Governor Schwarzenegger, in December 2007, announced that the 2007-08 State Budget contained a shortfall of $3.3 billion. Among the many factors contributing to the shortfall, according to the Governor, included (1) a revised and lower current year revenue forecast, driven by the slump in the housing sector and the effects of the subprime mortgage collapse, (2) increased firefighting costs related to the 2007 wildfires in Southern California, (3) legal challenges that have delayed implementation of Indian gaming compacts, (4) lower estimated local property tax revenues, affecting the state’s share of K-14 school funding, and (5) an Appellate Court decision in a lawsuit over teachers’ retirement funding.
On January 10, 2008, the Governor declared a fiscal emergency and called the Legislature into Special Session. The Governor proclaimed a fiscal emergency utilizing the authority provided within the State Constitution (passed as Proposition 58 by the electorate in early 2004). Under the Constitution, the Governor can call the Legislature into a Special Session to deal with substantial revenue declines or expenditure increases, and provide proposed legislation to address the fiscal emergency. If the Legislature fails to pass and send to the Governor, a bill or bills addressing the fiscal emergency by the 45th day following this type of proclamation, the Legislature may not act on any other bill.
The Special Session had, as its major focus, the $3.3 billion shortfall and a $14.5 billion General Fund shortfall in the 2008-09 Budget year. The Legislature passed, and the Governor signed into law, the following legislation which addressed the 2007-08 Budget shortfall:
1. AB 3XXX (Assembly Budget Committee) made a number of general savings and cuts in various state agencies totaling $363 million and shifted $409 million in Public Transportation Account expenditures from prior-year debt service to current year Home-to-Schools program to avoid a loss in the General Fund reserve of $409 million.
2. AB 4XXX (Assembly Budget Committee) made a variety of education-related budget adjustments to K-12 schools and community colleges. It saved over $500 million in the current year by reverting and capturing unspent prior and current year funds.
3. AB 5XXX (Assembly Budget Committee) made statutory changes in various programs in the developmental disabilities services area and in health care services. It made statutory changes to reduce Medi-Cal provider rates by 10% beginning 7/1/08 and also rates under the California Children Services Program, the Genetically Handicapped Persons Program and Child Health and Disability Prevention Program.
4. AB 6XXX (Assembly Budget Committee) enacted the statutory changes in human services programs, including delaying the implementation of the July 2008 California Work Opportunity and Responsibility to Kids cost-of-living adjustment.
5. AB 7XXX (Assembly Budget Committee) deferred the payment of gasoline excise tax revenues to cities and counties from March through July 2008, until full payment for all deferred amounts are made with the regular September payment.
6. AB 8XXX (Assembly Budget Committee) discontinued payment of estimated mandated claims, deferred the State Teachers’ Retirement System payment, and delayed new judgeships for a year.