This morning, I am proposing a balanced budget that cuts $12.5 billion from proposed state spending and gives California a vast and historic restructuring of government functions. For years, different activities are shifted and shuttled back and forth between state and local government. What I propose will be painful—it’s going to take sacrifice from every sector of California—but for 10 years, this state has put together its budget with gimmicks and tricks and unrealistic expectations that have pushed this state deeper and deeper into debt. It’s time now to restore California to fiscal solvency and put us on the road to economic recovery and jobs.
Now since it’s going to take some time to fully implement the restructuring program, I’m going to ask for five years of extension of existing current taxes. This will allow the restructuring to proceed in an orderly way.
My proposed restructuring will return decisions and authority—as much as possible—to cities and counties and schools. And in that way, there will be greater accountability, transparency, and hopefully citizen participation because government will be closer to the people. Schools have borne the brunt of spending reductions, and in this budget, we are going to keep them at a level spending.
So in order to give you some more details—so you’ll see exactly how it works—we have a PowerPoint and I’m going to quickly go over it and then I’ll take questions and Ana will be here to take whatever I can’t answer.
So, the first slide we will just hit the highlights, which is we’re cutting spending $12.5 billion, we’re reducing employee compensation and we have the restructuring plan.
Looking backward, we’ve had 10 years of gimmicks and tricks. The economic recovery bonds could cost several billion dollars this year. We securitized the tobacco settlement funds, instead of getting them year after year. We sold them in one year and got a big lump sum but then deprived the state of future revenue. We shifted state payroll from the end of the fiscal year, one day forward, and that created an illusion that there was actually a billion dollars in savings, when actually it was nothing at all like that. Then we had a Medi-Cal accounting shift from accrual to cash. We had the attempted sale of the Ed Fund and the State Compensation Fund. Then we had these optimistic revenue forecasts. All of that puts us in the mess, it’s not honest, and we’re now going to make it as transparent as possible.
The state faces an enormous budget problem—you see it, there it is—approximately $20 billion going forward. Not going to get better, unless we do something. Now some people are going to say, “Why don’t we just borrow, kick the can down the road?” The problem is, next year, there’s not that much more money, but then we’ll have debt service and a bigger burden to pay back. It’s better to take our medicine now and get this state on a balanced footing.
If you look at the proposed solutions—after the white there—is the deficit that goes away. We actually get a little surplus in the second year and in the third year we’re about even. So, even with all of these cuts and the continuation of the revenues, it’s still a tight squeeze and we’re going to have to watch how we spend things.
Go to the next slide. The budget proposes a comprehensive solution. It’s a balanced approach. You’ve got $12 billion in cuts. We protect kindergarten through 12th grade education and public safety. And then we return decision to local authorities to make government more efficient. And if you look forward several years, we have the budget in balance.
Give us the next slide. You can see the exact numbers, they just lay them out there. You see the total spending in a year and a half—in the current year and the budget year—it’s about $12 billion. And the other is borrowing from some special funds, and because we have one time costs, we think that is an appropriate way to go.
Now let’s take up the next slide you can see actually what some of these cuts are. Medi-Cal: a billion-six. That’s a serious, very difficult cut. CalWORKs: that’s a billion and a half. That’s reducing eligibility—the time that a person can spend on welfare—it hits a number of aspects, including childcare and all the rest. University of California and the state colleges: another billion dollars. A very difficult cut. Developmental Services: three quarters of a billion. In Home Supportive Services: about a half a billion. And then the lower take home pay for the employees that have not yet signed the collective bargaining agreements.
Okay, can we do the next slide? If you look at Proposition—the school funding—you notice that there has been a substantial cut. And when you say Proposition 98, what you mean is state spending, state money and property taxes put together. And you see there has been quite a cut. If we go on with current statutes, you see there’s a cut of $2 billion, over $2 billion. Now with my program—including the extension of the taxes—schools will be held even at $49 billion. Slight cut there, but held pretty even. Since they’ve taken the bulk of the cuts, that makes a lot of since to me.
You want to take the next slide? Now, part of it—more of the pain—we’re going to take out $400 million from the community colleges, and we’re going to do that by making the census not so early in the year, but so it will reflect the actual students that are in school, because a number drop courses or actually drop out of school entirely. The second, we propose to increase fees $10. It’s still the lowest fee structure for a community college in the country. That’s number one. And number two, half the students get some type of scholarship assistance. So the people who are really at the low-income level, they should be protected. And then finally, I mentioned the child care. It’s again, three quarters of a billion in cuts. These are not affluent people. It’s very, very difficult, but that’s where we are in terms of how we have to deal with it.
Okay, this realignment, now what is that all about? Fire. Increasing urbanization in former wild land areas. We want to study what is truly urban. What should be a local fire responsibility and what is truly state? And that’s a process that the Board of Forestry will engage in.
Court security. The state is paying for it, but the agreements that are made to set the payments for court security are made locally. We want to give a revenue stream and let the local courts figure out how much they want to pay for their security. Basically, it’s the sheriff’s department and they should negotiate that with money we’ll provide them. But they’ll have to make the decisions, instead of just sending the bill to the state.
Community based corrections is a very significant realignment proposal. We find today almost 50,000 individuals are sent to prison and stay less than 90 days. I feel that this is something that should be handled locally. And in addition to that, a number of parole activities can also be handled by probation. And we’ll shift the money to deal with that, but what we have right now is we have the counties that can just send people to prison for a couple of months and save money. We want to align responsibility with funding. So, we’ll give them the money, but then they make the tough decisions on how they want to manage it. And since they have many other decisions to make, this kind of realignment, I think, will make it all work better.
Same is true with mental health services, foster care, child welfare, substance abuse. Related activities are handled by the county, and if they have the total bundle of services, we feel they can make better decisions. And of course, we are going to send the money down to pay for that.
There’s the dedicated revenues, 1 percent of the sales tax, 0.5 percent of the vehicle license fee. Now one very important point: when these taxes go away in five years, the state will still be obligated to maintain the funding. We will commit to that. So people are not going to say, “Oh, you’re going to give us five years, then what?” The state will continue, even if the taxes go away.
Finally, the last slide: ending subsidies. Redevelopment has done some important things and we don’t—I don’t—want to interfere with any redevelopment bond or commitment that has been contractually entered into. But going forward, the redevelopment takes money from schools, cities, and counties, and we want that money to be available, because all that’s happened in the redevelopment is that the state has to backfill and pay to make up for the property taxes that are taken by redevelopment. So, in effect, what we’re doing here is spending money at the local level that the state doesn’t have. So we want to take that money and leave it at the local level for the purposes that it was historically intended. That’s police or fire or local activities, county, or schools.
And we’re going to provide—as you’ll see the last bullet point—that we have an idea that we could develop a provision that if local government wants to develop an economic development program over time, they should have the authority to do that. And so that’s a provision that I’m going to work out with the Legislature.
Enterprise zones, again, these are all—they have their good points—but it is almost a billion dollars, and overall they don’t add to the general economy of the state. They move money around. And I know both these things in Oakland were helpful, but I can tell you this: that if the local government cleans up their regulatory underbrush—really goes out and helps people develop and overcomes a lot of the NIMBY-ism—that you can do economic development in a very solid way. I saw that in Jack London Square, where redevelopment didn’t play a role, but certainly there was a lot of development.
So I think we’ll stop it there, and if you have any questions, I’ll be glad to take them.