Major Expenditure Proposals In the 2005-06 Budget

Proposition 98 is a set of formulas for determining a minimum annual funding level for K-12 schools and community colleges (K-14 education). While the formulas get rather complicated at times, the goal of Proposition 98 is a relatively straightforward one. Generally, Proposition 98 provides K-14 schools with a guaranteed funding source that grows each year with the economy and the number of students. The guaranteed funding is provided through a combination of state General Fund and local property tax revenues. The actual amount the state is required to spend on Proposition 98 depends on specific calculations or "tests" (see Figure 8).

Over the last decade, Proposition 98 spending has on average grown with the economy and number of K-12 students. However, this longer-term average masks the fact that K-14 education spending has experienced two distinct trends over the decade—significant program expansion from the mid-1990s through 2000-01, and program reductions since 2000-01. Figure 9 shows that Proposition 98 grew faster than the economy in the late 1990s. The state provided more funding for K-14 education than the Proposition 98 minimum guarantee required (so-called "overappropriations") for five years in a row. Since Proposition 98 builds upon the prior-years' actual spending, the overappropriations become part of the long-term base. Proposition 98 funding has grown at a slower pace than the economy since 2000-01.


Figure 8 Proposition 98 Basics

ü	*Over time, K-14 funding increases to account for growth in K-12 attendance and growth in the economy.*
ü	*There Are Three Formulas (“Tests”) That Determine K-14 Funding.* The test used to determine overall funding in a given budget year depends on how the economy and General Fund revenues grow from year to year.
	*Test 1—Share of General Fund.* Provides 39 percent of General Fund revenues. This test has not been used since 1988‑89.
	*Test 2—Growth in Per Capita Personal Income.* Increases prior-year funding by growth in attendance and per capita personal income. Generally, this test is operative in years with normal to strong General Fund revenue growth.
	*Test 3—Growth in General Fund Revenues.* Increases prior-year funding by growth in attendance and per capita General Fund revenues. Generally, this test is operative when General Fund revenues fall or grow slowly.
ü	*Legislature Can Suspend Proposition 98.* With a two-thirds vote, the Legislature can suspend the guarantee for one year and provide any level of K-14 funding.

The Governor's budget proposes to leave 2004-05 Proposition 98 appropriations at roughly the level provided in the 2004-05 Budget Act. The proposal would create $2.3 billion in General Fund savings over two years (as discussed below). For 2005-06, the Governor provides $2.9 billion in growth that supports full growth and cost-of-living adjustments (COLAs), and $380 million of program expansion. The program expansions include a $329 million increase to school district revenue limits that partially restores reductions made during 2003-04, and $51 million for additional community college enrollment growth above the level needed to accommodate natural population increases.

The Governor's budget continues to defer roughly $315 million in annual costs for state-reimbursable mandates. This deferral effectively borrows $315 million from K-14 education to fund current operating expenses. In addition, the Governor proposes to shift two significant program responsibilities to K-14 education. First, the budget proposes to shift from the state to school districts and community colleges $469 million in annual State Teachers' Retirement System (STRS) costs. No additional funds are proposed in the budget to help school districts pay for these retirement costs. Second, the Governor proposes to shift from county mental health departments to school districts fiscal responsibility for mental health services needed by special education students. Based on the most recent county claims, the cost of this program totaled $143 million (non-Proposition 98 funds), $43 million more than the budget would provide to school districts.

Proposed Constitutional Amendments Affect K-14. The Governor also called a special session of the Legislature to address four major changes to the State Constitution that would affect school districts or community colleges. Specifically, the proposals:

Current-Year Guarantee Level Is Pivotal

A central issue facing the Legislature in developing the 2005-06 budget is the amount of Proposition 98 spending that ultimately is approved for 2004-05. As part of the 2004-05 Budget Act, the state suspended the minimum Proposition 98 guarantee and set a target appropriation level that was $2 billion lower than the amount called for by the guarantee. The legislation authorizing the suspension—Chapter 213, Statutes of 2004 (SB 1101, Committee on Budget and Fiscal Review)—establishes a target funding level for K-14 education. The target suggests that higher General Fund revenues in 2004-05 would result in an increased funding level and lower revenues would reduce it.

The Governor's budget assumes that General Fund revenues in 2004-05 will be $2.2 billion higher than previously assumed, which would generate an increase to the Proposition 98 guarantee of $1.1 billion. The budget, however, does not propose to appropriate these funds to schools and community colleges, instead making only technical adjustments to the current-year funding level. By leaving the level of Proposition 98 spending at roughly the level included in the 2004-05 Budget Act, the Governor's budget frees about $2.3 billion over 2004-05 and 2005-06 to help address the state's budget problems.

LAO Forecast—Higher Revenues, Lower Guarantee. Our updated economic and revenue forecast projects General Fund revenues will be significantly higher in 2004-05 and modestly higher in 2005-06 compared to the administration's revenue forecast. Over the two years, our estimate suggests that General Fund revenues will be $2.2 billion higher than assumed in the Governor's budget for the two-year period. The impact of our higher revenues on the Proposition 98 guarantee would depend on the level of K-14 spending approved by the Legislature in the current year. Specifically:

Building a Base Budget for 2005-06

Our recommendation on the level of Proposition 98 spending in both the current and budget year reflects the need to resolve the state's structural budget problem by bringing revenues and expenditures into alignment. Moderating increases in the minimum guarantee would greatly assist the Legislature in addressing the state's structural budget problem. We are reluctant, however, to recommend that the Legislature reduce Proposition 98 spending consistent with our current forecast for 2005-06 that is $420 million below the Governor's proposed level. Our lower estimate is an artifact of the Proposition 98 formulas and not caused by a reduction in General Fund revenues. Instead, we recommend the Legislature develop a budget for schools and community colleges that provides for adjustments in workload and other anticipated costs for 2005-06. A workload budget would provide a base the Legislature could build on if it decides to appropriate a higher level of funds for Proposition 98.

Our workload budget shows that the amount proposed in the Governor's budget provides approximately the amount needed to pay for the current level of K-14 services. It also highlights the fact that the Governor's budget does not fund the ongoing costs of K-14 mandates. In our view, providing a funding source for ongoing K-14 mandates in the base budget constitutes a higher priority than the budget's proposed increases for revenue limits or extraordinary community college growth.

