In this section, we discuss several of the most significant spending proposals in the budget. for more information on these spending proposals and our findings and recommendations concerning them, please see our analysis of the appropriate department or program in the Analysis of the 1998-99 Budget Bill.
Proposition 98 establishes a minimum funding level that the state must provide for public schools and community colleges each year. K-12 education receives about 90 percent of total Proposition 98 funds. Below, we describe the budget's K-12 proposal for prior-year Proposition 98 funds and for new funds required to meet the minimum guarantee in 1998-99.
The budget includes $472 million to meet the Proposition 98 funding requirements for previous years. This results primarily from reductions in 1996-97 and 1997-98 local property tax revenue ($170 million) and increases in General Fund revenues above previous estimates. In addition, the budget proposes to spend $46 million in Proposition 98 funds that were previously appropriated, but unspent, in prior budgets. The budget proposes to spend these available funds as follows:
The budget proposes $30.8 billion in total K-12 Proposition 98 funding in 1998-99. This is an increase of $1.7 billion, or 5.9 percent, compared to the 1997-98 revised amount. However, student attendance is projected to increase by 1.7 percent, resulting in funding of $5,636 per student, an increase of $222 (4.1 percent) from the revised 1997-98 amount.
The major 1998-99 budget proposals include:
Figure 11 illustrates how the budget would allocate projected growth in the Proposition 98 funds in 1998-99.
Competing Uses of Funds Requires Choices. The Governor's budget proposes to spend about $800 million to support new or expanded state programs in 1998-99. Before the Legislature makes any final decision about the Governor's priorities, it must first resolve three "big picture" issues. These issues involve such large amounts of Proposition 98 funds that the rest of the Governor's K-12 spending proposals--and any legislative proposals--hinge on their outcome. These issues are:
With the drop in the amount of the 1998-99 Proposition 98 guarantee, the amount available for new or expanded programs falls from $800 million to $625 million. As a result, the amount needed to fund the statutory 4 percent COLA or longer year program would absorb most of the new funds. In fact, if the Legislature chooses to provide the 4 percent COLA, there would be only $100 million in funds left for other K-12 programs. Similarly, approving the longer year program would require the Legislature to reject many of the other budget proposals.
Cost-of-Living Adjustment Revision Is Appropriate. The budget proposes trailer bill language to change the way K-12 COLAs are calculated. Currently, statute requires the Department of Finance (DOF) to measure inflation by calculating the increase in inflation over the past year. When the federal government revises the inflation index, however, statute requires DOF to compare the revised data for the year just past with the unrevised data for the previous year.
Because the data were recently revised, the statutory calculation produces a 4 percent COLA. The actual year-to-year inflation, however, is 2.22 percent. Providing the full 4 percent COLA in 1998-99 for most K-12 programs would cost an additional $530 million.
The proposed trailer bill language would use only revised data for calculating COLAs beginning in the budget year. We recommend the Legislature approve the proposed trailer bill language because the proposed 2.22 percent COLA more accurately reflects inflation that has occurred over the past year. In addition, our review indicates that, over the long run, the proposed COLA calculation would fairly adjust school funding levels for the effects of inflation.
Research Does Not Support Longer School Year. The budget proposes to spend $400 million ($350 million in new funds) to extend the school year to 180 days by (1) eliminating current statutory provisions that permit schools to use up to 8 days of the existing 180-day school year for staff development and (2) provide $50 million for each day of staff development provided by schools outside of the 180-day year. The proposal also eliminates the longer-year incentive program, established in the 1997-98 Budget Act, which creates a similar program to increase the school year by one day. (The $50 million currently supporting this program would be redirected to the program proposed in the budget.)
Our review of the research evidence on the impact of a longer school year shows that buying extra days of the same type of instruction has not been found to improve student achievement. We also found one state--Indiana--that rescinded a longer-year program because student test scores did not improve as a consequence. While a longer school year has intuitive appeal, research evidence suggests that spending $400 million to extend the school year would not be an effective use of Proposition 98 funds. For this reason, we recommend the Legislature reject the Governor's proposal.
State Assessment Is Behind Schedule. State law currently calls for two state assessments of student achievement. The Standardized Testing and Reporting test will be given annually to almost all students in grades 2 through 11 beginning spring 1998. This test is designed to give students, parents, and teachers annual information on student achievement. The comprehensive test of applied academic skills is designed to measure how well students can solve problems and communicate. This applied test, which would be given to students in grades 4, 5, 8, and 10, has yet to be developed.
