COMMENTS:

Sophia Monroe Sept. 23, 2008 11:29PM EST

To learn more about California's budget-making process try the California Budget Challenge. The Challenge allows you to create your own version of the state budget-deciding what to spend and what to tax. You can then alert your legislators and the governor of the policy choices you made. It's a great way to learn about the trade-offs involved. Try it! www.next10.org/challenge

Governor Schwarzenegger

Signs State Budget

.......Governor Arnold Schwarzenegger signed the 2008-09 state budget, concluding a very difficult budget year and delivering a real win for Californians with a proposal to achieve meaningful budget reform. It addresses California's $15.2 billion budget shortfall with a combination of cuts and increased revenues. It fully funds education's Proposition 98 guarantee and does not borrow funding from voter-approved local government or transportation funds. The historic budget reform package includes a strong rainy-day fund aimed at helping smooth out the unpredictable highs and lows in revenues that plague our state and create massive deficits.

...."While California is certain to face a difficult budget situation again next year, this budget does not take money out of people's paychecks or borrow from voter-approved local government or transportation funds, and it includes real budget reform with teeth," Governor Schwarzenegger said. "These budget reforms, when approved by voters, will finally put California's budget on a path toward long-term fiscal stability."

...."Now that we have a budget, hospitals and nursing homes and daycare centers and other services will be able to get paid. Schools can also get the money that they have been promised and California can fulfill its obligations in all those different areas. "

.....Throughout California's history, numerous attempts have been made to reform our state's broken budget system. When the Governor was elected, he committed to finally end California's feast and famine budget cycle. In 2004, the Governor worked with the legislature to pass Proposition 58, which took the first step toward budget reform. In 2005, the Governor attempted the next step in budget reform with Proposition 76, and while it was defeated, the Governor remained committed to reform.

....Today, the Governor delivered on his commitment with reforms to address two major flaws in the state budget system-wildly volatile revenues and over spending. In fact, had these reforms been in place over the past decade, this year's budget problem would have been approximately $10 billion smaller and California would have benefited from $8 billion in additional funding available for infrastructure and other one-time purposes. The proposal will now go before voters on the next statewide election ballot.

...Over the weekend, the Governor used his veto pen to make an additional $510 million in General Fund reductions, reflecting the Governor's determination to reduce spending to the maximum extent possible. The state also captured $340 million in savings due to the delay in enacting the budget and the effect of the Governor's executive order.

....BUDGET REFORM

....A Rainy-Day Fund With Teeth
Increases the size of California's Budget Stabilization Account (BSA) from 5 percent of General Fund expenditures to 12.5 percent-or approximately $13 billion dollars today.
Requires annual transfers to the BSA of 3 percent of General Fund and eliminates the ability to suspend those annual transfers. During economic downturns, when funds can be drawn out of the BSA, the transfer would not occur.

....In addition to the annual transfer of 3 percent of General Fund to the BSA, requires that all current-year revenue that is above 5 percent of the amounts included in the Budget Act be transferred to the BSA, after first providing funding to education as required under Proposition 98. This means that unexpected spikes in revenues that occur during the fiscal year - normally recognized in the Governor's May Revision - will be transferred to the BSA or used exclusively for one time spending.

....Funds can only be transferred out from the BSA under the following conditions: 1) actual revenues during the Fiscal Year must be below a specified level: prior year spending adjusted by population growth and per capita personal income growth; 2) funds transferred from the BSA back into the General Fund must be appropriated in a stand-alone bill. The amount transferred out of the BSA during a fiscal year will be limited to the amount which would bring revenues up to prior year spending adjusted by population and per capita personal income growth.

....When the balance in the BSA reaches 12.5 percent, any excess revenues acquired mid-year will be available for one-time expenditures only. One-time purposes will include: paying down debt, paying off outstanding General Obligation bonds, investing in infrastructure and capital outlay projects, paying for "settle-up" dollars owed to education, pre-paying health care liability for retired employees (OPEB) and tax relief.

....Mid-Year Reduction Authority
....Authorizes the Director of Finance to do the following when s/he determines, mid-year, that revenues have fallen below specified levels:
* Reduce state operations budgets by up to 7 percent without modifying or suspending the law.
* Freeze Cost of Living Adjustments (COLAs), rate increases or increases in state participation in local costs, as designated in the Budget Act, for up to 120 days.
* The governor can submit urgency legislation to permanently suspend COLAs and other rate increases. If the governor fails to act within the 120 days, or the Legislature fails to adopt the suspension, the COLAs and other rate increases are reinstated.

