HomeMy WebLinkAboutAgenda Report - May 21, 2003 I-01MEETING DATE -
State Budget Update
May 21, 2003
RECOMMENDED ACTION. No action necessary.
BACKGROUND INFORMATION, As per the request of Mayor Hitchcock, the City
Manager will present an update regarding the State
budget during the Council meeting. Of particular
interest is the Governor's recent "May Revise" of the State budget which was unveiled on May
14, 2003, The State's deficit through this next fiscal year is anticipated to be $38.2 billion
compared to the projections made in January of a $34.6 billion deficit. The Governor's revisions
to the Budget include tax increases and tripling the Vehicle License Fee (VLF). It appears at
this time, that cities will be kept whole with regard to the VLF.
Attached for Council's information are copies of articles regarding the "May Revise" from the
San Francisco Chronicle and the Sacramento Bee. Additional information will be reported to
Council during the meeting,
Funding. None
Attachments
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Round 2 for Davis on deficit
Both parties spar over revised
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By John Hill Bee Capitol Bureau
Published 2.15 a.m. PDT Thursday, May
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Gov. Gray Davis on Wednesday offered a
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revised plan for coping with a state budget
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deficit that now tops $38 billion, saying he
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sought to accommodate all sides to get a
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But lawmakers from both parties showed
little sign of budging from entrenched
positions. Republicans said they continue to
oppose new taxes, Davis' revised $100.4
billion budget proposes tax increases to pay off $10.7 billion of the deficit over five
years and to fund a shift of some responsibilities to local governments.
"We are willing to negotiate on everything except the issue of taxes," said Senate
Republican leader Jim Brulte of Rancho Cucamonga.
Democrats, sounding their own familiar refrain, accused
Republicans of failing to negotiate and said no budget solution is possible without
new taxes.
"I'm extremely disappointed that after everything we've done, and after everything
the governor has done, the Republicans have not moved an inch," said Assembly.
Speaker Herb Wesson, D -Culver City,
In one small indication of remaining tensions between the parties, Republicans
took issue with Davis' contention that he had met with legislative leaders 19times.
Still, the Democratic governor adopted a strikingly accommodating tone in
presenting his changes.
He said that he still preferred the proposal he made in January, which called for
erasing the deficit in the coming fiscal year. But "unfortunately, both parties of th
Legislature decided they did not like the one-year plan I proposed," he said. I
The plan Davis outlined Wednesday bears little resemblance to his January
proposat Go:ne is a $8.3 bilhon shift of responsibilities to local governments, to be
funded by an array of tax increases,
It's replaced by a more modest $1.8 billion "realignment" proposal. The new
version would be paid for by a new 10.3 percent income tax bracket on annual
incomes above $150,000 for individuals and $300,000 for married couples, and a
63 -cents -a -pack increase on cigarettes, phased in over two years.
The $1.0.3 billion deficit in the current fiscal year would be wiped out by selling
bonds, which would be paid off with a new half -cent sales tax over about five
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On top of that, Davis' new budget proposal assumes that the vehicle license fee
that Californians pay each year will be tripled under an existing law that calls for
recent reductions to be reversed in tough budget times. That would raise $4.2
billion.
In another change, Davis backed off from a proposal to raise $2 billion by selling
bonds on the strength of the state's year-to-year share of a legal settlement with,
tobacco companies. With many other states doing the same thing and tobacco
companies struggling financially, the deal no longer makes sense, he said,
He also scaled back -- from $1.5 billion to $680 million -- the amount he expects
to get from renegotiating gambling compacts with Indian tribes. The process is
complex and can't be finished in the coming fiscal year, he said,
In 3anUary, Davis had proposed overhauling the system of funding school
programs with separate pots of money by replacing $854 million of so-called
categorical funding with block grants. After lawmakers rejected the idea, Davis
The governor admits that his revised plan would lead to an $8 billion deficit in the
2004-05 fiscal year. After the Legislature passes a budget this summer, he said, it
should spend the rest of the year on "structural reform" to avoid recurring
shortfalls.
"This is something we must do if we want to right the state's financial ship," he
said.
Davis' revised proposal also responds to some concerns from lawmakers of his own
party by backing off -- in part -- on some cuts he proposed in January to health
care and social services, such as the monthly grants paid to the aged, blind and
disabled.
It gives $700 million more to K-12 schools, allowing the state to continue funding
a class -size reduction program, and $304 million to community colleges. In
January, Davis proposed increasing fees at community colleges from $11 per unit
to $24. He is now paring that to $18.
Davis and his finance director, Steve Peace, took pains to make the case that the
new plan won't work without taxes.
Assembly Republicans released a plan last month that called for the deficit to be
paid off.with existing state revenue, avoiding tax increases.
"'Their plan doesn't pencil out," Davis said.
Under the GOP plan, he said, "we're basically borrowing from one pocket to pay
another pocket," leaving too little money for all the state's obligations.
Peace said that using current revenue from the general fund, the state's main bank
account, would pose a host of complications. For one, the Legislature each year
would have to reappropriate the money, on a two-thirds vote, to pay off the bonds
-- a requirement unlikely to assure Wall Street lenders.
"Put yourself in the financial community's perspective and you'll understand why
nobody in their right mind would lend money to this state if it wasn't a new tax"
separate from the general fund, he said.
But Republicans say experts they've consulted believe differentlZ
"Let Wall Street say what they want," Senate Republican leader Brulte said. "Their
job is to maximjze profits for their people," not look out for the interests of
Californians.
Peace said the May budget revision tries to placate all parties so the budget can b -e
passed on time. A late budget, he said, could cause financial markets to slash
California's credit -rating or decide not to lend money the state needs in the next
several months to avoid running out of cash.
"If we don't deal with these things prudently, we're going to have both higher
taxes and bigger cuts," he said. "The faster we act, the better we do."
In January, Davis proposed cutting the state's share of grants to the aged, blind
and disabled to the federal minimum. That would have forced grant recipients,
most of whom are disabled, to get by on $49 less each month, said Lupe Diaz,
legislative advocate for the Western Center on Law and Poverty,
Davis got rid of that p1an. But the governor still proposes to suspend cost -of. living
adjustments, which would have added $34 to the monthly grants in the next year.
CaNORKS recipients would also not get cost -of -living adjustments, while avoiding
an earlier proposal to Cut grants.
Ain
Davis reversed some cuts he had proposed in health care, such as denying Medi -
Cal coverage to working parents who made more than 61 percent of the federal
poverty level.
But "most other health cuts remain, and would indirectly deny coverage to fliterall
millions of Californians," said Anthony Wright., executive director of Health Access
a statewide health-care consurner coalition of 200 organizations. I
Overall, the revised budget calls for $18.8 billion in cuts and other savings,
compared to $20.7 billion in his January proposal.
The state's deficit through the next fiscal year is projected to be $38.2 billion, up
from the $34.6 billion in January. The state's general fund this year is about $78
billion.
The Legislature, in two rounds of budget cuts, has already trimmed $6.9 billion,
fiscal year that begins July 1. The budget must win two-thirds majorities in each
house. T�hat means that six Republicans in the Assembly and two in the Senate
would have to join majority Democrats to approve the spending plan.
About the Writer
----------------- --- ---
The Bee's John Hill tan be reached at (916) 326-5543 or Alexa Bluth and
Jim Sanders of The Bee Capitol Bureau contributed to this report.
Davis plan gives break to cities and Thursday May 15 2003
Qam"Lsumtor 2,
CHOICES: Governor calls his
budget a compromise
Gree Lucas lL nria Gledhill, chronicle Sacramento Bureau
The Democratic governor wants to temporarily
increase the sales tax by half a percentage point to Colleae leaders oleased
repay nearly $11 billion in debt. More of the budget with proposal c d
shortfall would be erased with higher taxes onMobile
cigarettes, cars, high wage earners and nearly $19 Plan eases pain for
billion in cuts to everything from health care for the schools
poorto trial court spending,
alt is not a cQmpromise budget, It is not even close,"
a
m
pbell said. "it is farther away from something�
€�bile ns can support than we were before ....,_
y.�
AL
TEACHING DENTAL ASST.
Even Assembly Speaker Herb Wesson, D -Culver LJOP School of
City, didn't suppori a by- product of the governor's
plan 99 creation of a $7.9 billion cash shortfall in the __-- -_-- - ---�-- --
Taxes &fees Qavis
Davis warned that lawmakers must pass a budget
would add costs to
by the end of June or quickly jeopardize the state's
lens urche
ability to borrow money to pay its bills. The plan is
Health Care: tatQ°s
designed to pressure a handful of GOP lawmakers
Higher Ed: Tuition
into voting to boost takes and appeal to liberal
Lis expected for
Democrats who don't want to cut deeply into social
students
or health programs.
Iroc�cal
alt is not a cQmpromise budget, It is not even close,"
a
m
pbell said. "it is farther away from something�
€�bile ns can support than we were before ....,_
y.�
AL
TEACHING DENTAL ASST.
Even Assembly Speaker Herb Wesson, D -Culver LJOP School of
City, didn't suppori a by- product of the governor's
plan 99 creation of a $7.9 billion cash shortfall in the __-- -_-- - ---�-- --
K-12 Ed: Per-puoil
Although Davis said he crafted his 2003-2004 plan
spending uo
as a compromise, legislative reaction did not point
to a quick budget solution
Health Care: tatQ°s
poor would lose
"This cadet is the worst of all worlds. It taxes more,
coverage
scends more and borrows more." said
Assemblyman John Campbell of Irvine, the GOP's
Iroc�cal
budget point man in the lower house
Gov't
counties spared
alt is not a cQmpromise budget, It is not even close,"
a
m
pbell said. "it is farther away from something�
€�bile ns can support than we were before ....,_
y.�
AL
TEACHING DENTAL ASST.
Even Assembly Speaker Herb Wesson, D -Culver LJOP School of
City, didn't suppori a by- product of the governor's
plan 99 creation of a $7.9 billion cash shortfall in the __-- -_-- - ---�-- --
fiscal year beginning July 1, 2004.
'It doesn't make sense to sign a document that
automatically puts us in the hole next year. We
need to soive the darn problem and do it now," said
Wesson. "That's going to take cuts, courage and
taxes,"
Senate GOP ieader Jim Brulte of Rancho
Cucamonga said the budget "doesn't make as
much sense" as Davis would nave people believe.
"He borrows over $10 billion, raises taxes by $8
billion, and you still have another deficit," Brulte
said.
Because California's constitution requires the
budget to be appraved by a two-thirds majority in
the Legislature, a handful of minority Republicans
will have to go along with a final spending deal.
Davis' debt financing proposal allows him to be
more generous to community colleges and public
schools _- instead of reducing state aid to schools
by $2. 2 Million, Davis now would cut them by $1.5
billion. Community colleges would see their cuts fall
from $530 million to $230 million.
"Make no mistake. my budget contains painful
choices," Davis said in unveiling the proposal, which
also features a higher tax rate for Californians
earning $150,000 of more and a 73 -cent boost in
d9ar t e taxes.
Davis also said that before July 1, the state's
financial woes wili trigger an automatic increase in
the annual license fees paid on California's 29
million vehicles. V1b said a 1998 law requires car
taxes to increase in dire economic times. Some
GOP lawmakers say it would be illegal for Davis'
Department of Motor Vehicles to collect the higher
fees and have pledged a court challenge.
The fees, which are deductible an federal taxes. will
increase by nearly 70 percent and pour $4 billion
each year into state coffers.
The governor's sharp change in strategy from
solving the budget mess in one year to parceling
some of the pain out over time is an attempt to get a
budget approved by June 30, the end of the fiscal
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A late budget imperils California's ability to convince
investment houses to let it roll over its debt and
jeopardizes a complex series cf cash-flow
borrowings and repayments that take place in June
and July.
"We have to be on time," said Steve Peace, director
of Davis Department of Finance. "We do not have a
choice to be late with this budget."
Ron Murphy, the California bond coordinator for
Moody's, said Davis' deficit rollover was not
unexpected, but he cautioned that in addition to the
$` 0.7 billion debt is another $2 billion in interest and
fees on the bond. Murphy said that if the state plans
to finance its deficit, it would be wise to repay the
bonds with a new tax as Davis has suggested.
"Without (a new) revenue stream, that is an
additional expense the state will have to assume
within the current revenue base, which is already
inadequate to meet current obligations," said
Murphy.
By contrast, Republicans have proposed rolling
over the debt, but they say deficit bonds can be
repaid with existing taxes.
Davis said his new $96 billion budget plan came
after listening to criticism leveled by GOP and
Democratic lawmakers at the spending proposal he
announced in January.
The centerpiece of that plan was a transfer of more
than $8 billion in state health and social programs to
counties with program costs covered by increasing
taxes bV a like amount,
Davis now proposes transferring $1 8 billion in
programs using the boost in cigarette taxes and a
new 103 percent tax bracket for high earners to
cover the costs.
Lawmakers have already shaved $7 billion off the
State's budget shortfall, mainly through reductions to
public schools.
Peace said lawmakers have already committed to
another $7 billion in reductions that will be made in
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ABC7/KGO Televisio
AI/31/2003- State'sfiscal
troubles M_rsM-
01/11/2003 - Davis slices 21
bill a -in sOafta 147z_dggt p an.
01 f 10/2003---incamL—tax-for-tich
the budget Both Davis and Peace said that to avoid ns�§ in Davis p!an
the $8 billion hole, the Legislature has to woi k hard
this summer to enact what the governor calls mQfe related amides
"structural reforms."
13'
The biggest winners in the new budget plan are
cities, counties and public schools.
Faced with legislative opposition, Davis backed off
on his proposal to cut state aid to local governments
by $4 billion.
The higher license fees will be used to continue the
payments.
Educators convinced Davis to cut school aid by
00 million less than the $2.2 billion he proposed
Davis also made the cuts largely in programs
educators rs asked him to out.
"We're absolutely delighted the cuts weren't as
severe as we expected," said Susan Murai,
president of the California Association of School
Ousiness Officials.
"Tire governor actually listened to us, and the
education communityworked together to propose
eats thf; although painful, are not as painful as
others being considered," Murai said
Davis also abandoned a 10 percent cut n the
popular program to reduce class sizes in
kindergarten through third grade
choois are already complaining that the money the
state pays to encouragesmalisr class size doesn't
cover the costs of doing so
E-mail the writers at 4Lcas94�fcnrorrfcfo.corn and
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Sari FranciscoChronieie I Feedback
5r=Sections
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GG e GUR Y DAv1s
EXPENDITURES
Genera: f3ar.cE expenditures, by agency, in billions of dollars:
F.UaLILNIG THE GAP
The budget deficit in California is estimated to be $38 billion. Gov. Gray
Davis is proposing an array of taxes and loans to close Lhe gap.
Incoxe to fsi_11 budget gap, in billions:
$10.7
Deficit bond fina ced with temporary half --cent
pct �
41�e�i
Cuts and savings
$2.5
Loans and borrowing
2.[1
sales tax increase beg -inning
2002-03
2003-04
K-12 education
$29.5
$29.1
llealtlh and human services
$23.5
$21.1.
F1icjher education
$9.1
$8.8
Yo,,,th and adult correctional
$5.8
$5.7
Legislative, judicial and executive
$2.5
$2.4
General government
$4.9
$1.2
Resources
$1.1
$0.9
State and consumer services
$0.5
$0.4
u Jness, transportation and housing
$0.2
$0.4
Env _i.ronmental procectdon
$0.2
$0.1
Labor and workforce development
$0.2
$0.1
Technology, trade and commerce
$0.05
$0.02
F.UaLILNIG THE GAP
The budget deficit in California is estimated to be $38 billion. Gov. Gray
Davis is proposing an array of taxes and loans to close Lhe gap.
Incoxe to fsi_11 budget gap, in billions:
$10.7
Deficit bond fina ced with temporary half --cent
pct �
41�e�i
Cuts and savings
$2.5
Loans and borrowing
2.[1
sales tax increase beg -inning
Fund shifW5
1.9
Transfers
1 .7
Programs shifted to local governments and funded by raising taxes on
state's wealthiest: residents
Sources: Office of the Governor, Associated Press
Chronicle Graphic
GOVERNOR'S BUDGET
Ar -10 Ar
.ay UVISI"11
OVERVIEW
The May nevi- i o tD the Governors Budget seeks to protect education and
other citis al government services, while building consensus with the Legislature,
he Governor's January budget proposal, as di4scribed by the Legislative Analyst,
was credible, balanced, and addressed the Slate's structural delicit. While it is still
the preferred approach, that proposal required early and comprehensive action by
the Legislature.
The May. Revision responds to $6.5 billion in additional pressure from May adjust-
rnents �$16 billion) and previously proposed savings that can no onger be realized
($2.9 billion). It is credible and balanced. It also requires that the Legislatul e continue
its budget work on structural issues after the Budget is passed and signed into law.
Over the past five months, the Governor has met with hundreds of Californians from
au walks of life and, as a result, is more determined than ever to protect the progress
that has been made in our schools. In Sacramento, the Governor has already met
with legislative leaders 19 limes in order to make progress toward solving the State's
budget problem,
The Legislature has passed and the Governor has signed two important budget
packages aimed at reducing the size of the deficit.
The May Revision reflects these actions, as well as the ideas and values gleaned from
the Governor's meetings, and the imperative that the Budget be passed on time.
Many, including members of the Legislature, have expressed a preference for
addressing the structural budget shortfall over more than one budget cycle. The
May Revision incorporates this preference by dividing the problem into three parts.
GOVERNOR'S BUDGET MAY REVISION 12-003-04
?_ OVERVIEW *
L -year period in a fiscally prudent
The current year deficit is financed over a multi
and legally credible way.
2. The budget year k balanced through a combination of cuts and a slimmed
down realignment package,
3. The Legislature is asked to spend the balance of the legislative session to
address the structural issues that, if left unresolved, will put future budgets out of
balance and threaten the future prosperity of our State's citizens.
The May Revision to the Governor's Budget prioritizes edneation
and public safety while protecting critical health and environmental
prugraws,
The May Revision is anchored by the commitment to protect the progress that has
been made in our schoois. The ProposWon 98 Guarantee is met. Schools will have
$700 million more to spend.in State and local funds than was contemp ated in the
Governor's Budget
Critical classroom priorities, induding class size reduction, accountability, and
special education are fully funded. This budget will fund schoais sufficiently to keep
teachers in our classrooms.
Higher education is protected from further cuts. Community colleges win receive
$304 million in funding above the January proposai, and the size of the previously
proposed fee increase is reduced to $18 per unit.
The threat of terrorism makes this no time to compromise on public safety. Local
police, sheriff, and tire departments are protected by the operation of existing law
governing vehicle license fees, and the budget preserves funding for critical, targeted
law er-dorcernent programs.
The State's environmental programs, while impacted by thejanuary cuts, wfll
remain the strongest in the nation secured by special fund support. In addition,
recent voter -approved general obilgation bands are aimed at protecting California's
natural resources for future generations.
The first priority for the State's health and social services Programs is to protect
t1he most vuinerable among us. children, the elderly, and the disabled. Consistent
with this principle, the May Revision restores the proposed cut in 551/SSP, while
continuing to ask that state -only cost of living increases be su:5Pended. This means
that seniors and the disabled will get a small increase in payments.
-04
GOVERNOR'S BUDGET MAY REVISION 12003
* OVERVIEW 3
The May Revision also includes the legislative recommendation to preserve health
care benefits for lower -wage parents and retains the January proposal to fund health
care costs Fr children,
'The,May Revision continues to depend upon significant cuts in State government
operations and programs. State spending will decrease by $7.6 billion dollars
(9.8 percent). This is the largest decrease in Stare spending since 1945. The deficit
financing approach allows the Uegislawre to balance this year's budget and deNate
further cuts, tax increases, or reforms through the balance of the legislative sesajon
for implementation in the following budget year.
The adjusted Budget Gap is $38.2 billion. This gap would have been larger, but for
higher receipts in the last two weeks, which brought current year revenues closer
to the Jana ary forecast., The gap is closed with a total of $18.9 billion in cuts and
savings, $6,9 billion in Fund shifts, transfers, and loans, $1.7 billion in program re-
alignments to local government, and $10.7 billion in deficit financing,
In addition to the presumed operation of existing law with respect to local gov-
ernment:,, vehicle license fees ($4,2 billion), the Budget requires the passage of
$1.8 billion in cigarette and income taxes for local government to operate realigned
programs, and a temporary one-half cent sales tax ($23 billion) to pay for the deficit
financing plan.
Fina)ik,, ; he revised plan relies upon a lower estimate of revenues from Indian
Gaming and wi I I not rely on the plan to sell tobacco revenue bonds. These bonds
have become significantly more expensive to sel I and utilization of deficit financing
requires a more conservative assessment of other borrowing options.
California way among the first States in the Union to accurately forecast
the impact of the deteriorating national economy on State revenues,
In �dmost every state of the Union, Governors and Legislatures are struggling with the
necessity to cut programs and raise taxes. Most states have been forced to make late
downward adjustments in their revenue estimates. The choices are not pleasant ones.
California got a head start on confronting its problems by accurately identifying the
impact of the nation's economic tailspin on State revenues. Ironically, at the time,
many were skeptical about the accuracy of and motivations behind, what have now
proven to be reliable forecasts,
Despite the lost opportunities generated by that skepticism, California can still meet
its fiscal challenges if decision -makers accept the reality cf the size of the problem
and the limited options still available for solutions.
GOVERNOR'S BUDGET MAY REVISION 003-04
el
OVERVIEW
California most have a timely Budget to deal with its cash flaw needs.
The stress on ttie State's cash flow led the State Controller to request. the authority
to issue an unprecedented $ii billion in Revenue Anticipation Warrants in June. The
Governor approved this request. with appropriate conditions.
This offering will provide enough cash for the State to meet its obligations for a
limited time. Thereafter, it will be necessary for the State to have a signed Budget in
piace in order to issue Revenue Anticipation Notes.
The Governor's Budget required a series of early actions by the legislature including
cuts in the current year and a sweeping realignment proposal financed by an
$8.3 billion local government tom€ package.
It is dill a preferred and pry dent approach to solving the budget puzzle. However,
as the Legislative Analyst noted, ?he January budget plan only worked given timely
action by the Legislature. While the Legislature took significant action on portions of
the plan, other portions were not acted upon. The options are now more limited.
The January plan required comprehensive early action. The May Revision
recognizes the best options still available for an cin -time budget solution.
In an effort to respond to the views of the Legislature and to recognize the need for
a iirnely Budget (while not losing sight of the need to confront the structural deficit),
the May Revision includes si!4n ficant changes in the approach to closing the budget
shortfall as well as suggestions made by members of all four legislative caucuses.
There are throe reasons for this decision.
First, the complete January realignment proposal requires more study. Discussions
regarding some portions of the realignment proposal have reached a degree of
consensus. Those portions are retained in the May Revision. Legislators local
governments, and service providers have expressed a need to have more time to
fully consider other options. These portions are reserved for implementation in the
following budget year.
Second, many legislators and business and community leaders have indicated both
publicly and informally preference for closing the structural deficit over more than
one budget year.
i hird, spreading the deficit across multipie budget years is the best remaining
option to avoid unacceptable levels of cuts or tax increases.
The Department of Finance. its bond counsel, and the Attorney General have
analyzed many proposals to determine the legal and financiai practicality of the
s
r
GOVERNOR'S UDG T MAY REVISION 1 2-003-0
* OVERVIEW
deficit financing options that have been discussed by members of the Legislature
and others.
The May Revision accepts the proposal to finance the current year deficit on three
conditions, ail of which are critical to the credibility of the Bu get. First, any deficit -
financing pian must be paid forwith an independent new revenue source. Second,
the Legislature must pass the Budget on time. Third, the Legislature must continue
its work on the structural deficit through the balance ofthe legislative session.
