Analyst estimates $100 million more in Prop. 47 savings than Brown

The Legislature’s non-partisan fiscal analyst believes Gov. Jerry Brown is underestimating the amount of savings from Proposition 47, the controversial ballot initiative that reduced some nonviolent drug and property crimes from felonies to misdemeanors.

The initiative required the savings be used for mental health, drug treatment, truancy and victim services. In a report issued Friday, the Legislative Analyst’s Office estimated that the first deposit should be about $100 million more than what the state Department of Finance has accounted for.

In his January budget proposal, Brown set aside $29.3 million for the Safe Neighborhoods and Schools Fund – $62.7 million in savings from inmate and caseload reduction, minus $33.4 million for resentencing and increased parole capacity.

The vast gap is mainly due to different methods for calculating prison costs. Thousands of inmates have been resentenced and released from state facilities under Proposition 47, pushing California’s overcrowded corrections system just under a court-mandated capacity.

Brown’s budget estimates that the average daily inmate population is about 4,700 fewer this year because of the law. But the Legislative Analyst’s Office noted that, to stay below capacity levels, most of those potential prisoners would have had to be contracted out to beds in other states, which would have set the state back an additional $83 million.

The LAO also said the governor is likely underestimate the savings from fewer felony cases being filed and overestimating the cost of reclassifying the records of former offenders who already served out their felony terms.

Via: http://www.sacbee.com/news/politics-government/capitol-alert/article60119951.html 

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For first time in 15 years, California likely to avoid short-term borrowing from Wall Street

California can handle all of its cash flow needs in-house, State Controller Betty Yee said Monday, the first time since before the dot-com bust that that the state will make it through a fiscal year without turning to Wall Street for short-term loans to smooth the ebb-and-flow of tax revenue.

The state has used “revenue anticipation notes,” known as RANs, in every year since the 2000-01 fiscal year. After that, Silicon Valley billions gave way to shortfalls, and the state suffered chronic budget problems for much of the next decade, including a low point during the recession that hit in 2008.

Monday, Yee’s office reported that the $5.7 billion in state revenue last month was virtually identical to what lawmakers predicted in the June budget package. In addition, the state has “unused borrowable resources” in various special funds totaling $26.1 billion, about 11 percent more than anyone expected.

That is more than enough money to cover the state’s short-term cash needs when general fund spending temporarily exceeds revenue, Yee’s office said, without any need for RANs – and the interest expense that comes with using them.

Via: http://www.sacbee.com/news/politics-government/capitol-alert/article30659625.html

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Brown seeks money for fixing roads as gas tax value plunges

California lawmakers are looking at new ways to pay for crumbling roads, bridges and highways as the traditional repair fund from gasoline taxes dries up.

Revenue from gasoline taxes have been sliding as more fuel-efficient and electric cars hit aging roads. That's contributing to an annual $5.9 billion backlog in state highway repairs.

Gov. Jerry Brown's administration is studying whether to tax drivers by miles traveled instead of gas guzzled. Changing the system could take more than five years, and lawmakers are calling for more money to repave roads and fill potholes in the meantime.

They are considering a dollar-a-week fee on most drivers, a temporary gas tax hike, re-directing money used to pay off state debt back to road projects and converting carpool lanes into paid toll ways.

Lawmakers in Congress and statehouses across the nation are grappling with transportation funding shortfalls. In California, Brown's vision for an eco-friendly fleet using half as much gasoline by 2030 is clashing with how the state pays for infrastructure.

"We have not had in the last 25 years a revenue source in transportation that is stable, ongoing and commensurate with our needs," said Brian Kelly, Brown's top transportation aide. "We have fallen further and further behind."

Road maintenance is primarily funded by an 18-cent a gallon gasoline tax, which hasn't increased since 1994. Collections fell from $2.87 billion in 2003 to $2.62 billion in 2013. Drivers pay even more in taxes at the pump for local, federal and new state projects.

State officials say they need more money each year because of the rising costs of fixing roads. About 16 percent of the highways were in poor condition in 2013, according to the California Department of Transportation.

