What the Next Budget is Actually Going to Contain

(Editor’s Note: A common complaint about media coverage of the state budget, the most important annual public policy action taken by lawmakers and the governor, is that far more attention is paid to what the governor proposes than what actually is enacted.

Governor Arnold Schwarzenegger’s revised budget seeks to close a gap between revenues of $15.4 billion, which climbs to $21.3 billion if the budget-related measures on the May 19 special election ballot fail.

Rather than catalogue the contents of the governor’s proposals and offer various interest groups an opportunity to critique it, California’s Capitol believes a more valuable exercise would be to highlight what aspects of the plan the Democratic majority Legislature would embrace.

Our chief correspondent is conducting that exercise and, as his employment folder attests, his judgment can be flawed. However, nearly 25 years of observing the lashing together of state spending plans may cause his guesses to be more educated than some.

Traditionally, politicians, if they can, take the easy path, the non-confrontational path, the path that rewards their supporters or, at a minimum, angers them the least. That is the prism through which these predictions are filtered.)

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The GOP governor wants to borrow $6 billion and pay it back before June 30, 2011. He and a number of Democratic and Republican lawmakers will be termed out of office when the note comes due.

Mike Genest, the director of Schwarzenegger’s Department of Finance said on May 14 that “trigger legislation” will most likely accompany the sale of what are called Revenue Anticipation Warrants so that buyers know if state revenues aren’t sufficient to pay them back, a new revenue stream – higher taxes – would be triggered.

The governor proposes a little over a $1 billion reduction in money for the University of California and the California State University system — $510 million each. The governor says that the cuts would be offset from “anticipated” federal economic stimulus dollars. Democrats likely would be happy to believe him.

And Democrats also probably will support Schwarzenegger’s proposal to reduce state support of public schools by $1 billion this fiscal year and an additional $2 billion in the fiscal year that begins July 1. They will do so despite the fact the current budget reduced state spending for schools by $7.3 billion this year and $2.9 billion next year. The governor’s May Revision contends the cuts are “largely offset” by $6.1 billion in federal stimulus money over the two-year period. This is not an easy path for Democrats to take but it is smoothed significantly by the offsetting federal dollars. 

Democrats were willing to cut benefits for Medi-Cal, the state’s health care program for the poor, including dental care for adults, in the budget signed on February 20 so they would be more than happy to save $47.9 million by hiring 62 Medi-Cal fraud investigators, at a cost of $3.4 million, to more zealously root out fraud by doctors, pharmacists and adult day health care centers.

Democrats might also rollback the Medi-Cal reimbursement rate paid to entities offering family planning. Those reimbursement rates, the governor said, were increased by 91 percent in 2007 through legislation he signed. Seems unlikely Democrats would agree to reduce the rates by the 91 percent the governor wants to save $36.8 million, however.

Dumping $40 million in fees on employers to support several programs at the Department of Industrial Relations will also get Democratic support as will increasing the amount of estimated tax payments for businesses and individuals in June to 40 percent of liability, instead of 30. Doing so, offers a one-time cash influx of $610 million.

Siphoning off $336 million in “excess” money from the sales tax on gasoline — so-called spillover funds — to the state general fund to pay debt service is also a likely point of agreement with Democrats. Also supportable by Democrats is $62 million in transfers from various other funds to the general fund.

Some Democrats — and more than a few Republicans — will back the governor’s desire to issue the first new oil-drilling lease in state waters in 40 years, which will bring the state at least $100 million.

Nor would Democrats be squeamish about some of the items on Schwarzenegger’s contingency list – the supposedly worst-case steps that would need to be taken if the measures fail on the May 19 ballot.

Democrats would likely support saving $100 million by changing sentencing options for certain felonies and misdemeanors to jail time rather than a prison sentence.

From the same list, a $60 million transfer of cigarette tax money to offset Medi-Cal costs would be palatable.

Democrats would likely embrace increasing suggested tax withholding amounts by 10 percent, a $1.7 billion boon.

And borrowing $2 billion from cities and counties and special districts seems easily supportable for the same reason the Revenue Anticipation Warrants are –the day of reckoning isn’t for three years and that will be somebody else’s problem.

A quick tally shows those areas of likely agreement equal a little over $15 billion – 71 percent of the governor’s worst-case cash hole estimate.

There could be more on the governor’s list Democrats are willing to do in part or substitute with revenue generators like tax amnesty, which is estimated to bring in $400 million from scofflaws, but agreement on 71 percent of the problem is a solid starting point for negotiation.  

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