state of california - governor's budget summary 2010-11

8/14/2019 State of California - Governor's Budget Summary 2010-11

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T t C lif nia L gi u R gu r Sesion 2009-10


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G OVERNOR A RNOLD SCHWARZENEGGER

STATE C APITOL SACRAMENTO, C ALIFORNIA 95814 (916) 4452841

January 8, 2010

To the Senate and the Assembly of the California Legislature:

In accordance with Article IV, Section 12 of the California Constitution, I submit to you the Governors Budget for 2010-11.

Last year, we confronted what history will record as The Great Recession. Working together, we made profoundly difcult decisions

necessary to close a $60 billion budget gap, the largest in our states history. Because of your efforts and the diligent work of theTreasurer and Controller, we averted both a budget crisis and a cash crisis.

With our national economy still struggling to recover, California, like most other states, must confront an additional budget gap of nearly

$20 billion. In many ways, the decisions that will be necessary to close this gap will be even more challenging and far more difcult. However, failure is not an option and we must do what is necessary to keep our state solvent and maintain critical services.

My budget calls for even greater reductions in nearly every aspect of state government than were necessary in 2009. With thesereductions, we make every effort to maintain essential services for Californians who need them the most in the midst of this

scal crisis. In particular, my budget proposal protects education, including higher education, from additional deep cuts. I believestrongly that additional reduc tions below current year funding levels would l eave a permanent scar on our children and on the greatest

university system in the world. In fact, I intend to propose a re-prioritization of funds away from administration and into the classroom,and away from prisons and into our universities. I ask you to join me in setting these new priorities for the future of our great state.

My budget proposal also calls for a far greater engagement than ever before with our counterparts in Washington to give California

both the exibility and fairness that is needed to better manage critical state programs, achieve substantial savings, and avoid even

deeper and more painful budget reductions. Working with the Obama Administration, with our congressional delegation, and withother states, I believe we can build on the progress we have made in 2009.

We must begin our work immediately. If we fail to take swift action in the Special Session that I have called, our problem will onlygrow, and the decisions that will be required to make up for lost savings will grow even more difcult than those now before us.

The work that lies ahead will be some the most difcult that you and I will ever be asked to undertake as public servants. Let us proveonce again that we can meet this new and unprecedented challenge.

Sincerely,

\s\ Arnold Schwarzenegger

Arnold Schwarzenegger


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DEPARTMENT OF

FINANCEofce of the director

State Capitol Room 1145 Sacramento CA 95814-4998 www.dof.ca.gov

January 8, 2010

Dear Governor:

As Director of Finance, I submit to you the 2010-11 Governors Budget.

Since the time the Amended 2009 Budget Act was signed last July, the estimated budget gap has grown from $6.9 billion

to $19.9 billion, due to the following principal reasons:

Decreased revenues from the ongoing effects of the historic economic recession;

Court decisions that have blocked implementation of some solutions approved by the Legislature in 2009;

The erosion in the value of some of the savings adopted in 2009; and

Additional costs associated with population-driven and caseload-driven entitlement programs.

Closing this gap requires incredibly difcult decisions by both you and the Legislature. Minimizing the potential additional

impact on state programs will require a new level of cooperation by Californias counterparts in Washington, D.C. It is the most

difcult budget environment you have had to confront in your tenure as Governor. But with timely action, federal cooperation,and a recognition that the decisions ahead are unprecedented but necessary, it is a budget that is achievable.

While the state does not face as serious a cash shortfall as it did 12 months ago, action will be necessary this spring to ensure

that the state has adequate cash resources to meet its critical obligations in a timely manner. At your direction, we will work

with the State Controller and the State Treasurer to develop a cash management plan that will achieve that goal.

Finally I want to publicly express my appreciation for the women and men of the Department of Finance. In the most

challenging scal environment imaginable, they have once again provided a tremendous service to you and your administration,

to the Legislature, and to the people of California.

Sincerely,

\s\ Ana Matosantos

Ana Matosantos

Director of Finance


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Table of Contents

vGovernors Budget 2010-11

2010-11 Budget Summary

Table of Contents

Introduction 1

Summary Charts 11

Summary o Signifcant Changes by Major Program Areas 17

Economic Outlook 71

Revenue Estimates 77

Sta Assignments 101

Appendices and Schedules


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Introduction

Governors Budget Summary 2010-11

I n 2009, the United States con ronted the most severe economic downturnsince the Great Depression. As a result, most states aced a budget gap ounprecedented proportions. Cali ornia made very di cult but necessary decisions toclose a $60 billion budget gap and to success ully manage our cash reserves to avert ascal crisis. The 200910 budget plan contained substantial spending reductions, programeliminations, revenue increase and other solutions, many o which are not availableon an ongoing basis. In addition to closing the budget gap, Cali ornia adopted re ormsin nearly every area o government to contain costs into the uture. The GovernorsBudget includes even urther reductions to many programs while ully unding theProposition 98 guarantee to schools and avoiding additional deep cuts to the classroomand higher education. I these proposals are adopted, it would bring overall General Fundspending to a level well below what it was a decade ago in 199899 adjusted orpopulation and infation growth. (See Figure INT01.)

The budget projects that Cali ornia is slowly emerging rom the recession. While therecovery has begun, economic growth is very modest and high unemployment persists. Baseline revenues ell by more than 20 percent rom their peak, and they are expectedto remain or several years approximately 30 percent lower than 200708 projections,as shown in Figure INT02. Major components o this revenue decline are: capital gainstaxes ($8 billion), income tax on wages (about $6 billion), tax on other components oincome ($7 billion), sales taxes ($11 billion), corporate taxes ($2 billion) and all other taxes($1 billion). These revenues are not poised or rapid recovery. Consumer spending drivenby easy credit and growth in home values is also not likely to return to prior levels in the

Introduction


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Introduction

oreseeable uture. Revenues will also be a ected by the expiration o temporary taxincreases enacted last year.

GF Population/Inflation

Proposed at 2010-11 Governors BudgetTotal Without Offsets

1 9 9 8 - 9 9

1 9 9 9 - 0 0

2 0 0 0 - 0 1

2 0 0 1 - 0 2

2 0 0 2 - 0 3

2 0 0 3 - 0 4

2 0 0 4 - 0 5

2 0 0 5 - 0 6

2 0 0 6 - 0 7

2 0 0 7 - 0 8

2 0 0 8 - 0 9

2 0 0 9 - 1 0

2 0 1 0 - 1 1

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

$110,000

Figure INT-01Proposed General Fund Spending

Would Remain Below Population and Inflation Growth(Dollars in Millions)


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Introduction


Defining the Budget GapWithout corrective action, Cali ornia is projected to ace a budget gap o $19.9 billionin scal year 201011. This gure is comprised o a current year short all o $6.6 billion,a budget year short all o $12.3 billion, and a modest reserve o $1 billion.

As Figure INT03 shows, various actors contribute to the increase in the 201011de cit rom the $6.9 billion that was projected when the 200910 Budget was enacted. Speci cally, revenue estimates are $3.4 billion lower, ederal and state court decisionshave reduced or eliminated budget solutions adopted in previous years and imposedcosts totaling $4.9 billion, erosions o previous solutions result in $2.3 billion o the budgetgap, and population and caseload growth adds $1.4 billion in costs.

Figure INT-02Impact of Recession on Revenues

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

150,000

1 9 9 8 - 9 9

1 9 9 9 - 0 0

2 0 0 0 - 0 1

2 0 0 1 - 0 2

2 0 0 2 - 0 3

2 0 0 3 - 0 4

2 0 0 4 - 0 5

2 0 0 5 - 0 6

2 0 0 6 - 0 7

2 0 0 7 - 0 8

2 0 0 8 - 0 9

2 0 0 9 - 1 0

2 0 1 0 - 1 1

2 0 1 1 - 1 2

2 0 1 2 - 1 3

2 0 1 3 - 1 4

Dollars in Millions

Fiscal Year 2007-08 Budget ProjectionRevenuesRevenues with Policy Changes


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Introduction

Closing the Budget GapThe Governors Budget proposes a combination o spending reductions, alternativeunding, und shi ts and additional ederal unds to close the $19.9 billion budget gap. Given the reemergence o a current year short all and the necessary time or budgetsolutions to achieve their ull value, it is imperative that many o the solutions proposedin the budget be adopted immediately. There ore, the Governor will declare a scalemergency and call the Legislature into Special Session. The budget proposes solutionsor action in the Special Session that will close $8.9 billion o the budget gap. Delays inthe adoption o these proposals until the enactment o the 201011 budget would result inthe loss o up to $2.4 billion in budgetary solutions and thereby necessitate even deepercuts in 201011.

