The Legislative Analyst's Office (LAO) has released their review of the current California budget. This is the first part in a series that looks at how far California has fallen. California has fallen into legislative gridlock even though there is a clear majority in Sacramento because a minority of legislators can block passage of a budget. As a result, California is trapped on frightful roller coaster ride that goes down more than it goes up. This is how the latest wild ride unfolded.
September 23, 2008 - 2008-09 Budget is passed. The budget covers July 1, 2008 to June 30, 2009
November 4, 2008 - Barack Obama is elected President
November 6, 2008 - Special Session of Legislature called by Gov. Schwarzenegger. Between signing the budget in September and calling the Special Session, the projected $1.7 billion reserve turned into a possible $9.5 billion deficit caused by revenue projections falling by $11 billion. Revenues for the 2009-10 budget are projected to be $13 billion lower than anticipated and $22.5 billion would have to be cut from the budget over two years to balance the budget.
November 2008 - Gov. Schwarzenegger proposes a package of $14 billion in tax increases to close the gap. The increases include a 1.5 cent increase in the sales and use tax for three years, expanding the sales and use tax to services, and imposing a tax on oil pumped out of the ground in California (oil severance tax). Proposed cuts include reducing Prop 98 funding by $2.5 billion and reducing Supplemental Security Income/State Supplementary Payments (SSI/SSP).
November 30, 2008 - Regular session of the Legislature ends without a revision of the 2008-09 budget.
December 1, 2008 - Legislature begins 2009-10 session. Governor declares fiscal emergency. 2008-09 revenue shortfall is $11 billion. The shortfall over two budget cycles has gone from $22.5 billion to $28 billion.
December 17, 2008 - 2000 bond funded projects stop receiving advance payments as a result of a decision by the Pooled Money Investment Board. Funding was stopped for many projects until the State received over $13 billion from the sale of general obligation bonds in March and April 2009.
December 18, 2008 - Legislature passes a budget by majority vote. The package is similar to the Governor's Special Session package. Cuts to health and social services in the Legislative budget were not as severe as in the Governor's budget. A personal income tax (PIT) surcharge, a change in income tax withholding, a 0.75 cent increase in the sales tax and a conversion of the gas tax to a fee were included. Governor announces he will veto the budget.
December 19, 2008 - Governor declares another fiscal emergency and calls another Special Session. Planning for furloughs of state employees begins.
December 30, 2008 - State Controller John Chiang announces some categories of payments could be delayed. He also said IOU's could be issued beginning in February 2009.
December 31, 2008 - Governor releases outline of proposed 2009-10 budget.
January 2009 - New revenue projections are released. The deficit at the end of 2009-10 is projected to be $39.6 billion, up from $28 billion previously announced. An additional $7 billion drop in revenue is expected from the November 2008 estimate, for a total drop in 2008-09 revenue to be $18 billion compared to the previous year.
Governor releases a new plan to fix the 2008-09 and 2009-10 budgets which includes spending reductions of $17.5 billion, $14.2 billion of tax increases, and $10 billion of borrowing. Under the plan, $4.7 billion would be borrowed by issuing Revenue Anticipation Warrants (RAW) to eliminate the 2008-09 General Fund (not overall budget) deficit, reducing the value of the PIT dependent credit beginning in 2009, deferring Prop 98 costs for 2008-09 to 2009-10 and securitizing lottery proceeds to generate $5 billion.
January 6, 2009 - Governor formally vetoes budget.
February 2009 - State Controller John Chiang delays over $3 billion in scheduled state payments.
February 19, 2009 - Legislature approves 2009-10 budget and changes to the 2008-09 budget needed to bring the budget back into balance with revenues.
February 20, 2009 - Governor signs both the 2009-10 budget and the changes to the 2008-09 budget. The budget gap is now estimated to be $40 billion. The new budget includes $15 billion in spending cuts, $12.5 billion of temporary tax increases in the sales and use tax, vehicle license fee, and personal income tax, $5 billion in borrowing from securitization of lottery proceeds, and $8.5 billion in federal stimulus funds. The securitization of lottery proceeds would have to go to the voters for approval. This budget fix became the May 19 Special Election with Propositions 1A thru 1E.
May 14, 2009 - Governor releases May Revision. There is now a new gap of $15.5 billion caused by a $12.5 billion drop in revenues during 2008-09 and 2009-10, a $1.3 billion drop in forecasted property tax revenues and $1.1 billion increase in health and social services caseloads. These changes are caused by the recession. The Propositions being voted on in five days would not close the newly announced budget gap.
