May Revise 2015

Introduction
ince the January Budget, thestates economy has strengthened and revenues
have surged upward, driven by increased capital gains and other income from
highwageearners.
Despite these stronger revenues, thebudget remains precariously balanced and faces the
prospect of deficits in succeedingyears. Thestate hashundreds ofbillions of dollars in
existing liabilities, suchas deferred maintenance on its roads and other infrastructure and
its unfunded liability for future retiree health care benefits for state employees and various
pensionbenefits. Inthis budget, under Proposition2, spikes in capital gains will be used
to prepare for the inevitable next recession by saving money and paying down these
debts andliabilities.
Overall, theMayRevision reflects a $6.7billion increase in GeneralFund revenues
compared to the JanuaryBudget. TheConstitution, reflecting the voters priorities,
directs the use of these revenues asfollows:

Proposition98 increases GeneralFund spending by $5.5billion for K12 schools and

communitycolleges.
Introduction
Proposition2 requires that an additional $633million be saved in the Rainy Day Fund
and an additional $633million be used to pay down debts andliabilities.
Too often in the past, state government has made ongoing commitments based upon
what turned out be temporary spikes in revenues amistake this budget attempts
toavoid. TheMayRevision commits new spending in only three additionalareas:

Creating the firstever California Earned Income Tax Credit to assist the states
lowestincomeworkers. Thecredit will provide $380million in benefits to
2millionCalifornians. Thiscredit combined with increased funding for education
and health care reform, together with an increased minimum wage will provide
increased state support for Californias poorestresidents.
Holding tuition flat at the states universities for California undergraduate students for
two more years by providing increased ongoing funding to California State University
and temporary assistance to the University of California to pay down its unfunded
pensionliability.
Providing health care and other safety net services to currently undocumented
immigrants who gain Permanent Residence Under Color of Law status under the
Presidents executiveactions.
The MayRevision continues to focus on the key elements of the January

Budgetcarrying out the Local Control Funding Formula, federal health care reform,
public safety realignment, theWater Action Plan, andthe Cap and Trade expenditureplan.
Fiscal Balance Is an Ongoing Challenge

The fiscal stability from a balanced budget and a recovering state economy has been a
welcome reprieve from the prior decades massive budgetdeficits. Keeping the budget
balanced over time will be a challenge requiring fiscal restraint andprudence. Asshown
in FigureINT01, since 2000, thestates short periods of balanced budgets have been
followed by massive budgetshortfalls.
The Budget assumes the continued expansion of theeconomy. Yet, aswe know,
economic expansions do notlast. Inthe postwar period, theaverage expansion has
been about five years, andthe current expansion has already exceeded that average by
ayear. While there are few signs of immediate contraction, another recession is on the
waywejust dont knowwhen.
May Revision 2015-16

pTM5Aif3Jb
Introduction
Figure INT-01
Balanced Budgets Have Been Quickly

Followed by Huge Deficits1/
(Dollars in Billions)
$20
$10
$0
-$10
-$20
-$30
-$40
-$50
1/ Budget shortfalls or surplus, measured by the annual Governor's Budget.
Proposition2 was designed to help the state save when times are good, suchasnow.
Higher revenues from capital gains will both be saved and used to pay downdebts.
Bythe end of the year, thestates Rainy Day Fund will have a total balance of $3.5billion.
Asshown in FigureINT02, theMayRevision also pays down an additional $633million in
debts and liabilities (for a total of $1.9billion) fromProposition2funds.
Slowly but surely, thestate is climbing out from under the budgetary debts accumulated
over the past decade and ahalf. Inthe next three months alone, thestatewill:

Repay the remaining $1billion in deferrals to schools and community colleges (which
once peaked at $10billion).
Make the last payment on the $15billion in Economic Recovery Bonds that were
used to cover budget deficits from as far back as 2002.

pTM5Aif3Jb
Introduction
Figure INT-02
Debts and Liabilities Eligible for Accelerated Payments Under Proposition 2

(Dollars in Millions)
Outstanding
Amount at Start
of 2015-16
Budgetary Borrowing
Loans from Special Funds
Underfunding of Proposition 98Settle-Up
Teacher Pensions 2/
Judges' Pensions
Deferred payments to CalPERS
University of California Retirement Liabilities
University of California Employee Pensions
University of California Retiree Health
Total
Additional
May Revision
Pay Down
$3,028
1,512
$965
256
$537
0
71,773
43,303
0
0
0
0
72,718
3,358
530
0
0
0
0
0
0
Unpaid Mandate Claims for Local Governments

(prior to 2004-05) 1/
State Retirement Liabilities
State Retiree Health
State Employee Pensions
Governor's
Budget
Pay Down
7,633
96
14,519
$218,374
$1,221
$633
1/ Entire liability paid off under the 2014 Budget Act revenue trigger.
2/ The state portion of the unfunded liability for teacher pensions is $14.916 billion.
Repay local governments the final mandate reimbursements for activities completed
in 2004 or earlier (totaling $765million).
The elimination of all of these budgetary debts and a healthier Rainy Day Fund balance
will give the state fiscal capacity when the next recessionbegins. Butthese steps alone
will not ensure an enduring balancedbudget. Already, thecommitments that the state
made in the past two years are straining the statesfinances. Under a projection of
current policies, thebudget would be upside down by more than $2billion by 201819.
While forecasts four years into the future are subject to great uncertainty, itis clear that
the state cannot take on new ongoing spending commitments beyond those proposed in
the MayRevision.
More Money for Schools

The Proposition30 temporary taxes were premised on the need to increase funding
foreducation. Asshown in FigureINT03, theconstitutional guarantee of funding for

pTM5Aif3Jb
Introduction
Figure INT-03
Proposition 98 Funding
2007-08 to 2015-16
$70.0
$68.4
$66.3
Dollars in Billions
$65.0
$58.9
$60.0
$57.9
$56.6
$55.0
$51.7
$49.6
$49.2
$50.0
$47.3
$45.0
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
Proposition 98 Funding under May Revision

Proposition 98 Funding as of Governors Budget
K14 schools was $56.6billion in 200708 and sank to $47.3billion in 201112. Fromthis
recent low, funding has been at alltime highs since 201213 and is expected to grow
to $68.4billion in 201516, anincrease of $2.7billion compared to the level expected
inJanuary. TheProposition98 maintenance factor anindicator of the past cuts made to
schools and community colleges totaled nearly $11billion as recently as 201112. Under
the MayRevision, thisamount is reduced to $772million.
K12 Education
For K12 schools, funding levels will increase by more than $3,000 per student in 201516
over 201112levels. Thisreinvestment provides the opportunity to correct historical
inequities in school district funding with continued implementation of the Local Control
FundingFormula. Rising state revenues means that the state can implement the
formula well ahead ofschedule. Whenthe formula was adopted in 201314, funding
was expected to be $47billion in 201516. TheMayRevision provides $6.1billion
morewiththe formula instead allocating $53.1billion this comingyear.

pTM5Aif3Jb
Introduction
Higher Education
The MayRevision also invests in the quality and affordability of the states higher
educationsystem. University tuition almost doubled during the recession, creating a
hardship for many students and theirfamilies. Tomaintain affordability, theMayRevision
holds tuition for California undergraduate students flat through 201617. TheMayRevision
commits $38million in ongoing funding for the California State University (CSU), fora
total of $158million in newfunding. Aspart of an agreement with the University of
California (UC), thestate will provide temporary funding from Proposition2 to assist in
paying down UCs unfunded pension liability as UCimposes a pension cap consistent
with the states 2012 reformlaw.
By focusing on reducing the time it takes a student to successfully complete a degree,
rather than just admitting more students, theuniversities can ensure their systems are
financially viable over the longterm. Thecommunity colleges and the university systems
must work together to develop innovative approaches so students can successfully
complete theirdegrees. TheMayRevision provides new funding for CSU and community
colleges to coordinate their provision of basic skills and remedialeducation.
A clear pathway for students to transfer from community colleges to the states
universities is one of the most important features of Californias higher educationsystem.
Formany years, therequirements for transfer to the states universities were a confusing
overlay of individual campus and departmentrules. Overthe past few years, CSUand
the community colleges have greatly simplified and improved the transfer process in
implementing statewide associate degrees for transfer under Chapter428, Statutes of
2010 (SB1440). Overthe next two academic years, UCwill identify specific pathways
for transfer for its 20 most popularmajors. These pathways will be closely aligned to the
SB1440 transferdegrees. Thiswill ease the transfer process for students and contribute
to UCadmitting at least one transfer for every two freshmen by 201718.
Counteracting the Effects of Poverty

For the last several years, theCensus Bureau has reported that about 16percent
of California residents are living in poverty slightly above the national average
of 14.9percent. TheCensus Bureaus supplemental measure of poverty, which
considers broader measures of income and the cost of living, reflects a poverty rate of
23.4percent (a threeyearaverage). While the states economic conditions have improved

pTM5Aif3Jb
Introduction
since the Governors Budget, muchof the gains continue to be made by the states
wealthiestresidents.
California has an extensive safety net for its neediest residents who live in poverty,
andthe state has maintained those core benefits despite therecession. Inthe past two
years, therecovering economy has allowed the state to take even greater steps to assist
the states neediestresidents. These efforts are assistingmillions ofCalifornians.

The implementation of health care reform has extended coverage under MediCal to
an additional fourmillion Californians in just three years and added new services such
as treatment for substance abuse and mentalhealth. Theexpansion has already
increased GeneralFund costs by approximately more than $1billion annually and that
amount will rise to more than $2billion by 201718 as the federal government begins
to reduce its share of costs beginning in 2017. Under the MayRevision, coverage will
also be provided to immigrants who gain Permanent Residence Under Color of Law
status under the Presidents executiveactions. ForMediCal and other programs,
thiswill add GeneralFund costs of an estimated $200million when the federal
changes are fully implemented ($62million in 201516).
The Local Control Funding Formula is concentrating the greatest school

funding billions more this year alone tothose students who face the
greatestchallenges.
The state increased the minimum wage by 25percent, to$10 per hour,
andguaranteed that 6.5million workers are eligible for sickleave. GeneralFund
costs to implement these measures will be nearly $250million by 201617.
Despite these steps,millions of Californians remain below the federal povertyline.

