May 19, 2003

 

Major Features of the 2003 California Budget

On July 29, 2003, the Legislature passed the 2003-04 Budget Bill. In this report we highlight the major features of the budget package, as enacted by the Legislature.

Budget overview

Introduction

On July 29, 2003, the Legislature passed the 2003-04 Budget Bill along with implementing measures (trailer bills, see Appendix 1). In addition, the Senate and the Assembly each have passed budget-related measures that are still pending and will be considered when the Legislature reconvenes on August 18, 2003. Action on these measures, as well as gubernatorial vetoes, will affect the final budgetary totals.

The budget package, as passed by the Legislature, authorizes total spending of $98.9 billion. Of this amount, $70.8 billion is from the General Fund, $20.5 billion is from special funds, and $7.5 billion from bond funds. Figure 1 shows the distribution of General Fund spending by major program area.

 

 

Basic Features

The 2003-04 budget package addresses an enormous General Fund shortfall through a combination of program savings, borrowing, new revenues, funding shifts, and deferrals. These include the following:

General Fund Condition

Figure 2 shows the General Fund budgetary condition for 2002-03 and 2003-04. Specifically:

2003-04. Under the new package, the budgetary totals for 2003-04 are as follows:

 

Figure 2

The 2003-04 Budget
General Fund Condition
a

(In Millions)

 

2002-03

2003-04

Prior-year fund balance

-$1,984

$1,402

Revenues and transfers

70,852

72,820

Deficit Financing Bond

10,671

  Total resources available

$79,539

$74,222

Expenditures

$78,137

$70,825

Ending fund balance

$1,402

$3,397

  Encumbrances

$1,402

$1,402

    Reserve

$1,995

 

a  Based on budget version adopted by the Senate. Version adopted by the Assembly would increase expenditures and reduce reserve by roughly $200 million in 2003-04.

 

2004-05. The impact of the budget plan on 2004-05 will depend on a variety factors including the course of the economy, legislative resolution of outstanding budget issues, and gubernatorial vetoes. However, assuming that all of the savings in the plan are achieved, we estimate that 2004-05 would conclude with a cumulative year-end budget shortfall of roughly $8 billion absent further corrective actions. This estimate also incorporates the effects of the budget's intent language limiting employee compensation and COLAs to state operations and certain local assistance programs.

Prepared by the Economics, Taxation, and Fiscal Forecasting Section—(916) 319-8305

II

K-12 Proposition 98

Total Proposition 98 Spending

The budget package includes $45.7 billion in Proposition 98 spending in 2003-04 for K-14 education. This represents an increase of $1.8 billion, or 4 percent, from the revised
2002-03 spending level. The package reflects a reduction of around $800 million, or 1.7 percent, from the appropriation level of the
2002-03 Budget Act. Figure 1 summarizes for the two fiscal years the effect of the budget package on K-12 schools, community colleges, and other affected agencies.

 

Figure 1

Proposition 98 Budget Summary

2002‑03 and 2003‑04
(Dollars in Billions)

 

2002-03

2003-04a

As Enacted

Reviseda

K-12

$41.6

$39.2

$41.3

California Community Colleges

$4.8

$4.6

$4.4

Other

$0.1

$0.1

$0.1

  Totals, Proposition 98

$46.5

$43.9

$45.7

K-12

 

 

 

Average Daily Attendance (ADA)

5,880,576

5,911,519

5,990,495

Amount per ADA

$7,067

$6,624

$6,887

 

a  Dollar amounts reflect appropriation levels.

 

K-12 Program Impacts

The K-12 portion of the Proposition 98 budget package includes:

2002-03 Baseline Reductions

The Legislature reduced the 2002-03 Proposition 98 funding level for K-12 education three times during 2003. Chapter 4x (SB 18x, Chesbro), Chapter 10x (SB 28x, Committee on Budget and Fiscal Review), and Chapter 26 (SB 1040, Committee on Budget and Fiscal Review) reduced funding for K-12 by a total of $2.5 billion through a combination of deferrals, use of one-time prior-year Proposition 98 funds, capturing anticipated program savings, and limited program reductions. Of this amount, the actual reductions to education services totaled $137 million, including a $115 million reduction for instructional and library materials and $22 million for a professional development program. While the K-12 budget actions did not substantially affect education programs in place in 2002-03, the actions taken did significantly reduce the minimum guarantee requirement for 2003-04 and beyond.

Significantly, Chapter 10x also eliminated a requirement that the state fully restore the Proposition 98 "maintenance factor" in 2003-04, which would have cost the state an additional $3.4 billion for K-14 programs in 2003-04. Funding changes for 2003-04 are discussed below.

2003-04 K-12 Funding Changes

The net reduction in K-12 funding in 2003-04 from the 2002-03 Budget Act is approximately $300 million. This net change consists of increased funding for deferrals, enrollment growth, and increased retirement costs totaling $1.65 billion, offset by numerous funding reductions totaling $1.95 billion (see Figure 2).

