Major Features of the 2006 California Budget

On June 30, 2006, the Governor signed the 2006-07 Budget Act. In this report we highlight the major features of the budget package.

On June 27, 2006, the Legislature passed the 2006-07 Budget Bill along with implementing legislation (see Appendix 1 for a list of these “trailer bills”). The Governor signed the budget on June 30, after using his line item veto authority to reduce appropriations by $112 million ($62 million General Fund). The budget package authorizes total spending of $127.9 billion, of which $101.3 billion is from the General Fund and $26.6 billion is from special funds. Figure 1 shows the distribution of General Fund spending by major program area.

Basic Features

The 2006-07 budget reflects a sharply improving fiscal picture, brought about by continued stronger-than-expected growth in General Fund revenues. Spending under the plan increases by over 9 percent between 2005-06 and 2006-07, reflecting significant program augmentations, budgetary debt prepayments, and rising caseloads and costs in state programs.

Spending Highlights. The budget includes substantial increases in education spending. It allocates $8 billion in new funds for K-14 Proposition 98 education, resulting in an over 11 percent increase in K-12 per pupil funding relative to the level provided in the 2005-06 Budget Act. It also provides large funding increases for the University of California (UC) and California State University (CSU), including funding in lieu of planned fee increases for 2006-07. The budget package also rolls back community college fees from $26 to $20 per unit beginning in spring 2007. The budget provides $40 million in Proposition 98 General Fund support to backfill the foregone fee revenue.

In the transportation area, it provides the full $1.4 billion annual Proposition 42 transfer of sales taxes on gasoline to fund transportation programs, and it repays $1.4 billion of past Proposition 42 related loans.

In the health and social services area, the budget package includes: (1) one-time funding for hospitals to increase patient capacity to meet health care emergencies such as an avian flu pandemic; (2) increased funding for county block grants for California Work Opportunity and Responsibility to Kids, child welfare services, and foster care, and (3) funding for pass through of the federal January 2007 Supplementary Security Income cost-of-living adjustment, which-under the terms of the 2005-06 budget package-had previously been delayed until April 2007.

The budget includes significant funding increases for corrections to cover higher inmate population and health-related costs.

Debt Prepayment. The budget devotes $2.8 billion in General Fund revenues to the repayment of budgetary debt which had been incurred in previous years. About one-half of the total is for the prepayment of Proposition 42 loans from transportation (cited above), and the remainder is for local governments, schools, and special funds.

General Fund Condition

Figure 2 shows that 2005-06 began with a prior-year balance of $9.5 billion (reflecting the combination of better-than-expected revenues and past budgetary borrowing). Revenues and expenditures are an identical $92.7 billion in 2005-06, leaving the fund balance at the end of the year at the same $9.5 billion. After accounting for $521 million in encumbrances, the year-end reserve is $9 billion.

Figure 2 The 2006-07 Budget General Fund Condition
(In Millions)
	2005‑06	2006‑07
Prior-year fund balance	$9,511	$9,530
Revenues and transfers	92,749	94,354
Total resources available	$102,260	$103,884
Expenditures	92,730	101,261
Ending fund balance	$9,530	$2,623
Encumbrances	521	521
Reserve	$9,009	$2,102
Budget Stabilization Account	—	$472
Reserve for Economic Uncertainties	$9,009	$1,630

In 2006-07, the budget assumes that revenues will total $94.4 billion (a 1.7 percent increase), and that expenditures will total $101.3 billion (a 9.2 percent increase). The $6.9 billion operating shortfall between revenues and expenditures leaves the General Fund with a reserve of $2.1 billion at the conclusion of the budget year. This reserve estimate does not include the fiscal impacts of future collective bargaining contracts approved by the Legislature. (For example, the tentative agreement recently reached between the administration and Service Employees International Union would, if approved, result in 2006-07 costs of more than $100 million.)

