The 2014-15 Budget: California Spending Plan

The 2014-15 Budget: California Spending Plan MAC TAYLOR (cid:127) L E GI S L A T IV E A N AL Y ST (cid:127) OCTOBER 13, 2014 2014-15 BUDGET CONTENTS Chapter 1 Key Features of the 2014-15 Budget Package Budget Overview ......................................................................................................1 Evolution of the Budget ...........................................................................................4 Chapter 2 Spending Actions Proposition 98 ..........................................................................................................7 The Minimum Guarantee ............................................................................................................7 Crosscutting K-14 Spending Changes ..............................................................................................................9 K-12 Education ............................................................................................................................10 Community Colleges .................................................................................................................15 Child Care and Preschool .......................................................................................18 Higher Education ....................................................................................................20 California State Library ..........................................................................................26 CalSTRS ....................................................................................................................27 Health ......................................................................................................................30 Human Services ......................................................................................................35 Cap-and-Trade ........................................................................................................44 Resources and Environmental Protection ............................................................47 Resources Programs ...................................................................................................................48 Environmental Protection Programs ...................................................................................52 Transportation ........................................................................................................54 Judiciary and Criminal Justice ..............................................................................57 Other Major Provisions ..........................................................................................62 www.lao.ca.gov Legislative Analyst’s Office i 2014-15 BUDGET Legislative Analyst’s Office www.lao.ca.gov (916) 445-4656 Legislative Analyst Mac Taylor State and Local Finance Education Jason Sisney Jennifer Kuhn Marianne O’Malley Edgar Cabral Chas Alamo Carolyn Chu Justin Garosi Natasha Collins Seth Kerstein Rachel Ehlers Ryan Millera Paul Golaszewski Nick Schroeder Judy Heiman Brian Uhler Kenneth Kapphahn Brian Weatherford Jameel Naqvi Corrections, Transportation, and Environment Health and Human Services Anthony Simbol Mark C. Newton Brian Brown Shawn Martin Drew Soderborg Jason Constantouros Ashley Ames Amber Didier Ross Brown Rashi Kesarwani Virginia Early Lourdes Morales Aaron Edwards Ginni Bella Navarre Anton Favorini-Csorba Felix Su Jeremy Fraysse Ryan Woolsey James Hacker Helen Kerstein Sarah Larson Anita Lee Jessica Peters Administration and Information Services Support Larry Castro Tina McGee Sarah Kleinberg Izet Arriaga Karry Dennis-Fowler Sarah Scanlon Michael Greer Jim Stahley Vu Chu Anthony Lucero Douglas Dixon Sandi Harvey a General Fund Condition analyst, Spending Plan publication coordinator. ii Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET CHAPTER 1 Key Features of the 2014-15 Budget Package This publication summarizes California’s August 2014. This final published version reflects 2014-15 spending plan, including legislative and bills that were approved in August and September gubernatorial action through October 2014. A 2014. Figures, however, reflect estimated spending preliminary electronic version was released in totals as of the June version of the budget act. BUDGET OVERVIEW Figure 1 displays total state and federal Modest Revenue Growth Assumed for 2014-15. spending in the 2014-15 Budget Act. The 2014-15 The budget package assumes General Fund and budget package assumes total state spending of Education Protection Account revenues to be $152.3 billion, an increase of 8.6 percent over revised $107 billion in 2014-15, an increase of nearly totals for 2013-14. This consists of $108 billion from 5 percent over 2013-14 levels. Revenues from the General Fund and the Education Protection California’s “Big Three” taxes—the personal Account created by Proposition 30 (2012), and income tax, sales and use tax, and corporation $44.3 billion from special funds. The budget tax—are projected to increase $5.6 billion, or package assumes spending from federal funds to 5.7 percent, over 2013-14. Transfers and loans be $98 billion, an increase of 20.9 percent over are expected to decline significantly in 2014-15, 2013-14 revised levels, mainly due to increases reflecting in part several hundred million dollars in the health area of the budget. Bond spending less in budgetary borrowing from special funds. is expected to decline 53 percent in 2014-15. Figure 1 (We discuss changes in Total State and Federal Fund Expenditures bond spending in the (Dollars in Millions) “Resources Programs” and Revised Change From 2013-14 “Transportation” sections Enacted Fund Type 2012-13 2013-14 2014-15a Amount Percent of “Chapter 2.”) General Fundb $96,562 $100,711 $107,987 $7,276 7.2% General Fund Revenues Special funds 37,724 39,528 44,324 4,796 12.1 Budget Totals $134,286 $140,239 $152,311 $12,072 8.6% Figure 2 (see next Selected bond funds $6,715 $8,689 $4,046 -$4,643 -53.4% page) displays the revenue Federal funds 70,431 81,059 98,001 16,941 20.9 assumptions incorporated a Does not include appropriations authorized in budget-related legislation enacted between July and October 2014. b Includes Education Protection Account created by Proposition 30 (2012). in the 2014-15 Budget Act. www.lao.ca.gov Legislative Analyst’s Office 1 2014-15 BUDGET Figure 2 2014-15 Budget Act Revenue Assumptions General Fund and Education Protection Account Combined (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Estimated Estimated Enacted Amount Percent Personal income tax $64,484 $66,522 $70,238 $3,716 5.6% Sales and use tax 20,482 22,759 23,823 1,064 4.7 Corporation tax 7,783 8,107 8,910 803 9.9 Subtotals, “Big Three” taxes ($92,749) ($97,388) ($102,971) ($5,583) (5.7%) Insurance tax $2,221 $2,287 $2,382 $95 4.2% Other revenues 2,619 2,163 2,400 237 10.9 Transfers and loans 1,813 347 -658 -1,005 -289.8 Totals $99,402 $102,185 $107,095 $4,910 4.8% Note: Unlike administration’s revenue displays, figure does not reflect transfer of revenues from General Fund to Budget Stabilization Account to improve comparability of totals with those of prior years. This decline would have been even larger had the 2013-14 Expected to Be Second Straight Fiscal total included the $1.6 billion transfer from the Year to End “In The Black.” California ended four General Fund to the Budget Stabilization Account straight fiscal years—2008-09 through 2011-12— (BSA) created by Proposition 58 (2004). (We with negative ending balances in its Special Fund exclude that transfer from revenue data in Figure 2 for Economic Uncertainties (SFEU). In January to improve comparability with prior-year totals.) 2014, the Governor’s budget proposal included the final revised estimate of the ending balance The Condition of the General Fund for 2012-13—a positive balance of $1.6 billion in Figure 3 summarizes the estimated General the SFEU. With revenues and transfers outpacing Fund condition for 2013-14 and 2014-15. expenditures by nearly $1.5 billion in 2013-14, the ending balance for Figure 3 2013-14 is expected to General Fund Condition grow to nearly $3 billion General Fund and Education Protection Account Combined (Dollars in Millions) (after adjusting for other 2013-14 2014-15a Percent Change changes). Prior-year balance $2,429 $3,903 2014-15 Projected to Revenues and transfers 102,185 107,095b 4.8% End With $2.1 Billion Total resources available $104,614 $110,998 in Total Reserves. The Total expenditures $100,711 $107,987c 7.2% Ending fund balance $3,903 $3,011 budget plan assumes Encumbrances $955 $955 expenditures will grow Total Reserves $2,948 $2,056 $7.3 billion, or 7.2 percent, Special Fund for Economic Uncertainties $2,948 $450 in 2014-15. Revenue Budget Stabilization Account — 1,606 a growth of 4.8 percent in Does not include appropriations authorized in budget-related legislation enacted between July and October 2014. b 2014-15 produces a small Amount differs from that in the administration’s budget summary. To improve the comparability with prior-year figures, the number listed here excludes the transfer from the General Fund to the Budget operating deficit—that is, Stabilization Account, resulting in $1.6 billion higher revenues than shown in the administration’s display. The amounts in this figure reflect the administration’s May Revision revenue forecast, which was adopted the difference between as part of the budget package. c Includes $1.6 billion to accelerate the retirement of economic recovery bonds. General Fund revenues 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET and expenditures in that year—of $892 million. down debt—would be “triggered” under the budget Consequently, total state reserves decline, from plan. We discuss these spending triggers in the $2.9 billion at the end of 2013-14 to $2.1 billion nearby box. at the end of 2014-15. The 2014-15 reserve is Fully Funds CalSTRS Pension Program. a combination of $1.6 billion in the BSA and As of the end of 2012-13, the California State $450 million in the SFEU. Teachers’ Retirement System (CalSTRS) had a $74 billion shortfall. Budget-related legislation Major Features of the 2014-15 Spending Plan aims to erase the unfunded liability in 32 years by Similar to the 2013-14 budget, the 2014-15 increasing contributions from the state, school and spending plan makes targeted augmentations in a community college districts, and teachers. few areas while paying down several billion dollars Proposition 98. The budget plan includes in key liabilities. The major features of the budget large Proposition 98 funding increases for schools package are summarized below. We discuss these and community colleges. The Proposition 98 and other actions in more detail in “Chapter 2.” budget continues implementation of the Local In addition, if certain revenue and other targets Control Funding Formula, pays down most are met, additional spending—mostly for paying of the remaining payment deferrals, and pays Budget Plan Includes Three Spending Triggers If the Director of Finance determines that certain conditions have been met, additional spending would be authorized under the 2014-15 budget. The three spending triggers are: • Education Deferral Pay Downs. By the 2015 May Revision, the Director of Finance will determine whether the Proposition 98 minimum guarantee for 2013-14 and 2014-15 is higher than that assumed in the 2014-15 budget package. If the guarantee has increased, the state would use up to $992 million to retire all remaining school and community college payment deferrals. • City, County, and Special District Mandates. By the 2015 May Revision, the Director of Finance will estimate whether General Fund revenues exceed the administration’s May 2014 forecast. If so, after setting aside funds necessary to satisfy the Proposition 98 guarantee, any remaining revenue—up to $800 million—would be allocated to cities, counties, and special districts for outstanding mandate claims from prior to 2004. • Deferred Maintenance. The enacted budget plan included up to $200 million in one-time General Fund spending for various state entities to reduce their maintenance backlogs. The deferred maintenance trigger was dependent on whether local school property taxes as shown in a preliminary 2013-14 estimate exceeded the estimate included in the Governor’s 2014 May Revision. On July 16, 2014, the Director of Finance determined that the preliminary estimate did not exceed the May 2014 estimate. Therefore, the additional spending for deferred maintenance was not authorized. Later changes in property tax estimates will not affect this action. www.lao.ca.gov Legislative Analyst’s Office 3 2014-15 BUDGET down several hundred million dollars of other high-speed rail project. In addition, budget-related Proposition 98 obligations. legislation specifies how the state will spend Creates Additional Child Care Slots. The cap-and-trade auction revenues beginning in budget augments spending on child care and 2015-16. preschool by $255 million. This total includes Pays Down Remainder of Economic Recovery $67 million for 7,500 additional preschool slots, Bonds (ERBs). The budget transfers 3 percent of bringing the total number of slots to almost General Fund revenues—or $3.2 billion—to the 150,000. (In addition, the budget includes BSA. Under Proposition 58, one-half of those $3 million for another 4,000 preschool slots revenues must be used to accelerate the repayment effective June 15, 2015.) The budget also includes of the state’s prior deficit financing bonds, known $68 million for provider rate increases, and as ERBs. The $1.6 billion payment is expected to $75 million (including $25 million one time) for pay off the remaining principal on the ERBs during various quality improvement activities. 2014-15. Makes Limited Augmentations to Health and Increases Pay for Most State Employees. Human Services Programs. Similar to recent years, Most state employees will receive a 2 percent pay the budget includes targeted augmentations in increase beginning July 1, 2014. Other groups of health and human services programs. The budget state employees, including highway patrol officers increases In-Home Supportive Services funding and correctional officers, will receive higher pay by $172.2 million to comply with new federal labor increases during the 2014-15 fiscal year. In total, the regulations for home care workers. In addition, budget includes $500 million ($220 million from the budget includes a total of about $80 million the General Fund) for pay increases in 2014-15. for various policy-related augmentations in the Provides Funding for Multifamily Housing. California Work Opportunity and Responsibility to The budget includes $100 million in one-time Kids program (including a 5 percent grant increase) funding for the Multifamily Housing Program, and $54 million for increased capacity for patients which provides deferred-payment loans to at state hospitals. developers of affordable housing projects. One-half Enacts Cap-And-Trade Spending Plan. The of the funds will be dedicated to projects that 2014-15 budget includes $832 million from the include support services, such as job training and Greenhouse Gas Reduction Fund for various substance abuse counseling. programs, including $250 million for the state’s EVOLUTION OF THE BUDGET The Governor signed the 2014-15 Budget Act his 2014-15 budget proposal. The Governor on June 20, 2014. Between that date and October proposed to make the first deposit in the BSA since 2014, the Governor signed 26 budget-related bills 2007-08. Total reserves under the budget plan were into law. The budget and related bills are detailed in to be $2.3 billion—$1.6 billion in the BSA and Figure 4. $693 million in the SFEU. The Governor proposed January Budget Proposed $2.3 Billion a new rainy-day fund measure that, with some Reserve. On January 9, 2014, the Governor released changes, later became Proposition 2. (Proposition 2 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET will be before the voters in November 2014.) The services programs. As a result, the May Revision budget proposal also paid down several billion proposed total reserves of $2.1 billion, down dollars of key liabilities, included large funding slightly from the January budget plan. Most increases under Proposition 98, proposed a notably, the May Revision contained a proposal to cap-and-trade spending plan, continued the fully fund the CalSTRS pension program within Governor’s multiyear plan for the universities, and 32 years. included $815 million for deferred maintenance Legislature Passes Budget Package. Our projects. office’s May 2014 revenue forecast was about February Drought Legislation. In February $2.5 billion higher than that of the administration 2014, the Governor signed two bills that for four fiscal years combined (2011-12 through appropriated a total of $687 million ($75 million 2014-15). Much of the higher revenues in our from the General Fund) to address the state’s forecast, however, resulted in increased General drought. This included funding for local water Fund requirements under Proposition 98, leaving supply projects, flood protection, groundwater little “bottom line” benefit for the rest of the management activities, and assistance programs Figure 4 for individuals affected by Selected Budget-Related Legislation the drought. (The 2014-15 Bill Number Chaptera Subject Budget Act provides an SB 852a 25 2014‑15 Budget Act additional $151 million— AB 1468 26 Public safety $123 million from the AB 1469a 47 CalSTRS funding plan AB 1476 663 Amendments to the 2014‑15 Budget Act General Fund—in mostly AB 1478 664 Public resources one-time funding for SB 853 27 Transportation other drought programs.) SB 854 28 State and local government SB 855 29 Human services May Revision SB 856 30 Developmental services Contained Higher SB 857 31 Health Revenue Forecast. The SB 858 32 Education SB 859 33 Local Control Funding Formula administration’s May SB 860 34 Higher education 2014 forecast included SB 861 35 Public resources about $2.4 billion in SB 862 36 Cap-and-trade spending plan SB 863 37 Correctional facilities higher General Fund and SB 865 38 Amendments to the 2013‑14 Budget Act Education Protection SB 869 39 School facilities Account revenues SB 870 40 Health SB 871 41 Property tax exemption for solar facilities compared with the SB 873 685 Human services amendments administration’s January SB 875 686 Public safety forecast. These revenues SB 876 687 Education SB 877 688 Correctional facilities were offset by higher SB 878 689 In-Home Supportive Services spending requirements SB 879 690 State employees: memoranda of understanding under Proposition 98 and SB 883a 691 West Contra Costa Healthcare District a Senate Bill 852 authored by Senator Leno. Assembly Bill 1469 authored by Assembly Member Bonta. various cost increases Senate Bill 883 authored by Senator Hancock. All other budget-related legislation was introduced by the Budget Committee in either the Assembly or the Senate. in health and human www.lao.ca.gov Legislative Analyst’s Office 5 2014-15 BUDGET budget. During budget hearings in late May, the on June 20, 2014. The Governor did not veto budget committees in the Assembly and Senate any General Fund appropriations, but vetoed adopted our office’s higher revenue estimates, as $38 million in appropriations from other funds. well as our office’s lower estimate of Medi-Cal Legislature Adopts Additional Budget-Related spending related to the federal Patient Protection Legislation. In August, the Legislature sent nine and Affordable Care Act. Both houses adopted a additional budget-related bills to the Governor. As broad set of spending augmentations, most notably passed by the Legislature, Chapter 663, Statutes of in the education and health and human services 2014 (AB 1476, Committee on Budget), increased areas of the budget. After negotiations with the the University of California and California Governor, however, the Legislature passed a budget State University budgets by $50 million each. package on June 15, 2014 that incorporated the Budget language stated that the augmentations administration’s lower revenue estimates and were for one-time purposes, including deferred excluded many of the augmentations that were maintenance. The Governor, however, used discussed in Conference Committee. his line-item veto authority to eliminate these Budget Package Signed by Governor. The augmentations. budget bill and most trailer bills were signed 6 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET CHAPTER 2 Spending Actions PROPOSITION 98 Calculating the Minimum Annual Funding attendance, the budget plan includes revised Requirement for Schools and Community estimates of the 2012-13 and 2013-14 minimum Colleges. Approved by voters in 1988, guarantees. We describe these changes in greater Proposition 98 establishes a minimum annual detail below. We then describe major factors funding requirement for schools and the California driving the estimate of the 2014-15 minimum Community Colleges (CCC). This funding level, guarantee. commonly known as the “minimum guarantee,” 2012-13 Minimum Guarantee Up $1.3 Billion is determined by one of three formulas. The From June 2013 Estimate. As shown in Figure 1 formulas—commonly called “tests”—take into (see next page), the revised estimate of the 2012-13 account various factors including General Fund minimum guarantee is $57.8 billion. This is an revenues, per capita personal income, and K-12 increase of $1.3 billion over the June 2013 estimate average daily attendance. The guarantee generally (and $4.3 billion above the 2012-13 Budget Act grows at least as quickly as the overall state estimate). Nearly all of the increase since June 2013 economy (as measured by per capita personal is due to General Fund revenues now being income). In some cases, the guarantee, however, $1.2 billion higher than prior estimates. Changes grows more slowly. In these years, the state creates in 2012-13 revenue estimates have a nearly dollar- an out-year obligation known as “maintenance for-dollar effect on the minimum guarantee. This factor.” In ensuing years, the state is required to is because Test 1 is operative and a maintenance pay off maintenance factor by increasing school factor payment is required. The remaining increase and community college funding to a level at least in the 2012-13 guarantee is due to local property as high as it would have been had the guarantee tax revenues being $101 million higher than was always grown with the economy. The guarantee is previously assumed. Because 2012-13 is a Test 1 met through a combination of state General Fund year, increases in property tax revenues increase the and local property tax revenues. minimum guarantee. Below, we describe how the minimum 2013-14 Minimum Guarantee Up $3 Billion guarantee has changed for 2012-13, 2013-14, and From June 2013 Estimate. The revised 2014-15. We then describe associated changes in estimate of the 2013-14 minimum guarantee is spending for schools and community colleges. $58.3 billion—$3 billion higher than the June 2013 estimate. This increase is primarily due to an The Minimum Guarantee increase in the year-to-year growth in per capita As a result of changes in General Fund General Fund revenues. The increase in General revenues, local property tax revenues, and student Fund revenues increases the minimum guarantee www.lao.ca.gov Legislative Analyst’s Office 7 2014-15 BUDGET by $2.9 billion. The minimum guarantee also reduction in the 2013-14 minimum guarantee increases by $80 million due to higher-than- (from what it would have been absent the spike expected growth in K-12 attendance. (Because protection provision). “Test 3” is operative in 2013-14, the guarantee 2013-14 Local Property Tax Revenues depends on the prior-year funding level adjusted Down $655 Million. The 2013-14 estimate of for growth in per capita General Fund revenues and local property tax revenues has decreased by K-12 attendance.) $655 million since the adoption of the 2013-14 2013-14 Guarantee Affected by “Spike Budget Act. Of the decline, $436 million is due to Protection” Provision. The 2013-14 minimum lower estimates of redevelopment agency property guarantee would have been higher if not for the tax revenues. The remaining $219 million is due to spike protection provision of Proposition 98. In a lower estimates of baseline property tax revenues. year when the minimum guarantee increases at a 2014-15 Minimum Guarantee Up $2.6 Billion much faster rate than per capita personal income, Over Revised 2013-14 Levels. The 2014-15 the spike protection provision excludes a portion minimum guarantee is $60.9 billion, an increase of Proposition 98 funding from the calculation of $2.6 billion over the revised 2013-14 estimate. of the minimum guarantee the subsequent year. The increase is primarily driven by an increase in This essentially prevents a portion of the prior-year General Fund revenue. Since Test 1 is operative in Proposition 98 appropriation from permanently 2014-15, the guarantee also increases due to growth increasing the minimum guarantee in future in local property tax revenues. years. The significant increase in the 2012-13 Changes in Maintenance Factor Obligation minimum guarantee triggered spike protection in Over Period. As shown in Figure 2, the state makes 2013-14—the first time the provision ever has taken a $5.2 billion maintenance factor payment in effect. The result was a corresponding $2.2 billion 2012-13—the largest maintenance factor payment Figure 1 Proposition 98 Funding (In Millions) 2013-14 2014-15 2012-13 June 2013 June 2014 Change From Revised Estimate Estimate Change Enacted 2013-14 Preschool $481 $507 $507 — $664 $157 K-12 Education General Fund $37,271 $34,730 $37,958 $3,229 $39,427 $1,469 Local property tax revenue 13,848 13,936 13,405 -531 14,089 684 Subtotals ($51,119) ($48,665) ($51,363) ($2,698) ($53,516) ($2,153) California Community Colleges General Fund $3,853 $3,741 $4,187 $446 $4,293 $105 Local property tax revenue 2,264 2,291 2,167 -124 2,309 141 Subtotals ($6,117) ($6,032) ($6,355) ($323) ($6,601) ($247) Other Agencies $78 $77 $78 $1 $77 — Totals $57,795 $55,281 $58,302 $3,021 $60,859 $2,557 General Fund $41,682 $39,055 $42,731 $3,676 $44,462 $1,732 Local property tax revenue 16,112 16,226 15,572 -655 16,397 826 8 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET ever made to date. This payment reduces the state’s schools and $498 million for community colleges). outstanding maintenance factor obligation from Of the total paydown, $1.4 billion is designated $11 billion to $5.8 billion. In 2013-14, $458 million as 2012-13 spending, $3.1 billion is designated as in new maintenance factor is created, as Test 3 is 2013-14 spending, and $662 million is designated operative and the minimum guarantee grows more as 2014-15 spending. Under the budget plan, slowly than the economy. In 2014-15, the state $992 million in deferrals ($897 million for schools makes another large maintenance factor payment and $94 million for community colleges) would ($2.6 billion). The state is expected to end the remain outstanding at the end of 2014-15. three-year period with an outstanding maintenance Eliminates Remaining Deferrals if Minimum factor of $4 billion. Guarantee Exceeds Estimates. The budget package pays down additional deferrals (potentially Crosscutting eliminating all outstanding deferrals) if subsequent K-14 Spending Changes estimates of the 2013-14 and 2014-15 minimum As discussed above, funding for K-14 guarantees are higher than the administration’s education increases significantly under the new May 2015 estimates. Effectively, the budget plan budget package. In the sections that follow, we earmarks the first $992 million in potential describe how the state is spending these funds. additional 2013-14 and 2014-15 spending for We first describe crosscutting actions—deferrals, deferral paydowns. mandates, energy projects, and the Quality Education Investment Act (QEIA)—that affect both Figure 2 schools and community Maintenance Factor Paid and Created Over Period colleges. We then describe (Dollars in Millions) proposals specific to 2012-13 2013-14 2014-15 schools, followed by the Operative Test 1 3 1 proposals specific to Maintenance factor created/paid (+/-) -$5,155 $458 -$2,583 community colleges. A Outstanding maintenance factor 5,844 6,622 4,017 discussion of preschool funding is included in Figure 3 the “Child Care and State Paying Down Nearly All Remaining Deferrals Preschool” section of this (In Millions) report. K-12 Community Education Colleges Totals Deferral Payments Outstanding Deferrals at End of 2013-14 $5,571 $592 $6,164 Pays Down Paydowns scored to: $5.2 Billion in 2012-13 $1,295 $139 $1,433 2013-14 2,781 296 3,077 Outstanding Deferrals. 