California state budget (2010-2011)

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Find the state’s FY2011 Comprehensive Annual Financial Report (CAFR) compiled by the state government online.[1] The state faced an estimated $25.4 billion budget gap.[2] Financial expert, Meridith Whitney, had ranked California as being in the worst financial condition.[3]

California had a total state debt of $290,855,041,516 going into the fiscal year - calculated by adding the total of outstanding debt, pension and OPEB UAAL’s, unemployment trust funds and the 2010 budget gap.[4]

Budget development

Going into the fiscal year California had the second highest debt per capita for general obligation borrowing at $2,362 per person, and overall debt per capita according to some calculations was $19,800.[5]

In Dec. 2010, the National Conference of State Legislatures said that the state faced a midyear shortfall of $6.128 billion, which represented 6.6% of the FY2011 state budget.[6]

On Nov.10, 2010, the Legislative Analyst's Office projected California's budget deficit to be $25.4 billion through June 2010.[7] The day following that announcement, Gov. Schwarzenegger called a special budget session to begin on December 6, 2010, when new lawmakers were sworn into office.[7] Before the session the Department of Finance planned to make its own estimate of the gap and a plan to close it.[7]

The governor proposed an austerity agenda that would eliminate state child-care programs, eliminate cash grants to the elderly and disabled, and cut vision coverage for children receiving government-subsidized healthcare because the state faced an estimated $6.1-billion deficit in the fiscal year and a $25.4-billion shortfall over the coming year and a half.[8] Many Democratic legislators said they preferred to wait to act until Democrat Governor Jerry Brown took office on Jan. 3 before taking action on the budget.[8] Schwarzenegger said his goal in calling a special session was to make the budget problem "a little bit easier" for Brown.[8]

Upon taking office Governor Brown said that he would retain Ana Matosantos as budget director, a position she held under Gov. Schwarzenegger.[9]

Budget Passed

The budget was passed on October 6, 2010. Some of the 21 bills that make up the budget were not made published and available to the public prior to the vote.[10][11] The delay in passing the FY2011 state budget was a record for the state, with the budget being 100 days late, later than it had ever been in state history.

The reserve in the budget was about $200 million, significantly less than the $1.2 billion reserve the governor had sought in his proposal.[12]

Vetoes

The governor signed the bill the day it was passed and used his line-item veto to eliminate $962.5 million billion in spending, $366 million coming from a one-time accounting maneuver that made it possible to use federal funds to avoid cutting services.[13] The vetoes included:

  • A $256 million reduction in child care funds for low-income, former welfare-to-work participants who had found work[13]
  • An $80 million reduction in funds for child welfare services meant to boost efforts to investigate child neglect and abuse, meaning that funding for FY2011 remained at FY2010 level[13]
  • A $133 million reduction for provision of mental health services to special education students[13]

The budget also assumed $200 million in savings from fewer inmates and parolees and $75 million in savings from fewer In-Home Supportive Services recipients.[14]

Pension Reform

The budget also included a pension reform provision on which Schwarzenegger had insisted, meaning that state employees hired after Nov. 1, 2010 would receive lower pensions than those currently on the payroll.[15][14]

Unemployment Insurance Deficit

The Unemployment Insurance Fund's deficit was "projected to increase to approximately $20 billion at the end of 2011."[16] Legislative analyst Mc Taylor said that the fund was paying out more than $11 billion a year in benefits while employers generated just $4.5 billion in payroll taxes.[16] The fund was reliant on loans from the federal government going into the fiscal year.[16]

Revenue

The revenue estimates in the budget were $1.4 billion more because it used projections from the nonpartisan Legislative Analyst's Office instead of the Department of Finance.[14] The budget saved $1.2 billion in suspending the corporate net operating loss tax deduction.[14] The revenue gains were somewhat reduced by three specific corporate tax cuts that would cost the state $118 million.[14]The budget did not include the Democrat's proposed "tax swap."[14]

The budget counted $1.9 billion from loans and transfers from special funds and bond debt savings as revenue, and also assumed $1 billion from the sale of 11 state buildings that the state planned to lease back.[14]

Budget Highlights

Some of the spending in the budget included:

  • $5.8 billion for the California Community College system, about $108 million more than the previous year, but $189 million would be deferred until the next fiscal year.[12]
  • $5.5 billion each for the University of California and California State University systems, an increase of about $250 million each over the previous year, along with $200 million each to make up for previous cuts.[12]
  • $1.6 billion in cuts to state employee pay and benefits.[12]
  • $5.4 billion in revenue from the federal government.[12]
  • $1 billion increase in spending over the previous year, made possible by a revenue increase, lawmakers said.[12]
  • $43.8 billion for K-12 public education, a slight increase over the previous year, but $1.7 billion of that was to be included in the FY2012 budget and paid out in July.[12]

IOUs

At the end of the first quarter in the FY2012 budget year, the state owed thousands of vendors almost $3 billion.[17] State Controller John Chiang said that a budget being signed by Oct. 9, 2010 may not forestall the issuance of IOU's.[11] Invoices of more than $8 billion that had gone unpaid without a budget would have to be paid as soon as the budget was signed, putting the state in the red.[11][17]

Federal Funds

California was slotted to receive approximately $3.1 billion from HR 1586, a $26 billion plan to give states money for Medicaid and education that the President signed into law on August 10, 2010.[18][19]

H.D. Palmer of California's state Finance Department said the bill would send $1.2 billion directly to the schools and another $1.3 billion that could be used to help plug the state's $19 billion budget hole. The amount was about $500 million less than Schwarzenegger's budget proposal assumed.[20] Jennifer Kuhn, the director of K-12 programs for the nonpartisan California Legislative Analyst's Office, said that while the federal money would help officials fill a lot of positions, it was uncertain whether those jobs would be filled in time for the new school year.[20]

State Workforce

Furlough Days

On July 28, 2010, Gov. Arnold Schwarzenegger declared a financial state of emergency and ordered 150,000 state workers to take furlough three days per month.[21][22] Furloughs saved the state $1.5 billion during the previous two fiscal years and an additional $80 million a month for FY2011, said H.D. Palmer, spokesman for the governor's Department of Finance, in Oct. 2010.[23]

The California Supreme Court upheld unpaid furloughs for more than 200,000 state employees during the last fiscal year but held that a governor could not unilaterally reduce work weeks and pay for state workers. The ruling meant that the state did not had to reimburse workers for reduced pay during the first year of furloughs but it did require future governors to obtain union or Legislature approval before forcing mandatory unpaid days off.[24]

Minimum Wage

After more than a month passed after the budget due date, Gov. Schwarzenegger issued an order on July 1, 2010, reducing over 200,000 employees' pay to minimum wage until the impasse was over. On July 16, 2010 Sacramento County Superior Court Judge Patrick Marlette denied the administration's request for a temporary restraining order that would have forced the controller to pay the federal minimum wage immediately to about 200,000 state workers. He found it would cause too much harm to employees. The judge allowed the administration's lawsuit to proceed so the courts could determine whether the controller had to pay minimum wage in the future and discussed setting a hearing on the case in August. Deputy Controller Hallye Jordan said the decision meant state workers would continue to receive full wages through July and August.[25]

Employees in the six bargaining units that had not agreed to labor deals would receive minimum allowed by federal law – $7.25 an hour – and then their salary would be restored once there was a budget.[26] Controller John Chiang said that he would not follow the order unless told to did by a court.[26][27]

Lobbying

Investment banks billed California an estimated $1.5 million for dues to trade groups dating back to 2005, including a municipal-bond lobbying association. State Treasurer Bill Lockyer said in February 2011 that the banks would be required to return the money. He explained in a statement, "Making taxpayers, in effect, foot the bill for banks’ lobbying or campaign activities was not justified under any circumstances."[28]

