CALIFORNIA
John L. Korey
Department of Political Science
California State Polytechnic University, Pomona
INTRODUCTION
On July 11, Governor Arnold Schwarzenegger signed the 2005-2006 state budget
into law. This action came about a week and a half into the new fiscal year, but was
actually one of the more timely budgets approved recently in California. The budget
passed by the legislature gave the governor almost everything that he had demanded.
This outcome serves as a clear demonstration of the dominant role that even a politically
weakened chief executive can play in the process.
DEMOGRAPHY, ECONOMICS, AND THE BUDGET
Table 1 summarizes some key differences between California and the U.S. as a
whole.
Demographically, California’s population is young and ethnically diverse, with a
large immigrant population. When differences in the cost of living, especially in housing,
are taken into account, Californians’ average wealth is not far from that enjoyed in the
rest of the country. (Because of California’s younger and larger households, per capita
income is substantially closer to the national average than median household income.)
This average, however, obscures the fact that California has a slightly greater proportion
than the nation as a whole of both rich and poor inhabitants.
California is also fairly close to the national average when it comes to the share of
the state’s wealth that goes for state and local government. Again, however, the devil is in
the details. Compared to the rest of the country, local governments are more dependent
on the state for revenue. California relies heavily on a personal income tax that has one of
the highest marginal rates in the country.
These facts provide necessary context for understanding some of the state’s most
important fiscal problems and issues. Before discussing these, however, some
clarification of terms is in order. References to ―the state budget‖ are often ambiguous
because of differences in what is included under this heading. Except as noted, this essay
will not distinguish between general and special funds. This is because, sometimes for
technical but sometimes for political reasons, money is often transferred from one of
these categories to the other. Such transfers can be far from trivial. During fiscal year
2001-2002, more than $6 billion was transferred from the previous year’s general fund
Table 1: Selected Characteristics: California and U.S.
Characteristic California Rank U.S. Cal. as %
of U.S.
% 18 Years Old or Younger (2) 26.5 7 25.1 106
% 65 Years Old or Older (2) 10.6 45 12.4 85
Persons per Household (6) 2.87 3 2.59 111
% Foreign Born (1) 26.5 1 11.9 227
% Non-English Speakers (1) 40.8 1 18.4 222
Per Capita Income (2) 32,043 9 30,033 107
Median Household Income (1) 50, 220 11 43,564 115
Median Housing Value (1) 334,426 1 147,275 227
Cost of Living (U.S. = 1.00) (5) 1.021 14 1.00 102
Millionaires as % of Population 1.7 8 na na
(4)
% Below Poverty (1) 13.4 19 12.7 106
Gini Index of Inequality (7) .475 5(tie) .463 103
Education Spending per $1,000 41.01 30 42.10 97
Personal Income (3)
Education Spending per Pupil 7,511 22 7,701 98
(3)
Sources:
(1) U.S. Census Bureau (2004b)
(2) U.S. Census Bureau (2005)
(3) U.S. Census Bureau (2004c)
(4) Johnson and Schreiber (2003)
(5) Taubman Center for State and Local Government (2000)
(6) Morgan and Morgan (2003)
(7) U.S. Census Bureau (2004a)
into the then-current year electrical power fund. Bond funds, which are not subject to
annual approval by the legislature and the governor, are not included in the present
discussion. The same holds for non-governmental cost funds (such as public employee
pension funds).
Much has been made of the fact that Californians receive from the federal
government only 79 cents for every tax dollar sent to Washington. As Sacramento Bee
columnist Daniel Weintraub (2005) notes, this disparity occurs mostly because:
the federal government relies heavily on a progressive income tax and, therefore,
on the relatively large concentration of well-to-do taxpayers in California. At the
same time, federal expenditures go disproportionately to the elderly (principally
through Social Security and Medicare), while California has a smaller than
average proportion of residents over age 65,
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federal funds for medical care for the poor (Medicaid, known in California as
Medi-Cal) are distributed to states based on per capita income rather than on
poverty rates, thus failing to take into account California’s above average
concentration of poor people, and
the federal government has done little to assist California in coping with costs
associated with immigration.