Out-Year Implications of the 2006-07 Budget. Based on our current projections of revenues and expenditures under the 2006-07 Budget Act policies, the state would continue to face operating shortfalls in the range of $4.5 billion to $5 billion in 2007-08 and 2008-09. The carryover reserve from 2006-07 would be available to offset a portion of the shortfall in 2007-08. We will be updating our fiscal projections in November 2006, when we release our California Fiscal Outlook.

II. K-12 Proposition 98

As Figure 1 shows, the budget package includes $55.1 billion in Proposition 98 spending in 2006-07 for K-14 education (K-12 schools and community colleges). This represents an increase of $5.2 billion, or 10.3 percent, from the enacted 2005-06 spending level. Figure 1 summarizes the budget package for K-12 schools, community colleges, and other agencies for both the current and past fiscal years. In 2006-07, funding for K-12 education grows 10 percent and community college funding grows 13 percent.

Figure 1 Proposition 98 Budget Summary
(Dollars in Billions)
	2005-06
	Enacted	Revised	2006-07	Percent Change From 2005-06 Enacted
K-12	$44.6	$46.5	$49.1	10.0%
California Community Colleges	5.2	5.5	5.9	13.0
Other agencies	0.1	0.1	0.1	6.6
Totals, Proposition 98	$50.0	$52.0	$55.1	10.3%
K-12
Average daily attendance (ADA)	6,031,404	5,972,985	5,957,368	-1.2%
Amount per ADA (in dollars)	$7,402	$7,777	$8,244	11.4

This funding level is almost $600 million above the Proposition 98 minimum guarantee for 2006-07 assuming the lawsuit settlement discussed in a box below. (Without the proposed settlement, the “overappropriation” level would be $1.9 billion.) This includes a $426 million required overappropriation for Proposition 49 after school programs, and around $165 million resulting from the fact that final budget negotiations recognized roughly an additional $300 million in current-year revenues, which lowered the required funding level for the budget year.

As discussed later, the budget package also includes an additional $2.8 billion in one-time funds for K-14 education ($2.5 billion for K-12 and around $300 million for community colleges). Figure 1 shows that roughly $2 billion of these one-time funds result from the 2005-06 Proposition 98 minimum guarantee increasing from $50 billion to $52 billion after the 2005-06 Budget Act was passed (due to higher-than-expected state tax revenues).

K-12 Program Impacts

Major Changes in K-12 Funding

Figure 2 displays major K-12 funding changes from the enacted 2005-06 budget. The budget package provides about $4.5 billion in new ongoing K-12 expenditures (including funds vetoed, but set aside for subsequent legislation). The budget fully funds base programs and provides significant increases for a number of existing programs, as well as some funding for new programs. Major funding changes include:

Figure 2 Ongoing K-12 Proposition 98 Changes
2006-07 (In Millions)
	Amount
Cost-of-living adjustments, growth, and other adjustments	$2,383
Proposition 49 after school programs	426
Revenue limit equalization	350
Economic Impact Aid	350
Deficit-factor reduction (including basic aid)	309
Counselors	200
Arts and music block grant	105
Child care eligibility	67
Preschool expansion	50
Increased support for high school exit exam	50
Other	187
Total Changes	$4,476

Additional One-Time Funds

The budget provides an additional $2.5 billion in one-time K-12 education funds. This total is comprised of three main sources-additional funds required to meet the Proposition 98 minimum guarantee in 2005-06 ($2 billion), settle-up payments to meet Proposition 98 obligations from prior years ($258 million), and the Proposition 98 Reversion Account, which are funds that have been appropriated for K-14 education in prior years but not used ($226 million). Figure 3 shows the uses of the one-time funds included in the final budget package. The major one-time spending includes:

Figure 3 K-12 Spending From One-Time Funds
(In Millions)
	Amount
Payment of K-12 mandate claims from prior years	$927
Discretionary block grant	534
Arts, music, and P.E. equipment block grant	500
School facilities emergency repairs (Williams settlement)	137
Instructional materials	100
Preschool facilities	50
Teacher recruitment	50
Career technical education equipment	40
Mandates—2006-07 costs	30
Other	165
Total	$2,533

K-12 Vetoes

The Governor vetoed $37.8 million provided to increase the per meal reimbursement rate for the child nutrition program. The Governor set the funds aside for subsequent legislation to tie the funding to increased nutritional quality. The Governor also vetoed $15.1 million for a new cohort of the federal Reading First schools, and accompanying language making the continuation of a school’s funding contingent on making significant academic progress, as defined in future legislation.

III. Higher Education

The enacted budget provides a total of $10.8 billion in General Fund support for higher education in 2006-07 (see Figure 1). This reflects an increase of $931 million, or 9.4 percent, above the amount provided in 2005-06. As shown in the figure, the budget provides the University of California (UC) with $3.1 billion in General Fund support, which is $241 million, or 8.5 percent, more than the revised 2005-06 level. For the California State University (CSU), the budget provides $2.8 billion in General Fund support, which is an increase of $191 million, or 7.4 percent.

Figure 1 Higher Education Budget Summary General Fund Appropriations
(Dollars in Millions)
			Change
	2005-06	2006-07	Amount	Percent
University of California	$2,844.7	$3,085.8	$241.1	8.5%
California State University	2,597.5	2,788.7	191.2	7.4
California Community Colleges	3,714.5	4,102.4	388.0	10.4
Student Aid Commission	738.4	846.7	108.3	14.7
Hastings College of the Law	8.4	10.9	2.6	30.6
California Postsecondary Education Commission	2.0	2.1	—	0.9
Totals	$9,905.5	$10,836.5	$931.0	9.4%

The budget provides the California Community Colleges (CCC) with $4.1 billion in General Fund support for 2006-07, which is $388 million, or 10.4 percent, above the revised 2005-06 level. In addition, the budget provides CCC with another $305 million in one-time funds that, for Proposition 98 purposes, will count toward prior fiscal years. Virtually all of CCC’s General Fund support counts toward the state’s Proposition 98 expenditures, as does CCC’s local property tax revenue. Total Proposition 98 support for CCC in 2006-07 is $5.9 billion, which is 10.7 percent of total Proposition 98 appropriations.

The budget also provides $847 million in General Fund support to the California Student Aid Commission. This funding, which supports the state’s Cal Grant programs and other financial aid programs, is $108 million, or 14.7 percent, above the 2005-06 level.

Intersegmental Issues

Base Increases. All three higher education segments received substantial General Fund base augmentations to address salary and other cost increases. These include $156 million (5.8 percent) for UC, $130 million (5.2 percent) for CSU, and $312 million (5.9 percent) for CCC. The CCC’s base increase follows the same statutory formula used to calculate the K-12 cost-of-living adjustment. The base increases for UC and CSU include funding associated with a “fee buyout” as proposed by the Governor. The Governor had proposed the buyout funding in lieu of fee increases that had been planned by UC and CSU.

Enrollment Growth. The three higher education segments received augmentations to fully fund all anticipated enrollment growth. The budget provides a total of $112 million for 2.5 percent growth at both UC and CSU. This funds an additional 5,149 full-time equivalent (FTE) students at UC and 8,490 FTE students at CSU. Funding for these students is determined using a new methodology for determining the marginal cost of serving each additional student. The Legislature rejected the Governor’s proposed methodology, and adopted an alternative which accounts for fee revenue and faculty salary costs differently.

The budget provides CCC with $97.5 million to fund enrollment growth of 2 percent, or 22,688 FTE students. However, because community college enrollment has been declining, CCC has a similar number of unfilled, funded “slots” that also will be available for enrolling additional students in 2006-07. Thus, as a practical matter, CCC will have funding to grow by slightly more than 4 percent in 2006-07.

