Back to 2010 Issues



Other Budget Issues

Last Updated: 1/22/2010
Budget Issue: Ballot measure to reprioritize Proposition 10 funds
Program: California Children and Families First Commission
Finding or Recommendation: Recommend the Legislature adopt the Governor's proposal to ask the voters to prioritize the use of Proposition 10 funds to support core children's programs and services. Moreover, the Legislature may wish to go beyond the Governor’s proposal by considering additional alternatives to (1) redirect additional funding for these purposes; and/or (2) make the temporary redirections of funding permanent.
Further Detail

Proposition 10 Early Childhood Development Programs

Proposition 10 was enacted by the voters of California in the November 1998 election. The initiative measure created the California Children and Families Commissions, now commonly known as the state and local First 5 Commissions, which rely upon revenues generated by state excise taxes on cigarettes and other tobacco products to fund early childhood development programs for children up to age five. The local commissions receive 80 percent of Proposition 10 revenues—which amount to about $500 million for the current year—while the state commission receives the remaining 20 percent.

Governor’s Budget Proposal

Ballot Measure. The Governor’s budget proposes to place before voters in the June 2010 election a measure to allow the use of Proposition 10 funds for General Fund-supported children’s programs in the Department of Developmental Services (DDS) and the Department of Social Services (DSS). Specifically, the proposed ballot measure would (1) sweep up to $308 million, but not less than $249 million, on a one-time basis from the state commission’s fund reserves and (2) redirect around 50 percent of state and local commissions’ ongoing revenues—amounting to an estimated $242 million in 2010-11—for five years to fund various state children’s programs. This proposal would result in General Fund savings of $550 million ($200 million in DDS and $350 million in DSS) in 2010-11. The General Fund savings and the funds remaining for the commissions would decline gradually in the out-years, in accordance with the slow decreases that have been occurring in tobacco product consumption and related revenues.

Voluntary Contributions. In addition to the savings from the proposed ballot measure, the budget assumes that Proposition 10 local commissions will voluntarily provide an additional $50 million to the DDS Early Start program and $55.6 million to the Managed Risk Medical Insurance Board (MRMIB) Healthy Families Program (HFP) on a one-time basis in 2010-11.

LAO Comments

As noted above, the administration indicates an amount ranging between $249 million and $308 million in Proposition 10 state commission reserves. The actual amount available for the one-time sweep of the state commission’s reserves will depend on the commission’s fund balance as of June 30, 2010. We are still assessing whether these funds would be available.

Also, we note that the Governor’s budget assumes voluntary contributions from the local commissions to Early Start and HFP, even though the local commissions have yet to make any funding commitments for 2010-11. This means it is uncertain at this point whether the General Fund savings assumed from this approach will actually be realized in the budget year.

LAO Alternatives

The Legislature may wish to consider the following additional options to increase the magnitude of the General Fund solution that is proposed to come from Proposition 10.

Assure Local Funds Are Available for State Programs. Rather than rely on a total of $105.6 million in voluntary contributions from the local commissions for Early Start and HFP, the Legislature may wish to sweep this amount on a one-time basis from the local commissions’ reserves. This option would eliminate the risk of budget deficits in Early Start and HFP, should the local commissions not provide the voluntary contributions for these programs in 2010-11. On the other hand, this would leave the local commissions with lower reserves to prioritize their temporarily reduced revenues to meet local needs. In considering this option to sweep some local reserves, the Legislature should weigh the tradeoffs of securing Proposition 10 funding for Early Start and HFP in 2010-11 versus providing a level of flexibility for local Proposition 10 commissions to prioritize their commitments while temporarily receiving decreased revenues. 

Permanently Redirect a Portion of Proposition 10 Funds. The Legislature could permanently redirect 50 percent of the Proposition 10 revenues to General Fund-supported children’s programs, rather than adopt the administration proposal for a five-year period. Under this approach, the Legislature could leave both the state and local commissions’ existing reserves intact, which would help the commissions transition to a permanently reduced program environment.

Analyst’s Recommendation

Proposition 10, which generally funds early childhood development, health, and education programs that were designed to be enhancements to previously existing core programs, was approved by voters during a period when state finances were healthier. Given the state’s fiscal condition now, we believe it is reasonable for the Legislature to consider a reduction to programs for enhanced services, such as Proposition 10, rather than cut more deeply into core programs. Accordingly, we recommend the Legislature adopt the Governor’s proposal to ask the voters to prioritize the use of Proposition 10 funds to support core children’s programs and services. Moreover, the Legislature may wish to go beyond the Governor’s proposal by considering the additional alternatives we presented above to (1) not rely on voluntary contributions from local First 5 commissions, and instead redirect additional funding for these purposes; and/or (2) make the ongoing redirections of funding permanent. We note that early action is necessary for the Legislature to qualify any Proposition 10 measure for the June 2010 election.