Gino DiCaro

CMTA Board takes positions on May initiatives

By Gino DiCaro, VP, Communications

Capitol Update, March 26, 2009 Share this on FacebookTweet thisEmail this to a friend

The CMTA Board discussed and approved the following positions on the ballot initiatives slated for the May 19 general election.  Propositions 1-A through 1-F are related to implementation of the 2009-10 budget passed by the legislature and signed by Governor Schwarzenegger in February.  Other than the "No Budget, No Pay" initiative (1F), recent polling indicates limited support ranging from 37 to 48 percent for 1A through 1E.

1A – Spending Cap: Support
Proposition 1A requires the state to direct 3% of General Fund revenues into a "rainy-day" budget stabilization fund each year, except when the fund is full or during economic downturns.  Increases savings in the "rainy day" fund from 5% to 12.5% of General Fund revenues.  Funds would only be available out of the rainy day fund when there is a budget deficit or an emergency.  Furthermore, the cap attempts to ensure that, each year, the state budget is consistent with state revenue trends over the past 10 years. Any money above this amount will be saved into the "rainy day" budget stabilization fund until it reaches 12.5% of General Fund revenues. This prevents unsustainable spending of one-time spikes in revenue, which can lead to big deficits when revenues drop. If Prop 1A passes, the tax increases included in the February 2009 budget package would be extended for one or two additional years. (sales tax increase extended through 2012, VLF extended through 2013 and PIT increases extended through 2012 tax year).  If Prop. 1A doesn't pass it will result in the loss of $16.2 billion in revenues between 2010-2013. These revenues were included in this year's budget, dependent on approval of Prop. 1A.

LAO fiscal analysis
Difficult to forecast.  Some of these factors - such as higher tax revenues - would make it easier to balance the state budget in the coming years.  Other factors (limited ability to suspend the BSF) could make budgeting more difficult. In 2011-2012, LAO predicts budgeting would be easier if passed, other years, unclear.

1B – Education Funding: Did not take a position
Proposition 1B lays out a timeline for paying back California schools more than $9 billion in cuts that were required to get the state through these economic times. Instead of permanently losing these education funds, Prop. 1B sets up a repayment plan to ensure schools are paid back as economic conditions improve.   Payments to schools will come out of the newly-created Rainy Day Fund, but not until 2011-12 when the fiscal outlook is expected to improve.

LAO fiscal analysis
In 2009-10 and 2010-11, the measure could result in annual savings.  Beyond 2011 however, the state would begin making supplemental payments over a five-to-six year period to pay off the $9.3 billion.  Under most situations however, costs for K-14 education likely will be higher than under current law, potentially by billions of dollars.

1C – Lottery Securitization: Support
Proposition 1C brings in $5 billion immediately to the state by modernizing the Lottery structure and receiving up-front payment from anticipated revenue increases. The state deems this revenue to be vital to help protect the state from further budget cuts and tax increases in the budget. The State Lottery has not been changed since it was first put into place by voters in 1984.  Prop. 1C will modernize the Lottery by updating games and operations to reflect the best practices of other U.S. state lotteries. Prop. 1C protects current levels of lottery funding for public education and enacts new accountability standards including independent audits and public reports.  Prop. 1C also maintains ownership of the Lottery with the State of California.

LAO fiscal analysis
Considering the state is relying upon the $5 billion in funds from lottery borrowing to help balance the budget, failure of Prop 1C would likely result in additional spending cuts, increased taxes and/or other solutions to balance the 2009-10 budget. Successful borrowing of the $5 billion in 2009-10 would require $350 million to $450 million annually for debt-service payments to be paid from lottery profits.  Remaining lottery profits would be deposited in the reserve fund to pay various General Fund expenses.  Passage of Prop. 1C requires increased General Fund payments to education.  Increased revenues anticipated by the lottery profits in future years are not likely to be enough to cover General Fund's higher payments to education for the next 20-30 years, meaning the state would have to identify hundreds of millions of dollars per year in revenue increases or spending decreases to cover these costs,

1D – First 5 Redirection: Support
Proposition 1D temporarily redirects a portion of excess funds from a voter-approved tobacco tax to pay for child health and social services in the next two years. Currently, state and local First 5 commissions are sitting on nearly $2.5 billion in excess funds.  Prop. 1D redirects a portion of these funds to pay for children's health and social services and to prevent deep cuts to kids' healthcare and other programs.  Only a portion of the tobacco tax funds will be redirected, so existing programs currently funded by this revenue stream are protected.  The redirection of these funds is temporary.

LAO fiscal analysis
Reduces state commission funding by up to $340 million on a one-time basis in 2009-10 by redirecting reserve funds. Additionally, reduce funding for state and local commissions by $268 million annually from 2009-10 through 2013-14. Potentially achieves General Fund savings of $608 million in 2009-10 and $268 million annually 2010-11 through 2013-14.  Future impacts unknown.

1E – Mental Health Funds: Support
Proposition 1E temporarily redirects a portion of surplus, unused funds from the Mental Health Services Act to fund children's health programs that are at risk of elimination due to the budget crisis, including health care screening, diagnosis and treatment.

LAO fiscal analysis
Would result in General Fund savings of approximately $260 million for two years (2009-10 and 2010-11) by redirecting a portion of Prop. 63 funds to state-supported mental health services. Results in an equivalent reduction in Prop. 63 funding.

1F – No Budget, No Pay: Support
Proposition 1F prohibits legislators, the Governor and other state politicians from getting pay raises whenever California is running a budget deficit. Since 2005, legislators have had their pay increased three separate times. California's legislators are among the highest paid in the nation, some earning more than $130,000 a year in salary plus tens of thousands more annually in perks and benefits.

LAO fiscal analysis
Annual savings in any given year are relatively minor -- 3% raise would equal approximately $500 million in any given year.

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