California state budget

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California state budget

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Budget calendar:  Annual
Fiscal year:  2012
Date signed:  June 30, 2011
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California operates on an annual budget cycle. Its fiscal year begins July 1. California’s constitution requires legislators to pass a budget by June 15 with a simple majority vote.[1]

California's lawmakers approved a $92.1-billion FY2013 budget on June 15, 2012, along party lines.[2] The budget includes some cuts, but those cuts are smaller than those made by the governor in the smaller spending plan that he initially proposed.[2] The budget also leaves a gap of $8 billion that lawmakers and the governor hope will be filled with revenue from new taxes approved by voters in November.[2] The governor signed the budget into law on June 27, 2012.[3]

As of August 2012, California had a total state debt of approximately $617,620,709, when calculated by adding the total of outstanding official debt, pension and other post-employment benefits (OPEB) liabilities, Unemployment Trust Fund loans, and 2013 budget gap.[4] The debt increased over the prior year's debt total of $612,054,955,000,[5]

As of October 2012, California's total state debt per capita was $16,386.03.[6]

According to a 2012 study by 24/7 Wall Street, California is the worst run state taking into account debt per capita, budget deficits, unemployment, median household income, and the percentage of the percentage of the population below the poverty line. The best run state is North Dakota.[7]

See also: The California State Budget on State Budget Solutions

Federal Aid to State Budget

The chart below represents how much of the state’s budget comes from the federal government. The number is the corresponding ranking in relation to the rest of the nation (if #1, the state receives the highest percentage of federal funding in the nation):

State 2008 2009 2010 2011
California 26.99% (#33) 32.49% (#29) 34.48% (#33) 32.38% (#37)
  • Figures were calculated by dividing each state’s intergovernmental revenue into its general revenue.[8][9]

Fiscal Year 2014 State Budget

Gov. Jerry Brown proposed a state budget for FY2014 on Jan. 10, 2013.[10] A 248-page Budget Summary provided by the governor's office can be found here.

The pro­posed budget increases spending by approximatley 4% over FY2013, bringing general-fund spending to $97.7 bil­lion.[11]

Highlight of the budget include:

  • Schools will receive $56.2 billion in state funds, an increase over $2.7 billion over the prior year;[10]
  • an additional $350 million will go to implementing President Obama’s healthcare law with Medi-Cal, the state’s public insurance program;[10]
  • $2.7 billion increase in funding for community colleges;[12]
  • increases state funding for the University of California and California State University systems by $250 million, a 5% increase.[12]

The governor claims that, if the budget is enacted as he proposes, the state will see an $851-million surplus projected at the end of FY2014.[10] He also said that he believes the state can reduce its "wall of debt" from $27.8 billion at the end of this current fiscal year to $4.3 billion by the end of 2016-17.[12]

In laying out his timeline for repaying some $23.5 billion in borrowed funds, Gov. Brown did not factor in tens of billions of dollars owed for retirement health care benefits promised to state workers. The coming tab for retired workers tops $181 billion over the next three decades: $62.1 billion for retiree health, $64.5 billion for teacher pensions, $38.5 billion for employee pensions, $12.8 billion for University of California employee pensions and $3.3 billion for judges’ pensions.[13]

Fiscal Year 2013 State Budget

California's lawmakers approved a $92.1-billion FY2013 budget on June 15, 2012, with a Senate vote of 23-16 and an Assembly vote of 50-25 , along party lines.[2] Gov. Brown signed the budget on June 28, 2012, after vetoing $195 million in spending, $91.3 million from the general fund and $66.8 from special funds and federal funds. The veto included $31 million in special funds that Democrats tapped to keep state parks open.[14]

The budget did not include the cuts to welfare and other social services that the governor included in his smaller spending plan.[2] The budget also left a gap of $8 billion that lawmakers and the governor hoped would be filled with revenue from new taxes approved by voters in November.[2]

In addition to voters approving new revenue, the budget was also predicate on the existing state revenues meeting expectations. On Aug. 13, 2012, Comptroller John Chiang said that July revenues were $475 million less than anticipated, or 10.1 percent below assumptions.[15]

The Department of Finance's final budget summary can be found here.

Special Funds

The San Jose Mercury News found a $2.3 billion discrepancy between the numbers from the state controller and Department of Finance, with 17 accounts that appeared to have significantly more reserve cash than what individual departments reported to the finance department. State departments told the governor's administration that they had a combined $8.8 billion left in "rainy day" reserves for their special fund accounts. The controller's office, however, said there was $11.1 billion in cash reserves for the accounts.[16] The state parks department was found to have nearly $54 million in "hidden assets."[17]

Education

The budget increased spending for K‐12 schools and community colleges by 14 percent with $6.7 billion in additional funding, $6.1 billion to K-12 education and $570 million to community colleges.[18]

Union Contracts

Contracts with all 12 public employee unions, representing 182,000 workers in total, were in place prior to the start of the fiscal year and were good for FY2013, expiring in July 2013.[19]

Mortgage Settlement Funds

The budget used $410.6 million that the state received from banks in mortgage settlement agreement funds.[18]

Legislative Proposed Budget

The governor signed the $92 billion budget into law on June 27, 2012, 12 days after lawmakers approved it.[20] The budget as signed into law made cuts to welfare and social services and presumed voters will approve Brown's tax hike on the November ballot. If voters reject the tax initiative, a series of automatic cuts will be triggered, including three weeks less of public school for the next two years.[20]