Figure INT04 shows the categories o solutions proposed. Spending reductions accountor $8.5 billion in solutions. Proposed reductions include program eliminations, urtherreductions to various health and human services programs, a reduction to the anticipatedlevel o unding or Proposition 98, substantial changes to employee compensation,and reductions to the Department o Corrections and Rehabilitation.

Figure INT-03Shortfall in 2010-11 Governor's Budget

(Dollars in Billions)

-$6.9

Workload Adjustments: -12.0

Revenue Decline -3.4

Federal and State Court Litigation -4.9

Erosions of Other Previously Enacted Solutions -2.3

Other Population and Caseload Growth -1.4

Rebuild Reserve -1.0

Budget Shortfall -$19.9

June 30, 2011, Reserve Projected as of Amended 2009 Budget Act


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Introduction


Reforming the Federal-State RelationshipThe budget proposes structural changes in the state and ederal relationship to addressederal constraints on Cali ornias ability to e ectively manage program costs withinavailable resources and proposes that Cali ornia be reimbursed or money owed tothe state. These program re orms and recoupment o ederal unding will provide$6.9 billion in solutions to address next years short all and help reduce projected de citsinto the uture.

Federal mandates, including spending requirements, constraints on program reductionsand ederal court decisions delaying reductions o services have contributed more than

$1.4 billion toward the current budget gap. Federal and state court decisions have limitedthe states ability to reduce program costs and restricted the states ability to provideservices to those most in need within available resources. Federal maintenanceo e ortrequirements and court decisions have also orced increased program spendingby hundreds o millions o dollars per year. Lastly, under unded ederal mandates arecosting Cali ornia billions o dollars each year, resulting in Cali ornia taxpayers subsidizinghigher reimbursement rates being paid to other states.

Cali ornia needs greater ederal fexibility to more e ectively manage program costs instate and ederal programs within available resources. Without this fexibility and withoutthe level o ederal unding proposed in the budget, Cali ornia will be orced to make evenmore di cult spending reductions. I the ederal fexibility and unding do not materialize,then additional spending reductions, delays in tax cuts and continued suspension orreduction o tax credits must go into e ect.

2009-10 2010-11

Expenditure Reductions $1,034 $7,475 $8,509 43%

Federal Funds 8 6,905 6,913 35%

Alternative Funding 150 3,736 3,886 20%

Fund Shifts and Other Revenues 0 572 572 3%

Total $1,192 $18,688 $19,880 100%

Figure INT-04

Proposed Budget Solutions(Dollars in M illions)

Total


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Introduction

Reductions, Flexibility, and Reimbursements Owed

The budget proposes various reductions to more e ectively manage program costs. These reductions require that Cali ornia have the necessary fexibility to manage programcosts and to better target program services within available resources. The ollowingreductions require such fexibility:

MediCal Cost Containment Strategies The Governors Budget includes a reductiono $750 million General Fund rom the implementation o strategies, similar to whatother states have done, to reduce MediCal costs including limits on services andutilization controls, and increased costsharing through copayment requirements,premiums, or both.

InHome Supportive Services (IHSS) The budget includes a reduction o$77.9 million in 200910 and $872.6 million in 201011 or limiting the provision oservices to consumers with the highest level o need and reducing state participationin the wages o IHSS workers.

Department o Corrections and Rehabilitations Medical Services Program Reducethe ederal Receivers budget by $811 million to reduce perinmate medical costs to alevel comparable to other correctional health care programs.

The budget also seeks ederal reimbursement or the ollowing that is owed to Cali ornia:

Increase the ederal matching und rate or Medicaid to the national average romthe current base Federal Medical Assistance Percentage (FMAP) rate or Cali orniarom 50 percent to 57 percent ($1.8 billion). This increase would refect the nationalaverage as well as the average o the ten most populous Medicaid states.

Secure reimbursement or costs that should have been paid by Medicare andchanges in the required level o state payment or Medicare prescription drugbene ts ($1 billion).

Reimbursement or special education mandates at a level commensurate with therequirements under ederal law ($1 billion).

Full reimbursement or the cost o incarcerating undocumented immigrants through

the State Criminal Alien Assistance Program ($879.7 million).

Expanded ederal unding or oster care cases ($94.4 million).

The budget also assumes continuation o a portion o the ederal American Recovery andReinvestment Act unding or various health and human services programs ($2.1 billion).


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Introduction


Trigger Reductions and Revenues

The budget identi es spending reductions and extension o revenue increases(listed below) that will go into e ect in the event that the ederal government ails toprovide the $6.9 billion o additional unding proposed in the budget. The cash gain orsavings rom these trigger solutions will ensure the state has the ability to repay anyexternal borrowing.

Reductions ($4.6 billion General Fund)

These reductions impact spending that is within the states control and are allowableunder existing ederal law.

Eliminate the Cali ornia Work Opportunity and Responsibility to Kids (CalWORKs)

Program ($1.044 billion).

Fund existing mental health services with Proposition 63 unds ($847 million).

Reduce MediCal eligibility to the minimum allowed under current ederal law andeliminate most remaining optional bene ts ($532 million).

Reduce state employee salaries by an additional 5 percent ($508 million).

Eliminate the IHHS Program ($495 million).

Redirect additional county savings ($325 million).

Eliminate noncourt required inmate rehabilitation programs, implement bankedparole or lowrisk serious and violent o enders, expand crimes where convictedelons will serve time in local jails, and increase the number o parolees each agentwill supervise ($280 million).

Eliminate the Healthy Families Program ($126 million).

Eliminate unding or enrollment growth at the University o Cali ornia and theCali ornia State University ($111.9 million).

Eliminate various health services programs unded by Proposition 99 ($115 million).

Make an unallocated reduction to trial courts ($100 million).

Freeze the level o the awards and income eligibility or Cal Grants ($79 million).

Eliminate unding or the Transitional Housing Placement or Foster YouthPlusProgram ($36 million).


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Introduction

Revenues ($2.4 billion General Fund)

For one year,

Extend suspension o a businesss ability to reduce taxable income by applying netoperating losses (NOL) rom prior years to reduce current income ($1.2 billion).

Extend reduction in the credit or each dependent on the personal income tax rom$319 to $102 ($504 million).

Delay use o business credits by unitary groups o corporations and instead retaincurrent law which requires subsidiaries to have their own tax liability to use researchand development and other credits ($315 million).

Delay the change to the single sales actor allocation method or multistatecorporate income and instead retain the double weighted sales, property, and payrollormula ($300 million).

Lower to 30 percent the rst year phasein o the ability o corporations to carry backlosses two years to o set prior tax pro ts ($20 million).

Plan to Address Anticipated Cash ShortfallLast year, the budget projected that the state would not have su cient cash to makeall General Fund payments in a timely manner beginning in March o 2009. To addressthis signi cant cash short all, the budget proposed a combination o budget andcash solutions. Given the magnitude o the anticipated short all and delays in theadoption o necessary solutions, the state suspended loans rom the Pooled MoneyInvestment Account or capital projects and delayed issuance o taxpayer re unds. In February 2009, the state adopted both budget and cash solutions to better alignthe states disbursements and receipts, and to reduce the need or external nancing. Subsequently, a budget and cash gap reemerged. For the second time since theGreat Depression, Cali ornia issued registered warrants (IOUs) to preserve cash oressential payments. The enactment o the Amended 2009 Budget Act brought thebudget back into balance and acilitated the issuance o Revenue Anticipation Notes(RANs) to restore timely payment by the state. The reemergence o a budget short all,however, threatens to undermine the states cash management plan.


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Introduction


The Governors Budget projects the state will have su cient cash to repay the entire$8.8 billion o RANs in May and June 2010 as scheduled, although it will ace cashchallenges in March 2010. However, absent corrective action, the state will once

again ace substantial challenges in meeting all General Fund cash needs beginning inJuly 2010. Proposals to close the budget gap will substantially reduce this cash gap. However, in addition to budget solutions, the state will need to obtain external nancingearly in the scal year. Further, it is likely that payment de errals will still be required toalign receipts and disbursements and to reduce the need or external borrowing. At theGovernors direction, the Department o Finance will work with the State ControllersO ce and the State Treasurers O ce to develop additional cash solutions to besubmitted to the Legislature in the Special Session.


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Summary Charts


This section provides various statewide budget charts and tables.

