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February 23, 2006 - The Governor’s budget contains almost $400 million in new ongoing funding for seven categorical programs. We recommend rejecting these seven proposals because they: (1) do not address the major fiscal issues facing the state or school districts; (2) take a step backwards for categorical reform; (3) have basic policy flaws; and (4) contain virtually no planning, reporting, evaluation, or accountability components.
February 23, 2006 - The Governor’s budget proposes to spend $1.7 billion more in 2006-07 for K-12 education and community colleges than the administration’s estimate of the Proposition 98 minimum guarantee. If approved, this increase would widen the state’s structural spending gap in 2007-08 and beyond, and raises the issue of whether the state would be able to sustain the budget’s proposed overall level of General Fund expenditures in the future. We recommend the Legislature reject all proposals for new K-14 programs and fund Proposition 98 at the level needed to fully fund base program costs in the budget year. While this would result in $1 billion less in K-14 spending than the Governor’s budget, it would still provide an increase of $3.3 billion over the current year.
February 23, 2006 - Our updated economic and revenue forecasts lead us to project different Proposition 98 outcomes than the Governor. Specifically, we estimate a somewhat higher Proposition 98 minimum guarantee for both the current and budget years. We also discuss various issues related to Proposition 98, including an update on the outstanding maintenance factor and our recommendation that the Legislature enact trailer bill language to rebench the Test 1 factor. Finally, based on updated economic data, we estimate that the K-12 cost-of-living adjustment (COLA) will be higher than the Governor’s projection-5.8 percent instead of 5.2 percent. Funding COLAs at this level could lead to additional state costs of around $300 million.
February 23, 2006 - As the state’s beverage container recycling rates persist below statutory targets, the balance in the Beverage Container Recycling Fund continues to swell. We recommend that the Legislature consider options to reduce the fund balance, both by reducing monies that flow into the fund and by increasing monies that flow out of the fund to support activities intended to increase the rate of recycling.
February 23, 2006 - The California Public Utilities Commission administers several programs designed to subsidize telecommunications services in order to ensure universal access to these services. One of these is the California Teleconnect Fund (CTF) program, which provides discounts to schools, libraries, public hospitals and clinics, and community-based organizations (CBOs). While most of the eligible schools and libraries participate in the program, many eligible CBOs and public hospitals and clinics do not. We provide options to increase participation in the program by eligible entities.
February 23, 2006 - The Legislature intended that the monies in the School Land Bank Fund, managed by the State Lands Commission, be invested in land acquisitions that would generate revenue for the Teachers’ Retirement Fund (TRF). However, our review finds that the commission made no such investments over the past five years, nor does it propose to in the budget year. We therefore recommend that the balance in the School Land Bank Fund be transferred directly to TRF for investment by the California State Teachers’ Retirement System.
February 23, 2006 - The budget proposes increased funding for flood management activities in the Department of Water Resources. Due to the critical need to improve the Central Valley flood control system, we recommend approval of this proposal. The Legislature will be evaluating other flood management proposals this session, including the Governor’s in his Strategic Growth Plan ($2.5 billion of bonds). When evaluating these proposals, the Legislature should consider: (1) the role of bond funding, (2) the relationship between land use and flood control, (3) application of “beneficiary pays” financing, and (4) the potential for increased state oversight of levees in the Delta region that are outside the Central Valley flood control system.
February 23, 2006 - A contract signed between the state and firefighters in the California Department of Forestry and Fire Protection will result in significantly increased employee compensation costs and additional staffing resources for the department. We think that is important for the Legislature—who must approve labor contracts—to have full information on the fiscal impact of changes to the department’s staffing resources, and whether less costly alternatives exist. We recommend the enactment of legislation to ensure that the Legislature is provided with sufficient information on the fiscal impacts of future contracts.
February 23, 2006 - Last year, the Legislature approved $6.5 million as initial, one-time funding for the Governor’s Hydrogen Highway Initiative. The budget proposes to increase funding for the Hydrogen Highway Initiative by an additional $6.5 million in 2006-07. We think that the requested funding is premature until the board submits a statutorily required report that will enable the Legislature to evaluate whether continued funding for this purpose is warranted.
February 23, 2006 - The budget proposes $7.2 million across several departments to implement the first steps in the Governor’s Climate Change Initiative—a series of strategies designed to reduce the state’s emissions of greenhouse gases (GHG). We recommend that the Legislature provide statutory direction for a state climate change policy that addresses a number of issues, including GHG emission reduction targets, the appropriate mix of regulatory and voluntary strategies, and lead agency designation.
February 23, 2006 - The budget fails to address the long-term structural deficit in the Fish and Game Preservation Fund (FGPF)—the fund into which revenues from the sales of hunting and fishing licenses are deposited and the department’s largest source of support. We recommend steps for the Legislature to take to address the long-term deficit problem. We further recommend that the Legislature conduct oversight hearings on the department’s fiscal problems and performance in carrying out its program responsibilities.
February 23, 2006 - Four independent management and fiscal reviews have come to similar conclusions: (1) the current CALFED governance structure is not working well, (2) state priorities for CALFED are not clear, and (3) meaningful performance measures for the program are lacking. However, the Governor’s CALFED budget proposal is “business as usual.” To accomplish a needed overhaul, we recommend the enactment of legislation addressing the governance problems, setting expenditure priorities, establishing performance measures that tie to the budget process, and defining the beneficiary pays funding principle.
February 23, 2006 - Requirements under the federal Real ID Act, which will become effective in mid-2008, underscore the necessity for the Department of Motor Vehicles (DMV) to success-fully update its aging computer and database infrastructure, as well as hire staff to handle additional workload. We recommend that DMV report at budget hearings on anticipated workload requirements to implement the act, how the department plans to meet these requirements, and the potential costs related to the act’s implementation.
February 23, 2006 - The California Highway Patrol (CHP) proposes to begin in 2006-07 a five-year, $491 million project to modernize its radio system. We concur that CHP’s radio system needs improving; however, it is not clear to what extent the proposed solution supports the state’s goal of interoperability among public safety agencies. We recommend that the Director of the Office of Emergency Services, in his role as chair of the Public Safety Radio Strategic Planning Committee, report to the Legislature at budget hearings on how CHP’s proposal supports the state’s goals.
February 23, 2006 - In recent years, transportation funding has been both constrained and uncertain due to various factors including the use of transportation funds to help the General Fund. The 2006-07 Governor’s Budget proposes to reverse this trend. Specifically, it proposes to fully fund Proposition 42 and partially repay a previous loan of transportation funds to the General Fund. In addition, as part of his Strategic Growth Plan, the Governor proposes to provide $12 billion in general obligation bond funding and $14 billion in revenue bond funding for state transportation over the next ten years. Furthermore, he proposes to permanently firewall Proposition 42 funds after 2006-07 by prohibiting suspension of the transfer from the General Fund. We highlight a number of policy issues that the Legislature should consider as it reviews the Governor's proposals.