The May Revision proposal will balance the 2003-04 Budget, finance the
current year deficit in a prudent and credible way, and close a substantial
portion of the structural deficit. But it will require that the Legislature continue
work on structural issues after the budget is passed.
in january, the Governor called upon the Legislature to produce a structural reform
package as part of its budget solution. The May Revision balances the budget year,
but defers a significznt portion cf the structural problem to the following budget year.
The Legislature must commit the balance of the legislative session to reaching agree-
ment ori realignment, structural reform, and other proposals to address structural
probiem5. This may include the possibility of placing proposals before the voters.
The Oover nor has directed his Cabinet and all areas cf State government to
cooperate in this effort including a directive to identify ways to more efficiently meet
California's needs.
Forthright and timely action can protect the promise of the future.
A
GOVERNOR'S BUDGET MAY REVISION 1 2003-04 OIL
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* BRIDGING THE GAP
Recognizing I he effectef the delay in the national and California economic
recoveries, on the State's revenue, the Administration and the Legislature, ff=the
second consecutive year, took early and decisive actions.
On November 26, 2002, the Qovernor issued Executive Order D-64-02,
directing departments i 0 freeze spending where possible and to begin
implementing current year reductions in non-essential functions.
On December 6, 2002, the Administration advanced mid -year reduction
proposals totaling $102 billion. The Governor called the Legislature into a
speciai iegislative session in December to address the Budget shortfall.
In March and April of 2003, the Legislature approved reductions of $6.9 billion
($3,3 Milion in March and $3.6 billion in April).
When the 2003-04 Govemor's Budget was presented to the Legislature on January
io, 2003, the projected General Fund budget gap was $34.6 billion. While the
Legislative Analyst's projezbon of the budget gap was $26 bi lion, the major
difference was largely attributable to m.ethodologicai differences, Most of those
differences are now subsumed in the May Revision adjustments.
Since the- rele4se of the Governor's Budget, the State economy and General Fund
revenues have generally followed the January forecast. However, expenditures
I
,primarfly caseloads and Proposition 98) and the cancellation of the sale of the
second installment of the tobacco securitization bond ($2.0 billion) have increased
the budget gap from $34.6bilfion to $38.2 billion.
REVISED GENERA_ FUND BUDGET GAP
din billions)
Budget Gap at Governor's Budget -$34.6
Caseload and Estimate Increases
-1.5
increas ed Proposition 98 Expenditures
-0.7
Cancel Tobacco Securitization Bond Sale
-2.0
TabacGo Settlement Fund Sackfill of GF
0.2
Estimated Net Revenue Decrease 2002-03
-0.4
Estimated Net Revenue Increase 2003-04
0.7
PasVprior Year Adjustment Gain
0.1
'rotaf Changes in Budget Gap _$3,6
Revised Budget Gap at May Revision $38,2
GoVERNOWS BUDGET MAY REVISION 2003®0
0
M
BRIDGING THE GAP '*
STRATEGIt$ To ADDRE$$ THK ADDITIONAL PRC55URE
The May Revision to the Governor's Budget proposes the following strategy to
address the additional pressure:
(Dollars in billions)
Reserve as of Governor's Budget $0.5
Additional Pressure from May Adjustments
lbtat Changes in Budget Gap 416
CurrentYear Solutions rejected by the -22
Lewslature
Erosion of Solutions (no early adoption) -07
Total Additional Pressure $6.5
Strategies:
Reduced Realignment Package
-$6.4
Reduced IndianGaming Revenues
-0.8
Restorations/Changes
- 1.2
Pension Obligation Band, net changes
0.4
VLF Offset5uspension,
12
Medi -Cal Accounting shift to Cash Basis
0.9
Deficit Financing Bond
10.7
Other Reductions
1.7
Total Strategies $6,5
Reserve as of May Revision $0.5
AoDRESSING THE OVERALL $38.2 BILLION GAP
The proposed changes in solutions are summarized in the foliowing table:
Realignments 8,154.0 1,732-4 4.5%
Fund Shifts 1,902,7 2,076.3 5.5%
Transfers 2,114.3 1,912,6 5-0%
Loans/Borrowing 1,663.3 2,901.5 7.6%
Deficit Financing 10,700.0 28.0%
Totals $34,5823 $38,198.2 100%
Note: Numbers may not add due to rounding.
GOVERNOR'UDGET MAY REVISION 12.003-04
* THE ECONOMY
THE EcONOMY
Te national economy made little progress on the road to recovery in the
first quarter of 2003. Economic output grew only slightly for the second quarter in a
row. a s bad weather, the war with Iraq, fear of terrorist attacks, and concerns about
severe acute respiratory syndrome (SA S) weighed on the economy. Consumers
remained cautious, and businesses cut back on capital spending. Manufacturing
slowed further. The war and SARS especially hurl air travel and tourism, On the
positive side, reside tidal construction increased, and housing markets remained
strong. Net exports became less negative, and corporate profits continued to
improve. In total, though, there was not enough demand in the economy to keep
iabor markets from deteriorating,
California fared much the same. War, fears of terrorism, and SARS hurt the
state's tourism industry, which has not yet fully recovered from the September 11'
terrorist attacks. Employment continued to decline in manufacturing, and high-
tech companies announced new layoff plans. Layoffs were also expected in school
districts, local government, and health care. However, overall employment rose in
the state in the first three months of 2003 while it U1 in the nation, but the gain was
small and did not keep up with the state's growing labor force. The annual revision
of the stale employment statistics showed that the recession was even worse than
previousy thought in the San Francisco Bay/Santa Clam Area. On the positive side,
personal income tax wihholdmg and sales taxes were up from a year ago in the first
four months of 2003. Residential building strengthened considerably in the last few
months of 2002 and in the first quarter of 2003. Housing markets remained active
and price appreciation was substantial in certain price levels. Despite a pickup in
consumer confidence in April, most of the evidence suggests that the California and
national economies will grow only modestly during the rest of 2003. Better things
are in sure for 2004,
The Nation
The U -S, economy experienced its first full year of growth in 2002 afterthe mild
recession of 2001. However, the mild recession led to a weak recovery with growth
only half the rate of the average for post -World War 11 recoveries. Possibly as a result
of war jitters, the economy slowed at the end of 2002, and the first quarter of 2003
was little better as inflation-adjusted Gross Domestic Product (GDP) increased by
only 15 percent.
Pemonai consumption expenditures increased by only 1.4percent. in the first quarter.
marking a slowdown from the already weak fourth quarter growth rate of 1.7 percent.
GOVERNOR'S BUDGET MAY REVISION 1 2003-04
9
M
THE ECONOMY *
ConsurnQm became more cautious as the threat cf war with Iraq neared. The slaw -
down in consumption growth mirrored a decline in consumer sentiment, which
reached a ten-year low in March before bouncing back strongly in April.
Business investment was disappointing in the first quarter. After growing for four
consecutive quarters, it reversed cour:5e and declined. Investment in producers'
durable equipment and software wa5 very weak --declining by 4.4 percent. The
decline was concentrated in transportation equipment, particularly motor vehicles
and civilian aircraft. Investment in information equipment, on the other hand,
soared. Spending on commercial structures dropped again, but the pace of decline
was the slowest in six quarters. Housing construction, however, continued to
increase. And business inventories expanded but at a slowerpace.
Qovernment spending grew modestly in the first quarter, posting its smallest gain
since the third quarter of 2001. Although the public has focused on national secu-
rity spending following the September 11' terrorist attacks, growth in govemment
spending has actually been quite broad-based since then. This pattern was broken
in the first quarter. While federal nondefense spending grew by 10.5 percent, defense
spending declined by 1.5percent, and State and local spending fellby 0.1 percent.
The decline in State and local spending was expected with mast State governments
facing large budget shortfalls.
Net exports (exports minus imports) increased in the first quarter, as imports
fell more quickly Lhan exports. The depreciation in the dollar might have finally
improved the trade balance. However, the work slowdown and eventual lockout at
West Coast ports last Fa could have distorted the results of the last three quarters
Monthiy statistics since the beginning of 2003 reflect the weak growth experienced
in the first quarter and point to more weakness in the second. The Institute for
Supply Manaqernent's survey of national manufacturing showed that manufacturing
contracted in March after expanding the three previous months. Additionally, the
Federal .pserve Bank's industrial production index fell in March—the sixth decline in
the last. eight months. The service sector also slowed in March with the ISO's non-
manufacturing index falling for the first time since January 2002. Also, the University
of Michigan's Consumer Sentiment index declined throughout the first quarter
before bouncing back in April Failing gasoiine and natura gas prices and the suc-
cessful conclusion cf hostilities in iraq likely account for much of the rehound.
Consumers have become increasingly concerned about job prospects, however.
Ernpioyers remain cautious about taking on more workers. And even though layoff
announcements have trended downward in the last six months, suggesting that
some improvement in job prospects may he ahead, initial claims forunemployment
insurancc� benefits have trended upward, indicating that a growing number of
workers are losing their jobs. Consistent with this, the monthly establishment survey
GOVERNOR'S BUDGET MAY REVISION 1 2003-04
* THE EcONOMY
shows that nonfarm payroll employment slid by 3-2,00jbbs from December 2002
to April 2003, The national uoemployment rate, which has shown little trend in
the IwA year and a half, would seem to paint a different picture. But, declining
!a boi force participation in the last three years, caused in part by an increase
in the number of discouraged workers, has held down the unemployment rate.
(Discouraged workers are persons who would like to work and are available for work
but are neither working nor looking for work because of ab market -related reasons.)
The economy should pick up in the second half of 2003. Faster economic growth
will, at last, translate into job gains since firms will have exhausted opportunities to
increase productivity at the phenomenal rates experienced during 2002. Some of
the fuel for faster growth will come From reduced uncertainty an the outlook forthe
,Wddle East, significant improvements in corporate profitability, and from additional
tax cuts that will kick in by the fourth quarter of 2003. Moreover, the economy will
continue to be buoyed by low interest rates. Construction, however, will not be
adding to economic growth until 2005. International trade will not contribute much
in 2004 either, but federal spending will be a key contributor.
A wildcard in the outlook is SARS. Asia was the star performer in the world eeonomy
in 2002. Recent reports suggest that the impact of SARS on the economies of main-
land China, Hong Kong, and Singapore, especially their tourism industries, could
be substantial. If SARS continues to sap the strength of Asia's economies, its trad-
ing partners, including the U.S., could experience a significant slowdown in exports.
AdditionaPy, the bottom lire of major California high tech companies with significant
Lies to, or investments in, Asia could also be sorely impacted.
Al le California econorny has tracked the national economy quite closely in the last
year. Both ffonomies have been sluggish, From March 2002 to March 2003, non -
Farm pe can employment grew by 0.2 percent in the state while falling 0.2 percent
in the nation—essentially unchanged. Over that year, state unemployment varied
narrowly, never exceeding 6.9 percent nor falling below 6.6 percent. The national
unemployment rate also war steady but averaged about 0.9 percentage points below
the slate rate. in addition, homebuilding was strong in both the state and the nation,
as were housing markets.
The annual revision to the state's employment statistics revealed that the California
recession was even more of a high-tech, Bay Area recession than previously thought.
While nonfarm payroll employment 0 by 290.000 jobs, or 2.0 percent, in the
state between March 2001 and January 2002, it fell by about 305,000jobs, or
140 Percent, in the Sari Jose metropolitan area and 75,000j obs, or 7 percent, in the
San Francisco metropolitan area. Thus, the total job 1css in the two metropolitan
areas was greater than 60 percent of the net job loss in the entire state. Making
GOVERNOR'S BUDGET MAY REVISfON 1,2003-04
Im
0
THE ECONOMY
matters worse. these two areas got a month or two head start in losing jobs,
and they continued to lose jobs a year after employment hit bottom in the state
as a whole. in fact, as recently as April 2003, it was not clear whether the two
metropolitan areas had stopped losing jobs, although the rate cf loss had slowed
considerably. The San Jose metropolitan area lost an astounding 16.5 percent of
its jobs from March 2001 to March 2003, and the Sari Francisco metropolitan area.
1:1.1 percent (Figure ECON–I). These percentage losses exceed what Los Angeles
County lost in the long and deep early -1990s California recession. Moreover, most of
the jobs lost in the Sari Jose and San Francisco metropolitan areas were in high -
paying industries, making the resulting losses in Natal wages and salaries and tax
revenues in the state larger than would have otherwise been the case. The San Jose
metropoiitan area accounted for a hugely disproportionate $3.1 billion of the
$9.5 billion decline in personal income tax assessments in the state in 2001.
The state's travel and tourism industry was recently set back by the war in Iraq
and the SARS epidemic. The already -struggling air travel industry was particularly
hit hard as travelers worried about being infected by SARS or being a victim of
a terrorist attack on an airplane. San Francisco's tourism industry, with its heavy
reliance on Asian visitors, was especially affected. Small businesses in California's
Asian Qommunities may also have suffered. With military operations winding down
in Iraq and signs that the SARS epidemic is ebbing in most of the world, with the
major exceptions of mainland China and Taiwan, California's travel and tourism
industry might get some relief in the coming months.
Low mortgage rates and doubts about the stock market kept residential real estate
markets strong in the first quarter cf 2003. The median price of existing homes sold
in the state hit a new record high of $352,780 in March, up more than 15 percent
from a year earlier. Sales were off a bit—down 3.2 percent in March and 3.5 percent
forthe entire first quarter—but still at high levels. Some of the real estate markets
with very high prices—Santa Barbara, Santa Clara, and Santa Cruz Counties and
the San Francisco metropoiitan area—saw sharp drops in sales in March from year-
earlier levels.
The Forecast --With the war in Iraq having gone as well as could be hoped, the
recent capture of another high-level Al seeds leader, and signs that the SARS
epidemic might be running its course, consumers and businesses should be feeling
better about the outlook forthe economy. At the very least, uncertainty about the
near-term future has been reduced considerahiy, and that appears to account for
much of the improvement in consumer confidence measures in April. What remains
to be seen is how long that feeiing of relief will last.
The nation's loss of 48,000 jobs in April brought the total job loss since March 2001
to 2,112,000.Over that time, unemployment ruse from 4.2 percent to 6.0 percent.
To be sure, few of those jobs—only 332,000 ---were lost in the last 12 months;
GOVERNOR'S BUDGET MAY REVISION 2003 -04
THE ECONOMY
labor markets appear to have bottomed out. But consumem react to how longjob
markets have been down as well as the depth to which they have gone. So, while it
is positive For the outlook that labor markets will likely not deteriorate much fearther,
it doesn't do much Fcr consumer confidence. Weak labor markets were the top
co cern of Americans before the buildup to the war in Iraq and will soon be again.
Judging from business confidence surveys, business leaders are even more skeptical
than consumers about predictions oF an improving economy. Here again, he wever,
progress has been made. Many major businesses have aggressively cut costs (Le.
layoffs) it the last year or two and are now showing profits. When demand picks up
In the economy, profits should grow quickly, and that should lead to more capital
spending,
Thus, the national economy is better positioned to get back on track than it was
last year at this time. In addition, -the anticipated federal tax cut will give it a boost
in the second half of the year. But it may well be close to the end of the year before
progress is clearly evident. There are still quite a fear industries with too much
capacity, which would dampen the prospects for a strong recovery. Moreover, if
productivity continues to grow a5 quickly as in the iast year, improvement in the
labor markets will likely come first in the form. of fewer layoff 4nnouncernents and
longer workweeks for employed workers. Actual employment gains will trail behind.
and declines in the unemployment rate will come even later. Redactions in layoffs
and longer workweeks are less visible forum cf improvement and not as desirabie as
outright hiring, especially to unemployed workers.
California will continue to track the national economy. By the fourth quarter of 2003,
jobs will be growing at an annualized rate cf about 1.6 percent on a quarter -to -quarter
basis. Because job gains will be meager in the first half cf 2003, employment will be up
only 0,6 percent for 2003 as a whole, an an annual -average basis (figure CC 13).
Employment growth will increase to 21 percent in 2004, on an annual -average basis.
Growth in total state personal income will irnprove from 3.1 percent in 2003 to
,9 percent in 2004. clearly patting the economy back on track.
GovERNOR'S BUDGET MAY REVISION 2003-04
W
I4
FiGuRE ECON-1
Riwtmida
Fresno
Stockton
Vallejo
Modeato
Sacramento
askomfield
Son nieg§v
Salinas
Saaw Barbara
DTange
varglura
Oaklond
Los Angeles
Santa Rosa
San Fm.nco
&n#_
CALIFORNIA
THE EcoNomy *
jww,-�v I Inj IWVAll
4% 4% 0% 4 6%
Percent Change
* � w _
GOVERNOR'S BUDGET MAY REvisioN P-003-04
THE ECONOMY
FIGURE ECON-Z
Selected U.S. Economic ita ieato
Forecast based on data available as of Rtarif 2003.
Percent changes calculated from utirounded data.
iGu ON-
Personal an mep ($ billions)
NonfarM W&-5 eraployment (thousands)
Mining
Construction
ManuNcttaring
High tinea@ogy
Transportation/utilities
'thtse & ratail trade
FinanW group
.Services
Government
�, r
Forecast
Forecast
2002
2003
2004
Rawl gross dorrsistac product, (1996 dniler) (Percent change)
2.4
24
3.5
POfSonai coneuMption expendi
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* REVENUE ESTIMATES 17
General Fund revenues are expected to be below the QovernoCs January
Budget by $2A billion in 2002-03 and above the Governor's Budget by $1.8 billion
in 2003-0 . Over the two years, the reduction is approximately $0,6 billion. The
main ain difference between the two years is that the second tobacco securitization
bond sale in 20132.03 has been cancelled, while transfers to the General Fund
in 2003-04 have increased due to the sale of Pension Obligation Bonds.
For the major taxes only, the May Revision forecast is little changed from the
Governor's Budget in total—down $303 million in 2002-03 and up $982 million
in 2003-04, Fcr a two-year change of $679 million. The most significant change
was in the personal incorne tax. Weaker final payments in April suggest that -capital
gains income was somewhat lower than expected. However, market -related income
such as capitai gains and stock options appear to have bottomed -out, and the May
Revision estimate assumes modest growth in hese components in 2003-04. This
can be seen in Figure REV- 1. Lower expectations for income tax revenues were
;argeiy offset by positive expectations for corporate receipts. Based on recent cash
experience and the outlook for improved corporate profits, corporate tax revenues
appear to be recovering and good growth is expected through the forecast period,
FfGURE REV -1
30
23
2U
15
10
95-56 96-97 97-95 98-99 99-00 0"1 01-02 02-03 D3-()4
Fiscal Year Ea*mte
*W 1Ul AS MId MX MW Of 9 PF A Y la ) Tia tha Mn — rMM OW01 Qs Wd %Wk PPOQM,
GoVERNOR'S BUDGET MAY REVISION 1 2003-04
nu
REVENUE TIMATE
Anticipated revenues from Indian gaming in the budget year have been reduced
from the goal. of 1 .5 billion to $630 million. The Stags negotiators are taking the
time necessary to consider the complex and competing factors involved, including
the essential environmental and other concerns cf the local communities, the
state's interests, and the tribes' interests. The time must be taken to be sure this is
done right and with respect for the sovereignty of the tribes. in addition, any new
compacts must be approved by the Legislature and the Secretary of the Interior.
Thus, this revision anticipates that the process will not, in this budget year, reach the
goal contained in the January Budgets
The forecast also includes the effect of the May Revision proposals to address the
budget problems that the State is experiencing_ These proposals include the fallowing:
+ ontinuation of the suspension of the teacher retention tax credit, which is
expected to increase General Fund revenues by $175 million.
Maintaining the base level of transfers to the Public Transportation Account
(PTA), but specify that any excess sales tax revenues on gasoline, which would
otherwise be designated as PTA spillover, be credited to the General Fund. The
May Revision proposes a partial Proposition 42 suspension and that the General
Fund repay the transportation Investment Fund (TIF) by June 30, 2009, for
any hinds not tz'ansferm in 2003-04 due to the suspension (see Transportation
section). The $87 million increase in General Fund sales tax revenue in 2003-04
due to the PTA spillover revenue is not included in the General Fund repayment,
because it would not otherwise be considered TIF revenue.
One-year suspension of the Natural Heritage Preservation Tan Credit and
participation of the Employment Development Department in the Treasury
Offset Program. These proposals are expected to increase revenues by
$15 million in 2003.04.
To provide mare time for legislative consideration, the majority of the Admini-
stration's January realignment proposal is being deferred to the remainder of this
legislative session for:mplementation in 2004-05. For 2003-04, the realignment
proposal is reduced frons. $8.3 billion to $1.8 billion. which is proposed to be
funded by the following tax proposals: adding a 10.3 percent personal income
tax bracket at $150,000 for single filets and $300,000 forjoint filers ($1.56 billion
in 2003a-04), increasing the tobacco excise tax by $0.23 per pack of cigarettes
($267 million in 2003-04), and increasing the tobacco excise tax by an addition-
al $0.40 per pack in 2004-05 ($678 million total tobacco excise tax in 2004-05).
GOVERNOR'S BUDGET MAY REVISION 2003-04
REVENUE E5TIMATES
Deficit financing lxan, The May Revision proposes a temporary one-half cent
sales tax increase to provide an efficient, equity le, and economical means of
funding the accumulated budget deficit, thereby providing fiscal relief to the
stale. This sales tax rate will automatically cease as soon as the bond is repaid.
The sales tax increase is expected to become effective on October I, 2003,
and to raise approximately $1.7 billion in 2003-04, and $2.3 billion each year
thereafter, until the bands are fully repaid.
Major Tax Proposals for
2003-04 2004-0
Legislative lative ction
($ in millions)
Temporary Sales Tax: Additional 0.50 cent
$1,742 $2,436
for deficit financing bond.
Personal Income Taxa New 103 percent rate
1,560 1,250
for realignment to local government.
Tobacco Excise Tax: $0.23 increase per
267 678
pack for realignment to local government
in 2003-04, x,40 increase in 2004-05,
Total
$3,569 $4,364
Personal
The personal income tax forecast has been reduc d by $780 million in 2002-03
and by $154 million in 2003-04, The budget year estimate includes the effect of the
dministratiods proposals identified above.
Cash receipts associated with the 2002 tax year were lower than expected and
this accounts forthe downward revision in 2002<03. This weakness is assumed
to be primarily due to s sharper decline in capital gains than previously esti-
mated. The lower level of capitai gains in 2002 carries forward to 2003, which
suppresses 2003-04 revenues. Based on cash receipts through April, capital gains
for the 2002 tax year are estimated to have decreased by 30 percent., to about
$35 billion, and are projected to recover with a 10 percent increase in 2503.
Partially offsetting the negative effect of lower capitai gains is the growth in withhold-
ing receipts that has been experienced in 2003. The average monthly growth rate
from January thraugh April was 4.6 percent. Since withholding is based on current
wages, it is a good indicator of current activity and this forecast assumes that the
recent strength is real and ongoing.
GOVERNOR'S 6„, DG T MAY REVISION 1 2003--0
E
IN
REVENUE ESTIMATES
Sales and Use Tax
The sales and use tax forecast has been increased by $96 million in the current year
and $297 million in the budget year.
Through April, sales tax receipts are $65 million above the 2003-04 0overnor's
Budget forecast, which refer healthy vehicle sales and home sales. This slightly
stronger growth is expected to continue as the economy begins to improve, For
calendar year 2003, taxable sales are expected to grow by 3.1 percent, while
5.3 percent growth is expected for calendar year 2084.
The sales and use tax forecast includes $87 million in 2003-04. due to specifying
that any excess sales tax revenues on gasoline are credited to the General Fund,
rather than transferred to the Public Transportation Account (PTA). This proposal
maintains the base level of transfers to the PTF,.
