While mostly supportive of the Governor’s proposal, the report is highly critical of his use of Proposition 39 revenues primarily for schools and raises other important questions.
“Serious Concerns” With Prop. 39 Proposal for Schools
In its report, LAO calls the Governor’s plan to count Prop. 39 revenues against the state’s Prop. 98 guarantee as a “serious departure” from the longstanding treatment of special funds like Prop. 39. Prop. 39 is the November 2012 measure that requires a single sales factor and allocated revenues towards energy efficiency projects in the state. Further, the report states the plan is “directly contrary” to the intended use of the fund as approved by voters. Voters approved Prop. 39 with the understanding that most of the revenue would be earmarked for energy efficiency projects. In order to be consistent with the voter’s understanding of the measure, LAO recommends that the Legislature exclude Prop. 98 calculations from the revenue reserved in Prop. 39 for energy efficiency projects.
LAO specifically calls out the plan to use Prop. 39 as unlikely to increase energy efficiency and job creation projects.
Despite substantially lower redevelopment dissolution revenues, LAO generally concurs with the Governor’s projections that $2.1 billion in FY 2012-13 and $1.1 billion in FY 2013-14 will likely be realized. However, LAO does note that the projections are subject to a number of factors which could significantly undercut the Governor’s plan. LAO cites unreliable information on redevelopment assets, inconsistent compliance with redevelopment dissolution, and pending and future litigation over redevelopment assets as potential tipping points.
Inmate Reduction Savings
On Jan. 7, the Governor filed an Executive Order with the federal district court requesting to lift the cap on prison populations, terminate federal oversight of prison health care, and examine plans to further reduce prison populations through inmate release. The federal district court is expected to respond to the state within 30 days, but a final ruling could take months and may not be completed during this fiscal year.
The Governor’s budget proposal discusses the ongoing difficulties with the state’s infrastructure funding mechanisms — mainly bonds backed by the state’s General Fund. However, with outstanding obligations such as K-12 schools, higher education, the newly approved $11 billion water bond scheduled for the November 2014 ballot, the state’s capacity to back such infrastructure projects is maxed. In order to meet any future infrastructure demands, of which there are many, the state would be required to expend a larger portion of the budget on these projects.
Although the Brown Administration has indicated intentions to unveil a 5-year infrastructure plan, it was not included in the budget. LAO recommends its absence commends prioritizing the state’s investments and exploring additional means to fund projects through fees or charges.
Between now and May, the Legislature will review individual proposals of the budget in committee hearings. Gov. Jerry Brown will issue his budget May Revise in mid-May, containing updates to state revenue and cost projections. It remains to be seen whether the LAO’s recommendations or Legislative pressure will affect his proposals.