BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 98|
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THIRD READING
Bill No: AB 98
Author: Assembly Budget Committee
Amended: 6/9/11 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SUBJECT : Budget Act of 2011
SOURCE : Author
DIGEST : This bill, when combined with SB 69 (the main
Budget bill), constitutes the 2011 Budget Act.
Senate Floor Amendments of 6/9/11 delete the previous
version of the bill relating to developmental; services and
inserts the current language enacting the state budget.
ANALYSIS : On June 8, 2011, the Senate Budget and Fiscal
Review Committee and the Assembly Budget Committee
completed their work on the 2011-12 Budget. This measure
is the budget bill, that when combined with the other
budget bill adopted in March, SB 69, constitutes the 2011
Budget Act. The 2011-12 Budget contains expenditure cuts
of approximately $11 billion with resulting General Fund
expenditures of $89 billion.
On May 16, the Governor released his May Revision for
budget year 2011-12. The Governor indicated the remaining
and adjusted General Fund (GF) deficit is $10.8 billion for
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the two-year period ending June 30, 2012. This includes a
$1.2 billion reserve.
In January, the estimated General Fund shortfall was $27.6
billion - including a $1.0 billion reserve and including
the cancelation of the sales-leaseback transaction. In
March, the Legislature passed $14 billion in solutions,
primarily spending reductions.
The Legislature has adopted most of the Governor's May
Revision which maintains the Governor's overall budget
framework from January, including the public safety
realignment. Given the updated revenues and expenditures,
the May Revision scales back the revenue proposals to ease
the tax burden on households and to better-focus tax
incentives to job creation. Other new revenue is directed
to K-12 schools and to reduce the state's debt owed to
schools.
Below is a high level summary of the budget framework,
including both budget actions adopted in March and new
actions:
Expenditure Cuts*: $11.1 billion
Revenues: $ 9.8
billion
Other Solutions: $ 2.2
billion
Total Solutions: $23.1
billion
*Excludes the $1 billion attributed to the reduction of
local Proposition 10 funds to pay for direct children's
health care services in the Medi-Cal program. This action
is the subject of a current legal challenge.
The Legislature has adopted the vast majority of the
Governor's proposed expenditure reductions and the package
would produce a reserve of about $1.0 billion similar to
the Governor's May Revision. The major changes to the
Governor's May Revision include the following:
Replacing the Governor's proposal to repay special
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fund debt with the repayment of $745 million in
Proposition 98 K-14 settle-up debt owed to schools and
community colleges. This payment would be used to
further pay down the deferrals in the budget year.
Restoring approximately $200 million in child care
cuts within Proposition 98 and approximately $140
million in CalWORKs.
Based on preliminary scoring, the Legislature's Budget
includes 2011-12 General Fund expenditures of $89.1
billion, down from revised 2010-11 expenditure of $91.5
billion.
When combined with the package of bills, including the
prior budget bill SB 69, and budget trailer bills, the
2011-12 budget is balanced due to the following major
actions.
2011-12 Budget: Major Expenditure Reductions
Overall, the Legislature's version of the budget
prioritizes K-12 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.
K-12 Education . Adopted the Governor's Proposition 98
funding framework, which includes approximately $2 billion
in expenditures attributable to the Governor's tax package.
Overall, the Proposition 98 funding level with the
Governor's tax package would be $52.4 billion, which is
about $3 billion higher than the 2010-11 level. Major
proposals included in the package include the following:
Settle-Up Payment: Provides $745 million in
settle-up payments to start repayment of settle-up
debt. This debt repayment is directed to buy-down of
the inter-year payment deferrals in K-12 education and
community colleges.
Deferrals: Buys-down the inter-year K-12 payment
deferrals by approximately $3 billion, consistent with
the Governor's proposal.
Student Mental Health Services: Approves
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Governor's budget proposal to rebench the Proposition
98 guarantee by $222 million to fund mental health
related services for students with disabilities
(previously provided by counties per the AB 3632
mandate). Also augmented 2010-11 funding by $80
million to partially backfill for a funding shortfall
created when Governor Schwarzenegger vetoed funding
for the AB 3632 mandate.
