california spending plan, 2006-07 - california …the 2006-07 budget package september 2006...

The 2006-07 Budget Package

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September 2006Elizabeth G. Hill, Legislative Analyst

The Budget Act and Related Legislation

California Spending Plan

2006-07

Leg�slat�ve Analyst’s Office

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Acknowledgments

The Legislative Analyst’s Office (LAO) is a nonpartisan office which provides fiscal and policy information and advice to the Legislature.

LAO Publications

To request publications call (916) 445-4656.

This report and others, as well as an E-mail subscription service, are available on the LAO’s Internet site at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814.

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Legislative Analyst’s Office

Legislative Analyst ElizabethG.Hill.................................................................................................445-4656

Deputy Legislative Analysts HadleyJohnson,Jr............................................................................................. 319-8303 MacTaylor........................................................................................................... 319-8301

Economics and Taxation Director:JonDavidVasché............................................................................. 319-8305

Fiscal Forecasting and Budget Overview Director:BradWilliams.................................................................................. 319-8306

State Administration/Capital Outlay Director:MichaelCohen................................................................................... 319-8310

Education, K-12 Director:JenniferKuhn.................................................................................... 319-8332

Education, Higher Director:SteveBoilard..................................................................................... 319-8331

Local Government Director:MacTaylor......................................................................................... 319-8301

Health Director:DanielC.Carson.............................................................................. 319-8350

Social Services Director:ToddR.Bland.................................................................................... 319-8353

Criminal Justice Director:GregJolivette..................................................................................... 319-8340

Transportation, Business, and Housing Director:Chi-MingDanaCurry..................................................................... 319-8320

Resources and Environmental Protection Director:MarkNewton.................................................................................... 319-8323


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Contents

Index of Figures .......................................................................................v

Chapter 1 Overview of the 2006-07 Budget

Programmat�c Features of the 2006-07 Budget ............................ 2

Budgetary Debt and the 2006-07 Budget ...................................... 3

Out-Year Impacts of the 2006-07 Budget ...................................... 4

Chapter 2 Key Features of the Budget Act and Related Legislation

The Budget Totals .......................................................................... 5

Evolut�on of the Budget ................................................................. 9

State Appropr�at�ons L�m�t ........................................................... 14

Budget-Related Leg�slat�on ......................................................... 15

Chapter 3 ExpenditureHighlights

Propos�t�on 98 ............................................................................. 17

H�gher Educat�on ......................................................................... 26

Health ......................................................................................... 32

Soc�al Serv�ces ............................................................................ 39

Jud�c�ary & Cr�m�nal Just�ce ........................................................ 46

Transportat�on ............................................................................. 51

Resources and Env�ronmental Protect�on .................................. 55

Cap�tal Outlay .............................................................................. 60

Other Major Prov�s�ons ................................................................ 62


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v

Figures

Chapter 1 Overview of the 2006-07 Budget

1 2006 Budget Act Reflects Cont�nued Revenue Strengthen�ng .................................... 1

Chapter 2 Key Features of the Budget Act and Related Legislation

1 The 2006-07 Budget Package, Total State Expend�tures ........ 5

2 The 2006-07 Budget General Fund Cond�t�on ......................... 6

3 The 2006-07 Budget Package, General Fund Spend�ng by Major Program Area ...................................................... 7

4 General Fund Spend�ng Over T�me ......................................... 9

5 Key Elements of Governor’s January Proposal ..................... 10

6 May Rev�s�on—Key D�fferences From January ...................... 12

7 F�nal Budget—Key D�fferences From May Rev�s�on .............. 13

8 2006-07 Budget and Budget-Related Leg�slat�on .................. 15

Chapter 3 Expenditure Highlights

1 K-14 Propos�t�on 98 Spend�ng .............................................. 17

2 Update on the K-14 Cred�t Card Balance ............................. 19

3 K-12 Propos�t�on 98 Spend�ng Per Pup�l ............................... 19

4 Ongo�ng K-12 Propos�t�on 98 Changes ................................ 20

5 K-12 Spend�ng From One-T�me Funds ................................. 22

6 H�gher Educat�on Budget Summary General Fund Appropr�at�ons .......................................... 26

7 Annual Educat�on Fees for Full-T�me Res�dent Students ..... 28

8 Cal�forn�a Commun�ty Colleges Fund�ng Ava�lable For 4 Percent Enrollment Growth .................................... 29

9 Major Nurs�ng-Related Appropr�at�ons 2006-07 Budget Package ................................................ 31

10 Health Serv�ces Programs General Fund Spend�ng ............. 32


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11 Major Changes—State Health Programs 2006-07 General Fund Effect .......................................... 33

12 Soc�al Serv�ces Programs General Fund Spend�ng ............. 39

13 Major Changes—Soc�al Serv�ces Programs 2006-07 General Fund and Federal TANF Block Grant Funds ...... 41

14 SSI/SSP Grant Levels ............................................................ 42

15 Jud�c�al and Cr�m�nal Just�ce Budget Summary— General Fund ................................................................... 47

16 Inmate and Parole Populat�ons Resume Growth .................. 48

17 Adult Correct�ons New Rec�d�v�sm Reduct�on Fund�ng ......... 48

18 Major Local Publ�c Safety Programs—General Fund ........... 50

19 Transportat�on Loans and Repayments ................................ 53

20 Major 2006-07 Budget Act�ons, Fund�ng by Program ........................................................ 54

21 Resources Programs: Expend�tures and Fund�ng ................ 56

22 Env�ronmental Protect�ons Programs: Expend�tures and Fund�ng ............................................... 56

23 Selected Bond Expend�tures Resources and Env�ronmental Protect�on Programs ................................ 57

24 2006-07 Cap�tal Outlay Programs ......................................... 60

25 Augmentat�ons for Employee Compensat�on ........................ 63


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Chapter 1

Overview of the 2006-07 BudgetThe2006-07budgetsharplyincreasesfundingforeducation,providestar-getedincreasesinseveralotherprogramareas,andprepaysnearly$3bil-lioninbudgetarydebtincurredduringthe2002-03through2004-05fiscalyears.Theexpandedcommitments included in thisspendingplanare instrikingcontrasttothefourpreviousyears,whenpolicymakerswerefacedwithclosingmajorbudgetshortfalls.Thisturnaroundhasbeenmadepos-siblebymuchstronger-than-expectedrevenues.Asone indicationof thisstrength, between mid-2005 and mid-2006, the revenue estimates for the2004-05 through 2006-07 fiscal years rose a combined total of $17billion(seeFigure1),reflectingmuchbetter-than-expectedperformancesfromthepersonalincometaxandcorporationtax.

Figure 1

2006 Budget Act ReflectsContinued Revenue Strengthening

Total General Fund Revenues (In Billions)

60

65

70

75

80

85

90

$95

99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07

2005-06 Budget Act

2006-07 January 10 Budget

2006-07 Budget Act


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Therevenueimprovementthatoccurredin2003-04through2005-06—whencombinedwithpastbudget-relatedborrowingandvariousone-timeandongoingsavingsenactedinthe2003-04through2005-06budgets—resultedintheaccumulationofover$9billionincarry-overbalancesthatwereavail-abletosupportspendingin2006-07.The2006-07budgetusesover$7billionofthesecarryoverbalances,alongwith$94billioninrevenuesprojectedin2006-07,tofinanceover$101billioninspendingduringtheyear,9.5percentmorethanin2005-06.

Programmatic Features oF the 2006‑07 BudgetKeyprogrammaticfeaturesofthisbudgetareasfollows:

• Allocates$7billioninnewfundsforK-12Proposition98education,resultinginanover11percentincreaseinperpupilfundingrelativetothelevelprovidedinthe2005‑06 Budget Act.

• Providesanover10percentGeneralFundincreaseforCaliforniaCom-munityColleges,includingfundsfordistrictequalization,blockgrantstodistricts,andforthebackfillofforegonerevenuesresultingfromareductionincommunitycollegefeesfrom$26to$20perunitbeginninginspring2007.Withthe2006-07increases,thestatehasmetitsgoaloffullyachievingequalizationamongthecommunitycollegedistricts.

• ProvidesGeneralFundincreasesof8.5percentfortheUniversityofCaliforniaand7.4percentforCaliforniaStateUniversity,includingadditionalGeneralFundsupportinlieuofplannedfeeincreasesfor2006-07.

• Providesthefull$1.4billionannualProposition42transferofsalestaxes on gasoline to fund transportation programs, and it repays$1.4billionofpastProposition42loans(thatis,transferswhichweredeferredin2003-04and2004-05).

• Includes largelyone-time funding forhospitals to increasepatientcapacitytomeetpublichealthemergencies,suchasanavianflupan-demic.

• IncreasesfundingforcountyblockgrantsforCaliforniaWorkOp-portunity and Responsibility to Kids, child welfare services, andfostercare.


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• Includes funding for thepass-throughof the federal January2007SupplementalSecurityIncomecost-of-livingadjustment,which—un-der the terms of the previous 2005-06 budget package—had beendelayeduntilApril2007.

• Includes largeincreasestotheDepartmentofCorrectionsandRe-habilitationtocoverinmatepopulationincreasesandhealth-relatedcosts.

• Includesadded funding for local lawenforcementand localfloodcontrol.

Thebudgetdoesnotincludeanymajortaxchanges.However,itdoesincludetheadministration’sproposalstoextendtwopreviouslyenactedmeasuresforoneyear.Theseare (1) thesuspensionof the teachers’ taxcreditand(2)anincrease—from90daystooneyear—inthetimeperiodthatvessels,vehicles,andaircraftpurchasedoutsideofCaliforniamustbekeptoutofstatetoavoidtheusetax.

Budgetary deBt and the 2006‑07 BudgetThe2006-07spendingplanincludes$2.8billioninprepaymentsofbudget-arydebtthathadbeenincurredinprioryears.Aboutone-halfofthetotalisrelatedtorepaymentoftransportationloans(citedaboveanddiscussedinmoredetailinthetransportationsection).Theremainderisacceleratedrepaymentsofotherspecialfundloansthathadplannedrepaymentdatesin the future. These include payments toward deficit-financing bonds(Proposition57),localgovernmentmandateclaims,andsettleupofprior-year Proposition98 obligations. Taking into account these prepayments,alongwiththenewdebtcreatedbytheProposition98settlement(discussedbelow),theGeneralFundwillhaveroughly$22billioninbudgetarydebtoutstandingatthecloseof2006-07.

other actions associated With the 2006‑07 BudgetWhilenotpartofthebudgetpackagefor2006-07,agreementsreachedbe-tweentheGovernorandLegislatureinthreeareaswillhaveimplicationsforGeneralFundspending,particularlyinfutureyears.

Proposition 98 Settlement.Followingenactmentof thebudget, theLeg-islatureapproveda$2.9billionsettlementproposedbytheadministration


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relatingtofundsthatsomeeducationgroupsclaimedwereowedtoK-14educationfor2004-05and2005-06.Underthissettlement,K-14Proposition98willreceiveannualpaymentsof$300millionin2007-08and$450millionperyearbeginningin2008-09untiltheobligationhasbeenmet.

Infrastructure Package.TheGovernorandLegislaturereachedagreementinlateAprilonabondpackagetotaling$37billion,tobesubmittedtovot-ersforauthorizationinNovember2006.Theseinclude$19.9billionforstateandlocaltransportationprojects,$10.4billionforK-12andhighereducationprojects,$4.1billionforvariousfloodmanagementprograms,and$2.9bil-lionforhousinganddevelopmentprograms.Ifapproved,debtserviceonthesefourbondswouldberoughly$100millionin2007-08,risingtoover$2.7billioninfutureyearswhenallthebondsweresold.

Collective Bargaining Agreements. TheLegislatureapprovednewagree-mentswith19of21employeebargainingunits.(AllbutoneagreementwereapprovedinAugust2006.)Theseagreementsresultin$632million($270mil-lionGeneralFund)inadditionalcompensationcostsduring2006-07.Mostemployeesreceivea3.5percentgeneralsalaryincreasein2006-07,andsomereceiveaone-time$1,000bonus.

out‑year imPacts oF the 2006‑07 BudgetThe2006-07budgetisbalancedwithasignificantreserve.Asnotedabove,however, revenues are over $7billion less than expenditures in 2006-07,withthedifferencebeingcoveredbythedrawdownofcarryoverreservesavailablefrom2005-06.Whilenearly$3billionofthedifferenceisduetopre-paymentsofbudgetarydebt,theremaining$4billion-plusshortfallreflectsongoingdifferencebetweenrevenuesandexpendituresforGeneralFundprograms.Basedonourout-yearestimatesofrevenuesandexpenditures,weestimatethatthisimbalancewillcontinuein2007-08and2008-09absentcorrectiveaction,withannualoperatingshortfallsintherangeof$4.5billionand$5billionprojectedforthisperiod.Wewillbeupdatingourprojectionsfor2006-07andfutureyearstoreflecteconomic,revenue,andexpendituredevelopmentsinourannualpublicationentitledCalifornia’s Fiscal Outlook,scheduledtobereleasedinNovember2006.


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Chapter 2

Key Features of the Budget Act and Related Legislationthe Budget totalsTotal State SpendingThestatespendingplanfor2006-07includestotalbudgetexpendituresof$128.4billion.Thisincludes$101.6billionfromtheGeneralFundand$26.9bil-lionfromspecialfunds.AsFigure1shows,thecombinedspendingtotalfromthesefundsisup$11billion(9.5percent)from2005-06.

The figure also shows that spending of bond proceeds for capital outlayjumpedfrom$5.6billionin2004-05to$11billionin2005-06,beforefallingbackto$3.6billionin2006-07.Bond-fundexpendituresreflecttheuseofbondproceedsoncapitaloutlayprojectsinagivenyear(or,inthecaseofeduca-

Figure 1

The 2006-07 Budget Package Total State Expenditures

(Dollars in Millions)

Change From 2005-06

Fund Type Actual

2004-05 Estimated2005-06

Enacted2006-07 Amount Percent

General Funda $79,804 $92,730 $101,572 $8,842 9.5%

Special fundsa 22,192 24,509 26,824 2,315 9.4

Budget Totals $101,996 $117,239 $128,396 $11,157 9.5%Selected bond funds 5,595 11,018 3,550 -7,469 -67.8

Totals $107,590 $128,257 $131,945 $3,688 2.9%a Includes 2006-07 budget package, as well as collective bargaining agreements and certain other

legislation pending gubernatorial action as of early September 2006. Impacts of any remaining legislation signed by the Governor will be included in our California Fiscal Outlook, to be released in November 2006.


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tionbonds,theallocationofthebondauthoritytospecificlocalprojectsbytheStateAllocationBoard).ThecostsassociatedwithdebtserviceonthebondsareincludedintheGeneralFundandspecialfundsspendingtotals.Theone-timejumpinbondspendingin2005-06isprimarilyrelatedtotheallocationofK-12educationbonds(approvedbyvotersin2004)tospecificprojects.

The General Fund ConditionFigure2summarizestheestimatedGeneralFundconditionfor2005-06and2006-07thatresultsfromtheadoptedspendingplan.

2005‑06.Thefigureshowsthat2005-06beganwithaprior-yearcarryoverbalanceof$9.5billion.Thislargebalanceisrelatedtothesaleofover$11bil-lionindeficit-financingbondsandotherformsofbudgetaryborrowinginpreviousyears,aswellasthecarryoverofunanticipatedrevenues(associatedwithbothhighertaxliabilitiesandamnestypayments)receivedin2003-04and2004-05.Thefigurealsoshowsthatrevenuesandexpenditureswereanidentical$92.7billionduring2005-06,leavingthefundbalanceattheendoftheyearat$9.5billion,unchangedfromtheprioryear.Afteraccountingfor$521millioninyear-endfundsencumberedbystateagencies,theunen-cumberedyear-endreservewas$9billion.

2006‑07.Figure2showsthatrevenuesareprojectedtoincreaseto$94.4billion(1.7percent),andthatexpendituresareprojectedtoincreaseto$101.6billion(9.5percent).The$7.2billiondifferencebetweenexpendituresandrevenues

Figure 2

The 2006-07 Budget General Fund Condition

(In Millions)

2005-06 2006-07

Prior-year fund balance $9,511 $9,530 Revenues and transfers 92,749 94,354 Total resources available $102,260 $103,884

Expendituresa 92,730 101,572 Ending fund balance $9,530 $2,312 Encumbrances 521 521 Reserve $9,009 $1,791 Budget Stabilization Account — $472 Reserve for Economic Uncertainties $9,009 1,319a Includes 2006-07 budget package, as well as collective bargaining agreements and certain other

legislation pending gubernatorial action as of early September 2006. Impacts of any remaining legislation signed by the Governor will be included in our California Fiscal OutlookNovember 2006.


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iscoveredthroughthedrawdownofthe2005-06year-endreserve,leavingaremainingreserveofabout$1.8billionatthecloseof2006-07.Thistotalincludes$472millioninthenewlycreatedBudgetStabilizationAccount(asrequiredbyProposition58,whichwasapprovedbythevotersin2004)and$1.3billionintheReserveforEconomicUncertainties.

Programmatic Spending in 2006-07Figure3showsGeneralFundspendingbymajorprogramareafor2004-05through2006-07.ItshowsthatK-12spendingisthesinglelargestarea,ac-countingfornearly40percentoftheGeneralFundtotal.Highereducation,health,socialservices,andcriminaljusticespendingaccountformostofthebalanceoftotalspending.

