In July 2011, the Governor and legislative Democrats asserted that their “honest and balanced” majority‑vote budget closed a $26.6 billion budget gap, and reduced the structural budget gap for fiscal year 2012-13 to $3.1 billion. Now, they claim to have closed a $15.7 billion budget gap (far larger than the previously noted $3.1 billion), and enacted a budget that would be “balanced on an ongoing basis for the first time in a decade.” In reality, the 2012-13 state budget is about 90 percent gimmicks (e.g., borrowing, fund shifts, and payment deferrals) and 10 percent real programmatic spending reductions. Unfortunately, it is no different than the other gimmick filled budgets of the past decade and it is almost certain that another budget deficit will emerge within six months – likely sooner.

The Governor says that this state budget plan is balanced with a $1 billion reserve. He claims his solutions include $8.1 billion of expenditure reductions; $6 billion in new tax increases and other revenues and $2.5 billion of “other” solutions (primarily special fund loans and transfers). However, a closer review of these solutions reveals that the new state budget plan reflects only about $1.4 billion of real state program spending reductions (the other items, have no programmatic impact such as natural program caseload changes or not providing cost of living increases). Additionally, over $4 billion of the Governor’s so-called “expenditure reductions” are actually loans, fund shifts, and deferrals such as:

1) $1.5 billion shift of Redevelopment Agency (RDA) assets,

2) $525 million fund shift of trial court reserves,

3) $390 million fund shift of mortgage settlement proceeds,

4) $660 million deferral of Medi-Cal provider payments, and

5) $830 million to defer/repeal state mandates.

The lynchpin for the entire state budget is a scheme to coerce voters into supporting a seven-year, $47 billion tax increase by threatening to make $6 billion in “trigger reductions” to K-14 and higher education programs. However, it is unlikely that those spending cuts will actually be implemented if the tax increase fails at the ballot – much like the trigger reductions included in last year’s state budget plan were unachievable and did not occur.

Key Points:

Robust Revenue Growth. State revenues are projected to grow by nearly $5 billion from 2011-12 to 2012-13 without the Governor’s proposed sales and income tax increases. The following chart reflects the baseline revenue projections without the Governor’s tax increase initiative through 2015-16. The simple story told by this chart is the strength of General Fund revenue growth projected in the out years, even without tax increases. Average annual revenue growth over the forecast period (6.1 percent) actually exceeds historic revenue growth over the past 30 years of about 5.1 percent.

Source: DOF Budget Act Multi-year Back-up Document- “Problem Definition”

Substantial Spending Growth. General Fund expenditures grow by $4.3 billion (from $87.0 billion to $91.3 billion) in 2012-13 (see detail Expenditures on Page 13). This equates to a 4.9 percent growth in expenditures at the same time the Governor believes an $8.5 billion tax increase is necessary to balance the state budget. In fact, according to the Governor’s projections, his proposed sales and income tax increase will fund a $24.4 billion (28 percent) state spending increase by 2015-16 (see chart below). Cumulatively, the Governor’s proposed tax increase generates $47 billion of revenue over seven years while state spending increases by $57.4 billion over four years. Effectively, this budget plan would increase state spending by an amount substantially greater than the tax increase revenues. Fundamentally, you can’t balance the budget, even with tax increases, if the money is spent faster than it comes in.

Source: DOF Budget Act Multi-year Back-up Document- “Balanced Budget and Pay Down Debt”

True General Fund Program Spending. Legislative Democrats frequently claim that state spending has been slashed by $40 billion. This claim is based upon an old projection from the 2008-09 Governor’s Budget that suggested spending, unchecked, would grow to about $124.5 billion by 2011‑12. Since current year General Fund spending is now $87.0 billion, they calculate that spending is almost $40 billion lower than it should have been if it had continued growing at a record pace. This This logic is faulty at best. The reality is that state General Fund spending peaked in 2007‑08 at $103 billion and various accounting gimmicks, borrowing and fund shifts have effectively allowed the state to maintain General Fund program spending at around the $100 billion level each year since spending peaked in 2007-08. The 2012‑13 budget plan includes a $5.9 billion shift of funds associated with Governor’s Realignment scheme, $3.2 billion from Redevelopment Agency funds, plus about $4 billion of other fund shifts that backfill General Fund programs, such AB 32 fees, trial court reserve fund, federal funds, and transportation weight fees. Once these General Fund-like program expenditures are added to the other $91.3 billion in 2012-13 expenditures, it becomes clear that state General Fund program spending hasn’t been reduced much at all.

