HomeMy WebLinkAboutAgenda Report - June 4, 2003 I-01CITY OF LODI
AGENDA TITLE,
MEETING DATE
State Budget Update
10110ENWIM
PREPARED BY: Deputy City Manager
----------------------
RECOMMENDED ACTION: No action necessary
FUNDING: None.
A,,: per the request of Mayor Hitchcock, the City Manager will present
ar update regarding the State budget during the Council meeting.
Attached for Council information is a copy of the Legislative Analysts
Office's overview of the Governor's May Revision, and a copy of the
League of California Cities State Budget update.
Respectfully,
Diet S. Keeter
Deputy City Manager
APPROVED: Q-=�-/,9, -!,A
_
C -
ity
ay r visitz Page 1 of 12
LAO_111.1'1_,"`�,,�j,
. _A,.�
i �' is � 8,,`S 0 S, : R gi,:
May 19, 2003
'Al
'The May Revision adopts a multiyear approach to addressing the state's massive budget problem, relying
more on borrowing and less on near-term spending reductions than the January proposal. Adoption of the
phm would likely result in a precariously balanced 2003-04 budget, but would leave the state with a still -
formidable structi.mai imbalance between ongoing revenues and expenditures in the future. Primarily because
of this imbalance, we believe that if the Governor's multiyear approach is adopted, it should include
additional ongoing solutions beyond those proposed in the May Revision.
'The, May Revision budget plan reflects a major change in how the administratian proposes to deal with the
state's end notes budget shortfall. In contrast to his January budget proposal, which attempted to solve the
bu gctaty problem in art 18 -month period, the Govemor's May Revision adopts a multiyear approach, which
relies on much more borrowing and relatively less on near-term spending reductions. On the positive side,
the revised plan would enable the state to achieve a balanced budget in 2003-04, provided its assumptions
arc realized and its estimates prove accurate. However, it also would leave California with a still -formidable
inibalaiice bets reen ongoing revenues and expenditures, which would reemerge in 2004-05 and persist
thereafter, absent corrective actions. Similarly, while the proposed increased borrowing avoids the pain from
cutting hack on spending or raising taxes to the extent that would be required to fully address the budget
problem in the iiear term, it also imposes out -year costs to pay off the debt. By diverting future lax revenues
away from funding public services in order to meet debt service obligations, future Legislatures will have
relatively f6 er options and less flexibility to deal with budget shortfalls beyond the budget year.
Our Bottom Lies. Should the l-egislature conclude that it wishes to use the Governor's multiyear approach to
addressing the budget problem, it i s our view that it should adopt more ongoing solutions than proposed in
the May Revision. This is so it can reduce the substantial operating deficit that awaits the state next year
u idor the. plan, We believe that this is especially I portant given the risks inherent in some of the May
Revision's proposed solutions, the sizeable, amount of borrowing that would a#ready be required under the
plan in 2003-04, and the inherent uncertainties about reveriuc;s associated with the current economic
envirornuent. h) addition, to the extent that the Legislature rejects any of the solutions proposed in the plan, it
i s critical that they be replaced with savings of at least a comparable magnitude and duration so that the
plan's potential benefits, are not eroded,
1141111 1
Thc� .) a nuary budget proposed to deal with tho state's massive budget shortfall through a mix o f program
reductions. tax 0ic ,eases, [a,nding redirections: deferrals, and transfers over the remainder of 2002-03 and in
2003-04,
littp:'1www,lao.ca.go�2003,may__rcvis€ons 051903-mayrevision,litnil 5/29/2003
may revision
Page 2 of 12
Prior to when the :iarivary budget plan was released, the administration had already proposed a number of
in modiate actions to get a "head start" on addressing the budget problem in the current year, These early
proposals, along with additional current -year proposals unveiled in January, sought to achieve about
$5.5 billion in current -year savings. It was also expected in January that the administration's. expenditure and
revenue projections would be revised in May, once critical information was available on caseload, workload,
and revenue treads through the first Dart of 2003, and once 2002 income tax returns had been filed and
processed. As of this time, the fallowing developments have occurred in these areas since January
Recent .neve nue and . xperx tare Developments. The May Revision reflects an approximately $1.5 billion
increase in caseloads and cost factors in several areas including Medi -Gal, developmental services, and
corrections. Pattially offsetting this is projected tax revenue increases, totaling about $400 million, due to
favo>rabie treads in personal income tax withholding, corporation tax prepayments, insurance premium taxes,
and estatetaxes_
Legislative Actions. During the sante time -period, the Legislature enacted about $3.3 billion in current -year
savings, primarily reiated to proposition 98 deferrals, as well as a variety of reversions, cuts, and redirections
in other programs, It rejected € urrent-year savings proposals related to the elimination of the vehicle license
fee (VLF) backfilI payment to localities and most health care reductions, leaving current -year savings about
$2.3 billion short of the $5.5 billion atuount proposed by the Governor. The Legislature has also enacted
about $3 billion in budget -year savings, however, iricludi.ng the authorization of $1.9billion in pension
obligation bonds.
Altho glt soiree progress has been made, the Legislature and the Governor clearly have a long way to go to
fully address the budget shortfall. Given the passage of time and the fundamental ongoing disagreements that
have persisted over the appropriate mix and composition of spending reductions and tax increases needed to
resolve the shortfall, it is unlikely that any revised 2003-04 budget plan could at this point realistically
address the full magnitude of the, budget shortfall in only one year.
Economic.Outlook Relatively Unchanged. In recent years, major changes to the economic and revenue
outlook after the January budget proposal has been prepared have been by far the most important factors
affecting how the May Revision budget proposal differs from the January proposal. Tho current May
Revision update, however, reflQcts only modest changes in these areas since January. A s in January, the May
Rcvisiou assn nes that the UT.S. and California economies will experience sluggish growth through much of
2003, before accelerating modestly late this year and in 2004. California personal income, a key determinant
of state revenues, i s projected to increase by 3.1 percent this year and 4.9 percent in 2004, or marginally
slower than January's projected increases of 3.4 percent and 5.3 percent, respectively.
Revenues Revised %p Modestly. The retain factor affecting the revised revenue outlook is recent cash trends.
As indicated alaove, these trends have been somewhat favorable, leading to modest upward adjustments in
projected tax revenues of about $400 million for the current ycar and budget years combined.
lite°�rtain.des Remain. Tl -us is not to suggest: that the economic, and thus revenue, outlook is not without
risks in a number of areas. These include the likely timing of a strengthening o fbusiness investment, the
willingness ofconsumers to continue spending its the face o f a soft labor market, and the- outlook in key
foreign markets for California exports. Weaker-ihan-expected economic performance in such areas could
o bvio�tsly have an adverse impact on revenues in 2003-04. For example, if personal income growth were to
drop by one pert. ,ntage point over the next year from forecasted levels, stale revenues could easily decline by
Sl 133117.
http:' www.tao.ca.gov/0031nay revision/05 5/29/2003
may revisioti Page 3 of 12
Key Features of the May Revision
The key May Revision changes to the January budget proposal are summarized in Figure 1. It shows that,
relative to January, the updated plan differs from the budget in four main ways:
• First, it moves the 2002-03 year-end deficit "off book" by proposing to issue a $10.7 billion deficit
reduct-1oii bond, which would he repaid over roughly five years using revenues dedicated from a new
hal-cent salQs tax.
• Second, it eliminates all state VLF backfill payments to local goverriments effective July 1. It assumes
that a VLF rate increase will be triggered by the "Insufficiont funds" provision of existing law, thereby
raising the VLF rate to its earlier 2 percent level early next fiscal year.
• Third, i t scales back some, of the spending reductions proposed in January, mainly in the areas o f local
government, CaIWORK� , SSI/SSP, Medi -Cal, community colleges, and K-12 schoois.
• Fourth, it substantially reduces the scope o f the proposed realignment o f programs from the state to
local gOVeRIIlICOtS.
gum
Key Features of May Revision
Sale of $10 7 billion deficit reduction bond
Reliance on triggered VLF rate increase
Restoration of spending, mainly in GalWORKS,
SSI/SSP, Medi -Cal, community colleges, local
governments, and K-12 education.
Reduction in realignment proposal
i'l rc lead € n no ager assumes proceeds from a second tobacco bond sale, which had bee expec 3 to
raise $2 billion in the cuiTent year. (The 2002-03 budget package authorized $4.5 billion in tobacco
secuntizat on bonds, cif which .SO.5 billion has already been sold.) The specific proposals in the May
Revision affecting individual program areas are discussed later.