2014-15 599 63 662 As Figure 3 shows, the Total Paydowns $4,674 $498 $5,172 budget package pays down Outstanding Deferrals at End of 2014-15a $897 $94 $992 $5.2 billion in outstanding a If the combined 2013-14 and 2014-15 minimum guarantees exceed budgeted amounts, the additional funds would be used first deferrals ($4.7 billion for to pay down remaining deferrals. www.lao.ca.gov Legislative Analyst’s Office 9 2014-15 BUDGET Mandates public buildings. The 2014-15 budget provides $345 million Proposition 98 General Fund for Pays Down $450 Million in Outstanding Proposition 39 school and community college Education Mandate Claims. We estimate the state energy programs. Specifically, the budget provides currently has a backlog of more than $5 billion in $279 million for school grants, $38 million for unpaid claims for education mandates. The budget community colleges grants, and $28 million for includes $400 million to reduce the mandate the revolving loan program for both schools and backlog for schools. (Of this amount, $287 million community colleges. (Estimates of Proposition 39 is 2014-15 Proposition 98 funding and $113 million revenues are lower in 2014-15 compared to is from unspent prior-year fund.) The budget 2013-14, resulting in less provided for school includes $50 million to reduce the backlog for and community college grants.) The budget also community colleges (all 2014-15 Proposition 98 provides $8 million non-Proposition 98 General funding). Funds will be distributed to schools and Fund for Proposition 39 job-training programs community colleges on a per-student basis. administered by the California Conservation Adds Several Mandates to School and Corps ($5 million) and the California Workforce Community College Block Grants. The Investment Board ($3 million). Commission on State Mandates recently approved seven new reimbursable education mandates. Six Chapter 751 Obligation of these mandates apply to schools, two apply Makes Final $410 Million Payment on to community colleges, and one applies to both Outstanding Proposition 98 Obligations From schools and community colleges. For schools, 2004-05 and 2005-06. The 2014-15 budget makes the budget adds to the block grant mandates a final $410 million payment to retire the state’s related to (1) parental involvement procedures, obligation set forth in Chapter 751, Statutes of (2) compliance activities associated with the 2006 (SB 1133, Torlakson). Chapter 751 required Williams v. California case, (3) uniform complaint the state to provide additional annual school procedures, (4) developer fees, (5) charter school and community college payments until a total of oversight, and (6) public contracts. For community $2.8 billion had been provided. Of the amount colleges, the budget repeals one mandate related provided in the budget package, $316 million to certain information included in infrastructure is for continued funding of the QEIA program plans and adds to the block grant one mandate ($268 million for schools and $48 million for related to public contracts. The budget does not community colleges) and $94 million is to pay increase funding for either block grant as the added down a separate state obligation related to school costs are expected to be minimal. facility repairs. Energy Grants K-12 Education State Provides Second-Year Funding As shown in Figure 4, the largest K-12 for Energy Projects. Passed by voters in augmentation is for the second-year phase in of the November 2012, Proposition 39 increases state recently adopted Local Control Funding Formula corporate tax revenues and requires for a five-year (LCFF). The budget also includes several other period, starting in 2013-14, that a portion of these school-specific augmentations—some of which revenues be used to improve energy efficiency relate to school operations and some of which relate and expand the use of alternative energy in 10 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET to school infrastructure. In addition to these budget Management Assistance Team (FCMAT), an actions, the Legislature adopted trailer legislation agency that provides fiscal advice and support relating to school district reserves and independent to school districts. Since the adoption of LCFF, study (IS) programs. The budget also includes FCMAT has developed and maintained an online augmentations for additional staff and workload at LCFF calculator, created an LCFF Help Desk to the California Department of Education (CDE) and respond to questions from districts and charter California School Finance Authority (CSFA). We schools, and developed a new regional training discuss these K-12 changes Figure 4 below. Proposition 98 Spending Changes Operational Funding (In Millions) Provides $4.7 Billion Revised 2013-14 Spending $58,302 for LCFF Implementation. Technical Adjustments Remove prior-year deferral payments -$3,349 The budget plan includes Remove other one-time funds -468 $4.7 billion in additional Fund QEIA outside of Proposition 98 -361 funding for the school Adjust energy efficiency funds -112 Make other adjustments 11 district LCFF—resulting Subtotal (-$4,278) in per-pupil LCFF K-12 Education funding that is 12 percent Fund LCFF increase for school districts $4,722 higher than 2013-14 Pay down deferrals (one time) 599 Pay down mandate backlog (one time)a 287 levels. The additional Provide additional funding for CTE pathways 250 funding is sufficient to Increase funding for pupil testing 54 close 29 percent of the Provide 0.85 percent COLA for select programsb 33 Fund LCFF increase for COEs 26 gap between districts’ Increase FCMAT funding 1 2013-14 funding levels Subtotal ($5,971) and their target funding Preschool $157 rates. We estimate the California Community Colleges 2014-15 funding level is Augment Student Success and Support program $170 Fund maintenance and instructional support (one time) 148 approximately 80 percent Fund 2.75 percent enrollment growth 140 of the full implementation Pay down deferrals (one time) 63 cost. The budget also Increase CTE funding (one time) 50 Pay down mandate backlog (one time) 50 includes $26 million Provide 0.85 percent COLA for apportionments 47 for the LCFF for county Augment funding for Disabled Students Programs and Services 30 offices of education Fund Internet equipment (one time) and connectivity 6 Fund community college technical assistance initiative 3 (COEs). This increase Subtotal ($707) is sufficient to bring all Total 2014-15 Changes $2,557 COEs up to their LCFF 2014-15 Proposition 98 Spending Level $60,859 funding targets in 2014-15. a Does not include $113 million in mandate claims paid from prior-year unspent Proposition 98 funds. b The budget also provides Includes Foster Youth Services, American Indian Centers, American Indian Early Childhood Education, Special Education, and Child Nutrition. a $500,000 augmentation QEIA = Quality Education Investment Act; LCFF = Local Control Funding Formula; CTE = career technical education; COLA = cost-of-living adjustment; COEs = county offices of education; and for the Fiscal Crisis and FCMAT = Fiscal Crisis and Management Assistance Team. www.lao.ca.gov Legislative Analyst’s Office 11 2014-15 BUDGET program to assist districts in budget development Allocates $27 Million in One-Time Funds using the LCFF calculator. The additional funding for School Internet Infrastructure. The budget is intended to provide ongoing support for these includes $27 million in one-time Proposition 98 activities. funding for schools to purchase Internet More Funding for Career Pathways Trust. connectivity infrastructure upgrades required to The 2013-14 budget package provided $250 million administer new computer-based tests. Grantees are in one-time Proposition 98 funding to create a to be selected based on the results of a statewide “California Career Pathways Trust.” The CDE assessment of schools’ Internet connectivity received a total of 123 eligible applications. In infrastructure to be completed by the K-12 May 2014, CDE announced the 39 winners of the High-Speed Network (HSN) by March 1, 2015. (The grant competition. The 2014-15 budget provides an HSN is run through the Imperial COE, which has additional $250 million in one-time Proposition 98 an ongoing contract with CDE to assist schools funding for the program. The trailer legislation with certain technology issues.) The HSN, with allows CDE to set aside up to 1 percent of this the approval of the Department of Finance (DOF), appropriation for planning grants or to contract may use a portion of the grant funds to conduct the with a local educational agency (LEA) to provide statewide assessment. The HSN, with the approval technical assistance to grant applicants and of CDE and the Executive Director of the State recipients. Board of Education (SBE), also may distribute some Other Notable K-12 Actions. The budget grants to schools prior to the completion of the provides $54 million to continue implementation of statewide assessment. These expedited grants are new student assessments and $33 million to provide for critical projects, with priority going to schools a cost-of-living adjustment (COLA) for several K-12 (1) currently unable to administer computer-based programs (including special education and child assessments and (2) having the greatest number nutrition programs). of students that would be able to take computer assessments as a result of the grant. Infrastructure Shifts Remaining Bond Authority Among Allocates $189 Million for Emergency Repair Certain School Facility Programs. The budget Program (ERP). Chapter 899, Statutes of 2004 package shifts remaining bond authority from (SB 6, Alpert), created the ERP to fund critical the Career Technical Education (CTE) and repair projects at certain low-performing schools. High Performance Incentive (HPI) school Chapter 899 requires the state to contribute a total facility programs to the New Construction and of $800 million for the program. The state has Modernization facility programs. Bond authority provided $338 million to date. The budget provides is transferred on January 1, 2015 and split equally $189 million for the ERP in 2014-15 ($94 million between the New Construction and Modernization from unspent prior-year funds, $94 million from programs. (As of June 25, 2014, the CTE and HPI the state’s Chapter 751 obligation discussed above, programs have $4.1 million and $32.9 million, and $436,000 from the School Building Aid Fund). respectively, in remaining bond authority.) In A $273 million obligation would remain. Funds are addition, trailer legislation requires the Office allocated to school districts that have unfunded of Public School Construction to report to the claims for emergency repairs from the most recent State Allocation Board and the Legislature by (2008) award cycle. March 1, 2015 on efforts to streamline and speed 12 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET up the award of the remaining $148 million in the of a district’s annual expenditures. As with the Seismic Mitigation school facility program. requirement for disclosing reserves, the cap applies to unassigned and assigned funds combined. Local Reserves Chapter 32 allows COEs to exempt school districts Requires School Districts to Disclose and from the cap for up to two consecutive years if Justify Reserves. Chapter 32, Statutes of 2014 districts demonstrate that they face “extraordinary (SB 858, Committee on Budget and Fiscal Review), fiscal circumstances,” including undertaking creates new disclosure requirements effective multiyear infrastructure or technology projects. beginning in 2015-16 for districts that have reserves Independent Study exceeding state-recommended minimums. (State regulations recommend minimum reserves for Reduces Administrative Requirements for IS most school districts that range from 1 percent to Programs. Existing IS programs allow students 5 percent of their annual expenditures. The exact to earn credit for academic work they complete percentage depends on the size of the district, independently under a written learning contract. with higher requirements for smaller districts.) For purposes of allocating per-pupil funding, If a district’s budget reserve exceeds the state the state requires a student’s teacher to equate minimum, Chapter 32 requires the district to every assignment to an equivalent amount of identify the amount of reserves that exceed the classroom instructional time. Trailer legislation minimum and explain why the higher reserve allows local governing boards, beginning in levels are necessary. The district must disclose this 2015-16, to approve entire IS courses (rather than information in a public meeting and each time it individual assignments) as equivalent to a given submits a budget to its COE. For the purpose of this amount of instructional time. The local governing requirement, “reserves” includes both “unassigned” board is required to certify these courses are of funds set aside for unanticipated developments the same quality as classroom-based courses and as well as “assigned” funds set aside for specific meet relevant state and local academic standards. local purposes (such as for purchasing textbooks). Students enrolled in these courses need to Available data from 2012-13 indicate that virtually demonstrate “satisfactory academic progress,” as all districts maintain reserves that exceed the state- determined twice each month by a teacher. For specified minimums, thereby making them subject funding purposes, if more than 10 percent of the to the new disclosure requirements. students attending an individual school district, Caps Local Reserves Some Years if COE, or charter school participate in the new IS Proposition 2 Passes. Proposition 2 on the option, per-pupil funding for students exceeding November 2014 ballot sets forth new constitutional the 10 percent threshold will be reduced by the provisions relating to state reserves, including statewide average absence rate for students in provisions relating to a new state reserve for grades K-8 or 9-12, whichever is applicable. schools. If voters approve Proposition 2, certain (While CDE has not yet determined how these provisions of Chapter 32 go into effect. These absence rates will be calculated, we estimate the provisions cap school districts’ reserve levels reduction at 3 percent to 6 percent of a district’s the year after the state makes a deposit into the per-pupil funding.) This provision is intended new state reserve for schools. The caps for most to discourage LEAs from converting their entire districts will range from 3 percent to 10 percent academic program to the new IS option. Beginning www.lao.ca.gov Legislative Analyst’s Office 13 2014-15 BUDGET in 2014-15, IS programs also are allowed to store federal funds) to fund the first year of the certain student records electronically and extend Standardized Account Code Structure (SACS) written learning contracts across an entire school Replacement Project. The department uses the year rather than a single semester. SACS system to collect, review, and disseminate Modifies IS Student-Teacher Ratio financial data from LEAs. The project will replace Requirements. The state historically has required four out-of-date, offline SACS interfaces with a new, the ratio of students to teachers in a school district integrated interface that can be accessed online. IS program be no greater than the districtwide The CDE is expected to select a vendor to develop average student-teacher ratio. (Slightly different the new SACS interface and complete a Special rules apply to COEs and charter schools.) The Project Report (SPR), which will include new cost trailer legislation maintains this basic approach but and timeline estimates, by the fall of 2014. requires separate calculations by grade span—K-3, Provides $4.5 Million for CDE to Create 4-6, 7-8, and 9-12. (For example, the ratio Materials for Visually Impaired Students. The requirement for IS programs serving grades 9-12 is budget redirects $4.5 million in federal special based on the districtwide average student-teacher education funds for CDE to maintain and add ratio for grades 9-12.) The trailer legislation allows to its centralized clearinghouse of accessible the ratio requirement to be waived if an alternative instructional materials for students who are blind ratio is negotiated as part of a local collective or visually impaired. (Prior to the adoption of bargaining agreement. LCFF, this activity was funded with Proposition 98 funds.) The CDE produces, stores, and loans California Department of Education materials based on district requests. Authorizes 22.2 New CDE Positions. Of California School Finance Authority the 22.2 new CDE positions, 12.2 positions are permanent and 10 positions are limited term. Provides $167,000 for Two New Positions at The budget includes $2.9 million for the new CSFA. The budget provides CSFA with $167,000 positions—$1.9 million state non-Proposition 98 in non-Proposition 98 General Fund and two General Fund and $1 million federal funds. The additional positions for the administration of additional staff is associated with various increases the Charter School Facility Grant Program. This in CDE workload, including: implementing augmentation increases the number of full-time LCFF and Local Control and Accountability Plan staff dedicated to reviewing charter school funding requirements, developing in-house expertise applications from one to three. The additional staff in computer-based testing, administering the is intended to address the workload associated second round of Career Pathways Trust grants, with (1) an increase in the number of funding administering the expanded State Preschool applications (from about 200 in 2008-09 to more program, and undertaking additional work related than 300 in 2013-14), and (2) statutory changes to the federal Migrant Education Program. enacted last session that require a larger share of Provides $6.1 Million for New Information funding to be allocated to schools earlier in the Technology (IT) Project. The budget also fiscal year as well as the final allocation to be made provides CDE with $6.1 million ($3.6 million within one month of the close of each fiscal year. non-Proposition 98 General Fund and $2.5 million 14 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Community Colleges for support of all students and is distributed to community colleges based on enrollment— As shown in the bottom part of Figure 4, the consistent with the existing SSSP allocation 2014-15 budget funds CCC enrollment growth method. The remaining $70 million is for districts and a COLA as well as augments funding for a to serve “high need” (primarily low-income) number of CCC categorical programs. The budget students. The Chancellor’s Office is tasked with also provides additional staff and funding for the developing a method for allocating these latter Chancellor’s Office. In addition, the budget package monies to districts. The intent is for districts to use (1) increases funding for specified noncredit these funds to provide supplemental services— courses beginning in 2015-16, (2) provides financial beyond base services provided by regular SSSP support to City College of San Francisco (CCSF), dollars—to reduce any achievement gaps identified and (3) appropriates bond monies for eight capital by colleges in their student equity plans. (The outlay projects. Chancellor’s Office is requiring colleges to complete Enrollment Growth and COLA their equity plans by November 2014.) Deferred Maintenance and Instructional Funds Enrollment Growth, Requires New Support. The budget provides $148 million (one Growth Allocation Formula, and Provides COLA. time) for the Physical Plant and Instructional The 2014-15 budget includes $140 million to fund Support program. This program funds facility 2.75 percent enrollment growth equating to an maintenance projects as well as replacement of additional 30,000 full-time equivalent (FTE) instructional equipment and library materials. The students. The budget package also requires the 2014-15 budget deviates from the historic practices Chancellor’s Office to implement a new enrollment of (1) splitting the categorical funds evenly between growth allocation formula by 2015-16. (Regulations maintenance and instructional equipment/ related to the system’s allocation formula expired materials and (2) requiring a local match. Instead, several years ago.) In addition, the budget provides districts can decide for themselves how much they $47 million for a 0.85 percent COLA for general spend for each purpose and do not need to provide purpose apportionment funding. local matching funds. Categorical Programs CTE. The budget provides a $50 million increase (one time) for the Economic Development As detailed below, the 2014-15 budget provides program (bringing total 2014-15 funding for the $407 million in augmentations for various CCC program to $73 million). The funds are provided categorical programs. Of that total, $207 million is for various CTE-related purposes, including designated for ongoing purposes and $200 million purchasing instructional equipment and developing for one-time purposes. curriculum. Provisional language specifies that Student Success and Support Program (SSSP). funds are to be allocated on a formula basis to The 2014-15 budget augments funding for SSSP existing regional consortia of CCC districts. by $170 million (bringing total SSSP funding up Districts within each region must develop a plan to $269 million). The program provides various for spending the funds. In addition, the Legislature support services, such as academic counseling adopted supplemental language requiring the and orientation for incoming students. Of the Chancellor’s Office to report to the Legislature by $170 million augmentation, $100 million is March 1, 2015 on how districts spent their funds. www.lao.ca.gov Legislative Analyst’s Office 15 2014-15 BUDGET The report is to include recommendations for a $1.1 million (non-Proposition 98 General Fund) (1) measuring student outcomes associated with augmentation to add nine permanent positions this funding as well as (2) providing “appropriate at the Chancellor’s Office in support of the new funding levels” for CTE moving forward. technical assistance initiative discussed above. Disabled Students Programs and Services. The Specifically: 2014-15 Budget Act includes a $30 million increase • Four positions are charged with for programs that provide support services and (1) developing new performance measures educational accommodations to CCC students with for districts and colleges in the areas of disabilities. This augmentation brings total funding academic affairs, student services, CTE, for the program up to $114 million. and finance; and (2) identifying and Telecommunications and Technology disseminating best practices. Services. The budget augments by $6 million the Telecommunications and Technology Services • Two positions are to assist districts and program (bringing total 2014-15 funding up to colleges with improving their performance $22 million). Of the $6 million, $1.4 million is in areas such as transfer education and one-time funding for community colleges to student support services. replace outdated routers and other networking- • Three positions are assigned to the related equipment and $4.6 million is ongoing Technology, Research, and Information funding to operate primary and backup internet Systems Division to: (1) provide data in connections at every campus. support of the above positions, (2) help New Technical Assistance Initiative. The develop systemwide and college-level budget provides $2.5 million for technical performance goals, and (3) handle the assistance to CCCs in the areas of academic affairs, logistics of assembling technical assistance student services, CTE, and finance. Under the teams. new initiative, colleges can request assistance directly or the Chancellor’s Office can initiate Funds for Moving-Related Costs. The budget intervention. If colleges ask for assistance, they are provides $500,000 (non-Proposition 98 General required to provide a local match ($1 for every $2 Fund) to cover Chancellor’s Office moving costs. In in state support). If the Chancellor’s Office initiates 2014-15, the Chancellor’s Office plans to consolidate intervention, no local match is required. In either space and move all personnel to a different floor in case, the intent is for the Chancellor’s Office to the same office building in Sacramento. The move contract with teams of community college experts is intended to result in future savings. At least (such as leading faculty) to consult with colleges in 30 days prior to releasing the $500,000, DOF must need of help. Beginning in 2015-16, the Chancellor’s report to the JLBC on the specific cost components Office must provide an annual report to the Joint of the move. Legislative Budget Committee (JLBC) and DOF on Noncredit Instruction prior-year use of funds. Increases Funding for Certain Noncredit Chancellor’s Office Courses to Credit Rate Beginning in 2015-16. Funds Nine New Positions for Technical Historically, the state has provided one funding Assistance Initiative. The 2014-15 budget provides rate for credit instruction and two lower funding 16 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET rates for noncredit instruction. Of the two ACCJC has since indicated that it will consider noncredit rates, community colleges receive more maintaining CCSF’s accreditation status for for noncredit “career development and college up to two years while the college implements a preparation” (CDCP) courses that lead to noncredit comprehensive improvement plan.) certificates (such as a certificate of completion in Budget Conditionally Provides CCSF With medical assisting). Regular noncredit instruction, Three Extra Years of Stability Funding. Trailer which includes courses such as home economics legislation includes language intended to mitigate and parenting, receives the lower of the two the amount of funding CCSF loses as a result of noncredit rates. Trailer legislation increases the this enrollment decline. Specifically, to the extent funding rate for CDCP instruction to the credit rate CCSF’s enrollment in 2014-15 fails to grow back beginning in 2015-16 (at an annual cost of about to its 2012-13 level (and the college maintains its $50 million). The legislation requires the Legislative accreditation status), the college will receive a Analyst’s Office (LAO) to report to the Legislature second year of full stability funding. In addition, by March 1, 2017 on the effect of this funding the trailer legislation would provide 95 percent change. The report is to include data on the extent of stability funding in 2015-16 and 90 percent of to which community colleges respond to the higher stability funding in 2016-17. (Stability funds in rate by offering more CDCP courses. 