BILL ANALYSIS                                                                                                                                                                                                    Ó






                  SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
                                Mark Leno, Chair
                                        
          Bill No:       AB 1497
          Author:        Committee on Budget
          As Amended:    June 25, 2012
          Consultant:    Keely Martin Bosler/Mark Ibele
          Fiscal:        Yes
          Hearing Date:  June 25, 2012
          
          Subject:  Budget Act of 2012.

          Summary:  This bill amends certain provisions of AB 1464, 
          the 2012-13 Budget Act.

          Background:  On May 14, the Governor released his May 
          Revision for budget year 2012-13.  The Governor indicated 
          the General Fund deficit was $16.7 billion for the two-year 
          period ending June 30, 2013, representing an increase in 
          the deficit of $6.5 billion since the Governor's initial 
          budget proposal in January. This included a $1 billion 
          reserve. The deficit increased due to a reduced revenue 
          outlook, higher costs to fund schools, and decisions made 
          by the federal government and courts to block 
          previously-approved budget cuts.

          This budget relies heavily on the Governor's May Revision 
          framework that was predicated primarily on expenditure 
          reductions, as well as passage of a tax initiative on the 
          November 2012 ballot, and additional "trigger" reductions 
          if the initiative is not successful.  Since the passage of 
          the Budget Bill on June 15 there have been additional 
          changes within the overall budget framework.  This budget 
          includes $7.9 billion in expenditure cuts, $6.0 billion in 
          additional revenues, and $2.5 billion in other solutions 
          for a total of $16.5 billion in solutions.  The budget 
          amendments included in this bill and the accompanying 
          trailer bills will result in approximately $91.5 billion in 
          expenditures and an available reserve of around $788 
          million in the 2012-13 budget year.
          
          Proposed Law:  Overall, this budget adopts the Governor's 
          May Revision framework, with the additional changes since 
          the passage of the Budget Bill on June 15.  The budget 
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          solution continues to largely hinge on expenditure 
          reductions, the tax initiative, and 'trigger' cuts.  Some 
          one-time solutions such as additional special fund 
          borrowing have been eliminated in favor of additional 
          expenditure reductions and the continuation of revenue 
          shifts to the General Fund. In addition, the proposal to 
          use property tax "pass-through" payments to offset 
          Proposition 98 expenditures was rejected, and the budget 
          adopts additional solutions through the use of mortgage 
          settlement moneys.  The bullets below delineate the major 
          changes to the budget plan since June 15.

                 CalWORKs:  The proposed budget maintains the 
               reduction of approximately $430 million from the June 
               15 plan, versus the Governor's $880 million reduction, 
               and makes significant program alterations.  Notably, 
               the budget includes no grant cuts.  Under the 
               proposal, the current array of welfare-to-work 
               services would be prospectively available for eligible 
               adults for up to 24 months, but "useable" anytime 
               during the 48-month lifetime time limit.  Participants 
               would be able to access the remaining 24 months of the 
               48-month limit if meeting specified, stricter federal 
               work requirements.  In addition, counties could extend 
               services for up to 20 percent of those who reach the 
               24-month time limit, under specified circumstances 
               that indicate satisfactory progress toward employment. 
                There are also changes in the earned income disregard 
               to encourage work participation.  Additionally, the 
               budget includes a transfer of federal TANF funding to 
               the California Student Aid Commission for Cal Grants 
               and a corresponding increase of General Fund resources 
               for specified CalWORKs child-only cases.

               Child Care:  The Governor proposed major reductions 
               to the state's subsidized child care programs, 
               totaling $452 million.  From the Legislature's June 15 
               budget plan, there would be an additional across the 
               board reduction equal to about $80 million (versus the 
               $50 million previously included), resulting in a 
               reduction in the number of available slots.  In 
               addition, the revised plan calls for the suspension of 
               cost of living adjustments in both 2013-14 and 
               2014-15.
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               Cal Grants:  The Governor proposed a total of $292 
               million in cuts to the Cal Grant higher education 
               student financial assistance program.  The budget plan 
               adopts a total of $53 million in cuts to Cal Grants by 
               accepting the Governor's proposal setting stricter 
               limitations on eligibility for Cal Grants based on 
               institutions' graduation and loan default rates.  In a 
               departure from the Governor's plan, the budget reduces 
               new Cal Grant awards beginning in 2013-14 -- by 17 
               percent (in two steps over two years) for non-profits 
               and for-profit institutions that are accredited by the 
               Western Association of Schools and Colleges, and by 59 
               percent for all other for-profit institutions.  In 
               addition, beginning in 2013-14, there would be no 
               renewal awards for returning students choosing to 
               remain at institutions that do not meet graduation or 
               loan default thresholds.