Intermsofoverallbudgetgrowth,thefigureshowsthatGeneralFundex-pendituresareprojectedtoriseby9.5percentbetween2005-06and2006-07.Threesetsoffactorscontributetothisincrease:(1)one-timeandongoingprogramincreasesineducationandselectedotherareasofthebudget;(2)ris-ingcostsrelatedtoprogramutilization,healthcarecosts,andcaseloads;and(3)repaymentofpastbudgetarydebt.Intermsofspecificprogramareas:

• General Fund spending on transportation jumped by 76percentbetween2005-06and2006-07.The2005-06totalincludestheannualtransferofsalestaxesongasolinefromtheGeneralFundtotrans-

Figure 3

The 2006-07 Budget Package General Fund Spending by Major Program Areaa


Change From 2005-06 Actual

2004-05 Estimated2005-06

Enacted2006-07 Amount Percent

K-12 Education $32,595 $36,343 $39,174 $2,831 7.8%Higher Education 9,216 10,313 11,285 972 9.4Health 15,898 17,730 19,527 1,797 10.1Social Services 8,954 9,235 9,778 542 5.9Criminal Justice 9,113 10,165 11,404 1,239 12.2Transportation 347 1,695 2,990 1,295 76.4All other 3,681 7,249 7,414 166 2.3

Totals $79,804 $92,730 $101,572 $8,842 9.5%a Includes 2006-07 budget package, as well as collective bargaining agreements and certain other

legislation pending gubernatorial action as of early September 2006. Impacts of any remaining legislation signed by the Governor will be included in our California Fiscal Outlook, to be released in November 2006.


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portationspecialfunds.The2006-07totalincludesboththeannualtransferandanadditional$1.4billionloanrepaymentassociatedwithProposition42transfersthathadbeendeferredfromearlieryears.

• Thesecondlargestpercentageincreaseisincriminaljustice,wherespendingisbeingboostedbyprisoninmatepopulationgrowth,risinghealthcarecosts,andtargetedincreasesinspendingforcourtsandlocallawenforcement.

• Thethirdmostrapidincreaseisintheareaofhealth,reflectingrisingcostsandutilizationofservices,aswellaslargelyone-timespendingincreases todealwithpublichealthemergencies, inparticular thethreatofanavianflupandemic.

• Highereducationisprojectedtoincrease9.4percent.The2006-07totalsincludefundstocoverbothbaseincreases(thatis,growthtocoversalariesandothercostincreases)ofover5percentplusenrollmentgrowthforallthreesegments.ThebaseincreasesforCaliforniaStateUniversity(CSU)andUniversityofCalifornia(UC)includeGeneralFundmoniestoreplacestudentfeeincreasespreviouslyplannedfor2006-07.ThebudgetalsoincludesGeneralFundspendingtooffsetareductionincommunitycollegefeesfrom$26to$20perunitbegin-ninginspring2007.

• K-12educationincreasesby7.8percent.Whilethisisslightlylessthantheoverallaverage,itisimportanttonotethatthegainfollowsarapid11.5percentincreasein2005-06.

• All other spending increases by only 2.3percent. The spendingtotals forboth2005-06and2006-07 includeone-timeexpendituresforrepaymentofbudgetarydebt—thatis,loansfromschools,localgovernments,andtheprivatesectorinrecentyears.

General Fund Spending Over TimeFigure4showsGeneralFundexpendituresfrom1990-91through2006-07bothincurrentdollarsandasadjustedforpopulationandinflation(thatis,inrealpercapitaterms).Thefigureindicatesthataftergrowingrapidlyinthelate1990s,realpercapitaspendingfellsignificantlyduringthe2001-02through2004-05period,beforereboundingin2005-06and2006-07.GeneralFundspendingisnow30percenthigherthanthepeakreachedin2000-01.Adjustedforinflationandpopulation,however,realpercapitaspendingisstillslightlybelowthe2000-01peak.


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evolution oF the BudgetInthissection,wehighlightthemajordevelopmentsintheevolutionofthe2006-07 budget, beginning with the original Governor’s January budgetproposalandendinginJune2006,whenthebudgetwassignedintolaw.

Governor’s January Proposal for 2006-07AlthoughtheJanuarybudgetwasbasedonrevenueprojectionsthatwereless optimistic than the budget that was ultimately enacted in June, thebudgetproposalstillwasabletomoreorlessfullyfunda“currentservices”budgetinmostareasin2006-07andstillhaveresourcesleftoverforotherpriorities.Thisimprovedoutlookrelativetopreviousyearsreflectedbothmuchstronger-than-expectedrevenuesprojectedfor2005-06and2006-07andtheavailabilityoflargereservescarriedoverfrom2004-05(itselfduetobetter-than-expectedrevenueperformance,aswellasbudgetaryborrowingandprogramsavingsinpreviousbudgets).

Reflectingthis improvement, theGovernor’sbudgetproposedsignificantfundingincreasesforK-12andhighereducationandfundingtocovercase-loadandcostincreasesinmostotherstateprograms.AsshowninFigure5(seenextpage),thebudgetforK-12educationfullyfundedenrollmentand

Figure 4

General Fund Spending Over Time

1990-91 Through 2006-07

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20

30

40

50

60

70

80

90

100

$110

90-91 92-93 94-95 96-97 98-99 00-01 02-03 04-05 06-07

500

1,000

1,500

2,000

2,500

$3,000

Total

Real Per Capita

Real Per CapitaSpending

(In 2006-07 Dollars)Total Spending

(In Billions)


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cost-of-livingadjustments(COLAs)andprovidedanadditional$1.2billioninprogramspending.Theincreaseswereallocatedtotheequalizationofschooldistrictfunding,restorationofCOLAsforegoneinprioryears,man-date payments, new teacher retention initiatives, and several other newcategoricalprograms.Thebudgetalsoincludedfirst-yearfundingofafterschoolprogramsasrequiredbyProposition49.

Inhighereducation,thebudgetincludedfundsfortheGovernor’scompactwiththeUCandCSUsystems,andincludedGeneralFundmoniesinlieuof8percentstudentfeeincreasesthathadbeenplannedfor2006-07.

Intheareaoftransportation,thebudgetmadethefulltransferofProposi-tion42revenues(thatis,salestaxesongasoline)totransportationfunds,andincludedanadditional$920millionofrepaymentsforloansmadefromtransportationfundsinpreviousyears.

Finally,thebudgetincludedfundsforthephase-inof150newjudgeshipsoverthreeyearsandtargetedincreasesinthecorrection’sbudgetforinmateandparoleeprograms.

Figure 5

Key Elements of Governor’s January Proposal

Increased K-12 Proposition 98 Spending Fully funded enrollment and cost-of-living adjustments (COLAs). Provided an additional $1.2 billion for various purposes.

Increased Higher Education Spending Funded Governor’s compact with University of California and California State University. Provided General Fund support in lieu of student fee increases planned for 2006-07.

TransportationMade full Proposition 42 transfer to transportation programs. Proposed early repayment of $920 million in prior loans from transportation funds.

Criminal Justice Proposed phase-in of 150 new judgeships over three years. Targeted funding for inmate and parolee programs.

Social Services Further delayed pass through of federal COLA for Supplemental Security Income/State Supplementary Program grants, from April 2007 to July 2008. Reduced funding for county administration, child care, and welfare-to-work services.


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Thebudgetincludedtargetedsavingsinsocialservicesandstateoperations. Forexample,itdelayedthe pass-throughofthefederalCOLAtoSupplemen-talSecurityIncome/StateSupplementaryProgram(SSI/SSP)grantsfromApril2007toJuly2008(thepass-throughhadbeenpreviouslydelayedfromJanuary2007toApril2007bylegislationenactedwiththe2005-06budget).Italsoincludedreductionsinfundingforcountyadministrationofsocialservicesprograms,childcare,andwelfare-to-workservices.Instateopera-tions,thebudgetassumedunspecifiedsavingsof$158million.

Governor’s Infrastructure PlanInconjunctionwiththeJanuarybudget,theGovernorproposedaten-yearinfrastructureplan.Areasofcapitalimprovementincludedtransportation,education,floodcontrolandwatersupply,publicsafetyandcourts,andotherpublicserviceinfrastructure.Theplanincluded$68billioninnewgeneralobligationbonds,ofwhich$25billionwouldbesubmittedtothevotersforauthorizationin2006,andthebalancetobeauthorizedoverthesubsequentfourelectioncycles.

Legislative Package Submitted to Voters.Afterseveralmonthsofnegotia-tions,theGovernorandLegislaturereachedagreementinlateAprilonabondpackagetotaling$37billion,tobesubmittedtovotersforauthorizationinNovember2006.Theseinclude$19.9billionforstateandlocaltransportationprojects (Proposition1B),$10.4billionforK-12andhighereducationpro-grams(Proposition1D),$4.1billionforvariousfloodmanagementprograms(Proposition1E),and$2.9billionforhousinganddevelopmentprograms(Proposition1C).Inaddition,theLegislaturepassedChapter34,Statutesof2006(AB142,Nuñez),whichappropriates$500millionforfloodcontrol.

May RevisionMajor Revenue Improvement.InthemonthsfollowingthereleaseoftheJanuarybudget,thestaterevenuepictureimproveddramatically.Totalre-ceiptsduringtheJanuary-through-Aprilperiodexceededthebudgetforecastbywellover$4billion,withmorethan$3billionofthatgainoccurringinAprilalone.Whilesomeoftheincreaseappearedtoberelatedtoone-timetransactions,theMayRevisionprojectedthatsomeoftheincreasewasongo-ingaswell.ItsrevisedforecastofGeneralFundrevenueswasupfromtheJanuaryestimateby$4.8billionin2005-06and$2.7billionin2006-07,foratwo-yearincreaseof$7.5billion.

How New Revenues Were Allocated.AsshowninFigure6(seenextpage),theMayRevisionproposedthattheadditional$7.5billioninrevenuesbeusedinthreemajorways.


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• First,theadministrationproposedthatabout$4.3billionofthetotalbeusedforspendingonstateprograms.This included:additionalProposition98 spending of $2.9billion; largely one-time spendingforhospitalsof$400million forpublichealthemergenciessuchasanavianflupandemic;andadditionalspendingintheDepartmentof Corrections and Rehabilitation of $500million to cover inmatepopulationincreasesandrisingexpendituresforhealthcare.

• Second,theMayRevisionincludedanadditional$1.6billioninprepay-mentstowardoutstandingbudgetarydebtthathadbeenaccumulatedinpreviousyears.Thisincluded$1billiontowardoutstandingdefi-cit-financingbonds,aswellas$600millionrelatedtoProposition98settle-uppaymentsandloansfromspecialfundsandlocalgovern-ments.Combinedwiththe$1.6billionalreadyproposedinJanuary,theadditionalproposedpaymentsbroughtthetotalamountofloanrepaymentsintheMayRevisionto$3.2billion.

• Third, the May Revision included a 2006-07 year-end reserve of$2.2billion,or$1.6billionmorethanthe$613millionreserveproposedinJanuary.

Other Provisions. In addition to the 2005-06 and 2006-07 increases forProposition98, the May Revision proposed to settle a lawsuit related to$2.9billioninProposition98funding.Undertheproposal,annualpaymentsaveragingroughly$400millionwouldbemadeoversevenyears,beginningin2007-08.

Figure 6

May Revision—Key Differences From January

New Spending ($4.3 Billion) Proposition 98—additional $2 billion for 2005-06 and $800 million for 2006-07. Hospitals—largely one-time funding for hospitals to deal with public health emergencies, such as an avian flu pandemic. Department of Corrections and Rehabilitation—added funding for inmate population increase and health care.

Additional Budgetary Debt Repayment ($1.6 Billion) $1 billion for deficit-financing bonds. $600 million to special funds, local governments, and schools.

Higher Reserve ($1.6 Billion) Year-end 2006-07 reserve increased from $613 million to $2.2 billion.


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Final BudgetFollowingtheMayRevision,theSenateandAssemblytookactionsontherevised proposal, and the budget was sent to Conference Committee toreconcilethedifferencesbetweenthehouses.FollowingconferenceactionsandsubsequentnegotiationsbetweentheGovernorandlegislativeleader-ship, an agreement regarding the budget was reached in late June. TheresultingbudgetwaspassedbybothhousesoftheLegislatureonJune27,2006.Afterusinghisline-itemvetoauthoritytodeleteabout$320million($114millionGeneralFund)inspending,theGovernorsignedthebudgetonJune30,2006.

Comparison to the May Revision.Thefinalbudgetpackage(seeFigure7)reflectsanumberofelementsoftheGovernor’sMayRevisionplan.ItfundsProposition98atalevelthatisroughlyconsistentwiththeMayRevision,althoughitallocatesfundingwithintheoverallProposition98budgetsome-whatdifferently.Forexample,itprovidesadditionalfundsforschooldistrictequalizationandeconomicimpactaidthanproposedintheMayRevision.Italsocombinesaportionof the fundingproposed in theMayRevisionforvariouscategoricalprogramsintoblockgrants.Inhighereducation,itadoptstheGovernor’sproposaltoprovideadditionalGeneralFundmoniesinlieuofplannedstudentfeeincreasesin2006-07.Inaddition,itreducescommunitycollegefeesfrom$26to$20perunitinspring2007.Asproposed

Figure 7

Final Budget—Key Differences From May Revision

K-12 Proposition 98 Roughly the same overall spending level, but with more emphasis on school district equalization and economic impact aid. Categorical spending combined into block grant, distributed to school sites.

Community Colleges Rolls back student fees from $26 to $20 per unit in spring 2007.

Health and Social Services Provides $190 million to expand hospital capacity for public health emergencies or about one-half the May Revision amount. Passes through federal cost-of-living adjustment for SSI/SSP grants in January 2007—three months earlier than May Revision. Funds shifted from child welfare services to CalWORKs.

Debt Repayment Total debt prepayments reduced from $3.2 billion to $2.8 billion. Supplemental payment toward deficit-financing bond rejected, and partly replaced with additional loan repayments to transportation, local governments, special funds, and schools.


14

intheMayRevision,thefinalbudgetincludessignificantfundingincreasesincorrectionsforinmatepopulationgrowthandhealthcare.

Inotherareas,itincludes$190millioninlargelyone-timefundingforhospi-talstoincreasepatientcapacitytomeetpublichealthemergencies,oraboutone-halfthe$400millionproposedintheMayRevision.Itpassesthroughthe federal COLA for SSI/SSP grants in January 2007. These grants hadbeendelayeduntilApril2007underthe2005-06budgetpackage,andthisdelaywasassumedintheMayRevision.Finally,thefinalbudgetcontainsadditionalpublicsafetyfundingforlocalgovernments.

state aPProPriations limitBackground.ArticleXIIIBof theStateConstitutionplaces limitson theappropriationoftaxesforthestateandeachofitslocalentities.Certainap-propriations,however,suchasforcapitaloutlayandsubventionstolocalgovernments,arespecificallyexemptedfromthestate’slimit.AsmodifiedbyProposition111in1990,ArticleXIIIBrequiresthatanyrevenuesinexcessofthelimitthatarereceivedoveratwo-yearperiodbesplitevenlybetweentaxpayerrebatesandincreasedschoolspending.

State’s Position Relative to Its Limit.Asaresultoftheprevioussharpde-clineinrevenues,thelevelofstatespendingisnowwellbelowthespendinglimit.Specifically,stateappropriationswere$16billionbelowthelimitin2005-06and,basedontherevenueandexpenditureestimatesincorporatedinthe2006-07budget,areexpectedtoremain$16billionbelowthelimitin2006-07.Therearetwomainreasonsthatthestateremainswellbelowthelimitin2006-07despitethelargeexpenditureincrease:

• First,about$7billionofthe2006-07expenditureincreaseisfinancedbyadraw-downofreservescarriedoverfromprioryears.Thelimitisappliedtotheappropriationsoftaxproceeds(includingappropria-tionsintoreservesbutexcludingappropriationsoutofreserves),thus,spendingsupportedfrompreviouslyaccumulatedreservesarenotsubjecttothelimit.

• Second,muchoftheincreasedfundingthatwassupportedbytaxesisinareas,suchasK-12educationandtransportation,whichareexemptfromthestate’slimit.


15

Budget‑related legislationInadditiontothe2006‑07 Budget Act,thebudgetpackageincludesanumberofrelatedmeasuresenactedtoimplementandcarryoutthebudget’spro-visions.Figure8liststhesebillsatthetimeofthebudgetenactment.OurcurrentestimateoftheGeneralFund’sconditionalsoincludetheimpactsofcollectivebargainingagreementsandcertainotherlegislationapprovedbytheLegislaturesubsequenttothebudget’senactment.

Figure 8

2006-07 Budget and Budget-Related Legislation

Bill Number Chapter Author Subject

Budget Package AB 1801 47 Laird Budget bill (conference report) AB 1811 48 Laird Budget revisions AB 1802 79 Budget Committee Education AB 1803 77 Budget Committee Resources AB 1805 78 Budget Committee Local government AB 1806 69 Budget Committee General government AB 1807 74 Budget Committee HealthAB 1808 75 Budget Committee Human services AB 1809 49 Budget Committee Revenues SB 1132 56 Budget Committee Transportation SB 1137 63 Ducheny Proposition 36 reforms

Post-Budget Legislation SB 1131 Enrolled Budget Committee Education trailer bill cleanup SB 1133 Enrolled Torlakson K-14 settlement SB 1134 Enrolled Budget Committee Corrections—mental health staffing AB 1812 Enrolled Budget Committee Grants to counties—sexual assault enforcement

Variousa — Collective bargaining agreements

a Various measures which ratify agreements with 19 of 21 employee bargaining units. Full listing is provided in "Chapter 3," Figure 25.


16


17

Chapter 3

Expenditure HighlightsProPosition 98The2006-07budgetpackageincludes$55.1billioninongoingProposition98funding forK-14education.This representsan increaseof$5.2billion,or10.3percent,fromthefundinglevelproposedinthe2005‑06 Budget Act.Fig-ure1showsProposition98funding,bysource,forK-12schools,communitycolleges,andotheraffectedagencies.

