The Legislature has begun voting on a budget deal reached by the “Big 5” that includes a rollback of pension benefits for new state employees and budget reforms that significantly strengthen the state’s rainy day fund.
As of this writing at 1pm today, the main budget bill, SB 870, was still on call in the Assembly, well short of the 2/3 vote required for passage. The Senate was still in caucus.
“I can’t tell you what’s in this budget,” said Assemblymember Kevin Jeffries (R), who said he has had very little opportunity to review the budget bill which spans three volumes. “This is not an example of open and transparent government,” Jeffries said.
Assemblymember Diane Harkey (D) said the bill did not cross the desk until 9:30am this morning.
Assemblymember Bob Blumenfield (D), speaking in support of the budget bill, called such concerns “nonsense” because 95% of the budget has been known for weeks and was included in the Budget Conference Committee versions of the budget.
The budget deal, spanned by the main budget bill and several related trailer bills, makes significant changes to the state’s “rainy day fund” and rolls back pension benefits.
The language of these proposals had not been released as of this writing but a brief eight-page summary released by the Senate Budget Committee gives a brief outline of the proposals as well as the overall budget deal. To view the summary click here.
Strengthened “Rainy Day Fund”
The Senate analysis says the deal makes three major changes to create a stronger “rainy day fund” for California. Specifically, the proposal “makes the existing Proposition 58 rainy day fund larger and harder to suspend an annual contribution.”
The proposal increases the maximum size of the state rainy day fund from five percent to 10 percent of General Fund revenue and requires the state to always make three payments into the fund, except in years when the state has a deficit big enough to start using the fund. Half of the annual payments into the rainy day fund would be allowed to be used for one-time infrastructure and debt service.
Funds in the rainy day found would only be allowed to be used to “cover a budget shortfall—up to the previous year’s expenditures adjusted for inflation and population growth,” according to the Senate summary. A regulator provision prevents using all of the funds in one year.
Provisions are also included that capture “unanticipated revenue” for transfer into the rainy day fund based on projections made by the Department of Finance. Any revenue that is received above the trend line of the state’s last twenty years of revenue performance is designated “unanticipated” and must be put into the rainy day fund.
Pension Reform
The budget deal also includes provisions that significantly rollback pension benefits for new state employees hired on or after November 10, 2020. The changes do not apply to current employees.
“These changes would impact state employees in bargaining units that do not currently have a Memorandum of Understanding (MOU) with the state, as well as employees of the California University, the judicial branch of government, the Legislature, and classified school employees,” according to the Senate summary.
The proposal would roll back new state employees’ retirement benefits to the pension benefit levels that existed prior to the adoption of SB 400 (1999). Click here for a scanned chart which shows a comparison of current benefits to the new benefits.
The proposal would also end pension “spiking” by requiring pension benefits to be based on the three-year final compensation method of calculating benefit levels for new state employees who are not already under this calculation method. The proposal also “requires additional analysis and oversight of CalPERS’ actuarial assumptions” but no additional details are provided.
Summary of Other Aspects of Budget Package
The budget deal seeks to close an $18 billion budget gap through $7.5 billion in expenditure reductions, the assumption of $5.3 billion in additional federal funds, $2.5 billion in revenue “solutions,” and $2.8 billion in fund shifts, according to the Senate summary.
The deal maintains a “modest increase in education funding on per-pupil programmatic basis for 2010-11, and begins paying “settle-up” payments for the 2009-10 fiscal year with a $300 million payment in 2010-11.”
The budget makes a number of reductions in health and human services programs, but rejects the Governor’s proposals to eliminate CalWORKs, community health programs, Adult Day Health care, and the significant reductions proposed to the In-Home Supportive Services program.
“The budget package reduces spending for state employees by about $1.5 billion consistent with collective bargaining agreements that have been already reached or are in negotiation,” according to the Senate analysis.
The deal contains some budget reductions that are not likely to fully materialize based on past experience. The agreement includes corrections savings of more than $1.1 billion, primarily from reduced inmate medical care costs. The budget package also assumes new or extended federal funds to provide $5.3 billion in budget solutions.
More than half of the $2.5 billion in “revenue solutions”, or $1.4 billion, is captured by using the Legislative Analyst’s revenue forecast which was $1.4 billion higher than the Governor’s May Revisions three months into the fiscal year.
The package would also extended the suspension of the net operating loss (NOL) for an additional two years which is estimated to result in increased tax revenue of about $1.2 billion in 2010-11.
The Los Angeles Times has noted that Republicans have succeeded in getting additional tax breaks included in the budget deal including a $30 million provision that will only help one company. These tax breaks are unlikely to show up in any analysis because they are buried deep within the budget bill or trailer bills.
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