BILL ANALYSIS �
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: SB 15
Author: DeSaulnier
As Amended: April 25, 2011
Consultant: Keely Martin Bosler
Fiscal: Yes
Hearing Date: May 12, 2011
Subject : State budget.
Summary: This bill would place additional reporting
requirements on the Department of Finance related to the
annual budget process.
Background:
State Budget Process Overview. Under the current State
Constitution, the Legislature has the power to appropriate
State funds and make midyear adjustments to those
appropriations. The annual State budget act is the
Legislature's primary method of authorizing expenses for a
particular fiscal year. Also, under the current State
Constitution, the Governor is required to propose a
balanced budget by January 10 for the next fiscal year
(beginning July 1) and the Legislature is required to pass
the annual budget act by June 15. Under current law, the
Governor may also reduce or eliminate specific
appropriation items using his or her "line-item veto" power
and the Legislature may override a veto with a two-thirds
vote in each house. However, once the budget has been
approved by the Legislature and the Governor, current law
provides the Governor with limited authority to reduce
spending during the year without legislative approval.
Proposed Law:
This bill requires that the Director of Finance provide the
Legislature updated projections of state revenues and state
expenditures on or before October 15 of each year.
This bill requires the Governor to submit a budget for both
the budget year and the succeeding fiscal year. The budget
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shall contain itemized statements, provisional language,
performance measurement standards for state agencies and
programs, recommended state expenditures, and a projection
of anticipated state revenues, including revenues
anticipated to be one-time revenue.
This bill also requires that the budget contain a
projection of state expenditures and revenues for the three
fiscal years following the fiscal year succeeding the
budget year and budget plans for those three fiscal years.
If the expenditures exceed estimated revenues in the budget
year or succeeding fiscal year, this bill would require
that the Governor recommend reductions in expenditures or
the sources of additional revenues, or both. The bill
further requires an analysis of the recommendations on the
long-term impact that expenditure reductions or additional
revenues have on the economy of California.
This bill also requires the Governor to submit to the
Legislature, annually with the budget, any legislation
needed to implement appropriations contained in the budget
and a five-year capital infrastructure and strategic growth
plan.
This bill requires that if the Governor's budget expands or
creates a new program or expands the scope of an existing
program, which results in an increase in state costs or
reduces a state tax in the budget year or succeeding year,
the proposal must be accompanied by a statement identifying
state program reductions or additional revenue that are
equal or greater than the net increase in the state costs
of the new or expanded program or tax expenditure.
This bill also states that it is the intent of the
Legislature to establish an oversight process one year
after the enactment of this legislation for evaluating and
improving the performance of all programs undertaken by the
state or by local entities on behalf of the state, based on
performance standards.
Fiscal Effect:
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The direct fiscal effects of this bill are a few million
and are dependent upon how this bill is implemented by the
Administration. The Department of Finance currently does a
five year projection when preparing the annual budget bill
and makes an estimate of the multi-year impact of policies
it proposes. However, this bill may require a more
detailed analysis be done for the second budget year and
also requires additional analyses that are not currently
required, such as an analysis of the impact of budgetary
expenditures and revenues on the economy.
There may be unknown savings attributable to this bill
based on better more informed multi-year planning by the
Administration and the Legislature. However, these effects
will ultimately depend on future actions by the
Administration and Legislature.
Source : California Forward; State Controller John Chiang
Support :
AARP
American Association of University Women
American Federation of State, County and Municipal
Employees
Bay Area Council
Business Council of San Joaquin County
California Alliance of Child and Family Services
California Church IMPACT
California Partnership for the San Joaquin Valley
California Senior Advocates League
California State Student Association
Contra Costa Council
Fresno Business Council
Greenlining Institute
Half Moon Bay Coastside Chamber of Commerce
Huntington Beach Chamber of Commerce
Kern County Taxpayers Association
Los Angeles Area Chamber of Commerce
Marin Builders' Association
San Francisco Chamber of Commerce
San Gabriel Valley Economic Partnership
San Mateo County Economic Development Association (SAMCEDA)
Santa Clara and San Benito Counties Building and
Construction Trades Council
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Santa Cruz County Medical Society
Saving California Communities
State Building and Construction Trades Council of
California
Silicon Valley Leadership Group
Valley Industry & Commerce Association (VICA)
WELL Network
Opposed : None on file.
Comments :
1. What Problem Does This Bill Seek to Solve? This
bill seeks to provide more information to the
Legislature so that they will better understand the
impacts of decisions they make on the fiscal health
of the state in subsequent budget years. One-time
solutions adopted by the Legislature can provide for
temporary budgetary relief and have a role, but in
recent years ongoing budgetary reductions have also
been needed to bring expenditures in line with
long-term revenue projections. This bill would seek
to introduce more information into the process to
inform decision makers of the impacts and tradeoffs
of budgetary decisions.
2. Information Exists Now, But Could be Better Used.
The Department of Finance currently prepares a five
year projection commonly referred to as the
multi-year projection. These projections are not
included in budget submissions on the department's
website, but are officially transmitted to the
Legislature on the day the budget is released. It
is unclear whether incorporating this information
more officially in the Department of Finance's
submissions would increase the likelihood that the
Legislature uses this information to inform a final
budget package. Ultimately, there are many factors
entering into final decisions on the budget package
and this information is just one of those inputs.
3. Some Evaluations Difficult to Do. This bill
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requires the Department of Finance to do an analysis
of the long-term impacts that expenditure reductions
or additional revenues have on the economy of
California. The Department of Finance has explored
general equilibrium modeling to measure the economic
impacts of budgetary policies in the past. However,
this modeling was found to be highly sensitive to
the assumptions used in the model and was eventually
discontinued by the department because it did not
provide the type of information that was directly
valuable to forecasting revenues and budget
planning. While this sort of analysis may be
interesting from an academic perspective, it would
significantly increase the workload of the
Department of Finance and likely not provide
significant value to the budget making process.
4. Suggested Amendments. The Committee recommends
adding a three-year phased-in implementation of this
bill. This will provide the Department of Finance
the flexibility to successfully implement this bill
in a manner that does not interfere as much in the
regular budget process, especially given the current
fiscal climate.
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