Although the mix of new taxes has changed, the overall amount of tai increases assumed in tbo May
Revision i s roughly equal to those asL, un ed in January. As shown Ul Figure 2, the revised proposal would
rely on $7.1 billion in iiew tax revenues in 2003-04 and $8.4 billion i n 2004-05. This compares to proposed
increases of $8.4 billion in 2003-04 and $7.5 billion in 2004-05 in the January proposal. Relative to January.
the lay Revision relies on less taxes to support realignment, but assumes additional taxes to fund deficit.
reduction bowls. The updated plan also assumes a VLF rate increase, as opposed to a shirt in the
respo sz i.11 , for the cost of the VLF rate reduction €°roux the state to local governments.
ht :,itwww,lac�.ca.g-Ov"'2003/may revisions 51903 inay�evisi€ n.htm! 5!29/2003
may re'viSt.011
Figure 2
Major Tax increase Proposals
January Governor's Budget Versus May Revision
(In Billions)
Realignment -Related lax increases
Personal Income Tax
Sales and Use Tax
Cigarette Tax a
Subtotals
Deficit Reduction Bunds
Sales and Use Tax
VLF Rate lncreaseb
Other Revenue increasese
Totals
Increased Tax Revenues
2003-04 2004-0
January May Jan€lary May
$26 $1 6
$18 $13
46 —
49 ---
1.2 0.3
1.1 0.7
$8.3 $1.8
$7.8 $2.0
$1.7 — $2.4
$3.1 _ $4.3
$0.1 $6.4 -$0.3 403
$8.4 $7.1 $7.5 $8.4
a Revenues prior to reimbursingspecial hands for iobacco-related revenue losses induced by rate
Irlcri l-'a5e
b Assumes to previous 2 percentrate effect#ve October 1. 2003
c includes suspension of teacher tax credit, suspension of National Heritage Preservation tax credit,
restriction of certain €ricui ne sheltering activities, extension and narrowing of the manufacturers'
investment credit. and other revenue measures
Details may wt total clue to minding
Page 4 of 12
ivally, compared to the January plan, which proposed pennanent tax increases to support realignment, about
three-foot-ths of the tax increases assumed in the May Revision are for a limited term. The half -cent sales tax
would expire once the deficit bonds arc paid ofd ----in roughly five years and the triggered VLF increase
would presumably expire Dake the state's finances improve.
Governor's Projected
Figure 3 shows the administTation's projections of the General Funds condition in the current and budget
years, taking into account the expenditure and revenue proposals included in the May Revision.
Governor's May vi i n General Fund
Condition
(in Millions)
Prior -year fund balance
Revenues and transfers
Deficit financing bond
2002-03 2003-04
-$1,905 $1,410
70,751 70,934
10170(} __
h1tp: 1wxw.laoxa.gov,'2003/niay _reviseon/`,l5190:3_mayrevision.h.tM.1 5/29/2003
may rcvisMI
Total resources avaiiable $79.466 $72,344
Expeodrtures $78,056 --$70,433
Ending fund baiance $1,410 $1,911
Encumbiances 1,402 1,402
e erve 50
Data€! may. rant € at due to rounding
Page 5 of t2
2002-03.. The current year would end with a deficit of $10.7 billion. However, after applying the proceeds
from the deficit reduction bond sale, the "on boor, budget balance would be a positive $8 million.
2003-04. In the budget year. the administration's projected revenues ($70.9 billion) slightly exceed
expenditures ($70.4 billion), leaving a modest reserve of $509 million at the conclusion o f 2003-04. The
May Revision spending plan also indicates that, under the revised budget proposal, spending would exceed
revenues by $7,9 billion in 1200 --t)5. The reemergence of the budget shortfall at that time primarily reflects
the large amount of one-time borrowing and deferrals included in the 2003-04 budget plan. Later in this
report, we discuss in more detail the out -year implications of the May Revision proposal.
LAO Assessment. Overall, we believe that the basic revenue and expenditure assumptions underlying the
budget plan are reasonable, although they are subject to significant risks. Our own revenue forecast is slightly
higher ffian thQ adrninistrabon's resulting in about $600 million in additional revenues in the current year and
budget year combined, This increase is primarily related to higher estimates of personal income tax and
ins, trance tax receipts.
Partly of fsetta g this revenue gain, w , believe that expenditures will be about $200 million higher in the two
years combined, mainly due to additional costs for corrections. In addition, some of the, May Revision's
budget solutions, even if adopted, may achieve. less savings than anticipated. For example, although the
administration has sharply reduced its estimate of proceeds from renegotiated tribal compacts (from
$ s .5 billion to $680 mUtion in the budget year), the actual ainount of receipts from these compacts could be
considerably less than cvvn the revised estimates. As another example, we believe that some of the
administration's assumed cost savings irt areas of state contracting, workers' compensation, and state
employees' wages are sub ,lect to downside risks. Together, the various risks we have identified total several
hundreds ofraillions ofdollars.
Figure 4 shows the programs -rade distribution of proposed General Fund spending in 2003-04. it shows that
overall spending would decline frons $78 billion to $70 billion. or by 9.8 percent ($7.6 billion). Virtually all
o f t h i s year-to-year decline is related to four factors:
The proposed program realignment.
