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Governor Issues May Revise, New Deficit Projection of $15.7 Billion

Remaining Redevelopment Housing and Other Funds Proposed to Be Dispersed

May 14, 2012

Gov. Jerry Brown released his revised FY 2012-13 Budget today, reflecting an increased deficit of $15.7 billion, up from his January projection of $9.2 billion. The budget shortfall is attributed to overly optimistic revenue forecasts, increased Proposition 98 spending and federal court rulings blocking several budget cuts.

 

The May Revise proposes to close the budget deficit with further cuts to health and safety programs, while protecting funding for education pending the outcome of the Governor’s November tax measure. 

As with the Governor’s January budget, other than issues associated with redevelopment dissolution, the May Revise contains no proposed shifts of city funds. The $1.9 billion in property tax borrowed from local agencies in 2009 remains scheduled for repayment, and there is no proposed shift of local shares of Highway User’s Taxes (HUTA). Local property tax borrowing and local HUTA allocations are now protected by Proposition 22.

For the League’s initial January budget analysis, please read “’Technical Glitch’ Forces Early Release of Gov. Jerry Brown’s FY 2012-13 State Budget Proposal.”

Redevelopment

The Governor’s May Revise lowers the estimate of ongoing benefit from redevelopment dissolution by attempting to harvest “one-time” benefits from redevelopment cash reserves, including housing set-asides.  In his proposed May budget , the Governor revised the estimates of the revenues the state expects to collect from the dissolution of redevelopment agencies in two ways:

  • Reduced Annual Base Payments to Schools (and Cities) From Redevelopment Dissolution. The Governor’s budget lowered by $170 million the amount the state estimates it will receive from the dissolution of redevelopment agencies in the current (2011-12) fiscal year. It originally estimated $1.04 billion. It now estimates $880 million. The $880 million represents 58 percent of the total amount of tax increment DOF expects to be distributed through the tax system (i.e., $1.52 billion) as a result of the dissolution of redevelopment agencies. The League estimates that statewide cities could receive approximately $227 million, or 15 percent of the $1.52 billion, but the funds will be distributed to cities in proportion to their relative property tax shares in former redevelopment project areas.
  • One-Time Harvest of Redevelopment Reserves, Including Housing Funds. Increased by $1.4 billion in FY 2012-13 and $600 million in FY 2013-14 ($2 billion total) the estimate of one-time payments to schools (benefitting the State General Fund) from former redevelopment agency cash reserves, including affordable housing set-aside funds. (This does not include the proceeds of the sale of real estate assets by successor agencies). As with the annual payments above, the League estimates that statewide cities would receive approximately 15 percent of the total amount of available reserves estimated by DOF ($3.45 billion) — or approximately $515 million statewide of one-time revenues, depending on a city’s proportionate property tax share in former redevelopment project areas. The Governor’s proposal mentions the need for legislation providing a “framework” for successor agencies to transfer cash assets.”
  • Details have not yet been revealed regarding how the state developed an estimate that supports 58 percent of the property tax being allocated for schools, and the legislative reaction to the proposed sweep of all remaining RDA-affordable housing funds. 

Public Safety

Realignment

The Governor continues to bank on the successful passage of his ballot measure to provide constitutional protection for the current 1.0625 percent of the sales tax revenues funding the 2011 Public Safety Realignment. The state projects sales tax revenue and Vehicle License Fee (VLF) revenues allocated for realignment will grow from $5.8 billion in FY 2012-12 to $6.8 billion in FY 2014-15. While these revenues create an on-going funding stream, they do not currently have any protection against future borrowing, diversion, or reduction. The Governor’s tax measure, however, contains additional protections for these revenues.

New Grant for Police Departments

Last year’s realignment legislation created the Board of State and Community Corrections that will be established on July 1, 2012. This board assumes many of the duties previously under the Corrections Standard Authority to align best practices and maximize resources between state and local corrections.

Notable changes reflected in the May Revise for local assistance include:

  • Grants for Police Departments: $20 million in non-competitive grants for city police departments to mitigate impacts of realignment. Distribution formula to be developed in trailer bill language and will reflect population and crime data in the given jurisdiction.
  • Local Jail Construction Financing Program: $500 million in additional lease bond revenue for local jail facilities, adding to current $1.2 billion Local Jail Construction Financing Program.

Substance abuse treatment programs, social services, and mental health programs receive increased funding, providing a continuum of care for local realignment programs. These augmentations are significant because they increase “base level” funding for the “rolling base” and future year allocations.

Prison Population and Management

The 2011 Public Safety Realignment has diverted significant population away from state facilities and towards county jails. This, in combination with numerous other incarceration practices, has reduced the prison population by more than 12,000 since the federal court ordered prison population reduction last year. Correlated changes to internal CDCR practices and prisoner management are as follows.

