Gov. Schwarzenegger Signs Budget to Solve $24 Billion Deficit

SACRAMENTO, Calif. /California Newswire/ — Governor Arnold Schwarzenegger signed a $24 billion budget solution that includes $16.1 billion in spending reductions. Over the past five months, the Governor has consistently led the difficult task of solving a combined $60 billion budget deficit – roughly a third of our entire state budget over the 2008-09 and 2009-10 fiscal years. When included with the $15 billion in reductions passed in February, the cuts amount to approximately $31 billion. While there are some one-time solutions in the budget agreement, the Governor fought to minimize those one-time moves and also to stave off the alternative of higher taxes. There are no tax increases in this budget agreement.

Because the entire budget package was not approved, the Governor used his veto pen to eliminate an additional $489 million in spending, which will leave California with a $500 million reserve. For the complete list of vetoes, go to www.dof.ca.gov.

“This is not an easy budget, but it is a necessary budget that does not raise taxes, solves the $24 billion dollar deficit and includes long-term reforms,” said Governor Schwarzenegger. “I see the real Californians that will be affected by the decisions made within this budget and nothing guarantees revenues won’t drop further, but this budget puts us on a path toward fiscal responsibility so we can focus on bringing jobs back to get California moving forward again.”

Below is the breakdown of how the Governor and legislative leaders agreed to solve the $24.2 billion|i| deficit:

Expenditure Reductions Total: $16.1 billion

•Education: 1) Recapturing savings previously thought lost by missing June 30 deadline and recalculating Prop 98 accordingly (and therefore the overall size of our problem); this means the additional increase of $1.6 billion in the Prop. 98 guarantee for 2009-10 that we had anticipated does not happen; 2) Redevelopment Agency shift to schools; 3) additional cuts to UC and CSU funding (just under $2 billion total for 2008-09 and 2009-10)
?$9.3 billion
•Corrections: Leaders agreed upon a reduction level in corrections, specific program reforms will be determined upon the legislature’s return in August

?$785 million|ii|
•General Government: Suspension of COLAs; leveraging state assets (no current-year savings); consolidating and reorganizing boards and commissions, including elimination of the Integrated Waste Management Board; IT procurement reform

?$1.7 billion
•State Employee Compensation: Third furlough day adopted; eliminate rural health care; score health care savings

?$820 million
•Health and Human Services: Long-term CalWORKs reforms, including graduated sanctions and twice-yearly check-ins; Medi-Cal eligibility changes and improved care coordination; IHSS fraud initiative including fingerprinting; Healthy Families eligibility changes

?$3.0 billion
•Vetoes:

?$489 million

Fund Shifts Total: $1 billion

•These include CalFIRE interagency agreement with the legislature and transportation spillover

Revenues Total: $3.5 billion

•These include: Optional personal income tax withholding changes; tax enforcement; SCIF proposal; special fund transfers

Borrowing Total: $2.2 billion

•These include: Proposition 1A suspension; loan from State Highway Account; various loans and fund shifts to keep state parks open

Other Total: $1.4 billion

•June to July state payroll and health premiums delay

Total Solution: $24.2 billion

•Reserve: $500 million

Reforms Total: $2.3 billion ($2 billion General Fund)

Governor Schwarzenegger insisted that this budget solution could not only be about our short-term cash needs – it must also be about structural reforms to put our state budget on more solid footing in future years. The Governor worked with legislators to include structural reforms in this solution, many of which he has been fighting for since he was first elected to office. Some of these reforms will show significant savings in the current fiscal year (and much more in out-years) These include:

•Consolidating and Eliminating Boards and Commissions. Including elimination of the Integrated Waste Management Board
?$50 million in 2009-10
•Rooting Out Fraud From IHSS. Putting in place a fraud prevention program that includes background checks and fingerprinting for service providers

?$250 million in 2009-10 General Fund ($546 million total funds)
•Reforming CalWORKs. For short-term savings, focusing available funding on those who are meeting the work requirements

?$510 million in 2009-10
•Corrections Custody and Parole Reforms. Of the $1.2 billion in reductions that legislative leaders agreed to for the 09-10 fiscal year, the goal is to have roughly half of those reductions come from parole and corrections custody reforms

?$641 million in 2009-10
|i| Note: The size of the problem was adjusted from $26.3 billion to $25.1 billion (which includes target reserve of $2 billion) because: 1) the state is able to capture the $3 billion in savings from 2008-09’s Proposition 98 allocation previously believed to have been lost on June 30, which reduces the size of the 2009-10 guarantee by $1.6 billion; and 2) June revenues came in $536 lower than projected. Additionally, we did not reach the desired reserve of $2 billion, instead attaining reserve of just $918 million, meaning the Governor and legislators solved for $24.2 billion.

|ii| This, in addition to the $400 million blue-penciled by the Governor in the February budget, equals an approximate $1.2 billion spending reduction in Corrections for the 2009-10 fiscal year.