CDPI Information Bulletin
06/04/2010 -
Child Development Policy Institute (CDPI) INFORMATION BULLETIN
DATE: June 4, 2010
FROM: Tim Fitzharris, Ph.D.
Legislative Advocate
June 4, 2010
Budget Conference Committee Begins Work
This morning, the Conference Committee on AB 190 (the FY 2010-11 Budget) began the arduous task of resolving differences between the Senate and the Assembly versions of the State's spending plan. After opening statements from party leaders, the Committee heard from Legislative Analyst Mac Taylor on (1) California's economy, revenues, and spending, and (2) the May Revision, the Assembly and Senate Budget plans.
The Republicans, in opening statements (Sorry, I missed the opening statements of the Democrats), said:
Senator Robert Dutton (R- Rancho Cucamonga) - "We're beyond the point of tricks and gimmicks. We can't just grow government jobs and not private sector jobs. We must reduce government costs and reduce operating costs."
Assemblymember Jim Nielsen (R- Gerber) - "This is a historic deficit, the worst I've seen in all the years I've been here. This is a chance to change government. We have to fashion a responsible budget."
Here are the members of the Conference Committee:
Senator Denise Ducheny (D - Imperial, Riverside, San Diego), Chair - Capitol (916) 651-4040; Fax (916) 327-3522; Email: Senator.ducheny@sen.ca.gov
Assemblymember Bob Blumenfield (D - Los Angeles), Vice Chair - (916) 319-2040; (916) 327-9113; Assemblymember.blumenfield@assembly.ca.gov
Senator Robert Dutton (R - Riverside, San Bernardino) - (916) 651-4031; (916) 327-2272; Senator.dutton@sen.ca.gov
Senator Bob Huff (R - Los Angeles, Orange, San Bernardino) - (916) 651-4029; (916) 324-0922; Senator.huff@sen.ca.gov
Senator Mark Leno (D - Marin, San Francisco, Sonoma) - (916) 651-4003; (916) 445-4722; Senator.leno@sen.ca.gov
Senator Alan Lowenthal (D - Los Angeles) - (916) 651-4027; (916) 327-9113; Senator.lowenthal@sen.ca.gov
Assemblymember Connie Conway (R - Inyo, Kern, San Bernardino, Tulare) - (916) 319-2034; (916)319-2134; Assemblymember.conway@assembly.ca.gov
Assemblymember Felipe Fuentes (D - Los Angeles) - (916) 319-2039; (916) 319-2139; Assemblymember.fuentes@assembly.ca.gov
Assemblymember Jim W. Nielsen (R - Butte, Colusa, Glenn, Modoc, Shasta, Siskiyou, Sutter, Tehama, Yolo) - (916) 319-2002; (916) 319-2102; Assemblymember.nielsen@assembly.ca.gov
Assemblymember Nancy Skinner (D - Alameda, Contra Costa) - (916) 319-2014; (916) 319-2114; Assemblymember.skinner@assembly.ca.gov
Legislative Analyst Calls for Suspending Proposition 98, Other Options
In his briefing, Mac Taylor made some important statements. Here are some of the highlights:
"We are not forecasting a big (economic) bounce-back." (Read, no quick economic recovery)
"This year will be more difficult than last year." "You will have more limited (fewer) options this year."
"You can't grow your way out of this problem." "You will have to make funding reductions, find new revenues, or both."
Virtually any budget-balancing solution - either cutting spending or raising taxes - will have negative consequences on the economy."
"The relative effects of various solutions is extremely difficult to measure. There is not perfect information as to taxpayer or program recipient behavior."
"We need to control income volatility - avoid wide state income swings - and reserves need to be built for rainy days.'"
"We don't see how we can get to the Assembly's (assumed) revenues."
"We think that you may have to suspend Proposition 98 and 'decide what you can afford.'"
"Schools can't take more delayed payments."
"You should be 'targeted' about both your revenue sources and program reductions."
"You can't solve it all this year. It will take several years. But, at least half of your Budget solutions should have on-going impact (not one year)."
"We support realignment - a better alignment of responsibilities and funding - between state and local government."
The LAO laid out some key factors for the Conference Committee when they consider various Budget solutions:
Are there ways to minimize the programmatic effect? For instance, are fees or other alternative revenues potentially available?
What is the impact on the receipt of federal funds? Is the program heavily matched with federal funds (temporarily or permanently)? Are core services being prioritized for the neediest populations?
Are savings estimates realistic? Are there legal or implementation hurdles?
Are there potential cost shifts to other state programs or other levels of government? Are they being accounted for?
What is the out-year impact of the solution?
Relative to fiscal balancing, he recommends:
Preserve Core Programs, but Reduce Spending in All Areas. Throughout this year's budget process, we have advised the Legislature to avoid elimination of core programs that provide services to some of the state's neediest populations, such as CalWORKs and child care. Nevertheless, significant spending reductions will be required in all program areas, including programs the Governor spares - such as universities, trial courts, and public safety local assistance programs.