The elimination of the VLF backfill.
* A Medi -Cal accounting shift,
a The use of pension obligation bond proceeds in place o f General Fund paynwnts to employee pension
funds.
I-iitp:i,'�vNvw.lao.ca.gov,2003,'rnay__revisi.oii// 5l903__mayrevzsion.html 5/29/2003
may revisioli
Figure 4
Summary of May Revision Spending Proposal
By Major Program—General Fund
(Doilars in i lions)
Education Programs
K 1--' `roposi°'ion 98
Community Wleges—
Proposition 98
UC/CSU
Other
Health and Social Services
Programs
Medi -Cal
CalWORKs
SSi/SSP
Cather
Youth and Aduli Correction
Vehicle License Fee Offset
All Other
`totals
$10,885
2003-04
-104%
2,907
935
Percent
2002-03
Amount
Change
$26,600
$27,404
30%
2,642
2,236
-15.4
5,898
5,817
-4.8
3,952
2,660
-32.7
$10,885
$9,758
-104%
2,907
935
-557
3,007
3,082
25
7,456
7,350
-14
$5,833
$5,728
-18%
$3,985
---
$5,691
$5,663
-05%
$78,0$6
$70,433
-9.8%
Page 6 of I2
Absent these factors, spending on total programs i s basically flat between the current and budget years.
Taking into account the impact of inflation and caseload increases, the budget reflects large savings relative
to current"sorvicc, spending levels, particularly its the areas ofl -12 education, community colleges, health,
and social services.
Figure 5 highlights the key exp ondi.taro-rel ated �iay Revision budget proposals by major program area.
Addition at discuss€caps about these proposals i s provided below for the program areas o f education, Medi -Cal,
social services, as well as the revised realign-iment proposal.
Key Expend itu re -Rel ated May Revision Budget Proposals
GeneralFund
Increases K-12 funding by about $400 million, reflecting increased student
attendance, restoration of some proposed reductions in revenue limit funding,
and more targeted reductions in categorical programs.
increases General Fund support for community colleges by roughly
$300 million. The proposed student fee increase is reduced by almost half_
http: www.lacy.ca_gov/2003/may_ _ rev 1sicatVO51903_mayTevision, html 5/291/2003
inav rev 1sion
Reduces size of January realignment package from $8-2 billion down to
$1-7 billion.
Remaining reatignment involves a shift in share -of -costs ?orCalWORKs,
Foster Care, Child Welfare Services, child abuse prevention programs, and
mental health.
Funds reduced proposal with a 10.3 percent rate on high-income personal
income tax payers, and a 23 -cent per pack increase in cigarette taxes (rising
to 63 cents in 2004-05).
■ Restores proposed 6 2 percent reduction in grants for SSU SSP ($662 mrilion)
and Ca1WORKs ($229 miilroin TANF)
Child care savings from family fee increases, reimbursement rate reductions,
and eligibility changes216 miiiion, Cenerai Fund and TANF). T
Health Services
Shifts Medi -Cal system accounting from an accrual to a cash basis
($930 million one-time savings).
Restores funding to continue the 1931(b) Medi -Cal expansion ($118 million
increase).
Adjusts for the additional costs from delaying imposition of Medi-Cai provider
rate reductions ($113 million increase).
Assumes higher net cost increase for services for persons with developmental
disabilities ($187 million increasq-
Judiciary and Criminal Justice
increases funding by $341 miiiion. reflecting elimination of realignment
proposal and unrealized savings from prior budget actions.
includes new reductions related to inmate health care, delayed opening of
Delano EI, and other factors.
Transportation
Transfers sales tax revenue to fund $207 million in projects. Remaining
$938 inillion in Proposition 42 transfers deferred for up to six years.
Suspends transfer of sales taxes to the Public Transportation Account
($87 million)
Resources
increases loans from various special funds,
Retains January proposal for $470 million in employee compensation savings.
e Captures savings from renegotiating various state contracts ($50 million).
Captures savings from proposed workers' compensation reforms ($30 million).