Democrats held back a number of "trailer bills" containing the most contentious differences with Gov. Jerry Brown so that they could continue to work on them.[21]

The legislature scheduled a vote for June 15, 2012, giving lawmakers only a few hours to read the 777 page budget.[22] Legislators approved the budget on that vote, with a Senate vote of 23-16 and an Assembly vote of 50-25, along party lines.[2]

The legislative budget put forth by Democrats followed the governor's proposed budget in some aspects, and other aspects were quite different. The governor has said that the Democrats' proposal is insufficient.[23]

Both the legislature and the governor shared the same approach to the tax plan, temporarily increasing the sales tax and levies on the state's wealthiest residents. They assumed more than $8 billion in revenue from those taxes and anticipated extra cuts of more than $6 billion, mostly from K-12 education, if the taxes were rejected.[24]

The legislative proposal differed from the governor's in the following areas:

  • Welfare: lawmakers accept less than half of the governor's proposed welfare cuts.[24] Democrats, for instance, want to limit reductions to CalWorks, the state’s welfare-to-work program, to about $350 million instead of the $880 million requested by the governor.[23]
  • In Home Care: Legislators do not agree to the governor's cuts to in-home care for the elderly and disabled.[24]
  • Mortgage Settlement: Lawmakers would use $100 million more than the $292 million Brown proposed to siphon from the state’s share of a $25 billion national mortgage-relief settlement reached with banks.[23]
  • Rainy Day Fund: Democrats would reduce the rainy-day fund to around $600 million for the fiscal year beginning July 1, instead of the $1 billion reserve Brown proposed.

Governor's Proposed Budgets

On May 14, 2012, in light of a projected $16 billion budget gap, Gov. Brown unveiled a revised, $91.4-billion spending plan.[25] The governor proposed a 5% cut in payroll costs, as a result of reducing the state workweek to 38 hours, worked over four days. It would save $839 million overall, but only about $402 million of that savings would come from the $91 billion general fund and it is unclear if unions would agree to the change.[26] Brown's proposed budget would reduce the state workforce to about 216,000, down from 225,000 workers in 2007-08 and about 4,000 fewer than last year.[26]

The governor said that steep cuts in social services were needed, although legislators have been resistant to such cuts. Some of the cuts include:

  • cutting $1.2 billion from MediCal, which means slicing funds for hospitals and nursing homes;[25]
  • $1.3 billion in reductions to welfare and child care;[25]
  • temporary reductions in court funding;[25]
  • 5% pay cut.[27]

His plan also included some borrowing and transferring money dedicated funds to help pay the bills. He pleaded with voters to increase taxes that are on the ballot in November 2012, which he said would generate $5.9 billion in new revenue.[28] Gov. Brown warned that if those taxes were not approved, there would be an extra $6.1 billion in cuts,[25] most of which would be to K-12 education.[28]

The proposed budget would limit the practice of retirees double dipping by which state employees retire, then taking a second job with the state and simultaneously collecting pension payments and a salary.[29]

A summary of Gov. Brown's initial proposed FY2013 budget prepared by the state budget office can be found here.

The governor's proposal intended to reduce the number of state agencies from 12 to 10 through a series of mergers and reorganizations. The California Emergency Management Agency, for example, would lose its cabinet status and instead report directly to the governor. It also reduced the state's workforce by some 3,000 positions, mostly from the Department of Corrections and Rehabilitation. The governor's proposal also included eliminating 39 departments, offices, boards and commissions and wiping out nine state programs.[30]

As of January 2011, the budget was officially $137.3 billion total, with a general fund budget of $92.6 billion, $39.8 billion in special funds and approximately. $5 billion in bond funds. The proposed budget as presented, however, did not include $70 billion in federal funds and public pension payouts of approximately $50 billion. State expenditures will be close to a quarter-trillion dollars.[31]

The state Legislature’s policy analyst said on Feb. 27, 2012, that the governor's proposed budget may overestimate revenue by as much as $6.5 billion through June 2013.[32] This is in spite of the $2.5 billion that the state Legislative Analyst's Office said the state could receive from 2012-17 as a result of the Facebook initial public offering.[33]

Fiscal Year 2012 State Budget

California's lawmakers approved a FY2012 budget on June 28, 2011[34], that included $15 billion in spending cuts. Gov. Jerry Brown signed the budget into law on June 30, 2011, the day before the start of the fiscal year.[35] Gov. Brown vetoed the first budget approved by the legislature on June 15, 2011.[36] Gov. Brown said on May 12, 2012 that the state faces an estimated $16 billion budget gap.[37]

As of May 2012, revenue collections by the state fell $3.5 billions short of budget estimates.[38][39] As part of the budget plan, cuts took effect Jan. 1 because revenue fell $1 billion short of projections for the year.[40] Gov. Brown said on May 12, 2012, the state faced an estimated $16 billion budget gap.[41] Reasons the deficit was so large included:

  • tax collections were not as high as expected;
  • the economy did not grow as rapidly as lawmakers expected when they drafted he budget;
  • lawsuits and federal requirements blocked billions of dollars in state cuts.