Decide What Level of K-14 Spending Is Affordable. For Proposition 98,the Legislature will need to determine what level of school spending is affordable. Suspending the minimum guarantee will, in our view, likely be necessary. Additional flexibility measures for districts would be helpful to districts in any case.
Revenues Should Be Included in the Mix of Solutions. The Governor presents Californians with a clear vision of the severe program reductions necessary if the budget is balanced without additional revenues. Alternatively, some of the most severe cuts can be avoided by adopting selected revenue increases - from fees and other non-tax revenues, changes to tax expenditure programs, delays in previously scheduled tax reductions or expirations, and targeted tax increases.
Adopting Ongoing Solutions. Any budget solution will involve some one-time measures. Balancing the budget predominantly with borrowing, however, would be poor fiscal policy and risk the need for larger cuts or tax increases later. We advise the Legislature to aim for at least one-half of its budget solutions to be ongoing or multiyear in nature.
Act Now for Future Savings. The stateneeds to adopt actions now - such as delaying the kindergarten start date (See SB 1381 - Simitian) and modifying retirement programs - to achieve out-year savings.
(ED. NOTE: The LAO's briefing papers - Overview of the Economy, Revenues, and Spending and Overview of the May Revision, Assembly, and Senate Budget Plans - may be found at www.lao.ca.gov.)
Conference Committee Schedule
Conference Committee deliberations will begin in earnest on Monday, around noon. The tentative schedule is to take up Transportation on Monday; Public Safety and Human Services on Tuesday; Health (and maybe some Education) on Wednesday; and Education on Thursday. It appears that the Realignment (Who does What? Who pays for What?), with a behind-the-scenes work with CSAC and other county representatives, will be part of the discussion on Tuesday.
By the way, one conferee said, "I understand that this is an 'open conference,' meaning that the committee can go into any Budget item and "re-visit" items not in conference (where there are no differences between the two houses)."
State Controller Says We Can Get Through August
State Controller John Chiang says that California appears to have sufficient resources to meet all of its payment obligations and maintain a prudent cash cushion to address unanticipated developments through the month of August.
In a letter to the Governor and the Legislature, he said, "A timely and credible budget will provide us with enough time to secure a conventional cash flow borrowing necessary to smooth the timing differences between when the State receives its revenues and makes its expenditures."
"It is important to understand," he cautioned, "that the State's positive cash position during the opening months of the new fiscal year does not indicate the State's cash flow is beginning to rebound along with the general economy. Rather, the State's ability to meet its payment obligations during the next three months is entirely owed to two factors:
Legislation (ABx8 5 and ABx8 14) enacted earlier this spring that allowed the deferral of approximately $4.7 billion of payments to K-12 education, higher education, and local governments; and
The continued reliance on borrowing as much as $20 billion from special funds. These special funds, which were established to address critical public needs such as controlling air pollution, and preventing oil spills and lead poisoning in children, can only be tapped to the extent that the borrowing does not affect the statutory purpose of the fund."
"Even with the payment deferrals that hurt schools and local governments and the excessive leveraging of special funds, a protracted budget stalemate or the passage of a "get-out-of-town budget" relying on accounting gimmicks and unrealistic solutions will create cash shortfalls starting in October. Because the State cannot begin conserving cash on the same day that it runs out of cash, my office will be forced to begin aggressive cash management measures, such as issuing IOUs, well in advance of any projected shortfall."
I continue from his letter because of its importance to you: "As you know, the State began issuing IOUs for only the second time since the Great Depression just ten short months ago. Not only were thousands of already-struggling Californians forced to shoulder the brunt of California's liquidity crisis, the State's credit rating toppled close to non-investment grade, or "junk status." Nearly a year later, we are still trying to recover from that shameful chapter in California's history and the residual scars can be found in the millions of dollars in extra debt service that we are paying to finance our borrowing needs. At a time when California is preparing for an economic upturn, your leadership is needed now more than ever to ensure that an honestly-balanced budget is reached in a timely manner to protect the State from another fiscal meltdown.
"While there should be debate regarding the role tax increases and spending cuts are to play in this budget, there is no debate that the worst thing you can do is nothing. Political paralysis cannot be an option.
"Consider the following:
Cash solutions need time in order to be realized. For example, reductions in payments that are scheduled for later in the year cannot help the cash shortage we face in the near term;
Inaction compromises the ability to implement the necessary programmatic changes in time to achieve the full year benefit of your 2010-11 solutions;
Cash receipts continue to be volutile and difficult to predict. For example, 2009-10 receipts through April 30, 2010, were $1.3 billion below the estimates included in the Governor's January Budget, and General Fund receipts were $3.6 billion below April estimates; and
If I am forced to implement emergency cash management measures, I must act before the State's treasury is depleted. Depending on several factors, including how much cash needs to be conserved and the market conditions for borrowing, I will have to act weeks in advance of the projected date that the State goes into the red.
"Although I will issue an update of the State's cash outlook next week, when the actual receipts and disbursement data for May will be available, the cash report for June is critical to our cash flow planning. June has become the leading month for revenue receipts, with more than 13% of all Fiscal Year 2009-10 General Fund revenues projected to be received in this month."
Are you having fun yet? More from the Round Building next week.
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