BILL ANALYSIS                                                                                                                                                                                                    



                                                                            



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          |SENATE RULES COMMITTEE            |                        AB 110|
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                               CONFERENCE REPORT NO. 1


          Bill No:  AB 110
          Author:   Blumenfield (D)
          Amended:  5/28/13 in Senate
          Vote:     21

           
           CONFERENCE COMMITTEE  :  6-2, 6/11/13
           AYES:  Senator Leno, Senator De Leon, Senator Hancock,  
            Assemblymember Blumenfield, Assemblymember Mitchell,  
            Assemblymember Skinner 
          NOES:  Senator Emmerson, Assemblymember Gorell 


           SUBJECT  :    Budget Act of 2013

           SOURCE  :     Author


           DIGEST  :    This bill contains the 2013-14 Budget Act as reported  
          out by the 2013 Conference Committee on the Budget.  The 2013-14  
          Budget Act authorizes General Fund expenditures of $96.3  
          billion.  The Budget assumes nearly $98 billion in total General  
          Fund resources and a $1.1 billion reserve.

           Conference Committee Amendments  delete the prior version of the  
          bill, which expressed the intent of the Legislature to enact the  
          Budget Act of 2013, and instead add the current language to  
          provide for the support of state government for the 2013-14  
          fiscal year.

           ANALYSIS  :    On June 10, 2013, the Budget Conference Committee  
          completed its work to reconcile the Senate and the Assembly  
          versions of the 2013-14 Budget.  The Conference Committee built  
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          upon the extensive work of both the Senate Budget and Fiscal  
          Review Committee and the Assembly Budget Committee.  Working  
          from the general framework of the Governor's budget and May  
          Revision, the Legislature incorporated significant and important  
          budgetary and policy changes to the state's expenditure plan.   

           January Budget.   The Governor proposed a budget on January 10,  
          2013 that was balanced with respect to revenues and  
          expenditures, reflecting major improvement in the state's  
          finances following years of multi-billion dollar budget  
          deficits.  The budget contained major proposals in education,  
          including a new funding formula for financing schools and  
          additional General Fund investment for higher education.  It  
          also proposed a major expansion of Medi-Cal under the federal  
          health care reform law.  The proposed budget focused on paying  
          down budgetary debt from past years and included several  
          measures that would result in establishing a $1 billion reserve.  
           

           May Revision  .  The Governor released his May Revision to the  
          budget on May 14.  The revised budget reflected a forecast of  
          weaker projected tax collections then expected in January, and  
          proposed considerable adjustments to projected revenues and  
          proposed expenditures in both the current and budget years.  The  
          May Revision maintained the $1.1 billion reserve initially  
          proposed in January.  The overall budgetary framework continued  
          to be balanced over the five-year forecast period and the plan  
          maintained the policy of debt reduction, reducing the "wall of  
          debt" to less than $5 billion by 2016-17.

           Conference Version  .  The Budget Conference Committee version of  
          the budget adopts the Governor's general budgetary framework.   
          The Conference version of the budget is based on the Governor's  
          May Revision state revenue estimates, as well as the May  
          Revision's Proposition 98 guarantee level, but adopts revised  
          forecasts of local property tax revenues.  The Conference  
          version contains a reserve level that is virtually identical to  
          the reserve in the Governor's May Revision at $1.1 billion.

          The Conference version generally funds the major spending  
          priorities that were contained in both the Assembly and Senate  
          versions of the budget.  However, in many cases the scope of  
          those priorities were trimmed or phased-in over multiple years  
          in order fit spending within the May Revision's revenue  

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          projections and avoid projected out-year budget shortfalls.  The  
          budget year costs of those priorities was largely paid for  
          through updated assumptions on property tax revenues (which  
          offset General Fund costs for schools), as well as savings  
          identified by the Legislature during dozens of budget hearings  
          throughout the year.  

           Major Highlights of the Conference Report
           
          I.  Fiscal Framework  
           
             The Conference version of the budget maintains the overall  
             fiscal framework of the Governor's proposal, with  
             conservative revenue estimates, continued debt retirement, a  
             projected balanced approach in the out-years, and a $1.1  
             billion reserve. 
          