The general fund of the state budget was approximately $90 billion, but the state actually spent more than $250 billion when $70 billion in federal funds, plus special funds (such as gasoline taxes), state employee pension payouts and borrowed bond funds are included.[42] General fund spending was at its lowest level since the 1972-73 fiscal year when measured as a share of the state's economy.[43]

The state was approximately $3.5 billion behind for this fiscal year as of May 2012,[44] In March 2012, there was a shortfall of $233.5 million in revenue, 8.2 percent below projections, according to the state controller John Chiang.[45] the state would be about $3.5 billion behind for this fiscal year

State leaders had to find $3.3 billion to ensure California has enough cash to pay for priority programs between Feb. 29 and April 13, and the state then borrowed the money. The governor's administration attributed the spending gap to courts blocking health and welfare cuts, as well as overestimating early savings in prison costs from redirecting inmates to counties. Leaders planned to borrow additional money from special state accounts (including several dedicated to transportation), delay Medi-Cal payments, and take out another loan from Wall Street. The state borrows money every fiscal year because it received tax payments in the spring.[46]

Education Spending

For FY2012, California devoted 24.7% of its total spending to education, up from 25.6% in FY2009.[47]

Fiscal Year Total Spending[48] Education Spending[49] Percent Education Spending
2009 $427.0 billion $105.5 billion 24.7%
2010 $431.2 billion $106.0 billion 24.5%
2011 $422.1 billion $106.0 billion 25.1%
2012 $422.1 billion $108.3 billion 25.6%

Medicaid

In FY2012, the state spent approximately $15 billion for Medicaid, known as Medi-Cal. Medicaid spending increased 50 percent over 10 years.[50]

Prisons

In FY2012, the state spent $9.8 billion on prisons. A large increase from 10 years prior, when the state spent $4.8 billion.[50]

Transfers of Funds

The state transfers money from funds intended for specific expenses in order to keep the state's day to day operations running. Gov. Brown signed a bill on Feb. 3, 2012 that expands the ability to borrow from dedicated funds, which will make $865 million available to help keep the state in the black through early March 2012.[51]

Cuts

Gov. Jerry Brown announced on Dec. 13, 2011, $1 billion in budget cuts as part of the first tier of cuts built in to the state budget should revenue fall below what lawmakers planned.[52] This is the first tier of cuts, and a second tier could be triggered should revenue fall $2 billion below hoped for levels. The first tier of cuts announced by the governor will take effect on Jan. 1, 2012, and they include:

  • $100 million cuts to both University of California and California State University systems, which are in addition to the $650-million hit each took in the current budget,
  • $330 million reduction to school budgets, including $248 million that pays for buses,
  • $100 million in cuts to services for the developmentally disabled,
  • $100 million reduction for workers who care for the sick and elderly in their homes, although a federal judge recently issued a temporary order against such cuts in a lawsuit filed preemptively.[52]

The state spent $1.7 billion more than budgeted through October 2011 and revenue was $810.5 million less than budgeted in October, bringing the total to 6.2 percent below expectations for July 1 through Oct. 31, according to released Nov. 10, 2011 by Controller John Chiang.[53] The budget includes a series of cuts to be activated if revenue falls below certain levels when the shortfall reaches $1 billion, and additional cuts are triggered if the shortfall grows to $2 billion.[54] All together, spending cuts of $2.5 billion would be triggered if the money doesn’t materialize.[55] At a $1 billion shortfall, in-home services for the elderly and disabled will be cut, university budgets would be reduced by $200 million, community-college fees will increase $10 per unit. Should the deficit reach $2 billion, the school year would be shortened by seven days to save $1.54 billion and $248 million in home-to-school busing subsidies would end. If necessary, those second-tier cuts would begin Feb. 1.[54] The state will determine if those cuts are required in mid-December after the Department of Finance and the Legislative Analyst's Office release separate revenue forecasts for the remainder of FY2012.[56] Those cuts would take effect Jan. 1.[54][53]

Passage of Budget

On June 27, 2011, the legislature passed a budget that the state Senate leader called the "most austere budget we have seen in a generation."[57] Gov. Jerry Brown signed the budget into law on June 30, 2011, the day before the start of the fiscal year.[58] With a spending plan in place prior to the start of FY2012, the state can proceed with the sale of $5 billion in short-term debt in August, according to the state treasurer's office.[58] General Fund spending totals $85.9 billion, a 6.1‐percent reduction from FY2011.[59] A 60-page Budget Summary prepared by the California Department of Finance can be found here.

The first budget passed by lawmakers was vetoed by the governor and deemed "unbalanced" by the Comptroller. Lawmakers approved a FY2012 budget on June 15, 2011, and sent it to Gov. Jerry Brown.[60] who vetoed it. He refused to sign the budget bill because it "contains legally questionable maneuvers, costly borrowing and unrealistic savings."[61] Democrats passed the bill, which they were able to do without Republican support thanks to the end of the supermajority requirement as a result of the November 2010 election. (see below) Republicans opposed the budget, saying it was unbalanced, gimmick-ridden and poor policy.[60]

On June 28, 2011, Democrats and the governor reached a budget deal that does not include the renewed tax hikes that the governor had been pushing to put before voters. The deal assumes $4 billion dollars in fresh revenue, from varied sources such as an increase in the vehicle registration fee and the Amazon tax on online retailers. Should the assumed revenue fail to materialize, serious service cuts would have to be made. Republicans did not support the plan. This budget relies on some of the gimmicks included in the first budget draft, including deferring billions of dollars in school payments into FY2013.[62]

The legislature and the governor reduced the original $26.6 billion budget gap by $11.2 billion for FY2012, mostly through budget cuts.[63]