Budget Package Also Includes $2.8 Billion in One‑Time Funds. As dis-cussedinmoredetaillaterinthissection,thebudgetpackagealsoincludesanadditional$2.8billioninone-timefundsforK-14education($2.5billionforK-12and$305millionforcommunitycolleges).Oftheseone-timemon-

Figure 1

K-14 Proposition 98 Spending

(Dollars in Billions)

2005-06 Change From

2005-06 Budget Act

Budget Act Revised 2006-07 Amount Percent

K-12 Education General Fund $33.1 $34.6 $37.1 $4.1 12.3%Local property taxes 11.6 11.8 12.0 0.4 3.5 Subtotals ($44.6) ($46.5) ($49.1) ($4.5) (10.0%)California Community Colleges General Fund $3.4 $3.7 $4.0 $0.6 18.4%Local property taxes 1.8 1.8 1.9 — 2.7 Subtotals ($5.2) ($5.5) ($5.9) ($0.7) (13.0%)Other Agencies $0.1 $0.1 $0.1 — 6.6%

Totals, Proposition 98 $50.0 $52.0 $55.1 $5.2 10.3%

General Fund $36.6 $38.4 $41.3 $4.7 12.9%Local property taxes 13.4 13.6 13.8 0.4 3.4Percent General Fund 73% 74% 75%Percent local property taxes 27 26 25


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ies,$2.3billionisformeetingthehigher2005-06Proposition98minimumguarantee (which increasedafter the2005-06budget wasenactedduetohigher-than-expectedstatetaxrevenues),$283millionisforsettlingupprior-yearProposition98obligations,andalmost$250million is fromunspentprior-yearProposition98funds.

General Fund Share of Proposition 98 Driven by Property Tax Shifts. AsshowninFigure1,thebudgetassumesthat$13.8billion,or25percentofover-all2006-07Proposition98spending,willbefundedbylocalpropertytaxes.Theremaining75percentissupportedbytheGeneralFund.Thisisaboutthesameproportionalsplitasintheprioryear.Itisasignificantincrease,however,from2003-04—whentheGeneralFundshareofProposition98wasroughly65percent.TheincreaseintheGeneralFundshareisduetovariousstate-leveldecisionsregardingtheallocationoflocalpropertytaxrevenuesbetweenschooldistrictsandotherlocalgovernments.

K-14 Education Credit Card UpdateDuringthestate’srecentdifficultbudgettimes,anumberofactionsweretakentodeferspendingorborrowfunds.Specifically,asoneofitsmidyear2001-02budgetsolutions,theLegislaturedecidedtodefersignificantedu-cationprogramcoststothesubsequentfiscalyear.(Ratherthanabudgetreduction,thesedeferralsresultedindistrictsreceivingsomeprogramfundsafewweekslaterthannormal.)Inaddition,thestatedelayedreimbursementofoutstandingmandatecostclaimsdatingbackto1995-96.Similarly,asof2005-06,thestatealsohadnotfullyrestoredongoingrevenuelimitreduc-tionsmadein2003-04.Wehavereferredtotheseoutstandingdebtsastheeducation“creditcard.”

Figure2showsthatthebudgetmakessignificantprogressinpayingdowntheeducationcreditcard,reducingitbyabout40percent.Specifically,the2006‑07 Budget Act includesslightlymorethan$300milliontofullyrestoretherevenuelimit“deficitfactor”andprovidesalmost$1billiontoschooldistrictsandcommunitycollegesforthecostsofprior-yearmandates.De-spitethisprogress,however,thebudgetincludesonly$34millionfor2006-07K-14mandatecosts,whichisapproximately$120millionlessthanneededtocoverallanticipatedcosts.Inaddition,thebudgetcontinuestodefertothesubsequentfiscalyearapproximately$1.3billioninK-14costs.

K‑12 ProPosition 98lion,anincreaseof$4.5billion,or10percent,fromthe2005‑06 Budget Act.Per-pupilfundinginK-12alsoincreasessubstantially.AsFigure3shows,K-12perpupilfundingincreasesto$8,244,or$842abovethelevelassumed

AsshowninFigure3,K-12Proposition98spendingin2006-07totals$49.1bil-


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inthe2005‑06 Budget Act.Asthefigurealsoshows,the2005-06fundinglevelincreasedby$375fromthe2005‑06 Budget Act—toatotalof$7,777perpupil—asaresultofbothhigher-than-expectedstaterevenuesandlower-than-expectedstudentenrollments.Thisrevised2005-06fundinglevelis$732perpupilhigherthanthe2004-05level.

Figure 2

Update on the K-14 Credit Card Balance

(In Millions)

2003-04 2004-05 2005-06 2006-07

One-Time Costs Deferrals: K-12 $1,097 $1,083 $1,103 $1,103 Community colleges 200 200 200 200Prior-year mandates: K-12 860 1,105 1,100 273 Community colleges 100 100 100 76

Ongoing Costs K-12 revenue limit deficit $906 $663 $290 —a

Totals $3,163 $3,151 $2,793 $1,652 a Budget includes $309 million to pay off entire outstanding obligation.

$7,010 $7,045

$7,777

7,402

$8,244

375b

6,800

7,000

7,200

7,400

7,600

7,800

8,000

8,200

$8,400

2003-04 2004-05a 2005-06a 2006-07

Figure 3

K-12 Proposition 98 Spending Per Pupil

aPer pupil amounts do not include $2.9 billion in additional one-time funding resulting from the Chapter 13 settlement agreement. These funds will be scored as payments toward the 2004-05 and 2005-06 fiscal years but paid over seven years beginning in 2007-08.

bReflects increase from 2005-06 Budget Act to revised 2005-06 funding level.


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Ongoing Funding AsFigure4shows,the$4.5billioninnewongoingK-12spendingissufficienttofullyfundbaseprograms,significantlyincreasefundingforseveralexist-ingprograms,andprovidefundingforafewnewprograms.Majorongoingfundingchangesinclude:

• Growth and Cost‑of‑Living Adjustment ($2.4 Billion).Thebudgetprovides$2.6billiontofunda5.92percentcost-of-livingadjustment(COLA)forrevenuelimitsandmostcategoricalprograms.Thebud-get also reflects a net of roughly $220million in savings—mostlyforrevenuelimits—duetoestimatesthatstatewideattendancewilldeclineby0.26percentin2006-07comparedtorevisedestimatesfortheprecedingyear.(Despitethisdeclineinattendance,thebudgetcontinuestofundmostcategoricalprogramsat2005-06levelsplusCOLAadjustments.)

• Proposition 49 After‑School Program ($426 Million).AsrequiredbyProposition49(passedbyvotersin2002),thebudgetpackagein-cludes$426millioninnewProposition98spendingforafter-schoolprograms. These funds are provided on top of the base 2006-07Proposition98minimumguarantee.Inaddition,thebudgetincludesapproximately$2millioninnon-Proposition98GeneralFundmoniesfortheCaliforniaDepartmentofEducation(CDE)toadministerandevaluatetheprogram.

Figure 4

Ongoing K-12 Proposition 98 Changes

2006-07 (In Millions)

Amount

Cost-of-living adjustments, growth, and other adjustments $2,383 Proposition 49 after-school programs 426Revenue limit equalization 350Economic Impact Aid 350Deficit-factor reduction (including basic aid) 309Counselors 200Arts and music block grant 105Child care eligibility 67Preschool expansion 50Increased support for high school exit exam 50Other 187

Total Changes $4,476


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• Revenue Limit Equalization ($350 Million).Thebudgetprovides$350milliontoreducehistoricalinequitiesingeneralpurposespend-ing.Chapter79,Statutesof2006(AB1802,BudgetCommittee),stipu-latesthatthesefundswillbeallocatedusingthecurrentequalizationmethodology,whichsetstargetsatthe90thpercentileofaveragedailyattendanceanddistinguishesdistrictsbysizeandtype.

• Economic Impact Aid ($350 Million).ThebudgetaugmentsEconomicImpactAid(EIA)by$350million—bringingtotalprogramfundingto approximately $975million. The program provides funding fordistricts to serve economically disadvantaged and English learnerstudents.Chapter79,Statutesof2006(AB1802,BudgetCommittee),changestheEIAdistributionformulatoaddressvariousdataissuesandhistoricfundinginequities.

• Deficit Factor Elimination ($309 Million).Thebudgetpackagepro-vides$309millioningeneralpurposefundstoeliminatetherevenuelimitdeficitfactorforschooldistrictsandcountyofficesofeducation.In2003-04,thestatereducedrevenuelimitsanddidnotprovideaCOLA,creatingadeficitfactorof3.02percentthatwouldeventuallyneedtoberestored.Therevenuelimitreductionwaspartiallyrestoredin2004-05and2005-06.The2006-07budgetpackagefullyrestoresit.

• Counselors ($200 Million). The budget provides $200million foradditional counselors in grades 7 through 12. As a condition ofreceivingthesefunds,districtsmustdevelopcourseworkplansforeachlow-performing7thgradestudentandeach10th,11th,and12thgradestudentwhohasnotpassedtheCaliforniaHighSchoolExitEx-amination(CAHSEE).Inaddition,districtsmustscheduleindividualcounselingsessionswiththesestudentsandtheirparents.

• Arts and Music Block Grant ($105 Million).Thebudget includes$105millionforanewblockgrantdesignedtoenhanceandexpandstandards-aligned instruction in arts and music. The block grantprovidesdistrictswithsupplementalfundingtohireandtrainstaffaswellaspurchasebooks,supplies,andequipment.

• Expansion of Child Care Eligibility ($67 Million). The budget“unfreezes”thechildcare incomeeligibilitycutoff—raising it toamaximumof75percentofthe2005statemedianincomelevel.(Theincomeeligibilitycutoffhadbeenfrozenat75percentofthe2000statemedianincomelevel.)Thebudgetprovides$67milliontofundtheassociatedincreaseinchildcarecaseload.


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• Preschool Expansion ($50 Million). Thebudgetprovides$50millionforexpandedpreschoolservices.Chapter211,Statutesof2006(AB172,Chan), which implements the expansion, provides additional pre-schoolservicesintheattendanceareasofdecile1through3schools.Of the $50million, $45million funds half-day preschool servicesformorethan10,000childrenand$5millionfundsrequiredfamilyliteracyservicesforparentsofparticipatingchildren.

• Additional Support for High School Exit Exam ($50 Million).Thebudget provides an increase of $50million (over base funding of$20million)forsupplementalinstructionfor11thand12thgradestu-dentswhohavenotpassedtheCAHSEE.Schooldistrictswillreceive$500foreachsuch12thgradestudent.Fundsremainingaftercovering12thgradestudentswillbeproratedacross11thgradestudentswhohavenotyetpassedtheexam.

One-Time FundingThebudgetprovidesanadditional$2.5billioninone-timeK-12educationfunds. This total is comprised of additional funds required to meet thehigherProposition98minimumguaranteein2005-06($2billion),settle-uppaymentstomeetProposition98obligationsfromprioryears($258million),andtheProposition98ReversionAccount,whicharefundsthathavebeenappropriatedforK-14educationinprioryearsbutnotused($226million).Figure5showshowthefinalbudgetpackagespends these funds.Majorone-timespendingincludes:

Figure 5

K-12 Spending From One-Time Funds


Amount

Payment of K-12 mandate claims from prior years $927 Discretionary block grant 534Arts, music, and P.E. equipment block grant 500School facilities emergency repairs (Williams settlement) 137Instructional materials 100Preschool facilities 50Teacher recruitment 50Career technical education equipment 40Mandates—2006-07 costs 30Other 165

Total $2,533


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• K‑12 Education Mandates ($927 Million). The budget provides$927millioninone-timefundstopayformandatecostsdeferredfromprioryears.Thesefundsaredrawnfromallofthethreesourcesofone-timefundsdescribedabove.Thesefundsretireoverthree-fourthsofthestate’spast-yearmandateliabilities.

• Discretionary Block Grant ($534 Million). The budget provides$534milliontodistrictsandschoolsforvariousone-timecosts—in-cludingpurchasing instructionalmaterials,providingprofessionaldevelopment,undertakingmaintenance,andpayingdownoutstand-ingfiscalobligations(suchasretireehealthliabilities).Ofthisamount,25percent ($133million) will be allocated to school districts and75percent($400million)willbeallocateddirectlytoschoolsites.

• Equipment Block Grant ($500 Million). The budget includes$500milliontobedistributedtoschooldistrictsonaper-pupilbasis.Fundsmaybeusedforsupplies,equipment,andprofessionaldevel-opmentforart,music,andphysicaleducation.

• School Facilities Emergency Repairs ($137 Million).AspartofthesettlementofWilliams v. California, the state is required to commitone-half of the funds in the Proposition98 Reversion Account foremergencyfacilityrepairs.The2006-07budgetmeetsthisobligationbyproviding$137millionforthispurpose.

• Instructional Materials Block Grant ($100 Million). The budgetincludes$100milliontobedistributedtoschooldistrictsonaper-pupilbasis.Fundsmaybeusedforinstructionalmaterials, librarymaterials,orone-timeeducationtechnologycosts.

• Preschool Facilities ($50 Million).Inadditiontotheongoingfundsprovidedtoexpandpreschool,thebudgetincludes$50millioninone-timefundsforpreschoolfacilities.Thisfundingcomesintheformofaloanandisavailableforrenovation,repair,orimprovementofexistingfacilitiesaswellasforpurchaseofnewportablechildcarefacilities.

• Teacher Recruitment and Retention ($50 Million).Thebudgetin-cludes$50milliontobedistributedonaper-pupilbasisforschoolsrankedinthebottomthreedecilesofthe2005AcademicPerformanceIndex(API).Fundsareintendedtoimprovetheeducationalcultureandenvironmentofparticipatingschoolsandmaybeusedforvari-ousactivities,includingdifferentialcompensation,planningtimefor


24

teachersandprincipals,supportservicesforteachersandstudents,andsmallgroupinstruction.

K-12 VetoesTheGovernorvetoed$37.8millionprovidedtoincreasethepermealreim-bursementrateforthechildnutritionprogram.TheGovernorsetthefundsaside,withtheintenttolinkfundingtoarequirementthatschooldistrictsfurther improve the nutritional quality of school meals. Senate Bill 1674,(Murray),whichappropriatesthe$37.8million,increasesthereimbursementrateforfree-andreduced-pricemealsfrom16centsto21centspermeal,subjecttospecifiednutritioncriteria.

TheGovernoralsovetoed$15.1millionforanewcohortoffederalReadingFirstschools.Inanaccompanyingaction,hedeletedlanguagethatwouldhave(1)madethecontinuationofaschool’sfundingcontingentonmakingsignificantacademicprogress,asdefinedinfuturelegislation,and(2)re-quiredCDEtoreportonprogramoutcomesandthetreatmentofwaiveredclassrooms.

K-14 Education SettlementIn addition to the budget package, the Legislature concurred with theGovernorsproposaltosettlealawsuitinitiatedbytheCaliforniaTeachersAssociation.ThelawsuitwasbasedonadisagreementoverthesuspensionofProposition98in2004-05.Chapter213,Statutesof2004(SB1101,BudgetCommittee),establishedatargetfundinglevelforK-14educationthatwas$2billionlowerthantheamountcalledforbytheProposition98constitu-tional guarantee. Because final General Fund revenues for 2004-05 weresubstantially higher than projected, the final 2004-05 funding level was$3.6billionlowerthantheconstitutionalguarantee(or$1.6billionlowerthantheChapter213target).BecausetheProposition98minimumguaranteeiscalculatedbasedontheprior-yearfundinglevel,the2005-06fundinglevelalsowasaffected,being$1.3billionlessthanwhatitwouldhavebeenhadtheChapter213targetbeenmet.

Settlement Agreement Provides Additional $2.9 Billion to K‑14 Educa‑tion.Thesettlementagreementessentiallycoversthedifferencebetweentheactual2004-05and2005-06fundinglevelsandthehigherlevelsthatwouldhavebeenprovidedhadtheChapter213targetbeenmet.The$2.9billionobligationistobescoredasprior-yearProposition98payments($1.6billionscoredto2004-05and$1.3billionscoredto2005-06).The2006-07Proposi-tion98basespendinglevelwasestablishedbasedonthesehigherprior-yearProposition98levels.


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Monies Paid Over Seven‑Year Period.The$2.9billionistobepaidinin-stallmentsoveraseven-yearperiod(2007-08through2013-14).Thestateistomakeafirstpaymentof$300millionin2007-08.Ineachofthesubsequentyears,untilthefullobligationhasbeenmet,thestateistomakepaymentsof $450million. These payments would be on top of the Proposition98minimumguaranteeforeachofthoseyears.

K‑12 Funds Targeted to Lowest Performing Schools.SenateBill1133(Tor-lakson),allocates$2.6billionofthesettlementforK-12education.Ofthisamount,$268millionistobeprovidedin2007-08and$402millionineachofthesixsubsequentyears.Thefundsaredesignatedforanewreformprogramintendedtoimprovestudentachievementinschoolsrankedindeciles1or2ofthe2005API.Availablefundsaresufficienttocoverabout40percentoftheapproximately1,500eligibleschools.TheStateBoardofEducationistoselectthespecificschoolstobefunded.Participatingschoolswillreceive$500perK-3student,$900pergrade4 though8student,and$1,000pergrade9through12student.

K‑12 Funds Used for Major New Class Size Reduction (CSR) Initiative. Asaconditionofreceivingfunding,schoolswouldhavetomeettherequire-mentsofthestate’sexistingK-3CSRprogramaswellasreduceclasssizesingrades4through12.Specifically,schoolswouldneedtoreduceaverageclassroomsizeto25studentsorbyatleastfivestudentsfromtheir2006-07levels,whicheverisless.Theaverageclassroomsizeiscalculatedbygradelevel,butnoindividualclassmayhavemorethan27students.InadditiontomeetingthenewCSRrequirements,highschoolswouldneedtohaveapupil-to-counselorratioofnomorethan300-to-1.Allparticipatingschoolswouldneedtodemonstratethat:(1)itsteacherswerehighlyqualified,asdefinedbyfederallaw,and(2)theaverageyearsofexperienceofitsclassroomteacherswereequaltoorhigherthanthedistrict’saverage.