Jobs

In July of 2010 it was reported that California lost 36,000 jobs in the entertainment industry.[29]

Education

State officials decided Aug. 23, 2010, to start delaying school payments of $2.5 billion a month in September.[30] This came after a $2.5-billion deferral in July.[31] The state originally planned a 90-day deferral from October to January, but moved that to a September to December time frame in an effort to conserve cash, delaying the need to issue IOUs.[31] Some school districts were expected to take out short-term loans to pay their expenses.[30] An official with the California School Boards Association pointed out that borrowing more funds to cover expenses would raise the costs and take money from classrooms and put it toward interest.[31]

The state budget delay forced campuses to borrow money and threatened some students' enrollment and financial aid.[32] The chancellors of Cal State University, the University of California and the California Community Colleges said that their campuses were dipping into financial reserves or borrowing to cover the delayed state payments and, at day 58 in the stalemate, they urged lawmakers to pass a budget.[32]

Borrowing

During this fiscal year period California and Illinois were the two lowest-rated states by the three major credit-rating agencies.[33]

Ballot Measures

Voters approved Proposition 22, an initiated constitutional amendment that aimed to put local government and transportation funds off-limits to Sacramento. Lawmakers quickly proposed an accounting change that would sidestep new voter-imposed rules that banned the diversion of local and transportation funds.[8]

Voters also approved Proposition 26, an initiated constitutional amendment that required a two-thirds supermajority vote in the California State Legislature to pass many fees, levies, charges and tax revenue allocations that under the existing rules of the time could be enacted by a simple majority vote. Both initiatives were drafted in late 2009, months before Gov. Schwarzenegger proposed the complex budget maneuver that swapped fuel sales taxes for excise taxes, which had fewer restrictions on how they could be used, and approval of either initiative would repeal that $1-billion budget patch.[34]

Voters approved Proposition 25 , an initiated constitutional amendment to end the requirement in the state that two-thirds of the members of the California State Legislature must vote in favor of the state's budget in order for a budget to be enacted and require only a simply majority.

The FY2011 budget agreement included placing a measure on the November 2012 ballot to create a "rainy day fund" to save money in good years for use in economic downturns.[14]

Budget background

California’s fiscal year starts July 1. The Governor was required to present the Legislature with a proposed budget by January 10 and the Legislature to pass a budget by June 15. A two-thirds majority was required to pass the budget in the Legislature.[35] In November 2010, voters would vote on Proposition 25, a ballot measure that would lower the vote threshold down from two-thirds, so that lawmakers could pass budgets with a simple majority.[36]

Over the past 10 years state spending from state sources had more than doubled in nominal terms (not adjusted for inflation).[37]

The California controller delayed payments in February 2009 and issued IOUs in July and August 2009. This was only the second time since the Depression that the state issued IOUs for some of its budgeted payments. In effect, the IOUs forced recipients (such as state vendors and local governments) to provide the state with a loan involuntarily. The IOUs were redeemable with interest, paid at a 3.75 percent annual rate. “Priority payments”—including school, payroll, and debt service payments—were not subject to IOUs.[38] As of August 2010, of the 450,000 IOUs totaling $2.6 billion that were issued, 66,350 remain uncashed, leaving $29 million of debt still outstanding, according to the state controller's office.[39]

Governor Schwarzenegger and legislative leaders formed the Commission on the 21st Century Economy (COTCE) to suggest changes and reforms for more reliable and stable state revenues. The Commission released its report on September 29, 2009.[40][41]

Budget spending

Over the past 10 years state spending from state sources had more than doubled in nominal terms (not adjusted for inflation), and during the current governor's tenure state spending from state sources had risen almost 40 percent[42][37]:

California Spending, Years in Comparison
FY 1997-1998 FY 2003-2004 FY 2007-2008
State spending $68.5 billion $104.2 billion $144.8 billion
Federal money $31.6 billion $52.5 billion $59.5 billion

Note: California's legislators had declined to put details of the state's spending online.

