Assembly Republicans

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Assembly Republicans

2017-18 Governor's Proposed Budget Highlights


Assembly Republicans

2017-18 Governor's Proposed Budget Highlights

POLICY OVERVIEW | 3


TABLE OF CONTENTS

CHPT.

1

Overview

Pg. 1

CHPT.

2

Transportation

Pg. 5

CHPT.

3

Housing

Pg. 7

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4

Resources

Pg. 9

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5

Law & Administration

Pg. 13

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6

Employee Compensation & General Government

Pg. 17

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7

K-12 Education

Pg. 19

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8

Higher Education

Pg. 21

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9

Health & Human Services

Pg. 23


OVERVIEW

Source: California Department of Finance

Despite a Strong Economy and New Taxes, Capitol Democrats Produce Deficit. Only six years

after passing Proposition 25 (the majority-vote Budget initiative), even with a strong economy,

robust tax revenues, and $10 billion of new tax increases approved by voters, Democrats have

managed to move California back into the red. Absent $3.1 billion in corrective actions, the

Budget would have a $1.6 billion deficit, but the Governor has proposed a package of costsaving

actions and General Fund reductions including rebenching Proposition 98, reducing

certain programmatic spending, and not funding one-time expenditures allocated in 2016-17

(see chart above). It is truly remarkable that California families once again face reductions in

education and childcare spending.

• Governor Brown’s initial budget (2011-12) included $87.1 billion in revenue and $86.4 billion in

spending;

• Revenues have increased by $36.9 billion to a total estimate of $124 billion in 2017-18—an

average annual growth rate of 4.3% since 2011-12;

• Expenditures have increased by $36.1 billion from 2011-12 to $122.5 billion for 2017-18—an

average annual growth rate of 4.4%;

• According to the Governor, absent $3.1 billion of corrective actions, state spending would be

higher and the state would face a $1.6 billion deficit in 2017-18, with annual ongoing deficits

of $1 billion to $2 billion.

The Legislative Analyst’s Office (LAO) projects revenues higher than those shown by

the Department of Finance’s estimates. This differential will set the stage for an ongoing

disagreement throughout the Budget cycle between Legislative Democrats, who will want to

expand spending, and Governor Brown who is touting fiscal prudence in light of the near miss

with a Budget deficit and the potential for future economic downturns.

Deeper Budget Deficits are Likely in the Future. Projections suggest that the Budget will remain

precariously balanced despite strong revenue growth (see chart next page). While revenues

are projected to grow through the 2020-2021 Budget Year to a high of $142.3 billion, projected

expenditures in each subsequent budget year grow just as fast. The slightest miscalculation or

economic downturn will move California back into a pattern of disarray and budget deficits similar

to the past decade.

2017-18 BUDGET HIGHLIGHTS | 1


Source: California Department of Finance

Assembly Republicans are committed to providing the focused leadership necessary to avoid

another fiscal crisis, but Capitol Democrats need to join us to succeed. The Governor’s Department

of Finance cautions that even a moderate recession could drop state revenues by about $20

billion a year for several years.

Government Spending Grows In Spite of Budget Deficits. Even though the Governor’s Budget

proposes General Fund expenditures of $122.5 billion for 2017-18, which is $300 million less than

2016-17; overall state spending, which includes Special Funds and Bond Funds, rises by $9 billion

to $179.5 billion (see chart below). Many of these Special Funds are used to backfill what would

otherwise be regular General Fund expenditures such as Medi-Cal, public safety, transportation, and

other general governmental spending.

Special Fund Expenditures

Increase in 2017-18 Budget

Transportation

Natural Resources

Environmental Protection

Health and Human Services

1.251 billion

48 million

41 million

5.247 billion

K-12 Education 11 million

Higher Education

Government Operations

Non-Agency Departments

Tax Relief/Local Government

Statewide Expenditures

123 million

992 million

116 million

249 million

2.053 billion

Total

Note: Numbers may not total properly due to rounding.

9.944 billion

Source: California Department of Finance

2 | 2017-18 BUDGET HIGHLIGHTS


Republican Rainy Day Fund is Working Well. The state’s “Rainy Day Reserve” which Republicans

struggled for years to make an essential part of the State Budget, and voters approved as

Proposition 2 (2014), is up to nearly $8 billion. It is expected to grow to $11.5 billion by 2021.

Concurrently, each time a payment is made into the Rainy Day Fund, the same amount of state debt

is paid down (see chart below).

Source: 2017-18 Governor's Proposed Budget and California Department of Finance

It is very important to continue building up the Rainy Day Fund so that when the inevitable

economic downturn finally occurs, the state is in better shape to weather the fiscal storm. It is vital

to recognize, however, that even in 2021, when the Fund contains $11.5 billion; a recession could

create a much larger hit to the Budget than the Fund could absorb, so it is critical to pay in more

while revenues continue to grow.

Working Class California is Still Hurting. Since Governor Brown took office in 2011, the Department

of Finance has consistently overestimated Sales and Use Tax revenues (see chart next page). This

may be a consequence of a “recovery” that has not filtered down to the average person. A normal

recovery would result in increased discretionary spending and increased sales tax collections.

But when the basics like shelter, healthcare, and transportation are all absurdly expensive, and

traditional well-paying middle class jobs have been chased out of California by the hostile tax and

regulatory environment, it is difficult to “recover.”

2017-18 BUDGET HIGHLIGHTS | 3


Source: California Department of Finance

Assembly Republicans know that state policy should be helping Californians reach the middleclass

through better workforce skills training, access to inexpensive housing, quality and lowcost

healthcare, and reduced traffic and commute costs. We believe the goal should be to put

more money into people’s pockets. Unfortunately that is not happening under the state’s current

leadership regime.