Current state law requires that before the applied test can be developed, content and performance standards must be adopted by the State Board of Education based on recommendations from a state standards commission. Content standards, which define what students should know in different subject areas, have been approved by the board in language arts and mathematics. Performance standards, which describe what a student needs to do to demonstrate he or she is "proficient" in the areas outlined by the content standards, have not been approved. In fact, the standards commission has not started work on developing performance standards.
As a result, the State Department of Education (SDE) can not begin developing the applied tests. Because test development takes a minimum of 15 to 18 months, it is unlikely that the applied tests in language arts and mathematics will be ready by the spring of 1999. This means that $31 million included in the 1998-99 budget is not needed.
In addition, unless the Legislature changes the statutory requirements prohibiting SDE from developing the tests until performance standards are adopted, a further delay in testing may occur. This appears unnecessary, since some testing experts believe that performance standards are best developed along with test items. Therefore, we recommend the Legislature adopt trailer bill language that permits SDE, in conjunction with the state board and standards commission, to begin developing the test simultaneously with the performance standards.
California's system of public higher education is the largest in the nation, serving approximately 2 million students. This system consists of three distinct segments--the University of California (UC) with nine campuses, the California State University (CSU) with 22 campuses, and the California Community Colleges (CCC) with 107 campuses. The UC awards bachelor's degrees and a full range of graduate and professional degrees. The system accepts students from the top one-eighth of high school graduates. The CSU awards bachelor's and master's degrees and accepts students from the upper one-third of high school graduates. The CCC offers a variety of academic and occupational programs, as well as basic skills and citizenship instruction. It is basically open to all persons 18 years or older.
The Student Aid Commission provides financial aid to students through a variety of grant and loan programs. The Cal Grant program is the major state-funded aid program.
UC and CSU. The budget proposes General Fund support for UC and CSU of $4.4 billion in 1998-99, an increase of $338 million, or 8.3 percent, compared with estimated current-year budgets. Budgeted enrollment levels at UC and CSU would increase substantially in 1998-99--by 2,800 full-time equivalent (FTE) students at the UC and 10,320 FTE students at the CSU. The proposed General Fund increase includes $42 million approved by the Legislature in Chapter 853, Statutes of 1997 (AB 1318, Ducheny), to compensate the systems for lost fee revenues caused by the 5 percent undergraduate fee reductions mandated by that legislation. The budget proposes to allocate $171 million for employee compensation increases and $72 million for enrollment growth.
Community Colleges. The budget proposes $2.1 billion in General Fund local assistance for the community colleges in 1998-99. This entire amount counts towards the state's K-14 minimum funding guarantee under Proposition 98. The 1998-99 General Fund request represents an increase of $169 million, or 8.7 percent, from the current year. The combined increase proposed from the General Fund, local property tax revenues, lottery funds, and net student fee revenues (after accounting for financial aid) is $251 million, which represents a 6.8 percent increase in combined funding. This figure understates actual budget-year growth, however, because 1997-98 expenditures include $32 million in one-time spending. Thus, actual growth in the CCC base budget is $283 million, or 7.8 percent. Like UC and CSU, the budget restores revenues lost due to the legislatively mandated reduction of student fees from $13 to $12 per credit unit (an estimated $13 million revenue loss).
In 1998-99, the budget provides $72 million for a 2.2 percent cost-of-living adjustment for general-purpose spending, $56 million for statutory enrollment growth, $34 million for "extra" enrollment growth, and $50 million for a proposed "Partnership for Excellence," under which the Chancellor's Office would allocate payments to college districts based on specific performance measures.
As a result of an increase in the Proposition 98 guarantee in the current year, the budget provides a total of $51 million in one-time funding. This consists of (1) a $40 million block grant for instructional equipment, library materials, deferred maintenance, education technology, and hazardous materials abatement; and (2) the "backfill" of an $11 million property tax shortfall.
Student Aid Commission. After adjusting for one-time expenditures in the current year, the budget proposes a General Fund increase of $31.6 million, or 11 percent, for the Student Aid Commission in 1998-99. The majority of this increase, $26.3 million, pays for the second-year and third-year cost increase associated with past increases in the number and maximum amount of Cal Grant awards. The administration has convened a working group of administrative, legislative, and private sector representatives to discuss possible changes to the Cal Grant program.