....ADDITIONAL BUDGET CUTS

* This budget holds General Fund spending to virtually no growth this year-$103.4 billion 2008-09 compared to $103.3 billion in 2007-08.
* The Budget includes a reduction of $850 million General Fund spending or one percent below the amounts proposed in the budget bill adopted by the Legislature. This reduction represents $9.7 billion in spending reductions and is due to:
o $510 million-General Fund vetoes. These vetoes reflect the Governor's determination to reduce spending to the maximum extent possible given constitutional, statutory and court-ordered spending requirements.
o $340 million-General Fund savings due to the delay in enacting this Budget and the effect of the Governor Executive Order S-09-08. Given the state's fiscal condition, the order will remain in effect for the remainder of the year.

LOTTERY MODERNIZATION AND SECURITIZATION

* Proposes a ballot measure to modernize the state Lottery and improve the performance of this underperforming state-owned asset.
* If passed by voters, future proceeds of an improved state Lottery would be securitized (estimated to be approximately $5 billion in 2009-10) with the additional revenues used to pay down debt and fill the rainy-day fund in the out-years.

EDUCATION FUNDING

Funds the Proposition 98 guarantee at $58.1 billion - $1.5 billion higher than the current-year funding. This level of funding eliminates the proposed reductions in the Governor's May Revision and maintains funding to base categorical programs such as class size reduction, special education, child nutrition programs and child care.

BRINGING IN REVENUE

....The budget passed by the Legislature originally included a measure that would have taken more money out of hardworking Californians' paychecks by requiring that they pay 10 percent more state taxes from Californians to balance the state's books in 2009 - for a total of $1.6 billion. The Governor rejected it, and it was replaced instead with a plan to bring in outstanding tax revenue owed to the state by increasing penalties on corporations that under-report by more than $1 million what they owe the state.
* Imposes a 20 percent penalty on the under-reporting of tax owed to the state and applies to any corporation that under-reports by more than $1 million. (Applies to taxable years beginning in 2003 in which the statute of limitations is open and allows taxpayers an opportunity to file an amended return by May 31, 2009, to avoid the penalty.)
* The Franchise Tax Board estimates that the state will bring in $1.51 billion over the 2007-08 and 2008-09 budget years. California has had success will this kind of tax collection program before. The similar tax amnesty program the state conducted in 2005 brought in an additional $3.6 billion, according to the Department of Finance.

....A two-year suspension of the Net Operating Loss (NOL) tax deduction: Suspends for two years the ability of corporations to reduce their tax liability based on prior losses and phases in conformity to federal law over three years starting in 2010 by allowing losses to offset profits in two prior years; also extends the period for carrying forward losses from 10 to 20 years.

....ECONOMIC STIMULUS

Includes an economic stimulus package that:
* Expedites the allocation and disbursement of existing transportation and housing bond funds to stimulate economic growth and job creation immediately.
* Authorizes new lease revenue bonds to accelerate capital outlay projects for higher education.
* Provides flexibility in overtime laws to exempt high-paid software engineers in the competitive technology industry from overtime rules.

Source:
Governor Schwarzenegger Signs State Budget with Budget Reform

RELATED LINKS

....Governor Signs Budget With Cuts to Children’s Health; SCHIP Reauthorization Needed in Early 2009

by JennyKattlove,in CA Health Care for All Kids,
and H: Heath Care For All Kids

....After months of stalemate, a state budget is finally in place. Penny-wise and pound-foolish, the significant cuts to children's health care in the 2008-09 budget will reverse a decade of progress in covering our state's children and cause much costlier problems down the road.
....The state Department of Health Care Services estimates that the budget's imposition of semi-annual reporting for children covered by Medi-Cal will result in 175,000 children losing their coverage by 2010 because parents will not be able to keep up with the additional bureaucratic red tape. By the sunset date of December 31, 2011, we estimate that a total of more than 250,000 children will ultimately lose coverage due to this short-sighted policy. In addition, tens of thousands of children in the Healthy Families Program will likely lose coverage as their parents will be unable to afford increases of up to 25 percent in monthly premiums. During this economic downturn, California's working families need more affordable coverage options for their children – not less.
....The children's health advocacy community will work to limit the damage caused by this irresponsible budget and hold the Legislature and Governor accountable for their decision to undermine children's coverage. It makes no sense for children to pay for the budget deficit with their health.
....At the federal level, join us and families across the state in calling on Congress for reauthorization of the State Children's Health Insurance Program (SCHIP) to occur in early 2009! . More

