Highlights and Analysis of the 2015-16 State Budget

Wednesday, July 1, 2015

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Executive Summary

Senate Republicans have long prioritized investing in education as a top priority along with building the state’s new rainy day reserve, paying off state budgetary debts, and addressing unfunded liabilities that jeopardize our state’s fiscal future.  The 2015-16 state budget plan is consistent with some of these priorities as it keeps faith with voter-approved constitutional spending requirements for schools and community colleges (Proposition 98, 1988) and higher budget reserve and debt payment requirements (Proposition 2, 2014).

Specifically, the budget plan builds the rainy day reserve to almost $3.5 billion (see Proposition 2 Rainy Day Fund Page 6), pays off about $7.6 billion of past budgetary debts (see Statewide Debts and Liabilities Page 44), increases funding for K-14 education programs by $7.6 billion compared to the 2014 Budget Act, and provides nearly $500 million more funding for higher education with a tuition freeze at California state colleges and universities that was first introduced by Senate Republicans in 2013 in the form of  SB 58 (Cannella, R–Ceres) (see Education Page 18).

However, while there are many positive aspects to the new budget plan, it is only precariously balanced as it proposes a new record high spending level of over $265 billion.  This exceeds the 2014 Budget Act total spending ($254 billion) by over $11 billion. State General Fund spending accounts for more than half of the increase, growing by $7 billion from $108 billion last year to over $115 billion for 2015‑16. Unfortunately, this rapid state spending increase will not be sustainable.

This massive spending growth is fueled by nearly $10 billion of unanticipated tax revenue – money that was not expected one year ago when the 2014 budget was enacted (see Unanticipated Revenue Fuels State Spending Growth on page 4).  Regrettably, this is a repeat of the scenario that led California into more than a decade of fiscal crises, tax increases, and budget deficits beginning with the 2001 “tech bubble” followed by the 2008 “housing bubble”. 

Rather than repeat past mistakes by committing unexpected revenues to unsustainable new government spending that jeopardizes our state’s fiscal health and puts hardworking California families at risk, Senate Republicans believe that money should be put into the rainy day fund and debt repayment and used for job-creating infrastructure projects such as transportation, water, and school facilities.  Preparing for the future without creating new budget deficits just requires common sense.

The Department of Finance projects that absent any changes to state spending, California will return to operating deficits in excess of $2.6 billion by 2018-19.  In addition, with over $300 billion in unfunded liabilities and other debts for public employee pensions, retiree health care, General Obligation bonds, and infrastructure, it is clear that the people of California cannot afford another spending spree by the ruling Democrats.

Adding insult to injury, despite having just enacted a record high spending plan, the Governor and legislative Democrats have called for two “Extraordinary Sessions” of the State Legislature with the specific goals of further increasing taxes on California families to fund additional new spending.  For the First Extraordinary Session, the Governor and ruling Democrats propose to increase car-related taxes by several billion dollars to fund transportation infrastructure needs.  Apparently, in spite of the importance of this issue, the $10 billion of unexpected revenue is not available to address this need because Democrats spent it elsewhere.  Further, they have been unwilling to support a Senate Republican plan that would provide $3 billion annually for local roads and state highways without any tax increases (see Transportation page 33).

For the Second Extraordinary Session, the Governor and legislative Democrats propose to increase taxes on the health care plans of 24 million Californians.  The ruling party chose to prioritize salary increases for public employee unions and a new expansion of government health care for undocumented immigrants, rather than restoring rate increases for Medi-Cal providers and adequately funding services for developmentally disabled citizens.  The Governor now claims that there will be a $1 billion “hole” in the budget unless his proposed tax increase on health care for working families is approved.  It is difficult to comprehend the relative priorities of such a proposal.

The bottom line is that, despite the Governor’s call for fiscal responsibility, California is already on a path to fiscal instability. Legislative Democrats’ demands to further increase taxes and spending by billions of dollars pose a serious threat to our state’s future. Senate Republicans support a smart approach to using unanticipated revenues that will create job opportunities for struggling families, and provide the foundation for all Californians to have a successful future.

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