Student Fees. The budget provides for no UC or CSU resident student fee increases in 2006-07. (As noted above, both segments received additional funds-$130 million-in lieu of fee increases.) The budget reduces student fees at CCC from $26 per unit to $20 per unit, effective in spring 2007. The budget provides $40 million to backfill this foregone fee revenue.

Student Academic Preparation (Outreach). The Legislature rejected the Governor’s proposal to eliminate General Fund support for student academic preparation programs at UC and CSU. Instead, the budget provides General Fund support of $19.3 million to UC and $7 million to CSU for these programs. Of the UC amount, $2 million is for a new transfer initiative between UC and CCC.

Nursing Initiatives. The budget includes $10.5 million for various higher education nursing initiatives. These include $1 million for expanded enrollment at UC, $4 million for expanded enrollment and various start-up costs at CSU, and $5.5 million for student services and faculty recruitment and retention at CCC. In addition, the budget authorizes 40 loan forgiveness warrants for nursing graduates who work in state facilities, such as prisons and developmental centers, contingent upon enactment of legislation.

Other Budget Highlights

The 2006-07 Budget Act includes several major features that are specific to the higher education segments.

California State University. For 2006-07, revenue that CSU collects as student fees is no longer deposited in a central state account and appropriated to the university through the budget act. Instead, student fee revenue will be deposited in trust accounts maintained by CSU campuses. The budget reduces CSU’s General Fund support by $5 million to account for the fact that interest earned on these funds will accrue to CSU rather than the state General Fund.

IV. Health

The 2006-07 budget plan provides about $19.5 billion from the General Fund for health programs, which is an increase of about $1.8 billion or 10 percent compared to the revised prior-year level of spending. Several key aspects of the budget package are discussed below and summarized in Figure 1.

Figure 1 Major Changes—State Health Programs 2006‑07 General Fund Effect
(In Millions)

Enrollment Activities for Children's Health Programs
Support new activities to expand enrollment	$50
Medi-Cal
Increase rates for nursing homes and other long-term care facilities	$87
Reverse 5 percent reduction in physician rates	75
Increase rates for certain managed care plans	39
Make technical adjustments for funding shifts to other departments	-356
Disaster Preparedness
Implement steps to prepare for flu pandemic and other emergencies	$190
Public Health
Augment AIDS prevention and education efforts	$6
Continue local assistance to combat West Nile Virus outbreak	3
Department of Developmental Services
Provide rate increase for some community service providers	$47
Increase wages for direct care staff in day and work activity programs	24
Department of Mental Health
Address federal court orders on mental health care for prison inmates	$27
Comply with federal consent decree for state hospitals	21
Department of Alcohol and Drug Programs
Improve Proposition 36 drug treatment performance and outcomes	$25
Establish new statewide campaign to deter methamphetamine use	10

Enrollment Activities for Children’s Programs

The budget plan provides about $50 million in General Fund support for new activities to (1) enroll additional children who are eligible for, but not now enrolled, in Medi-Cal and the Healthy Families Program (HFP) and (2) retain in coverage more children who are enrolled. State grants are provided to counties to spur local outreach activities, HFP enrollment procedures are simplified, and new financial incentives are provided for certified application assistants. The spending plan also includes funds for the additional case-loads expected to result from these outreach and enrollment efforts.

Medi-Cal

The 2006-07 enacted budget provides about $13.8 billion from the General Fund ($35.1 billion all funds) for Medi-Cal local assistance expenditures. This amounts to about a $1 billion, or 7.4 percent, increase in General Fund support for Medi-Cal local assistance. This increase would have been significantly greater except for $356 million in technical adjustments reflected in the budget plan. General Fund support previously displayed in the Medi-Cal budget is now shown in the Department of Mental Health (DMH) budget item for mental health services for children and in the Department of Aging budget item for the Multipurpose Senior Services Program.