2016-17 are conditioned on FCMAT making several determinations beforehand, including ensuring City College of San Francisco that “effective fiscal controls and systems are in Accreditation Issues Lead to Declining place” at CCSF and that the college is maintaining Enrollment at CCSF. In 2013-14, CCSF enrollment “appropriate fiscal reserves.”) The trailer legislation declined by about 6,500 FTE students (falling requires that CCSF submit to the Legislature, about 20 percent short of its enrollment target). As LAO, Governor, and DOF regular updates on a result, CCSF received $29 million in “stability” its accreditation status, enrollment, and fiscal funding. (See the nearby box for a detailed condition. The first report is due April 15, 2015. explanation of stability funding.) This precipitous CCC Capital Outlay enrollment decline followed the decision last year by the Accrediting Commission for Community Provides Bond Funding for Eight CCC Capital and Junior Colleges (ACCJC) to terminate the Outlay Projects. The 2014-15 budget appropriates college’s accreditation effective July 2014. (The a total of $21 million in general obligation bond State Provides Some Districts With “Stability Funding” State law allows a district that fails to meet its enrollment target to keep enrollment funding for unfilled slots for that year. This is known as stability funding. In the following year, districts lose from their base budget any funding associated with slots that remain unfilled. Although individual districts lose funding in these cases, the same amount of funding remains in the community college system’s base budget for three years. Statute allows districts to “restore” their enrollment funding base if they can regain lost enrollment within that three-year period. At the end of each year, any of this funding not used for restoration is available to the system for one-time purposes, such as covering shortfalls in local property tax or student fee revenues. www.lao.ca.gov Legislative Analyst’s Office 17 2014-15 BUDGET funding for one continuing CCC project and College, (2) replacement of utility infrastructure seven new CCC projects. Future state costs for at the College of the Redwoods’ Eureka campus, these projects are expected to total an additional (3) a new instructional building at the El Camino $102 million. (In addition, community colleges are College Compton Center, (4) a new fire alarm expected to contribute $21 million in local funds system at Mt. San Jacinto College, (5) upgrades to over the life of these projects.) The eight projects a tower at Rio Hondo College, (6) a new building include renovations to the Solano College theater to accommodate enrollment growth at the building (construction phase) and preliminary Sacramento City College Davis Center, and (7) a plans and working drawings for the following new campus center at Santa Barbara City College. projects: (1) renovations to a building at Citrus CHILD CARE AND PRESCHOOL Budget Act Provides $2.4 Billion for $1.8 billion and $664 million for child care Child Care and Preschool Programs. As and preschool programs, respectively. This is shown in Figure 5, the 2014-15 budget includes a total of $281 million (13 percent) more than Figure 5 Child Care and Preschool Budget (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Actual Reviseda Budget Act Amount Percent Child Care CalWORKs Child Care Stage 1 $289 $337 $372 $35 10% Stage 2b 419 367 355 -13 -3 Stage 3 162 202 220 18 9 Subtotals ($870) ($906) ($946) ($40) (4%) Non-CalWORKs Child Care General child care $465 $464 $544 $80 17% Alternative payment 174 177 182 5 3 Other child care 28 28 29 1 4 Subtotals ($666) ($669) ($755) ($86) (13%) Support Programs $76 $74 $73 -$2 -2% Totals $1,612 $1,650 $1,774 $124 8% State non-Proposition 98 General Fund $765 $763 $850 $87 11% Other state funds 14 — — — — Federal CCDF 549 556 570 14 2 Federal TANF 285 330 353 23 7 State Preschool (Proposition 98) $481 $507 $664 $157 31% a Totals reflect midyear funding shifts from non-CalWORKs programs to augment Stage 2 by $9.4 million and Stage 3 by $19.1 million to address shortfalls. b Does not include $9.2 million provided to the California Community Colleges for Stage 2 child care. CCDF = Child Care and Development Fund and TANF = Temporary Assistance for Needy Families. 18 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the revised 2013-14 funding level. Most of the days each year. The additional 7,500 slots support a increase is covered by higher Proposition 98 and minimum of 6.5 hours of care per day for no fewer non-Proposition 98 General Fund support, with than 245 days each year.) In addition to the 7,500 federal funds increasing $37 million. new slots, $3 million is provided for 4,000 more Higher Spending Almost Entirely Attributable full-day State Preschool slots beginning June 15, to Program Augmentations. Programmatic 2015. augmentations account for $255 million of Three Other Changes to State Preschool the year-to-year increase, with caseload and Program. The budget provides $25 million statutory growth adjustments comprising the (Proposition 98 General Fund) to increase the remainder of the increase. As shown in Figure 6, Standard Reimbursement Rate (SRR) for State the largest programmatic augmentations are for Preschool by 5 percent, bringing the part-day the State Preschool program. We discuss these State Preschool rate to almost $3,900 annually. augmentations and caseload adjustments in greater In addition, trailer legislation repeals family fees detail below. for the part-day State Preschool program, and Legislature Expands State Preschool the budget provides $15 million (Proposition 98 Program. Budget trailer legislation—Chapter 32, General Fund) to backfill the foregone revenue. Statutes of 2014 (SB 858, Committee on Budget Lastly, the budget provides $10 million and Fiscal Review)—states legislative intent to (Proposition 98 General Fund) for loans to LEAs provide preschool opportunities for all low-income to renovate existing preschool facilities or purchase children. For 2014-15, the budget package provides new relocatable preschool facilities. $67 million to add 7,500 full-day, full-year State Budget Provides Funding for Quality Preschool slots, bringing the total number of Initiatives. The budget dedicates $50 million State Preschool slots to almost 150,000. Of this Figure 6 augmentation, $29 million Major 2014-15 Child Care and Preschool Spending Changes (Proposition 98 General (In Millions) Fund) covers the cost of Change Amount the additional slots for the part-day program. The Provide 7,500 additional full-year, full-day State Preschool slotsa $70 Provide QRIS grants for State Preschool 50 remaining $38 million Increase the SRR by 5 percent 49 (non-Proposition 98 Caseload adjustmentsb 26 General Fund) is provided Fund quality improvement activities (one time) 25 Increase the RMR by 9 percentc 19 through the General Child Repeal part-day State Preschool fees and backfill foregone revenue 15 Care program that covers Provide 1,000 additional General Child Care slots 13 the cost of the remainder Provide additional facilities loans for State Preschool 10 Provide 500 additional Alternative Payment Program slots 4 of the full-day program Totals $281 as well as additional days a Includes funding for an additional 4,000 full-day slots beginning June 15, 2015. of care. (The part-day b Includes CalWORKs caseload changes and higher per-child costs as well as 0.49 percent statutory growth for State Preschool, General Child Care, and Alternative Payment Program. State Preschool program c The weighted average increase in the RMR is 9 percent. Actual increases vary by county and provider type. Rate increase begins January 1, 2015. operates a minimum of QRIS = Quality Rating and Improvement System; SRR = standard reimbursement rate; and 3 hours per day for 175 RMR = regional market rate. www.lao.ca.gov Legislative Analyst’s Office 19 2014-15 BUDGET ongoing Proposition 98 General Fund for local Payment Program, increases its cap to the 85th Quality Rating and Improvement Systems (QRIS) percentile of the 2009 regional market survey designed to improve the quality of State Preschool. reduced by just over 10 percent (costing $19 million To date, local QRIS activities—which evaluate non-Proposition 98 General Fund). The RMR the quality of child care and preschool programs increases go into effect starting January 1, 2015. (In based on teacher qualifications, curriculum, and 2013-14, the RMR cap was set at the 85th percentile other metrics—have been supported by local and of the 2005 regional market survey.) The budget federal resources. The new state-supported QRIS also provides $17 million (non-Proposition 98 grants build upon these existing efforts by funding General Fund) to provide 1,000 additional General additional professional development and stipends. Child Care slots and 500 additional Alternative Local consortia can apply for the new QRIS grants Payment Program slots. and locally determine how to distribute the funding CalWORKs Child Care Caseload Increases to preschool providers within their area. The Slightly. Overall, CalWORKs child care caseload budget provides an additional $25 million one-time increases by almost 5,000 slots, primarily due to Proposition 98 General Fund for professional more families projected to participate in welfare- development and stipends for transitional to-work activities and projected to use Stage 1 child kindergarten and State Preschool teachers. care. In conjunction with the increase to the RMR Other Child Care Programs Receive (described above) and higher cost of care per child, Modest Increases. The budget package increases spending for the CalWORKs child care program reimbursement rates for all other child care increases by $40 million in 2014-15. Per-child costs programs. The SRR for General Child Care rose from 2012-13 to 2013-14 due to more families increases by 5 percent (costing $24 million choosing licensed child care settings, which is non-Proposition 98 General Fund). The Regional reimbursed at a higher rate than license-exempt Market Rate (RMR), used for California care provided by family, friends, and neighbors. Work Opportunity and Responsibility to Kids Given families’ improved economic conditions, the (CalWORKs) child care and the Alternative state expects this trend to continue in 2014-15. HIGHER EDUCATION Large General Fund Increase, Smaller swaps whereas $980 million reflects program Overall Increase. The budget provides a total of augmentations. Tuition and fee revenue remains $19.8 billion in support for higher education in flat over the period. Local property tax revenue 2014-15—a $1.1 billion (6 percent) increase from for the community colleges is expected to increase 2013-14. Of this amount, $12.6 billion is from the by $141 million (7 percent). Funding from other state General Fund, $3.9 billion is tuition and fee sources declines notably, with a $164 million revenue, $2.3 billion is local property tax revenue, reduction in federal Temporary Assistance for and $1 billion comes from other sources. As Needy Families (TANF) funds and a $98 million Figure 7 shows, General Fund support increases reduction in Student Loan Operating Fund (SLOF) $1.2 billion (11 percent) from 2013-14. Of this support. In recent years, both TANF and SLOF amount, $257 million is associated with fund monies have offset a portion of Cal Grant costs. 20 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Figure 7 Higher Education Core Funding (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Revised Revised Enacted Amount Percent University of California General Funda $2,566 $2,844 $2,991 $146 5% Net tuitionb 2,525 2,605 2,651 46 2 Other UC core fundsc 351 344 331 -13 -4 Lottery 30 38 38 — — Subtotals ($5,471) ($5,831) ($6,010) ($179) (3%) California State University General Funda $2,473 $2,789 $2,966 $177 6% Net tuitionb 2,009 2,014 2,055 41 2 Lottery 40 56 57 1 2 Subtotals ($4,522) ($4,859) ($5,078) ($219) (5%) California Community Colleges General Funda $4,219 $4,576 $4,732 $156 3% Local property tax 2,264 2,167 2,309 141 7 Fees 425 410 423 13 3 Lottery 157 182 182 — — Subtotals ($7,065) ($7,335) ($7,645) ($310) (4%) Hastings College of the Law Net tuitionb $33 $33 $30 -$2 -7% General Funda 9 10 11 1 12 Subtotalsd ($42) ($42) ($41) (-$1) (-3%) California Student Aid Commission General Fund $671 $1,056 $1,585 $529 50% SLOF 85 98 — -98 -100 TANF funds 804 542 377 -164 -30 Other 29 30 36 6 19 Subtotals ($1,589) ($1,726) ($1,998) ($272) (16%) California Institute for Regenerative Medicine General Funda $53 $99 $277 $177 179% Awards for Innovation in Higher Education General Fund — — $50 $50 N/A Totalse $17,686 $18,722 $19,835 $1,113 6% General Fund $9,991 $11,374 $12,611 $1,237 11% Net tuition/feese 3,936 3,892 3,895 3 — Local property tax 2,264 2,167 2,309 141 7 Other 1,269 1,014 744 -270 -27 Lottery 228 275 276 1 — a Includes general obligation bond debt service. For CSU, includes health benefit costs for retirees. For CCC, includes state contributions to CalSTRS and Quality Education Investment Act funds. b Reflects tuition after discounts provided through institutional financial aid programs from all sources. In 2014-15, UC, CSU, and Hastings plan to provide $1 billion, $665 million, and $12 million, respectively, in discounts. c Excludes typical end-of-year balances carried forward. d Hastings receives about $200,000 in Lottery funds. e Does not include UC and CSU tuition paid from Cal Grant awards. Those monies are included in General Fund. SLOF = Student Loan Operating Fund and TANF = Temporary Assistance for Needy Families. www.lao.ca.gov Legislative Analyst’s Office 21 2014-15 BUDGET Below, we describe 2014-15 funding for the The budget sets no enrollment expectations and University of California (UC), Hastings College of includes no funding specifically designated for the Law (Hastings), and California State University enrollment growth. As discussed in the nearby (CSU). (See the “Community Colleges” section box, the budget includes a new requirement for of this report for budget information on CCC.) UC and CSU (but not Hastings) to adopt annual We then describe the new Awards for Innovation “sustainability plans.” These were proposed by the in Higher Education as well as major changes in Governor in an effort to encourage the universities financial aid funding. to adopt internal budget plans consistent with the state’s multiyear funding plan. UC, CSU, and Hastings Provides $3 Billion in General Fund Support Continues Main Aspects of Governor’s for UC. This is an increase of $146 million Multiyear Funding Plan for UC, CSU, and (5 percent) from 2013-14. Of this increase, Hastings. The 2014-15 budget effectively funds the $142 million is ongoing and the remaining second-year of the Governor’s four-year funding $4 million is one time. Though most of UC’s plan for the universities. Specifically, the budget General Fund support is unallocated, the provides General Fund base increases for each budget designates a small portion for defined segment that are almost entirely unallocated— purposes. Specifically, it earmarks (1) $4 million giving the segments broad discretion over how to ($2 million ongoing and $2 million one time) to spend the funds. The budget implicitly assumes no support two UC centers on labor research and tuition increases for California students, as all three education, (2) $2 million (one time) to support segments indicate their intent to continue a tuition a new brain research program, and (3) $677,000 freeze in exchange for the base budget increases. (ongoing) for an elections database housed at the Sustainability Plans for UC and CSU Requires University of California (UC) and California State University (CSU) to Adopt Plans Based on Governor’s Multiyear Funding Assumptions. Provisional budget language requires the UC and CSU governing boards to adopt three-year sustainability plans by November 30, 2014. The universities are required to project their expenditures for each year from 2015-16 through 2017-18 and describe changes needed to ensure expenditures do not exceed available resources. The universities are to use General Fund and tuition assumptions provided by the Department of Finance (DOF) in estimating available resources. In addition, the segments are required to project resident and nonresident enrollment for each of the three years and set targets for each of the performance measures approved as part of the 2013-14 budget package. These measures relate to enrollment, student progress, graduation, degrees awarded, funding per degree, and efficiency, with several of the measures disaggregated for undergraduate and graduate students; transfer students; low-income students; and students in science, technology, engineering, and mathematics disciplines. Budget trailer legislation also calls for the appropriate legislative committees to review these measures in collaboration with DOF, the Legislative Analyst’s Office, the segments, and higher education experts, and consider any recommended modifications. 22 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Berkeley campus. Besides its state support, UC to Hastings’ plan to reduce student enrollment by expects to receive $2.7 billion in student tuition 77 FTE students in 2014-15. payments. (The Cal Grant program will pay about Adds Control Section 6.10 to Budget. The $800 million of this amount on behalf of students.) Legislature added a control section to the budget Provides $3 Billion in General Fund Support that was not part of the Governor’s higher for CSU. This is an increase of $177 million education plan. Specifically, Control Section 6.10 (6 percent) from 2013-14. This includes an authorizes an additional $50 million (General unallocated increase of $142 million, $35 million in Fund) on a one-time basis for each UC and CSU adjustments relating to existing debt-service costs to spend on deferred maintenance or any other and benefit rate changes for employees and retirees, one-time purpose in the event that preliminary and $442,000 for the Center for California Studies estimates of certain tax revenues are higher to increase stipends in the Assembly, Senate, than anticipated. In a July 16, 2014 letter, DOF Executive, and Judicial Fellows programs. The determined that the revenue condition had not budget also shifts $189 million in general obligation been met and the additional spending would not be bond debt-service from a separate budget item to triggered. Later changes in property tax estimates CSU’s main support appropriation, as discussed will not affect this action. (The department’s below. Besides its General Fund support, CSU determination affects several other state agencies, expects to receive about $1.9 billion in student including the state special schools for students with tuition payments. (The Cal Grant program will disabilities.) pay about $460 million of this amount on behalf of Capital Outlay students.) Places Moratorium on CSU Student Success Authorizes UC to Fund 11 Capital Outlay Fees. Trailer legislation imposes an 18-month Projects From Support Appropriation. As part moratorium on new student success fees. Student of a new process adopted last year, the state success fees are campus-based fees used for granted UC authorization to fund 11 capital academic enhancements and other strategies outlay projects from its support appropriation to improve students’ college experience. Twelve starting in 2014-15. (This process is similar to the campuses have imposed such fees, ranging from new capital outlay process adopted this year for $162 to $780 annually. The trailer legislation CSU, as described below.) Total state costs for the requires the CSU Chancellor to review the Board projects are $278 million, with future state costs of Trustees’ policy related to these fees and report for subsequent project phases expected to be an recommended changes to DOF and the Legislature additional $34 million. In addition to state funding, by February 1, 2015. the university is expected to provide $78 million Provides $11 Million in General Fund Support toward the projects from non-state sources. The for Hastings. This is an increase of $1.2 million 11 projects include: (1) campus infrastructure (12 percent) from 2013-14. Hastings has discretion expansions at Merced, (2) equipment for a new in deciding how to use all of this increase. In business school building at Irvine, (3) a new coastal addition to state support, Hastings expects to biology research building at Santa Cruz, (4) seismic receive $30 million in student tuition payments— repairs and space reconfigurations for a classroom $2.3 million (7 percent) less than in 2013-14. The building at Davis, (5) campus infrastructure lower expected tuition revenues are attributable improvements at Santa Barbara, (6) campus www.lao.ca.gov Legislative Analyst’s Office 23 2014-15 BUDGET infrastructure and fire safety upgrades at San Awards for Innovation Diego, (7) campus fire and life safety improvements Funds $50 Million in One-Time Innovation at Santa Cruz, (8) seismic and fire safety upgrades Awards. The budget provides $50 million in at a chemistry building at Davis, (9) new research one-time funding to promote innovative models of and meeting space at the Intermountain Research higher education at UC, CSU, and CCC campuses. Center, (10) new electrical system components at Campuses with initiatives to increase the number Irvine, and (11) a replacement building at Berkeley of bachelor’s degrees awarded, improve four-year to address seismic concerns with an existing completion rates, or ease transfer across segments building. can apply for awards. A new committee of seven Authorizes New Capital Outlay Process for members—five Governor’s appointees representing CSU. The budget shifts funds for existing debt DOF, the three segments, and SBE as well as two service on CSU capital outlay projects from a legislative appointees selected by the Speaker of the separate budget item to the university’s main Assembly and the Senate Rules Committee—will support appropriation. It does this as part of a make award decisions. The committee will accept new capital outlay process, similar to one adopted applications through January 9, 2015. Successful for UC in 2013. Under the new process, CSU may applicants will be required to report on the pledge its General Fund support appropriation effectiveness of their initiatives by January 1, 2018 (excluding the amounts necessary to repay existing and January 1, 2020. debt service) to issue its own debt for capital outlay projects involving academic facilities. In addition, Financial Aid the new process allows CSU to restructure some of Provides $1.6 Billion in General Fund Support the state’s outstanding debt on CSU projects. The for Financial Aid. The spending plan provides a new process limits the university to spending, at total of $2 billion for student financial aid. Of this most, 12 percent of its General Fund appropriation amount, $1.6 billion is from the General Fund and on (1) debt service on new bonds for academic $377 million is federal TANF funding. Overall facilities and (2) pay-as-you-go academic facility financial aid spending increases $272 million projects. (The 12 percent cap excludes amounts (16 percent) from 2013-14 to 2014-15. Though needed to fund state-authorized general obligation General Fund spending increases by $529 million, and lease revenue bond payments.) In order to half of this increase offsets a reduction in other use the new authority, the university is required funding. Of the funds provided, the vast majority to submit certain information about its capital is for Cal Grants, with the remainder for first-year plans to the Legislature for review and to DOF for implementation of the Middle Class Scholarship approval. Program approved in 2013 as well as loan Funds a Few CSU Capital Outlay Projects. The assumption programs, specialized grant programs, budget also authorizes $5.8 million in equipment and outreach. The budget includes three Cal purchases for three previously approved capital Grant expansions. In addition, trailer legislation outlay projects at CSU. The projects will equip makes one change to Cal Grant eligibility rules for academic buildings at Chico, East Bay, and schools, as described in the nearby box. The main Monterey Bay. components of the budget package are discussed below. 24 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Fully Funds Cal Grants, Expands Renewal nonresident students and undocumented Eligibility, and Increases Some Award Amounts. students. The budget increases Cal Grant support by • $30 million to increase the Cal Grant B $166 million (10 percent) from 2013-14 to 2014-15 access award from $1,473 to $1,648 per (bringing total Cal Grant funding to $1.8 billion). year. This award helps the lowest-income The augmentation includes: Cal Grant recipients with costs other than • $111 million to reflect increased tuition. participation in Cal Grant programs. Much of this growth is related to a large • $16 million to permit recipients who lose (18 percent) increase in new awards eligibility due to a temporary income in 2013-14, resulting in larger Cal gain to regain eligibility if their income Grant cohorts moving forward. Some subsequently drops below the income cap. of the remaining growth is related to • $9 million (one time) to delay a reduction the continued phase in of the Dream in the maximum award for students at Act, which provides grants to certain Cal Grant Eligibility Standards for Colleges Maximum Default Rate, Minimum Graduation Rate. Budget legislation in 2011 and 2012 set new institutional eligibility standards for Cal Grant programs. Under these standards, a college must maintain a student loan default rate below 15.5 percent and a graduation rate above 30 percent to participate in Cal Grant programs. The default rate measures the share of students from each college defaulting on federal student loans in the first three years of their repayment period. The graduation rate reflects the share of students graduating within 150 percent of their program length. This is three years for a typical associate degree program and six years for a typical bachelor’s degree program. Exceptions. The eligibility standards apply only to colleges with 40 percent or more of their undergraduates borrowing federal student loans (effectively exempting all community colleges). In addition, 2012 legislation created a temporary exception, permitting a college with a graduation rate between 20 percent and 30 percent to remain eligible for Cal Grants through 2016-17 if its default rate is below 10 percent. 