May Revise
Governor’s May Revise Summary No Suspension of Prop 98 COLA 5.66% but Deficited to 0% Categorical Programs reduced by 6.5% No Funding for Mandates Lottery proposal stretches out resolution of the California Budget problems
January vs. May Proposals January BudgetMay Revision Proposition 98 Suspend guarantee and cut funding $4 billion to $55.7 billion Fully fund revised guarantee at $56.8 billion COLA 4.94% not funded5.66% not funded Enrollment Decline of 0.51%*Decline of 0.52%* Deficit Factor No COLA and 2.4% year-over-year cut to revenue limits, yielding a 6.99% deficit factor No COLA; year-over-year cuts to revenue limits and special education withdrawn, yielding a deficit factor of 5.357% Mandates No reimbursement Categorical Programs No COLA or growth funding and 6.5% year-over-year cut *The projected statewide decline in enrollment in May is actually fewer students, but on a higher base
The Economy and State Revenues Key economic indicators have softened since January – Personal income has slowed – Job growth has flattened Particular weakness in the construction and finance sectors – The Federal Reserve, recognizing the weakness in the national economy, has lowered a key interest rate from 5.25% to 2% in eight months The outlook for economic recovery has been delayed – The May Revision forecasts little growth in 2008 followed by slow growth in 2009 Budget year revenues have been reduced by $5 billion from the January estimate – Personal income tax reduced 4.8% – Sales tax reduced 6.3% – Corporation tax reduced 7.5%
January Proposals Withdrawn The January Governor’s Budget set no priorities among the many state programs Instead, almost all areas of the State Budget were targeted for an across-the-board 10% cut The May Revision withdraws this approach to budgeting – The January Proposal to close 48 state parks is withdrawn – the May Revision adds $13.2 million and raises park fees to keep all parks open – Early release of 22,000 inmates is withdrawn – revised inmate and parolee population projections yield sufficient savings to avoid the early release of inmates
New May Revision Proposals Health and Human Services programs are targeted for greater reductions than proposed in January – $673 million more – Medi-Cal benefits are reduced for newly qualified immigrants and outlays for emergency services are reduced because of monthly eligibility requirements for undocumented immigrants – Medi-Cal eligibility is made more stringent as the income threshold is moved closer to the federal poverty level – SSI/SSP grants for the aged, blind, and disabled are not increased for the federal COLA in January 2009 Instead, the state will lower General Fund support and capture the increase – The SSI/SSP Cash Assistance Program is eliminated
New May Revision Proposals – California Work Opportunity and Responsibility to Kids (CalWORKs) grants receive no COLA in and are cut 5% on a year-over-year basis – State contribution to In-Home Support Services (IHSS) workers is limited to the state minimum wage – Special Fund balances of various health and social services programs are transferred or loaned to the General Fund The Department of Corrections and Rehabilitation is slated for $174 million in reductions related to a new parole supervision program
State Lottery Proposal Governor proposes borrowing $15 billion from Wall Street against future increased profits from State Lottery – $10 billion of funding would go for a reserve to use during fiscal crisis – $5.1 billion would be used for the Budget – $1.2 billion currently for education continues, but is at risk – Lottery revenue for up to 32 years would go to investors to repay loan Requires voter approval-most likely in November 2008
Revenue Stabilization Fund Proceeds from the Lottery borrowing would be deposited into a newly created Revenue Stabilization Fund (RSF) – The RSF would receive the proceeds from the bond sale – Transfers out of the RSF are authorized only during years in which General Fund revenues underperform the ten-year average growth rate This condition will be met in The RSF also affects Proposition 98, although written details are not yet available
Stand-By Sales Tax The Governor’s May Revision acknowledges the risks surrounding the Lottery proposal – Voters may reject it – It may be challenged in court – Wall Street may not embrace it As a back-up plan, the Governor proposes a 1¢ increase in the sales tax, which would yield about $6 billion annually – The Department of Finance would determine whether the sales tax trigger is pulled, based on balances available in the RSF
Stand-By Sales Tax – The sales tax would remain in effect until the RSF has accumulated a fund balance equal to 15% of General Fund tax revenues (about $15 billion) – The tax expires June 30, 2011 The May Revision indicates that, after the tax expires, Californians will receive rebates equal to the amount of sales tax collected – No details are available, but the Director of Finance suggested direct rebates to taxpayers or a temporary reduction in the sales tax rate
Legislative Analyst View “Too Hopeful” Assumption of doubling the sales and profits within years with advertizing and new games? More likely to fall short Problem election to put into place isn’t until November – result in late start would be 6 months revenue loss
Legislative Analyst View Likely challenges from Indian Operated Casino’s Backup Plan – 1 cent Sales tax too late Translation: only generates $3 billion Hill though agrees in the Lottery proposal as part of the Budget Solution