TO:                  CLA MEMBERS/ NETWORKS/ SYSTEM CONTACTS

FROM:           Mike Dillon, CLA Lobbyist
                       Christina DiCaro, CLA Lobbyist

RE:                 News From the Capitol

DEPARTMENT OF FINANCE SAYS BUDGET “TRIGGER” WILL BE PULLED

Shortly after noon today, Governor Brown, flanked by his Director of the Department of Finance, announced that despite a modest improvement in the economy, (November sales tax receipts were up, as well as capital gains on upper income earners) state revenues have not rebounded sufficiently.   As such, the Governor announced that the so-called “Tier 1” trigger and a portion of the “Tier 2” trigger will be pulled.   This action will include a $16 million reduction to state library funding, which essentially eliminates all remaining state funding for the California Library Services Act, the state literacy program, and the Public Library Foundation.  The Governor also used the press conference to discuss his upcoming January Budget, as well as his $7 billion revenue package initiative that he is qualifying for the November ballot. 


As you will recall, as part of the 2011-12 Budget agreement, the legislature and the Governor created a so-called “Budget trigger,” (AB 121, Statutes of 2011) to serve as a balancing mechanism should $4 billion in anticipated state revenues not materialize as projected.  Per the terms of AB 121, the state’s Legislative Analyst and the Department of Finance were required to prepare substantial fiscal analyses that would determine whether or not the state could rely on the anticipated $4 billion in cash.  If the money was not expected to materialize, the bill created a procedure (a “trigger”) by which automatic cuts would be made to programs such as library services, UC, CSU, In Home Support Services, disability services, etc. in the so-called “Tier 1” trigger.  A second “Tier 2” trigger would make cuts to K-14 school funding. 


As previously reported, the Legislative Analyst’s Office produced their analysis on November 16^th and indicated that because the “economic recovery was slower than expected” they anticipated that revenues would be approximately $3 billion short of the anticipated $4 billion figure associated with the trigger.  This amount would then be compounded by an additional revenue shortfall of $10 billion for the upcoming 2012-13 Budget year (mostly due to K-14 education guarantees and repaying the $2 billion in property taxes borrowed from local government in 2009) – leaving the state “with a year-end deficit of about $13 billion, absent any additional budgetary corrections.” 


The Department of Finance was required to release their revenue projections by December 15^th, so we were surprised when we learned that the Governor and Finance Director Ana  Matosantos would hold a press conference to make their announcement today.  The Governor said that based on newer revenue projections, the combined Tier 1 and Tier 2 cuts will amount to about $1 billion.   (“Tier 1” cuts total approximately $600 million plus, and “Tier 2” cuts would total $328 million, instead of the full $1.5 billion cut to K-14 education.)   The Governor also said that his 2012-13 Budget – to be released on or around January 10 – will include “more cuts to follow,” and importantly, will include $7 billion in revenues, predicated on voters passing his tax initiative on the November 2012 ballot.  (The Governor is proposing a five year ½ cent sales tax increase as well as an income tax increase on $250K filers and up.)  The January 2012-13 Budget will contain another “trigger” providing for automatic cuts if voters reject his initiative.  When the Governor was asked by a reporter to address those impacted by the cuts to the “Tier 1” programs, he acknowledged that the cuts were very difficult, but added a phrase in Latin, which the Governor translated as, “No man gives what he does not have.”  The Governor then also expressed frustration with the state’s previous lack of fiscal discipline, adding that past Budgets were compiled through “obfuscation and gimmickry.”    In response to a reporter’s question about competing tax measures being circulated for the November ballot, the Governor said that he “talked to one of the groups” and presumably would be talking to the others.  He added, “We hope to have a clear field in November.  We want to avoid doubling cuts if (the tax proposal) fails.”    


Leading up to today’s announcement, we not only met with the Governor’s Director of Finance Ana Matosantos, but we also sought the opinions of several high ranking legislators and staff at the Capitol – to a) determine the likelihood that the “trigger” would be pulled and b) to consider next steps if the “trigger” were to be pulled.  It is important to note that one of the factors leading into today’s decision to pull the trigger was the need to assure bond holders and investors that California is taking a serious approach to solving the state’s chronic Budget challenges.  Were the Governor and Finance to choose to not pull the trigger, it could be perceived by those investors as loosening the stability of the 2011-12 Budget deal. 
In terms of next steps, we will wait for the Governor’s presentation of the January Budget and then we will then need to begin the arduous process of trying to build funding back in to the 2012-13 Budget for libraries.  The process will be similar to that of years’ past wherein the Budget subcommittees will hold hearings on various funding areas in the Budget, beginning in March.  Their deliberations will conclude around Memorial Day, with the full Budget Conference Committee (a two-house committee) then convening the first part of June to address differences between the Governor’s Budget and the actions of the subcommittees. 
The legislature will return to the Capitol to begin the 2012 session on Wednesday, January 4.  After the first of the year, we will provide you will instructions regarding key legislators to contact to encourage their support of putting library funding back in the Budget.