|Budget Issue:||Counting special fund loan interest could free up $27 million of General Fund resources in 2015-16|
|Program:||Proposition 2 Calculations|
|Finding or Recommendation:||This note discusses the possibility of counting budgeted special fund loan interest payments toward Proposition 2 debt payment requirements.|
Background. In our March 2014 report, The 2015-16 Budget: The Governor’s Proposition 2 Proposal, we described the administration’s proposal for meeting Proposition 2 debt payment requirements for 2015-16. Specifically, under the administration's January estimates, Proposition 2 requires a minimum of $1.2 billion General Fund be used to pay down specified debts in 2015-16. The administration’s proposes to meet this requirement by repaying $965 million of special fund loans to the General Fund and $256 million of Proposition 98 “settle up.” (The Proposition 2 estimates will change with the May Revision budget estimates next month.) In our March report, we discussed various options that the Legislature has in implementing the new requirements of Proposition 2.
Counting Loan Interest Toward Proposition 2 Could Free Up $27 Million General Fund. The $965 million in special fund loan repayments proposed by the administration for meeting Proposition 2 requirements reflects only the principal amount owed on those loans. Under the Governor’s budget plan, the state also would pay $26.8 million in interest related to those loans in 2015-16. (Such payments are budgeted annually in Item 9620 of the state budget act.)
Relative to the administration’s January 2015 estimates, counting special fund loan interest toward meeting Proposition 2 requirements—and reducing other proposed Proposition 2 debt payments by a like amount—could free up around $27 million General Fund in 2015-16. (The precise amount of savings may depend on what other Proposition 2 debt payments are reduced.) Both the administration and our office will produce new Proposition 2 estimates in May.