 

Figure 2

Major K-12 Funding Changes
From 2002‑03 Budget Act

2003‑04
(In Millions)

Purpose

Amount

Net deferrals

$550

Revenue limit growth

504

Public Employees' Retirement System offset reduction

459

Revenue limit deficit

-350

Instructional materials

-220

Public School Accountability Act

-164

Child care

-130

Deferred maintenance

-129

 

Major funding changes include:

Budget Provides Local Flexibility

Assembly Bill 1754 provides school districts with three budget flexibility tools to help them mitigate the impact of the proposed funding reductions. The three flexibility options may be used to mitigate the $350 million reduction to revenue limits and the impact of the foregone COLA. Specifically:

Out-Year Impacts and the Education "Credit Card"

The budget package expresses legislative intent to guide future Proposition 98 appropriations. First, AB 1756 (Committee on Budget) states legislative intent to not provide Proposition 98 funding in excess of the minimum guarantee in 2003-04 or 2004-05. Second,
AB 1754 states that the first priority for increases in Proposition 98 funding is to restore approximately $900 million in deficit factor related to COLA and revenue limit reductions. Further, AB 1754 states the intent of the Legislature to pay off some of the deferrals (discussed below) when the state provides additional Proposition 98 funds to meet maintenance factor requirements.

Because of the state's recent budget problems, the Legislature has opted to defer significant K-14 program costs to subsequent fiscal years rather than make additional spending cuts. The result has been a steadily growing balance on the state's education credit card. The 2003-04 budget package begins to reduce the balances on the education credit card. Figure 3 shows that the state ended 2002-03 with approximately $3 billion of outstanding Proposition 98 liabilities. The 2003-04 budget package reduces these liabilities by $310 million—to $2.7 billion—by the end of 2003-04. The reduction represents the net impact of (1) paying off over $800 million in K-12 categorical program deferrals, (2) making additional deferrals for the community colleges ($200 million), and (3) not providing funding for reimbursement of education mandates ($300 million) in 2003-04. Assembly Bill 1756 states the intent of the Legislature to defer funding for K-12 mandate reimbursements again in 2004-05.

 

Figure 3

Legislature Reduces Balance on the
Education Credit Card

(In Millions)

 

 

 

2002‑03

2003‑04

Deferrals

 

 

Principal apportionment—K-12

$1,089

$1,089

K-12 categoricals

810

Mandate reimbursements

860

1,160

California Community Colleges

200

Prior Year Settle-Up Obligations

$250

$250

  Totals

$3,009

$2,699

 

Prepared by the K-12 Education Section—
(916) 319-8333

III

Higher Education

The budget provides a total of $10.7 billion in General Fund and local property tax support for higher education in 2003-04. (This amount includes a $200 million "loan" for community colleges, discussed in more detail below.) This is $443 million, or 4 percent, less than the amount provided in 2002-03. When increased student fee revenue is included, however, total higher education funding increases by $24 million, or 0.2 percent, from the 2002-03 level.

 

Figure 1

Higher Education Budget Summary
General Fund and Local Property Tax Revenue

(Dollars in Millions)

 

2003‑04 Budget

Change From 2002‑03

Amount

Percent

Percent Including Fee
Revenue

University of California

$2,902.1

-$247.9

-7.9%

-1.0%

California State University

$2,492.0

-$214.9

-7.9%

-2.0%

California Community Colleges

$4,576.0

-$58.8

-1.3%

0.7%

  General Funda

(2,454.6)

(-166.7)

(-6.4%)

 

  Property taxes

(2,121.4)

(107.9)

(5.4)

 

Student Aid Commission

$682.9

$81.7

13.6%

 

California Postsecondary
  Education Commission

$2.2

$0.1

4.6%

 

Hastings College of the Law

$11.4

-$3.0

-21.1%

4.4%

    Totals, Higher Education

$10,666.7

-$442.9

-4.0%

0.2%

 

a  Adjusted to reflect ability to incur costs that are "deferred" to later fiscal years.                                    

 

University of California (UC)

The budget provides $2.9 billion in General Fund support for UC in 2003-04. This is $248 million, or 7.9 percent, less than was provided in the prior year. However, most of this amount ($216 million) will be backfilled by increased student fee revenue, for a net reduction of $31.9 million, or 1 percent. Notwithstanding the net reduction in total General Fund support, the budget includes augmentations for the following purposes:

In order to fund these augmentations, the budget reduces several programs from 2002-03 funding levels. Major reductions include:

California State University (CSU)

The budget provides $2.5 billion in General Fund support for CSU in 2003-04. This is $215 million, or 7.9 percent, less than was provided in the prior year. However, most of this reduction ($160 million) is offset by increased student fee revenue, for a net reduction of $55 million, or 2 percent, from the prior year. Notwithstanding the reduction in total General Fund support, the budget provides CSU with a $151 million augmentation to serve 22,881 additional FTE students (a 7.1 percent increase).

Major reductions offsetting enrollment funding include:

California Community Colleges (CCC)

The budget appropriates $2.3 billion in General Fund support for CCC in 2003-04. However, the budget also provides $200 million in General Fund support in 2003-04 loaned from the next fiscal year. When other fund sources, including student fees and property taxes are considered, CCC's total funding increases about 0.7 percent from 2002-03 to 2003-04.

Major features of CCC's budget include:

Student Aid Commission

The budget provides a total of $683 million for the Student Aid Commission. This is $92 million, or 15 percent, more than 2002-03 expenditures. Of the total appropriation, $652 million is for the Cal Grant programs, $30 million is for the Assumption Program of Loans for Education, and the remainder is for three very small, specialized financial aid programs. The budget raises Cal Grant awards for UC and CSU students to cover anticipated fee increases and maintains all other award amounts at their current-year levels. In addition, UC and CSU operate their own financial aid programs for their students. Funding for these programs, which comes from student fee revenue, would increase by $214 million, or 71 percent, in 2003-04.