STRS Proposal Lacks Benefits

The Governor's budget also proposes to shift financial responsibility from the state to K-14 education for $469 million in annual contributions to STRS. The proposal, however, creates few tangible benefits. In the short-run, the shift could require a "rebenching" of Proposition 98, which would eliminate any savings from the proposed shift. In the long-run, the Governor's proposal does not offer the state, districts, or local employees any significant advantages. For the state, the proposal misses an opportunity to clarify the state's responsibility for long-term retirement fund liabilities. For districts and local employees, the proposal fails to offer additional flexibility over retirement benefits. For these reasons, we conclude that there is no strong rationale to support the STRS proposal.

K-14 Priorities Under a Higher Guarantee

If the Legislature chooses to provide a higher level of funding than suggested by our workload budget, additional funds would help the Legislature address a number of borrowing issues that have resulted from the lingering budget crisis. We have referred to this as the education "credit card" to reflect amounts the state has borrowed from schools and community colleges. Figure 10 displays the "charges" on the education credit card.


Figure 10 Status of the Education Credit Card Debt
(In Millions)
One-Time (Through 2004‑05)		Ongoing (2005‑06)
Unpaid K-12 mandate payments	$1,400a	Ongoing K-14 mandate payments to budget	$315a
CCC and K-12 deferrals	1,271	Revenue limit reductions made in 2003‑04	646
Total	$2,667	Total	$961
Grand Total	$3,628

a Includes funding for the Standardized Testing and Reporting mandate, which is under review by the Commission on State Mandates.

The figure shows that our estimate of the credit card debt totals $3.6 billion. The largest charge results from unpaid school district claims for the cost of state-mandated local programs. Funding for mandates in the annual budget act ceased in 2002-03. We estimate that the ongoing cost of mandated programs totals $315 million in 2005-06. The backlog in payments through 2004-05 totals $1.4 billion. If the Legislature wanted to provide additional funding to K-14 education in either the current or budget year, we would suggest that it dedicate funds to reduce the outstanding obligations on the education credit card.

K-12 Proposition 98

Similar to total Proposition 98 spending over the last decade, K-12 spending has experienced two distinct periods. Figure 11 shows how K-12 Proposition 98 funding per pupil, in inflation adjusted dollars, has changed over that time. The figure shows growth in per-pupil spending between 1995-96 and 2000-01 of $1,200 per pupil (3.6 percent annual growth), and a decline of roughly $480 per pupil between 2000-01 and 2004-05 (1.3 percent decline annually). Much of the reductions in K-12 funding in recent years are reflected in the obligations on the education credit card. These include accumulated deferred mandate costs, deferrals, and revenue limit reductions.

Over the whole period, per-pupil spending has grown by $930 (14 percent). This means that schools have been able to expand programs by around 14 percent over the last decade. Some of these expansions included K-3 class size reduction, large child care expansions, and new school intervention programs.

The Proposition 98 allocation to K-12 schools (including property tax revenues) is proposed at $44.7 billion, or $7,374 per pupil for 2005-06. This represents an increase of $362 per pupil, or 5.2 percent, from the current-year estimate.

The issues facing K-12 education depend largely on the decisions the Legislature makes on the overall Proposition 98 issues discussed above. In addition to the overall Proposition 98 issues, there are several K-12 specific issues.

Retiree Benefit Costs. Most districts pay for all or a portion of the annual cost of retiree health benefits. Actuarial studies of future liabilities for these benefits, however, indicate that the liabilities some districts face are very large—so large they potentially threaten the districts' ability to operate in the future. For Los Angeles Unified School District, for instance, the study suggests the district needs to set aside $500 million each year for the next 30 years to pay for these benefits. We suggest several steps the Legislature could take to begin addressing this issue.

Declining Enrollment Districts. Available data suggest that about 40 percent of districts experienced declining enrollment in 2003-04—most for the second consecutive year. Because state funding is based on the number of students in school each day, declining enrollment reduces the amount of funding districts receive. Under current law, declining enrollment districts are eligible for a one-year funding "hold harmless" that provides time for budget reductions consistent with the drop in the number of students. The Legislature will face difficult tradeoffs between providing some fiscal relief for these districts, and other K-14 cost pressures.

Fixing Technical Problems. We raise several technical issues with proposals in the budget. First, the Legislature enacted Chapter 871, Statutes of 2004 (AB 825, Firebaugh), to begin to consolidate K-12 categorical programs. The statute created some unintended consequences that the Legislature will face in considering the 2005-06 budget. Second, the federal government recently reauthorized the federal special education law, and made significant changes to state maintenance of effort (MOE) requirements. We have concerns with the method that the budget proposes to address the new MOE requirements. Finally, the Governor has proposed a new charter school funding model that would create ambiguity in charter school finance, and would not meet the original legislative intent of the block grant.

Higher Education

The state's higher education system includes the University of California (UC), the California State University (CSU), and the California Community Colleges (CCC), as well as agencies charged with coordinating higher education policy and administering state financial aid programs. The state's higher education policies and funding obligations are generally established by the Master Plan for Higher Education.

Annual adjustments in the state's cost of providing higher education funding largely arise from three major factors: (1) enrollment, (2) inflation, and (3) student fee levels.

Enrollment Growth.The state uses a "marginal cost" formula that estimates the added cost imposed by enrolling each additional full-time equivalent (FTE) student at the public universities. An increase in the state's college-age population generates an increase in those who are eligible to attend each segment. Therefore, most enrollment growth projections begin with estimates of the growth of this population group. As shown in Figure 12, over the past several years, the state has provided enrollment growth funding that exceeds the growth in the college-age population.

Inflation. Higher education costs rise with general price increases. For example, inflation increases the costs of supplies, utilities, and services that are purchased by campuses. In addition, price inflation creates pressure to provide COLAs to maintain the buying power of faculty and staff salaries. Figure 13 compares funded COLAs with actual inflation rates over the past decade.

Student Fees. Student fees comprise a portion of total revenue available to the segments. When fees are increased, this creates new revenue that can substitute for General Fund revenue or add to the total resources available to the segments. Since 2002-03, undergraduate fees at UC and CSU increased by 48 percent. During that same time, CCC's per-unit fee increased from $11 to $26.

Overall Funding Trends. Largely as a result of student fee increases, total fee revenue collected by the three segments is about $1.2 billion higher in 2004-05 than it was three years earlier. A little less than half this amount was offset by General Fund reductions over the same period, which were made to address the state's fiscal problems. When fee revenue and General Fund support are combined, funding for the three segments has increased about $635 million, or at an average annual rate of 1.7 percent, over the past three years. By comparison, over the past decade funding from these sources has increased at an average annual rate of about 6 percent.