2014-15 Budget Package Adjusts Exception. Budget trailer legislation adjusts the latter exception. Under the new language, a college with a graduation rate between 20 percent and 30 percent must have a default rate below 15.5 percent (instead of 10 percent, as originally required). Colleges meeting these criteria may remain eligible for Cal Grant programs through 2016-17. Based on currently available information, this change appears to affect only one institution—California State University, Dominguez Hills. The campus believes it is experiencing poor student outcomes due to admissions decisions it made several years ago. Campus leaders have since improved admission and student support practices and expect to be able to meet the regular eligibility standards—a default rate below 15.5 percent and a graduation rate above 30 percent—by 2017-18. www.lao.ca.gov Legislative Analyst’s Office 25 2014-15 BUDGET private colleges accredited by the Western program will be phased in over four years. For Association of Schools and Colleges. The 2014-15, maximum awards for students with family 2012-13 budget scheduled a reduction in incomes of up to $100,000 are set at 14 percent of the maximum award for these students tuition, then 20 percent, 30 percent, and 40 percent from the 2013-14 level of $9,084 to $8,056 the following three years, respectively. Budget in 2014-15. Under the current budget legislation provides $107 million for the program in package, this reduction is delayed until 2014-15, $152 million in 2015-16, and $228 million 2015-16. in 2016-17, with funding for the program capped at $305 million beginning in 2017-18. If the Provides $107 Million for First Year of Middle appropriation is insufficient to provide full awards Class Scholarships. The budget package provides to all eligible applicants, the California Student Aid first-year funding for the Middle Class Scholarship Commission (CSAC) is to reduce award amounts Program, a financial aid program created last year proportionately. Based on fall 2014 participation, for certain UC and CSU students. The program is no reduction in award amounts is necessary for designed for undergraduate students who do not 2014-15. have at least 40 percent of their tuition covered by Creates Reimbursement Mechanism for Cal Grants and other public financial aid programs. Data Sharing. The budget provides $52,000 in Specifically, students with family incomes up to reimbursement authority so that CSAC can recover $100,000 will qualify to have up to 40 percent of the costs of providing data on Cal Grants and other their tuition covered (when combined with all financial aid programs to external researchers other public financial aid). The percent of tuition and analysts. This will enable CSAC to fulfill covered declines for students with family income approved data requests that could result in valuable between $100,000 and $150,000, such that a student information about the effectiveness of CSAC with a family income of $150,000 will qualify programs. to have up to 10 percent of tuition covered. The CALIFORNIA STATE LIBRARY General Fund Support Up for Local Libraries, state funding for local libraries is designated for Down for State Operations. The 2014-15 budget Internet connectivity, interlibrary loan programs, provides the California State Library (State Library) and literacy programs. $27 million in state General Fund support. Of Provides $3.3 Million to Improve Local this amount, $16 million is for state operations Library Internet Connectivity. The budget includes and $11 million is for assistance to local libraries. $3.3 million (General Fund) for the State Library to General Fund support for state operations create a new program to increase Internet speeds decreases by $3.5 million (18 percent) from at local libraries. Of this amount, $1 million is 2013-14, primarily due to expiring one-time funds provided on a one-time basis for grants to local previously used for relocating the State Library. libraries to purchase networking equipment General Fund support for local assistance increases (such as routers). The remainder is provided on by $6.3 million from 2013-14 (more than doubling an ongoing basis to cover a portion of the annual state funding). As discussed below, the increased contract costs associated with local libraries 26 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET accessing a statewide, high-speed Internet network. provided funding for the costs (such as shipping) The State Library indicates it likely will enter into associated with interlibrary loans. In 2011-12, a contract with the Corporation for Education however, the state eliminated the entire $10 million Network Initiatives in California (CENIC)—a in state funding for the program. Since that time, nonprofit organization that provides Internet- virtually all libraries have continued providing related services to the four segments of California’s the service using local funds. The State Library public education system as well as to several indicates the additional state funding provided in private and out-of-state education and research 2014-15 would offset these local costs. State funding entities. The annual cost of the CENIC contract is would be provided to libraries proportionately expected to be $4.5 million (double the statewide based on how much state funding they historically appropriation). The remainder of funding needed received. to cover CENIC’s annual contract costs is expected Augments Funding for Library Literacy to come from the California Teleconnect Fund Programs by $1 Million. The budget increases state (CTF). This state special fund, operated by the General Fund support for local library literacy California Public Utilities Commission, provides programs by $1 million on a one-time basis. certain organizations, including libraries, with a This brings total General Fund spending for this 50 percent discount on telecommunication and purpose to $3.8 million in 2014-15. (In 2012-13, Internet services. The State Library indicates that, if local libraries contributed $15 million in local it were to enter into a contract with CENIC, CENIC funding for literacy programs.) The additional state would seek reimbursement from the CTF to cover funding will be used to expand and enhance local remaining contract costs. literacy programs. For example, local libraries may Provides $2 Million for Interlibrary Loan use the funding to train more volunteers to provide Programs. The budget includes $2 million in additional one-on-one literacy tutoring services one-time General Fund to support interlibrary loan to adults in their communities during the coming programs at local libraries. Interlibrary loans allow year. Currently, about half of local libraries operate a member of one public library to borrow books state-funded literacy programs. from another public library. Traditionally, the state CALSTRS The California State Teachers’ Retirement benefits from the effects of inflation. The budget System (CalSTRS) administers pension and other provides $1.5 billion in state contributions to retirement programs for its 868,000 members. CalSTRS. Most of this total ($904 million) is for CalSTRS members are current, former, and retired DB program contributions, with the remainder teachers and administrators, as well as their ($582 million) for the SBMA. Of the DB program beneficiaries. These programs include the defined contributions, $59 million represents the state’s benefit (DB) program—the primary pension benefit costs in the first year of a long-term funding plan for CalSTRS members—and the Supplemental aimed at erasing the unfunded liability in the Benefits Maintenance Account (SBMA), a program program. that protects the purchasing power of retirees’ www.lao.ca.gov Legislative Analyst’s Office 27 2014-15 BUDGET Budget Marks First Year of Districts Pay About 70 Percent of Increased 32-Year Funding Plan Costs. Figure 8 displays CalSTRS’ projections of increased contributions above previous law. (These Plan to Fully Fund Pension Program. CalSTRS projections incorporate various assumptions, has not been appropriately funded for most of including CalSTRS’ assumptions concerning future its history. During the dot-com bubble, the state district payroll increases.) As shown in the figure, reduced its contribution to the DB program and district rates will more than double over the seven increased member benefits. During the 2000s, year ramp-up period—from 8.25 percent of payroll the system recorded large investment loses. These under previous law to 19.1 percent in 2020-21. factors produced a $74 billion unfunded liability Districts will pay 71 percent of the estimated costs in the DB program as of the end of 2012-13. (An of the funding plan. The budget package makes unfunded liability is the amount of pension benefits no adjustment to Proposition 98 related to the that have been earned by members but are not additional funding responsibility for districts. funded by assets on hand.) Chapter 47, Statutes of State Pays About 20 Percent of Increased 2014 (AB 1469, Bonta), aims to erase the unfunded Costs. Over three years, the state’s rate will liability within 32 years by increasing CalSTRS increase from 3.29 percent under previous law contributions from the state, districts, and teachers. to 6.33 percent in 2016-17. (These rates are for Responsibility Shared Between State, the DB program alone—if the state’s 2.5 percent Districts, and Teachers. Under prior law, districts SMBA contribution were included, the rate would and teachers funded roughly 75 percent of DB increase from 5.79 percent under previous law to program contributions, with the remaining 8.83 percent in 2016-17.) In addition, the budget contributions funded by the state. For example, package accelerates part of the state’s annual DB in 2012-13 employees contributed $2.3 billion, program payment from October 1st to July 1st. districts contributed $2.3 billion, and the state (This acceleration costs $16 million, or roughly contributed $1.4 billion. Under the funding plan, 25 percent of the $59 million state contribution these three groups will face higher contributions to increase in 2014-15 under the funding plan.) Over fully fund the system. Specifically, the state will pay the next 32 years, the state will pay 18 percent of for unfunded liabilities associated with the benefit the total estimated costs to address the CalSTRS structure that was in place as of 1990. This means unfunded liability. that the state is responsible for about $20 billion of Teachers Pay About 10 Percent of Increased the unfunded liability. In exchange for “vesting”— Costs. Under California case law, the state cannot or guaranteeing—a benefit that adjusts teachers’ increase the contribution rates of existing members pensions in retirement, teachers will pay about of a public pension system without providing $8 billion of the unfunded liability. (We discuss this an offsetting advantage to the employee group. exchange in more detail below.) Finally, districts In exchange for increasing contributions from will be responsible for the remaining $47 billion. active teachers, the budget package guarantees an State and teacher contributions will be ramped up existing benefit that increases teachers’ pensions over three years, while district contributions will be by a simple 2 percent per year in retirement. (The ramped up over seven years. For the first time, the state previously reserved the right to adjust this funding plan provides CalSTRS with authority to benefit for teachers hired after January 1, 2014. The adjust certain state and district contributions when Legislature maintains the right to adjust this benefit experience deviates from actuarial assumptions. 28 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET for teachers who retired prior to January 1, 2014.) teachers hired before January 1, 2013 will ramp up Because teachers hired after January 1, 2013 earn over three years from 8 percent to 10.25 percent, comparably less generous pensions than their while rates for teachers hired after that date will pre-2013 counterparts, the 2 percent benefit increase from 8 percent to 9.21 percent over adjustment provides them less benefit in retirement. the same period. Teachers collectively will pay For this reason, the amount by which the budget 11 percent of the estimated costs associated with package increases the contributions of teachers the funding plan. hired after January 1, 2013 is somewhat lower than Authorizes CalSTRS to Adjust State and for pre-2013 hires. Specifically, contributions for District Rates. For the first time, Chapter 47 gives Figure 8 Projected CalSTRS Contributions Under Funding Plan (Dollars in Millions) 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Districts Old rate 8.25% 8.25% 8.25% 8.25% 8.25% 8.25% 8.25% Increase 0.63 2.48 4.33 6.18 8.03 9.88 10.85 New Rate 8.88% 10.73% 12.58% 14.43% 16.28% 18.13% 19.10% Increased Contribution, $175 $714 $1,293 $1,915 $2,580 $3,293 $3,751 All Districts Combined State Old rate 3.29% 3.52% 3.52% 3.52% 3.52% 3.52% 3.52% Increase 0.16 1.37 2.81 2.81 2.81 2.81 2.81 New Rate 3.45% 4.89% 6.33% 6.33% 6.33% 6.33% 6.33% Increased Contributiona $59 $384 $783 $812 $842 $874 $906 Teachers Hired Prior to January 1, 2013 Old rate 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Increase 0.15 1.20 2.25 2.25 2.25 2.25 2.25 New Rate 8.15% 9.20% 10.25% 10.25% 10.25% 10.25% 10.25% Increased Contribution, $39 $314 $592 $594 $595 $595 $594 All Teachers Combined Teachers Hired After January 1, 2013 Old rate 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Increase 0.15 0.56 1.21 1.21 1.21 1.21 1.21 New Rate 8.15% 8.56% 9.21% 9.21% 9.21% 9.21% 9.21% Increased Contribution, $3 $15 $43 $55 $69 $83 $98 All Teachers Combined Grand Total, Projected $276 $1,427 $2,711 $3,376 $4,086 $4,845 $5,349 Contributions a Includes cost of accelerating part of the state’s existing contributions by one calendar quarter. Note: Based on CalSTRS’ projections. Amounts paid in the future will vary from estimates depending on teacher compensation and other factors. www.lao.ca.gov Legislative Analyst’s Office 29 2014-15 BUDGET CalSTRS the authority to adjust state and district responsibility for unfunded liabilities that arise rates up or down when the funding plan deviates after that date. from actuarial assumptions. Specifically, CalSTRS Poison Pill. In Chapter 47, the Legislature finds can adjust the state’s rate by up to 0.5 percentage and declares that district contribution increases do points per year beginning in 2017-18 when the not (1) require any adjustment to Proposition 98 state’s rate increase is fully phased in. Similarly, funding levels or (2) constitute a state reimbursable CalSTRS can adjust districts’ rates by up to mandate. Chapter 47 provides 60 days in which a 1 percentage point per year beginning in 2021-22 court challenge to these findings can be filed. If a after district rate increases are fully phased in. final court decision finds that the increased district CalSTRS could adjust district rates by up to contributions require a Proposition 98 adjustment 12 percent of teacher payroll. The authority applies or constitute a reimbursable mandate with state only to unfunded liabilities as of July 1, 2014. costs over $10 million, all provisions of Chapter 47 Chapter 47 does not specify a policy for assigning become inoperable. HEALTH The spending plan provides $19.3 billion from major program-specific changes are summarized in the General Fund for health programs. This is an Figure 10 and discussed in more detail below. increase of almost $700 million, or 3.7 percent, Department of Health Care compared to the revised 2013-14 spending level, as Services (DHCS)—Medi-Cal shown in Figure 9. This reflects both increases in caseload and utilization of services, implementation The spending plan provides $17.3 billion from of the Patient Protection and Affordable Care the General Fund for Medi-Cal local assistance Act (ACA)—also known as federal health care expenditures administered by DHCS. This is an reform—and other health care initiatives. The increase of $633 million, or 3.8 percent, compared Figure 9 Major Health Programs and Departments—Spending Trends General Fund (Dollars in Millions) Change From 2013-14 to 2014-15 2012-13 2013-14 2014-15 Amount Percent Medi-Cal—local assistance $14,862 $16,647 $17,280 $633 3.8% Department of State Hospitals 1,277 1,505 1,520 15 1.0 Healthy Families Program—local assistance 176 22 — -22 -100.0 Department of Public Health 129 130 118 -12 -9.2 Department of Alcohol and Drug Programs 34 — — — — Other Department of Health Care Services programs 110 79 150 71 89.9 Emergency Medical Services Authority 7 7 8 1 12.2 All other health programs (including state support) 151 168 177 9 5.4 Totals $16,746 $18,558 $19,253 $695 3.7% 30 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET to the revised prior-year spending level. Spending well as a related reduction in payments to Medi-Cal in 2013-14 was $553 million greater than the managed care plans. Provider payment reductions 2013-14 budget appropriation. The major factors were initially delayed by a court injunction while that contributed to the Medi-Cal deficiency in the state awaited court approval to implement 2013-14 are: them. Based on the court lifting the injunction, the state now has the authority to both (1) apply • An erosion of $382 million in General the reductions to current and future payments Fund savings from provider payment on an ongoing basis, and (2) retroactively recoup reductions, due to (1) revised utilization the reductions from past payments that were estimates, (2) exemption of certain made when the court injunction was in effect. specialty drugs from payment reductions, The spending plan maintains the reductions and (3) delays in implementing payment and recoupments that have not been legislatively reductions for certain classes of providers. or administratively exempted. (The spending We discuss the provider payment plan assumes $36 million in increased General reductions in more detail below. Fund expenditures due to foregone savings from • A shift of $155 million in General Fund exempting certain classes of providers from the savings from 2013-14 to 2014-15, due to a recoupments.) The estimated General Fund savings delay in federal approval of the hospital from the remaining reductions and recoupments is quality assurance fee. The fee provides $272 million in 2014-15. revenues that offset General Fund costs for ACA Implementation Has Many Different providing children’s health coverage. Fiscal Effects. The budget assumes a wide variety of fiscal effects—some major and some minor— Differences in Medi-Cal spending between associated with implementing various provisions of 2013-14 and 2014-15 are in large part the result of underlying cost drivers in the program, such as Figure 10 changes to caseload and Major Changes—State Health Programs the cost of providing 2014‑15 General Fund Effect (In Millions) health care services. Program Amount We discuss some major Medi-Cal—Department of Health Care Services policies that were adopted Changes to services for certain pregnant women -$17.0 or maintained as part Increases payments for Programs of All-Inclusive Care for the 1.8 Elderly of the 2014-15 Medi-Cal Authorizes collection of supplemental rebates for specialty drugs in -6.0 Program budget below. managed care Maintains Certain Department of Public Health Provider Payment Increases funding for Black Infant Health Program and $7.0 HIV demonstration projects Reductions. In 2011, Department of State Hospitals budget-related legislation Increases capacity for CDCR-committed patients $26.0 authorized a reduction in Increases capacity for incompetent to stand trial patients 28.0 certain Medi-Cal fee-for- Increases capacity for the Restoration of Competency program 4.0 Establishes a statewide Patient Management Unit 1.0 service provider payments CDCR = California Department of Corrections and Rehabilitation. by up to 10 percent, as www.lao.ca.gov Legislative Analyst’s Office 31 2014-15 BUDGET state and federal law related to the ACA. Many of will result in $766 million General Fund the ACA-related changes that affect the Medi-Cal costs in 2014-15. Program went into effect in 2013 or early 2014 • Enhanced Federal Match for Certain and the impacts of these changes are still highly Eligibility Determination Functions. uncertain. Some of the major ACA-related fiscal Generally, payments to counties for making effects assumed in the 2014-15 Medi-Cal local Medi-Cal eligibility determinations for assistance budget are: both the previously and newly eligible • Optional Expansion. Effective populations are eligible for a 50 percent January 1, 2014, Medi-Cal eligibility federal match. However, federal guidance expanded to include previously ineligible released in 2011 allows California to receive adults with incomes up to 138 percent of a 75 percent federal match for certain the federal poverty level (FPL)—largely, eligibility determination functions if they childless adults. The budget assumes meet certain minimum eligibility system roughly 1.6 million newly eligible requirements outlined by the federal beneficiaries will enroll in 2014-15, and government. The 2014-15 budget assumes most of them will receive services through enhanced federal funding for certain Medi-Cal managed care. (This estimate Medi-Cal eligibility determination costs does not include newly eligible persons will reduce state General Fund spending by who enroll through new enrollment $248 million. pathways such as Express Lane enrollment The 2014-15 state budget includes other or hospital presumptive eligibility.) significant ACA fiscal effects. For example, the The federal government is paying for budget assumes $725 million in General Fund 100 percent of the health care costs for the offsets in the budget of the CalWORKs program newly eligible population through 2016. resulting from the optional expansion and changes Due to the increase in Medi-Cal managed to 1991 health realignment that were enacted as care enrollment, the budget assumes part of the 2013-14 budget. $408 million in additional General Fund Changes to Services for Certain Pregnant offsets from an existing tax on Medi-Cal Women. The 2014-15 budget makes two significant managed care plans. changes to services available to certain pregnant • Mandatory Expansion. The ACA includes women in Medi-Cal. Specifically, it: (1) provides requirements that will increase Medi-Cal full-scope coverage to pregnant women up to enrollment among individuals who were 138 percent of FPL who previously received previously eligible, but unenrolled—often pregnancy-only coverage, and (2) provides referred to as the mandatory expansion. “wrap-around” coverage to pregnant women Generally, the state will continue to be between 139 percent and 208 percent of FPL who responsible for 50 percent of the costs of obtain coverage through California’s health benefit providing services to mandatory expansion exchange—known as Covered California. (The enrollees. The budget assumes 815,000 2013-14 budget assumed savings from a similar additional mandatory expansion enrollees proposal to shift certain pregnant women from Medi-Cal to coverage offered through Covered 32 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET California, but the statutory language authorizing and adolescents with autism spectrum disorder. such a shift was never enacted.) The budget assumes The DHCS is in the process of obtaining federal General Fund savings of $17 million in 2014-15 approval for the provision of BHT. In the interim, from these changes. as of September 15, 2014, Medi-Cal managed care Increases Payments for Programs of plans are required to provide medically necessary All-Inclusive Care for the Elderly (PACE). The ABA services for eligible children and adolescents spending plan includes increased General Fund with autism spectrum disorder. Provision of other expenditures of $1.8 million due to changes in BHT services will be implemented at a later as-yet the Medi-Cal payment methodology for PACE. undetermined date. No funds were included in the (Program providers receive capitation payments spending plan for BHT services in Medi-Cal and to provide medical and social services benefits the administration has not given an estimate for to adults over 55 who would otherwise reside in the cost of providing these services since the federal nursing facilities.) These payment changes take government issued guidance. effect on April 1, 2015. The estimated full-year cost Department of State Hospitals (DSH) of these changes is about $8 million General Fund. Authorizes Collection of Supplemental Under the budget plan, General Fund spending Rebates for Specialty Drugs in Managed Care. for DSH will be approximately $1.5 billion The spending plan assumes $6 million in General in 2014-15, an increase of $15 million, or Fund savings from authorizing DHCS to collect 1 percent, from the revised 2013-14 level. The net state supplemental rebates for certain drugs year-over-year increase in General Fund support provided through Medi-Cal managed care plans. is largely due to increased capacity in the state (Previously the state was prohibited from collecting hospitals and psychiatric programs. supplemental rebates for drugs provided through Population Adjustments. The budget plan Medi-Cal managed care plans, except for county- includes a net $31.5 million General Fund increase organized health systems.) Specifically, the budget for the maintenance and activation of an additional extends supplemental rebates to managed care 242 patient beds. This total includes (1) a net drugs that the state will fund separately from the $3.7 million for 137 beds at DSH-Vacaville and plans’ regular capitated rates. According to the DSH-Salinas Valley to treat patients referred by administration, these separately funded drugs will the California Department of Corrections and be limited to certain high-cost specialty drugs, such Rehabilitation (CDCR) and (2) $27.8 million for as hepatitis C treatments. 105 beds to treat incompetent to stand trial (IST) Behavioral Health Therapy (BHT) Services patients in DSH facilities. Added as a Medi-Cal Benefit After the 2014-15 Restoration of Competency (ROC) Expansion. Budget Act. The 2014-15 Budget Act included The budget includes $4 million to expand the trailer bill language requiring DHCS to add BHT ROC program by 45 to 55 beds. Historically, the services, such as Applied Behavioral Analysis ROC program provides treatment to IST patients (ABA), as a covered Medi-Cal benefit to the extent in county jails (rather than in DSH facilities). required by federal law. Subsequent to passage of The 2014-15 budget package provides funding for the 2014-15 Budget Act, the federal government additional capacity for the program and allows issued guidance which indicated that BHT should ROC services to be provided in community-based be a covered Medicaid benefit for eligible children facilities. www.lao.ca.gov Legislative Analyst’s Office 33 2014-15 BUDGET Patient Management Unit. Historically, judges • HIV Demonstration Projects—$3 million making commitments to DSH could order that for HIV demonstration projects that will patients be placed in specific DSH facilities. As address outreach, screening, and care for part of the budget package, the Legislature adopted underserved Californians living with or at trailer legislation to have judges commit patients risk for HIV. to the DSH system at large and DSH determine HIV/AIDS Program Changes. The budget which facility is most appropriate for each patient. also includes $26.1 million in federal funds To facilitate DSH’s ability to appropriately place (net of savings from drug rebates) to add two patients, the budget includes $1 million for new Hepatitis C virus drugs to the AIDS Drug the department to develop a statewide patient Assistance Program (ADAP) drug formulary. management unit. This unit will allow DSH to The budget also includes language to develop the centralize and coordinate patient placement capacity to pay out-of-pocket medical expenses, statewide and track patient data. in addition to premiums, for eligible ADAP clients who choose to purchase insurance through Department of Public Health (DPH) Covered California, if the director determines that The spending plan provides $2.5 billion this subsidization would result in cost savings to from all fund sources for DPH programs. This is the state. a decrease of $474 million, or about 16 percent, Dental Director. The budget also includes compared to the revised prior-year spending $474,000 ($250,000 General Fund) to establish a level. Of this total, the spending plan provides State Dental Director and provide the resources to $118 million General Fund for DPH, a decrease develop a statewide dental health plan. of $12 million or 9 percent. This year-over-year net decrease in General Fund and total fund Health and Human Services Agency (HHSA) expenditures is mainly attributable to the transfer The spending plan provides $4.3 million of the Drinking Water Program from DPH to the General Fund for HHSA. This is an increase of State Water Resources Control Board (SWRCB). $1.1 million, or 36 percent, compared to the revised (We describe this transfer in the “Resources and prior-year spending level. This year-over-year Environmental Protection” section of this report.) General Fund growth is largely due to an increase The decrease in funding due to the transfer is of $787,000 for the establishment of the Office partially offset by funding increases for other DPH of Law Enforcement Support (OLES) within programs. HHSA. The OLES will provide centralized Funding for Black Infant Health (BIH) oversight to the nine individual Offices of Program and HIV Demonstration Projects. Protective Services (OPS)—which perform law The spending plan includes two General Fund enforcement functions—at five state hospitals augmentations totaling $7 million, as follows: and four Developmental Centers (DCs) operated • BIH—$4 million for BIH, to improve by DSH and the Department of Developmental health among black mothers and babies Services (DDS), respectively. In addition to and address disproportionately high rates providing centralized oversight, OLES will of preterm births and infant mortality. develop standardized policies and procedures, and introduce measures to improve recruitment and training for the peace officers employed by OPS. 34 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Managed Risk Medical Program (HFP). Chapter 28, Statutes of 2012 Insurance Board (MRMIB) (AB 1494, Committee on Budget), was enacted by the Legislature to implement a modified version of The spending plan eliminates MRMIB effective the Governor’s proposal