Transcript: Finance Director Ana Matosantos’s press conference Q&A on the 2013-2014 California state budget

Partial transcript of press briefing Q&A with Ana Matosantos, Department of Finance Director, on the 2013-2014 California state budget on Jan. 10, 2013: 

So I’m just going to get started with a couple of factoids and then we’re happy to answer your questions.

In terms of, you know, this is a different budget than budgets that we’ve talked about in the past in that it’s balanced this year and balanced into the future.

As the governor has mentioned, the balances that we’re looking at into the future are relatively small in comparison to deficits that we’ve had.

We face a number of different risks.

One question that we’ve heard is if LAO said that we’re going to have $1.9 billion problem this year. The budget reflects that that problem has been eliminated. Big difference is between LAO and Department of Finance forecasts: One is that we’ve reassessed how much in special fund borrowing taken in prior years needs to be repaid and less needs to be repaid this year. That constitutes for a significant portion of the difference. Another difference is the LAO reduced the forecast of how much they thought we were going to be able to receive through the assets for redevelopment. We – based on the information we’ve received this fall, the work that we’ve been doing, we don’t believe that such an erosion is going to occur. So that’s a significant difference.

And the last piece is the proposal relative to Proposition 39. The governor’s budget proposes to invest those dollars into schools and community colleges, to do so because it’s going to be statewide investment that will not only help our schools be able to manage growing utility costs and get savings and recover from the economic downturn and also will ensure that the benefits of energy efficiency are occurring across communities across the state.

The other thing that it does is that it is a fund source that helps meet the Proposition 98 guarantee and reduces the need for general fund.

There are other differences. You know, our revenues are a little bit different for the different years and that’s a couple hundred millions. And there are some areas we have higher expenditures than they do.

But roughly, those are the big pieces for why under the Governor’s budget there’s not a $1.9 billion problem. But we’re essentially balanced.

Question: So just to make sure I understand – part of the 98 calculation includes the money from Prop. 39?

Ana Matosantos: It includes the money from Prop. 39 and an increase in the Prop. 98 guarantee and it includes how we meet the Proposition 98 guarantee by providing the funds to schools.

Question: [Inaudible]…include the energy efficiency money that was supposed to go to it too?

Ana Matosantos: It – the entire revenue base that’s being raised – the roughly $900 billion – counts towards the Proposition 98 guarantee and increases the guarantee under the Governor’s budget.

The expenditures of $500 million that was targeted for energy efficiency is going to energy efficiency. It’s doing that in schools and community colleges. And when it goes to schools and community colleges, it reduces General Fund costs because it’s available as a source to meet the Proposition 98 guarantee.

Question: But what if schools has previously been allowed…the $500 differently than on energy efficiency…?

Ana Matosantos: School funding has increased by $2.7 billion. So this is a budget that’s increasing the funding for schools…So school funding is going to be increasing by $2.7 billion on a year over year basis. Programmatic funding is increasing. Schools are seeing significant increase not only next year but in the future. As the governor noted, school funding is going to increase by $2,700 per student on a going forward basis.

The payment of deferrals last year is going to free up additional dollars this year for program. So we’re seeing a significant increase. A portion of that increase is going to be dedicated to energy efficiency which will not help school districts in the near term and the long term – in the long term by reducing utility costs.

Question: [Inaudible]…That $500 million for schools for the energy efficiencies as part of the Prop. 98 money – that’s being counted toward as part of the Prop. 98 money?

Ana Matosantos: The entire amount as a General Fund revenue, the entire amount is counting towards a Proposition 98 guarantee and it’s part of the reason why school funding is increasing by $2.7 billion, why the guarantee is rising by $2.7 billion in a year-over-year basis. Then these funds are also going to be used for schools and community colleges.

Question: Special loan repayment – are those being deferred to 12-13 to 13-14 or 13-14 to 14-15?

Ana Matosantos: 13-14 to 14-15.

Question: Okay, but how much of those…?

Ana Matosantos: $600 million.

Question: $600 million being deferred one year later?

Ana Matosantos: Yeah.

Question: And what’s your difference on the redevelopment…?

Ana Matosantos: Redevelopment difference is $560 million.

Question: $560. So that’s $1.1 and the remaining…?

Ana Matosantos: …is everything else that I have mentioned. We have some higher expenditures. We have slightly higher revenues. A portion of the revenue, again, is offset by higher Prop. 98 guarantee. We have higher costs in health and human services. We have different costs in different areas of the budget.