               A.    Revenues  - The Conference version is based on the  
                Governor's May Revision General Fund revenue forecast and  
                updated property tax estimates.  Both the Assembly and  
                Senate had based their versions of the budget on higher  
                revenue projections of the Legislative Analyst's Office,  
                but had incorporated additional reserves to guard against  
                potential revenue risk. 

               B.    Reserve  - The Conference version estimates a $1.1  
                billion reserve, which is identical to the May Revision  
                level.  Both the Assembly and Senate versions had somewhat  
                higher reserves, largely as a result of the LAO's higher  
                revenue projections.

               C.    Wall of Debt  - The Conference version pays-down the  
                same amount of the non-Proposition 98 "Wall of Debt" as in  
                the May Revision.  In addition, the Conference version  
                pays off about $2 billion of the K-14 education deferrals  
                within Proposition 98.  This level of deferral payments is  
                less than proposed in the May Revision, but is equal to  
                the amount proposed in the Governor's January budget.
               
               D.    Out-years  - Like the May Revision, and the Assembly  
                and Senate versions, the Conference version shows that the  
                budget would be balanced with operating surpluses every  
                year through the forecast period ending 2016-17.


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          II.  Major Programs and Spending  

             The Conference version of the budget includes significant  
             changes to the Governor's major proposals in education and  
             health care services, and also increases expenditures in  
             selected high priority areas identified by the Legislature.

               A.    Overhaul of Education Financing Structure  - The  
                Conference version includes the Governor's proposed "Local  
                Control Funding Formula" (LCFF), beginning in 2013-14.   
                The Conference version modifies several aspects of the  
                formula, however, including providing higher "base  
                grants," and adds substantial provisions related to school  
                district accountability.

               B.    Medi-Cal Expansion  - The Conference version assumes  
                implementation of the proposed expansion of health care  
                coverage under the federal Affordable Care Act.  The  
                package includes a broader array of services (particularly  
                for mental health and substance abuse) than originally  
                proposed in the May Revision.  Overall costs for the  
                expansion (above the May Revision) are estimated to be $70  
                million in the budget year, increasing to about $190  
                million by 2016-17.  
                 
               C.    Mental Health  - The Conference version includes $206  
                million ($142 million General Fund one-time) for a major  
                investment in mental health services, including additional  
                residential treatment capacity, crisis treatment teams,  
                and triage personnel.

               D.    Medi-Cal Dental Benefits  - The Conference version  
                restores a version of Medi-Cal dental services, beginning  
                in May 2014.  

               E.    CalWORKs  - The Conference version includes a new  
                mechanism for funding annual CalWORKs grant adjustments  
                and provides for additional services for CalWORKs  
                recipients funded from redirecting growth in the 1991  
                Realignment to a new family support account.

               F.    Higher Education  - The Conference version includes the  
                May Revision's major spending increases for the University  
                of California, California State University, and the  

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                community colleges.  In addition, it includes a new  
                scholarship program for students with annual family  
                incomes of up to $150,000.  The new scholarship program  
                would begin in 2014-15 with General Fund costs of $106  
                million, growing to about $300 million in four to five  
                years.

               G.    Proposition 98 K-12 Education  - In addition to the  
                LCFF highlighted above, the Conference version includes a  
                one-time funding of $1.25 billion to assist school  
                districts in implementing the Common Core standards (this  
                amount is $250 million greater than the May Revision).   
                The Conference version also includes a major $250 million  
                one-time investment to create a career technical education  
                pathways grant program.
                
               H.    Judicial Branch  - Included in the Conference version  
                is an additional $63 million for the judicial branch.  Of  
                this amount, $60 million would go to trial courts, and the  
                remainder would go to the state appellate courts, Supreme  
                Court and Habeas Corpus Resource Center.

              I.    Proposition 39  - Counts nearly all $428 million of the  
                energy efficiency portion of Proposition 39 revenues  
                toward the Proposition 98 minimum guarantee, with  
                remaining revenue provided to non-98 programs.  Of the  
                $428 million for energy programs, $381 million is directed  
                to K-12 school, and $47 million for community colleges.