Local Government
s, Assumes VLF rate increase offsets loss of most state backfill
Eliminates proposed shift of one-time $500 million redevelopment funds
Maintain6 proposed ongoing $250 million shift of redevelopment property
taxes
Eby, � � �: � �►
Current Year
Page 7 of 12
In the First Extraordinary Session, the Legislature rejected a uch of the Governor's proposed mid -year
reductions including $1.5 billion in across-the-board K-12 cuts and about half of the proposed specific
comrmmity co .(egc reductions. Instead, the Legislature deferred $1.2 billion in funding from June 2003 to
July 2003, and found additional one-time program savings. The, Governor's May Revision reflects this very
different startlug place. It proposes a $38 n -i lio.n increase in current -year Proposition 98 funding (primarily
re, flQcting higher student attendance), despite a �,i fight decline i n the Proposition 98 minimuin guarantee
($84 million) for 2002-03 because of lower -than --anticipated revenues, Combined, these factors result in the
hti.paFlww .lao.ca.gov./2t} 3/iiiay revision/051903 __mayrrevislon,htrnl 5,129;2003
may r(,vision Page 8 o 1,
rail-11MUM guarantcc being over -appropriated by $122 million in 2002-03
In 210£.13 -04, the Governor proposes appropriating S45.6 billion for Proposition 9& -right at the projected
minim urn guarantee level. This is $1.5 billion above the January level. The minimunn guarantee has
increased hccause tl Governor (I) rescinded his child care realignment proposal and (2) projects increases
in General Fund revenues, per capita personal income, and student attendance in 2003-04. The Governor also
proposes continuing the $1.2 billion in Proposition 98 deferrals from 2003-04 3-04 to 20104-05.
1.2 Eduration--Changes From January. The May Revision restores $262 million of a $612 million
reduction to revenue limit funding, leaving a $350 tDillion (1.2 percent) cut. It also replaces across-the-board
redactions to categorical programs with more targeted reductions (including state mandate reimbursements,
supplemental instruction, and supplemental grants) and the elimination of numerous programs. In addition,
the Governor provides $184 million for additional K-12 attendance and $58 million for higher Public
Employees' Retirement System costs. The Governor 611ninates the proposed $250 million in funding for
revenue limit equalilatioo.
The Governor now proposes $806.9 million (Proposition 98 funding) for various child cave programs that
were initially proposed in January for realignment. This amount includes funding for the child care needs of
former C.alWORI s families expected to be eligible for Stage 3 child care in the budget year. In order to
accox ni-odate increased child care costs within Proposition 98, the Governor proposes to reform the state's
subsidized child care systern by tnodi.f)�ng current eligibility rules, reimbursement rate limits, and family
fees.
The llvlay Revision proposes to spend $69 million in federal funds to partially offset state -mandated mental
health services that arc provided through county mental health agencies. Currently, county agencies provide
mental health services that are required as part o f a special education student's Individual Education Plan. in
past years, there mandated costs have exceeded $100 million annually, The specifies of this proposed new
ming arrangement are yet to he determined.
Communi , Colleges—Changes rom ,.Tannery. For the California Community Colleges, the May Revision
inc;rt�ases Proposition 98 expenditures by $304.1 million above the level proposed in January. About half
($154.711 million) of this amount is due to costs associated with reducing the proposed student fee increase by
$6 per unit.. (The January budget proposed to increase the per unit fee 1 -Yom $11 to $24; the May Revision
now proposes an $18 per unit fee.) The other half o f the increase is due to the withdrawal of proposed cuts to
apportionment ftarrd.ing ($66.6 million): the restoration o f f iding for several categorical programs
($29.6 million), and the restoration of inost funding for concurrent enrollment ($55 miliion), as well as some
minor techriloal changes. Ln total, the May Revision would provide funding for about 40,000 more full-time
equivalent students than the level proposed in January.
�r a
The May Revision contains only minor technical changes to the University of California and California State
University budgets, resulting In a net reduction of Just $3.5 million from January. It shifts funding fr€ i -n the
California Postsecondary Education Commission to the California Student Aid Commission, in anticipation
of consolidating the t-v�lo agencies. It also makes abase reduction of $20 million for Cal Grant awards,
reflQcting revised participation rate estimates for these programs. Finally, it reduces General Fund support to
the Scholarshare Investment Boaxd by $16.8 million, reflecting the deferral of funding for qualified 9th and
hap:/;www. lao - ca,gov/2003/iiiay_ rev", si on/051903 mayTevision, fitinl 5/2912003
gray revision
I Oth grade students until they reach 12th grade.
Page 9 of 12
The budget proposes about $9.8 billion in state General Fund support for Medi -Cal in 2003-04, a reduction
of more than $1.1 billion (or greater than 10 percent) below the proposed current -year spending level of
$10,9 bitlion. Tl e curent-year spendirAg level i s about $290 million more than assumed in the Governor's
January 10 budget plan, while the budget- year spending level is about $2.8 billion higher than initially
proposed.