Major Cost Factors. The increase in expenditures primarily reflects: (1) increases in costs and utilization of medical services in the base program; (2) rate increases for physicians and certain other providers; (3) a number of significant policy changes in Medi-Cal, including the continued shift of prescription drug coverage for certain aged and disabled beneficiaries to the federal Medicare Part D drug benefit; and (4) ongoing growth in caseloads. Specifically, Medi-Cal caseloads are assumed to grow by about 85,000, or 1.3 percent, in the budget year to a total of about 6.7 million average monthly eligibles.

Changes in Medi-Cal Provider Rates. The budget plan provides $87 million General Fund for rate increases for nursing homes and other facilities that provide long-term care services to Medi-Cal beneficiaries. The budget also includes $75 million General Fund to reflect the reversal of a 5 percent reduction in rates for physicians and certain other Medi-Cal providers that was enacted in 2003-04, but only partially implemented due to a now-resolved legal challenge. In addition, among other provider rate increases, $39 million in state funds would be provided for rate increases for certain Medi-Cal managed care plans. The Governor vetoed an additional $9.3 million General Fund augmentation for rate increases for these plans.

New Federal Documentation Requirements. The budget plan adopts changes in state law to comply with new federal requirements that states obtain documentation of the identity and citizenship of individuals who enroll and re-enroll in Medi-Cal.

Healthy Families Program

The budget plan provides about $368 million from the General Fund ($1 billion all funds) for local assistance under HFP during 2006-07. This reflects an overall increase of about $128 million (all funds), or 14 percent, in annual spending for the program. General Fund spending for HFP local assistance is budgeted to increase by about $47 million. This is primarily the result of increases in caseload assumed to occur as a result of additional funding for application assistance and the implementation of efforts to streamline children’s enrollment, as discussed above. Underlying caseload trends and increases in provider rates are also projected to contribute to the increased spending level for HFP. Overall, program enrollment is assumed to grow by 78,000 children, or about 10 percent, to reach a total of about 859,000 children by the end of the budget year.

Disaster Preparedness

The budget plan adopts, with some significant modifications, various administration proposals to better prepare the state for public health emergencies and, in particular, the threat of an avian flu pandemic. In all, the spending plan provides more than $190 million in state funding (plus federal funds) to the Department of Health Services (DHS) and the Emergency Medical Services Authority (EMSA) to make additional hospital beds available in case of a flu emergency, strengthen the state and local public health laboratory systems, and conduct local planning to respond to a major public health disaster. Most of this additional funding is provided on a one-time basis.

Public Health Programs

The budget plan provides DHS with about $560 million from the General Fund ($2.5 billion all funds) for public health local assistance during 2006-07. General Fund spending for public health local assistance would increase by about $178 million, or almost 47 percent, primarily due to the augmentations for disaster preparedness discussed above. The budget supports various expansions of public health programs, including augmentations for AIDS prevention and education activities, breast cancer screening, Alzheimer’s disease diagnosis and treatment, and clinic programs for agricultural workers and rural areas. Genetic testing of newborns would be expanded to include screening for cystic fibrosis and biotinidase deficiency. The budget also continues state assistance to local special districts in controlling the West Nile Virus, although the Governor used his veto authority to reduce the amount provided for this purpose in 2006-07.

Emergency Medical Services Authority

General Fund support for EMSA would increase under the budget by about 21 percent to about $29 million. About $53 million would be provided to EMSA from all fund sources. The increase is due partly to the expansion of EMSA’s disaster preparedness activities discussed earlier. The Governor vetoed a proposed $10 million General Fund augmentation for grants to improve the operation of trauma care centers.

Reform of Licensing and Certification Programs

The budget significantly expands staffing for the inspection of nursing homes, hospitals, and other health care facilities. It establishes a special fund within DHS to pay for these activities primarily from fees, but provides some General Fund support to moderate the initial impact of fee increases.

