal income tax estimated payments (to make the June estimated payment 40 percent) to raise $610 million.
· Raising $1 billion by selling seven state assets: Cal-Expo in Sacramento, San Quentin State Prison, the Cow Palace in San Francisco, Del Mar Fairgrounds, Orange County Fairgrounds, Ventura County Fairgrounds and the Los Angeles Coliseum.
· Eliminating Williamson Act subventions to counties, worth $34.7 million.
· Consolidating and reorganizing functions from 12 different entities into a single Department of Energy with a cabinet-level secretary of energy.
· Eliminating the Integrated Waste Management Board, the Inspection and Maintenance Review Committee, the Landscape Architects Technical Committee, the Bureau of Naturopathic Medicine, the Telephone Medical Advice Services Bureau and the Court Reporter Board.
· Consolidating the Postsecondary Education Commission and Student Aid Commission and decentralize Cal Grants.
· Eliminating and transfering the functions of the Office of Environmental Health Hazard Assessment (with responsibilities shifted to the Department of Public Health), Community Services and Development at the Health and Human Services Agency (to the Department of Social Services and the new Department of Energy) and the Department of Boating and Waterways (to the Department of Parks and Recreation).
· Consolidating the Board of Geologists and Geophysicists to the State Mining and Geology Board; the Professional Fiduciaries Bureau under the Board of Accountancy; the Board of Behavioral Sciences, the Board of Psychology, and the oversight of psychiatric technicians duties of the Board of Vocational Nursing and Psychiatric Technicians to a new Board of Mental Health; shift the nursing oversight functions of the Board of Vocational Nursing and Psychiatric Technicians to the Board of Registered Nursing; and transfer the powers of the Hearing Aid Dispensers Bureau to the Speech-Language Pathology and Audiology Bureau.
· Merging the Department of Corporations, Department of Financial Institutions, Department of Real Estate and Department of Real Estate Appraisers.
· Seeking a private entity to take over operations of the Science Center.
· Increasing fees on employers to fund OSHA and labor standards enforcement programs, to raise $40.1 million.
· Selling a portion of the State Compensation Insurance Fund to raise $1 billion.
If the measures on the May 19 ballot fail, California's budget problem will grow by $5.8 billion – forcing even more cuts on top of those already proposed to solve the $15.4 billion shortfall. The governor said he would be forced to make even deeper cuts to state programs and services, and he proposed:
· Cutting education funding by an additional $2.3 billion. A $5.4 billion total cut would force schools to shorten the school year by 15 days, increase class sizes and lay off more teachers to absorb the reduced funding levels.
· Eliminating outreach funding for the University of California and California State University, and to cut UC and CSU budgets by an additional $150 million.
· Cutting funding for public health and social services programs even further. These reductions would cut off approximately 225,000 children from the Healthy Families program, and would entirely eliminate funding for substance abuse treatment and crime prevention and the HIV Education and Prevention program.
· Borrowing $2 billion from local governments. Under a ballot measure supported by the governor and approved by the voters, the state must repay such borrowing within three years. The governor said he "despises" the idea of taking money that local governments are counting on, but said the size of the deficit leaves him no choice.
· Releasing thousands of illegal immigrant inmates directly into federal custody.
· Increasing fees for certain state parks, to raise $500,000.
· Increasing personal income tax withholding by 10 percent, to raise $1.7 billion.
· Imposing a 2.7 percent surcharge on property insurance to help fund the California Department of Forestry and Fire Protection and emergency response.
Senate President Pro Tempore Darrell Steinberg said, "Regardless of what happens on May 19, on May 20 we will begin to respond to his fiscal challenge swiftly and responsibly, doing the best we can with the money we have."
Assembly Speaker Karen Bass said: "The deep cuts included in both of Governor Schwarzenegger's budget proposals reflect the impact the extended national recession continues to have on California. We have consistently said that all issues must be on the table, so we will closely examine each and every one of the governor's proposals announced today. We will work to solve the budget deficit in a way that protects a safety net for the most vulnerable among us, acknowledges the fact we need an educated workforce to keep our economy going, and respects the strains all Californians are facing in this economy."
As expected, there were the usual expressions of outrage from the spending lobby. Two organizations that are working to make the size of the deficit even larger by opposing the governor's package on next Tuesday's ballot – the Service Employees International Union and California Faculty Association – were among the most vociferous.
Obama Administration Considering Revoking Stimulus Dollars Due to State Budget Cuts. According to published sources, the Obama administration is reviewing the February state budget compromise at the urging of the Service Employees International Union. The administration is considering whether to withdraw "stimulus" funds if the state does not rescind the wage cut for in-home care workers that was part of the budget compromise. Either action would enlarge the state's budget deficit.
The wage cut reduced the state's deficit by $74 million. State officials said the SEIU was on an April 15 conference call between state and federal officials discussing whether the wage cut violates the "stimulus" package.
In response to the allegations that it was considering withdrawing the $6.8 billion that California received in stimulus funds, the Obama administration said it has made no decision on the matter. A letter from the administration to the Governor's Office saying the cut violated the stimulus package was sent out "inadvertently," according to the Obama administration.
The SEIU receives $5 million per month in dues from in-home caregivers, according to George Will, columnist for the Washington Post. (Sources: Los Angeles Times, May 11 and 12; The Sacramento Bee, May 14; San Francisco Chronicle, May 14.)
Revenues Only 3 Percent Under Estimates Through April. Controller John Chiang, in his monthly financial statement, reports that state revenues for the first 10 months of 2008-09 are running only 3 percent below estimates. The state had expected to collect $69.4 billion through April 30, but received only $67.3 billion. The sales tax, expected to be weak because of poor car sales, is only 1.8 percent below estimates, and the personal income tax is down 1.7 percent. The "May Revise" estimates that the state will get $85.9 billion for the full 2008-09 fiscal year – a reduction of 3.8 percent below February estimates.
Cal-Taxletter, May 15, 2009
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