"We are looking at getting revenue in place now to stem the blood flow because our roads are falling apart before our eyes," said Jim Earp, director of the California Alliance for Jobs, which represents construction companies and trade unions.

Hiking taxes and fees requires two-thirds support from the Legislature, including Republicans. Brown in his inaugural address called on both parties to come together on transportation funding, as they did when they developed a $7.5 billion water plan last year.

Assembly Speaker Toni Atkins, D-San Diego, on Wednesday announced legislation to raise an additional $2 billion a year for transportation, including an annual $52 fee for most drivers. While the details aren't worked out, Atkins said the fee could be charged as part of insurance plans and vehicle registration.

Electrical vehicle drivers who don't pay gas taxes and truckers could also pay more.

Assembly Republican Leader Kristin Olsen, R-Modesto, says she's not opposed to new revenue and charging people who don't pay for road repair, but changes should be balanced with cuts in spending and other taxes. Republicans have blasted the California Department of Transportation for having too many employees and want to redirect money from the $68 billion bullet train project, a personal priority of Brown's.

Brown said last month he would not "pre-empt the discussions" by publicly supporting legislative proposals.

Ellen Hanak, a senior fellow with the Public Policy Institute of California, says the key to a successful compromise is pressure from drivers and businesses fed up with poor road conditions.

"Like water, these are not red and blue issues, people care about transportation in red and blue and purple places," Hanak said. "A basic funding gap is something that affects everybody."

Transportation industry groups took steps to place a vehicle license fee hike for infrastructure on the November 2014 ballot, but abandoned it after finding little support. Earp, the leader of the construction group, says outside organizations may try to take a funding measure to voters in 2016 if the Legislature is unable to pass a deal.

Outside of the capitol, a committee of government and industry officials is looking at replacing the gas tax with a mileage fee. The idea is having drivers pay their share of wear-and-tear on roads, similar to paying water bills by the meter instead of flat rates.

Owners of electrical and hybrid vehicles are avoiding the burden of fixing roads, some transportation observers say.

"It's the more affluent people driving these vehicles getting out of paying their fair share," said Bill Higgins, executive director of the California Association of Councils of Government.

The tricky part is how to measure road use. Instead of simple odometer readings, many road use charge proposals include GPS devices that raise concerns about the government tracking driver habits.

"Your lives are encoded rather reliably in what you do in your car," said Lee Tien, an attorney with the Electronic Frontier Foundation who is pushing for non-GPS alternatives on the road usage charge committee.

California hasn't committed to such a tax, which Oregon is testing with 5,000 volunteers this summer. The California committee is due to set up its own pilot program and report findings to the Legislature by 2018, setting the stage for a larger battle over whether to make the shift.

Optimistic on economy, California lawmakers OK $156.4-billion budget

Flush with optimism from California's resurgent economy, lawmakers approved a $156.4-billion state budget that expands preschool for children from poor families, increases welfare payments and provides critical funding for building the nation's first bullet train.

The state's financial turnaround has allowed the Democratic-led Legislature, with the blessing of Gov. Jerry Brown, to spend more freely just a few years after the recession prompted deep cuts to government services. And if tax receipts outpace expectations, the budget could send even more money to schools, public universities and local governments.

Lawmakers also are addressing more of California's lingering financial problems, stockpiling cash in a rainy-day fund and chipping away at pension costs.

"This is a much brighter day than what we've seen in years past," Senate Budget Chairman Mark Leno (D-San Francisco) said.

The spending plan — which includes a $108-billion general fund, $7.3 billion larger than last year's — now goes to Brown, who has until the end of the month to sign it. He can still veto items he dislikes.

The budget marks lawmakers' first major effort to combat global warming with revenue from the state cap-and-trade program, which charges fees on polluters when their carbon emissions exceed set limits.

Over the next several years, billions of dollars from those funds could flow to affordable housing, mass transit and environmental programs in a broad effort to get Californians to drive less and consume less energy.