General Fund Spending by Major Program Area (In Millions)[43]

Programs Actual 2007-08 Estimated 2008-09 Enacted 2009-10
K-12 Education $39,825 $32,356 $33,745
Higher Education 11,823 10,138 10,495
Health 19,906 18,794 16,077
Social Services 9,432 10,009 8,876
Criminal Justice 13,059 12,778 9,032
All Other 8,954 7,472 6,358
Totals $103,000 $91,547 $84,583

General Fund[44]

Category FY2009 Amount in millions Actual FY 2010 Amount in millions Estimated
Beginning Balance 4,071 -5,855
Revenues 82,772 88,084
Adjustments -1,757 0
Total Resources 85,086 82,229
Expenditures 90,940 86,092
Adjustments 0 0
Ending Balance -5,855 -3,863
Budget Stabilization Fund 0 15

Fiscal 2010 Tax Collections Compared With Projections Used in Adopting Fiscal 2010 Budgets (Millions)[44]

Category Amount
Sales Tax Original Estimate 27,609
Sales Tax Current Estimate 26,036
Personal Income Tax Original Estimate 48,868
Personal Income Tax Current Estimate 46,640
Corporate Income Tax Estimate 8,799
Corporate Income Tax Estimate 9,407

Accounting principles

See also: California government accounting principles

The California Auditor and her office report to the Joint Legislative Audit Committee (JLAC), a 14-member committee comprised of seven Senators and seven Assembly Members or through legislation.[45] The California State Auditor’s Office publishes its audit reports online.[46]

Credit Ratings

Credit Rating Fitch Moody's S&P
California[47] BBB Baa1 A

The Institute for Truth in Accounting (IFTA) rates California “Tardy” in filing the state’s Comprehensive Annual Financial Report (CAFR) – The annual report of state and local governmental entities. IFTA rated 22 states timely, 22 states tardy, and 6 states as worst. IFTA did not consider California’s CAFRs, and those of the other states, to be accurate representations of the state’s financial condition because the Generally Accepted Accounting Principles (GAAP) basis did not include significant liabilities for the pension plans and for other post employment benefits, such as health care.[48] California's State Controller was responsible for filing the CAFR. California State Controller’s Office Web site, accessed October 9, 2009]</ref>

2009-2010 budget crisis

The California State Legislature passed substantial amendments to the budget in July 2009. Gov. Schwarzenegger responded to the July legislation by using his line-item veto powers to produce a final FY 2010 budget with a $500 million surplus to be used as a reserve.[49]

California’s FY 2010 General Fund budget had $90 billion in revenues and transfers with $85 billion in expenditures. The $5 billion surplus would pay the $4.5 billion deficit from FY 2009 and leave a $500 million reserve. General Fund expenditures were $103 billion for FY 2008 and $92 billion for FY 2009.[50]

The size of the 2-year deficit for all funds (FY 2009 & FY 2010) estimated in January of 2009 to be $41.6 billion grew to almost $60 billion by July of 2009. The February 2009 budget package included $14.5 billion in spending reductions, $12.5 billion in temporary tax increases, $8.5 billion in federal stimulus funds, and $0.3 billion in borrowing for a total of $35.9 billion.[50]

The July of 2009 budget package added $18 billion in spending cuts, $3.5 billion in one-time measures and transfers, and $2.2 billion in borrowing. The combined February and July budget packages closed the entire 2-year gap by $59.5 billion.[50]

Proposed budget cuts

According to reports the proposed FY 2011 total budget was estimated to be $118.8 billion. The general fund, however, was $82.9 billion, $3.1 billion less than the previous year. Proposed budget cuts include cuts to health, social services and transportation programs. Additionally, state workers' salaries would be reduced and corporate tax breaks would be rolled back.[51]

Proposed budget cuts were outlined below:

  • Health and human services: a total of $2.9 billion cut, which includes a $950 million cut to the in-home supportive services program for the disabled.[51]
  • State employee salaries: a 5% across the board cut and 5% increase in employee contributions to pension funds. Additionally, should federal funding fall short an additional 5% pay cut would be implemented. A total of $1.6 billion in savings.[51]
  • Prisons: the proposed budget includes cuts in the form of health care reductions, moving nonviolent state inmates to county jails - a total of $1.2 billion in cuts.[51]
  • Education: spending on education would not increase or decrease under the proposed plan but instead remain at the $48 billion level. On the other hand state university systems were scheduled to receive a $225 million increase.[51]
  • Transportation: millions of dollars were expected to be eliminated from the transportation fund in light of a plan to eliminate the fuel sales tax and increase the per-gallon excise tax on gasoline.[51]

Budget transparency

See also: States with spending online and Evaluation of California state website

California currently had no statewide, official spending database online, despite multiple, recent attempts to pass legislation that would create one. However, Assembly Member Kevin de León introduced AB 400, a bill that would bring partial transparency to California's state spending. It was be heard on June 23, 2009 and was re-referred to the California Senate's Committee on Appropriations.[52] In addition, on June 19, 2009, California launched a transparency website that details government contracts of $5,000 or more.[53][54]

Twenty other states had put their spending online since 2007.

  • In light of California lawmaker's success in coming to a budget agreement, the National Taxpayers Union said that although they were pleased that lawmakers had not added new tax increases, they were concerned about fiscal reform in the state. Real fiscal reform, they said in a statement, "will not be achieved until we control government spending, and the only way to did that was if citizens know where their tax money was going- not simply by employing accounting gimmicks to make the numbers look good." The organization was advocating for the approval of AB 400.[55]

Economic stimulus transparency

  • The American Recovery and Reinvestment Plan of 2009 designated $787 billion to be spent throughout the U.S. Of that $787 billion stimulus package, it was estimated that 69%, or over $541 billion, would be administered by state governments.[56]
  • It was estimated that California would receive at least $17.3 billion in federal funding.[57] In the next two years, that number was expected to be approximately $85 billion.[58]
  • The economic recovery website for California was available online.Cite error: Closing </ref> missing for <ref> tag Another project gave $308 million to Hydrogen Energy California, LLC (HECA), owned largely by BP, to “generate more environmentally friendly electricity by capturing carbon dioxide from the burning of fossil fuels.”[59] A third project awarded Boeing a $16 million no-bid contract in stimulus money to clean up a California site it helped pollute.[60]

Transparency evaluation

The following table was helpful in evaluating the level of transparency provided by a state spending and transparency database.

Criteria for evaluating spending databases
State Database Searchability Grants Contracts Line Item Expenditures Dept/Agency Budgets Public Employee Salary
Reporting transparency
{{{1}}}
N
600px-Red x.png
{{{1}}}
N
600px-Red x.png
N
600px-Red x.png
{{{1}}}
E Budget N
600px-Red x.png
N
600px-Red x.png
N
600px-Red x.png
N
600px-Red x.png
{{{1}}}
N
600px-Red x.png

Supporters of online budget

On March 18, 2008, Americans for Tax Reform sent a letter to Californian legislators, urging them to support SB 1494, the Taxpayer Transparency Act of 2008, which was sponsored by Sen. Tom McClintock.

Public employee salaries

  • The Los Angeles Daily News published a study of LA city employees salaries.[61], and offer a database[62] of city employee pay. The Daily News also posted a database of Los Angelest Unified School District employee salaries.[63]
  • The Sacramento Bee provided a state workers database for 2007/2008.[64]

See also

External links

Budget links

Additional reading

References

  1. FY2011 CAFR. California's FY2011 $86.6 billion state budget was passed on Oct. 8, 2010, 100 days late, the latest it had ever been It was the 23rd time in 24 years that the legislature had missed the budget deadline.
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