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News from the Capitol - Update
I. LEGISLATIVE ANALYST'S OFFICE RELEASES UPDATE ON STATE'S CASH FLOW
This morning the state's Legislative Analyst released a new report entitled, "California's Cash Flow Crisis: May 2009 Update." In the report, the LAO cautions: "The General Fund's 'cash cushion' - the monies available to pay state bills at any given time - currently is projected to end 2008-09 at a much lower level than normal. Without additional legislative measures to address the state's fiscal difficulties or unprecedented amounts of borrowing from the short-term credit markets, the state will not be able to pay many of its bills on time for much of its 2009-2010 fiscal year." The LAO goes on to state, "In our opinion, the greatest near-term threat to state cash flows would be an inability by state leaders to quickly address California's Budget imbalance."
The LAO remarks that the state has a cash cushion of $6.9 billion to take them through to June 30, but that amount is "roughly one-half of the cash cushion the state had one year before." Another complicating factor will be the success or failure of the ballot initiatives on the May 19th ballot. For example, should the ballot measures fail, the state's borrowing requirement from private investors in 2009-10 would "swell to around $23 billion." The LAO cautions that "major financial institutions reportedly have indicated to state officials that California will have difficulty borrowing $13 billion from the short-term markets based on its own credit in 2009-10 - let alone the much larger amount of around $23 billion..." and recommends that borrowing for cash flow purposes should not exceed $10 billion. (e.g. This means more cuts.)
The LAO suggests that some options to address the widening Budget gap and subsequent cash flow issue would be: increase state revenues, decrease expenditures, defer payments to schools yet again, and accelerate the issuance of lottery securitization bonds.
Interestingly, today Assembly Speaker Karen Bass is in Washington D.C., speaking to federal officials about California's problematic state finances. However, the LAO warns in today's report that the legislature should "be cautious about accepting any strings that might be attached to federal assistance. Strings attached to recent corporate bailouts - as well as federal loan guarantees provided to New York City during its fiscal crisis three decades ago - have included measures to remove financial and operational autonomy from executives. We recommend that the Legislature agree to no substantial diminishment in the role of California's elected state leaders. In our opinion, the difficult decisions to balance the state's budget now are preferable to Californians losing some control over the state's finances and priorities to federal officials for years to come."
II. ACA 9-HUFFMAN: 55% VOTE FOR BONDS AND LOCAL TAXES PASSES FIRST COMMITTEE
Yesterday, the Assembly Local Government Committee heard ACA 9 by Assemblyman Jared Huffman which lowers the vote threshold for local bonded indebtedness projects from the current two-thirds vote to a 55% vote. It would also change the two-thirds voter approval requirement for special taxes to 55% of the voters voting on a tax. In his opening remarks, Assemblyman Huffman noted that "Proposition 13 sharply constrained local government's ability to raise revenues... The current situation is pretty bleak for local government. The federal stimulus will help, but it is a drop in the bucket and it doesn't address infrastructure needs. The state is running out of credit. How revenues are raised are the most acute and tangible at the local level." Assemblyman Huffman presented several examples of bond or tax campaigns that received 62% of the vote of the local electorate, yet still fell short of the required two-thirds majority. He argued, thus, that a "small majority of voters thwart the will of the majority."
Support for ACA 9 consisted of representatives from police, fire, water and wastewater, transit, parks and recreation, the League of Cities, the California State Association of Counties, and CLA. The measure was opposed by the California Association of Realtors and the Howard Jarvis Taxpayers Association. Several committee members expressed their support of the measure by noting that it is "important to give communities a choice on what they wish to do." The measure passed on a partisan vote of 5 to 2 to the Assembly Revenue and Taxation Committee for a second policy committee hearing. If ACA 9 eventually makes it to the Assembly Floor for a vote, it will require a two-thirds vote for passage, which will be very difficult to obtain, in light of traditional Republican opposition to similar measures.
III. CLA EXPLORES AVAILABILITY OF FEDERAL ARRA FUNDS FOR LIBRARIES
For the last several months, the legislature has engaged in preliminary discussions regarding how the state will implement portions of the American Recovery and Reinvestment Act (ARRA). Some policy areas, such as K-12 education, water, and transportation have been more active than others, as early deadlines to apply for federal money in those segments are in full swing. Overall, however, the process has been relatively slow, confusing, and extremely detailed in nature, as California is guarding against just "throwing money" at projects, and stresses the need for accountability and reporting for how the money is spent.
With regard to libraries and ARRA, there has been some confusion. Rumors circulated early on that public libraries would be able to draw down ARRA dollars for construction of new facilities or possibly renovation of existing facilities. There is no language contained in the ARRA California plan that indicates that libraries specifically, or even schools, are eligible for the construction or rehabilitation funding, and this has been confirmed at several different levels at the Capitol. Second, while other states' public libraries may be benefitting from ARRA dollars for infrastructure, California is unique in that they have chosen to use a good portion of an undesignated $1.1 billion set-aside to backfill the state Budget deficit. CLA continues to work very hard on your behalf to see if we can identify other emerging funds to benefit public libraries. For weeks, we have been actively engaged with a key Senate Committee that has requested detailed information from CLA and the State Library relative to statewide broadband needs. Additionally, a representative from the CLA Legislative Committee, Deborah Doyle, recently appeared before the Public Utilities Commission on behalf of CLA to stress the need to provide broadband services to the underserved and to provide increased bandwidth to libraries with slow speed capabilities. Lastly, we continue to pursue available ARRA dollars for public libraries in the workforce investment arena. We will keep you posted as details emerge.
IV. ASSEMBLY REPUBLICAN LEADER VILLINES STEPS DOWN - SUCCESSOR IS NAMED
Yesterday afternoon the lobbying corps received surprising news - that the affable and always approachable Assemblyman Mike Villines was stepping down from his post as Assembly Republican Leader. You may recall that Assemblyman Villines had served as Republican Leader for two and a half years, but most recently was involved in the high level negotiations for the difficult and protracted Budget debate in February and March. His job to help facilitate an agreement was made very difficult, as almost every member of his caucus signed a "no new taxes" pledge, and conservative radio stations threatened to recall any Republican who supported the Budget.
When Assemblyman Villines stepped down from his post today he noted that "it has been a privilege for me to lead Assembly Republicans over these past two and a half years and achieve so many positive changes for our state. California still faces many significant challenges and now, more than ever, we must stand unified as Republicans and work hard to get California back on track." Following this announcement, the Assembly Republican Caucus elected Assemblyman Sam Blakeslee (R-33) as their new leader. He represents the communities of Santa Maria, San Luis Obispo, Paso Robles, Morrow Bay, etc. Dr. Sam Blakeslee served in the leadership team of Assemblyman Villines and is a published research scientist and president of an investment firm. Not unlike Assemblyman Villines, Blakeslee is well liked by his colleagues and the lobbying community, and is considered to be a thoughtful problem solver.
Submitted by Mike Dillon & Christina DiCaro, CLA Lobbyists
Posted on May 7, 2009 3:47 PM | Permalink