BILL ANALYSIS Ó
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CONFERENCE REPORT No. 1
Bill No: SB 852
Author: Leno (D)
Amended: 6/12/14
Vote: 21
CONFERENCE COMMITTEE : 6-2, 6/12/14
AYES: Senator Leno, Senator Hancock, Senator Lara,
Assemblymember Skinner, Assemblymember Bloom, Assemblymember
Weber
NOES: Senator Nielsen, Assemblymember Gorell
SUBJECT : Budget Act of 2014-15
SOURCE : Author
DIGEST : This bill contains the 2014-15 Budget Act, as it was
reported out by the 2014 Conference Committee on the Budget, and
authorizes General Fund expenditures of $108.0 billion. The
Budget assumes nearly $109.4 billion in total General Fund
resources, and combined total reserves in the Budget
Stabilization Account (BSA) and the Special Fund for Economic
Uncertainties (SFEU) of $2.1 billion.
Conference Committee Amendments delete the prior version of the
bill, which expressed legislative intent to enact the Budget Act
of 2014, and instead add the current language.
ANALYSIS : On June 12, 2014, the Budget Conference Committee
completed its work to reconcile the Senate and the Assembly
versions of the 2014-15 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 9,
2014, that was balanced with respect to revenues and
expenditures, reflecting major improvements in the state's
finances for the second year in a row, following years of
multi-billion dollar budget deficits. The Governor proposed a
Budget for the 2014-15 fiscal year which included resources of
$108.7 billion and expenditures of $106.8 billion. Based on the
Governor's Budget proposal, the General Fund ends the 2014-15
year with a reserve of almost $1 billion, plus it includes the
deposit of $1.6 billion to the BSA. General Fund spending in
2014-15 was expected to grow by approximately 8.5% from the
current year, driven largely by increases in education
funding-K-12 and higher education-and debt repayment. The
Budget contained major proposals for the state budget reserve
policy, increased support for K-12 education through accelerated
funding of the new education financing formula and a pay-off of
all deferrals, targeted improvements in health care and human
services, and an approach for specified expenditures to address
climate change through cap-and-trade revenues. The proposed
Budget continued the Administration's aggressive focus on paying
down budgetary debt from past years, including early repayment
of the Economic Recovery Bonds.
May Revision . On May 13, the Governor released his May Revision
for Budget year 2014-15. The Governor projected Budget year
expenditures of $107.8 billion, resources of $109.3 billion, and
a General Fund reserve of $528 million. The reserve level
represented a decline from January, since there were
considerable adjustments made to the Governor's assumptions
about revenues in the current year and budget year and
additional expenditures in certain programs. The May Revision
reflected a slight increase in the Proposition 98 guarantee,
based on increased revenues and a somewhat greater General Fund
cost. The Governor's overall budgetary framework continued to
be balanced over the forecast period and the budget plan will
continue to reduce the "wall of debt", and eliminate it by
2017-18. The proposal continued to include a deposit to the BSA
of 3% of revenues, with a diversion of half that amount to
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retire certain long-term budget debt.
Conference Version . The Budget Conference Committee version of
the Budget generally adopts the Governor's underlying budgetary
framework. The conference version of the Budget is based on the
Governor's May Revision General Fund revenue estimates and local
property taxes, as well as the May Revision's Proposition 98
guarantee level. The conference version contains a combined
reserve level-SFEU and BSA-of $2.1 billion, roughly equal to the
May Revision level.
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 to fit spending within the May Revision's revenue
projections and avoid projected out-year budget shortfalls. The
Budget year costs of those priorities were accomplished through
adjustments in the "wall of debt" payments, savings identified
by the Legislature, and shifts among program expenditures.
Major Highlights of the Conference Report
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 $2.1 billion reserve.
General Fund Revenues . The conference version is based on
the Governor's May Revision General Fund revenue forecast and
property tax estimates, which, if come in above forecasts,
trigger additional expenditures. Both the Assembly and
Senate had based their versions of the Budget on modestly
higher revenue projections of the Legislative Analyst's
Office.
Budget Reserve . The conference version of the Budget
includes a $2.1 billion reserve, consisting of $1.6 billion
in the BSA and $448.9 million in the SFEU. Both the Assembly
and Senate versions had somewhat higher reserves, largely as
a result of the LAO's higher revenue projections.