UC and CSU.The Governor's budget proposes General Fund support of $5.4 billion in 2005-06 for the state's public universities. This represents an increase of $208 million over the current year. The budget includes various provisions to fulfill an agreement the Governor made with UC and CSU in 2004. This includes a base increase of 3 percent and funding for enrollment growth of 2.5 percent, which would serve an additional 5,000 FTE students at UC and 8,100 FTE students at CSU. In addition, the budget includes an 8 percent increase in undergraduate fees and a 10 percent increase in graduate student fees at both universities, as well as a 3 percent increase in professional school fees at UC. In contrast to prior years, the Governor's 2005-06 budget treats the additional revenue generated from fees as an extra source of revenue for use at the public universities' discretion.

CCC. The budget proposes $3.3 billion in General Fund support for CCC, almost all of which is Proposition 98 funding. Under the Governor's proposal, General Fund spending would increase by $299 million, or 9.8 percent, from the current year. When student fee revenues and property taxes are also considered, the budget proposal would increase funding for CCC by $387 million, or 7.5 percent.

The Governor's budget proposal includes $142 million for enrollment growth of 3 percent, $196 million for a 3.93 percent COLA, and $20 million for an initiative to increase coordination of vocational education with high schools. The budget proposes no fee increases.

The Governor's higher education budget proposal follows predetermined funding targets he agreed upon last year with UC and CSU. We believe the Legislature should disregard these targets and instead determine funding needs for all of higher education based upon the Master Plan and legislative priorities. In our Analysis of the 2005-06 Budget Bill, we discuss how such an approach would work and make a number of specific recommendations about programmatic funding and related policy impacts. We highlight the major issues raised in that analysis below:

Treatment of New Fee Revenue Limits Legislative Oversight. Under the Governor's proposal, the public universities would be allowed full discretion to decide how to spend the additional revenue generated from fee increases. We are concerned that this proposal makes funding augmentations that are not linked to specific needs. Further, it removes a significant amount of revenue—approximately $100 million—from legislative budgetary oversight.

CCC Fees Can Leverage Federal Funding. Student fees contribute to CCC's total funding, and various financial aid policies insulate needy students from fee increases. In the Analysis we discuss how higher student fees could leverage up to $50 million in additional funding from the federal government, while imposing no net new costs on needy and middle-income students.

New Enrollment Costs Are Driven by Population Growth and Instructional Costs. One of the fundamental budgeting decisions for higher education is how many additional students to fund, and how much to pay for each additional student. In our Analysis, we offer recommendations for both of these choices, and identify savings relative to the Governor's budget.

Health Services

Overall Growth Trend. If the spending levels proposed in the 2005-06 budget are adopted, General Fund spending on health services programs will have grown by $3.4 billion or almost 24 percent since 2002-03. That represents an average annual growth rate of about 7.4 percent.

Much of the increase in General Fund expenditures has been driven by increases in caseload, cost, and utilization of services in the Medi-Cal Program, including the continuing effects of recent expansions in program eligibility. Growth in caseloads and costs for community services for persons with developmental disabilities and the mentally ill have also contributed significantly to the increase in General Fund spending for health services.

Programs Also Driven by Federal Spending and Federal Rules. Notably, federal support for health services programs has also grown over the period—by about $2.2 billion and 11 percent—although not as much as General Fund spending. Nonetheless, federal funding and federal rules, to a significant degree, shape the caseload, costs, and operations of the state's major health services programs. Each of the state's largest health services programs—including Medi-Cal, Healthy Families, as well as community services for the developmentally disabled, mentally ill, and those in need of drug treatment—has a significant federal component.

The Governor's budget plan assumes that $22 billion, about 51 percent of the $43 billion in total expenditures proposed for health services programs in 2005-06, will come from the federal government. All of this federal money comes with federal statutes and regulations, as well as ad ministrative decisions and federal court rulings interpreting these rules, that can have major implications for the operation of these programs and, inevitably, state, local, and federal finances.

For example, our analysis indicates that a new federal law establishing drug benefits for Medicare beneficiaries, and the federal regulations to implement that new law, have been drafted in a way that will have a major, negative fiscal impact on the state's Medi-Cal Program for at least the next several years.

The Governor's budget plan includes several major budget proposals that are intended to maximize the receipt of available federal funds:

In addition to considering the Governor's budget proposals, the Legislature may wish to examine further actions it could take to preserve the funding the state now receives from the federal government and to build upon those resources.

Consider Further Changes in State Programs. While the state has been making some progress in changing the structure of its health programs to maximize federal funding, our analysis indicates there may be additional opportunities to do so. For example, our analysis indicates that additional quality improvement fee mechanisms, besides those already in place, could be considered for certain hospitals, mental health managed care plans, and state-supported methadone clinics. (Both the Departments of Mental Health and Alcohol and Drug Programs [DADP] have been directed to report to the Legislature this year on strategies to maximize federal funding in their respective programs.) The state could also change the way it claims federal Medicaid reimbursements for Intermediate Care Facilities for the Developmentally Disabled to substitute as much as $50 million in federal funds for state resources.

More Beneficiaries Could Be Shifted to Federal Programs. In addition to obtaining more federal funding for state-supported health programs, the Legislature may wish to explore ways to shift beneficiaries to federal programs. For example, it might be possible to screen and assist Medi-Cal beneficiaries who are military veterans, and are thus entitled to the comprehensive health coverage offered by the U.S. Department of Veterans Affairs, to apply for and receive those benefits. The DADP has already instructed counties to do so for veterans needing assistance from community substance abuse treatment programs.

Another such opportunity may be to find ways to encourage county mental health systems to more frequently undertake the sometimes time-consuming process of securing Medicare coverage for mentally ill persons who, as disabled persons, qualify for this federal health coverage. The advent of the new Medicare Part D drug benefit program means that such a shift of individuals to Medicare coverage might eventually reduce the significant, long-term costs to the state of providing medications for mentally ill children and adults.

Seek Cost-Saving Changes in Federal Laws and Regulations. Congress is expected in its upcoming session to consider making major changes in the Medicaid Program—Medi-Cal in California—to reduce the growth in federal costs. In this context, some proposals which have been mentioned would have the effect of shifting even more health care costs to the states, including California. A better alternative, from the state's perspective, would be to change Medicaid in ways that reduced its costs for both the federal government and the states.