The new cuts include reducing Prop 98 funding to schools by $1 billion in 2008-09 and $2 billion in 2009-10, cutting funding to the University of California (UC) and California State University (CSU) systems by $1 billion, cutting $1 billion from health and social services and selling the State Compensation Insurance Fund (worker's comp fund) to generate $1 billion.
The Governor also announces what will happen if Proposition 1A - 1E fail at the ballot box. $2.3 billion will be cut from Prop 98 funding for schools, $2 billion will be borrowed from property taxes going to cities and counties, cut $302 million by limiting In-Home Supportive Services (IHSS), cut corrections budget and more cuts to health and social services. A proposed increase in the personal income tax (PIT) withholding schedule by 10% could bring an additional $1.7 billion.
May 19, 2009 - Voters reject Propositions 1A thru 1E. The lottery securitization does not happen, causing another budget gap to open.
May 21, 2009 - Governor issues a statement saying his administration has been directed to seek "additional options to cut state spending so that we can eliminate the need to seek borrowing in the form of a RAW (revenue anticipation warrant.)" The defeat of the RAW proposition (the lottery securitization) is a $5.5 billion gap. To close the gap includes a number of cuts. CalWORKs (California Work Opportunity and Responsibility to Kids) and Healthy Families (HFP) are proposed to be eliminated. Gas tax funds going to cities and counties would be redirected to the state. The University of California and the Cal State system would receive more cuts. New Cal Grants would be eliminated. State parks would not receive General Fund revenue. Other cuts include the corrections system, employee compensation and health care.
May 21 to June 16, 2009 - Conference committee of five Senators and five Assembly members meet. A proposed budget revision is adopted on June 16, 2009. The conference committee rejects the elimination of CalWORKs, Healthy Families and new Cal Grants. Also rejected: borrowing from cities and counties, 5% pay cut for state employees. A two day a month furlough for state employees and moving the June 30, 2010 payday to July 1, 2010 was included to close the gap. To close the gap, the conference committee includes $2 billion in income tax withholding from independent contractors, $1 billion from increasing cigarette taxes, $800 million from taxing oil pumped from the ground in California, $200 million from a park access tax on California vehicles to be used to fund parks. Prop 98 funding was cut by $5.5 billion. A proposed $2 billion cut to the UC and CSU systems was expected to be offset by federal stimulus (ARRA) funds. The conference committee package did not pass either the State Senate or Assembly.
May 29, 2009 - Governor issues another budget proposal. It is revealed that revenues are now estimated to be $3 billion lower than thought 8 days earlier. To close the newly found $3 billion gap, Prop 98 funding would be reduced by $680 million, state and county costs would be realigned to reduce $550 million, $470 million by reducing state employee salaries by 5% permanently.
July 1, 2009 - Governor declares another fiscal emergency and another Special Session of the Legislature. State employees are now ordered to take three furlough days a month, up from two. State offices would now be closed on three Fridays a month (furlough Fridays.)
A new set of revenue projections shows $3 billion less than projected on May 14. Governor Schwarzenegger also says there is a new $5.3 billion gap caused by the Legislature not enacting the budget cuts he wanted. To close the new gaps, the Governor proposes suspending the minimum funding for schools under guaranteed under Prop 98, cutting UC and CSU by $1.4 billion retroactively on the 2008-09 budget, and making three furlough days a month the new standard. Cutting funding retroactively causes problems because spending plans are thrown out the window unless new sources of funds must be found to backfill the cuts.
July 24, 2009 - Legislature passes more cuts to the 2008-09 and 2009-10 budgets. The cuts and changes total about $24 billion. A $1 billion transfer of gas tax money from cities and counties to the state was rejected. $100 million in lease proceeds from drilling off shore near Santa Barbara was also rejected. The records regarding the Santa Barbara drilling bill were expunged from the Legislative record to prevent their use during future elections. This is when the Orange County Fairgrounds were listed as "for sale to the highest bidder."
July 28, 2009 - Governor Schwazenegger signs the budget and uses his line item veto to remove $489 million in General Fund spending. The line item veto leads to legal challenges by President Pro Tem of the Senate Darrell Steinberg, among others, that the vetoes were unconstitutional.
September 2009 - Work on fixing the budget continued. On October 12, Gov. Schwarzenegger was still deciding which bills to sign and which to veto.
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