A quarter of the money will be used for building the $68-billion bullet train, a decision that may draw legal challenges from groups that oppose the project and view it as an improper use of cap-and-trade revenue.

Republicans criticized the money for high-speed rail, and Senate Republican leader Bob Huff (R-Diamond Bar) called the budget a "missed opportunity."

"You're enacting policies to make California unnecessarily expensive, drive people into poverty and then propose new government programs to subsidize their life in poverty," Huff said.

Long-term costs for public employee retirements and overdue maintenance continue to weigh on state finances, and the budget starts tackling the $74-billion shortfall in the teacher pension fund. Under the plan, schools, teachers and the state will contribute more money to the fund in an attempt to close the gap over the next three decades.

The budget also deposits $1.6 billion into a reserve fund, a down payment on the state's effort to create a cushion for future economic downturns. Voters will have an opportunity in November to approve a constitutional amendment that would set aside money in the fund every year and help pay off the state's debt and long-term costs.

Despite the budget's increasing size, some cuts remain in place. Most notably, doctors who participate in Medi-Cal will continue receiving reduced payments even as hundreds of thousands of new patients enroll in the state's public healthcare program. Brown's resistance to increasing the payments disappointed lawmakers from both sides of the aisle, who fear fewer doctors will agree to care for Medi-Cal patients.

"The Senate wants to do this, the Assembly wants to do this and the governor understands we need to," Assembly Speaker Toni Atkins (D-San Diego) said. "So we are working as of tomorrow to figure out how soon we can do this. But we have to make sure we can pay for it."

Other programs for California's poor are being boosted. Beginning next April, welfare payments for a family of three in such high-cost counties as Los Angeles would increase to $704 per month, up from $670.

Over the next few years, preschool enrollment is expected to increase by 43,000 4-year-olds from low-income families. There's also more money for subsidized child care.

The budget already had been negotiated among Brown and top Democratic lawmakers before Sunday's vote, tamping down the drama in the Capitol. Still, controversy bubbled over a series of new policy proposals that were included in budget-related bills, sometimes after little public vetting.

For example, Brown has pushed new limits on how much money school districts can keep in their reserve accounts. Administration officials say the schools won't need to stockpile as much cash because the state will have its own rainy-day fund, but angry district officials called the proposal a ploy by the powerful teachers union to make more money available while negotiating contracts.

The California Teachers Assn. spent $4.7 million to help elect Brown in 2010 and donated nearly $290,000 to lawmakers, mostly Democrats, for this year's campaigns.

Lawmakers from both parties criticized the governor for inserting the proposal late in the budget process, but Democrats ensured the bill passed.

Another measure approved by the Legislature would modify California's new rules for granting driver's licenses to immigrants here without documentation, eliminating the requirement for applicants to submit affidavits saying they cannot prove legal residency.

Ronald Coleman, a lobbyist for the California Immigrant Policy Center, said the change would provide "peace of mind" that applying for a license won't increase the risk of deportation for immigrants who are here without those papers.

A separate budget-related bill, also approved Sunday, would remove the ban on drug felons receiving food stamps and welfare payments. Democrats say the measure would help former inmates reintegrate into society, but Republicans were critical.

"In what universe does it make sense to give cash benefit cards to drug users?" Huff said.

More budget bills have yet to be considered by the Legislature. Democrats are angling to pass two new taxes, on fireworks and insurance. The levy on fireworks — 10 cents per pound, to be paid by distributors — is intended to finance the safe destruction of illegal pyrotechnics. The other tax — 15 cents per insurance policy for residential and commercial renters — would fund earthquake research.

via: http://www.latimes.com/local/la-me-pol-state-budget-20140616-story.html

Steinberg plan would dedicate California cap-and-trade dollars to housing, transit

In an effort to more closely manage how California spends revenue from its fledgling cap-and-trade program, Senate President Pro Tem Darrell Steinberg, D-Sacramento, on Monday unveiled a plan to dedicate ongoing money to affordable housing, mass transit and high-speed rail.