Amazon Tax

The budget plan also includes a new sales tax on online retailers like Amazon.com, requiring them to collect the state's 7.25% sales tax from customers. The tax, which would allow California to collect taxes from any online retailer that has nexus with an affiliate site in California, would bring in an estimated $200 million a year.[64] Amazon.com and Overstock.com said they would drop their affiliates and challenge the law in court.[65] Amazon.com and California reached a compromise under which lawmakers agreed to permit Amazon to delay collecting taxes for a year in exchange for Amazon dropping its battle to overturn the law.[66] Gov. Brown signed the bill into law on Sept. 23, 2011.[64]

Corporate sales tax revision proposal

When revenues failed to meet the expectations on which the budget was based, Gov. Brown proposed reverting state sales tax formulas to the way they were computed before 2009. That would require large companies that sell their goods in California, but do not employ many Californians, to pay more in sales taxes and could generate $1 billion that the governor would then use to give new tax credits to companies that do employ Californians.[67]

K-12 Education

By law, school spending accounts for about 40% of state spending. Gov. Brown and legislators converted more than $5 billion to local funds, thus evading that requirement and reducing the education calculation. The teachers union agreed to the funding plan in exchange for the guarantee that teachers would not be laid off and state officials agreed to pay back the missing $2 billion if a broad tax measure fails at the ballot in 2012. A group of school boards and administrators decided to sue in September 2011.[68]

Budget Cuts

Brown agreed to $650 million in cuts, or about 23 percent, to the UC and Cal State systems.[69]

The governor used his line-item veto on the budget to cut $270 million in spending, mostly from railway projects. The governor also trimmed money from state commissions on higher education and women, eliminated funding for a data system to track teacher performance and further reduced court spending.[70]

The budget delayed the payment of billions in bills, including the payment of $2.8 billion owed to schools and community colleges until the following fiscal year, and forgoes debt repayments. The budget also relied on the state receiving $700 million for Medi-Cal fro the federal government, although those funds are not guaranteed. The budget also raises car registration fees and local sales tax rates and institutes sales tax on sales via online retailers, such as Amazon.com, a tax expected to generate $200 million. The budget cuts $150 million in funding to the state's court system, which comes in addition to a $200 million reduction approved three months prior.[60]

Federal Funds

California received $79.2 billion in federal federal funds over FY2012, which amounts to 38% of total state spending.[71]

Budget Fallout

Court System

The statewide trial court budget committee, as well as an appellate court leadership group, announced a series of budget-cutting recommendations to deal with a $350 million judicial branch reduction approved by the state Legislature and Gov. Jerry Brown. In addition to the 8.8 percent cut, the groups are recommending a one-year suspension in the launching of a statewide computer management system, a 9.7 percent funding cut for the California Supreme Court and Courts of Appeal, and a 12 percent reduction in funding for the California Judicial Council and its staff arm, the Administrative Office of the Courts.[72] The court's budget was originally $3.505 billion before the cumulative $350 million in cuts agreed upon by the Legislature and Gov. Brown. That dropped the overall court budget to $3.155 billion.[73]

With additional state budget cuts, the war over priorities continued, focusing on what the critical judges said was a bloated AOC bureaucracy that was consuming too much money and was being shielded from the cuts being imposed on local trial courts.[74]

Elections

Under the budget, counties were no longer mandated to process all voter registration applications they receive by mail or to send out vote-by-mail ballots to anyone who wants one. Although counties still could provide these services, and many probably will, they will not be reimbursed by the state. The measures will save $33 million.[75]

Community Colleges and Universities

A 9.6 percent tuition increase for University of California schools was approved by a 14-4 vote of the UC Regents Board. The hike is the second tuition increase for UC students in the past eight months -- an eight percent increase was already added in November. The tuition increase will only affect about 55 percent of current students, according to UC officials, because of financial aid options given to students whose family income is less than $80,000 per year. The new fees will cover 26 percent of a $1 billion budget shortfall the UC system faces next year. The remaining funds will be made up through cuts to campus services and increased enrollment of out-of-state and international students, who pay higher tuition than California residents.[76] Under the new tuition rates, and including all required fees, California resident undergraduate students will pay $13,218 per year and out-of-state students will pay $36,096. Graduate students in academic programs will pay slightly less, but their tuition will still be raised by 9.6 percent, to $12,824 for Californians and $27,926 for non-residents.[77]

At San Francisco State University, enrollment between 2006 and 2011 has stayed relatively constant at just under 30,000, but the same number of students must make do with 16 percent fewer instructors -- a decline of 61 tenured or tenure-track faculty members and 216 lecturers, according to The San Francisco Chronicle. The article describes a professor holding a lottery to figure out who can get the last few spots in a class, and a physical plant so behind on repairs that people must wear hats and gloves in class for a few weeks in winter as the boilers slowly heat up.[78]

A bill allowing illegal immigrants to use public funds to pay for college, strongly supported in spirit by Gov. Brown, may hit a financial brick wall due to the state's fiscal crisis. A Brown spokeswoman said the administration supports the general principal behind AB 131, but it will take a long hard look at the bill considering the deep fiscal challenge of a $26 billion budget gap.[79]

The Senate and Assembly has released member-by-member spending records[80]

General Assembly Expenses

Assemblyman Anthony Portantino (D-La Cañada Flintridge) demanded that the Assembly release the budgets for each office, so the public could see who was spending — or overspending — what. Assembly officials argued that those records can be withheld under an exemption in the California Public Records Act for drafts and notes by lawmakers and their staff. The Times and other newspapers sued to compel the Assembly to release the budgets.[81]

