Highlights and Analysis of the Enacted 2014-15 State Budget

Friday, October 3, 2014

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Executive Summary

The final 2014-15 state budget generally reflects the Governor‘s original budget framework. Legislative Democrats lost the battle to prop up higher state spending by using the Legislative Analyst‘s riskier General Fund revenue forecast, which was $2.5 billion higher than the Governor‘s estimate. Relative to the Governor‘s budget plan, the final budget agreement increases baseline state spending by about $900 million, and reduces the amount of debt repayment by $700 million. However, it could have been much worse given legislative Democrats‘ initial proposal to increase state spending by $3 billion above the Governor‘s plan.

Despite the unwise spending changes that increase the risk of future budget deficits, the budget still reduces past budgetary debts and future liabilities, and begins to build a rainy-day reserve. Senate Republicans agree with many items in this budget plan, such as the additional $4.7 billion of flexible funding for K-14 education and reducing the $340 billion wall of debt by $10.4 billion. If additional unanticipated revenues emerge, new revenue ―triggers‖ would allow about $1.8 billion of additional debt repayments to occur, and provide an additional $50 million for each of the University of California and California State University systems and $100 million for various deferred maintenance projects.

However, this budget is far from perfect and does not reflect Republican priorities. If Republicans were the majority party, the budget would spend less on new programs and do more to pay down state government debt. Further, instead of using bond funds to build and repair local schools as Republicans recommend, this budget plan embraces the absurdly costly and illegal $70 billion High Speed Rail scheme that most Californians no longer support; and spends $500 million for 3,500 Caltrans employees that have no work to do according to a recent Legislative Analyst report. Those are wasted funds that should be used to repair neighborhood streets and roads (see Transportation page 36). It also prioritizes a new welfare expansion (see Human Services page 32) that foolishly provides cash grants to drug felons rather than funding full enrollment growth for our state universities or restoring rates for Medi-Cal providers that are with coping millions of new enrollees due to Obamacare.

Despite complaints from legislative Democrats, public employee unions, and their related spending interest groups, it is by no means an austere budget. General Fund spending reaches a new record high at $108 billion, and is nearly $12 billion higher than last year’s enacted budget. State welfare grants are significantly increased, and the cost of the In-Home Supportive Services entitlement program grows dramatically as California continues to support one of, if not the most generous government social "safety net" systems in the nation (see California Safety Net Facts page 52). It is important to have a strong safety net to help the less fortunate, but it is also essential to provide the right incentives to help people achieve self-sufficiency.

Sadly, the main problem with this budget is not what it does, but what it does not do. Republicans want to restore California's shrinking middle class and stop the policies that are creating a state of haves and have nots. Families in poverty want good jobs with benefits and opportunities for their children to do even better than they did – not just another five percent in their welfare check. This budget plan furthers those harmful policies and provides no real opportunities for families to improve their quality of life.

Despite what seem like good intentions, legislative Democrats consistently impose policies that shift people into poverty and cause California‘s middle class to flee the state. Policies such as the nation‘s highest income, sales, and gas taxes; environmental and land use rules and regulations that result in housing prices most people cannot afford. Expensive boutique gas blends and policies that directly increase energy costs leave people's wallets empty and increase the cost of goods and services while reducing job opportunities. These policies hurt the poor and middle class far more than they affect wealthy Californians who can afford the higher cost of living. These "quality of life" taxes benefit a few but harm many more.

The ruling Democrats have the ability to fix these things, but they do not want to. It seems they prefer to chase away middle class jobs and opportunities for the less educated because of a belief that everyone can make millions of dollars working in Silicon Valley if they have the right government program to help them. Their policies make California unnecessarily expensive and drive people into poverty. Then they propose new government programs to subsidize this life of poverty as if that is a real solution. That is the real shame of this budget – it represents the missed opportunity to build a better California for everyone. That is what Republicans would do differently.

Read Complete Analysis (pdf)