For example, Congress could modify the statute governing the Early and Periodic Screening, Diagnosis and Treatment Program—one of the state's fastest-growing programs in recent years—to give states more discretion to determine exactly which medical services for children would be covered. Federal law could be changed to shield state Medicaid agencies from federal court litigation that has often overruled state actions to control program costs, or allow Medicaid programs to follow the practice of private health plans and impose meaningful copayment requirements that would deter the inappropriate overutilization of medical services.

In addition, the Legislature may wish to work with California's congressional delegation to attempt to modify some federal rules and statutes that distinctly work to the state's disadvantage. For example, federal cost-sharing rules depress the share of federal Medicaid funds allocated to California because of the state's relatively high personal income level, but disregard the state's relatively high costs. Also, as noted earlier, the regulations drafted to implement the new Medicare Part D prescription drug benefit are likely to prove costly to the state's Medi-Cal Program. Reversal of these policies would provide substantial fiscal relief to the state.

Social Services

California's major social services programs provide a variety of benefits to its citizens. These include income maintenance for the aged, blind, and disabled; cash assistance and welfare-to-work services to low-income families with children; protecting children from abuse and neglect; providing home-care workers who assist the aged and disabled in remaining in their own homes; and subsidized child care for families with incomes under 75 percent of the state median. Under the Governor's budget proposal, General Fund expenditures for the state's social services programs would be $9 billion in 2005-06, about 11 percent of proposed General Fund expenditures for all purposes.

Overall Growth Trend. Since 2002-03, total General Fund spending for social services programs has been relatively flat, rising from $8.8 billion to just over $9 billion proposed for 2005-06. The $240 million increase over this period represents an annual growth rate of less than 1 percent, significantly less than the typical caseload growth in a number of social services programs. This relatively flat growth in General Fund support for social services is attributable to many factors including additional federal funds for In-Home Supportive Services (IHSS), COLA suspensions and grant reductions in income maintenance programs, and shifting habilitation services to the Department of Developmental Services in 2004-05.

The Governor's budget proposes a total of $1.1 billion in reductions for social services programs in 2005-06. When annualized in 2006-07, the savings increase to nearly $1.5 billion. With respect to the overall budget, social services reductions represent a significant share of the Governor's proposed solution. As described earlier, the Governor identified a budget "problem" of $9.1 billion and his budget closes this shortfall with a combination of borrowing, fund shifts, revenues, and program reductions. The $1.1 billion in reductions in social services represent 12 percent of the budget solutions proposed by the Governor. (It represents 20 percent of the budget solution when additional borrowing is excluded.)

The proposed reductions span several programs. The majority of the reductions are in the areas of income maintenance for low-income Californians and wages for home-care workers. Figure 14 summarizes the fiscal effect of the proposed reductions for both 2005-06 and 2006-07. The largest proposed reduction is $653 million for the California Work Opportunity and Responsibility to Kids (CalWORKs) program which provides income maintenance and welfare-to-work services for low-income families with children. The second largest reduction is $259 million for aged, blind, and disabled recipients of Supplementary Security Income/State Supplementary Program (SSI/SSP). Finally, the budget achieves savings of $195 million by reducing to the minimum wage the state support for the wages for home-care workers in the IHSS program. These


Figure 14 Social Services Two-Year Fiscal Effects of Savings Proposals
(In Millions)
	2005‑06	2006‑07a
CalWORKs
Delete state cost-of-living adjustment (COLA)	$163.8	$163.8
Reduce grants by 6.5 percent	212.3	212.3
Reduce earned income disregard	82.0	109.3
County block grant reductions	92.9	92.9
Child care reimbursement rate reductions	62.6	62.6
Other CalWORKs reductions	39.2	39.2
Subtotals	($652.8)	($680.1)
SSI/SSP
No January 2006 state COLA	$174.2	$348.4
No "pass through" of federal 2006 COLA	84.7	169.4
Subtotals	($258.9)	($517.8)
IHSS
Limit state participation to minimum wage	$194.8	$259.7
Other Savings
Department of Social Services	$10.2	$10.2
Other departments	2.0	2.0
Totals	$1,118.7	$1,469.8

a LAO estimate based on 2005-06 proposals.

workers provide various personal care services to the aged, blind, and disabled persons who are unable to remain in their homes without such assistance.

Judiciary and Criminal Justice

Social Services Reductions Represent Ongoing Solutions. All of the proposed reductions in social services are of an ongoing nature, rather than one-time. In fact, the proposed savings in SSI/SSP double in 2006-07 and some of the savings in CalWORKs and IHSS increase when the proposals are implemented on a full-year basis. Moreover, the Governor proposes to eliminate the statutory COLA for CalWORKs, further reducing cost pressures in the out years.

CalWORKs Reductions Result in Proposed Savings in Other Programs. The Governor proposes to reduce CalWORKs spending by $653 million (mostly from grant reductions). The CalWORKs program is funded by a combination of federal Temporary Assistance for Needy Families (TANF) block grant funds, the General Fund, and county funds. By reducing the program mostly through grant cuts, the budget frees up federal TANF funds which are used to offset costs in other programs including juvenile probation, foster care, and developmental services.

CalWORKs Program Costs and Resources in Balance Through 2007-08. In order to receive the federal TANF funds ($3.7 billion annually), the state must meet a MOE requirement of $2.7 billion in combined state and county spending. Based on our five-year forecast, the reductions proposed by the Governor would permit the state to hold spending at the MOE level while continuing to use TANF funds to offset other program costs described above through 2007-08. Beginning in 2008-09, meeting estimated program costs will require spending more General Fund than the MOE level or, alternatively, making additional program reductions.

Despite MOE Requirement, Legislature Has Flexibility. When considering the CalWORKs budget, the Legislature will need to first look at its overall budget priorities. The Governor has set a goal of achieving sufficient savings so as to enable substantial TANF transfers (over $300 million per year) to offset General Fund costs in juvenile probation, developmental services, and Foster Care. Depending on its fiscal priorities, the Legislature could spend more or less than the Governor proposes on CalWORKs while maintaining compliance with the MOE requirement. This is because the Legislature controls through the budget act which spending, in which departments, counts towards the MOE requirement.

