by Sheila Kuehl
July 17, 2011

This is the fourth in a set of essays reviewing the history of California's 2011-12 budget development from January to June.  This essay analyzes the measures taken in March in a continuing breakneck attempt to finish a budget and put a tax "continuation" measure on the ballot before temporary taxes would expire.  Following presentation of separate Assembly and Senate budgets in February, the Conference Committee, with members from both houses, reconciled the differences and adopted a final budget, as well as  a number of "trailer" bills.  Five Republican Senators made a show of meeting with the Governor about the possibility of providing votes to put the tax extensions on the ballot, if certain demands were met.  The trailer bills containing cuts were sent to the Governor's office and signed. The budget, as passed, was held in the Legislature.

Further essays will describe the continuing dance to gain Republican votes, the May Revise, the June budget, the veto, the final budget document, the budget after the Governor wielded his blue pencil, an explanation of "re-alignment" and a final essay on winners and losers.      

It Was One of Those March Days
Charles Dickens wrote, "It was one of those March days, when the sun shines bright and the wind blows cold; when it is summer in the light and winter in the shade".  Indeed, the Legislature was feeling both heat and chill as it raced to meet the looming deadline posed by the Governor to pass a one-half cuts budget and get the one-half revenue portion on the ballot.  The heat was generated by feverish two-house conference committee sessions working to reconcile the differences between the Assembly and Senate budgets passed at the end of February.  There was further heat as both houses pushed toward a majority vote budget to put on the Governor's desk.  The chill came from five Republicans toying with the idea of voting to put tax extensions on the ballot if several conditions were met, and the even colder reception of Republican leadership to any tax extensions, at all.

The Conference Committee
The budget adopted by the Conference Committee to send to the Floors contained 12.5 billion in cuts, 12 billion in revenue solutions, including a re-assignment of responsibility for low level offenders and parole to the counties, and a reserve fund of over 1.1 billion.

$6 billion was cut from health and human services, not including child care.  The committee further reduced the CalWORKs grants which had been adopted in the Assembly and Senate budgets so that a family of four (for instance) would receive only $638 a month (in the past year, the amount was $694 a month, and the budgets adopted in the separate houses had pegged it at $659).  The Committee cut even more deeply into the child-only grants given when an adult caretaker is not receiving aid, and voted to "disregard" only the first $100 of income made by a CalWORKs grant recipient rather than the current allowed earnings of $225 each month, and took another 69 million out of Stage I childcare, which helps the very newest CalWORKs recipients find and hold a job. 

Other childcare programs took a big hit.  The Administration-proposed 15% reduction to all contracts was retained, and, out of the blue, the Conference Committee adopted an additional 10% across the board cut in the amount paid for each child, in essence, putting an end to most programs, as they could not absorb the cuts and keep the statutorily required numbers of teachers.  Programs for 11 and 12 year olds were eliminated, rates to license-exempt providers were reduced from 80% of the licensed rate to 60% of the licensed rate, and family fees were increased by 10%.  However, CalWORKs Stage III funding, for recipients who have transitioned fully to workplaces, was restored. The overall area of childcare, however, was among the hardest hit and many legislators, especially the women's caucus, were not pleased. 

The Conference Committee proposal cut the UC system and the CSU system by a total of 1.1 billion, and cut transportation and corrections by a billion each.  The proposal also cut state salaries and state operations by .7 billion, further restricted the awarding of Cal Grants to students for a savings of .2 billion, and cut the courts an additional .2 billion. 

The Senate and the Assembly had differed in minor ways, with each other and with the Governor, over how cuts would actually be apportioned, but generally found a middle ground that continued to bleed health and human services and protect K-12 education.  This approach was crafted with an eye toward what might garner the necessary votes for the tax extensions: most agreed that crafting the budget so as to protect education by continuing the taxes would have more appeal with the voters than protecting the health and minimal well-being of poor people, the elderly and children.  Time would tell if this plan would fail and force K-12 education to absorb an additional 12 billion dollars in cuts.

In the revenue column, the Committee adopted the five year extensions to temporary income taxes, vehicle license fees, and sales tax as well as reduction of the dependent exemption, all of which needed four Republican votes to get on the ballot, and, ultimately, approval by the voters. 

The Committee also adopted use of the mandatory single sales factor for corporations, bringing in an additional 1.4 billion (and closing a big loophole created by the Schwarzenegger administration).  This, too, needed more than a simple majority.

$3.2 billion in revenue was contemplated by borrowing from various special funds, including 1.1 billion more than originally proposed by the Governor.  This increase was made necessary when the Governor decided against selling state buildings and leasing them back, creating a gap that the Conference committee filled by increased borrowing from other special funds.

In the area of re-alignment, the Committee dedicated (a somewhat mythical) 5.9 billion to fund public safety programs, adopted a constitutional amendment to allow assigning the money and responsibility for low-level offenders and parole to counties (for the same special election as the tax extensions, if ever) and adopted trailer bill language to begin the process of transitioning these state responsibilities.

