Alert May 26, 2010

Schwarzenegger Proposes Tough Cuts to Pay $17.9 Billion Deficit

Governor Arnold Schwarzenegger recently delivered his May budget proposal to the California Legislature in which he projects a $17.9 billion budget deficit for fiscal 2010-11.  In his proposal, the Governor refrains from recommending any new taxes, but suggests eliminating several major social welfare programs to remedy the coming shortfall.

The following table details the various cuts that the Governor has suggested in his May proposal:

Governor’s May Budget Proposal
Proposed General Fund Cuts 

Expense To Be Cut

Expected Savings

Reduce Proposition 98 spending (including elimination of child care)

$4,300,000,000

Reduce State employee pay and staffing, and shift pension costs to employees

  2,100,000,000

Eliminate CalWORKs program

  1,200,000,000

Implement various changes to Medi-Cal

     900,000,000

Reduce inmate medical care costs

     800,000,000

Reduce IHSS spending (excluding enhanced federal match)

     800,000,000

Reduce county mental health realignment funds by 60%

     600,000,000

Redirect county savings from social services reductions

     400,000,000

Commit certain offenders to county jails, not state prisons

     200,000,000

Suspend or defer certain mandate reimbursements(1)

     200,000,000

Reduce spending in various health programs

     200,000,000

Reduce spending in various social services programs

     200,000,000

Reduce SSI/SSP grants for individuals to the federal minimum

     100,000,000

Reduce other spending

     300,000,000

Total

$12,300,000,000 (2)

____________________

1  Does not include $131 million for the proposed suspension of the AB 3632 mental health mandate.
2
  Remainder of deficit to be paid from revenue adjustments, including loans, sale of State assets, and expected federal funding.
Source:  California Legislative Analyst’s Office.

The California Legislative Analyst’s Office (“LAO”) recently released an overview of the Governor’s May budget proposal concluding that, while the deficit figures contained in the proposal are substantially accurate, the recommended budget cuts are ill-advised, especially the elimination of CalWORKs and child care funding.  In its report, the LAO recommends several revenue generating strategies, including fee increases, changes in tax expenditure programs, and delays in previously scheduled tax reductions or expirations, which it believes will lessen the need for the severest cuts suggested in the Governor’s proposal.

 The Governor’s proposal has been delivered to the California Legislature for consideration.  Senate and Assembly leaders are expected to meet with the Governor in June or July 2010 to work toward a compromise.  The California Constitution requires a two-thirds vote of the State Legislature to approve a budget.