Impact of Grant Reductions on Welfare Recipients. Under the Governor's proposal, SSI/SSP recipients would not receive a state or federal COLA in 2005-06. For individuals receiving SSI/SSP the maximum grant would be about 105 percent of the 2004 federal poverty guideline, compared to 109 percent under current law. The grant for couples would be 138 percent of the poverty guideline, compared to 144 percent under current law. With respect to CalWORKs, the Governor proposes to reduce grants by 6.5 percent effective July 2005. If this reduction is adopted, a family of three in a high-cost county would see its grant and Food Stamps drop to about 77 percent of the federal poverty guideline, compared to 81 percent under current law.

Reducing IHSS Wages. Currently, federal, state, and county governments share in the cost of wages for IHSS home-care workers. The Governor proposes to reduce state participation in wage costs to the minimum wage ($6.75 per hour), rather than the $10.10 per hour currently authorized. If counties elect to reduce wages in response to this loss of state participation, home-care workers could see their wages drop by as much as 33 percent. Reduction in provider wages will impact recipients in different ways. For recipients with relative providers (about 43 percent of all cases), we would assume, given the familial relationship, that most of these providers would continue to serve their family members despite the reduction in wages. However, this could result in a significant loss of income for the recipient's household. For cases in which the provider is not a relative, a reduction in wages is likely to reduce the size of the labor pool of available providers. It is possible that some recipients may be unable to find providers and/or that their providers will be less skilled.

Conclusion. The Legislature faces very difficult choices in the area of social services. On the one hand, the proposed reductions are all of an ongoing nature, some of them increase in 2006-07, and together they represent key components in the Governor's approach to closing the structural deficit. On the other hand, the reductions will impact many of California's low-income individuals and families.

Overall Growth Trend. Spending for judiciary and criminal justice programs represents about 11 percent of total General Fund spending. Between 2002-03 and 2005-06, the budget for these programs is projected to grow at an average annual rate of about 6 percent. Below we discuss some of the factors that have led to increased spending, as well as briefly summarize recent budget initiatives.

Corrections. In recent years, corrections spending has primarily been driven by (1) growth in the number of inmates, (2) correctional officer salary increases, and (3) court-mandates related to inmate health care. Recent budget initiatives to reduce spending have sought to reduce the number of parolees returned to prison for nonviolent offenses, as well as spending on overtime.

Judiciary. Growth in state spending for court operations has resulted primarily from increases in court employee salaries, and other expenses. Budget strategies to reduce General Fund spending included one-time and ongoing unallocated reductions, as well as the support of judicial programs from increased fee revenues.

Corrections. The Governor's budget proposes to increase spending for corrections by about $102 million, or 1.5 percent. This includes funding for the California Department of Corrections (CDC), the Youth Authority, and other boards and commissions within the Youth and Adult Correctional Agency. This overall increase consists of General Fund increases in some areas and decreases in others. However, it is largely driven by increases for CDC, mostly to fund salary increases, and positions associated with the opening of a new prison in Delano. Other augmentations are included for inmate health care services, inflation on operating expenses and equipment, and implementation of the voter approved DNA initiative (Proposition 69). The budget reductions in this area include cuts to inmate and parolee programs, juvenile crime prevention programs, and grants for local law enforcement.

Judiciary. Overall, the budget proposes to increase spending for the judicial branch by $178 million, or 6 percent. This includes funding for the Trial Court Funding Program, as well as the Supreme Court and Courts of Appeal. The increase is the result of salary and benefit increases, as well as an augmentation for trial courts based on growth in the state appropriations limit. The budget also restores funding for one-time reductions and loans made in prior years. No reductions are proposed for the judicial branch.

CDC Reforms. In the last two years, the Legislature and Governor have taken steps to try to reduce the inmate population. Specific policy changes include, for example, expansions of work credits for certain reception center inmates, and the use of intermediate sanctions for some parole violators who would otherwise be returned to prison. However, much of the General Fund savings from these changes has not materialized because the policy changes in some cases were not implemented, or in other cases have only been partially implemented. As a result, the proposed budget adds millions of dollars in the current year to backfill for savings that did not materialize. The reasons given for delays include slow development of new policies and procedures, difficulty contracting for treatment beds, and protracted negotiations with state employee unions. It will be important for the Legislature to follow-up with CDC on the implementation of policy reforms, with a focus on the department's progress to date and its timeline for reaching full implementation.

Potential Reduction in Spending for Inmate and Parolee Programs. As mentioned above, the Governor's budget proposes to reduce funding for inmate and parolee programs, such as education and substance abuse treatment. Research has shown that academic and vocational education programs, as well as substance abuse treatment help to prepare inmates for re-entry into the community, and assist parolees in making the transition from prison to the community. Thus, to the extent that less of these types of services are provided in the budget year, it could increase the number of parolees returned to custody; thereby increasing state prison costs. In lieu of budget cuts to inmate and parolee programs, the Legislature may wish to consider achieving savings in other areas such as changing the way CDC manages its inmate population.

Juvenile Justice Reform. The budget indicates that the administration is developing a juvenile justice reform proposal that will be provided to the Legislature in the May Revision. The budget further indicates that the specific reform will likely involve shifting some portion of the services currently provided by the Department of the Youth Authority to the counties. Although the budget lacks detail on the Governor's proposal, we believe there are potential benefits from shifting the responsibility for the Youth Authority population to the counties since the counties already serve over 95 percent of juveniles in the criminal justice system. For example, we believe that shifting responsibility and funding for state Youth Authority wards to the local level would reduce the level of duplication within the state and local system, as well as provide counties an incentive to build upon the services that are already provided at the local level. (For more information, please see The 2004-05 Budget: Perspectives and Issues, page 93.)

In reviewing any proposal to shift services to the counties, it will be important for the Legislature to ensure that funds are provided to cover the full cost of those services proposed to be shifted to the local level. Under the California Constitution, as recently amended by Proposition 1A, the transfer of additional program responsibility to local government would have to be accompanied by commensurate offsetting revenues or program savings.

As a cautionary note, we point out that a May release date for the Governor's proposal leaves the Legislature with a very limited time to review and respond to a policy change of the magnitude indicated.

Court Fees. In recent years, the Legislature and the Governor have increased court fees, as well as established new fees to offset General Fund costs for the courts during the state's fiscal crisis. It is our understanding that the courts are seeking legislative action to establish a uniform civil filing fee structure. Generally, this proposal involves collapsing a number of existing fees into a single fee, as well as raising certain specific fees. In the past, we have raised concerns regarding the potential impact of fee increases on citizen access to the courts. As the Legislature considers the proposed fee structure, it should evaluate whether such increases limit access.

