Back
The Arc of California
(916) 552-6619
Overview of Proposition 58
The California Balanced Budget Act
Position
The Arc of California has no position on Proposition 58, The California Balanced Budget Act. This overview is provided as information only as Proposition 57 (supported by The Arc) and Proposition 58 both must be passed by the voters to go into effect.
Background
Over the past several years, California has experienced major budget problems wherein revenues fall short of expenditure commitments. This has resulted in reduced program spending, carryover of deficits and significant borrowing. The State faces another major shortfall in 2004-05. To adequately address shortfalls, expenditure levels, mid-year adjustments and budget reserves, an amendment to the California Constitution is required. Proposition 58, The California Balanced Budget Act, if approved, would amend the Constitution and place greater controls on the budget process and outcome.
Current Proposal – Prop. 58
Proposition 58 would amend the State Constitution relating to
Balanced Budget Provisions and Mid-Year Adjustments
The Constitution requires the Governor to submit, by January 10 of each year, a balanced budget or one where revenues exceed expenditures. This requirement does not apply to the budget ultimately passed by the Legislature or signed by the Governor.
Proposition 58 would amend this provision of the Constitution and require the Legislature to enact and the Governor to sign only a balanced budget or a budget where revenues exceed expenditures.
Additionally, under Prop. 58, if the Governor determines the state is facing substantial revenue shortfalls or expenditures may result in deficit spending, the Governor may declare a fiscal emergency. Should a fiscal emergency be declared, the Governor is authorized to propose legislation to address the budget shortfall and call the Legislature into special session to address the mid-year budget proposal. The Legislature has 45 days to address the budget problem. If the Legislature fails to adopt and send to the Governor legislation to address the budget problems within the 45 days, they would be prohibited from acting on any other bills or adjourning in joint recess until budget legislation is passed.
Reserve Requirements, Fund Allocation and Spending
Proposition 58 requires a special reserve, Budget Stabilization Account, to be established in the State’s General Fund. With this, a portion of the estimated General Fund revenues would be transferred by the State Controller into the account no later than September 30 of each fiscal year. The General Fund transfer would be 1% in 2006-07, 2% for 2007-08 and 3% in 2008-09 and each fiscal year thereafter. The transfers would continue until the Budget Stabilization Account reaches $8 billion or 5% of the General Fund revenues, whichever is greater. The annual transfers could be suspended or reduced for a fiscal year by executive order of the Governor, issued no later than June 1 of the preceding fiscal year.
For each fiscal year, 50% of the annual transfers to the Budget Stabilization Account are allocated to a sub-account for the sole purpose of re-payment of the deficit recovery bond authorized by Proposition 57. Such transfers would be required until they reach a total of $5 billion. Any remaining funds in the sub-account, after debt service on the bond, would be available for transfer back to the General Fund.
The transfer of funds deposited into the Budget Stabilization Account to the General Fund would require a majority vote from the Legislature and approval by the Governor. These funds may be used for various purposes with a 2/3rds vote of the Legislature (current law).
Prohibits Future Deficit Borrowing
With the exception of the debt bond authorized in Proposition 57, Proposition 58 would prohibit most future borrowing to cover budget shortfalls. This applies to obligation bonds, revenue bonds and other forms of long-term borrowing. This restriction does not apply to other types of borrowing, such a short-term borrowing to cover cash-flow, or borrowing between state funds.
The provisions of Proposition 58 only take effect if Proposition 57 is also approved by the voters.