BILL ANALYSIS �
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THIRD READING
Bill No: AB 98
Author: Assembly Budget Committee
Amended: 6/14/11 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.
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
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
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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 Senate adopted the vast majority of the Governor's
proposed expenditure reductions. However, the Senate
version of the budget does restore approximately $200
million in child care cuts within Proposition 98 and
approximately $140 million in CalWORKs reductions that were
made in the March package.
In addition to the reductions already adopted, the Senate
version incorporates the following major changes to balance
the budget for 2011-12 without two-thirds revenues. This
includes $10.4 billion in additional solutions, which will
result in a slightly lower budgetary reserve of
approximately $575 million General Fund in the budget year.
The major amendments to the Governor's proposal to replace
revenues include the following.
Adopt additional expenditure reductions:
Reduces K-14 Proposition 98 funding by
approximately $3 billion compared to the Governor's
May version by increasing deferrals by $2.9 billion.
The final version also eliminates the additional $744
million in settle up payments assumed in the June 8
Senate version.
Assumes $1 billion from savings in children's
Medi-Cal services from reducing and redirecting $1
billion in local Proposition 10 funding. This
assumption returns to the proposal adopted in the
March 2011 budget package and assumes the State
prevails in the current litigation.
Includes an additional $150 million reduction to
the University of California system that could be
restored if additional General Fund revenues are
received. This reduction is in addition to the $500
million reduction included in the budget package
passed in March. Also assumes a new cash solution by
deferring the June payment to the UC system until
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after the end of the fiscal year in August 2012.
Includes an additional $150 million reduction to
the California State University system that could be
restored if additional General Fund revenues are
received.
Includes an additional $150 million reduction to
the trial court system that could be restored if
additional General Fund revenues are received.
Adopts $50 million in General Fund savings from
dedicating surplus county office of education property
tax balances that are currently restricted to other
education programs, thereby reducing State General
Fund costs.
Adopt majority vote revenues:
Assumes $1.2 billion from the assumption of a
revised state building lease transaction.
Ends the "revenue exchange period" that was enacted
in 2004. This action increases local sales and use
tax by percent, which results in a commensurate
transfer of property tax from local government to
schools in order to save approximately $900 million
General Fund.
Increases vehicle registration fees by
approximately $12 to defray the costs associated with
the Department of Motor Vehicles. This action frees
up $300 million in vehicle license fees to be
dedicated to local governments that can be used as a
down payment for the implementation of public safety
realignment. Additional actions will need to be taken
in the coming weeks to ensure that public safety
realignment is funded appropriately; including
addressing the $504 million in funding historically
dedicated to local public safety programs.
Adopt a State Responsibility Area Fee to cover some
costs of state fire suppression on privately-owned
lands. Reduce General Fund support for Cal-Fire by
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$150 million and replace with fee revenue. Also shift
additional General Fund costs related to timber
harvest plans to fees.
Updated revenue assumptions:
Assumes current revenue trends continue and
generate approximately $815 million General Fund above
the revenue estimates in the Governor's May Revision.
This is consistent with the most recent data on
revenues collected by the State since the Governor's
May Revision was released.
Other Solutions:
Assumes $700 million in additional one-time federal
funds to offset General Fund costs related to the
Medi-Cal program.
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 Senate version of the budget prioritizes K-12
education. 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 . The Senate version of the budget includes
funding for Proposition 98 that is about the same level as
the current fiscal year. This is approximately $3 billion
less than the level proposed in the Governor's 2011 May
Revision. The lower spending on Proposition 98 is a result
of not including the Governor's proposed two-thirds vote
taxes in the final budget package. Overall Proposition 98
expenditure will be approximately $49.7 billion in the
budget year. Major proposals included in the Senate
package include the following:
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Deferrals : Continues approximately $3 billion in
inter-year K-12 payment deferrals, consistent with the
Governor's January proposal.
Student Mental Health Services : Approves
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.
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Higher Education . Adopted a $650 million reduction to the
University of California, a $650 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. Also
adopted a new inter-year deferral for the University of
California of about $560 million.
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
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 Senate version of 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.
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Getting Ready for Health Care Reform: The Senate
version of the budget also approved 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 Senate 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 Senate has restored
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 $350 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 Senate's 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
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State Parks and $10 million to Off-Highway Vehicle Parks.
Also approved $150 million reduction to Cal-Fire, to be
backfilled with new revenues from a State Responsibility
Area (SRA) Fee to be paid by homeowners within SRA.
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
Revenue Package . The Senate version of the budget does not
include the Governor's proposal to maintain 2010 tax rates
for five years. This, and the Governor's proposal to
reform enterprise zones and implement a single sales factor
for apportioning corporate income to California, would have
generated $11 billion in the current and budget years.
This would have resulted in $1.7 billion in additional
expenditures for Proposition 98.
The Senate version does include the following majority vote
revenues:
Assumes $1.2 billion from the assumption of a
revised state building lease transaction.
Ends the "revenue exchange period" that was enacted
in 2004. This action increases local sales and use
tax by percent, which results in a commensurate
transfer of property tax from local government to
schools in order to save approximately $900 million
General Fund.
Increases vehicle registration fees by
approximately $12 to defray the costs associated with
the Department of Motor Vehicles. This action frees
up $300 million in vehicle license fees to be
dedicated to local governments that can be used as a
down payment for the implementation of public safety
realignment.
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Adopt a State Responsibility Area Fee to cover some
costs of state fire suppression on privately-owned
lands. Reduce General Fund support for CalFire by
$150 million and replace with fee revenue. Also shift
additional General Fund costs related to timber
harvest plans to fees.
Public Safety Realignment
Originally, the Senate version of the budget package
contained the Governor's revised public safety realignment
plan. However, with no new revenues and no constitutional
amendment, this plan has become more difficult to implement
and is, therefore, largely not a part of the Senate
version. However, the Legislature passed AB 109 in March
that realigned low-level offenders from state prison to
local jurisdiction. This policy change does not go into
effect until funding is provided to support this
realignment of offenders. The Senate continues to pursue
implementation and funding for AB 109.
The realignment plan continues to be essential especially
in light of the recent U.S. Supreme Court decision that
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 Senate version includes $300 million in vehicle license
fee revenues freed up from increasing the registration fees
to cover costs at the Department of Motor Vehicles.
Additional actions will need to be taken in the coming
weeks to ensure that public safety realignment is funded
appropriately; including addressing the $504 million in
funding historically dedicated to local public safety
programs.
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
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Local: No
The fiscal effect of enacting this measure, along with the
other trailer bill measures, would enact $24.4 billion in
solutions to balance the 2011 Budget Act.
DLW:nl 6/15/11 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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