Third in a Series of Essays by Sheila Kuehl on the 2008 California State Budget: Changes by the Governor in His May Revision

[courtesy of California Progress Report]

By State Senator Sheila Kuehl

This is my third essay on the California budget. My first essay set out some background information on actions taken by the legislature http://www.californiaprogressreport.com/2008/05/first_in_a_seri.htmlto re-balance the 2007-2008 budget given shrinking revenues. The second reviewed the Governor’s budget as he presented it in January of this year. http://www.californiaprogressreport.com/2008/05/second_in_a_ser.html This essay will present the changes made by the Governor in his May revision of the 2008-09 budget, usually referred to as the “May Revise”.

Changes in Projected Revenue

Things went from bad to worse in the new estimates of state revenues projected for the July 1, 2008-June 30, 2009 budget year, which reduced expectations by another 6 billion dollars. Although $7 billion in “solutions” had been adopted to balance the 2007-08 budget (see my second essay for this year), rising costs combined with dropping revenues to widen the shortfall to 15 billion dollars in the latest projections.

Changes in Expenditures

Although the Governor pulled back on some cuts proposed in January (see below), he proposed over $8 billion in new “solutions’ to balance the new budget. By far the largest solution proposed “securitization” (selling for an upfront fee) future lottery revenues in the state. He projected that such a move would provide the state with 15 billion dollars over the next three years, 5.1 of these dollars in the 08-09 budget year. The Governor also proposed a cap on all state spending, regardless of caseload or cost of living, redirecting revenues over a certain amount into a new reserve, as well as automatic across-the-board reductions in all future years, so that neither the Governor nor the Legislature would have to make decisions about how to balance the budget. In addition, the Governor proposed more borrowing from special funds, reduction of transportation monies and transfer of those monies to the General Fund, and even more reductions to the already hard-hit health and social services programs.

General criticism of the Governor’s approach

Four major problems were identified regarding the Governor’s May revise:

• Even if the Legislature adopted all the proposals and they were successfully implemented, multi-billion dollar shortfalls would re-emerge in 2010-11.

• Estimates of lottery revenues were grossly inflated and securitizing lottery revenues to a private entity would mean that distributions to public education from the lottery would fall short of current levels, possibly by as much as $5 billion over the next 12 years.

• The proposed revenue cap, depositing monies into a new reserve fund, did not help with the deficit

• And, finally, removing responsibility from the Legislature also meant that there would be no oversight of spending or revenues, but only a kind of robo-budgeting.