BUDGET & GOVERNANCE PRESENTATION

STATE SENATOR MARK DESAULNIER

2012

SENATOR DESAULNIER COMMITTEE ASSIGNMENTS
‡ First freshman Assemblymember to Chair the Assembly Transportation Committee ‡ Chair, Senate Transportation and Housing Committee ‡ Co-chair of the Bay Area Caucus ‡ Chair, Budget Sub-Committee #3 on Health and Human Services ‡ Previously served as Chair of Budget Sub-Committee #4 on Corrections and General Government

SENATOR DESAULNIER COMMITTEE ASSIGNMENTS
Member of the following standing committees: ‡ Senate Labor and Industrial Relations Committee ‡ Senate Committee on Health ‡ Committee on Senate Governance and Finance ‡ Committee on Energy, Utilities, and Communications

SENATOR DESAULNIER COMMITTEE ASSIGNMENTS
‡ Chair, Joint Select Committee on Improving State Government ‡ Chair, Senate Select Committee on Excellence and Innovation ‡ Chair, Senate Select Committee on Small Business and the Underground Economy ‡ Chair, Senate Select Committee on Restoring California¶s Middle Class

SENATOR DESAULNIER LEGISLATIVE ACCOMPLISHMENTS
‡ 15 bills signed by the Governor in 2011 ‡ SB 15: Multi-year Budgeting - requires governor¶s budget projections to be made over a two year period ‡ SB 201: Flexible Purpose Corporation - creates a new corporation in California, the flexible purpose corporation, that allows incorporated businesses to adopt socially responsible business models A complete bill list is available online: http://sd07.senate.ca.gov

NEW BOUNDARIES FOR SENATE DISTRICT 7
‡ As a result of the work completed by the Citizens Redistricting Commission, Senate District 7 will see significant changes ‡ Beginning December 2012 District 7 will include the TriValley cities of Dublin, Pleasanton, and Livermore ‡ District 7 will no longer include the cities of Martinez, Pleasant Hill, Pinole, Hercules, and Richmond

WHAT·S RIGHT IN CALIFORNIA
‡ 9th largest economy in the world ‡ $1.9 Trillion GDP is 15% of US economy ‡ California receives four times more venture capital than the national average and accounts for nearly 50% of all venture investment in the United States ‡ In 2010, over 23,000 patents originated in California, far more than any other state ‡ California is the number one state for attracting foreign direct investment, with US subsidiaries employing more than 570,000 Californians ‡ $150 billion in exports annually to over 37 countries

WHAT·S RIGHT: CONTINUED
‡ California total public debt to GDP stands at 20% Italy at 120% Greece at 150% Japan at 220% ‡ Total public debt held by US States: $18.6 trillion Massachusetts: 25% debt to GDP Alaska: 22% debt to GDP New York: 25% debt to GDP

WHAT·S RIGHT IN THE EAST BAY
‡ Highly educated and diverse workforce: more than 50% of the workforce has attained a bachelors degree ‡ As a result, we have seen the professional, scientific, and technical services add between 1,500 and 1,800 jobs annually in the East Bay ‡ Three national research laboratories that employ 30,000 east bay residents ‡ Robust infrastructure ± BART, Amtrak, SR4 Widening, Caldecott Fourth Bore Project, SR4 Bypass Expansion

BUDGET PROCESS 
Governor proposes budget in January  Legislative budget committees meet to review Governor¶s budget and adopt an alternative proposal  Two houses of Legislature, through a conference committee, agree on one approach and settle differences with Governor

2012 ² 13 BUDGET PROPOSAL
TOTAL EXPENDETURES FY 12-13 $ 92.5 Budget Deficit in January (billions)
Expenditure Reductions Revenue Projections (triggered) Other Solutions

$9.2
- 4.2 - 4.7 - 1.4

____________________________________ Total Solutions and Changes: $10.3

2012 ² 13 BUDGET PROPOSAL: STRUCTURAL DEFICIT ELIMINATED

Year 2011-2012 2012-2013

Structural Deficit 26.6 Billion 9.2 Billion

Governor¶s 2012-2013 Budget Proposal Eliminates Structural Deficit

WHERE WOULD PROPOSED GENERAL FUND REVENUES COME FROM?