As noted in the chart below, the “true” underlying General Fund expenditure level (red bar), which recognizes the “offsets” discussed above, shows that actual General Fund-like spending continues to hover around the $100 billion mark and is 4.0 percent greater than population and inflation growth.

Source: (1) Department of Finance Schedule 9, (2) LAO - February 17, 2012 Letter to Senator Huff regarding

Underlying State Spending, (3) DOF Chart H

Total State Spending. Under the 2012-13 budget plan, total state spending will have increased by $31.1 billion since the “great recession” began after 2007-08. General Fund spending tends to be the focus of state budget conversations, but it can be misleading because of all the fund shifts and “budgetary backfills” that have occurred but are not reflected in General Fund spending totals. As the chart on the next page demonstrates, total state spending from all fund sources continues to far outpace population and inflation. Even with the recent recession, the proposed 2012-13 spending level still exceeds population and inflation growth by $43.3 billion ($182.1 billion vs. $225.4 billion). The Governor and legislative Democrats argue that state spending has been drastically reduced in the wake of the “great recession,” but the truth is that California continues to spend significantly more than it did before the recent economic downturn ($194 billion in 2007-08 compared to $225 billion proposed for 2012-13) when General Fund spending peaked at $103 billion.

Source: Department of Finance Schedule 9

No Credibility on Trigger Cuts. Last year’s budget included $2.5 billion of trigger reductions that were supposed to occur if revenues fell $4 billion short. Well, revenues fell short of projections by more than $5 billion, yet less than $1 billion of trigger cuts actually occurred. Now, the Governor is using California students as hostages to force voters to support his seven-year, $46.8 billion tax increase. Of the proposed $6 billion of new trigger cuts, almost 99 percent of those reductions are targeted at K-14 and Higher Education (see Trigger reductions on Page 49). However, it is difficult to believe that the Governor will not find a new “trap door” to avoid those reductions. More notable is that legislative Democrats refused to adopt the Governor’s reductions to welfare programs, but have not acted to protect California students. In March 2012, and again in June 2012, Republicans proposed alternative budget solutions to avoid reductions to vital education programs and stop college tuition/fee increases, but legislative Democrats rejected those alternative proposals.

Governor’s Tax Increase Provides Little Help for Schools. Under this budget plan, state programmatic funding for K-14 education would remain roughly flat from 2011-12 to 2012-13 despite raising taxes by $8.5 billion. Only one-third ($2.9 billion) of the new tax revenues would be used for school funding while the tax initiative also shifts about $2.4 billion of existing funds (sales tax revenue) that would have gone to education to instead support his local public safety realignment scheme. Thus, the tax initiative appears to provide little benefit to school funding. Of course, the Governor threatens to cut K-14 school funding by $5.4 billion if voters don’t approve his sales and income tax increases.

HFP Shift Hurts Kids and Costs More. Rather than standing his ground for real spending reductions and pension reform, the Governor settled for promises of future reductions and an ill-advised shift of 880,000 children currently enrolled in the Healthy Families Program (HFP) into Medi-Cal. Legislative Republicans, health care advocates, health plans, and health care providers all opposed this transfer of HFP children because of concerns that such a transfer will threaten access and continuity of care. Currently, eligible Californians can sign up for Healthy Families through a private vendor for an average state administrative cost of about $50 per beneficiary, but under the new shift to Medi-Cal, public employees will now be in charge of eligibility processing, which increases the administrative costs to nearly $300 per beneficiary. This plan prioritizes public employee jobs over children’s health care.

Spending Not at 1970’s Levels. The Governor and legislative Democrats have been throwing around statistics to fool Californians into believing state spending per $100 of personal income is at the lowest level since the 1970’s. The truth is that for all state fund sources, at nearly $8 per $100 of personal income, it is higher than it was in 2008-09 and is entirely in line with historic norms.

