BILL ANALYSIS Ó SB 15 Page 1 Date of Hearing: August 24, 2011 ASSEMBLY COMMITTEE ON BUDGET Bob Blumenfield, Chair SB 15 (DeSaulnier and Wolk) - As Amended: May 19, 2011 (As proposed to be amended) SENATE VOTE : 39-0 SUBJECT : State Budget SUMMARY : Makes various changes to the information that is required to be submitted by the Governor to the Legislature as part of the budget process. Specifically, this bill: 1)Requires the Governor's budget documents to provide estimates for anticipated revenues and expenditures for the three fiscal years succeeding the budget year when the budget is submitted on or before January 10th, upon submission of the May Revision, and upon enactment of the Budget Bill. If available, this estimate should be compared to the projection from the four previous fiscal years. 2)Stipulates that the Governor submit legislative language needed to implement budget provisions and the five-year infrastructure plan when the budget is submitted on or before January 10th. 3)Requires the Department of Finance (DOF or Finance) to contract with the University of California to conduct a study on the impact of the budget on California Economy. This study is due in December 2012. EXISTING LAW : Article IV, Section 12 of California's Constitution requires the Governor to submit a balanced budget to the Legislature by January 10th of each year. Government Code Section 13308 requires the submission of the budget trailer bill language by February 1st of each year. FISCAL EFFECT : Small absorbable one-time cost associated with the University of California economic study. COMMENTS : This bill intends to increase awareness of the state's long-term economic conditions. The author's office indicates the goal is to increase information about the budget SB 15 Page 2 but not place new requirements onto the Legislature. This bill provides the necessary information to make these estimates an important part of the future budget deliberations. This bill builds upon currently available long-term budget forecasts to incorporate the discussion of the State's long-term fiscal direction at several milestones in the budget process. The bill would require formalize the use of these projections in a manner consist with the use of this information in the 2011-12 budget process. In the current budget process, the following long-term forecasts are available: 1)Historically, the Legislative Analyst Office (LAO) has provided a five-year budget forecast every November. This forecast has been helpful in understanding the fiscal direction toward which the state is heading, and has proved critical in budget decisions during the budget discussions in the months that follow. This information is provided on the Legislative Analyst's website at: http://www.lao.ca.gov/laoapp/main.aspx?type=2&PubTypeID=5 . 2)Typically, the DOF provides the Legislature detailed multi-year budget forecasts at the time of the January 10 proposal, as well as at the May Revision. This information for the 2011-12 enacted budget can be found on Finance's website: http://www.dof.ca.gov/reports_and_periodicals/documents/MY%20at %202011%20BA%20(WebVersion).pdf . This information is also provided to the following offices: a) The Legislative Analyst; b) The Democratic and Republican Leadership Offices; and, c) The Chair and Vice-Chair of the Budget Committees. 1)Governor Brown has made multi-year forecasts a centerpiece of his budget proposals, and has explicitly provided multi-year information in all the public supporting documents along with this budget proposals, including on page 3 of the Budget Summary, page 5 of the May Revision, and page 5 of the budget signing/veto document. This bill also requires that, if possible, these long-term projections are compared to past long-term projections. This SB 15 Page 3 provides needed context to ensure that long-term forecasts are used for understanding the general direction of the State. Out-year estimates have historically not proven particularly accurate due to the dynamic nature of California's economy and the observable correlation of state revenue with the national business cycle and financial market performance. Therefore, while it is important to understand the direction the state is headed, relying too heavily on the specific figures can lead to troubling results. a) For example, in the 2006 Fiscal Outlook, the LAO projected General Fund revenues of $128 billion for 2011-12. Currently in 2011-12, projections have been updated to be just $87.3 billion, resulting in the long-term forecast having been off by over $40 billion, roughly 46 percent of our actual amount of General Funds for the year; and, b) For a more recent example, in the six months since the Governor's January 2011 forecast, revenue forecasts have increased by a total of $11.8 billion over the current and budget years. This bill includes a provision to require the University of California to conduct a study on the impact of the budget on California's economy. This report will also contribute to the discussions of the interplay between the economy and the budget. While Government Code Section 13102 requires the Governor to make an annual submission of a five-year infrastructure plan to the Legislature, the previous Administration stopped complying with this requirement in 2008 and no new plan has been received since that time. The DOF reports that the current Administration intends to comply with this requirement and instructions have been sent to departments to begin gathering the necessary information to allow submission of this plan for 2012. REGISTERED SUPPORT / OPPOSITION : Support California Forward (co-source) AARP SB 15 Page 4 American Association of University Women American Federation of State, County and Municipal Employees Bay Area Council Brocade Communications Systems, Inc. Business Council of San Joaquin County California Alliance of Child and Family Services California Church IMPACT California Partnership for the San Joaquin Valley California Senior Advocates League 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 Marin Builders' Association MoSys Inc. Proofpoint Systems Inc. San Francisco Chamber of Commerce San Gabriel Valley Economic Partnership San Mateo County Economic Development Association Santa Clara and San Benito Counties Building and Construction Trades Council Santa Cruz County Medical Society Saving California Communities State Building and Construction Trades Council of California Silicon Valley Leadership Group Valley Industry and Commerce Association WELL Network Opposition None on File. Analysis Prepared by : Christian Griffith / BUDGET / (916) 319-2099