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Budget season begins where it left off


Budget season begins where it left off
Last year, Governor Arnold Schwarzenegger and the California Legislature attempted to deal with the largest budget deficit in the state’s history. After intense political wrangling, politicking, and negotiating, several remedies for the $60 billion budget shortfall were approved including spending cuts, transferring money from special funds, suspending Proposition 98 (which mandates spending percentages on K-12 education), borrowing from future expenditures, and increasing taxes by $12 billion. The 2009 budget also relied heavily on receiving federal dollars to cover federal mandates.
Despite past efforts, California’s 2010 budget is facing another $20 billion deficit. According to Governor Schwarzenegger’s budget plan, California’s deficit includes $6.9 billion this year and a $12.3 billion shortfall during the next fiscal year. 
The governor’s plan states that several of the proposed 2009 budget savings were not realized. For instance, $4.9 billion in lost savings resulted from federal and state court decisions, (e.g., invalidating the sale of the State Compensation Insurance Fund). Additionally, some enacted remedies failed to achieve their predicted savings, including changes made to the state prison system and Medi-Cal, which together resulted in $2.3 billion in lost savings. Finally, the governor states that the previous budget overestimated its anticipated revenues, accounting for another $3.4 billion shortfall.
Governor Schwarzenegger responded to the state’s fiscal realities by calling another emergency session of the legislature. He also issued an Executive Order requiring all state agencies to reduce salaries by five percent.
In his 2010-11 budget proposal, Governor Schwarzenegger makes additional spending cuts, fund shifts, and increases specific “fees.” The proposal includes the sale of the EdFund (a college tuition funding program), and authorizes the sale and leaseback of state owned property. Further, the budget proposes to shift funds from voter-approved initiative accounts, and it creates steeper fines for speeding violations associated with red light cameras. The governor claims that there are no new taxes in his proposed budget, although “fees” will be increased.
Legislative budget committees are reviewing the governor’s proposed plan. Both Assembly and Senate Budget Committees have convened hearings to evaluate components of the budget and to hear testimony from the Department of Finance (Governor Schwarzenegger’s budget office) and the Legislative Analyst’s Office (the Legislature’s independent analysts). The Department of Finance provides insight and explanations for the decisions offered in the proposed budget, while the Legislative Analyst’s Office (LAO) provides overview and analyses of the proposed budget.
The LAO noted that their projections of the state’s deficit are approximately $2 billion more than the governor’s numbers, but that the governor’s numbers are reasonable. They also noted that the governor’s budget relies heavily on $8 billion in anticipated federal revenues, adding that it is unrealistic the state would receive that amount. According to the LAO, “the odds seem favorable for some federal relief…the chances that the state will receive all of what the governor seeks from Washington is almost non-existent.”  This week, the governor and several legislative leaders are in Washington, DC meeting with congressional members to discuss California’s need for federal funds. 
Before March, the governor and legislators will attempt to solve the immediate $6 billion deficit. Failure to resolve the current year’s deficit will increase the state deficit by another estimated $4 billion. Once policy makers address the immediate shortfall, Governor Schwarzenegger and the Legislature will wait for the May Revise – when the Governor releases his budget revision – to ascertain the true picture of the state’s fiscal and budgetary health.
January is simply the start of a long budget cycle. CFC will keep you updated as budget negotiations develop.
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