Following Portantino's request, the Assembly released legislators' budget figures, but the documents offer an incomplete and at times contradictory picture. For example, they show some rank-and-file Republican lawmakers -- in the minority party -- with more lavish budgets than the Assembly speaker or the Democratic heads of powerful committees. According to the publicly released documents, total spending for Assembly lawmakers was $62.7 million for the 12 months ending last November -- $24.8 million directly for lawmakers and $37.9 million for caucuses and committees.[82] Portantino introduced a bill that will force state lawmakers to disclose their staff budgets for the upcoming year and their year-to-date expenditures to the public.[83] Portantino accused Assembly leadership of "cooking the books" and misleading the public in expenditure records. California Common Sense said its computer analysis shows that numerous employees were moved off the rolls of member expenditures into leadership, committee, caucus, overhead or other accounting entities.The result is that member expenditures for personal staff were underreported by $2.75 million, according to the nonprofit political analysis group.[84]

Following the release of the expense report, multiple newspapers across California came out in support of the transparency legislation. The Legislature operates under the Legislative Open Records Act, which is more restrictive than the California Open Records Act that other public agencies follow. The Legislature releases figures for the previous year each November, but is not required to disclose the current office budgets in real time. Each lawmaker is given a base budget of about $263,000. But many receive hundreds of thousands more in augmentations — lumped together with committee budgets and party leadership posts.[85]

California Prison Medical Salaries

Almost 100 doctors, dentists and other medical practitioners in the state earned at least $300,000 in 2010 to work behind bars. California prison doctors earn more than counterparts in New York, Texas and Florida.[86]

California prison officials say they’ve had to boost wages to comply with federal court orders and because of the difficulty recruiting doctors to work in crowded facilities filled with violent offenders. One psychiatrist earned $566,029 last year, including overtime and extra-duty pay. California taxpayers shelled out $770 million to medical, dental and mental-health staff to care for convicts in 2010.[87]

Gold Mining

Critics of a legislative plan to halt gold mining in California said the action will put 4,000 miners out of work and cost the state $23 million in unemployment, as well as associated revenue streams.[88] The mining has been halted due to opposition from environmentalists who say the machines used in gold dredging harm the spawning grounds of salmon.

Public libraries

The legislature addressed the state's deficit by reducing spending for libraries by half, and cutting aid to universities and colleges, state parks, child care, and programs for the poor. It also passed a proposal to shift tens of thousands of inmates from state prisons to local jails.[89]

School Superintendent

At least one California superintendent who is approaching retirement is refusing to take his full pay over the last three years of his contract. Fresno School Superintendent Larry Powell has agreed to give up $800,000 in salary. Until his term expires in 2015, Powell will run 325 schools and 35 school districts with 195,000 students, all for less than a starting California teacher earns. Powell asked his board to allow him to return $288,241 in salary and benefits for the next three and a half years of his term. He technically retired, then agreed to be hired back to work for $31,000 a year — $10,000 less than a first-year teacher — and with no benefits.[90]

Internet Taxes

Gov. Jerry Brown signed a law requiring out-of-state electronic retailers to collect sales tax on purchases from California customers as part of a larger state budget package. The sales tax bill Brown signed was intended to produce an estimated $317 million a year in new state and local government tax revenues. However, some online retailers, including Amazon, are not happy with the new bill. Amazon terminated its relationship with thousands of California-based affiliates. Executive Director Rebecca Madigan of the Performance Marketing Association doesn't think that type of revenue will be seen by the state anytime soon. ”The devastation of this law has been immediate,” said Madigan. “There are 25,000 affiliates in California that got hit by this law. About 25 percent of them were making a full-time living (as an affiliate to Amazon).”[91] Amazon terminated the contracts of all 25,000 affiliates through an email. Those 25,000 affiliates in California paid about $124 million in state income taxes in 2009, which the state may lose because of this new law.[92]

In response to the law requiring online businesses to collect state sales tax being signed, Amazon and Overstock.com both announced that they will be closing all of their affiliate programs in California. The move calls into question whether the state will be able to generate the $317 million a year it anticipated from the online sales tax.[93]

State Credit Rating

Following the passage of the state budget, Standard and Poor's boosted California's credit outlook to stable from negative, and then on Feb. 14, 2012, it raised the outlook on the state's credit to positive.[94]

While S&P maintained its A- rating, the lowest for any state, on California's $71.7 billion of general-obligation debt outstanding, the revision means a downgrade is less likely. The rating company said passage of the budget mitigated the potential for a cash shortage that weighed on its outlook. The revision reflects a budget that's "light on smoke and mirrors and with real spending cuts and revenue increases that are credible," said Josh Gonze, who helps oversee about $6.5 billion in municipal-bond assets as a co-portfolio manager at Thornburg Investment Management Inc.[95]

Groups Fight Back, Some Challenge Budget in Court

Cities asked the California Supreme Court in July 2011 to halt a $1.7 billion state overhaul of redevelopment agencies.[96] The court ruled, however, that lawmakers legally eliminated the local offices that subsidize construction in blighted areas. The ruling was seen as a victory for Gov. Brown, who asked lawmakers to eliminate redevelopment agencies after criticizing them for using property tax dollars to subsidize private development.[97]