Summary Charts


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Summary Charts

2009-10 2010-11

Prior Year Balance -$5,855 -$5,054

Revenues and Transfers $88,005 $90,323

Total Resources Available $82,150 $85,269

Non-Proposition 98 Expenditures $51,651 $64,961

Proposition 98 Expenditures $35,553 $37,630

Total Expenditures $87,204 $102,591

Fund Balance -5,054 -17,322

Reserve for Liquidation of Encumbrances $1,537 $1,537

Special Fund for Economic Uncertainties -$6,591 -$18,859

Budget Stabilization Account - -

Total Available Reserve -$6,591 -$18,859

Figure SUM-012010-11 Governor's Budget

General Fund Budget Summary

(Dollars in Millions)Budget Before Solutions

2009-10 2010-11

Prior Year Balance -$5,855 -$3,863

Revenues and Transfers $88,084 $89,322

Total Resources Available $82,229 $85,459

Non-Proposition 98 Expenditures $51,432 $46,811

Proposition 98 Expenditures $34,660 $36,090

Total Expenditures $86,092 $82,901

Fund Balance -3,863 2,558

Reserve for Liquidation of Encumbrances $1,537 $1,537

Special Fund for Economic Uncertainties -$5,400 $1,021

Budget Stabilization Account - -Total Available Reserve -$5,400 $1,021

Figure SUM-022010-11 Governor's Budget

General Fund Budget Summary

(Dollars in Millions)With All Proposed Budget Solutions


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Summary Charts


2009-10at Budget Act

Revised2009-10

Proposed2010-11

Dollar Change

PercentChange

Personal Income Tax $48,868 $46,640 $46,862 $222 0.5%

Sales Tax 27,609 26,036 25,851 -185 -0.7%

Corporation Tax 8,799 9,407 10,052 645 6.9%

Motor Vehicle Fees 1,682 1,416 1,503 87 6.1%

Insurance Tax 1,913 1,952 1,897 -55 -2.8%

Estate Taxes - - 892 892 100.0%

Liquor Tax 332 332 354 22 6.6%

Tobacco Taxes 102 102 101 -1 -1.0%

Other 236 2,199 1,810 -389 -17.7%

Total $89,541 $88,084 $89,322 $1,238 1.4%

Note: Numbers may not add due to rounding.

Figure SUM-03General Fund Revenue Sources

(Dollars in Millions)

Change from Revised2009-10


Revised2009-10

Proposed2010-11

Dollar Change

PercentChange

Legislative, Judicial, Executive $1,884 $1,826 $2,825 $999 54.7%State and Consumer Services 569 510 587 77 15.1%Business, Transportation & Housing 2,585 2,674 902 -1,772 -66.3%Natural Resources 1,842 1,865 1,732 -133 -7.1%Environmental Protection 73 69 68 -1 -1.4%Health and Human Services 24,953 25,045 21,000 -4,045 -16.2%Corrections and Rehabilitation 8,210 8,161 7,983 -178 -2.2%K-12 Education 35,042 34,554 36,004 1,450 4.2%Higher Education 10,547 10,566 11,836 1,270 12.0%Labor and Workforce Development 64 57 59 2 3.5%

General Government:Non-Agency Departments 535 497 578 81 16.3%Tax Relief/Local Government 463 470 534 64 13.6%Statewide Expenditures -2,184 -202 -1,207 -1,005 -497.5%

Total $84,583 $86,092 $82,901 -$3,191 -3.7%


Figure SUM-04General Fund Expenditures by Agency


Change from Revised2009-10


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Summary Charts

Figure SUM-052010-11

Total Revenues and Transfers(Dollars in Millions)

Tobacco Taxes($929)0.8%

Corporation Tax($10,052)

8.6%

Liquor Tax

($354)0.3%

Highway UsersTaxes

($4,984)4.3%

Other ($14,369)

12.2%

Sales Tax($29,438)

25.2%

Personal IncomeTax

($47,870)40.9%

Motor Vehicle Fees($6,871)

5.9% Insurance Tax($2,061)

1.8%


Total Expenditures(Including Selected Bond Funds)


Higher Education($12,642)

10.6%Environmental

Protection($1,470)

1.2%

Natural Resources($5,187)

4.4%

Business,Transportation

& Housing($12,510)

10.5%

Health and HumanServices($29,794)

25.1%

Corrections andRehabilitation

($8,031)6.8%

K-12 Education($36,787)

31.0%

Labor andWorkforce

Development($435)0.4%

State andConsumer Services($1,366)

1.1%

GeneralGovernment

($4,400)3.7%

Legislative,Judicial,

Executive($6,134)

5.2%


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Summary Charts



General Fund Revenues and Transfers(Dollars in Millions)

Other ($2,702)

3.0%Liquor Tax

($354)0.4%

Corporation Tax($10,052)

11.3%Tobacco Taxes

($101)0.1%

Insurance Tax

($1,897)2.1%

Motor Vehicle Tax($1,503)

1.7%

Personal IncomeTax($46,862)

52.5%

Sales Tax($25,851)

28.9%

ChangeGeneral Special From

Fund Funds Total 2009-10Personal Income Tax $46,862 $1,008 $47,870 $372

Sales Tax 25,851 3,587 29,438 -916

Corporation Tax 10,052 - 10,052 645

Highway Users Taxes - 4,984 4,984 1,872

Motor Vehicle Fees 1,503 5,368 6,871 139

Insurance Tax 1,897 164 2,061 -130

Estate Taxes 892 - 892 892

Liquor Tax 354 - 354 22

Tobacco Taxes 101 828 929 -9

Other 1,810 11,667 13,477 598

Total $89,322 $27,606 $116,928 $3,485


2010-11 Revenue Sources(Dollars in Millions)

Figure SUM-08


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Summary Charts


General Fund Expenditures(Dollars in Millions)

Corrections andRehabilitation

($7,983)9.6%

K-12 Education($36,004)

43.4%

Health and HumanServices($21,000)

25.3%

Higher Education($11,836)

14.3%

EnvironmentalProtection

($68)0.1%

Business,Transportation &

Housing($902)1.1%

NaturalResources

($1,732)2.1%

State andConsumer Services

($587)0.7%

Labor and WorkforceDevelopment

($59)

0.1%

General Government(-$95)-0.1%Legislative, Judicial,

Executive($2,825)

3.4%

GeneralFund

SpecialFunds

BondFunds Totals

Legislative, Judicial, Executive $2,825 $2,876 $433 $6,134

State and Consumer Services 587 759 20 1,366

Business, Transportation & Housing 902 7,655 3,953 12,510

Natural Resources 1,732 2,716 739 5,187

Environmental Protection 68 1,107 295 1,470

Health and Human Services 21,000 8,699 95 29,794

Corrections and Rehabilitation 7,983 48 - 8,031

K-12 Education 36,004 99 684 36,787Higher Education 11,836 39 767 12,642Labor and Workforce Development 59 376 - 435

General GovernmentNon-Agency Departments 578 1,611 2 2,191Tax Relief/Local Government 534 2,178 - 2,712Statewide Expenditures -1,207 704 - -503

Total $82,901 $28,867 $6,988 $118,756

Figure SUM-102010-11 Total Expenditures by Agency



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Summary of Significant Changes by Major Program Areas


Revised2009-10

Proposed2010-11

Dollar Change

PercentChange

Revenues and Transfers $89,541.0 $88,083.5 $89,322.1 $1,238.6 1.4%

ExpendituresNon-Proposition 98

Legislative, Judicial, and Executive $3,369.4 $3,352.9 $3,160.4 -$192.5 -5.7%

State and Consumer Services 562.9 558.4 581.2 22.8 4.1%

Business, Transportation and Housing 2,034.3 1,934.6 538.9 -1,395.7 -72.1%

Natural Resources 1,066.4 1,131.8 794.4 -337.4 -29.8%

Environmental Protection 67.6 68.6 60.6 -8.0 -11.7%Health and Human Services 29,939.5 29,897.5 27,494.4 -2,403.1 -8.0%

Corrections and Rehabilitation 8,419.7 9,348.3 8,162.1 -1,186.2 -12.7%

K-12 Education 1,287.3 1,294.3 1,292.3 -2.0 -0.2%

Higher Education 6,461.1 6,468.6 6,693.1 224.5 3.5%

Labor & Workforce Development 64.0 61.8 58.4 -3.4 -5.5%

General Government:

Non-Agency Department 492.3 478.7 520.3 41.6 8.7%

Tax Relief/Local Government 463.0 469.6 534.2 64.6 13.8%

Statewide Expenditures -1,345.3 -460.7 1,044.1 1,504.8 326.6%

Debt Service 5,979.2 5,845.6 6,221.7 376.1 6.4%

Infrastructure 254.7 135.3 223.5 88.2 65.2%

Enhanced Federal Funds Offsets -4,892.7 -4,575.9 -8,582.3 -4,006.4 -87.6%Prop 1A and RDA Offsets -2,784.3 -2,821.3 -350.0 2,471.3 87.6%

Higher Education--Federal Fund Offsets -610.0 -610.0 0.0 610.0 100.0%Employee Comp Reductions 1/ -1,278.5 -1,146.0 -1,635.9 -489.9 -42.7%

Total, Non Proposition 98 $49,550.6 $51,432.1 $46,811.4 -$4,620.7 -9.0%

Proposition 98 $35,032.4 $34,660.0 $36,089.9 $1,429.9 4.1%

Total, All Expenditures $84,583.0 $86,092.1 $82,901.3 -$3,190.8 -3.7%

1/ Reflects three-day furlough in 2009-10 and various new proposals in 2010-11.