Department of Juvenile Justice

The May Revise changes the Governor’s January budget by retaining the Department of Juvenile Justice (DJJ) to house the more serious and violent juvenile offenders. The May Revise reflects the declining juvenile offender population and implements a new fee-based structure and other adjustments to the DJJ population for savings of over $24.8 million. This includes:

  • Ending state juvenile parole as of January 2013, not 2014;
  • Charging counties $24,000 per juvenile inmate committed to the DJJ by a juvenile court;
  • Reducing the age jurisdiction of DJJ from 25 to 23 years old; and
  • Reducing administrative staff at CDCR headquarters and DJJ facilities.

State Adult Corrections

In adult corrections the May Revise seeks to implement the “Future of California Corrections” Blueprint released in late April, which will achieve $1 billion in savings in FY 2012-13 and $1.5 billion in FY 2015-16. In addition to reducing federal oversight and role in health care, the primary components include:

  • Updating the inmate classification system that will enable the department to reassess inmate classification for security levels, shifting 17,000 to less costly housing with greater access to rehabilitative programs;
  • Returning 10,000 out-of-state inmates to California facilities;
  • Restructuring rehabilitation programs to improve access and appropriateness of rehabilitation programs through centralized “hubs” and in-facility options;
  • Standardizing staffing levels to reflect current custody and non-custody position requirements to manage reduced population needs. 
  • Eliminating nearly half of the previously authorized “AB 900” Reentry Facility lease bond authority;
    • Closing or replacing current facilities, including repurposing all-female or juvenile facilities and medical facilities to increase capacity; and
    • Increased fiscal oversight and accountability through the Department of Finance State Audits and Evaluations that will to monitor and provide reports on progress of CDCR budget reduction efforts.

Other Public Safety Funding

DNA Identification Fund

  • The previously anticipated $10 million reduction to the DNA Identification Fund is replaced by an increase to the current penalty assessment by $1 dollar for every $10 base fine. The Fund provides critical public safety work for smaller police departments that do not have the resources or facilities to conduct their own forensic research. This area has been volatile in the last several budget cycles.

Restructuring and Reorganizing State Government

The Governor officially presented the Legislature with his reorganization proposal on May 3. The plan will become effective if the Legislature does not reject it within 60 days. In late March, the Governor sent his plan to the Little Hoover Commission, officially setting in motion the process for implementation. The Commission is expected to submit its findings and recommendations for the reorganization plan to the Legislature around May 22. 

In addition to the official reorganization proposal, the May Revise proposes to eliminate an additional 22 boards, commissions, and advisory groups.  League staff will report on these eliminations when a list becomes available.  The Governor’s Administration has also identified 700 legislative reports for elimination, 375 of which need legislative action and 325 of which do not need legislative action.

Transportation

The May Revise proposes to shift gas excise tax (HUTA) revenues dedicated to Off-Highway Vehicle programs totaling $184 million in FY 2011-12 and $128.2 million in future years from transportation-related special funds to the General Fund. These funds do not go to cities and do not share the same constitutional protections as HUTA revenues dedicated to local governments. 

The proposal also increases CalTrans staff levels in some areas, and decreases CalTrans staff levels in others. These staff level modifications reflect decreased workload due to the expiration of American Recovery and Reinvestment Act (ARRA) funds and increased workload associated with the High-Speed Rail program. 

Employee Relations

No significant changes have been made since the Governor’s original budget proposal in January for Workforce Investment Act Funding, labor and workforce development funding, or Unemployment Insurance.

Proposed Changes to State Workforce

  • To achieve savings, the administration will reduce its reliance on use of external state contracts and transfer information technology oversight and personal services (e.g., janitorial services) to state employees where appropriate.
  • The administration will eliminate non-essential retired annuitants and temporary employees.
  • Permanently eliminate an additional 11,000 vacant positions, bringing the total to 30,000.
  • Proposed savings of $839.1 million in employee compensation, the equivalent of a 5 percent reduction in employee pay. The savings will be achieved through bargaining with state employees to implement a four-day, 38-hour workweek for the majority of the state employees. By bargaining these changes the Governor hopes to avoid furloughs and layoffs. Additionally, seek savings through bargaining changes to health coverage for employees and retirees. Health costs alone for the state are expected to increase by 10 percent in the coming year.

Next Steps

Legislators now have updated information from the Governor upon which to reconvene budget discussions. The California State Constitution requires the Legislature to send a budget to the Governor by June 15 and subsequently requires the Governor to sign the budget by July 1.



 
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