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Budget season is in full swing as the budget conference committee began meeting last Thursday (June 12^th).  The conference committee is made up of six members -- three from the Assembly and three from the Senate. The Senate conferees are Senators Denise Ducheny (the chair), Bob Dutton, and Mike Machado. The Assembly conferees are Assemblymen John Laird (the vice-chair), Mark Leno and Roger Niello. Together, their task is to pore through a 439-page agenda which contains all the differences between the Senate and Assembly versions of the budget and reconcile them.   The Conference Committee is scheduled to meet every day, including weekends, over the next two weeks.

In an unusual start, the Conference Committee invited the Treasurer’s Office to kick-off the 2008-09 budget deliberations with a presentation on the state’s cash flow position, reserves, borrowing options, and risks. Paul Rosensteil, Deputy State Treasurer, provided detail to the committee on these issues.  Rosensteil said that the state expects to run out of cash by early September. To meet cash flow needs, the state will need to borrow before then. The May Revision anticipates $10 billion in borrowing ($3 billion more than last year). By early to mid-August, the state will need to commit to either a Revenue Anticipation Note (RAN) or Revenue Anticipation Warrant (RAW). Without a budget enacted, the state’s only option would be a RAW, which allows borrowing into the next fiscal year.

Because of problems with the subprime market, the Treasurer’s Office is anticipating difficultly borrowing in the capital markets. Wall Street will scrutinize California’s borrowing. There are new lending standards in place and less capacity to lend than a year ago. Wall Street will be looking for: 1) a budget enacted well in advance of borrowing, 2) little to no uncertainty in the state budget to assure re-payment, and 3) a budget solution that addresses the state’s problems and that does not shift problems to the out-years.  

Uncertainties in the May Revision – such as the lottery securitization, the prison health care receiver, and the projected year-end balance – will affect California’s ability to secure RANs. Lenders will want to see a $10 billion cash balance at year-end if the state is going to do a $10 billion RAN. The Treasurer’s Office is working with the State Controller’s Office on plans to pursue both RANs and RAWs. As August begins, the status of the state budget will affect which option they are able to pursue. Bottom line: the state’s cash flow issues are serious and a delayed budget will impact the state’s ability to borrow in the short and long-term. California’s credit rating is the 49th worst among the 50 states.

The budget conference committee took up the Judiciary budget items on June 12^th and held just about every item open (a minor budget issue on court construction was closed along with a separate item dealing with subordinate judicial officers).  The major items on local court allocations (SAL), court security and electronic reporting were left open.  Senator Ducheny asked the conferees to indicate their positions on the electronic reporting proposal that was approved by the Senate to authorize use of electronic court reporting in family court, probate court, mental health court, and in laws and motions proceedings.  The two Assembly democrats (Laird & Leno) were clearly opposed to the expansion of e-reporting.  Senators Machado and Dutton expressed their support for expansion and Niello chimed in to echo his support.  Ducheny did not indicate her position.   We only need to keep the two Assembly democrats with us to kill the expansion of e-reporting and the Speaker’s staff indicates that it is very unlikely that their position will change.  The budget conference committee has not had any extensive discussions about the proposals on the unallocated 10% cut that would impact local courts and will probably get back to those items on June 19^th.

The next major area of concern for us for proposed cuts that impact our members are the reductions proposed to county administration of social service programs & Medi-Cal.  It appears that the $7.7 million cut for county IHSS social workers will be approved by the budget conference committee with some “workload” relief that would delay reassessment from 12 months to 18 months.  The proposal to cut $130 million from county Child Welfare Services was rejected by both the Assembly and Senate Budget Committees and is not on the budget conference committee agenda.   The proposed cut of $35 million from county administration for Food Stamps was rejected in the Assembly and approved on the Senate side; so this item is in conference committee and was held open when it came up this morning.  The cut of $11.4 million for Adult Protective Services was rejected by both houses and is not before the budget conference committee.  The Governor proposed a total of $152.5 million in cuts to county administration of Medi-Cal: $32.3 million out of the $152.5 million was approved by both houses and is not in conference, $46.6 million was rejected by both houses and is not in conference, the remaining $41.3 million was rejected in the Assembly and approved in the Senate and this cut is on the budget conference committee agenda (and was held open when they took it up on 6/14).

The budget issues for local law enforcement funding (Citizens’ Option for Public Safety, Juvenile Justice Crime Prevention Act, booking fees, Rural and Small County Sheriffs’ program, and the Mentally Ill Crime Reduction Grant (MIOCRG) are all in the budget conference committee.  The Senate version of the budget zeroed out State General Fund support for all of these local law enforcement programs while the Assembly approved the 10% cuts as proposed in the Governor’s January budget.