Change fromRevised 2009-10

General Fund Revenues and Expenditures2009-10 vs. 2010-11 Proposed

Figure MPA-01



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Legislative, Judicial, and ExecutiveGeneral Fund expenditures are proposed to decrease by $192.5 million, or 5.7 percent,not including General Fund o sets.

The signi cant General Fund workload adjustments are as ollows:

Trial Court Operations An increase o $135.3 million as a result o various trial courtoperational costs (including $100 million or the restoration o onetime savings,$17.9 million or employee retirement and health bene t costs, and $17.4 million orthe implementation o the Guardianship and Conservatorship Re orm Act).

21 st Century Project The budget includes $30.7 million General Fund or the StateControllers O ce to continue implementation o the 21 st Century Project, whichwould replace the existing statewide employment history, payroll, leave balanceaccounting, and position control systems. The existing systems are 30 yearsold, written in virtually obsolete program languages, and are very laborintensive. The replacement o these systems will impact all state departments. Funding or thisproject in the budget year also includes $35.4 million rom other unds.

Special Election Costs A onetime increase o $68.2 million local assistanceto reimburse counties or costs incurred or the May 19, 2009, StatewideSpecial Election.

Revenue Collection Activities An increase o $9.9 million or the Board oEqualization (BOE), which represents the restoration o resources or BOE revenue

collection activities. Providing these resources will generate approximately$90 million in additional General Fund revenues in 201011.

Agricultural Inspection Station Tax Leads An increase o $4.4 million and55.0 positions or the BOE to expand tax en orcement activities at agriculturalinspection stations rom one inspection station to our. Under an interagencyagreement with the Cali ornia Department o Food and Agriculture, the inspectionstations provide the BOE with copies o the bills o lading o commercial trucksthat enter Cali ornia bearing taxable property, such as construction equipmentor building materials. BOE determines whether the instate recipients paid theapplicable sales and use tax. Expanding this program will generate $23 million innew General Fund revenues in 201011.

Eliminate the O ce o Planning and Research The budget proposes eliminatingthe O ce o Planning and Research and trans erring certain unctions and resources


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to the newly created Cali ornia Agency on Service and Volunteering and the StateInspector General. Other unctions will trans er to the Resources Agency, Business,Transportation and Housing Agency, O ce o the State Chie In ormation O cer,

Governors O ce, Housing and Community Development, and State and ConsumerServices Agency.

The signi cant General Fund policy adjustments are as ollows:

Convert Legal Services Clients to Billable Status A reduction o $53.9 millionrom the Department o Justice (DOJ) to refect the conversion o General Fundlegal services clients to billable status. This unding will be allocated todepartmental clients using a new Budget Act Control Section. This change willallow or greater accountability and allocation o legal services provided by DOJ orclient departments.

The signi cant General Fund budget solutions are as ollows:

Reductions

Delay Implementation o the Guardianship and Conservatorship Re orm Act

A reduction o $17.4 million related to delaying the implementation o theGuardianship and Conservatorship Re orm Act or one year.

Alternative Funding

Automated Speed En orcement Revenue Increased revenues o

$337.9 million, which allows or a $296.9 million General Fund reduction tothe Trial Courts. In addition, these revenues would allow or a $41 millionaugmentation or trial court security, which would address the trial courtsecurity unding short all. The new speed en orcement program would utilizered light violation monitoring systems to identi y and ne persons speedingthrough intersections.

Forensic Labs Fund Shi t A reduction o $45.1 million by shi ting support othe DOJs regional orensic labs, including lease revenue debt service costs,by increasing penalty assessments. The proposed change would permanentlyraise an existing penalty assessment based on nes imposed or criminalo enses rom $1 to $3, and broaden the use o the DNA Identi cation Fund toinclude DOJs crime laboratory operations.

Property Tax Shi t Fund $350 million in trial court costs with property taxrevenues resulting in a comparable level o General Fund savings.


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NonGeneral Fund expenditures are proposed to decrease by $3.1 billion, or 35.6 percent.

The signi cant nonGeneral Fund workload adjustments are as ollows:

Federal American Recovery and Reinvestment Act (ARRA) A $2.1 billion decreaseo ederal unds rom the Governors O ce o Planning and Research to removeonetime ARRA unding that was distributed to the Department o Education,the Department o Corrections and Rehabilitation (CDCR), the University oCali ornia, and the Cali ornia State University.

Trial Court Facilities An increase o $35 million or the Judicial Branch to continueTrial Court Facility Modi cations authorized by Chapter 311, Statutes o 2008.

O ce o the Chie In ormation O cer An increase o 394.0 positions, as theemployees in the Public Sa ety Communications Division are trans erred rom the

Department o General Services to the O ce o the Chie In ormation O cer in thenal phase o the consolidation pursuant to 2009 Governors Reorganization Plan 1.

O ce o the Chie In ormation O cer An increase o $16 million or data centerworkload capacity or the O ce o Technology Services.

O ce o the Chie In ormation O cer A limitedtime increase o $5.5 millionto provide incentives or recruitment and training o 911 dispatchers, implementan enhanced 911 network in northeastern Cali ornia, and to provide website andin ormation technology support to the Cali ornia Recovery Task Force.

OneTime Reductions A $315.2 million decrease or various onetimecost reductions.

State and Consumer ServicesGeneral Fund expenditures are proposed to increase by $22.8 million, or 4.1 percent.


Revenue Backlog Clearance An increase o $14.7 million and 158.0 temporary helppositions or the Franchise Tax Board (FTB) to address workload backlogs. This willgenerate $50 million in new General Fund revenues in 201011.

Enterprise Data to Revenue (EDR) Project An increase o $7 million and38.0 positions or the second year o the EDR Project. The EDR Project is a


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multiyear e ort to enhance FTBs ling, audit, and collections activities by creatinga new data warehouse accessible by all branches o FTB. This unding will generate$20 million in new General Fund revenues in 201011 by providing resources to clear

a backlog o business entity tax returns.Federal Treasury O set Program (FTOP) An increase o $850,000 and10.0 positions or FTB to participate in the FTOP. Under FTOP, the ederalgovernment will withhold ederal tax re unds and other ederal payments rompersons who owe unpaid tax to the FTB. In return, FTB will withhold state taxre unds and other state payments rom persons who owe unpaid tax to theederal government. This program will generate $6 million in new General Fundrevenues in 201011.


Reductions

State Capitol Repair and Maintenance A reduction o $5.4 million or StateCapitol repair and maintenance. The Department o General Services wouldcontinue to coordinate repair and maintenance o the Capitol based on prioritiesset by the Joint Rules Committee; however, these activities would now beunded by the Legislature.

Alternative Funding

Science Center A reduction o $12 million General Fund resulting rom

charging an admission ee.

NonGeneral Fund expenditures are proposed to increase by $1.7 billion, or 6.2 percent.


Bene t Payments or State Annuitants An increase o $1 billion in the Cali orniaPublic Employees' Retirement System to und bene t payments or state annuitants.

Bene t Payments or Retired Teachers An increase o $879.8 million in theCali ornia State Teachers' Retirement System to und bene t payments or

retired teachers.Consumer Protection En orcement Initiative An increase o $12.8 million toenhance the Department o Consumer A airs en orcement and oversight olicensees in healthrelated pro essions and to improve consumer protection.


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Business, Transportation, and HousingGeneral Fund expenditures are proposed to decrease by $1.4 billion, or 72.1 percent dueprimarily to the proposed shi t in unding or transportation projects.

NonGeneral Fund expenditures are proposed to increase by $2.58 billion, or 15.4 percent,largely due to the shi t in transportation unding and increased expenditures rom theSa e, Reliable, HighSpeed Passenger Train Bond Act (Proposition 1A).


State Transit Assistance

The budget includes $350 million in Highway Sa ety, Tra c Reduction,Air Quality, and Port Security Bond Act o 2006 (Proposition 1B) unding orlocal transit projects.

Department of Transportation (Caltrans)

The budget includes $9.1 million in Proposition 1B unding and 71.3 positionsto continue various administrative, planning and programming support activitiesrelated to oversight o Proposition 1B projects. Revised sta ng or projectdelivery will be prepared as part o the May Revision. Total Proposition 1Bunding or projects will be nearly $4 billion.

