Budget Subcommittee SPOTLIGHT: March 31, 2016

Thursday, March 31, 2016

Below is a summary of some subcommittee activity from the past week:

Subcommittee #1 (Education)

Block (D-San Diego) Chair, Moorlach (R-Costa Mesa), & Allen (D-Santa Monica)

Teacher pension obligations loom.  California’s teacher retirement system was heading toward insolvency until a 2014 law increased contributions by school districts, teachers, and the state.  Total additional contributions to the pension fund required by that law will rise over time to over $5.3 billion by 2020-21, including $3.7 billion from school districts.  While these contributions are necessary to bring the fund back into solvency, they could absorb 25 to 50 percent of the expected increases in school funding during the same period.  Districts that fail to plan for rising pension costs could easily find themselves in serious fiscal trouble.  In keeping with the priority to respect the voters through responsible government, Senate Republicans support the new plan for long-term solvency of the teachers’ pension fund, and urge school districts to ensure that their long-term planning reflects these rising pension costs.

Restriction on rainy day funds could spell disaster.  An 11th hour change that Democrats made to the 2014 budget imposed irresponsible new restrictions on schools’ ability to maintain healthy rainy-day reserves to protect against unexpected fiscal shortfalls.  This cap on school district reserves could wipe out schools’ ability to get through the next economic downturn.  In subcommittee this week, representatives from the state’s Fiscal Crisis and Management Assistance Team indicated that many school districts would have been forced to turn to the state for “bailout loans” if the cap had been in place during the last recession.  In keeping with the priority to respect the voters through responsible government, Senate Republicans call for the repeal of this reckless law.

California should ease the barriers to an effective teacher in every classroom.  In response to a developing teacher shortage, committee members discussed shortening the path to a teacher credential from five to four years of college.  Four-year teaching credentials are common in nearly all other states.  In addition, Senator Moorlach (R-Costa Mesa) raised concerns about seniority restrictions that potentially require schools to release effective teachers while retaining less effective ones when layoffs become necessary.  Exploring a shorter path to a teacher credential is consistent with the priority to build new career paths for today’s economy, and enabling school districts to keep the most effective teachers in the classroom will help our students reach their full potential.  These issues were held open for further discussion.

Subcommittee #2 (Resources, Energy, Agriculture & Transportation)

Wolk (D-Davis) Chair, Nielsen (R-Gerber), & Pavley (D- Agoura Hills)

The subcommittee did not meet this week.

Subcommittee #3 (Health & Human Services)

Mitchell (D-Los Angeles) Chair, Monning (D-Carmel), & Stone (R-Temecula)

The subcommittee did not meet this week.

Subcommittee #4 (Housing, Veterans Affairs, & General Government)

Roth (D-Riverside) Chair, Nguyen (R-Garden Grove), & Pan (D-Sacramento)

The subcommittee evaluated Governor Brown's proposal to add $2 billion to the state's Rainy Day Fund. Senator Janet Nguyen (R-Garden Grove) stood with Governor Brown on the need to build a strong reserve and spoke in support of the proposal.

"It is likely that the state will face an economic recession in the near future," said Senator Nguyen during the hearing. "That is why it is essential we build up the reserve quickly."

As Governor Brown indicated in his January budget release, California is now in its seventh year of economic recovery. Increased levels of economic activity typically last around five years.

California voters approved Proposition 2 to create the Rainy Day Fund in 2014. The measure included the goal of reaching a 10 percent reserve. Without the Governor's proposed $2 billion supplemental deposit, the state reserve will only grow to about $6 billion by the end of 2016-17 (approximately 4.8 percent of General Fund revenue). This additional deposit would increase the Rainy Day Fund to about $8 billion, boosting the reserve to 6.5 percent of General Fund revenue.

"As a Supervisor, I saw directly the devastating impact of budget cuts during the Great Recession to seniors, children and working families," said Senator Nguyen. "In the 2009-10 budget, the state cut over $9 billion in programs. Those cuts included massive cuts to child care and vital education programs. Having 10 percent in a reserve will help save important programs from deep cuts during the next recession."

"Just because we're experiencing record-high revenues today doesn't mean we shouldn't protect against a future downturn," said Senate Republican Leader Jean Fuller (R-Bakersfield). "This is a common sense solution to build up California's 'savings account' and I appreciate Senator Nguyen's leadership on the issue."

Subcommittee #5 (Revenue, Labor, PERS, STRS, Public Safety, & Judiciary)

Hancock (D-Berkeley) Chair, Anderson (R-San Diego), Beall (D-San Jose)

The subcommittee did not meet this week.