          The following table shows the key features of the various budget  
          plans:


           --------------------------------------------------------------- 
          |   Budget   |May        |  Senate  | Assembly |Conference      |
          |  Category  |Revision   | Version  | Version  |Version         |
          |------------+-----------+----------+----------+----------------|
          |General     |2012-13:   |2012-13:  |2012-13:  |2012-13:        |
          |Fund        |$95.7      |          |$96.7     |$95.7 billion   |
          |expenditures|billion    |$96.7     |billion   |                |
          |            |           |billion   |          |2013-14:        |
          |            |2013-14:   |          |2013-14:  |$96.3 billion   |
          |            |$96.4      |2013-14:  |$98.3     |                |
          |            |billion    |          |billion   |                |

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          |            |           |$98.2     |          |                |
          |            |           |billion   |          |                |
          |------------+-----------+----------+----------+----------------|
          |General     |2012-13:   |LAO       |LAO       |May Revision    |
          |Fund        |$98.2      |revenue   |revenue   |revenue         |
          |revenue     |billion    |projection|projection|projections     |
          |projections |           |s ($3.2   |s         |                |
          |            |2013-14:   |billion   |          |                |
          |            |$97.2      |above May |          |                |
          |            |billion    |Revision) |          |                |
          |------------+-----------+----------+----------+----------------|
          |Reserve     |$1.1       |$1.5      |$1.3      |$1.1 billon     |
          |            |billion    |billion   |billion   |                |
          |------------+-----------+----------+----------+----------------|
          |"Wall of    |$2.2       |$2.2      |$2.1      |$2.2 billion    |
          |Debt"       |billion    |billion   |billion   |                |
          |repayment   |           |          |          |                |
          |(Non-Prop   |           |          |          |                |
          |98)         |           |          |          |                |
          |------------+-----------+----------+----------+----------------|
          |Major       |--         |Mental    |CalWORKs: |Mental health:  |
          |General     |           |health:   | $237     |$143 million    |
          |Fund        |           |$143      |million   |(one-time)      |
          |spending    |           |million   |          |Medi-Cal        |
          |changes     |           |          |          |dental:  $17    |
          |($100       |           |Medi-Cal  |Middle    |million (grows  |
          |million+)   |           |dental:   |class     |to $86 million  |
          |above May   |           |$131      |scholarshi|in 2014-15)     |
          |Revision    |           |million   |p:  $173  |Health care     |
          |            |           |          |million   |reform mental   |
          |            |           |Judiciary:|          |health and      |
          |            |           |  $100    |Judiciary:|substance use   |
          |            |           |million   |  $100    |disorder        |
          |            |           |          |million   |benefit:  $70   |
          |            |           |          |          |million (grows  |
          |            |           |          |          |to $150 million |
          |            |           |          |          |in 2014-15)     |
          |            |           |          |          |CalWORKs:       |
          |            |           |          |          |$56 million,    |
          |            |           |          |          |growing         |
          |            |           |          |          |annually        |
          |            |           |          |          |(non-General    |
          |            |           |          |          |Fund)           |
          |            |           |          |          |Middle class    |