Other groups also challenged the legality of the state budget in court. School officials, including those at the L.A. Unified School District, filed suit in September claiming that lawmakers illegally manipulated California's voter-approved education funding formula to shortchange them by $2 billion. A coalition of disability-rights activists also filed suit as well to block nearly $100 million in cuts to services for the developmentally disabled.[98]Sen. Ted Gaines, R-Roseville, filed a referendum to block a $150 annual fire fee on rural homeowners.[99]

Gov. Brown's Proposed Budget

After being sworn into office in January 2011, Gov. Brown said he wanted a new budget within 60 days, which did not happen. Five months later, Democrats passed a budget bill on the day of the deadline before they would forfeit salaries and expense reimbursements for failing to present a budget bill to the governor.[100] The governor then vetoed the bill. He ultimately signed the budget into law on June 30, 2011, the last possible day to do so.[58]

Negotiations with the Legislature

Budget negotiations between the legislature and Gov. Brown broke down after Republican lawmakers blocked his deficit-cutting budget plan which was based on asking voters to extend $9.3 billion in higher taxes and fees in a June ballot. To make it on to the ballot, the issue needed the approval of two-thirds of the Legislature, requiring at least four Republican lawmakers to go be approve, and Brown did not get the four Republicans he needed. [101] After it was clear that the governor was not winning over the Republicans, Senate leader Darrell Steinberg broke off from the governor and said he would rather the Legislature pass billions in tax extensions which the governor could then sign into law and avoid a public vote.[102] Brown planned to use the $9.3 billion in taxes in his $84.6 billion budget for FY2012, which would mean that he could avoid making additional cuts to education and public safety.[101]

Negotiations were complicated by reports in early May 2011 of an unexpected $2 billion in tax revenue, prompting Republicans to say that the governor's proposed tax increases are unnecessary. Democrats countered that the increased revenue is not guaranteed to last.[103]

After negotiations broke down, Brown shifted his focus to placing tax initiative on the ballot in Fall 2011, although some union leaders urged the legislature to impose taxes because they doubt whether voters would a fall ballot measure.[63][104] The governor wants the Legislature to call a special election in September. Under his plan, voters would decide whether to renew a half percent increase in the vehicle license fee and a 1 percent hike in the state sales tax for five years. They also would vote on whether to revive a quarter percent increase in the personal income tax, which already has expired, for four years starting in 2012.[105]

The governor missed his self-imposed deadline for a budget deal and continued to negotiate with Republican senators for nearly three more weeks to the exclusion of alternative budget strategies before conceding that they could not agree on the tax measure central to his budget.[106]

Tax Extension Plan

California's finances improved due to a $6.6 billion boost in revenue that Brown said he would use to bolster school spending and help reduce the remaining budget gap. Brown would also fill the gap with revenue by extending tax increases. Brown's plan places him between anti-tax Republicans and Democrats chafing at the prospect of deeper spending cuts.[107]

In June 2011, Senate Democrats proposed to push the expiration date of temporary taxes Gov. Brown wants back a year. Brown said the bridge financing is needed to preserve revenue pending the outcome of a yet-to-be-determined statewide referendum on whether to keep the taxes for five years. Republicans say the extensions would harm California’s economy.[108] Those temporary taxes are set to expire July 1. Republican lawmakers said they will concede to allowing voters to have a say in the extension of the tax. Republicans settled on a core package of policy overhauls to be enacted if a tax deal can be forged, which includes a restraint on state spending. In addition, public employees would have the option of a retirement package that would include a 401(k), according to legislative staffers who spoke on condition of anonymity because budget negotiations are still in progress.[109]

Without the tax revenue, Brown warned deeper cuts to schools and public safety will be necessary. Republicans would not agree to temporarily extend the taxes, and would only approve a statewide ballot measure if Democrats agree to additional referendums on curbing public employee pensions, business and environmental regulations and a new cap on state spending.[110] Republicans wanted a ballot measure that would dismantle the existing state pension system that guarantees benefit levels regardless of investment returns.

GOP Budget Proposal

California Republicans released a list of alternative budget proposals including a spending cap, pension reform and regulatory reforms. The documents propose a spending cap of prior-year actual spending adjusted by changes in population and inflation, and reform for regulations, including the California Environmental Quality Act.[111] A hybrid pension system in which equal costs are shared by the employer and employee is also proposed, as well as pension caps of $106,000 for those with Social Security and $119,000 for those without. No special pays, overtime or accrued leave would count for pension calculations, and people would not be allowed to work for a public entity while collecting a pension from the same agency.[112]

Revised Proposal

On May 16, 2011, the governor proposed a revised budget. The revised budget increased general fund spending from the governor's prior proposal, from $84.6 billion in January to $88.8 billion in the revised proposal. Total state spending, including federal money and revenue dedicated to specific programs, would rise to $132.5 billion, which is $5 billion higher than FY2011.[113]

The revised budget proposal pegged the deficit at $9.6 billion through June 30, 2012, but also assumed that the state will also take in $3.6 billion more in FY2012 than it did in FY2011. The revised budget would eliminate 5,500 state jobs and 43 boards and commissions.[114]

The governor still included the 1 percent sales tax extension and the 0.5 percent vehicle license fee extension after June, when the rates are slated to decrease but would delay the 0.25 income tax surcharge until 2012 and remain until 2015.[114] If the taxes are not extended, the Brown administration says it will be necessary to cut $5 billion from schools and community colleges.[113]

He retooled his approach to enterprise zone tax credits for employers, and instead of eliminating them the governor would limit the credits to new hires.[114]

Brown’s plan relied on keeping a 1 percentage-point boost in the retail-sales levy, to 8.25 percent, and a 0.5 percentage point increase in auto registration fees to 1.15 percent of a vehicle’s value. It also seeks to extend a reduction of the annual child tax credit to $99 from $309.[115]

Initial Proposal

The governor in January 2011 proposed a budget under which, with cuts and taxes, the state would spend $84.6 billion from the general fund.[116]

The governor said he wanted lawmakers to approve a budget within about 60 days, despite the fact that the budget process can typically drag on for up to eight months.[117] However, on March 9, 2011, he asked lawmakers for more time to reach a compromise[118] and no agreement had been reached as of the start of May 2011.

