Quick California Budget Update - May Pre-Vise

By Lynn Suter
Legislative Advocate

Here's what we know this morning. The actual announcement is scheduled for 1:00 p.m.

The major points:

• The deficit will be pegged at $15.2 billion, whatever that means. We no longer believe any of the numbers, so the Gov might just as well stick with one.
• The Gov will propose more cuts, raid special funds, and propose new revenues to close the gap.
• The Gov will propose "securitizing" future lottery funds with some kind of RAN, closing a big chunk of the deficit. I don't begin to understand how or whether this works, but am sure to be educated soon. Apparently he wants to let voters decide between a sales tax increase and borrowing from the lottery.
• Gov thinks the "reduced deficit" plus the lottery scam, cuts, and new fees, gets the state within spitting distance of deficit erasure.
• Gov will propose a back-up automatic sales tax increase to cover the deficit in case the voters reject his proposals in November.

Proposals we expect:

• Health and Social Services: Deep new cuts may be proposed. Limit access to IHSS and Medi-Cal.
• Education: Cut categorical programs, eliminate (?) or sharply reduce COLA. Leave Prop 98 guarantee in place.
• Corrections: Gov's dropping his early release of low risk prisoner proposal. No votes for it in the legislature.
• Parks: Increase fees instead of closing parks.
• Transportation: Borrow the "excess spillover" funds.
• Other borrowing: Borrow from other special funds, use his executive authority to issue the rest of the authorized revenue bonds, and anything else he can get his hands on.
• Constitutional Amendment: Reiterate his commitment to seeking a voter approved Constitutional Amendment to "fix" revenue volatility and overspending by creating the Revenue Stabilization Fund that will receive funding in any year that state revenues exceed the 10-year average. Would also call governors to unilaterally make mid-year reductions in deficit years. He might also include some kind of trigger that allows governors to raise taxes unilaterally (the Deukmejian model).
• Ballot Measures: Put the Constitutional Amendment and the Lottery scheme on the November 2008 ballot.
• Fallback Proposal: The Gov is likely to propose a one-cent sales tax increase to fund the balance of the gap after cuts as well as the Budget Stabilization Fund as insurance against failure of his proposals on the ballot. In this case, he would use the Deukmejian trigger model from the 1980s.

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