Finance Director Says State Has No Net Operating Deficit - California Chamber of Commerce
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Finance Director Says State Has No Net Operating Deficit

 

(January 12, 2007) Governor Arnold Schwarzenegger’s 2007-08 budget has resolved the largest structural deficit without raising taxes, Director of Finance Michael Genest said at the California Chamber of Commerce Luncheon Forum yesterday.

Genest emphasized to the more than 120 luncheon attendees that the Governor’s $143.4 billion budget plan for the 2007-08 fiscal year does not raise taxes for the fourth straight year in a row, pays down the state’s debt, fully funds the Proposition 98 guarantee, expands Career Technical Education (CTE) and invests in transportation.

State Finance Director Michael C. Genest presents an overview of the state’s 2007-08 budget proposal to a CalChamber Luncheon Forum audience on January 11, one day after the Governor released the plan.
Governor Schwarzenegger appointed Genest as finance director on December 1, 2005. Genest first joined the department as chief deputy director in November 2003. He left the department in February 2005 to serve as undersecretary of the Health and Human Services Agency and returned to finance in September 2005 as acting director.

Reviewing the four years since Governor Schwarzenegger took office, Genest pointed out in November 2003 the state faced a structural budget crisis of unprecedented proportions. California was on a path to spend $16.5 billion more than the General Fund would take in this year.

The Governor’s Budget for 2007-08 proposes to limit General Fund spending to the amount of revenue the state will collect, with the exception of using $840 million of funds available from previous years to pre-pay debt. Genest explained that by eliminating the state’s net operating deficit, by setting aside a total reserve of $2.1 billion and by eschewing tax increase and new budgetary borrowing, this budget puts California on the path to full fiscal recovery.

This budget proposes $1.6 billion in pre-payment of the Economic Recovery Bonds (ERBs) and $88 million of other budgetary debt re-payments. This will bring the total amount set aside to repay the bonds to $7.4 billion in just four years since the bonds were first issued. As a result, Genest now projects that the bonds will be fully retired in August 2009, which is 14 years ahead of schedule.

In order to fund these and other priorities within a balanced budget while pre-paying debt and maintaining a sizeable reserve the budget proposes a number of major policy changes, including:

  • Reducing General Fund costs by $1.111 billion by expanding the uses of revenue sources for public transportation to:
    • Cover public transportation services currently provided by the schools ($627 million, ongoing);
    •  Cover public transportation services currently provided by Regional Centers to their developmentally disabled clients ( $144 million, one-time); and
    • Shift a portion of the revenue to a special fund for debt service on general obligation bonds issued for transportation projects ($340 million, one-time).
  • Revenues of $506 million from approval of pending Indian gaming compacts.
  • Savings of $324 million related to reforms in CalWORKs, the state’s welfare-to-work program.

The Governor’s budget proposal, summaries and charts are available on the Department of Finance website at http://www.ebudget.ca.gov/

Staff Contact: Dominic DiMare