Projected Enrollment Increases Are Not of "Tidal Wave" Proportions. Various reports characterize future increases in California's higher education system as "Tidal Wave II." Using college-participation rates from 1996, we project that higher education enrollments will grow by 98,000 by 2005. This represents annual growth of 0.3 percent above the peak enrollments of 1991. Even if the higher participation rates assumed by other studies occur, student enrollments will not grow at tidal wave proportions. Enrollments will increase over the next decade. The Legislature, however, has many policy levers that it can use to manage this growth and ensure students receive the best possible service. In Part Five of this document, we explore enrollment growth issues in greater detail.
How New Federal Tax Credits for Higher Education May Affect California. Last August, President Clinton signed into law the Taxpayer Relief Act of 1997. Part of the act creates the "Hope Scholarship" and "Lifetime Learning" tax credits, which will dramatically lower the after-tax price of higher education fees for most middle-income students (or their parents) by lowering their federal taxes. In Part Five of this document, we explore several revenue and spending options for the state that arise as a consequence of the new tax credits. In addition, in the Higher Education section of the Analysis of the 1998-99 Budget Bill, we discuss potential interactions between the tax credits and the state's current practices in student financial aid. In that analysis, we recommend that the three public higher education segments and the Student Aid Commission each report to the Legislature, prior to budget hearings, on the financial aid implications of the tax credits. Our primary concern is that current financial aid practices may prevent significant numbers of students (or their parents) from receiving federal tax credits for which they otherwise would be eligible. If uncorrected, this would result in unintentionally supplanting federal funds that otherwise would come to California.
Requested New Enrollments for 1998-99 Not Fully Justified. All three segments request significant new funds for increases in enrollments.
The UC Request for $9.9 Million for the Tenth Campus Lacks Sufficient Detail. The UC received $4.9 million in 1997-98 for activities related to the tenth UC campus in Merced County. The budget requests $9.9 million in 1998-99 to continue these activities. The university indicates that it will need over $80 million in operating funds before it opens the campus in 2005. The UC has provided only broad descriptions of how it plans to spend funds for the tenth campus in the current and budget year. We withhold recommendation on the budget-year funds until UC provides the Legislature with details of how it plans to spend them.
The federal welfare reform legislation of 1996 replaced the Aid to Families with Dependent Children (AFDC) program with the Temporary Assistance for Needy Families (TANF) program. The Legislature subsequently enacted Chapter 270, Statutes of 1997 (AB 1542, Ducheny, Ashburn, Thompson, and Maddy), which created the California Work Opportunity and Responsibility to Kids (CalWORKs) program to replace the AFDC program in the state. This program provides cash grants and employment and training services to eligible families.
Under current law, CalWORKs grants are scheduled to increase on November 1, 1998 due to the termination of two previously enacted provisions: a 4.9 percent statewide grant reduction and the suspension of the cost-of-living adjustment (COLA), which would increase grants by an estimated 2.84 percent. The Governor proposes to (1) make permanent the statewide 4.9 percent grant reduction and (2) eliminate the COLA. These proposals, if adopted, would result in an estimated General Fund cost avoidance of $248 million in 1998-99.
As indicated, the Governor's proposals would result in significant savings. In evaluating the proposal, it is useful to consider how the grant increases would affect CalWORKs families and the incentives to work.
The maximum grant under CalWORKs differs according to whether recipients live in "high-cost" or "low-cost" counties. For purposes of evaluating the Governor's proposal, we will refer to the maximum grant levels for a family of three in the high-cost region. Under the Governor's proposal, the maximum monthly grant would remain at the current level of $565, compared to $611 under the provisions of current law. When combining the maximum grant with the value of food stamps, the Governor's proposal would result in a total of $832, which is 75 percent of the federal poverty level, compared to $864 under current law (78 percent of the poverty level).
We note that an increase in the maximum grant would not affect the "work incentive" in the same way that it did prior to the CalWORKs legislation. Previously, a maximum grant increase would have reduced the financial incentive to work because grants for nonworking recipients would increase but grants for most working recipients would not. The CalWORKs legislation changed the grant structure so that increases in the maximum grant would result in corresponding increases for working and nonworking recipients. Thus, for persons in the CalWORKs program, a maximum grant increase will no longer affect the work incentive. For persons who are eligible for CalWORKs but not on assistance, however, a grant increase could make the program relatively more attractive and, therefore, could have some effect in inducing more families to apply for aid.