Class Size Reduction: Approved a one-year
extension of the continuous appropriation for the
class size reduction categorical program.
Categorical Flexibility: Approved the Governor's
proposal to extend various flexibility options to
school districts for an additional two years.
Secretary of Education Elimination: Approved the
Governor's proposal to eliminate the Office of the
Secretary of Education.
Childcare . Approved $300 million in ongoing savings to
childcare programs. This is approximately $200 million
less than was previously eliminated in March due to the
following actions:
Standard Reimbursement Rate Reduction: Restored 10
percent rate cut to the Title V contracts.
Contract Reduction: Reduced contracts, or slots,
including preschool, by 11 percent instead of 15
percent.
11 and 12-Year Olds: Continued funding childcare
services for 11 and 12-year olds.
Family Fees: Rejected earlier proposal to increase
sharply the family fees paid by low-income individuals
for childcare services.
Higher Education. Adopted the Governor's Higher Education
budget proposals including a $500 million reduction to the
University of California, a $500 million reduction to the
California State University, and a $400 million reduction
to the California Community Colleges. Some of these cuts
in each segment will be offset with student fees.
Health and Human Services. Achieved total expenditure cuts
of around $5.0 billion in the Health and Human Services
area. This total does not include $1.0 billion in savings
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related to using Proposition 10 funds one-time to offset GF
costs in Medi-Cal consistent with the Governor's May
Revision. The transfer of these funds is currently subject
to active litigation. The budget also adopts the following
additional proposals included in the May Revision for an
additional $500 million in savings:
Transition Healthy Families Program to Medi-Cal:
Approved Governor's proposal to transition all
children in the Healthy Families Program to the
Medi-Cal Program, but adopted a slower phase-in of the
transition for a slightly lower savings level of
approximately $22 million in the budget year. A
comprehensive transition plan with benchmarks is
required to ensure a smooth transition.
Hospital Fee: Assumes $320 million in savings from
extending the hospital fee for one year as enacted in
SB 90 (Steinberg) chaptered in April of this year.
Maximizing Federal Funds: Approved Governor's
proposal s to technically modify the use of certified
public expenditures to enable California to maximize
federal funds and obtain offset of General Fund
expenditures.
CalWORKS: Restores approximately $90 million
related to additional grant cuts for safety net and
child-only cases that exceed 60 months. Also restores
$50 million of the single allocation, which is the
funding used by counties to provide welfare-to-work
services.
Getting Ready for Health Care Reform: The budget
also includes the Governor's proposal to transfer
administration of Medi-Cal community mental health
programs and the Drug Medi-Cal program to the
Department of Health Care Services. This will enable
the state to be better positioned for the
implementation of health care reform, which will
provide greater parity for behavioral health issues.
Corrections: Approved expenditure reductions of about $1.0
billion in Corrections mainly due to the realignment
proposal. However, the Legislature has also approved the
Governor's workforce cap proposal for an additional $195
million and significant reductions to the Board of Parole
Hearings operations. Furthermore, the Legislature restored
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nearly $50 million in community-based rehabilitation
contracts that will be needed as the State implements
realignment.
Courts: Approved the Governor's proposal to reduce the
courts funding by $200 million. However, also augmented
the courts budget by $42 million for additional workload
related to realignment and new workload related to parole
revocation activities.
Transportation: Approved the Governor's proposal to use
truck weight fees to pay about $1.0 billion in
transportation-related general obligation bond debt.
Approved re-enactment of the 2010 Tax Fuel Swap to conform
to the requirements of Proposition 26.
Redevelopment: The budget package includes a solution
from redevelopment agencies that provides a $1.7 billion
General Fund benefit in 2011-12.
Local Government: Approved the Governor's proposal to
suspend the Williamson Act / Open Space Subvention for a
two-year savings of $20 million. Rejected the Governor's
proposal to suspend the Brown Act / Open Meeting mandate.
