Budget Sets New Record High for State Spending. General Fund spending hits $108 billion, eclipsing the pre-recession peak of $103 billion. True General Fund program spending also hits a record $119 billion after accounting for fund shifts and other accounting maneuvers (see Expenditures page 11), which is $11 billion higher than last year. Lastly, total state spending (from all fund sources) is $254.4 billion – nearly $25 billion above the previous record of $230 billion.
More Spending and Less Debt Repayment. Legislative Democrats lost the battle to prop up higher state spending by using the Legislative Analyst’s riskier General Fund revenue forecast, which was $2.5 billion higher than the Governor’s estimate. Relative to the Governor’s budget plan, the final budget agreement increases baseline state spending by about $900 million, and reduces the amount of debt repayment by $700 million. However, it could have been much worse, given legislative Democrats’ initial proposal to increase state spending by $3 billion above the Governor’s plan.
Rainy Day Fund Starts but Everyday Reserve is Dangerously Low. The budget begins to fill the rainy day fund with a $1.6 billion transfer to the “Budget Stabilization Account” created by Proposition 58 (2004). However, the everyday reserve known as the Special Fund for Economic Uncertainties (SFEU), at $450 million, is less than half of the historical minimum target level of $1 billion. As budget deficits have been the norm for the past decade the SFEU has rarely ended up in the black by the end of the year, but ‘best budget practices’ suggest that a $108 billion budget should have more than $450 million in reserve. In fact the state Medi-Cal program alone has incurred deficiencies in excess of that amount for three years in a row.
Do Not Pass the Debt Burden to Future Generations. The final budget does pay down the “wall of debt” by $10.4 billion, which is about $700 million less than the Governor’s original plan and significantly less than most Republicans would like. Over the past decade or so the state has repeatedly taken actions to provide services without paying the full cost – as a result California has incurred debts and liabilities that exceed $340 billion according to the Legislative Analyst’s Office. The current debt load is nearly $9,000 for every single Californian. It is not responsible to create new spending commitments when the state cannot even pay for the commitments already made.
Fight to Fix Teacher Retirement Plan. Picking up on the Republican proposal contained in SB 984 (Walters), the budget includes a plan of shared responsibility among the state, teachers, and school districts to address the massive $74 billion shortfall in the California State Teachers’ Retirement System (CalSTRS) (see Employee Retirement page 23). When fully implemented, the additional contributions will cost about $5 billion more per year for about 30 years to eliminate the unfunded liability and guarantee our teachers the pensions they have earned.
Caltrans’ Overstaffing Diverts $500 million from Local Streets and Roads. The budget provides $1.7 billion and 9,894 full-time equivalent positions for the Capital Outlay Support Program (COS Program) within Caltrans despite a Legislative Analyst’s Office report that indicated the COS Program is overstaffed by 3,500 positions at a cost of more than $500 million annually. There is no logical explanation for the legislative Democrats’ lack of concern about this massive waste of money that could be used to fix streets and roads throughout California, but the fact that these are public employee union positions may shed some light on the matter.
Working Families Now Pay for Drug Felons on Welfare. The 2014 budget eliminates the common sense restriction against giving cash benefits to drug felons in both the CalWORKs and CalFresh (food stamps) programs. This foolish new policy is expected to cost taxpayers at least $40 million annually. In addition to being a terrible policy that likely wastes tens of millions of dollars to support the drug trade, allowing drug felons to be eligible for cash aid could actually hurt the children in these households. Currently, vouchers are used for rent and utility payments instead of cash to ensure the funds do not get used by the drug addicted adult, but with the drug felon now eligible to receive aid the cash will go to the drug felon, probably leaving these children worse off than they are now.
Reserve Restrictions Hurt Schools and Children. This budget imposes onerous new restrictions that impact school districts’ ability to maintain rainy-day reserves. Once their reserves are gone, their ability to deal with unplanned fiscal events will be weakened, such that any economic downturn could push them into insolvency. These restrictions have been condemned by every major education advocacy group in the state, with the exception of the teachers’ unions. Others have said:
- The ACLU, Children Now, the Education Trust West, and Public Advocates have jointly declared that “we are opposed to this proposal and see it as inconsistent with the principle of local control. It will have a disproportionate impact on schools serving low-income students, English learners, and foster youth.”
- The Education Management Group has called the restrictions “fiscally irresponsible and counter to the concept of subsidiarity” and observed that they ignore recent history, when many school districts were able to survive the great recession only because prudent management of their reserves allowed them to avoid having to make even greater cuts.
- Megan Reilly, chief financial officer of the Los Angeles Unified School District, may have put it most succinctly when she said, “I think it’s stupid.”
A Blank Check for High Speed Rail. The Budget includes $250 million in Cap and Trade funding for the high speed rail (HSR) project in 2014-15. Additionally, it allocates 25 percent of future Cap and Trade revenues, beginning in 2015-16, to the project through a continuous appropriation. This equates to hundreds of millions of dollars spent annually on HSR without future votes of the Legislature, despite LAO warnings that it is legally risky to link the bullet train to Cap and Trade funds. The people of California no longer support the high speed rail project because it has become clear that it is an ill-conceived ‘boondoggle’ that will drain billions away from more worthwhile projects such as fixing schools and the state’s crumbling transportation infrastructure.
Medi-Cal Growth Devours the Budget. Writer P.J. O’Rourke could not have been more correct when he said: “If you think health care is expensive now, wait until you see what it costs when it’s free.” Nearly one-third of Californians (11.5 million people) will be enrolled in the state Medi-Cal health program at a cost of over $90 billion (all fund sources). The rapid expansion of Medi-Cal associated with Obamacare is driving explosive enrollment and cost growth far beyond anything that was anticipated. The budget includes $17.3 billion General Fund for Medi-Cal, which now projects 2.7 million new enrollees associated with Obamacare. This massive cost will divert funds from other core programs such as education, courts, public safety, and the social welfare safety net.
*Senate Republican Fiscal Office
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