4 | 2017-18 BUDGET HIGHLIGHTS


TRANSPORTATION

Transportation Tax and Steal. The budget highlights a $6 billion annual shortfall in funding for

state highway maintenance and rehabilitation, and proposes $3.6 billion in new taxes to address

the gap. The Governor proposes 22.7 cents (11.7¢ gasoline, 11¢ diesel) per gallon in fuel tax

increases that disproportionately harm low-income and middle class working families, and a $65

increase in vehicle registration fees on top of the $10 increase contained in last year’s budget. In

addition to paying the second highest gas prices in the nation and the highest gas taxes (including

cap-and-trade), a Californian pays more than $200 every year to register a vehicle. However,

even with these new tax increases, the budget fails to end raids on transportation funds for nontransportation

purposes. While the gas tax would increase nearly 12 cents per gallon, Capitol

Democrats stole 80% of these gas tax revenues in 2016-17. Assembly Republicans believe

that transportation taxes should fund transportation. Solutions exist to repair and expand our

infrastructure without tax increases. Assembly Republicans have proposed a nine-point plan

to generate $4.3 billion in new revenue for transportation infrastructure and enact meaningful

policy reforms, without raising taxes.

Source: Department of Transportation and derived calculations

Loan Repayments Fall Short. More than $2 billion has been loaned from transportation sources

to the General Fund. The budget proposes repaying only one-third of outstanding transportation

loans. Under the Governor’s plan, the remaining loans will never be repaid. Assembly Republicans

believe that all money borrowed from transportation should be immediately repaid to fix our

roads and relieve traffic congestion.

Caltrans Reforms Needed. In May 2014, the LAO released a review of staff support costs at

Caltrans, which determined that the department is overstaffed by 3,500 full-time employees, at a

cost of more than $500 million per year. The Governor’s transportation proposal forecasts that $1

billion over 10 years will be generated from “Caltrans efficiencies,” but enacts no policy or budget

changes to achieve these efficiencies. Assembly Republicans have proposed meaningful reforms

that reduce Caltrans bureaucracy and increase local control.

2017-18 BUDGET HIGHLIGHTS | 5


High-Speed Rail Doesn’t Solve Traffic Congestion. The budget continues to fund construction

of a high-speed rail project that, if constructed, would reduce traffic congestion by only 1%.

Taxpayers will pay $650 million per year in bond debt service over the next 30 years to fund

this project. In addition, the Governor continues to implement a policy specifically designed

to block road construction projects, increase congestion, and promote transit use. The

Administration describes this policy as a “road diet,” and stakeholders estimate it will add $1

billion in costs for each additional lane mile in California. Assembly Republicans believe traffic

congestion is a problem, not a solution. Californians lose too much precious time with their

families stuck in traffic as it is, and our crumbling roads cost drivers about $760 annually

in car repairs. Capitol Democrats’ policies such as high-speed rail, road diets, and diverting

transportation money make traffic worse, not better.

6 | 2017-18 BUDGET HIGHLIGHTS


HOUSING

The Housing Crisis is Driving California’s Poverty Rate, the Highest in the Nation. At 20.6%,

California’s poverty rate is the highest of any state, largely driven by the high cost of housing.

According to a recent report by McKinsey Global Institute, nearly 100% of low-income Californians

cannot afford the local cost of housing. One-third of the state’s renters pay more than 50% of

their income for rent, sacrificing their financial security just to house themselves. Minorities have

been hit the worst, with nearly 60% of black and Hispanic Californians spending more than 30% of

their income on housing.

Source: US Census Bureau; Zillow; McKinsey Global Institute analysis

Lack of Units Driving Housing Costs. According to the Legislative Analyst, California’s high

housing costs are driven by the state’s failure to build enough units to meet demand. California

has produced far less housing per capita than other US states—80% less than New York. McKinsey

estimates that California needs to build 3.5 million new homes by 2025, but is on track to build just

1 million. New housing projects are slowed by local land use regulations, abuses of environmental

regulations, and community resistance to new housing.

Source: US Census Bureau; Zillow; McKinsey Global Institute analysis

2017-18 BUDGET HIGHLIGHTS | 7


Governor’s “Housing Principles” Short on Details. To address the housing shortage, the

Governor unveiled a list of housing policy principles that largely focus on reforms at the local

level which are a condition for his support of the Capitol Democrats' $75 real estate document

tax to support low-income housing. These reforms could dramatically limit plan review, public

input, impact fees, and tie housing production to unrelated infrastructure funding, such as much

needed transportation dollars. The Governor emphasized the importance of: 1) not adding

new General Fund expenditures; and 2) reducing per-unit housing costs. Unfortunately, the

Governor did not offer specific proposals. Assembly Republicans have filled this void by

proposing real, innovative solutions to improve the affordability of housing for all buyers

and renters such as AB 53 (Steinorth), which creates tax-advantaged Homeownership Savings

Accounts. The Budget should also reduce costs and regulatory delays on housing development

by providing tax incentives to developers who produce medium-density developments, placing

time limits on design review, and doubling the renter’s tax credit.

Housing Construction Harmed by California Environmental Quality Act (CEQA). CEQA, the

state’s cornerstone environmental law, has expanded into a complex regulatory obligation

and litigation trap, prompting even Governor Brown to call for reform. CEQA litigation delays

housing projects for years, which often leads project proponents to abandon their proposals

upon the mere threat of CEQA litigation. Threats are often made by groups unconcerned about

the environment, but which seek to achieve their own selfish objectives. Assembly Republicans

support efforts to maintain CEQA’s environmental protections, restore its original focus on

disclosure and mitigation of significant environmental impacts, and stop predatory litigation

abuse that stalls progress without benefitting the environment.