If K‑12 Program Requirements Not Met, Funding Terminated.Schoolsmayuse2007-08fundingforfacilitycostsassociatedwithimplementingCSR.Theymayuseall subsequent funding forhiringadditional teachersandcounselorsandmeetingtheotherrequirementsoftheprogram.Ifprogressisnotmade,however,towardmeetingtheprogram’srequirements,schoolsitefundingcanbeterminatedasearlyastheendof2009-10.

Community College Funds Designated Primarily for Career Technical Edu‑cation.SenateBill1133(Torlakson),allocatesslightlymorethan$300millionofthesettlementforcommunitycolleges.Ofthisamount,$32millionistobeprovidedin2007-08and$48millionineachofthesubsequentsixyears.Thefundsaredesignatedprimarilyforimprovingandexpandingcareertechni-


26

caleducation,includinghiringadditionalfacultytoincreasethenumberofrelatedprogramsandcourses.Ineveryyearbutthefirst,$10millionissetasideforaone-timeblockgrantthatmaybeusedforvariousotheractivi-ties,includingmaintenanceandpurchasinginstructionalmaterials,librarymaterials,instructionalequipment,andeducationtechnology.

higher educationTheenactedbudgetprovidesatotalof$11.3billioninGeneralFundsup-portforhighereducationin2006-07(seeFigure6).Thisreflectsanincreaseof$972million,or9.4percent,abovetheamountprovidedin2005-06.Thebudget fully funds anticipated enrollment increases at the University ofCalifornia(UC),theCaliforniaStateUniversity(CSU),andtheCaliforniaCommunity Colleges (CCC). The budget includes no undergraduate feeincreases.Infact,asdescribedbelow,studentfeesatCCCwilldeclineinthespringterm.

UC and CSUThebudgetprovidesabout$3.1billioninGeneralFundsupportforUCin2006-07.Thisis$241million,or8.5percent,morethanwasprovidedintheprioryear.ForCSU,thebudgetprovides$2.8billioninGeneralFundsupportin2006-07.Thisisanincreaseof$192million,or7.4percent,from2005-06.

Figure 6

Higher Education Budget Summary General Fund Appropriations


Change

Department 2005-06 2006-07 Amount Percent

University of California $2,845 $3,086 $241 8.5%California State University 2,597 2,789 191 7.4California Community Colleges 3,714 4,102 388 10.4Student Aid Commission 738 847 108 14.7California Postsecondary

Education Commission 2 2 — 0.9

Hastings College of the Law 8 11 2 27.6Other 408 449 41 10.0

Totals $10,313 $11,285 $972 9.4%

Detail may not add due to rounding.


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Base Budget Increases.BothuniversitysystemsreceivedsubstantialGeneralFundbaseaugmentationstoaddresssalaryandothercostincreases,whichamountto$156million(5.8percent)forUCand$130million(5.2percent)forCSU.Thesebaseincreasesincludefundingassociatedwitha“feebuyout”asproposedbytheGovernor.TheGovernorhadproposedtheadditionalbuyoutfundinginlieuoffeeincreasesthathadbeenplannedbyUCandCSU.

Enrollment Growth.Thebudget includesa totalof$112million to fund2.5percentenrollmentgrowthatUC($51million)andCSU($61million).Thisaccommodatesanadditional5,149full-timeequivalent(FTE)studentsatUCand8,490FTEstudentsatCSU.

Intheprior(2005-06)year,UCfellshortofitsfundedenrollmenttargetby500FTEstudents.Asaresult,the2005‑06 Budget Actrequiredaone-timereversion $3.8million, which is the enrollment funding associated withthatshortfall.However, thisfundingreturnstothebasein2006-07, thusallowingUCtoincreaseenrollmentabovetheactual2005-06levelbymorethan2.7percent.

ForCSU,the2006‑07 Budget ActredefinesanFTEgraduatestudentfrom30unitsofinstructionto24units.Thischange,whichisconsistentwiththedefinitionusedbymostotheruniversitysystems,hastheeffectofincreasingthesizeofCSU’syear-to-yearenrollmentgrowth.ByreducingthenumberofunitsthatdefineagraduateFTEstudentby20percent,thischangemakesacorrespondingincreaseinthenumberofgraduateFTEstudentsthatCSUisfundedtoserve.WithoutthischangeinthedefinitionofanFTEgraduatestu-dent,CSU’sgrowthtargetandoverallenrollmentlevelswouldbelower.

Marginal Cost.Formanyyears,thestatehasuseda“marginalcost”meth-odologyfordeterminingtheamountoffundingtoprovideUCandCSUforeachadditionalFTEstudent.Inresponsetolegislativedirectionexpressedinthe2005-06BudgetAct,ourofficeandtheDepartmentofFinanceworkedwiththesegmentsandotherstodevelopanimprovedmethodology.Theparties were unable to reach consensus on a new methodology, and theGovernor’s2006-07budgetproposalincludedenrollmentfundingbasedonanentirelynewmethodologydevelopedbytheadministration.

TheLegislaturerejectedtheGovernor’smarginalcostproposalandinsteaduseditsownalternativemethodologyforfundingUCandCSUenrollmentgrowthinthe2006‑07 Budget Act.Unlikethepreexistingmethodology,theLegislature’sapproachincludescostsforoperationandmaintenance,basesfacultycostsonthesalariesofrecentlyhiredprofessors,andredefinesafull-timegraduatestudentatCSUfrom30unitsperyearto24units.Accordingly,


28

theenactedbudgetfundsenrollmentgrowthbasedonamarginalGeneralFundcostof$9,901peradditionalUCstudentand$7,225peradditionalCSUstudent.Insigningthebudget,theGovernorvetoedprovisionallanguagespecifying that future budgets be based on the alternative methodologyadoptedbytheLegislature.

Student Fees.Figure7showsstudentfeelevelsatthethreesegments.Infall2005,theUCRegentsandtheCSUTrusteesbothadoptedundergraduatefeesincreasesof8percentforthe2006-07academicyear.Asnotedabove,theGovernor’sbudgetproposedthatthoseincreasesberescinded,andprovided$130millioninGeneralFundsupporttocompensatethesegmentsfortheforegonefeerevenue.TheLegislatureadoptedtheGovernor’sproposal,andthesegmentsrescindedthefeeincreases.Asaresult,residentundergraduatefeesareunchangedfrom2005-06levels.

Student Academic Preparation (Outreach).TheLegislaturerejectedtheGovernor’sproposaltoeliminateGeneralFundsupportforstudentacademicpreparationprogramsatUCandCSU.Instead,thebudgetprovidesGeneralFundsupportof$19.3milliontoUCand$7milliontoCSUforthesepro-grams.OftheUCamount,$2millionisforanewtransferinitiativebetweenUCandCCC.

CCCThe budget provides CCC with $4.1billion in General Fund support for2006-07,which is$388million,or10.4percent,above therevised2005-06

Figure 7

Annual Education Fees for Full-Time Resident Studentsa

2004-05 2005-06 2006-07

University of California (UC)b

Undergraduate $5,684 $6,141 $6,141 Graduate 6,269 6,897 6,897

Hastings College of the Law $18,750 $19,725 $19,725

California State University Undergraduate $2,334 $2,520 $2,520 Teacher Education 2,706 2,922 2,922Graduate 2,820 3,102 3,102

California Community Colleges $780 $780 $600c

a Fees shown do not include campus-based fees. b The UC charges special fee rates for 12 professional programs, such as medicine and nursing. c Effective in spring 2007.


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level.Inaddition,asdiscussedearlierthebudgetprovidesCCCwithanother$305millioninone-timefundsthat,forProposition98purposes,willcounttowardpriorfiscalyears.VirtuallyallofCCC’sGeneralFundsupportcountstowardthestate’sProposition98expenditures,asdoesCCC’slocalpropertytaxrevenue.TotalProposition98supportforCCCin2006-07is$5.9billion,whichis10.7percentoftotalProposition98appropriations.

Base Budget Increase.Thebudgetincludes$312milliontofunda5.92per-centbaseincreaseforCCC.ThisincreasefollowsthesamestatutoryformulausedtocalculatetheK-12COLA.ThebasebudgetincreaseappliestoCCC’sgeneralapportionmentsandselectedcategoricalprograms.

Enrollment Growth. ThebudgetprovidesCCCwith$97.5milliontofundenrollmentgrowthof2percent,or22,688FTEstudents.However,asshowninFigure8,communitycollegesactuallyhavefundedcapacitytoincreasetotalenrollmentbyabouttwicethisamountin2006-07.Thisisbecausemanycollegeshavebeenexperiencingdecliningenrollment,yetwillstillhavesomefundingin2006-07forexistingslotsthatbecamevacantin2005-06.This“stability”funding,asitiscalled,willpermitcommunitycollegestoenrollabout24,000additionalstudentstofillfundedvacanciesfrom2005-06.

Figure 8

California Community CollegesFunding Available for 4 Percent Enrollment GrowthFull-Time Equivalent Students (In Millions)

Prior-Year Vacancies (2%)

Apportionment Growth (2%)

1.0

1.1

1.2

2005-06(Actual)

2006-07(Budgeted)


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Student Fees. ThebudgetpackagereducesCCCstudentfeesfrom$26perunitto$20perunit,effectivespring2007.Thebudgetincludes$40millioninGeneralFundsupporttoreplacethefeerevenuethatwillbeforegoneasaresultofthefeereduction.

Equalization. Thebudgetincludes$159milliontofullyachievethestate’sequalizationgoalforcommunitycolleges.Trailerlegislationalsomodifiesthecommunitycollege fundingallocationmodel inorder toensure thatdistrictfundingremainsequalizedinsubsequentyears.

Noncredit Instruction. The budget includes $30million to increase thefundingratefornoncreditcoursesthatadvancecareerdevelopmentorcol-legepreparation.Suchcourses,whicharetobedefinedbytheChancellor’sOffice,wouldreceive$3,092perFTEstudent,whileallothernoncreditcourseswouldreceive$2,626perFTEstudent.

Other Augmentations. ThebudgetprovidesvariousotheraugmentationstoCCC,includingthefollowingone-timefunds:

• $100millionforageneralpurposeblockgranttoalldistricts.

• $94.1millionforfacilitiesmaintenanceandequipment.

• $40million for career technical education equipment and facilityupgrades. (Asdiscussedearlier, theProposition98settlementallo-catesatotalofroughly$250milliontothecommunitycollegesoveraseven-yearperiodbeginningin2007-08fortheexpansionofcareertechnicaleducationprograms.)

California Student Aid CommissionThebudgetincludes$846millioninGeneralFundsupportfortheCaliforniaStudentAidCommission(CSAC).Thisreflectsanincreaseof$108million,or 14.7percent, from the 2005-06 level. Almost one-half of this increase($51million)istoreplaceone-timesurplusfundingfromtheStudentLoanOperatingFundthathadbeenusedtosupportfinancialaidprogramsin2005-06.Another$50.6millionfunds increasedcostsassociatedwith theCalGrantprograms,andtheremaining$6.8millionfundsincreasedcostsoftheAssumptionProgramofLoansforEducation(APLE).

Thebudgetpackagealsoauthorizesstudentparticipation inseveralnewAPLEprograms.Specifically,thebudgetdirectsCSACtoissue40newloanforgivenessawardsfortheNursesinStateFacilitiesAPLE,100newawardsfortheNationalGuardAPLE,and100newawardsfortheStudentNurs-


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ingAPLE(SNAPLE).Thestatewillnotincurcostsfortheseawardsuntilsubsequentyearsafterthestudentsreceivingthemgraduatefromcollege.TheauthorizationofSNAPLEawardsispartofalargerpackageofnursing-relateditemsinthebudgetpackage,asdescribedbelow.

Nursing EducationThebudgetpackage includesanumberofaugmentations for expandingenrollmentofnursingstudentsatallthreesegments,increasingfinancialaidopportunitiestonursingstudents,andadvancingtherecruitmentandretentionofnursesasfacultymembersatthecommunitycolleges,andasemployeesatstatefacilities.ThemajorelementsofthenursingpackageareshowninFigure9.Theseincludeanexpansionofgraduatenursingenroll-mentatUCandCSU,anincreaseinundergraduatenursingenrollmentatCSUandCCC,thecreationofnewCCCprogramstorecruitandretainnurs-ingfacultyandstudents,andtheauthorizationofloanforgivenessawardsforSNAPLEandtheNursesinStateFacilitiesAPLE.

Figure 9

Major Nursing-Related Appropriations 2006-07 Budget Package

(In Thousands)

Description Appropriation

University of California Increase entry-level master's students by 65 FTE students $860

Increase master's degree nursing students by 20 FTE students 103

California State University Fund "startup costs" to prepare for 340 additional baccalaureate

nursing students in 2007-08 $2,000

Increase entry-level master's students by 280 FTE students 560

Increase baccalaureate nursing students by 35 FTE students 371

California Community Colleges Fund new Nursing Enrollment Growth and Retention Program $12,886

Fund enrollment and equipment costs for nursing programs 4,000

Fund new Nursing Faculty Recruitment and Retention Program 2,500

California Student Aid Commission

Authorize 100 new SNAPLE awards —a

Authorize 40 new nurses in State Facilities APLE awards —a

a State will not incur costs of forgiving loans under this program until subsequent years. APLE=Assumption Program of Loans for Education; SNAPLE= Student Nursing APLE.


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healthThe2006-07budgetplanprovidesabout$19.5billionfromtheGeneralFundforhealthprograms,whichisanincreaseofabout$1.8billionor10percentcomparedtotherevisedprior-yearlevelofspendingasshowninFigure10.Severalkeyaspectsofthebudgetpackagearediscussedbelowandsum-marizedinFigure11.

Enrollment Activities for Children’s ProgramsThebudgetplanprovidesabout$50millioninGeneralFundsupportfornewactivitiesto(1)enrolladditionalchildrenwhoareeligiblefor,butnotnowenrolled,inMedi-CalandtheHealthyFamiliesProgram(HFP)and(2) retain in coverage more children who are enrolled. Specifically, stategrantsareprovidedtocountiestospurlocaloutreachactivities,HFPenroll-mentproceduresaresimplified,andnewfinancialincentivesareprovidedforcertifiedapplicationassistants.Thespendingplanalsoincludesfundsfor the additional caseloads expected to result from these outreach andenrollmentefforts.

Figure 10

Health Services Programs General Fund Spending


Change

2005-06 2006-07 Amount Percent

Medi-Cal—local assistancea $12,831 $13,777 $946 7.4%Department of Developmental Services 2,255 2,502 247 10.9

Department of Mental Health (DMH)a 1,276 1,727 451 35.3Department of Health Services—

public health 382 560 178 46.5

Healthy Families Program— local assistance

322 368 46 14.4

Department of Health Services— state operationsb

384 247 -137 -35.7

Department of Alcohol and Drug Programs

242 290 47 19.5

Emergency Medical Services Authority 24 29 5 21.1All other health services 14 27 5 21.1

Totals $17,730 $19,527 $1,784 10.1%a The DMH budget increased in 2006-07 by $340 million, with a related reduction made in Medi-Cal

support, due to technical shift of General Fund from Medi-Cal to DMH. b Drop in spending in 2006-07 reflects (1) shift in support for licensing and certification activities from

General Fund to fee support in 2006-07 and (2) one-time spending in 2005-06 for emergency drug coverage for Medi-Cal patients shifted to drug coverage under Medicare Part D.


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Medi-CalThe2006-07-enactedbudgetprovidesabout$13.8 billionfromtheGeneralFund($35.1billionall funds) forMedi-Cal localassistanceexpenditures.Thisamountstoabouta$1billion,or7.4percent,increaseinGeneralFundsupportforMedi-Callocalassistance.

ThisincreaseinMedi-Callocalassistanceexpenditureswouldhavebeensignificantlygreaterexceptfor$362millionintechnicaladjustmentsreflectedinthebudgetplan.GeneralFundsupportpreviouslydisplayedintheMedi-

Figure 11

Major Changes—State Health Programs 2006-07 General Fund Effect

(In Millions)

Enrollment Activities for Children's Health Programs Support new activities to expand enrollment $50

Medi-CalProvide nursing home rate increase required by current law $393 Increase rates further for nursing homes and long-term care facilities 87Reverse 5 percent reduction in physician rates 75Increase rates for certain managed care plans 39Make technical adjustments for funding shifts to other departments -362

Disaster Preparedness Implement steps to prepare for flu pandemic and other emergencies $190

Public Health Augment AIDS prevention and education efforts $6Continue local assistance to combat West Nile Virus outbreak 3

Licensing and Certification Program Reform Shift support for licensing and certification programs from General Fund

to fees -$50

Department of Developmental Services Provide rate increase for some community service providers $47Increase wages for direct care staff in day and work activity programs 24Expand the Autistic Spectrum Disorders Initiative 3

Department of Mental Health Pay outstanding mandate claims from prior years for “AB 3632” program $66Create new categorical program for services to special education students 52Address federal court orders on mental health care for prison inmates 27Comply with federal consent decree for state hospitals 21

Department of Alcohol and Drug Programs Improve Proposition 36 drug treatment performance and outcomes $25Establish new statewide campaign to deter methamphetamine use 10Expand felony drug court program 4


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CalbudgetisnowshownintheDepartmentofMentalHealth(DMH)budgetitemformentalhealthservicesforchildrenandintheDepartmentofAg-ingbudgetitemfortheMultipurposeSeniorServicesProgram.Hadtheseexpendituresbeen includedwithin theMedi-Cal localassistancebudgetitem,theincreaseinspendingfortheprogramin2006-07wouldhavebeengreaterthanthe7.4percentfigurediscussedabove.

