California Budget & Propositions April 2009

Budget Three things to note: Process this year is different 2. “Trigger” was not reached 3. Received more federal stimulus than initially thought

Budget Process Process different than usual: Governor already signed budget Budget for fiscal years 2008-2009 and 2009-2010 Budget hearings will still take place Budget revise in June

Budget Trigger Did not reach $10 billion federal fund trigger: $1.8 billion in personal income taxes (.125% v. .25%) $948 million in additional cuts, including deeper cuts to SSI/SSP, Medi-Cal, CalWORKs

Federal Stimulus Will receive close to $31 billion: $9 billion for health programs $8 billion for education $6 billion for labor and workforce development $3.5 billion for social services $2.6 billion for transportation $1.1 billion for fiscal stabilization $264 million for criminal justice

May 19th Initiatives Prop 1A: Spending cap Prop 1B: Funding for education Prop 1C: Lottery securitization Prop 1D: Redirecting Prop 10 funds Prop 1E: Redirecting Prop 63 funds Prop 1F: No raises for elected officials if budget deficit

Prop 1A Increases size of “Rainy Day Fund” Portion of annual deposits dedicated to savings for future economic downturns Higher state tax revenues of ~$16 billion to help balance state budget Potentially less ups and downs in state spending over time Possible greater state spending on repaying budgetary borrowing and debt, infrastructure projects, and “temporary” tax relief Additional money for one-time spending. Less money for general fund in good years. Shifts revenue to savings that can offset impact of down years. One-time funds will also be used to spend down debt, which reduces pressures on General Fund through paying lower interest. $16 billion additional funds generated if temp taxes are extended.

Prop 1B Only goes into effect if 1A passes Requires supplemental payments to local school districts and community colleges Annual payments begin in 2011-2012 Payments are funded from Budget Stabilization Fund until total amount paid Payments to local school district allocated in proportion to average daily attendance and may be used for classroom instruction, textbooks, and other local educational programs Potential state savings of several billion in 2009-2010 and 2010 to 2011 Potential state costs of billions of dollars annually thereafter

Prop 1C Modernizes state lottery to improve performance with increased payouts, improved marketing, and effective management Requires state to maintain ownership of lottery and authorizes additional accountability measures Protects funding levels for schools currently provided by lottery revenues Increased lottery revenues used to address current budget deficit and reduce need for additional tax increases and cuts to state programs Allows $5 billion of borrowing from future lottery profits to help balance 2009-2010 state budget Local 1000 was able to make changes to the language in the bill – keeping the state from being able to outsource its employees. Would make changes to the payout structure in line with analysis we have previously done and generate $5 billion. Even if the $5 billion is not borrowed, other changes can still take place to bring in additional revenue.

Prop 1D Provides more than $600 million to protect children’s programs in difficult economic times Redirects existing tobacco tax money to protect health and human services for children, including services to at-risk families, children with disabilities, and foster children Temporarily allows redirection of existing money to health and human services programs for First 5 Ensures counties retain funding for local priorities Helps balance state budget General Fund savings of up to $608 million in 2009-2010 and $268 million annually from 2010-2011 through 2013-2014

Prop 1E Amends Mental Health Services Act (Prop 63) to transfer funds for 2-year period from Prop 63 programs to pay for mental health services for children and young adults provided through Early & Periodic Screening, Diagnosis, & Treatment Program Provides more than $225 million in flexible funding for mental health programs General Fund savings of ~$230 million annually for 2 years Corresponding reduction in funding available for Prop 63 community health programs

Prop 1F Prevents State Legislators and Constitutional Officers, including the Governor, from receiving pay raises in years when the state is running a deficit Directs the Director of Finance to determine whether a given year is a deficit year Prevents the Citizens Compensation Commission from increasing elected officials’ salaries Minor state savings related to elected state officials’ salaries in some cases when state is expected to end year with deficit

Questions?