CalWORKs recipients receive a range of welfare-to-work services which include: job search, assessment, education, training, and community service employment.
The budget includes $883 million for CalWORKs "basic" employment services. This budget allocation is designed to fully fund the program, assuming that counties would begin implementing CalWORKs in January 1998, and would phase in all existing recipients by January 1999 at the latest. The budget, however, proposes substantially more for employment services than the amount in the basic allocation. In fact, the total budget for employment services exceeds the estimated need by $766 million over the two-year period, 1997-98 and 1998-99. In our Analysis of the 1998-99 Budget Bill, we identify the components of this "overbudgeting" and the factors that lead to their inclusion in the budget, summarized as follows:
In a related issue in the Analysis, we also conclude that proposed funding for county administration of CalWORKs is overbudgeted by $43 million because the budget does not reflect savings from projected caseload decline.
Overbudgeting in CalWORKs. Although the budget for employment services exceeds the estimated need by $766 million, not all of this "excess" funding should necessarily be considered overbudgeting. For example, the budget includes a total of $293 million ($26 million in 1997-98 and $267 million in 1998-99) for county fiscal incentives. We believe it is reasonable to assume that the CalWORKs legislation intended that county fiscal incentives be provided to the counties even if the total budgeted expenditures exceed the amount needed. Accordingly, we view the incentives as a county-run program enhancement rather than overbudgeting. Conversely, the new federal Welfare-to-Work block grant funds must be spent for employment services for CalWORKs recipients, and therefore could be used to replace some of the federal TANF funds in the base budget for employment services. (As a block grant, these federal TANF funds would be retained by the state and can be carried over into future years.)
In the Analysis, we review each of the components listed above, and recommend that the $95 million proposed for the state match for the federal Welfare-to-Work grant be deleted because the match can be provided in future years, when it is likely that these state funds could come from within baseline CalWORKs spending at no additional cost to the General Fund. This would not preclude the state from receiving the full federal funds allocation in the current and budget years, as permitted under federal law.
We further recommend that the budget for CalWORKs employment services be reduced by $209 million in federal TANF funds. In conjunction with our recommendations to reduce the budget for county welfare administration by $43 million, this would free up $252 million in federal TANF funds. (These savings are in federal funds because the federal maintenance-of-effort requirement would preclude General Fund reductions.)
How Could the Legislature Use the Identified Savings? We identify several options for the Legislature to consider with respect to the potential disposition of the $252 million in federal funds savings. Specifically, the federal funds could be (1) redirected to other priorities in CalWORKs, (2) placed into a reserve for future years, and/or (3) transferred to the Social Services Block Grant (SSBG) (Title XX), where the funds could be used to offset General Fund spending in other departments. Below, we discuss these options in more detail.
Option 1: Redirect Funds for Other CalWORKs Priorities. The identified savings could be redirected to other legislative priorities in the CalWORKs program, such as grants or job creation programs.
Option 2: Establish a TANF Reserve. The Legislature could set aside the identified savings into a reserve for future years. There are three advantages to this approach. First, establishing a TANF reserve will help mitigate the impact of a future recession. We note that in the event of a recession, the state will be responsible for 100 percent of any increased CalWORKs grant costs associated with an increase in the caseload. Second, the reserve could mitigate the impact of a likely increase in General Fund spending for CalWORKs in 1999-00 because the Governor proposes to spend all available TANF federal funds in 1998-99, including $489 million carried over from prior years. These carry-over funds will not be available in 1999-00, thereby potentially creating a General Fund obligation. The third advantage to creating a TANF reserve is that it would provide legislative flexibility. If counties need more funds for CalWORKs services, they could request them during the budget year and the Legislature could authorize additional funding.
Option 3: Reducing General Fund Expenditures by Transferring TANF Funds to the SSBG. We estimate that about $100 million of the identified savings could be transferred to the SSBG and then used to offset General Fund spending in the "residual" (state-only) In-Home Supportive Services program or in the community-based programs in the Department of Developmental Services. An advantage of this approach is that it maximizes the Legislature's flexibility by freeing up General Fund monies for any legislative priorities.