TheBudget takes additional steps to counteract the effects ofpoverty:

Establish the states first Earned Income Tax Credit to help the poorest working
families inCalifornia. Thistargeted credit will provide a refundable tax credit for
wages and would focus on the lowestincome Californians households with
incomes less than $6,580 if there are no dependents or $13,870 if there are three
or moredependents. Theproposed credit would match 85percent of the federal
credit at the lowest income levels, providing an average estimated household benefit
of $460 annually for 825,000 families (representing 2millionindividuals), witha
maximum benefit of $2,653.

pTM5Aif3Jb
Introduction
Provide $1.4billion ($150million more than the GovernorsBudget) infunding to

support a coordinated framework for adult education, career technical education,
workforce investment andapprenticeships.
Establish an amnesty program for those Californians with past due courtordered
debt from trafficinfractions. Participating individuals can reduce their debts by
50percent, reduce the administrative fees they pay from $300 to $50, andhave their
drivers licensesreinstated.
Emergency Drought Response

The State of California has experienced four consecutive years of belowaverage rain
and snow, andis currently facing severe drought conditions in all 58counties. Themost
recent surveys recorded the statewide average snowpack, which is the source for
onethird of the states water, atjust 2percent of the normalaverage. Since the Governor
first declared a state of emergency in January2014, theAdministration has worked
with the Legislature to appropriate approximately $1.9billion to assist droughtimpacted
communities and provide additional resources for critical water infrastructureprojects.
Thestates emergency drought response accelerates several of the key actions in the
California Water ActionPlan. TheMayRevision includes an additional $2.2billion of
onetime resources to continue the states response to droughtimpacts. Thefunds
will protect and expand local water supplies, conserve water and respond to
emergencyconditions.

pTM5Aif3Jb
Summary Charts
Summary Charts
This section provides various statewide budget charts andtables.

pTM5Aif3Jb
Summary Charts
Figure SUM-01
2015-16 May Revision

General Fund Budget Summary
2014-15
Prior Year Balance
2015-16
$5,589
$2,359
Revenues and Transfers
$111,307
$115,033
Total Resources Available
$116,896
$117,392
Non-Proposition 98 Expenditures
$64,929
$65,892
Proposition 98 Expenditures
$49,608
$49,416
$114,537
$115,308
$2,359
$2,084
Total Expenditures
Fund Balance
Reserve for Liquidation of Encumbrances
$971
$971
Special Fund for Economic Uncertainties
$1,388
$1,113
$1,606
$3,460
Budget Stabilization Account/Rainy Day Fund
10

pTM5Aif3Jb
Summary Charts
Figure SUM-02
2015-16 Total State Expenditures by Agency

General
Fund
$3,180
Legislative, Judicial, Executive
Special
Funds
$3,394
Bond
Funds
$223
Totals
$6,797
Business, Consumer Services & Housing
623
807
140
1,570
Transportation
261
8,855
2,091
11,207
2,490
1,513
1,100
5,103
Natural Resources
Environmental Protection
65
3,116
1,762
4,943
Health and Human Services
31,811
20,788
52,599
Corrections and Rehabilitation
10,087
2,581
12,668
K-12 Education
49,285
103
1,063
50,451
Higher Education
14,195
103
390
14,688
215
739
681
281
896
1,027
677
469
1,211
1,861
2,284
574
2
-
2,540
2,753
1,785
$115,308
$46,941
$6,778
$169,027
Labor and Workforce Development

Government Operations
General Government:
Non-Agency Departments
Tax Relief/Local Government
Statewide Expenditures
Total
Note: Numbers may not add due to rounding.
Figure SUM-03
General Fund Expenditures by Agency

Change from 2014-15

2014-15
Legislative, Judicial, Executive
Business, Consumer Services & Housing
Transportation
Natural Resources
K-12 Education
Higher Education
Government Operations
General Government:
Non-Agency Departments
Tax Relief/Local Government
Statewide Expenditures
Supplemental Payment to the Economic
Recovery Bonds
Total
2015-16
Dollar
Percent
Change
Change
$3,017
843
200
2,558
87
30,046
10,030
49,659
13,267
282
754
$3,180
623
261
2,490
65
31,811
10,087
49,285
14,195
215
739
$163
-220
61
-68
-22
1,765
57
-374
928
-67
-15
5.4%
-26.1%
30.5%
-2.7%
-25.3%
5.9%
0.6%
-0.8%
7.0%
-23.8%
-2.0%
1,500
446
242
677
469
1,211
-823
23
969
-54.9%
5.2%
400.4%
1,606
$114,537
$115,308
-1,606
$771
-100.0%
0.7%

pTM5Aif3Jb
11
Summary Charts
Figure SUM-04
General Fund Revenue Sources

2014-15
Personal Income Tax
Change from
2014-15
Dollar
Percent
Change
Change
2015-16
$75,384
$77,700
$2,316
3.1%
23,684
25,240
1,556
6.6%
Corporation Tax
9,809
10,342
533
5.4%
Insurance Tax
2,486
2,556
70
2.8%
353
360
2.0%
Cigarette Tax
84
82
-2
-2.4%
Motor Vehicle Fees
23
23
0.0%
1,090
584
-506
-46.4%
$112,913
$116,887
$3,974
3.5%
-1,606
-1,854
-248
15.4%
$111,307
$115,033
$3,726
3.3%
Sales and Use Tax
Alcoholic Beverage Taxes and Fees
Other
Subtotal
Transfer to the Budget Stabilization
Account/Rainy Day Fund
Total
Figure SUM-05
2015-16 Revenue Sources

Personal Income Tax

Sales and Use Tax
Corporation Tax
Highway Users Taxes
Insurance Tax
Alcoholic Beverage Taxes and Fees
Cigarette Tax
Motor Vehicle Fees
Other
Subtotal
Transfer to the Budget Stabilization
Account/Rainy Day Fund
Total
General
Fund
$77,700
25,240
10,342
2,556
360
82
23
584
$116,887
Special
Funds
$1,806
12,757
4,893
688
6,521
18,963
$45,628
Total
$79,506
37,997
10,342
4,893
2,556
360
770
6,544
19,547
$162,515
Change
From
2014-15
$2,355
1,413
533
-828
70
7
-22
177
-2,264
$1,441
-1,854
1,854
$115,033
$47,482
$162,515
$1,441
12

pTM5Aif3Jb
K thru 12 Education
K thru 12Education
alifornia provides instruction and support services to roughly sixmillion students

in grades kindergarten through twelve in more than 10,000 schools throughout
thestate. Asystem of 58 county offices of education, morethan 1,000 local school
districts, andmore than 1,000 charter schools provide students with instruction in
English, mathematics, history, science, andother core competencies to provide them
with the skills they will need upon graduation for either entry into the workforce or
highereducation.
The MayRevision includes total funding of $83billion ($49.7billion GeneralFund and
$33.3billion otherfunds) forall K12 educationprograms.
Proposition98
A voterapproved constitutional amendment, Proposition98, guarantees minimum
funding levels for K12 schools and communitycolleges. Theguarantee, which went into
effect in the 198889 fiscal year, determines funding levels according to multiple factors
including the level of funding in 198687, GeneralFund revenues, percapita personal
income, andschool attendance growth ordecline. Therecently adopted Local Control
Funding Formula is the primary mechanism for distributing funding to support all students
attending K12 public schools inCalifornia.
As a result of significant growth in GeneralFund revenues, Proposition98 funding
obligations increase by a total of $6.1billion over the threeyear period of 201314 to

pTM5Aif3Jb
13
K thru 12 Education
201516 relative to the GovernorsBudget. Specifically, Proposition98 Guarantee

funding increases by $241million in 201314, $3.1billion in 201415, and$2.7billion in
201516. Asa result of these changes, therevised Proposition98 Guarantee levels at the
MayRevision for the 201314 through 201516 fiscal years are $58.9billion, $66.3billion,
and$68.4billion,respectively.
The Proposition98 maintenance factor anindicator of the past reductions made to
schools and community colleges totaled nearly $11billion as recently as 201112. Under
the MayRevision, thisamount is reduced to $772million.
K12 Funding Priorities