However,anotherfactormakestheincreaseintheMedi-Callocalassistancebudgetin2006-07looksomewhatlargerthanitwouldotherwisehavebeen.In2005-06,thestateallocated$113millionfromtheGeneralFundforemer-gencystateassistancetoMedi-CalbeneficiarieswhoencounteredproblemsinobtainingtheirprescriptiondrugswhentheywereshiftedfromMedi-CaldrugcoveragetocoverageunderthenewfederalMedicarePartDdrugbenefit.AlthoughtheseexpendituresareprimarilyforMedi-Calpatients,theadministrationcountedthemaspartofthestateoperationsbudgetoftheDepartmentofHealthServices(DHS)in2005-06anddidnotcountthemasspendingonMedi-CalProgramlocalassistance.HadtheseexpendituresinsteadbeencountedasMedi-Callocalassistance,theincreaseinGeneralFundspendingforMedi-Callocalassistancein2006-07wouldhavebeensmallerthanthe7.4percentincreasediscussedabove.

Major Cost Factors.Theincreaseinexpendituresprimarilyreflects:(1)in-creasesincostsandutilizationofmedicalservicesinthebaseprogram;(2)rateincreasesforphysiciansandcertainotherproviders;(3)anumberofsignificantpolicychangesinMedi-Cal;and(4)ongoinggrowthincaseloads.Specifically,Medi-Calcaseloadsareassumedtogrowbyabout85,000,or1.3percent,inthebudgetyeartoatotalofabout6.7millionaveragemonthlyeligibles.

Asnotedabove,expendituresforemergencydrugcoverageforMedi-CalbeneficiarieswerenotcountedbytheadministrationasMedi-Callocalas-sistancespending.However,variousotherfiscaleffectsofthenewMedicarePartDdrugcoverageontheMedi-CalProgramarereflectedintheMedi-Calbudget.ThegrowthintheMedi-Calbudgetreflectsanumberoffiscalef-fects—bothpositiveandnegative—relatingtothecontinuedshiftofprescrip-tiondrugcoverageforcertainagedanddisabledbeneficiariestothefederalMedicarePartDdrugbenefit.Forexample,so-called“clawback”paymentsbythestatetothefederalgovernmentrequiredundertheMedicarePartDlawareincludedintheMedi-Callocalassistancebudget.

Changes inMedi‑Cal Provider Rates. Thebudgetplanprovides$393mil-lion General Fund for rate increases for nursing homes as required byChapter875,Statutesof2004(AB1629,Frommer),inadditionto$93million


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GeneralFundforrateincreasesforotherfacilitiesthatprovidelong-termcareservicestoMedi-Calbeneficiaries.Thebudgetalsoincludes$75mil-lionGeneralFundtoreflectthereversalofa5percentreductioninratesforphysiciansandcertainotherMedi-Calprovidersthatwasenactedin2003-04,butonlypartiallyimplementedduetoanow-resolvedlegalchallenge.Inaddition,amongotherproviderrateincreases,$39millioninstatefundsisprovidedforrateincreasesforcertainMedi-Calmanagedcareplans. TheGovernorvetoedanadditional$9.3millionGeneralFundaugmentationforrateincreasesfortheseplans.

New Federal Documentation Requirements. The budget plan adoptschangesinstatelawtocomplywithnewfederalrequirementsthatstatesobtaindocumentationof the identityandcitizenshipof individualswhoenrollandreenrollinMedi-Cal.BecauseofuncertaintyoveritsfiscaleffectontheMedi-CalProgram,nofiscalchangesweremadeinthestatebudgetplantoreflecttheimpactofthenewfederallaw.

Healthy Families and Managed Risk Medical Insurance ProgramsThebudgetplanprovidesabout$368millionfromtheGeneralFund($1bil-lionallfunds)forlocalassistanceunderHFPduring2006-07.Thisreflectsanoverallincreaseofabout$128million(allfunds),or14percent,inannualspending for the program, which is administered by the Managed RiskMedicalInsuranceBoard(MRMIB).GeneralFundspendingforHFPlocalassistanceisbudgetedtoincreasebyabout$46million.Thisisprimarilytheresultofincreasesincaseloadassumedtooccurasaresultofadditionalfunding for application assistance and the implementation of efforts tostreamlinechildren’senrollment,asdiscussedabove.UnderlyingcaseloadtrendsandincreasesinproviderratesarealsoprojectedtocontributetotheincreasedspendinglevelforHFP.Overall,programenrollmentisassumedtogrowby78,000children,orabout10percent, toreacha totalofabout859,000childrenbytheendofthebudgetyear.

Afterthebudgetbillwasenacted,theLegislaturesubsequentlypassedlegis-lation(SB1702,Speier)toamendthebudgetplantoaugmentanotherhealthcoverageprogramadministeredbyMRMIBknownastheManagedRiskMedicalInsuranceProgram(MRMIP).TheMRMIPprovidesassistancetoindividualswhohavedifficultyobtainingprivatehealthcoveragebecauseof their medical conditions. If the Governor signs the measure, MRMIPwouldreceiveanadditional$4millioninProposition99tobaccorevenuesthatwouldexpandcoveragetoanestimatedadditional1,400enrolleesnowontheprogram’swaitinglists.


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Disaster PreparednessThebudgetplanadopts,withsomesignificantmodifications,variousadmin-istrationproposalstobetterpreparethestateforpublichealthemergenciesand,inparticular,thethreatofanavianflupandemic.Inall,thespendingplanprovidesmorethan$190millioninstatefunding(plusfederalfunds)toDHSandtheEmergencyMedicalServicesAuthority (EMSA) tomakeadditionalhospitalbedsavailableincaseofafluemergency,strengthenthestateand localpublichealth laboratory systems,andconduct localplan-ning to respond toamajorpublichealthdisaster.Forexample,EMSAisallocatedfundingtoestablishmobilefieldhospitalsanddisasterresponseteams.Likewise,DHSreceivedadditionalfundingtostockuponantiviralmedicationsandprotectivemasksforhealthcareworkersandtopurchaseventilatorsandothersuppliesandequipmenttoquicklyexpandemergencyhospitalcapacityintheeventofadisaster.Mostofthisadditionalfundingisprovidedonaone-timebasis.

Public Health ProgramsThebudgetplanprovidesDHSwithabout$560millionfromtheGeneralFund($2.5billionallfunds)forpublichealthlocalassistanceduring2006-07.GeneralFundspendingforpublichealthlocalassistancewouldincreasebyabout$178million,oralmost47percent,primarilyduetotheaugmentationsfordisasterpreparedness discussed above. The budget supportsvariousexpansionsofpublichealthprograms,includingaugmentationsforAIDSpreventionandeducationactivities,breastcancerscreening,Alzheimer’sdiseasediagnosisandtreatment,andclinicprogramsforagriculturalworkersandruralareas.Genetictestingofnewbornswouldbeexpandedtoincludescreeningforcysticfibrosisandbiotinidasedeficiency.Thebudgetalsocon-tinuesstateassistancetolocalspecialdistrictsincontrollingtheWestNileVirus,althoughtheGovernorusedhisvetoauthoritytoreducetheamountprovidedforthispurposein2006-07.

Emergency Medical Services AuthorityGeneralFundsupportforEMSAwouldincreaseunderthebudgetbyabout21percent toabout$29million.About$53millionwouldbeprovided toEMSAfromallfundsources.TheincreaseisduepartlytotheexpansionofEMSA’sdisasterpreparednessactivitiesdiscussedearlier.TheGovernorvetoed a proposed $10million General Fund augmentation for grants toimprovetheoperationoftraumacarecenters.

Reform of Licensing and Certification ProgramsThe budget significantly expands staffing for the inspection of nursinghomes,hospitals,andotherhealthcarefacilities.ItestablishesaspecialfundwithinDHS to pay for theseactivities primarily from fees, butprovides


37

someGeneralFundsupporttomoderatetheinitialimpactoffeeincreases.Afterthesechangeshavebeentakenintoaccount,thebudgetplanreplacesabout$50million inGeneralFundsupportfortheDHSlicensingandcer-tificationprogramwithfeerevenues,resultinginaGeneralFundsavingstothestate.

Department of Developmental ServicesThebudgetprovidesalmost$2.5billionfromtheGeneralFund($4billionall funds) for services to individuals with developmental disabilities indevelopmentalcentersandregionalcenters.Thisamountstoanincreaseofabout$246million,about11percent,inGeneralFundsupportovertherevisedprior-yearlevelofspendingprovidedtothedepartment.

Community Programs.The2006-07budgetincludesatotalofalmost$2.1bil-lionfromtheGeneralFund($3.2billionallfunds)forcommunityservicesforthedevelopmentallydisabled,anincreaseinGeneralFundresourcesofabout$245million,or13percent,overtherevisedpriorfiscalyearlevelofspending.Thisgrowthincommunityprogramsisduemainlytoincreasesincaseload,costs,andutilizationofregionalcenterservices.Also,about$47millionGeneralFundisallocatedtoprovidea3percentrateincreaseforprovidersofspecifiedregionalcenterservices.Thebudgetalsoprovidesaboutanadditional$24millionGeneralFundtoincreasewagesfordirectcarestaffincertaindayprogramsandworkactivityprograms,aswellastoincreasefundingforsupportedemploymentprograms.Also,thebudgetincludes$2.6millionfromtheGeneralFundtoexpandtheAutisticSpec-trumDisordersInitiative,anefforttoimprovetheprovisionofservicestopersonswithautismandtheirfamilies.Thebudgetcontinuesseveralmostlytemporaryactionstoholddowncommunityprogramcosts.

Developmental Centers.Thebudgetprovides$385millionfromtheGeneralFundforoperationsofthedevelopmentalcenters(almost$703millionallfunds), roughlythesamelevelofsupportastherevisedprior-yearlevelofspending.ThebudgetcontinuestosupportplanstoclosetheAgnewsDe-velopmentalCenterandplacemanyofitsclientsincommunityprograms,butassumesafurtherpostponementoftheclosuretoJune2008.

Department of Mental HealthThe budget provides about $1.7billion from the General Fund ($3.6bil-lionallfunds)formentalhealthservicesprovidedinstatehospitalsandinvariouscommunityprograms.Thisisabouta$445million,or35percent,increaseinGeneralFundsupportcomparedtotherevisedprior-yearlevelofspendingforDMH.


38

Community Programs. The 2006-07 budget includes about $781millionfromtheGeneralFund(almost$2.5billionall funds) for localassistanceforthementallyill,aboutan82percentincrease inGeneralFundsupportcomparedtotherevisedprior-yearlevelofspending.TheincreaseinGeneralFundspendingismainlyduetothetechnicalbudgetadjustmentdiscussedabove, in which GeneralFund support previously displayed in the DHSMedi-CalbudgetforcertainmentalhealthservicesforchildrenenrolledinMedi-CalisnowdisplayedintheDMHbudgetitem.Thebudgetplanalsoassumes$1.2billioninexpendituresofspecialfundsunderProposition63,avoter-approvedmeasurewhichestablishedastateincometaxsurchargetofinanceanexpansionofcommunitymentalhealthprograms.

“AB 3632” Mandates. ThebudgetplandoesnotadoptanadministrationproposaltosuspendwhatareknownastheAB3632mandatesforchildreninspecialeducationprograms.Instead,thebudgetprovides$69millioninfederalspecialeducationfundsand$52millionfromtheGeneralFundforanewDMHcategoricalprogramtoreimburseasignificantportionoftheestimatedcostsforprovidingtheseservicesinthebudgetyear.Thespendingplanalsoprovides$66millionfromtheGeneralFundtopayoutstandingmandateclaimsfrom2004-05and2005-06.

State Hospitals.Thebudgetprovidesabout$879millionfromtheGeneralFundforstatehospitaloperations(about$951millionallfunds).The$96mil-lion, or 12percent, increase in General Fund resources is due to severalfactors,includingprojectedincreasesinthestatehospitalpopulation.Thebudgetprovidesabout$21millionGeneralFundand453staffpositionstomeettherequirementsofaconsentdecreethatresultedfromaU.S.Depart-mentofJusticecivilrightsinvestigationofstatementalhospitals.Thespend-ingplanalsoincludesabout$27millionGeneralFundandanadditional271staffpositionstoaddressafederalcourtorderintheColemancase,whichrequires additional intermediate and acute care inpatient mental healthservicesforstateprisoninmates.

Department of Alcohol and Drug ProgramsThebudgetprovidesabout$290millionfromtheGeneralFund($670millionallfunds)forcommunityprogramsoperatedbytheDepartmentofAlcoholandDrugPrograms(DADP).Thisisabouta$47million,or19percent,in-creaseinGeneralFundsupportcomparedtotherevisedprior-yearlevelofspendingforalcoholanddrugprograms.

Proposition 36.ThebudgetcontinuesfundingfortheSubstanceAbuseandCrimePreventionAct(alsoknownasProposition36)atthecurrentlevelof$120million,andprovidesanadditional$25millionGeneralFundtoim-


39

provetheperformanceandoutcomesofparticipantsinthesedrugtreatmentprograms.ThebudgetpackagealsomodifiescurrentlawtochangevariousprovisionsofProposition36,includingestablishingnewrequirementsfordrugtesting,permittingthebriefincarcerationinjailofsomeoffendersforviolationofprobation,andexcludingsomerepeatoffendersfromeligibilityfordiversionfromprisonorjailtoProposition36treatment.However,thesestatutorychangestotheprovisionsofProposition36havebeenchallengedinstatecourtandarenotnowineffect.

Methamphetamine Prevention Campaign.Thebudgetprovides$10millionGeneralFundtoDADPtoestablishanewstatewidemediaandoutreachcampaigntodetertheuseofmethamphetamine.

Drug Medi‑Cal Rate Increase.TheGovernorvetoedaproposed$2.3mil-lionGeneralFundaugmentationtoincreasecertainreimbursementratesforDrugMedi-Calproviders.

Expansion of Felony Drug Courts.Aspartofastrategytoreducestateprisoncostsovertimebyincreasingtreatmentfordrug-andalcohol-addictedof-fenders,fundingforfelonydrugcourtswasincreasedby$4millionfromtheGeneralFund.

social servicesGeneralFundsupportforsocialservicesprogramsin2006-07totals$9.8bil-lion,anetincreaseofabout$560million,or6percent,overtheprioryear.Figure12 shows by major program the components of this net increase

Figure 12

Social Services Programs General Fund Spending


Change

2005-06 2006-07 Amount Percent

Supplemental Security Income/State Supplementary Program $3,478.1 $3,619.7 $141.6 4.1%California Work Opportunity and Responsibility to Kids 1,962.8 1,863.6 -99.2 -5.1In-Home Supportive Services 1,262.4 1,332.8 70.4 5.6Children's Services/Foster Care/Adoptions Assistance 1,351.8 1,570.8 219.0 16.2Child Support Services 512.0 570.0 58.0 11.3County administration/automation 418.4 432.6 14.2 3.4All other social services programs 249.5 387.9 138.4 55.5

Totals $9,235.1 $9,777.5 $542.4 5.9%


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inyear-over-yearGeneralFundspending.Mostof the increase isdue to(1)caseloadincreasesintheSupplementalSecurityIncome/StateSupplemen-taryProgram(SSI/SSP),In-HomeSupportiveServices(IHSS),andAdoptionsAssistanceprograms;(2)passingthroughthefederalSSICOLAinJanuary2007ratherthanthelaterdaterequiredbypriorlaw;(3)newinitiativesinchildwelfareservices;and(4)theGeneralFundcostsforbackfillingthere-directionofTemporaryAssistanceforNeedyFamilies(TANF)federalblockgrantfundsfromchildwelfareandfostercareintoCaliforniaWorkOppor-tunitiesandResponsibilitytoKids(CalWORKs)countyblockgrants.

AlthoughtotalGeneralFundspending increasedbyalmost$560millioncomparedto2005-06,thenetincreaseinspendinginrelationtotherequire-mentsofpriorlawissignificantlyless,about$208million.Figure13showsthemajorchangesinGeneralFundandTANFfederalfundspendingcom-paredtopriorlaw.Majorchangesineachprogramarediscussedbelow.

SSI/SSPThebudgetincludes$3.6billionfromtheGeneralFundforthestate-fundedportionoftheprogram,anincreaseof$142million(4.1percent).Thisincreaseisattributabletocaseloadgrowth($71million),thelossofone-timesavingsfrom2005-06fromdelayingtheJanuary2006federalCOLA($78million)bythreemonths,andincreasedCashAssistanceProgramforImmigrants(CAPI)costs($12million);partiallyoffsetbymostlyone-timesavingsas-sociatedwithfederalDeficitReductionAct(-$21million).

State and Federal COLAs.PriorlawsuspendedthestateCOLAin2005-06and2006-07anddelayed the“pass-through”of the federal January2006and January 2007 COLAs by three months until April of the respectiveyears.Budgettrailerbilllegislationrestoredthepass-throughofthefederalCOLAinJanuary2007,resultinginanetGeneralFundcostof$42million.Figure14(seepage42)showstheSSI/SSPgrantlevelsasofApril2006andJanuary2007.

CAPI. The Legislature rejected the Governor’s proposal to extend, fromthecurrent10yearsto15years,theperiodforwhichasponsor’sincomeis“deemed”(countedforpurposesoffinancialeligibility)toalegalnoncitizen.Upontheendoftheten-yeardeemingperiod,state-onlyCAPIpaymentsforcertainlegalimmigrantswillcommenceinSeptember2006.ThesepaymentsresultinGeneralFundcostsofapproximately$12millionin2006-07,risingtoover$40millionin2007-08.