8 | 2017-18 BUDGET HIGHLIGHTS


RESOURCES

Source: Governor's 2017-2018 Proposed Budget

Governor Seeks Permanent Cap-and-Trade Tax. The Governor’s proposed $2.2 billion capand-trade

spending plan is contingent upon the permanent extension of the auction-based

program. As an alternative to rigid command and control regulations, cap-and-trade provides

entities with flexibility to reach emissions mandates at a lower cost. The Air Resources Board’s

(ARB) auction-based program has statutory authority through 2020, but cannot be used to

achieve the state’s aggressive 2030 emission target. Without cap-and-trade, ARB will be forced

to rely upon inflexible and burdensome command-and-control regulations to reduce emissions

from businesses. Assembly Republicans generally believe that a cap-and-trade model is

preferable to minimize compliance costs while achieving the state’s aggressive Greenhouse

Gas (GHG) emission reduction targets, but that there are more efficient cap-and-trade models

available. ARB anticipates that the reserve price per allowance will double to more than $25/ton

by 2030; thus, what currently generates ~$2 billion annually could bring in far more revenue by

2030. This means that the ~$0.12/gallon cost of gasoline attributable to cap-and-trade will likely

jump to ~$0.25/gallon or more by 2030. Combined with other policies, this is driving energy,

transportation, food, and housing costs higher, thereby disproportionately hurting middle class

and low-income families. It should be noted that, if the auction-based cap-and-trade program is

extended with a two-thirds vote, the revenues could be diverted for any general purpose.

2017-18 BUDGET HIGHLIGHTS | 9


New Cap-and-Trade Spending Plan Wastes Money on Ineffective Programs. The $2.2 billion

spending plan maintains existing continuous appropriations through which 60% of auction

revenues are dedicated to high-speed rail, affordable housing and sustainable communities, transit

and intercity rail, and low carbon transit programs. Of the remaining $1.3 billion, $863 million

is dedicated to low carbon transportation, transit and intercity rail, and active transportation,

all of which cost several hundred dollars per ton of GHG emissions reduced, according to the

Legislative Analyst’s Office. The per ton costs for these programs far exceed that of other, more

effective programs like waste diversion, dairy digesters, and healthy forests, all of which the LAO

determined cost less than $10/ton of GHG reductions. The Governor has only proposed a small

portion of the funding for these efficient programs. If this cap-and-trade program is going to

continue to exist, Assembly Republicans expect a better investment of cap-and-trade auction

revenues that more efficiently reduces GHG emissions and minimizes the future regulatory

burden of the state’s climate policies.

Source: Governor's 2017-2018 Proposed Budget

Taxing New Containers Will Increase Grocery Costs for Families. The Governor’s proposed

beverage container recycling program expansion and tax increases will impose unnecessary

and excessive costs on California families and manufacturers. The Beverage Container

Recycling Program (BCRP) is a $1.3 billion program funded by the $0.05 or $0.10 California

Redemption Value (CRV) deposit Californians pay on most beverages. Roughly $1 billion goes

back to consumers who recycle their containers annually and the remaining money is used

for administration, grant programs, market development, and reducing beverage container

manufacturer fees.

10 | 2017-18 BUDGET HIGHLIGHTS


As a result of California’s high recycling rate, low scrap values, and statutory program

expenditures, the BCRP faces a structural deficit of $50 million in FY 2016/17 and $25 million in FY

2017/18. Worse yet, several hundred recycling centers shut their doors over the past few years,

making it difficult, if not impossible, for many Californians to get their deposits back. Without

convenient redemption opportunities, the deposit effectively becomes a tax on consumers.

The Governor proposes significant program changes to address the structural deficit, including

repealing the processing fee offset (thereby charging manufacturers more than $100 million

annually for the difference between the scrap value and the cost of recycling beverage

containers) and expanding CRV deposits to include wine, hard alcohol, juice boxes, etc.

(effectively charging consumers a new tax on these items). Assembly Republicans believe

there are better ways to stabilize the fund through careful examination and realignment of

existing programs funded by the BCRP. It is clear that a program expansion and elimination of

the processing fee offset will impose unnecessary and excessive costs on California consumers

and manufacturers. Assembly Republicans also applaud the Governor’s efforts to increase

consumer redemption opportunities in lower volume and rural areas.

Emergency Drought Proposal Focuses on Fire Protection and Tree Mortality. The Governor’s

Budget proposes $178.7 million for drought response, of which 80% ($143.7 million) is dedicated

to fire protection and tree mortality. Of that amount, $91 million is proposed for CalFire to

fund the extended fire season, increased firefighter surge capacity, Conservation Corps fire

suppression crews, and aerial assets. An additional $52.7 million is proposed for the Office of

Emergency Services for local assistance to remove dead and dying trees that threaten public

safety. Assembly Republicans support efforts to ensure that CalFire is able to adequately

respond to wildfires and to address widespread tree mortality to reduce the risk of

catastrophic wildfires.

Water Funding for Small Communities. The Governor’s Budget proposes $5 million (General

Fund) for the Department of Water Resources to help small communities with failing

groundwater wells secure additional water supplies. Despite increased rainfall across California,

numerous communities still lack access to drinking water after five years of drought. This

funding will help ensure communities like East Porterville and Lytle Creek have water for basic

health, safety, and sanitary needs. Assembly Republicans support additional funding to ensure

access to water for drinking, cooking, bathing, and plumbing.

Proposition 1 Bond Funding Improves Local Water Supply Reliability. Local water agencies

have been asked to ensure there are reliable water supplies in the future. To date, California

has spent over $1 billion on local water projects and plans that increase local water supply

reliability. The Governor’s Budget proposes an additional $248 million in Proposition 1 funding

to the Department of Water Resources for regional water management projects. Assembly

Republicans support efforts to help local water systems diversify their regional water

portfolios to meet future water needs.

