CALIFORNIA’S 2008-09 PROPOSED BUDGET:
WHAT DOES IT MEAN FOR LATINOS?
May Revise Update
On May 14, the Governor released his Revised Budget proposal for the budget year 2008-09, also known as the May Revise, which reflects the state's revenue picture after the April 15 income tax deadline. After his initial budget proposal in January, the Governor called for a Fiscal Emergency Special Session and on February 15, the Legislature took a variety of actions that reduced the estimated budget deficit of $14.5 billion. Although these actions helped address the deficit for the current budget year, a $6 billion decrease in estimated General Funds revenue from income, corporate and sales taxes has ballooned the remaining 2008-09 budget deficit from January’s estimate of $14.5 billion to $17.2 billion.
The May Revise proposes a combination of spending reductions and revenue solutions to address the current $17.2 billion budget gap and to provide for a reserve of $2 billion. It proposes $12.6 billion in expenditure reductions across state government. While it retains the vast majority of 10-percent across-the-board reductions proposed in January, this latest revision makes some adjustments to address funding to education. The May Revise fully funds the Proposition 98 school funding guarantee by $56.8 billion, an it also includes funds to keep all of the state’s parks open, increasing fees where feasible to offset General Fund costs. However, the Governor’s May Revise proposes $627 million in additional reductions to health and human services programs.
Also as part of his Revised Budget proposal, the Governor is proposing a Budget Stabilization Act, a Constitutional amendment to reform the state budget process. The Budget Stabilization Act is proposing to create stability by saving, not spending, during years of high revenue growth. This would be accomplished by establishing a Revenue Stabilization Fund (RSF), which is simply a savings account or rainy day fund for excess revenues taken in by the state each year.
In addition to the proposed Budget Stabilization Act, Governor Schwarzenegger will issue an Executive Order to establish a bipartisan commission of legislative and gubernatorial appointees to modernize the state’s tax laws and better reflect the current economy. The Tax Modernization Commission will be charged with recommending ways to stabilize California’s revenues, to bring our tax system into better alignment with our modern economy, and to improve the state’s economic competitiveness.
Lastly, the Governor is proposing to borrow $15 billion over a three-year period from Wall Street against future earnings of the state lottery. The Legislature and voters would have to approve this proposal in November, which would require that the money be used fund the RSF. It is anticipated that the proposed bonds will yield $5.1 billion in revenue for the state budget in 2008-09 and a total of $15 billion by 2010-11, after providing education the $1.2 billion in annual funding from the lottery that it currently receives. To ensure that the RSF has a sufficient balance to transfer $5.1 billion to the General Fund in 2008-09, the May Revise includes a fail-safe mechanism in case voters reject the lottery proposal in the November elections. If the RSF balance is insufficient, a temporary 1 percent sales tax increase will be triggered. The triggered increase would remain in effect until the RSF has reached the targeted fund balance (15 percent of General Fund tax revenues) or until June 30, 2011, whichever occurs first. After this temporary mechanism is no longer in effect, Californians will receive tax rebates that in the aggregate will be equal to the amount of revenues collected under the temporary mechanism.
As the final budget negotiations unfold during the next few months, Latino Issues Forum (LIF) will advocate for the needs of the Latino community in California. LIF will continue to monitor and update you on how this year’s budget negotiations will impact the state’s Latino community.
For an overview of the Governor’s proposed budget and Latino Issues Forum’s response on how the proposed policies will impact California’s Latino community, please click on the respective link to the right.
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