Highlights: The Governor’s commitment to eliminating the state’s operating deficit without raising taxes

When Governor Schwarzenegger took office in November 2003, the state faced an unprecedented structural budget crisis. A review of state finances projected that California was on a path to spend $16.5 billion more than the General Fund revenue it would take in 2006. In contrast, the Governor's May Revision Budget for 2007-08 proposes a net operating deficit of $1.4 billion. By making the difficult decisions to slow spending growth, reduce the state's net operating deficit, setting aside a total reserve of $2.2 billion, and hold the line against tax increases and new budgetary borrowing, Governor Schwarzenegger is ensuring that future generations of Californians will have the resources needed to continue investments in education, social services, and infrastructure.

Major Changes Included in the May Revision

1. The Administration continues to exercise restraint in funding program growth. Total General Fund spending proposed in the budget is $103.8 billion, which is $1.5 billion—or about 1.5 percent—more than in the current year.  This is the lowest rate of growth in General Fund spending in five years.
2. The Governor's January Budget proposed legislation to reduce various state programs for total savings of $2.5 billion. The May Revision proposes additional program reductions for $430 million more savings, for a total savings of nearly $3 billion.
3. The January Budget saved $1.1 billion in the General Fund by expanding the uses of revenue sources for public transportation to cover services currently provided by schools, by regional centers to their developmentally disabled clients. The Governor also proposed shifting a portion of the revenue to a special fund for debt service on general obligation bonds issued for transportation projects. The May Revise proposes to reimburse the General Fund an additional $200 million in 2006-07 for Home-to-School Transportation from the Public Transportation Account. Due to higher than expected gasoline prices, this action will have no additional net impact on PTA funding.
4. The May Revise includes $313.5 million in revenues from the approval of Indian gaming compacts.
5. The May Revision includes $185 million in additional savings (beyond the January Budget) for the suspension of state SSI/SSP increases. California’s maximum SSI/SSP payments for couples are the highest in the nation, and payments for individuals are the second-highest.
6. The May Revision proposes a decrease of $39.1 million General Fund by eliminating Williamson Act subsidies. These subsidies partially backfill property tax revenue that local governments forfeit when they enter into contracts with landowners to not develop land in exchange for reduced property tax assessments. Since property tax revenues have recently grown at a stronger rate than state General Fund revenues, these subsidies are no longer necessary to maintain the fiscal integrity of local governments.
7. The May Revise includes innovative proposals to maximize the value of state assets. The sale of the EdFund would generate an approximately $980 million one-time benefit to the state without impacting students' access to loans or the interest rates they pay for loans. Proceeds from the potential sale of California’s underperforming state lottery could be used to retire state debt and guarantee lottery education funds.

 

Items Largely Unchanged from the Governor’s 2007 January Budget

1. The Budget proposes to fully fund the $1.475 billion Proposition 42 transfer of state sales tax on gasoline from the General Fund to transportation purposes and provides repayment of $83 million in loans made from Proposition 42 funds as required by Proposition 1A. 
2. The Budget includes savings of approximately $314 million related to reforms to the state's welfare-to-work program—CalWORKs—and $140 million due to the suspension of the July 1, 2007 CalWORKs cost-of-living adjustment.
3. The Budget includes $19.6 million in funding to collect an estimated $64.7 million in tax dollars owed to the state without raising taxes. This investment includes “quick-strike” efforts involving more tax auditors and tax collectors targeting individuals who fail to file tax returns. Additionally, this effort involves longer-term solutions aimed at encouraging individuals to voluntarily file returns
4. The Budget utilizes $269 million in Proposition 98 funds for Stage 2 Child Care.
5. The Budget reimburses $200 million in General Fund spending for flood protection and levee repair in consideration of bond funds approved for that purpose by voters in last fall's election.
6. The Budget includes Savings of $100 million resulting from Department of Corrections reforms.
7. The Budget also includes approximately $400 million in other savings from increased government efficiency. 

 

Economic Recovery Bonds

• The Budget proposes $1.6 billion in pre-payments of the state's economic recovery bonds (ERBs) and $88 million of other budgetary debt re-payments.  This will bring the total amount set aside to repay the ERBs to $7.4 billion in the first four years following the bonds issuance.  As a result, the Department of Finance projects that the ERBs will be fully retired in November of 2009, 14 years ahead of schedule.
• In addition, it is estimated that the pre-payment of the ERBs will result in almost $90.9 million in simple interest savings and make available an additional $701 million in the 2009-10 General Fund that would have otherwise been used to reimburse local governments.