California’s youthful population also places heavy demands on the state for
education and other services.
California’s relatively progressive tax structure has meant, in Weintraub’s words
(2003), that ―as a few rich guys go, so goes the state budget.‖ Growth in state revenues
has been much more volatile than growth in the state’s economy (Legislative Analyst’s
Office, 2005a). During the ten year period ending in fiscal year 2005-2006, state
revenues will have grown an estimated 6.4 percent annually, only moderately outpacing
an estimated annual growth in personal income of 5.7 percent. However, annual revenue
growth has ranged from 0.6 percent (2003-2004) to 17.8 percent (1999-2000), while
personal income growth has ranged only from 1.3 percent (2002-2003) to 10.5 percent
(2000-2001). The standard deviation for annual revenue growth during this period has
been 5.2, compared to only 2.8 for personal income.
California’s recent budget woes stem directly from failure to take this volatility
into account. In the late 1990s, the ―dot com‖ boom created a great many Silicon Valley
millionaires whose income and capital gains taxes flooded state coffers. State spending
quickly adjusted to this growth, making the bursting of this bubble all the more painful.
Figure 1 compares annual changes over the past 10 years in personal income with
changes in general plus special fund revenues and expenditures (based on data from the
Department of Finance 2005a, Schedule 6). Figures for the last two years shown are
estimates as of January 2005. Note especially the surge in revenues in fiscal year 1999-
2000. Expenditures, however, more than followed suit, growing at an especially rapid
clip between 1997-1998 and 2000-2001, by which time the economy (and state revenues)
had stagnated. Since then, the budget gap has been reduced as expenditure growth has
moderated and the economy and state revenues have begun to grow more rapidly. (As
will be explained below, updates to the projections on which Figure 1 is based further
brighten the picture.)
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Figure 1: Growth in Personal Income, State Revenues, and State Expenditures (1995-1996 = 1)
2
1.9
1.8
1.7
1.6
Personal Income
1.5 Revenue
Expenditures
1.4
1.3
1.2
1.1
1
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
(est.) (est.)
Year
THE POLITICAL ENVIRONMENT
In the early 1990s, prospects for the GOP in California looked brighter than they
had in many years. The title of an essay by two political scientists (Fay and Lawson
1992) asked, ―Is California Going Republican.‖ The 1994 elections suggested that the
answer might well be in the affirmative. The same year that Republicans in Washington
gained a majority in both chambers of congress, the party in California won a narrow
majority in the state assembly, improved its representation in the state senate, and handily
reelected Governor Pete Wilson. Over the next several election cycles, however, the
party’s fortunes declined steadily. In 1996, Democrats regained their advantage in the
assembly and increased it in the senate. They did as well or better in subsequent
elections. In 2002, they ran the table by reelecting Governor Gray Davis and sweeping all
other statewide contests as well, while retaining substantial majorities in the legislature.
All of this changed dramatically with the recall of Davis in October of 2003, and
his replacement by Arnold Schwarzenegger (Korey 2004). California, however, remains
a ―blue‖ state. In 2004, John Kerry easily won the Golden State’s electoral votes, besting
George Bush by 11 percentage points. Republicans made no gains in the legislature,
where Democrats currently enjoy a 48 to 32 advantage in the assembly, and hold 25 seats
(to the GOP’s 15) in the senate. Because of bipartisan gerrymanders following the 2000
census, almost all seats are quite safe for the incumbent parties, and no incumbents were
defeated in 2004 state legislative races. California’s political environment, therefore,
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now pits a Republican governor against well-entrenched Democrats running the
legislature.
California is a direct democracy state steeped in the legacy of the Progressive Era.
No discussion of its political context would be complete without a review of recent ballot
measures having significant budgetary implications that voters have approved since
Schwarzenegger became governor. In the March 2004 primary, voters supported:
Proposition 55 (―Kindergarten—University Public Education Facilities Bond
Act‖). This measure called for borrowing of $10 billion for K-12 schools and $2.3
billion for colleges and universities.
