December 14, 2011
Pursuant to Elections Code Section 9005, we have
reviewed the proposed constitutional amendment related to the state
legislative and budgeting process and local finance (A.G. File No.
11-0068).
Background
State Budget Process.
Under the California Constitution, the Legislature has the power to
appropriate state funds and make midyear adjustments to those
appropriations. The annual state budget act is the Legislature’s primary
method of authorizing expenses for a particular fiscal year. The
Constitution requires that (1) the Governor propose a balanced budget by
January 10 for the next fiscal year (beginning July 1) and (2) the
Legislature pass the annual budget act by June 15. The Governor may then
either sign or veto the budget bill. The Governor also may reduce or
eliminate specific appropriations items using his or her “line-item
veto” power. The Legislature may override a veto with a two-thirds vote
in each house. Once the budget has been approved by the Legislature and
Governor, the Governor has limited authority to reduce spending during
the year without legislative approval.
State Fiscal Emergencies.
The Governor has the power to declare a fiscal emergency if he or she
determines after the budget has been enacted that the state is facing
substantial revenue shortfalls or spending overruns. In such cases, the
Governor must propose legislation to address the fiscal emergency and
call the Legislature into special session. If the Legislature fails to
pass and send to the Governor legislation to address the budget problem
within 45 days, it is prohibited from (1) acting on any other bills or
(2) adjourning until such legislation is passed.
State Appropriations Process.
The Legislature may enact laws that create or expand state programs
or reduce state tax revenues. Any
new law that has a state fiscal effect typically is referred to a
committee in each house of the Legislature called the Appropriations
Committee. These committees assess the likely fiscal effect of the
legislation and decide whether to recommend the passage of the
legislation by each house.
Proposal
This measure amends the Constitution to:
·
Constrain the Legislature’s authority to
enact laws that increase state costs or decrease state revenues by more
than $25 million annually.
·
Expand the Governor’s authority to
implement midyear reductions to appropriations in the state budget.
·
Shift state funds to local governments
for the purpose of implementing new “Community Strategic Action Plans.”
·
Modify state and local government budget
practices.
Constrains the Legislature’s Authority to Increase State Costs or
Decrease Revenues
The measure contains provisions that constrain
the Legislature’s authority to (1) create or expand state programs or
(2) reduce state revenues if the fiscal effect of these actions on the
state would exceed $25 million annually. In order to enact legislation
containing program expansions or revenue reductions valued at more than
$25 million, lawmakers generally would have to approve legislation
containing revenue increases or cost reductions to offset the net change
in state costs or revenues. The $25 million threshold would be adjusted
annually for inflation.
Authorizes the Governor to Reduce Spending in the Budget
The measure provides that if the Legislature has
not sent bills to the Governor addressing a fiscal emergency by the 45th
day following the issuance of the fiscal emergency proclamation, the
Governor may reduce or eliminate any appropriation contained in the
budget act for that fiscal year that is not otherwise required by the
Constitution or federal law. The total amount reduced cannot exceed the
amount necessary to balance the budget. The Legislature may override all
or part of the reductions by a two-thirds vote of each house of the
Legislature.
Shifts State Funds to Local Governments to Implement New Plans
Under the measure, every county and any local
government (school district, community college district, city, and
special district) within its borders could create a joint Community
Strategic Action Plan (CSAP) for the purpose of providing services
identified by the plan. Local governments that choose to participate in
a CSAP would (1) receive additional funding from the state, (2) be
authorized to reallocate local property taxes among participating local
governments, and (3) be given limited authority to follow locally
adopted procedures that are not fully consistent with state laws and
regulations. Specifically:
·
Shift of State Revenues.
The measure creates the Performance and Accountability Trust Fund in the
State Treasury to provide state resources for implementation of CSAPs.
Beginning in 2013-14, the measure shifts 0.035 percent of the state
sales tax rate to the Performance and Accountability Trust Fund and
requires the state General Fund to backfill any reduced revenue to the
fund if the state sales tax is reduced in the future. The revenue
deposited in the Performance and Accountability Trust Fund would be
allocated to local governments with approved CSAPs on a per capita
basis.
·
Reallocate Property Tax.