"Wall of Debt" . The conference version reduced
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non-Proposition 98 "wall of debt" payments by $145 million,
by delaying those repayments to future years, and assumed
cash borrowing costs would be $60 million less than the
amount the Administration proposed. The conference version
pays off about $1 billion less of the K-14 education
deferrals than in the May Revision.
Budget Out-years . Like the May Revision, and the Assembly
and Senate versions, the conference version shows that the
Budget will be balanced with operating surpluses every year
through the forecast period ending 2018-19.
Major Programs and Spending . The conference version of the
Budget includes significant changes to the Governor's major
proposals in child care and early childhood education, higher
education, various health care programs, selected human service
programs, corrections and rehabilitation, housing construction
and support, the court system, and increases expenditures in
selected high priority areas identified by the Legislature.
Non-Proposition 98 Expenditures . The conference version allows
for additional investments on the non-Proposition 98 side.
Specific augmentations total about $600 million, including $100
million for early childhood education (coupled with additional
spending inside Proposition 98), $40 million for higher
education (with a trigger for an additional $100 million), $176
million for health and human services, $40 million for the court
system, and $100 million for housing, as well as numerous other
investments totaling $30 million. Principal investments
include:
Human Services . The conference version of the Budget plan
provides an increase of $66 million (and additional amounts
in future years) for In-Home Supportive Services to pay for
overtime pursuant to federal regulation. Included is $100
million for childcare as part of the early childhood
education initiative (along with additional resources within
Proposition 98). It also includes $44 million for Cal Works
including a 5% grant increase, $15 million for additional
support of foster care programs, and $20 million for family
stabilization and homelessness programs. The plan also
includes $5 million for additional services to combat child
sexual exploitation.
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Health Services . In the health area, the Budget provides
$1.8 million for rate increases for Medi-Cal's Program for
All-Inclusive Care for the Elderly, $4 million for the Black
Infant Health Program, and $3 million for HIV prevention
demonstration projects. These amounts generally increase in
the out-years.
Courts, Corrections and Housing . The conference version
adds $100 for affordable housing on a one-time basis,
consisting of $50 million for multifamily housing, which
provides affordable housing for low-income families, and $50
million for the multifamily supportive-housing program, which
is focused on providing permanent housing for individuals who
are either homeless or very low-income. An additional $40
million will go to the state court system. In addition, the
plan significantly shifts the allocation of resources in the
Recidivism Reduction Fund that was included in the Governor's
May Revision.
Higher Education . The conference version increases higher
education resources by $39 million for Cal Grant
Programs-Private and Cal Grant B. In addition, there will be
an additional $100 for University of California and
California State University for maintenance, in the event
that property tax revenues exceed the level forecast by the
Administration.
Proposition 98 Education Expenditures . The Budget plan uses
Proposition 98 resources based on the Administration's estimates
of General Fund revenues and local property tax revenues.
Within the parameters of these resources, there are substantial
shifts in how the revenues are used. The Budget plan reduces
the amount of K-14 deferral payments by roughly $1.0 billion.
These revenues are used to make important new educational
investments, including:
Early Childhood Education . A centerpiece of the Budget plan
is significant improvements in early childhood education
(ECE), through a multiyear investment in early learning and
care systems, including restoration of lost slots in current
ECE programs, modernized rates for service, increasing
pre-kindergarten opportunities for low-income 4-year-olds,
and increasing program quality. The plan includes $70
million to increase rates, and $85 million for facilities and
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quality grants.
Local Control Funding Formula . The budget plan sets aside
an additional $250 million in Proposition 98 resources above
the Governor's $4.5 billion to accelerate the full
implementation of the Local Control Funding Formula. These
unrestricted resources will provide for additional support
for local educational agencies program needs in a variety of
areas, including the additional contributions required for
unfunded liabilities associated with the California State
Teachers Retirement System (CalSTRS).
Career Pathways . The conference version seeks to build
stronger connections between our schools and businesses to
better prepare students for the changing job market by
placing a greater emphasis on career-based learning. Last
year, the Legislature appropriated $250 million in one-time
state assistance to local educational agencies for this
purpose. Given the high demand on the initial year funding,
the conference version appropriates an additional $250
million in the 2014-15 budget to capitalize the California
Career Pathways Trust.
Unpaid Mandates . The state must reimburse school districts
and community colleges for performing certain state-mandated
activities. The Budget plan provides a down-payment of $450
million on mandate claims owed to school districts and
community colleges, consistent with the Proposition 98
package. These funds could be used as additional resources
to support the implementation of the Common Core curriculum.