2017-18 BUDGET HIGHLIGHTS | 11


LAW & ADMINISTRATION

Source: LAO & Department of Finance, 2016

Budget Fails to Address Major Public Safety Issues. The Governor’s 2017-18 Budget proposal

includes no major policy or budgetary changes in the public safety, courts, and corrections

arenas. It is more remarkable for the needs it fails to address, such as law enforcement training;

underfunded courts and an insufficient number of judges; cyber-security readiness; and the

overreliance on early release to control the prison population. Assembly Republicans believe

ensuring public safety is a core government function. This budget does not sufficiently reflect

that priority, particularly at a time when crime rates are rising. The budget should provide

adequate resources for local law enforcement to protect our communities, help the courts to

provide access to justice, and protect Californians from cyber-attacks.

Rising Crime Remains a Serious Problem. According to FBI data, in 2015, the property crime

rate was down 3.4% nationally, but up 7.2% in California; the violent crime rate was up 3%

nationally, but up 7.5% in California. The Los Angeles Times recently reported that crime was

up for the third straight year in our state’s largest city. The budget fails to provide sufficient

funding for front-line law enforcement to address rising crime rates in California neighborhoods

or prevent the negative impact of Proposition 47, which reduced penalties for drug possession

and property crimes. Assembly Republicans support providing additional state funds for

front-line officers and for enhanced law enforcement training and equipment to ensure

California communities are safe and thriving.

More Funding Needed for Officer Training Regarding the Mentally Ill, Those With Substance

Abuse Problems, and the Disabled. Legislation enacted last session mandated that law

enforcement officers receive 15 hours of training on how to interact with persons with mental

illness, substance abuse problems, and disabilities. Prior to this, the minimum required was six

hours. There is a growing recognition that inadequate training can lead to negative interactions

and unnecessary use of force incidents involving the mentally ill, those with substance abuse

disorders, and individuals with disabilities. Last session's provisions did not require retraining

for officers who had received the prior six-hour minimum amount of training, so approximately

72,000 front-line peace officers who potentially interact with this population have not received

the enhanced training. Assembly Republicans support a higher level of training for law

enforcement officers that interact with the mentally ill and disabled.

2017-18 BUDGET HIGHLIGHTS | 13


No Money for Prosecuting Human Trafficking. Though the Governor’s proposed Budget

includes money for human trafficking victims, it does not contain any funding for prosecuting

the offense. Assembly Republicans believe providing funding for prosecution should be a

priority. AB 2202 (Baker, 2016) would have provided $2.6 million to local prosecutors for this

purpose, but Capitol Democrats did not allow the bill to pass.

No Funding for New Trial Court Judgeships. The Governor’s proposed Budget fails to include

money for new judgeships. The 2016 judicial needs assessment study, authored by the Judicial

Council, shows California is short 189 judgeships, with virtually all of the needed new judgeships

located in non-coastal counties, such as those in the Central Valley and the Inland Empire.

However, the Budget does propose to reallocate four vacant superior court judgeships to areas

where workload is highest. Assembly Republicans support this proposed reallocation, but

continue to believe that funding for new judges or more vacancy reallocations should be a

high priority.

Trial Courts Remain Underfunded. Judicial Council projections show a continuing trial

court funding gap of more than $400 million, severely limiting access to justice for millions

of Californians who rely on court services. In order to compensate for this lack of funding,

trial courts have had to take drastic measures in recent years, including reducing hours

of operations, reducing services provided, and closing down courtrooms and even entire

courthouses. In addition, the Legislature has raised civil filing fees numerous times, making

it increasingly more expensive for the average person to use the court system. Assembly

Republicans support placing a higher priority on funding for trial courts in order to ensure

access to justice and timely due process for California residents and small businesses.

Governor Underestimates Cybersecurity Risk. The Governor’s proposed Budget includes $9

million for cybersecurity, which represents an $8 million increase in funding from last year.

However, this spending plan seems to be nothing more than minor IT upgrades at state agencies

rather than an aggressive information security spending program. Additionally, no plan was

included identifying how these dollars would be spent to protect the state’s cyber-infrastructure

or where they would be spent to address the state’s weaknesses. A recent report by the

State Auditor continues to show that the state is doing very little to address cybersecurity

risks. Considering that cyber-threats are real, as evidenced by the warnings issued by every

intelligence agency in the country, the Governor’s proposal is woefully inadequate to protect

California. Assembly Republicans plan to lead an effort to protect our information security

and tap into federal homeland security grant funding.

Early Inmate Release Threatens Public Safety. Proposition 57 authorizes a disturbingly

aggressive early release proposal, yet even so, does not guarantee sufficient long-term inmate

population control to meet the federal requirements. The Federal courts imposed a maximum

prison population of 137.5% of “design capacity.” The state prison system is currently occupied

at approximately 134.0% of design capacity. To help remain under the court imposed limit,

Proposition 57 provides the California Department of Corrections and Rehabilitation (CDCR) the

authority to increase early release credits. Based on its proposed regulations, CDCR projects

the early release of 9,500 inmates by 2020-21. This would leave about 4,800 empty beds at

CDCR and a healthy gap below the federal cap; however, CDCR anticipates a natural population

increase of 1,000 beds per year. Combining these two estimates, CDCR could be at the federal

cap by 2020-21. At that point, CDCR will face pressure to provide additional early release

credits for dangerous felons. The three proposed credit increases are: increased good time

14 | 2017-18 BUDGET HIGHLIGHTS


credits (otherwise known as “time off for breathing”), establishment of additional credits for

reaching educational or training milestones, and increased credits for program participation.

Assembly Republicans support a long-term plan to better ensure public safety while meeting

the federal prison population cap.

State Penalty Fund Reductions Put Women and Children at Risk. State Penalty Fund revenues

have been on the decline for several years. To address this trend, the Governor proposes

the reduction of several grant programs, including $1 million from the Internet Crimes against

Children Task Forces; $850,000 (2/3 of total funding) from the Local Public Prosecutors and

Public Defenders Training Program (training for prosecution of crimes against women); and

$9.5 million from the elimination of the California Gang Reduction, Intervention, and Prevention

Program. This proposal would also reduce the funding available for law enforcement training

reimbursement. Assembly Republicans oppose these reductions and believe continued

funding is necessary and appropriate.