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Figure 13

Major Changes—Social Services Programs 2006-07 General Fund and Federal TANF Block Grant Funds


Change From Prior Law

Programs General Fund TANF

SSI/SSPPass-through January 2007 federal cost-of-living adjustment $42.0 —CalWORKs County Block Grants Augmentation to account for higher spending in 2005-06 — $140.0 Reduction for unspent county incentive funds — -40.0Reduce transfer to CalWORKs from Employment

Training Fund — 17.9

TANF Reauthorization Package Participation engagement projects — $90.0Grant savings assumed from engagement projects — -17.2Homelessness prevention — 5.0Community colleges work study programs $9.0 —Replace General Fund with TANF funds -101.3 101.3Foster Care and Child Welfare Services (CWS) Replace TANF funds with General Fund $100.0 -$100.0 Flexible funding for CWS improvements 50.0 —Kinship programs 10.5 —Support for emancipating foster youth 9.7 —Augmentation for adoptions 11.1 —Augmentation for dependency drug courts 3.0 —Community Care Licensing Increase random inspection visits/other improvements $6.0 —Child Support Prepay transitional arrearages $25.5 —Augmentation for local child support agency improvement 4.0 —Department of Aging Transfer of local assistance funding for MSSP from

Health Services $22.3 —

Augmentation for MSSP 3.0 —Employment Development Department Los Angeles County health care workforce development $5.7 —Department of Rehabilitation Increase for supported employment rates $5.6 —Department of Community Services and DevelopmentIncrease for Naturalization Services Program $1.5

Total $207.6 $197.0

TANF=Temporary Assistance for Needy Families.

MSSP=Multipurpose Senior Services Program.


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CalWORKsThe budget includes$1.9billion from theGeneral Fund in theDepartment of SocialServices(DSS)budgetfor CalWORKs. Thisisadecreaseofabout$100million (5.1per-cent compared to theprioryear.Mostofthedecrease results fromreplac i ng Genera lFund spending withfederalTANFfunds.

CalWORKs Grants.Budgetlegislationfrom2005suspendedboththeJuly2005andJuly2006CalWORKs COLAs. Accordingly, CalWORKs maximum monthly grantsremainat2005-06levels($723and$689forfamiliesofthreeinhigh-andlow-costcounties,respectively).

Net Increase in Funding for County Block Grants.Countiesreceiveablockgrant,knownasthesingleallocation,tofundeligibilitydetermination,welfare-to-workservices,andchildcare.Becausecountyblockgrantspendingwashigherduringthefirstthreequartersof2005-06incomparisontoprioryears,theLegislatureincreasedcountyblockgrantallocationsby$140millionfor2006-07.However,thebudgetreducesfundingby$40million,onaone-timebasis,incountiesthatretainunspentCalWORKsperformanceincentives.

Redirection of Employment Training Funds (ETF).Thebudget replaces$18millioninETFsupportforcountyblockgrantswithTANFfederalfunds,freeingupanidentical$18millionforusebytheEmploymentTrainingPanelforitstrainingprograms.

TANF Reauthorization Package.Inordertomeetthehigherworkpartici-pationrequirementsofthefederalDeficitReductionActof2005,thebudgetprovides$90millionforvariousprojectstoengagenonworkingrecipientsinwork-relatedactivities,and$9millionforworkstudyprogramswiththecommunitycolleges.Thesechangesareassumedtoresultingrantsavingsof$17.2million(higherearningsreducegrantpayments).Finally,thebudgetprovides$5millionforhomelessnesspreventionamongCalWORKsfamiliesfacingpotentialeviction.

Figure 14

SSI/SSPa Grant Levels

(Maximum Monthly Grants)

April2006

January2007

Individuals SSI $603 $616 SSP 233 233

Totals $836 $849 CouplesSSI $904 $923 SSP 568 568

Totals $1,472 $1,491 a Supplemental Security Income/State Supplementary Program.


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New Program for Exempt Recipients.Currently,certainCalWORKsrecipi-ents(suchasthosetemporarilydisabled,caringforadisabledrelative,oroverage60)arestatutorilyexemptfromworkparticipationrequirements.Budgetlegislationcreatesaseparatestateprogramfundedexclusivelywithstatemoniesthatarenotusedtomeetmaintenance-of-effortrequirementsortomatchafederalfundingstream.Becauseofthisexclusivestatefunding,therecipientsofthisprogramareoutsidethefederalTANFprogramandareexcludedfromthefederalworkparticipationratecalculation.ThisvoluntaryprogramistobeimplementedinApril2007andprovidesthesamebenefitsandrequirementsastheregularCalWORKsprogram.Budget legislationauthorizestheadministrationtodelayimplementationuntilOctober2007underspecifiedcircumstances.Sinceenactmentofthisprogram,awork-inggroupoflegislativestaff,administrationrepresentatives,countystaff,andadvocateshavelearnedthatrecipientsofthisprogramwouldreceiveapass-throughofallchildsupportcollectedontheirbehalf.BecausethisisdifferentthanthewaychildsupportpaymentsaretreatedwithrespecttoCalWORKs,itislikelythatimplementationwillbedelayeduntilOctober2007orwhenthischildsupportissueisaddressedbytheLegislature.

Restrictions on Midyear Adjustments to TANF Spending.Budgetlegisla-tionprohibitstheadministrationfromincreasingtheexpenditureoffederalTANFfundsonanyprogramexceptCalWORKsbeyondwhatisappropriatedintheannualbudgetact.

Children’s ProgramsThebudgetprovidesacombinedtotalof$1.6billionfromtheGeneralFundforfostercare,childwelfareservices(CWS),adoptions,andadoptionsas-sistance.Thisisanoverallincreaseof16percentcomparedto2005-06.Thisincreaseisprimarilytheresultofadditionalspendingforchildwelfarepro-gramimprovements,asdiscussedbelow,andreplacingTANFfederalfundsintheCWSprogramwithGeneralFundmonies.Inapost-MayRevisionletter,theGovernorproposedanadditional$50millioninfundingforchildwelfareandfostercareprograms.Thefinalbudget,asenacted,exceededtheGovernor’samendedproposalbyabout$25millionGeneralFund.

CWS. Thebudgetprovides$50millionandredirectsanother$18millionfromchildwelfareimprovementpilotprogramstoprovideflexiblefundingtocountieswhichmaybeusedtoreducesocialworkercaseloadsorimplementearlyinterventionstoimproveoutcomesforfamiliesandchildren.BudgetlegislationincludeslanguagerequiringDSStoworkwiththeCountyWelfareDirectorsAssociation,legislativestaff,andorganizationsthatrepresentsocialworkerstodevelopandsubmittotheLegislatureaproposednewmethodol-ogyforbudgetingtheCWSprogram,tobeimplementedin2007-08.


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Thebudgetalsoaddsanadditional$3millionin2006-07toexpandtheuseofDrugDependencyCourtsasaninterventionstrategyinchildwelfarecases.

Kinship Support.BudgetlegislationestablishedtheKinGapPlusprograminorderto(1)increasepaymentstorelativeswhobecomeguardianstoformerfosterchildrenwithspecialneedsand(2)serveyouthexitingtheprobationsystemtorelativecare.ThebudgetredirectedtheexistingKinGAPfund-ingintoKinGAPPlusandincludedanadditional$8milliontofundthesechanges.Thebudgetalsoadds$2.5millioninfundingforcountyprogramsthatprovidesupportandservicestorelativecaregiversoffosterchildren.

Emancipating Foster Youth.Thebudgetadds$9.7milliontoincreasesup-portforemancipatingfosteryouth.Aportionofthesefunds($4million)eliminatesthecountyshareofcostinthetransitionalhousingplacementprograminanefforttoincreasecountyparticipationandserveagreaternumber of youth. The budget also includes $5.7million which creates astate-onlyprogramofeducationandtrainingvouchers foremancipatingfosteryouth.

Adoptions. Thebudgetprovidesatotalof$11.1milliontoincreaseadop-tions.Thisincludes$7.1milliontosupportadditionaladoptionworkers.TheLegislaturealsoadded$4milliontoestablishaprojectinfiveareasofthestatetoprovidepre-andpost-adoptionservicesforfosterchildrenwhohavebeenincareformorethan18monthsandareover9yearsofage.

Title IV‑E Federal Child Welfare Waiver. Budget legislation authorizesDSStoimplementthefederalTitleIV-Ewaiverdemonstrationprojectinupto20counties.Undertheproject,thestatemaywaivecertainprovisionsofTitleIV-Eeligibility,inexchangeforgivinguptheopen-endedentitlementnormallyassociatedwithIV-Efundingforchildwelfareservices.Thestatewillreceiveafixedallocationoffunds,adjustedforanannualgrowthrate,whichmaybespentonpreventiveservicesorforchildrenandfamiliesthatwouldnormallynotbeeligibleforIV-Efunding.Anycounty,state,orfederalsavingsintheprogramthatresultfromthedemonstrationprojectwillbereinvestedbytheparticipatingcountiesincontinuedserviceimprovementefforts.Thebudgetalsoincludes$10millionGeneralFundtosupportcoun-ties’implementationoftheproject.

Community Care Licensing (CCL)Budget legislationprovides$6.1million($5.7millionGeneralFund),andatotalof80positionsinordertoincreasethefrequencyofrandomfacilityinspectionvisitsandtoimplementotherlicensingdivisionreforms,includingmakingcertainlicensinginformationavailabletothepublicontheInternet.


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Budget legislation clarifies the requirement that thedepartment conductunannouncedvisitsinatleast20percentoffacilitieseachyear.TheamountsnotedabovereflecttheGovernor’svetooffourpositionsand$320,000forplacingCCLdataontheInternet.

Child SupportThebudgetincreasesGeneralFundspendingforchildsupportenforcementby$58million(11percent)comparedto2005-06.Mostoftheincreaseisforcostsassociatedwiththestatewideautomatedchildsupportsystemsandthedecisiontoholdcertainnoncustodialparentsharmlessforatransitionalpayment,asdiscussedbelow.

Holding Certain Noncustodial Parents Harmless for Transitional Pay‑ment.Indevelopingitsfederallyrequiredautomatedchildsupportsystem,thestatechangedthedatewhenachildsupportpaymentisrecordedfromthedateofwagewithholdingtothedateofreceipt.Thischangeplacessomenoncustodialparents(NCPs),throughnofaultoftheirown,behindintheirchildsupportpayments,creatingan“arrearage.”BudgetlegislationallowsthestatetomakechildsupportpaymentsonbehalfoftheaffectedNCPs,thuspreventingthearrearageandholdingtheseNCPsharmless.TheNCPswillberequiredtorepaythestateforthisprepaymentuponterminationoftheirchildsupportobligation.Theseone-timeprepaymentsresultinGeneralFundcostsof$25.5millionin2006-07.

TheLegislaturealsoadded$4millionGeneralFund(andabout$8millioninfederalmatchingfunds)totheallocationsforlocalchildsupportagenciesforthepurposeofimprovingperformanceonchildsupportenforcement.

IHSSThebudgetincreasesGeneralFundsupportforIHSSby$70million(5.6per-cent)toatotalof$1.3billion.Mostoftheincreaseisattributabletogrowthincaseload.BudgetlegislationrequiresDSStodevelopanautomatedsystemofdirectdepositofpaychecksforIHSSworkers.

Employment Development Department (EDD)GeneralFund support for EDD increased by$8million (36percent) to atotalof$30million.MostofthisincreasewasfortrainingandworkforcedevelopmentfortheLosAngeles(L.A.)Countypublichealthcaresystem,asdiscussedinmoredetailbelow.

L.A. County Health Care Worker Training.In2000,thefederalgovernmentapproveda$900million,five-yearMedicaiddemonstrationwaiverforL.A.County.ThewaiverrequiredthestateandL.A.Countytoprovide$40mil-


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lioninfundingforthecounty’shealthcareworkforcetrainingneeds.Thestateagreedtopaytwo-thirdsofthesecosts,withthecountypayingtheremainingthird,throughtheperiodofthewaiver.Atthecompletionofthetermofthewaiver,totalspendingwas$15.2million(state)and$10.1million(county).Althoughfromafederalperspective,thestate’sobligationfortrain-inghasbeensatisfied,L.A.Countyexpendedadditionalfundstooperatetheprogram.Thebudgetprovides$5.7millionfromtheGeneralFundtoL.A.Countyfortheprogram.

Department of AgingThebudgettransfersMedi-Callocalassistancefunding($22.3million)fortheMultipurposeSeniorServicesProgram(MSSP)fromDHStotheDepart-mentofAging.Thebudgetalsoprovided$3millionGeneralFundtosupportincreasedreimbursementratesforMSSPserviceproviderorganizations.

Other ChangesLegislative Augmentations.Thebudgetincludes$5.6millionintheDepart-mentofRehabilitationtofundarateincreaseintheSupportedEmploymentProgram.BudgetlegislationcodifiedtheNaturalizationServiceProgram(NSP)withintheDepartmentofCommunityServicesandDevelopment.Moreover,thebudgetdoubledthefundingfortheNSP,toatotalof$3million.

Judiciary & criminal JusticeThe2006-07budgetcontains$12.9billionforjudicialandcriminaljusticeprograms,including$11.4billionfromtheGeneralFund.TheGeneralFundtotalrepresentsanincreaseof$1.2billion,or12percent,relativeto2005-06expenditures.

Figure15showsthechangesinGeneralFundexpendituresinsomeofthemajorjudicialandcriminaljusticebudgets.Below,wehighlightthemajorchangesinthesebudgets.

Judicial BranchThe budget includes $3.4billion for support of the judicial branch. Thisamountincludes$1.9billionfromtheGeneralFund;$475milliontransferredfromthecountiestothestate;and$957millioninfine,penalty,andcourtfeerevenues.TheGeneralFundamountis$216million,or12percent,greaterthantherevised2005-06amount.

Court Operations.Fundingfortrialcourtoperationsisthesinglelargestcomponentofthejudicialbranchbudget,accountingforover90percentoftotaljudicialbranchspending.The2006-07budgetprovidesforgrowthin


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trialcourtoperationsfundingbasedontheannualchangeinthestateap-propriationslimit($113million),restorationofone-timereductions($58mil-lion),andincreasedcourtsecurity($19million).Italsoincludespartial-yearfunding for 50 new superior court judge positions ($5.5million) and a4.25percentincreaseinjudgesalaries($7.3million).TheGovernorvetoed$10millionaddedbytheLegislaturetoprovidecourtinterpreterservicesincertaincivilcases.

Corrections and RehabilitationThebudgetcontains$8.7billionfromtheGeneralFundforsupportoftheCaliforniaDepartmentofCorrectionsandRehabilitation(CDCR),anincreaseof$980million,or13percent,abovetherevised2005-06level.EffectiveJuly1,2005,thevariouscorrectionsdepartmentswereconsolidatedintoasingledepartmentpursuanttoChapter10,Statutesof2005(SB737,Romero).

Adult Corrections.Figure16(seenextpage)showstherecentgrowthintheinmateandparoleepopulations,duelargelytoincreasedadmissionsfromcountycourts.Thebudgetactincludesfundingtocomplywithcourtsettlementsrelatingtothedeliveryofmedical,mental,anddentalhealthcareservicestoinmates($400million),addressincreasedinmateandparolecaseloads ($303million),and implementavarietyofnewandexpandedprogramsaimedatreducingrecidivismamongadultoffenders($53million).Figure17(seenextpage)showstheallocationofnewfundsforrecidivism

Figure 15

Judicial and Criminal JusticeBudget Summary—General Fund


Change

Program/Department 2005-06 2006-07 Amount Percent

Judicial Branch $1,757 $1,973 $216 12.3%Department of Corrections and

Rehabilitation 7,709 8,689 980 12.7

Department of Justice 338 386 48 14.2Citizens' Option for Public Safety 100 119 19 19.0Juvenile Justice Crime

Prevention Grants 100 119 19 19.0

Other Corrections Programsa 161 116 -45 -28.0

Totals $10,165 $11,404 $1,239 12.2%a Includes debt service costs on general obligation bonds and an offset to reflect the receipt of Federal

State Criminal Alien Assistance Program funds. Other programs include the Office of the Inspector General, the State Public Defender, and Payments to Counties for Homicide Trials.


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reductionprograms.ThebudgetalsoprovidesfundingtoexpandtheBasicCorrectionalOfficerAcademy($55million),reducethebacklogofliferpa-rolehearings($7million),andexpandtheuseofGlobalPositioningSystemdevices to track sex offenders and other high-risk parolees ($5million).Subsequent to approval of the budget, the Legislature passed legislation

Figure 16

Inmate and Parole Populations Resume Growth

1996 Through 2007As of June 30 of Each Year

50,000

100,000

150,000

200,000

250,000

300,000

350,000

96 97 98 99 00 01 02 03 04 05 06 07(Projected)

ParoleesInmates

Figure 17

Adult Corrections New Recidivism Reduction Funding

(In Millions)

Program Area Amount

Inmate education $21.1Parole programs 7.8Community partnerships 7.7

Administrative supporta 6.2Rehabilitative programs 6.0Treatment 3.9

Total $52.8a Includes funding for research and evaluation, information technology, staff training, and support

services.

Detail may not total due to rounding.


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(SB1134,BudgetCommittee)authorizinganadditional$35million,primarilytoestablish552mentalhealthstaffforthedepartmentinaccordancewithafederalcourtorderintheColeman v. Schwarzeneggercase.

Prison Health Care Receiver.InFebruary2006,afederalcourtjudgeinthePlata v. SchwarzeneggercaseappointedafederalreceivertomanagetheCDCRinmatehealthcareprogram.Thereceiver’smandateistobringthedepartmentintocompliancewithconstitutionalstandardsfortheprovisionofmedicalservices.Tothatend,thereceiver’spowersarebroadandincludedeterminingtheprogram’sannualbudget,hiringandfiringmedicalstaff,andenteringintocontractswithcommunityproviders.The2006-07budgetincludes$100mil-lioninunallocatedfundsforthereceivertofurtherimplementcourtorders.Itisanticipatedthatthesefundswillbeusedtoraisesalariesforhealthcareemployees,aswellaspurchasenewequipmentandsupplies.