As noted above, the Nay Revision proposes a temporary ane -half cent sales tax
increase to repay the deficit financing bond, which will only be effective€ ntil
the bond is repaid. The sales tax increase is expected to become effective on
October I, 2003, and to raise approximately $1.7 billion in 2003-04.
Corporation
The corporcition tax forecast has increased by $212 million in 2002-03 and
$713 million in 2003-04. This improvement is attributable to recent cash experience
and a more positive outlook for corporate profits. Through April. net cash receipts
from the corporation tax are above the January Governor's Budget estimate by
approximately $200 million. The forecast anticipates continued improvement in
corporate profits after three years of flat or negative growth.
GOVERNOR'S BUDGET MAY REVISION 2-003-0
* REVENuE ESTIMATES
FIGURE REV -2
91imm WMI&SUM
(Dollars In millions)
Source
Governor's
Budget
May
Revision
Change
Forecasts
-2.4%
EL c9 41p�
22,349
22,445
-Between
GA%
Personalincome Tax
$33,047
$33,047
$0
0.0%
sales & Use 'Tax
21,355
21,355
0
0,0%
Corporation Tax
5,333
5,333
0
0,0%
Insurance Tax
1,596
1,596
0
0,0%
Other R6vehues
3,254
3,278
24
0.7%
Tranafers
7 6_54
7§54
Q
-01,
L-A
Total
$72,239
$72,263
$24
0.00/0
IMMEM
Personal Income Tax
$32,880
$32,100
-$780
-2.4%
Sales & Use Tax
22,349
22,445
96
GA%
Corporation Tax
6,452
6,664
212
3.3%
Insurance Tax
1,742
1,863
121
6.9%
Other Revenues
6,723
4,727
-1,996
-29.76/6
Transfers
Lm
Z&'2
::J6
_110
To
$73,144
$70,161
-$2,393
-3.3%
Change from Fiscal €1-02
$905
-$1,512
% Change from rise 01-02
1,3%
-2.1%
Zrisqql 0 -04
Personal income Tax
$33,610
$33,456
4154
--0.5%
Sales & Use Tax
23,210
23,507
Z97
1-3%
corporation Tax
6,361
7,074
r1r13
112%
Insurance Tax
1,830
1,918
88
4.8%
Other Revenues
3,789
3,250
-539
-14.2%
Transfers
�5
1za
13-76
289. AO
Total
$69,153
$70,934
$1,781
2,6%
Change torn Fiscal 02-03
-$3,991
$183
% Change from Fiscal 02-03
-5,5%
-03%
GOVERNOR'S BUDGET MAY REVISION 12003-04
R
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* EXPENDITURES
EDUCATION
Preserving Education
Recognizing that the education of the state's students is the most important
underpinning of the economy and the long run hope for increased prosperity,
the May. Revision maintains education as the Adrdnistration's highest priority
by providing full funding of the Proposition 98 guarantee; Banding growth for
apportionments at 1..34 percent in 2003-04; increasing funding for the California
Community Colleges by $305 million and making limited reductions in higher
education programs. K-12 Proposition 98 per pupil spending is increased by $231
over the 2002-03 fiscal year as estimated in the May Revision and hits a new high of
$6,869 in 2003=04. The May Revision provides $708 million more for Proposition 98,
above the $803 million needed to fund child care witNn the guarantee.
Responding to Priorities
..he Administration has listened to the voices of the education community and the
and has engaged in a dialogue about priorities and ways to manage
with a level of education funding lower than that which all parties, including the
Administration, wish were possible, In the current fiscal situation, funding at the
Proposition 98 guarantee is a significant accomplishment, requiring sacrifices
throughout the rest of the budget.
The January Governor's Budget reflected an approach to reductions that spread the
impact. over as many programs as possible to minimize the impact on each, while
preserving as much funding as possible far classroom instruction- The May Revision
continues the priority of preserving flexible funding for classroom instruction by
lowering the cut to revenue limitfunding From $612 million to $350 million, now
only a 1.2 percent reduction compared to 2.15 percent proposed in January. To
help pay for this, the May Revision reduces or eliminates lower priority categorical
programs, with the hope that some of the more effective programs can gradually be
restored as Future funding permits.
The Administrabon understands that the block grant for categorical aid proposed
in January while providing significant flexibility for locai priority setting, was not
considered the best approach for providing the remaining funding. The May Revision
does not propose a specific altemative."I-he Administration is ready to work with all
parties to craft a mechanism for school funding that helps schools to adapt to the
funding changes in the 2003-04 Budget. The Administration is open to block grant
type funding or other mechanisms to provide increased local choice while protecting
the neediest students and preserving the State's accountability programs and high
student achievement goals. The Administration proposes that districts be allowed to
use r (-,serves more flexibly, while encouraging fiscal responsibility,
GoVERNOR's BuDGET MAY REVIS�ON 1 2-003-04
MW
W
EXPENDITURES
Priority Programs Fully Funded
* Class Size Reduction
Special Education
Accountability
* Child Nutrition
* School Safety
Class Size Reduction Finding is Bally restored with a $180 million increase. Special
Education is fully funded with an increase of $28 million in Proposition 98 General
Fund, and an increase of $69 million in federal funding is proposed to fund mental
health services. Programs to assist underperforming schools as part of the school
accountability system are fully funded to meet the needs cf current participants, w1
an increase of over $60 million from the Governor's Budget level. Nutrition p Nrams
are Fully funded. school safetyprograms are funded at the 2002-03 level.
Proposition 98 Guarantee
2002-03 -$60.3 million
2003-04 $1,502.9 million
Combining the years 2002-03 and 2003-04, Proposition 98 funding is $1.5 billion
higher than the raid -;year revision level established by Chapters 4 and 10, Statutes of
2003, First Extraordinary Session (SB 18X and SB 28X), a 1.8 percent change from
the Governor's Budget level.
In the Oovernor's Budget. the minimum funding level for the budget year was
established by Test 3, which adjusts the prior guarantee level for growth in atten-
dance and the change in per capita General Fund revenues. A 0.34 percent increase
in average daily attendance (ADA), an increase in General Fund revenues, and
increases in the prior year base forthe Proposition 98 calculation, results in an
increase of $1.511 billion to the guarantee.
The May Revision proposes to fully fund the guarantee under Test 2. The General
Fund share of the guarantee increases by $1.503 billion. An $879 million adjustment
is made to the guarantee to reflect the restoration of the child care program to
Proposition 98. The local revenue share of the guarantee increases $7.9 million after
adjusting for a revision to the excess tax proposal.
:
GOVERNOR'SBUDGET MAY REviSION 2003-04
* EXPENDITURES
Fading the Guarantee FtGURE EOU-1
In order to fund the General Fund
share of the guarantee, $1.82 billion
in undisbursed 2002-03 General
Fund appropriations have been
deferred until 2003-04 through
current year special legislation,
Chapters 4 and 10, Statutes of
2003, First Extraordinary Session
6B 18X and S5 28X). These
appropriations will be counted
toward the 2003-04 guarantee_
TheAdministration proposes to
defer $1.16 billion in appropriations
to 2004-05 but does not propose
making this practice permanent.
The reductions in Proposition 98
appropria-bons from the 2002
Budget Act level totaling
$2.53 billion still leave the total
appropriations at $122.3 million
above the Test 2 guarantee level
in the current year.
Funding per pupil under
Proposition. 98 continues to
increase, Appropriations for
2002-03 will provide a funding
level of $6,638per pupil.
Per pupil funding of $6,869 in
2003-04 represents an increase
of 15 percent over the current
year. Funding per pupil grows
mare than $200for2003-04
frorn the Governor's Budge;.
M
proposman 98
Jannuary vs. May Revision
(Dollars In thousands)
FIGURE EDU -2
$6,100
Ulm
19916" 2000-01 251-02 2W2,43 2003."
GoVERNOR's BUDGET MAY REVISION 1 2003-04
Mid -Year
Mqy
200203
Revision
Rovislon
ch—"A
CK-nerat Fund
$29,397,125
$29,336,=
-M,302
wcW Revenue
14,513,8W
14,612,403
Total Guarantee
W1910,960
—f,4 �949�226�
$3uw
January
may
20113-04
PM -4
Won
dean �
Garterai fund
$28,225,4a5
$29,728,383
1,502,898
LocW
16,876,626
7,867
Total Gkiorantee
---$-4 ��603,9M
—V,510jffi
Total Two -,Year Funding
$89,553,135
$1,50,031
FIGURE EDU -2
$6,100
Ulm
19916" 2000-01 251-02 2W2,43 2003."
GoVERNOR's BUDGET MAY REVISION 1 2003-04
0
EXPENDITURES *
K-12 Education
2002-03 -$29.8 million
2003-04 $1,672.2 million
The Ylry Revision increases funds for K-12 education by $1,642.4 million over two
years in General Fund resources compared to totals enacted in mid year legislation,
Proposition 98 General Fund increased by $1,174,6 million, contributions to the
State Teachers Retirement System (STPS)increased $450.9 million because the
proposal to defer or bond 2003-04 payments has been rescinded, and bond debt
service increased $70.4 million. Total General Fund allocations of $29.1 billion for
K-12 education now represent 42.2 percent of the General Fund budget.
Total K-12 Funding
Funds available to K-12 education from all sources are increasing from $54.5 billion
in 2002.-03 to $55.5 billion in 2003-04, a 1.8 percent increase. General Fund
declined $5363 million, while local property taxes grew by $1.1 billion and federal
funds grew by $450.2 million. Major General Fund changes include:
* A reduction of $465.7 inillion for STRS payments
* An increase of $803.9 inillion to Proposition 98 General Fund
* A decrease cf $93.4 million Fcr Scholarshare funding
* A decline of $779.5 million in the use of Proposition 98 Reversion Account
General Fund
Attendance Changes
Cu"ent Year
The May Revision includes estimated K-12 ADA growth of 1.75 percent, up from
1.48 percent in the Governor's Budget. General Fund costs for school district
and county office of education revenue limits decrease by $29.9 million, resulting
primarily from significant increases in local property taxes that are partially offset by
increased estimates of ADA, and other miscellaneous adiustmenM
Budget Year
in the budget year, the revised ADA growth is up slightly, from 1.00percent to
1.34 percent (about 36,000 ADA higher than the January estimate). The total
number of ADA is estimated to be 5,911,519 in 2002-03 and 5,990,495in 2003-04.
GovERNOR's BUDGET MAY REvisION 12-003-04
* EXPENDITURE5
Growth Adjustments
The May Revision provides over $272 million in new funds to provide an increase in
the estimated Proposition 98 ADA growth rate from 1.00 percent to 1.34 percent
in budget year. Major adjtistments. include increases of $183.4 million for K-12
school district apportionments, $12.8 million for special education, and a decrease
of $0.5 million for county office of education apportionments. Other major
ddlustments include significant costs to pay forreductions in Public Employees'
Retirement System (PERS) offset funding of $51.7 million and an increase in
unemployment insurance costs of $25.2 million. The PERS and unemployment
insurance adjustments reflect estimated rate increases to 10.42 percent. and
0.30 percent, respectively, of projected salaries.
Revenue Lowts
Revenue limit funding constitutes the basic funding source for classroom
instruction, The May Revision provides a net increase of nearly $262.4 million to
revenue limits, after restoring current year across-the-board reductions totaling
$612.4 million and then reducing revenue limits by approximately 1.2 percent, or
$350.0 million,
Basic Aid District Excess Taxes
The May Revision modifies the Governor's Budget proposal to offset the General
Fund with $126.2 million in basic aid excess taxes by reducing he offset to
$20 million. Further, the proposal is modified to offset only Slate categorical
funding that would otherwise be provided to cxcess tax districts. The revised
proposal would limit the impact on basic aid districts—together with the previously
proposed elimination of the $120 per pupil basic aid payment—to a reduction of
approximately 4.5 percent, consistent with the overall level of reduction to non -
basic -aid districts.
Clam Size Reduction
T -he May Revision proposes to increase funding for the K-3 Class Size Reducton
Program by $179-7 million to rescind the across-the-board reductions proposed
for the program. This increase sully restores the program's base funding level for
2003-04,
Accountability
The May Revision provides an additional $65.3 million for accountability programs
co fund schools participating in Immediate Intervention/Underperforming Schools
Program (IVUSP) ($44.4 million) and the High Priority Schools Grant Program
M
GoVERNOR'S BUDGET MAY REVISION 1 2-003-04 Y.
RE
EXPENDITURES .
(HPSGP) ($20.9 million) at $21 0 per pupil and $400 per pupil, respectively, less a
0 percent deferral. The augmentation to HPSGp allows an additional 86 schools
to participate in HPS(1P so that these schools in the first decile of the Academic
Performance index with an application forpanicipation that has been approved
by the Department of Education (SDE) would be funded at $400 per pupil, le!s a
20 percent deferral, beginning in 2002-03. The May Revision contains a balance
of $4 million forFiPSGP that will be available to expand the BPSGP subject to the
e€ actme€it of legislation for this purpose.
The increase in Funding is comprised of the restoration cf the across-the-board
cuts to these programs ($41.8 million) and payment of tha 20 percent deferral of
2002-03 funding contained in SB 18X ($81.6 million). These increases are offset
Ly continuing the 20 percent deferral established by SB 18X (—$66.0 million).
Additionally, the May Revision proposes to reduce Proposition 98 funding for these
programs by $23 million, which is offset by an increase cf $30.8 million From the
Proposition 98 Reversion Account for Il/(JSP, this last action also removes the last of
the H/USP shortfall in the 200;3-04 Governor's Budget.
Statewide Assessments
The May Revision continues the Administration's efforts to reduce testing time
and streamline the Stare's system of assessments. Funding Fcr the Golden State
Examinations (GSEs) are eliminated and the English Language arts and i` athe
matics GSEs are integrated into the Standardized Testing and Reporting (STAR)
Program to be used in a pilot program by the California State university for the
purposes ofpl cement and mmediation. This action provides not only a savings of
approximately $11.7 million from the 2002 Budget Act level, it also eliminates 11
examinations and links standards and assessments between the secondary level and
higher education that has not previously existed. Further, the MayRovision includes
an ur aDocated reduction of $13 rniilion in the Testing Programs. The Administration
nates the Legislature's concerns regarding testing volume and time and will work
with the Legislature to determine how the $13 million reduction will be allocated_
Special Education
The May revision provides a net General Fund increase of $27.8 million and also
includes an additioadl $35,6 million in federal funding over amounts proposed
in the Governor's Budget. These increases allow for full funding of growth and
maintain the year over year State aid funding commitment. In addition to growth
funding, $138,000 in additional federal funds is allocated to schools as a permanent
increase to the base funding level for the Special Education program. Further, the
May Revision provides $4.9 million in funding from the Proposition 90 Reversion
Account to fund prior year costs resulting from growth -related increases.
GOVERNOR'S t DUET MAY REVISION 2005--04
* EXPENDITURES
Individuals with Disabilities Education Act -Required Mental Health Services
The May Revision provides $69 million in federal funds to provide mental health
sei vices for children with exceptional needs, as required by the Federal Individuals
with Disabilities Education Act. These funds will offset reimbursable mandate
di ivities for services provided to children with exceptional needs as part cf the
pupil's individualized education plan (IEP). The Administration plans to work with
the Legislature and interested parties to develop trailer bill language and Budget Bill
language to en -sure these sei vices are provided.
Equalization
The May Revision proposes to eliminate $250 million previously proposed for
2003-04, including $203 million appropriated by Chapter 1167, Statutes of2002,
and $47 million in additional funding proposed in the. Governor's Budget,
PERS Offset Mitigation
The May Revision proposes $35 million to mitigate the PERS offset to revenue limits.
This represents a restoration of a proposed reduction in the 0overnor's Budget.
Fiscal Crisis and Management Assistanee Team Restoration
The May Revision proposes $912,000 to ensure that core school district budget
Management and fiscal services provided by the County Office Fiscal Crisis and
,Management Assistance Team (FCMAT) will be provided during these difficult
fiscal times.
Categorical Funding Adjusunents
In the GovernoCs Budget, $854 million in categorical program reductions were
proposed on an across the board basis. Of these. $835 million are proposed to be
restored in the May Revision, while $19 million are retained because they reflect
natural savings. To replace these reductions and increase funding for apportion-
ments, specific program reductions are proposed. These reductions reflect the
Administrabon's discussions with the education community and members of the
LegWature, The table below lists the most significant reductions.
GOVERNOR's BUDGET MAY REVISION 1 2003-04
M,
EN
Categorical Program
Reduction
(in millions)
Equalization
$250
Deferred Maintenance
129
Summer School
a5
Defer Mend. ates
125
Teaching as a Priority
89
Instructional Materials
76
Elementary Intensive Reading
31
Peer Assistante and Review
25
Miller-Uhruh Reading
29
School Improvement
42
Supplemental Grants
80
Defer Realignment Proposal.—Child care, originally a part of the $8.2 billion
realignment proposal, is proposed to be reinstated in the 2003-04 Budget. Realign-
ment remains a crucial component of structural reform. However, to provide mare
time forlegislative consideration, the majority ofthe Administration's January
realignment proposal is being deferred to the remainder of this legislative session
for implementation in 2004-05,
The Administration believes child care realignment continues to be a viable uW
to resolve a number of policy and fiscal concerns that have plagued the State's
subsidized programs. By giving aunties both responsibility to administer child
care services in conjunction with other social services forthe same families and a
financial stake in child care expenditures, it was expected that the proposal would
create more equitable access and improve coordination cf servicesfor the neediest
families, enhance accountability, decrease fraud, and facilitate integratio. n of local
priorities and funding sources. Moreover, the Administration had proposed a revenue
stream that would have provided a growing revenue source including over $1 billion
from new revenues. Unfortunately, the Stale's fiscal problem has not improved so
cost reductions are necessary as the program is restored to state operations.
The Administration continues to be concerned with growth in CalWORKs Stage 3
While the May Revision restores the child care programs in their current form,
the Administration will work with stakeholders, implementng agencies, and the
Legislature to address these problems.
Reforms, Cost Reductions, and One -Time Fund Shifts —in order to restore, child
care to State administration and meet competing priority needs in Proposition 98
education programs, the Administration has carefully reviewed restructuring options
included in the 2002-03 Governor's Budget comprehensive restructuring proposal.
Rased on that effort and combined with the availability of one-time Temporary
t,
_j GoVERNOR'S BUDGET MAY REVISION 12003-04
EXPENDITURES
Assistance for Needy Families (TANF), the Administration proposes a series of
reasonable reforms that are aimed at preserving emsting programs, preserving
access for current subsidized populations and striking a balance with other K-14
funding needs far 003-04.
Overall, the Administration proposes a total funding level of $1.867 billion for
the restored programs, However, this funding level continues reliance on one-
time funding solutions which will create additional problems in the future, absent
realignment. Specific solutions produce a total of $384 million in Proposition 9%
General Fund cast savings as follows:
e — 6 Mfflion Loft Reduction
® $4 million caseload savings by limiting child care services to children 12 years of
age and under, No ether state offers subsidies to 13year old children.
$12 million savings by eliminating child care servieesto "grandfathered" Families
who earn above the current income limits for subsidized care. No other state
offers subsidies for incomes at the level California currently provides.
$123 million savings by implementing Regional Market Rate ( R) regulations,
consistent with legislative intent expressed in the 2002 Budget Act that: (1) lowers
providers' rate limits if those providers do not participate in the market by serving
only non -subsidized families; (2) prohibits payment of an hourly rate for full-time
care; and (3)limits the evening/weekend premium rate to licensed providers.
S44 rnillion savings by reducing the RMR ceiling for licensed providers to the
80th percentile of the regional market. No other state offersreimbursement to
this level.
$33 million savings by implementing a modified family fee schedule. Families
would begin contributing a share of child care costs when family income reaches
40 percent of the current income level index used for determining eligibility. Fees
would increase on a sliding scale with Family income, but would be capped at
�0 percent oli the, family's income at the highest income level, consistent with
federal guidelines. Families still on cash aid would pay no fees.
$39 million caseload savings, including (a)$35 million reduction in Stage 3
caseload casts from the January estimate; and (b) $4 million State Preschool
participation savings.
GOVERNOR'S BUDGET MAY REVISION � 2003-04
RE
EXPENDITURES
$13 million reduction to non -direct care services including-, (a)teacher retention
bemuses, which is offset by recent implementation of a $24 million Proposition 10
Commission initiative; and (b) $3 million reduction to Resource and Referral
programs ($17 .million remains for the most essential supportive services).
$15 million Proposition 98 General Fund reduction by Utilizing one-time federal
funds and unfiquidated CalWORKs carryover hinds that are available.
$101 million in one-time TANF funds to offset Preposition 98 General Fund.
Caseload Changes and Adjustments for Stage 2 and
Stage 2 ----Based €ars April revised estimates, the average monthly caseload
for Stage 2 has increased from the Governor's budget estimate of 101,800 to
102,500children due to adjustments in the calculations of the numbe' of families
aftected by the federal five-year Cal ORKs time limit. The $48.3 million of
additional cast for the caseload is funded through TANF transfers to the Child
Development Block Grant...
Current year Stage —As mentioned previousiy, Stage 3 caseload decreased
for a savings of 35 million, reflecting a caseload drop from 70,400 to 64,200.
Additionally, savings of S12 million in Proposition 98 forthe revised current year
estimate are proposed for reversion to the Preposition 98 Reversion Account.
.fter School Safety and Education Programs
The May Revision proposes to rescind the across -the -beard reductions proposed for
the After School Safety and Education Program in the amount of $14.3 million. This
action fully restores the program's base funding level of $121.6 million and will help
increase opportunities for school age children, including 13 year olds who may be
displaced due to the child care reform proposal.
Prmcipal Training Program
The May Revision reduces funding for this Administration initiative that provides
15,000principais and vice -principals with training in instructional standards and
efle,tive school management techniques by $22.5 million. This reduction will delay
completion of this program into 2004-0.. The Administration remains committed to
this program and has reached an agreement with the Gates Foundation to continue
providing 25 percent ($1,000)of the $4,000 per participant cost through 2004-05.
OVER OR'S BUDGET MAY REvi ION CC 04
EXPENDITURES
Longitudinal PapilDataha5e,
The May Revision continues $12 million in federal funding for the assignment CC
student identifiers and for the development of the database, which is necessary to
comply with the data reporting requirements of the federal No Child Left Behind
Act. In ad.dition, the May Revision contains an additional $9.7 million in federal
Title V1 funds that could also be used for the development of the database, if
necessary. The SDE is scheduled to complete a Feasibility study report for the
development of the database n 2003-04.
California State Library
2002-03
2003-04 -$0.6 million
Due to current fiscal constraints, the May Revision proposes the following budget
adjustments,
* $12,14.5,000 General Fund increase to rescind the prior proposal to shift funding
-;or Transaction Based Reimbursements to local fees. The State Library advises
that this program is a high priority, relative to other local assistance programs,
This proposal M11 ensure that cost-effective resource -sluing infrastructure
remains intact and that California continues to receive Federal funds for one-time
projects and system enhancements.
* $2,000,000 General Fund increase to offset a lower, mare achievable level of
user fees( 1,000,00 ) for supporting State Library services.
$14,766,000 reduction for the Public Library Foundation to offset the restoration
of Transaction Based Reimbursements and contribute to the overall budget
solution. Remaining foundation resources would be provided for the libraries
most in need on a fiscal basis.