Elimination of Driver’s License Suspension. Currently, a court may suspend a driver’s license for

failure to pay a traffic fine on the theory that restoration of the license is a strong motivator to

pay. The Governor suggests that there is no strong relationship between license suspension and

fine payment, but that suspension is more likely to prevent drivers from legally going to work or

taking children to school. Consequently, the Budget proposes to eliminate the option. Assembly

Republicans acknowledge current policies unduly hurt the poor. However, this proposal does

nothing to recognize the root of the problem: fines and penalties are too high (the highest in the

nation, according to the Legislative Analyst’s Office) and need to be reformed.

2017-18 BUDGET HIGHLIGHTS | 15


EMPLOYEE COMPENSATION &

GENERAL GOVERNMENT

Source: Salary Data: 2017-18 Governor's Proposed Budget through 2017-18; 3% annual

increase assumed thereafter. Pension Data: California Department of Finance

Employee Salary Costs Continue to Increase. In the 2017-18 Governor’s Budget, state employee

salary costs top $18 billion (Total Funds), up from $16 billion in 2013-14. While purporting to

prioritize funding for youth and education, this budget significantly increases salaries for state

employees, ($217 million more due to minimum-wage hike costs), but eliminates $140 million

in funding for child care and middle-class college scholarships. Pay increases in recently

negotiated memoranda of understanding (MOUs) between the State and public employee

unions will cost taxpayers $1.3 billion by 2020-21. On average, the new MOUs provide a 12.1%

pay increase to state employees over the course of the agreements, which last an average of 3.5

years, despite the fact that several classifications already make more than Californians working

in comparable private sector jobs.

Pension Cost Increases Hurt Vital Programs. Contributions for the pensions of government

employees continue to grow, with state contributions to the California Public Employees’

Retirement System (CalPERS) reaching $5.8 billion (Total Funds) in the 2017-18 Governor’s

Budget. State CalPERS contributions are expected to grow an additional $2 billion by 2020-21,

driven both by pay increases and by changes to the CalPERS discount rate. The discount rate

is the assumed annual rate of return on investments as determined by the CalPERS Board of

Administration—a lower discount rate necessitates a higher contribution from the State and local

governments. In December 2016, the CalPERS Board voted to reduce the discount rate from 7.5%

to 7% over the following three years to start to address the $250 billion unfunded pension liability

for the State and local governments. Lowering the rate improves CalPERS’s long-term solvency,

but imposes costs on member agencies, which are ultimately paid for by hardworking Californians

who don’t receive any of the pension benefits. Assembly Republicans support fair and

sustainable retirement plans for public employees, but are deeply concerned that the current

system is taking funds away from vital education, safety net, and public safety programs.

2017-18 BUDGET HIGHLIGHTS | 17


Paying Down Unfunded Liability for Retiree Health Benefits. Assembly Republicans successfully

negotiated a $240 million pay down of the state’s $74 billion unfunded retiree healthcare liability

as part of last year’s Managed Care Organization financing plan. Following our lead, the 2017-18

Governor’s Budget includes an additional $189 million to pay down that debt. Cost sharing between

the state and its employees has been a focus of MOU negotiations. While addressing this unfunded

liability is crucial, a 12.1% average pay increase is a high price to pay for the concession.

Efforts to reduce the $74 billion unfunded liability for retiree health benefits and the lower CalPERS

discount rate are positive in the long-term, but Assembly Republicans are concerned that the

rapid increases in salary and benefit costs required to get to that point will drain state

resources from other vital uses.

New Funding for “Strategic Enforcement” of Labor Violations. The 2017-18 Governor’s Budget

allocates $4.6 million, increasing to $11.4 million by 2020-21, for the implementation of a “strategic

enforcement” program to combat labor law violations. Most new positions would be Bureau of Field

Enforcement investigators who would work to build relationships in the community, gaining its trust

as a means of identifying “bad actor” employers. Assembly Republicans support ensuring that

employers comply with the law. However, this funding would be better used to investigate

claims made under the Private Attorneys General Act (PAGA) prior to the initiation of

litigation. The Division of Labor Standards Enforcement (DLSE) currently investigates very few

alleged violations, leading unscrupulous attorneys to use PAGA to sue for minor violations and secure

massive settlements from employers. This ultimately results in fewer jobs and reduced salaries for

workers.

Funds Workforce Development Programs. The 2017-18 Governor’s Budget includes more than

$6 billion in funding for workforce education and employment and training programs. These

investments help reduce the number of Californians living in poverty, improve a range of educational

outcomes, increase an individual’s earning potential, and prepare California’s workforce to meet

ever-changing economic demands. While Career Technical Education Incentive Grant funding is

touted in the Governor’s Budget, it is set to expire after 2017-18. Assembly Republicans support

making that $300 million annual investment permanent as part of a comprehensive workforce

training and education proposal. Assembly Republicans also support additional funding to

address systemic barriers to employment, and to establish competitive performance grants to

organizations that help people move up the workforce ladder.

18 | 2017-18 BUDGET HIGHLIGHTS


K-12 EDUCATION

Funding for K-12 Grows by More Than $2.1 Billion. While the Governor’s Budget estimates a three

year decline in available General Fund tax revenues at approximately $5.4 billion, it proposes an

increase to $73.5 billion towards the Proposition 98 minimum annual funding guarantee. Those funds

add $331 per pupil to the prior year guarantee for a total of $10,910 Proposition 98 per-pupil spending

for 2017-18.

