2/15/08

With the 45-day deadline rapidly approaching on February 23rd, the budget committees in both houses
passed and sent to their respective floors $1 billion in midyear budget cuts to “address” the state’s fiscal
emergency. The Republican members of the Senate Budget and Fiscal Review Committee abstained from
the 9 to 0 vote on February 13th because they said they did not have enough time to review the various
proposals. As of this writing, the Assembly’s versions of the seven bill package was not yet in print, but it
is believed that they are identical to the Senate’s package discussed below.
SBX3 1 (ABX3 3)would make $167.6 million in general government cuts from Legislative, Judicial, and
Executive branches of government, with the largest single savings of nearly $22 million coming from a
delay new judgeships. Perhaps the most controversial proposal in this measure is the adoption of the
governor’s “summary” parole program to save $13.6 million. This new program would shift low-risk
parolees into a program where they would not be returned to prison for technical violations of their parole.
Another $1.25 million would be cut from the Department of Toxic Substances Control for emergency
response and illegal drug lab removal. Since many of these clandestine and toxic labs are located in rural
areas, this cut will likely shift the burden of clean-up to rural counties.
SBX3 2 (ABX3 4)would defer $1.3 billion in K-14 Proposition 98 apportionment payments and reduce
current year appropriations by $400 million to reflect reduction in previously anticipated revenue.
SBX3 3 (ABX3 5)would cut public health programs by $33.4 million by reducing Medi-Cal
reimbursements by 10 percent for both fee for service and managed care plans.
SBX3 4 (ABX3 6)would save $814 million in the 2008-09 budget year by delaying advance payments to
programs in the Department of Social Services.
SBX3 5 (ABX3 7)would defer the transfer of the gasoline excise tax to cities and counties for a General
Fund cash benefit of $500 million through August 2008. This is simply an accounting maneuver to
improve the state’s cashflow.
SBX3 6 (ABX3 8)would save nearly $600 million in the current budget year by deferring the General
Fund transfer to the State Teachers Retirement System form July to November 2008. This required
payment is equal to 2.5% of total creditable compensation of participating teachers. It would save $75
million in 2008-09 by discontinuing the payment of estimated reimbursable mandates, other than Prop. 98
mandates.
SBX3 8 (AB X3 10) would reinstate the one year holding period for yachts and airplanes purchased out of
state for sales and use tax purposes. Closing the so-called “yacht loophole” is expected to bring in $5
million in the current year budget and $21 million in 2008-09.
All of these measures require a two-thirds vote either due to the presence of an urgency clause or the fact
that the bills are a tax levy (ABX3 10 and SBX3 8). Despite the Senate Republicans reluctance to vote for
the bills prior to a thorough analysis, it is believed all the bills will receive strong bipartisan support. The
proposed cuts are virtually the same as those proposed by Governor Schwarzenegger, including the sale of
$3.3 billion in deficit reduction bonds and a delay in a planned early payment on previously sold bonds of
$1.5 billion.
As the Friday Review went to press, both houses approved six of the seven Assembly bills. The Assembly
Republicans refused to close the yacht tax loophole, AB 3X 10, although the Senate did approve SBX3 8
and sent it to the Assembly. The Assembly could consider the bill again next week.
Assembly Speaker Fabian Nunez pulled an old rabbit out of his hat this week at a press club luncheon by
proposing a "fair compromise" of the state's projected $14.5 billion budget deficit. The Speaker said he
supports raising half of the required revenue through spending cuts and the other half through various tax
increases. This was the approach used by Gov. Pete Wilson when the state faced a similar budget crisis in
the 1993. Nunez said that he thought it was a fair compromise but he opposes an across-the-board tax
increase. In other words, its fair as long as it is the other guy’s taxes being raised.