Propositions 57 (―The Economic Recovery Bond Act‖) and 58 (―The California
Balanced Budget Act‖). These measures had to both be approved for either to go
into effect. Proposition 57 enabled the state to borrow $15 billion in general
obligation bonds, provided a short term fix to the state’s budget shortfall. Most of
the money replaced $10.7 in borrowing included in the 2003-2004 budget, a
provision that had been open to serious constitutional challenge. Proposition 58
amended the state constitution to require that the budget as signed into law must
be balanced. (The constitution had previously required only that the budget as
proposed by the governor balance revenues and expenditures.)
In the same election, voters rejected a labor-backed initiative that would have
reduced from two-thirds to 55 percent the proportion of votes needed in each chamber of
the legislature to approve the state budget. Overall, the primary was a banner day for
Schwarzenegger, who had staked his reputation and budget strategy for 2004-2005 on
passage of Propositions 57 and 58, and who had, less actively, come out against
Proposition 56.
The general election of 2004 confronted voters with 16 statewide initiatives,
including some with significant budgetary implications. Among the measures approved
by the voters were:
Proposition 1A (―Protection of Local Government Revenues‖). One of the ways
sometimes used by the state to close budget shortfalls has been to transfer some
sales and property revenues from local governments to the state. The measure
provides that, beginning in fiscal year 2006-2007, this can only be done if a
―fiscal necessity‖ is declared by the governor and if two-thirds of the membership
of both chambers of the legislature approve.
Proposition 61 (―Children’s Hospital Projects‖) provides for $750 million in
general obligation bonds for children’s hospitals.
Proposition 63 (―Mental Health Services Expansion‖) imposes a one percent
personal income tax surcharge on income over $1 million. It is expected to raise
about $800 million in 2006-2007.
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Proposition 71 (―Stem Cell Research‖) authorizes $3 billion in bonded
indebtedness to fund embryonic stem cell research.
In the same election, voters rejected:
Proposition 65 (―Local Government Funds, Revenues‖), a much stronger
alternative to Proposition 1A.
Proposition 67 (―Emergency Medical Services‖), providing for a surcharge on
telephone usage and producing about a half billion dollars in annual state
revenues.
Proposition 68 (―Tribal Gaming Compact Amendments‖) which would, had it
passed, probably have allowed some non-tribal entities to operate casino-style
gambling operations.
Proposition 69 (―Tribal Gaming Compacts), which would also have expanded
casino-style gambling, but would have strengthened the monopoly enjoyed by
Indian tribes.
Proposition 72 (―Health Care Coverage Requirements‖) would have required that
that all but small businesses provide health care coverage to employees. The fiscal
impact of this measure would have been mixed and uncertain.
Schwarzenegger again came out a big winner, backing Propositions 1A and 71,
and opposing Propositions 68 and 69. Defeat of these last two measures strengthened his
hand in negotiations with tribes over sharing of gambling revenues with the state.
Facing a legislature controlled by the opposition party, Schwarzenegger has
decided to appeal directly to the voters by calling a special election in November of this
year to consider several ballot initiatives. His proposals include:
increasing from two to five years the length of service for public school teachers
before being granted tenure.
imposing a cap on state spending. (In 1979, voters had approved a spending cap
placed on the ballot by Paul Gann and his supporters, but later measures have
rendered ―Gann limits‖ ineffective.)
removing redistricting authority from the legislature and assigning it to a
commission composed of retired judges. Since incumbents of both parties benefit
from existing boundaries, and since it is unclear which party would gain from
Schwarzenegger’s proposal, Republican reaction to this idea has been mixed.
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Schwarzenegger has also spoken favorably, though not formally endorsed, a
ballot measure making it more difficult for public employee unions to collect dues used
for political purposes.
The governor’s luck in going over the heads of the legislature to the public may
have run out. Even before the deadline for qualifying initiatives, the governor had to
scale back his agenda by dropping proposals to change pensions for state workers hired in
2007 or later from a defined benefit to a defined contribution plan, and to implement a
merit pay system for teachers. At this writing, his proposal for a reapportionment
commission is in danger of being thrown off the ballot by the courts because of problems
in the wording of the measure. Even if he prevails in this legal battle, political realities
may force Schwarzenegger to work out a compromise with the legislature, for example
by backing a referendum that would delay establishment of a commission until after the
2010 census.
