by Sheila Kuehl
July 21, 2011

This is the fifth in a series of essays reviewing the 2011 history of California's 2011-12 budget development.  This essay presents the changes contained in the "May Revise", which is an amended budget proposal made by the Governor to the Legislature every May following the collection of April tax money.  The May Revise reflected the Governor's continuing efforts to get four Republican votes to put a tax extension on the ballot, as well as a slight uptick in state revenues due to a mini-recovery from the recession.  The Governor and the Legislature focused on where a few dollars might be restored to education and healthcare, while continuing to try and convince California voters that the tax extensions were still critical.

Further essays will describe the failure to garner Republican votes, the June majority budget without these taxes, the Governor's veto of that budget, the final budget document agreed on by Democratic leadership and the Governor, a few swipes of the Governor's blue pencil, and an explanation of "re-alignment" proposals, both completed, and still to come.   

Soon It's Gonna Rain, But Not Enough
In January, Brown's first budget proposal predicted a shortfall in the 2011-12 budget of 27.6 billion dollars.  In March, the Legislature sent the Governor a number of trailer bills that effectively reduced that number by 14 billion. 

Surprisingly, revenue receipts through April were about 2.5 billion dollars more than the money-in-the-door forecasts upon which the budget shortfall was based.  The Governor projected this upward trend to continue over the budget year to a total of 6.6 billion, but only if the tax extensions were adopted.  The May Revise, therefore, conservatively estimated a total improvement of only 3.1 billion, leaving a gap of about 9.6 billion.  When a fattened reserve of 1.2 billion was factored in, the gap increased to about 10.8 billion. 

Showing his optimistic face as well as his adult-in-charge face, the Governor continued to budget for (and push for) either a Hail Mary pass or a full court press (depending on your taste in sports) to get Republicans to vote to put the tax extensions on the ballot in time to limit further and deeper cuts.  To reflect the trickle of increased revenues, he also proposed deferring the continuation of the surcharge on personal income taxes to 2012, with no surcharge in 2011, should the voters decide to continue the temporary taxes.

A Little Life Blood, but Don't Get Excited
The Governor's May Revise proposed a slight increase in overall expenditures of about 2.6 billion, the largest piece of which was devoted to paying down the money owed to school districts caused by regular deferrals of full funding in past years.  These actions were to  bump up Prop 98 funding by about 1.6 billion.  The May Revise also proposed a 400 million dollar increase for prisons.

In addition, trying to award tax credits only to those who might actually, as opposed to  mythologically, create jobs, the small business hiring credit enacted in 2009 was expanded at a cost of about 94 million dollars.  The May Revise did, however, withdraw the proposal of elimination of Enterprise Zones and, instead, proposed some changes to the requirements for their establishment.  In addition, the May Revise proposed the consolidation of several state government departments and the elimination of 5500 state jobs and 43 state boards and commissions.

Not Sure What They're Smoking
Before the May Revise, the Governor and the Legislature had agreed to transfer a billion dollars in Prop 10 (tobacco tax) funds from First Five county children's programs to the General Fund to offset expenses for children's health.  A court challenge was immediately lodged, since language in the Initiative had attempted to make it clear that this money was not to be used to make up for cuts in the General Fund.  The May Revise withdrew the section expending the funds but, strangely, retained the language ordering First Five not to use the 50% of the money that was supposed to go to the state.  In budget parlance, the 500 million was not "scored" for anything, but appeared to still be mandated for deposit into the General Fund. 

The Debt Monster That Devoured California  
Over many of this century's budget years, the budget had been balanced by "borrowing" from California's many special funds.  These are funds that are limited in their use, such as recycling, transportation, etc., which may not simply be scooped into the General Fund to fix a shortfall.  The solution has been to loan those funds to the General Fund and charge for the deferrals, as well as borrow against the future through numerous bond issues. In the May Revise, Brown made an opening stab at a new direction by allocating $745 million of new revenue to reduce reliance on new loans from special funds.  He proposed using 2.5 billion of new Prop 98 money to pay off deferred debt to the schools rather than characterizing the monies as new Prop 98 monies.  He also reduced proposed bond sales.

