New Calif. budget relies on rosy economic outlook

[July 01, 2011]  SACRAMENTO, Calif. (AP) -- Gov. Jerry Brown signed a budget just before the start of California's new fiscal year, a rare on-time package that includes a contingency plan to cut schools and community colleges deeper if rosy revenue projections don't materialize.

Brown, a Democrat, signed an $86 billion general fund spending plan Thursday with a combination of spending cuts and fee hikes after it was passed by majority Democrats without Republican support. The governor also issued line-item vetoes to cut back on local transit and trial court spending.

The latest budget includes cuts to higher education, welfare, health care for the poor and disabled, in-home supportive services, state parks and other core functions of government. In signing the budget, Brown said general fund spending is at its lowest level since the 1972-73 fiscal year when measured as a share of the state's economy.

Yet the budget also relies on optimistic projections that tax revenue will be about $12 billion higher in the coming fiscal year than projected in January, largely because the wealthy are doing so well.

On Thursday, Brown's finance director, Ana Matosantos, said the administration felt the forecast was reasonable because the state's cash flow was coming in higher than revenue projections, mainly due to gains among upper-income residents. Should the money not materialize, however, the administration made clear that more cuts would be made during the middle of the fiscal year.

If revenue projections fall short by $2 billion or more, then school districts would be authorized to reduce their school year by seven days. Community colleges would take another hit on top of cuts enacted in the new budget.

If revenues fall short by more than $1 billion, universities, local libraries, in-home support programs and various other services would be cut.

Democrats did insert a provision preventing school districts from laying off more teachers. Matosantos said the state was trying to prevent school districts from acting on the so-called trigger cuts before it was necessary.

"If the claim is that we went out of our way to avoid further additional teacher layoffs -- guilty," said Senate President Pro Tem Darrell Steinberg, D-Sacramento.

Democrats acted for the first time under a voter-approved law that allows budget to be passed on a simple majority, rather than a two-thirds vote.

Lawmakers also were motivated to complete a deal because the same law halted their salaries and living expenses until they passed a balanced budget -- a penalty that cost each of them nearly $5,000 and saved taxpayers $583,200 over 12 days, according to the controller's office.

Cuts enacted Thursday and this spring will affect nearly every aspect of California government, from universities and state parks to in-home services for the elderly and mothers trying to work their way off welfare.

"We really have some retrenchment here across a wide spectrum of important government services," Brown said before signing the budget bills behind closed doors. "These are really hard decisions, and going forward Californians are going to have to think hard about what we want from our universities, from our police and sheriffs, from our safety net for the most vulnerable."

While California has a spending plan for its new fiscal year, Brown has warned that the state will continue to have ongoing deficits unless it can find a way to bring its annual tax revenue in line with spending obligations. The Democratic governor was unable to renew several expiring tax increases but has vowed to fight for more tax revenue at the ballot box next year to help the state pay down debt and restore education funding.

The spending plan projects a $3.1 billion shortfall for the fiscal year that will begin July 1, 2012.

Budgets for the California State University and University of California systems have been cut $750 million each, prompting officials to say they will need to raise tuition again. Funding to operate the state court system has been cut by $350 million, and 70 of California's 278 state parks, beaches and historic areas will close by July 2012 because of cutbacks to the nation's largest state park system.

While the budget passed with only Democratic votes, Republican lawmakers declared victory because the 2009 increases to the personal income, sales and vehicle taxes were not renewed.

"This is much-needed relief, and it's the result of Assembly Republicans standing together to represent the only special interest group we represent, and that's the hardworking taxpayers," said Assembly Minority Leader Connie Conway during a news conference with other Republican Assembly members at a Sacramento Ford dealership.

In addition to higher fees for community college and university students, the new budget imposes an extra $12 fee on vehicle registrations and a $150 annual assessment on rural property owners for fire protection. Those levies are almost certain to be challenged in court because they did not get the two-thirds vote required for tax increases.

[Associated Press; By JUDY LIN]

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