Source: Legislative Analyst s Office

2012

CALIFORNIA RANKS 15TH IN TAXES AND FEES COMPARED TO OTHER STATES
Alaska Wyoming North Dakota New Mexico New York Delaware West Virginia District of Columbia Hawaii Utah Maine Louisiana Vermont Mississippi 56.55 24.97 20.40 20.15 20.09 18.89 18.76 18.69 17.85 17.77 17.42 17.40 17.33 17.25 Michigan Ohio Kansas Wisconsin Indiana Minnesota Alabama New Jersey Oregon Washington Pennsylvania Florida Nevada Texas Illinois 16.93 16.91 16.82 16.78 16.65 16.41 16.06 16.01 15.96 15.91 15.72 15.66 15.19 14.85 14.65

California

17.22

Source: Department of Finance

20122012-13 GOVERNOR·S PROPOSED EXPENDITURES
Legislative, Judicial, Executive 3%

Other 9%
Corrections and Rehabilitation 9%

K-12 Education 41%
Higher Education 10%

Health and Human Services 28%

20122012-13 PROPOSED GENERAL FUND EXPENDITURES
State Agency K-12 Education Health and Human Services Higher Education Corrections and Rehabilitation Legislative, Judicial, Executive Natural Resources State and Consumer Services Business, Transportation & Housing Environmental Protection Labor and Workforce Development General Government: Non-Agency Departments Tax Relief/Local Government Statewide Expenditures Total 514 million 2.5 billion 553 million $92.55 billion General Fund 38.17 billion 26.4 billion 9.37 billion 8.7 billion 2.6 billion 1.89 billion 689 million 558 million 47 million 448 million

2012 ² 13 BUDGET PROPOSAL: CLOSING THE GAP
‡ Budget gap: $9.2 B for 2012 13 ‡ Closing the gap: ‡ $10.3 Billion-mix of cuts & revenues ‡ Most cuts in Health and Human Services ‡ Assumes passage of Nov. initiative ‡ Budget includes ³trigger´ cuts, if Nov tax measure fails
Cuts Revenues Other Solutions Total Solutions Reserve $4.2 Billion $4.7 Billion $1.4 Billion $10.3 Billion $1.1 Billion

2012 ² 13 BUDGET PROPOSAL: EXPENDITURE REDUCTIONS
Budget cuts: $4.2 billion ‡ Health and Human Services: ‡ CalWORKs - redesign program: $946 million ‡ Medi Cal - moving recipients to managed care: $842 million ‡ IHSS - various savings: $164 million ‡ Other HHS - $87 million ‡ Prop. 98: Re benching adjustments: $544 million ‡ Child care: Major restructuring through the elimination of slots: $447 million ‡ Cal Grants: Set minimum GPAs, reduce grants in non public colleges: $302 million ‡ State mandates: Suspend, repeal, or make permissive various mandates: $828 million ‡ Other: $55 million

2012 ² 13 BUDGET PROPOSAL: REVENUE ACTIONS
‡ Governor¶s Tax Initiative: Temporary Personal Income Tax increase on highest income earners; Temporary sales tax rate of 0.5%; Raises total $6.9 billion - $2.5 billion used for Prop. 98 and $4.4 billion used as budget solution ‡ Gross Premiums Tax on Medi Cal Managed Care Plans: $162 million in revenue. ‡ All other revenue proposals: About $88 million. ‡ Revenues Total: $4.7 billion

WHAT HAPPENS IF THE INITIATIVE FAILS? ´TRIGGER CUTSµ
‡ K-14 schools: $4.8 billion equivalent to reducing 3 weeks of school ‡ UC and CSU: $400 million ($200 million each) ‡ Courts: $125 million equivalent to closures of three days/month ‡ Forestry: $15 million closure of some fire stations and reduced emergency air response ‡ Water Resources: $7 million cuts to flood control program ‡ Parks and Recreation/Fish and Game: $6 million cuts to public safety officers in each department, such as wardens; elimination of lifeguards at beaches ‡ Department of Justice: $1 million

BILLIONS IN THREATS AND FUTURE PRESSURES
‡ Pension Liabilities ± $100.0 billion To $500.0 billion ‡ Joint Legislative Committee on Public Employee Pensions and
Governor¶s Plan (October 2011)

‡ Unemployment Insurance Fund Deficit ± $10.3 billion ‡ Outstanding Budgetary Borrowing ± $15.3 billion ‡ Health Care Reform ± $3.5 billion
Source: Department of Finance

LIMITING NEW OBLIGATIONS WILL REDUCE FUTURE DEBT SERVICE BURDEN
10.0% 9.5% Debt Service Payment to Revenues $8.8 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% 201516 201112 201213 201314 201415 201617 201718 201819 201920 202021 $8.8 8.6% 8.4% $8.0 7.8% $6.9 8.2% 8.0% 7.8% 7.5% 7.5% $8.5 $8.5 Annual Debt Service Amount $8.0 $7.5 $7.0 $6.5 6.8% $6.0 $5.5 $5.0 $8.9 Figure 4 -- Debt Service Payments with Limited New Debt Estimated Percentage of General Fund Debt Service Payments to Revenues and Annual Debt Service Amounts (in Billions) 2011-12 through 2020-21 $10.0 $9.7 9.8% $9.2 $9.2 $9.3 $9.5 $9.0

