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Effective Today, Without A Budget In Place What Bills Will the State Pay (and Not)? BY: Phil Vermeulen, Legislative Advocate

Also In This Update • California budget tardy again, and here's why California begins the 2010-11 fiscal year today without a budget in place. The state can continue spending on items protected by the federal government, the state constitution or state statutes. Here's a list of what will continue to get paid and what won't: WILL PAY • Debt • General K-12 education costs • SSI/SSP payments • In-Home Supportive Services • Medi-Cal costs • CalWORKs • Income tax refunds • Unclaimed property claims • State payroll* * The governor has threatened to order state workers' pay cut to minimum wage until a budget is in place, but Controller John Chiang is unlikely to comply unless ordered by a court. The 3rd District Court of Appeal is considering the issue. WON'T PAY • State vendors • Local governments • Community colleges • Salaries for legislators and their aides • K-12 education "categorical" costs California budget tardy again, and here's why The Sacramento Bee reports that California enters the 2010-11 fiscal year today without a state budget in place, the 19th time in the last 25 years that has occurred.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, and Assembly Speaker John A. PÊrez, D-Los Angeles, said Wednesday they have reconciled their different plans into one Democratic framework. California faces an estimated $19.1 billion deficit. The Democratic plan rejects Gov. Arnold Schwarzenegger's proposed cuts to welfare, InHome Supportive Services and Medi-Cal. To help pay for those programs, Democrats propose a new tax on oil production and delaying a series of corporate tax breaks. They also would shift some public safety and welfare functions to local governments. Democratic leaders said they want to begin regular negotiations behind closed doors with the governor and GOP legislative leaders to hammer out a new spending plan. The budget process remains a complicated part of state governance – and its most fundamental function. We answer some common questions: Why is there a budget deficit yet again? A number of reasons. California has faced such monumental deficits in the past three fiscal years that lawmakers and Schwarzenegger relied largely on solutions that dealt with the problem only one year at a time. They pushed June's paychecks to state workers into this month, an idea that can't be tapped again. They imposed a temporary income tax hike that ends in December, meaning less revenue starting Jan. 1. They cut education funds promising to give schools the money in later years. They temporarily furloughed state workers. As those policies end and deferrals come due, the state is left with less revenue and higher costs, which then create a new budget gap. What are some other factors? The state also relied on federal stimulus funds last year to help stave off program cuts, and there is less available this fiscal year. Nearly all stimulus money for higher education has been spent, while stimulus money for Medi-Cal is set to end Dec. 31 unless Congress extends it. Meanwhile, state leaders made risky assumptions in last year's budget that failed to come true. They relied on selling the State Compensation Insurance Fund for $1 billion, which never came to pass because the transaction faced serious legal hurdles. An attempt to take $800 million in transit money was tossed out by the courts. Finally, fiscal forecasting is an imperfect art. Budgets are based on projections of how much revenue the state will take in over the next year, as well as how much demand will exist for state services. When actual revenue falls short, as it did in dramatic fashion in 2008-09, the state cannot meet its spending obligations. When demand is higher than expected, as is often the case in an economic downturn, the state has greater expenditures.

I'm paying higher taxes at stores, on my paycheck and on my car. How can the state be broke? In boom times, California saw a spike in tax revenue from wealthy earners and those with investment profits. When stock and real estate markets tanked, that revenue rapidly declined. To help make up for it, state leaders turned to broad-based tax hikes on income, vehicles and sales. This revenue is more stable but has not been enough to fully replace the money that the state received from wealthy taxpayers in the boom years. State leaders have cut costs, but expenditures still outpace revenue in California. Population continues to increase, while California is obligated by federal and state laws to provide a minimum amount of money for education and prisons (which combined "eats" well over 1/2 of the state budget!). Republicans say the state should not spend what it cannot afford and that taxes are already too high. Democrats believe the state has already cut beyond an acceptable level of safety-net programs, public education and other state services. Doesn't the California Lottery provide enough money for schools? The lottery provides only a tiny fraction of the funds that schools receive from state, federal and local sources. In 2008-09, the lottery provided only 1.2 percent of all K-12 funds, according to the Legislative Analyst's Office. Democrats have a solid majority in the Legislature. Why do they blame budget delays so often on Republicans? California is the only state that requires a two-thirds vote for budget passage and tax increases. Democrats have solid majorities, but for a two-thirds supermajority they need at least three Republican votes in the Assembly and two in the Senate. Republican lawmakers can wield significant political power if they agree as a caucus not to provide any votes for the budget until their negotiating demands are met. Democrats and their labor union supporters do not want to eliminate major social service programs or cut education to balance the budget, but they need new revenue to avoid those cuts. Schwarzenegger, Republican lawmakers and their business allies oppose further tax increases, and the governor has proposed widespread cuts in lieu of tax hikes. Republicans also want to reduce pensions for future state workers to cut longterm costs.


WON'T PAY • State vendors • Local governments • Community colleges • Salaries for legislators and their aides • K-12 education "categorical"...