Tax Increases

The governor initially wanted to use a special election on June 7, 2011, before the constitutional deadline of June 15 for the Legislature to send the governor a budget,[118] California voters will be asked to extend tax hikes that the legislature approved two years ago for another five year.[116] Those tax hikes include increasing the retail sales tax by 1% to 8.25%, a 0.25% increase in the state personal income tax, and a 0.5% increase in the vehicle licensing fee to 1.15%of a vehicle’s value and a reduction of the state’s child tax credit to $99 from $309.[116][118] The legislature would have to act by the end of March for the election to take place and on Feb. 2 when there had been little action by the legislature, Brown warned GOP lawmakers against impeding a referendum that would allow voters to decide on extended income, sales and car levies to help close a $25-billion budget shortfall.[119] The Governor indicated that if the taxes were not approved he would push for the full $25 billion in budget cuts.[120]

Public-sector unions, including the California Teachers Association, indicated they would pay for the media campaign in support of passage for the taxes.[120]

Cuts

Under the proposed budget, the state's welfare program would be reduced by half, universities would receive $1 billion less, and funding would be reduced for care for the elderly at home.[121]

Other spending cuts in the budget include[116]:

  • $1.7 billion from Medi-Cal
  • $1.7 billion from redevelopment agencies
  • $1.5 billion from CalWorks, the welfare to work program
  • $1.4 billion to higher education

Funding to K-12 education was not cut under the budget, but the governor warned that unless the tax increases continue for five years, cuts to education may be necessary.[121]

The nonpartisan Legislative Analyst's Office said that the employee compensation savings detailed in Gov. Brown's FY2012 proposed budget would not amount to the $580 million that Brown said it would.[122] Brown said he believes that adding a cheaper option to the employee health insurance menu would cut costs by $72 million, but the analyst thinks that estimate is high given that the aging state work force is unlikely to switch to a plan with fewer benefits.[122]

In order to save the state some funds Gov. Brown shut off nearly 30,000 state funded cell phones. As of June 1, Brown's administration had snagged 29,348 state cellphones, which is 44 percent of all those issued to employees in offices under the governor's direct control. Brown is shooting for a 50 percent cut, despite some departments pleading with the governor to keep the issued phones. A 50 percent cut would amount to nearly 34,000 phones and save the state $13 million a year.[123]

Expenditures

The expenditures in the proposed budget included:[116]

Cateogry Amount % of Budget
K-12 Education $36.2 43%
Health and Human Services $21.2 25%
Higher Education $9.8 12%
Corrections $9.2 11%
Legislative, Judicial and Executive $2.5 3%
Natural Resources $2.1 2%
General Government $1.9 2%
Business, Transportation and Housing $0.69 0.8%
State and Consumer Services $0.60 0.7%
Labor and Workforce Developments $0.41 0.5%
Environmental Protection $0.06 0.1%

Revenue

In addition to the tax increase proposal discussed above, the budget included revenues from a variety of sources:[116]

Source Amount % of Budget
Personal Income Tax $49.7 56%
Sales Tax $24.1 27%
Corporation Tax $11 12%
Insurance Tax $2 2%
Liquor Tax $0.33 0.4%
Motor Vehicle Fees $0.19 0.2%
Tobacco Tax $0.09 0.1%
Other $2.4 3%

The plan combined austere spending with extended tax hikes, meaning that both parties will face painful choices that Brown says are necessary to truly resolve the state's massive budget problem.[117] Brown wants to slash virtually every state-funded program to help balance California's massive deficit, in many cases resurrecting cuts sought by Gov. Arnold Schwarzenegger that lawmakers did not accept.[124] The plan included deep cuts to state services, including university systems and welfare programs, as well as asking voters to extend temporary tax hikes on vehicles, income and sales that are set to expire next year. The plan also sought to eliminate many tax breaks and subsidies.[117] Brown would restrict Medi-Cal access, divert low-level offenders to county jails and cut deeply into California State University and the University of California.[124]

The governor has pledged to trim his office budget by 25%.[117] As part of that effort he eliminated the state Office of Inspector General, responsible for overseeing more than $50 billion in federal stimulus money.[125]

Another source of revenue was unclaimed funds. There was $6.1 billion cache of dormant savings accounts, store credits and forsaken royalty payments that has only grown since 2007 in California. The boom is a boon for California’s general fund, where the stray cash is deposited and used as a sort of no-interest loan to pay salaries and expenses -- a cushion that has helped keep the state afloat while state politicians wrestled over a $10 billion budget deficit.[126]

Restructuring Saying that California's government has become too centralized, Gov. Brown proposed restructuring the state and local government relationship by shifting many services now offered by the state to cities and counties. The restructuring would return some of California's government structure to the way it was prior to the passage of Proposition 13 in 1978.[127]

Criticisms

A new report indicates the Los Angeles Unified School District squanders more than $500 million a year on an academic-improvement strategy that has consistently proven to be ineffective.[128]

The school system spends 25 percent of its teacher payroll ($519 million a year) to compensate teachers for completing graduate coursework. However, such training has shown no overall benefit in improving student performance, said Kate Walsh, president of the Washington-based National Council on Teacher Quality, which conducted the research.

