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September 16, 2008
TO:
ACSA Leadership and interested parties
FR: Adonai Mack, Legislative Advocate
RE: Final Budget Passed
Finally, after a record 78 day impasse, the Legislature has
passed a budget proposal for the Governor to sign. Late
last night both the Senate and Assembly took up a budget
proposal that did not include new taxes and relies heavily
on borrowing. The resolution of the budget came about over
the weekend when Senator Perata relented to the Republican
Caucus' demand to design a budget that does not include new
or higher taxes. After working throughout the week, the
Democratic leadership of the Senate and Assembly and the
leadership from the Republican Caucus emerged late Sunday
night with a budget compromise that will end the longest
budget standoff in state history.
With little discussion throughout the night both houses
proceeded to pass the final budget as well as all the
accompanying trailer bills that represent the budget
package. The budget package includes a variety of
components including the closure of tax loopholes,
accelerating tax collections and budget reform.
Budget Structure
While not all the parts of the budget agreement have been
fully analyzed, the budget has the following basic
components:
Education
The budget proposal funds Proposition 98 at $58.1
billion. This funding level is higher than the May Revise
by $1.1 billion but lower than the Conference Committee
Report by $1.8 billion. In addition, the budget includes a
modest cost of living adjustment of 0.6% for revenue limits,
but not for any categorical programs.
Lottery Securitization
The proposal securitizes the lottery proceeds and assumes
that the securitization will generate $6 billion in revenues
for fiscal year 2009-10. The changes to the lottery include
excluding education from receiving lottery funds and instead
adding the $1.2 billion of lottery proceeds to the base of
Proposition 98. Education will be taken completely out of
the lottery beginning in 2009-10 and the $1.2 billion will
be included in school district revenue limits.
Budget Reform
In an effort to garner the necessary votes to pass the
budget, the budget needed to contain specified budget reform
provisions which required the state to save a portion of the
General Fund for fiscal years in which the state was facing
a deficit. The key provisions of budget reform are as
follows:
-
Expand the current Proposition 58 requirement of 5% of
excess revenues to 10% and place into the Budget
Stabilization Fund.
-
Any
transfers from the Budget Stabilization Fund to the
state's General Fund are to be made in a separate bill
and can be passed with a majority vote.
-
The
Governor is given mid-year cut authority which includes
a suspension of state operations, a postponement of
cost-of-living adjustments on categorical programs for
120 days.
-
Unforeseen revenues that arrive in April that exceed
earlier projections (known as "April Surprise Revenues")
that are in excess of 105 percent of the estimates will
be used in the following order: a) To fund existing
Proposition 98 obligations, b) enhance the Budget
Stabilization Fund, c) state budgetary debt obligations,
and d) one-time funded projects.
While the budget proposal that was voted on Monday
night/Tuesday morning contained changes to the existing
"rainy day" fund, the Governor clarified his position
regarding budget reform by sending a letter to legislative
leadership stating that he would veto any budget sent to him
without the type of budget reform he asked for in his budget
proposals. It is unclear if the governor will actually
follow through with this threat. If so, the Legislature is
prepared to override his veto and pass the budget again.
Tax Revenue
While Republicans have strongly opposed a general tax
increase, this agreement contains new revenue. The
agreement captures $2 billion by making a change in the "net
operating loss" credit for businesses and $3 billion from
other "loopholes" including the yacht tax. Additionally,
this agreement will generate $2.3 billion by accelerating
the withholding for fiscal year 2009-10 on the personal
income tax for high income earners. This action is similar
to the deferral of school district's June apportionment into
July of the subsequent year.
What does this mean?
The Legislature failed to share the exact budget
language for the budget proposal until all the measures were
passed finalized by the Legislature. Until ACSA has the
opportunity to fully review the language, we are uncertain
of the specifics of the contents of how the budget is
funded. For example, our understanding of the budget
proposal is that it contains a $1.5 billion deficit that
will be addressed in the January 2009-10 budget. Once ACSA
has had an opportunity to fully review and analyze the
budget language, we will send out a final analysis for your
review.
Special
Election
The budget proposal contains a variety of reforms that are
changes to the constitutional changes and must be placed on
the ballot for the public to approve. These reforms include
the changes to the Budget Stabilization Account and the
Lottery securitization. It is assumed that the
Governor/Legislature will call a special election for
sometime in early 2009. This election is important because
the lottery securitization agreement is scored at $6 billion
in new revenue for 2009-10. If the proposal is not passed
by the voters, there is an immediate shortfall in the
2009-10 budget of $7.5 billion. (This is the result of the
built in $1.5 billion deficit from 2008-09 and the $6
billion in the lottery.)
After ACSA has had to opportunity fully review the entire
budget and analyze the budget language, we will provide an
in- depth analysis of the budget and what to expect in the
coming year. If you have any questions, please do not
hesitate to contact us at (800) 608-ACSA. |