to shift all HFP enrollees July 1, 2014, and shifts funding and position into Medi-Cal. The shift of HFP enrollees into authority for three programs administered by Medi-Cal was completed during 2013-14, and the MRMIB from MRMIB to DHCS. Specifically, name of California’s CHIP was changed from HFP the spending plans shifts the Major Risk Medical to the Targeted Low-Income Children’s Program. Insurance Program, Access for Infants and The DHCS state operations budget increases by Mothers, and the County Health Initiative $6.1 million ($1 million General Fund) in 2014-15 Matching Fund Program to DHCS. We note that to reflect the shift of MRMIB programs from California’s federal Children’s Health Insurance MRMIB to DHCS. Program (CHIP) was formerly administered by MRMIB and known as the Healthy Families HUMAN SERVICES Overview of Total Spending. The spending Figure 11. (Note that, unlike prior-year Spending plan provides $10.3 billion from the General Fund Plan documents, this report includes the DDS for human services programs. This is an increase as a human services department in any human of $98 million, or 1 percent, compared to the services budget summary figure.) This modest net revised prior-year spending level, as shown in increase in General Fund expenditures reflects Figure 11 Major Human Services Programs and Departments—Spending Trends General Fund (Dollars in Millions) Change From 2013-14 to 2014-15 2012-13 2013-14 2014-15 Amount Percent SSI/SSP $2,752.6 $2,780.4 $2,810.4 $30.0 1.1% Department of Developmental Services 2,674.5 2,809.6 2,961.5 151.9 5.4 CalWORKs 1,544.5 1,194.6a 732.7b -461.9 -38.7 In-Home Supportive Services 1,705.9 2,017.9 2,219.8 201.9 10.0 County Administration/Automation 617.0 761.8 848.4 86.6 11.4 Department of Child Support Services 298.9 313.0 312.8 -0.2 -0.1 Department of Rehabilitation 55.3 57.0 57.0 — 0.1 Department of Aging 31.4 32.2 32.2 — — All other social services (including state support) 239.3 265.7 355.8 90.1 33.9 Totals $9,919.4 $10,232.1 $10,330.6 $98.4 1.0% a Reflects the impact of (1) an estimated $300 million shift of CalWORKs General Fund costs to counties in connection with the Medi-Cal expansion and (2) the continuation of a funding swap between CalWORKs and the Student Aid Commission, which increased General Fund expenditures in CalWORKs by $542 million above what they would have been without the transfer. Taken together, the year-over-year changes in these funding shifts result in a year-over-year decrease in General Fund support for CalWORKs of $562 million. b Reflects the impact of (1) an estimated $725 million shift of General Fund costs to counties in connection with the Medi-Cal expansion and (2) the continuation of a funding swap between CalWORKs and the Student Aid Commission, which increases General Fund expenditures in CalWORKs by $377 million above what they would have been without the transfer. Taken together, the year-over-year changes in these funding shifts result in a year-over-year decrease in General Fund support for CalWORKs of $589 million. www.lao.ca.gov Legislative Analyst’s Office 35 2014-15 BUDGET increases in various programs that are largely offset 2014-15 would have been $325 million lower. Below, by a net decrease in General Fund support for the we discuss the major changes in each program area. CalWORKs program due to the shifting of costs CalWORKs from the General Fund to other fund sources. Summary of Major Changes. Figure 12 The spending plan provides a total of shows the major General Fund changes in the $5.6 billion (all funds) to support the CalWORKs 2014-15 Budget Act for human services programs. program, a net increase of $146 million (3 percent) (Figure 12 does not reflect funding shifts that do over the prior year. Of this increase, $82 million not change overall program funding levels.) Most is the result of policy changes (discussed below), of the budget changes were in the CalWORKs and with the balance consisting of the net effect of In-Home Supportive Services (IHSS) programs. caseload changes and the full-year implementation Absent the changes shown in the figure, General of prior policy changes. Within the total funding Fund spending for human services programs in amount, the spending plan provides $733 million from the General Fund to support CalWORKs, a net Figure 12 decrease of $462 million Major Changes—Human Services Programs (39 percent) from the 2014‑15 General Fund Effect (In Millions) prior year. This significant Program Amount decrease in General CalWORKs Fund support reflects 5 percent grant increasea $46.6 an increasing shift of Funding for homeless and housing supports 20.0 Drug felon eligibilityb 10.7 funding responsibility Increased child care reimbursementsc 6.3 from the state General Utility Assistance Fund to other funding State-funded utility subsidy to leverage federal CalFresh benefits 10.9 sources. Specifically, as In-Home Supportive Services a result of the Medi-Cal Compliance with federal labor regulations for home care workersc 172.2 expansion, $725 million Developmental Services Implementation of Developmental Centers’ Task Force 15.3 in funds previously recommendations dedicated to local health Restoration of pre-2009 Early Start eligibility criteriac 7.9 programs under 1991 Compliance with federal labor regulations for home care workersc 9.4 realignment are estimated Child Welfare Services Increase foster care payments for nonfederally eligible foster youthc 15.0 to be available to offset Services for commercially sexually exploited childrenc 5.0 General Fund spending Community Care Licensing in CalWORKs in 2014-15. Quality enhancements and program improvements 5.8 This is a $425 million Total $325.1 increase over estimated a This grant increase, effective April 2015, is in addition to the 5 percent increase provided in March 2014. (See text for discussion of full-year cost.) Both grant increases will be funded on an ongoing basis by realignment funds a dedicated fund source outside the General Fund when such funds are available. Because dedicated funds are not available to fund the April 2015 increase, the full costs of the increase in 2014-15 will be available to offset General paid from the General Fund. Fund spending in the b Effective April 2015. (See text for discussion of full-year cost.) Amount shown includes $85,000 to provide CalFresh assistance to individuals previously ineligible due to a drug-related felony conviction. prior year. Additionally, c Effective January 2015. (See text for discussion of full-year cost.) an ongoing funding swap 36 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET between CSAC and CalWORKs (which has the The April 2015 grant increase is in addition to effect of decreasing federal funding for CalWORKs a 5 percent grant increase previously provided in and increasing General Fund support by a like March 2014. Both increases are funded through a amount) is partially reversed in 2014-15, resulting statutory mechanism that automatically provides in decreased use of General Fund in CalWORKs. grant increases in years in which a dedicated Taken together, year-over-year changes in these funding source (consisting of the redirected two funding shifts result in $589 million less growth in certain 1991 realignment revenues) is General Fund spending in CalWORKs than would sufficient to support the new increase and all past otherwise have been the case, with no net impact increases provided through the mechanism. The on total program spending. April 2015 increase is an exception to this process 5 Percent Grant Increase. Effective April in that it was enacted directly by the Legislature 2015, budget legislation increases maximum without regard to whether dedicated funds were monthly CalWORKs grants by 5 percent, with fully available to fund the increase. Since dedicated an estimated partial-year cost of $47 million funds are estimated to be sufficient only to cover (General Fund). The estimated full-year cost of most of the cost of the March 2014 increase during this increase is approximately $180 million. As 2014-15, the cost of the April 2015 increase will be displayed in Figure 13, the increase is estimated paid fully from the General Fund. In future years, to result in up to $34 of additional cash assistance the General Fund will continue to pay the portion per month for a family of three with no other of ongoing costs of the April 2015 increase that is income. As the CalWORKs grant is counted as not covered by dedicated funds. Available dedicated income for purposes of determining CalFresh food funds are expected to grow over time, gradually benefits, this increase will be partially offset by a decreasing the need for General Fund support. No corresponding decrease in food assistance. new grant increases will be provided under the Figure 13 Monthly CalWORKs Grant and CalFresh Benefita Change March 2015 April 2015b Amount Percent High-Cost Counties Grant $670 $704 $34 5% CalFresh benefit 503 493 -10 -2 Totals $1,173 $1,197 $24 2% Grant as percent of FPL 41% 43% Grant and CalFresh benefit as percent of FPL 71% 73% Low-Cost Counties Grant $638 $670 $32 5% CalFresh benefit 511 503 -8 -2 Totals $1,149 $1,173 $24 2% Grant as percent of FPL 39% 41% Grant and CalFresh benefit as percent of FPL 70% 71% a For a family of three with no income. b The 2014-15 budget package provides a 5 percent grant increase, effective April 2015. FPL = federal poverty level. www.lao.ca.gov Legislative Analyst’s Office 37 2014-15 BUDGET statutory mechanism’s regular process until the change results in higher maximum reimbursement dedicated funds are sufficient to cover the cost of rates in many areas of the state, and the spending both the March 2014 and April 2015 increases. plan provides an additional $6 million (General Funding for Homeless and Housing Supports. Fund) for CalWORKs to reflect these higher rates. Budget legislation creates a new CalWORKs For more information on this change and its housing support component, through which broader effect on the state budget, see the “Child counties may optionally receive state funds Care and Preschool” write-up in the “Education” to provide financial assistance and services section of this report. to CalWORKs recipients that are homeless or CalFresh-Related Utility Assistance experiencing housing instability. The spending plan provides $20 million (General Fund) for the State Utility Assistance Subsidy (SUAS) to housing support component in 2014-15. Leverage Increased Federal Food Assistance. Drug Felon Eligibility. Under prior law, Under prior state law, the state used federal funds individuals convicted of a drug-related felony to provide a nominal utility assistance benefit in 1998 or later were not eligible for CalWORKs to all households that received CalFresh food assistance. Budget legislation repeals this ban on assistance. Under prior federal law, receiving assistance, effective April 2015. The spending plan this nominal benefit allowed certain CalFresh includes $11 million (General Fund) to pay for households to receive higher federally funded the partial-year costs of cash assistance, welfare- CalFresh benefits than they would otherwise. to-work services, and administration for newly The federal Agricultural Act of 2014 (also known eligible recipients, as well as some automation as the Farm Bill) altered federal law to require a costs made necessary by the change. The estimated significantly higher utility assistance payment full-year cost of this change is approximately for households to continue to receive higher $33 million. (Budget legislation also repeals a more CalFresh benefits. In response to this change in limited ban on CalFresh assistance for individuals federal law, budget legislation creates the SUAS, a convicted of certain drug-related felonies, also state-funded program that will target the higher effective April 2015. The spending plan provides utility assistance payment required by federal law $85,000 General Fund [$153,000 all funds] to to those households that meet all other criteria to provide administration and state-funded food receive increased food assistance. The spending assistance for newly eligible adults in 2014-15.) plan includes $11 million (General Fund) for SUAS. Increase in Child Care Reimbursement The Department of Social Services (DSS) estimates Rates. Under prior law, child care providers that this action will result in an average of $62 for CalWORKs recipients were reimbursed in additional CalFresh benefits each month for up to a maximum amount that was tied to approximately 349,000 households during 2014-15. the 85th percentile of a 2005 survey of RMRs. In-Home Supportive Services Budget legislation (1) requires that maximum reimbursements be tied instead to the The budget increases General Fund support 85th percentile of a more recent 2009 regional for IHSS by $202 million (10 percent) in 2014-15 market survey and (2) reduces the maximum when compared to the revised 2013-14 level. The reimbursement amounts for most areas under this major budget-related changes for IHSS involve more recent survey by roughly 10 percent. This compliance with new federal labor regulations for 38 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET home care workers and new requirements for the . . . But Places Limitations on Amount of IHSS provider orientation. Below, we describe the Overtime That Can Be Worked and Amount of major changes to the IHSS program. Weekly Care That Can Be Received. Currently, New Federal Labor Regulations Affect the IHSS providers face no limitations on the number IHSS Program. The federal Department of Labor of hours they may work each week, as long as they recently released new federal regulations that affect do not provide care so as to exceed recipients’ total home care workers, including IHSS providers. authorized service hours each month. Similarly, Beginning January 1, 2015, these regulations recipients currently face no limitations on the require the state to do the following: (1) pay number of hours of care they may receive each overtime—that is, one-and-a-half times the regular week, as long as they do not exceed their total pay rate—to IHSS providers for all hours worked number of monthly authorized hours. However, that exceed 40 in a week and (2) compensate IHSS budget-related legislation places some new providers for time spent waiting during medical limitations on the amount of overtime that may appointments and traveling between the homes be worked by IHSS providers each week, effective of IHSS recipients—two work activities for which January 1, 2015. First, it limits the total number providers are not currently paid. We note that of hours that providers may work each week to the federal government is continuing to release no more than 66—generally reduced to 61 while guidance related to the implementation of these a 7 percent reduction in service hours under regulations. current law is in place. This limit generally applies 2014-15 Budget Funds Overtime and Newly regardless of whether an IHSS provider works for Compensable Work Activities . . . In January, the a single recipient or more than one recipient (a Governor had proposed to respond to the new narrow exception to this limit is described below). federal labor regulations by paying for the newly Second, the legislation generally limits the total compensable work activities of wait and travel hours of care that a recipient may receive each time, but restricting IHSS providers to working week to about a fourth of his/her total monthly no more than 40 hours per week to avoid overtime authorized hours. Both of these rules are intended payments. The 2014-15 spending plan rejects the to limit a potential increase in the cost of paying for overtime component of the Governor’s January overtime as a result of IHSS providers increasing proposal. Instead, the 2014-15 budget provides their weekly work hours or otherwise changing funding to pay IHSS providers for overtime (with their work schedules. some limitations described below) and for the newly compensable work activities beginning Figure 14 January 1, 2015, at a total cost of $172 million IHSS Program: General Fund Cost of General Fund. The funding also includes the cost of Complying With New Federal Labor Regulations related administrative activities and changes to the 2014-15 (In Millions) IT system that stores IHSS case records, provides Overtime payments $92.7 program data reports, and authorizes IHSS Payments for newly compensable work activities 69.9 Administrative activities 5.8 provider payments. Figure 14 provides a breakdown Information technology system changes 3.8 of the budgeted General Fund cost of complying Total $172.2 with the new federal labor regulations in 2014-15. IHSS = In-Home Supportive Services. www.lao.ca.gov Legislative Analyst’s Office 39 2014-15 BUDGET Exceptions to New Limits on Overtime participation is available, then the travel time hours Worked and Care Received. Under the budget will not be counted toward providers’ weekly limit legislation, there are several ways in which of 66 work hours. recipients may be granted exceptions to the limit IHSS Providers Can Be Terminated if They on their weekly hours of care received. First, Violate Work Limitations on Multiple Occasions. the county welfare department may adjust the The budget-related legislation establishes a grace weekly authorized hours for any particular week period for the first three months after the federal for known recurring or periodic needs of the labor regulations go into effect. During this time, recipient. Second, the recipient may request that IHSS providers will be compensated, rather than the county welfare department adjust the weekly penalized, for working more than 66 hours per authorized hours for unexpected extraordinary week, exceeding a recipient’s weekly authorized circumstances. Finally, a recipient may adjust his/ hours, and/or engaging in more than seven hours her weekly authorized hours without notifying of weekly travel time. After the three-month grace the county welfare department if the adjustment period, budget-related legislation stipulates that would not cause the recipient to receive more than IHSS providers who violate the work limitations on 40 hours of care within the given week. Regardless multiple occasions could be terminated from the of any adjustment to weekly authorized hours, all IHSS program by either the state or the county in recipients continue to be required to receive no which the provider works. more than the total number of monthly authorized Study on Implementation of the New Work hours each month. Under certain circumstances, Limitations. The budget-related legislation the legislation authorizes a provider to work more requires DSS to conduct a study and report to the than 66 weekly hours—as long as the provider Legislature on the implementation of the new work rebalances his/her work schedule in other weeks limitations over the 24-month period following of the month so that he/she does not accrue more the three-month grace period. The legislation overtime hours in the month than would have specifies the intent of the Legislature to make any accrued had no adjustment to the weekly work appropriate adjustments to the state’s compliance schedule been made. with the new federal labor regulations through Limits IHSS Providers to No More Than subsequent legislation. Seven Hours of Travel Time Each Week. While New Requirements for the IHSS Provider the 2014-15 spending plan provides funding to pay Orientation. All individuals seeking to work for IHSS providers for time spent traveling directly the IHSS program are required to undergo an between the homes of recipients, budget-related orientation—administered by the county—prior legislation stipulates that providers cannot engage to working as a provider. Currently, counties have in more than seven hours of travel time per week. the authority to administer the IHSS provider There is some uncertainty regarding whether orientation in different ways—including using a the federal government will pay a share of the web-based tool or providing in-person instruction. costs for travel time. Given this uncertainty, the The 2014-15 budget implements new requirements legislation further stipulates that travel time hours for the IHSS provider orientation. Beginning will be counted toward providers’ weekly limit of April 1, 2015, all counties must administer an 66 work hours if federal financial participation is on-site orientation that all prospective providers unavailable for travel time costs. If federal financial must attend in person. A new requirement of the 40 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET in-person orientation is that it inform providers that result in serious injury or death) through of new overtime rules as well as paid travel and subsequent legislation. Effective January 2015, the wait time. The legislation also allows the local 2014-15 spending plan also includes a 10 percent union representing IHSS providers to make a increase in annual licensing and application fees. presentation of up to 30 minutes during the This increase in fees is estimated to generate in-person orientation. Prospective providers are $1 million in revenue in 2014-15 and $2 million in not compensated for the time they spend attending revenue annually thereafter. the orientation. The 2014-15 budget did not Intent to Increase Inspection Frequency. The include any specific funding for this change in the final budget package includes intent language administration of IHSS provider orientations. specifying that it is the intent of the Legislature to, over time, increase the frequency of facility Community Care Licensing (CCL) inspections to annually for some or all facilities. Funds CCL Quality Enhancements. The Department of Developmental Services 2014-15 spending plan funds the Governor’s proposal for quality enhancements and Under the budget plan, General Fund spending improvements at the CCL division within DSS. This for DDS will increase from $2.8 billion in 2013-14 includes 71.5 positions and $5.8 million General to nearly $3 billion in 2014-15, or by 5.4 percent. Fund to do such things as (1) create a more robust Below, we discuss the most significant spending training program for licensing inspectors, (2) create changes that were adopted in the DDS budget. a quality assurance unit that is trained to detect Enacts Governor’s Proposals for Transitioning instances of systemic noncompliance, (3) centralize DC Residents to Community Settings. The DCs and make more efficient the application and are large, state-run institutional facilities that serve complaint intake process, and (4) create some individuals with developmental disabilities. In 2013, medical capacity at DSS to begin considering the the administration convened a task force on the increasing medical needs of those in assisted living future of DCs—comprised of consumers, consumer facilities. For instances when the license of a facility advocates, regional center (RC) representatives, is suspended or revoked, budget-related legislation community service providers, members of organized allows for the department to appoint a qualified labor, families of DC residents, members of the temporary manager or receiver to: (1) assume Legislature, and DDS staff—that released a plan for responsibility of the operation of the facility and the long-term future of DCs. The plan recognizes assist in bringing it into compliance, (2) facilitate the varying needs of existing DC residents and the transfer of ownership of the facility to a new makes recommendations for improving community licensee, or (3) coordinate and oversee the transfer services and supports (as an alternative to the DCs), of clients to a new facility if the facility is closing. while retaining institutional facilities for individuals Penalties and Fees. The Legislature rejected the who are in acute crisis or involved in the criminal administration’s proposal to increase the penalty justice system. The budget enacts the Governor’s assessed on licensees for instances of serious May Revision package of proposals that adopts some noncompliance, and instead included trailer bill of the task force recommendations, for a total cost of language that signals its intention to increase the about $15 million General Fund in 2014-15. Below, penalties for all facilities for instances of serious we provide a breakdown for how these funds will be noncompliance (with an emphasis on violations spent in 2014-15. www.lao.ca.gov Legislative Analyst’s Office 41 2014-15 BUDGET • New Community Homes for DC Residents program that provides early intervention services to Transitioning to Community. The budget infants and toddlers in order to reduce the effects of provides about $12 million General Fund a developmental disability or delay—in response to to begin to develop additional homes in the the federal Individuals with Disabilities Education community, which will include new models Act. The budget provides $8 million General Fund of care to primarily serve consumers with to restore Early Start eligibility criteria, beginning challenging behavioral needs. January 1, 2015, to the less stringent threshold that was in effect prior to budget reductions made in • Additional Funding for RC Staffing 2009. This means that for children 24 months of and DC Acute Crisis Units. The budget age or older, the eligibility threshold will return to provides about $1 million General Fund a developmental delay of at least 33 percent in one for additional RC staff positions to support of five developmental areas as opposed to the more design and development of the new stringent criteria implemented in 2009—either a community homes, ensure safe consumer developmental delay of at least 50 percent in one transitions and consumers’ continuing area or a developmental delay of at least 33 percent health and safety, and conduct ongoing in two or more areas. In addition, infants and quality assurance and monitoring. The toddlers who are considered at risk of a substantial budget also provides $2 million General developmental disability due to a combination of Fund to develop acute crisis units at risk factors will return to being eligible for Early Fairview DC and Sonoma DC, which Start. Since 2009, infants and toddlers considered will operate as a placement of last resort to be at risk have not been eligible for Early Start for consumers found to be a danger to services. themselves or others and who are in need Provides a Rate Increase to RC Vendors of of short-term crisis stabilization services. Home Care Services for Overtime Costs. The Continues Improvements at Sonoma DC. The budget provides about $9 million General Fund in 2014-15 budget provides $5 million General Fund order to fund a 5.82 percent rate increase beginning ($1 million above the amount provided in 2013-14) January 1, 2015 to RC vendors employing workers to continue to implement improvements needed providing home care services. Vendors that employ at Sonoma DC to regain federal certification workers providing services—including personal of four Intermediate Care Facility (ICF) units assistance, supported living services, and in-home decertified in January 2013 as a result of health respite—to consumers in their homes are impacted and safety violations. Because certification is a by new federal labor regulations requiring overtime requirement for receipt of federal Medicaid funds, pay for home care workers. (We describe the new the decertification of the four ICF units led to the federal labor regulations in greater detail in the loss of $16 million in federal funds in 2013-14. The “In-Home Supportive Services” section of this budget assumes that certification of the four ICF report.) The 5.82 percent rate increase is intended units will be regained, and that the $16 million to provide vendors of home care services the ability in federal funding will be restored beginning to pay employees overtime—that is, one-and-a-half July 1, 2014. times the regular pay rate—for hours that exceed Restores Early Start Eligibility Criteria to 40 in a week pursuant to the new federal labor Less Stringent Threshold. Early Start is California’s regulations. 