The MayRevision proposes to utilize this substantial combination of onetime and
ongoing resources to further advance the core priorities of the Administration,
paying down debts owed to schools, andinvesting significantly in the Local Control
FundingFormula. Theformula provides additional funding to school districts and students
most in need of theseresources. TheMayRevision maintains the repayment of all the
interyear budgetary deferrals, while substantially increasing funding for the formula by
providing an additional $2.1billion building upon the more than $4billion provided in the
GovernorsBudget. Intotal, this$6.1billion investment in the formula will provide enough
funding to close 53percent of the remaining gap to fullimplementation. Therepayment
of deferrals and the added investments in the formula will provide greater certainty
of funding and address inequities in the prior school finance system, while allowing
schools to expand base programs and services and support other key local investments
andpriorities. Funding is also provided for various workload adjustments under the new
formula, asdetailed in the K12 Budget Adjustmentssection.
The 2013 BudgetAct provided $1.25billion in onetime Proposition98 GeneralFund to
support the implementation of the recently stateadopted academic standards for English
Language Arts and Mathematics newstandards focused on developing the critical
thinking, problemsolving, andanalytical skills students will need for todays entrylevel
careers, freshmanlevel college courses, andworkforce trainingprograms.
The Governors Budget proposed more than $1.1billion in discretionary onetime
Proposition98 funding for school districts, charter schools, andcounty offices of
education to further the implementation of the stateadopted academicstandards.
TheMayRevision significantly expands this investment by proposing an additional
$2.4billion in Proposition98resources. Withmore than $3.5billion in total discretionary
14

pTM5Aif3Jb
K thru 12 Education
funding, schools will be able to continue to make the necessary investments in

professional development, provide teacher induction to beginning teachers, andpurchase
instructional materials and technology to prepare both students and teachers forsuccess.
Ofthis new total funding, $40million will be provided to county offices of education
to assist schools in meeting new responsibilities required under the accountability
structure of theformula. Allof the funds provided will offset any applicable mandate
reimbursement claims for these entities, which builds off the approach in the 2014
BudgetAct where $400.5million in onetime funding was provided for both general
purpose activities and mandatesreimbursement. Thiscombined twoyear investment will
substantially reduce the outstanding mandates debt owed to local educational agencies,
consistent with the Administrations goal to pay downdebt.
Special Education
The California Statewide Special Education Taskforce was formed in 2013 to examine
the state of special education in California, analyze and consider best practices within
the state and nation, andultimately propose recommendations for improving thesystem.
Thetaskforce, composed of parents, advocates, teachers, administrators, andexperts
in the field, began meeting in December2013. After more than a year of deliberations,
thetaskforce released its final recommendations in March2015, which focus on the
areas of early learning, evidencebased school and classroom practices, educator
preparation and professional learning, assessments and accountability structures, family
and student engagement, andspecial educationfinancing.
In response to these recommendations, theMayRevision proposes $60.1million
Proposition98 GeneralFund ($50.1million ongoing and $10million onetime) in 201516
to implement selected program changes recommended by the taskforce, andmakes
targeted investments that improve service delivery and outcomes for all disabled
students, witha particular emphasis on earlyeducation.
SignificantAdjustments:

Increase Opportunities for Infants and Toddlers to Receive Early

InterventionsTheMayRevision proposes augmenting the Early Education Program
for Infants and Toddlers with Exceptional Needs, which identifies and provides early
interventions for infants from birth to age two with special needs, by$30million
Proposition98 GeneralFund. Participation in the current program is limited to local
educational agencies that have historically received state funding for thisprogram.

pTM5Aif3Jb
15
K thru 12 Education
Thisinvestment will allow for new participation in the program, andprovide an

opportunity for the state to reassess the outdated fundingmodel.
16
Increase Opportunities for Children with Exceptional Needs in State

PreschoolTheMayRevision proposes $12.1million Proposition98 GeneralFund
to provide access to an additional 2,500 children in StatePreschool. Priority for this
funding is for children with exceptionalneeds.
Improve Outcomes for Children with Exceptional Needs who Participate in State
Preschool TheMayRevision requires State Preschool programsto: (1) provide
parents with information about accessing local resources for the screening and
treatment of developmental disabilities, and(2) within existing professional
development requirements, provide teachers with training on behavioral strategies
and targeted interventions to improve kindergartenreadiness. TheMayRevision
proposes increasing State Preschool reimbursement rates by 1percent (at a cost of
$6million Proposition98 GeneralFund) toreflect thesechanges.
Establish Statewide Resources to Encourage and Assist Local Educational Agencies

in Aligning Systems of Learning and Behavioral Supports TheMayRevision
proposes a onetime investment of $10million Proposition98 GeneralFund to
provide technical assistance and build statewide resources to assist local educational
agencies interested in implementing schoolwide, datadriven systems of support
andintervention. Schoolwide tiered systems provide scientifically based practices
and interventions that are proportional to a studentsneeds. Research indicates that
schools that have implemented tiered systems are more successful at improving
disabled studentoutcomes.
Increase Dispute Resolution Resources TheMayRevision proposes an increase

of $1.7million federal Individuals with Disabilities Education Act statelevel activity
funds to expand the current Alternative Dispute Resolution Grant Program to all
Special Education Local Plan Areas in thestate. Ona limited scale, thisprogram has
proven successful in resolving special education disputes at the locallevel.
Increase State Systemic Improvement Plan Resources TheMayRevision proposes

an increase of $500,000 federal Individuals with Disabilities Education Act statelevel
activity funds to develop resources and provide technical assistance to local
educational agencies for implementation of the federally required State Systemic
Improvement Plan for students withdisabilities.

pTM5Aif3Jb
K thru 12 Education
Adult Education
The MayRevision maintains $500million Proposition98 GeneralFund to establish
the Adult Education Block Grant program to provide funds for adult education to
school districts and communitycolleges. Thisproposed program will coordinate
efforts of various entities suchas schools, community colleges, universities, local
workforce investment boards, libraries, social services agencies, public safety agencies,
andemployers toprovide education and training moreeffectively.
The MayRevision strengthens this proposal, substantially informed by feedback received
fromstakeholders.

Eliminate Allocation Boards within Each Consortium Eachconsortium will be

required to create rules and procedures regarding how it will make decisions, based
on state guidelines that require consortia to seek and respond to input on proposed
decisions from interested stakeholders and to make decisionspublicly.
Require More Robust, butLess Frequent, Planning Eachconsortium will develop a

comprehensive plan for adult education in its region at least once every three years,
withannualupdates.
Provide Greater Funding Certainty TheSuperintendent of Public Instruction and the

Chancellor of the California Community Colleges will certify maintenance of effort
levels by July30, andwill determine the allocation of any remaining block grant funds
to consortia by October30. Beginning in 2016, theSuperintendent and Chancellor
will provide preliminary allocations to consortia shortly following the release of
each Governors Budget, andfinal allocations, along with preliminary projections
for two future years, shortly after each Budget isenacted. Atthe consortia level,
allocations to districts will be at least equal to their distribution from the previous
year, withlimitedexceptions. Further, useof a local fiscal administrator is no
longerrequired.
Integrate Adult Education Programs and Funding Streams The Superintendent

and Chancellor will, byJanuary31, 2016, develop and submit a plan to distribute
Workforce Innovation and Opportunity Act Title II and Perkins funding using the
consortia structure in futureyears. School districts, county offices of education,
andcommunity college districts that receive other specified state funds or

pTM5Aif3Jb
17
K thru 12 Education
federal funds for adult education must be participating members of an adult

educationconsortium.
K12 Budget Adjustments


Career Technical Education TheGovernors Budget proposed $250million in

onetime Proposition98 funding in each of the next three years to support a
transitional Career Technical Education (CTE) Incentive GrantProgram. School
districts, county offices of education, andcharter schools receiving funding from
the program would be required to provide a dollarfordollar match eachyear.
TheMayRevision proposes an additional $150million in 201516 for the first year
of this transition program, anadditional $50million in 201617, anda reduction
of $50million in 201718. Thisadjusted schedule of funding will better allow
schools to transition to entirely using their own discretionary funds by 201819.
TheMayRevision also proposes a series of other changes to the Administrations
January proposal on CTE,including:
18
Increasing the minimum localtostate funding match requirement to 1.5:1 in

201617 and 2:1 in 201718, toassist local educational agencies transition in
supporting CTE with their Local Control Funding Formula apportionments and
other existing resources after this programexpires.
Eliminating Career Pathways Trust from the list of allowable sources of local
matchingfunds.
Directing the Department of Education and the State Board of Education to give
funding priority to applicants administering programs located in rural districts or
regions with high student dropoutrates.
Quality Education Investment Act Transition Funding Anincrease of $4.6million

onetime Proposition98 GeneralFund to provide half of the final apportionment
of Quality Education Investment Act (QEIA) funding to selected school districts in
201516 that do not qualify for concentration grant funding under the Local Control
FundingFormula. Thisfunding will help ease the transition off QEIA funding for
districts with isolated concentrations of English learners and students who qualify for
free or reducedpricedmeals.

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K thru 12 Education
Simon Wiesenthal Center Anincrease of $2million Proposition98 GeneralFund

for the LosAngeles County Office of Education to contract with the Simon
Wiesenthal Center to support the Museum of Tolerances Tools for Tolerance
trainingprograms. These funds allow the center to partner with schools throughout
the state to advance antibias education, inclusion, andequity through professional
developmentprograms.
Local Property Tax Adjustments Adecrease of $123.3million Proposition98

GeneralFund in 201415 for school districts, special education local plan areas,
andcounty offices of education as a result of higher offsetting property taxrevenues.
Adecrease of $224million Proposition98 GeneralFund in 201516 for school
districts, special education local plan areas, andcounty offices of education as a
result of higher offsetting property taxrevenues.
Average Daily Attendance Anincrease of $94.4million in 201415 and an increase

of $173.5million in 201516 for school districts, charter schools, andcounty offices
of education under the Local Control Funding Formula as a result of an increase in
201314 average daily attendance (ADA), which drives projections of ADA in both
201415 and 201516.
Proposition39 TheCalifornia Clean Energy Jobs Act was approved by voters in

2012, andincreases state corporate taxrevenues. For201314 through 201718,
themeasure requires half of the increased revenues, upto $550million per year,
tobe used to support energy efficiencyprojects. TheMayRevision decreases the
amount of energy efficiency funds available to K12 schools in 201516 by $6.7million
to $313.4million to reflect reduced revenueestimates.
Categorical Program Growth Adecrease of $18.4million Proposition98

GeneralFund for selected categorical programs, based on updated estimates of
projected ADAgrowth.
CostofLiving Adjustments Adecrease of $22.1million Proposition98

GeneralFund to selected categorical programs for 201516 to reflect a change in the
costofliving factor from 1.58percent at the Governors Budget to 1.02percent at
the MayRevision.
K12 Mandated Programs Block Grant Anincrease of $1.2million Proposition98

GeneralFund to reflect greater school district participation in the mandates
blockgrant. Thisadditional funding is required to maintain statutory block grant
funding rates assuming 100percent programparticipation.