The signi cant nonGeneral Fund policy adjustments are as ollows:

Caltrans

Public Private Partnerships (P3) An increase o $3.45 billion to be spent overthe next 30 years ($115 million per year) to attract private partners and investorsin comprehensive development lease agreements or transportation projects. The Legislature enacted legislation last year (Chapter 2, Statutes o 2009,Second Extraordinary Session) to provide broad authority or the state to enterinto P3 projects such as toll roads. This proposal complements that legislationby providing a secure appropriation o state unding to be used to pay privatepartners or a portion o costs to construct and maintain new or rehabilitated

portions o the state highway system, where terms are bene cial to the state asprovided in last years legislation.


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Grant Anticipation Revenue Vehicles (GARVEE) Bonds An increase o$680 million to accelerate the delivery o three major projects Doyle Drivein San Francisco, the State Route 10 and Interstate 605 interchange in

Los Angeles, and State Route 710 rehabilitation in Los Angeles. The undingincludes $495 million or project costs and $185 million in ederal unds to pay

debt service costs over the next 12 years. It is estimated that this nancingmechanism will save a net o $11 million in total project costs.

Air Quality Fleet Mandates An increase o $57.3 million to retro t 147vehicles and replace 288 vehicles to comply with various ederal and state airquality mandates.

Tort Re orm Increases in the number o lawsuits related to accidents on statehighways and increases in the size o awards resulting rom those lawsuitsare eroding limited dollars to build and maintain the state highway system. To address those increased costs, legislation will be introduced to cap thestates liability on the amount o damages or noneconomic losses that can beawarded in personal injury suits as a result o accidents on the states highways. Cali ornia is one o very ew states in the nation that does not limit thestates liability and degree o responsibility under current joint and severableliability statutes. Consistent with other states, these re orms will cap monetaryawards or noneconomic damages at $250,000 per individual or $500,000 peroccurrence and limit the states liability to its share o economic damages.

Project Initiation Document (PIDs) Reimbursement The budget proposes toshi t the costs o developing PIDs or local projects to local agencies. This willsave the state $12.5 million that can be redirected to und priority state projects.

HighSpeed Rail

Project Development and Oversight The budget proposes $581.4 millionin Sa e, Reliable HighSpeed Passenger Train Bond Act bond unding(Proposition 1A), $375 million in Federal ARRA unding, and 25.7 positionsto continue environmental planning and preliminary engineering, and tobegin purchasing land on which portions o the highspeed rail system willbe built. Funding will be ocused primarily on the Los AngelestoAnaheim,

San FranciscotoSan Jose, and FresnotoBakers eld segments on which gradeseparations, electri cation, and maintenance and testing acilities will be startedin 201112 using ARRA unding.


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California Highway Patrol

O cer Sta ng An increase o $17.8 million rom the Motor Vehicle Accountto und 180 new Cali ornia Highway Patrol o cer positions to improve publicsa ety with increased road patrols and quicker response times to accidentsand people in need o assistance. Proactive road patrols provide a signi cantdeterrent to motorists who violate the law and enhance security throughincreased o cer presence. Increased sta ng also reduces response timesto major collisions and in getting aid to motorists in need o assistance onstate highways.

Housing and Community Development

Housing and Emergency Shelter Trust Fund Act o 2006 (Proposition 1C)

The budget includes $131 million in Proposition 1C housing bonds, which

is a yearoveryear reduction o $409 million as the majority o bonds havebeen obligated or housing, in ll, and other community development projects. Proposition 1C unding has assisted in the creation and preservation o over34,000 housing units.


Alternative Funding

Transportation Funding Existing state revenues or transportation programsare raised primarily by an 18cent excise tax on motor vehicle uels and the

state sales taxes on those uels. In recent years, with the increase in gasolineand diesel prices outstripping the prices o other taxable goods, these sales taxrevenues have dramatically increased, by almost a billion dollars since 200405. (See Figure MPA02 or a summary o current law uel taxes.) The increase ingas prices has in part shi ted consumer spending on taxable goods to gasoline,and has contributed to relative decreases in General Fund sales tax revenues. In recent budgets, much o these increases have been used to und theGeneral Fund costs o transit bonds, school transportation, and transportationo the developmentally disabled. The use o these revenues to pay or costsotherwise borne by the General Fund has been done in part because the

decision made in the early 1970s to dedicate these unds did not anticipatecurrent high gas prices and the level o unding or local public transportationthat statutory ormulas would have otherwise provided. A recent court decisiondetermined that most o the use o sales tax on gas to und public transportation


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costs otherwise borne by the General Fund is invalid. Based on this decision,$958 million o 200910 General Fund budget solutions cannot be obtained. Because these unds cannot be used as budgeted, they are being retained inthe Public Transportation Account (PTA), which thus has a growing balance.

The Governors Budget proposes to achieve $1.8 billion in General Fund savingswhile continuing to und transportation programs at the level anticipated inthe 2009 Budget Act. To achieve this goal, the budget proposes to eliminatethe sales tax on uel and increase the excise tax on gasoline by 10.8 cents to

partially replace these revenues, thereby maintaining unding or transportationprograms while reducing net taxes paid by consumers by $976 million. (See Figure MPA03 or an outline o the plan).

Fig. MPA -02Existing Transportation Fuel Taxes

($ in millions)

State HighwayAccount $2,020

Public TransitAccount $1,658

Prop 42 Highways$1,258Local Streets and

Roads $1,088

Excise Taxes On Fuels18 cents per gallon

State Sales Taxes On Fuels6% or about 16 cents per gallon

Total Spending - $6,024 millionGeneral Fund Uses (prior tocourt decision) - $1,153 million


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Under current law, the sales tax on uel provides the revenues that undProposition 42. Revenues rom the excise tax on gasoline have substantialconstitutional protections; however they are not subject to the same legalrestrictions as the sales taxes on uels are. Under Article XIX o the Constitution,excise tax revenues cannot be used or most transit purposes. Given the goalto provide the same level o unding or transportation as was anticipatedin the 2009 Budget Act, the Governors Budget proposes the replacementrevenues to be distributed as ollows: $629 million or local streets and roadsand $629 million or the State Transportation Improvement Program (STIP). This distribution is the same as would have been provided under Proposition 42.

The General Fund bene ts rom this proposal as ollows:

$603 million in new excise tax revenue will be used to reimburse theGeneral Fund or highway bond debt service costs in 201011. In utureyears, the excise taxes will be adjusted to allow the increasing amounto debt service cost associated with Proposition 1B bonds to be o set. However, the rate will never exceed the current e ective pergallon rate.

State HighwayAccount $2,020

Local Streets andRoads $1,088

Replace Prop 42Highways $1,258

GF Debt Service$675

Tax Cut $976

Fig. MPA - 03Proposed Transportation Revenues

($ in millions)

Excise Taxes On Fuels28.8 cents per gallon

Total Spending - $5,041 million

General Fund Benefit - $675 millionfrom highway debt service plus$254 million from transit debtservice (from prior year revenues)Additional Proposition 98 guarantee

Net Tax Cut - $976 million


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Additionally, $72 million in miscellaneous Caltrans revenues trans erred to thePTA under prior law will instead be retained in the State Highway Account too set a portion o Proposition 116 rail bond debt service.

From the revenue received in the PTA in 200910, $57 million in 200910and $254 million in 201011 will be used to und transit programs bond debtservice costs, as allowed under the recent court decision.

This results in an overall decrease in taxes on motorists o about ve centsper gallon. In the uture, state tax revenues will no longer increase romspikes in gasoline prices. Since the revenues that fowed to Proposition 42were General Fund revenues, the elimination o these revenues reduces theProposition 98 guarantee, which provides an $836 million budget solution (seeProposition 98 Section).

Figure MPA04 provides details o how the program expenditures and revenueso the new proposal compare to existing law.

Intercity Rail and some transportation planning costs will continue to be undedrom the PTA until those unds are exhausted in 201112. At that time, it willbecome necessary to und these activities rom the General Fund or otherunding sources.

Emergency Housing Assistance A trans er o $4.2 million rom the EmergencyHousing Assistance Fund to the General Fund is proposed.


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Natural ResourcesGeneral Fund expenditures are proposed to decrease by $337.4 million, or 29.8 percent. This decrease is primarily attributable to alternative unding budget solutions proposed orthe Department o Forestry and Fire Protection (CAL FIRE) and the Department o Parksand Recreation (Parks).

