Highlights and Analysis of the 2012-13 Budget

Wednesday, July 18, 2012

Read complete Highlights & Analysis (pdf, 58 pages)

Executive Summary

In July 2011, the Governor and legislative Democrats asserted that their “honest and balanced” majority-vote budget closed a $26.6 billion budget gap, and reduced the structural budget gap for fiscal year 2012-13 to $3.1 billion. Now, they claim to have closed a $15.7 billion budget gap (far larger than the previously noted $3.1 billion), and enacted a budget that would be “balanced on an ongoing basis for the first time in a decade.” In reality, the 2012-13 state budget is about 90 percent gimmicks (e.g., borrowing, fund shifts, and payment deferrals) and 10 percent real programmatic spending reductions. Unfortunately, it is no different than the other gimmick filled budgets of the past decade and it is almost certain that another budget deficit will emerge within six months – likely sooner.

The Governor says that this state budget plan is balanced with a $1 billion reserve. He claims his solutions include $8.1 billion of expenditure reductions; $6 billion in new tax increases and other revenues and $2.5 billion of “other” solutions (primarily special fund emergency loans and transfers). However, a closer review of these solutions reveals that the new state budget plan reflects only about $1.4 billion of real state program spending reductions (the other items, have no programmatic impact such as natural program caseload changes or not providing cost of living increases). Additionally, over $4 billion of the Governor’s so-called “expenditure reductions” are actually loans, fund shifts, and deferrals such as:

  • $1.5 billion shift of Redevelopment Agency (RDA) assets,
  • $525 million fund shift of trial court reserves,
  • $390 million fund shift of mortgage settlement proceeds,
  • $660 million deferral of Medi-Cal provider payments, and
  • $830 million to defer/repeal state mandates.

The lynchpin for the entire state budget is a scheme to coerce voters into supporting a seven-year, $47 billion tax increase by threatening to make $6 billion in “trigger reductions” to K-14 and higher education programs. However, it is unlikely that those spending cuts will actually be implemented if the tax increase fails at the ballot – much like the trigger reductions included in last year’s state budget plan were unachievable and did not occur.

Read complete Highlights & Analysis (pdf, 58 pages)