Cap and trade revenues you asked what were they – $200 million this year; $300 million next year. So they are $500 million down from the budget act but they’re slightly higher than the LAO revenues and where will they be spent? They will be spent on reducing greenhouse gas emissions as the law requires and consistent with what the law requires. We’ll submit the plan after the dollars have been collected in May.

Question: [Inaudible]

Ana Matosantos: The redevelopment matter? Well, that’s – which one?

Question: The redevelopment money.

Ana Matosantos: The redevelopment dollars flow back to taxing agencies. So we’re seeing as redevelopment dollars are getting distributed counties are receiving a significant increase in property tax revenues, cities are receiving so as well, special districts are as well, and a portion of the dollars is flowing to school districts. When the dollars flow to school districts, then our General Fund obligation to meet the Prop. 98 guarantee declines.

 Question: [Inaudible]…actually have a surplus?

Ana Matosantos: The last time there was an out-year forecast that was balanced into the future I believe was the 2000-2001 LAO forecast of the fall. We later learned – in the 2000-2001, 2001-2002. But we later learned that that forecast was imbalanced. The last time we had a sustainable forecast was in the late ’90s that was not kind of associated with bubble revenues…

Question: [Inaudible]

Ana Matosantos: Multi-year sustainable forecasts, yes.

Question: [Inaudible]

Ana Matosantos: The last time we had – in the 5-6, 6-7 and 4-5, 5-6, 6-7 years we had substantial revenue growth but we did not have an out-year projected balanced forecast.

So, you know, we had a one year, two years but we did not have multi-year forecast. What is very different about now is not only are we balanced next year but we’re balanced into the future. So we have operating surpluses…Part of the reasons why they’re at the levels that you see in the out-years is because the governor’s proposing to pay down debts. And when you’re paying down debts, your costs are increasing but it’s doing it in a matter that helps into the future.

And just a factoid I think might be worthwhile for you to know: In this year’s budget, it includes $4.2 billion of expenditures to pay for prior expenses.

If we look at the average of the amount of dollars that is being spent on prior expenditures, it’s closer to $6 billion. So part of what that’s telling us is that the decisions in the past to borrow and delay those expenses is crowding out – is making it so that today’s dollars are not available to fund today’s programs. And part of the rationale for paying debt is that with temporary revenues, when those revenues expire, we’ve paid down debt, we’ve caught up, today’s money is available for today’s programs.

Question: What are the other enterprise-zone reform legislation that you might be pursuing that’s mentioned in there?

Ana Matosantos: It’s the other enterprise-zone reform legislation that the governor will be pursuing.

Question: LAO says we’re going to finish this current year with negative $900 billion. We have a positive $785 million. If we didn’t make any changes, what would we finish 13-14 at if we didn’t make any changes to the reserve?

Ana Matosantos: We’d be essentially in balance. There are changes that are being proposed to meet the reserve. And if you see the changes that are being proposed, about $10 million more than the reserve size. So basically, we’d be essentially in balance. The changes that are being proposed, which is Diana mentioned includes the extension of the managed care assessment, the extension of the hospital fees also included. There’s also the continuation of using [incomprehensible audio] fee revenues to pay for transportation debt service in the future as well as there’s an over-appropriation in 12-13 of the Prop. 98 guarantee and re-designate those funds to pay for obligations under the CTA v. Schwarzenegger case. Those elements are basically restoring the reserve. As you can see, those changes are roughly the same size as the $1 billion reserve so we’d be essentially in balance in 13-14.

Question: If you didn’t make changes to make that reserve, we’d be coming in just over zero in 13-14?

Ana Matosantos: We’d be coming in right around zero.

Question: [In Spanish]

Ana Matosantos: [In Spanish]

Question: [Inaudible]…$1.6?

Ana Matosantos: It’s the reserve-free – the real reserve number. We always have two numbers for the reserve because a portion of expenditures are accounted for but don’t show up for a particular expense. So the number you want to look at is the last numbers – special funds for economic uncertainties. That’s the $1.8 billion. Because the $1.636 you have to account for the fact that the $618 is already spent.

Question: Are you taking the court reserves this year instead of at the end of the year and backfilling with construction? Or what’s going on?

Ana Matosantos: The budget basically defers when we adjust for available reserve balances to next year. But it doesn’t spend additional resources beyond the level anticipated on the budget act. The matter which it does that is that it does another delay of construction projects and those dollars are going to be available to help maintain the overall spending of this same level but allow local trial courts to be able to retain the reserves for another year – the following year when we transition to the 1% reserves. Then we adjust for any dollars that are available above 1%.