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K thru 12 Education
Child Care and State Preschool

Subsidized Child Care includes a variety of programs designed to support lowincome
families so they may remain gainfullyemployed. These programs are primarily
administered by the Department ofEducation. Additionally, theState Preschool program
is designed as an educational program to help children develop the skills needed for
success inschool. TheDepartment of Education and the Department of Social Services
jointly administer the threestage CalWORKs child care system to meet the child care
needs of recipients of aid while they participate in work activities and as they transition
off cashaid. Families can access services through centers that contract directly with the
Department of Education, orby receiving vouchers from county welfare departments or
alternative payment programproviders.
20
CalWORKs Stage 2 Anincrease of $46.8million nonProposition98 GeneralFund,

toreflect an increase in the number of new Stage 2 beneficiaries and an increase in
the cost of providingcare. Total base cost for Stage 2 is $395.4million.
CalWORKs Stage 3 Anincrease of $2million nonProposition98 GeneralFund to

reflect minor adjustments in caseload and the cost of providingcare. Total base for
Stage 3 is $265.5million.
Capped NonCalWORKs Programs Anet decrease of $7.2million ($3.1million

Proposition98 GeneralFund and $4.1million nonProposition98 GeneralFund)
toreflect a change in the costofliving adjustment from 1.58percent at the
Governors Budget to 1.02percent at the MayRevision, anda net decrease
of $2.5million ($1.1million Proposition98 GeneralFund and $1.4million
nonProposition98 GeneralFund) toreflect a change in the population of 04
yearoldchildren.
Child Care and Development Funds Anet increase of $17.7million federal funds
in 201516 to reflect an increase in ongoing base federal funds of $9million,
anadditional $5.5million in onetime generalpurpose funds from 201415,
andan additional $3.2million in onetime quality funds from 201415. Inaddition,
theMayRevision identifies basic priorities for possible midyear federal Child Care
and Development Block Grant funding adjustments, andestablishes the Infant and
Toddler Quality Rating and Improvement System Block Grant with anticipated federal
quality funds available beginning October1,2016.

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K thru 12 Education
State Preschool Anincrease of $13.5million Proposition98 GeneralFund to reflect

2,500 partday State Preschool slots as described in the Special Education section,
aswell as various technical adjustments including an adjustment in the cost of living
and a change in the population of 04 yearoldchildren.
Early Head Start/Child Care Partnership Grant Anincrease of $2.4million federal

funds to provide Early Head Start services to an additional 260 infants and toddlers in
11 northerncounties.
Commission on Teacher Credentialing

The Commission on Teacher Credentialing sets the States standards for educator
preparation for the K12 public schools ofCalifornia. TheCommission implements
these standards through the issuance and renewal of teaching and services credentials,
development and administration of educator examinations, accreditation of educator
preparation programs, andmonitoring of educatorconduct. TheCommission consists of
19members: 15voting members and four exofficio nonvotingmembers.
The Commission is a special fee agency, withteacher credential fees providing
approximately 85percent of its revenue base; theremainder is provided by
examination fees paid by educators and accreditation fees paid by educator
preparationprograms.Over the past five years, thenumber of candidates enrolled
in and completing educator preparation programs and applying for credentials has
declined, resulting in a decrease in the Commissions revenuebase. Atthe same time,
theCommissions nondiscretionary operating costs have continued toincrease.The
MayRevision includes $4.5million in additional funding to address thesecosts.
Toaddress the structural pressures on the Commissions budget in the near term,
theMayRevision proposes to increase the teacher credential fee to $100 for initial and
renewal credentials in an effort to provide the Commission with additional revenue
necessary to support missioncriticalactivities. Credential fees had been held flat at $55
since 2000, until the fee was raised to the current level of $70 in 2012. Evenwith this
proposed increase, teacher credential fees would remain lower than renewal fees charged
to professionals in a number of other occupationalfields.
To address some of the longterm underlying causes of the Commissions current
structural budget issues, itis important to streamline functions and create workload
efficiencies at theCommission. TheAdministration proposes to begin this effort with
a focus on the Commissions responsibility to monitor educator misconduct through

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K thru 12 Education
the existing district reportingprocess. Often, theevidentiary files of districtreported

cases of teacher misconduct are incomplete and lack basic information, which increases
processing time andcosts. While the minimum required information is currently
specified in regulations, theAdministration proposes to place these requirements in
statute in an effort to emphasize the basic information needed in a district report of
teachermisconduct. TheAdministration also proposes to provide the Commission with
jurisdiction to investigate a superintendent or charter school administrator who fails to
report educatormisconduct. Bothof these changes are intended to improve the quality
of these reports, allowing the Commission to act more quickly in determining the correct
course of action in each of these cases and ultimately reach a more efficient disposition
of eachcase.
Public Schools on Military Installations

TheU.S. Secretary of Defense established a program to construct, renovate, repair,
orexpand elementary and secondary public schools on military installations to address
capacity or facility conditiondeficiencies. Theprogram is 80percent federal funded,
witha 20percent local match requirement for a school district to receive funding under
theprogram.
In 2010, theDepartment of Defense assessed the condition of 160 public schools on
military installations in the UnitedStates and created a priority list of schools with the
most serious condition and/or capacitydeficiencies. California has 11 schools located in
six school districts that are within the top 33 of the prioritylist. Themajority of schools
on this list have expressed concerns about raising the required 20percent localmatch.
Inan effort to assist participating districts, theAdministration is exploring several funding
options to help the eligible schools establish their local match, including the provision of
lowinterest state loans through existingprograms.
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Higher Education
igher Education includes the California Community Colleges (CCC), theCalifornia

State University (CSU), theUniversity of California (UC), theStudent Aid
Commission, andseveral otherentities.
The Master Plan for Higher Education created a model for public education throughout
theworld. Thesegments must serve as leaders to keep the costs of higher education
affordable for students andfamilies. TheAdministration expects segments to continue to
improve efficiencies and innovations, andensure investments are studentcentered to the
benefit of current students and increased access for current and futureCalifornians.
The MayRevision includes total funding of $29.1billion ($16.6billion GeneralFund and
local property tax and $12.6billion otherfunds) forall programs included in theseentities.
California Community Colleges

The CCC are publicly supported local educational agencies that provide educational,
vocational, andtransfer programs to approximately 2.1millionstudents. TheCCC system
is the largest system of higher education in the world, with 72 districts, 112campuses,
and 72 educationalcenters. Byproviding education, training, andservices, theCCC
contribute to continuous workforce improvement and also provide remedial instruction
forhundreds ofthousands of adults across the state through basic skills courses and adult
noncreditinstruction. TheCCC also provide students an economic alternative through
the transfer pathway to obtain a fouryeardegree.

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The significant resources $619million above the Governors Budget and $1billion
over the 2014 BudgetAct level included in the MayRevision for the CCC will enhance
student success, including providing more support to students, increasing fulltime
faculty, andidentifying, developing, andexpanding the use of effectivepractices.

Apportionments Anincrease of $60.3million Proposition98 GeneralFund in

201516 to reflect an increase in growth from 2percent to 3percent, theinclusion
of enrollment restoration, anda reduction in the statutory costofliving adjustment
from 1.58percent to 1.02percent. TheMayRevision provides $259.4million
Proposition98 GeneralFund, asfollows:
$156.5million available for general apportionment growth;
$61million for a 1.02percent costofliving adjustment; and
24
$41.9million to allow colleges to earn back enrollment funding for declines in

enrollment over the past two years, asallowed instatute. Thisfunding was
inadvertently excluded from the GovernorsBudget.
Increased Operating Expenses Anincrease of $141.7million Proposition98

GeneralFund, fora total of $266.7million, toreflect increased base allocation
funding in recognition of increasing community college operating expenses in the
areas of facilities, retirement benefits, professional development, converting faculty
from parttime to fulltime, andother generalexpenses.
FullTime Faculty Anincrease of $75million Proposition98 GeneralFund to

increase the number of fulltime faculty within each community collegedistrict.
Funding would be allocated based on fulltime equivalent enrollment to all community
college districts, butcommunity college districts with relatively low proportions of
fulltime faculty will be required to increase their fulltime faculty more than districts
with relatively high proportions of fulltimefaculty. Intotal, itis expected that
approximately 600 fulltime faculty positions will be created by thisproposal.
Basic Skills and Student Outcomes Transformation Program An increase

of $60million Proposition98 GeneralFund to assist community colleges in
improving delivery of basic skills instruction by adopting or expanding the use
of evidencebased models of placement, remediation, andstudent support that
accelerate the progress of underprepared students toward achieving postsecondary
educational and careergoals.

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Basic Skills Partnership Pilot Program Anincrease of $2million Proposition98

GeneralFund for a pilot program to provide incentives to community college districts
and the CSU to coordinate their efforts to provide instruction in basic skills to
incoming CSU students in an efficient and effectiveway.
Investing in Student Success Anincrease of $15million Proposition98

GeneralFund to further close achievement gaps in access and achievement in
underrepresented student groups, asidentified in local Student EquityPlans.
Further, toprovide additional support to foster youth, theMayRevision proposes
to implement Chapter771, Statutes of 2014 (SB1023). Thislegislation specifies
additional services for foster youth already participating in the Extended Opportunity
and Services program at up to ten communitycolleges.
Implementing Statewide Performance Strategies Anincrease of $15million

Proposition98 GeneralFund to implement strategies to improve college
performance in student success andoutcomes. Ofthis amount, $3million will
provide local technical assistance to support the implementation of effective
practices across alldistricts. Theadditional $12million will develop and disseminate
effective professional, administrative, andeducational practices, including the
specific development of curriculum and practices for members of the California
Conservation Corps and for inmates to support the effective implementation of
Chapter695, Statutes of 2014 (SB1391). Further, theMayRevision proposes an
increase of $340,000 GeneralFund and six positions for the Chancellors Office to
continue its district assistance to improve student success and outcomes, andto
coordinate efforts to encourage adoption of effective practices at community
colleges throughoutCalifornia.
Deferred Maintenance and Instructional Equipment Anincrease of $148million

onetime Proposition98 GeneralFund that colleges can use to reduce their backlog
of deferred maintenance or to purchase instructionalequipment. Community
colleges will not need to provide matching funds for deferred maintenance in
201516. These resources will allow districts to protect investments previously made
in facilities, andto improve students experience by replenishing and investing in new
instructionalequipment.
Mandate Backlog Payments Anincrease of $274.7million onetime Proposition98

GeneralFund, fora total of $626million, tocontinue paying down outstanding
mandate claims by communitycolleges. These payments will be distributed on a per
fulltime equivalent student basis and will further reduce outstanding mandate debt,
while providing community colleges with onetime resources to address various

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Higher Education
onetime needs, suchas curricula redesign, startup costs for new career technical
educational programs, andother onetimecosts.