               Other Alterations:  The revised plan maintains 
               restoration of amounts for other proposed cuts to the 
               AIDS Drug Assistance Program and community health 
               clinics.  The revised plan would allow for a slower 
               phase-in for the transition to Medi-Cal next year of 
               the Healthy Families program and would require the 
               Administration and health plans to demonstrate 
               'readiness' prior to this transition.  In addition, 
               the budget provides $18 million in mortgage settlement 
               money for enforcement and counseling, provides $50 
               million for charter school growth funding, and 
               includes funding for routine High-Speed Rail Authority 
               staffing and planning functions.  If the tax measure 
               passes, the plan would provide $50 million to 
               community colleges.  

          This plan relies on the Department of Finance revenue 
          estimates, and is predicated on the passage of the 
          Governor's tax proposal.  The Governor's tax proposal is a 
          Constitutional amendment that would raise the personal 
          income tax and the sales and use tax on a temporary basis.  
          Together, the proposed increase in the two taxes is 
          expected to raise an additional $8.4 billion through the 
          budget year, representing $2.9 billion to schools and 
          community colleges and $5.5 billion for General Fund 
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          benefit.  The measure would also permanently dedicate 
          revenues to local governments to pay for public safety 
          programs realigned in 2011. 
          
          The plan assumes the state will receive $8.4 billion in 
          additional personal income tax and sales tax revenue from 
          the Governor's tax initiative on the November ballot, of 
          which $5.5 billion will be used to balance the budget.  
          (The remaining $2.9 billion will grow the Proposition 98 
          guarantee for schools.)  In the event that the voters do 
          not approve the Governor's tax proposal in November, the 
          Legislature's joint plan, like the Governor's, includes a 
          series of trigger cuts.  These cuts are detailed below:

          2012-13 Trigger Cuts (in millions)
          
           ---------------------------------------------------------- 
          |Program Area                                   |   May    |
          |                                               | Revision |
          |                                               |  Amount  |
          |-----------------------------------------------+----------|
          |K-14 Education (Proposition 98)                |  $5,356.0|
          |-----------------------------------------------+----------|
          |University of California                       |     250.0|
          |-----------------------------------------------+----------|
          |California State University                    |     250.0|
          |-----------------------------------------------+----------|
          |Developmental Services                         |      50.0|
          |-----------------------------------------------+----------|
          |Local Public Safety Grants                     |      20.0|
          |-----------------------------------------------+----------|
          |Department of Forestry and Fire Protection     |      10.6|
          |-----------------------------------------------+----------|
          |Flood Control                                  |       6.6|
          |-----------------------------------------------+----------|
          |Local Water Safety Patrol                      |       5.6|
          |-----------------------------------------------+----------|
          |Public Safety-Fish & Game, Lifeguards and      |       6.0|
          |Rangers, Dept. of Justice                      |          |
          |-----------------------------------------------+----------|
          |Total                                          |$5,954.8  |
           ---------------------------------------------------------- 

          Fiscal Effect:  The fiscal impact of the contents of this 
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          and associated trailer bills is to achieve $16.5 billion in 
          budget solutions.  As of the May Revision, the Governor 
          estimated that the state had a deficit of $16.7 billion, 
          which includes a $1 billion reserve.  This budget would 
          result in approximately $91.5 billion in expenditures and 
          approximately a $788 million reserve.

          Support:   Unknown

          Opposed:  Unknown

          Comments:  The bill amends the Budget Bill adopted by the 
          Legislature on June 15, 2012.  Overall, this version of the 
          budget prioritizes K-12 education, higher education, and 
          public safety.  Significant reductions were made in the 
          health and human services areas, but in many cases, 
          alternative cuts were found that mitigate the harshest of 
          these reductions.  Most areas of the budget saw significant 
          expenditure reductions.  The overall budget solution is 
          distributed among expenditure reductions (48 percent), 
          revenue increases (37 percent), and other solutions (15 
          percent).  This plan includes $8.0 billion in expenditure 
          reductions by adopting the vast majority of the Governor's 
          proposed cuts.  The plan leads to an improved fiscal 
          position for the state in the out-years, with almost 80 
          percent of the solutions ongoing or multi-year.  

















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