Special Session on Prison Expansion.OnJune27,2006,GovernorSchwar-zeneggerdeclaredaspecialsession(thesecondextraordinaryof2005-06)oftheLegislaturetoaddressprisonovercrowding.ThoughtheLegislatureconsideredvariousbillsdesignedtoreduceovercrowdingandexpandtheprisoncapacitytomeetprojectedgrowth,nolegislationwasenacted.Thebillsconsideredincludedfundingandauthoritytobuildnewprisons,con-structhousingatexistingprisons,improveprisoninfrastructuresystems,contract for male and female community beds, and transfer inmates toprisonsinotherstates.

Juvenile Justice.ThebudgetprovidesfundingtofurtherimplementremedialplansresultingfromtheFarrell v. Hickmanlawsuit($60million).Thisconsistsoffundstoincreasethestaff-to-wardratiointheyouthcorrectionalfacilitiesandenhancethedeliveryofmedicalandmentalhealthcareservices.ThebudgetalsoestablishestheCommunityRe-EntryChallengeGrantProgram,which isaimedat reducingrecidivismamong juvenileparolees throughenhancedcommunity-basedservices($10million).

Department of JusticeThe budget includes $386million (General Fund) for support of the De-partmentof Justice,an increaseof$48millionabove therevised2005-06amount. Notable new spending includes $6.5million to create four newGangSuppressionEnforcementTeams,$6milliontoexpandtheCaliforniaMethamphetamineStrategiesProgram,$10.6millionfornewvehiclesandequipment,and$1.3milliontoincreasetheinvestigationandprosecutionofcomplexfinancialandidentitytheftcrimes.Thebudgetalsoprovidesatotalof$30millionfortheProposition69DNAProgram,whichrepresentsanincreaseof$19millionrelativetothe2005-06fundinglevel.Thisincrease


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fortheDNAprogramconsistsof$9millionGeneralFundand$10millionfromtheDNAIdentificationFund tobegeneratedprimarilybyanewlyenactedincreaseincriminalpenalties.

Assistance to Local Law EnforcementThe budget provides $565million for the major local public safety pro-grams.Thisrepresentsanincreaseof$146million,or35percent,abovethe2005-06fundinglevel.Figure18showsthechangesinlocalpublicsafetyprograms.

Notableinitiativesforlocallawenforcementincludethosetargetingmentallyilloffendersandlocalbookingfees.Specifically,thebudgetprovides$45mil-liontoreestablishtheMentallyIllOffenderCrimeReductionGrantProgram.Thisprogramwillprovidegrantstolocalgovernmentsfordemonstrationprojectsdesignedtoreducerecidivismamongmentallyilloffenders.Inad-dition,thebudgetprovides$35milliontoreimbursecitiesforjailbookingfeespaidtocountiesin2005-06andrevampscountyauthoritytocollectfeesstartingin2007-08.Afterthebudgetwasenacted,theLegislaturepassedAB1812(CommitteeonBudget),whichprovides$6millioningrantsforSexualAssaultFelonyEnforcementteams.

Figure 18

Major Local Public Safety Programs—General Fund


Change

Program 2005-06 2006-07 Amount Percent

Citizens' Option for Public Safety $100.0 $119.0 $19.0 19.0%Juvenile Justice Crime Prevention

Grantsa100.0 119.0 19.0 19.0

County Probation Grants 201.0 201.0 — —Mentally Ill Offender Crime Reduction

Grants— 45.0 45.0 —

Vertical Prosecution Block Grants 8.0 16.0 8.0 100.0War on Methamphetamine Grants 9.5 29.5 20.0 210.5Booking Fee Reimbursement — 35.0 35.0 —

Totals $418.5 $564.5 $146.0 34.9%a The 2005-06 Budget Act provided $26 million for this program and anticipated a $74 million carry

over from the prior year.


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transPortationDepartment of TransportationThe2006-07budgetplanprovidestotalexpendituresof$12.3billionfromstatespecialfundsandfederalfundsfortheDepartmentofTransportation(Caltrans).This levelof expenditures isprimarilydue to the substantialrepayment of past Proposition42 loans, as detailed below. The 2006-07expenditurelevel,however,isaboutthesameasthatexpendedin2005-06whichincludedtheawardoftheBayBridgeself-anchoredsuspensioncon-tractinMarch2006.

The2006-07budgetprovidesapproximately$5.2billionfortransportationcapitaloutlay,$1.5billion for capitaloutlay support, $2.2billion for localassistance,andabout$1.1billionforhighwayoperationsandmaintenance.Thebudgetalsoprovidesabout$1.5billionforsupportofCaltrans’masstransportationandrailprogram,and$538millionfortransportationplan-ninganddepartmentaladministration.

Full Funding of Proposition 42. ConsistentwiththerequirementsofPropo-sition42,the2006-07budgetprovidesforthetransferofgasolinesalestaxrevenuefromtheGeneralFundtotheTransportationImprovementFund(TIF)fortransportationpurposes.Thetotalamountofthe2006-07transferisestimatedat$1.4billion.Thisamountistobeallocatedasfollows:

• $678millionfortheTrafficCongestionReliefProgram(TCRP)tofund141stateandlocaltransportationprojects.

• $594millionfortheStateTransportationImprovementProgram(STIP)tofundstateandlocaltransportationprojects.

• $148million to the Public Transportation Account (PTA) for masstransportationpurposes.

Substantial “Spillover” Revenues, New Allocation. Currentlawrequiresthat certain “excess revenue” generated from a 4.75percent sales tax onall taxable goods, including gasoline, as compared to a 5percent tax onall taxablegoodsexcludinggasoline(referredtoasspilloverrevenue)betransferredtothePTAfortransportationuses.For2005-06,thetransferwassuspendedandspilloverrevenueswereretainedintheGeneralFund.Duetohighgasolineprices,the2006-07budgetprojectsthatspilloverrevenueswilltotal$668million.Theserevenueswillbeallocatedasfollows:


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• $200milliontopartiallyrepayaProposition42suspension.

• $125millionforseismicretrofitofBayAreatollbridges.

• $20million for farmworker transportationgrants.Specifically, theLegislatureenactedSB1135(CommitteeonBudgetandFiscalReview),directingCaltranstoprovidethesefundsasmatchinggrantstopublicagenciestopurchase,lease,oroperatevansorbusestoservefarmworkers.

• $13millionforhigh-speedraildevelopment.

• Remainingrevenues(about$310million)willbedistributed:

80percenttoStateTransitAssistance(STA).20percenttoothermasstransportationactivities.

The2006-07budgetprovidesagreatershareofspilloverrevenuetoSTAthanisrequiredbycurrentlaw.This,togetherwithotherSTArevenuessourcessuchasdieselsalestaxrevenues,Proposition42funding,andearlyrepay-mentofpriorsuspensions(asdiscussedbelow),willprovideSTAwithanestimated$624millionin2006-07.Thisisupfromafundinglevelofroughly$237millionin2005-06.

Early Partial Repayment of Proposition 42 Debt. The2006-07budgetpro-vides$1,415milliontorepaywithinterestabouttwo-thirdsoftheamountof Proposition42 funds suspended in 2003-04 and 2004-05. The repay-mentincludes$920millionthatwouldotherwiseberepaidin2007-08and$495millionthatisduein2008-09.Therepaymentincludes$1,215millionfromtheGeneralFundand$200millioninspilloverrevenues(asmentionedabove).Theamountwillbeallocatedasfollows:

• $315millionforTCRPprojects.

• $424millionplusinterestforSTIPprojects.

• $424millionplusinterestforlocalstreetsandroads.

• $210million(approximately)tothePTA.

UnderProposition1A,tobeconsideredontheNovember2006ballot,theremaining Proposition42 debt (about $754million) would be repaid byJune30,2016,withminimumannualrepaymentofone-tenththetotalamountowed.Figure19showsthepastProposition42suspensionsandtherepay-mentstotheTIFin2006-07andfutureyears.


53

Tribal Gaming Bond to Repay $827 Million in Transportation Debt. Un-dercurrentlaw,$1.2billioninpreviousloanstotheGeneralFundfromtheTrafficCongestionReliefFund(TCRF)are toberepaidbytribalgamingrevenuebonds.The2006budgetassumesthattribalgamingbondswillbeissuedin2006-07torepay$827millionplusinteresttotheTCRF,asshowninFigure19.Thesebondfundswouldbeallocatedasfollows:

• $292million,plusinterest,willbeusedtorepaytheStateHighwayAccountforpreviousloansmadetoTCRF.

• $290millionwillremainintheTCRFtofundTCRPprojects.

• $245millionwillbeusedtopartiallyrepayPTAforpreviousloansmadetoTCRF.

Thebudgetincludestrailerbilllanguagetomodifytheallocationoftribalgamingbondrevenues.Specifically,itprovidesadditionalfuture-yearbondrevenuestoTCRPprojects.After2006-07,TCRFwillstillbeowed$222million,ofwhich$30millionwouldgotoPTAand$192millionwouldbeusedforTCRPprojects.Itisunknownwhentribalgamingbondrevenueswillrepaythisdebt.Figure1assumestheserevenuestobeavailableafter2009-10.

Figure 19

Transportation Loans and Repaymentsa

(In Millions)

To General Fundb To TCRFc

Year From TCRFd From TIF From SHA From PTA

Balance through 2003-04 $1,383 $868 $463 $275 2004-05 -183 1,258 -20 —2005-06 -151 — -151 —2006-07 -827 -1,373 -292 -2452007-08 — -84 — —2008-09 — -84 — —2009-10 — -84 — —Beyond 2009-10 -222e -502 — -30e

SHA = State Highway Account; TCRF= Traffic Congestion Relief Fund; TIF= Transportation Investment Fund; PTA = Public Transportation Account.

a Amounts do not include interest, only the principal amounts owed and repaid. b Positive numbers are amounts payable to the General Fund, negative numbers are amounts payable

from the General Fund. c Positive numbers are amounts payable to TCRF, negative numbers are amounts payable from TCRF. d Funds shown from the General Fund as payment to the TCRF in 2005-06 and beyond come from

tribal gaming revenues. e To be repaid from future tribal gaming bonds. The date when these bonds will be issued is unknown.


54

Programmatic Funding Impact of Major Budget Actions. The2006-07bud-getprovidesforthefullProposition42transfer,repaysearly$1,415millionintransportationdebt,reallocatessubstantialspilloverrevenues,andantici-patesthat$827millionplusinterestwillberepaidbytribalgamingbondrevenues.Together,theseactionsresultin$4.2billioninfundingfortrans-portationprograms.Thisisabout$2.7billionmorethanrevenuesreceivedfromProposition42andtribalgamingrevenuesin2005-06.Figure20showshowrevenuesfrommajorbudgetactionsaredistributedbetweenprograms.(Thebudgetprovidesover$8billioninadditionalrevenuestotransportationbeyondthoselistedhere.Theseadditionalrevenuesourcesincludeprimarilytheexcisetaxonmotorfuels,truckweightfees,andfederalfunds.)

California Highway Patrol (CHP) and Department of Motor Vehicles (DMV)The2006-07budgetprovidesabout$1.6billiontofundtheCHP,anincreaseofabout$120million(8.3percent)comparedtothe2005-06level.Thein-creaseisprimarilyduetofirst-yearfunding($56million)forCHPtobeginamultiyearprojecttoupgradeitsradiocommunicationssystemandsup-portcosts($41million)relatedtohiringadditionalpatrolofficersand911callcenterstaff.About$1.4billionofthetotalfundingwillcomefromtheMotorVehicleAccount(MVA).

Figure 20

Major 2006-07 Budget Actionsa

Funding by Program

(In Millions)

Program Fundingb

Traffic Congestion Relief Program $1,283 State Transportation Improvement Program 1,018Public Transportation Account 913

State Highway Accountc 443Local streets and roads 424Bay Area toll bridges 125Farm worker transportation grants 20High-speed rail development 13

Total $4,239 a Includes full Proposition 42 transfer in 2006-07, $1,415 million in early partial repayment for past

suspension, distribution of spillover revenues, and anticipated receipt of tribal gaming bond revenues. b Amounts do not include interest. c Amount includes $151 million in tribal gaming revenues received at end of 2005-06.


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With regard to DMV, the budget provides $848million in departmentalsupport,about$77million(10percent)morethanthe2005-06level.AmajorcomponentoftheincreaseinDMV’ssupportcostsisfundingprovidedinthebudgetthatenablesthedepartmenttobeginworkonprojectstoimproveitscomputinginfrastructurerelatedtoitsdriverlicensingandvehiclereg-istrationprograms.

resources and environmental Protection The2006-07budgetprovidesabout$5.7billionfromvariousfundsourcesfornaturalresourcesandenvironmentalprogramsadministeredbytheRe-sourcesandCaliforniaEnvironmentalProtectionAgencies,respectively.Thisisareductionofabout$1.4billion,or20percent,whencomparedto2005-06expenditures.Thisreductionismainlytheresultofadecreaseinbondfundexpendituresforparkandwaterprojectsduetotheone-timenatureoftheseexpenditures.WhiletotalfundingfromtheGeneralFundforresourcesandenvironmentalprotectionprogramsremainsrelativelystablefrom2005-06to2006-07,thebudgetreflectsanumberofone-timeGeneralFundaugmen-tations. The most significant increases include $250million for deferredmaintenanceatstateparks,$100millionforfloodcontrolsubventions,and$84.1millionfortheliningoftheAll-AmericanandCoachellaCanals.WediscusstheseandotherGeneralFundchangesinfurtherdetailbelow.

Figures21and22(seenextpage)compareexpendituretotalsforresourcesandenvironmentalprotectionprogramsin2005-06and2006-07.Asthefiguresshow,thelargestchangesinfundingfortheseprogramsaregenerallyinlocalassistanceandcapitaloutlayduetoareductioninavailablebondfunds.

Resources and Environmental Protection Expenditures

• Bond Expenditure Summary. Thebudgetincludesjustunder$800mil-lionfromvariousbondfunds,mostlyPropositions13,40,and50,forvariousresourcesandenvironmentalprotectionprograms.Selectedhighlights of these bond expenditures are shown in Figure 23 onpage57.

• CALFED Bay‑Delta Program. TheCALFEDBay-DeltaProgramisaconsortiumof24stateandfederalagenciescreatedtoaddressanum-berofinterrelatedwaterproblemsinthestate’sBay-Deltaregion.Thebudgetprovidesatotalof$246millioninstatefundsfortheCALFEDBay-DeltaProgramin2006-07,inadditiontoabout$92millionofreap-propriations.Ofthe$246million,$103millionisfromProposition50


56

bondfunds(thelargestfundingsource)and$26millionisGeneralFund.Thebudgetreflectsareorganizationoftheprogram,includ-ingatransferofallfundingandpositionauthorityoftheCalifornia

Figure 21

Resources Programs: Expenditures and Funding

2005-06 and 2006-07 (Dollars in Millions)

Change

Expenditures 2005-06 2006-07 Amount Percent

State operations $3,392.6 $3,519.7 $127.1 3.8%Local assistance 541.3 452.5 -88.8 -16.4Capital outlay 1,438.8 389.9 -1,048.9 -72.9

Totals $5,372.7 $4,362.1 -$1,010.6 -18.8%

Funding

General Fund $1,884.9 $1,825.7 -$59.2 -3.1%Special funds 1,725.9 1,649.7 -76.2 -4.4Bond funds 1,542.2 722.9 -819.3 -53.1Federal funds 219.7 163.8 -55.9 -25.4

Figure 22

Environmental Protection Programs: Expenditures and Funding

2005-06 and 2006-07 (Dollars in Millions)

Change

Expenditures 2005-06 2006-07 Amount Percent

State operations $1,098.9 $1,128.6 $29.7 2.7%Local assistance 621.0 210.3 -410.7 -66.0Capital outlay 0.1 5.1 5.0 >100.0

Totals $1,720.0 $1,344.0 -$376.0 -21.9%

Funding

General Fund $72.6 $88.0 $15.4 21.2%Special funds 993.5 1,016.0 22.5 2.3Bond funds 484.4 69.2 -415.2 -85.7Federal funds 169.5 170.8 1.3 0.8


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Bay-Delta Authority to various other CALFED state agencies. TheSecretaryforResourcesislargelyassumingthefunctionofprovidingstaffsupporttotheboardoftheCaliforniaBay-DeltaAuthority.

• Flood Management. Thebudgetincludesvariousincreasestotalingover$170millionforfloodmanagement-relatedstateoperations,localassistance,andcapitaloutlay.Theseincreasesinclude:(1)$38.2mil-lion($7.6milliononetime)fromtheGeneralFundfortheDepartmentofWaterResources’(DWR’s)stateoperationsandlocalassistancetoimprovefloodmanagementactivitiesintheCentralValleyandDeltaregions;(2)$31.4million(GeneralFund)forfloodcontrolcapitaloutlayprojectsintheCentralValley;and(3)$100million(onetime)fromtheGeneralFundtopaylocalgovernmentsforthestate’sshareofthecostsoffederallyauthorized,locallysponsoredfloodcontrolprojectsout-sidetheCentralValley.Theseincreasesbringthedepartment’sfloodmanagementbudgettoatotalofabout$215million(variousfunds)forstateoperationsandstateandlocalfloodcontrolprojects.Inaddi-tion,thebudgetincludes28newpositionstoimplementChapter34,Statutesof2006(AB142,Nuñez),whichappropriated$500millionforfloodcontrolsystemrepairsandimprovements,includingtherepairofcriticalerosionsites.Thesenewpositionswillbepaidforfromthisappropriation.Thedepartmentanticipatesspendingthisappropria-tionovermultipleyears,with$116millionbeingspentin2006-07.

