State Budget:
Assembly Begins Budget Work by Restoring Cuts

The Assembly Committee on Budget met January 31 for an informational hearing on the governor's 2012-13 budget plan, and to vote on three bills.

The committee's first official action of the year was to restore funding for two programs that were eliminated as part of this year's budget.

SB 81 (Senate Budget and Fiscal Review Committee) reverses the current year's trigger cut of $248 million for school busing. It offsets this reversal by reducing funding for "basic aid" categorical programs, school districts and charter schools. Due to the way the cuts were allocated, some school districts will take a disproportionately larger cut than others.

Members of the committee whose school districts would be adversely affected by the cuts expressed concerns, but were assured by committee chair Assemblyman Bob Blumenfield that funding inequities will be addressed in the upcoming budget subcommittee hearings.

Assemblywoman Diane Harkey criticized the proposal. "The wheels of the bus are falling off the majority-vote budget that we just passed," she said. She also indicated that school districts like hers that already are strapped for funding will have to take additional cuts, while the state continues to spend money on other things, such as $100 billion for high-speed rail.

The bill passed the committee on a 20-5 vote (with another two members not voting) and then was jammed through the legislative process in less than one week by using Proposition 25 to treat it as a majority-vote trailer bill to avoid normal rules. The bill passed the Assembly on a 60-8 vote February 2, and cleared the Senate with a 26-8 vote on the same day.

When the cut was triggered in December, many school districts announced that they would backfill the cut from their fund reserves.

The second bill, SB 98 (Senate Budget and Fiscal Review Committee), an urgency measure, reestablishes the state Board of Registered Nursing, which was eliminated January 1. Supporters of the bill indicated that the board's disciplinary role is important to the public's health and safety.

Republican members of the committee indicated general support to restore the board, but said the bill violates the state constitution, which prohibits an urgency statute from creating a state agency. The committee chair disagreed, saying the bill is a budget trailer bill, not an urgency measure, and therefore there is no violation. (CalTax: This issue raises the question of whether bills that have a budget impact, but are not necessary to implement the budget, ought to be considered budget trailer bills and afforded special treatment.)

The bill passed on a 19-4 vote, with another four members not voting, and now heads to the Assembly floor.

The committee also voted 18-6, with three members not voting, to pass SB 95 (Senate Budget and Fiscal Review Committee), allowing the state to borrow money from special funds to address short-term general fund cashflow issues. Department of Finance Chief Deputy Director Michael Cohen testified that the bill is necessary because tax receipts come in to the state in the latter half of the year, while state expenses are pretty much spread evenly throughout the year. The bill was signed by the governor February 3.

Although internal borrowing of funds is not uncommon, this proposal highlights the underlying issue that the state may be spending at levels higher than its revenue can sustain.

Responding to questions regarding repayment, Mr. Cohen indicated that borrowed funds will be repaid when "there is a programmatic need," so the programs for which the special funds are intended would not be adversely affected.

Assemblyman Jim Nielsen said he would abstain from voting on the bill, expressing concern over the large balances in various special funds and calling for a special hearing to examine the "over-accrual and over-taxing" in these special funds.

In the second half of the hearing, Mr. Cohen and Legislative Analyst Mac Taylor presented their perspectives on the budget.

Committee members questioned the basis of the revenue projections and proposed cuts, funding for schools under Proposition 98, and the fire tax.

With regard to the Proposition 98 proposals, Assemblyman Brian Nestande said "it truly is a facade on Prop. 98" to reflect a higher level of funding for schools and then cut it back if the governor's tax proposals are rejected, because school districts will budget for the worst-case scenario. Mr. Cohen responded that the governor did not want to cut schools, and is optimistic that his tax proposals will negate the need for such cuts.

On the topic of the fire tax, Assemblyman Nielsen decried the fact that the Board of Forestry and Fire Protection increased the amount of the tax despite the Legislature's rejection of a similar hike. He said that once the tax bills are issued, "All these members are really going to have some fires lit, and it won't be fires around those houses, it's gonna be fires here."

February 3, 2012
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