"National and international experts say that the climate problem grows worse, that we have no time to sit back and wait and think about an investment strategy year-to-year or just short-term. Now is the time to grab the moment and create these permanent sources," Steinberg said, adding that his plan would avoid an annual legislative fight over "who's in the front of the line, where is the need seemingly the greatest."

The proposal differs from Steinberg's previous proposal to change the state's system for curtailing carbon emissions. That plan, which the Democratic leader unveiled in February, would have imposed a gasoline tax rather than have industry purchase allowances for greenhouse gases emitted from "non-stationary fuels," a category that includes gas sold at the pump.

Now Steinberg has abandoned that change, shifting his attention from how California prices greenhouse gases to how the state allows levies on carbon emitters to be used. His new plan focuses on funding affordable housing, public transportation projects and the state's divisive high-speed rail project.

The gas tax plan was hit from the left and right. On Monday, by contrast, Steinberg spoke amid a phalanx of backers, including groups representing local government, (the League of California Cities) labor (the State Building and Construction Trades Council of California) and environmental (the Natural Resources Defense Council.)

"We stoked a debate a couple months ago, and a lot of consternation and controversy, and I understand it. But now many of us stand together," Steinberg said.

Under AB 32, the 2006 law that created California's cap-and-trade program, industry must purchase permits for generating the type of emissions blamed for global climate change. After six auctions, the program has generated $663 million for the state so far, according to the California Air Resources Board. Steinberg's office projects the permits could soon bring in $3 billion to $5 billion a year.
Current law dictates that the revenue will flow into a Greenhouse Gas Reduction Fund. From there, entities like local governments and transit systems can apply for some of the proceeds by explaining how they will use the money to reduce overall emissions. One quarter of the money must go to disadvantaged communities, an acknowledgment that some of California's poorest places are choking on poor air quality.

Housing and public transportation sit at the center of Steinberg's proposal. Forty percent of the cap-and-trade revenue would go to affordable housing, including communities built around transit options; 30 percent would subsidize transit projects and 10 percent would fund basic transportation infrastructure like road and highway maintenance, with all three administered through competitive grants.

"Permanent sources of funding for mass transit and affordable housing are key if we are committed to long-term change," Steinberg said on Monday, noting that the two areas "face a catastrophic funding crisis in California" after years of cutbacks.
In addition to those outlays, $200 million a year would go to water efficiency projects, to fuel-related outlays that include rebates on monthly fuel bills, and to accommodating the use of electric vehicles.
California's proposed bullet train would get 20 percent of the money, channeled through a continuous appropriation that would not require year-to-year approval by the Legislature.

Already, Gov. Jerry Brown's has stirred controversy by proposing in his budget for this year spending $250 million from emissions permit sales to fund his financially precarious high-speed rail project, whose funding plan faces legal uncertainty. Some environmentalists have called high-speed rail an inappropriate use of the carbon auction funds.

But Steinberg's blueprint embraces high-speed rail as a tool for reducing emissions — provided, Steinberg said, it is one element of a larger strategy.

"I understand that high-speed rail is controversial," Steinberg said. "If it were the only thing that we were talking about or the only thing on the table I think that would be problematic. I think this is a better approach."

PHOTO: The union oil company refinery in Rodeo, Tuesday, December 17, 2002. The Sacramento Bee Michael A. Jones.

Website allows tracking of Prop. 30 money to schools

Proposition 30, enacted by voters in 2012 to temporarily raise sales taxes and income taxes on the wealthy, was touted by Gov. Jerry Brown and other proponents as an alternative to making billions of dollars in cuts to state school spending due to state budget deficits.

Since its enactment, state Controller John Chiang reported Wednesday, Proposition 30 has pumped about $13 billion into local school district coffers. Chiang unveiled a new website, entitled Track Prop. 30, that allows users to plug in their local school districts and see their total budgets and the portions being financed through Prop. 30.