Categorical Program CostofLiving Adjustment Anincrease of $2.5million

Proposition98 GeneralFund to provide a costofliving adjustment for the Disabled
Student Programs and Services program, theExtended Opportunities Programs and
Services program, theSpecial Services for CalWORKs Recipients program, andthe
Child Care Tax Bailoutprogram.
Proposition39 TheCalifornia Clean Energy Jobs Act was approved by voters in

2012 and increases state corporate taxrevenues. For201314 through 201718,
themeasure requires half of the increased revenues, upto $550million per year,
tobe used to support energy efficiencyprojects. TheMayRevision decreases the
amount of energy efficiency funds available to community colleges in 201516 by
$825,000 to $38.7million to reflect reduced revenueestimates.
Local Property Tax Adjustment Adecrease of $156.1million Proposition98

GeneralFund in 201516 as a result of increased offsetting local property
taxrevenues.
Student Enrollment Fee Adjustment Anincrease of $7.4million Proposition98

GeneralFund as a result of decreased offsetting student enrollment feerevenues.
Community College Mandates Block Grant Adecrease of $691,000 Proposition98

GeneralFund to align mandate block grant funding with the revised fulltime
equivalent studentsestimate.
California State University

With 23 campuses, CSUis the largest and most diverse university system in the
country, providing undergraduate instruction, graduate instruction through masters
degrees, anddoctoral degrees in some fields ofstudy. TheCSU plays a critical role in
preparing the workforce of California, awarding more than 103,000 degrees in 201314;
itgrants more than onehalf of the states bachelors degrees and onethird of the states
mastersdegrees. TheCSU awards more degrees in business, engineering, agriculture,
communications, health, andpublic administration than any other California institution of
highereducation. Morethan 50percent of Californias teachers graduated fromCSU.
Consistent with the Administrations plan reiterated in the Governors Budget,
theCSU has announced it will not increase systemwide tuition and fees in 201516.
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Theuniversitys decision will preserve access by keeping a CSU education affordable

forstudents.
Furthermore, atthe CSU Trustees March meeting, theChancellors Office reported on
a number of initiatives already underway at CSU campuses to manage operations more
efficiently and generatesavings. These savings can be redirected toward higher priorities,
consistent with the budget approved by the Trustees inNovember.
The Governors Budget proposed $119.5million GeneralFund ongoing for CSU with
similar 4percent increases in future years, aswell as $25million GeneralFund on a
onetime basis for deferred maintenance at CSUcampuses. TheCSU has indicated that it
would use the additional resources proposed in the Governors Budget for thefollowing:

Fund existing obligations, suchas increased costs for pensions and healthbenefits.
Increase employee compensation systemwide by 2percent.
Support the costs of the enrollment of about 4,000 additionalstudents.
Address backlogs in critical maintenance andinfrastructure.
In its annual performance report to the Governor and the Legislature, theCSU indicated
that about 19percent of students who enter as freshmen graduate within fouryears.
Thefouryear rate for lowincome students (12percent) isabout half that of their peers
(24percent), andthat gap persists after six years, when 48percent of lowincome
students will have graduated, compared to 59percent for theirpeers. About half of
CSU students transferred from the community colleges animportant role the CSU
has embraced within Californias higher educationsystem. Nearly 30percent of transfer
students graduate within two years, andlowincome transfer students graduate at close
to the same rates as theirpeers.
Shortening the time it takes undergraduates to graduate and increasing the number who
complete their degrees is critical for students and their families, andimproves access
for futurestudents. TheCSU chancellor has committed to addressing thesechallenges.
TheCSUs Graduation Initiative sets goals to be achieved by the year 2025, including
a fouryear graduation rate for freshman entrants of 24percent and a twoyear rate for
transfer students of 35percent. TheCSU will report publicly on its progress toward these
goals as it aims to meet or exceed these targets andtimelines.

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Higher Education

Base Adjustment Anadditional $38million GeneralFund ongoing for theCSU.

Withthese additional resources, theAdministration expects the Universityto:
Support efforts to improve student success at all of the campuses, asapproved

by theTrustees. Overthe long term, reducing the time it takes students
to complete degrees should provide access to significant numbers of new
students and significant savings to students andfamilies.
Enroll more transfer students beginning in the comingyear. While timelier
completion should improve access to the CSU, theAdministration recognizes
the demand campuses are facing today, particularly from transfer students
who have completed associates degrees for transfer and are guaranteed
admission to theuniversity. Theadditional funds will allow campuses to enroll
approximately 1,500 more transfer students by the spring of 2016.
Basic Skills Partnership Pilot Asdiscussed in the California Community Colleges

section, theMayRevision proposes a pilot program to offer basic skills education
to incoming CSU students who need remediation through communitycolleges.
Asmore of this instructional workload is handled through the community colleges,
theCSU can redirect resources to continuing improvements on time todegree.
Energy Projects Asdiscussed in the Cap and Trade chapter, theMayRevision

proposes $35million Greenhouse Gas Reduction Fund for energy projects at
CSUcampuses.
University of California
Consisting of 10 campuses, theUniversity of California (UC) isthe primary institution
authorized to independently award doctoral degrees and professionaldegrees. The
UCeducates approximately 249,000 undergraduate and graduate students and
receives the highest state subsidy per student among the states three public higher
educationsegments.
Following the UCRegents November action to authorize the UCPresident to increase
student tuition by up to 28percent over five years, theAdministration and the President
undertook a review of UCas part of a select advisory committee established by the
Regents to develop and evaluate proposals to reduce the Universitys cost structure,
while maintaining or improving access, quality, accountability andoutcomes.
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After months of data review, discussions between the Administration and the Office
of the President, andinterviews with higher education experts, faculty and staff
at UCcampuses, andundergraduate and graduate students, theGovernor and the
UCPresident have agreed that UCwill undertake a number of reforms to manage
its operations more effectively and that the President will strongly recommend the
Academic Senate undertake additionalreforms. Implementation of these reforms will
allow UCto better serve existing students and reduce its future operating costs so that
students will have access to an affordable UCeducation in the years tocome. Under this
framework, tuition for California undergraduate students will remain flat through 201617.
As UCimplements a cap on salary eligible for pensions consistent with the states 2012
pension reform law, thestate will use the dedicated debt funding under Proposition2 to
help reduce the Universitys unfunded pensionliability. Theagreedupon framework is
described in more detailbelow.
State Funding Has Increased Substantially

Between 200708 and 201415, nearly all statesupported programs experienced steep
declines in their GeneralFund revenues given the magnitude of the GreatRecession.
Witha recovering economy and the passage of Proposition30, thestate has been able
to reinvest and expand services in targetedways. ForUC, thepassage of Proposition30
averted a $250million cut to university funding and provided a total of $392million in new
resources in 201415. Inaddition to these increases, by 201516, CalGrant and Middle
Class Scholarship expenditures for UCstudents are now estimated to be $900million and
have grown by nearly $600million since 200708 (more than 200percent) principally due
to tuitionincreases.
Tuition Increases Are Not Needed at This Time

Of UCs total resources, estimated to be nearly $28billion in 201415, theUniversity
indicates that about $7billion is available to support studentinstruction. TheUCs
proposed budget identifies $125million for existing obligations, including compensation
increases pursuant to alreadynegotiated labor contracts, costs of employee benefits,
andadjustments in current spending forinflation. Toassist the University with these
costs, provide funding for all currently enrolled students, allow for additional discretionary
spending, andreduce energy use, theAdministration is committed to providing the
following in the budgetyear:

$119.5million in increased GeneralFund on an ongoingbasis.

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Higher Education
$25million in onetime GeneralFund for deferredmaintenance.
$25million in onetime Cap and Trade revenues, which would be used for energy
efficiency projects at UCcampuses to reduce greenhouse gasemissions.
With these state resources, theUniversity has committed to freezing undergraduate

tuition for California residents for 201516 and 201617. TheAdministrations multiyear
plan will continue to provide 4percent increases in direct GeneralFund support in
futureyears. By201718, tuition will have remained flat for six consecutive years, andit
is reasonable to expect that tuition will begin to increase modestly and predictably, likely
close to the rate ofinflation. Inthe intervening years, UCmust aggressively implement
the reforms below and continue its efforts to obtain administrativeefficiencies.
Agreement Improves Transfer Opportunities

for Community College Students
Transfer to UCcan be a costeffective pathway forstudents. Forexample, attending
a community college for two years before transferring to UCcan result in $25,000
of savings for a student in tuition and feesalone. Thecommunity colleges are
diverse40percent of enrolled students are Latino while about 7percent are African
American, andrecent reports have found that a majority of Latino graduating high school
seniors enroll at the communitycolleges. Expanding the number of students who
successfully complete their lowerdivision requirements at the community colleges will
allow the University to be more diverse and serve far moreCalifornians.
Since the passage of Chapter428, Statutes of 2010 (SB1440), CSUand the community
colleges have greatly simplified the transfer process by developing associate degrees
for transfer that guarantee admission to CSU with junior standing once the degree
isobtained. Theprocess eliminates campusbycampus and majorbymajor transfer
requirements and establishes clear expectations forstudents.
The UChas also taken steps to simplify the process for transferstudents. Overthe next
two academic years, forits 20 most popular majors, UCwill articulate specific pathways
for transfer that are closely aligned to the associates degrees for transfer established
by community colleges and CSU pursuant to SB1440. Anydifferences will be clearly
identified so that students know exactly what is needed for transfer to both CSU andUC.
Currently, UChas a goal of a twotoone ratio of incoming freshmen to
transfersbutonly three campuses meet thisexpectation. Theimproved transfer
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process, combined with a commitment from UCto reach the twotoone transfer
threshold by 201718 (for all undergraduate campuses except for UCMerced), willopen
up transfer opportunities tothousands more students in the comingyears.
Improved TimetoDegree Will Further Expand Access