Department of Developmental Services

The budget provides almost $2.5 billion from the General Fund ($4 billion all funds) for services to individuals with developmental disabilities in developmental centers and regional centers. This amounts to an increase of about $246 million, about 11 percent, in General Fund support over the revised prior-year level of spending provided to the department.

Community Programs. The 2006-07 budget includes a total of almost $2.1 billion from the General Fund ($3.2 billion all funds) for community services for the developmentally disabled, an increase in General Fund resources of about $245 million, or 13 percent, over the revised prior fiscal year level of spending. This growth in community programs is due mainly to increases in caseload, costs, and utilization of regional center services. Also, about $47 million General Fund is allocated to provide a 3 percent rate increase for providers of specified regional center services. The budget also provides about an additional $24 million General Fund to increase wages for direct care staff in certain day programs and work activity programs, as well as to increase funding for supported employment programs. The budget continues several mostly temporary actions to hold down community program costs.

Developmental Centers. The budget provides $385 million from the General Fund for operations of the developmental centers (almost $703 million all funds), roughly the same level of support as the revised prior-year level of spending. The budget continues to support plans to close the Agnews Developmental Center and place many of its clients in community programs, but assumes a further postponement of the closure to June 2008.

Department of Mental Health

The budget provides about $1.7 billion from the General Fund ($3.6 billion all funds) for mental health services provided in state hospitals and in various community programs. This is about a $445 million, or 35 percent, increase in General Fund support compared to the revised prior-year level of spending for DMH.

Community Programs. The 2006-07 budget includes about $781 million from the General Fund (almost $2.5 billion all funds) for local assistance for the mentally ill, about a 82 percent increase in General Fund support compared to the revised prior-year level of spending. The increase in General Fund spending is mainly due to the technical budget adjustment discussed above, in which General Fund support previously displayed in the DHS Medi-Cal budget for certain mental health services for children enrolled in Medi-Cal is now displayed in the DMH budget item.

“AB 3632” Mandates. The budget plan does not adopt an administration proposal to suspend what are known as the AB 3632 mandates for children in special education programs. Instead, the budget provides $69 million in federal special education funds and $52 million from the General Fund for a new DMH categorical program to reimburse a significant portion of the estimated costs for providing these services in the budget year. The spending plan also provides $66 million from the General Fund to pay outstanding mandate claims from 2004-05 and 2005-06.

State Hospitals. The budget provides about $879 million from the General Fund for state hospital operations (about $951 million all funds). The $96 million, or 12 percent, increase in General Fund resources is due to several factors, including projected increases in the state hospital population. The budget provides about $21 million General Fund and 453 staff positions to meet the requirements of a consent decree that resulted from a U.S. Department of Justice civil rights investigation of state mental hospitals. The spending plan also includes about $27 million General Fund and an additional 271 staff positions to address a federal court order in the Coleman case, which requires additional intermediate and acute care inpatient mental health services for state prison inmates.

Department of Alcohol and Drug Programs

The budget provides about $290 million from the General Fund ($670 million all funds) for community programs operated by the Department of Alcohol and Drug Programs (DADP). This is about a $47 million, or 19 percent, increase in General Fund support compared to the revised prior-year level of spending for alcohol and drug programs.

Proposition 36. The budget continues funding for the Substance Abuse and Crime Prevention Act (also known as Proposition 36) at the current level of $120 million, and provides an additional $25 million General Fund to improve the performance and outcomes of participants in these drug treatment programs. The budget package also modifies current law to change various provisions of Proposition 36, including establishing new requirements for drug testing, permitting the brief incarceration in jail of some offenders for violation of probation, and excluding some repeat offenders from eligibility for diversion from prison or jail to Proposition 36 treatment.

Methamphetamine Prevention Campaign. The budget provides $10 million General Fund to DADP to establish a new statewide media and outreach campaign to deter the use of methamphetamine.