Chapter 275, Statutes of 2003 (SB 940, Escutia) established a working group on court collection of fees and fines to evaluate court collection efforts and identify strategies to enhance future collections. Based on discussions with court staff, it is our understanding that the workgroup identified hundreds of millions of dollars in uncollected criminal penalty revenue statewide. To the extent some portion of this revenue can be recovered, it would potentially reduce state General Fund costs, and reduce pressure to raise fees in the future. We note that a portion of any recovered revenues would go to the counties since the state and counties share penalty revenues. At the state level, criminal penalties support various programs consisting of victim restitution, peace officer training, corrections training, and the court facility program. At the local level, the revenues support a variety of general fund programs, including the MOE payment to the State Trial Court Trust Fund.

Transportation

California's state transportation programs are funded by a variety of sources. The State Highway Account has traditionally provided the primary source of state funds for transportation, with revenues generated mainly by an 18-cent per gallon tax on gasoline and diesel fuel (referred to as the gas tax) and truck weight fees.

In 2000, the Legislature enacted the Traffic Congestion Relief Program (TCRP) to supplement state transportation funding from 2000-01 through 2005-06, primarily by redirecting the sales tax on gasoline to transportation purposes. (Otherwise, these funds would have been used for purposes funded by the state General Fund.) The original TCRP was to provide funding for several transportation programs, including $4.9 billion for 141 specified projects and about $2.7 billion for other capital outlay projects, local street and road improvements, and mass transportation programs.

The TCRP was later extended by statute through 2007-08. In addition, in March 2002, the voters passed Proposition 42, which committed the sales tax on gasoline to transportation on an ongoing basis. However, Proposition 42 also contained a provision that allows this funding to remain in the General Fund under certain circumstances.

Overall Growth Trend. Figure 15 shows the amount of expenditures on state transportation programs, funded by state funds and federal funds, from 2002-03 through 2005-06. The figure shows total expenditures on state transportation programs stayed about the same in 2002-03 and


Figure 15 Expenditures on State Transportation Programs
2002-03 Through 2005-06 (In Billions)
	2002-03	2003-04	Estimated 2004-05	Projected 2005-06
State funds	$3.5	$3.8	$3.9	$4.1
Federal funds	2.7	2.3	2.9	2.4
Totals	$6.2	$6.1	$6.8	$6.5

2003-04. These expenditures are estimated to increase in the current year, mainly due to higher expected expenditures of federal funds for local assistance. For 2005-06, total expenditures are projected to be lower than the current-year level, with more expenditures to be funded from state sources.

The primary reason for little growth in state-funded transportation expenditures over the four-year period is the use of transportation funding to aid the General Fund, as discussed below.

Substantial Transportation Funds Used to Help the General Fund. In the past four years, funds designated for transportation have been redirected annually to help the General Fund. The 2005-06 budget continues this practice. The repeated diversion of transportation funds, while helping the General Fund condition, raises a number of issues regarding the predictability of future transportation funding.

The 2005-06 budget includes a number of proposals that will affect transportation funding not only in 2005-06, but also in future years.

State Transportation Funding Is Already Limited and Uncertain. State transportation funding has been limited in recent years due to several factors. These factors include repeated suspension of Proposition 42 and a decline in the value of the excise tax on gasoline and diesel fuel. These and other factors have reduced the state's allocations of funding for new projects. As a result, some transportation needs are now being met through borrowing, which reduces funding available for other transportation projects both now and in the future.

Proposals Further Constrain Near-Term Transportation Funding. The administration's 2005-06 proposals to use transportation funding to aid the General Fund will further constrain near-term funding of transportation programs. For example, as Figure 16 shows, when combined with previous actions to reduce General Fund money for transportation, the Governor's proposals would reduce the total amount of General Fund money provided to transportation over a six-year period to about $2 billion, which is $5.5 billion less than was originally anticipated in the TCRP.

Reducing transportation funding in turn slows down the completion of transportation projects. However, the administration has not estimated how much its proposals will reduce the commitment of funds to new transportation projects. We believe that the administration should provide information to the Legislature that would allow it to determine the effect of the Governor's proposals on the size of the transportation program.

Budget-Year Funding for TCRP Is Uncertain. The TCRP would be particularly affected by the Governor's proposals. If the tribal gaming bond revenue does not materialize in the budget year, there is a possibility that ongoing work on TCRP projects would have to stop. Unfortunately, the budget for TCRP projects contains errors and is built on out-of-date information. Therefore, it is uncertain whether there will be sufficient funding in the budget year to continue work on TCRP projects. We think that the administration needs to provide corrected and updated information to the Legislature that would allow it to determine TCRP project funding requirements in 2005-06.

Long-Term Funding Stability Is Still Paramount. Over the long run, the Governor's proposal to prohibit the suspension of Proposition 42 transfers to transportation would provide added stability to transportation funding. However, in the event of future General Fund shortfalls, another component of the Governor's proposals would require expenditures to be cut across the board. Such cuts would affect Proposition 42 funding as well, which would lessen transportation funding stability. We have previously recommended an alternate means of stabilizing transportation funding by repealing Proposition 42, raising the gas tax to provide an equivalent amount of funding, and indexing the gas tax to inflation in future years.

Resources

Overall Growth Trend. State expenditures for resources and environmental protection programs have increased from about $2.7 billion in 1998-99 to $4.7 billion in 2005-06. This reflects a 76 percent increase, or an average annual increase of about 8 percent. The increase mostly reflects growth in expenditures from fee-based special funds and bond funds, while General Fund expenditures proposed for 2005-06 are roughly at the 1998-99 level.

Given the weakened condition of the General Fund, a number of program activities that have traditionally been funded from the General Fund—such as flood project maintenance and environmental risk assessments—have experienced expenditure reductions over this period. When adjusted for inflation, General Fund expenditures proposed for resources and environmental protection programs in 2005-06 are actually lower than the 1998-99 level.

Bond fund expenditures increased during the period, reflecting the availability of bond funds from five resources bond measures (totaling $11.1 billion) approved by the voters between 1996 and 2002. These bond measures provide funding for a mix of water, park, and land acquisition and restoration purposes. In general, funds from these five bonds have not been used to replace General Fund expenditures. Rather, they have largely supported new or expanded local assistance loan and grant programs (such as for local parks, water conservation projects, and wastewater treatment plant upgrades) or been used to increase capital outlay expenditures, such as for land acquisitions for state parks or conservation purposes. These bond funds are running out, however. At the end of 2005-06, about $1.2 billion of the $11.1 billion allocated in the five bonds will remain available for new projects.