Budgetary Threats Thrive. The 2012-13 budget is wrought with optimistic assumptions that will undermine the integrity of the plan. Optimistically, the budget is probably out of balance by at least $2 billion, and that deficit could easily be triple that amount ($6 billion) depending on the dubious trigger reductions, as well as the optimistic tax and RDA revenue assumptions. Some of the most notable threats to this budget package include:

Ø Neither Taxes Nor Trigger Cuts – The budget relies on voter approval of the Governor’s tax initiative in November 2012 to provide $8.5 billion of revenues in 2011-12 and 2012-13. Voters have rejected each of last eight tax hikes presented to them in statewide elections. There is good reason to doubt the $6 billion of proposed “trigger reductions” will occur if/when the current tax initiative is rejected. If the trigger reductions do occur, the $5.5 billion cut to K-14 education includes $3.1 billion of programmatic reductions, which could throw some districts into fiscal insolvency, in which case the General Fund would have to provide emergency loans that could easily run into the hundreds of millions of dollars, or more.

Ø LAO Revenue Estimates Lower Than Governor – Even if the voters approve the Governor’s tax initiative, the LAO estimates that the initiative would only generate about $6.8 billion of revenues in 2011-12 and 2012-13 (Governor assumes $8.5 billion). If the LAO is correct, this revenue shortfall would create a $1.7 billion budget deficit.

Ø Estate (Death) Tax Flip-Flop – The budget plan now assumes that California will receive revenues from the estate (death) tax, which is a change from the Governor’s May Revision assumption that these revenues would not be available. The LAO advised the Legislature “to assume no such revenues during its 2012-13 budget process unless there is a clear indication from Congress that a state death tax credit will be adopted” which would allow for the resumption of the state-level estate tax. If the estate tax revenues do not materialize, the Governor’s budget forecast will fall apart, and resulting state operating deficits would be at least $262 million in 2013-14, $584 million in 2014-15, and $830 million in 2015‑16.

Ø Managed Care Tax Revenues Not Extended. The budget relies on revenues from the Medi-Cal managed care organization (MCO) tax for $183 million in General Fund savings, but that tax expired June 30, 2012, and has not been extended. Republicans and health care plans previously supported the tax because it helped fund the Healthy Families Program (HFP). However, because the partisan state budget eliminates the popular and successful HFP it violates an agreement that revenues from the MCO tax be used only to support and maintain the HFP, which was the original basis for Republican and health plan support of the tax. Legislative Democrats intend to seek a tax extension through policy legislation in August 2012, but Republicans support for this tax increase has traditionally been conditioned on the funds being used for the HFP, and it is unlikely there will be any support for what is now just another General Fund tax increase that will be used to fund state employee health and pension benefit cost increases and welfare benefits.

Ø RDA Property Taxes Overstated – The Department of Finance notified the Legislature that the reserve will be at least $122 million lower than expected as a result of property tax revenues from Redevelopment Agencies coming in lower than expected. The Legislative Analyst’s Office (LAO) had previously cautioned that the budget assumptions regarding property tax revenues from Redevelopment Agencies are likely overstated by $900 million.

Ø RDA Litigation – The LAO has also raised concerns that the $1.5 billion of liquid assets to be distributed to schools is “subject to considerable uncertainty” given the “likelihood that lawsuits will delay distribution of these funds.”

Ø Facebook IPO – The budget relies on $1.9 billion of revenues related to this IPO (based on a $35/share price), however, stock performance has been lackluster at best. When the stock market closed on June 29, Facebook closed with a price of $31.09/share. Consistent with caution provided by the LAO, which warned that revenues could be higher or lower by several hundreds of millions of dollars, a share price that is 11 percent lower than estimates could reduce revenues by more than $200 million.

Conclusion

The Governor has failed. This is a failed budget plan. The 2012-13 state budget is essentially a continuation of past budget models, as the “solutions” consist of about 90 percent ($15.1 billion) gimmicks, and only 10 percent ($1.4 billion) actual program spending reductions. It does not include real public employee pension reform to address those unsustainable costs nor any job creation measures to help the two million unemployed Californians. It does, however, include plenty of “giveaways” to public employee unions that will drive up state costs in the future (see Union Giveaways page 8). As noted above, General Fund program spending has not been significantly reduced and total state spending is proposed to reach a new record high of over $225 billion. In addition, his $47 billion seven-year tax increase plan fuels a $57.4 billion four-year spending increase, which demonstrates that the Governor and legislative Democrats plan to spend money faster than they can raise taxes.

