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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.

Assorted problems identified by Treasurer & Controller: The State has to pay off short term notes in the amount of $7 billion in June. The $8.6 billion in payments owed to schools and other programs have already been delayed until July or August to keep the state from running out of money until August. The Admin anticipates selling short term notes for a $9 billion infusion in September. These are RAN notes, which can't be issued if the state doesn't have a budget. If we have to go to warrants because we can't issue RANS, Treasurer Lockyer estimates the cost of borrowing (assuming a lower credit rating) will be another $100 million. Controller Chiang estimates running out of funds for court-required payments by early August.

Pesky Political Reality: Republicans can already be heard this morning denouncing new taxes. There are exactly ZERO votes among Rs for many of the revenue proposals--especially the sales tax trigger. Health and Social Service cuts of the magnitude already proposed are untenable to Democrats. Borrowing from transportation and every other conceivable special fund has political problems on all sides. The latter will be done in any case.

Use with caution these "clairvoyant" items. Keep in mind that we may not have some of this exactly right!

Lynn Suter of Lynn Suter & Associates is a legislative advocate based in Sacramento. Her firm primarily represents local government entities, including counties, cities, and special districts.

Posted on May 14, 2008

Comments

My wife is in nursing facility that has informed
me that if the budget isn't passed soon they may have to close. They are telling us that they
haven't been payed and had to borrow funds to pay their staff. If all the nursing facilities in California are in the same situation, how will our loved ones be taken care of? Please do something to pass the budget.

Posted by: Jerry Grossman at September 19, 2008 02:35 PM

This budget issue has now gotten out of hand. It is no longer time to point fingures at one another, it's time this budget gets completed. The citizens of this State deserve better than what it appears we now have in the Capital City. From the top down. The fed gov wants to bail out the banking industry, I say bail out CA. We have no effective leadership or state gov, they can't even come up with a simple resolution. I'm not impressed. State funded industry is BEYOND the brink of the door steps of exstintion. CA voters are loosing their homes and businesses because of the budget wows. ---News Flash--- the budget will not simply disappear if you do nothing or in fairness, if what you are doing appears as though your doing nothing. Get it together!

Posted by: Concerned about my CA at September 22, 2008 08:31 PM

We have the largest weldare economy in the U.S.
Prison Guards get $ 150k
Fireman get $ 100k +
College Profs get $ 100k + housing allowance
High School teachers get $ 75 k +
Cal Trans get $ 100k +
Plus pensions + health care + on & on.
---> We in the private sector get 7-11 & circle K
---> wages, with the threat of job loss at anytime
Yet ironically, it is us private bottom fishing
people that get NO bail out & have to pay for
the government worker & his/her bail-out plan.

---> The answer to our budget problems is simple.
---> Give all government workers 50% less money.
They need some incentive to get off the gov dole.
If they don't like it, they can come join us in
the private sector. McDonalds is hiring.

Questions: Are all of these gov jobs REALLY
necessary ?

Posted by: Rod at February 14, 2009 02:48 PM

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