GOVERNOR s BUDGET MAY REvi$IQN 12003-04
BE
California
o ni °y Colleges
2002-03 -$ 30.5 million
2003-04 $ 304,1 million
Current Year
Current year proposition 95 General Fund expenditures forthe California
Community Colleges (CCC), subsequent to Chapter 4, Statutes of 2003, First
Extraordinary Session (SB 18.X), are reduced by $30.5 million. SB 18X augmented
CCC funding by $38 rniIlion to backfill a projected decline in local property tax
revenues below the level projected in the January Governor's Budget. The most
recent data indicates the shortfall is only $7.5 million below the January level.
Therefore, the current year budget will be reduced by $30.5 million to reflect the
most recent data and capture the excess handing provided.
Budget Year
The May Revision proposes a $305 million Proposition 98 General Fund increase for
iocal assistance, which is offset by increased Lease Purchase Payment reimburse-
ments in the amount of $909,000, for a net increase cf $304.1 million. This funding
would significantly augment or fully restore various community college programs
and services from the levels proposed in the Governor's Budget. Major adjustments
include;
$154.7 million to reflect a reduction in the proposed student fee increase
from 13/ snit to 7/unit for a total fee cf 18/unit, This change will restore
approximately 2 5, 000 credit full-time equivalent (FTE) students for budget
year, significantly reducing the expected levels of attrition projected in the
Covernor`s Budget,
$66.6 million to restore proposed budget year across -the -beard reductions to
apportionments. Additionally, growth funds are increased $4.4 million as a result
of the higher current year apportionment base resulting from 513 18X.
$55 million to reflect a reductian in the amount proposed to be eliminated
due to illegal concurrent enrollment practices. This augmentation will restore
approximately 15,0001 `T"E students in the budget year, or approximately
70 percent of the projected concurrent enrollment FTE students loss assumed
in the Governor's Budget.
GOVERNOR'S BUDGET GET Mehl` REvisiON 1 2003--0
EXPENDITURES 35
Significant restorations to critical. categorical programs including both Extended
Opportunity Programs and Services and Disabled Students Programs and
Services. These programs are restored to within 99 percent of the 2002 Budget
Act levels.
University of Calffornia
2003-04 $1.5 million
The May Revision proposes to increase the Ur iversity of California's (UQ General
Fund by $1,5 million to backfill student fee revs nue losses pursuant to the antici-
pated enactment of, legislation in the 2003-04 Regular Session that would offer fee
waivers for California N ational Guard members.
California State University
2002-03
2003-04 -$5.0 million
The May Revision proposes reducing the Califorr is Stare University's (CSU)
General Fund by a net $ 5.0 million from the ]eve. proposed in the 2003-04
Govemor's Budget, for the following-.
A $7.5 million reduction to eliminate a Probate assessment that was inadvertently
charged against the General Fund.
Ark augmentation of $1.5 million to backfill student fee revenue losses pursuant to
the anticipated enactment of legislation in the 2003-04 Regular Session that would
offcr fee waivers for California National Guard members.
California Postsecondary Education Comnission
2003® -$695,000
The May Revision p oposes to consolidate the California postsecondary Education
Commission's CPEQ activities with the California Student Aid Commission (CSAC),
pursuant to legislation anticipated to be enacted in the 2003-04 Regular Session.
Accordingly, the $695,000 General Fund proposed in the Governor's Budget would
be shifted to CSAC. Additionally, $5,0 million in federal local assistance is shifted
kom CPEC to CSAC. This corlsolidadon will provide administrative savings over the
GOVERNOWS BUDGET MAY RF-visioN 1 2003-04
NN
gmmmzmmffl��
longer term, allowing the CPEC to focus limited resources on their highest priority
functions,
California Student Aid Commission
2002-03 - $20 million
2003-04 -$29,2 million
Current Year
The May Revision proposes a $20 million reduction in local assistance associated
with revised estimates of the number of Cal Grant Entitlement awards that will be
issued in 2003-04,
Budget Year
The May Revision proposes net General Fund reductions cf $29.2 million from the
level proposed in the 2003-04 Governor's 5udget, as noted below.
Increases include:
$695,000 in state operations funds that will be shifted from CPEQ to CSAC for
state operations, pursuant to the consolidation of activities proposed forthese
organizations described previously. Additionally, $5 million in federal local assistance
is shifted from CPEO to CSAC.
$800,000 for one-time it piementation costs associated with the consolidation
of OPEC 11-0 CSAC, This funding would help facilitate the transition to the reduced
CPEC staffing level that was proposed for the 2003 -04 fiscal year.
Decreases include:
$20 million in local assistance associated with revised estimates of the number of
Cal Grant awards that will be issued in 2003-04.
$7.7 million in CSAC state operations costs are shifted to the Student Loan
Operating Fund (SLOF). This t in accordance with federal regulations, which allow
SLOF to be used for financial aid -related activities that benefit students, as seiected
by the guaranty agency -
$3.0 million one-time local assistance cost savings by eliminating the Cal Grant T
program and authorizing 700 additional Assumption Program of Loans for Edu-
cation (APLE) loan assumption warrants be issued. This corresponds to the number
of Cal Grant T awards that CSAC estimated would be issued in 2003-04. One-time
savings would be offset as loan assumption$ are paid in the future.
GOVERNOR'S BUDGET MAY RevisION 2003-04
* EXPENDITURES
The May Revision would also pfohibit the issuance of new Ciraduate APL E loan
assumpbon warrants which will create savings beginning in 2004-05. Trailer bill
legislation is proposed to effect this change.
Scholarshareluvestment Board
2002-03
2003-04 -$36.8 million
The May Revision proposes reducing the Scholarshare Investment Board's (SIB)
General and by $16,8 million, to reflect revised estimates cf the number of Gover-
nor's Scholars Awards and Distinguished Math and Science Awards that MM be
issued in 2003-04, This reduction' is consistent with statutory changes adopted in
Chapter 4, Statutes of 2003, First Extraordinary Session (SB 18X), which authorized
the deferral of funding for 90 and 011 grade students who qualify for awards until
those students reach the 1211, grade. This reduction is also consistent with the
State Board of Education's adopted changes to criteria governing which California
Standardized Test mat erratics examinations a student may take to qualify for a
Governor's Scholars Award.
The May Revision also proposes that the (3overnors Scholarship Programs be
mstored, The Administradon intends to submit trailer bili legislation, to accompany
the Budget Rill, that will reinstate the statutory authorization. This program was
established as part of the agreement to create the C -al Grants entitlement and
competitive programs for low income students. As such, the abolishment of the
programs in Chapter 10, Statutes of 2003, First Extraordinary Session (SB 28X)
abrogates that agreement and would deprive thousands of students the opportunity
to be recognized for academic excellence.
W14
11
GOVERNOR'S BUDGET MAY REVISION 1 2003-04 jW
BE
117
Judiciary
2002-03
2003-04
EXPENDITURES *
Unallocated Reduction—Due to current economic conditions and the State's
fiscal constraints, the Governor's Budget included a $17.7 million Genera! Fund
unallocated reduction to the Judiciary. The Judicial Council has submitted a plan to
allocate these reductions among their various programs and items of appropriation.
The following details the allocation of the reductions to state operations:
* A reduction of $2 million to the Supreme Court,
+ A reduction of $9.3 million to the Courts of Appeal,
* A reduction of $2 million to the Judir-jai Council
* A reduction of $275,000to the Habeas Corpus Resource Center.
The following details the allocation of the reductions to local assistance:
� reduction of $1 million to the California Drug Court Projects.
A reduction of $192,000 to the CaiftAppointed Special Advocate
;CASA) Program.
A reduction of $83,000 to the Model Self -Help Program
A reduction of $2.8 million to the Equal Access Fund.
A reduction of $30,000 to the Family Law Information Centers.
State Trial Court Fmiding
2002-03
2003-04 $17x6 million
Trial Court Staff Retirement—An increase of $5.5 million General Fund is
proposed for increased retirement costs for the trial courts throughout the Slate.
GOVERNOR'S BLJT MAY R:EVISION 1 2-003-04
* EXPENDITURES
Trial Court Workers' Compensation—An increase of $5-5 million General Fund is
included to fund the increased costs of workers' compensation for the trial courts.
Court Security—An increase of $3.6 million General Fund for increased costs
associated with providing security at trial court facililties.
Service of Process Fees—An increase cf $3 million General Fund is proposed
to fund the costs of Chapter 1009, Statutes cf 2002, which requires the coum to
provide free service of process of a protective order, restraining order, or injunction
if the service of process is a result of domestic violence, stalking, or a threat of
sexuai assault. Chapter 1009 also requires local law enforcement agencies to bill the
superior' court for payment of the fees related to the service of profess.
Court Facilities Construction Fund Loan in order to achieve General Fund
savings, a transfer of $80 million from the State Court Facffifles Construction
Fund to the Trial Court Trust Fund is proposed as a loan repayable by the General
Fund. An associated reduction cf $80 million to the General Fund transfer to the
Trial Court Trust Fund is also proposed, This level of revenue from the State Court
Facilities Construction Fund is not planned to be used for construction projects until
fiscal year 2004-05 at the earliest.
Court Security Realignment --Court secuft originally a part of the realignment
proposal, is proposed to be reinstated in the Budget. Reafignment remains a crucial
component of structural reform. However, to provide more time for legislative
consideration, the majority of the Administration's January realignment proposal
is being deferred to the remainder of this legislative session for implementation in
2004-05, Therefore, an increase of $300 million General Fund is proposed for court
security, This amount includes $266,954,000 forthe base funding for court security
and $32,594,000 to fund the proposed increased court security costs included in
the Governor's Budget
Unallocated Reduction—Due to current economic conditions and the State's fiscal
constraints, the Governor's Budget included a $116 million unallocated General
Fund reduction to the State Trial Court Funding budget. The Judicial Council has
submitted a plan to allocate these reductions among their various programs and
items of appropriation.
The following details the allocation of ?hereduction to State Tdal Court Funding
pro qrams
+ A reduction of $87 million to the Support forthe Operation cf the Trial Courts.
+ A eduction of $110 million to the Compensation of Superior Court Judges.
* 4 reduction of $1A 9 million to the Assigned Judges.
M
GOVERNOR'S BUDGET MAY REVISION 1 2003-04 j W,
ON
+ A reduction of $5,1 million in General Fund resources transferred to the Judicial
Administration and Modernization Fund.
+ A transfer of $12 million from the Trial Court Improvement Fund to the General Fund.
Department of Justice
2002-03 M8 million
2003-04 $107 million
Current Year
The May Revision includes $7-0,00ibr unanticipated legal expert costs to continue
lith gation. in the Stringfellow toxic dump site matter as a result of new toxic finding$
at the site.
Budget Year
Appeals, Writs, and Trials Workload—An increase of $3.7 million and 30 positions
is proposed for increased criminal case wQrkload in the Appeals, Writs, and trials
Section of the Criminal Law DNislon.
Forensic Services Lab Costs—An augmentation of $3.5 million, with a cor-
responding decrease in reiml;)ursement authority, is proposed to fund the costs
of forensic servrices provided to local agencies. The Governor's Budget included a
proposal to assess local agencies a portion of the costs of processing and analyzing
physical evidence. This funding would support those costs, eliminating the need to
charge locals for these seivices.
Spousal Abuse Prosecution Progiam—An increase of $3.2 million is proposed to
restore funds for program staffing and local assistance grants to counties to assist
with the prosecution of domestic violence cases.
"Do Not Call" Program—An augmentation of$261,000 and 3 positions is included
to provide Stalc-level resources to assist with complaint monitoring, enforcement,
and database management for the federal "Do Not Call" program which restricts
telephone solicitors from contacting subscribers participating in the program.
GOVERNOR'S BUDGET MAY vi ION 12.003-04
* EXPENDITURES
Department of Corrections
2002-03 $115.4 million
2003-04 $23.9 million
Inmate/Parolee Population/Caseload Cban,-es
Crwrent Year
Based upon the Department of Corrections' (CDC) spring estimates, the May
Revision refiects an estimated June 30, 2003, population of 160,532 inmates. This
is 129 fewer inmates than projected in the 2003-04 0overnol's Budget. The revised
population estimate represents an increase of 2,553 inmates (1.6 percent) from the
June 30, 2002, population level.
The projected June 30, 2003, parolee population t 116,549. This is a decrease
of 684 parolees from the number projected in the 2003-04 Governo "S Budget.
Therevised parolee poputation estimate represents a decrease of 3,787 parolees
(33 percent) from the June 30, 2002, level.
While the changes in population are relatively minor, the CDC has incurred costs
to realign its bed availability with the type and level o'finmates it houses. The net
effect of the population changes listed above, as well as other adjustments, and
estimated current year savings that did not materialize, is a cost Lo i he General Fund
of $46 million, and a savings to the Inmate Welfare Fund of $4590000.
The May Revision also reflects an additional $69.4 million to cover unbudgeted
costs in overtime, temporary help, and workers' compensation.
Bndgget Year
Based upon the CDC- spring estimates, the May Revision reflects a June 30,2004,
population of 161,287 inmates, which is 248 inmates more than projected in the
2,003-04 Governo6i Budget. The revised inmate population estimate reflects an
increase cf 755 inmates (0.4percent) from this revised June 30, 2003 population
estimate,
The spring population estimate for parolees as cf June 30, 2004, is 115,467,which
is 80 more parolees than projected in the 2003-04 Governor's Budget, The revised
parolee population level projected for the budget year represents a decrease of
1,082 parolees (0.9 percent) from the revised population estimate forJune 30, 2003
As noted above. while the changes in population are relatively minor, the CDC will
incur costs to reafign its bed availability with the type and level of inmates it houses.
The net effect of the population changes listed above, as well as other adjustments,
and the budget year component of estimated savings that did not materialize in
GoVERNOR'S BUDGET MAY REVISION 2003-04
sm
EXPENDITURES *
2002-03, is a cost to the General Fund of $59 million, and a savings to the Inmate
Welfare Fund of $520,0M
Budget Reductions
Due to the lower level of resources available for 2003-04, the May Revision proposes
a reduction of $34.7 million for the CDC, which would result in a total reduction of
$86.6 million, when the January reductions are included. These reductions take
careful consideration of the need to make cuts in expenditures, while preserving
public safety:
Delay of 500 Substance Abuse Treatment Beds—$5-4 million savings associated
with a delay of the activation of 500 substance abuse treatment beds for 12 months.
Regional Administrators' Office Positions— $625, 000 savings associated with a
reduction at the Regional Administratore Offices,
Internal Affairs— $956,000 savings resulting from the closure of the Office of
investigative Services, Internal Affairs -Southern Region Office,
Elimination of 7k Correctional Sergeants—$2.3 million savings due to the
e1mination of Correctional Sergeants associated with the 7k training program,
Management Positions—$2.3 mi Ilion savings associated with the reduction of
management positions,
Delay Implementation of Delano 11— $8.8 million savings as a result of the
delayed activation of Delan.o It until March 2005.
Span of Control for Parole Administrators—$1.3 million savings as a result of
increasing the span ofcontrol of Parole Administrators from five parole units to eight
parole units,
Various Health Care Services Program Reductions— $13 million savings resulting
from improved pharmacy prescription protocols, reduced referrals to outside
emergency/urgent care facilities, and reduced disease category requests for service.
It is anticipated that the cost savings identified above will increase as the CDC
implements strict utilization management policies and procedures, and as more
im' btQbons implement the provisions of the Plata settlernent which requires
that inmates he provided the same standard of health care as provided in the
community.
In addition, the CDC will aggressively pursue the implementation cf a managed care
model to further reduce health care program expenditures statewide and explore the
best practices of managed care that can be implemented in a correctional setting.
Some of the areas to be examined will include: increased use of preventive care to
GoVERNOR'S BUDGET MAY REVISION 2003-04
* EXPENDITURE5
reduce expenditures on speciaity and emergency services; managing services for
irimates with chronic conditiom (e.g., HIV, diabetes) to reduce the amount spent
for costly private hospitals, transportation, and security; and cost-effective drug
formularies that restrict unnecessary use of high cost drugs.
Salinas Valley Psychiatric Program Activation Dclay�--$l million savings to
reflect the revised activation schedule for the Salinas Valley Psychiatric Program.
Department Of Corrections
Capital Outlay
2002-03
2003-04 -$2.8 million
The May Revision proposes to switch funding for three capital outlay projects
from Qeneral Fund to existing general obligation bond funds. The projects, Duel
Vocational Institution—Infirmary Heating, Ventilation and Cooling ($1.0 million),
Cnfifornia Institution for Men (CIM) Chino --Cell Security Lighting ($13 million),
and CIM --Chino East Electrified Fence {$0.5 mfllion), are all continuation of critical
health and life safety prcjects,
Department of the Youth Authority
2002-03 $10.3 million
2003-04 $6.5 million
Ward/Parolee Population/Caseload Changes
Carrent Year
For 2002-03, the May Revision estimate for the year-end institution population is
5,120, a decrease of 220 from the projection included in the Oovernor's Budget.
This population decline, offset by a significant decline in the level cf county reim-
bursements, will result in a General Fund increase cf $3.8 million, in addition, the
Youth Authority projects a year-end parole population of 4,025, a decrease of 15
from the projection included in the Governor's Budget, which is offset by an increase
in specialized caseloads, resulting in a General Fund increase cf $173,000.
The May Revision also reflects an additional $3.5 million due to increased costs for
worker's compensation.
GOVERNOR'S BUDGET MAY REvISION � 2003-04
EM
M
EXPENDITURE5 *
Budget Year
For 2003-04, the year-end institution population is projected to be 4,555, which is
540 fewer than anticipated in the Governor's Budget. The combined effect of declin-
ing population and a significant decrease in the level of county reimbursements Will
result in a General Fund increase of $3.8 rrillion, The Youth Authority projects a
year-end parole population of 4,040, an increase of 210 from the level assumed in
the Governor's Budget, resulting in a General Fund increase of $468,000.
Budget Augmentations
The May Revision proposes the following augmentations forthe Department of the
Youth Authority:
Consolidate and Restructure the Youthful Offender Parole Board—$1.5 million
to carry out the mandates of Chapter 4, Statutes of 2003, which consolidates the
functions of the Youthful Offender Parole Board into the Department ofthe Youth
Authority, effective January 1, 2004.
Senlor'Youth Correctional Counselor/Sergeant Relief— $425,000 in 2002-03
and $1.5 million in 2003-04 to provide regular day cff relief coverage for
Youth Correctional Counselors on open dorm living units are required by the
Memor-andurn of Understanding between the State of California and the California
Correctional Peace Officers' Association,
Sick Leave Relief— $1.1 million in 2002-03 and 2003-04 to cover costs associated
with the increase d cost of sick leave coverage of posted positions.
Physicians Call -13 ack Costs— $73,000 to cover physician call-back costs to enable
seven-day a week on-call coverage forphysicians.
Northern California Youth Correctional Center Laundry Costs—$24,000 to
ever the increased - ost of providing laundry services at the closest Prison industry
Authority facility.
Adjustment to Sliding Scale Reirnburserne nts—$1.1 million to reflect additional
General Fund costs due to lowe reimbursements from the counties as a result of
revised population projections.
Budget Reductions
Due to a lower level of QenQraI Fund resources available Fcr 2003-04, the
May Revision proposes the following reduction for the Youth Authority:
Consolidation Plan— $3 million reduction associated with the closure of the
Karl Holton Youth Correctional Facility at the Department's Stocktoon complex
GOVERNOR'S BUDGET MAY RF=vISON 12-003-04
* EXPENDITURES
,d accommodate the continuing decline in the Department's juvenile offender
population,
Youthful Offender Parole Board
2002-03
2003-04 -$1.6 million
Consolidate and Restructure the Youthful Offender Parole Board—The
May Revision proposes a reduction of $1.6 million to reflect half-year funding for
the Youthful Offender Parole Board (YOP13), associated with the implementation of
legislation which eliminates the functions of the YO PB and instead consolidates the
function of the Board within the Youth Authority, effective January 1, 2004
Board of Corrections
2002-03
2003-04
Corrections Training Fund Transfer to the General Find The May Revision
reflects a $558,000 reduction in tho amount proposed for transfer to the General
Fund from the Corrections Training Fund (CTF) due to lower revenue estimates for
the CTT
Board of Prisou Terms
2002-03 -$0.5 million
2003-04 -$33 million
Hearing Workload Adjustment—The May Revision proposes reductions of $519,000
in 2002-03 and $3.5 million in 2003-04 due to revised workload estimates asso-
ciated with the projected number of parole considerations and parole revocation
hearings.
Commission on Peace Officers' Standards and Traininor
2002-03 —
2003-04 $25.5 million
GOVERNOR'S BUDGET MAY REVISION 1 2003-04
M,
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EXPENDITURES *
Training Reimbursement CQsts—An augmentation of $25.5 million Peace Of
Training Fund is proposed in the May Revision to restore funding to reimburse local
law enforcement agencies for costs related to peace officer training.
Department of California Highway Patrol
The May Revision includes the following fund shifts:
Motor Vehicle ACCount—A fund shift of $32.5 million from the Motor Vehicle
Account to the Public Safety Surcharge Fund (PSSE) far CHP's Homeland Security
tactical aierts. This fund shift reflects the first year of a two-year proposal to shift
all Homeland Security and non -transportation security activities of the CHP to the
PSSF. This fund shift i-sintended to consolidate funding for security activities of the
CHP into a singular fund source by 2004-05.
GoVERNOR'S BUDGET MAY REVISION 2003-04
* EXPENDITURES
HEALTH AND HUMAN SERVICES
Preserving Critical Programs—Realignment
The Governor's Budget proposed to preserve critical programs by not
reducing their funding levels, but instead either transferring responsibility for the
programs to local governments or changing the State -local cost-sharing ratios, and
dedicating a revenue stream to support the additional local financiai obligations. The
costs of the programs proposed to be realigned and the dedicated revenue stream
totaled approximately $8.3 bihion. The programs proposed for realignment included
Child Care, Mental Health, Alcohol and Substance Abuse, Public Health, Medi -Cal,
Social Services, and Court Security programs, The revenue stream consisted of a
I cent sales tax, 10 percent and 11 percent personal income tax brackets, and a
$1.10 excise tax on cigarettes and other tobacco products.
After discussions with representatives from the Legislature, the counties. and other
parties, the Administration is narrowing the focus of its Realignment proposal
for 2003-04. Realignment remains a crucial component of structural reform.
However, to provide more time for legislative consideration, the majority of the
Administration's January Realignment proposal is being deferred to the remainder of
this legislative session for imp ementation in 2004-05.
The costs of the programs proposed for realignment in 2003-04 and the dedicated
revenue stream now total approximately $1.8 billion. The revenue stream will consist
of the following:
Additional 10.3 percent persona!
income tax bracket
o increase excise tax on cigarettes and
other tobacco products by 2.3 cents in
2003-04 and an additional 40 cents
in 2004-05
KROM
$1.5 billion
0.3 bihion
ME=
$1.2 billion
0.7 billion
These realignment revenues are new revenues dedicated to the proposed Enhanced
State -Local Realignment Fund and do not affect the General Fund. Therefore, these
new revenues would not increase the Proposition 98 guarantee. Similarly, revenues
dedicated to the 1991-92 Realionment also are not included in the Proposition 98
:1
guarantee calculation- In addition, the Attorney General, in an April 29,2003, legal
opinion titled Realignment Plan: Proposed New Revenues and Proposition 98,
GoVERNOR'S BUDGET MAY REVISION 1 2003-04
M
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ExPENDITURES *
has concluded that "the Realignment Plan's new revenue streams, if dedicated and
restricted as proposed, would be excluded from General Fund revenues considered
in calculating minimum funding levels under Proposition 98,"
See Figure HHS -1 for the programs proposed for Realignment.