The bulk of the increase in special fund spending during this period is due to new or increased fee revenues. A significant proportion of the increases in special fund expenditures since 1998-99 reflect expenditures that fully or partially offset General Fund reductions. This has occurred mainly in regulatory programs where fees are levied on the regulated parties that benefit directly from the state program. In this regard, fees have replaced General Fund revenues to a significant degree in the Air Resources Board, Department of Pesticide Regulation, and State Water Resources Control Board.

Cost Drivers. Some resources departments own and operate public facilities, such as state parks and boating facilities, which drive their costs. In addition, the state's resources and environmental protection programs include a number of regulatory programs whose costs are driven by their regulatory activities. Finally, some resources activities have a public safety purpose, and the cost drivers include emergency response costs that can vary substantially from year to year.

Financing Flood-Related Lawsuit Settlement With a Judgment Bond. The budget proposes to finance a pending $464 million settlement of a flood-related lawsuit against the state (the Paterno case) by issuing a "judgment bond." Although not defined in statute, a judgment bond is basically a debt payment mechanism issued to finance a court judgment or lawsuit settlement. To our knowledge, the state has never issued a judgment bond.

While the Governor's January budget proposes to pay the Paterno settlement with a judgment bond, the Director of Finance has recently indicated that the administration would use this financing option only if it represents the least costly method to resolve this case.

Addressing Flood Management. The budget proposes an increase of $31 million for the Department of Water Resources' (DWR) flood management program in 2005-06. With these increases, DWR's total flood management budget for 2005-06 will be about $73 million, an increase of over 70 percent above current-year appropriations. The requested increase is for maintenance work on levees and flood channels, an initial start at evaluating levees and channels to identify deficiencies, floodplain management (including floodplain mapping), and emergency response.

The requested increase reflects the first year of a three-year budget plan to begin addressing what the department has characterized as a "crisis" in flood management. According to DWR, several factors have created this crisis, including an aging flood control infrastructure with potential design flaws, substantial deferred maintenance, out-of-date floodplain mapping, and a history of declining funding.

CALFED Bay-Delta Program. The budget proposes $240.6 million of state funds—spread throughout seven state departments—for CALFED-related programs in 2005-06. Of this amount, $12 million is proposed from the General Fund, with the balance mainly from various bond funds ($201 million) and State Water Project funds ($25.4 million). This level of expenditure is a 40 percent reduction from the current year, mainly reflecting a reduction in available bond funds.

The Governor's January budget document indicates that an $8.1 billion ten-year finance plan for CALFED—recently approved by CALFED's oversight agency, the California Bay-Delta Authority—will be incorporated in the Governor's May Revision. The plan is guided by the application of the "beneficiary pays" funding principle and relies significantly on new sources of revenue, including water user fees.

Financing Flood-Related Lawsuit Settlement With a Judgment Bond. We think that there may be alternative ways of paying the state's obligation in the Paterno case in addition to the judgment bond proposal in the Governor's January budget. These include (1) paying the settlement fully out of available resources in the budget year and (2) structuring the settlement payments over a few years.

If the administration decides to proceed with a judgment bond, there are several legal, policy, and fiscal issues that the Legislature should consider when evaluating such a proposal. These include (1) whether a judgment bond would require a vote of the people and/or legislative authorization, (2) whether debt financing of a lawsuit settlement is good policy, and (3) how much the judgment bond would cost over time. Because the court has not finalized the Paterno settlement, we recommend that the Department of Finance report at budget hearings on several issues.

Addressing Flood Management. The budget's requested increases for flood management are well justified in light of the flood management challenges facing the state that were identified in a recent DWR White Paper—Flood Warnings: Responding to California's Flood Crisis. However, the increases reflect a small fraction of the funding requirements identified by the department.

We address the flood management challenges facing the state more fully in a separate write-up, Water Policy Issues Facing the State, found in "Part V" of this document. In that write-up, we enumerate what we consider to be the most important initial actions that the Legislature should take to begin addressing the problems. These include:

CALFED Bay-Delta Program. The Legislature will be asked to evaluate CALFED's ten-year finance plan with its anticipated inclusion in the Governor's May Revision. The current finance plan relies heavily on greatly increased levels of federal funds and substantial new, but unidentified, sources of state public funds. We think that the finance plan's funding targets—adding up to $8.1 billion over the term of the plan—may be unrealistic given the uncertainty surrounding many of the plan's revenue assumptions.

We identify two sets of actions that the Legislature should take in conjunction with its evaluation of the finance plan proposal:

Employee Compensation

Pay for State Employees. The state's costs for paying state employees are determined through collective bargaining with employee unions. The pay, benefits, and working conditions for these employees are typically spelled out in memoranda of understanding (MOUs) negotiated between unions and the state. Since 2002-03, most state employees have received a 5 percent raise and increased state coverage of health care costs. Two groups—correctional officers and highway patrol officers—negotiated a series of four annual pay raises, which began July 1, 2003. In total, salary costs in 2004-05 are an estimated $894 million above their 2002-03 level. Costs for state employment (including higher education) are projected to total more than $24 billion in 2005-06, about half of which is supported from the General Fund.

Retirement Costs. As part of the employee compensation package, the state makes annual contributions to various retirement programs to fund benefits for state employees and teachers that will be paid out in the future. In recent years, the state's retirement costs have increased significantly. For instance, state General Fund retirement costs have increased from $2.7 billion in 2002-03 to a projected $3.9 billion in 2004-05. The largest factor in this increase is the poor investment performance of retirement funds. The state's General Fund retirement costs for 2004-05 and 2005-06 are summarized in Figure 17.

Increased Pay for Employees. The Governor's budget includes funds ($261 million, of which $198 million is from the General Fund) to pay for MOUs with previously agreed-upon provisions. The largest portion of this amount is for a 7.2 percent raise for highway patrol officers and a 5.1 percent raise for correctional officers. To offset these increased costs, the Governor proposes to save even more ($741 million, of which $408 million is from the General Fund) by negotiating with unions with expired MOUs for reductions in benefits. The most significant proposals relate to retirement (discussed below). The other sought concessions include allowing the Governor to furlough employees for up to five days a year and reducing the amount the state would contribute to health benefits.