Furthermore, the Governor’s tax increase proposal does not provide additional funding for K-14 education programs, but he does use school children as hostages by targeting education programs for 99 percent of his trigger cuts. Voters will see through this “hostage taking” approach and recognize that the money is really being used to fund future government growth, not reduce college fees or protect classroom funding.

The Governor has failed to get his fellow legislative Democrats to make meaningful spending reductions and adopt necessary pension reforms. This partisan majority-vote budget reflects their priorities for protecting public employees. It eliminates a successful and cost-effective health insurance program that had bi-partisan support (Healthy Families) in order to increase public employee jobs, and targets students, teachers and local education communities for almost all of the trigger spending reductions. The budget plan grows state spending to record levels while still attempting to burden Californians with a massive new tax increase to fuel future spending growth. It includes overly optimistic revenue and savings assumptions that will likely result in yet another multi-billion budget deficit. This is not an honest and balanced budget that will put California on track to fiscal and economic health – it is a failed partisan budget plan that will swiftly unravel.

Union Giveaways in Budget Plan

It’s pretty clear who the winner in the 2012-13 state budget is, and it is not California students, taxpayers, or beneficiaries of state services. But, public employee unions have plenty to celebrate. Here are some examples of the recent changes that will increase the union domination of California state government:

Ø The Governor proposed to allow the state Department of Transportation to save money by using additional contracted staff, consistent with voter approved Proposition 35 (2000). However, Legislative Democrat’s rejected the Governor’s plan to better manage state and private sector workload in order to control short and long-term state costs. The Governor approved the budget despite the fact that it maintains the inherent imbalance and inefficiency at the Department of Transportation.

Ø The Administration stated in the May Revision that it intends to further restrict the state’s ability to achieve personnel savings by focusing less on contracting out for low cost workers for information technology and personal services, such as janitorial and security services.

Ø The recently negotiated Memorandum of Understanding (MOU) between the Administration and Service Employees International Union (SEIU) would now have the Governor discontinue use of “non-represented” student aides/assistants and retired annuitants while working hand-in-hand with SEIU to identify and reduce the number of state (non-union) contracts. The most devious part of this little scheme is that in the unlikely event any savings are actually achieved, SEIU would be allowed to help determine how those savings should be spent. To add insult to injury, the practical elimination of all non-union elements of state government could be long lasting, while the MOU’s furlough savings are only in place for one year.

Ø The elimination of the Healthy Families Program (HFP) not only will end a successful program for providing health care to children in working families, it also will provide another bonus to unions at potentially far greater cost to the state. The HFP employs one state worker for every 13,000 enrollees, nearly 4.5 times more efficient than Medi-Cal, which employs one state worker for every 2,900 enrollees. The HFP outsources administration of their eligibility and enrollment functions to a private vendor, but Medi-Cal uses public employees at county welfare offices. The HFP vendor costs $49 per child per year, while costs for county welfare workers average $294 per person per year in Medi-Cal. This budget takes the job of administering enrollment for 880,000 HFP children away from the more efficient private contractor and hands it over to county welfare workers. If the new costs reach the Medi-Cal average, the state will be forced to spend an additional $213 million total funds ($75 million General Fund) for an inferior state health program.

Ø Another favor to the Public Employee Unions is the new requirement for a statewide collective bargaining process for In-Home Supportive Service (IHSS) workers as part of the Coordinated Care Initiative, which will lead to even higher costs as it will result in providing the highest compensation level in all pilot project counties rather than individual counties trying to achieve the best price for services based on local needs and costs.

Employee Compensation

Pay Cut or Loan. The 2012 Budget includes savings of $840 million ($402 million General Fund) to be achieved through collective bargaining. The Governor currently has negotiated agreements with most of the state’s 21 bargaining units for a one day per month unpaid Personal Leave Program (PLP). Bargaining units without agreements will be subject to the same level of savings through either a negotiated agreement or through furloughs. State employees will see their pay reduced by 4.6 percent for 2012-13 only, the equivalent of eight hours of pay per month, and will be authorized to take a personal leave day in return. The Highway Patrol members will be allowed to bank leave credits and can take them at any time, including saving them and cashing them out upon retirement. This proposal will not achieve long-term savings for the state and doesn’t reduce employee compensation in real terms, simply requires state employees to work one less day a month, and reduces their pay accordingly. Since most state employees will use these unpaid days off in lieu of vacation days, this is essentially an interest bearing loan that will be repaid when the employees cash out vacation days at higher salary levels in the future.