Natural Resources and Energy: Approved a cut of $155
million in energy efficiency programs funded by the Gas
Consumption Surcharge Tax. Approved cuts of $11 million to
State Parks and $10 million to Off-Highway Vehicle Parks.
Government Efficiency and Employee Compensation : Approved
expenditure cuts of about $700 million in areas such as:
employee compensation ($308 million); employee healthcare
($80 million); and other state operations-related
governmental efficiencies ($250 million) (discussed further
in Page 10 of this document).
2011-12 Budget: Revenue Package
The Legislative version of the budget includes the
Governor's proposal to maintain 2010 tax rates for a
temporary period. However, because an election cannot be
held until after the fiscal year has begun the Legislative
version of the budget will also include a revenue "bridge".
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The revenue bridge would maintain the existing tax rates
for one year and generate $9.4 billion in revenues for the
budget year. (This total does not include the net impact
to the Proposition 98 guarantee, which is about $1.6
billion.) This bridge will provide assurances for schools
and local public safety in the budget year. Schools and
local governments will need additional time in the budget
year to make reductions if the constitutional amendment is
ultimately defeated by the voters.
Consistent with the Governor's May Revision the Legislative
version does not propose to continue the personal income
tax (PIT) surcharge (0.25 percent) in the 2011 tax years.
The Legislative version of the "bridge" financing would
extend the following taxes:
Maintaining the current vehicle license fee (VLF)
rate of 1.15 percent until July 1, 2012.
Maintaining the current sales tax rate of 6 percent
until July 1, 2012.
Maintaining the 2010 PIT dependent credit ($99) for
the 2011and 2012 tax years.
Reestablishing the 2010 PIT Surcharge (0.25
percent) for the 2012 tax year.
The constitutional amendment that is part of the
Legislature's version is consistent with the Governor's
proposal, but would effectively start after the bridge
financing has expired. The constitutional amendment would
need to be placed before the voters sometime in the next
fiscal year before the bridge financing expires. The
constitutional amendment would extend the taxes in the
bridge for an additional four years. The VLF and the Sales
and Use Tax would be in effect until July 1, 2016 and the
PIT-related taxes would be effective through tax year 2015.
Also consistent with the Governor's proposal, the
Legislature's version would dedicate the one percent of the
sales tax and 0.4 percent of the vehicle license fee to
local governments for public safety realignment. The PIT
revenues would be dedicated to schools.
The Budget Includes Major Public Safety Realignment
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The budget package contains the Governor's revised public
safety realignment plan. This plan has been made more
essential in the last few weeks after the U.S. Supreme
Court affirmed the lower court's decision to require the
reduction of overcrowding in the state prison system. The
State has two years to reduce the prison population by over
30,000 inmates. Realignment will allow the state to
accomplish this reduction in a way that has significant
potential benefits for public safety. Funded realignment
will allow for funding to flow with the offender back to
the community where it can be invested in support services,
programs, and law enforcement that enhance the safety of
communities.
The public safety realignment proposal takes a significant
step towards bringing services closer to the people, allows
for more integrated service delivery, and allows the
services to be tailored to local situations and conditions.
In total, the May Revision realignment proposal dedicates
$5.6 billion in revenues in 2011-12 to fund a menu of
programs shifted from the State to the locals. However,
because the Legislative budget reduced the number of
low-level offenders that would be transferred to the
counties, the March realignment package included funding
the existing county mental health services (realigned in
1991) out of this revised realignment proposal. This frees
up the 1991 realignment funds to cover an increased share
of CalWORKs grants. This "swap" should have no
programmatic impacts.
The public safety realignment proposal outlined above would
be funded by maintaining the Vehicle License Fee and sales
tax at current levels for a temporary period via a
constitutional amendment. The related constitutional
amendment would also provide that the State is responsible
for funding this realignment after the temporary tax period
has ended.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Senate Budget and Fiscal Review Committee,
the fiscal effect of enacting this measure, along with the
other trailer bill measures, including the constitutional
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amendment to maintain tax rates at 2010 levels for schools
and public safety services, would enact $23.1 billion in
solutions to balance the 2011 Budget Act.
DLW:nl 6/9/11 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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