_�-IG-6WE _HHS-1____
State -Local Realignment
($ in Millions)
Mental Reaft
r,hRdFan',% SyStQM Of Care
Integrated Services for Homeless
Children and Yawth
Child Abuse PreyenWn, Wervention, and Treatment
Foster Care Grants
Faster Care Administrabon
Child Welftre Services
social Services
Adult Pratective SaNiras
0aWORKs Grants
CaIWORKs F-mrAQyment services and Adminisftvrtion
(MOE) Ft.qq..M
Current comnty Now County Realigned
Shar"f-Cosk Share -of -Cost cam
(Percent) (Percent)
0 100 $20
0 100 55
0
100 12
60
80 237
30
50 11
30
50 197
MOE
100 61
25
aD 782
MOE
30 359
$1.734
Counties are currently administering these programs and thus should assume these
program responsibilities, To the extent feasible, counties will be given additional
discretion in the administration of these programs.
The Administration will continue to work coliaboratively with the Legislature
to resolve issues relating to revenue allocation, meeting State and federal
requirements, allowing counties to shift funds among programs, and the scope of
continuing State oversight of the realigned Programs. The Administration will also
work with the Legislature to draft the necessary trailer bill legislation to implement
this Realignment proposal effective July 1, 2003.
Referto individual departmental sections for discussion cf modifications to the
original Realignment proposal contained in the 2003-04 Governor's Budget.
GoVERNOWS BUDGET MAY REVISION 12-003-04
Medi -Cal
2002-03 $288.2 million
2003-04 $2.8 billion (Reflects deferal of realignment proposal)
Cm -rent Year
The May Revision includes total Medi -Cal expenditures cf $29.8 billion ($10.9 billion
General Fund), an increase of $621.2 million above the Governor's Budget. General
Fund expenditures for Medi -Cal have increased by $288.2 million, or 2.6 percent.
The number of persons projected to be eligible far Medi -Cal in 2002-03 is expected
to decrease by 52,500to 6,424,800 eligibles. This represents a decrease of about
0,8 percent below the level projected in the Governor's Budget, The revised :aseload
is 8.7 percent above 2001-02 caseioad.
The net General Fund increase includes the following significant adjustments.
* $164.9 million increase due to erosions cf the mid -year spending reduction
proposals.
* $50.2 million increase in the cost of inpatient services.
* $49.7 million increase due to unrealized savings Rr drug benefits and medical
supplies
* $8,6 million increase forhigher county administrative costs.
* $6.3 million increase due to the Craig u. eont4 lawsuit, which requires that
Medi -Cal bene is be continued until a redotermination can be done.
* $163 million decrease for lower fiscal intermediary costs.
* $24,8 milhon increase due to a variety of other increases and decreases affecting
the Medi-Cai program.
Budget Year
The May Revision includes total Medi -Cal expenditures of $27.2 billion ($9.8 billion
General Fund), a net total funds decrease of $508.0 million, including a $2.8 billion
General Fund increase, from the Governor's Budget.
GOVERNORS BUDGET MAY REVISION � 2003-04
99.
EXPENDITURES *
The average monthly Medi -Cal caseload is expected to increase by 144,600
beneficiaries to 6,412,800 eligibles. T -ds represents an increase of 2.3 percent above
the Governor's Budget.
The budget year includes the following significant General Fund adjustments
$3.0 billion increase to reflect deferral of realignment
$930 million decrease to reflect an accounting change from accrual to cash,
$112.5 million increase to Fund a rate increase of approximately 3 percent for
Medi -Cal Managed Care Plans.
$66.2 million increase in the cost of inpatient services
* $60.8 million increase due to implementation ofthe Craig v. BonO lawsuit
* $59.8 million in increased costs to provide a long-term care rate increase of
approximately 3.8 percent.
$537 million increase Lo reflect restoration of the 1931(b) Medi -Cal Program.
$35.6 milho n increase for higher county administrative costs.
$341.4 million net increase due to a variety of other increases and decreases
affecting the Medi -Cal program.
Maintaining Health Care Access
The May Revision also maintains the Administration's commitment to provide health
care coverage to California's low-income children and adults.
# Continuous Eligibility for Children—Chapter 945, Statutes of 2000 (AB 2900,
Gallegos), provides 12 -month conbnx)in3 Medi -Cal eligibility to children under
19 years of age. Tnis expansion reduces the number of uninsured children in
Californiaand ensures continuity of medical care. The May Revision includes
a total of $486.6 million ($2433 million General Fund) to provide continuous
Medi -Cal eligibility for an estimated 471,500 children. Since 2000-01, the
Administration has provided a total cf $1.3 billion ($638.9 million General Fund)
to support this expansion.
1931(b) Medi -Cal Program—The May Revision proposes to restore 1931(b)
Medi -Cal program eligibility to 100percent cf the Federal poverty Level. The
income standard forthis program would be reinstated to the level established in
GOVERNOR'S BUDGET MAY REVISION 12003-04
* ExPENDITURES
March 2000, The May Revision provides $107.4 million ($533 million General
Fund) in 2003-04 for this restoration.
Accelerated Enrollment- Single Point-of-Fairym—The Accelerated Enrollment
Puogram, implemented July 1, 2002, enables the Department of Health
Services to tem- porarfly enroll children under the age of 19 into the Medi -Cal
program. Approximately 3,078 children will receive Medi -Cal benefits through
the Accelerated Enrollment program in 2003-04, As a result of the presumptive
eligibility mechanism, expenditures are projected to reach $8.3 million
($4.1 million 'General Fund) for 2003-04.
+ Child Health and Disability Prevention Program Gateway to Medi-Cal—
The May Revision maintains funding of $74.5 million ($35.8 million Genera)
Fund) for the Child Health and Disability Prevention Gateway, which streamlines
enrollment into Medi -Cal and the HFP.
In addition, the Administration continues to demonstrate its commitment to
Maximizing health c a w coverage for California's uninsured children by implementing
two expansions that will greatly facilitate their enrollment into Medi -Cal. This
st rearnfining of enrollment, referred to as Express Lane eligibility, will link Medi -Cal
eligibility with that of other public programs that serve low-income individuals, The
expansion pr og are as Follows;
# Eligibility to Children Receiving Free School Lunches—Chapter 894,
Statutes of 2001 (Ab 59), will facilitate enrollment into Medi -Cal for uninsured
school children by linking Medi-Cai eligibility with free school lunch eligibility.
It is estimated that this expansion will result in 3,905 additional children
receiving Medi -Cal coverage in 2003-04. The May Revision provides $3.5 million
($1.7 million Genera! Fund) to support this expansion.
Facilitating Medi -Cal Enrollment and Eligibility for Persons Receiving Food
Stamps—Chapter 897, Statutes of 2001 (SB 493), will facilitate the enrollment
of low-income, uninsured families into the Medi -Cal program by linking Medi -
Cal eligibility with the Food Stamp Program. it is expected that this iinkage of
food starnp eligibility with the Medi -Cal program will result in an additional 5,967
GoVERNOR'S BUDGET MAY REVISION 1 2-003-04
a
go
MMZEMMM��
parents and children receiving Medi -Cal coverage in 2003-04. The May Revision
provides $7.7 million ($3,9 million General Fund) to support this expansion.
General Fund Adjustments
General Fund revenue receipts have been below expectatiom since the release of the
Oovernor's t3udget. Additionally, expenditures required for enrollment, caseload, and
population changes have increased. Furthermore, the mid -year reductions proposed
in January have not been fully enacted, These three factors necessitate further
adjustments to reduce or eliminate various programs included in the Governor's
Budget. Accardingfy, the Administration is proposing the following adjustments that
will result in net General Fund savings in the Medi -Cal program:
Medi -Cal Accounting Change The May Revision includes one-time General
Fund savings of $930 million reflecting a change in the Department of Health
Services' (DH S) accounting for the Medi -Cal program from an accrual basis to a
cash basis.
Medi -Cal Anti -Fraud Initiative—The May Revision significantly expands efforts
by the Department of Health Services (DHS) to prevent, identify, and investigatt
fraud in the Medi -Cal program. Successful existing anti -fraud strategies would
be expanded, including the Medi -Cal Beneficiary .dentffication Card replacement
project. New strategies would also be implemented, including random claim
sampling, data mining, and the creation cf a one-year provisional status
for ail new providers. This proposal is anticipated to result in $20.1 million
($12.3 million General Fund) net savings in 2003-04 and $188.9 million
($95.3 million Qeneral Fund) net savings in 2004-05. Beginning in 2005-06,
annualized savings are expected to be somewhat higher. To achieve these
savings, the May Revision proposes to establish 315.0 new positions in the DHS
at a cost of $27 million ($10.7 million General Fund).
Drug Expenditure Reduction through Therapeutic Category Reviews and
the Resolution of Aged Rebate Disputes—$29.5 million ($15.1 million
General Fund) to reduce Medi -Cal drug expenditures through therapeutic
category reviews and the processing of aged rebate disputes. Therapeutic
category reviews ensure that only the most cast -effective drugs are included
on the Med-Cal formulary while maintaining appropriate beneficiary access.
These savings assume that the entire backlog of aged rebate disputes will be
resolved in 2003-04. Included in this proposal are increased costs cf $1.4 million
($142,000General Fund) for 14positions to conduct the Therapeutic Category
Reviews and resolve the aged rebate disputes.
GOVERNOR'S BUDGET MAY REVISION 12003-04
EX•PENDITURES 53
4. Impose a Moratorium on Adult Day Health Care (ADHQ Centers and
Amend Rates—$18.8 million ($9,6 million General Fund.) to impose a one-
year moratorium on the certification of new ;DHC centers, which will slow the
rapid growth of this provider type. In addition, the ADHC reimbursement rate
wQuid be lowered to reflect the removal of therapies (speech, physical, and
occupational) and transportation from the bundled daily rate. These services
would then be billed separately when they are actually provided.
impose a Cap on Medi -Cal Laboratory Services—$8.2 miilion ($4.5 million
General Fund) to place a per -beneficiary limit on selected laboratory services.
Additional, medically necessary services could still be approved through prior
authorization,
Change Reimbursement Methodology for Durable Medical Equipment—
$3.1 million ($1.6 million General Fund) to reduce the reimbursement for durable
medkal equipment by removing the current reimbursement methodology from
regulatory control, which will allow the In to react quickly to changing market
factors and ensure that Medi -Cal pays a cost-effective rate.
Change Reimbursement Methodology for Anti -Hemophiliac Blood
Factors—$2.5 million ($1,2 million General Fund) to change the
reirnbursernent methodology for anti -hemophiliac blood factors, which will allow
for electronic dairns processing and enhanced rebate collection.
Pharmacy Cost Savings through Provider Education— $1A million ($756,000
General Fund) to reduce pharmacy expenditures through provider education,
which will ensure that the most cost-effective prescribing habits are utilized.
Convert Contract Nurse Positions to State Positions—$694,000 ($164,000
General Fund) to convert contract nurse positions to State civil service positions.
These contract positions were included in the 2002 Budget Act to review
treatment authorization requests and expand medical case management
activities. Because of the higher cost ef contract positions, this conversion
results in a net savings.
Include HIWAIDS Drugs in Medi -Cal Managed Care Capitation Rates—
$218,000 ($109,000 General Fund) as a result of including and capitating
HIVAIDS drugs within the Medi -Cal Managed Care program.
Encourage Enrollment of Aged, Blind, and Disabled into Medi -Cal
Managed Care—$1.3 million ($630,000 Qeneral Fund) increase in 2003-04
for informational material to encourage voluntary enrollment of aged, blind, and
GOVERNOR'S BUDGET MAY REVISION 1 2003-04
EXPENDITURES *
disabled individuals into Medi -Cal Managed Care. This proposal is expected to
result in savings of $4.8 milhon ($2.4 million General Fund) in 2004-05.
Implement a Disease Management Program in Medi-Cai—$756,000
($279,000 General Fund) increase in 2003-04 to implement a Disease
Management Program for Medi -Cal beneficiaries. This program is expected to
achieve savings in future years by reducing health care costs Fcr patients with
chronic conditions and result in improved health outcomes.
Personal Injury Recovery program—$358,000 ($90,000 General Fund)
inc rea-se ii 2003-04 to expand personal injury cost recovery activities, which
ensure that Medi -Cal funds are recovered when a third -party is liable for the
costs. This proposal is expected to result in annual General Fund savings of
$1.4 million beginning in 2005-06.
maedi -Cal Managed Care Administrative Costs—Redirection of three positions
in 2003-04 to conduct initial health plan finan(ial reviews and rate calculations
for managed care contractors. This proposal is estimated to result in savings of
$39 million ($19,5 million General Fund) in 2004-05,
Public Health
2002-03 $10.9 million
2003-04 $114.4 million
Caseload Programs
Current Year
The May Revision includes an increase of $10.9 million General Fund, or 7.6 percent,
above the $143.9 million provided in the Governor's Budget, due to an increase in
caseload and health care costs in the California Children's Services (CCS), Child
Health and Disability Prevention, and Genetically Handicapped Persons programs.
Budget Year
The Kay Revision includes an increase of $59.9 million General Fund, or
58.8 percent, above the $84.7 million provided in the Governor's Budget, due
to an increase in caseload and health care costs in the CCS and the Genetically
Handicapped Persons programs.
GovERNOR'S BUDGET MAY REvislON 2003-04
* ExPENWTURES
Realignment
Public health programs, originally a part of realignment, are proposed to be
reinstated in the budget and are no longer being considered by the Administration
for realignment in 2003-04. Realignment remains a crucial component of structural
reform, However, to provide rnore time for legislative consideration, the majority
of the Administration's January realignment proposal is being deferred to the
ema nder of this legislative session for implementation in 2004-05, Therefore, the
May Revision proposes to restore $146.7 million ($68,5 million General Fund) and
493 positions (46.9personnel years) to the following programs-,
Adoiescent Famfly Life
Black infant Health Prograrn
Local Maternal and Child Health
Expanded Access to Primary Care
Clinic Grants -in -Aid
Indian Health Program
Rural Health Services Development Program
Seasonal Agricultural and Migratory Workers
Managed Care Counties
* California Health Care for Indigents
* Rum) Health Services
Public Health Subvention
AIDS Drng Assistance Program (ADAP)
The May Revision increases the ADAP in 2003-04 by $82 million total funding
due to additional reimbursements and federal funds, and adjustments to the co-
payment proposal included in the Governor's Budget. To align ADAP co -payments
with private insurance rates, the May Revision proposes to reduce co -payments
from $30, $45, and $50 per prescription to $5, $ 10, and $15 respectively based
on a sliding income scale tied to federal.poverty levels. Total funding for the AD.P
is $195 million, an increase of $75.2 milion, or 62.8 percent since the 1999-00
Governor's Budget.
Cigarette and Tobacco Products
Surtax Fund—Proposition 99
Proposition 99 resources in the budget year are projected to be higher than
estiniated in the Governor's Budget, primarily due to a one-time augmentation
GovERNOR'S BUDGET MAY REVISION 1 2003-04
M
xPEN ITUR
($10.4 million) under Proposition 99 in 04 2-03 that has not been expended and
will be carried over into the budget year. This augmentation, combined with other
adjustments, provided nearly $15.1 million in available resources. These increases
result in additional resources in the Health Education Account ($8.4 million),
Research Account ($4.4 million), and unallocated Account ($2.3 million).
To reflect these increases, the May Revision proposes to restore, at least partially,
programs that were previously reduced due to the decline ofProp€asition 99
t evenues: Competitive Grants ($1.5million), Local Lead Agencies ($4.5 million),
Media ($2.4 million), and the California Healthcare for Indigents Program
($2.3 million). in addition, the University of California will receive an additional
$4.4 million to conduct tobacco -related research.
robacco Settlement Securitization
The Qovemor's Budget proposed to securitize $4.5 billion in bonds backed with
tobacco settlement rea ernueso The May Revision reflects that only $2.5 billion
in tobacco -securitized bonds were sold in 2002-03. Due to market conditions
and a large number of states securitizing their own tobacco settlement moneys,
the Administration determined that California should not seek to sell additional
securitized bonds, but rather should budget annual tobacco settlement moneys.
For 2003-04, $173 million in tobacco settlement payments ate projected. The May
Revision proposes to use this funding to offset General Fund expenditures in the
Managed Risk Medical Insurance Board's Healthy Families Program.
Public Healib Preparedness and Response
California is faced with an onslaught of new pathogens and diseases, as well as the
ongoing threat of a bioterrorist attack. Severe Acute [respiratory Syndrome (SARS),
West Nile Virus, and Hepatitis C are but a few of the public health crises that have
made front-page news recently. Responding to each of these new threats as a
separate problem. requiring new resources and a support infrastructure, is inefficient
and expensive. To counter these threats and to form a cote preparedness and
response team for unknown pathogens and sudden disease outbreaks or everts, the
Administration, with the assistance ofthe federai government, is developing a long-
term comprehensive strategy. The May Revision includes $90.3 million ($3.9 miluon
Genera! Fund) in new funding and 96.0 positions (91.1 personnel years) to combat
these threats. The proposed Public Health Response Team will immediately address
the following priorities:
• The Emergence of SAR$ ($9511,000 General Fund)
• West Nile Virus Early Detection ($923,000 General Fund)
4, Hepatitis C Prevention ($2 million General Fund)
W
2ftGOVERNOR'S RNOR' UDG T MAY REVISION 1 2003-04
* EXPENDITURES
• And-Bioterrorism ($82,8 million federal funds)
• Botulism Immune Globuhn Production ($3-6 million federal funds)
While initially working on two specific disease threats, the SARS and West Nile
Virus, program staff will form the core of a preparedness and response team to
deal with future unknown pathogens and sudden disease outbreaks or events, The
tearns primary responsibilities include detection and monitoring trends of unusual
or new infe-ctious disease, and development of initial response plans in consultation
with local public and environmental health departments, vector and animal control
agencies, physicians, health care providers, and veterinarians. The long-term goal
of the initiative is to develop a comprehensive prevention and control program
designed to combat new pathogens and diseases that uses all available public health
assets, local and State, in an effective and efficient manner.
General Fund Reductions
General Fund revenue receipts have been below expectations since the release of
the January Governoes Budget. Additionally, expenditures required for enrollment,
caseload, and population changes have increased. Furthermore, the mid -year
reductions proposed in January have not been fully enacted. These three factors
necessitate further adjLztments to reduce or eliminate various programs included
in the January Governor's Budget. Accordingly, the Adn'tinistration is proposing
reductions as follows-,
Expanded Access to Primary Care—$2,350,000 to reflect a reduction to the
program in lieu of realignment,
Adolescent Family Life Program— $1,621,000 to reflect a reduction to the
program in lieu of realignment,
Managed Risk Medical Insurance Board
2002-03 -. million
2003-04 -$x.82.1 million
Current Year
The Mair Revision includes an overall expenditure decrease cf $5.5 million
($?-,9 million Qeneral Fund). This expenditure decrease is due primarily to lower
than anticipated caseload growth in to e -only funded children, The Healthy
Farnifies Program (HFP) is expected to serve a total of 668,000 children by June 30,
2003, which is consistent with the caseload anticipated in tho Governors Budget.
GovERNoR's BUDGET MAY REVISION � 2003-04
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92
EXPENDITURES *
Budget Year
The May Revision projects overall expenditures to decrease by $15.2 million
($182-7 million General Fund) below the level anticipated in the Governor's Budget.
The securitization of the remaining Tobacco Settlement Fund revenues has been
deferred, which results in an increase of $173.4 million Tobacco Settlement Fund
revenues and a corresponding decrease of $173.4 million General Fund. Also, there
is a lower rate of caseload growth in the program. The HFP is expected to serve a
total of 727,000 children by June 30, 2004, which is 42,000 children Lc,% than the
caseload projected in the Governor's Budget.
Since the beginning ofthis Administration, children's caseioad mithin the HFP has
grown from 50,000 to an expected 727,000 children by the end of June 30, 2004,
for an increase of 677,000 children, or 1,354percent. Additionally, expenditures for
the program have grown from a total of $59.4 million ($15.6 million General Fund)
in fisca! year 1998-99 to an expected $794.5 million 0294-3 million State Funds) in
fiscal year 2003-04, or 1,786 percent.
Healthy Faniilies Program
Providing health care coverage totninsured children remains a high priority for
this Administration, A total of 668,000 children are expected to be enrolled in the
Healthy Families Program (HFP) by the end of June 2003. It is expected that by
June 30, 2004. a total cf 727,000 children will be provided low-cost, comprehensive
health care coverage through the HF R See Figure HHS -2.
FiGuRE HHS -2
Managed Risk Medical Insurance Board
Healthy Families Program
M
5200,000
$100.wo
so
i996 -M 999-M 200&01 2MI-02 2002-M 2W3-04
Pisco( 'fear
m1wo
M000
700,000
NO,=
Pi0
5W.00
MOW
W
300,000 >*
2001WO
100,ODO
GOVERNOR'S BUDGET MAY REviSJON 1 2003-04
* EXPENDITURES
The Nay Revision continues funding to facilitate the enrollment and eligibility of
uninsured children into the HFP, as follows:
$3.7 million ($1.3million State Funds) to fund two -months of HFP eligibility to
ensure coverage during the transition to Medi -Cal,
09
Access For Infants A-nd. Mothers Program
Oirrent Year
A yerage monthly enrollment in the Access for Infants and Mothers program is
expected to reach 10,606 women and infants, compared to 10,213as originally
estimated in January. This represents a 3.8 percent increase. Current.year General
Fund expenditures are expected to increase by $182,000, due to higher than
anticipated enrollment of children in the program. However, net expenditures are
expected to decrease by $243.000, due to lower than anticipated enrollment of
mothers in the program.
Budget Year
Average monthly enrollment is expected to reach 13,119 women and infants,
compared to 12.314 as originally estimated in January. This represents an increase
of 6.5 percent. Budget year expenditures will be increased by $1,516,000 ($647,000
Qeneral Fund) due to greater than anticipated enrollment of infants in the program
arid an increase in the average monthly capitation rates.
The budget for this progi am has increased from $41.7 million ($37.5 million
Perinatal Insurance Flu nd) in 1998-99 to $119 million ($97 million Perinatal
insurance Fund) in 200.3-04 for a total increase of $77.3 million, or 185 percent.
Since 1998-99, average monthly enrollment has grown from 5,549 women and
infants to an expected 13,119women and infants in 2003-04, or an increase cf
100 percent.
Department of Developmental Services
2002 03 $89.3 million
2003-04 $219.1 million
GovERNOR'S BUDGET MAY REViSION � 2003-04
M
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Developmental Centers
Current Year
The May Revi5ion includes a net reduction of $7.4 million General Fund as the result
of the followinG:
Developmental Center Case. read—A $2.4 million General Fund decrease
resulting froth a decrease of 78 comumers in the estimated caseload.
+ Bay Area Froject—$5 million General Fund one-time savings which will be
reappropriatedforthe Bay Area Project in 2003-04 to facilitate the transition of
consumers from Agnews Developmental Center to new settings.
Budget Year
The May Revision includes an increase of $25.3 million ($10.7 miilion General Fund)
primarily as the result of the following -
Intermediate Care Facility for the Developmentally Disabled (ICF -DD)
Quality Assurance Fee—A $29,7 million ($17.4 million General Fund) increase
reflecting the impact of the KF -DD Quality Assurance Fee proposal.
Elimination of Optional Medi -Cal benefits—$7.2 million General Fund
increase and an equivalent decrease in reimbursements reflecting the impact of
the proposai to eliminate Medi -Cal optional benefits.
Medi -Cal Base Funding Adjustment—A $10.4 million General Fund reduction
and an equivalent increase in reimbursements as a result of the annual
adjustment of the Medi -(:al. base funding.
Developmental Center Caseload— $5.7 million ($3.7 million General Fund)
decrease resulting from a decrease of 70 consumers in the estimated caseload.
+ In Re Hop heari.ngs—A $323,000 increase to fund 5.01imited-term Positions
related to workload required under the in Re Hop decision.