Prepared by the Higher Education Section—
(916) 319-8331

IV

Health

The 2003-04 budget sent by the Legislature to the Governor for final action would provide about $14 billion from the General Fund for health, about a $240 million or 1.7 percent decrease compared to the revised prior-year level of spending. Several significant aspects of the budget package sent to the Governor are discussed below.

Medi-Cal Program

As passed by the Legislature, the budget provides about $10.5 billion from the General Fund ($28.7 billion all funds) for local assistance provided under the Medi-Cal Program. This amounts to about a $40 million or less than 1 percent decrease in General Fund support for Medi-Cal local assistance.

Governor's Major Budget Reductions Rejected or Modified. The budget plan adopted by the Legislature rejected or significantly modified a number of the Governor's proposals for major reductions in Medi-Cal eligibility, provider rates, and optional services for beneficiaries. For example, proposals to scale back the past expansion of coverage for adults in working poor families and for the aged and disabled were not included in the final spending plan. A proposal to drop selected optional services for beneficiaries, such as acupuncture, was rejected, although dental and hearing aid benefits were reduced but not eliminated through various cost-containment actions.

The budget imposes a 5 percent rate reduction primarily for physicians, pharmacies, and managed care plans effective January 1, 2004 that would achieve General Fund savings of about $115 million in 2003-04 and $245 million in 2004-05. In effect, the measure modifies and narrows an administration proposal that originally called for a 15 percent reduction in rates that would also have affected nursing homes. Under the final budget plan, nursing homes will receive some modest rate increases in 2003-04 rather than rate reductions.

Tighter Eligibility Procedures. The spending plan also assumes $194 million in General Fund savings on caseload from ensuring that county workers complete redeterminations of Medi-Cal eligibility in a more timely manner. The budget plan also assumes that about $21 million in savings would be achieved in 2003-04 due to the enactment of a semiannual reporting process to verify Medi-Cal eligibility of adult beneficiaries in lieu of an administration proposal to reestablish quarterly status reporting for these beneficiaries.

Increased Antifraud Efforts and Cost Containment. The budget plan scaled back an administration proposal to add 315 positions to increase departmental staffing for various expanded antifraud efforts. The revised approach approved 161.5 positions and focused generally on activities with the highest initial savings to the General Fund. The Legislature also agreed to a number of other specific proposals proposed by the administration to slow the growth in the cost of Medi-Cal benefits through changes in the way it purchases drugs and medical supplies.

Accounting Shift. The budget plan achieves one-time savings of $930 million in 2003-04 by shifting the budgeting for Medi-Cal benefits from an accrual to a cash basis of accounting. This means that funding would no longer be appropriated to pay for services based upon the date when a medical service was rendered, but according to when the bill for a medical service was paid. The state would in effect shift expenditures for some services that would otherwise have been paid for out of the 2003-04 budget appropriation into the budget for the following fiscal year.

Change in Federal Share of Costs. The Department of Health Services portion of the Medi-Cal budget reflects the receipt by the state of about $900 million in additional federal funds over the 2002-03 and 2003-04 state fiscal years from an anticipated temporary increase in the federal share of support for the program. This increase in federal funds allowed an offsetting reduction in the General Fund budget for Medi-Cal.

Further Reductions in 2004-05. The budget plan includes several measures intended to slow the growth of Medi-Cal next year. Cost-of-living increases for nursing homes would be suspended in order to save an estimated $64 million and rates paid for inpatient hospital care would be limited to save an additional $70 million during 2004-05.

Healthy Families

The budget plan provides about $294 million from the General Fund ($954 million all funds) for local assistance under the Healthy Families Program during 2003-04. This reflects an overall increase of about $258 million (all funds) or 37 percent in annual spending for the program. General Fund spending for Healthy Families local assistance would increase by about $268 million. This reflects an assumption in the budget plan that all remaining tobacco settlement revenues received by the state would be securitized during 2003-04 and thus would no longer be available specifically for the support of the program.

In addition to caseload growth, the budget plan provides an additional $154 million in county and federal funds to implement a new program to support local health insurance initiatives for children.

Finally, the budget plan assumes that the rates paid to health plans would be limited to achieve about $9.6 million in savings in 2004-05.

Department of Developmental Services (DDS)

The budget provides nearly $2.1 billion from the General Fund ($3.4 billion all funds) for services to individuals with developmental disabilities in developmental centers and regional centers. This amounts to an increase of about $230 million and 12.3 percent in General Fund support over the revised prior-year level of spending.

Community Programs. The 2003-04 budget includes a total of $1.7 billion from the General Fund ($2.6 billion all funds) for community services for the developmentally disabled, an increase in General Fund resources of about $210 million over the prior fiscal year. In enacting this budget plan, the Legislature rejected an administration proposal to save about $50 million in 2003-04 by establishing statewide standards for the purchase of services, but did adopt various substitute cost-containment actions. The Legislature also agreed to the development of a financing system requiring copayments by some families of children with developmental disabilities that would be implemented in 2004-05. An administration proposal to shift habilitation services from the Department of Rehabilitation to DDS' Regional Centers was adopted but modified to delay the change until 2004-05.