State Employee Salary Increases. According to the State Controller’s Office, and assuming 2012-13 merit salary adjustments (MSAs) are consistent with past years, MSAs have increased baseline state spending on state employee wages by more than $800 million, cumulatively costing the state $3.5 billion, since 2005-06. Merit salary adjustments are automatic salary increases, and are not affected by furloughs or personal leave programs. Without civil service reform, the state will continue to give automatic salary increases regardless of job performance or fiscal circumstances. The state can no longer afford to do business this way, annual pay increases must not be considered an entitlement for public employees.

Extends MOU’s Until 2013. The 2012 Budget also ratifies the addenda to extend the contract with Bargaining Units (BUs) 12 (International Union of Operating Engineers), 16 (Union of American Physicians and Dentists), 18 (California Association of Psychiatric Technicians), and 19 (American Federation of State, County and Municipal Employees) through July 1, 2013. For BUs 12 and 18, this action increases health premium rates, and will cost the state $18.7 million total funds ($5.9 million General Fund).

Public Employee Retirement Benefits.

The 2012 Budget includes $2.4 billion General Fund ($4.3 billion all funds) for state contributions to the California Public Employees Retirement System (CalPERS). The increased contribution levels ($350 million more General Fund than 2011 ) are a result of various factors including higher than expected retirement rates and the CalPERS’ Board decision to decrease the assumed rate of investment return to 7.5 percent from 7.75 percent. Although the Board has voted to phase in the cost to the state as a result of the investment rate change, the legislature took action to fully fund the difference in 2012-13. The budget includes $304.1 million total funds ($173 million General Fund) in additional state retirement contributions for this adjustment.

Growth in State Employees

The Governor's May Revision proclaimed that more than 15,000 state employee positions were eliminated in 2011-12 through budget reductions. Additionally, the May Revision indicated a review of historical vacancies identified an additional 11,000 positions that will be permanently eliminated in 2012-13. Including all reductions proposed in the 2012-13 budget, the Brown Administration claims that it will have achieved a total reduction of more than 30,000 state employee positions.

A review of budget documents, however, shows that this claim is nothing more than funny "budget math." Information provided by the Governor's Department of Finance shows personnel years have not been reduced by 30,000, but they have actually increased by 138.5 since Governor Brown took office after Governor Schwarzenegger in 2010-11 . In fact, if state employee positions for higher education are not included in the overall number (the Governor has no authority over these positions and is not directly responsible for increasing or decreasing positions), the actual increase in state employee positions is 4,680.2 in 2012-13 compared to 2010-11. The chart below compares personnel years from 2010-11 to the Governor’s projection for 2012-13, including a distinction at the bottom if higher education is not included in the numbers.

Revenues

The 2012-13 Budget Act assumes total General Fund revenues and transfers of approximately $95.9 billion for 2012-13, which is up from $86.8 billion for 2011-12 (10.4 percent year-over-year increase). This year-over-year increase reflects both strong baseline revenue growth in 2012-13 for all three major taxes (Personal Income, Sales, and Corporate) and the Governor’s proposed tax initiative (scheduled for November 2012). Baseline General Fund revenues are projected to increase by $4.9 billion (from 2011-12 to 2012-13) even without increasing taxes. And, the budget relies on more than $11 billion of new “revenues,” including about $8.5 billion of new revenue from the Governor’s tax initiative proposal and about $2.6 billion of transfers and other revenues (mostly transfers and borrowing from special funds).

These amounts do not include tax revenues (1.0625 percent of the state sales and use tax (SUT)) that were redirected to local governments as a part of the 2011 Public Safety Realignment proposal ($5.1 billion in 2011-12 and $5.4 billion in 2012-13).