Current Law TotalHighway

UsesTransitUses

RevenuesSales Tax on Gasoline

Proposition 42 $1,573 - -State Transportation Improvement Program - $629 -Local Street and Road Maintenance - 629 -Transit - - $315

Spillover 897 - 897Proposition 111 61 - 61

Sales Tax on Diesel 313 - 313Caltrans Miscellaneous 72 - 72Totals $2,916 $1,258 $1,658

2009-10 Budget Expenditures (with 2010-11 amounts)Capital Projects - $629 $36Local Maintenance - 629 -Intercity Rail - - 131Planning - - 19Debt Service - - 1,344Regional Center Client Transportation - - 138Totals - $1,258 $1,668

Proposed Changes

RevenuesExcise Tax on Fuels at 10.8 cents per gallon $1,868 $1,868 -Caltrans Miscellaneous 72 72 -2009-10 PTA revenues* 946 - $946

Totals $2,886 $1,940 $9462010-11 Proposed Budget ExpendituresCapital Projects - $629 $36Local Streets and Roads Capital and Maintenance - 629 -Intercity Rail - - 131Planning - - 19Debt Service - 675 254Totals - $1,933 $440

Transportation Funding Proposal(2010-11 Dollars in Millions)

Figure MPA-04


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0


CAL FIRE Emergency Fire Suppression Expenditures A decrease o $32.8 millionor CAL FIREs emergency re costs. Based on expenditures to date, CAL FIREsemergency re suppression expenditures are estimated to be $255.8 millionin 200910. In 201011, the Governors Budget proposes a total o $223 millionGeneral Fund or CAL FIREs emergency re expenditures, which refects thehistorical average o emergency re ghting costs over the past ve years andadditional ederal reimbursements.

Restoration o OneTime Fund Shi t rom the Fish and Game Preservation Fund

An increase o $30 million to the Department o Fish and Game to restoreGeneral Fund support. The 2009 Budget Act included a onetime und shi t o$30 million rom the Fish and Game Preservation Fund to back ll reductions to the

General Fund.


Beverage Container Recycling Program An increase o $54.8 million in 200910and $98.2 million in 201011 to refect the repayment o loans made rom theBeverage Container Recycling Fund. These loan repayments are part o acomprehensive proposal to implement marketbased programmatic and budgetaryre orms in the Recycling Program that will incorporate the cost o recycling into theprice paid by consumers, and eliminate several unnecessary recycling programsand subsidies. Consumers will pay a higher container ee once the General Fundloans have been ully repaid in 201314.


Reductions

Department o Fish and Game A reduction o $5 million or recreationalhunting and shing programs. This includes reductions to habitat managementactivities that attract game species, such as deer and water owl, that supportsport hunting, and sheries management activities or marine and reshwatersport shing.

Alternative Funding

Fund CAL FIREs Fire Protection Program rom the Emergency ResponseInitiative A reduction o $200 million in General Fund and replacement with


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revenue generated rom a 4.8percent statewide surcharge on all residential andcommercial property insurance. Beginning in 201112, the Emergency ResponseInitiative will provide unding to enhance the states emergency response

capabilities, including enhancements or CAL FIRE, the Cali ornia EmergencyManagement Agency, the Military Department, and assistance to local rstresponse agencies in support o the states mutual aid system.

Fund State Parks rom Tranquillon Ridge Oil Revenues A reduction o$140 million in General Fund and replacement with revenue generated rom theTranquillon Ridge oil lease. It is estimated that the Tranquillon Ridge oil lease willgenerate $1.8 billion in advanced royalties over the next 14 years. This revenuewill be used to und state parks. The Governors Budget assumes that the StateLands Commission will approve the Tranquillon Ridge proposal. I not approvedby the Commission, legislation will be necessary.

NonGeneral Fund expenditures are proposed to decrease by $2.6 billion, or 23.1 percent. This decrease is primarily attributable to numerous expiring onetime bond undappropriations or Natural Resources Agency departments, and a reduction in theDepartment o Water Resources expiring longterm energy contracts entered into duringthe 2001 energy crisis.


Implementation o the Department o Resources Recycling and Recovery(CalRecycle) Pursuant to Chapter 21, Statutes o 2009, the Governors

Budget refects the elimination o the Integrated Waste Management Board(Waste Board) and the consolidation o Waste Board activities with the Departmento Conservations Division o Recycling into a new CalRecycle. This refects anet decrease in state expenditures o $2 million. Consistent with the Governorsdirection, the Administration will work with the Legislature to make changesnecessary to ensure that resources, recycling, and recovery programs are housedand managed by the appropriate agencies.

Delta Water Legislation An increase o $70.5 million and 47.4 positions toimplement the comprehensive water legislation enacted in November 2009to restore the Delta and address the states longterm water needs. The budget refects the establishment o the new Delta Stewardship Counciland SacramentoSan Joaquin Delta Conservancy, as well as unding or the


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development o the Delta Plan, as required by Chapter 5, Statutes o 2009, SeventhExtraordinary Session.

The signi cant nonGeneral Fund policy adjustments are as ollows:

FloodSAFE Program An increase o $210.8 million in Sa e Drinking Water, CleanWater, Watershed Protection, and Flood Protection Bond Act (Proposition 13),Sa e Drinking Water, Water Quality and Supply, Flood Control, River and CoastalProtection Bond Act o 2006 (Proposition 84), and Disaster Preparedness andFlood Protection Bond Act o 2006 (Proposition 1E) bond unds to evaluate, repair,and strengthen critical levees in the Central Valley and the Delta, provide grants andsubventions to help local governments protect their communities rom fooding,and continue the development o the Central Valley Flood Protection Plan.

Davis Dolwig Re orm An increase o $22.6 million, including $15.1 million inProposition 84 unds, or recreation and sh and wildli e enhancements at StateWater Project acilities. This proposal also includes amendments to the Davis DolwigAct to clari y the Legislatures constitutional appropriation authority and provides anannual trans er o $7.5 million rom the Harbors and Watercra t Fund to DWR orboatingrelated recreation and sh and wildli e enhancements.

Fish and Game Wardens An increase o $2 million Fish and Game PreservationFund or 6.7 additional warden positions to improve en orcement o sh, wildli e,pollution, and habitat protection laws.

Environmental ProtectionGeneral Fund expenditures are proposed to decrease by a net amount o $8 million, or11.7 percent.


Various Water Board Program Fees A reduction o $6.4 million in General Fundsubsidies to be o set by increases to existing ees or several water qualityregulatory programs including Water Rights, Irrigated Lands and National PollutantDischarge Elimination System programs.

NonGeneral Fund expenditures are proposed to decrease by $251.8 million, or12.6 percent. This reduction refects, in part, the elimination and trans er o the WasteBoard to CalRecycle.


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To more e ectively allocate resources, Cali ornia must have the ability to put limitson bene ts, require a measure o nancial responsibility rom Medicaid recipients,and obtain continued ederal fexibilities. Additionally, Cali ornia must receive additional

ederal unding consistent with what is provided to other states. Speci cally, the current

ormula that determines the ederal share o MediCal provides the lowest possiblereimbursement to Cali ornia and is discriminatory because o an overreliance on percapita income instead o measuring poverty rates. Cali ornias ederal und share shouldbe changed permanently to 57 percent, refecting the average share o ederal unds othe ten most populous states. To achieve ederal participation at a level consistent withother large states, the Administration has requested that the ederal government increasethe base level o ederal participation in the MediCal program. The Administration is alsoassuming an extension o the enhanced unding provided or health and social servicesprograms by ARRA.

HHS General Fund expenditures are proposed to decrease by $2.4 billion, or 8.0 percentrom the revised 200910 total to the proposed 201011 total. This signi cantyearoveryear decrease in General Fund expenditures is comprised o budget solutionstotaling $4.5 billion, partially o set by higher expenditures o $2.1 billion resulting romstatutory caseload increases and other workload adjustments, as well as highprioritypolicy changes described below. The $4.5 billion excludes General Fund savingsattributable to ARRA since these unds prevent program reductions that otherwise wouldbe necessary. The budget solutions generally all within three categories: (1) Reductions(totaling $116 million in 200910 and $2.8 billion in 201011), (2) Alternative Funding(totaling $1.8 billion in 201011), and (3) Federal Funds ( rom ARRA and other solutionstotaling $5 billion in 201011). See below or more detail.

The signi cant General Fund cost drivers or HHS programs are as ollows:

MediCal Cali ornia has the third lowest provider rates and spends less on a percapita basis than the average o the ten largest states, yet base costs are risingannually by about 8 percent or $1 billion, primarily due to the ollowing actors:(1) caseload is up 3.4 percent ( rom 7.3 million to 7.5 million), (2) the increasingcost o providing medical services (including prescription drugs and inpatient andoutpatient services), (3) Cali ornia ranks 47 th in terms o the percent o bene ciariesenrolled in managed care, which provides more coste ective and highquality care,and (4) disabled and elderly persons represent a small percentage o the population,but use most o the program budget through more costly ee orservice bene ts.


