BILL ANALYSIS �
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: AB 1497
Author: Committee on Budget
As Amended: June 25, 2012
Consultant: Keely Martin Bosler/Mark Ibele
Fiscal: Yes
Hearing Date: June 25, 2012
Subject: Budget Act of 2012.
Summary: This bill amends certain provisions of AB 1464,
the 2012-13 Budget Act.
Background: On May 14, the Governor released his May
Revision for budget year 2012-13. The Governor indicated
the General Fund deficit was $16.7 billion for the two-year
period ending June 30, 2013, representing an increase in
the deficit of $6.5 billion since the Governor's initial
budget proposal in January. This included a $1 billion
reserve. The deficit increased due to a reduced revenue
outlook, higher costs to fund schools, and decisions made
by the federal government and courts to block
previously-approved budget cuts.
This budget relies heavily on the Governor's May Revision
framework that was predicated primarily on expenditure
reductions, as well as passage of a tax initiative on the
November 2012 ballot, and additional "trigger" reductions
if the initiative is not successful. Since the passage of
the Budget Bill on June 15 there have been additional
changes within the overall budget framework. This budget
includes $7.9 billion in expenditure cuts, $6.0 billion in
additional revenues, and $2.5 billion in other solutions
for a total of $16.5 billion in solutions. The budget
amendments included in this bill and the accompanying
trailer bills will result in approximately $91.5 billion in
expenditures and an available reserve of around $788
million in the 2012-13 budget year.
Proposed Law: Overall, this budget adopts the Governor's
May Revision framework, with the additional changes since
the passage of the Budget Bill on June 15. The budget
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solution continues to largely hinge on expenditure
reductions, the tax initiative, and 'trigger' cuts. Some
one-time solutions such as additional special fund
borrowing have been eliminated in favor of additional
expenditure reductions and the continuation of revenue
shifts to the General Fund. In addition, the proposal to
use property tax "pass-through" payments to offset
Proposition 98 expenditures was rejected, and the budget
adopts additional solutions through the use of mortgage
settlement moneys. The bullets below delineate the major
changes to the budget plan since June 15.
CalWORKs: The proposed budget reduces CalWORKs
funding by approximately $469 million, versus the
Governor's $880 million reduction, and makes
significant program alterations. Notably, the budget
includes no grant cuts. Under the proposal, the
current array of welfare-to-work services would be
prospectively available for eligible adults for up to
24 months, but "useable" anytime during the 48-month
lifetime time limit. Participants would be able to
access the remaining 24 months of the 48-month limit
if meeting specified, stricter federal work
requirements. In addition, counties could extend
services for up to 20 percent of those who reach the
24-month time limit, under specified circumstances
that indicate satisfactory progress toward employment.
There are also changes in the earned income disregard
to encourage work participation. Additionally, the
budget includes a transfer of federal TANF funding to
the California Student Aid Commission for Cal Grants
and a corresponding increase of General Fund resources
for specified CalWORKs child-only cases.
Child Care: The Governor proposed major reductions
to the state's subsidized child care programs,
totaling $452 million. From the Legislature's June 15
budget plan, there would be an additional across the
board reduction equal to about $80 million (versus the
$50 million previously included), resulting in a
reduction in the number of available slots. In
addition, the revised plan calls for the suspension of
cost of living adjustments in both 2013-14 and
2014-15.
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Cal Grants: The Governor proposed a total of $292
million in cuts to the Cal Grant higher education
student financial assistance program. The budget plan
adopts a total of $53 million in cuts to Cal Grants by
accepting the Governor's proposal setting stricter
limitations on eligibility for Cal Grants based on
institutions' graduation and loan default rates. In a
departure from the Governor's plan, the budget reduces
new Cal Grant awards beginning in 2013-14 -- by 17
percent (in two steps over two years) for non-profits
and for-profit institutions that are accredited by the
Western Association of Schools and Colleges, and by 59
percent for all other for-profit institutions. In
addition, beginning in 2013-14, there would be no
renewal awards for returning students choosing to
remain at institutions that do not meet graduation or
loan default thresholds.
Other Alterations: The revised plan maintains
restoration of amounts for other proposed cuts to the
AIDS Drug Assistance Program and community health
clinics. The revised plan would allow for a slower
phase-in for the transition to Medi-Cal next year of
the Healthy Families program and would require the
Administration and health plans to demonstrate
'readiness' prior to this transition. In addition,
the budget provides $18 million in mortgage settlement
money for enforcement and counseling, provides $50
million for charter school growth funding, and
includes funding for routine High-Speed Rail Authority
staffing and planning functions. If the tax measure
passes, the plan would provide $50 million to
community colleges.
This plan relies on the Department of Finance revenue
estimates, and is predicated on the passage of the
Governor's tax proposal. The Governor's tax proposal is a
Constitutional amendment that would raise the personal
income tax and the sales and use tax on a temporary basis.
Together, the proposed increase in the two taxes is
expected to raise an additional $8.4 billion through the
budget year, representing $2.9 billion to schools and
community colleges and $5.5 billion for General Fund
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benefit. The measure would also permanently dedicate
revenues to local governments to pay for public safety
programs realigned in 2011.
The plan assumes the state will receive $8.4 billion in
additional personal income tax and sales tax revenue from
the Governor's tax initiative on the November ballot, of
which $5.5 billion will be used to balance the budget.
(The remaining $2.9 billion will grow the Proposition 98
guarantee for schools.) In the event that the voters do
not approve the Governor's tax proposal in November, the
Legislature's joint plan, like the Governor's, includes a
series of trigger cuts. These cuts are detailed below:
2012-13 Trigger Cuts (in millions)
----------------------------------------------------------
|Program Area | May |
| | Revision |
| | Amount |
|-----------------------------------------------+----------|
|K-14 Education (Proposition 98) | $5,356.0|
|-----------------------------------------------+----------|
|University of California | 250.0|
|-----------------------------------------------+----------|
|California State University | 250.0|
|-----------------------------------------------+----------|
|Developmental Services | 50.0|
|-----------------------------------------------+----------|
|Local Public Safety Grants | 20.0|
|-----------------------------------------------+----------|
|Department of Forestry and Fire Protection | 10.6|
|-----------------------------------------------+----------|
|Flood Control | 6.6|
|-----------------------------------------------+----------|
|Local Water Safety Patrol | 5.6|
|-----------------------------------------------+----------|
|Public Safety-Fish & Game, Lifeguards and | 6.0|
|Rangers, Dept. of Justice | |
|-----------------------------------------------+----------|
|Total |$5,954.8 |
----------------------------------------------------------
Fiscal Effect: The fiscal impact of the contents of this
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and associated trailer bills is to achieve $16.5 billion in
budget solutions. As of the May Revision, the Governor
estimated that the state had a deficit of $16.7 billion,
which includes a $1 billion reserve. This budget would
result in approximately $91.5 billion in expenditures and
approximately a $788 million reserve.
Support: Unknown
Opposed: Unknown
Comments: The bill amends the Budget Bill adopted by the
Legislature on June 15, 2012. Overall, this version of the
budget prioritizes K-12 education, higher 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. The overall budget solution is
distributed among expenditure reductions (48 percent),
revenue increases (37 percent), and other solutions (15
percent). This plan includes $8.0 billion in expenditure
reductions by adopting the vast majority of the Governor's
proposed cuts. The plan leads to an improved fiscal
position for the state in the out-years, with almost 80
percent of the solutions ongoing or multi-year.
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