BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 15 HEARING: 3/30/11
AUTHOR: DeSaulnier FISCAL: Yes
VERSION: 12/6/10 TAX LEVY: No
CONSULTANT: Ewing
TWO-YEAR BUDGET PLANNING AND FISCAL FORECASTS
Requires the State Department of Finance to prepare annual
budgets for two fiscal years, and prepare revenue and
expenditure projections for three subsequent years.
Background and Existing Law
The Governor must submit to the Legislature, within the
first 10 days of the calendar year, a budget for the
ensuing fiscal year. The Governor's budget must include
itemized statements for recommended expenditures and
estimated revenues.
The State Department of Finance manages and prescribes the
process for the development of a state budget. The
Department must ensure that budget information reflects
state agencies' activities, costs, and displays information
on expenditures and the objectives linked to those
expenditures. The Department is required to include in
budget materials, information on revenues and expenditures
for three fiscal years; the prior year, the current year,
and the budget year, which is the year for which a budget
is being proposed.
Proposed Law
Senate Bill 15 directs the Governor to submit to the
Legislature, within the first 10 days of each calendar
year, a budget for the budget year and a budget for the
succeeding year. The Governor's proposed budgets must
include the following:
Performance measurement standards.
Anticipated state revenues.
An estimate of one-time revenues.
An estimate of total revenues available for state
expenditure.
SB 15 -- 12/6/10 -- Page 2
Legislation necessary to implement the proposed
budget.
A five-year capital infrastructure plan and
strategic growth plan.
If expenditures are anticipated to exceed revenues, the
Governor must recommend expenditure reductions, new revenue
sources, or both, and estimate the long-term impact of
those recommendations on the economy.
If the Governor's budget creates a new program or expands
an existing program, which would increase costs, or
proposes to reduce a state tax, which would decrease
revenue, the Governor must identify program reductions,
additional revenue, or both, that are equal to or greater
than the net increase in costs or reduction in revenue.
SB 15 requires the Governor to provide the Legislature with
anticipated revenue and expenditure projections, and
budget-related plans and proposals, for the three years
that follow the year succeeding the budget year.
SB 15 requires the Department of Finance to provide the
Legislature with updated revenues and expenditure
projections on or before October 15 of each year.
This bill declares the Legislature's intent to establish an
oversight process for evaluating and improving the
performance of all programs undertaken by the state, or by
local entities on behalf of the state. It declares the
Legislature's intent to establish, within one year of the
effective date of this act, a schedule of review for all
state programs, whether managed by a state or local agency.
Comments
1. Purpose of the bill . Currently, the Governor sends the
Legislature a spending plan for a single fiscal year. The
information in budget materials allows policymakers to
compare proposed expenditures and revenues in the budget
year against the current and prior fiscal years. But this
structure does not provide policymakers with information on
the future implications of current spending decisions.
Senate Bill 15 improves planning by enabling policymakers
to compare budget proposals against past year revenues and
SB 15 -- 12/6/10 -- Page 3
expenditures and projected revenues and expenditures. SB
15 also establishes provisions akin to PAYGO, or
"pay-as-you-go" financing. It requires the Governor to
ensure that the state has the revenue necessary to fund new
or expanded initiatives or to identify spending reductions
to accommodate reductions in revenue. SB 15 will enable
policymakers to anticipate and avoid future fiscal
shortfalls linked to current spending decisions.
2. Anticipating future revenues and expenditures may not
be realistic . Improved planning is a worthy goal, but
California's revenue streams are volatile. Service needs
also are volatile. Shifting economic conditions can result
in dramatic increases in service demands or the cost of
providing services. Current budget practices call for a
January budget proposal and a revised proposal in May.
Five months matters in the accuracy of forecasts and rarely
do we know in January how much money we will have in May.
The longer the horizon for projections, the less likely
those projections will be accurate and thus useful. In
concept, the PAYGO principle also is sound, but this
measure undermines the flexibility that should be preserved
for both the Governor and the Legislature.
3. Many other states prepare two-year budgets or two-year
budget plans . The National Association of State Budget
Officers (NASBO) reports that 21 states use some form of
multi-year budgeting or budget planning. Research by the
Pew Center on the States found that states have difficulty
accurately forecasting revenues and that minor errors have
significant implications for fiscal decision-making. Yet
the Pew study also found that outside of recession years,
states tend to underestimate revenues, resulting in budget
surpluses.
5. Related bills . SB 15 is not the first bill to propose
biennial budget planning or improved fiscal planning.
Current legislation includes: SCA 2 (Wyland), SCA 6
(Emmerson), AB 430 (Feuer). Prior legislation includes: SB
1426 (DeSaulnier, 2010), AB 1018 (Hill, 2009), and AB 499
(Canciamilla, 2003).
Support and Opposition (03/24/11)
Support :
SB 15 -- 12/6/10 -- Page 4
AARP
American Association of University Women
American Federation of State, County and Municipal
Employees
Bay Area Council
Business Council of San Joaquin County
California Alliance of Child and Family Services
California Church IMPACT
California Forward
California Partnership for the San Joaquin Valley
California Senior Advocates League
California State Controller, John Chiang
California State Student Association
Contra Costa Council
Fresno Business Council
Greenlining Institute
Half Moon Bay Coastside Chamber of Commerce
Huntington Beach Chamber of Commerce
Kern County Taxpayers Association
Los Angeles Area Chamber of Commerce
Saving California Communities
San Francisco Chamber of Commerce
San Gabriel Valley Economic Partnership
San Mateo County Economic Development Association (SAMCEDA)
Santa Clara and San Benito Counties Building and
Construction Trades Council
Santa Cruz County Medical Society
Silicon Valley Leadership Group
State Building and Construction Trades Council of
California
WELL Network
Valley Industry & Commerce Association (VICA)
Opposition : Unknown.