42 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Authorizes RCs to Pay for Private Health to include the formation of a multidisciplinary Insurance Deductibles. Beginning in 2013-14, team to serve the children. The team will be RCs were authorized to pay for private health comprised of representatives from the county insurance co-payment and coinsurance costs for child welfare, probation, mental health, substance services identified as necessary in a consumer’s abuse disorder, and public health departments. individual program plan—generally for consumers The DSS, in consultation with the County Welfare whose families earn at or below 400 percent of the Directors Association, will develop an allocation FPL. Budget-related legislation authorizes RCs to methodology to distribute the funding for the also pay for private health insurance deductibles program amongst counties electing to participate. beginning July 1, 2014. The budget provides No later than April 1, 2017, DSS shall report to about $10 million General Fund to pay for private the Legislature on the implementation of the health insurance co-payments, coinsurance, and program. Ongoing funding for the CSEC program deductibles in 2014-15. is estimated to be $14 million General Fund. Governor Vetoes Budget Act Language Creates the Approved Relative Caregiver to Establish Stakeholder Workgroups for Funding Option Program. Effective Rate-Setting Methodologies and Core-Staffing January 1, 2015, the 2014-15 budget provides Formula. The Legislature included language in $15 million General Fund for the support of the the budget bill sent to the Governor to establish newly established Approved Relative Caregiver stakeholder workgroups to review and make Funding Option program. Currently, the estimated recommendations on (1) rate-setting methodologies 5,200 foster youth in California who are not eligible for community services and supports and (2) the for federal foster care payments and are placed core-staffing formula used to determine the with a relative provider receive a lower foster care operations budget for RCs. The Governor vetoed payment than the youth who are eligible for federal these provisions and instead directed the HHSA foster care. The state General Fund cost to make to convene a task force to review these two issues foster care payments for these nonfederally eligible along with other community issues identified by youth equal to the foster care payments of federally the task force on the future of DCs. eligible youth—the objective of this new program— is estimated to be $15 million in 2014-15 (half-year Child Welfare Services effect) and about $30 million annually thereafter (to Establishes the Commercially Sexually be adjusted annually by the California Necessities Exploited Children (CSEC) Program. Effective Index). Participation in this program is optional for January 1, 2015, the 2014-15 budget provides counties. The program is intended to fund the cost $5 million General Fund for support of the newly of the caseload of nonfederally eligible foster youth established CSEC program. Counties will have placed with relatives as of July 1, 2014. Any county the option of participating in this program, that opts to participate in the program assumes the which is intended to provide prevention activities, sole responsibility to pay for any additional costs intervention activities, and services to children above the amount of the total budgeted funding who are victims, or at risk of being victims, of allocated to it. A county could experience a growth commercial sexual exploitation. Counties interested in the cost of the optional program if, for example, in participating in the program are required to the caseload grows beyond the caseload in place submit plans to DSS. These plans are required on July 1, 2014. Budget-related legislation gives www.lao.ca.gov Legislative Analyst’s Office 43 2014-15 BUDGET counties the flexibility to opt out of participating in California, 2014-15 budget-related legislation in the program if they provide a 120-day notice to affirms the right of state courts to make the DSS and a 90-day notice to the relative caregiver. findings necessary to enable a child to petition the Minimum Age Requirement for Group Home United States Citizenship and Immigration Service Employees. Effective October 2014, budget- to be classified as a special immigrant juvenile related legislation created a new minimum age (SIJ). Once this SIJ status is granted, the child is requirement of 21 years of age for group home eligible to become a lawful permanent resident. employees and managers who provide direct care Additionally, the budget provides $3 million and supervision to group home residents. from the General Fund for DSS to contract with qualified nonprofit legal services organizations to Support for Undocumented, provide legal services to these minors in the state. Unaccompanied Minors Future-year support for these activities is subject to In response to an increase in the number of available funding. unaccompanied, undocumented immigrant minors CAP-AND-TRADE Background. The Global Warming Solutions quarterly auctions are expected to raise additional Act of 2006 (Chapter 488, Statutes of 2006 [AB 32, revenue. Auction revenues are deposited into Nuñez/Pavley]), commonly referred to as AB 32, the Greenhouse Gas Reduction Fund (GGRF) established the goal of reducing greenhouse gas for expenditure by various entities. In 2013-14, (GHG) emissions statewide to 1990 levels by 2020. $500 million in cap-and-trade auction revenue In order to help achieve this goal, the California was loaned to the General Fund. In addition, Air Resources Board (ARB) adopted a regulation the Legislature approved emergency drought that establishes a cap-and-trade program that legislation in February 2014 that, among other places a “cap” on aggregate GHG emissions from changes, appropriated $40 million from the GGRF entities responsible for roughly 85 percent of the for the Department of Water Resources (DWR) state’s GHG emissions. To implement the cap-and- and the California Department of Food and trade program, ARB allocates a certain number of Agriculture (CDFA) to implement water-efficiency carbon allowances equal to the cap. Each allowance projects. This included $20 million for water equals one ton of carbon dioxide equivalent. The conservation grants, $10 million for more water ARB provides some allowances for free, while efficient irrigation systems, and $10 million to making others available for purchase at auctions. install a more energy-efficient turbine at a State Once the allowances have been allocated, entities Water Project facility. can then “trade” (buy and sell on the open market) Expenditure Plan for 2014-15. As shown in the allowances in order to obtain enough to cover Figure 15, the 2014-15 budget includes $832 million their total emissions for a given period of time. from the GGRF for various programs designed to The ARB has conducted eight auctions reduce GHG emissions. This includes: since November of 2012, which have generated • High-Speed Rail ($250 Million). The a total of $833 million in state revenue. Future budget includes $250 million to support 44 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the (1) environmental planning and to local agencies for projects designed to permitting activities for the first phase of reduce GHG emissions through land use, the state’s high-speed rail project (service housing, transportation, and agricultural between San Francisco and Anaheim) and land preservation practices. This could (2) purchase of land and some construction include affordable housing projects that activities for the Initial Operating Segment support infill and compact development, (from Madera to the San Fernando Valley). transit projects that support ridership, According to the administration, the and active transportation projects for availability of a high-speed rail system pedestrians and bicyclists. in California will reduce vehicle miles • Low-Income Weatherization and traveled in cars, as well as planes. Solar Programs ($75 Million). The • Low Carbon Transportation Weatherization Assistance Program ($200 Million). This program will allow is administered by the Department of ARB to fund several activities designed Community and Services Development to encourage the purchase and Figure 15 use of vehicles Cap-and-Trade Expenditure Plan that produce (Dollars in Millions) lower carbon 2014-15 Expendituresa emissions. This Program Amount includes incentive High-speed rail $250 programs for zero Low carbon transportation 200 and low-emission Affordable housing and sustainable communities 130 Low-income weatherization and solar 75 passenger Low carbon transit 25 vehicles, clean Sustainable forests 25 buses and Transit and intercity rail 25 Waste diversion 25 trucks, and Wetlands and watershed restoration 25 sustainable freight ECAA for public buildings 20 technology. Urban forestry 17 Agricultural energy and operational efficiency 15 • Affordable Total $832 Housing and Ongoing Expenditures Beginning in 2015-16 Sustainable Percent of Program Revenues Communities High-speed rail 25% ($130 Million). Affordable housing and sustainable communities 20 The budget Intercity rail capital 10 includes Low carbon transit operations 5 Other programs—allocations determined in future 40 $130 million Total 100% for the Strategic a Chapter 2, Statutes of 2014 (SB 103, Committee on Budget and Fiscal Review), included an additional Growth Council $40 million of auction revenues for water-efficiency projects in 2013-14. ECAA = Energy Conservation Assistance Account. to provide grants www.lao.ca.gov Legislative Analyst’s Office 45 2014-15 BUDGET and provides low-income Californians with administer this program to award grants weatherization services such as weather to public entities to improve intercity, stripping, insulation, and water heater commuter, and urban rail systems. This replacement. In addition, the department could include capital or operational administers programs that install solar investments designed to reduce GHG photovoltaic systems on low-income emissions by, for example, increasing homes. Historically, the above programs rail ridership through better integrating have been funded by federal monies. different rail systems with each other and with other transportation systems. • Low Carbon Transit ($25 Million). Under this program, the Department of • Waste Diversion ($25 Million). This Transportation (Caltrans) will provide program is designed to increase recycling grants to local transit agencies for new or and composting through grant and loan expanded bus or rail services or expanded programs administered by the Department intermodal transit facilities. In order to be of Resources Recycling and Recovery eligible for funding, local agencies will have (CalRecycle). Increased recycling and to demonstrate that projects will reduce composting would reduce GHG emissions GHG emissions by increasing people’s use by: (1) reducing methane emissions by of these forms of transportation. diverting organic waste from landfills, and (2) increasing recycling, which could • Sustainable Forests ($25 Million). produce fewer GHG emissions than Funding for sustainable forests would manufacturing new products. support programs administered by the California Department of Forestry and • Wetlands and Watershed Restoration Fire Protection (CalFire) that could reduce ($25 Million). This funding would GHG emissions by increasing the number support Department of Fish and Wildlife and health of forests, as well as reducing (DFW) grants for ecosystem restoration the frequency and severity of wildland throughout the state, which would increase fires. This could include: (1) CalFire’s the amount of land that can naturally vegetation management program, which is capture and store carbon. The funding a cost-sharing program with landowners; could also be used to support measures (2) the forest legacy program, which invests to reduce the energy needed to transport in forestlands to prevent conversion to water to wetlands currently managed by non-forest use; (3) reforestation services; DFW. (4) research at demonstration state forests • Energy Conservation Assistance Account and cooperative wildlands; (5) forest (ECAA) for Public Buildings ($20 Million). pest control programs; and (6) the forest The ECAA program, administered by practice program, which regulates timber the Energy Resources Conservation and harvests. Development Commission, provides low • Transit and Inter-City Rail ($25 Million). and no-interest loans to state and local The California Transportation Agency will governments, schools, colleges, and public 46 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET hospitals to implement projects that will revenues. Budget trailer legislation also includes reduce energy usage. These can include a one-time transfer of $30 million in 2013-14 updating lighting systems, installing from the GGRF to the ARB to support the Clean insulation, and improving air conditioning Vehicle Rebate Program and the Hybrid and and heating systems. It can also include Zero-Emission Truck and Bus Voucher Incentive energy generation, such as installing Project. This transfer replaces funding previously rooftop solar systems. provided on a one-time basis from the Vehicle Inspection and Repair Account. In addition, the • Urban Forestry ($17 Million). This budget assumes the GGRF receives repayment of program will fund CalFire’s program that the first $100 million of the $500 million loan to the provides local assistance grants for urban General Fund. and community forestry. This is intended Expenditure Plan for Future Years. Budget to increase the number of trees that can trailer legislation specifies how the state will capture and store carbon. allocate most cap-and-trade auction revenues in 2015-16 and beyond. For all future revenues, the • Agricultural Energy and Operational legislation continuously appropriates (1) 25 percent Efficiency ($15 Million). This funding is for high-speed rail, (2) 20 percent for affordable provided to CDFA to support (1) grants housing and sustainable communities grants (with for “digesters” that capture methane at least half this amount for affordable housing), from animal waste in order to generate (3) 10 percent for inter-city rail capital projects, and electricity or create transportation fuel and (4) 5 percent for low carbon transit operations. The (2) development of technical standards remaining 40 percent would be available for annual that would allow low-carbon agricultural appropriation by the Legislature. The legislation biofuels to be sold in California. also requires that when the remaining $400 million The budget also provides $7.5 million from from the loan made from the GGRF to the General the GGRF for the ARB to perform coordination, Fund is repaid, that the funding be directed to analytical, and other administrative functions high-speed rail. related to the expenditure of cap-and-trade auction RESOURCES AND ENVIRONMENTAL PROTECTION The 2014-15 budget provides a total of two bills—Chapter 2, Statutes of 2014 (SB 103, $8 billion from various funds for programs Committee on Budget and Fiscal Review) and administered by the Natural Resources and Chapter 3, Statutes of 2014 (SB 104, Committee Environmental Protection Agencies. This is a on Budget and Fiscal Review)—that appropriated decrease of $2.6 billion, or 24 percent, when a total of $687 million from various fund sources compared to revised 2013-14 expenditures. Most of (including $75 million General Fund) in 2013-14 to this reduction reflects lower bond expenditures in address the state’s drought. This included funding 2014-15. for local water supply projects, flood protection, 2014 Drought Legislation. In February 2014, groundwater management activities, as well as the Legislature approved and the Governor signed employment, housing, and food assistance for www.lao.ca.gov Legislative Analyst’s Office 47 2014-15 BUDGET individuals affected by the drought. In addition, year-over-year spending is attributable to a decline the 2014-15 Budget Act includes an additional in bond fund spending. $151 million ($123 million General Fund) in mostly Department of Forestry and Fire Protection one-time funding for drought-related activities, such as for fire suppression and prevention and The budget provides $1 billion from various habitat protection. Figure 16 lists the drought- funds for support of CalFire in 2014-15. This is related funding provided in 2013-14 and 2014-15, an increase of $82 million, or 9 percent, from and several of these activities are described in estimated current-year expenditures. (This does not more detail elsewhere in this report where we include spending which will be reimbursed from describe the major budget changes for the affected other governments for cooperative fire protection, departments. which is expected to be $406 million in 2014-15.) Drought-Related Funding. The budget Resources Programs provides a one-time increase of $66 million and As shown in Figure 17, the budget includes 259 temporary positions to address heightened $4.4 billion (including $2.3 billion from the fire risk related to drought conditions. This General Fund) for the support of various includes: (1) $53.8 million (General Fund) to resources programs in 2014-15. This is a decrease continue firefighter surge capacity, retain seasonal of $3.1 billion, or 41 percent, from the revised firefighters beyond the budgeted fire season, and 2013-14 spending level. Most of this reduction in enhance air attack capabilities to suppress wildfires; Figure 16 Drought-Related Appropriations for 2013-14 and 2014-15 (In Millions) Purpose Department 2013-14 2014-15 Totals Grants for local water supply projects Water Resources $472.5 — $472.5 Flood control projects Water Resources 77.0 — 77.0 Increased fire suppression and prevention Forestry and Fire Protection —a $66.0 66.0 Actions to protect fish and wildlife Fish and Wildlife 2.3 38.8 41.1 Food assistance Social Services 25.3 5.0 30.3 Groundwater cleanup and sustainable management Water Resources/SWRCB 14.0 9.1 23.1 Housing assistance Housing and Community Development 21.0 — 21.0 Grants for projects that save water and energy Water Resources 20.0 — 20.0 Emergency water supply activities and education Water Resources 1.0 18.1 19.1 Emergency drinking water supplies Public Health 15.0 — 15.0 Drought response and water efficiency California Conservation Corps 13.0 — 13.0 Grants for irrigation improvements to save water Food and Agriculture 10.0 — 10.0 and energy SWP water-energy efficiency Water Resources 10.0 — 10.0 Emergency regulations and enforcement SWRCB 2.5 4.3 6.8 Drought response coordination and guidance Office of Emergency Services 1.8 4.4 6.2 Water conservation in state facilities General Services — 5.4 5.4 Training for workers affected by drought Employment Development 2.0 — 2.0 Totals $687.4 $151.1 $838.5 a The administration projected spending an additional $90 million for emergency fire suppression in 2013-14. SWRCB = State Water Resources Control Board and SWP = State Water Project. 48 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET (2) $10 million (State Responsibility Area [SRA] Fireworks Disposal. The budget includes Fire Prevention Fund) for local grants for fire one-time funding of $1.5 million (Toxic Substances prevention projects or for public education; and Control Account) for the State Fire Marshal’s (3) $2.2 million (SRA Fire Prevention Fund) for Fireworks Disposal Program to address the additional defensible space inspectors. stockpiles of about 400,000 pounds of seized illegal SRA Protection Adjustment. The budget fireworks in need of disposal. provides $14.2 million ($13.5 million General Department of Parks and Recreation (DPR) Fund and $670,000 SRA Fire Prevention Fund) to support 62.5 permanent positions in order to The budget provides a total of $557 million for expand CalFire fire protection to 92,000 acres of support of DPR. This is a decrease of $66 million, high-risk, high-value land around the Lake Tahoe or 11 percent, from estimated prior-year basin, Idyllwild (Riverside County), and Big Bear expenditures. Most of this reduction reflects bond Lake (San Bernardino County). Fire protection expenditures in 2014-15. The budget includes in these areas was previously provided by federal $118 million from the General Fund, $112 million agencies under a long-term, cooperative agreement from fees paid by park visitors, $180 million in between CalFire and the federal government. other special funds, $98 million in bond funds, and However, CalFire and the federal government $49 million in federal funds. Major expenditures determined that CalFire was better suited to include one-time increases of (1) $14 million (State provide primary fire protection in areas such Parks and Recreation Fund [SPRF]) to backfill as these that have a large number of homes in expiring funding sources and continue the existing wildland areas. levels of service in 2014-15 and (2) $19.2 million Figure 17 Resources Budget Summary (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Amount Percent Expenditures Department of Forestry and Fire Protection $934 $927 $1,009 $82 9% General obligation bond debt service 888 1,008 972 -36 -4 Department of Parks and Recreation 530 623 557 -66 -11 Energy Resources Conservation 300 613 505 -108 -18 Department of Water Resources 483 2,693 429 -2,264 -84 Department of Fish and Wildlife 309 418 406 -12 -3 Wildlife Conservation Board 75 602 106 -496 -82 Department of Conservation 79 113 87 -26 -23 California Conservation Corps 79 94 80 -15 -15 Other resources programs 259 398 254 -144 -36 Totals $3,936 $7,488 $4,406 -$3,082 -41% Funding General Fund $2,096 $2,234 $2,260 $26 1% Special funds 888 1,412 1,400 -12 -1 Bond funds 806 3,586 529 -3,057 -85 Federal funds 145 255 217 -39 -15 www.lao.ca.gov Legislative Analyst’s Office 49 2014-15 BUDGET (Proposition 84) to develop camping and day use groundwater management plans developed by beach access at the Fort Ord Dunes State Park local agencies, and (4) develop an IT system so in Monterey County. The budget also includes that individuals who drill wells can submit well $521,000 (SPRF and the Lake Tahoe Conservancy records online. (The drought legislation discussed Account) for the department to take over the above included an additional $1 million for these operation and maintenance of Kings Beach SRA purposes.) In part, these resources will be used to from local government. implement three policy bills designed to improve groundwater management by requiring local Department of Water Resources management of groundwater in certain areas, as The budget includes $429 million from various well as establishing state oversight of groundwater fund sources to support DWR, a net reduction of pumping. about $2.3 billion, or 84 percent, from the revised Department of Fish and Wildlife 2013-14 level. This is primarily due to a reduction in planned bond expenditures. The budget does, The budget includes $406 million from various however, include funding increases for certain fund sources to support DFW, a net reduction DWR-related programs. of $12 million, or 3 percent, from the revised Drought-Related Funding. The budget 2013-14 level. This is primarily due to a reduction provides $18.1 million (General Fund) to DWR in planned bond expenditures. The budget does, for various emergency water supply activities however, include increased funding for certain in 2014-15. Most of this funding would support DFW-related programs. (1) improving monitoring of drought conditions Oil Spill Response and Recovery. The budget and hydrology, (2) expediting water transfers, provides an increase of $8.7 million from the (3) helping local agencies assess and improve Oil Spill Prevention Administrative Fund to their drought response efforts, (4) overseeing state expand DFW’s oil spill prevention and response drought response, and (5) continuing a water activities to include the prevention of inland conservation education campaign. The funding spills. (Previously, the department’s authority was provided would support 72 existing positions that limited to preventing marine spills and responding are being redirected towards drought activities. In to both marine and inland spills.) This amount addition, the budget includes provisional language includes (1) $6.2 million and 38 permanent that would allow the Director of Finance to allocate positions to expand prevention activities and some expiring bond funds to fund installation of respond to a greater number of inland spills as temporary barriers in the Sacramento-San Joaquin significantly more oil is transported over land and Delta in case they are necessary to preserve water (2) $2.5 million (including a $2 million fund shift) quality. to treat wildlife affected by an oil spill. In order to Groundwater Management. The budget fund these activities, the budget package expands includes $5.4 million from the General Fund and an existing fee on oil brought into California over five new positions for DWR to (1) comprehensively marine waters to all oil delivered to California assess the water quality of and supply available refineries. in the state’s groundwater basins, (2) define Marijuana Enforcement. The budget provides “sustainable” groundwater management, (3) review $1.5 million to DFW from various sources to 50 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET assess the impacts of marijuana cultivation on undergo fracking and the types of chemicals used the environment, educate growers on permitting for these processes. The funds for DOC would requirements (such as for altering streams or support engineering and geological workload, such diverting water), and enforce laws relating to as monitoring compliance with state regulations illegal cultivation of marijuana. This program at extraction sites, as well as completion of a will be operated in coordination with SWRCB, as legislatively mandated study and environmental discussed below. The budget package also includes review. Funds for DOC—as well as related efforts statutory changes to allow DFW to administratively by SWRCB and ARB—will be generated by impose civil penalties for the production of increased fees on oil and natural gas produced in controlled substances on public or private lands. California. Drought-Related Funding. The budget Other Resources Programs provides $38.8 million (mostly General Fund) and 13 one-year limited-term positions for various Climate Change Activities. The budget emergency actions to protect fish and wildlife provides $8 million on a one-time basis for climate during the drought. This funding would allow the change activities in the resources program area. department to (1) restore habitat for vulnerable fish This includes (1) $2.5 million (transferred from species such as salmon and steelhead, (2) improve the Environmental License Plate Fund [ELPF] the technology used to monitor the locations into a new California Climate Resilience Account) and prevalence of fish, (3) continue key drought to support coastal zone management planning response activities such as emergency permitting and activities that address the risks and impacts and consultation with other state agencies, and of climate change, (2) $5 million (ELPF) for (4) improve water use on state wildlife refuges. the Secretary for Natural Resources Agency to complete the fourth climate change assessment, Department of Conservation (DOC) and (3) $529,000 (Cost of Implementation Account) The budget provides a total of $87 million for the agency to develop a forest carbon plan for the DOC from various funding sources, a net and complete other activities related to the AB 32 decrease of $26 million, or 23 percent, from the Scoping Plan. revised 2013-14 level. The budget includes a roughly California Coastal Commission. The budget one-third increase in existing building permit fees provides a temporary increase of $3 million to generate $1.5 million for the department’s work (mostly ELPF) for the commission to support identifying and mapping fault zones. the local coastal plans that local governments Hydraulic Fracturing. The budget includes within the coastal zone develop to govern land $18.7 million from increased fees on oil and natural use in those areas. This activity includes helping