Pay-down of Deferrals . The conference version of the Budget
incorporates the substance of the Governor's January K-14
deferral pay-down plan, as adjusted by the May Revision, but
reduces the deferral pay down from $6.2 billion to $5.2
billion. This reduces the so-called "wall of debt" and ease
cash flow for school districts and community college
districts.
The following table shows the key features of the May Revision
and Conference Report:
---------------------------------------------------
|Budget Category | May Revision | Conference |
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| | | Report |
|---------------------+--------------+--------------|
|General Fund | $107.8 | $108.0 |
|Expenditures | billion| billion|
|---------------------+--------------+--------------|
|General Fund | $109.2 | $109.4 |
|Resources | billion| billion|
|---------------------+--------------+--------------|
|Reserve Funds* | $2.1 billion| $2.1 billion|
|---------------------+--------------+--------------|
| Non-Proposition 98 | $63.3 billion| $63.5 billion|
| Funding | | |
|---------------------+--------------+--------------|
|Major General Fund | | Early |
|Expenditure | | Childhood|
|Differences-Non-Propo| | Education |
|sition 98 | | Childcare:|
| | | $100 million|
| | | |
| | | In Home |
| | | Supportive |
| | | Services:|
| | | $66 million|
| | | |
| | | CalWORKs and |
| | | Related: |
| | | $64 million|
| | | |
| | | Affordable |
| | | Multifamily |
| | |and Supported |
| | | Housing:|
| | | $100 million|
| | | |
| | | Higher |
| | |Education-Stud|
| | | ent Grants:|
| | | $39 million|
| | | |
| | | Higher |
| | |Education-Defe|
| | | rred |
| | | Maintenance|
| | | $100 million |
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| | | (trigger)|
| | | |
| | | |
| | | Trial Courts:|
| | | $40 million|
| | | |
|---------------------+--------------+--------------|
| Proposition 98 | $44.5 billion|$44.5 |
| Funding | |billion |
|---------------------+--------------+--------------|
|Proposition 98 | Deferral | Deferral |
|Deferral and Mandate | Payments: | Payments: |
|Payments | $6.2 billion | $5.2 billion |
| | (trigger)| (trigger)|
| | | |
| | | Mandate |
| | |Payment: $450 |
| | | million|
|---------------------+--------------+--------------|
|Major Proposition 98 |Local Control |Local Control |
|Expenditure | Funding | Funding |
|Differences |Formula: $4.5 |Formula: $4.7 |
| | billion| billion|
| | | |
| | | Career |
| | | Technical |
| | | Education: |
| | | $250 million|
| | | |
| | | Preschool |
| | |Funding: $155 |
| | | million|
| | | |
| | | Disabled |
| | | Student |
| | | Programs and |
| | | Services |
| | | (CCC): $30 |
| | |million |
| | | |
---------------------------------------------------
*Special Fund for Economic Uncertainties (SFEU) and Budget
Stabilization Account (BSA).
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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 significant changes to
spending priorities within Proposition 98 resources. 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 |
|--------------------------------------------------|
| Conference |
|--------------------------------------------------|
| (Dollars in Millions) |
--------------------------------------------------
|-----------------------------+---------+-+---------|
| | 2013-14| | 2014-15|
|-----------------------------+---------+-+---------|
|Prior Year Balance | $2,429| | $3,903|
|-----------------------------+---------+-+---------|
| Revenues and Transfers | $102,185| | $105,488|
|-----------------------------+---------+-+---------|
|Total Resources Available | $104,614| | $109,391|
|-----------------------------+---------+-+---------|
| Non-Proposition 98 | $57,980| | $63,525|
|Expenditures | | | |
|-----------------------------+---------+-+---------|
| Proposition 98 | $42,731| | $44,462|
|Expenditures | | | |
|-----------------------------+---------+-+---------|
|Total Expenditures | $100,711| | $107,987|
|-----------------------------+---------+-+---------|
|Fund Balance | $3,903| | $1,404|
---------------------------------------------------
| Reserve for Liquidation | $955| | $955|
|of Encumbrances | | | |
---------------------------------------------------
| Special Fund for Economic | $2,948| | $449|
|Uncertainties | | | |
|-----------------------------+---------+-+---------|
|Budget Stabilization Account | | |$1,606 |
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| | | | |
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FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
JA:d 6/15/14 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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