Analysis of the 2007-08 Budget Bill: General Government
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 administration assumes that these control sections will reduce state General Fund expenditures by $146 million in 2007-08. Specifically:
Control Section 4.04—Inflation Adjustment for Operating Expenses. After the release of the January 10 budget, the administration requested the addition of this section to the budget bill. The administration’s revised budget assumes $46 million in savings from reducing by one-half the inflation adjustment for operating expenses built into departmental budgets. (That is, a 2.7 percent adjustment would be reduced to 1.35 percent.) Two-thirds of the savings are proposed to come from the California Department of Corrections and Rehabilitation (CDCR). Reductions would be made “only to the extent necessary to ensure that there is no net operating deficit in 2007-08.”
Control Section 4.05—One-Time Reductions. The budget assumes $100 million in one-time savings from this section. A state operations appropriation could not be reduced by more than 20 percent, and a local assistance appropriation could not be reduced by more than 5 percent.
The proposed control sections are unlikely to achieve their targeted levels of savings. In addition, they 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 4.04 and 4.05.)
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.
Savings Already Counted. Over the past few years, the state budget has included a variety of control sections similar to the ones proposed for 2007-08. Based on recent experience, we estimate that only a fraction of the assumed budget savings would be a net benefit to the state’s bottom line. For instance, in 2006-07, $132 million of the $200 million in savings attributed to Control Section 4.05 was from declining debt service on loans and general obligation bonds. Another $24 million was attributed to lower-than-expected usage of a health program. These types of savings 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 2007-08 ($340 million).
Other Cuts Will Lead to Future Shortfalls. Many of the midyear reductions that have been implemented in the past have been done with minimal detail provided to the Legislature as to how departments are going to absorb the reductions. Often months or years later, the Legislature discovers that programs that were reduced are no longer functioning as expected. In many of these cases, departments come forward with requests for additional funding in the same or future years to make up for the reductions. For example, the 2007-08 budget contains a $3.2 million request from the Department of Veterans Affairs for equipment purchases. The department reports its entire equipment budget was eliminated through reductions in prior years. Similarly, it is unclear how CDCR will absorb a $31 million reduction in 2007-08 through Control Section 4.04—given that the department has experienced budget shortfalls of more than $100 million every year since 2000-01.
Recommend Deleting Control Sections. Given recent experience with similar control sections and the loss of legislative authority they require, we recommend that both sections be deleted from the budget bill. The administration should identify any specific proposed savings in departmental budgets during the spring budget process and how it expects these savings to be achieved. 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.
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2007-08 Budget Analysis