In recent years, admission to UChas become increasinglyselective. TheMaster Plan
for Higher Education specifies that any student in the top oneeighth of the states
highschool graduating class each year should be eligible to attend UC, theUniversity
should establish a ratio of students in the lower division to those in the upper division of
two to three, andstudents transferring from California community colleges should receive
priority inadmissions.
The University can increase access for qualified students in severalways. Byimproving
fouryear graduation rates for students who enter as freshmen and twoyear graduation
rates for transfer students, theUniversity could serve far more Californians within its
currentinfrastructure. Forexample, ofthe 37,000 students who entered as freshmen in
the fall of 2008, 62percent of students graduated within four years while 81percent
finished within five years and 83percent graduated within sixyears. Improving fouryear
completion even modestly would open up admission forhundreds tothousands of new
freshmen and transferstudents.
To support focused degree pathways, allundergraduate UCcampuses will undertake a
comprehensive review of the courses necessary in 75percent of majors and complete
this review by July1, 2017, other than UCLA, which has already completed thisreview.
Theinitiative, modeled after UCLAs Challenge 45, hasthe goal of reviewing
the number of courses and reducing those requirements to no more than 45 units
wherepossible. Thischallenge encourages a thoughtful approach to how undergraduate
programs are designed and helps eliminate any unnecessary requirements forgraduation.
In addition, the UCPresident will strongly encourage the Academic Senate to review
existing policies on credits for Advanced Placement courses and College Level
Examination Program tests and use of the Common Identification Numbering System
(CID), which is already used by the community colleges andCSU. These policies would
further streamline the processes to award credit by examination and transfer credit
from other institutions and provide the opportunity for students to graduate sooner than
otherwise would be thecase.

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Higher Education
Three campuses will pilot alternative pricing models for summer session by 2016.
Currently, thesummer term does not take full advantage of existing infrastructure and
instructionalcapacity. These pilots will identify options to encourage undergraduate
students to take more courses during the summer with the intent to further expand the
use of summer courses in futureyears.
In addition to supporting timely fouryear degrees, eachcampus will develop threeyear
degree pathways for 10 out of its top 15 majors by March1, 2016, which will provide
students with another option to earn a UCdegree. The UChas committed to promoting
and encouraging these accelerated pathways with a goal that 5percent of students will
access these accelerated tracks by the summer of 2017. While accelerated graduation
is not practical for all, improved timetodegree results in significant savings for students
and families, andstudents should have clear, specific options that allow them to graduate
in a timely way that best suits theirneeds. Increasing the number of students who
complete their degrees in less than four years would also open up admission tohundreds
of newundergraduates.
These policy changes can have significant impacts if students receive appropriate
guidance as they move through theirprograms. Therefore, theOffice of the President will
work with campus advisors on how they can help keep students on track for graduation
within four years orless.
University Operations Should be Optimized Using Technology

As technology evolves, newopportunities exist for the University to improve
itsoperations. Innovative universities are using software and information to better
understand the costs associated with higher education, measure student needs and
improveoutcomes. Technology is enabling more responsive teaching and learning;
innovative course planning and course redesign; andbetter financial modeling, suchas
activitybased costing (ABC) usedby many leadingbusinesses. Allof these tools can
help focus resources where they are needed most whether it is helping students
plan their course of study, guiding faculty in determining when and how to provide
more targeted instruction, showing advisors which students are struggling, orproviding
administrators with data to determine course offerings that can dissipatebottlenecks.
Allcampuses should evaluate how they can deploy these and other advancements to
better supportstudents.
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By pursuing several technologies at each campus, UCcan serve as a laboratory for new
practices in teaching andlearning. Aspart of the agreement with the Administration,
UCRiverside will pilot ABC tools for its College of Humanities, Artsand Social Sciences,
which houses 20departments. Twoadditional campuses will also participate on a smaller
scale, withthree similar departments reflecting the most popular disciplines piloting
ABC in 2016 following a scopingstudy. Campuses will also report on how they are using
other data and technology tools, suchas predictive analytics, toidentify students at risk
of repeating courses, notcompleting on time, orneeding advising or otherinterventions.
These data can be used to close achievement gaps amongstudents. Finally, UCDavis
will lead a multicampus pilot (with at least two othercampuses) ondeploying adaptive
learning technologies, focused on improving instruction and increasing the number of
students who succeed in difficult courses and persist tocompletion.
In addition to understanding costs and outcomes, technology offers new opportunities
for increasing access toUC. Today, students can connect with professors across
campuses, andprofessors can lecture online and spend more time with students
in discussiongroups. During the Administrations review, manyfaculty members
cited hybrid courses as a way to deliver an enhanced learning environment to more
students than in a typical lecturecourse. Supporting the development of hybrid
coursesespecially for bottleneck courses, courses with high failure rates, orcourses
that are needed for popular majors should be a priority of the University, asdoing
so can help enhance student outcomes, lower costs and increaseaccess. Using a
GeneralFund augmentation provided in recent years, UCestablished the Innovative
Learning Technology Initiative, andwith that continued funding, UCwill expand its impact
on students by prioritizing resources on the development of thesecourses.
The UChas also committed to expanding online programs in strategic areas where high
demand exists to help Californians meet the workforce needs ofemployers. Tothat
end, UCwill convene industry leaders and other stakeholders this summer to identify
online certificate and masters degree programs that would provide significant benefit to
the Californiaworkforce. The UCwill also seek to expand enrollment in existing online
programs that have proven to besuccessful.
LongTerm Obligations Must Be Addressed

For two decades, UCtook a pension holiday fromannual contributions to its defined
benefit retirement system and instead relied on unsustainable investmentreturns.
Combined with the stock market crash of the Great Recession, thisholiday left the

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Universitys retirement system withbillions in unfundedliabilities. Invaluations presented

to the Regents in November, theUniversitys actuaries estimated unfunded liabilities of
$7.6billion for its pension system, aswell as an additional $14.5billion for health care for
itsretirees.
Beginning in 2010, boththe University and employees renewed their contributions to the
UCRetirementPlan. In201516, campuses will contribute 14percent of payroll, while
most employees will pay 8percent of theirearnings. These new costs have represented
a major operational pressure at the campuslevel.
Other California governments face similar longtermliabilities. Chapter296, Statutes of
2012 (AB340), established the Public Employees Pension Reform Act of 2013 (PEPRA).
Thestatute provides lower pension benefits and requires higher retirement ages for new
employees in state and local governments andschools.
The UCmade similar changes to the design of its retirement program and complied
with the Internal Revenue Service (IRS) capon salaries eligible forpensions. However,
theIRS cap is more than double the salary cap that was adopted in 2012 under PEPRA,
which prevents workers from receiving pensions far beyond what isreasonable.
Currently under PEPRA, thestate imposes a cap on pensionable earnings of $117,020
for employees who are eligible for Social Securitybenefits. The UChas a much higher
limit$265,000forits pensionprogram. ByJuly1, 2016, theRegents will adopt a
pension program for new employees in which an employee can elect either a defined
benefit plan that includes a PEPRA cap (with, forsome employees, asupplemental
defined contributionplan) ora full defined contributionplan. Bycreating a program
consistent with PEPRA, theUniversity will be eligible to receive Proposition2 funds to
pay down existing pensiondebt. Thestate would provide $96million in 201516, withan
additional roughly $170million in each of the next two years to cover unfunded pension
debt in each of those threeyears. Asthe unfunded liability decreases in future years,
theUniversity will reduce its costs and longtermrisk.
Lowering the Cost Structure of the University

Will Require Ongoing Engagement
As the state continues to reinvest in higher education, thestate has an opportunity to
ensure those investments provide the highest value for students, their families and
thepublic. TheGovernor and the Legislature now require the University to report annually
on its performance and every two years on the amount it spends on undergraduate
34

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Higher Education
students and graduatestudents. Byreporting data in new ways, managers at each

of the campuses can better understand the interaction between cost and academic
performance, andthe Universitys leaders can better share with the public credible
information about the costs of instruction, research and publicservice.
The agreement forged between the Administration and the University of California
will allow UCto better use both state taxpayer and student tuitiondollars.
TheAdministration expects regular reporting on these efforts, including status updates
and ongoingevaluation. TheAdministration intends to continue to partner with the
Office of the President, aswell as UCstudents, faculty, andcampus leaders to lower
the cost structure of the University in ways that support access, affordability, quality,
andimprovedoutcomes.
California Student Aid Commission

The California Student Aid Commission administers state financial aid to students
attending institutions of public and private postsecondary education through a variety
of programs including the CalGrant High School and Community College Transfer
Entitlement programs, theCompetitive CalGrant program, theMiddle Class Scholarship
Program, andthe Assumption Program of Loans forEducation. Morethan 125,000
students received new CalGrant awards, andmore than 170,000 students received
renewal awards in 201314.
The MayRevision continues to focus financial aid for students attending the states public
higher education institutions and other institutions to minimize student debt loads and
produce successfulgraduates. Thisbenefits students demonstrating a high likelihood of
completing their degrees or programs and students with the greatest financialneed.