Legislative Analyst's Office Recommendation. In the Analysis, we recommend that the Legislature redirect at least half of the federal TANF funds savings that we identified ($126 million) to establish a reserve, to be expended in 1999-00 or subsequent years. The remaining savings ($126 million) could be (1) redirected to other legislative priorities in the CalWORKs program and/or (2) transferred to the Social Services Block Grant (up to $100 million) in order to offset General Fund expenditures.
The Healthy Families program is a new state program to expand health insurance coverage for children in families whose incomes are under 200 percent of the federal poverty level but are too high to qualify for Medi-Cal coverage. It implements the federal Children's Health Insurance Program that was enacted in 1997, which makes federal matching funds available to California on a two-to-one basis for this purpose. As a result of the enactment of state legislation, most of the new coverage will be provided by the Managed Risk Medical Insurance Board (MRMIB). The board will contract with health plans to provide a package of benefits similar to state employee coverage for health, dental, and vision care. The program also includes some expansions and simplifications of Medi-Cal coverage for children.
The budget proposes total net spending of $197.2 million ($62.6 million General Fund) for all of the components of the Healthy Families program in 1998-99. Of this amount, MRMIB will spend $97.9 million for the new insurance program, $78.6 million will be spent for increased Medi-Cal costs by the Department of Health Services, and $20.7 million represents spending in existing children's health programs to provide services that will qualify for the new federal matching funds.
$1.4 Billion of Federal Funds Will Roll Over to 1999-00. The budget proposes to spend $135 million of federal funds for the Healthy Families program in 1998-99. This will result in a rollover of about $1.4 billion of unspent federal allocations. Even after full implementation of the Healthy Families program, the administration estimates that the state would use only about $320 million of federal funds annually, which is about $500 million less than the state's current annual allotment. Consequently, under the administration's projections, the Healthy Families program will not be able to spend most of the federal funding allotted to California.
Without Congressional action to expand the use of these funds, leaving a significant portion unspent may be unavoidable. However, the Legislature has some options available to increase the use of these federal funds. We recommend, for example, enacting a requirement that all eligible children in the California Children's Services Program (which serves children with certain serious medical conditions) sign up for the Healthy Families program. This would result in a net savings of $6.2 million each to the state and counties, and would provide broader health coverage for these children. We also recommend that the administration report on the feasibility of including, as a Healthy Families benefit, services provided by the regional centers for developmentally disabled children.
The five-year plans developed by state agencies indicate the need for a total investment of $10.5 billion in the state's infrastructure over the five-year time period. This estimate does not include highways and rail nor does it include K-12 schools--estimated to be $16 billion and $11 billion, respectively. The plans cover a wide range of state needs--such as state office buildings, prisons, state hospitals, higher education, forestry fire stations, and development of state parks. As we have mentioned in the past, these five-year estimates should be viewed with caution because some plans are incomplete and some may include proposals that, upon examination, do not merit funding. Overall, however, the plans give a reasonable assessment of the magnitude of the state's capital outlay needs.
Budget Bill Proposal. The Governor's budget includes $958 million for these capital outlay programs. This amount consists of $710 million from bond proceeds--general obligation ($525 million) and lease-payment ($185 million), (2) $152 million from the General Fund, (3) $81 million in special funds, and (4) $15 million in federal funds. The Budget Bill amount represents a $200 million (27 percent) increase compared to current-year appropriations. The majority of this increase ($147 million) is in the area of Health and Social Services for two projects for the Departments of Health Services and Mental Health, respectively. The future cost to complete all projects in the Budget Bill totals $418 million.
New Bond Proposals. The Governor proposes new bond authorizations in several capital outlay program areas. These proposals total $13.2 billion--$11.7 billion in general obligation bonds and $1.5 billion in lease-payment bonds. Of the general obligation bond total, $6 billion for K-12 schools would be for future statewide ballots, with bond measures of $2 billion each for the 2000, 2002, and 2004 elections.
Bond Debt. We estimate that the state's annual debt payment on bonds will be $2.6 billion in 1998-99--an increase of $123 million (10 percent) over the current year. This amount includes payments on general obligation bonds ($2 billion) and lease-payment bonds ($551 million). Debt payments on lease-payment bonds are becoming a greater portion of the total, increasing from 13 percent in 1990-91 to 21 percent in 1998-99.
The debt ratio (debt payments as a percent of General Fund revenue) is estimated to be 4.3 percent in the current year. We estimate that, as currently authorized bonds are sold, this ratio will increase to 4.7 percent in 1999-00 and decline thereafter if no new bonds are authorized. We estimate that if the Governor's proposal for $13.2 billion in bonds is approved, the debt ratio would peak at 5.1 percent in 2001-02 and decline thereafter.