Question: So there’s still a glide path?

Ana Matosantos: There’s still a glide path. One more year of the glide path, less money for construction.

Question: And the statutory changes that you’re talking about?

Ana Matosantos: Statutory changes – a variety of changes to increase efficiency, changes to simplification – changes that, you know, somethings having to do with requirements relative to what documents have to be provided to people in what particular points and time. And other changes that will help the trial courts be able to live with the ongoing level of funding, which is we know was reduced in 11-12, and they have multiple years to adjust to that level of funding. They’ll have one more.

Question: [Inaudible]…to go to the legislature and how quickly are you looking to get that finished?

Ana Matosantos: Well, health care reform will require legislative changes for all the elements. I’d defer to Diana on…but it’s all going to require legislative changes.

Question: UC and CSU both have specific asks. Part of UC’s was “We’re going to raise tuition if we don’t get this much.” Where did that land?

Ana Matosantos: The budget provides a $250 million increase to UC and CSU. This is in addition to the $250 million that was included last year. The expectation is that fees will remain level. The expectation is that UC and CSU will be working to change their model, to have a model that is more sustainable, that has costs that is growing more in line with the economy. The funding…increases are associated with the changes both the maintaining affordability as well as going to more efficient model, effective model where they’re reducing time to degree, where they’re increasing course offerings in a manner that’s assisting students in graduating closer to four years. Today, 60% of students at UC graduate within four years and within CSU only 16% of students graduate within four years.

The budget looks to invest in higher education to change those trends, having stronger institutions going forward, having more sustainable model, and having a more affordable model.

Question: There’s $250 on top of the $250 from Prop. 30?

Ana Matosantos: Yes.

Question: Can you talk about [inaudible]…school funding formula is going to occur…?

Ana Matosantos: Phase in of the new funding formula will occur over seven years, and I’m sure Sue will be happy to answer any funding formula questions. But it starts next year and happens over seven years.

Question: [Inaudible]

Ana Matosantos: We’ll just basically phase it in over a seven year period. Basically the dollars are being split and roughly half of the growth is in Prop. 98 after paying for the transfer over to adult education to community colleges. Some of the adjustments – half of the money is going to pay for deferrals and those deferrals are being repaid to the school districts that experience the deferral and then half of the dollars are flowing to districts as growth with implementation of the formula…

We continue to have – basically growth is being distributed based on the new formula for the portion of the growth that’s not going to the deferrals. So first fund the base, then pay for the adult education program within the community colleges, then 50-50 for the K-12 portion deferrals and the new formula, and the new formula is how growth is being distributed…

The course of the seven years, basically we pay deferrals off by 15-16 so 16-17 so the last year of deferrals are repaid. So going into the future, the deferrals have been repaid; all growth money is available to continue to implement the formula.

Question: [Inaudible]

Ana Matosantos: Basically, districts are going to receive the existing – for the foreseeable future, they’re going to receive the existing formula, the revenue limits as well as the categorical funds. Categorical funds are going to become flexible in year one. So the flexibility happens in year one. The phase in of the new formula is happening beginning this year and through 2021 when we’re looking at fully implemented on the budget.

Sue Burr: …We’re trying to be explicit about we are going to pay back school districts the money that we owe them, and we owe them money in two ways. We owe them money on the deferrals, and we owe them money on the COLAs that we were not able to pay. So that’s approximately 20% of the funding.

So we set a target for each school district and say we’re going to pay you back your un-deficited revenue limits, and we’ve done that in the past in equalization years. So we’ve set the target. We pay them back relative to where they are to that target.

Question: What was it that changed between the LAO’s $1.9 versus now and the slight surplus?

Ana Matosantos: The LAO and the Department of Finance every cycle assess what’s going on with expenditure, what’s going on with revenues, where we are, our experiences. And basically we have, you know, different information relative to redevelopment, we have different information relative to the needs of repayment of special fund loans, we have a slightly different take on revenues – different proposals on Prop. 39. It’s just the aggregate of looking at the thousands of data points that we’re looking at a forecast – the aggregate of them is yielding a slightly different result. And I think the LAO when they talked about the $1.9 mentioned that there might be smaller when we re-looked at it and looked at loans and other things. So we’ll have updated information from them soon.



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2 Comments on “Transcript: Finance Director Ana Matosantos’s press conference Q&A on the 2013-2014 California state budget

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