."Arnold Schwarzenegger signs $145-billion California budget"

by Marty Jordan Rau, Los Angeles Times

....Governor Arnold Schwarzenegger signed the state's tardiest budget on record Tuesday after eliminating $510 million in spending, including financial aid for elderly renters and homeowners and a program he championed to lower prescription drug prices for low-income Californians.
....His signature allows more than 80,000 state vendors' outstanding bills to be paid. Some providers have gone nearly three months without promised funding. More

.."Schwarzenegger signs budget"

by Kathy Robertson,San Francisco Business Times

....Gov. Arnold Schwarzenegger signed a $103.4 billion budget Tuesday morning that ends the longest budget delay in state history but does little to solve California’s financial problems.
....Lawmakers reached a deal with the governor last week on a new spending plan that addresses the state’s $15.2 billion shortfall with a mix of spending cuts, borrowing and accounting tricks. Over the weekend, the governor vetoed $510 million more in General Fund expenses.
....Approval clears the way for the state to begin paying health care providers, schools and state vendors for services. More than $3.6 billion in Medi-Cal payments will go out in the next 48 hours, and other payments will follow as quickly as possible, state controller John Chiang said.
....It is unclear when an executive order that terminated 10,000 part-time and temporary employees will be lifted.
....“It’s still in effect,” said Schwarzenegger spokesman Aaron McLear. “We want to capture as much savings as we can.” More

....""Governor signs 2008-09 state budget; funding stays flat for UC system"

by Brad Hayward, The University of California

....Gov. Arnold Schwarzenegger today (Sept. 23) signed a 2008-09 state budget that includes essentially flat state funding for the University of California system.
The budget restores nearly $100 million that was proposed to be cut earlier in the budget process. However, because it does not provide funding increases for student enrollment growth or inflation-based cost increases, the 10 UC campuses will still need to reduce expenditures by about $100 million through budget cuts and use of reserves in order to accommodate these rising costs. UC's Office of the President in Oakland already has taken steps to reduce central office positions and administrative expenditures by more than $20 million, and these savings will be passed along to the campuses.

....UC kept its promise to offer a place to all eligible undergraduate applicants this fall and total enrollment is expected to increase by several thousand students, even though the university is not receiving state funding to enroll additional students beyond last year's levels. UC Regents in May approved a 7.4 percent student fee increase for the 2008-09 year, earmarking one-third of the revenue for financial aid in order to help preserve affordability for lower-income students. Funding for Cal Grants for college students also will increase under the final state budget.

...The budget also contains lease-revenue bond funding for six critical facilities projects on UC campuses, included by the governor as part of his economic stimulus plan.

...."We are gratified that the governor and Legislature have brought this year's state budget process to a conclusion," said UC President Mark G. Yudof. "The final budget for UC is probably the best we could have achieved in a difficult fiscal environment, but it falls far short in terms of maintaining and enhancing our competitiveness in educational and research programs. We will need to do more with less.

...."While we are well on our way to reducing administrative costs and achieving greater efficiencies, belt tightening alone will not be enough to meet the financial challenges ahead for the university. Increasing student populations, rising costs of health care, escalating competition to attract and retain world-class faculty, and the challenges of maintaining a fully funded retirement system all contribute to higher costs. Simply maintaining the status quo in funding from the state will not enable us to meet these challenges for California over the longer term." More

......."Schwarzenegger Signs California State Budget, But Not Before Cutting Mental Health, Medi-Cal, and Discount Prescription Programs"

by Marty D. Omoto,Director/Organizer
California Disability Community Action Network

....Governor Arnold Schwarzenegger signed the State Budget in a ceremony under the State Capitol Rotunda but drew immediate criticism from advocates for a major cut to a mental health housing program that served thousands of people with mental illness who are homeless. The bulk of the cuts to Medi-Cal centered on changing caseload expenditure projections - though there was a cut made to funding meant for rate increases for Medi-Cal managed care plans. More

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