California will have a $500 million reserve, but at what cost?
Governor Arnold Schwarzenegger signed a $24 billion budget solution today, which includes $16.1 billion in spending reductions.
For more than five months, the Governor has tried to solve $60 billion in budget shortfalls, which equates to roughly a third of our entire state budget over the 2008-09 and 2009-10 fiscal years.
When included with the $15 billion in reductions passed in February, the cuts amount to approximately $31 billion.
Because the entire budget package was not approved, the Governor used his veto pen to eliminate an additional $489 million in spending, which will leave California with a $500 million reserve.
Some of the cuts are one time solutions while others are long term. Overall the budget can be viewed as a victory for the Governor, who worked to prevent any new taxes.
“This is not an easy budget, but it is a necessary budget that does not raise taxes, solves the $24 billion dollar deficit and includes long-term reforms,” said Governor Schwarzenegger. “I see the real Californians that will be affected by the decisions made within this budget and nothing guarantees revenues won’t drop further, but this budget puts us on a path toward fiscal responsibility so we can focus on bringing jobs back to get California moving forward again.”
Below is the breakdown of how the Governor and legislative leaders agreed to solve this years $24.2 billion[i] deficit:
Expenditure Reductions Total: $16.1 billion
- Education: 1) Recaptured $1.6 billion previously thought lost by missing June 30 deadline; 2) Shifted funds from Redevelopment Agency to schools; 3) additional cuts to UC and CSU funding (just under $2 billion total for 2008-09 and 2009-10)
- Dept. of Corrections: Leaders agreed upon a reduction level in corrections, specific program reforms will be determined upon the legislature’s return in August.
- General Government: Suspension of Cost Of Living Adjustments (COLA); leveraging state assets (no current-year savings); consolidating and reorganizing boards and commissions, including elimination of the Integrated Waste Management Board; IT procurement reform
- State Employee Compensation: Third furlough day adopted; eliminate rural health care; score health care savings
- Health and Human Services: Long-term CalWORKs reforms, including graduated sanctions and twice-yearly check-ins; Medi-Cal eligibility changes and improved care coordination; IHSS fraud initiative including fingerprinting; Healthy Families eligibility changes
For the complete list of vetoes, go to www.dof.ca.gov.
Fund Shifts Total: $1 billion
- These include CalFIRE interagency agreement with the legislature and transportation spillover
Revenues Total: $3.5 billion
- These include: Optional personal income tax withholding changes; tax enforcement; SCIF proposal; special fund transfers
Borrowing Total: $2.2 billion
- These include: Proposition 1A suspension; loan from State Highway Account; various loans and fund shifts to keep state parks open
Other Total: $1.4 billion
- June to July state payroll and health premiums delay
Total Solution: $24.2 billion
- Reserve: $500 million
Reforms Total: $2.3 billion ($2 billion General Fund)
Governor Schwarzenegger insisted that this budget solution could not only be about our short-term cash needs – it must also be about structural reforms to put our state budget on more solid footing in future years. The Governor worked with legislators to include structural reforms in this solution, many of which he has been fighting for since he was first elected to office. His office estimates that some of these reforms will show significant savings in the current fiscal year (and much more in out-years) These include:
- Consolidating and Eliminating Boards and Commissions. Including elimination of the Integrated Waste Management Board
-$50 million in 2009-10
- Rooting Out Fraud From IHSS. Putting in place a fraud prevention program that includes background checks and fingerprinting for service providers
-$250 million in 2009-10 General Fund ($546 million total funds)
- Reforming CalWORKs. For short-term savings, focusing available funding on those who are meeting the work requirements
-$510 million in 2009-10
- Corrections Custody and Parole Reforms. Of the $1.2 billion in reductions that legislative leaders agreed to for the 09-10 fiscal year, the goal is to have roughly half of those reductions come from parole and corrections custody reforms
-$641 million in 2009-10
[i] Note: The size of the problem was adjusted from $26.3 billion to $25.1 billion (which includes target reserve of $2 billion) because: 1) the state is able to capture the $3 billion in savings from 2008-09’s Proposition 98 allocation previously believed to have been lost on June 30, which reduces the size of the 2009-10 guarantee by $1.6 billion; and 2) June revenues came in $536 lower than projected. Additionally, we did not reach the desired reserve of $2 billion, instead attaining reserve of just $918 million, meaning the Governor and legislators solved for $24.2 billion.
[ii] This, in addition to the $400 million blue-penciled by the Governor in the February budget, equals an approximate $1.2 billion spending reduction in Corrections for the 2009-10 fiscal year.