gas produced in California for DOC to regulate locals develop these plans and reviewing them for well stimulation techniques such as hydraulic consistency with state law. The budget also includes fracturing (commonly referred to as “fracking”) a temporary increase of $1 million in General Fund as required by Chapter 313, Statutes of 2013 (SB 4, support for grants to local governments, in order to Pavley). Specifically, SB 4 requires the development help ensure that local plans are completed and up of regulations, a permitting process, and public to date. notification and disclosure of wells that will www.lao.ca.gov Legislative Analyst’s Office 51 2014-15 BUDGET Environmental years, with the intent of maintaining total LCC Protection Programs funding at its prior-year levels. Specifically, in 2014-15 the budget provides (1) $4 million from As shown in Figure 18, the budget includes the Electronic Waste Recovery and Recycling $3.6 billion (mostly from special funds) for various Account, (2) $2.5 million from the California Tire environmental protection programs. This is an Recycling Management Fund, and (3) $1 million increase of $508 million, or 17 percent, from the from the California Used Oil Recycling Fund, revised 2013-14 spending level. This increase largely while reducing BCRF funding by the same reflects additional funding from cap-and-trade amount ($7.5 million). (In order to be eligible to auction revenues (described earlier in this report), receive funding from these alternative sources, as well as the transfer of the state’s drinking water the LCCs will have to increase their recycling program to the SWRCB, as described in more activities related to electronic waste, tires, and detail below. oil.) Beginning in 2015-16, the amounts provided Department of Resources from these special funds will double, resulting in Recycling and Recovery a further reduction in funding from the BCRF. While this fund shift was part of a larger package The budget provides a total of $1.5 billion proposed by the Governor to address the BCRF’s for support of CalRecycle. This is an increase of structural deficit, the Legislature did not approve $16 million, or 1 percent, from estimated prior-year the rest of the package. expenditures. Beverage Container Recycling Fund (BCRF). State Water Resources Control Board The budget shifts some funding for the Local The budget includes $949 million (mostly Conservation Corps (LCC) from the BCRF, which special funds and federal funds) to support has a $100 million structural deficit, to three other SWRCB, a net increase of $207 million, or fund sources. This shift will be phased in over two Figure 18 Environmental Protection Budget Summary (Dollars in Millions) Change From 2013-14 2012-13 2013-14 2014-15 Amount Percent Expenditures Department of Resources, Recycling, and Recovery $1,459 $1,475 $1,491 $16 1% State Water Resources Control Board 629 743 949 207 28 Air Resources Board 326 535 821 285 53 Department of Toxic Substances Control 155 191 189 -3 -1 Department of Pesticide Regulation 78 82 83 1 1 Other environmental programs 35 36 37 1 4 Totals $2,682 $3,062 $3,570 $508 17% Funding General Fund $46 $51 $63 $12 24% Special funds 2,340 2,528 2,712 184 7 Bond funds 52 281 427 147 52 Federal funds 245 202 368 165 32 52 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET 28 percent, from the revised 2013-14 level. This is • $1.9 million from the General Fund and primarily due to the transfer of the drinking water ten positions to begin implementing a program from the DPH to SWRCB. program to regulate some of the state’s Drinking Water Program Transfer. The groundwater. Specifically, SWRCB will act budget provides a total of $310 million in 2014-15— as a “backstop” to take over management including $45 million for state operations and of groundwater basins where local agencies $265 million for local assistance (mostly bond have not sustainably managed their and federal funding for grants)—to transfer the groundwater. drinking water program from DPH to SWRCB. • $1.8 million from the Waste Discharge With the exception of $1.8 million in one-time Permit Fund (WDPF)—supported by transition expenditures, the transfer does not, on polluter fees—to change the fund source net, result in added costs or savings in the budget for a portion of the Groundwater Ambient as a whole. In addition, the budget package includes Monitoring and Assessment program. This statutory changes to improve the functioning and program, which was previously supported increase the use of a revolving loan fund associated by bond funds, allows the board to monitor with the program. For example, these changes water quality in groundwater basins that allow SWRCB to lower interest rates, which could are used for drinking water. help disadvantaged communities to qualify for loans from the fund. Marijuana Enforcement. The budget provides Drought-Related Funding. The budget $1.8 million from WDPF and 11 positions to provides $4.3 million from the General Fund to begin a pilot program to address the water quality support 75 existing positions redirected from impacts associated with marijuana cultivation other tasks to perform various emergency actions on private and public lands. Specifically, SWRCB related to the drought. These actions include will assess the impacts of marijuana cultivation (1) monitoring drought conditions in real time, on bodies of water, educate growers on existing (2) adjusting water quality regulations to ensure permitting requirements (such as related to that the limited water available during the drought agricultural discharges), and gather information for is used most effectively, (3) enforcing restrictions enforcement actions. on water use, and (4) expediting the processing of Air Resources Board water transfers. Groundwater Monitoring. The budget provides The budget provides a total of $821 million to a total of $9.9 million for activities relating to the ARB, an increase of $285 million, or 53 percent, groundwater monitoring and management. This from the revised 2013-14 level. This increase amount includes: largely reflects $200 million in cap-and-trade auction revenues provided to ARB for low carbon • $6.2 million from the Oil, Gas, and transportation programs, including an expansion Geothermal Administrative Fund and of the Clean Vehicle Rebate Project. The budget 14 positions to develop and implement a also provides $7.5 million for the ARB to perform program to monitor groundwater quality various administrative functions related to the in areas where hydraulic fracturing is expenditure of cap-and-trade auction revenues. taking place. These resources are primarily intended to allow www.lao.ca.gov Legislative Analyst’s Office 53 2014-15 BUDGET the board to (1) provide other state departments 1 percent, from estimated prior-year expenditures. implementing cap-and-trade programs with The budget includes $5.3 million and 30.5 limited evaluation criteria and other program guidance term positions in 2014-15 from the Hazardous and (2) track and report on implementation Waste Control Account and the Toxic Substances progress. The ARB will also monitor the market Control Account to implement certain aspects of for cap-and-trade allowances to identify potential the department’s “Fixing the Foundation” initiative market manipulation. In addition, the budget and address recent concerns regarding DTSC’s includes six positions and $1.3 million for ARB ability to carry out its responsibilities. This includes to develop regulations to control and mitigate funding to address the department’s cost recovery GHG emissions, “criteria pollutants,” and toxic air and permit renewal backlogs, update cost estimates contaminants resulting from well stimulation. for site cleanups, rebuild the hazardous waste tracking system, correct errors in the hazardous Department of waste manifest data, and implement the hazardous Toxic Substances Control (DTSC) waste permitting work plan. The budget includes $189 million for support of DTSC. This is a decrease of $3 million, or TRANSPORTATION The spending plan provides $16.8 billion from Caltrans. This level of expenditures is less various fund sources for transportation programs. than in 2013-14 by roughly $1.7 billion (or As shown in Figure 19, this is a decrease of 13 percent). The reduction is due primarily to $264 million, or 2 percent, when compared to the lower bond spending (as discussed below). The revised level of spending in the prior year. budget provides approximately $4.2 billion for transportation capital outlay, $2.2 billion for local Department of Transportation assistance, $1.8 billion for highway maintenance The budget plan includes total expenditures and operations, and $1.7 billion for capital of $11.1 billion from various fund sources for outlay support (COS). The budget also provides Figure 19 Transportation Program Expenditures Various Funds (Dollars in Millions) Change From 2013-14 Program/Department 2012-13 2013-14 2014-15 Amount Percent Department of Transportation $11,702 $12,731 $11,065 -$1,665 -13% High-Speed Rail Authority 231 620 1,390 770 124 California Highway Patrol 1,895 1,935 1,992 57 3 Department of Motor Vehicles 929 1,020 1,061 40 4 Transit Capital (Proposition 1B) 753 299 824 525 176 State Transit Assistance 418 390 398 8 2 California Transportation Commission 56 28 28 — — Totals $15,984 $17,022 $16,758 -$264 -2% 54 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET $680 million for Caltrans’ mass transportation and Transit and Intercity Rail Program. The rail programs, and $222 million for transportation budget provides $25 million from cap-and-trade planning. The balance of the funding goes for auction revenues in 2014-15 to Caltrans for a program development, legal services, and other new program to fund transit and intercity rail purposes. capital projects and operational improvements. Proposition 1B Appropriations. Proposition 1B, The new program, administered by the California a ballot measure approved by voters in November Transportation Agency, is intended to reduce 2006, authorized the issuance of $20 billion in GHG emissions by increasing transit and intercity general obligations bonds for state and local rail ridership and encouraging transit and rail transportation improvements. The budget operators to adopt clean technologies. In addition, includes total expenditures of about $1 billion of the budget package continuously appropriates Proposition 1B funds for various Caltrans projects, 10 percent of future cap-and-trade auction revenues which is 50 percent less than the estimated level of to this new program beginning in 2015-16. expenditures for 2013-14. This decline in spending COS Improvements. The budget provides reflects the fact that many of the Proposition 1B $1.7 billion for 9,894 FTE staff in the COS program projects are completed or near completion. Much to support Caltrans’ capital outlay projects, which of Caltrans’ planned Proposition 1B spending is about $20 million and 255 FTEs less than the in 2014-15 will be funded from appropriations level authorized in 2013-14. Staff in the COS approved by the Legislature in prior budgets. program conduct environmental reviews, design However, the budget does appropriate $413 million and engineer projects, oversee construction, and in Proposition 1B bond funds in order to complete perform various other related activities. In response remaining projects, procure intercity railcars, to a review of the program conducted in 2013-14, and provide grants to local agencies. The budget the budget plan includes improvements that essentially appropriates all of the funds authorized in Caltrans will develop and implement, including: Proposition 1B for Caltrans projects, with only about • A data quality management plan to $40 million remaining for future local projects. improve the accuracy of Caltrans’ project Early Repayment of Transportation Loans. data. The budget plan includes $351 million for the early repayment of loans taken from several • A “predictive tool” to improve the accuracy transportation accounts in prior years, including of Caltrans’ initial project estimates. $337 million to the Highway Users Tax Account • Three-year workload projections by type of (HUTA). Of the total repayment, the budget workload for each Caltrans district. allocates $210 to the State Highway Operation and Protection Program, $100 million to cities and In addition, due to concerns about declining counties for local streets and roads, $27 million workload in the program and the quality of the for highway maintenance, $9 million for active information provided to the Legislature, the budget transportation projects, and $5 million for includes provisional language requiring Caltrans environmental mitigation. (In addition, the budget to provide information about the program to the allocates $142 million in HUTA revenues to cities Legislature by January 10, 2015. and counties that were mistakenly withheld in a prior year.) www.lao.ca.gov Legislative Analyst’s Office 55 2014-15 BUDGET Transit Programs • $250 million from cap-and-trade auction revenue. This includes $58.6 million for Proposition 1B Transit Capital. As noted environmental planning and permitting above, Proposition 1B authorized the state to activities for the first phase of the project sell $20 billion in general obligation bonds for (between San Francisco and Anaheim) transportation, which includes $3.6 billion for and $191.4 million to purchase land and capital improvements to local transit systems. The partially support construction of the Initial budget plan provides $824 million in bond funds Construction Segment (from Madera to for transit capital expenditures in 2014-15, which Bakersfield). fully appropriates Proposition 1B funding for transit capital projects. • $29.3 million loan from the Public State Transit Assistance (STA) Program. Transportation Account to fund The budget plan provides $398 million for the the operation of the HSRA while STA program to support local transit operations, Proposition 1A bond funds are not including $25 million from cap-and-trade auction available because of legal challenges to revenues. This level of expenditures is higher than their use. Provisional language specifies in 2013-14 by roughly $8 million (or 2 percent). that the loan amount could be augmented Cap-and-trade auction revenues are a new source by up to $5.3 million if the administration of funding for the STA program and are required determines that additional HSRA staff are to support “low carbon transit”—transit operations necessary to provide project management. that reduce GHG emissions, such as by expanding As discussed earlier in this report, budget services to increase transit ridership. Caltrans, in trailer legislation continuously appropriates, coordination with the ARB, will develop guidelines beginning in 2015-16, 25 percent of all cap-and- for the program and determine if proposed trade auction revenue for the planning and capital expenditures are allowable before providing costs of the first phase of the high-speed rail grants to transit operators. In addition, the budget project. The legislation specifies that such revenues package continuously appropriates 5 percent of could be used to repay any loans made to HSRA to future cap-and-trade auction revenues to the STA fund the project. program beginning in 2015-16. California Highway Patrol (CHP) High-Speed Rail Authority (HSRA) The budget provides $2 billion to fund CHP The budget plan includes total expenditures operations, $57 million, or 3 percent, more than of $1.4 billion for HSRA. This is an increase of 2013-14. Almost all of this amount is from the $770.4 million, or 124 percent, compared to the Motor Vehicle Account (MVA), which generates its level of funding in 2013-14, which is due to the revenues primarily from driver license and vehicle availability of cap-and-trade auction revenue and registration fees. The budget includes $16 million the timing of the expenditure of funds available for CHP to replace four aircraft in 2014-15 as for the high-speed rail project. Specifically, the part of an ongoing air fleet replacement plan. In $1.4 billion in total expenditures includes: addition, the budget provides (1) $32.4 million to • $1.1 billion in federal funds. fund the acquisition and design for five new CHP area offices in Crescent City, Quincy, San Diego, 56 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Santa Barbara, and Truckee and (2) $1.7 million the MVA. The budget includes $67.4 million for for advanced planning and site selection to replace DMV to implement Chapter 524, Statutes of 2013 up to five unspecified additional CHP area offices. (AB 60, Alejo). Specifically, the legislation requires The budget also includes $9.4 million for CHP, in that, beginning January 1, 2015, DMV accept driver coordination with the Department of Justice, to license applications from persons who are unable expand state assistance for multijurisdictional local to submit satisfactory proof of legal presence in the law enforcement operations that target organized U.S. (such as a social security number), provided crime. they meet all other application requirements and provide proof of identity and California residency. Department of Motor Vehicles (DMV) The additional funding will support 822 new The budget provides $1.1 billion for DMV limited-term positions and five temporary facilities operations, $40 million, or 4 percent, more than in to process additional driver license applications. 2013-14. Of this total amount, 97 percent is from JUDICIARY AND CRIMINAL JUSTICE The 2014-15 budget provides $11.2 billion from Fund and $499 million from the counties, with the General Fund for judicial and criminal justice most of the remaining balance from fine, penalty, programs, including support for ongoing programs and court fee revenues. The General Fund amount and capital outlay projects (see Figure 20). This is is an increase of $207 million, or 17 percent, from an increase of $464 million, or 4.3 percent, above the revised 2013-14 amount. Funding for trial the revised 2013-14 General Fund spending level. court operations is the single largest component of the judicial branch budget, accounting for around Judicial Branch four-fifths of total spending. The budget provides $3.4 billion for support of Trial Court Operations Funding. The budget the judicial branch—an increase of $405 million, package includes an ongoing $86 million (or or 13.4 percent, from the revised 2013-14 level. 5 percent) General Fund augmentation to trial This amount includes $1.4 billion from the General court operations in 2014-15. The administration Figure 20 Judicial and Criminal Justice Budget Summary General Fund (Dollars in Millions) Change From 2013-14 Program/Department 2012-13 2013-14 2014-15 Amount Percent Department of Corrections and Rehabilitation $8,570 $9,306 $9,547 $241 2.6% Judicial Branch 748 1,220 1,427 207 17.0 Department of Justice 154 178 194 17 9.0 Board of State and Community Corrections 40 44 69 24 55.0 Other criminal justice programsa 49 34 9 -26 -75.0 Totals $9,559 $10,783 $11,246 $464 4.3% a Includes debt service on general obligation bonds, Office of the Inspector General, and State Public Defender. www.lao.ca.gov Legislative Analyst’s Office 57 2014-15 BUDGET intends to propose an additional 5 percent General increased trial court health benefits and retirement Fund augmentation—$91 million—in 2015-16. costs from previous years. (The administration (The statewide courts and branch entities—the indicates that it will propose funding for similar Supreme Court, Courts of Appeal, and Judicial increases in the future if trial courts make sufficient Council—received a General Fund augmentation progress in implementing the Public Employees’ of $7 million for operations and increased rent Pension Reform Act—state law that sets standards costs.) As shown in Figure 21, the $86 million on employee contributions towards retirement augmentation reduces the amount of ongoing costs.) prior-year reductions to the trial courts to Fine and Fee Backfill. In recent years, the $577 million in 2014-15. The budget also assumes amount of fine and fee revenue collected to that $249 million in actions will be taken to help support trial court operations has been lower offset a large portion of this reduction. These than expected. In recognition of this, the budget actions were used previously, such as transfers authorizes $31 million in additional General Fund from various special funds and revenues from fine support on a one-time basis to backfill an expected and fee increases made in prior years. However, decline in fine and fee revenue in 2014-15. However, the budget reduces on a one-time basis an ongoing if the amount of fine and fee revenue collected construction fund transfer by $40 million and to support trial court operations is greater than provides an equivalent amount from the General expected, this General Fund augmentation would Fund. On net, this leaves $329 million in reductions be reduced accordingly. allocated to the trial courts in 2014-15, an increase Capital Outlay. The budget provides of $114 million over the prior year. $329 million for various court construction Employee Compensation. The budget provides projects. This amount consists of: (1) $102 million a $43 million General Fund augmentation for in lease revenue bond authority for the construction Figure 21 Trial Court Budget Reductions (In Millions) 2013-14 2014-15 2012-13 Estimated Budgeted General Fund Reduction One-time reduction -$418 — — Ongoing reductions (cumulative) -724 -$664 -$577 Total Reductions -$1,142 -$664 -$577 Actions to Address Reduction Construction fund transfers $299 $55 $55a Other special fund transfers 102 52 52 Trial court reserves 385 200 — Revenue from previously increased fines and fees 121 121 121 Statewide programmatic changes 21 21 21 Total Actions $928 $449 $249 Net Reductions Allocated to the Trial Courtsb -$214 -$215 -$329 a The General Fund will provide $40 million to backfill this transfer on a one-time basis. b Addressed using various actions taken by individual trial courts, such as the implementation of furlough days and reduced clerk hours, as well as use of reserves (separate from those mandated by budget language or Judicial Council). 58 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET of three previously approved projects (Red Bluff, Adult Correctional Population. Figure 22 Los Banos, and Willows); (2) $224 million from the shows the recent and projected changes in the Immediate and Critical Needs Account (ICNA) for inmate and parolee populations. As shown in acquisition, design, and construction activities for the figure, the prison population is projected to 15 projects; and (3) $3 million from the State Court increase slightly to about 138,000 inmates by the Facilities Construction Fund (SCFCF) for design end of 2014-15. The parole population is projected activities for one project. (In accordance with to decline to about 40,000 parolees by the end of state law, ICNA and SCFCF receive revenue from 2014-15, primarily due to the effect of the 2011 certain court fee and fine increases.) The budget realignment. also includes the reversion of nearly $72 million in Meeting the Prison Population Cap. In unspent ICNA funds due to lower-than-anticipated January 2013, a federal three-judge panel ordered acquisition costs for four projects. In addition, the the state to reduce its inmate population to no budget authorizes the judicial branch to spend an more than 137.5 percent of the design capacity additional $15 million annually for ten years from by December 31, 2013. In September 2013, the Graphic Sign Off the SCFCF to fund trial court facility modification Legislature passed and the Governor signed Secretary projects. Chapter 310, Statutes of 2013 (SB 105, Steinberg), Analyst in response to the order. Chapter 310 provided Corrections and Rehabilitation CDCR with $315 million (General Fund) in 2013-14 MPA The budget act contains $9.5 billion from and authorized the department to enter into Deputy the General Fund for support of CDCR. This is contracts to secure a sufficient amount of inmate a net increase of $241 million, or 2.6 percent, housing to meet the court order and to avoid the above the revised 2013-14 level of spending. This early release of inmates which might otherwise increase primarily reflects (1) a projected increase in the prison Figure 22 population, (2) the expansion Inmate Population Projected to Increase Slightly, of the correctional officer Parolee Population Continues to Decrease training academy, (3) increased As of June 30 Each Year workers’ compensation 180,000 expenses, (4) the expansion of Inmates rehabilitation programs, and 160,000 Parolees (5) increased use of in-state 140,000 contract beds for inmates. 120,000 These increases are partially 100,000 offset by additional savings 80,000 primarily from the decline of 60,000 the state parolee population due to the 2011 realignment, 40,000 which shifted responsibility 20,000 for managing many lower-level 2010 2011 2012 2013 2014 2015 adult offenders from the state to counties. www.lao.ca.gov Legislative Analyst’s Office 59 ARTWORK #140429 Template_LAOReport_mid.ait 2014-15 BUDGET be necessary. The measure also required that if • Reducing Recidivism. The budget the federal court modified its order capping the package allocates a total of prison population, a share of the $315 million $95.2 million—$91 million from the RRF appropriation in Chapter 310 would be deposited and $4.2 million from the Inmate Welfare into the Recidivism Reduction Fund (RRF). The Fund—for various initiatives intended court subsequently extended the deadline for the to reduce recidivism and thus the prison state to comply with the limit to February 28, 2016. population. As shown in Figure 23, these As a result, $91 million is projected to be deposited funds are provided to CDCR and other into the RRF to support programs that reduce state agencies, such as the Board of State recidivism beginning in 2014-15. and Community Corrections (BSCC). For The budget package reflects three strategies for example, the budget allocates $20 million complying with the court order in 2014-15: from the RRF to CDCR for community reentry facilities to provide rehabilitation • Contracting for Additional Inmate services primarily to mentally-ill inmates Housing. The budget includes a total of who are approaching the end of their $486 million from the General Fund to prison sentences. house about 7,000 inmates in in-state contract beds and about 9,000 inmates in • Implementing Court-Ordered Population out-of-state contract beds in 2014-15. This Reduction Measures. The budget also represents an increase of about $95 million includes $4.2 million from the General and 4,400 contract beds above the 2013-14 Fund to implement a series of court- level. ordered measures intended to reduce the Figure 23 2014-15 Spending to Reduce Recidivism (In Millions) Recidivism Reduction Measure Department Amount Community reentry facilities CDCR $20.0 Reestablish Mentally Ill Offender Crime Reduction Grant program BSCC 18.0 Competitive grants for collaborative courts Judicial Council 15.0 Expand substance abuse treatment in prisons CDCR 11.8 Grants to CBOs to expand community based programs BSCC 8.0 Social innovation bonds BSCC 5.0 Cognitive behavioral treatment at in-state contract facilities CDCR 3.8 Grants to CBOs to expand in-prison programs CDCR 2.5 Pilot case management program for mentally ill parolees CDCR 2.5 Expanded provision of identification cards to inmates prior to release CDCR 2.2 Community college grants for inmate education CDCR 2.0 Grants to high-crime cities BSCC 2.0 Workforce investment boards EDD 1.0 Study of pilot youth reentry program CDCR 0.9 Evaluation of Integrated Services for Mentally Ill Parolees program CDCR 0.5 Total $95.2 CDCR = California Department of Corrections and Rehabilitation, BSCC = Board of State and Community Corrections, CBOs = community-based organizations, and EDD = Employment Development Department. 