These net increases in expenditures, in comparison to the Governor's initial budget plan, reflect several
factors, These Enclude the reversal of the proposed realignment of $3 billion in Medi -Cal costs, the rejection
by the L.oislature of a number of significant current -year program reductions, the failure of various
previously enacted budget -cutting actions to achieve the level of savings that had been projected, and new
adn.iinistra.tion proposals to reverse some cuts that it had proposed earlier. For example, the administration no
longer is recommending a significant reduction ire eligibility for 1931(b) working poor families, would
restore some optional benefits initially proposed for elimination, and is proposing increases in nursing home
and managed ged care rates that would partly offset proposed reductions for these providers.
The administration has also propos-M a number of new actions, including aproposed shift in accounting
methods for the Medi -Cal Program that would result in a one-time savings to the General Fund of
$930 million M'2003-04 and a significant expansion of antifraud activities.
Social Services
As noted below, the May Revision limits the new proposed realignment plan to Ca1WORKs, Child Welfare
Services, Foster Care, and AcUt Protective Services. The May Revision eliminates the 6.2 percent reductions
in Cal WORKs and SS1/SSP grant levels proposed in January, However, it sustains the proposals to suspend
the 2003 and 2004 state cost -of -living adjustments (COLAs) for CaIWOR s and SS1/SSP. These COLA
suspensions result in combined General Fund and Temporary Assistance for Needy Families savings of about
$550 million in 2003-04. The federal SS1lSSP COLA would be passed on to recipients.
I
i January, the Governor proposed to increase taxes by a net $8.2 billion and to shift this funding to counties
and courts, along with a commensurate a.rnount of program obligations, primarily in the health and social
services areasjhe May Revision redtaces the pro&gan-imatic shift of casts to counties to $1.7 billion, while
providing the counties with $1.8 billion in new revenues (see earlier discussion regarding the May Revision's
tax proposals).
Realignment Tax Package. Revenues for the updated realignment proposal would conne from two sources:
Personal eo e Tax (). Under the proposal, a rrew PIT tax rate of 10.3 percent would be
cst,ablishcd for married.- Jug -joint taxpayers earning more than $300,000, and for singles earning
more than $150,000, rhe new rate would be effective January 1,2003, and result in additional
rc,v enucs of 1,6 billion in 2003-04 and $1.3 billion in 2004-05. (The decline in the second year i s due
to the additional withholding that occurs during the initial year o fa PIT rate increase.)
Cigarette Tay. The admin_i.stration's plan calls for an increase in the cigarette excise tax from the
existing 87 cents per pack, To S 1.10 per pack beginning July t, 2003, and to $1.50 per pack beginning
July 1, 2004. This would result in additional revenues of $267 million in 2003-04 and $678 million in
1) 004-05
ttCp:twww.Io.a.gvf2{1t13iay,��isi�i�C)51.03 ayrcvisicz.htrnl 5/29/2003
rgiay revislon
Page 10 of 12
(�grams.Real ned. 'l lie revised realignment proposal involves a shift in the share -of -costs for
CalWORKs, Foster Care, Child Welfare Services; child abuse prevention programs, and certain mental
health prograrnse Figure 6 shows for each program to be realigned: the existing county share of cost, the
proposed county share of cost, and the amount of realigned costs.
In the out -wears, it appears that realigned program costs and revenues are both expected to grow by about
4 percent.
Figure
Governor's ised Realignment Proposal
(DNlars in inions)
Programs Area
County Share of Cost
ry
Current Proposed
Realigned.
Costs:
taci t Services
CalWORKs Grants
2 5%
30%
$782
CalwO Ks Employment Services and Administration
MOEa
30
359
Adult Protective Services
MOEa
100
61
Children and Youth
Foster Care Grants
60%
8011/0
$237
Foster Care Administration
30
50
11
Child Welfare Services
30
50
197
Child Abuse Prevention, Intervention, and Treatment
_
100
12
Mental Health
integrated Servicesfor Homeless
100%
$55
Children's System of Care
—
100
20
Total
$1,734
a For these programs, counties are required to pay a fixed amount, or maintoname-of-efforE (MOE)
11111111 111;111111111liq III!
As indicated earlier, the administration projects that its May Revision plan would, if adopted and its
assumptions realized, result in a large General Fund operating deficit in 2004-05 of $7.9 biilion. This reflects
the gap between its 2004-05 projected revenues ($713 t ]Ilion) and expenditures ($79.2 biilion). As a result,
the administration estimates that under its plan, the budg et would be in deficit at the end of
2004-05. even. if ll of its May Revision proposals were adopted and $10.7 billion of the current budget
shortfall was moved "off -budget" through borrowing.