Figure 23

Selected Bond Expenditures Resources and Environmental Protection Programs


Program AreaBudgeted

Expenditures

CALFED Bay-Delta Program $272 Other water supply and management projects (non-CALFED) 171State parks—acquisition and improvements 148Other water quality projects (non-CALFED) 58Flood control capital outlay projects 45Wildlife Conservation Board—acquisition, development, restoration 35State Coastal Conservancy—acquisition, development, restoration 32Lake Tahoe and Sierra Nevada conservation 32River Parkways Program 31Other land acquisition and conservation 13Farmland Conservancy Program 8


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• Paterno Lawsuit. Inadditiontothefloodmanagementexpendituresnotedabove,thebudgetincludes$62.9million(GeneralFund)topaythesecondinstallmentofaten-year,$428millionfinancingobligationarisingfromthestate’s$464millionPaternolawsuitsettlementrelatingtoafloodin1986.

• Canal Lining.TheDWR’sbudgetincludes$84.1millionfromtheGen-eralFundfortheliningoftheAll-AmericanandCoachellaCanals,toreducetheamountofwaterthatislostduetoseepage.Theseprojectsarerelatedtothe“QuantificationSettlementAgreement”and,whencomplete,willsaveapproximately100,000acre-feetofwaterannually.Wenotethatcurrentlypendinglitigationrelatingtotheliningproject,raisingwaterrightsandenvironmentalissues,mightdelayorrequirechangesintheexpenditureofthesefunds.

• State Parks. Thebudgetprovides$250millioninone-timefundingfromtheGeneralFundfordeferredmaintenanceatstateparks.TheDepartmentofParksandRecreation(DPR)projectsthatthesefundswillbemostlyspentoverafour-yearperiod.Inaddition,thebudgetincludesanongoingaugmentationof$15million(GeneralFund)foroperationsandmaintenanceatnewandexistingparks.

• Fish and Game Preservation Fund. Thebudgetprovides$19.9mil-lioninone-timefundingand$5.9millioninongoingfundingfromtheGeneralFundtoaddressstructuraldeficitsintheFishandGamePreservationFund.

• Allocation of Tidelands Revenues. The budget estimates that$222million in revenues from oil and gas leases on state-ownedtidelandsandoceanwaterswillbedepositedintheGeneralFund.Previously,statuteallocatedaportionoftidelandsoilrevenuestopar-ticularnaturalresourcesprograms.WiththesunsetofthatprovisiononJune30,2006,alltidelandsoilrevenuesarenowdepositedintheGeneralFund.(Pleasenotethatthebudgetincludesseveralone-timeappropriationsfromtheGeneralFundforresources-relatedpurposespreviouslyfundedwithtidelandsoilrevenues.Thesepurposesincludehabitatprotectionandrestorationprogramsdiscussedbelow.)

• Habitat Protection and Restoration. ThebudgetincludesvariousGeneralFundincreasestotalingabout$53million($40millionone-time)forhabitatprotectionactivitiescarriedoutbytheDepartmentofFishandGame,WildlifeConservationBoard,andtheStateCoastalConservancy. These increases include: (1) $19million for marine


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lifeandecosystemprotectionandmanagement; (2)$14millionforsalmonandsteelheadrestoration; (3)$10millionfornongamefishandwildlifemanagement;(4)$5millionforwetlandsandriparianhabitatconservation;and(5)$5milliontocreateanendowmentfundforthemanagementofcoastalwetlands.

• Climate Change. Thebudgetprovidesabout$37million(mostlyfromtheMVA)toanumberofstateagenciestoreducethestate’semissionofgasesthatcontributetoglobalwarmingandtodevelopalternativefuels.Includedinthisamountis$6.5millionforcontinueddevelop-mentofhydrogenfuelingstationsandhydrogenvehicles.

• Air Quality: Emission Reduction Grants. Thebudgetincludesatotalof$140millioninspecialfundsforgrantstoreduceairemissions.Ofthisamount,$90millionisongoingfundingfromtheAirPollutionControlFund(supportedbysmogcheck-relatedfeesandtirerecy-clingfees)fortheCarlMoyerProgram,whichseekstoreduceoxidesof nitrogen (NOx) emissions from diesel-fueled engines. Another$25million(one-timefundingfromMVA)is forgrantsandincen-tivesforthedevelopmentofefficientandcleanalternativefuelsandzero-emissionvehicles.Thefinal$25millionofthistotal(one-timefundingfromMVA)isforgrantstolocalpublicagenciesforpurchaseoflow-pollutingconstructionequipmentifvotersapproveProposition1AintheNovembergeneralelection;otherwise,thesemoniesaretofundreplacementofpre-1977model-yearschoolbuses.

Energy and Public Utilities-Related Expenditures • Energy Research and Renewable Energy Incentives. Thebudgetin-

cludesabout$70millionforenergy-relatedresearchanddevelopmentcarriedoutunderthePublicInterestEnergyResearchProgramand$163millionforproduction-basedincentivesandpurchaserrebatestopromoterenewableenergyundertheRenewableEnergyProgram.SenateBill1250(Perata)—passedbytheLegislatureandawaitinggu-bernatorialaction—reauthorizesthesetwoprogramsonapermanentbasis.Theywerestatutorilyscheduledtosunsetattheendof2006.

• Public Utilities Commission Staffing. Thebudget includesabout$12million(specialfunds)inthePublicUtilitiesCommission(PUC)for implementation of the Telecommunications Consumer Bill ofRightsandabout$3millionfor33newpositionsacrossseveralregu-latoryprogramsatthePUC.


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caPital outlayThe2006-07budgetincludes$2.7billionforcapitaloutlayexpenditures(ex-cludinghighwaysandtransit),asshowninFigure24.About82percentoftotalexpendituresisfrombonds(eithergeneralobligationorlease-revenuebonds).Themajorstatecapitaloutlayprojectsandprogramsfundedinthebudgetarediscussedbelow.

Higher EducationAbout$1.9billion,or72percent,ofcapitaloutlayexpendituresplannedfor2006-07willbeforhighereducationprograms:

• CCC—$862million inbondfunds forvariousprojectsat thecom-munitycollegecampuses.

• CSU—$541million in bond funds for various projects at the CSUcampuses.

• UC—Atotalof$514million,with$505millionfrombondfundsand$9millionGeneralFund,forvariousprojects.

AmajorityoftheseexpendituresarecontingentonpassageofProposition1DontheNovember2006ballot.

ResourcesAbout$395million,or15percent,oftotalcapitaloutlayexpendituresplannedfor2006-07willbeforresourcesprograms,including:

Figure 24

2006-07 Capital Outlay Programs

(In Millions)

Bonds General Special Federal Totals

Legislative, Judicial and Executive — — $66.3 — $66.3 State and Consumer Services $3.0 $1.7 — — 4.7Business, Transportation and Housing — — 23.7 — 23.7Resources 259.1 70.5 58.2 $7.1 394.9 Health and Human Services — 7.4 — — 7.4Corrections and Rehabilitation 1.5 181.2 — — 182.7 Education 1,908.3 9.0 — — 1,917.3 General Government 31.7 5.4 9.2 35.4 81.7

Totals $2,203.6 $275.2 $157.4 $42.5 $2,678.7


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• DPR—Atotalof$190million,including$135millioninbondfunds,forvariousparkprojectsstatewide.

• DWR—Atotalof$81million,includingfundsforfloodcontrolproj-ectson theAmericanandSacramentoRiversand theSouthDeltaImprovementsProgram.Inaddition,Chapter34provides$500millionforleveerepairandfloodcontrolsystemimprovements.Thedepart-ment anticipates spending $116million from this appropriation in2006-07,someofwhichwillbeforcapitaloutlay.Also,thedepartmentplans $122million (off-budget funds supported by revenues fromwaterusers)incapitalexpendituresontheStateWaterProject.

• Wildlife Conservation Board—$41million,includingalmost$33mil-lioninbondfunds,foravarietyofhabitatconservationandresourceprotectionprojectsthroughoutthestate.

• State Coastal Conservancy—$31million,includingalmost$28mil-lioninbondfunds,forvariousprojectstoprotectcoastalresourcesandecosystems.

• Department of Forestry and Fire Protection—$24million,allGeneralFund,forprojectstoconstructandupgradefirestations,conservationcamps,andcommunicationsfacilities.

OtherThecapitaloutlaybudgetalsoincludes:

• CDCR—$181million in General Fund for projects at various statecorrectionalfacilities.

• Judicial Branch—$66millionfromspecialfundsforfournewtrialcourthouses.

• General Government—Atotalof$81millionmainlyfrombondandfederalfunds.Thetotalincludes$57millionfortheDepartmentofVeteransAffairsforveterans’homesand$16millionfortheMilitaryDepartmentforarmoryimprovementsandpropertyacquisitionforanewheadquartersfacility.


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other maJor ProvisionsLocal GovernmentNoneducation Mandates. The budget includes $232.5million (GeneralFund)and$1.7million(specialfunds)topay2005-06and2006-07claimsfor38noneducationmandates,includingthePeaceOfficer’sProceduralBillofRightsmandate.FundingfortheAB3632mentalhealthmandateisprovidedseparatelyinthebudget(wediscussthismandateinthe“Health”sectionofthisreport).Thebudgetsuspendslocalagencyobligationstocarryout29mandatesinthebudgetyearanddirectstheCommissiononStateMan-datestoreconsidertwopreviousmandatedeterminationsthatfoundstatereimbursablecosts.Thebudgetstartstheprocessofpayinglocalgovernmentsforthelargebacklogofpre-2004-05mandateclaims.Specifically,thebudgetprovides$169.9million(GeneralFund)tomakethe2006-07and2007-08pay-mentstowardsthestate’s15-yearplantoretirethismandatedebt

Employee Compensation$1.2 Billion for Increased Pay and Benefit Costs.Thebudgetactprovides$567million($361millionGeneralFund)tomeetincreasedpayandbenefitobligationsforstateemployees.MostoftheseobligationswerecreatedbylaboragreementsapprovedbytheLegislatureinprioryears.In2006,theLegislatureapprovednewagreementswith19of21employeebargainingunits.Onlycorrectionalofficers—14percentof thestateworkforce—nowworkunderanexpiredagreement,andstateengineersareworkingunderapreviouslyapprovedagreementthatexpiresin2008.ThebillsthatratifiedthenewagreementsarelistedinFigure25.BillsapprovedbytheLegislatureafterpassageofthebudgetappropriateatotalof$632million($270millionGeneralFund)tofundthenewagreements.Intotal,theLegislatureappropri-ated$1.2billion($631millionGeneralFund)forincreasedpayandbenefitsforstateemployeesin2006-07,asshowninFigure25.

Raises for All State Employees. Paylevelsforvirtuallyeverystateemployee(includingsupervisorsandmanagers)willincreasein2006-07asaresultoftheLegislature’sactions.Mostemployeesreceivea3.5percentgeneralsalaryincreaseandaone-time$1,000bonus.Correctionalofficers,CHPofficers,andstateengineersreceivelargerraises,astheirpayrisesinlinewiththatofcomparablelocalgovernmentemployees.(Thesepayadjustmentsarere-quiredbystatelawforCHPofficersandbylaboragreementsforcorrectionalofficersandstateengineers.)Thenewlaboragreementsprovideadditionalincreasestoclassificationswithidentifiedrecruitmentandretentionchal-lenges,representingabout20percentofthestateworkforce.Doctorsandnurses inCDCRandtheDMHreceivesomeof the largestpay increases(over20percent)asaresultofcourtorderstoboostpayintheprisonhealthcaresystem.(Theprisonhealthcarereceiverhasannouncedthathewill


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order additional pay increases in 2006-07, which will require additionalspending.)Mostagreementsprovideadditionalemployeepayincreasesin2007-08,generallylinkedtoinflation.

Employer Health Costs Continue to Increase.RisinghealthcarepremiumssetbytheCaliforniaPublicEmployees’RetirementSystem(CalPERS)con-tinuetodriveincreasedstatecoststoprovideemployeeswithhealthcarecoverage.CalPERSestimatesthatstatecontributionsforemployeehealthcare

Figure 25

Augmentations for Employee Compensation

2006-07 (Dollars in Millions)

Increased Costsa

Bargaining Unit or Employee Group Percent of Workforce MOU Ratification Bill

GeneralFund

AllFunds

1—Administrative, Financial, and Staff Services 20.4% AB 1369 (Nuñez) $60 $187 2—Attorneys 1.7 AB 146 (Nuñez) 11 27 3—Educators and Librarians (Institutional) 1.2 AB 1369 (Nuñez) 11 12 4—Office and Allied 13.7 AB 1369 (Nuñez) 29 81 5—Highway Patrol 2.9 AB 2936 (Ridley-Thomas) — 71

6—Correctional Peace Officers 14.0 Not applicableb 141 142 7—Protective Services and Public Safety 3.1 AB 2930 (Laird) 22 48 8—Firefighters 2.1 AB 1165 (Bogh) 43 47

9—Professional Engineers 4.8 Not applicablec 3 7610—Professional Scientific 1.2 AB 1458 (De La Torre) 3 1211—Engineering and Scientific Technicians 1.2 AB 1369 (Nuñez) 1 912—Craft and Maintenance 5.0 SB 357 (Perata) 14 4213—Stationary Engineer 0.4 SB 357 (Perata) 4 514—Printing Trades 0.2 AB 1369 (Nuñez) — 115—Allied Services (Custodial, Food, Laundry) 1.9 AB 1369 (Nuñez) 8 1116—Physicians, Dentists, and Podiatrists 0.7 AB 386 (Lieber) 43 4517—Registered Nurses 1.8 AB 1369 (Nuñez) 80 8418—Psychiatric Technicians 3.2 AB 1458 (De La Torre) 15 1919—Health and Social Services/Professional 1.9 AB 386 (Lieber) 11 1720—Medical and Social Services 1.0 AB 1369 (Nuñez) 6 821—Education and Libraries (Noninstitutional) 0.3 AB 1369 (Nuñez) 1 3 Subtotals (82.6%) ($505) ($947)

Supervisors, Managers, and Judicial Branch 17.4% No MOUd $126 $241

Totals 100.0% $631 $1,199 a LAO estimates of increased state salary and benefit costs resulting from provisions of prior memoranda of understanding (MOUs), new MOUs

approved by the Legislature in 2006, and court-ordered pay changes for prison health care employees. b MOU expired July 2, 2006. c MOU in effect until July 2, 2008. d Nonrepresented employee raises funded primarily in AB 2936 (Ridley-Thomas).


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premiumswilltotal$1.5billionin2006,andaveragehealthplanpremiumswillriseby12percentin2007.Whileseveralofthenewlaboragreementsreducethepercentageofpremiumsrequiredtobepaidbythestate,overallstate costs forhealthpremiumswill still rise in2006-07. Included in thebudgetandmemorandaofunderstandingbillsareadditionalappropriationsof$79million($35millionGeneralFund)toassistdepartmentsincoveringtheirincreasedpremiumcosts.(ThesecostsarereflectedinFigure25.)

RetirementIncreased CalPERS Contribution Rates. Under state law, CalPERS setspublicemployercontributionratessufficienttomaintainanactuariallysoundpensionsystem.Thesecontributionratesforthestateincreasedfor2006-07.Forthemostpart,theincreasedratesresultfrompayraisesanddemographicfactors(suchasretireelongevityandthenumberofemployeeretirements)thatdifferedfromCalPERS’prioractuarialassumptions.Theincreasesvaryforeachof theretirementcategories.Foremployees in the largest retire-ment category (Miscellaneous Tier I), state contributions increased from15.9percentofpayrollin2005-06to17percentin2006-07.StatecontributionsforCHPofficersincreasefrom26.4percentofpayrollto31.5percent.Asaresultoftheserateincreases,statecostswillriseby$237millionin2006-07.Weestimatethatlessthanone-halfoftheincreasedcostswillbepaidfromtheGeneralFund.

Retiree Health Costs Increase 14 Percent.Thestatepaysupto100percentofhealthanddentalpremiumsforretiredstateemployeesanddependents,includingthoseenrolledinMedicare.In2006-07,statecontributionstore-tireehealthpremiumswillincreaseby14percentto$1billion.(ThesecostsinitiallyarepaidfromtheGeneralFund,andthestatelaterrecoversapor-tion—aboutone-third—fromspecialfundsthroughproratacharges.)Theincreasedstatecontributionsaredrivenby (1)higherCalPERSpremiumchargesforMedicaresupplementandotherhealthplansand(2)aprojectednetincreaseinthenumberofstateretireesandeligibledependents.

Preparing for New Retiree Health Accounting Rules.Newpublicsectorac-countingrulesrequiredisclosureofunfundedliabilitiesforretireeemployeehealthbenefitsbeginningin2007-08.Thebudgetincludes$3.2millionfor(1)theStateControllertocontractforanactuarialassessmentofliabilitiesand(2)CalPERStobeginofferingservicestopublicagenciesthatareobtain-ingactuarialvaluationsof liabilitiesandconsideringsettingaside fundstoaddresstheseliabilities.Thebudgetalsoholdsmorethan$30millionofexpectedfederalMedicarepaymentsrelatedtostateretireedrugbenefitsinaspecialaccountforfuturelegislativeconsideration.


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CalSTRS Contributions Decline.StatecontributionstotheCaliforniaStateTeachers’RetirementSystem(CalSTRS)willdecreasein2006-07.StatelawrequirescontributionsfromtheGeneralFundequaltoafixedpercentageofteacherpayroll.AsaresultofCalSTRS’accountingerrors,thestateover-paidthesystembetween2003and2006,andthebudgetreducesCalSTRSpaymentsonaone-timebasistoaccountfortheoverpayments.Totalstatecontributionswilldecrease11percentto$959million.In2007-08,contribu-tionsarelikelytoincreasetoover$1.1billion.

Unallocated ReductionsThebudgetassumes$200millioninGeneralFundsavingsfromauthoritygiventotheadministrationtoreducedepartmentalappropriationsduringthefiscalyear.Stateoperationsappropriationscouldbereducedbynomorethan20percent,andlocalassistanceappropriationscouldbereducedbynomorethan5percent.

california spending plan, 2006-07 - california …the 2006-07 budget package september 2006...

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