Developmental Centers. The budget provides a total of $377 million from the General Fund for operations of the developmental centers (almost $700 million all funds), about a 3.5 percent increase in spending above the level of the prior fiscal year. The Legislature also accepted an administration proposal to initiate the closure of the Agnews Developmental Center.

Department of Mental Health

The budget provides about $872 million from the General Fund ($2.3 billion all funds) for mental health services provided in state hospitals and in various community programs. This amounts to about a $26 million or 3.1 percent increase in General Fund support overall over the revised prior-year level of spending for mental health programs.

Community Programs. The 2003-04 budget includes about $320 million from the General Fund ($1.5 billion all funds) for local assistance for the mentally ill, about a 1.7 percent decrease in General Fund support compared to the revised prior-year level of spending.

The budget provides a $60 million increase in expenditures for mental health services for children under the Early and Periodic Screening, Diagnosis and Treatment program. The Legislature approved about a $12 million reduction in funding for mental health managed care plans and reduced the Early Mental Health Initiative by $5 million—in both cases approving lesser cuts than those initially proposed by the administration. The Legislature also shifted $69 million in costs for a state-mandated program for local mental health services for special education students to federal special education funding.

State Hospitals. The budget provides a total of about $500 million from the General Fund for state hospital operations (about $640 million all funds). The $28 million or 6 percent increase in General Fund resources was due primarily to adjustments for growth in caseload and operating expenses.

Prepared by the Health Section—
(916) 319-8350

V

Social Services

General Fund support for social services programs in 2003-04 totals $9.3 billion, an increase of 5.4 percent over the prior year. The budget provides full-year funding for the June 2003 California Work Opportunity and Responsibility to Kids (CalWORKs) and Supplementary Security Income/State Supplementary Program (SSI/SSP) cost-of-living adjustments (COLAs), but provides no funding for new COLAs during 2003-04. Figure 1 presents the major General Fund changes in the 2003-04 Budget Bill and related legislation.

 

Figure 1

Major Changes—Social Services Programs
2003-04 General Fund

(In Millions)

Department/Program

Change From Prior Law

Department of Social Services (DSS)—SSI/SSP

 

  Suspends January 2004 COLA

-$104.0

DSS—CalWORKs

 

  Replaces General Fund with Employment Training Funds

-$26.0

  No COLA due to elimination of tax relief

  Redirects TANF funds to Child Welfare Services

-11.0

DSS—Licensing

 

  Reduces licensing inspection visits

-$5.3

  Increases licensing fees (revenues)

-10.2

DSS—Food Stamps

 

  Provides transitional Food Stamps benefits

$1.6

Department of Child Support Services

 

  Allocates 25 percent of automation penalty to counties

-$52.1

  Adopts various reforms to increase collections and incentives

-42.0

  Increases funding to establish medical support orders (net savings)

-5.2

Department of Rehabilitation

 

  Reduces provider rates in Work Activity and Supported Employment Programs

-$4.2

  Deletes statutory provider rate adjustment

-9.7

Department of Community Services and Development

 

  Eliminates Naturalization Services Program

-$2.9

  Eliminates Mentoring Program

-1.0

Department of Aging

 

  Reduces funding for Senior Companion Program

-$1.5

  Eliminates funding for Foster Grandparent Program

-1.1

    Total

-$274.6

 

SSI/SSP

The budget provides funding for the June 2003 COLA, resulting in General Fund costs of $281 million in 2003-04. The budget suspends the January 2004 state COLA for a savings of $104 million in 2003-04 and full-year savings of $213 million in 2004-05. The budget does pass along the federal COLA which is applied only to the federal SSI portion of the grant.

CalWORKs

June and October 2003 COLAs. The budget provides funding for the June 2003 COLA, resulting in combined General Fund/Temporary Assistance for Needy Families (TANF) costs of $126 million in 2003-04. Pursuant to current law, the October 2003 COLA is contingent upon continuation of vehicle license fee relief. Because this fee relief has been eliminated, there is no October COLA (which would have cost $91 million in TANF funds in 2003-04 and resulted in General Fund costs of $121 million in 2004-05).

Other Changes. Budget legislation increases the appropriation from the Employment Training Fund for support of the CalWORKs program from $30 million in 2002-03 to $56.4 million in 2003-04. This transfer results in General Fund savings of $26.4 million in CalWORKs compared to the prior year, with a corresponding reduction in funds available for Employment Training Panel programs. Finally, the budget shifts $11 million in TANF funds to offset General Fund costs in Child Welfare Services.

Community Care Licensing

Reduction in Licensing Inspection Visits. With the exception of certain facilities, budget legislation (1) eliminates the requirement that licensed facilities be visited annually or triennially and (2) generally limits "regular" follow-up visits to a random sample of 10 percent of all licensed facilities. The reduction in annual visits results in savings of $5.3 million General Fund.

Fee Increases for Licensing. Budget legislation (1) increases licensing fees for adult and residential facilities by 25 percent,
(2) doubles the fees for child care facilities, and (3) establishes a new "per home" fee to be paid by foster family agencies. In addition, the budget suspends the current fingerprint fee exemption for new caregivers working in facilities serving six or less individuals. Together, these fee changes result in additional revenues of $10.2 million.