CalGrant Program Costs Adecrease of $54.2million GeneralFund in 201415 and

$42.2million GeneralFund in 201516 to reflect revised estimates of participation in
the CalGrantprogram.
Offset CalGrant Costs with Federal Temporary Assistance for Needy Families
(TANF) Reimbursements Anincrease of $247.3million TANF reimbursements
in 201516, which reduces the amount of GeneralFund resources needed for
programcosts. Combined with the TANF reimbursements included in the Governors

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35
Higher Education
Budget, theMayRevision offsets $533.6million in GeneralFund costs for CalGrants

in 201516.

CalGrant B Access Award Supplement Anincrease of $1.9million College Access

Tax Credit Fund in 201516 to fund a supplemental award of $8 for each student who
receives a CalGrant B AccessAward.
Loan Assumption Program Costs Adecrease of $1.2million GeneralFund in

201415 and $399,000 GeneralFund in 201516 to reflect revised estimates of
costs for the Assumption Program of Loans for Education and the State Nursing
Assumption Program of Loans forEducation.
Middle Class Scholarship Program Adecrease of $18million GeneralFund

in 201415 to reflect revised estimates of costs for the Middle Class
ScholarshipProgram.
Awards for Innovation in Higher Education

The Awards for Innovation in Higher Education recognize higher education institutions that
improve policies, practices, and/or systems to achieve the statesgoals.

Additional Program Funding Anincrease of $25million Proposition98

GeneralFund to bring total funding for the program for the budget year to $50million.
TheMayRevision also proposes that community colleges, inaddition to California
State University campuses, maybe lead applicants forawards. TheMayRevision
further proposes that the program be more closely aligned to achieve the states
goals for higher education articulated in Chapter367, Statutes of 2013 (SB195).
Current Year Funding Allocation Adecrease in GeneralFund and a corresponding

increase in Proposition98 GeneralFund of $23million to reflect the actual awards of
funds for the current year coordinated by communitycolleges.
California State Library

Since 1850, theCalifornia State Library has promoted innovative library services
statewide, ensuring that all Californians have access via their local libraries to information
and educationalresources.
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Higher Education

Literacy Program Anincrease of $2million GeneralFund for the Literacy and

English Acquisition ServicesProgram. Asdescribed in the Governors Budget
proposal for adult education, theAdministrations focus remains on increasing the
resources available to improve the skills of Californias workforce, andit is expected
that literacy programs funded with these resources will be coordinated with the adult
educationconsortia.
Broadband Project Anincrease of $1.7million GeneralFund for the California Public

Library Broadband Project, including $1.5million on a onetime basis for grants to
public libraries to upgrade broadband equipment and $225,000 GeneralFund for
continued administration of contracts for broadbandservices.
Library Preservation Activities Anincrease of $521,000 GeneralFund to improve

the librarys efforts to preserve historical items in its possession, including
$181,000 ongoing for two additional positions and $340,000 on a onetime basis
forequipment.

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37
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Health and HumanServices
he Health and Human Services Agency oversees departments and other state
entities such as boards, commissions, councils, andoffices that provide health and
social services to Californias vulnerable and atriskresidents.
The MayRevision includes total funding of $140.5billion ($31.6billion GeneralFund

and $108.9billion otherfunds) forall programs overseen by this Agency, adecrease of
$121million GeneralFund compared to the GovernorsBudget.
Presidential Immigration Actions

On November20, 2014, thePresident announced executive actions that would allow
certain undocumented immigrants to temporarily remain in the UnitedStates without
fear ofdeportation. These actions were intended to provide stability to the immigrants
families and boost theeconomy.
These individuals would be recognized as having Permanent Residence Under Color
of Law due to their deferred action status, and/or because theU.S. Citizenship and
Immigration Services recognizes their presence in theU.S. anddoes not intend to
deportthem.
Permanent Residence Under Color of Law status qualifies individuals for statefunded
fullscope MediCal, InHome Supportive Services, andCash Assistance Payments

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39
forImmigrants. Under federal rules, thestatus does not allow individuals to qualify for
Covered California, CalFresh, CalWORKs, orthe California Food AssistanceProgram.
On February16, 2015, afederal district court enjoined implementation of theseactions.
TheObama Administration has appealed and if the Administration prevails, theannual
costs to provide the state benefits would be approximately $200million GeneralFund,
andgrowthereafter. TheMayRevision includes partialyear 201516 costs of $62million
GeneralFund, which presumes the courts allow the federal government to proceed
with implementing the executiveactions. Inconjunction with the Presidents executive
actions, theMayRevision proposes an additional $5million for direct assistance for
immigrant applicants and temporaryworkers.

Immigration Application Assistance TheMayRevision includes $5million

GeneralFund in the Department of Social Services for grants to nonprofit
organizations to provide application assistance to undocumented immigrants eligible
for deferred action under the President's executiveactions.
Temporary Worker Pilot Program TheMayRevision includes $148,000

GeneralFund and one position for the Labor and Workforce Development Agency to
implement a voluntary 2year pilot program to help prevent abuses in the recruitment
of temporaryworkers. Thisprogram will improve coordination, maximize efficiency,
andincrease the effectiveness of various labor programs that serve and protect more
than 800,000farmworkers.
HighCost Drugs
The MayRevision allocates $228million of the $300million that was set aside for
highcost drugs in the Governors Budget to the Department of Health Care Services,
theDepartment of State Hospitals, andthe Department of Corrections andRehabilitation.
Thisamount includes funding for implementing expanded clinical guidelines that are
largely consistent with national clinical recommendations for the treatment of HepatitisC.
Additionally, theCalifornia Health and Human Services Agency has held several meetings
with counties, sheriffs, stakeholders, andstate departments to discuss the clinical,
procurement, andcostbenefit considerations around the new Hepatitis C treatments and
future highcostdrugs.
40

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Going forward, theAgency will convene two workgroups with state departments and
local entities to discuss clinical and procurement issues with the goal of developing a
proposal for inclusion in the 201617 GovernorsBudget. Theclinical workgroup will
discuss highcost drugs that are pending federal approval and how they could affect
existing clinicalguidelines. Theprocurement workgroup will examine aspects of relevant
entities pharmacy benefit manager contracts, theavailability of pricing information,
andthe activities and functions of state entities procuring drugs or negotiating prices and
supplementalrebates.
Department of Health Care Services

The Department of Health Care Services (DHCS) administers MediCal, Californias
Medicaid program, which is a public health insurance program that provides
comprehensive health care services at no or low cost for lowincomeindividuals.
Thefederal government mandates basic services including physician services, family
nurse practitioner services, nursing facility services, hospital inpatient and outpatient
services, laboratory and radiology services, family planning, andearly and periodic
screening, diagnosis, andtreatment services forchildren. Inaddition to these mandatory
services, thestate provides optional benefits such as outpatient drugs, homeand
communitybased services, andmedicalequipment. DHCSalso administers California
Childrens Services, Primary and Rural Health program, Family PACT, Every Woman
Counts, aswell as countyoperated community mental health and substance use
disorderprograms.

Childrens Health Insurance Program (CHIP) Reauthorization OnApril16, 2015,

thePresident signed the Medicare Access and CHIP ReauthorizationAct. TheAct
reauthorizes CHIP through September2017 and includes enhanced federal funding
for the CHIP program effective October1,2015. TheMayRevision includes
GeneralFund savings of $381million in 201516.
Health Homes Program TheMayRevision includes $61.6million in nonstate

funds for additional payments to health plans that participate in the Health Homes
Program beginning January2016. Chapter642, Statutes of 2013 (AB361),
permits DHCS to develop a health homes program that would enhance care
management and coordination for beneficiaries with complexneeds. Theprogram
will provide comprehensive care management, carecoordination, health promotion,

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41
comprehensive transitional care, individual and family support, andreferral to

community and social supportservices. Theprogram will be funded primarily
through federal funds, withthe nonfederal funding coming from nonstatesources.
Health Care Reform Implementation

California continues its implementation of the federal Affordable Care Act (ACA). Since
January1, 2014, morethan 5million Californians have obtained health insurance, either
through the states new insurance exchange (CoveredCalifornia) orthrough MediCal.
Total MediCal enrollment is now projected to be 12.4million in 201516, ornearly
onethird of Californias totalpopulation.
The mandatory MediCal expansion simplified eligibility, enrollment, andretention rules
that make it easier to get on and stay on theprogram. TheMayRevision includes costs
of $2.9billion ($1.4billion GeneralFund) in 201516 related to the mandatoryexpansion.
California will split these costs with the federalgovernment. Mandatory expansion
caseload is estimated to be 1.4million in 201516.
The optional expansion extended eligibility to adults without children, andparent
and caretaker relatives with incomes up to 138percent of the federal povertylevel.
TheMayRevision includes costs of $14billion in 201516 for the optional
MediCalexpansion. Thefederal government has committed to pay 100percent of
the cost of this expansion for the first threeyears. California will begin contributing to
these costs in 201617, andby 202021, thestate will pay 10percent of the totalcosts.
By201819, theGeneralFund share for the optional expansion is estimated to be
$1billion. TheMayRevision projects optional expansion caseload to be 2.3million in
201516.
California also increased the mental health and substance use disorder benefits available
through MediCal, ata GeneralFund cost of $341million in 201516.
The MayRevision also includes $125million GeneralFund for managed care rate
increases in 201516.
Due to the continuing workload associated with implementing eligibility changes at
the county eligibility offices, theMayRevision includes an additional $150million
($48.8million GeneralFund) in 201516 for ACArelated eligibility determinationworkload.
TheACA implementation has necessitated manual system workarounds that require
additionalresources. Asthe state and counties gain experience with the new processes
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and the eligibility system stabilizes, thestate and counties will reevaluate the MediCal
county administration budget pursuant to Chapter442, Statutes of 2013 (SB28).
Department of Social Services

The Department of Social Services administers programs that provide services and
assistance payments to needy and vulnerable children and adults in ways that strengthen
and preserve families, encourage personal responsibility, andfosterindependence.
TheDepartments major programs include CalWORKs, CalFresh, InHome Supportive
Services (IHSS), Supplemental Security Income/State Supplementary Payment, Child
Welfare Services, Community Care Licensing, andDisabilityDetermination.