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InHome Supportive Services (IHSS) Major IHSS cost drivers include caseload,cost per hour, and hours per case. Over the last ten years, caseload has increasedrom 208,000 to 430,000 recipients, which accounts or approximately 53 percent

o the increase in total costs over this same period. Hourly costs have increasedprimarily because state law triggered a series o increases in the hourly amount

up to which the state participates in IHSS worker wages and health bene ts. This accounts or approximately 39 percent o the increase in total costs over the lastten years, while hours per case account or approximately 8 percent o the increasein costs over the last ten years.

Developmental Services Cali ornia is the only state providing developmentalservices as an entitlement. Under the entitlement, Department o DevelopmentalServices (DDS) consumers receive a variety o services and supports that allowthem to live and work independently, or in supported environments. The DDSRegional Center costs are increasing due to higher caseload, the movement oconsumers rom developmental centers into the community, increased serviceutilization, and the increase in consumers diagnosed with autism spectrum disorders. In the past ten years, the number o individuals with autism served by the DDShas quadrupled. In 1999, consumers with autism accounted or 9 percent o thecaseload; today they represent 23 percent.

Cali ornia Work Opportunity and Responsibility to Kids (CalWORKs) Cali orniaswel are program di ers rom other states in two signi cant areas. First, Cali orniaprovides a sa ety net program or children a ter the adult(s) reach(es) their60month time limit (only ten other states o er such a program). Second, as oJuly 2009, Cali ornias grant level is the ourth highest in the nation and ranks secondhighest among the ten largest states. The recent economic downturn has causedCalWORKs caseload to grow, resulting in signi cant cost increases in the program.


MediCal Base Bene t Costs An increase o $944 million (including $590.9 millionor FeeFor Service, $92.1 million or managed care, and $261 million or Medicarepayments and other base adjustments).

MediCal Federal Flexibility and Stabilization An increase o $696.8 million as a

result o ederal unding available in 200910 that will not be available in 201011. The state expects to claim $360 million in unused ederal unds rom the existinghospital waiver ($180 million annually or 200506 and 200607) under the Sa etyNet Care Pool (SNCP) and an additional $380.3 million by applying ARRA enhanced


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Federal Medical Assistance Percentage (FMAP) to the SNCP ($43.5 million availablein 201011).

Children's Health Coverage A decrease o $320 million because o newly enactedhospital ees established by Chapter 627, Statutes o 2009 enabling the state touse $80 million per quarter o ee revenue to o set General Fund or children'sMediCal coverage.

Family Health Program Costs An increase o $36.2 million in 201011 because oa $22.1 million decrease in available ederal SNCP unds, a $3 million decrease inederal Title V reimbursement unds, and an $11.1 million increase in caseload andtreatmentrelated costs.

CalWORKs An increase o approximately $500 million resulting rom increasedcaseload and ederal Temporary Assistance or Needy Families (TANF) Block Grantunds being ully committed and unable to entirely support the cost o the program.

Other Social Services An increase o approximately $78 million associated withcaseload increases in the Supplemental Security Income/State SupplementaryPayment (SSI/SSP), IHSS, and Food Stamp programs.

AIDS Drug Assistance Program (ADAP) An increase o $97 million consisting o :(1) $59.3 million increase related to increased caseload and the increased cost oprescription drugs, and (2) $37.7 million increase to back ll a projected short all inthe ADAP Rebate Fund.

Regional Centers An increase o $143.5 million because o increased service

utilization and costs associated with autism spectrum disorders, growth inregional center caseload, the expiration o speci ed provider payment reductions,and the back ll o PTA unds or regional center transportation costs related toShaw v. Chiang .

Early and Periodic Screening, Diagnosis and Treatment (EPSDT) Program An increase o $42.2 million primarily because o increased service costs and thepayment o 200607 cost settlement claims de erred in the Budget Act o 2009.

Mental Health Managed Care An increase o $11.7 million resulting rom an

increase in the number o MediCal eligible bene ciaries in all programs.State Hospitals An increase o $19.4 million or an estimated increase in the statehospital population, Phase XI o the Coalinga State Hospital activation, and the64bed expansion o the Vacaville Psychiatric Program.


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Managed Care Expansion An increase o $54.9 million or managed care expansioninto Ventura, Mendocino, Lake, Madera, and Kings Counties. Madera and KingsCounties will be partnering with Fresno County, which already has a MediCalmanaged care delivery system.

Nursing Home Fees The Quality Assurance Fee, which is used to reimburseacilities or providing longterm care skilled nursing services to MediCalbene ciaries, sunsets on July 31, 2011. In the months leading to the May Revision,the Administration will work with stakeholders on reauthorization o this ee.

ADAP A decrease o $9.5 million or the elimination o ADAP services tocounty jails.

The current and signi cant General Fund re orms and major changes underway areas ollows:

Targeting IHSS to the Neediest Consumers Current law limited (1) domesticand related services (housework, shopping and errands, and meal preparation andcleanup) to only those individuals assessed to have the greatest need or thoseservices, and (2) all services to only those individuals with greater needs based onan assessment o their ability to unction within 11 activities o daily living. Whilethese limits were estimated to save approximately $492.7 million ($123 millionGeneral Fund) annually, ederal court injunctions have prevented the state romimplementing these measures.

Reducing the State Share o IHSS Wages and Health Bene ts Current law reducedstate nancial participation in the cost o IHSS worker wages and health bene tsrom a combined $12.10 per hour to a combined $10.10 per hour. While this wasestimated to save approximately $352.5 million ($88 million General Fund) annually,ederal court injunctions have prevented the state rom implementing this measure.

IHSS AntiFraud Re orm The budget includes rigorous anti raud e ortsthat require: (1) all IHSS providers to attend an orientation, obtain a backgroundcheck, and be ngerprinted during 200910, (2) IHSS recipients to be ngerprinted,(3) timesheets to be signed under a statement acknowledging that alse timesheetsare subject to civil penalties, and (4) ngerprints o both the recipient and provider tobe included on timecards. In addition, this re orm generally disallows provider checksrom being sent to post o ce box addresses, and authorizes case reviews, targeted


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mailings, and unannounced home visits. While these measures were estimated tosave $520.8 million ($130 million General Fund) annually, state court injunctions haveprevented the state rom implementing certain components.

CalWORKs Beginning in 201112, the ollowing longterm re orms (whichare estimated to result in savings o $600 million General Fund annually) will become e ective: (1) restructuring time limits by requiring the adults in amiliesthat have received aid or a cumulative 48 months within a 60month period to sitout and not receive aid or 12 months, (2) requiring all nonexempt recipients whoare not meeting work requirements to meet aceto ace twice a year or a reviewwith county workers, and (3) strengthening the sanction process or adults whodo not comply with program requirements by progressively decreasing the amilysmonthly grant i the adult continues to re use to comply.

Improving Health Care Coordination and Controlling LongTerm MediCal Costs

Current law includes re orm that provides the Department o Health Care Services,in partnership with the ederal government and stakeholders, broad authority undera demonstration project or waiver to utilize managed care or other specializeddelivery systems o care or vulnerable populations, including seniors, people withdisabilities, children with signifcant medical needs, and individuals with behavioralhealth problems. By providing earlier and appropriate care, this program restructuringwill keep Cali ornians healthier and avoid unnecessary emergency room visits. Annual savings o $800 million ($400 million General Fund) are estimated to beachieved through this e ort by 201213.

Centralizing Eligibility and Enrollment or Public Assistance Current law establishesa ramework or trans orming enrollment and eligibility or the MediCal, CalWORKs,and Food Stamp programs rom an ine fcient, laborintensive, and decentralizedsystem to a modern online process. This modernization e ort will help improveaccess to health and human services while reducing costs. Resulting savings couldbe as high as $1 billion ($500 million General Fund) annually by 201213, althoughthe plan required by the legislation will speci y the time rames and savings expectedrom these re orms.

The signifcant General Fund budget solutions are as ollows:

Reductions

MediCal Cost Containment Strategies A decrease o $750 million as a resulto a number o program cost containment strategies. While Cali ornia operatesone o the least costly Medicaid programs in the nation, costs continue toincrease primarily as a result o increases in caseload and costs o services.


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The Governors Budget includes a reduction o $750 million General Fundrom the implementation o strategies, similar to what other states havedone, to reduce MediCal costs. These strategies will include a combination

o the ollowing: (1) Limits on services and utilization controls, (2)

Increasedcostsharing through copayment requirements, premiums, or both, and (3)

other programmatic changes.

Eliminate FullScope MediCal or Certain Immigrants A decrease o$118 million resulting rom the elimination o ullscope MediCal or adultNewly Quali ed Immigrants (legal immigrants who have been residing in theUnited States less than ve years), except pregnant women, and immigrantsPermanently Residing Under the Color o Law, and Amnesty Immigrants whoare not de ned as eligible Quali ed Immigrants under ederal law. This proposalwould take e ect March 1, 2010, but savings would not be realized until

June 2010 because o implementation times and noti cation requirements.