Food Stamps

Temporary Food Stamps. Budget legislation provides five months of transitional Food Stamp benefits to eligible families who are leaving CalWORKs cash assistance. This change results in General Fund costs of $1.6 million (for administration and state-funded food coupons for federally ineligible legal immigrants) and an inflow of approximately $44 million in federally funded Food Stamps coupons for California families.

Department of Child Support Services

Collections Reform Package. The budget includes a series of reforms that result in net savings of $42 million. These reforms include reducing the amount of default support orders; establishing a compromise payment program for parents owing back child support; and requiring local child support agencies to verify income and, when necessary, seek appropriate support order modifications. Implementation costs of $2.5 million are more than offset by
(1) estimated $39.2 million in increased revenues from higher collections and
(2) $5.6 million in estimated increased federal performance incentives.

County Share of Federal Automation Penalty. The budget establishes a 25 percent county share for the child support federal automation penalty. Although prior law apportioned automation penalties to counties, the state had absorbed such penalty costs through discretionary annual budget act appropriations through the end of 2002-03. For 2003-04, counties will pay $52.1 million of projected penalty costs resulting in an identical increase in General Fund revenues.

Increased Medical Support Order Enforcements. The budget provides $1 million from the General Fund for the Department of Child Support Services to increase its efforts to establish medical support orders. The projected increase in medical support orders results in estimated Medi-Cal savings of $6.2 million (for a net savings of $5.2 million).

Department of Rehabilitation

The budget reduces Supported Employment Program provider rates by 2.5 percent and Work Activity Program provider rates by 5 percent. In addition, the budget suspends the provider rate adjustment for 2003-04. These changes result in General Fund savings of $14 million compared to prior law.

Other Reductions

The budget eliminates the Naturalization Services Program and the Mentoring Program, both operated by the Department of Community Services and Development, for a combined savings of $3.9 million. Finally, the budget reduces programs in the Department of Aging by $2.6 million.

Prepared by the Social Services Section—

(916) 319-8353

VI

Judiciary & Criminal Justice

The budget bill passed by the Legislature contains $8.9 billion for judicial and criminal justice programs, including $7.5 billion from the General Fund. The total amount is a decrease of $326 million, or 3.5 percent, from 2002-03 expenditures. The General Fund total represents a decrease of $340 million, or 4.3 percent, relative to 2002-03 expenditures. Below, we highlight the major changes in the judiciary and criminal justice budgets, as passed by the Legislature.

Court Related Funding

The budget includes $2.2 billion for support of trial courts. This amount includes $1 billion from the General Fund; $475 million transferred from counties to the state; and $678 million in fine, penalty, and court fee revenues. The General Fund amount is $59 million, or 5.4 percent, lower than the 2002-03 amount. The overall decrease reflects reduced spending for court operations and increased fees to cover costs that would otherwise accrue to the General Fund. These are discussed below in more detail.

Court Operations Reductions. The budget bill passed by the Legislature includes a reduction of approximately $95 million to the court operations budget. Based on discussions with court budget staff, these reductions will be achieved through a variety of approaches, including hiring freezes, voluntary furloughs, and reduced expenditures for some aspects of court security. In lieu of the governor's proposal to allow the courts to competitively contract for court security, the Legislature adopted legislation establishing a court security workgroup to develop and implement policies to reduce and contain growth in court security costs. This is projected to result in $11 million savings in 2003-04.

New and Increased Court Fees. The budget offsets General Fund spending for the courts by approximately $150 million by enacting a variety of new and increased court fees. (This amount also includes existing fees which will be transferred from the counties to the courts.) Figure 1 shows the prior and new/increased court fees and the projected increased revenues associated with them.

 

Figure 1

New and Increased Court Fees

 

Fees

Increased
Revenue
(In Millions)

Prior
2002-03

New/Increased
2003-04

Trial Court

 

 

 

New Court Security Fee

$20

$34.0

Undesignated Feesa

31.0

New Continuance Fee

100

26.3

New Complex Case Fee

500

18.1

New Court Reporter Feeb

25

16.3

Limited Jurisdiction Filing Fee

$90

185

11.7

Graduated Probate Feec

185

185‑3,500      

7.3

Small Claims Fee

35

60

2.4

Trial Motion Fee

23

33

1.2

Summary Judgment Motion Fee

100

150

0.8

Judicial

 

 

 

Appellate Filing Fee

$265

$420

$1.5

Transcript Fee

100

270

0.4

Supreme Court Filing Fee

265

420

0.3

  Total

$151.3

 

a  These are existing fees that will be transferred from the counties to the courts.

b  This is a new $25 fee for hearings that are less than one hour. Currently, courts have a half- and
full-day rate.

c  Fee varies depending on the value of the estate.

 

Corrections

The budget contains $5.1 billion from the General Fund for support of the California Department of Corrections, a decrease of $57 million, or 1 percent, below the revised 2002-03 level. This overall reduction reflects spending increases (for inmate population growth, for example) as well as spending decreases.

The Legislature made reductions totaling more than $160 million. The Legislature assumed that most of this amount—approximately $125 million—would be achieved through administrative policy changes aimed at reducing the inmate population and parolee recidivism. Examples of such policy changes include restructuring the delivery of education programs to maximize the credits that eligible inmates could earn, expanding prerelease planning services for parolees, and implementing community-based sanctions for nonserious and nonviolent parole violators.