Polls show a steep decline in the governor’s popularity in recent months.
According to the Field (California) Poll, his job approval ratings among registered voters
declined from 65 percent in September 2004 to 37 percent in June 2005 (DiCamillo and
Field 2005a). While a February 2005 Field Poll showed him with wide leads over each
of several potential opponents in next year’s gubernatorial election, the June 2005 poll
showed him narrowly trailing both State Treasurer Phil Angelides and State Controller
Steve Westly (DiCamillo and Field 2005b).
At least a part of Schwarzenegger’s problems have resulted from a series of
highly effective radio and TV ads sponsored by (mostly public sector) unions
representing school teachers, nurses, police officers, and firefighters. Thus far,
Schwarzenegger’s response to the campaign against him has been somewhat muted.
While his opponents’ ads have been running, he has devoted much of his attention to
fund-raising. By the fall, he should be able to at least match them in campaign resources.
In the end, the outcome of the special election, and perhaps of next year’s gubernatorial
contest, may boil down to a question of which side can more successfully frame the issue:
the governor versus selfish public employee unions and their bosses, or the governor
versus caring teachers and nurses, and brave cops and firefighters.
THE BUDGET PROCESS (The standard work on this subject remains Krolak 1994)
Since 1922, California has had an ―executive budget‖ that, in broad outline,
mirrors the budget process at the federal level. The basic process is as follows:
Submission of the ―Governor’s Budget‖ to the legislature by January 10. In
preparing the budget, the governor is assisted by the Department of Finance
(DOF), which is to the governor roughly as the Office of Management and Budget
is to the President of the United States.
Currently serving as director of finance is Tom Campbell, appointed to the
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position in November 2004. Campbell earned a law degree form Harvard and a
Ph.D. in economics from the University of Chicago. He then served in
Washington, first as a White House Fellow, then with the Federal Trade
Commission. From 1983 until 1988 he taught law at Stanford University
(Biographical Directory of the American Congress). A Republican, he was
elected to the U.S. House of Representatives in 1988 and served two terms. In
1992, he made an unsuccessful run for the United States Senate, but was defeated
in the primary. After two years of service in the state senate, he returned to
congress in December, 1995, winning a special election and succeeding a
Democrat, Norm Mineta. In 2000, Campbell made another run for the U.S.
Senate, losing to Dianne Feinstein. In 2003, he became Dean of the Haas School
of Business at the University of California, Berkeley. Like Governor
Schwarzenegger, Campbell is libertarian in philosophy.
Review and critique by the Legislative Analyst’s Office (LAO). This office,
established in 1941 and later serving as a model for the Congressional Budget
Office, technically reports to the Joint Legislative Budget Committee. The LAO
provides the legislature with an extensive examination of the budget, and with
suggestions for changes.
The legislative analyst is Elizabeth Hill. Unlike the other principal players in the
annual budget game, all of whom have less than a decade’s experience in
Sacramento and most just a fraction of that, she is unaffected by term limits or
electoral upheavals, and has served in her present job since 1986. She is only the
fourth to hold her current position in the 65 years of the LAO’s history. (A. Alan
Post, who served from 1950 until 1977, still holds the record for longest tenure.)
Hill has a bachelor’s degree in biology from Stanford, and a master’s degree in
public policy from UC Berkeley. The archetypical technocrat, she has spent
almost her entire career with the LAO, joining it in 1976.
The May revision (or ―May revise‖). To reflect changes in the state’s economic
outlook and political climate, the governor sends a revised proposal to the
legislature in May. This too, is then examined by the LAO.
