The Final Week in Review
Budget Bill Process
Late Friday, September 19, 2008, the Legislature passed a revised Budget compromise to accommodate the Governor’s objections voiced earlier this week. For those of us who are political wonks, it was fascinating to watch the ongoing developments and strategize over how to respond on behalf of our lobbying clients. Here is a brief summary of what occurred:
· The 2008-09 Budget was initially passed in the wee hours of Tuesday morning earlier this week
· Hours later, the Governor held a press conference and announced that he would veto the Budget
· After two days of Big 5 meetings, news reports on the afternoon of September 18, 2008, indicated that legislators had reached a Budget deal that would satisfy the Governor’s concerns
· The Governor held a press conference Friday afternoon, September 19, 2008, just prior to the scheduled vote on the tweaked Budget, saying:
o They replaced the fake Budget reforms with real Budget reform
o They accomplished some things by enacting a rainy day fund and authorizing midyear cuts, but legislators were unable to make the hard decisions to eliminate the state’s structural deficit
o We need to move forward on redistricting reform, health care reform, water, and education
o The most important thing is to create consequences for a late Budget; he later clarified that the consequences would have to be enacted by initiative because legislators wouldn’t do it themselves
o There will be a bill signing in two or three days, perhaps as early as Monday, September 22, 2008
o March 2009 is probably too early to hold a special election on the Lottery and Budget reform measures, but a special election could be held in June 2009
· The Legislature voted late Friday, September 19, 2008 on two measures that would satisfy the Governor’s demands
o SCA 30 (Ashburn) is the Budget reform measure that would limit the Legislature’s ability to move funds out of the “rainy day fund” known as the Budget Stabilization Account (BSA). It will be added to SCA 13, the Budget reform measure the Legislature passed early Tuesday, September 16, 2008. The measures would provide some stability to the financing of state government, but will have to go before the voters for approval. The Senate passed the Constitutional amendment on a vote of 30-0, with many members caught in traffic or otherwise not yet at the Capitol. The Assembly adopted the Constitutional amendment on a vote of 56-12.
o SBX1 28 would implement the revised revenue package, replacing the revenue bill passed early Tuesday, September 16, 2008. The Senate voted 22-14 to adopt the measure, while the Assembly voted 41-30. Because it required only a majority vote, the measure was adopted.
The Legislature also passed SCR 2 to finally adjourn the 1st Extraordinary Session.
The Senate adjourned at 4:40 p.m., Friday, September 19, 2008, and the Assembly adjourned less than an hour later, at about 5:37 p.m.
The Final Budget Deal
Neither of the measures voted upon is yet in print, so the only information we have is the brief descriptions given by Senator Perata (D-Oakland) and Assembly member Laird (D- Santa Cruz) in presenting the measures (see above), and a brief outline released by the Governor’s Office.
The key changes made to the BSA were in the transfer out provisions. Funds could only be transferred out of that fund under the following conditions:
1) Actual revenues during the fiscal year must be below a specified level: prior-year spending adjusted by population growth and per capita personal income growth;
2) The amount transferred out of the BSA during a fiscal year would be limited to the amount which would bring revenues up to prior-year spending adjusted by population and per- capita personal income growth.
When the balance in the BSA reaches 12.5%, the excess would be available for one-time purposes only. One-time purposes would include paying down debt, paying off outstanding General Obligation bonds, investing in infrastructure and capital outlay projects, paying for “settle-up” dollars owed to education, pre-paying the health care liability for retired employees, and tax relief.
In place of the 10% increase in taxpayer withholding, the Budget establishes a plan to bring in outstanding tax revenue owed to the state by increasing penalties on corporations that under-report by more than $1 million what they owe the state. The 20% penalty on the under-reporting of tax owed would apply to taxable years beginning in 2003.
What’s next?
The Budget reform and Lottery changes must go before the voters in a special election to be scheduled sometime in 2009. The timing of the special election will no doubt be carefully considered—the Governor needs these measures to pass.
There is a lot of risk inherent in the Budget adopted, and a threat of midyear cuts again because the Budget is built on questionable revenues.
As the Governor’s outline of the Budget deal says, “California is certain to be faced with a difficult budget situation again next year.”
--Deborah Harmon