Other reductions include $13 million from more efficient delivery of inmate health care services, $10 million from closure of the Northern California Women's Facility, $9 million from delaying the opening of the Delano II prison, and $5 million from delaying the implementation of 500 substance abuse treatment beds.

Department of the Youth Authority

The budget provides $344 million from the General Fund for support of the Youth Authority, a 6 percent reduction in comparison to
2002-03. The decrease primarily results from a projected decline in the ward population. As a result of the shrinking ward population, the Legislature closed the Karl Holton Youth Correctional Center in Stockton, as well as the male portion of the Ventura facility for 2003-04 savings of approximately $4.5 million. The budget also adjusts for inflation the fees that counties pay to send juveniles to the Youth Authority, which is projected to result in General Fund savings of $6 million.

Assistance to Local Law Enforcement

Citizens' Option for Public Safety (COPS) Program. The budget includes $100 million to continue the COPS program, a decrease of $16.3 million from the amount provided in 2002-03. The program provides discretionary funding on a per capita basis, for local police departments and sheriffs for front line law enforcement (with a minimum guarantee of $100,000), sheriffs for jail services, and district attorneys for prosecution.

High Technology Crime Programs. The budget eliminates $18.5 million for grants to local law enforcement agencies for technology equipment purchases. However, it continues to provide $10.2 million for the High Technology Theft, Apprehension, and Prosecution program, and $3.3 million for the High Technology Identity Theft program.

War on Methamphetamine. The budget includes $9.5 million for local law enforcement in the Central Valley for antimethamphetamine activities. This is a reduction of $5.5 million from the 2002-03 funding level.

Law Enforcement Training/Rural and Small County Program. The Assembly passed SB 1044 (Committee on Budget and Fiscal Review), which appropriates a total of
$34.6 million to restore two local law enforcement programs: the Rural and Small County Law Enforcement program ($18.5 million), and the Standards and Training for Corrections program ($16.1 million). The Rural and Small County Law Enforcement program provides discretionary funds to supplement local law enforcement resources. The Standards and Training for Corrections program reimburses for training of law enforcement personnel. The Assembly also passed SB 1042 (Committee on Budget and Fiscal Review), which authorizes the transfer of the $16.1 million authorized in SB 1044 from the General fund to the Corrections Training Fund. These bills are awaiting Senate action.

Assistance for Local Juvenile Justice Programs

Juvenile Justice Grants. The budget provides $100 million, a reduction of $16.3 million compared to the prior-year level. These funds go to county level juvenile justice coordinating councils to support locally identified needs related to juvenile crime.

Office of Criminal Justice Planning (OCJP). Phases-out OCJP by providing half-year funding and assigning programs to other state departments.

Prepared by the Criminal Justice Section
(916) 319-8340

VII

Transportation

Department of Transportation

The 2003 budget, as adopted by the Legislature, provides total expenditures of $6.5 billion from state special funds and federal funds for the Department of Transportation (Caltrans). This is a 4.6 percent reduction in comparison to the 2002-03 expenditure level. The budget provides approximately $5.6 billion for highway transportation expenditures, including $1.6 billion for capital outlay, $1.2 billion for capital outlay support, $1.9 billion for local assistance, and $784 million for highway maintenance. The budget also provides $267 million for Caltrans' mass transportation program, and $476 million for the transportation planning program and departmental administration.

Transportation Loans and Transfers

In addition to funding the state's transportation programs, the 2003 budget provides for the use of transportation funds to aid the General Fund condition in a number of ways.

Proposition 42 Partially Suspended; Bulk of Revenue to Be Transferred Later. Under Proposition 42, approved by voters in March 2002, revenue from the sales tax on gasoline that previously went to the General Fund is to be transferred into the Transportation Investment Fund (TIF) for transportation purposes, beginning in 2003-04. Instead, the 2003 budget transfers to TIF only a portion of the Proposition 42 revenue—$289 million—and retains the remaining $856 million in the General Fund. This amount will be transferred with interest for transportation purposes by June 30, 2009. Of the $289 million transfer to TIF:

Repayment of Transportation Loans. The 2003 budget also provides for the repayment from the General Fund to the SHA of a $173 million loan made in 2001-02. However, the budget defers $500 million in loan repayment from the General Fund to the TCRF that was scheduled for 2003-04. Under current law, this loan will be repaid by June 30, 2006.

Figure 1 summarizes the transportation loans, transfers, and repayments between the General Fund and various transportation funds, including the actions taken in the 2003 budget.

 

Figure 1

Transportation Loans/Transfers and Repaymentsa

 

 

To General Fundb

 

To Traffic
Congestion Relief Fundc

Year

From State Highway Account

From Traffic Congestion Relief Fund (TCRF)

From Transportation Investment Fund

 

From State Highway Account

From Public Transportation Account

2000-01

 

$2

2001-02

$173

$238

 

41

$180

2002-03

-173

1,145

 

534

95

2003-04

$856

 

-100

2004-05

 

2005-06

-1,383

 

2006-07

 

-477

2007-08

 

2008-09

-856d

 

 

a  Amounts do not include interest.

b  Positive numbers are amounts payable to the General Fund, negative numbers are payable from the General Fund.

c  Positive numbers are amounts payable to TCRF, negative numbers are payable from TCRF.

d  Repayment will be made to the Transportation Deferred Investment Fund.