In reviewing revenues relied upon by the 2012-13 Budget Act, there are at least two issues that would threaten anticipated levels of revenues:

Ø Taxes on the Ballot. Though a tax increase is not included the budget bill, or any of the related trailer bills, the budget relies on voters approving a seven-year, $47 billion tax increase. History has shown that when competing tax hikes land on the ballot California voters tend to vote NO on all of them. In fact, voters have rejected each of the last eight tax hikes presented to them:

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Election	Initiative	Title	No Vote
June 2006	Proposition 82	Universal Preschool	60.8 percent
November 2006	Proposition 86	Tobacco Tax	51.7 percent
November 2006	Proposition 87	Oil Severance Tax	54.6 percent
November 2006	Proposition 88	$50 parcel tax	76.7 percent
May 2009	Proposition 1A	Extend Temporary Tax Increases	65.4 percent
November 2010	Proposition 21	Car Tax for State Parks	57.3 percent
November 2010	Proposition 24	Repeal Single Sales Factor	58.1 percent
June 2012	Proposition 29	Cigarette Tax For Research	50.3 percent

If the Governor’s tax initiative fails on the November 2012 ballot, the Budget Act includes provisions to implement $6 billion of trigger reductions (discussed in more detail in Trigger Reductions on page 49).

Ø Weakness in Facebook Projections. The May Revision included increased General Fund revenues of $500 million in 2011-12 and $1.4 billion in 2012-13 that were anticipated to materialize with the initial public offering (IPO) of Facebook, Inc. The Legislative Analyst’s Office indicated that revenues could be significantly higher or lower, based on a variety of unknowns at the time, but projected that the Facebook IPO would yield an additional $500 million in 2011-12 and $1.6 billion in 2012-13. Both organizations estimated an initial share price of $35, but differed on their estimate of the share price in six months ($35/share-Finance; $45/share‑LAO) when a large volume of “restricted stock unit” settlement activity is scheduled to occur. Though Facebook opened at $38 on May 18, 2012, performance since then has been disappointing. On June 29, 2012 when the stock market closed, Facebook closed with a price of $31.09/share. To the extent Facebook’s share price does not improve significantly, both estimates from Finance and the LAO are likely overstated.

In addition to the issues noted above, the 2012-13 Budget Act includes three tax policy issues that will affect taxpayers in California:

Ø Expand Financial Institutions Records Match (FIRM). Expands the Franchise Tax Board’s (FTB) authority to match financial institutions customer records against FTB debtor records to match records at the Board of Equalization and the Employment Development Department. This change is expected to generate $4 million General Fund revenue in 2011-12 and $11 million General Fund revenue in 2012-13.

Ø Change Rules Regarding Wage Garnishment. Allows the FTB to issue a wage garnishment against delinquent income tax debt without requiring FTB to record a tax lien. This change is expected to generate $11 million General Fund revenue in 2011-12 and $27 million General Fund revenue in 2012‑13. The intent of these provisions is intended to remove an incentive for FTB to record a lien (benefitting taxpayers) prior to garnishing wages to collect tax debts.

Ø Repeals Memberships in Multi-state Tax Compact (MTC). Repeals the statutes that establish California's participation in the MTC. Specifies that the "doctrine of election" means that an election affecting the computation of tax must be made on an original timely filed return for the taxable period for which the election is to apply and once made is binding, and that this is declaratory of existing law. Cautions that the repeal of the Multi-state Tax Compact should not be interpreted as a declarative change related to the interpretation of existing law.

Budgetary Borrowing. The Governor’s “wall of debt” continues to loom over the state as a problem that needs to be addressed. As of June 30, 2012, the “wall of debt” is estimated to be $34.2 billion.

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	6/30/2012 Balance	2012-13 Impact
Deferred Payments to Schools and Community Colleges	$10,430	$2,225
Economic Recovery Bonds	$6,263	$1,349
Loans from Special Funds	$4,290	$181
Unpaid Mandate Costs-Schools, Local Governments, Community Colleges	$5,055	$0
Underfunding of Proposition 98	$2,756	$0
Borrowing from Local Government (Prop 1A)	$2,095	$2,095
Deferred Medi-Cal Costs	$1,659	$0
Deferral of State Payroll Costs from June to July	$759	$0
Deferred Payments to CalPERS	$524	$0
Borrowing from Transportation Funds (Proposition 42)	$334	$83
Total	$34,165	$5,933

* Budget Act – high level support documents

This table reflects a 17.3 percent reduction to the “wall of debt” in 2012-13, half of which should be credited to voter wisdom. However, the back story of this table is more interesting:

Ø Repayment of the Proposition 1A (2004) borrowing (property taxes) from local governments is on “auto-pilot” as repayment is required by the Constitution prior to June 30, 2013.