California's economic growth and quality of life are, in part, dependent on the adequacy of the state's public infrastructure. In addition to the state's transportation, water, and parks systems, the state has an immense inventory of other physical facilities including universities, prisons, and state hospitals. Given the magnitude of the public infrastructure in California, decisions about building or renovating facilities, acquiring and selling property, or expanding and replacing utility systems should be considered in a longer-term context.
In our view, to get the "biggest-bang-for-its-buck" in addressing infrastructure needs, the state should develop an integrated five-year state capital outlay plan, which sets priorities and identifies financing alternatives. This plan should be presented as part of the annual budget. This approach would provide a statewide context of needs and priorities, and highlight the financing tradeoffs to meet the state's highest priorities.
There are several areas within the state's capital outlay program that merit consideration in the near-term:
Bond Proposals. The level of bond financing proposed by the Governor is affordable in terms of the future General Fund impact of annual debt payments. In evaluating the specific bonds proposed by the Governor, however, the Legislature should consider the following:
Financing High Priority Projects. The state will probably always rely to some extent on bond financing to address its large capital outlay needs. The Legislature should consider establishing a better balance between bond funding and direct appropriations ("pay-as-you-go" funding). We recommend dedicating a portion of annual General Fund revenues to a special account dedicated for direct spending on capital outlay. This would allow the state to avoid paying bond interest costs and provide a reliable funding source to annually address the state's highest priority infrastructure needs. For 1998-99, we recommend the Legislature substitute General Fund appropriations for the new lease-payment bonds proposed in the budget.
Addressing Higher Education Needs. The administration is again proposing to allocate higher education bonds in equal shares to the three segments. On the surface, this approach has the appearance of being equitable, but it fails to consider differences among the segments in the overall condition of their existing facilities and their capacity to accommodate current and future enrollment growth. In lieu of this approach, we recommend the Legislature establish specific priority criteria and fund those projects that meet these priorities across higher education, within available funds.
State Prisons. The administration's plan for accommodating inmate population growth relies solely on expanding the prison system by leasing beds from public or private sector entities and building new state prisons. This approach is similar to past proposals that the Legislature has rejected. We continue to recommend a balanced approach to the state's inmate housing problem--one that encompasses (1) development of additional capacity and (2) policy and program changes to reduce the growth rate in the inmate population. Further, if the Legislature wishes to expand the use of leased prison facilities, as proposed by the administration, it should consider both the short- and long-term benefits of this approach to housing the state's inmates. Also, proposals for funding new state prisons should be considered as part of the budget process so that these costs can be considered in the context of other capital outlay and program needs.
The California Department of Corrections (CDC) is responsible for the incarceration, training, education, and care of adult felons and nonfelon narcotic addicts. It also supervises and treats parolees released to the community, as part of their prescribed terms.
Currently, the department operates 33 institutions, 12 community correctional facilities, and 38 fire and conservation camps. The Community Correctional Program includes parole supervision, operation of community correctional centers and facilities, outpatient psychiatric services for parolees, and narcotic testing.
The Governor's budget proposes $3.9 billion from the General Fund for support of CDC in 1998-99, an increase of $262 million, or 7.2 percent, over the current year. This amount provides full funding for projected growth in the number of prison inmates and parolees under current law, as well as several program changes. The budget does not propose any policy or program changes to reduce the inmate or parole populations.
The budget's total spending figures assume that the state will receive $286 million in federal funds in 1998-99 to offset the costs of incarcerating and supervising on parole, illegal immigrant adults and juveniles who have been convicted of a felony in California.
Over the past ten years, CDC has been one of the state's fastest growing General Fund budgets, increasing at an average annual rate of about 10 percent. As a share of the General Fund budget, CDC increased from 3.8 percent in 1989-90 to 7 percent in 1998-99. The increase has been largely due to the costs to house increasing numbers of state prison inmates. The Governor's budget projects that the prison inmate population will increase to about 172,000 by the end of 1998-99 (an increase of 6 percent in the budget year), and will increase to about 259,000 by the end of 2006-07. Given the administration's current population projections, we estimate that the costs to operate the department will reach almost $6.6 billion by 2006-07.
