State Budget Deal Passed by Senate and Assembly...Pain for all...
Updated On: Jul 206, 2009

The California Legislature has ended an all-night session and a months-long budget standoff with the approval of an $84 billion spending plan for California - over 18 percent lower than last year's budget.

The new budget, which is expected to be signed by Gov. Arnold Schwarzenegger, bridges a $26 billion budget gap through massive budget cuts, accounting maneuvers and a $4 billion shift of funds from local government. The local government funding shifts were needed to secure the necessary two-thirds majority for passing the budget, as GOP lawmakers refused to consider either raising taxes or closing tax loopholes.

Few were spared in the $15 billion worth of budget cuts. Public schools took a $9 billion hit. Over $2.8 billion of that will come from the state's college systems, to be partially made up through significant student fee increases. Health care and social safety net services for the poor and disabled were slashed over $3 billion. The new budget also continues three furlough days per month for the vast majority of state employees - an effective 15 percent pay cut.

For first responders, the news is mostly bad, but there are slivers of good news mixed in.

LOCAL GOVERNMENT FUNDING

The most serious potential threat to local first responders is the budget's $4 billion in "borrowing" from local government. The plan shifts $2 billion in direct local funding through suspension of 2004's Proposition 1A. By law, the shift must be repaid by 2013.

The Proposition 1A shift represents a backtracking from an earlier vote in the Legislature to remove the fund shift from the budget talks. It was reinserted in order to insure necessary GOP votes for the budget, after the GOP refused to consider any additional revenue sources.

Local governments will also lose another $2 billion in redevelopment funds, which will be shifted to local schools located in redeveloped areas. The additional shift was originally removed from the budget legislation, but reinserted in negotiations after the GOP rejected any new revenue sources.

The impact of the $4 billion hit will likely reverberate like a cannon through local public safety. Already cash-strapped localities will likely consider further cuts, forcing another round of station closures, brownouts, layoffs, and more pressure to roll back pay and benefits.

Moreover, the cuts are expected to result in a potentially crippling reduction in the state's mutual aid response. Cal EMA estimates the fund shift could cost California up to half of its mutual aid engines, as local agencies hold back strike teams to protect their own budget-strapped jurisdictions.

EMERGENCY RESPONSE INITIATIVE

Despite a full-court press from CPF and media reports underscoring the danger faced by our mutual aid response system, the budget deal does not include the Governor's proposed Emergency Response Initiative.

The fire service - labor and management - viewed the ERI as a critical means of shoring up California's faltering mutual aid response system. For the first time, money would have been allocated directly to local fire departments - upwards of half a billion dollars over three years.

Governor Arnold Schwarzenegger, who had proposed the ERI, made two different appearances on its behalf with CPF Leadership during the budget negotiations, but, backed away from pressing for a fee increase that could be viewed as a new tax, leaving the ERI on the sidelines in legislative leadership negotiations. Ultimately, any hope of the establishment of the ERI was defeated because it required a two-thirds vote of the Legislature.

CAL FIRE

The sliver of positive news came in CAL FIRE, which was spared deep staff and station cutbacks that had been originally floated by the Schwarzenegger administration. The preservation of CAL FIRE's budget had been in doubt after the administration suggested a reduction of as many as 1,800 front line firefighters. But in the face of another blistering fire season, neither lawmakers nor the administration was apparently prepared to face public outcry.

For now, front line CAL FIRE firefighters are exempt from the three-day-a-month state employee furloughs.

IOUs

Once signed, the budget agreement should, in theory, end the issuance of IOUs to pay the state's bills. California was forced to issue IOUs when it ran out of cash on June 30th and lenders refused to front California the money to pay its bills.

On Thursday, however, State Controller John Chiang said there is a chance that IOUs may continue to be issued, depending on the state's cash flow. "Just because you have a budget doesn't mean you have cash in the state treasury," said Chiang.

Even if the IOU issue is resolved, the budget's reliance on harsh cuts, fund shifts and gimmicks instead of secure, long-term revenue and spending stability, makes it unlikely that California's credit rating will improve, further exaggerating the state's already precarious fiscal state.

STILL TO BE DETERMINED

Now that the budget has been passed, the Legislature has adjourned and will return the week of August 17, 2009.

When the budget is signed, it is expected there will be another round of budget adjustments in the coming months.

Additionally, Governor Schwarzenegger introduced, into budget negotiations, a proposal to establish a new lower tier for state employee pensions and retiree health benefits. The Senate and Assembly Democratic leadership refused to engage on this issue in budget negotiations, but all parties believe that these pension issues will resurface after the budget is resolved.

CPF continues to study the budget and its accompanying trailer bills. For the latest updates, be sure to check the CPF Legislative page.


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