from J. Kevin Pedrotti, Legislative Advocate for the Golden State Builders Exchanges
2013-14 budget Act, Budget Bill, AB 110
General Overview
This morning Governor Brown signed the main budget bill, a $96.3 billion state General fund spending plan that will shift more education money to poor and English-learning students and expand Medi-Cal coverage to more than 1 million low-income Californians under the federal healthcare program.
The size of the general fund and a reserve account of $1.1 billion in the 2013-14 state Budget Act (AB110) reflect the continuing recovering of California's economy and $6 billion in voter-approved taxes from last year.
Brown used his line-item veto authority to cut $40 million from the spending plan.
Enterprise Zone elimination
One element of the Governor’s original proposal remains unsettled - a plan to overhaul California's enterprise zone program. After the state Senate approved a modified version of his plan this week, the matter is pending before the Assembly. It would significantly change a program that has provided tax breaks to employers in 40 locally-designated areas for years
The proposed change of the enterprise zone program, which has provided employers in locally designated areas large tax breaks for years, would largely retain those areas' geographic boundaries but with significantly scaled back hiring credits.
The bill also includes a sales tax exemption for manufacturing and biotech research companies and about $30 million in the budget year beginning July 1 for tax credits negotiated on a case-by-case basis with the state.
According to the Senate's Democratic leadership, amendments made Tuesday would extend to 10 years from five years a carry-forward provision for existing enterprise zone hiring credits. The changes would also extend a sunset on other parts of the program to seven years from five years or less, and they would make ex-criminals eligible for hiring credits.
The proposal would provide hiring credits only to employers paying at least 150 percent of the minimum wage. With the exception of qualified small businesses, it would exclude temporary worker agencies, retailers, restaurants and bars.
Public Records Act Mandate
The initial budget proposed an action to save the state an estimated $10 million by limiting the state's obligation to reimburse cities and counties for the cost of complying with portions of the records act, and the Legislature approved the measure as part of a budget deal.
Widespread criticism of a proposal to weaken California's public records law resulted in Governor Brown and the legislature changing course, by amending the trailer bill that the governor appeared ready to sign.
The initial trailer bill with the PRA mandate relief contained within it was AB 76, which passed on June 14. Subsequently, the contents of AB 76 were placed into an alternative bill, SB 75, with the PRA Mandate relief component eliminated. This bill is pending on the Governor’s Desk.
Wall of Debt
The Budget dedicates billions to repay this budgetary borrowing. Moving forward, continuing to pay down the Wall of Debt will be an important factor to increasing the state’s fiscal capacity. In 2011, the level of outstanding budgetary borrowing totaled $35 billion.
The budget bill projects that the debt will be reduced to less than $27 billion this year. Under the Budget’s projections, it will be reduced to below $5 billion by the end of 2016‑17
The budget plan shows repayment to transportation programs of remaining obligations estimated to be $30 million by the end of 2016-17.
Transportation Budget Items
Transportation Agency
On July 1, the former Business, Transportation Agency (BTH) will be disaggregated and in its place, a new Transportation Agency will become the cabinet level conduit for transportation agencies. The new Agency will include only the Department of Transportation, the Department of Motor Vehicles, the California Highway Patrol, the Board of Pilot Commissioners, the Office of Traffic Safety, the High Speed Rail Authority, and the California Transportation Commission.
In line with this reorganization, the Governor appointed Acting BTH Secretary Brian Kelly as the first state Transportation Secretary this week.
Key Transportation Budget Impacts
The Budget includes total funding of $20 billion ($83.4 million in General Fund and $19.9 billion in Other Funds) for all programs overseen by this Agency.
- Transportation Debt Service - A key ongoing diversion of a source of transportation funding is the continued use of miscellaneous transportation revenue. The Budget Act contains a transfer of $67 million in special funds for this purpose. The State Highway Account generates a portion of its revenue from rental income and the sale of surplus property. The Budget continues the partial offset of transportation debt service costs with this revenue source on a permanent basis.