Source: California State Treasurer s Office Note: 2012-13 includes $1.9 billion in payment on Proposition IA bonds

CALIFORNIA·S CREDIT RATINGS
(AS OF 12/6/2010)

Source: California State Treasurer's Office

CALIFORNIA PAYS A SIGNIFICANT PENALTY FOR ITS LOW CREDIT RATINGS
‡ Wall Street ratings firms have improved California¶s credit rating outlook from ³negative´ to ³stable´, as a result of the passage of last year¶s on-time state budget ‡ Negative ratings increase the state¶s debt service costs, taking away money for schools, public safety and transportation ‡ California could pay over $12 billion more for debt service over the next 30 years if we can¶t get our fiscal house in order
Source: California State Treasurer s Office.

GOVERNMENT EMPLOYEES IN CALIFORNIA COMPARED TO OTHER STATES

Source: The Center for Continuing Study of the California Economy

STATE JOBS ELIMINATED
‡ As a result of budget reductions, more than 15,000 positions were eliminated in 2011-12 ‡ The Department of Finance will conduct a department-by-department review to identify additional positions for elimination ‡ This will permanently reduce positions to reflect the smaller size of state government

GOVERNMENT EFFICIENCIES AND REORGANIZATION
‡ Budget proposes a major reorganization of state government by reducing the number of agencies from 12 to 10, eliminating 39 state entities and 9 programs ‡ Proposes the elimination of additional boards and commissions ‡ Improves efficiency in the budget process by providing for a special focus on program goals and outcomes ‡ Departments will perform a detailed review and analysis of all their programs to identify inefficiencies

STATESTATE-LOCAL GOVERNMENT RELATIONSHIP
‡ Since 1972 the state and local relationship has been effected by numerous ballot measures, legislation and budget bills ‡ Prop. 13 changed everything ‡ Local vote 2/3rd threshold requirements make it difficult to invest locally ‡ County governments responsible for delivering services but are reliant on state for funding

STATESTATE-LOCAL GOVERNMENT RELATIONSHIP: REALIGNMENT
The 2011 Health and Human Services Realignment is fully funded in the 2012-2013 proposed budget: ‡ Adult Protective Services ‡ Foster Care ‡ Child Welfare Services ‡ Adoptions and Adoptions Assistance ‡ Child Abuse Prevention ‡ Mental Health Managed Care ‡ Early Periodic Screening, Diagnosis, and Treatment (EPSDT) Program

STATESTATE-LOCAL GOVERNMENT RELATIONSHIP: REALIGNMENT
‡ The 2011 Public Safety Realignment is also fully funded in the 2012-2013 budget:
‡ ‡ ‡ Shifts administrative responsibility for parole, court security, mental health, drug treatment, and adult protective services to counties Transfers some non-violent offenders to county jails, meeting Supreme Court mandate to reduce prison overcrowding Redefines 1.06 percent of existing state sales tax as local revenue to support realignment

‡ The Governor is sponsoring an initiative to provide Constitutional protection for the revenue dedicated to 2011 Public Safety Realignment ‡ Realignment will save 1.1 Billion in 2012-13

THE ´RULESµ MATTER
‡ California¶s initiative process poses challenges to governing California ‡ California¶s Constitution more expansive than most constitutions (only India and Alabama have longer constitutions) ‡ State constitutional amendments, through the initiative process, have severely limited the discretion of legislators in appropriating state dollars ‡ There are already 3 initiatives on the November 2012 ballot and over 60 initiatives have been cleared to collect signatures

LEGISLATIVE AMENDMENT AND REPEAL OF INITIATIVES

Prohibited Supermajority vote Waiting period (2-3 years) No restriction
Source: NCLS

REFORM EFFORTS UNDERWAY
Outside the Legislature: ‡ California Forward: Bipartisan non-profit designed to make specific changes to CA state government Sponsoring a new ballot initiative, The Government Performance and Accountability Act -- Initiative amends the state constitution to include: performance based budgeting, two year budget provisions and pay-go requirements for all new state programs ‡ Think Long Committee for California: Public policy think tank funded by billionaire Nicolas Berggruren, who has committed at least $20 million to support the Government Performance and Accountability Act

DESAULNIER LEGISLATIVE PROPOSALS

‡ (SCR 2): Legislature asks voters to authorize a Constitutional Convention
Status: Senate Rules Committee

‡ (SCA 4): Pay as you go requirements for initiatives and constitutional ballot measures
Status: Senate Floor

‡ (SB 15): Multi-year budgeting
Status: Signed by Governor

‡ (SB 14): Performance based budgeting
Status: Vetoed by Governor ± ³I will issue and executive order in the coming weeks that implements the good ideas in this bill´

FOR MORE INFORMATION

District Office: (925)942-6082
http://www.sen.ca.gov/desaulnier

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