,AO Findings. In order to assess the out -year iinplications o fthe plan, we developed our own out -year
praj ee~t€onv, of the budget's operating balance ----Based on the plan's policy assumptions but using our own
t�stl mates of both their fiscal effects artd the performance o f the economy and revenues. Our analysis
indicates the following:
A significant operating &66't would MdQed still exist in 2004 -05 ----in our view, ciose to $7 billion
'Our slightly lower eshmat:e compared to the administration reflects somewhat stronger revenue
littp "i wwNk,,lao,c a.,gov/2003/may--revision/051903__rnayrevisioa.htrnl 5/29/2003
may revision
Page 11 of 12
growth, partly offset by higher projected expenditures.
A s shown in Figure 7, this operating deficit would persist over time and grow niodestly, absent
corrective actions. Thus, the state cannot "grow its way" out of this problem.
The persistence of the operating deficit would occur even though our projections assume a reasonably
healthy annual revenue growth rate in the 6 percent range after 2004-05 and program growth in such
areas as education at well below that pace. The explanation for why the deficit grows despite these
favorable trends involves the various one-time borrowings and deferrals embedded in the 2003-04
budget plan, which add significantly to out -year costs.
Regarding borrowing., we have identified roughly 17 billion its various types of boarowiaig solutions
in the 2003-04 budget plats, representing over one-half of the total budget solutions proposed in the
May Revision, The ac.cuznulation of such budget -related debt will divert some future tax receipts away
from f ndirig public services in order to pay debt service expenses, and thereby leave future
Legislatures with relatively fewer options and less flexibility for dealing with the budget shortfalls that
will likely emerge beyond the budget year.
Persistant -ap Would Reemerge Under, Governor's Plan
n gal Fun
(In fffio s)
S.100
t;5
-
9
1�
70
653
6
-01 01-02 02-0 03-04 04-015 -o 06-07 -0
Fumcast
Implications. W e believe that the reemergence of these large operating deficits in future years, absent
corrective acrtiotts, along with the large amount of debt and the risks inherent in the budget proposal, [las
important intplication6 for the Legislature. First, to the extent that the Legislature rejects some o f the
solutions contained in the revised budget plan, it will he important that alternative solutions of at least
slMilat rnagra.itude and duration he found, Its this regard, it will he especially important that it not diminish
the amount of ongoing solutions present in the current.plan.
l -:fore 1nipoitantly, we believe that if the Legislature adopts a mu approach such as outlined in the May
Revision, it should incorporate additional ongoing solutions beyond those proposed in the cut rent budget
plant. These can involve both new solutions not included in the May Revision, as well as the extension of
some proposed one-time solutions (such as COLA and tax credit suspensions)to multiyear solutions.
ttp:" ww ,lao.ca. ovI 003%raiay revisions051 03__mayrevi.sion.htm 5/29/2003
aiay revision
knowledgments
his report was prepared by Dv. c and
r _ _MIE ,r _, with the assistance of many
thers throughout th office. The Legislative
nalysta Office (AO) is a nonpartisan office
Fhich provides fiscal and policy information and
dvice to the Legislature.
Return t10 LAQ__
Page 12 of 12
MUM
o request publications call (916) 445-4656.
This report and others, as well as an
spbSeri, pt,€an s-cz•vll , are available on the L O's
Internet site at wv.1ao.ca.,gov. The LAO is located
at 925 L Street, Suite 1000, Sacramento, CA 95814.
http:i./'w w.lao,c,a,gov/2003ii ay reg isiwVO51.903 m.ayxevision. htrni 5/29/2003
Page 1 of ?
� LE.,is#�E€ve Se��r�,#�
Legg 'rvo Search
ri<
Governor Davis Releases State Budget "May Revise"
o aguu Horne
Can May 14tH, the Administration released a revision of the State's budget proposal formally
HAT WE 00
known as the "May Revise". While this proposal shows "shows progress" over the January
issuas and Advocacy
proposal, there are still some concerns. Foremost is the carry-over of the January proposal
cut Redevelopment Agencies (RDA) by $2.50 million in 2003-04, increasing by $50 i€Iion/y.
�''r `� ""� °"
after that for 14 years, Included in this proposal is the assumption that the implementing
legislation will include, as it has in the past, language that would hold RDAs' sponsoring age
Notwcriting
(city/county) responsibie for state obligations the RDA is unable to meet due to other contra
P `` cts and sp`v"re4
obligations such as bonded indebtedness, and more.
MEMBER LOGIN
,Irao a�t.s. offl e Budget May Revise on California Cities -PDF, Gov r-ior's FY 2003-04 Budge!