Other report findings included:[129]

  • Only a third of Los Angeles teachers graduated from a school ranked as either “most” or “more” selective.
  • “Perverse incentives” may dissuade principals from being overly critical of poorly performing teachers, which, over time, makes it difficult to dismiss these instructors: “The online evaluation system, includes a pop-up warning telling principals who have selected ‘needs improvement’ for 3 or more of the 27 indicators to contact Staff Relations and present documentation to reinforce the ratings.”
  • Administrators who “have not diligently collected evidence, or feel that pursuing a negative rating will take too much time … may decide it is not worth the effort." According to the report, “there should be a high burden of evidence and feedback for every rating — both negative and affirmative.”
  • Principals don’t take advantage of flexibility and authority they already have in hiring and evaluating teachers.

Budget transparency

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

Article 4, Section 8(b) of the California state constitution requiring that “title” of a bill be read on three days in each house although the house may dispense of this provision with and that a bill cannot be passed unless printed and distributed to members in its entirety first. The constitution is silent as to the amount of time between printing and distribution and when a vote may take place.

As of June 2009, California had no statewide, official spending database online, despite multiple, 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.[130] In addition, on June 19, 2009, California launched a transparency website that details government contracts of $5,000 or more.[131] Visit the government transparency site by clicking here.

Twenty other states have 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 are pleased that lawmakers have not added new tax increases, they are 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 do that is if citizens know where their tax money is going- not simply by employing accounting gimmicks to make the numbers look good." The organization is advocating for the approval of AB 400.[132]

Following the passage of the 2011 budget, the Sacramento Bee hosted an online chat regarding the state's spending plan. The Bee's Kevin Yamamura callled the state's budget process "opaque." He said media members did not receive information on the budget until moments before it came to the legislative floor.[133]

Transparency evaluation

The following table is 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
California State Controller's Office
{{{1}}}
N
600px-Red x.png
N
600px-Red x.png
N
600px-Red x.png
N
600px-Red x.png
{{{1}}}
E-Procurement
{{{1}}}
N
600px-Red x.png
{{{1}}}
N
600px-Red x.png
N
600px-Red x.png
N
600px-Red x.png
E-Budget
{{{1}}}
N
600px-Red x.png
N
600px-Red x.png
N
600px-Red x.png
{{{1}}}
N
600px-Red x.png

In November, 2011, Governor Jerry Brown ordered the shutdown of the State's Reporting Transparency Website. A message at the old site now direct's viewers to several other state sites that reportedly contain the same information previously displayed in one central location.[134]

Despite pleading guilty to misusing public funds for golf, massages and paying off his personal credit card, California's highest-paid public pensioner will continue collecting his taxpayer-funded pension of almost $500,000 a year, the Los Angeles Times reports. Bruce Malkenhorst, 76, the former city manager of Vernon (pop. 92), avoids prison but faces three years' probation, $35,000 in fines and $60,000 in restitution to the industrial "city" (California's smallest) just south of L.A. proper. But Malkenhorst, who retired in 2005 and denied the charges for five years, keeps his $499,675 pension because only elected officials convicted of public corruption can have their pensions reduced or revoked.[135]

Multi-Measure Budget Transparency Profile

The Institute of Government and Public Affairs at the University of Illinois has created a multi-measure transparency profile for California, which measures state transparency as of September 2011 using indicators from a range of organizations, including Sunshine Review. These indicators measure both website transparency and other recognized facets of governmental transparency. In addition, IGPA presents four unique indicators of non-transparency based on the observation that transfers or reassignments between general and special funds can obscure the true fiscal condition of a state.

In addition to the individual state profile, IGPA offers a 50-state comparison and profiles for other states.

Budget background

California’s fiscal year starts July 1. The Governor is 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 is required to pass the budget in the Legislature.[136] In November 2010, voters will 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.[137]

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.[138] 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.[139]

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.[140]

Budget spending

General Fund Spending by Major Program Area (In Millions)[141]

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[142]

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)[142]

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

Elaine Howle has been California State Auditor since 2000. The 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.[143] The California State Auditor’s Office publishes its audit reports online.

Credit Rating Fitch Moody's S&P
California[144] BBB Baa1 A

Stimulus

Between February 2009 and June 2013, California received $28,700,400,000.00 in federal funding.[145]

Public Employees

See also: California public employee salaries
See also: California public pensions

According to 2008 Census data, the state of California and local governments in the state employed a total of 2,256,634 people.[146] Of those employees, 1,584,459 were full-time employees receiving a net pay of $9,043,021,107 per month and 672,175 were part-time employees paid $969,357,807 per month.[146] More than 55% of those employees, or 1,257,074 employees, were in education or higher education.[146]

See also

External links

Budget links

Additional reading

References

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  127. Cite error: Invalid <ref> tag; no text was provided for refs named restructuring
  128. LA Times, L.A. public school system wastes $500 million on pointless training, report says, June 8, 2011
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