Drug Medi-Cal Rate Increase. The Governor vetoed a proposed $2.3 million General Fund augmentation to increase certain reimbursement rates for Drug Medi-Cal providers.

V. Social Services

General Fund support for social services programs in 2006-07 totals $9.8 billion, an increase of 6 percent over the prior year. Most of the increase is due to (1) caseload increases in the Supplemental Security Income/State Supplementary Program (SSI/SSP), In-Home Supportive Services program, and Adoptions Assistance program; (2) passing through the federal SSI cost-of-living adjustment (COLA) in January 2007; (3) new initiatives in child welfare services; and (4) the General Fund costs for backfilling the redirection of Temporary Assistance for Needy Families (TANF) federal block grant funds from child welfare and foster care into California Work Opportunities and Responsibility to Kids (CalWORKs) county block grants. The 2006-07 Budget Act and related legislation make various changes to current law, and the fiscal impacts of these changes are summarized in Figure 1.

Figure 1 Major Changes—Social Services Programs 2006‑07 General Fund and Federal TANF Block Grant Funds
(Dollars in Millions)
	Change From Prior Law
Programs	General Fund	TANF
SSI/SSP
Pass-through January 2007 federal COLA	$42.0	—
CalWORKs County Block Grants
Increase to account for higher spending in 2005‑06	—	$140.0
Reduction for unspent county incentive funds	—	-40.0
Reduce transfer to CalWORKs from Employment Training Fund	—	17.9
TANF Reauthorization Package
Projects promoting work participation	—	$90.0
Grant savings assumed from work-related projects	—	-17.2
Homelessness prevention	—	5.0
Community colleges work study programs	$9.0
Foster Care and Child Welfare Services (CWS)
Replace TANF funds with General Fund	$100.0	-$100.0
Flexible funding for CWS improvements	50.0	—
Increase kinship programs	10.5	—
Support for emancipating foster youth	9.7	—
Augmentation for adoptions	11.1	—
Augmentation for dependency drug courts	3.0	—
Community Care Licensing
Increase random inspection visits/other improvements	$5.7	—
Child Support
Hold certain noncustodial parents harmless for transitional payment	$25.5	—
Augmentation for local child support agency improvement	4.0	—
Department of Aging
Transfer of local assistance funding for MSSP from Health Services	$22.3	—
Augmentation for MSSP providers	3.0	—
Employment Development Department
Los Angeles County health care workforce development	$5.7	—
Department of Rehabilitation
Increase for supported employment rates	$5.6	—
Totals	$307.1	$95.7

TANF=Temporary Assistance for Needy Families and MSSP= Multipurpose Senior Services Program.

SSI/SSP

January 2007 Federal COLA. Prior law delayed the effective “pass-through” of the federal January 2007 COLA until April 2007. Budget legislation restores the pass-through to January 2007, resulting in a onetime General Fund cost of $42 million.

CalWORKs

Net Increase in Funding for County Block Grants. Counties receive a block grant, known as the single allocation, to fund eligibility determination, welfare-to-work services, and child care. Because county block grant spending was higher during the first three quarters of 2005-06 in comparison to prior years, the Legislature increased county block grant allocations by $140 million for 2006-07. However, the budget reduces funding by $40 million, on a one-time basis in counties that retain unspent CalWORKs performance incentives. The budget replaces $18 million in Employment Training Fund support for county block grants with TANF federal funds, freeing up an identical $18 million for use by the Employment Training Panel for its training programs.

TANF Reauthorization Package. In order to meet the higher work participation requirements of the federal Deficit Reduction Act of 2005, the budget provides $90 million for various projects to engage nonworking recipients in work-related activities, and $9 million for work study programs with the community colleges. These changes are assumed to result in grant savings of $17.2 million (higher earnings reduces grant payments). Finally, the budget provides $5 million for homelessness prevention among CalWORKs families facing potential eviction.