Ø Repayment of the Economic Recovery Bonds is on “auto-pilot” as one-quarter of one percent of the state sales and use tax is dedicated to repaying those bonds, pursuant to Proposition 57 (2004).

The Governor can claim that he reduced education deferrals, but only if voters approve his proposed tax initiative. And, it’s important to note that repaying $181 million of loans from a variety of special funds is eclipsed by the fact that the budget relies on delaying the repayment of $1.1 billion of loans from 44 special funds.

Expenditures

The 2012-13 budget includes total General Fund expenditures of $87 billion in 2011-12 (about $1.1 billion higher than the 2011 Budget Act) and $91.3 billion in 2012-13 (about $5.4 billion higher than the 2011-12 Budget Act). Keep in mind that expenditure levels identified below for 2011-12 and 2012‑13 assume voter approval of the Governor’s tax increase initiative that is slated for the ballot in November 2012 (discussed in the previous section). If voters do not approve the Governor’s tax initiative in November, K-12 Education expenditures will be decreased by about $5.4 billion and Higher Education (UC & CSU) expenditures will be reduced by $500 million (98.4 percent of the total Trigger Reductions). Additional information regarding Trigger Reductions can be found on page 49.

Department of Finance – Schedule 9

* The Other/Statewide Savings/Expenditures category includes a variety of statewide proposals that have not yet been allocated to specific departments or programs, including the Prop 1A loan repayment to locals, employee compensation reductions, health and dental benefits for annuitants, the PERS deferral, and assumptions for federal fund offsets related to health and human services programs.

General Fund spending is only a part of total state spending. Including special funds, bond funds, and federal funds, total state spending for 2012-13 is projected to be $225.4 billion. This level of total state expenditures is $12.1 billion higher than total expenditures in 2011-12 ($213.3 billion). Despite the great recession and Democrats’ claims of “cutting to the bone,” total state spending remains at record high levels. Total state spending is near all-time highs as a result of the proposed tax increase, fund shifts, federal funds, and General Fund offsets such as the "realignment" scheme. Expenditures per $100 of personal income are consistent with historic norms at about $7.73.

True state General Fund program spending, which accounts for fund shifts, transfers, and General Fund offsets - remains near $100 billion (only 2.9 percent less than peak General Fund spending in 2007-08). This level of spending has remained consistent throughout the "Great Recession" and despite legislative Democrat claims to have reduced spending by tens of billions (see table on next page).

Department of Finance – Schedule 9

Though General Fund spending is down (compared to 2007-08), true “underlying” General Fund spending, which recognizes federal fund offsets, fund shifts, and deferrals employed to support General Fund programs, is still in excess of $98 billion for both the current and prior budget years. In addition to $91.3 billion General Fund, the 2012-13 Budget Act relies on (1) nearly $3.2 billion of property taxes from redevelopment agencies to fund education and special districts, (2) realigning $5.9 billion of public safety programs to the local level, (3) $544 million of trial court reserves to fund court costs, (4) $604 million of weight fees to pay general obligation bond debt, and (5) a variety of smaller transactions to offset General Fund reductions and maintain General Fund programs. In prior years, the Legislature has relied on additional federal funds, redevelopment agencies, inter-year Proposition 98 deferrals, employee compensation deferrals and local property tax borrowing to maintain General Fund programs in the absence of General Fund revenues.

Helping Business Do Business In California

Friday, July 20, 2012

Governor Brown Wants Higher Taxes For Government Programs - Why?

Wednesday, July 18, 2012

THE LOYAL OPPOSITION: Senate Republican Analysis of Governor Brown's 2012-13 Budget Package

Executive Summary

Union Giveaways in Budget Plan

Employee Compensation

Growth in State Employees

Revenues

Expenditures