 

PTA "Spillover" Kept in General Fund. The budget retains in the General Fund up to $87 million in spillover revenue that otherwise would accrue to the Public Transportation Account (PTA). Any excess spillover revenue will accrue to the PTA.

Aeronautics Account. The Assembly passed SB 1048 (Committee on Budget and Fiscal Review) which repealed the transfer of $4.8 million from the Aeronautics Account to the General Fund. This bill is awaiting Senate action.

California Highway Patrol and Department of Motor Vehicles

The 2003 budget provides about $1.1 billion to fund the California Highway Patrol (CHP), a reduction of about $100 million compared to the 2002-03 level. This reduction reflects rejection of the public safety surcharge on intrastate telephone calls. Of the total funding amount, the Motor Vehicle Account (MVA) support totals about $1 billion.

With regard to the Department of Motor Vehicles (DMV), the budget provides $683 million in departmental support, about the same level as in 2002-03.

Budget Assumes MVA Fee Increases. The CHP and DMV expenditure levels provided in the budget assume increases in a number of MVA fees to take effect in 2004 in order to address a significant shortfall in the account. Fees to be increased include fees for driver licenses, identification cards, and vehicle registration. The fee increases are projected to generate about $163 million in additional revenue in 2003-04 and about $330 million annually thereafter. The enabling legislation necessary to achieve these savings is yet to be acted upon by the Legislature.

Prepared by the Transportation Section—
(916) 319-8320

VIII

Other Major Provisions

Local Government

Vehicle License Fee (VLF). The budget assumes that the VLF will increase from the current effective rate of .65 percent to 2 percent beginning October 1, 2003. As a component of the VLF reductions that were enacted in 1998, current law provides that the state "backfill" (and thus make local governments whole) the difference between the lower VLF rate and the 2 percent rate, unless the state has "insufficient moneys" with which to make such payments. In June 2003, the Department of Finance made a determination that the state had insufficient moneys to provide any backfill to local government, and as a result of this determination, the backfill ended and the VLF will return to the 2 percent level in October 2003.

During the roughly 90-day period between when the General Fund backfill ended and the VLF rate will increase, local governments will only receive revenues based on the 0.65 percent VLF rate (with no General Fund backfill). The loss in local government revenue due to the lag time between the elimination of the backfill and the increase in the VLF is approximately $825 million. The budget calls for these revenues to be repaid by the state by August 2006.

Currently, approximately one-quarter of VLF revenue is restricted to funding of "realignment" programs and three-quarters is sent to local governments as general purpose moneys. Under the budget plan, the percentage of these revenues restricted to realignment programs will increase during 2003-04 such that the realignment programs will be held harmless. As a result of this shift, city and county general purpose revenues will bear the entire $825 million loss.

Sales and Property Tax Swap—the "Triple Flip." Beginning in 2004-05, the budget package temporarily redirects a share of the local sales tax (equal to one-half of 1 percent of taxable sales) to the state to use to repay the deficit reduction bonds. The budget package offsets local sales tax losses (almost $2.5 billion in
2004-05) by redirecting to cities and counties a commensurate amount of property taxes from the Educational Revenue Augmentation Fund (ERAF). Increased state education apportionments, in turn, will mitigate K-14 district revenue losses associated with the redirection of ERAF monies. This swap of sales for property taxes ends after the deficit reduction bonds are repaid.

Redevelopment Agencies. The Senate budget package requires redevelopment agencies to shift $250 million of redevelopment agency funds to the ERAF in 2003-04. The Assembly version of the budget also requires such a one-time shift to ERAF, but sets the amount at $135 million.

Local Government Mandates (Noneducation). The budget package repeals six mandates and suspends local government requirements to implement 37 other mandates in 2003-04. The budget package defers (to an unspecified date) state funding to reimburse local agencies for: (1) implementing 40 active mandates in 2003-04 (about $200 million) and (2) unpaid prior-year mandate claims (about $700 million).

Local Subventions. The budget package reduces funding for the Citizens' Option for Public Safety/Juvenile Crime Prevention Grants program by $32.6 million (leaving $200 million to be divided equally between the two programs).

Booking Fees. The Senate budget package eliminates the $38 million continuous appropriation for local government booking fees as well as county authority to charge local agencies fees for booking people into county jail. The Assembly budget package, in contrast, maintains the continuous appropriation and county fee authority.

Resources and Environmental Protection

The 2003 budget, as adopted by the Legislature, provides about $4.2 billion for resources programs and $1.3 billion for environmental protection programs for 2003-04.

Of the $4.2 billion for resources programs, $1.8 billion is from bond funds and $1.4 billion is from special funds. The remaining $1 billion are General Fund and federal funds. This total amount is a decrease of about $1.2 billion from estimated 2002-03 expenditures. This decrease largely results from the large one-time expenditures in 2002-03 from park and water bond funds.

Of the $1.3 billion for environmental protection programs, $715 million is from special funds and $326 million is from bond funds. The remaining $259 million are General Fund and federal funds. This total amount is a decrease of $273 million from estimated 2002-03 expenditures. This decrease largely results from large one-time bond-funded expenditures in 2002-03 in the State Water Resources Control Board.

Significant features include:

  1. $8.4 million reduction in the California Conservation Corps.
  2.  $4.4 million reduction in the Department of Water Resources for statewide planning and flood management.
  3. $1.3 million reduction in the Secretary for Resources.
  4. $879,000 reduction in the Secretary for Environmental Protection.