Child Welfare Services (CWS) and Foster Care

CWS Improvements. The budget provides $50 million in flexible funding to counties which may be used for reducing social worker caseloads or implementing early interventions to improve outcomes for families and children. The budget also adds an additional $3 million in 2006-07 to expand the use of Drug Dependency Courts as an intervention strategy in child welfare cases.

Kinship Support. The budget provides $8 million in additional funds to KinGap, a program which provides payments to relatives who become guardians to former foster children. The additional funds will increase payments for children with special needs and expand KinGap eligibility to youth in the probation system who are in the care of relatives. The budget also expands by $2.5 million county programs that provide support and services to kin caregivers of foster children.

Emancipating Foster Youth. The budget adds $9.7 million to increase support for emancipating foster youth. This includes $4 million to eliminate the county share of cost in the transitional housing placement program and $5.7 million to create a state-only program of education and training vouchers for emancipating foster youth, similar to the federal “Chafee” program.

Adoptions. The budget provides a total of $11.1 million to increase adoptions. This includes $7.1 million to support additional adoption workers. The Legislature also added $4 million to establish a project in five areas of the state to provide pre- and post-adoption services for foster children who have been in care for more than 18 months and are over 9 years of age.

Community Care Licensing (CCL)

Budget legislation provides an increase of $6.1 million ($5.7 million General Fund), and a total of 80 positions in order to increase the frequency of random facility inspection visits and to implement other licensing division reforms, including making certain licensing information available to the public on the Internet. Budget legislation clarifies the requirement that the department conduct unannounced visits in at least 20 percent of facilities each year. The amounts noted above reflect the Governor’s veto of four positions and $320,000 for placing CCL data on the internet.

Child Support

Holding Certain Noncustodial Parents Harmless for Transitional Payment. In developing its federally required automated child support system, the state changed the date when a child support payment is recorded from the date of withholding to the date of receipt. This change places some noncustodial parents (NCPs), through no fault of their own, behind in their child support payments, creating an “arrearage.” Budget legislation allows the state to make child support payments on behalf of the affected NCPs, thus preventing the arrearage and holding these NCPs harmless. The NCPs will be required to repay the state for this prepayment upon termination of their child support obligation. These one-time prepayments result in General Fund costs of $25.5 million in 2006-07.

The Legislature also added $4 million General Fund (and about $8 million in federal matching funds) to the allocations for local child support agencies for the purpose of improving performance on child support enforcement.

Department of Aging

The budget transfers the local assistance funding ($22.3 million) for the Multipurpose Senior Services Program (MSSP) from the Department of Health Services to the Department of Aging. The budget also provided $3 million General Fund to support increased reimbursement rates for MSSP service provider organizations.

Other

Legislative Augmentations. The budget provides $5.7 million General Fund to Los Angeles County to continue training and workforce development programs for its public health system that were formerly supported with federal Workforce Investment Act funds. The budget includes $5.6 million in the Department of Rehabilitation to fund a rate increase in the Supported Employment Program.

Cash Assistance Program for Immigrants (CAPI). The budget rejects the Governor’s proposal to extend, from the current 10 years to 15 years, the period for which a sponsor’s income is “deemed” (counted for purposes of financial eligibility) to a legal noncitizen. Upon the end of the ten-year deeming period, state-only CAPI payments for certain legal immigrants will commence in September 2006. These payments result in General Fund costs of approximately $12 million in 2006-07, rising to over $40 million in 2007-08.

VI. Judiciary & Criminal Justice

The 2007 Budget Act contains $12.9 billion for judicial and criminal justice programs, including $11.4 billion from the General Fund. The total amount is an increase of $1.2 billion, or 10 percent, from 2005-06 expenditures. The General Fund total represents an increase of $1.2 billion, or 12 percent, relative to 2005-06 expenditures.

Figure 1 shows the changes in General Fund expenditures in some of the major judicial and criminal justice budgets. Below, we highlight the major changes in these budgets.