Life Services Alternative Project—A $1 million increase in Reimbursements
from Regional Centers (RQ to provide tip to six months of temporary help
in order to train community providers in the specificneeds cf consumers
transitioned from Agnews Developmental Center.
IF GOVERNOR'S BUDGET MAY REvisION 2.003-04
R egional Centers
Current Year
The May Re -vision includes a net increase of $45.4 million ($90.3 minion General
Fund) primarily as a result cf the following:
RC Ca.seload—A decrease of $1.6 million General Fund for an estimated
decrease of 1,440consurnem.
Increased Purchase of Services —A $46.5 million General Fund increase
based on increased utilization and an inability to effectuate the $52 million
unallocated General Fund reduction authorized by the Legislature for 2002-03.
Enhancing Federal Financial Participation 11—A decrease of $11.3 million in
federal funds, and corresponding increase in General Fund, due to an inability to
retroactively bill for Targeted Case Management at a recalcuiated rate.
Decrease in Reimbursements— $42 million decrease in reimbursements,
and corresponding increase in General Fund, due to South Central Los Angeles
Regional Centers inability to qualify for federal funds, and a decrease in the
amount of additional Title XX that can be transferred from the Department of
Social Services (DSS),
Budget Year
The RC population is not projected to increase above the 193,100clients estimated
in the Govemor's Budget, Although reduced, the Budget continues to assume
savings will be achieved through the implementation of various cost saving
measures as previously proposed. The Administration looks forward to working with
the Legislature to accomplish savings in this area. The May Revision includes a net
increase of $74,5 million ($204.1 million General Fund) primarily as the result of the
following significant changes.,
Increased Operations—The May Revision proposes a net $2.1 million increase
in Re.gjonaj Center Operations, Projected changes in the severity of the caseload,
an augmentation for Community Placement Plan activities, and a technical
correction to the estimated number of monthly intakes results in an incre= of
$13 million. This increase is offset by a $10.9 million reduction to be achieved
through the restructuring cf caseload ratios in a manner similar to that proposed
by providers.
Increased Purchase of Services—A net $187.1 minion General Fund increase
primarily due to:
GovERNOWS BUDGET MAY REVISION 1 2003-04
Al
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ExPENDITURES *
0 $30.7 million for the delayed implementation cf Statewide Standards (The
Administration will work collaboratively with the Legislature to achieve
savings in the Regional Center System) .
Q, $47.9 million for increased base costs as adjusted for actual expenditures
<> $47.7 million for the proposed elimination cf optional Medi -Cal benefits.
0 $28.9 million for increased utilization of services.
0 $27.1 million for increased Community Placement Plan costs
o $4.8 million primarily Fr increases in provider costs and new facility rates
that are temporarily ineligible for federal financial participation until licensure
is received.
Decreased Federal Reimbursements—A $107.7 million decrease in federal
reimbursements and a commensurate General Fund increase due to the non-
certification of South Central Los Angeles Regional Center, decrease in Targeted
Case Management as a result cf the proposed operations staffing reduction, and
a decrease in the amount cf additional Title XX that can be transferred from the
IHSS.
Habilitation Services Program (HSP) Transfer—The Legislature passed and
the Governor signed Chapter 7, Statutes of 2003, First Extraordinary Session
(SB 24X), which transfers the HSP from the Department of Rehabilitation. (DOR)
to the Department of Developmental Services effective July 1,2004- NI of the
resources requested in the Mid Year Revision to transfer the program July !,
2003, are reversed, including the $114.7 million General Fund transferred fram.
the DQR for local programs.
Parental Co-Payments—The May Revision also assumes a decrease in the
projected revenues Fir the proposed Parental Co- Payment. A $14.7 million
decrease in the General Fund revenues estimated in the Governor's Budget is
assumed due to delayed implementation of the Co -Payment proposal.
GOVERNOR'S BUDGET MAY REvISION 1 2003-04
* EXPENDITURES
Department of Rehabilitation
2002-03 - $6.4 million
2003-04 $105.8 million
Current Year
The May Revision reflects a net General Fund savings of $6.4 million. Significant
adjustments include. (1) savings of, $839,000 in the Vocational Rehabilitation
Program (VRP) resulting from an estimated decrease in caseload, (2) savings of
$7.1 million in the Habilitation Services Program (HSP) attributable to a projected
decline in caseload, and (3) costs of $1.5 million in the Work Activity Program and
Supported Employment Program resulting from the erosion of savings from the
proposed 5 percent provider rate reduction,
Budget Year
The May Revision reflects a net General Fund increase of $105.8 million in 2003-04,
comprised of the following:
Caseload Projections—Revised projections for both the VRP and HSP reflect an
increase in caseload. However, the VRP caseload reduction is offset by a higher cost
to serve clients resulting in costs of $556,000 General Fund. Additionally, savings
in the HSP are greater because of an increase in the Home and Community -Based
Waiver reimbursements for total General Fund savings of $12.3 million. Further,
$594,000 of the projected General Fund savings from the proposed rate reduction
will not materialize.
Technical Adjustments to Implement HSP Ti ansfer—The 2003-04 Governor's
Budget Proposed to transfer the HSP to the Department of Developmental Services
(DDS) effectiveJuly 1, 2003. The transfer would achieve administrative efficiencies
and an estimated riel reduction of 11 positions and net General Fund savings of
$1.5 million- Chapter 7, Statutes of 2003, first Extraordinary Session, delayed the
H51? transfer by one year, making it effective July 1, 2004, but neither restored the
positions or funding necessary to administer this program in the budget year, nor
adjusted the departments' budgets accordingly. The May Revision proposes the
restoration of the MSP funding within the DOR by: (1) adding 29.3 positions and
$2.2 million General Fund for support, and (2) $114.7 million Cieneral Fund forlocal
assistance. Conforming actions are being made in the DDS budget.
GOVERNOR -5 BUDGET MAY REVISION � 2-003-04
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M1
EXPENDITURES *
Department of Mental Health
2002-03 – $7.1 million
2003-04 –$7.9 million
Long -Term Care/State Hospitals
Carrent Year
The May Revision includes $7.1 million in General Fund reductions in long-term
care, primarily as the result of a new methodology forestimating state hospital
population, The revised state hospital population estimate is based on additional
data on the number of patients in the first nine months of 2002-03 that were not
available in the Fall. The General Fund reductions are comprised of the following -
State Hospital Population—The W Revision projects a state hospital caseioad
reduction of 127 judiciaHy-committed/Penal Code patients from the level in the
Qove-rnors Budget, resulting in a current year savings cf $8.2 million General
Fund. Caseload is expected to decline from 4,552 patients to 4,425 patients.
This derdine in caseload will result in the elimination of 82.7 positions (7a6
personnel years).
Sexually Violent Predator (SVP) Evaluations—A General Fund increase of
$1.1 million is proposed to fund additional evaluations of SVPS to be performed
by private contractors.
Budget Year
Fundin,g forlong-term care and state hospitals is anticipated to decrease by
$9.5 million General Fund, This revised estimate is based on an additional
nine months of data with wNch to estimate the number of patients and a
new methodology to estimate operating expenses and equipment. Significant
adjustments are as follows:
State Hospital population-- A reduction of 213 positions (202.4 personnel
years) and a savings of $17.1 million ($11.5 million General Fund savings)
reflects a net reduction of 93 judicially-committed/Penal Code patients and 90
county -funded patients below the Governor's Budget. The budget year census is
projected to decrease from 4,640 patients to 4,457 patients.
Delay Activation of Coalinga State Hospital -«--fit reduction of 33.3 positions
(3 1. .6 personnel years) and a savings cf $2 million General Fund reflects a fou r -
month delay and a revised estimate of January 2005 for facility activation.
GOVERNOR'$ BUDGET MAY REVISION i 2003-04
EXPENDITURES 65
SVP Evaluations— A Qenerdl Fund increase of $2 million is proposed to fund
additional evaluations of SVR . This increase will fund additional evaluations to
be performed by private contractors, as well as additional costs for evaluator
testimony,
The Administration will also request two pieces of trailer bill language to insure
public safety and clarify the State's fiscal obligation to provide community
treatment programs for SVP patients. First, proposed language will enhance
the sentence for conviction of a felony committed by SVP patients while under
supervision and treatment in a conditional release program. Second language
proposed will restrict placement in a conditional release program to those
SVP patients who do not require extraordinary measures of supervision and
treatment to prevent further sexually violent behavior.
Commu-nity Mental Health Services
Current Year
The May Revision includes no General Fund adjustments in 2002-03 for community
mental health services. However, a technical change is proposed to the QeneraJ
F und budgeted within the Department of Health Services for mental health services.
Early and Periodic ScTeening, Diagnosis, and Treatment (EPSDT) Estimate
Validation—The May Revision includes a reduction of $4.6 million ($2-3 million
General Fund savings within the Department of Health Services JDHSJ budget)
to reflect a technical correction in expenditures based on statistical validation
of the estimating methodology, There is no reduction in services as a result of
this change.
HudgelYear
Realignment—The Governor's Budget proposed to preserve critical programs
by transferring responsibility to counties and dedicating a revenue stream to
support the additional local financial obligations. The revised Realignment
proposai for the budget year continues to include the Children's System of Care
($20 million) and Integrated Services for Homeless ($55 million) programs
because counties currentl administer these programs and can easily assume
program responsiWlities, The Administration will continue to work collaboratively
with the Legislature to resolve issues relating to revenue allocation, allowing
counties to shift funds among programs, and the nature of continuing Stare
oversight of the realigned programs.
GoVERNOR'S BUDGET MAY REVISION 1 2003-04
KI
The May Revision includes a $1.6 million General Fund tncrease in 2003-04 for
community mentai health services compared to the January Governor's Budget,
comprised primarily of the following significant adjustments --
DT Accrual to Cash Accounting—Funding for the EPSDT program is
proposed to decrease by $208.2 million ($115,7 million (3eneral Fund within
the DHS budget) to reflect the change from an accrual to cash accounting
methodology far Medi -Cal services. There is no reduction in services as a result
of this change.
EPSEST Estimate Validation—The May Revision includes a reduction of
$11.6 million ($5,5 million General Fund savings within the DHS budget) to
reflect a technical correctlon in expenditures based on statistical validation of
the estimating methodology. There is no reduction in services as a result of this
change,
Managed Care Adjustment Funding for Mental Health Managed Care is
proposed to increase by a net $9.8 million ($4.9 million General Fund) to reflect
forgone savings from the proposed 10 percent across-the-board reduction in
2003-04 and a reduction in fedi-Cal beneficiaries. Department operations ll
also decrease by $5 million ($1.3 million General Fund) as a result of a revision
to the federal regulations delaying the implementation of External Quality
Reviews.
Community Services ActMtjes—General Fund savings of $2 million is
proposed to reflect the elimination of various community services activities,
mcluding Funding for Sacramento County, rehabilitation services, and grants to
community organizations,
Department of Alcohol and '"rug Programs
2002-03 $4.8 million
2003-04 $227.5 million
Current Year
General Fund costs for the Department of Alcohol and Drug Programs (RADP) gill
increase by $4.8 million, reflecting an increase of 1,009 in estimated Drug Medi -Cal
caseload and higher rates paid for services.
GOVERNOR'S BUDGET MAY REVISION 1 2003-04
* EXPENDITURES
Regular Drug Medi-Cal—Caseload is expected to be 1.9 percent higher than
rjra-ie� ted in the Governor's Budget. Costs will increase by $4.6 million General
Fund, or 9.5 percent, above the GovernoCs Budget,
Perinatal Drug Nerd-Cal—Caseload is estimated to decrease by 15.8 percent,
or 1,225 clients from the Governor's Budget. Costs, however, are expected to
increase by $178,000 General Fund, or 8.23 percent.
Budaet Year
General Fund costs are estimated to increase by $239 million for ?hefollowing
reasons.,
Defer Realignment—The alcohol and drug programs, originally a part of
realignment, are proposed to be reinstated in the budget and are no longer
being considered for realignment in 2003-04, Realignment remains a crucial
component of structural reform. However, to provide mo; e time for legislative
consideration, the majority of the Administration's January realignment proposal
is being deferred to the remainder of this legislative session for implementation
in 2004-05. Thus, funding was restored ($230.3 million General Fund) for local
alcohol and drug programs, drug court programs, and State operations to
refiect the deferral cf the original realignment proposal.
Regular Drug Medi-Cal—The estimated caseload for Regular Drug Medi -Cal
will !ncrease by 8,128 clients, or 6.4 percent, above the Governor's Budget.
Ccsts are expected to increase by $5.6 million Cleneral Fund. The increase
in expenditures reflects a technical correction in estimate methodology,
which undercounted the Genera! Fund cost of the minor consent program.
Additionally, overall costs are also expected to increase due to higher average
costs.
Perinatai Diug MedimCal—Caseload is projected to increase 13.4percent, or
approximately 845 c5ents, above the Governor's Budget. Costs are expected to
increase by $111,000 General Fund, for updated population and an increase in
the average cost of services.
Annualized Funding for Drug Court Partnership Program—One-time
savings in the Drug Court Partnership Program were captured for 2002-03, and
restoration of the annual funding level was made contingent upon the courts
demonstrating savings through avoidance of prison days. Outcome data for the
restructured Drug court Partnership Program revealed almost 80,000 prison
days avoided, resulting in estimated General fund savings cc $10.6 million. A
$3 nillicn General Fund augmentation is requested to restore the annualized
funding and maintain the prison savings.
WA
GoVERNOR-s BUDGET MAY REVISION 12003-04 -�W
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General Fund Reductions
Due to the State's fiscal outlook, the May Revision proposes to reduce discretionary
alcohol and other drug services, excluding perinatal programs, by $11.5 million
General Fund, and fund the Department at the Substance Abuse Ptevention and
Treatment Block Grant Mainteriance-of-Effort requirement.
Department of Social Services
2002-03 $40.9 million
2003-04 $2.5 billion (Reflects deferal of realignmen? proposal)
CaIWORKs
The 2002-03 average monthly Ca]WQRKs caseload of 482,000 represents a
3-9 percent degrease fram 2001-02. For 2003-04, the caseload is expected to be
471,000, 46,000 be) ow the Q overnof s Budge? projection and a 2.2 percent decrease
from the 2002-03 projection.
The May Revision continues to meet the federally -required combined State and
county Temporary Assistance for Needy Families (TANF) rna.fnteriance-of-effort
(MOE). For 2002-03 and 2003-04, the MOE will be met at $23 billion. For 2002-03,
total CalRKs-related expenditures are estimate d to be $7.2 billion including
the transfer to the Department of Education (SDE] for child care and county
expenditures, For 2003-04, total CaIWORKs related expenditures are anticipated to
be $7,0 billion,
Major General Fund and TANF Block Grant changes proposed for 2002-03 include:
Assistance Payments- A $307.3 million decrease due to lower than projected
caseload based on more current data reflecting that caseload has continued
to decline, rather than flatten as originally projected. This is partially offset by a
loss of time-firnit savings attributable to fewer cases than previously estimated
reaching the 60-manth CaIWORKs time limit.
Employment Services—An $83.3 million increase due to fewer cases than
previously estimated reaching the 60 -month CaIWORKs time limit and an
increase in county performance incentive funds carried over from prior years
Child Care —A $73.3 million increase for CalWORKs child care due to a higher
cost per child, fewer cases reaching the 60 -month CalWORKS time limit, and a
lower estimate of savings attributable to the discontinuance of retroactive child
ft
2WGOV5RNOR'S BUDGET MAY REVISION 1 2003-04
ExPENDITURES
care payments. Funding has already been transferred to Stage One from the
Child Care Reserve to address the majority of this increase.
,Kajor changes proposed for 2003-04 include:
Assistance Payment i—A $940.1 million decrease as a result of assessing
counties a 30 percent share cf Cal ORI grant costs, as discussed in the
Realignment section below, and a projected decrease in caseload, partially offset
by a $229.3 million increase to reflect the restoration of the grant reduction
proposed in the Governor's Budget -
Employment Services—An $84.6 million decrease in the one-time augmenta-
tion to Cal WORKs employment services proposed in the Governor's Budget, to
make funds aailable t reverse the proposal to reduce CaIWORKs grants, effec-
tive July 1, 2003,
Total TANF Block Grant Reserve —A $74.3 million increase in the Total TA IF
Block Grant reserve for contingencies, making the total reserve $331.6 million.
This funding will be available for unanticipated needs in any program for which
T
LANF funds are appropriated, including CalWORKs benefits, employment
services, county administration, and child care: as well as litigation and changes
in federal laws and regulations. The funding to increase this reserve has been
redirected from decreases in expenditures due to the lower caseload estimate,
CaIWORKs Child Care
?be May Revision reflects a decrease of $27.4 million for CalWORKs Stage One
child care administered by the Department of Social Services (DSS) in 2003-04.
This decrease is due primarily to child care reforms, including a reduction in
reimbursement rate ceilings for licensed providers, elimination of services for certain
grandfathered farnilies, and implementation of a modified fee schedule.
in addition, the May Revision reflects an increase of $195.3 million for Ca]WORKs
Child care administered by the SDE, Of this amount, $38.3 million is an increase in
Stage 2 child care due to fewer child care cases than previously estimated reaching
the 60 -month CaJWORKs time limit, and $157 million to enable a like amount of
Child Care and Development Block Grant funding to be used to augment Stage 3
child care,
GovER:NO R'S BUDGET MAY REVISION 12003-04
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Supplemental Security Income/State Supplementary Payment
I (SSI/SSP) Programs
Total General Fuad expenditures for the SSI/SSP program are 3 billion in loth
2002-03 and 2003-04, which represents increases of 8.7 million in the current
year and $674.0 million in the budget year, compared to the GovernoCs Budget.
Caseload for the SSI/SSP program is projected at 1,128.000 recipients in 2002-03,
and 1,151,000 recipients in 2003-04. Significant General Fund adjustments include:
An increase of $441.6 million General Fund in 2003-04 to restore the grant
reduction proposed in the Governor's Budget, while maintaining the proposal to
suspend the State -only CODA.
Increases of $8.7 million General Fund in 2002.03 and $12.2 million General
Fund in 2003-04, due to higher than anticipated caseload growth and a higher
average grant in the SSI/SSP program. The year-to-year caseload growth is
projected at approximately 2 percent.
In -Home ro tive Services )
General Fund expenditures for the lHS3 program are above the levels reflected in
the Governor's Budget by $15.8 million in the current year and $1.2 billion in the
budget year. Caseload is projected to be 302,000 recipients in 2002-03 and 329,000
in 2003-04. Of the total increase, 51.2 billion is to restore State funding for IHSS
previously proposed for realignment in the 2003-04 0overnor's Budget. Other
significant General Fund adjustments include:
increases of $29 million General Fund in the current year and $46.7 million
General Fund in the budget year due to the higher caseload estimate, higher
wages for IHSS providers, and insreased average number of service hours in
Fos Angeles County.
A decrease of $13.2 million in 2002-03 and $19 million in 2003--04 due to the
availability of increased federal Title XX funding to offset General Fund costs for
eligible recipients.
Foster Care
General Fund expenditures will increase by $64.5 million in the current year, due
primarily to a $53.6 million reduction in Title N- E funds for relatNe Foster Care
providers that were not approved in accordance with federal requirements. The
remaining General Fund increases due to net increases in caseload and average
grant payments.
GOVERNOR'S E.9I GET MAY REVISION 2003-04
* EXPENDITURES
For the budget year, the May Revision reflects an increase of $259,5 million,
due prim.adly to the restoration of $246.1 million in State funding as a result of
the revised cost-sharing ratios for Faster Care included in the Administration's
modified Realignment proposal for 2003-04, Included in the budget year increase
is $0.4 million due to an increase in grant costs for Group Homes, a decrease in
federal)y eligible children in Foster Family Homes, and caseload growth.
Realignment
State (jeneral Funds for a number of social services programs originally included in
the Realignment proposal, are proposed to be reinstated or partially reinstated in the
budget. Realignment remains a. crucial component of sti uctural reform. However, to
provide more time for legislative consideration, the majority of the Administration's
January Realignment prcposal is being deferred to the remainder of this legislative
sessioo for implementation in 2004-05,
CaIWORKs Assistance Payments- A decrease of$782.3 million reflects the
inclusion of CaIWOR.Ks Assistance Payments in the Administration's modified
Realignment proposal for 2003-04. This proposal increases the county share -of -
cost for CaMORKs Assistance Payments from 2.5 percent to 30 percent.
CalWORKs Administration and Employment Services—yrs increase of
$194.4 million is included to partially restore State funding for CalWORKS
Administration and Employment Services proposed for realignment in the
2003-04 Ciovernor's Budget. The modified Realignment proposal assumes
a 30 percent county share -of -cost, while the Covemor'sBudget assumed a
50 percent county share.
Child Welfare Services (C-WS)—An increase of $398.9 million is included to
partially restore State funding for CWS. proposed for realignment in the 2003-04
(3ovemor's Budget. The modified Realignment proposal assumes a 50 percent
county share-of-eost, while the (iovernor's -Budget assumed a 100percent
county share.
Child Abuse Prevention, Intervention, and Treatment (C PIT) Program—An
increase of $1 million is included to partially restore State funding far the CAPFF
program, which was proposed for realignment in the 2003-04 Governor's
Budget. This amount reflects the statutorily -required appropriation to the Stale
Children's Trust Fund to support innovative services contracts to develop child -
centered approa(zhes geared toward the prevention of child abuse and neglect.
Foster Care Grants—An increase of $222.8 million is included to pardally
restore State funding for Foster Care Grants proposed for realignment in the
GOVERNOR'S BUDGET MAY REVISION 12003-04
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2003-04 Governors Budget. The modified Realignment proposal assumes
an 80 percent county share -of -cost, while the Governov'5 Budget assumed a
100 percent county share.
Foster Care Administration—An increase of $23.2 million is included to
partially restore State funding for Foster Care Administration proposed for
realignment in the 2003-04 Governor's Budget. The modified Realignment
proposal assumes a 50 percent county share -of -cost, while the Governor's
Budget assumed a 100 percent county share.
The May Revision proposes to fully restore funding for the following programs
originally proposed for realignment in the Governor's Budget.
* Adoption Assistance Progra m --An increase of $217 million W restore State
fu nding for the Adoption. Assist ante Program.
* Kinship Quardianship Assistance Program (Kin-GAP)—An increase of
$18.6 million to restore State funding for Kin -GAP.
* California Food Assistance Program (CFAP}� increase of $11.2 million to
restore State funding for the CFA P.
* Cash Assistance Program for Immiwants (CAP[)—An increase of
$95,3 million to restore State funding for the CAPI.
* IHSS—An increase of $1.2 billion to restore State funding for IHSS, it
$1.1 billion forlHSS and $84.9 million for administration.
Food Stamp Administration An increase cf $268.1 million to restore State
funding for Food Stamp Administration.
Geiieral Fund Reductions
Expenditures required for enrollment, caseload, and population changes have
increased. Furthermore, the mid -year reductions proposed in January have not been
My enacted. These factors necessitate further adjustments to reduce or eliminate
various programs included in the January Governor's Budget. Accordingly, the
Administration is proposing reductions as follows:
Count Additional Child Care Expenditures Toward the TANF MOE—
$57 million General Fund resulting from counting a like amount of general
subsidized child care expenditures toward the federally -required MOE, This
results in a $57 million increase in TANF expenditures in order to maintain
CaWORKs program funding.
GOVERNOR'S BUDGET MAY REvISION 12-003-04
ExPENDITURES 73
4, Offset CWS Costs with TANFFunds— $27 million General Fund in 2002-03
and $26 million General Fund in 200.3-04 resulting from offsetting costs in the
CWS program achieved by transferring a like amount of TANS` to the federal
Title XX Block Grant.
