Democratic legislative leaders agree on budget principles
Analysis from CSBA’s Governmental Relations Department
Published: July 2, 2010
Few details have emerged regarding the agreement reached between the Democratic leaders in the Assembly and the Senate for a spending plan for the fiscal year that began July 1. In a document released July 2, the leaders have agreed to a very broad set of principles that are intended to show that they “are united in their views of how to close the budget [gap] and the principles that must guide the negotiations.”
This is an important step in the negotiations on a final budget package because the budget proposals from both houses were vastly different and, absent this coming together, budget discussions were at a virtual standstill. However, this is not an indication that a budget for 2010-11 will be adopted any time soon, as the Democrats, Republicans and Gov. Arnold Schwarzenegger still appear to be very far from an agreement.
The framework devised by Senate President pro Tem Darrell Steinberg, D-Sacramento, and Assembly Speaker John Perez, D-Los Angeles, is spelled out in a document entitled “Shared Democratic Principles for Finalizing Budget: Improving Government and Protecting Jobs.” The principles’ stated goal is to “fund schools in accordance with Proposition 98 and provide the highest level of funding possible to protect the quality of education and to minimize teacher lay offs.”
While this is a positive message, it is important to view it carefully because funding for schools in accordance with Proposition 98 can vary widely depending on revenues. Under the original Assembly Democratic plan, funding schools would amount to $54 billion—a $1.8 billion increase from 2009-10 and a $4.2 billion increase over the governor’s proposal. The Senate plan would provide $51.2 billion, $2.3 billion above the governor but still $2.8 billion below the Assembly.
The principles also state that Democrats will not renege on the agreement last year related to the restoration of the Proposition 98 Maintenance Factor. This is important; the governor asserts that the amount owed to schools can be delayed without suspending Proposition 98, because the Maintenance Factor through 2008-09 was established legislatively with the July 2009 budget in an effort to avoid a legal battle. CSBA disagrees with the governor’s view and strongly supports recognition of the Maintenance Factor.
In addition to funding for schools, the other key issue is increasing general fund revenues. The Democratic leaders say revenues should be increased by both:
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closing corporate tax breaks approved in September 2008 that otherwise will reduce the general fund when they take effect this fiscal year; and
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including new revenues, such as an oil severance tax
The leaders also note that one-time solutions will be necessary, given the size of the state’s fiscal problem, and these one-time sources include some that haven’t been included in previous proposals. The principles recognize that action taken this year will not eliminate budget deficits in the coming years, and that budget proposals must take a longer-term view that initiates a multiyear plan to resolve the ongoing deficits.
Other principles include:
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realignment—recognizing that the current state-local fiscal relationship is broken and that the budget must begin the “the process of devolving more services and revenues to counties.” This is in response to the realignment proposal pushed by Sen. Steinberg that, in his view, brings the funding closer to where the services are delivered. This is an area to watch closely, because a shift of revenue from the state to local governments would have a negative effect on Proposition 98
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jobs—ensuring the impact of jobs and the high unemployment rate are considered in all budget proposals, and recognizing the importance of job growth in both the public and private sector
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health and human services—preventing any further erosion of services, including those for children, such as CalWORKs, child care, community mental health and Medi Cal
The Democratic leaders also note that the governor and Republican leaders have issued ultimatums on the budget, which they say are not helpful in terms of coming to a resolution. They conclude by saying they will never agree to a budget package that eviscerates education or safety-net social service programs—such as child care; causes more job losses; and doesn’t begin to address the broken structures of state government finance.
No surprise: Republicans don’t embrace newfound Democratic agreement
Not surprisingly, legislative Republican didn’t receive the Democratic framework with open arms; instead, they called it more of the same. In a press release, Assembly Minority Floor Leader Martin Garrick of Carlsbad characterized it as a melding of the Senate and Assembly tax increases and borrowing schemes and an agreement by the Democrats to stand firm against reducing government spending. Further, he said, “Their budget approach continues to be completely unrealistic and irresponsible and has no chance of passing the Legislature or being signed into law. It’s past time to start serious negotiations on a responsible, balanced, no-tax budget.”
Prior to the release of the framework by the legislative Democrats, Sen. Bob Dutton, R-Rancho Cucamonga, a member of the Budget Conference Committee and the Senate Republican spokesman on the budget, released a statement on the passing of the deadline to enact a spending plan. “I encourage my Democrat colleagues to put aside the partisan gamesmanship that only serves to hurt taxpayers and hinder private sector job creation. My Republican colleagues and I are ready to negotiate a bi-partisan plan that balances California’s budget without raising taxes and puts Californians back to work,” Dutton said.
To recess or not to recess
A monthlong summer recess was to begin July 2; however, that has been postponed pending an agreement on the budget. While not officially on a break, members are expected to be in their districts and will not return to Sacramento until Aug. 2 unless an agreement is before them.
With legislators on call at home, it would be a good time for school board members and administrators to meet with them to deliver the following key messages on the budget:
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Despite claims that the governor’s May Revision does not cut into Proposition 98 funding, it actually reduces school funding by nearly $2.4 billion ($400 per student) in 2010-11. When the loss of one-time federal funding is included, the drop in per-student funding exceeds $500, as indicated by the Legislative Analyst’s Office.
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The reason behind the first point is that Proposition 98 funding does not equal funding available to pay for 2010-11school programs. According to the LAO, about $1.9 billion of the year’s Proposition 98 allocation to schools is already obligated to pay for expenses in 2009-10. This reduces the amount available to pay for 2010-11 expenses by a like amount.
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The Legislature must reject any proposals that violate Proposition 98’s constitutional guarantee, such as:
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* failing to fund the 2010-11 Maintenance Factor payment as required by Assembly Bill 4x 3,
approved by the Legislature and governor in July 2009
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* failing to hold school funding harmless from the gas tax “swap” as required by AB 8x 6,
approved by the Legislature and governor in March
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To address the budget year shortfall and the ongoing structural imbalance, new revenues must be part of the overall budget solution, as recommended by the LAO.
For additional information on the proposals and actions of the Budget Conference Committee, please see the CSBA budget update published June 22.