This is my fourth essay for 2008 and continues my reports on the current budget processes and changes. My first 2008 essay was an update on the 2007 "year of health reform". The second set out some background information on actions taken by the legislature to re-balance the 2007-2008 budget given shrinking revenues. The third reviewed the Governor's budget as he presented it in January of this year. This essay will present the changes made by the Governor in his May revision of the 2008-09 budget, usually referred to as the "May Revise".

Changes in Projected Revenue

Things went from bad to worse in the new estimates of state revenues projected for the July 1, 2008-June 30, 2009 budget year, which reduced expectations by another 6 billion dollars. Although $7 billion in "solutions" had been adopted to balance the 2007-08 budget (see my second essay for this year), rising costs combined with dropping revenues to widen the shortfall to 15 billion dollars in the latest projections.

Changes in Expenditures

Although the Governor pulled back on some cuts proposed in January (see below), he proposed over $8 billion in new "solutions" to balance the new budget. By far the largest solution proposed "securitization" (selling for an upfront fee) future lottery revenues in the state. He projected that such a move would provide the state with 15 billion dollars over the next three years, 5.1 of these dollars in the 08-09 budget year. The Governor also proposed a cap on all state spending, regardless of caseload or cost of living, redirecting revenues over a certain amount into a new reserve, as well as automatic across-the-board reductions in all future years, so that neither the Governor nor the Legislature would have to make decisions about how to balance the budget. In addition, the Governor proposed more borrowing from special funds, reduction of transportation monies and transfer of those monies to the General Fund, and even more reductions to the already hard-hit health and social services programs.

General criticism of the Governor's approach

Four major problems were identified regarding the Governor's May revise:

§ even if the Legislature adopted all the proposals and they were successfully implemented, multi-billion dollar shortfalls would re-emerge in 2010-11.

§ estimates of lottery revenues were grossly inflated and securitizing lottery revenues to a private entity would mean that distributions to public education from the lottery would fall short of current levels, possibly by as much as $5 billion over the next 12 years.

§ the proposed revenue cap, depositing monies into a new reserve fund, did not help with the deficit

§ and, finally, removing responsibility from the Legislature also meant that there would be no oversight of spending or revenues, but only a kind of robo-budgeting.

Specific changes from the original January budget

§ Education got a break, in that the Governor "restored" some of the Prop 98 money he had proposed to cut, but the final figure, though touted as ?full funding? for education, did not actually include full Prop 98 funding, under the formula the state had been using, but only funding under a different formula, used in times when the state is losing revenue.

§ Higher education also got some "restorations" but not enough to avoid once again raising student fees, as the funding for both the University of California and the California State University remained flat, even with increased enrollment.

§ The Governor dropped his proposal to close 48 state parks (+12 million) and opted, instead, to increase entrance fees: 1.5 million.

§ The January budget had created some savings by proposing early release of some prisoners. The resulting outcry regarding public safety (though these were non-violent offenders) led the Governor to withdraw this proposal: +256 million.

New solutions in the May Revise

§ In addition to the securitization of the lottery, mentioned above, the Governor also proposed to move transportation money into the General Fund (828 million) and to borrow from special funds created from various fees and licenses for specific purposes (564 million), and

§ Reduced the pay offer to prison guards by 421 million

§ Reduced CalWORKS grants (again) by 5%, requiring face to face interviews every six months, : 168 million

§ Reduced the salary of In Home Support Services workers (for aged, disabled, blind, etc.) to minimum wage: 187 million.

§ Eliminated the cash assistance program for legal immigrants: 111 million.

§ Further reduced the allowable income level for medi-Cal eligibility: 31 million.

§ Retained (some would say stole) the cost-of-living increase paid by the federal government for distribution to people on SSI and added it to the General Fund: 109 million.

§ Reduced health services for newly qualifying legal immigrants

So, what's the problem?

Oh, where to start?

§ The Lottery: The lottery securitization plan must be placed on the ballot. The voters, as of the beginning of June, seem not to like it.

So, the Governor has proposed that, should the lottery proposal fail at the ballot, the Department of Finance should be authorized to impose a temporary one-cent sales tax increase. Huh?

A sales tax increase also requires either a 2/3 vote of the Legislature, which the Governor has not been able to secure, as his party refuses, so far, to vote for such a tax, or a vote of the people. So, the one-cent sales tax would have been a part of the lottery proposal.....which failed. Back to the drawing board on the first floor, please (the first floor of the Capitol is home to the Governor's offices, fondly known as The Horseshoe).

§ Although the May Revise proposes to "fully fund" K-12 education and the Community Colleges, the minimum guarantee has actually dropped by about 3 billion because of lower revenues to the state.

The Governor attempts to help this problem by getting as much money as possible to classrooms and taking money (again) out of deferred maintenance. It also removes cost-of-living increases for any education program.

Budget still in flux for month of June

In June, the Budget Committees for the Senate and the Assembly meet and adopt a proposed budget approved by each House. Where particular line items in the budgets differ, they are brought to a Conference Committee of both houses, made up of three Senators and three Assemblymembers, to iron them out.

To date, the budget sub-committees in both houses have made some decisions about budget content and I will make those the subject of my next essay (s).