Source: California Department of Finance and 2017-18 Governor's Proposed Budget

Assembly Republicans are dedicated to investing in California’s students. However, increasing the

annual per-pupil spending without significant reforms will do nothing to close the achievement gaps

within California’s public schools. We continue to advocate for access to high-quality education for

all students in every community.

Local Control Funding Formula (LCFF) Funded at 96% in Fifth-Year Implementation. The

Governor’s Budget provides an additional $744 million towards locally controlled funding at 96% of

its statewide goal. The statewide investment into LCFF after four years is $15.7 billion, an amount

that will exceed the original funding timeline from when LCFF was first introduced in 2013. Assembly

Republicans support local decision-making that facilitates accountability among community

members and leaders to determine and address locally-held issues and priorities. One-size-fits-all

state mandates from Sacramento are less effective as they ignore the different priorities in California’s

many diverse regions.

Final Installment of the Three-Year Investment in Career Technical Education (CTE) Incentive

Grant Program. The Governor’s Budget includes a $200 million final allocation of the $900 million

CTE Incentive Grant Program, which was initiated in 2015-16. The Governor directs the CTE Grant

recipients (local education agencies [LEA] such as school districts, charter schools, and county offices

of education) to fully sustain and continue their CTE programs within their LCFF funding starting in

2018-19. Assembly Republicans are dedicated to lowering unemployment and strengthening the

middle class through workforce development programs, like CTE programs in our schools and

community colleges. To address rising unemployment as a result of decreasing private-sector job

opportunities and substantial high-school dropout rates in many communities, Assembly Republicans

believe in a long-term commitment prioritizing workforce development and diversifying

educational options.

2017-18 BUDGET HIGHLIGHTS | 19


Paying Down Excessive Mandate Debt. The Governor’s Budget continues to reduce the unpaid

K-14 mandate claims with $287 million in one-time funding from Proposition 98 General Fund, to be

spent at the discretion of LEAs to support programs such as professional development, deferred

maintenance, and technology. Assembly Republicans support reducing mandate debt and

providing communities the flexibility to support locally-determined critical investments.

Charter School Attendance Grows While School District Average Daily Attendance (ADA)

Declines. The Governor’s Budget provides $93 million in Proposition 98 General Fund for projected

charter school growth, while school districts face a $63.1 million reduction based on their projected

declining enrollment for 2017-18. The proposed budget also reflects school districts receiving

$168.9 million less than allocated in the 2016 Budget Act due to declining enrollment. Assembly

Republicans consistently advocate for school choice in allowing families to decide their schooling

options and will protect against any encroachment on a student’s pursuit of a better education.

Proposition 51 (2016) Provides $7 Billion for K-12 School Facilities. The Governor’s Budget

contains the recent voter-approved initiative for the sale of $600 million in general obligation bonds

for 2017-18. The bonds would fund $370 million in currently listed approved school facility projects.

Furthermore, the Governor proposes making all future distribution of bond monies contingent on

schools committing to enter into an upfront grant agreement that contains accountability measures

and making schools’ associated expenditures subject to local independent audits. Assembly

Republicans support prioritizing facility funding for schools that have waited on the list for years

to create safe and clean learning environments, while assuring taxpayer dollars are not wasted

and misused.

Childcare and Preschool Programs Increased by $76 Million. The Governor’s proposal stretches

a three-year plan into a four-year plan by pausing additional funding until 2018-19 to reflect the

unexpectedly lower General Fund revenue growth. The proposal maintains reimbursement

rates for compensating childcare service providers at 2016-17 levels, which is consistent with the

cost of minimum wage increases through 2017-18, and adds 2,959 full-day State Preschool slots

starting April 2017. The budget obtains future cost-savings from not adding an additional 2,959

full-day State Preschool slots scheduled for April 2018 and forgoing cost-of-living rate increases

for childcare providers. Assembly Republicans are committed to supporting middle-class and

working families by increasing childcare options and promoting reforms for accessible and

equitable childcare services for all families.

20 | 2017-18 BUDGET HIGHLIGHTS


HIGHER EDUCATION

Source: LAO & Department of Finance, 2017

Higher Education Largely Unchanged, but Still Gets a Bump. The Governor’s Budget proposes

spending approximately $15 billion from the General Fund, bond funds, and special funds on

higher education, a slight increase from last year’s Budget Act. The proposal does note that this

continued investment in higher education, even in the face of lower state revenues, comes with an

expectation that the higher education segments (community colleges, CSU, and UC) work together

to implement creative, fiscally sustainable practices to increase student success and completion and

expand access to higher education.

Four Percent Increases for University of California (UC) and California State University (CSU).

UC and CSU each receive $131.2 million augmentations to their base budgets ($50 million of which

is Proposition 56 funds for UC to spend on graduate medical education). In addition to its $131.2

million increase, CSU also receives an unrestricted $26 million in savings from changes made

to the Middle Class Scholarship Program in 2015 and $5 million for capital outlay projects. The

budget proposal makes clear that the Governor presumes UC and CSU will spend these funds on

the systems’ continued commitment to prior-year agreements: UC’s 2015 agreement to reduce its

cost structure, improve operations, accept more community college transfer students, and CSU’s

initiative to increase graduation rates. Assembly Republicans believe higher education costs are

out of control and that UC and CSU can, and should, reduce costs by exploring innovative,

low-cost methods of instruction that are accessible to more students, focus on student

competency and success, and reduce time-to-degree.

University of California. UC is slated to receive $18.5 million for enrolling 2,500 new resident

undergraduate students in 2017-18. The proposed budget also includes a $169 million payment to

UC as the final payment of a 3-year, $436 million agreement to provide funding for the unfunded

liability of the UC Retirement Plan. Assembly Republicans applaud the funding allocated to put

California students first by expanding resident student enrollment.