As large as the $13 billion may be, it's still a relatively small portion of K-12 and community college finances, which approach $70 billion a year from all sources. The website reveals, for instance, that during the 2012-13 fiscal year, the latest for which complete data are available, Los Angeles Unified, the state's largest district, had $5.7 billion in revenues from all sources, but Proposition 30 provided just $659.4 million or 12 percent.

Proposition 30, which raised sales taxes fractionally and imposed surtaxes on high-income taxpayers, generates about $6 billion a year and by long-standing constitutional law, a large chunk of the revenue stream must go to schools.

The tax hikes will begin expiring in 2017-18, however, and whether - and how - their revenues to schools will be replaced is still uncertain. Tom Torlakson, the state superintendent of public instruction, has called for making the tax increases permanent, but that would take another ballot measure or two-thirds votes in both houses of the Legislature, plus Brown's signature.

PHOTO: Students, dignitaries and supporters cheer on Gov. Jerry Brown who holds up a campaign sign and encourages students to vote yes for Proposition 30 at Sacramento City College. Thursday, October 18, 2012. The Sacramento Bee/Randy Pench

Categories: Ballot initiatives, Budget, California by the Numbers, Education, Gov. Jerry Brown

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California's unemployment insurance deficit shrinking slowly

Although California's once-dismal employment picture is slowly improving, the state's Unemployment Insurance Fund is not only plagued by digital glitches, but is still paying out more in benefits than employers are paying into the UIF in taxes, according to a new report from the state Department of Employment Development.

Some other revenue, including earnings on fund balances, are offsetting the shortfall, so the immense deficit in the UIF, $10.2 billion at the end of 2012, will decline fractionally to $9.7 billion by the end of this year, the EDD report predicts, then continue to decline as employment improves and insurance benefit payouts drop.

The UIF deficit has been covered by loans from the federal government, on which the state is now paying interest, and the feds have also boosted their share of employers' payroll taxes to begin repaying the debt.

The department predicts that the UIF deficit will shrink to $7 billion by the end of 2015 as unemployment drops from 1.9 million workers in 2012 to 1.3 million in 2015 and payouts decline from $6.6 billion in 2012 to $5.7 billion in 2015.

Employers paid $5.4 billion into the UIF in 2012 and that is expected to increase to $6.2 billion in 2015. Additionally, the boost in federal taxes to repay the debt is expected to surpass $600 million this year and $1 billion by 2015.

The UIF pays basic benefits to unemployed workers and benefit extensions have been financed by the federal government. But due to the state's improving job picture, the 100 percent federally financed extension, which paid out $7.2 billion to jobless Californians in 2012, and $4.6 billion this year, will end on Dec. 31.

Gov. Jerry Brown has proposed changes in the unemployment insurance program to improve its ability to cope with economic downturns, but the Legislature has so far refused to act.

PHOTO: Former and current high school students attend a junior college exploration workshop sponsored by the Greater Sacramento Urban League. One of every three new high school graduates not going to college in the Sacramento region couldn't find work last year, census figures showed. The high school classes of 2009 and 2010 were about 40 percent less likely to find jobs out of school than their counterparts from three years prior. The Sacramento Bee/Randy Pench

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Jerry Brown Creates California Surplus Miracle, But Can It Last?

Something close to a civic miracle seems to have occurred—at least on the surface.

California has long been synonymous with budget deficits so deep that it looked like the Golden State would inevitably be our Greece—beautiful and bankrupt.

But Gov. Jerry Brown announced that his state has suddenly projected a surplus of $851 million. Two years ago, when Brown came back into office, the state had a $25.4 billion deficit, a Sisyphean problem Governor Arnold struggled with unsuccessfully all last decade.

This reversal of fortune raises a lot of questions. What caused California’s budget turnaround? Is it sustainable? And finally, could there be a national lesson here as Washington tries to confront deficits and debt?

The top-line takeaway is that a balanced deficit-reduction approach seems to have worked in the Golden State. When he entered office in 2011, Brown proposed billion-dollar-plus cuts in welfare and Medi-Cal, as well as $500 billion from the UC system.