The measure permits local governments participating in the CSAP to
reallocate their property taxes among themselves if the reallocation is
approved by a two-thirds vote of the governing bodies of each of the
local governments affected by the reallocation.
Increased Flexibility in Program
Administration. The measure allows CSAPs to include certain
provisions that otherwise would be contrary to existing state laws and
regulations but that are “functionally equivalent” to the objectives of
those laws or regulations. The local governments would be required to
submit these provisions to the Legislature (in the case of state laws)
or appropriate state agency (in the case of state regulations) for
review. If the Legislature or agency does not act to reject the CSAP
provisions, those provisions would be deemed to be in compliance with
state laws and regulations. These local CSAP provisions would expire
after four years unless renewed through the same process.
State and Local Government Budgeting Practices
The measure makes various changes to state and
local budgeting practices and other procedures, including:
·
Two-Year State Budget Cycle.
Under this measure, in each odd numbered calendar year the Governor
would submit a budget proposal for the two subsequent fiscal years. For
example, in January 2013 the Governor would submit a budget for the
fiscal year beginning in July 2013 and for the fiscal year beginning in
July 2014. In even numbered years, the Governor could submit an update
for either of the two years covered by the previous submission.
·
Performance Standards for State
Programs. This measure contains several provisions amending the
Constitution to establish a process to review the performance of state
programs. Under the proposal, the Governor would be required to include
certain information as part of the budget released every two years,
including a statement of how the budget will achieve specified statewide
goals, a statement of outcome measures by which to evaluate state
agencies and programs, and a report on the state’s progress in meeting
statewide goals.
·
Legislative Oversight.
The measure changes the
legislative calendar and reserves part of each legislative
biennium—beginning in July of the second year of the biennium—for
legislative oversight and review of state programs. The measure requires
the Legislature to create an oversight process and use this process to
review every state program, whether managed by the state or local
governments, at least once every five years.
·
Legislative
Process and Calendar. The
proposal amends a provision of the Constitution related to when
legislative bills must be in print. The Constitution currently requires
that bills be in print and distributed to Members of the Legislature
before they can be passed. This proposal amends the Constitution to
require that bills generally be in print and be available to the public
for three days before passage.
·
Local
Government Performance Information. The measure requires that
each local government provide certain information as part of their
adopted budgets. This information includes statements regarding how the
budget will promote specified goals and priorities, description of
outcome measures to assess progress in meeting these goals, and a report
on the progress in achieving these goals. The measure further requires
that each local government develop and implement an open and transparent
process in the development of its proposed budget.
Fiscal Effect
State Sales Tax Revenue Transfer.
The shift of a portion of the state sales tax to the Performance
and Accountability Trust Fund for local government use would reduce
state revenue—and increase local revenue—by about $200 million annually,
beginning in 2013-14. The measure specifies that any increased revenues
allocated to schools as a result of this measure would not reduce their
eligibility for state funds.
Changes in Legislature’s and
Governor’s Fiscal Authority. Constraining the Legislature’s
authority to expand programs or decrease revenues unless it adopts
measures with offsetting fiscal effects could result in state program
costs being lower—or state revenues being higher—than otherwise would be
the case. In addition, expanding the Governor’s authority to implement
midyear reductions to the state budget could result in overall state
spending being lower than it would have been otherwise. The net fiscal
effect of these provisions is unknown, but could be significant over
time.
Changes in Budgeting Practices.
State and local governments would have increased costs to modify their
budgeting practices and provide more ongoing information regarding
program outcomes. Specifically, state and local governments likely would
experience increased information technology, printing, and data analysis
costs. These costs would be higher initially—perhaps in the range of
tens of millions of dollars annually—and then moderate over time. The
compilation and analysis of this budget and performance information
could lead to improved state and local government program efficiencies
over time, potentially offsetting these costs.
Summary of Fiscal Effect
This measure would have the following major
fiscal effects:
·
Decreased state revenues and commensurate
increased local revenues, probably in the range of about $200 million
annually, beginning in 2013-14.
·
Potential decreased state program costs
or increased state revenues resulting from changes in the fiscal
authority of the Legislature and Governor.
·
Increased state and local costs of tens
of millions of dollars annually to implement new budgeting practices.
Over time, these costs would moderate and potentially be offset by
savings from improved program efficiencies.
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