- Capital Outlay Program—The budget act includes a reduction of $36.3 million and 184 state positions for engineering, design and construction oversight activities in the Program. While some Proposition1B work continues, overall Caltrans’ workload is anticipated to decrease significantly as a result of the expiration of this and other temporary sources of funding such as the federal American Recovery and Reinvestment Act funds. The proposed level of staffing will establish a 90/10percent split of state staff to architectural and engineering consultant contracts
- Increased Operating Expenses for AMTRAK—The governor proposed and the legislature included in the budget act an increase of $18.6million to comply with federal operating requirements for intercity passenger rail service operated by AMTRAK. The federal Passenger Rail Investment and Improvement Act of 2008 required all short distance AMTRAK corridor services to be 100 percent state‑supported. The state currently pays only 70percent of operating expenses for the Pacific Surfliner
Cap and Trade Program
The Budget includes a General Fund loan of up to $500 million from the fund balance in the Greenhouse Gas Reduction Fund. The Fund has received an estimated $260 million in proceeds from the auction or sale of allowances, pursuant to a market‑based compliance mechanism established by the Air Resources Board pursuant to the Global Warming Solutions Act (AB 32). The loan will provide additional time to develop programs to further the purposes of AB 32.
This additional time will allow the Air Board to complete the statutorily required update of the AB 32 Scoping Plan due at the end of 2013. The updated Scoping Plan will provide information that will result in better investment decisions. As the amount of future auction proceeds is unknown, the loan is fiscally prudent during the initial stage of program implementation. The 2012‑13 auctions resulted in proceeds of $257.4 million. As more auctions are conducted, more data will become available to
Redevelopment Act Elimination Impact Update
As a result of the RDA dissolution process, the Budget anticipates that counties will receive $1.4 billion in new general purpose revenues in 2012‑13 and 2013‑14 combined, with cities receiving $1.1 billion and special districts $500 million.
On an ongoing basis, it is estimated that over $675 million annually will be distributed to counties, cities, and special districts. This is a significant amount of unrestricted funding that can be used by local governments to fund police, fire, or other critical public services.
The Budget anticipates Proposition 98 General Fund savings resulting from the dissolution of RDAs will be $2.1 billion in 2012‑13. For 2013‑14, Proposition 98 General Fund savings are expected to be $1.5 billion. On an ongoing basis, Proposition 98 General Fund savings are estimated to be $825 million annually. When Test 1 of the Proposition 98 calculation is operative, funds above this amount will increase available resources for K‑12 schools and community colleges.
AB 110, Relevant Line Item Vetoes
Transportation
Budget Item 2660-001-0042: For support of Department of Transportation: Complete Streets
The Governor revised this item by reducing: Line Item (9) 40-Transportation Planning from $134,280,000 to $133,800,000, and (16) The amount payable from the Public Transportation Account, State Transportation Fund, (Item 2660-001-0046) from -$176,596,000 to -$176,116,000.
Consistent with his May Revision proposal, the Governor deleted $480,000 and 5 positions for the Complete Streets program added by the Legislature. The program began in 2008 and the Department of Transportation (Caltrans) delivered the Complete Streets Implementation Action Plan in 2010.
A zero-base budget review of the Planning program found that these positions are no longer necessary because the work has been completed. Caltrans has incorporated Complete Streets design concepts into the Highway Design Manual and the Project Development Procedures Manual used in collaboration with local transportation agencies. One position remains to continue providing Complete Streets program updates and support.
Budget Item 2660-001-0046: For support of Department of Transportation.
The Governor acted to reduce this item from $176,596,000 to $176,116,000.
This reduction was necessary for this item by $480,000 to conform to the action taken in Item 2660-001-0042 (above).
2013-14 Budget Trailer bills
SB 85 - Transportation., Pending approval
This bill contains statutory provisions related to transportation necessary to enact the June budget package. It includes a provision that continues the dedication of certain special fund revenues associated with transportation to debt service payments associated with transportation projects, resulting in an ongoing General Fund savings of $67 million.
This bill also provides the High Speed Rail Authority with authority to establish a process and rules for the relocations of utilities outside the right-of-way for the High Speed Rail project; creates a direct payment account for debt service from weight fees, rather than using weight fees to reimburse the General Fund; and includes language to specify cash accounting methods for special funds.
SB 75 - Judiciary, Pending approval
Courts
This bill contains statutory provisions related to courts necessary to enact the June budget
Package, including a requirement that the Judicial Council to perform an evaluation of the Long Beach Courthouse Project. The two budget committees had also included specific language related to imposing “best practices” guidance to all P3 projects, which could have resulted in adding additional approvals for highway and transit projects. Advocacy against the inclusion of the overly broad “best practices’ language resulted in this trailer bill language being limited to reporting for the Lon Beach Courthouse project under General Services.
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Kevin Pedrotti can be reached at Clear Advocacy, LLC. Kellison | Main | Pedrotti. 925 L Street, Suite 1450. Sacramento, CA 95814
916|479|7400 - o. 916|708|5293 – m. www.clearadvocacy.com