Given the long-term implications of CDC's projected growth on the state's budget, the Legislature will need to consider various options for addressing these increases. There are two basic approaches: (1) reduce the costs of operating the state's prison system and (2) slow the growth of the prison population.
We have offered a number of examples of both approaches, both in the Analysis and in previous publications. For example, we have recommended that the Legislature consider expanding substance abuse treatment services to inmates at an existing prison, because existing treatment programs have been shown to be successful in reducing the number of inmates who, after release from custody, commit new offenses and return to prison. In addition, we recommended an approach to reforming the state's parole system that could also reduce recidivism, save money, and improve public safety. Finally, in previous publications, we have offered a number of alternatives for legislative consideration to control inmate and parole population growth.
Whatever actions the Legislature decides to take, it will be important to make changes soon to either reduce the population growth or add new prison capacity to the system. This is because, CDC 's inmate population projections indicate that the prison system will run out of space to house additional inmates early in the year 2000 if additional prison space is not made available by then. The administration has proposed to lease 15,000 private community correctional facility beds, construct four new prisons, and overcrowd existing prisons. Although we believe that there is merit in adding some space to the prison system, we recommend that the expansion of prison capacity be balanced with policy changes that slow the growth of inmate population.
The Motor Vehicle Account (MVA) derives most of its revenues from vehicle registration fees and driver license fees. In 1998-99, total MVA revenues are projected to be about $1.2 billion. The account is the primary funding source for the California Highway Patrol (CHP) and the Department of Motor Vehicles (DMV).
The Public Transportation Account (PTA) derives most of its revenues from the sales tax on diesel fuel and gasoline. In 1998-99, total PTA revenues are projected to be about $247 million. The PTA provides transit operating assistance under the State Transit Assistance program. In addition, PTA funds support the state's intercity rail service, mass transportation and transportation planning programs, and transit capital improvements. The PTA is the primary state fund source for transit equipment and rolling stock (buses and rail cars) acquisition and improvement.
Motor Vehicle Account. The Governor's budget projects a balance of about $75 million by the end of 1998-99. However, this balance is predicated on a number of proposed actions. Absent these actions, the account will face a funding shortfall.
The projected balance also does not take into account the impact of any potential increase in employee compensation. Additionally, the budget's revenue estimates remain overly optimistic.
Public Transportation Account. In accordance with current law, the budget proposes about $100 million from PTA for support of the State Transit Assistance program in 1998-99. However, this will not leave sufficient funds in the account to cover proposed support for intercity rail services, pay outstanding commitments for transit capital projects funded in the past and current years and contribute to toll bridge seismic retrofit in 1998-99. Thus, in order to avert a projected deficit, the budget proposes a transfer of $30.5 million from SHA. Even with the proposed transfer, however, there will not be sufficient funds remaining in the account at the end of 1998-99 to pay for all remaining outstanding commitments (estimated at $62 million).
Beyond the problem it faces in 1998-99, PTA is projected to have a funding shortfall over the six-year period from 1998-99 through 2003-04. As a consequence, there will be no PTA funds available for new transit capital improvements projects over the period. In addition, support expenditures, for instance, for intercity rail service, would need to be curtailed or additional transfers from another fund source, such as SHA, would be necessary over the period.
Motor Vehicle Account. Even if the account is balanced in the budget year, MVA still faces long-term problems. Based on past MVA expenditure and revenue trends, the account will continue to experience deficits unless actions are taken to align MVA revenues and expenditures to provide a long-term stable funding source for CHP and DMV. The Legislature should consider the following options.
Public Transportation Account. In 1993-94, due to the state's fiscal condition, $91.5 million was loaned from PTA to the General Fund. In order to provide some funds for transit capital projects in the budget year and beyond, the Legislature may want to consider directing the repayment of the loan in 1998-99 from the General Fund.
The state conserves and manages its natural resources through a number of programs. Many of these programs have tended to focus relatively narrowly either on (1) reviewing and mitigating the environmental impacts of particular projects or (2) managing and restoring specific species of fish or wildlife. In recent years, there has been a trend away from a project-based review and towards a broader focus on natural resource management. Instead of focusing on individual species or particular habitat, this broader approach focuses on whole ecosystems, bioregions, watersheds, and natural communities.
The budget proposes about $59 million for four initiatives that are designed to further implement this broader approach to natural resource conservation and management, as follows:
In evaluating these initiatives, we think that the Legislature should consider the following:
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