To the California Legislature Regular Session 2012-13 This page intentionally blank to facilitate double-sided printing. GOVERNOR Edmund G. Brown Jr. January 10, 2013 To the Members of the Senate and the Assembly of the California Legislature: California today is poised to achieve something that has eluded us for more than a decade — a budget that lives within its means, now and for many years to come. We are in this favorable position both because of the huge budget reductions that you have made in the last two years, and because the people voted for Proposition 30. Under this budget, K-12 school districts will see an increase in funds. School districts serving those students who have the greatest challenges will receive more generous increases — so that all students in California have the opportunity to succeed. This budget also focuses more responsibility and accountability on those who are closest to our students. This budget proposes annual funding increases for public higher education. The goal is to provide our students with a solid and affordable education. It challenges the leaders of our higher education system to do better by our students by deploying their teaching resources more effectively. This budget takes the next step to implement federal health care reform. Given the complexity and financial risk, I urge you to expand our health care system in ways that are both affordable and sustainable. This budget finally puts California on a path to long-term fiscal stability. What must be avoided at all costs is the boom and bust, borrow and spend, of the last decade. Fiscal discipline is not the enemy of democratic governance, but rather its fundamental predicate. That is the spirit that I trust will characterize our work together in the coming year. With respect,(cid:1) (cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:84)(cid:16)(cid:1)Edmund G. Brown Jr. (cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:1)(cid:38)(cid:69)(cid:78)(cid:86)(cid:79)(cid:69)(cid:1)(cid:40)(cid:15)(cid:1)(cid:35)(cid:83)(cid:80)(cid:88)(cid:79)(cid:1)(cid:43)(cid:83)(cid:15)(cid:1) STATE CAPITOL (cid:135) SACRAMENTO, CALIFORNIA 95814 (cid:135) (916) 445–2841 This page intentionally blank to facilitate double-sided printing. Table of Contents 2013-14 Budget Summary Table of Contents Introduction .............................................................1 Summary Charts .........................................................9 K thru 12 Education ......................................................15 Higher Education ........................................................33 Health Care Reform ......................................................49 Health and Human Services ...............................................57 Corrections and Rehabilitation ..............................................73 Tax Relief and Local Government ...........................................77 Environmental Protection .................................................81 Natural Resources .......................................................85 Statewide Expenditures ..................................................91 Transportation ..........................................................97 Legislative, Judicial, and Executive .........................................103 Business, Consumer Services, and Housing .................................107 Labor and Workforce Development ........................................109 Government Operations .................................................115 General Government ....................................................119 Demographic Information ................................................121 Economic Outlook ......................................................127 Revenue Estimates .....................................................135 Staff Assignments ......................................................157 Appendices and Schedules ...............................................159 Governor’s Budget Summary – 2013-14 iii This page intentionally blank to facilitate double-sided printing. Introduction Introduction In 2011, the state faced $20 billion in expected annual gaps between its revenues and spending. Just two years later, California is on its most stable fiscal footing in well over a decade. With the tough spending cuts enacted over the past two years and new temporary revenues provided by the passage of Proposition 30, the state’s budget is projected to remain balanced for the foreseeable future. The Budget invests in both K-12 and higher education. These investments are critical to provide Californians, regardless of their financial circumstance, access to high-quality academic and career education, improve educational attainment, and support critical thinking and civic engagement — thereby strengthening the foundation for sustainable growth. The Budget also expands health care coverage as the state implements federal health care reform. It also preserves the state’s safety net and pays down debt. Despite the dramatic budgetary changes of the past two years, there remain a number of major risks and pressures that threaten the state’s new-found fiscal stability, including the overhang of billions of dollars in debt accumulated in prior years. Achieving Fiscal Balance When Governor Brown took office, the state faced a $26.6 billion short-term budget problem and estimated annual gaps between spending and revenues of roughly $20 billion. The 2011-12 and 2012-13 budgets rejected the past reliance on gimmicks, Governor’s Budget Summary – 2013-14 1 Introduction borrowing, and deferrals. These two budgets addressed the $20 billion annual deficit through spending cuts, primarily in corrections, health and human services, and education. In total, these budgets provided three dollars of spending cuts for every dollar in temporary tax revenues approved by the voters. The two budgets achieved the following goals: (cid:116)(cid:1) Realigning public safety programs to bring government closer to the people. (cid:116)(cid:1) Implementing a downsizing plan for the California Department of Corrections and Rehabilitation. The plan is intended to satisfy the U.S. Supreme Court’s order requiring reduced crowding and end federal court oversight of our prison system. It will reverse the trend of prison spending that has consumed a growing percentage of the General Fund budget. Over time, spending will decline from 11 percent to 7.5 percent of the General Fund. (cid:116)(cid:1) Eliminating redevelopment agencies to increase funding for schools, police, fire, and other core local services. (cid:116)(cid:1) Refocusing the state’s welfare program on getting people back to work. The total number of months an adult can receive a monthly cash benefit has been reduced from 60 months to 48 months. Furthermore, the benefit is only provided to the adult for up to 24 months unless the individual is meeting federal work requirements. The Budget provides specific funding to implement these reforms. (cid:116)(cid:1) Making tough cuts across state government to align spending with available tax dollars. Grants to low-income seniors and persons with disabilities (State Supplementary Payment) have been reduced to 1982 levels. CalWORKs grants have been reduced to below 1987 levels. The Williamson Act subventions, child care and dependent tax credit refunds, and the Healthy Families Program were eliminated. (cid:116)(cid:1) Reducing the state workforce by more than 30,000 positions. The state workforce is at its lowest level as a share of the state’s population in almost a decade — and California already had one of the nation’s lowest levels of government employment. (cid:116)(cid:1) Overall General Fund spending is down from its peak of $103 billion in 2007-08 to $93 billion in 2012-13, a decrease of $10 billion, or 10 percent. As a share of the economy, General Fund spending in 2011-12 and 2012-13 remains at its lowest level since 1972-73. Governor’s Budget Summary – 2013-14 2 Introduction While the state has made very difficult programmatic reductions over the past two years, California has maintained its safety net for the state’s neediest and most vulnerable residents. Compared to other states, it continues to provide broader health care coverage to a greater percentage of the population, including in-home care; guarantees access to services for persons with developmental disabilities; makes available higher cash assistance to families and continues that assistance to children after their parents lose eligibility; and provides very generous financial aid to those seeking higher education in California. Reinvesting in Education Proposition 30, the Governor’s Initiative, was premised on the need to reinvest in education. For the first time since the recession began in 2008, with the passage of the Initiative, the Governor’s Budget reinvests in, rather than cuts, education funding. As shown in Figure INT-01, the minimum guarantee of funding for K-14 schools was $56.6 billion in 2007-08 and sank to $47.3 billion in 2011-12. From this recent low, funding is expected to grow to $66.4 billion in 2016-17, an increase of $19 billion (40 percent). Figure INT-01 Budget Reinvests in Education (Dollars in Billions) $70.0 $66.4 $65.0 $63.5 $60.2 $60.0 $56.6 $56.2 $55.0 $53.5 $50.0 $47.3 $45.0 $40.0 2007-08 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Governor’s Budget Summary – 2013-14 3 Introduction K-12 Education For K-12 schools, funding levels will increase by almost $2,700 per student through 2016-17, including an increase of more than $1,100 per student in 2013-14 over 2011-12 levels. This reinvestment also provides the opportunity to correct historical inequities in school district funding. By allocating new funding to districts on the basis of the number of students they serve, all California school districts can improve. By committing the most new funding to districts serving English language learners and low-income students, the Budget ensures that our educational system supports equal opportunity for all Californians. This new funding will be coupled with new, but simplified, accountability measures. The goal is to ensure sufficient flexibility at the local level so that those closest to the students can make the decisions. Higher Education The budget plan also invests in the state’s higher education system to maintain the quality and affordability of one of California’s greatest strengths. Since 2007-08, systemwide tuition and fees have increased by $5,556 (84 percent) at the University of California and by $2,700 (97 percent) at the California State University. The Budget provides stable funding growth over multiple years and should eliminate the need for further tuition increases — if the universities rise to the challenge by deploying their teaching resources more effectively. By focusing on reducing the time it takes a student to successfully complete a degree, the state can ensure a system that is financially sustainable over the long term. For the state’s universities and community colleges, the Budget provides 5 percent growth to each system. A similar level of funding is proposed to be provided in future years. Expanding Health Care Medi-Cal, the state’s Medicaid health care program for low-income families, currently serves one out of every five Californians (more than 8 million individuals). The program currently receives 20 percent of the General Fund budget. As the state implements its commitment to federal health care reform, these numbers will increase. The Budget includes $350 million General Fund to begin to pay for this federally required expansion of coverage. In addition to the required expansion of coverage, states have the option under federal health care reform to expand coverage to include medically indigent adults. The federal Governor’s Budget Summary – 2013-14 4