Governor Arnold Schwarzenegger revealed his May budget revision in Sacramento on May 14, 2007, that continues implementing one of his main goals of reducing the $16 .5 billion dollar deficit that he inherited from former Governor Gray Davis in 2003 to $1.4 billion in this proposed budget without raising taxes.

The Governor’s May Revise proposes a $146 billion dollar budget that incorporates a larger tax revenue than originally anticipated in January, $3 billion of which is used to pay down the state’s deficit, $1.6 billion to reduce existing bond debt, and increase California’s rainy day reserve fund to $2.2 billion.

Governor Schwarzenegger’s May Revise cuts include potentially controversial reductions in social services such as suspending a planned January 2008 $185 million cost-of-living increase to the blind, disabled, and elderly receiving Supplemental Security Income/State Supplementary Payment program funds. 50,000 families would be dropped from state welfare rolls for failure to obtain work after 5 years in order to save $500 million. Assembly Speaker Fabian Nunez characterized the May Revise as “mean spirited.”

Last year’s State Budget was just the fourth budget passed and signed on time in the last twenty years. This year’s budget seems destined to stretch out into late summer. Here are a few of the main state budget issues that ACWA is following:

Proposition 84 funding

The Governor still plans to release close to $500 million in Proposition 84 funding. Prop 84 known as The Water Quality, Safety & Supply, Flood Control, Natural Resources Protection, Parks Improvement General Obligation Bond initiative passed the November general election ballot and will provide an infusion of funding for many types of water projects including flood control, integrated regional water management, delta water quality, and lining of the All-American canal.

Water Storage

Senate Bill 59 (Cogdill), the Reliable Water Supply Bond Act of 2008 which would have authorized $3.95 billion in bonds failed passage in the Senate Natural Resources & Wildlife Committee hearing on April 24, 2007. However, the issue of above-ground and groundwater storage is important to both Assembly and Senate Republicans and may come into play in state budget negotiations this summer.

ERAF

Cities, counties, and special districts just completed a painful two-year shift of property tax money into the state’s Education Revenue Augmentation Fund (ERAF) in order to fully fund K-community college education in California during the most recent state budget crisis. Special districts contributed $350 million over the two-year period. Fortunately, Proposition 1A passed the statewide ballot in 2004 which will prohibit the state from outright raiding local property tax funds in the future and put strict controls onto the Governor and state legislature when borrowing these funds. As a reminder, Prop. 1A only allows borrowing from local government beginning in 2008-09, or next fiscal year, under a specific set of conditions. So, there are no proposals to borrow property tax money from cities, counties, or special districts this year.

The legislature will now hold a series of budget subcommittee hearings to vet the Governor’s revised proposals and begin voting on recommendations to send to the full Joint Budget Committee in June.

For more State Budget process or issue-related information, please contact Wendy Ridderbusch, Legislative Advocate at wendyr@acwa.com, or Jenn Lujan, Legislative Analyst at jennl@acwa.com. They may also be contacted at 916.441.4545.