Governor Brown's 2013-14 Budget Plan
The Governor's proposed 2013-14 budget was released on January 10th as required by law. The spending plan represents the first budget since the voters approved $50 billion in tax increases. Although there are many positive aspects of the Governor's Budget, including an increase in funding for education and a partial repayment of budgetary debt, there are also some areas of concern.
The General Fund budget at $97.7 billion is actually $104 billion if previous realignment adjustments are included. The General Fund budget is once again above 2007-2008 levels - the highest ever in state history.
The Governor's budget does not include any significant spending reductions and instead primarily relies on the tax increases approved by the voters to balance the budget. The Governor also pulled back from his commitment to pay down the wall of debt, reducing a proposed $1.6 billion repayment of budgetary loans to just $1 billion.
K-12 schools and California's higher education system will not receive all of the $6.2 billion in revenue raised by Proposition 30 in 2013-14.
Spending Reaches an All-Time High:
Under the Governor's proposed budget, General Fund spending increases to $97.7 billion. This is up from $91.3 billion in the 2012-13 budget adopted just six months ago.1 (Note, the Governor's January 10 budget documents indicate that spending in 2012-13 will be at least $93 billion, $1.7 billion higher than the adopted budget). An "apples to apples" comparison of General Fund spending shows that spending on all programs that were General Fund programs when the Governor was first elected has hit an all-time high of $103.6 billion.2
Governor's Primary Budget Solution Is Tax Increases:
In the past, the Governor has relied on a combination of spending reductions, funding shifts, and tax increases to balance his budget. In the 2013-14 budget, the Governor jettisons what he referred to as a "balanced approach" and instead relies heavily on tax increases to address the 2012-13 deficit spending and the growth in spending in 2013-14. The $6.4 billion spending increase discussed above is funded by $6.2 billion in new revenue raised by Proposition 30 and close to $600 million in taxes on hospitals and insurance plans.3 4
Education Gets Only a Portion of Proposition 30 Funding:
The Governor's budget provides additional funding to California schools and colleges. K-12 schools will get $2.7 billion in increased General Fund revenues while Community Colleges will receive $617 million more.5 Of this amount, $526 million of the new money is directly attributed to the passage of Proposition 39.6 Thus, the net increase to K-12 schools associated with the passage of Proposition 30 alone is $2.2 billion. This is the minimum guarantee required by Proposition 98. California's higher education system, particularly the UC and CSU systems, will see an increase of $596 million ($279 million for UC and $317 million for the CSU system).7 Thus, California schools will see $3.4 billion of the $6.2 billion raised by Proposition 30. The remaining $2.8 billion in funding will be used to fund other non-education spending priorities.
Governor's Budget Continues to Pay Down Budgetary Debt But Fails to Meet Debt Repayment Schedule
In 2013-14, the state will dedicate $4.2 billion to repay budgetary borrowing. Paying down debt will free up money for future needs. However, as part of the Governor's adopted 2012-13 budget, the Governor assumed $5.2 billion of budgetary debt would be paid off in 2013-14. $1.4 billion of the scheduled debt repayment is required to be paid back as part of the Economic Recovery Bonds. The Legislature and the Governor cannot alter this repayment. Of the remaining $3.8 billion projected repayment schedule, the Governor reduces that amount by $1 billion.8 This represents virtually all of the non-education discretionary repayments. To meet his self-imposed 2015-16 repayment deadline, he pushes this deferred $1 billion repayment into later years.
Most Observers Conclude Governor’s January Budget Represents Step in the Right Direction
The Governor’s January budget proposal is just the framework from which the Legislature will now begin months of work to craft a final budget plan later this spring. As with any budget plan, there are many provisions that will be subject to significant legislative debate.
The reaction from Republican and Democrat leaders and media observers seemed to be universal – that the Governor’s commitment to fund education represents a step in the right direction. Both parties agreed that it was important to make K-12 and higher education funding a top budget priority. But it is important to note that the failure to pay down budgetary debt will result in a reduced ability to fund priority programs in the future. Republicans, who introduced two measures, AB 67 (Gorell) and SB 58 (Cannella)
, were also cheered by the Governor’s emphasis of freezing tuition at the state’s university systems.
2 The Governor's 2011-12 proposal to realign state programs to local agencies reduced General Fund expenditures by $5.3 billion. The programs continued to exist. However, instead of receiving funding from the General Fund, they became special fund programs. In the 2013-14 fiscal year, these programs are expected to cost taxpayers $5.9 billion. Source: Governor’s 2013-14 Budget Summary, page 142
3 Governor's Budget Summary
, page 141. Proposition 30 is estimated to increase Personal Income Tax revenues by $3.2 billion in 2011-12, $4.8 billion in 2012-13, and $4.9 billion in 2013-14. It is estimated to increase Sales and Use Tax revenues by $611 million in 2012-13 and $1.3 billion in2013-14.