Adoption by the legislature. The state constitution requires that the legislature
approve the budget by June 15. This requirement is honored more often in the
breach than in the observance, and was last met in 1986. Since California moved
to a full-time legislature, the record for budgetary tardiness was established in
2002, when the state senate finally approved a budget bill on September 1. One
reason for this customary delay is that, as noted earlier, passage requires a two-
thirds vote of the membership of each legislative chamber. Only two other states,
Arkansas and Rhode Island, require extraordinary majorities to approve the
budget (Council of State Governments 2004, 362). Following passage of the
budget, the legislature may consider one or more ―trailer bills‖ needed to bring
state law into conformity with budget provisions.
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Traditionally, the most important actors in the crucial stages of negotiations are
the ―big five,‖ consisting of the governor, the speaker and minority leader of the
assembly, and the president pro tem and minority leader of the senate. This year,
in addition to Schwarzenegger, the big five consists of:
o Speaker of the Assembly Fabian Nuñez. With term limits, established in 1990
and limiting members of the assembly to three two-year terms, a speaker can
no longer maintain the power base established by Jesse (―Big Daddy‖) Unruh
(speaker from 1961 to 1968) or Willie Brown (1980–1995). In recent years, it
had become the practice for a member to become speaker during his second
term and hold the job for only about two years before stepping down during
his final term.
The speakership is still, however, a formidable office. The speaker controls
selection of committee chairs, most committee assignments, and many staff
appointments. The speaker’s power also comes from being leader of the
majority party in a highly partisan institution, and from the ability to help raise
large amounts of campaign contributions for other members and candidates
(Clucas 1995).
Nuñez, a graduate of Pitzer College in political science and education, was
political director of the Los Angeles Federation of Labor from 1996 until
2000. He then served as governmental affairs director for the Los Angeles
Unified School District until his election to the assembly in 2002. He became
speaker midway through his second term, and so can expect to enjoy a
somewhat longer tenure in that position than his immediate predecessors. He
has been notably more confrontational in his dealings with Governor
Schwarzenegger than has his senate counterpart, Don Perata.
o Assembly Minority Leader Kevin McCarthy. Like his Democratic
counterpart, McCarthy reached the assembly in 2002 and attained his
leadership position about a year later. He holds baccalaureate and MBA
degrees from California State University, Bakersfield. Before joining the
assembly, he served as district office director for Congressman Bill Thomas.
o Senate President Pro Tem Don Perata. Like the Vice President of the United
States, but unlike counterparts in some other states, California’s lieutenant
governor, though president of the state senate, normally has little to do in that
capacity other than to vote in the case of a tie. The most important position in
the California Senate is that of president pro tem, who serves as chair of the
Rules Committee. This committee, which also includes two other members of
the majority and two from the minority, exercises powers similar to those held
by the speaker in the assembly.
A graduate of St. Mary’s College, Perata taught high school from 1966 until
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1981. In 1986, he won a seat on the Alameda County Board of Supervisors,
where he served two terms. In 1996, he won election to the assembly, and
moved to the senate after winning a special election in 1998. He became
president pro tem late in 2004, narrowly edging out Martha Escutia. A major
factor in Perata’s victory was the fact that he will not be term-limited until
2008, whereas Escutia must leave the senate after 2006 (Rau and Morain
2004). The state constitution specifies that ―no senator may serve more than
two [four-year] terms.‖ In 2003, Attorney General Bill Locklear ruled that,
since Perata had served less than half of the unexpired term to which he was
elected in 1998, he would be eligible for reelection in 2004 (California
Attorney General 2003).
Perata succeeds John Burton, who had been pro tem since 1998. At least
partly because of his relatively long tenure in the leadership position, his
influence eclipsed that of the several assembly speakers who served during
that time. Following Schwarzenegger’s ascent to the governorship, he and
Burton formed a kind of ―odd couple‖ personal bond that helped bridge wide
partisan and ideological chasms (Nicholas 2004). So far, Perata’s approach to
his dealings with the governor have also been, at least by California standards,
relatively non-confrontational.
o Senate Minority Leader Dick Ackerman, a lawyer, holds a bachelor’s degree
in mathematics from the University of California, Berkeley, and a law degree
from Hastings Law School. He joined the assembly in 1995, and moved to
the senate in 2000. He succeeded Jim Brulte to the post of minority leader
when the latter was term limited in 2004. Like Perata, Ackerman will have to
leave the senate after 2008.