Eliminate Optional Adult Day Health Care Bene ts A decrease o $104 millionas a result o the elimination o the optional adult day health care bene t. This proposal would take e ect March 1, 2010, but savings would not berealized until June 2010, because o provider and bene ciary noti cationrequirements and the timing associated with related cash payments in MediCal.

Delay Checkwrite A decrease o $55 million by de erring one weekly paymentto institutional providers.

MediCal AntiFraud Initiative A decrease o $26.4 million (including theassociated support costs) resulting rom the Department o Health CareServices aggressive targeting o raud in highpriority areas, such as pharmacy,physician services, transportation, and medical equipment.

Rollback Rate Increase or Family Planning Services A decrease o$28.7 million by rescinding the substantial discretionary rate increase authorizedby Chapter 636, Statutes o 2007, or amily planning services. This proposalwould take e ect March 1, 2010, but savings would not be realized untilJune 2010 because o provider and bene ciary noti cation requirements andtiming associated with related cash payments in MediCal.

Reduce Healthy Families Program Eligibility A decrease o $10.5 millionin 200910 and $63.9 million in 201011 by reducing program eligibilityrom 250 percent to 200 percent o the ederal poverty level. This proposal


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0

would align Cali ornias eligibility standards with the standards in mostother states, and take e ect May 1, 2010, a ter appropriate provider andbene ciary noti cation. A con orming $3.9 million decrease also results in the

Cali ornia Childrens Services program or bene ciaries who were previouslyeligible under the Healthy Families program.

Reduce Healthy Families Program Bene ts and Increase Premiums

A decrease o $21.7 million by eliminating vision coverage and increasingmonthly premiums in amilies with incomes rom 151 percent to 200 percent othe ederal poverty level by $14 per child or $42 maximum increase per amilywith 3 or more children ( rom current $16 per child or $48 maximum per amilypremiums the lowest income amilies under 150 percent o poverty wouldnot have a premium increase). These proposals are consistent with what otherstates have done and would take e ect July 1, 2010, a ter appropriate provider

and bene ciary noti cation.

IHSS A reduction o $77.9 million in 200910 and $872.6 million in 201011 or:(1) limiting the provision o services to consumers with the highest level oneed and (2) reducing state participation in the wages o IHSS workers to thestate minimum wage o $8.00 per hour, plus $0.60 per hour or health bene ts. These proposals would become e ective June 1, 2010, based on theassumption that the state prevails in pending litigation on similar but lesserreductions previously enacted.

CalWORKs A reduction o $146.1 million by: (1) reducing monthly grantpayments by 15.7 percent to reduce Cali ornias grant level to the average othe ten states with the highest cost o living, (2) reducing the level at which thestate reimburses child care providers, and (3) eliminating the Recent NoncitizenEntrants program, which provides CalWORKs bene ts to legal immigrantswho have been in the United States or less than ve years. Due to theshi ting o ederal unds, these proposals also result in General Fund savingso $42.7 million in the Department o Developmental Services budget and$18.3 million in the Cali ornia Student Aid Commission budget. These proposalswould become e ective June 1, 2010. The General Fund savings resulting romthese proposals would increase to approximately $700 million i the ederal

government does not extend ARRA unding or CalWORKs (see related FederalFunds issue below).

SSI/SSP A reduction o $21.8 million in 200910 and $285.1 million in201011 by: (1) reducing SSI/SSP grants or individuals by $15 per month ( rom


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$845 to $830) to the ederal minimum (SSI/SSP grants or couples are alreadyat the ederal minimum) and (2) eliminating the Cash Assistance Programor Immigrants, which provides stateonly bene ts to legal immigrants who

are not eligible or ederal bene ts. These proposals would become e ectiveJune 1, 2010.

Cali ornia Food Assistance Program (CFAP) A reduction o $3.8 millionin 200910 and $56.2 million in 201011 by eliminating the CFAP, whichprovides stateonly bene ts to legal immigrants not eligible or ederal FoodStamp bene ts. This proposal would become e ective June 1, 2010.

Regional Centers Reductions o : (1) $61.6 million or additional savingsassociated with the annualization o $334 million in current year re ormsdeveloped by a stakeholder process, which included advocacy and providergroups, (2) $60.9 million or extending the threepercent payment reductionor regional center operations and or services provided through 201011,(3) $52.5 million or ullyear implementation and expansion o consumerservices associated with a 1915(i) amendment to Cali ornias MedicaidState Plan submitted to the Centers or Medicare and Medicaid Services inDecember 2009. A 1915(i) amendment would allow receipt o ederal unds orservices to consumers who are MediCal eligible, but are not on the existingHome and CommunityBased Services Waiver because they do not meet theinstitutional level o care required or Waiver eligibility, and (4) $25 million oradditional program re orms to be developed by the existing stakeholder processwhile maintaining the entitlement and ensuring program and service integrity.

Substance Abuse O ender Treatment Program A reduction o $18 million toeliminate unding or the Substance Abuse O ender Treatment Program.

Alternative Funding

Childrens Health Coverage A decrease o $240 million rom availableproceeds ($80 million per quarter rom April 2009 until December 2010) authorized in law rom newly enacted hospital ees. This is in addition to$320 million refected in the budget as a workload adjustment.

Cigarette and Tobacco Products Surtax Fund (Proposition 99) Savings o$36 million rom using available onetime Proposition 99 reserves to o setcosts in MediCal. The 2010 Budget also contains $25 million rom theavailable special unds to replace onetime 200910 savings ( rom a change in


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payment methodology) made available rom the Access or In ants and MothersProgram to meet anticipated demand or health care in 201011.

Cali ornia Children and Families Act o 1998 (Proposition 10) A reductiono $550 million in General Fund through a redirection o Proposition 10unding rom the Cali ornia Children and Families Commission budget tohighpriority state programs serving children. This proposal includes shi ting( or ve years) approximately 50 percent o the Proposition 10 revenuescurrently directed to state and local accounts within the Commissions budget($242 million in 201011) and a onetime sweep o state and local reserves($308 million). The redirected unds will be used to support children enrolledin programs administered by the Department o Social Services and theDepartment o Developmental Services. Implementation o this proposal willrequire voter approval. It is anticipated this initiative will be included in theJune 2010 election.

Redirection o County Savings A decrease o $505.5 million General Fund byredirecting a portion o the county savings resulting rom reductions in IHSSand CalWORKs (discussed in Reductions section above) to und an increasedcounty share in Department o Social Services childrens programs.

Regional Centers A reduction o $42.7 million in General Fund and substitutewith reimbursements rom ederal Title XX unds or the TANF program.

Community Mental Health Services A reduction o $452.3 million inGeneral Fund and substitute with Mental Health Services Act (Proposition 63) unding or a portion o the EPSDT program and a portion o the Mental HealthManaged Care program. This requires amending the nonsupplantation andmaintenanceo e ort provisions o Proposition 63 and requires voter approval. It is anticipated this initiative will be included in the June 2010 election.

Federal Funds

Federal Flexibility and Stabilization A decrease o $1 billion resulting romederal reimbursement or the ollowing costs: (1) health costs or disabledindividuals who were actually eligible or Medicare ($700 million), (2) recalculating the rate at which Cali ornia pays or Medicare Part D drug coverage($75 million ongoing), and (3) applying the enhanced ARRA FMAP ratio tothe Medicare Part D drug coverage payments ($250 million). An additional$43 million in ARRA enhanced Sa ety Net Care Pool unding is availablein 201011.


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Increase Cali ornias base FMAP A savings o $1.8 billion as a result o theederal government increasing Cali ornias base FMAP to 57 percent to beconsistent with the ederal unding ratios provided to the ten most populous

states as well as the nationwide average.Expand Federal Eligibility or Foster Care A decrease o $86.9 million as aresult o the ederal government providing nancial participation to all currentlystateonly oster care cases.

Continuation o ARRA FMAP Through June 30, 2011 A decrease o$1.5 billion as a result o the continuation o Cali ornias ARRAenhanced FMAP(11.59 percent increase to the base percentage) through June 30, 2011.

CalWORKs ARRA Funding A decrease o $538 million as a result othe ederal government continuing through 201011 the TANF Emergency

Contingency Funding provided to Cali ornia.

Title IVE ARRA A reduction o $26.8 million rom continuation through201011 o the enhanced FMAP (6.2 percent increase to the base percentage) available or Cali ornias Foster Care and Adoptions Assistance programs.

Child Support ARRA Funding A decrease o $20.8 million resulting rom theederal government allowing Cali ornia to use incentive unds to match ederalunds through June 30, 2011.

Early Start Program An o set o $32.9 million or an increase in unding rom

the ederal Individuals with Disabilities Education Act, Part C grant that wasaugmented as part o ARRA.

state of california - governor's budget summary 2010-11

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