Much as this may be seen as a beginning of fiscal sanity, the term "drop in a bucket" doesn't even begin to cover the larger problems created by borrowing.  Most fiscal analysts have opined that the state's long-term budgetary borrowing has made it virtually impossible to solve the underlying structural deficits.  The biggest current debt amounts to almost 10 billion dollars caused by short-changing the Prop 98 guarantees to schools and giving an IOU, instead.  Next in size is the debt service of about 7.1 billion on the Economic Recovery Bonds issued during Arnold's tenure.  Debt service on authorized, but as-yet unissued bonds, would add another 3.2 billion dollars.  The interest on our unemployment insurance debt is 500 million dollars, and there are other debts.  The grand total: the state currently shows 35 billion dollars in debt as a result of budgetary borrowing. 

The Health and Welfare of the People, Revisited
Actions taken before the May Revise had reduced MediCal expenditures by over 1.5 billion by adding mandatory co-payments for services, reducing payments to providers, placing caps on physician visits, eliminating Adult Day Health Care (ADHC) and placing a cap on hearing aid expenditures.  To help elderly patients hard-hit by the elimination of ADHC find a substitute, the budget had established a transition fund of $85 million.  Through the May Revise, however, the Brown Administration cut those funds to $25 million, electing to try to put together a new program through a federal waiver, but had not yet generated an application for waiver. 

In Home Support Services (IHSS) had, so far, been protected in the budget discussions, but the May Revise proposed cutting 7.5 million from the IHSS Authorities, which are county level agencies that help IHSS consumers find workers.  In total, Public Authority funding had been cut by an overall 68%, increasing the burden on disabled and elderly folks.

The rates paid to foster families was proposed to be increased in the May Revise by 41.3 million (10.7 million from the General Fund), following a court order holding the line on the rates paid to families for the care and supervision of foster children.

Perhaps We Should Call It Lower Education    
It's a fairly sad state of affairs when you breathe a sigh of relief simply because you weren't cut more.  That was the case with the UC and CSU systems.  The community colleges, however, actually glimpsed a tiny ray of light in the restoration of $350 million plus a lower figure for deferred payments (yet another pitiful reason for joy).  Altogether, the community colleges were increased from 3.5 billion to 3.8, with deferrals reduced to 611 million dollars.  In addition, estimates of local taxes allocated to the community colleges increased from 57.8 million to 75.1 million.  The May Revise did continue, however, the reduction in reimbursements to vocational education by 5 million, due to loss of federal funds.  Cal Grants were increased to 33 million dollars, with a 12 million dollar shift from the Student Loan Operating Fund.

A Good Thing Madame Justice Can't See
Some of the deepest damage, for individuals and for businesses, in the state, has been perpetrated by cuts to the judicial system.  Prior to the May Revise, the Legislature had adopted a 200 million dollar cut to the courts, overall.  They had also reduced monies going to the conservator and guardian programs by 17.4 million under an assumption that there would be fewer courts opting to use this program.  In addition, they had "borrowed" 350 million from the state Trial Court Construction Fund, thus delaying the renovation and construction of courts. The courts, like the UC system, are independent from either the executive or the legislative branch in decision making, but, because the purse strings are held by the Governor and the Legislature, they are not immune from the budget strategy of "unallocated cuts" which must then be absorbed by the Chief Justice or the Regents.

Hey, How's That Self-Esteem Issue Coming?
The federal government mandates the provision of mental health related services for students with disabilities.  The responsibility for providing these services used to ride with county mental health and welfare agencies.  The May Revise shifts these responsibilities to K-12 school districts (including out-of-home residential services) and increases the budgeted monies by over 220 million.  It also continues a 98.6 million dollar shift of Prop 63 mental health funds to county mental health agencies and 69 million in federal special education funds for mental health services.  Overall, in the May Revise, mental health related services for students with disabilities totals 389.4 million in 2011-12.

Parks?  What's Wrong With Playing In The Street?
Although the March trailer bills reduced the Governor's proposed 22 million dollar cut to state parks to "only" 11 million, the State Parks Department announced in May that they were closing 70 of their 270 state parks by July 1st.  The May Revise provided no respite.

Next: We Did It! A Budget by June 15th! Wait! What Do You Mean Veto?