Financing Adjustment for CWS/Case Management System (CMS)
Computer Hardware—A decrease of $7 m. lion to reflect the financing of a
$10,6 million hardware expenditure included in the QovernoCs Budget for the
CWS/CMS. Under this proposal, the hardware will be financed over a period
of three years. The revised 2003-04 Budget also includes a corresponding
reduction in expenditure authority from the Heath and Human Services Data
Center (HHSDC) Revolving Fund,
* CWS/CMS Maintenance and Operations (M&O)—A decrease cf $4.9 million
to continue M&O activities for the CWS/CMS. This reflects the net changes for
the renegotiated CWS/CMS contract extension, increased support to conduct
competitive reprocurement for follow-on services, and the establishment of
8.0 State positions to support and improve statewide CWSICMS training. The
revised 2003-04 Budget also includes a corresponding reduction in HHSDC
expenditure authority.
* Remove FBI Fingerprinting Exemptian—A decrease of $2.8 million to reflect
the removal of the FBI fingerprinting exemption for small licensed child care
providers (F -Exempt Live Scan). This proposal would create parity among
large (non fee -exempt) and small (fee exempt) providers.
Department of Child Support ServIces
2002-03 –$2.7 million
2003-04 $0.7 million
CnrrEnt'Year
The May Revision includes a decrease of $2.7 million General Fund compared to
the Govemor's Budget. This is primarily savings that results from additional federal
incentives of $3.2 million, which were partially offset by a $1.4 million increase in the
Alternative Federal Penalty. The incre6sed incentives reflect improved performance
on federal child support program performance measures.
GoVERNOWs BUDGET MAY REWSION 1 2003-04
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EXPENDITURES *
Budget Year
The May Revision includes a net increase of $653,000 General Fund. comprised of
the following major adjustments,
S1.8 million General Fund savings because of an anticipated increase in federal
incerltjves,
$1.5 million General Fund increase resulting from an estimated increase in the
Alternative Federal Penalty, based on estimated federal fiscal year (FFY) 2003
administrative expenditures, The Alternative Federal Penalty levied against the
State each year is a percentage of the Child Support Program's administrative
costs for the prier FFY:
$934,000 General Fund reappropriated from the Budget Act of 2002 because
of delays in the procurement of a vendor for the conversion of current county
consortia automation systems into a single statewide system. The systems are
proposed Rr conversion to realize system efficiencies and reduce maintenance,
operations, and system enhancement casts.
Child Support collections are projected to be $2.3 billion in 2002-03 and $2.4 billion
in 2003-04. Collections are expected to increase by $14.5 million. or 0.6 percent for
2002-03 and $46.6 million, or 2 percent for 2003-04, over the level projected in the
Governofs Budget,
Emergency Medical Services Authority
2002-03 —
20-0 $10,8 million
WSMEM
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i estoration of the Emergency Medical Services Authority
(EMSA)
The 2003-04 Governor's Budget proposed the consolidation of the EMSA into the
Department of Health Services (DHS) to improve the coordination of emergency
medical services policy with overall State health policy, and increase organizational
and administrative efficiency through the consolidation of similar functions under
the DHS . The Administration has further evaluated EMSAs role in the development
of State emergency medical services policy, particularly in the area of the State's
medical response to terrorist events, and has determined that EMSA would be
GOVERNOR'S BUDGET MAY REVISION � 2-003-04
* EXPENDITURES
more effective in the development and dissemination of such policy as a stand-
alone entil y The May Revision proposes the restoration of the SMSA funding by
adding 46 (5 positions and $10 8 million General Fund for state Operations and local
assistance. Conforming actions are proposed in the DHS budget.
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Public safety continues to be a high priority forthe Administration, The May
Revision includes an increase of $32.8 million in reimbursements to implement a
federal gran.to prepare California hospitals and other healthcare organizations for
a bioterrovis rn attack. In the wake of the September I P," ten-cirist attacks and the
subsequent anthrax incidents, hospitals and emergency rnedipal services providers
have expressed concern that California is unprepared for a bioteriorist event. This
federal grant funding provides an invaluable opportunity for hospitals and healthcare
providers to focus on biloterrodsm and preparedness issues.
Department of Community Services and
Development
2002-03 $1.3 million
2003-04 —
Restoration of Funding and Positions in the, Department of
Community Services and Development (DCSD)
The May Revision includes an increase of $77.6 million federal funds and
reimbursements and 56.6 positions in the DCSD to restore 50 percent of funding
and positions proposed f6i transfer to the Department of Social Services (DSS) as
part of the Administration's Mid -Year Spending Reduction plan. The revised Budget
for 2003-04 also includes a commensurate reduction in the DSS. This restoration
is necessary due to the anticipated delay in the proposed consolidation from July 1,
2003, to January 1, 2004.
Restoration of Funding for Naturalization Services Program
The Administration's Mid -Year Spending Reduction plan included a proposal to
revert $1.3 million in the Naturalization Services Program to the General Fund
in 2002-03. As there was no legislative action to approve this reversion, the W
Revision fully restores these funds.
&M
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GOVERNOR'S BUDGET MAY REVISION 2003-04 -!W
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Energy Resources Conservation
and Development Commission
2002-03
2003-04
The May Revision proposes the following reversion$, loan, and transfers to the
General Fund:
Revert to the General Fund $4.683 million appropriated in Chapter 8, Statutes
of 2001, First Extraordinary Session, far energy conservation Projects such
as demand responsive building systems, ciassroorn outreach, and equipment
retrofit projects.
Revert to the General Fund $260,000 appropriated in Chapter 329, Statutes of
2000 far conservation and dernand-side management programs.
Loan $20.0 million Public Interest Research, Development, and Demonstration
Fund to the General Fund. The Public Interest Energy Research (PIER) program
provides grants to public and private entities for energy research and develop-
ment projects such as energy efficiency, renewable energy, and energy systems
integration. Due to the long-term nature of the PIER research and development
projects, the proposed loan will address the current General Fund shortfall
without affecting the overall success cC the PIER program. Therefore, PIER
expenditures are proposed for reduction and the resources loaned to the
General Fund.
Transfer of $1.288 million Energy Technologies Research, Development and
Demonstration Account (ETAP) to the General Fond. Under ETA R the California
Energy Commission offers grants and loans to public and private entities for
energy conservation and efficiency -related research and development projects.
Today, ETAP programs are overshadowed by the Commission's PIED Program,
which supports similar research and development activities but on a much larger
sr-nie ($62.5 million per year). Therefore, ETAP expenditures are proposed to be
reduced and fund reserves transferred to the General Fund to support other high
priority programs.
Transfer of $1.014 million Local Oavernment Geothermal Resources
Development Account to the General Fund. The Geothermal Program offers
GOVERNOR'S BUDGET MAY REVISION 2003-04
*: EXPENDITURES
grant-, and loans to local jurisdictions and private entities for geothermakelated
research and development projects, Federal geothermal royalty payments
5upport the program, and the payments may be used for any purpose.
Therefore, we are proposing that program expenditures be reduced and the
funds transferred to the General Fund to support other high priority programs.
Department of Conservation
General Fund Loan
The May Revision reflects d net increase of $44 million in combined current
and budget year loans to the General Fund from various recycling funds. The
current year budget authorizes a loan of $218 million to the General Fund from
the Beverage Container Recycling Fund. The Governor's Budget for 2003.04 also
proposes a n additional loan from that fund of $80 million. Based on revised cash
ft . ow projections for the Beverage Container Recycling Fund, it is projected that the
fund will have 4isufficient cash to achieve the full amount of these loans. Therefore,
loan transfers to the General Fund will be down $30 million in the current year and
$10 million in the budget year. However, there will be significant balances in both
the Glass Processing Foe Account and the Plastic Processing Fee Account available
in the budget year. After setting aside a prudent five percent reserve in each of these
accounts, an additional loan to the General Fund of $84 million is proposed in the
May Revision for 2003-04.
Department of Water Resources
2002-03
2003-04 -$4.7 million
Dam Safety Fees
The May Revision preposes to reduce General Fund support for the 'Darn Safety
Program by $4.7 million and replace these funds with fees. The Department of
Water Resources' Dam Safety Program inspects and evaluates the structural
integrity cf darns throughout the state. The General Fund is currently responsible for
Uiding approximately 70 percent of this program. with the remaining 30 percent
funded from existing fees on darn owners. This proposal will increase dam Safety
fees to offset most of the General Fund expenditures for the Dam Safety Program,
GoVERNOR'S BUDGET MAY REVISION 1 2-003-04
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resulting in $4.7 million of Qevert Fund savings. However, this fee increase will not
apply to owners cf smaller darns on farms and ranches.
Public Utilities Commission
2002-03
2003-04
The May Revision proposes a $136.0 million loan from the California Teleconnect
Fund Administrative Committee Fund to the General Fund. The Cafifornia
Teleconnect Fund Program offersdiscounts on telecommunications services, such
as business lines and broadband services, to qualifying schools, libraries, hospitals,
and community-based organizations. However, the program has been underutilized,
due in part, to a competing -federal program that offers similar discounts on
telecommunications services. As a result, $136.0 million can be loaned tea the
General Fund with no programmatic impact.
The May Revision also proposes an increase oC $1.92 million Public Utilities
Commission (PUC) Utilities Reimbursement Account for expert witnesses to assist
PUC with defense of the Pacific Gas & Electric (PG&E) v. Loretta Lynch et al lawsuit.
if won by PGGE, this lawsuit could allow the utility to raise electricity rates to collect
between $3.0 billion and $8.0 billion From ratepayers.
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Secretary of State
2002-03 $2.2, million
2003-04
The May Revision includes $1.i million for increased postage costs for the November
ballot and the redesign and printing of Voter Registration Cards. In addition, $1.1 million
is proposed for payment of federal court -awarded attorney fees against the Secretary
of State related to the decertification of specific punch -card voting systems,
GOVERNOR'S BUDGET MAY REvlSiON 2003-04
* EXPENDITURES
Department of Veterans Affairs
Headquarters
2002-03 —
2003-04 $1.9 million
6 MeMay Revision proposes an augmentation cf $1.9 million and 28 positions,
induding the transfer of $1.7 million and 27 positions from the Yountville Home's
budget to shift central service position authority and funding to Headquarters- The
remaining position and. $161,000 will provide for a new Director of Medical Services
to provide medical oversight for all three 'ho.m es-
Yount.ville Home
2002-03 $44 million
2003-04 -$1.8 million
Current Yeas
The May Revision includes $4.4 million General Fund due to a shortfall in
reimbursements in the current year for the Yountvifle Horne.
fludget"Year
The May Revision proposes a reduction of $1.8 million General Fund, a reduction
in Medicare/Medi-Cal reimbursement collections of $3.2million, an increase of
$980,000 federal Funds, and a reduction of 60 positions. These changes are due
to an increase in the United States Department of Veterans Affairs (USOVA) per
them rate and a reorganization of the Yountville Home, including the downsizing of
Haldermdn Hospital. the transfer of 27 central services positions to Headquarters,
the consolidation of the business office, and the realignment of both the urgent care
and the ambulatory care clinics.
Barstow Home
2002-03 $1.1 million
2003-04 -$1.8 million
Current Year
The May Revision includes $1.1 million General Fund for current -year transpor-
tation, nursing registry, and security costs associated with closure of the Skilled
Nursing Facility at the Barstow Home.
0
OV NOR' BUDGET MAY REviSiON 1 2003-04 _�W
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Budget Year
The May Revision proposes a reduction of $1.8 million (leneral Fund, a reduction
in reimbursement collections of $3 million, and a reduction in federal funds of
$18 million due to the closure of the Skilled Nursing Facility at the Barstow Home.
Chula Vlsta Rome,
2002-03 —
2003-04 $22,000
The May Revision proposes a $22,000 increase in General Fund, a $1.3 million
increase in reimbursements, and a $1 million increase in federal funds. These
changes are due to an increase in the USDVA per them rate, an increase in the
budgeted census level related to the closure of the Skilled Nursing FacHity at the
Barstow Home, and increased Medicare/Medi-Cal re-imburse rnent and USDVA per
them rate collections resulting from the conversion of the Intermediate Care Facility
to a Skilled Nursing Facility.
Employment Development Department
2002-0
2003-04
The May Revision provides for several changes to Employment Development
Department (EDD) programs that are primarily federally funded. Highlights of
significant changes are described below.
Unemployment and Disability Inn -trance
Current Year
The May Revision includes increased benefits of $1.6 billion for the Unemployment
Insurance (Ul) and Disability Insurance (DI) programs. The projected increase
in benefit payments is associated with statutory changes to the weekly benefit
amounts in both programs. Additionally, the sluggish economy continues to impact
employment levels, leading to increased r-laim activity in the U1 program.
Budget ' ear
The May Revision includes a 51.4 billion increase for Ul and a $66.2 million increase
for D1 benefits in 2003-04- The projected increases are due to a higher level of
unemployment claims and increased claim duration in both programs. in addition to
these benefit adjustments, tine May Revision proposes the following augmentations:
AY1-
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GOVERNOR'S BUDGET MAY REVISION 12003
* EXPENDITURES
v, An -increase of 103 personnel years and $13.6 million to implement the Faruk
Temporary Disability Insurance Program authorized by Chapter 901, Statutes
of 200.2 (9,13 1661). This program will provide temporary financial assistance to
individuals who take leave from work to care for a sick or injured family member
or for the birth, adoption, or foster care placement of a new child.
An increase of 43.7 personnel years and $3 million to perform fraud prevention
activities in the (JI program.
An augmentation of $0.6 million for the Treasury Offset Program, which will
generate $14.3 million in new General and revenue from tax collections and
transfers.
Workforce Investment Act Programs
Rudget year
The May Revision reflects a reduction of $88.9 million in federal Workforce
investment Act funds. Of this amount, $66,6 million will be reduced from local
assistance programs for adu it employment and training, youth activities, and
dislocated workers. The state operations reduction of $22.3 million will affect
prograrns supported by 25 percent Rapid Response funds and 15 percent Governor's
Discretionary funds.
Office of Emergency Services
2002-03 -
- 4
-04 $663,000
The May Revision proposes to restore $663,000 in local assistance General Fund
for the Disaster Service 'Worker's Volunteer Program, which provides worker
compensation coverage to registered disaster service worker volunteers who are
injured w-hHe performing disaster -related activities.
Department of Food and Agriculture
Exotic Newcastle Disease—An additional $34,6 million in federal funds is
proposed to detect, contain, and eradicate the Exotic Newcastle Disease which is
GovERNOR's BUDGET 1AY REVISION 12003-04
a
ExPENDITURES
a highly contagious disease that affects poultry food production, infects most bird
species, has the abrlity to spread opidly, and has a high fatality rate.
CaliforniaArts Council
2002-03
2003-04 45a5 million
Due to the continuing deterioration of the State's fiscaloutlook, the May Revision
proposes reductions totaling $5.5 million in General Fund for the California As
Council, bringing total reductions to the Arts Council to $14 million, including:
State Operations— $ 32,000 and 18 positionsfor state operations, This reductio
would retain 5317,000 for the Arts in Education Program, $227,000 ire the
Performing Arts program, and $956,000 for the Organizational Support Crants
Program.
Local Assistance— million for local assistance projects and grant programs
This reduction would retain $1.6 million for the Arts in Education Program,
$1.6 million for the Organizational Support Grants Program, $300,000 Fix the
Performing Arts Program, and $1 .5 million for the Cultural Institutions Program.
The Budget Act of 2002 deferred payment for non -education mandate obligations
from prior years as well as the 2002-03 costs of those mandates. The 2003-04
Governor's Budget proposed to continue the deferral of mandates om p yments,
preserving the obligation of local governments to provide the mandated activities
as well as the obligation cf the State to reimburse those entities in the future, with
interest.
The May Revision proposes the suspension of 34 mandates and the repeal of one
mandate. The mandate proposed for repeal, related to the Open Meetings Act
(Chapter 641, Statutes of 1986), requires local entities to post agendas egarding
items to be considered at meetings, as well as the time and location of the meetings.
This mandate requires local governments to perform activities that any responsible
public agency should perform without being mandated to do so, and retaining it
would continue the State's obligation to pay the cost. Mandates such as this result in
additional Genera! Fund costs without producing a significant benefit to the State.
* ExPENDITURES
This actio.n would reduce the annual obligation for non -education mandates
by approximately $319 million. The State's total estimated obligation for norm
education mandates through 2003-04 would be reduced to approximately
$876.3 million. The estimated deferred obligation in 2003-04 alone for non -
education mandates wouid be reduced to approximately $162.6 million.
It the Administration's intention to draft the statutory changes necessary to
repeal 27 of the 34 mandates proposed for suspension in this proposal during the
development of the 2004-05 Governor's Budget.
State Retirement Contributions
Supple . Defits Maintenance Account
2002-03
2003-04 $3.5 million
(jer! er-al Fund contributions to the State Teachers' Retirement System (STRS')
Supplemental Benefits.ma-Intenance Account (S t+ for purchasing power
protection will increase by $ 3.5 million far 2003-04 (from $55.4 million to
$58.9 million), This is due to a recalculation of 2001-02 fiscal year teacher payroll,
which is the basis for the statutory formula. Normally, this would result in a total
contTibution of $558,9 million, but for the 2003-04 fiscal year only, the contribution
to the SA is reduced by $500 million pursuant to the enactment of Chapter 6,
Statutes of 2003, First Extraordinary Session (SB 20X), This results in no reduction
to benefits for retired teachers,
Judges' Retirement Svstem
2002-03
2003-04 -$10.3 million
The May Revision €ncludes a decrease of approximately $10.3 million General Fund
(from $97.7 million to $87.4 million) to reduce the Judges' Retirement System I fund
balance far benefitpayments to retired judges from two months to one month.
GOVERNOR'S BUDGET MAY REVISION 12003-04
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Department of Personnel Administration
Staffing for Layoffs
2002-03 -$1,4 million
2003-04 $L5 million
The GavernoCs Budget does not include funding for salary increases effective in
2003 -QUI. In April, the Director of Finance and the Director of the Department of
Personnel Administration jointly requested departments to prepare staff reduction
plans to mitigate the effects of the nbudgeted salary increases.
The May Revision includes an increase to the 2003-04. Governor's Budget of
$1,477.000 to provide the Department of Personnel Administration with adequate
staffing and funding to implement a layoff plan.
Rural Health Care Equity Program
2002-03 $11.5 million
2003-04 $9.3 n-dilion
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The Administration has requested the State Chief Information Officer to develop
a Governor's Reorganization Plan to consolidate the Health and Human Services
Agency Data Center and the Stephen P Teale Data Center beginning in fiscal year
2004-05, with the objective of positioning the State to implement data center
services more effectively. While no immediate operational savings wi II be derived,
there should be other benefits including potential administrati ie savings and savings
from consolidated purchasing.
Department of Corporations
2002-03
2003-04
GovERNOR'S BUDGET MAY REVISION 2003-04
* ExPENDITURES
The May Revision includes the following transfer to the General Fund:
State Corporations Fund—.A transfer of $36 million from the State Corporations
Fund to the General Fund. These funds are available due to a $40 million settlement
related to conflicts of interest in Wall Street analyst research.
ME=
Statewide Outreach on Predatory Practices --An increase of $4 million in special
funds in order to provide consumer education outreach on predatory investment,
financing, and lending practices. These funds are available from the settlement
related to conflicts of interest in Wall Street analyst research.
Department of Howin g and
Community Development
2002-03
2003-04
Fund Transfers and Loans
The May Revision includes the following transfers and Joan5 to the General Fund.
Self -Help Housing Fr nd—A transfer of $7 milhon from the Seif-Help Housing
Fund.
Housing Rehabilitation Loan Fund- A transfer of $9.7 million and a loan of
$31.7 million to the Housing Rehabilitation Loan Fund.
Fun J Shifts
The May Revision includes the following fund shifts to the Housing and Emergency
Shelter Trust Fund Act of 2002 bond funds and resultant transfers to the General
Fund
Self -Help Housing Fund—A fund shift and transfer to the General Fund of
$12,6 million frcm the Self -Help Housing Fund
Farmworker Housing Grant Fund—A fund shift and transfer to the General Fund
of $271 million from Farmworker Housing Grant Fund
GOVERNORS BUDGET MAY REVISION 1 2003-04
99
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Special Transportation Programs
2002-03
2003-04
Budget Idj-astment
The Nay Revision proposes to cap the revenues dnd expenditures for Special
"Franspa"tion, Programs at the $100 4 million level specified in the 2003-04
Governor's Budget, resulting in P gain of $87.4 million to the General Fund.
Department of Transportation
2002-03
2003-04 $207 million
mmmm���
The May Revision proposes the following adjustments -
Transportation Investment Fund (TIF)—The May Revision includes a modification
of the Governor's Budget proposal to suspend the transfer of revenues from the sales
tax on gasoline. In order to proAde gufficient funds to meet the cash requirements
of projects that received allocations prior to December 2002. the May Revision
proposes to transfer $207 million in revenues from the General Fund to the
TIF pursuant to Article XLXB, Section 1(d) of the Constitution. Of this amount,
$157.5 million is proposed for expenditure from the continuous appropriation of the
Traffic Congestion Relief Fund for project expenditures. A budget act appropriation
of 49e 5 million is proposed to support 283 positions/268.7 personnel years for
project and program support workload. Budget trailer bill language is also proposed
fors partial TIF suspension of $938 million the amount over $207 million, and to
specify that the (3eneral Fund Shall be obligated to repay the TIF for the amount of
the transfer that is suspended in 2003-04.
Project Delivery Workload—An increase of $98.4 million and 1,365positions/
1,296.5 personnel years relative to the Qovernor's Budget to reflect project delivery
workload. This staffing level includes workload fcr the rion-Traffic Congestion Relief
Fund components of the Traffic Congestion Relief Program projects.
GoVERNOWS BUDGET MAY REvisiON 1 2003-04
*, EXPENDITURES
High -Speed Rail Authority Consolidation—A net decrease cf $1.6 million
consisting of,
A decrease of $1.9 million to reflect the reversal of the consolidation of the High -
Speed Rail Authority (,Authority) within Caltrans as proposed in the GovernoCs
Budget.
An increase of $312,000 in reimbursements fer Caltrans to re&ect three
personnel years of support to assist the Authority, thereby incorporating
,-altrans expertise into the Authority's environmental impact report and planning
processes.
High Speed Rail Autho rity
Budget Adjustmenta
The May Revision proposes the following adjustments -
Reversal .& Consolidation Proposal—An increase of $3.8 million in special funds
to reflect the reversal of the consolidation of the High -Speed Rail Authority within
Caltrans as proposed in the Governor's Budget and the receipt of $1.2 million
in federal funds of which $312,000 will be used to reimburse the Caltrans for
assistance related to completion of the EIR,
Technology, Trade, and Commerce Agency
2002-03
2003-04 - $3.8 million
The May Revision continues reductions from January totalling $22.8 million General
Fund and 156.4 positions, and proposes the following restorations.
Manufacturing Technology programs— $ 2.1 million in reimbursements from the
Employment Training and and LO position far an interagency agreement with the
Employment Training Panel to administer $2 million in local assistance grant funds
for the Manufacturing Technology Program.
Tourism Commission Assessments— $929,000 in reimbur5ement authority to
restore 1. 5 positions to collect the industry assessments on behalf cf the nonprofit
Tourism Commission,
GOVERNOR'S BUDGET MAY REVISION 1 2003-04
M
RE
Of of Military Base Reuse and Ret tion— 180,000 Geneval Fund and
ID position to restore funding for the Office to continue to represent California's
interests before the next Base Realignment and Closure Round in 2005.