Retirement Changes. The Governor's budget has four retirement-related proposals. As shown in Figure 17, these proposals would reduce the state's 2005-06 General Fund retirement costs by $1.5 billion.


Figure 17 General Fund Costs for Retirement Programsa
(In Millions)
	Estimated 2004-05	Proposed 2005-06
State Retirement Plans
Public Employees’ Retirement (PERS)	$1,401	$1,466
State Teachers’ Retirement	1,149	1,050
Judges’ Retirement	148	144
Defined Contribution Plansb	47	21
Subtotals	($2,745)	($2,681)
Other Retirement Benefits
Health and Dental Benefits for Annuitants	$796	$861
Social Security and Medicarec	385	401
Subtotals	($1,181)	($1,262)
Totals	$3,926	$3,943
Proposed Budget Savings
Proposed pension bond savings	—	-765
Proposed shift of state teachers retirement contribution to school districts	—	-469
Proposed PERS opt-out/cost-sharing for existing state employees	—	-296
Net General Fund Cost	$3,926	$2,413

a Excludes costs for University of California employees.
b State's contribution to supplemental retirement plan for correctional officers and their supervisors and managers.
c Legislative Analyst's Office estimates.

Local Agency and Education Mandates

Savings From Current Employees Would Require Agreement of Unions. Increasing current employee retirement contributions and other benefit reductions would require the agreement of state employee unions. It is unclear at this time what concessions the administration would have to make in order for unions to agree to such a change. As a result, when reviewing negotiated contracts for approval, the Legislature will have to consider the merits and costs of the total package.

Governor's Defined Contribution Plan Proposal. Due to the guaranteed benefits provided its retired employees, the existing state retirement system places significant financial risks on the state. Annual payments can rise dramatically from year to year. A defined contribution would address this concern (as well as other concerns that we discuss in "Part V") by limiting the state's obligation to a fixed amount each year. On the other hand, the proposal shifts investment risk to employees and increases uncertainty as to the level of benefits that can be expected upon retirement. Moreover, reductions in retirement compensation for employees could lead to increases in other types of employee compensation. For instance, in order to attract and retain employees, the state might need to increase salaries to compensate for lower retirement benefits. In addition to considering the administration's retirement proposal for new employees, the Legislature could also consider alternatives in order to address concerns with the existing system. For instance, the Legislature could modify the existing defined benefit system or develop a hybrid of the two types of plans.

Shift of Teacher Retirement Costs Should Be Evaluated on a Short-Term and Long-Term Basis. The Governor's proposal to shift some state costs to schools and/teachers should be evaluated both as a short-term budget solution and as a long-term solution to the system's shortcomings. The existing teachers' retirement system is a local program over which local school districts have little control or responsibility. In evaluating the proposal on a short-term basis, the Legislature will need to determine whether the proposal would generate the intended General Fund savings. On a long-term basis, the Legislature will need to determine whether the pro posal would move the system towards greater local control and responsibility.

The California Constitution requires the state to reimburse local governments, including schools, when it mandates a new program or higher level of service. During times of fiscal difficulty, the state frequently has delayed making these mandate payments. As a result, through the end of the 2004-05, we estimate the state will owe about $2.8 billion, including:


Figure 18 Analysis of Newly Identified Mandates
(In Millions)
	Cost Through 2004‑05	2005‑06 Analysis
	Cost Through 2004‑05	Item	Department
Grand Jury Proceedings	$12.6	0250	Judicial Branch
Presidential Primaries	1.2	0890	Secretary of State
Absentee Ballots: Tabulation by Precinct	0.2	0890	Secretary of State
Administrative License Suspension	10.0	2740	Motor Vehicles
Standards Based Accountability	0.6	6160	Education
School District Reorganization	—a	6160	Education
Immunization Records: Hepatitis B	29.6	6160	Education
Attendance Accounting	—a	6160	Education
Charter Schools II	0.2	6160	Education
Sexual Assault Response Procedures	—a	6160	Education
Criminal Background Checks II	0.3	6160	Education
Comprehensive School Safety Plans	37.1	6160	Education
Pupil Promotion and Retention	9.0	6160	Education
AIDS Prevention Instruction II	—a	6160	Education
Teacher Incentive Program	0.1	6160	Education
Redevelopment Agencies: Tax Disbursement Reporting	0.1	9100	Tax Relief
Total	$100.7

Total may not add due to rounding.
a Costs of less than $50,000.

New Requirements Regarding Local Agency Mandates. In November 2004, the state's voters approved Proposition 1A, generally requiring the state to either (1) fund city, county, and special district ("local agency") mandates in the annual budget bill or (2) suspend them for the fiscal year. (Suspending a mandate places a one-year pause on a local agency's obligation to carry out the mandate and eliminates any state fiscal liability for the mandate during that time.) Proposition 1A also authorizes the state to pay over time all local agency mandate liabilities incurred before 2004-05. Chapter 211, Statutes of 2004 (SB 1096, Committee on Budget and Fiscal Review), specifies that the payment term shall be five years, beginning in 2006-07.

The budget proposes $44 million for 30 local agency mandates, including $13.9 million for the animal adoption mandate and $2 million for a greatly revised open meetings act mandate. The administration proposes deferring funding for the mandate relating to the Peace Officer Procedural Bill of Rights (POBOR). (Under Proposition 1A, mandates relating to employee rights are exempt from the provision requiring annual funding in the budget.) The budget suspends many major local agency mandates, including the mandate on counties to provide mental health services to special education pupils (the "AB 3632" program) and various mandates relating to the provision of absentee ballots. The administration also proposes a constitutional amendment (ACA 4x, Keene) that, among other items, lengthens to 15 years the term of payment for overdue local agency mandates.

In terms of K-14 mandates, the budget contains no new proposals. (Education mandates were not addressed by Proposition 1A.) Two education mandates suspended in 2004-05 are proposed for suspension again in 2005-06. In addition, with the proposed suspension of the AB 3632 mandate, the budget shifts to school districts the obligation for funding a major mental health program.

For both K-14 school districts and local agencies, the budget reflects the elimination of a series of mandates resulting from the passage of legislation in 2004 sponsored by the Assembly Special Committee on Mandates: Chapter 206 (AB 2854, Laird); Chapter 316 (AB 2851, Laird); Chapter 889 (AB 2853, Laird); Chapter 890 (AB 2856, Laird); and Chapter 895 (AB 2855, Laird).