All told, his initial proposed budget was almost $20 billion less than Governor Schwarzenegger’s 2008–09 budget, which clocked in at $103 billion. Democrats and unions howled, and Brown’s ultimate budget was less austere than originally advertised, but deep cuts were enacted.

Crucially, Brown also took on the unpopular task of raising taxes—winning a 2012 ballot fight sonorously known as Proposition 30 and 39—that raised sales taxes and closed business tax loopholes. Next year, the combined new revenues are expected to exceed $5.8 billion.

The final factor is an improving economy—always the decisive X factor in deficit-reduction efforts. California’s economy is improving slowly, but the shift from the pit of the Great Recession moved the numbers in the right direction.

The result of increased tax revenues and spending cuts is that—at least for now—a projected deficit has been turned into a surplus.

This is good news. But not everyone is happy. And the numbers do sidestep a deeper problem.

Remember, deficits and debt are different things. Projected year-to-year deficits are comparatively easy to close, especially on the back of an improving economy. But out-of-control debt is ultimately what drags you down.

The Los Angeles Times offered a front-page reality check, under the headline “Debt a Cloud Over State’s Future,” pointing out the inconvenient fact that California “has accumulated a crushing load of debt for retiree pensions and healthcare now totaling more than taxpayers spend each year on all state programs combined.” Ouch.

Brown’s budget does begin to pay down the debt, but the outstanding amount dwarfs the pay-down. Of course, that hasn’t stopped liberal activists from demanding more money be spent immediately on social services, under the banner of “investment.”

Moreover, there are real questions about whether the increased tax burden—especially on the wealthy—will end up eroding the state’s tax base in the near future.

“There’s some doubt that high income taxpayers won’t either move to Nevada—or some other low or no-income tax state—or find other ways, such as delaying realization of cap gains, to avoid hefty new surtaxes—especially since their federal taxes are also increasing,” emails the Sacramento Bee’s Dan Walters. “California’s marginal income tax rate (federal plus state) is now highest in U.S. at highest level, about 52 percent.”

But Walters acknowledges that Brown’s budget miracle is more or less legitimate, at least for now. “It’s mostly new revenue from sales and income tax hike approved by voters in November with a dash of economic recovery and a smidgen of creative bookkeeping such as slowing down some debt repayment and assuming renewal of a tax on health care providers to trigger some federal aid,” Walters’ continues. “But overall it’s mostly the new taxes.”

Other Golden State observers take an even more skeptical view. “There is a reason Gov. Brown is known as Governor Moonbeam,” says KABC’s center-right John Phillips. “Structural deficits are everywhere, the nonpartisan Legislative Analyst’s Office says there’s still a $1.9 billion budget deficit, and rich people can’t cross the state line fast enough—taking revenues down almost 11 percent since the passage of his Prop 30 tax hikes with them. On the plus side, hey, we’re not Detroit!”

The Rust Belt does have problems that make California’s cyclical deficits and deep legislative dysfunction seem comparatively easy to solve. But Jerry Brown deserves credit for pulling off at least short-term success in a state budget situation that had many experts calling impossible to solve. In the near term, the deficit turned surplus highlights the improving national economic environment.

It also provides a compelling object lesson for advocates of a “balanced approach” for reducing deficits, like President Obama & Co. Contrary to conservative talking points about how revenue is not a legitimate part of deficit-reduction solutions—instead, it’s all spending cuts all the time—California’s recent example shows that increased tax rates can help rapidly reduce deficits. Moreover, especially compared with much of Europe, the Obama administration’s decision not to simply pursue a path of deep austerity cuts seems to have been the wiser path, at least for now.

But conservatives could have the last laugh if the wealthiest Californians decide to flee the state for comparatively low-tax climes, like a sun-baked Gérard Depardieu.

Bottom line: This fight ain’t over. But at least for the moment, Jerry Brown’s balanced if painful plan to turn deep deficits into a modest surplus deserves study. It offers a rare glimpse of good news in the relentlessly bleak world of state budget. Whether it is sustainable remains to be seen.

via the Daily Beast