In January 2005, the Legislative Analyst estimated an operating deficit of approximately $7.3 billion for the 2005-06 fiscal year, increasing to $10 billion in 2006-07 with the Department of Finance projecting an $8.6 billion shortfall for 2005-06. Stronger than expected revenues were realized in Spring 2005, due to improved economic growth and large amnesty-related tax revenues. At the time the Budget was adopted, the projected year end 2005-06 shortfall narrowed to approximately $3.4 billion, and the ongoing structural shortfall in 2006-07 dropped to just under $9 billion.
The State Budget bills, SB 77 and SB 80 were passed by the Legislature on July 7 (six days after the deadline of June 30 for a signature by the Governor). The Senate attempted to pass the Budget, but fell two votes short of passage on June 30. The Governor signed the State Budget on July 11 and item-vetoed about $320 million ($114 million in General Fund).
The Legislative Analyst’s final report on the Budget indicated that it contained approximately $5.9 billion in what they termed “solutions.” The solutions are expected to eliminate the $3.4 billion shortfall and establishing a $1.3 billion year-end reserve, while at the same time allowing the state to repay the $1.2 billion vehicle license fee “gap loan” from local governments due in 2006-07. Approximately $4.1 billion of the solutions involved program saving. Nearly three-quarters of this total is from holding Proposition 98 to reflect revenue improvements since the Budget’s enactment. Another $455 million is in social services most related to the suspension of cost-of-living adjustments for California Work Opportunity and Responsibility to Kids and Supplemental Security Income/State Supplementary Program grants. The balance of the savings is from a variety of areas, including state operations, local property tax administration, and employee compensation. Approximately $728 million in General Fund (GF) savings are from funding shifts. These include $380 million from retaining certain sales taxes on gasoline (so-called “spillover funds”) in the GF instead of using them for public transit purposes. Other funding redirections include a shift of tideland oil revenues from special funds to the GF, and the use of federal funds instead of the GF for certain prenatal care provided under the Medi-Cal Program. Although the Budget does not use additional deficit-financing bonds beyond those that already have been issued, it does include budget-related borrowing from two sources: First, it relies on a $428 million loan from Merrill Lynch to finance the settlement costs of flood-related litigation (the Paterno case) against the state. The first repayment of this loan occurs in 2005-06 resulting in net GF savings of $361 million from the loan; and second, the Budget assumes the refinancing of previously issued tobacco settlement-backed bonds, raising $525 million. Although the Budget does not include any new GF taxes, it does anticipate additional revenues of $94 million related to increased tax compliance efforts.
In the education portion of the State Budget the following occurred: K-14 received a $3 billion increase over the 2004-05 Budget; increased the state per pupil spending by $379 making it a total of per pupil at $7,402; provided $354 million to promote academic performance for schools who need the most help; provided $183.5 million from the Proposition 98 Reversion Account for school facility emergency repairs consistent with the Williams Agreement; provided $8.5 million to fully fund average daily attendance (ADA) growth of 0.69 percent; provided a $1.7 billion cost-of-living adjustment for revenue limits, special education, child care and development, class size reduction, and other K-12 categorical programs; provided a $50 million grant for low-performing schools to recruit, retain, and reward teachers and principals; provided $57.5 million for supplemental instruction to help prepare at-risk students for the High School Exit Exam; provided $1 million to the University of California (UC)/California State University (CSU) California Teach Program which is to quadruple the number of credentialed science and math teachers from 250 per year to 1000 per year by 2010; provided $18.2 million for fruits and vegetables served in the California School Breakfast Program and $3.9 billion for growing enrollment, cost-of-living increases and mental health services for children with special needs. The UC and CSU systems increased student’s fees by eight percent for undergraduate students and 10 percent for graduate students and increased fees for professional schools and nonresident tuition. The total education spending plan came to $62 billion.
In the health and human services component, the Budget protected the eligibility for over seven million low-income citizens who rely on Medi-Cal and the Healthy Families Program, expanded the Healthy Families Program enrollment by more than 125,000 and expanded the outreach activities to ensure more eligible children receive health care, provided a $12 million increase for combating West Nile Virus as spread by mosquitoes; provided $100 million to ensure those citizens who are vulnerable get the prescriptions they rely on as health care programs are updated and modernized; provided more funds to promote housing for the homeless; and suspended the cost-of-living adjustments for social programs mentioned earlier.
Other major programs in the Budget included the following: Placing $1.3 billion in taxes paid for gas at the pump directly back into transportation construction thus fully funding Proposition 42; enhancing the Governor’s Nurse Education Initiative; investing $88.5 million in the Carl Moyer Program to improve air quality, retire old polluting vehicles, and reduce motor vehicle emissions; providing an additional $2.7 million to cleanup Brownfields; allocating $6.5 million to support the expansion of the hydrogen fueling network; investing more than $15 million additional monies to protect the Sierra Nevada Conservancy; providing $22.7 million to prevent fires by ensuring firefighters have vehicles and equipment; and providing $25 million to retrofit and replace diesel school buses.
The following is a list of 2005-06 Budget and Budget-related legislation: