Copyright© 2003 by School Services of California, Inc.

Volume 16                   For Publication Date: December 19, 2003             No. 25

Governor Provides $2.65 Billion to Local Governments

On December 18, 2003 , Governor Schwarzenegger issued an executive order that will provide $2.65 billion to local governments to make up for lost revenues stemming from his earlier act to cut the vehicle license fee (VLF). Frustrated that the Legislature had adjourned without taking up his plan to reduce current year spending and provide relief to local governments, the Governor declared that he would act without them.  

The Governor invoked Section 27 of the 2003 Budget Act, which authorizes state departments to spend more than is budgeted for the year provided certain conditions are met. Under this authority, the Governor intends to transfer state funds to local governments. The State Controller, who previously indicated that Section 27 did not provide sufficient authority for the transfer, reversed himself and indicated that his office would indeed make the payments to backfill for the loss of VLF revenues.  

What remains unclear is whether the Legislature will eventually have to pass a “deficiency bill” to appropriate funds for the VLF backfill. If a deficiency bill is not necessary to complete this transaction, this would be a major shift in governmental powers of appropriation from the legislative branch to the executive branch of state government.  

With this act, the Governor has created a corresponding increase in the state General Fund deficit—with this increase in deficit expected when the Governor cut the VLF increase on his inauguration day. The Governor indicated, however, that state tax collections were running above the budget forecast and that by the end of the year $1.8 billion in additional revenues are expected.  

The Governor also indicated that his Administration would invoke a provision in the current budget that authorizes reductions in departmental operating budgets by up to 5% without legislative concurrence. These reductions are expected to save $150 million.  

Higher education and health and welfare programs are scheduled to suffer the majority of these cuts. For example, the California State University (CSU) is targeted for a $23.7 million cut, and CSU officials indicate that they will trim enrollment by 4,000 in response to this reduction. The University of California is slated for a $29.9 million current year cut.  

The Governor did not identify any specific cuts for K-14 education, and his proposal will not reduce the funding requirements of Proposition 98. The full story, however, has not yet been told, and we will have to wait until January to see the Governor’s complete plan to balance the budget and solve the ongoing structural deficit.  

—Robert Miyashiro