When a Budget Cut Isn't Really a Cut
Many news stories surrounding the Governor's May Revision of the 2012-13 budget proposal leave the impression that state revenues in the next fiscal year will be dramatically lower than last year and that overall spending is being cut. The California Budget Fact Check found that:
Revenues are expected to grow in 2012-13 by $4.9 billion without the Governor's tax increase. On average, the Governor predicts that state revenues would grow 6.6 percent annually over the next four years without a tax increase.
With the Governor's tax increase and other proposed tax policy changes, revenues would be up $12.5 billion (from $83.2 billion in 2011-12 to $95.7 billion in 2012-13.)
Despite the talk about deep cuts, General Fund spending grows by $4.9 billion in 2012-13 in the Governor's proposal. Between 2012-13 and 2015-16, General Fund spending is expected to grow by 28.8% above 2011-12 levels.
All Spending since 2007-08 is up $30 billion ($194 billion in 2007-08 compared to $225 billion proposed for 2012-13).
Revenues Grow Without Tax Increases
The Governor's May Revision acknowledges that the California economy is recovering "at a modest pace," but is recovering nonetheless.i As the state's economy improves and more people return to work, state General Fund revenues continue to grow. The Governor's May Revision predicts that unemployment will drop from 11.8% in 2011 to 10.9% in 2012.ii With increased employment, state General Fund Revenues will grow from $83.2 billion in 2011-12 to $88.2 billion in 2012-13.iii The increase in revenues is being driven by personal income tax growth (estimated to grow by $5.7 billion in one year) and increased sales taxes (estimated to grow over $1 billion). Over the forecast period, from 2012-13 to 2014-15, revenues are expected to grow on average by 6.6% a year, without tax increases.
Spending On The Rise
News accounts about the Governor's May Revision suggest that spending in 2012-13 would be lower than 2011-12. However, an analysis of the Governor's proposal finds that after the Governor's proposed cuts, General Fund spending will increase by $4.9 billion (from $86.5 billion in 2011-12 to $91.4 billion in 2012-13).iv Note: General Fund spending will grow much faster if the Legislature fails to enact the proposed cuts in the May Revision. Between 2011-12 and 2015-16, General Fund spending is expected to grow 26.7% above 2011-12 levels.
To get a complete picture on state spending, it is important to look at total state spending not just General Fund spending. Total state spending includes General Fund spending, special fund spending (revenue that comes from user fees or other dedicated revenue sources), bond fund spending as approved by voters and spending from federal funds. Since 2008-09, the Legislature has used funding shifts and "budgetary backfills" to avoid program cuts. Under the Governor's May Revision, total state spending will top $224.8 billion, up from $212.7 billion in the 2011-12 budgetv. When Is A Cut Not A Cut?... When it Is Part of The State Budget!
A typical California family understands that a cut to the family budget results in spending less than what was spent the year before. However, when state policy makers talk about spending cuts in the state budget, they often mean that they are slowing the growth of programs, not actually cutting a program over the previous year. Despite rhetoric that the budget cuts health and welfare spending, health and welfare spending will actually grow over the 2011-12 adopted budget ($23 billion in 2011-12 adopted budget compared to $26 billion in 2012-13 proposed budget)vi.
50% of the Governor's Proposed Cuts are Really Deferrals and Fund Shifts.
The Governor is asking for $8.5 billion in spending cuts in his May Revision.vii However, upon closer inspection, over 50% of the Governor's budget "cuts" are actually deferrals and fund shifts. Examples of deferrals and fund shifts the Governor characterizes as "cuts" include:
1) $1.4 billion shift of Redevelopment Agency assets,
2) $544 million fund shift of trial court reserves,
3) $293 million fund shift of mortgage settlement proceeds,
4) $663 million deferral of Medi-Cal provider payments, and
5) $830 million to defer/repeal state mandates,
Deferrals and funding shifts do not reduce spending. The programs dependent on this funding continue to spend the money on their programs. In the case of funding shifts, the funding simply comes from a source other than the General Fund. Because the General Fund does not have to meet the obligation, it is considered a cut in the Governor's budget. In reality, it is spending from a different bucket of taxpayer funds. With deferrals, the program spends in one year but the state pays for them in the next fiscal year.
Click here to read past issues of "Budget Fact Check."
i Governor's May Revision 2012-13, page 15
ii Governor's May Revision 2012-13, page 20
iii Governor's May Revision 2012-13, page 24
iv Governor's May Revision 2012-13, page 14
v Department of Finance Schedule 9
vi Department of Finance Schedule 9. Note: The adjusted 2011-12 budget grew to $26.8 because many of the proposed budget reductions adopted as part of the 2011-12 did not materialize.
vii Governor's May Revision 2012-13, page 5