Governor, Democrats Agree on Budget

Governor Calls Special Sessions on Roadway, Health Care Financing

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Governor Edmund G. Brown Jr. this week announced that he and the Democratic leaders of the Assembly and Senate have reached agreement on a budget for 2015–2016 that saves billions of dollars, pays down debt and allocates more funds to schools and low-income Californians.

The Governor also called for two special sessions of the Legislature—one to look at how to finance California roads, highways and other infrastructure, and the other to work on funding for Medi-Cal and in-home supportive services.

Budget Highlights

Schools. The budget agreement invests $14.3 billion in K–12 schools and community colleges, including $6 billion for the Local Control Funding Formula that allocates increases for students facing the biggest challenges.

Tax credit for working poor. The first-ever California Earned Income Tax Credit provides $380 million for the lowest-income working families.

Paying down debt. The budget agreement pays off school deferrals ($1 billion); debts owed to local governments since 2004 ($765 million); retires $15 billion in Economic Recovery Bonds used to cover budget deficits dating to 2002; and $3.8 billion owed to K–14 schools.

Rainy day fund. The budget agreement puts $1.9 billion in the rainy day fund as required by Proposition 2, bringing the balance to $3.5 billion.

The agreement includes a $1.1 billion operating reserve.

New spending in the agreement includes $97 million more than proposed in January to enable the California State University to expand enrollment and focus on increased success.

Special Sessions

Transportation infrastructure: The Governor’s proclamation notes that current fuel excise tax revenues fund only $2.3 billion in annual highway repairs, leaving $5.7 billion in unfunded repairs each year.

The special session will “consider and act upon legislation necessary to enact pay-as-you-go, permanent and sustainable funding” to maintain and repair the state’s transportation and “other critical infrastructure,” improve key trade corridors and complement local efforts to repair and improve local transportation infrastructure, the proclamation states.

The proclamation also calls for consideration of legislation to set performance objectives measured by percentage of pavement, bridges and culverts in good condition; and incorporate project development efficiencies to expedite project delivery or reduce costs.

An article on Transportation Infrastructure Funding appears in the CalChamber 2015 Business Issues and Legislative Guide.

Health care financing: A tax on Medi-Cal managed care organizations that has helped offset state General Fund costs associated with the 4 million additional Californians receiving Medi-Cal coverage due to the Affordable Care Act does not meet federal requirements. The special session will examine alternative funding proposals to replace $1.1 billion a year in revenue this tax was expected to generate, plus additional funding to restore cuts to the In-Home Supportive Services program made in 2013, and to fund rate increases for providers of Medi-Cal and developmental disability services, according to the Governor’s proclamation. One proposal already under consideration would expand the existing managed care organization tax and impose a $658 million tax on commercial health care premiums.

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