Finally, in considering Redevelopment programs, the Conference committee adopted the Governor's proposed constitutional amendment to do away with Redevelopment Agencies and use the property tax increment that had previously been used to fund them to fund schools, cities and counties, instead.

The Trailer Bills
Trailer bills are the separate bills necessary to actually enact statutory changes needed to put budget bill measures into effect.  Some of them require a 2/3 vote (usually income or constitutional changes), some only a majority (such as cuts).  13 trailer bills went to the Governor in March and were signed.  Only a few provisions are described here, where they differed from the Conference Committee or had not been mentioned before.

The education trailer bill acknowledged the debt to schools built up over the years by underfunding Prop 98, further deferred additional funding, extended class size reduction,  and put money into mental health services for special ed students, while reducing the overall funding for these students.

The education trailer bill sections on childcare (after much discussion among the Members on the importance of childcare to working families) restored the ability of those earning 60-70% of the state median income to access childcare (still reduced from the current 75%), including pre-school, allowed the funding of childcare for 11-12 year olds, but not as a priority, and allowed them to go to programs outside their own school district, adopted a 10% increase in family fees but added that the fees cannot comprise more than 10% of a family's income, and funded CalWORKs Stage III, but only for the few months remaining in 2010-11.  The troubling 10% cut to individual slots was eliminated, but it seemed clear that even the 10% increase in fees would be more than most families could absorb.

The education trailer bill sections on higher education included a mandate that UC and CSU report on how they will carry out $500 million each in cuts and increased the student fees at community colleges from $26 to $36 per unit.

Interestingly, Republican members in both houses refused to provide votes for the cuts to education.  Even though their intransigence on the tax extensions had made cuts necessary, they seemed to want to be able to claim that they had not participated in gutting education, thus having it both ways.

The resources bill, among other provisions, set the criteria for the closing of public parks.

The human resources bill changed the amount of income that could be disregarded for CalWORKs grants purposes, from the $100 per month contained in the conference proposal to $112 plus 50% of the rest. 

After howls of protest and lobbying by cities, the Assembly could not muster a majority to pass the trailer bill eliminating Redevelopment Agencies.  This proposal by the Governor was slated as a source of revenue in the budget and the Governor and leadership in the two houses continued to try and find the votes.  Not surprisingly, the change to taxation procedures for corporations also failed to garner a 2/3 vote.

The Search for Four Willing Republicans
A group of Republican Senators the press dubbed the "GOP five" began hinting that they would like to negotiate with the Governor, outside of their leadership, to try and score some victories for Republican goals in return for possibly helping to get the tax extensions on the ballot.   For their positive consideration, they demanded a "hard" spending cap on expenditures from the General Fund, a reduction in state pensions, and waivers of environmental laws and other regulations.   The Governor met with them several times.

By the time the budget and the trailer bills passed both houses, however, there was still no agreement with these Senators and no indication that any Republican Assemblymembers would join in.  It was also the week that the Republicans were heading into their state convention and a lot of energy was being expended to keep any of them from breaking ranks on taxes.  The Governor, either overly optimistic, or actually flummoxed by how much more hard-line the Republicans were from his first go-round as Governor, continued to seek two Republican votes in the Senate and two in the Assembly, with no success.

By months end, Senate President pro Temps Darrell Steinberg was so frustrated, he began to talk about a majority-only vote to put the tax extensions on the ballot.  The efficacy of this idea was mitigated by the fact that such a move would, no doubt, be hauled immediately into court, thus defeating any possibility of bringing it to the ballot in time to rescue the budget.   Republican Senate leader Bob Dutton, and Senator Bob Huff announced they were "taking the lead" for Republicans and issued a 65-point list of "key points" to be discussed.  It was, indeed, "winter in the shade" as March came to an end, with little sunshine in sight.

The Budget 
The budget, as adopted, but not signed, lacking tax extension bills, reduced the current year's spending by over 2 billion, further reduced expenditures in the 2011-12 budget by 12.25 billion and left 10.5 billion still to be found.  In addition, the savings to be gained by eliminating Redevelopment Agencies was in limbo, leaving another 1.7 billion to be worked out.  The actual budget bill stayed in the legislature so as not to trigger the countdown to signature required by law.  The trailer bills were sent to the Governor.

Hold The Confetti, Cuts are Signed
The Governor immediately signed all the trailer bills sent to him, except for the two assigning responsibility for parole and low level offenders to counties (which he signed in April).  The constitutional amendment extending the temporary taxes, redevelopment proposals and single-factor tax bills remained in the two houses, lacking the necessary 2/3 votes, and left a continuing 14 billion dollar hole that needed to be filled.

So:  cuts go into effect in June and July, revenue solutions remain on hold.

Next: April Showers (of taxes) bring May Flowers, but not a Bouquet