Approval by the governor. Like most counterparts in other states, the Governor
of California possesses the item veto, and may reduce or eliminate individual
appropriations contained in the bill approved by the legislature. Like other
vetoes, these may be overridden only by a nearly impossible two-thirds vote of
the membership of each chamber. Because the legislature is almost always tardy
in getting the budget to the governor’s desk, it is rarely signed into law before the
July 1 start of the fiscal year.
Figure 2 shows, for the years 1968-2005, the dates when the budget cleared the
legislature and the dates when the governor signed it into law (for years prior to 2005,
based on data from the California State Assembly, Office of the Chief Clerk n.d.). Over
the past 38 years, the budget received final approval prior to the start of the new fiscal
year on 13 occasions, and in some other years that deadline was barely missed. Recently,
however, the budget has seldom been enacted on time, and has often missed the target by
a wide margin. The first two years of the Davis administration (1999-2000), a time of
budget prosperity in the state, were exceptions. As revenues worsened sharply, however,
wrangling over proposed solutions caused the process to drag out, with 2002 coming
within one day of the record for lateness. (The record, established in 1992, came in the
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middle of an earlier budget crisis.) A year ago, observers were optimistic that newly
elected Governor Schwarzenegger would be able to sign a budget by or near July 1. In
the end, however, the budget battle dragged all through July before finally being resolved
(Korey 2004b).
Figure 2: Budget Approval, 1968-2005
Passed Legislature Signed by Governor
Sep 1
Aug 15
Aug 1
Jul 15
Jul 1
Jun 15
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
THE GOVERNOR’S PROPOSED BUDGET (Department of Finance 2005a;
Legislative Analyst’s Office 2005b)
In his January budget proposal, Schwarzenegger pointed to a shortfall in the state
general fund for fiscal year 2005-2006 of about $8.6 billion, assuming a baseline (or
―workload‖) budget. To bridge this gap and provide for a one-half billion dollar reserve,
he proposed about $7 billion in reduced spending increases, borrowing about $1.7 billion
from Proposition 57 bond funds, and about $0.4 billion in additional revenue through
increased auditing of taxes (but without any increases in tax rates). The largest portions
of the reduction in rates of spending increases would come from:
suspending ―Proposition 98‖ guarantees to public education. This measure,
approved by voters in 1988 and augmented in 1990, guarantees K-12 public
schools and community colleges over 40 percent of the state’s general fund.
Suspension requires a two-thirds vote of the membership of the assembly and of
the senate. This would prove to be the most contentious issue in this year’s
budget battle. Last year, teachers’ unions had agreed to a suspension with the
understanding that the money would be paid back. The unions professed outrage
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when Schwarzenegger backed away from this pledge, at least for 2005-2006. His
response has been that 1) his budget still provides significant increases for public
education and 2) if Proposition 98 were not suspended for another year, draconian
reductions would have to be made in health and human services.
suspending ―Proposition 42‖ guarantees to the Transportation Investment Fund.
Proposition 42, approved by voters in 2002, earmarks for transportation sales tax
revenue from gasoline. As with Proposition 98 guarantees, this earmarking can
be suspended with the approval of two-thirds of senate and of assembly members.
THE MAY REVISION (Department of Finance 2005b; Legislative Analyst’s Office
2005c)
With the economy improving, Schwarzenegger on May 13 submitted a revised
budget projecting about $4 billion in additional revenues. Noting an expected downturn
in the economy by 2007, he proposed using $2.5 billion of this money for debt relief
(primarily by not borrowing from Proposition 57 funds and by restoring $600 million that
had been borrowed from local governments) and one-time expenditures. The largest of
the latter changes rescinded his earlier proposal to suspend Proposition 42. He also
called for, among other things, restoration of $300 million in Proposition 98 funds for
public education, and for $100 million in property tax relief for senior citizens and
renters.