2017-18 BUDGET HIGHLIGHTS | 21


California Community Colleges (CCC). The proposed budget provides $8.4 billion of Proposition

98 funding for CCCs, a $179 million increase from 2016-17. Coupled with this funding is an emphasis

on student success at CCCs. Currently, only 47% of CCC students attain a degree, degree for

transfer, or career technical education certificate within six years of enrollment. The Governor’s

Budget continues last year’s funding amounts for the Student Success and Support Program as well

as other success-focused programs, such as $150 million in grants to support community college

efforts to develop and implement “guided pathway” programs to assist students in attaining their

educational goals in a timely fashion. It also includes $248 million for the Strong Workforce Task

Force, which works to increase CTE courses at the CCCs that are aligned to regional industry

needs and provide participating students with strong career opportunities. This was funded with

$200 million last year, and this year the Task Force takes in $48 million from the Career Technical

Education Pathways Program to continue CTE efforts, as provided for in the 2016-17 Budget Act.

Assembly Republicans support the focus on student success and the development of clear

roadmaps to degrees and CTE certificates, but will be diligent in ensuring that this new $150

million in funding will not duplicate existing services and efforts.

Tuition. CSU and UC, pursuant to prior agreements with the Governor, have held tuition flat for

the past five years. The Governor’s Budget assumes that will continue to be the case. However, it

assumes a $54 increase in UC’s student services fee, which the Regents will vote on in late January,

and both CSU and UC are considering tuition increases: the UC Regents will vote on a 2.5% tuition

increase later this month and the CSU Board of Trustees will likely be voting on a 5% tuition increase

in March. Assembly Republicans oppose these tuition hikes and have consistently urged UC

and CSU to focus on cost containment and fiscal prudence instead of balancing their budgets

through tuition hikes on students and families. Republicans agree with the Governor that raising

tuition without any concrete changes simply burdens families with paying more money for an

inefficient system.

Financial Aid. The Governor’s Budget phases out the Middle Class Scholarship Program, which

provides financial aid that can cover up to 40% of tuition for middle class families at CSU and

UC. The Student Aid Commission will continue to renew existing awards until the program is

entirely phased out by 2020-21 but will not grant any new awards beginning this year. Assembly

Republicans note that while the program unfortunately was only accessible to students

at UC and CSU, many middle class families are still in need of financial aid to defray the

ever-increasing cost of higher education. Noticeably absent from the Governor’s financial aid

proposals is a restoration of the Cal Grant award amount for students at private non-profit colleges

and universities. Without any legislative action, beginning in the 2017-18 award year, the current

$9,084 award amount for these students will be slashed to $8,056. Assembly Republicans oppose

this cut, as it will severely limit educational choices for California’s students, especially lowincome

minority students, who are a significant percentage of the students who use Cal Grants at

these private schools. Assembly Republicans advocate restoring the award amount to at least

$9,084, which promotes student choice and can save the state money.

22 | 2017-18 BUDGET HIGHLIGHTS


HEALTH & HUMAN SERVICES

Source: 2017-18 Governor's Proposed Budget

California has an extensive safety net for the state’s most needy residents. Since 2012 more than $18

billion in new funding has gone to poverty-focused programs including everything from minimum

wage increases to providing welfare cash grants to drug felons and increasing aid for families that

have more children while on welfare. As a result, the state is facing new budget deficits and the

Governor is proposing to reduce funding for K-12 education and childcare programs.

HEALTH

Critical Need to Fix Denti-Cal. The Governor’s Budget fails to include any additional funding

for Denti-Cal, which has been found by state watchdogs to be a broken and dysfunctional

program. Successive legislatures and administrations have underfunded the Denti-Cal program

and slashed reimbursement rates for dental providers to national lows. This has contributed to

a silent epidemic of tooth decay and a public health crisis on the scale of diabetes and obesity.

Fiscal responsibility requires that government fix or eliminate poorly performing programs

before expanding or creating new ones. Towards that end, Assembly Republicans have

introduced Assembly Bill 15 (Maienschein) to ensure Denti-Cal is a functional program that

better serves 5 million vulnerable children who need dental care. Proper dental care leads to

better education outcomes, job opportunities, and fewer Californians on welfare and other social

programs. The bill requires the Department of Health Care Services to increase reimbursement

rates for the 15 most common prevention, treatment and oral evaluation services to the average

commercial rate for the Pacific region. Assembly Republicans have made fixing Denti-Cal a

budget priority.

2017-18 BUDGET HIGHLIGHTS | 23


Source: Department of Health Care Services

State Medi-Cal Costs Continue to Skyrocket. Medi-Cal now covers 14.2 million Californians, or

more than a third of the population, and costs more than $102 billion ($19 billion General Fund)

per year. About 4 million people have been added as part of the optional Affordable Care Act

(ACA) expansion and the state will be on the hook for ever increasing costs if nothing changes.

If not for the Managed Care Organization (MCO) financing plan, Hospital Quality Assurance Fee

(made permanent by Proposition 52), and the Governor ripping off Proposition 56, (the new

tobacco tax) the General Fund costs would be $5 billion higher. The Governor’s Budget also

assumes the reauthorization of Children’s Health Insurance Program (CHIP), which funds health

insurance coverage for low-income children who are not otherwise eligible for Medi-Cal, and

which brings in a higher than 50-50 federal match for every state dollar spent. Currently CHIP

children receive an 88% federal match under the ACA, but because of uncertainty at the federal

level, the Governor is assuming a 65% match instead, which results in a $536.1 million shift to the

General Fund. Assembly Republicans are concerned that the rising costs of Medi-Cal are not

sustainable in the long term.