Use.narne Revise ,r DF; A Resolution t e#at rag to State -Local Fiscal Relations send a State Sud0et Rec�
plan PDF, LAO's May Revise Review
�'assrr:rd�
Cities Set Condition for Their Support of a Budget Package
Delegates from almost half of California's 477 cities voted to support a resolution that sets
condif ons under which the League of California Cities could support some state cuts to citit
that occur as pari of a iarger package that protects future local revenues and services.
The resolution authorizes the League board of directors to support a budget recovery pack;
that includes "contributions" of city funds to the state, or support for temporary taxes to finai
the slate's debt, if legislators commit that they will put a measure on the ballot to crcmstltutiol
protect communities from future raids on local funds.
A Resolution Re.l. t.Inq to tate-Local €>,c� I Relations and a State Budget Recovery fiscal, -pc
KEY RES00RCES
State Sudget. Status of ;;hover pF's local cgevernrppnt budget proposals-MSWord; 20.03.-0
F sv.€..i r al's. f cf0et..r?rc; i,; tfare Lea,0u t es ands to Governor's taro pm€ pi.; LOCAL respom
s vQ�a, Senate q 3um�Iie ; b;i C 't �aFQ cis l -RDF, Talking points on Serrate Republican pr•ol
r DF; ssc r a EyDemocratic C u. "f ril Pgpkage" dleta_ls -xi_S; � halare."unallocated cuts.
:• p _ # svroRt�, €t --an Pension ONigatpn Bond {I QBI Qu.c get package urr�m ary-
# SWORD; 84partisara POB Budget PaQkage ?Ova is - xis; Assembly Re uNic an Caucus BUId
'Eck.4 <10-s cx-, Cit#o -- A Compar-is art Of Brrd0et PrOppt.Als -RDF; Irl- �ctr of
the
dget May Revise. on Qafifornia Cities -PDF; Governor's FY.20103-04 Budget May revise _F
rt par_! of 6overnor's Ps-oposed odevelopn-aent Shifts to Cities -PELF; MaM_%tes POPPsI�W_ fc
Suspe ision orRepeal in. the May Devise -PDF
Legislative Analysts Office Budget Analyses; LAO An ysis; League's Reaction to_t__ACs
Aqalysis; 2003-04; Overview cit the avemor's Budget -RDF; LAO's May Revise evie_w
State/Local FiscalRelationship'. A Resolution Rela.ting.to. State-Locai Fiscal Rela.tions ant
. t.,a,taui Rt e;ovc.yl 1 t, E F fi€ °s are nit c�.�r ? io i9� rte � er:�,i gE.ir�d --PDF;
Rlefc,rnln,a CG?I fc rm-� Locai nano I
5103 by Fxecotive Director t
ht1,P://WVVv',,0aC ilt!cs.org/doe,glint are tid�6660 5129/2003
League of C'alifotnla Cities
Page 2of2
rAOUCy iiht �S UvC r r_-ait or - is t,tt_teS- video and fact sheet
Vehicle License Fee (VLF) VLF Offset criteria Used to determine r-ar fecient 11olays —ni
Gfty s.>y City Impacts of the Governor's Proposed VLF Curs -PDF, Local VLF talking poi= -its -
Msword, Stemple R .sotu`Eon--Msword; Senate ,no Assembly vote on AS 4X; League press
lease on Au 4h veto threat--Msword; League's Fxecuijve Committee message--MSWord
Redevelopment Fund Shifts: How proposed redevelopment shifts might impact city gener
`ands - MSWor:D; League_ President addresses Callfomla Redeveioprnent Association -MSWo
Cai,totnia Redevelopment Association; impact of Governor's Proposed Redevelopment Shi
.i'« s nor. League and CRA C)ppose Governor's RDA P,�oposal -PDF
State -funded Mandates: tetter to Senate Budget Sucommittee #4-reswora State -funded
ansate s that impact cities-Msword; Mandates Proposed for Suspension or Repeal in the N
Revise -PDF,Controiler's Cratm:ngInstructions _for FundedMandates
Transportation: League's transportation policy and issue information
Booking Fees: State Controller's report of Cooking fee payments -PDF
H arae . Search - Contact No e Site wrap • Employment - Newsroom a Links
This site is best viewed using Internet Explorer 4.0 or higher. Click here to download its latest versic
Copyright A2001 League of California Cities_ All rights reserved Privacy Policy rci , &_CCrdgjO(,_
Last Updated: Wednesday, May 21, 2003
littp://xrww.cacities,orgidoc.asp?intparentid=6660 5/24/2003