Governor's May Revise Budget

By CMTA Staff

Capitol Update, May 21, 2010 Share this on FacebookTweet thisEmail this to a friend

The summer budget series is off and running with the first pitch of the season coming from the Governor on Friday by way of the May Revision. It recasts the budget problem as a $17.9 billion two-year budget deficit, which consists of $7.7 billion for the 2009-10 fiscal year and a $10.2 billion shortfall for the 2010-11 fiscal year.  Adding in a modest reserve of $1.2 billion takes the total projected deficit solutions to $19.1 billion. The Governor’s proposal fully funds education (there is democrat debate on this point) and increases funding for higher education, while imposing no new taxes. In addition to the deficit-closing proposals, the Governor has also called for serious reforms for both state budgeting and the state employee pension system.

Breaking down the Governor’s proposal, it is clear that cuts and borrowing are the name of the game this year.

  • Spending reductions account for $12.4 billion in solutions;
  • Federal funds account for $3.4 billion in solutions, a reduction from the Governor’s January budget proposal; and
  • Various fund shifts, alternative funding, and other revenues, including a $650 million loan of excise taxes on gasoline, account for $3.4 billion.

Both democrat leaders and their budget chairs made statements indicating that a cuts-only approach to solving the state’s budget problems is irresponsible and that any solution this year must include revenues.  Senate Pro-Tem Darrell Steinberg (D-Sacramento) and Senate Budget Chair Denise Moreno Ducheny (D-San Diego) took special aim at a series of “corporate tax breaks” that they believe must be addressed as part of closing the budget gap.

Republican leaders from both chambers responded by recognizing that the budget solutions proposed by the Governor, while not easy for anyone, were the appropriate measures to take in order to ensure that taxpayers are protected from the state’s long running history of over-spending. Leaders pledged their support and willingness to work with the Governor to achieve long-term budget reform.

Friday’s May Revision and the responses by leaders on both sides of the aisle represent the first salvo of what is setting up to be yet another long, drawn out political battle regarding how to solve California’s broken budget system. Let the games begin….

Budget Solutions: $19.1 Billion

1. Spending Cuts:  $12.4 Billion

  1. Eliminates child care programs, with the exception of pre´┐Ż‘school and after school care;
  2. Eliminates the California Work Opportunity and Responsibility to Kids Program (CalWORKs);
  3. Significantly reduces funding for In-Home Supportive Services (IHSS); and
  4. Reduces local mental health services by approximately 60 percent.

2. Federal Funding:  $3.4 Billion

  1. Extends the temporary increase in the Federal Medical Assistance Percentage (FMAP) – $1.7 Billion;
  2. Extends other enhanced federal funding provided under the American Recovery and Reinvestment Act – $125 Million; and
  3. Adds federal funds for health and human services and for the Department of Corrections and Rehabilitation – $1.6 Billion.

3. Alternative Funding/Shifts/Revenue:  $3.4 Billion

  1. Includes over $1.6 billion in new loans, loan repayment extensions, and transfers from special funds;
  2. Phases out the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), estate tax issue, of 2001;
  3. Board of Equalization Collection Costs Fee; and
  4. Emergency Response Initiative (4.8% insurance premium surcharge).
  • Of note,“Trigger List”  revenue items (suspensions of the Single Sales Factor, unitary sharing, and Net Operating Losses) proposed by the Governor in January were not included in the May Revise.

Cash Management

The May Revision continues to project that the state will have sufficient cash to repay the entire $8.8 billion of RANs in May and June 2010 as scheduled. Legislation enacted earlier this year provided the state additional tools to manage cash in July and during key months of the budget year. Speculation at this time points to September as the month where state cash-flow becomes a major concern if no budget is enacted between now and then.

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