May 13, 2004
| TO: | CLA Members/ Systems/ Network Contacts |
| FROM: | Mike Dillon, Lobbyist Christina Dillon, Lobbyist |
| RE: | NEWS FROM THE CAPITOL |
I. GOVERNOR RELEASES MAY REVISION OF THE BUDGET -- MODEST REDUCTION TO PLF
Late this afternoon, Governor Schwarzenegger released the details of the revisions to his January Budget, also referred to in Sacramento as the "May Revise." Entitled, "Economic Recovery -- A Workout Plan That's Working," Governor Schwarzenneger produced a May Revision today that he hopes will move the state towards "structural balance." The document notes that "positive signs in the economy have increased, and troubling ones have grown fewer. Foremost among the positive signs is a pick-up in state personal income growth. In the second quarter of 2003, personal income was 3.1 percent higher than a year earlier; two quarters later it was 4.5 percent ahead of a year ago." The Department of Finance also notes increases in state taxable sales, increases in exports for California-made merchandise, and low mortgage rates as contributors to an improving economy.
Overall, the Governor and legislature are attempting to address an operating deficit of $14 billion. The May Revision notes that "in February, the Legislative Analyst projected that the State would face a structural deficit of $7 billion in 2005-06, even assuming the enactment of all of the savings and other solutions proposed in the Governor's Budget. As a result of the changes proposed in the May Revision, the Department of Finance now estimates that the deficit by the end of 2005-06 will be eliminated." The Governor's May Revision seeks to bring the Budget in balance with a series of cuts, overhauls of programs, and "redesigns," including: 1) major agreements have been reached regarding reductions to K-12, higher education, and local government, 2) a major Medi-Cal Redesign" and reductions, 3) a $465 million renegotiation of collective bargaining agreements, beginning in 2004-05, etc.
With regard to the Public Library Foundation, Governor Schwarzenegger has proposed a reduction of $1.4 million. His message states, "The 2004-05 expenditures reflect the Department's response to the Administration's request for 3 percent reductions, thus the May Revision proposes to reduce Public Library Foundation grants to local libraries by $1,406,000. This leaves a total of $14,360,000 in remaining foundation resources ..." (Note: Without the detail available, we assume a 3% cut was made to the State Library budget, including the PLF with the entire reduction made to the PLF -- about 9%.)
You will recall that Governor Davis aggressively reduced the Public Library Foundation over 72 percent in two years, and liberally made cuts to the PLF in his May Revise, or utilized his so-called "blue pencil" to make further reductions. Given the seriousness of the Budget crisis, we were hopeful that Governor Schwarzenneger would try to protect the baseline for the PLF program as best he could.
The Governor does provide funding in two areas:
- "$441,000 to fully fund the Telephonic Reading Program, which provides access to newspapers and other time-sensitive reading materials for the blind."
- "$95.1 million in one-time Proposition 98 Reversion Account funding for the provision of classroom or school library materials. As the State's recent budget difficulties have led to significant reductions in this program, the Administration believes it is appropriate to expend some of the available one-time resources to replenish and refresh classroom or school library materials. This will provide a one-time funding level of $99.4 million for these purposes in 2004-05."
II. GOVERNOR SCHWARZENEGGER ANNOUNCES LOCAL GOVERNMENT BUDGET AGREEMENT
Yesterday, Governor Schwarzenegger, along with local government leaders from around the state, formally announced the budget agreement that we had mentioned was under discussion in our April 26th message to you. In his press message, the Governor said, "With this agreement, I am keeping my promise to cities and counties to ensure that local governments have a reliable revenue stream to pay for local services. This agreement is another example of the new spirit of cooperation and a new respect between state and local governments in California."
The provisions of the new agreement include a $1.3 billion shift in property taxes in each of the next two years cumulatively from cities, counties, redevelopment agencies, and special districts, with a new constitutional amendment that will proposed for the November 2004 ballot that will project local government property, sales, and vehicle license fee revenues in future years. The breakdown of the $1.3 billion is $350 million from cities, $350 million from counties, $250 million from redevelopment agencies, and $350 million from special districts. In addition, the proposal would make the car tax cut permanent, by shifting property tax to fully replace the state vehicle license fee subvention, and provide local governments from relief of unfunded state mandates.
The $1.3 billion shift for each of the next two years, is a key component of the Governor's overall budget plan. Earlier in the year, the Governor received a commitment from the K-12 education community to accept a $2 billion cut, which has been agreed to by the major school groups, and he has recently reached a similar type agreement with higher education, although it is meeting some resistance in the legislature. The Governor concluded yesterday's local government announcement by stating, "I applaud everyone who worked so hard to make this happen. This is a victory for local government, for people who rely on services and for all Californians who want their leaders to work together." All of these so-called "deals" that the Governor and his Administration have crafted with groups, such as the cities, counties, and special districts, will still have to be ratified by the legislature. There have already been some grumblings by various legislators in the press that by cutting these deals, the Governor is circumventing the legislature.
III. SPECIAL DISTRICT LIBRARIES SAVED FROM TAX SHIFT -- SO FAR, SO GOOD
The proposed $350 million property tax shift from special districts for each of the next two years does not include the independent special district libraries or the so-called "orphan" special district libraries. As mentioned previously, we have been working with some of the parties involved with the "special district package," and have thus far succeeded in getting these libraries exempt from the property tax reductions. We have argued that libraries were "clobbered" by the 1992 and1993-94 property tax shifts, which ultimately led to the enactment of SB 1648-Dills, sponsored by CLA in 1994. That measure, almost forgotten, prohibits the future ERAF reduction from libraries. While one legislature cannot bind a future legislature, having the Dills bill on the books has been helpful in making our argument to exempt libraries from the proposed shift. It is important to note that the Governor's proposal must be enacted by the legislature. However, at this point, we are cautiously optimistic that the legislature will go along with our library exempt language.