Details of the State Budget Proposal That Has Gained Assembly Approval

A primer on the deficit reduction plan approved by the state Assembly:

Question: How would the proposal limit spending?

Answer: It would not allow lawmakers to spend more money than the state received in revenue each year. In the past, they have borrowed to get around the existing constitutional requirement for a balanced budget. But if voters approve a $15-billion bond issue in March to pay off past deficits, lawmakers will be prohibited from borrowing to balance future budgets.

Q: How would the plan affect education, health care and other programs?

A: It would restrict program growth when state revenue dropped, but allow the state to reinvest in them during good economic times. The plan is less restrictive than earlier proposals that would have kept programs from growing faster than per capita income and population.

Q: What kind of rainy day reserve would the plan create?

A: Lawmakers would be required to transfer a percentage of the state’s revenues to a “Budget Stabilization Account” that could be tapped only in dire economic times or to pay back the $15-billion bond issue. Lawmakers would begin by putting 1% of state revenues into the reserve in 2006. By 2008, the set-aside would rise to 3%. The cumulative reserve would grow until it reached 5% of the budget, or $8 billion, whichever was greater. At that point, the reserve diversion would be suspended until the pool fell below that level.

Q: Would the plan give the governor authority to make midyear cuts if the budget fell out of balance?

A: The governor already has authority to make limited administrative cuts -- to things such as staff expenses, but not program services -- when the state budget falls out of balance. This plan would give him the power to declare a fiscal emergency and present the Legislature with a proposal to bring finances back in line. Lawmakers would have to approve the governor’s plan or an alternative by majority vote. Lawmakers would not be allowed to adjourn or consider other business until the budget was balanced. Any plan that called for raising taxes would still require a two-thirds vote of the Senate and Assembly.

Q: Would the deal help balance next year’s budget?

A: No. It would set parameters for balancing the budget in the future. The governor still must present a plan in January that will either cut programs or raise taxes by $14 billion to bring that budget into balance.

Q: What would the bond issue pay for?

A: The $15-billion bond issue would pay off most of this year’s deficit and some of the $4-billion car-tax cut enacted last month by executive order. There would still be a projected deficit of $14 billion more going forward.

Q: What if voters reject the bond issue in March?

A: The administration would try to secure a separate $10.7 billion in borrowing that was approved in this year’s budget, but that Schwarzenegger abandoned in favor of getting his own package on the ballot. That bond issue, however, is being challenged in court by conservatives who argue that it is unconstitutional because it was not directly approved by voters.

Q: Will spending for the current budget still need to be cut?

A: Yes. Lawmakers and the governor are under pressure to immediately bring spending in line with revenue. Failure to make cuts this year could further hurt the state’s bond rating, now hovering just above junk status.

Q: Would this package allow the state to pay local governments all the money they lost when the vehicle license fee was reduced?

A: No. This package does not address that issue. Democratic legislative leaders say those payments should be authorized only as part of a larger budget deal that weighs the effect on state services.