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          |            |           |          |          |scholarship:    |
          |            |           |          |          |$1 million      |
          |            |           |          |          |(grows to $107  |
          |            |           |          |          |million in      |
          |            |           |          |          |2014-15)        |
          |            |           |          |          |Judiciary:      |
          |            |           |          |          |$63 million     |
          |            |           |          |          |(annual)        |
          |------------+-----------+----------+----------+----------------|
          |Prop. 98    |$55.3      |$56.9     |$57.7     |$55.3 billion   |
          |total       |billion    |billion   |billion   |                |
          |funding     |           |          |          |                |
          |------------+-----------+----------+----------+----------------|
          |Prop. 98    |$2.7       |$4.4      |$2.7      |$2 billion      |
          |deferral    |billion    |billion   |billion   |                |
          |payments    |           |          |          |                |
          |------------+-----------+----------+----------+----------------|
          |Prop. 98    |--         |2012-13:  |2012-13:  |--              |
          |"reserve"   |           |$619      |$700      |                |
          |            |           |million   |million   |                |
          |            |           |          |          |                |
          |            |           |2013-14:  |2013-14:  |                |
          |            |           |$1.1      |$500      |                |
          |            |           |billion   |million   |                |
          |------------+-----------+----------+----------+----------------|
          |Major Prop. |LCFF:      |LCFF:     |LCFF:     |LCFF:  $2.1     |
          |98          |$1.9       |$2.3      |$3.6      |billion         |
          |proposals   |billion    |billion   |billion   |                |
          |            |           |(SB 69)   |          |                |
          |            |           |          |          |                |
          |            |Common     |Common    |Common    |Common Core:    |
          |            |Core:      |Core:     |Core:     |$1.25 billion   |
          |            |$1 billion |$1        |$1.5      |                |
          |            |           |billion   |billion   |                |
          |            |Prop. 39:  |          |          |Prop. 39:       |
          |            |$464       |Prop. 39: |Prop. 39: |$456 million    |
          |            |million    | $464     | $464     |                |
          |            |           |million   |million   |CTE:  $250      |
          |            |           |          |          |million         |
          |            |           |CTE:      |          |                |
          |            |           |$250      |          |                |
          |            |           |million   |          |                |
           --------------------------------------------------------------- 


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          III.  General Fund Summary  
          
             The Conference version of the budget results in modest  
             spending increases in Non-Proposition 98 spending for  
             high-priority investments identified by the Legislature.  The  
             budget includes a lower General Fund commitment for  
             Proposition 98 spending as a result of the updated property  
             tax estimates which serves to increase the offset in state  
             education spending.  The Conference version of the budget is  
             restrained with respect to new spending in the budget and  
             out-years.  The General Fund budget summary for the  
             Conference version of the budget, compared to the Governor's  
             May Revision, is as follows:
               

           ----------------------------------------------------------------- 
          |            General Fund Budget Summary (in Millions)            |
           ----------------------------------------------------------------- 
           ------------------------------------------------------------------ 
          |                                |       |        |       |        |
           ------------------------------------------------------------------ 
           ---------------------------------------------------------------- 
          |                                | May Revision  |  Conference   |
          |                                |               |    Version    |
           ---------------------------------------------------------------- 
          |--------------------------------+-------+--------+-------+--------|
          |                                |Revised|Proposed|Revised|Proposed|
          |                                |       |        |       |        |
          |--------------------------------+-------+--------+-------+--------|
          |                                |2012-13| 2013-14|2012-13| 2013-14|
          |                                |       |        |       |        |
          |--------------------------------+-------+--------+-------+--------|
          |Prior Year Balance              |-$1,658|    $850|-$1,658|    $872|
          |                                |       |        |       |        |
          |--------------------------------+-------+--------+-------+--------|
          |    Revenues and Transfers      | 98,195|  97,235| 98,195|  97,098|
          |--------------------------------+-------+--------+-------+--------|
          |Total Resources Available       | 96,537|  98,085| 96,537|  97,970|
          |--------------------------------+-------+--------+-------+--------|
          |    Non-Proposition 98          | 55,233|  57,004| 55,211|  57,226|
          |Expenditures                    |       |        |       |        |
          |--------------------------------+-------+--------+-------+--------|
          |    Proposition 98 Expenditures | 40,454|  39,349| 40,454|  39,055|
          |--------------------------------+-------+--------+-------+--------|

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          |Total Expenditures              | 95,687|  96,353| 95,665|  96,281|
          |--------------------------------+-------+--------+-------+--------|
          |Fund Balance                    |    850|   1,732|    872|   1,690|
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          |      Reserve for Liquidation   |    618|     618|    618|     618|
          |of Encumbrances                 |       |        |       |        |
           ------------------------------------------------------------------ 
          |    Total Available Reserve     |   $232|  $1,114|   $254|  $1,072|
          |--------------------------------+-------+--------+-------+--------|
          |Operating Surplus               | $2,508|    $882| $2,530|$818    |
          |                                |       |        |       |        |
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           FISCAL EFFECT  :    Appropriation:  Yes   Fiscal Com.:  Yes    
          Local:  No



          JA:k  6/12/13   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  NONE RECEIVED

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