This is my eighth essay for 2008 and continues my reports on the 2008-09 budget processes and evolving 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 in February 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. The fourth presented the changes made by the Governor in his May revision of the 2008-09 budget, usually referred to as the "May Revise." The fifth left the budget area for a moment and reported on the LAO's report on the single payer bill, SB 840.

The sixth set out the budget presented by the Legislative Budget Conference Committee last July. The seventh analyzed the revised budget presented by the Governor early in August , which contained a number of new proposals. This essay, my eighth, sets out the changes the Democratic majority made to the Governor?s August Revision and then put up for a vote. It gained votes from all the democrats, no republican votes, and, therefore, failed.

(Note: there are 80 members of the Assembly and 54 of them must vote to adopt a budget. There are 48 Democrats in the Assembly and, therefore, six Republicans must vote for the budget in order to adopt it. However, this year, since Assemblymember Nell Soto may be too ill to come to the Capitol, it may require seven Republican votes. In the Senate, which has 40 members, 27 votes are required to adopt a budget. There are 25 Democratic Senators and, therefore, two Republican Senators must vote to adopt a budget.)

Visit my website at www.sen.ca.gov/kuehl to read my previous essays. For those of you who received this essay by forwarding, it is written by California State Senator Sheila Kuehl. If you wish to subscribe to receive these essays on a continuing basis, (no charge), please send an e-mail to Sheila.Kuehl@sen.ca.gov, titled "subscribe." If you receive it directly and wish you didn't...send an e-mail to the same address, but title it "unsubscribe."

Democratic Changes to Gov's August Plan: General Issues

The Democratic majorities in both houses of the California Legislature reviewed the Governor's August budget proposal and proposed some changes, which are detailed below. The changes encompassed revenue assumptions, expenditure proposals, the lottery securitization, budget reform proposals and what the Governor calls his "economic stimulus" package, which are primarily changes to state labor laws, unrelated to the budget.

Democratic Changes to Gov?s August Plan: Revenue

The Governor proposed a temporary, three-year, one-cent tax increase in the state sales tax from 5% to 6%, which, in the fourth year, would be reduced by 1.25%, making it lower than the current sales tax rate (and, incidentally, blowing a huge hole in the fourth-year-out budget, which would then be a problem for a new governor and not this one). The Democrats accepted the three-year temporary increase in the sales tax but wanted it returned to the current rate in the fourth year with no additional cut of 1/4 cent. They accepted the Governor's plan to allow accrual of some taxes into the current year, an accounting trick, but one which helped the bottom line of the budget.

Democratic Changes to Gov's August Plan: Spending

The Democrats accepted the Governor's proposal for the Prop 98 guarantee of school funding, which was to be a total of $57.9 billion. That figure was $3 billion below current levels and $1 billion less than the figure assumed in the Conference Committee version of the budget in July.

Additionally, the Democrats accepted the Governor?s proposal of $1.4 billion in cuts to public transit, redevelopment, and tax assistance for low-income seniors. They did not accept the suspension of the cost of living increase for the very poorest who are receiving SSI or SSP, which the federal government pays to the state and which the Governor proposed keeping and not passing through to the recipients.

The Democrats also accepted the Governor's proposed increase in prison spending, which had less than the Conference Committee report for correctional reform and a little more for local law enforcement.

Democratic Changes to Gov's August Plan: The Lottery

The Democrats accepted the Governor's proposals to securitize the lottery, "modernize" it so it is more appealing to Wall Street investors, and use the securitization proceeds to pay off budgetary debt in the future. The Governor's August revision did not show any impact from the lottery scheme on the 08-09 budget.

Democratic Changes to Gov's August Plan: The Reserve

The Governor proposed $1.058 billion in the reserve fund. The Democratic modification showed $993 million.

In addition--Sock It Away For A Rainy Day

The Governor's August revision proposed raising the amount accruing in the Budget Stabilization Account (BSA) to 12.5% of the budget.

Right now, pursuant to Prop 58, adopted by the voters, 3% of all revenues go into the BSA, a kind of rainy day fund. The money accrues over the years but cannot exceed 8 billion dollars. Increasing the amount allowed to accrue in the rainy day fund to 12.5% of the general fund means that the total could currently go as high as about $12.5 billion dollars.

Under the Governor's August budget revision, transfers from the rainy day fund back into the budget would only be allowed when "revenues are insufficient to cover baseline spending increases" (current level adjusted by specific factors) and can only be spent for one-time purposes. The Governor's proposal also requires a two-thirds vote of the Legislature, just as is now required for the budget and for tax increases, to transfer rainy day money into the budget, except for non-fiscal emergencies or when used for one-time purposes and only if the Budget Stabilization Account exceeds 12.5% of the budget.

Unanticipated revenues, sometimes called the "April Surprise," could only be used for very limited purposes.

The Democratic changes accepted the new 12.5% figure for the BSA, but did not adopt the requirement that 2/3 of the Legislature must vote to transfer funds from the BSA into the General Fund, when there is a deficiency.

Democratic Changes to Gov's August Plan (in this case, Not): The Ace Still Trumps the Face Cards

The Governor's proposal also included a provision that would give him authority, in the middle of a budget year, to unilaterally reduce state operations by up to 7% and to defer all cost of living adjustments and rate increases adopted by the Legislature in the budget.

The Democrats agreed.

Democratic Changes to Gov's August Plan: Changes to Labor Law Protections

In his August budget revision, the Governor proposed non-budget changes to California labor laws, including changes to overtime, meal and rest periods and work shifts, changes to state infrastructure project development, shifting work to the private sector, and additional bonds and expenditures for capital outlay projects which have already been turned down by the Legislature.

The Democrats refused all of the above, with the exception of agreeing to additional bonds and expenditures for capital outlay projects.

The First August Budget Vote:

The budget described above, which contained about 98% of the Governor's August revision, plus the changes set out above, was put up for a vote on the Senate Floor late in August. There were no Republican votes for this proposal. The President pro Tempore then challenged the Republican caucus to present their own budget and, slightly more than a week later, in early September, they did.

My next essay sets out the basic elements of their budget.