Failing Obamacare Poses Risks to State’s Finances and Vulnerable Populations. The mounting

failures of the ACA have created considerable uncertainty about the future of federal policies

regarding funding for healthcare. It is clear that Congress stands ready to help develop

healthcare reforms that lower costs, improve quality, and empower states and individuals. By

asking the Governor for his ideas and input, House Majority Leader Kevin McCarthy has shown

his readiness to work collaboratively. What is unclear from the Governor’s response is whether

or not he is willing to consider any new or innovative options for protecting the state’s finances

and California’s vulnerable populations from the failures of current policies or if he just wants

to insist on a continuation of the status quo. Assembly Republicans believe there is a great

opportunity to achieve our shared goals of better quality and more affordable healthcare, but

it is important that Capitol Democrats engage in productive and deliberative discussions instead

of simply obstructing the process. The one thing we should agree on is that, since California is a

state that already contributes more tax dollars than it gets back from the federal government, it

is vitally important that California receives its fair share of federal funds.

24 | 2017-18 BUDGET HIGHLIGHTS


Governor’s Budget Does Nothing to Address Rising Healthcare Costs. Individuals in both

state-subsidized and privately-paid health plans are facing high out-of-pocket healthcare costs.

Californians are suffering the consequences of rising healthcare costs, including ballooning

insurance premiums for coverage available on the ACA Exchange (“Covered California”), while at

the same time facing diminishing health coverage options in both the state and private markets.

As the Governor’s Budget attests, even the state’s costs are being affected by the rising costs

of healthcare, as the growth in Medi-Cal costs is attributable in part to healthcare cost inflation.

Additionally, studies show that the rising cost of healthcare is impeding the growth of worker

earnings and compromising retirement income. As employer-funded health costs constitute a

greater portion of overall employee compensation, worker earnings necessarily constitute a lower

portion. Assuming roughly uniform health costs across income levels, take-home pay for lowerincome

workers is more negatively impacted than take-home pay for higher-income workers.

Assembly Republicans continue to advocate for solutions for addressing the high cost of

healthcare, including:

• Restructuring Health Savings Account (HSA) options to better reflect the true out-of-pocket

costs of healthcare today;

• Providing individuals similar tax benefits to employers when purchasing healthcare;

• Working towards better transparency in healthcare costs; and

• Working toward a solution on prescription drug pricing.

HUMAN SERVICES

Increases in Costs Could Put Care for the Vulnerable at Risk. The Governor’s Budget includes

a $26.4 million increase in In-Home Support Services (IHSS) General Fund expenditures ($56.8

million total) due to the increase in the state minimum wage from $10.50 to $11.00, effective

January 1, 2018. As reflected in the chart below, the General Fund costs for IHSS have more than

doubled since FY 2010-11, though caseload has only increased by 23%. In addition to the increases

in minimum wage, federal regulations mandating overtime pay and wait time pay also contribute

to cost inflation. [The reduction in costs from FY 2016-17 to FY 2017-18 is attributable to a $632.2

million cost shift to counties due to the discontinuation of the Coordinated Care Initiative (CCI)

proposed in the Governor’s Budget (discussed below).] Assembly Republicans are concerned

that cost increases that far outpace caseload are putting an important program, which helps

many people at risk of being put in a nursing home, in danger.

Source: Legislative Analyst's Office

2017-18 BUDGET HIGHLIGHTS | 25


CCI Not Functioning as Promised. The Coordinated Care Initiative (CCI) is a pilot program

that operates in seven counties to provide people that are eligible for both Medicare and

Medi-Cal (dual eligible) coordinated services (medical, behavioral health, long-term services

and supports, and home and community-based services) through a single health plan. It was

originally sold as a way to reduce costs and balance the budget, but the Governor’s proposal

states that the CCI is not cost-effective, and pursuant to the authorizing statute, the Governor’s

Budget plans to discontinue it in 2017-18. The discontinuation of CCI would remove IHSS

benefits from plan capitation rates, restore bargaining over IHSS workers’ wages and benefits

from the state to the participating counties, and restore the state-county cost sharing that

was in place prior to the pilot. Assembly Republicans recognize the appropriateness of

discontinuing programs that are not operating cost-effectively or achieving the outcomes

expected. Additionally, those individuals put into the program had a much higher than

expected opt-out and dropout rate, showing a lack of enthusiasm for the program by enrollees.

Ensuring the Promise of Foster Care Reform. The Governor’s Budget once again fails to fully

support implementation of the Continuum of Care Reform (CCR), which reforms the foster care

system to accomplish better outcomes for foster kids. Counties are not receiving adequate

funds to meet the needs of the foster youth being phased out of group homes. Assembly

Republicans are firmly in support of our foster youth and have sought augmentations for “child

and family teaming” within the CCR and for emergency childcare for newly recruited foster

families. We also successfully secured language for reporting on the adequacy of mental health

funding for foster children during implementation of the CCR. Assembly Republicans want to

keep the promises made to foster youth through legislation that provides grants for enrichment

and extracurricular activities – “normalization” efforts deemed critical to successful foster youth

placements.

Securing Alternatives to Institutionalization for Vulnerable Seniors. The Governor’s Budget

falls short in meeting the mounting needs for long-term care for the frail and elderly. According

to the Department of Finance, for the 2014-2019 period, the number of 65 to 74 yearolds

will increase by 25% and the 75 to 84 year-olds will grow by 17.9%, compared to total

population growth of only 4.6%. Over decades, resources for community-based services have

been eliminated or reduced, and moratoriums have been placed on licensing new facilities

and programs, such as Alzheimer Day Care Resource Centers and Community-Based Adult

Services centers. Community-based services allow seniors to remain in a residential setting,

maintain their independence and quality of life, and avoid costly institutionalization. Assembly

Republicans recognize the significance of meeting the needs of this population in a costeffective

manner before it becomes a funding crisis.

26 | 2017-18 BUDGET HIGHLIGHTS


Assembly Republican Caucus | Office of Policy & Budget

Legislative Office Building

1020 N Street, Room 400, Sacramento, CA 95814

P. 916 319 3900 | F. 916 319 3902

POLICY OVERVIEW | 33

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