Reaction by the legislative analyst to the governor’s proposals was generally
positive. Responding to the May Revision, her office noted that ―we believe the
administration’s general approach of using the resources for debt reduction and one-time
purposes is sensible in light of the state’s structural shortfall.‖
LEGISLATIVE ACTION AND FINAL APPROVAL
Democrats in the state legislature responded to the May Revision with a proposal
of their own. The sharpest difference was a proposal by Democrats to add $3 billion to
funding for public schools and to fun these expenditures by increasing the marginal
personal income taxes for high income taxpayers (Bluth 2005a).
By June 15, the constitutional deadline for legislative approval of the budget,
Democrats had backed away from this idea, and omitted it from a measure brought to the
assembly and senate floors. Democrats in effect admitted defeat, with Assemblywoman
Jackie Goldberg saying, "We are, make no mistake, voting to support the governor's
budget." The Democrats proposed budget did call for about $1 billion in spending over
Schwarzenegger’s budget, and failed to get Republican backing. The same fate met a
separate proposal containing the increases in education funding and income taxes that had
been dropped from the main budget bill (Bluth 2005b).
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Finally, on July 7, by lopsided margins in both chambers, the legislature approved
the budget (Bluth 2005c). Four days later, the governor signed it into law. The final
product differed from the May Revision in doubling (to $1.2 billion) repayments of loans
from local governments (Department of Finance 2005c).
SUMMARY AND OUTLOOK
Figure 3 compares estimates (unfortunately including only general funds) for
expenditures in 2004-2005 and 2005-2006 in the four largest categories by agency (based
on data from Department of Finance 2005c, 32). Together, these agencies account for 90
percent of the general fund. The budget provides for increases in all four categories, with
higher education receiving the largest proportional boost. Overall, the budget calls for a
steeper increase of 10.2 percent as a result of very large percentage increases in
categories (business, transportation, and housing; resources; and general government)
that in absolute terms account for much lower levels of spending.
In many respects and from a variety of perspectives, the budget for 2005-2006 is
the best that the state has produced in several years. Funding levels have increased
without any general tax increases. An improved revenue situation has made this possible
while at the same time reducing the size of the state’s long-term deficit. While reduced
in size, however, this ―structural‖ shortfall has not been eliminated, and will worsen if
there is another turndown in California’s economy. Major philosophical differences over
taxing and spending continue to separate the two major parties. Budget economics
continue to merit the appellation of the ―dismal science,‖ as urgent needs go unfunded,
while attempts to meet those needs will require raising taxes in ways that might hurt the
state’s business climate and that are likely to further increase revenue volatility.
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Figure 3: General Fund Expenditures, FY 2004-05, 2005-06
45.0% 40.6%
40.0%
35.0%
30.1%
30.0%
25.0%
20.0%
15.0% 11.3%
8.5% 9.2% 8.2%
10.0% 6.7% 6.0%
5.0%
0.0%
Health & Human Corrections &
K-12 Education Higher Education
Services Rehabilitation
% Increase 6.7% 8.5% 9.2% 6.0%
% of General Fund Expenditures 40.6% 30.1% 11.3% 8.2%
A NOTE ON SOURCES
Most of the sources cited in this essay are available online. In addition to specific
URLs listed below, the Governor’s Budget and related documents are available at the
Department of Finance Web site (http://www.dof.ca.gov). Critiques of the budget by the
legislative analyst are available on the Web site of the Office of the Legislative Analyst
(http://www.lao.ca.gov). Election data are on the secretary of state’s Web site at
http://www.ss.ca.gov. Field Poll press releases are online at
http://field.com/fieldpollonline/subscribers/. A very useful compendium of Sacramento
Bee articles relevant to this essay may be found at
http://www.sacbee.com/content/politics/ca/budget/.
REFERENCES
Biographical Directory of the American Congress, 1774 – Present.
Accessed 18
February 2005.
Bluth, Alexa H. (2005a). ―Tax Hikes Urged for Rich.‖ Sacramento Bee. 1 June.
_______________ (2005b). ―Budget Plan Voted Down.‖ Sacramento Bee. 16 June.
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_______________ (2005c). ―You Just Gotta Like These Numbers.‖ Sacramento Bee.