General Government

Employee Compensation And Retirement

The budget assumes $1.1 billion ($585 million General Fund) in reduced state employee compensation costs. This is equivalent to about a 10 percent decrease in employee salaries. These savings would come from a combination of renegotiated contracts with employee unions and the elimination of up to 16,000 positions.

The budget does not provide funding for departments to pay annual retirement costs to the Public Employees' Retirement System. Instead, the budget package authorizes the issuance of $1.9 billion in pension obligation bonds to pay for the state's contributions in 2003-04. These bonds would be paid back over five years.

In addition, the budget reduces a payment to the State Teachers' Retirement System supplemental benefit program (which protects retirees' benefits from the effects of inflation) by $500 million on a one-time basis.

Statewide Issues

Workers' Compensation. The budget assumes the shift of costs for administering the workers' compensation system to an assessment on workers' compensation insurance policies (or claims paid by self-insured employers). Historically, the assessment has provided 20 percent of the funding for the system, with the General Fund providing the remaining funding. This change, scheduled to be effective November 1, 2003, results in General Fund savings of $55 million in 2003-04 and more than $80 million in subsequent years. The budget also saves $23 million by shifting General Fund costs for the uninsured employers and subsequent injury programs to assessments. In addition, the budget assumes $50 million ($30 million General Fund) in savings from reduced state employees' workers' compensation claims due to the future enactment of workers' compensation reform legislation.

Enhanced Budget Powers for Administration. The budget and related legislation give new powers to the administration to reduce and alter appropriations during the 2003-04 year. A revised deficiency (Control Section 27.00) process allows the administration to transfer monies between funds to avoid budget deficiencies. In those cases where deficiencies remain, the process establishes new procedures for legislative approval. In addition, budget legislation gives the administration broad authority to make changes to a department's budget in order to ensure funding for critical programs.

State Contracting. The budget assumes $100 million ($50 million General Fund) in savings from reduced state contract costs. The budget and related legislation give the Department of General Services new powers to achieve these savings.

Indian Gaming Revenues. The state has signed compacts with 61 Indian tribes related to gaming on tribal lands. Currently, pursuant to these compacts, tribes contribute over $100 million annually to state accounts for specified uses. The budget assumes that, as a result of the renegotiation of these compacts, Indian gaming tribes will contribute $680 million in annual revenues to the General Fund.

Department Issues

Technology, Trade, and Commerce Agency. The budget eliminates the Technology, Trade, and Commerce Agency effective
January 1, 2004. The elimination of the agency and many of its programs will save $38 million in General Fund spending in comparison to
2002-03 funding. Among those programs eliminated are Film California First, which subsidizes film production costs, and the state's 12 foreign trade offices. Several programs will be retained and transferred to other offices in state government, including the small business loan guarantee program, the Film Commission, and the Infrastructure Bank.

Housing. The budget retains most funding for the state's housing programs. The plan provides $40 million in savings by switching the funding source for housing projects from the General Fund to Proposition 46 housing bond funds. This action would not affect scheduled bond allocations until at least 2006-07.

Data Centers. The budget requires the Health and Human Services Data Center (HHSDC) to reduce the rates it charges state departments for services, generating $20 million in savings. In addition, budget legislation requires the development of a plan to consolidate HHSDC with the Stephen P. Teale Data Center by July 1, 2004.

Agency Secretaries. The budget reduces General Fund support for a number of agency secretaries by more than $3 million.

Arts Council. The budget reduces General Fund spending for the Arts Council to $1 million. The department received $20 million in 2002-03.

Prepared by the following sections:

Local Government—319-8315

Resources and Environmental Protection—319-8323

General Government—319-8310

Appendix 1

2003-04 Budget-Related Legislation

 

Bill Number

Author

Subject

AB 7x

Oropeza

Deficit bond

AB 1747

Budget Committee

Omnibus resources bill

AB 1748

Budget Committee

Resources: Proposition 40 and Proposition 50

AB 1749

Budget Committee

Booking fees

AB 1750

Budget Committee

Transportation: Proposition 42 suspension

AB 1751

Budget Committee

Transportation: Proposition 42 payback

AB 1752

Budget Committee

Omnibus social services bill

AB 1753

Budget Committee

Habilitation services

AB 1754

Budget Committee

Omnibus education bill

AB 1755

Budget Committee

Redevelopment funds

AB 1756

Budget Committee

Omnibus general government bill

AB 1757

Budget Committee

Technology, Trade, and Commerce Agency; OCJP

AB 1758

Budget Committee

Corrections

AB 1759

Budget Committee

Courts

AB 1762

Budget Committee

Omnibus health bill

AB 1763

Budget Committee

Proposition 99—Rural Health Project

AB 1766

Budget Committee

Property tax swap

AB 1767

Budget Committee

Motor Vehicle Account fees

AB 1768

Budget Committee

Vehicle license fees—Backfill repayment

SB 9

McClintock/Perata

Bureaucracy realignment and closure

SB 1042

Budget Committee

Local public safety

SB 1044

Budget Committee

Local public safety

SB 1045

Budget Committee

Redevelopment funds

SB 1046

Budget Committee

School equalization

SB 1048

Budget Committee

Aeronautics account

SB 1082

Burton/Brulte

Performance budgeting

 

 
Acknowledgments

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