California Main Street Program— $126,000 General Fund to restore funding for
L0 posit -ion for the California Main Street Program.
Tourism Marketing Contract Funds— $2-5 million General Fund for tourism
marketing in conjunction with the Tourism Commission.
Savings on Contract ftenegotiablops
2002-03
2003-04
Budget Year
The May Revi sion adds Control Section 5.50, which would authorize the
Administra tion to develop and implement a plan to generate and capture savings
of up to $100 million ($50 million General Fund) cr more through operational
of ciencie-s in areas such as contracting, leasing, and procuring goods and services.
This control section authorizes the Department of General Services to develop the
specific details of the plan, and the Department of Finance to approve and allocate
the necessary reductions,
Employee Compensation
Control Section 4,10
The Governor's Budget difected the Department of Personnel Administration (DPA)
to negotiate through the collective bargaining process a reduction of $855 million
($470 million General Fund) in 2003-04 employee compensation expenditures.
To achieve this red ton, the State is prepared W pursue deferring scheduled
salary increases, lowering or freezing future salary or benefit expenditures, layoffs,
furloughs, and other similar personnel actions.
In anticipation of changes, the Governor's Budget did not include any new Funds
for employee con, pensation increases and also assumed a net reduction of
$95.5 million ($65.9million General Fund) from departments' base budgets for
employee expenses. While the May Revision continues these planned savings, the
State must be prepared to implement other alternatives should the savings not be
realized in a timely manner through the collective bargaining process.
GoVERNOR'S BuDGET MAY REVISION 12003-04
SL
On April 1, 2003, the Director of Finance and the Director of DPA required
departments to submit reduction and layoff plans, Control Section 4.10 will allow
the Director of Finance to implement these plans and other savings strategies
necessary to keep the budget in balance, as necessary. To help preserve critical
programs, the control section also permits the Director of Finance to rebalance
between separate items of appropriation. This authority is restricted such that the
net effect of all actions taken by this control section is to reduce appropriations by at
least $955 milljon ($65.9 million General Fund), and actions taken pursuant to the
section will be reported to the Legislature,
Control Section 4-15)
2003-04 State Appropriations Limit Calculation
Pursuant to Article XIIIB of the California Constitution, the 2003-04 State
Appropriations Limit (SAL) is estimated to be $61,724 billion. The revised limit is
the result of appiying the growth factor of 3.79 percent, The revised 2063-04 limit is
$462 mi Ilion above the $61,262 billion estimated in January. This increase is due to
changes in the following factors-,
Per C"apita Personal Income
State Civilian Population
1014 Average Daily Attendance
January
May Revision
percentage
Percentage
1.51
2,31
1.56
1.69
131
1,03
For $Aj- purposes, per capita personal income is defined as calendar fourth
quarter California personal income, as estimated by the US Bureau of Economic
Analysis (BEA), divided by California civilian population, estimated by the California
Department of Finance. Since BEA does nat release its estimate until April, the
Department of Finance uses its own estimate for the Governor's Budget. The May
Revision reflects the BAs estimate,
The SAL for 2002-03 does not change since it was statutorily established by Control
Section 12,00 of the 2002 Budget Act.
GoVERNOR' s BUDGET MAY REVISION 1 2-003-04
M
93
General Obligation Bonds and
Commercial Paper Debt Service
2002-03 -$7.8 million
2003-04 $54.7 million
The Governor's Budget anticipated current year general obligation (GO) bond debt
service expenditures of approximately $1.693 billion The May Revision proposes a
reduction of $7,8 million to reflect savings from Commercial Paper costs and accrued
interest and premiums from bands sales occurring in spring of the current year.
The Governar's Budget anb6pated budget year GO bond debt service expenditures
of approximately $1.870 billion. There will be a net increase of $54.7 million in debt
service funding in the budget year resulting primarily from an increase in the sales of
fixed and variable rate bonds.
Lease -Revenue Debt Costs
2002-03 - $170,OOC
2003-04 - $12.3 million
The May Revision includes $11.4 million in General Fund savings and $909,000
Proposition 98 savings in lease -revenue debt costs in budget year. These
savings result from changes in bond sale schedules and increases in off -setting
reimbursements, In addition, there is $139,000 General Fund savings and $31,000
special f und savings in current year as a result of updated insurance costs.
Payment of Interest on General Fund Loans
2002-03 $106.1 million
2003-04 $119.4 million
Current Year
The 'Governor's Budget anticipated the interest cost on internal borrowing to be
$30.0 rnillion General Fund. However, due to unanticipated events, such as the
loss of the tobacco securitization bond proceeds in April, the enactment of fewer
current year reductions than proposed by the Administration, and the deterioration
in revenues, the State's reliance an borrowing from internal sources to meet
j- WN GoVERNOWS BUDGET MAY REvis[ON 1 2003-04
* EXPENDITURES
cash obligations has increased. Actual interest costs through April are estimated
at $23.6 million. Interest costs for the month of April alone are estimated at
$7.5 -million. Therefore, interest costs for the remaining months cf 2002-03 are now
estimated at $15 million. For this reason, interest costs on internal borrowing are
currently estimated at $45 million, a $15 million increase from the January estimate.
The Governor's Budget included $211.5 million for the interest costs on external
borrowing for 2002-03. The redemption of the 31 installment of Revenue
Anticipation Warrants (RAWs), issued in June 2002, in November rather than
January resulted in $10-5 million cf interest cost savings, On the other hand, it is
estimated that $101.6 million of additional (leneral Fund will be required in 2002-03
to cover additional costs related to the issuance of RAWs anticipated to occur in
June 2003. This estimate includes the anticipated costs for credit enhancement
for the RAWs - It was not anticipated at the time of the 2003-04 Ciovernor's Budget
that the State would need to issue RAWs before the end of the fiscal year; therefore,
these costs were not budgeted at that time. The total cost of external borrowing in
2002-03 is now estimated at $302.6 million, or an increase of $91.1 million. The
total 2002-03 General Fund increase is $106.1 m9lion.
Budget Year
he Governor's Budget anticipated she interest costs on internal borrowing to be
$31.2 million General Fund. The May Revision estimates the interest costs an
internal borrowing to be $30.6 million. This reflects a $554,000 reduction in the
estimated interest due for budgeted loans scheduled to be repaid in 2003-04.
The Governor's Budget anticipated the interest costs on external borrowing to be
$160.0 million General Fund. This estimate was based upon the assumption that
$5,0 billion Revenue Anticipation Notes' RANs) would be issued in July 2003 and
redeemed in June 2004.
The Administration, aiong with tho State Controller's Office and the State Treasurer's
Office, has been monitoring the State's cash condition closely since January- On
February 27, 2003, the Qovernor approved the Controller's request to establish
the General Cash Revolving Fund, the initial step necessary to issue RAWs. The
Controller has indicated his intent to sell up to $11 billion of RAWs in June 2003, and
the Governor granted approval on May 1, 2003. The structure and maturity date(s) of
RAW5 and the siring of RANs to be issued in 2003-04, if needed, have not yet been
determined. Based upon the above, the revised estimate for external borrowing costs
is $280.0 million, or an increase of $120.0 million. The estimate should be sufficient
to cover the interest costs of RAWs and RANs, ifneeded, and any credit enhancement
Tat may be required. The total 2003.44 General Fund increase is $119.4 million,
GOVERNOR'S BUDGET MAY RF-visioN 1 2003-04
a
M
The May Revision estimates are preliminary because the cash flow projections cannot
he completed by the May 14 statutory deadrine. An updated cash flow and related
interest costs will be avallable soon after the formal release of the May Revision.
Financial Assistance to Local Governments
Notwithstanding the change in the State's fiscal outlook, the May Revision continues
to provide for the following:
* 518.5 million for technoiogy grants to local law enforcement.
* $18.5 million for grants to small and rural county sheriffs.
* $232.6 million total ($1163 million each) for the Citizens Option for Public
Safety (COPS) and Juvenile Crime Prevention programs.
Tax Relief to Local Government.s
2002-03 —
2003-04 –$947 million
Section 10754 of the Revenue and Taxation Code requires the Department of Motor
Vehicles (DMV) and the Department cf Housing and Community Development
(HCD), as appropriate, to reduce the vehicle license fee (VLF) offsets and restore
the VLF ... duringany period in which insufficient, moneys are available to be
transferred horn the General Fund to fully fund the offsets." Based on all available
financial information, it is anticipated there will be insufficient moneys available to
be transferred From the General Fund for the offsets, beginning with the payments
scheduled for transfer in July 2003. Thus, this May Revision assumes that the State
will not be obligated to make offset payments in 2003-04.
The May Revision also proposes to restore $40.15 million in subventions to local
governments for property tax losses incurred by enrolling agricultural land in Wil-
harnson Act contracts. The Governor's Budget had proposed to eliminate these
subventions commencing in 2003-04.
GOVERNOR'S BUDGET MAY REVISION 2003-04
* EXPENDITURES
FINANCIAL WSTRUMENTS
Revenue Anticipation Warrants/Revenue Anticipation Notes
in early spring, there were already indications that the State might not have sufficient
cash to fund all critical programs for upcoming months. On February 27,2003,
the Governor approved the establishment of the General Cash Revolving Fund by
the State Controller, a first step to prepare for the possible need to issue Revenue
,"ticipation Warrants (.A s). On April 29,2003, the Controller requested
the Governor's approval to issue $11 billion of RAWs to avoid the need to issue
registered warrants, In light of the current cash position, the Governor approved the
Controller's request onlay 1, 2003,
General Fund cash and internal borrowabie resources will be fully exhausted by mid
to late June as a result ofvarious events, including the rejection by the Legislature
of $2.2 billion of current year reductions and the cancellation cf the $2.Obillion
(second) Tobacco Securitization bond sale. Furthermore, revenues have deteriorated
by over $300 million in the current year. The combination ofthese factors has
resulted in the need forthe State to again issue RAWs, in the amount of $11 billion,
to finance cash flow requirements for June and alae early summer months. However,
ever, the $11 billion of RAWs will be exhausted during the summer. Therefore, a
timely budget is still critical Rr the State to issue RANs to finance the normal cash
flow needs forthe remaining months of 2003 -04 -
Pension Obligation Bond
In the Governor's Budget, the Administration proposed to take advantage of
favorable interest rates by pursuing legislation to authorize the sale of pension
obligation bonds to fund the Skate's General Fund contribution to both the California
Public Employees Retirement System (CalPERS) and the State Teachers' Retirement
Systema (STRS), which were estimated to total $1,510 million in 2003-04. The
Administration was also exploring a fixed-rate borrowing of $1,510 million from
either, or both, systems as an alternativt, to the pension obligation bonds.
Since the Governors Budget was released in January, the Administration has
refined its proposal. The Administration is no longer recommending that pension
obligation bonds be used to pay contributions to SIRS, and the AdmiNstration
M
GOVERNOR'S BUDGET MAY REVISION 1 2003-04 W
W
now proposes to increase the pension obligation bonds to include special fund
and non-gove; mental cost fund contributions to Galli R . A transfer from these
funds will be Treacle to the Qeneral Fund, and the General Fund will be responsible
for all future bond redemption casts. Finally, CalPERS has increased its estimate of
contributions from the Mate in the budget yeah by 31 rnilliott. The net proceeds
from the band are now projected to total $1,908 million, which will be partially offset
by the interest payment in spring, 2004 of $28 million. These changes will result in a
net benefitto the General Fund of $371 million from using pension obligation bonds
in the budget year.
The Legislature has concurred with this proposal by passing Chapter 11, Statutes of
2003, First Extraordinary Session (S8 29X), which was signed by the Governor on
May 5, 2003a The Adffmistvation is worWnq with the Treasurer and the Controller to effect
this proposal in time to issue the bonds before the October 1, 2003, payment is date.
issuance of this debt instrument is contingent on court validation of its legality.
Deficit inn on
Since the January release of the Governor's Budget, the General Fund current year
deficit is now estimated at $10.7 billion.
The May revision accepts the proposal to finance this deficit over multiple years on
the fol'owing three conditions:
The deficit must be financed with a new independent revenue source.
The Legislature must pass the Budget on time
The legislature must continue its work on the structural deficit after the passage
of the Budget.
The deficit financing proposal requires the sale of $10.7 billion in bonds that would
he financed by a temporary one-half cent sales tax dedicated forthe purpose of the
repayment of the bonds. The revenues from the one-half cent sales tax would be
deposited in a newly created spec ial fund. These new revenues are not required to
be included in the Proposition 98 calculation, as new revenues that are dedicated
to a special fund are excluded from General Fund revenues forpurposes of that
calculation, similar to the realignment revenues. The debt serviceforthese bonds
would be subject to annual appropriation by the legislature.
GOVERNOR'S BUDGET MAY REvisION i 2003-04 , _ .
* EXPENDITURES
Long Term Debt Financing
California and most ether states have long used debt financing, at; does private
industry, Financial markets recognize it as a legitimate and appropriate funding
technique. as long as it is employed prudently. Both the bond market and the bond
rating agencies consider a number of factors when reaching a conclusion about the
reasonableness of a State's debt position. The same level of debt may be considered
either reasonable or imprudent depending upon the State's performance over a
range cf factors.
One common measure of a State's debt position is the ratio of its General Fund
supported debt to its General Fund revenue, In January, the Governor's Budget
proposal estimated that the State's debt ratio would peak at 6.53 percent in the year
2008-09. The May Revision results in that ratio peaking at 6080 percent. The increase
is attributable to a revision in the payment schedule for the Pension Obligation Bonds
offset by a nominal increase in annual revenues over the next few years.
Comparison of Debt Service Ratios
Jan 10 Govemor's Budget May Revision
Total Annual Debt Total Annual Debt
Year Revenues Debt Service Revenues Debt Service
($ in Millions', Service % i ($ in Millions) Service %
2003-04
$69,153
$2,621.1
379%
$70,934
$2,506.5
3.53%
2004-05
$71,152
$3,952,6
556%
$71,318
$4,177.7
5.86%
2006-06
$75,651
$4,533.7
599%
$75,836
$4,709.0
6.21%
2006-07
$80,174
$5,073,2
633% j
$50,313
$5,179,3
6.45%
2007-08
$85,004
$5,543,2
6.52% E
$85,178
$5,695,9
&69%
2008-09
$90,033
$5,881,3
1j=
$90,208
$6,132,2
2009-10
S95,406
$6,231.1
6.53%
$95,599
$6,072,0
6.35 . %
2010-11
$102,035
$6,500.5
6.37%
$102.412
$6,332.3
6,18{®
20114112
$109,223
K204L
568%
$109.518
$6,030.4
5.52%
2012-13
$115,832
$6.179,0
5.33% f
$116,190
5;6,005.0
5.27%
Standard Accounting Principles Followed
1, Debt service ratios include long term debt service costs as a percentage of General Fund revenues,
2 5 hort-te, m cash Raw borrowing (RANT,, RAWs) is not inctuded in debt service ratio numbers,
because R is no! a long-term debt obligation.
3, Debtseryce ratios do not include debt funded by legally dedicated specialfunds (tobacco securitization
bonds and deficit finanoing bonds secured by a dedicated new revenue source).
GOVERNOR'S BUDGET MAY REVISION 12003-04
M
This page intentionally left blank.
* SUMMARY CHARTS
SUMMARY CHARTS
2003-04 Governor's Budget
General Fund
Budget Summary
(Dollars in millions)
2002-03 2003-04
Prior Year Bat-ance -$1,985 $1,410
Revenues and Transfers
Deficit Financing and
BE=
and Balance
Budget Reservesz.
Reserve for Liquidation of
Encumbranaes
Special Fund for Economic
Uncertainties
$70,761 $70,934
$1,402 $1,402
GovERNOWS BUDGET MAY REVISION 1 2003-04
M
IM
EN
7
2W11
2003-04 Revenue Sources
(Dollars In millions)
GovERNOR'S BUDGET MAY REVISION 1 2003-04
General
specia I
Fund
Eu_n_ds
Personal Income Tax
$33,456
$1.560
Sales Tax
23,507
4,288
Corporation Tax
7,074
—
Highway Users Taxes
—
3,313
Motor Vehicle Fees
18
7,687
Insurance Tax
1,918
—
Estate Taxes
437
Liquor Tax
288
—
Tobacco Taxes
ill
1,160
Other
4J25
6,827
Total
$70,934
$24,835
2003-04
General Fund Expenditures
by Agency
(Dollars in millions)
2002-03
2003-0.4
Legislative, Judicial, Executive
$2,484
$2,428
State and Consumer Services
480
439
Business. Transportation & Housing
208
426
7-ochnology, Trade, and Commerce
46
25
Resourqes.
1,119
922
Environmentat Protection
174
100
Health and Human Services
23,456
21,124
YQuth and Adult Correctional
5,833
5,729
K-12 Education
29,548
29,080
Higher Education
9,543
8,837
Labor and Workforce Deveiopment
177
90
General Government
4,988
1,233
Total
$78,056
$70,433
GovERNOR'S BUDGET MAY REVISION 1 2003-04
SUMMARY CHARTS
2003-04 General Fund Expenditures
(Vollars in Billions)1
K-12 EdiAoabm
4!.3%
Health and Human Services
30.0% :. 1.1
Higher Education
12.5%
YouthAdult Correc anal
8.1alaPF
Other
2^
CdDui 4ss.
2,1% :$1.5
Resources
1.3% $0.9
Tax Relief
1.0% $0J
State & to r hi s
i
0.6% $0.4
Business, Trans & Housing
0,6% $0,4
riuironme. nWi Protection
0.1% $0,1
$0 5 $10 $15 $20 $2 $30 $36
,5peda= Fund Far
GOVERNOR'S BUDGET MAY REVISION 1 2003-04
EXECUTIVE OffiCE
STEVEPEACE
DiRECTOR OF FINANCE
(916) 445-4141
DAVID TAKASHMA STEVE LAR SON
CHIEF OF STAFF Cmw DEPm DRecTcR
(916) 445-8582 (916) 445-9862
K,A JRYN RADTKEY-GAITHER ROBERT MIYASHIRO
\s$isTANT DIREQ70R FOR DEPUTY DIRECTOR FOR
iUDGETS AM OPERATIONS LEu%xnoN
(916) 445-4923 (916)445-8610
ANITA GRANDRATH QQRE FLOYD SHIMOMURA
Assis7ANT DIRECTOR FOR COMMUNICArIONS CHIEF COUNSEL
(916) 323-0648 (916) 324-4856
Revenue Forecasting. Economic
Projections, Demographic Research.
Local Government, Business,
Transportation and Housing, and
Trade and Commerce ........... ........ ..... ...... Connie Squires ........ (916)322-2263
Education ..................................................... Jeannie Oropeza ........_....(916) 445-032-8
Healt.h and Human Services ............................ Terrie Tatosian -., ... -- (916),445-6423
Youth and Adult Correctional, Justice?,
Judiciary, General Government and
State and Consurner $ervices ........ ................... Calvin Smith . (916) 445-8913
Resources. Environment, Energy,
Capital Outlay and Legislation .........
Employee Relations,
Retirement Systems
Budget Planning and Preparation,
Cash Management, Statewide issues
............ Fred Klass .............. (916)324-0043
Shelley Mateo .............. (916) 445-3274
Yoshie Fujwara, .............. (916) 445-5332
integrated Continuous Budget System .......... Randal H. Baker .............. (916)445-5332
California's Budget an the Internet
This document is also available on the intemet at the Cafifof nia
Department of Finance website—htip.,//ujwu)-dofcagov
GOVERNOR'S BUDGET MAY REVISION 1 2-003-04
-��^x ,,dam �.��,,� � • ��n
SCHEDULE b
SUMMARY OF STATE POPULATION, EMPLOYEES, AND EXPENDITURES
Expenditures per
$100
Revenue_ -
Expenditures
Expenditures per
of Personal
Employees
Personal
General--
Gene�ai
Capita_
income
Population
Per 1,000
Income
Fund
Total
Fund 2
Total
i7eneral
General
-
Pear
(Tdlousaads)
Employees
Population
(9illlons)
(Millions)
(Millions)
(Millions)
(Millions) Fund'
Total'
Fund'
Total'
5i'000
5.7
$200
$672
$994
$587
81,006
$55.15
$94.52
$294
$5.03
190
.1
6`1860
5.7
23,2
734
1,086
635
1,068
57-05
95.90
2.74
4160
1451 3 13 -.
,.,638
„720
5.6
252
774
1,101
714
1,177
61.35
101,13
2.78
4.1^8
1469 04
2,101
69.928
5.3
27.6
798
1,271
809
1,381
66.85
114.12
293
5.00
55 _.
2,5.7
74,099
59
28.4
1379
!,434
852
1,422
68,07
113.61
3.00
5.01
9� -56 _.
3,0041
77,676
6.0
31.2
1,005
1,578
92.3
1,533
70.98
117,39
2.96
4,91
{4.6 61 -
,581
-,
88.299
-s.5
342
1,079
1,834
1,086
1,732
75.84
127.53
3.01
506
1957 55
r4
98,015
b,9
36.8
1,111
1.751
1,147
1,891
80.91
133.39
3.12
5.14
1958 59 -.
4"--1
'95982
6.9
38.6
1,210
1,925
1,246
1,932
84.53
131.06
123
5.01
1061-6`.' -,
16,288
108,423
7.1
42.4
1,491
2.198
1,435
2,086
93.86
136.45
3.38
492
960.61-.....___.
15,563
115.737
7.3
44.8
1,598
2,338
1,678
2,525
108.78
159.18
3.75
5.64
!961 62 -.__.-
16,412
122,339
7.5
47.5
1,728
2,457
1,697
2,406
103.40
146,60
3.57
5.07
19661 ........
:6,451
128.981
7,6
61-3
1,866
2,668
1,8381
2,703
110.97
159,46
3.67
5,27
196 64
1;,530
'3k, 721
7,7
54.8
2,137
3,057
2,064
3,182
117.74
181.52
3,77
5,81
18,026
143895
8,0
59.4
2,245
3,246
2,345
3,652
13009
202.60
3,95
6.13
965-06
�.
18,464
151,199
82
63.5
2,50-9
3,581
2,5801
4,059
139,73
219.83
406
6.34
71,6-o7
'^,-67
'8,83;
'9175
- 8404
84
691
2,895
4,073
3,017
4,659
160,21
247.41
4.37
6.74
68
7708-69
62,677
8.5
74.4
3,682
4927
3.273
5,014
170,69
261.49
4,40
6.74
1969 7,
19,432
-71,61,55
.8
81.6
4,136
5,450
3,9&9
5,673
20116
291.94
4,79
6.95
191
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-9583
9-1
89-5
4,330
5,743
4,456
6,302
225.68
319,17
498
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9.1
96.4
4,534
5,919
4,864
6,656
n
24.23
327.16
5.94
6.80
197 ,3
?J 3416
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188,46C
8,9
102.4
5,395
6,397
5,027
6,684
247-08
328.52
4.91
6.53
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1973 ,4
20585
14869
22
1.122
5.780
7,366
5,616
7,422
272.82
360.55
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6,978
8,715
7,299
9,311
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446.16
5,88
7.50
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21,538
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4-6
138.7
8.630
10,405
8,349
10,276
394.,30
485.31
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2.43
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275 "
206 361
9.6
1527
9,639
11,567
9.578
11,452
441.92
531.71
6.23
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177 7n
21,436
?1319.1
9-7
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11,381
1.'t,Ab3
10,467
12,632
477.16
575.86
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7,37
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22,352
221,251
99
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15,962
11,686
14,003
522.82
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22,836
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2.8193
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20,919
18,534
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7,35
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73.782
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24,511
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3.6157
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32.519
37,767
31,469
38,079
1,16328
1,407,62
6.59
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577.3
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38,773
33,021
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43.322
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260,622
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93,651
79,708
100,695
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