7 July.
California Attorney General (2003). ―Attorney General Issues Official Opinion on
Term Limits Law,‖ Office of the Attorney General. 9 April.
Accessed 11 March 2005.
California State Assembly, Office of the Chief Clerk (n.d.). ―Budget Bills 1968 –
2004.‖
Accessed 25 July 2005.
Council of State Governments (2004). The Book of the States 2004. Lexington, KY.
Clucas, Richard A. (1995). The Speaker’s Electoral Connection: Willie Brown and the
California Assembly. Berkeley, CA: Institute of Governmental Studies.
Department of Finance (2005a). Governor’s Budget Summary. Sacramento. 10
January.
_______________ (2005b) Governor’s Budget: May Revision. Sacramento. 13 May.
_______________ (2005c) California State Budget. 11 July.
DiCamillo, Mark, and Mervin Field (2005a). ―Schwarzenegger's Job Ratings Hit a
New Low. Voters Oppose the Governor's Call for a Special Election. State Legislature
not Highly Regarded, but Voters More Likely to Side with It Against the Governor
[Release #2158].‖ The Field Poll. 21 June.
_______________ (2005b). ―Sharp Diminishment in Voter Inclination to Re-elect
Schwarzenegger. Angelides Leads Democratic Primary. Both He and Westly
Narrowly Lead the Governor in Early General Election Match-Ups [Release #2163].‖
The Field Poll. 29 June.
Fay, James, and Kay Lawson (1992). ―Is California Going Republican?‖ In Maureen
Moakley, ed. Party Realignment and State Politics. Columbus: Ohio State University
Press, 17-34.
Johnson, Barry W. and Lisa M. Schreiber (2003). ―Personal Wealth, 1998,‖ SOI
Bulletin – 2002-2003. Winter. Accessed
9 March 2005.
Korey, John L. (2004). Houghton Mifflin’s Guide to the California Recall Election,
Boston: Houghton Mifflin Custom Publishing.
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Krolak, Richard (1994). California’s Budget Dance: Issues and Process, 2nd ed.
Sacramento: California Journal Press.
Legislative Analyst’s Office (2005a). Revenue Volatility in California. Sacramento.
20 January.
_______________ (2005b). Overview of the Governor’s Budget. Sacramento. 12
January.
_______________ (2005c). Overview of the May Revision. Sacramento. 16 May.
Morgan, Kathleen O’Leary, and Scott Morgan, eds. (2003). State Rankings 2003.
Lawrence, KS: Morgan Quitno.
Nicholas, Peter (2004). ―They’re Unlikely Pals in a Town Full of Pols.‖ Los Angeles
Times. 21 June.
Rau, Jordan, and Dan Morain (2004). ―Senate Democrats Choose Perata.‖ Los Angeles
Times. 25 August.
Taubman Center for State and Local Government, John F. Kennedy School of
Government, Harvard University (2000). ―Appendix C: Fiscal Year 1999 Data,‖ The
Federal Budget and the States: Fiscal Year 1999. Published 15 December.
Accessed 9
March 2005.
U.S. Census Bureau (2004a). ―Gini Ratios by State,‖ Historical Income Tables for
States. Updated 8 July.
July 2004. Accessed 5
March 2005.
_______________ (2004b) ―Ranking Tables: 2003 Index,‖ American Community
Survey. Updated 20 August.
Accessed 9 March
2005.
_______________ (2004c) ―Public Education Finances: 2002,‖ Government Finances.
Updated September. Accessed 9
March 2005.
_______________ (2005) ―State Rankings from the Statistical Abstract of the United
States,‖ Uncle Sam’s Reference Shelf. Updated 11 February.
Accessed 9 March 2005.
Weintraub, Daniel (2003). ―As a Few Rich Guys Go, So Goes the State Budget.‖
Sacramento Bee. 5 January.
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_______________ (2005). ―California a ―Donor‖ Because It’s Young, Wealthy.‖
Sacramento Bee. 17 February
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