60 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET state’s prison population. For example, to realign certain state program responsibilities and the court ordered the administration to revenues to local governments (primarily counties). increase the amount of sentence reduction In particular, the 2011 realignment requires credits that certain inmates can earn for counties to house and supervise certain lower-level good behavior. As shown in Figure 24, the felony offenders and shifts responsibility for trial administration estimates that the various court security from the state to county sheriffs. The measures will reduce the prison population 2014-15 budget package includes several provisions by around 2,000 inmates by February related to the 2011 realignment, including changes 2016. In ordering these measures, the to: court waived any conflicting statute and, • Split Sentencing. The 2011 realignment thus, the administration did not require allows judges to sentence realigned felony legislative approval to implement these offenders to “split sentences.” Offenders changes. with split sentences serve the initial portion Workforce Issues. The budget also includes of their sentence in jail and the rest under several changes related to CDCR’s workforce. For community supervision. As part of the example, the budget reduces CDCR’s overtime budget package, the Legislature approved budget by $75 million and redirects these funds to the Governor’s proposal to make split purchase leave balances from employees separating sentences the presumptive sentence for from state service ($52 million) and support health these offenders. Thus, any county jail felony benefits for staff on leave for workers’ compensation sentence would be a split sentence unless ($23 million). In addition, the budget includes a the judge finds that the facts of a case one-time increase of $75 million for increased warrant a straight jail sentence. workers’ compensation expenses. The budget • Post Release Community Supervision also includes $62 million to expand CDCR’s (PRCS) Funding. The 2011 realignment recruitment and training of correctional officer requires county probation departments to candidates. supervise nonviolent, nonserious offenders Capital Outlay. The budget package includes released to PRCS following their prison $145 million in lease revenue bond funds to replace terms. Due to the early release of certain the heating, ventilation, and air conditioning prison inmates that is part of the state’s system, and to repair damage caused by the deterioration of the Figure 24 existing system, at Population Reduction Measures— Ironwood State Prison in Expected Reduction in Inmates Blythe. February 28, 2016 Measure (Final Population Deadline) Other Criminal Justice Programs Credit enhancements 1,400 Parole hearings for second-strikers 350 2011 Realignment. As Expanded medical parole 100 part of the 2011-12 budget Elderly parole 85 Expanded alternative custody for women 80 package, the Legislature Total 2,015 made a number of changes www.lao.ca.gov Legislative Analyst’s Office 61 2014-15 BUDGET plan to comply with the federal court BSCC. The budget includes $186 million order to reduce prison overcrowding, ($69 million from the General Fund and there will be a temporary increase in the $117 million from other funds) for BSCC, which is PRCS population. In response, the budget responsible for administering various public safety includes $11.3 million in limited-term grants, overseeing local correctional standards, funding for county probation departments providing technical assistance to local criminal to supervise these offenders. justice agencies, and collecting data. The budget includes a $13 million increase in funding for law • Trial Court Security. Following the enforcement grants to cities, bringing the total to implementation of the 2011 realignment, $40 million. The budget also provides an additional new court facilities have been constructed $500 million in lease revenue bonds for adult in several counties. The sheriff departments local criminal justice facilities (such as jails or day in some of these counties have indicated reporting centers) to be administered by the BSCC that the new facilities have increased their through a competitive grant process. Medical court security costs above the amount of treatment and rehabilitation program space will funding currently provided through the receive priority for these grants. 2011 realignment. The 2014-15 budget California Prison Industry Authority authorizes DOF to allocate up to $1 million (CalPIA). The budget includes $15 million for the from the General Fund to county sheriffs federal court-appointed Receiver—who oversees for these increased costs in court facilities inmate medical care—to enter into a statewide occupied on or after October 9, 2011. contract with CalPIA to clean prison healthcare Sheriffs must demonstrate that the new spaces at all state prisons. Under the contract, court facility requires more trial court CalPIA will provide cleaning supplies, train security services relative to the old facility. inmate laborers to clean the facilities, and provide oversight and auditing services. OTHER MAJOR PROVISIONS Addressing Shortfalls in Indian Gaming Funds 2014-15, 73 tribes are eligible to receive such payments. Currently, tribal-state gaming compacts with 46 tribes require payments into various state • Special Distribution Fund (SDF). State accounts including: law requires that the first priority for SDF • Revenue Sharing Trust Fund (RSTF). funds are to ensure that the RSTF has Funds deposited into the RSTF are sufficient funds to ensure that the above distributed to certain federally recognized payments can be made to tribes. Any Indian tribes that either do not operate remaining SDF funds may then be used to casinos or operate casinos with less than support other purposes related to gaming, 350 slot machines. These tribes generally including: (1) funding programs to assist each receive $1.1 million annually. In people with gambling problems, (2) paying 62 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET the state’s costs to regulate tribal casinos, of the system began, project staff reports coming and (3) making grants to local governments to a better understanding of the magnitude affected by tribal casinos. and complexity of FI$Cal. Drawing on lessons learned over this period, the project determined • General Fund. In 2006, five tribes a different approach would be necessary moving negotiated amendments to their existing forward in order to mitigate the risk of a significant tribal-state compacts that require payments disruption to the project in future years. In to the General Fund instead of the SDF. California state government, a feasibility study The state is generally not restricted in the report (FSR) documents the initial justification way it uses the payments deposited in the for an IT project and lays out the project plan. General Fund. However, the compacts for Any significant subsequent changes to the project three of these tribes required that a portion plan as presented in the FSR—including changes of their General Fund payments—up to to project scope, schedule, and/or budget—are $124 million—be available annually for documented in SPRs. In January 2014, the redirection to address shortfalls in the Department of Technology (CalTech) approved RSTF (such as if there are insufficient funds SPR 5 for FI$Cal, which results in a 12-month in the SDF for transfer to the RSTF). schedule extension (to July 2017) and increases In 2014-15, the RSTF is projected to have a the project cost by $56 million—to a total cost of $27 million shortfall. Similar to prior years, the $673 million. budget includes a transfer of funds from the SDF Provides Funding for New Project Plan, to the RSTF to address this shortfall. However, Accelerates General Fund Contributions. In the SDF is projected to have insufficient funds previous budget years, the Governor proposed, and in 2014-15 to fully address this RSTF shortfall as the Legislature agreed, to accelerate special fund well as all budgeted state regulatory and problem contributions and defer General Fund support gambling costs. Thus, the budget also authorizes for FI$Cal to future years. The 2014-15 Budget the transfer of tribal General Fund payments to Act shifts from prior practice by accelerating address the remaining shortfall in the RSTF. We General Fund contributions, with the General estimate that this General Fund transfer will be Fund supporting $94 million (or 88 percent) about $7 million in 2014-15. While this will be the of the $107 million of funding provided for the first year such a transfer would been necessary, project. Significant General Fund contributions such General Fund transfers would likely be are expected to continue for the duration of the required in the short run to maintain current levels project, through 2017-18. Although the mix of of regulatory and problem gaming services. special fund and General Fund contributions for FI$Cal has varied considerably among budget FI$Cal years, upon completion, the General Fund will Financial Information System for California cover 47 percent of the total project cost, as (FI$Cal). The FI$Cal project seeks to build an determined in the project funding model. The integrated financial information system for the 2014-15 funding allows the project to implement state to replace the current systems, which are the changes in the new project plan, as described fragmented and outdated. Over the last two years in SPR 5. The project deployed Pre-Wave—the first since the vendor was selected and the development of the five implementation waves—on July 1, 2013 www.lao.ca.gov Legislative Analyst’s Office 63 2014-15 BUDGET successfully and without incident. The next stage of amount that DOF could authorize for the project the project—Wave 1—was deployed in July 2014. through this budgeting mechanism. Funds Partial-Scope Independent Assessment. 21st Century (TFC) Project Since the suspension of the project, the Legislature TFC Project Engaged in Litigation. In 2004, has indicated its support for a comprehensive the State Controller’s Office (SCO) proposed the independent assessment that could identify TFC Project, the IT effort to replace the existing the issues that contributed to the suspension statewide human resources management and of the project, recommend opportunities for payroll systems used to pay roughly 260,000 state improvement, and inform the state’s decision- employees. The new system was intended to allow making on a path forward for the project. The the state to improve management processes such as 2014-15 Budget Act includes $2.5 million (General payroll, benefits administration, and timekeeping. Fund) for an independent assessment that will In February 2013, after the project experienced (1) identify how well the current system design various problems during the pilot stage, SCO meets the needs of the state, (2) evaluate whether terminated the contract with the system vendor the system as designed could be used going and the project was suspended. After contractually forward, and (3) determine the cost of completing mandated mediation with the system vendor was the project. Project staff indicated during budget unsuccessful, SCO filed a lawsuit against the system hearings its intent to make subsequent requests vendor in November 2013 for breach of contract in future years for assessments that evaluate (the vendor issued a counterclaim against the state alternative approaches to modernizing the state’s in April 2014). payroll systems and identify lessons learned Supports Legal Activities. The 2014-15 Budget through a review of project management practices. Act provides $6.5 million ($3.6 million General Collectively, these independent assessments should Fund) to support ongoing legal activities for provide a comprehensive view of the issues that the TFC Project. Specifically, the spending plan affected the suspension of the TFC Project and the includes funds for outside legal counsel to assist related lessons learned. with legal proceedings and resources that will be Department of Technology used primarily to support the legal effort, including responding to public records and discovery CalTech is the state’s central IT organization. requests and providing technical assistance to the It has lead responsibility for approval and oversight outside legal counsel. The Governor’s proposal of state IT projects, providing data center and for the $6.5 million indicated that $2.5 million telecommunications services, managing IT is for outside legal counsel—an amount equaling procurement, and establishing and enforcing IT roughly one-half of SCO’s estimate of projected plans and policies. The department’s statutory costs for this purpose in 2014-15. Provisional authority was set to expire on January 1, 2015. language included in the budget act authorizes The budget package eliminated the sunset, DOF to augment SCO’s budget “to fund additional thereby extending CalTech’s statutory authority litigation and related support efforts associated permanently. with the TFC Project payroll system” following Statewide Project Management Office written notification to the Legislature. The (PMO). The 2014-15 Budget Act provides $208,000 provisional language includes no cap on the (General Fund) to plan for the establishment of a 64 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Statewide PMO, which would create a centralized increases revenue into the UI Contingency Fund by team of skilled project management professionals $10 million by increasing penalties on employers who would manage state IT projects throughout who pay into the fund. This additional revenue the state. Although the Governor proposed is to be used for UI administration. Finally, establishing a Statewide PMO in 2014-15, the budget-related legislation provides for a one-year Legislature stated its need for additional details suspension of the statutory transfer of a portion of regarding several implementation issues before the funds within the UI Contingency Fund to the the office is established. Accordingly, the budget General Fund—thereby freeing up an additional provides limited-term positions that are tasked $16 million to support UI administration. with planning and establishing a framework for the Addressing Inefficiencies and Customer Statewide PMO. A report is due to the Legislature Service Concerns in UI Program. In early 2013, by January 10, 2015 regarding the implementation the Employment Development Department (EDD) of the office, including information on the was able to answer only 15 percent to 18 percent office’s resource requirements and a timeline and of customer services calls, and delays in eligibility transition plan for the office’s creation. determinations were leading to delays in payments to claimants. The administration acknowledged Labor Programs that the levels of payment delays and unanswered Interest Payment for Federal Unemployment customer service calls were unacceptable. To Insurance (UI) Loan. California’s UI fund has been address these problems, EDD added staff and took insolvent since 2009, requiring the state to borrow various actions to improve services. from the federal government to continue payment The 2014-15 budget includes the approval of the of UI benefits. California’s outstanding federal loan Governor’s May Revision request for $47 million is estimated to be $8.8 billion at the end of 2014 and General Fund ($68 million total funds) to continue $7.5 billion at the end of 2015. The state is required EDDs efforts to improve customer service and to make annual interest payments on this federal claim processing efficiencies. With this additional loan, and the estimated interest costs included funding, EDD has established the following in the 2014-15 budget are $219 million from the customer service level outcome targets: General Fund. • Answer 50,000 customer calls weekly. Addressing UI Administration Funding Shortfall. Based on the administration’s January • Schedule 95 percent of eligibility interviews budget estimate, the cost to administer the UI on a timely basis. program in 2014-15 was projected to be higher than • Process 100 percent of initial UI claims the level of federal funding available by $64 million. within three days of receipt. (Traditionally, UI administration has generally been supported by federal funds.) To make up for • Process 100 percent of online inquiries this shortfall, the 2014-15 spending plan reflects within five days of receipt. a combination of new funding strategies for UI The budget also includes language requiring administration that were proposed by the Governor EDD to report to the Legislature by March 1, 2015 in January. First, the budget includes $38 million on its progress towards meeting these program from the UI Contingency Fund to support UI outcome targets. Additionally, this report will administration. Second, budget-related legislation www.lao.ca.gov Legislative Analyst’s Office 65 2014-15 BUDGET include a discussion of any program or process judicial branch. These expenditures are described efficiencies EDD has identified that may affect the in more detail in the sections of this report related resources needed to maintain service levels. to these state entities. New Contractor Registration Fee Department of General Services (DGS) Administered by Department of Industrial Relations (DIR). The 2014-15 budget package The budget provides DGS $1 billion in 2014-15 includes legislation that, beginning July 1, 2014, from various fund sources (including payments requires a contractor or subcontractor wishing to from other state departments for DGS-provided bid on a public works project to pay an annual fee services). This is an increase of roughly $20 million, (currently $300) and be registered with DIR. The or 2 percent, when compared to the revised fee will be used to fund the cost of administering level of spending for the prior year. The budget the new registration process and to monitor includes $5.4 million in one-time funding from public works projects and enforce prevailing wage the Service Revolving Fund for water efficiency provisions. Because the oversight of public works and conservation measures—such as replacing projects will now be funded by this new revenue plumbing fixtures and sprinkler heads—in state source, the previous requirement that the cost of facilities. The budget also includes (1) $3.7 million enforcement be paid by the awarding body of the (General Fund) to begin cleanup of a contaminated public works project is eliminated. state-owned site, (2) $2.5 million (General Fund) for a long-range planning study of office space in Deferred Maintenance the Sacramento region, and (3) $1.8 million (Service $200 Million Maintenance Funding Not Revolving Fund) for additional staff at the Office Triggered. The budget includes $903 million in of Administrative Hearings to address backlogs in funding to address various deferred maintenance administrative hearing time frames. needs across the state, including $200 million in General Fund resources for various departments Figure 25 dependent upon specific preliminary tax revenue “Trigger Spending” on Deferred Maintenance estimates being met (as shown in Figure 25). That Will Not Be Provideda The availability of these funds was contingent (In Millions) upon a preliminary estimate of school district State Entity Amount 2013-14 property tax revenues being higher than California State University $50 the administration projected in May. In July, the University of California 50 administration determined that this preliminary Parks and Recreation 40 estimate of school tax revenues did not exceed Corrections and Rehabilitation 20 Developmental Services 10 the administration’s May estimates. Thus, the State Hospitals 10 $200 million was not authorized. General Services 7 Other Non-Trigger Spending for Maintenance. State Special Schools 5 Forestry and Fire Protection 3 The budget provides other maintenance-related Military 3 funding that was not subject to the trigger. This Food and Agriculture 2 includes $351 million for transportation projects, Total $200 a $189 million for the K-12 schools’ ERP, $148 million Since the enactment of the budget in June, the administration has determined that this funding was not triggered based on certain preliminary property tax for community colleges, and $15 million for the estimates. Later changes in the estimates will not affect this action. 66 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET Department of Consumer Affairs (DCA) excluded from the collective bargaining process. Most state workers will receive a 2 percent pay The budget provides DCA with $593 million increase July 1, 2014. Some employees will receive from various special funds that are supported higher pay increases—highway patrol officers will mainly by licensing and other fees. This is an receive a 7 percent pay increase in July 2014 and increase of $15 million, or 3 percent, over the correctional officers will receive a 4 percent pay estimated spending level for 2013-14. This increase increase in January 2015. primarily reflects a $13 million augmentation for Potential Costs for Pay Increases. State enforcement and licensing activities performed employees in three of the state’s 21 bargaining by DCA boards and bureaus that regulate certain units—Bargaining Units 2 (Attorneys), professionals and businesses (such as physicians, 10 (Professional Scientists), and 13 (Stationary contractors, and private postsecondary educational Engineers)—are working under the terms and institutions). The additional resources are intended conditions of expired MOUs and are not scheduled to improve consumer protection by enhancing to receive a pay increase in 2014-15. In the case of enforcement efforts and expediting the processing Bargaining Unit 2 employees, the budget does not of disciplinary cases against licensees. The funds include funds for a pay increase in 2014-15. Thus, are also expected to improve service to licensees by any agreement with this Bargaining Unit that reducing licensing application processing times. provides a pay increase would require additional Employee Compensation funds not anticipated in the budget. In the case of Bargaining Unit 10 and 13 employees, the Pension Costs Reflect Higher Rates. The budget includes about $7 million ($2 million California Public Employees’ Retirement System General Fund) for pay increases pursuant to an (CalPERS) determines what percentage of payroll MOU that the Legislature ratified, but that the the state must contribute to the system to fund employees subsequently rejected. If the Legislature employee pension benefits. Based on the higher and employees ratify an agreement that includes contribution rates adopted by the CalPERS board, pay increases larger than those anticipated in the the budget assumes that the state’s costs to pay rejected MOU, state costs would increase. these benefits will increase in 2014-15 by about Higher Health Care Premium Costs for Active $600 million ($352 million General Fund). As we Employees and Retirees. The budget assumes explain in our March 4, 2014 report, The 2014-15 that health premiums for state employee and Budget: State Worker Salary, Health Benefit, and retiree health benefits will increase by 8.5 percent Pension Costs, most of this increase reflects new in 2015. This increases state costs in 2014-15 by actuarial assumptions related to life expectancy about (1) $100 million ($50 million General Fund) and pay. to pay for these benefits for active employees and Pay Increases for Most Employees. The (2) $160 million (most from the General Fund) budget assumes that the state will spend about to pay for these benefits for retirees. Because the $500 million ($220 million General Fund) for actual 2015 health premium rate increases adopted employee pay increases in 2014-15. These pay by CalPERS are less than half of what was assumed increases generally are pursuant to current in the budget, state costs could be tens of millions memoranda of understanding (MOUs) as well as of dollars lower than assumed in the budget. administrative policies established for employees www.lao.ca.gov Legislative Analyst’s Office 67 2014-15 BUDGET State Mandates (Non-Education) included in the 2014-15 budget act, any excess revenues not needed to satisfy the Proposition 98 Few Mandates Funded. The budget plan minimum guarantee, up to $800 million, shall be provides $33.8 million from the General Fund used to pay pre-2004 claims. for 15 mandates primarily related to criminal Alternative Funding Identified for justice, health, and tax administration—including Tuberculosis Control Mandate. Budget trailer two new mandates concerned with tuberculosis legislation stipulates that, beginning in 2014-15, control and local agency ethics. The budget act local government costs for a mandate related suspends 62 non-education mandates, including to tuberculosis control shall be paid through mandates related to elections and animal shelters. a tuberculosis control program administered When a mandate is suspended, local government by the DPH instead of the traditional mandate compliance with the mandate’s provisions is reimbursement process. In recognition of this optional during the budget year. Similar to state change, the budget augments funding for the budget actions in recent years, the budget deferred tuberculosis control program by $250,000. payment for two labor relations mandates: Peace Officer Procedural Bill of Rights and Local Multifamily Housing Program Government Employment Relations. The 2014-15 Budget Act includes $100 million Pays Down Mandate Backlog. The state for the Multifamily Housing Program, which owes counties, cities, and special districts about provides deferred-payment loans to developers $1.9 billion for unpaid mandate claims. This debt of multifamily affordable housing projects. (The consists of approximately: Multifamily Housing Program had been funded • $900 million for claims submitted prior to in the past by general obligation bonds. In 2004. State law requires these claims to be 2013, however, the Department of Housing and paid by 2020-21. Community Development awarded the last of these • $1 billion for claims submitted in or after bond funds.) In order to receive state bond funds 2004. Almost all of these claims are for under this program, housing units must be rented mandates that the state subsequently has to low-income Californians. One-half of the funds suspended, repealed, or substantially included in the budget will be dedicated to housing revised. State law does not specify a projects that also include support services, such as payment plan for paying these mandate job training, substance abuse counseling, mental obligations. and physical healthcare, and coordinated case management. The budget appropriates $100 million to pay pre-2004 mandate claims, with three-fourths of Property Tax Administration this funding going to counties. The budget package The 2014-15 Budget Act includes $7.5 million also includes trigger language that provides for the first year of a three-year pilot project, the additional funds to pay pre-2004 claims if General State-County Assessors’ Partnership Agreement Fund revenues exceed projections. Specifically, the Program. Under this program, the state will trigger language dictates that if the administration’s provide grants to nine county assessors’ offices 2015 May Revision estimates for 2013-14 and to improve local administration of the property 2014-15 General Fund revenues exceed the amounts tax. Each participating county will match the 68 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET state grant dollar-for-dollar. Funds will be used activities should yield additional local property to identify newly constructed or sold properties, taxes, a portion of which will be directed to school revalue properties to their current market value, and community college districts, thereby offsetting and respond to property value appeals. These state education spending under Proposition 98. www.lao.ca.gov Legislative Analyst’s Office 69 2014-15 BUDGET 70 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET www.lao.ca.gov Legislative Analyst’s Office 71 2014-15 BUDGET 72 Legislative Analyst’s Office www.lao.ca.gov LAO Publications The Legislative Analyst’s Offi ce (LAO) is a nonpartisan offi ce that provides fi scal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814.