LAO 2006-07 Budget Analysis: General Government

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006

Midyear Budget Reductions (Control Sections 3.45, 4.05, and 4.06)

These control sections provide the administration with authority to reduce departmental General Fund appropriations during the year, after the budget is enacted. In total, the Governor’s budget assumes that these control sections will reduce state General Fund expenditures by $258 million in 2006-07. Specifically:

Past Authority Has Not Achieved Intended Objectives

Over the past few years, the state budget has included a variety of control sections similar to the ones proposed for 2006-07. These sections are summarized in Figure 1. The state’s experience with these sections raises a number of concerns, which we discuss below.

Savings Scored but Never Achieved. Recent budget plans have assumed sizable savings from these types of sections. As shown in Figure 1, recent annual estimates have ranged from $100 million to $750 million. In reality, these savings are rarely achieved. As a result, in such cases the enacted budget overstates the expected budgetary reserve-often by hundreds of millions of dollars.


Figure 1

Recent Midyear Budget Reduction Provisions

(General Fund Dollars)





Section 3.90—Required $750 million in state operations reductions. Each reduction was limited to 5 percent.

Identified savings were less than half of the required amount.


Section 4.10—Required savings of $181 million. Allowed reductions to state operations appropriations by up to 15 percent.

Sections 55 and 56 of Chapter 228, Statues of 2003 (AB 1756, Oropeza)—Allowed reductions and reallocation of appropriations within a department to address unexpected costs. Contained no percentage limits.

Section 27.00—Allowed a reduction to an appropriation of up to 5 percent to pay for a deficiency.

Some reductions shifted costs to the deficiency process, rather than reduce expenditures. Authority under Chapter 228 and Section 27.00 were used infrequently.


Section 4.10—Required $300 million in savings (half from efficiencies and half from reorganizations). State operations appropriations could be reduced by up to 20 percent, and local assistance appropriations could be reduced by up to 5 percent.

Administration only identified $58 million of the required $300 million in savings. Most of the savings would have occurred “on the natural,” such as from caseload adjustments.


Section 4.05—Requires $100 million in savings.

Administration identified $100 million of savings in December 2005. Virtually all savings would have occurred on the natural.


Program Impact Unknown. The reductions that have been implemented are typically done with almost no detail provided to the Legislature regarding their programmatic impact. It is often months or years later that the Legislature discovers that programs that were reduced are no longer functioning as expected. For example, the 2006-07 budget contains a number of proposals to provide augmentations to replace funding that was eliminated in midyear reductions in prior years.

Reductions Reflect Administration’s-Not Legislature’s-Priorities. Any unallocated reduction authority given to the administration will expose legislative priorities to reductions. An administration naturally will protect its own priorities and sacrifice programs that it deems less important. For example, in the health area, previous reductions have targeted a prostate cancer treatment program and Medi-Cal antifraud activities-both of which were priorities of the Legislature.

Delete Sections for More Honest Budgeting

The proposed control sections are unlikely to achieve their targeted levels of savings. In addition, they potentially represent a significant delegation of the Legislature’s authority. Consequently, we recommend that the Legislature delete the sections from the budget bill. (Delete Control Sections 3.45, 4.05, and 4.06.)

Savings Unlikely to Be Achieved. Based on recent experience, we estimate that only a fraction of the assumed budget savings would be achieved. Over the past two years, most of the savings identified have not been from cost reductions or improved efficiencies. Instead, the administration counts caseload reductions, increased federal offsets, or similar issues as savings. These types of savings typically are captured on the natural in the “unidentifiable savings” category of the budget. When these types of savings are instead scored under a control section, the practical effect is to reduce the unidentifiable savings item on a dollar-for-dollar basis. The budget, however, assumes the state will still achieve unidentifiable savings in 2006-07 ($340 million).

Recommend Deleting Control Sections. Given the consistent failure of control sections to achieve desired savings and the loss of legislative authority, we recommend that all three sections be deleted from the budget bill. The administration should identify any specific proposed savings in departmental budgets during the spring budget process. This would allow the Legislature to understand any programmatic impact from the reductions and protect its own priorities. Moreover, if the administration desires to make appropriation changes once the budget is enacted, it can seek statutory changes. For example, the Legislature adopted midyear savings totaling $2.2 billion for the 2001-02 fiscal year in this manner.

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