IHSS Caseload Anincrease of $147.6million GeneralFund in 201415 and

$179.1million GeneralFund in 201516 associated primarily with increases in
caseload, hours per case, andcosts perhour.
CalWORKs Caseload Decreased GeneralFund and federal Temporary Assistance

for Needy Families block grant expenditures of $97million in 201516 to reflect
revised caseload projections since the GovernorsBudget. Overall CalWORKs
caseload continues to decline, ascaseload is projected to be approximately 539,000
in 201415 and 525,000 in 201516.
Fair Labor Standards Act Rule

In January2015, afederal court vacated the UnitedStates Department of Labor rule that
required overtime pay for IHSS workers under the Fair Labor StandardsAct. Thefederal
government appealed this decision but in the interim, thestate has halted implementation
of the rule until the legality of the rule isdetermined. Afinal court decision is unlikely
before the end of fiscal year 201415. Ifthe rule is upheld, implementation could begin
rightaway.
The Governors Budget included $184million GeneralFund in the Department of
Social Services budget for implementation in 201415 and $316million in 201516.
Todate, noneof the 201415 funds have beenspent. Chapter29, Statutes of 2014
(SB855), includes a provision requiring any unspent FLSArelated funding in the
current year resulting from delayed federal implementation of the rule be used for other
purposes within the IHSSprogram. TheMayRevision uses these onetime unspent

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43
funds to partially offset the $326.7million in increased IHSS costs describedabove.

TheMayRevision continues to assume fullyear funding in 201516 for implementation of
the federalrule.
Department of Developmental Services

The Department of Developmental Services provides consumers with developmental
disabilities a variety of services and supports that allow them to live and work
independently, orin supportedenvironments. TheDepartment serves approximately
290,000 individuals with developmental disabilities in the community, and 1,035
individuals in stateoperated developmentalcenters. TheMayRevision includes
$5.9billion ($3.5billion GeneralFund) in 201516 for support of the Department and
communityservices.
The Future of State Developmental Centers

The Plan for the Future of Developmental Centers in California, issued in January of
2014, recommended that in the future, thestate should operate a limited number of
smaller, safetynet crisis and residentialservices. Since then, portions of the Sonoma
Developmental Center were found to be in violation of federal requirements and the state
was notified that federal funds for those units wouldcease. Thestate is in the process
of negotiating a settlement with the federal government to continue federal funding for
Sonoma for a limited amount oftime.
Consistent with the recommendations in the Plan for the Future of Developmental
Centers in California, theMayRevision proposes to initiate closure planning for the
remaining developmentalcenters.
The Department will provide a closure timeline for the Sonoma Developmental Center
with the goal of closing this developmental center by the end of 2018. Aspart of this
closure process, theDepartment will convene stakeholders to discuss alternative uses
for the Sonomacampus. TheMayRevision also proposes the future closure of the
Fairview Developmental Center and the nonsecure treatment portion of the Porterville
Developmental Center, withthe last closure completed in 2021. Theclosure of each
developmental center will require significant resources to develop placement options and
services for the developmental center residents who will transition into otherplacements.
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SignificantAdjustment:

Transition of Sonoma Residents Inanticipation of the closure of the Sonoma

Developmental Center, theMayRevision includes $49.3million ($46.9million
GeneralFund) tobegin development of resources to support the transition of
Sonomaresidents. These resources will fund the initial development of homes to
support consumers, provide additional training for providers, anddevelop additional
programs such as supported living services, crisis services, andtransportation
support andservices. Thisfunding will also be used for coordination of theclosure.
Department of State Hospitals

The Department of State Hospitals administers the state mental health hospital system,
theForensic Conditional Release Program, theSex Offender Commitment Program,
andthe evaluation and treatment of judicially and civilly committed and voluntarypatients.
TheMayRevision includes $1.7billion ($1.6billion GeneralFund) in 201516 for support
of theDepartment. Thepatient population is projected to reach a total of 7,165 in
201516.

Restoration of Competency Expansion TheMayRevision includes $10.1million

GeneralFund to expand the Restoration of Competency Program by up to 108 beds
to address the existing placementwaitlist. Theprogram provides for treatment
of certain Incompetent to Stand Trial patients in county jails rather than inpatient
treatment at a statehospital. Treating these patients at the county jail is more
costeffective than inpatient treatment at a statehospital. Thisexpansion should
help reduce the waitlist for Incompetent to Stand Trialdefendants. Including these
new beds, thetotal number of Restoration of Competency beds is expected to be
approximately 148 by the end of 201516.
Coleman Housing TheMayRevision includes $4.6million GeneralFund to activate

30 beds at the California Medical Facility in Vacaville to add sufficient capacity for
the Department to serve Colemanpatients. TheSpecial Master over the Coleman
case has been critical of the waitlist for intermediate and acute beds within the
psychiatricprograms. There is a need to activate this unit and increase the inpatient
capacity within the psychiatric programs to respond to changing patientneeds.

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45
Public Safety
Public Safety
The MayRevision includes the following changes related to publicsafety.

The California Department of Corrections and Rehabilitation (CDCR) incarcerates the
most serious and violent felons, supervises them when they are released on parole,
andprovides rehabilitation programs to help them reintegrate into thecommunity.
CDCRprovides safe and secure detention facilities and necessary support services to
inmates, including food, clothing, academic and vocational training, aswell as health
careservices.
The MayRevision includes $10.2billion ($9.9billion GeneralFund and $283million
otherfunds) forCDCR in 201516.
CDCRs GeneralFund budget is $130million less than the Governors Budget (excluding
a $60.6million transfer from the statewide funding set aside for highcostmedications).
Asdiscussed below, themain component of these savings is a reduction of 4,000
outofstate beds by the end of theyear.
Prison Population Update and Future Planning

The Governors Budget projected an overall adult inmate average daily population of
134,986 in 201415 and 133,109 in 201516. Dueto measures reducing the population

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47
Public Safety
working faster than previously estimated, theaverage daily adult inmate population is now
projected to decrease by 1.1percent to 133,451 in 201415 and decrease by 3.8percent
to 127,990 in 201516 compared to the Governors Budget projections, asdisplayed in
FigureSAF01.
Figure SAF-01
Spring 2015 Population Estimates

2014-15
Adult Average Daily Population Projection
Population Reduction Measures1
Total Average Daily Population Projection
2015-16
133,558
129,581
-107
-1,591
133,451
127,990
For the May Revision, the Population Reduction Measures include the new parole determination process for non-violent, nonsex registrant second-strike offenders and two-for-one credit earning for minimum custody inmates currently eligible for day-forday credits. The impacts of all other court-ordered population reduction measures, and the effects of Proposition 47, are now
incorporated in the Adult Average Daily Population Projection.
On February10, 2014, thethreejudge court granted the states request for a twoyear
extension of the deadline to meet the 137.5percent population cap and ordered the
state to comply with interim benchmarks of 143percent by June30, 2014(subsequently
extended to August31,2014),141.5percent by February28, 2015, andthe final
population cap by February28,2016. Theprison population is currently below the final
February2016 benchmark by 2,220inmates. However, 201516 presents extraordinary
challenges and uncertainties for the state prisonsystem.
The Governors Budget assumed no reduction to the use of 9,000 outofstate contract
beds, andthe fall projections assumed an average daily population reduction of 1,900
inmates in 201516 related to the Safe Neighborhoods and Schools Act (Proposition47).
Additionally, theGovernors Budget assumed the activation of three prison infill projects
by February2016, which would increase the institution capacity by 3,267. However,
there continues to be risk associated with this assumption as the timeline assumes an
aggressive construction schedule, andthe state is required to meet and confer with
plaintiffs regarding how the infill beds will be counted towardcapacity.
Compared with the Governors Budget, spring population projections show an average
daily population reduction of approximately 5,100 inmates in 201516. Thissignificant
decline is driven primarily by revised Proposition47 estimates showing that the measure
is impacting the prison population sooner than expected in the GovernorsBudget. Given
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Public Safety
the magnitude of the projected population decline, andthe need to maintain sufficient
capacity compared with the final population cap of 137.5percent, theAdministration has
developed a revised contract bed plan for the MayRevision that focuses on reducing the
use of outofstate contractbeds.
The MayRevision includes savings of $73.3million GeneralFund in 201516 tied to the
reduction of approximately 4,000 outofstate contract beds by June2016. Thereduction
assumes vacating two outofstate facilities and reducing use of other outofstate
facilities to achieve a 2,700bed reduction by December2015 and a further 1,300bed
reduction by June2016.
Further reductions to the use of outofstate beds beyond 4,000 in 201516 could
jeopardize ongoing compliance with the 137.5percent population cap, asthe total inmate
population is projected to increase in 201617 andongoing. Based on this planned
reduction and current population trends, byearly 201718, CDCRs inmate population
could be above the targeted capacity and impact compliance with the courtordered
populationcap. Moreover, since multiple population reduction measures are in early
implementation stages, there is significant uncertainty with the overall populationtrends.
Forexample, thepopulation projections assume an average daily population reduction
of approximately 1,300 inmates in 201516 resulting from the new parole determination
process for nonviolent secondstrikers, anda reduction of another 4,600 inmates due to
the impacts of Proposition47.
Recognizing the extraordinary uncertainties within the current population trends,
theAdministration will develop for the 201617 Governors Budget a longterm plan
which, among other issues, takes intoaccount:

CDCRs growing population trends, housing limitations, andrehabilitation goals;
any use of contract beds on an ongoing basis, including instate contract beds,
outofstate contract beds, andthe leasing of the California City correctional facility;
a permanent solution for the decaying infrastructure of the California Rehabilitation

Center;
the need for durable population reductions to stay below 137.5percent of design
capacity, suchas the current, courtordered population reduction measures; and
the impact of populationreduction measures on firecamps.

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49
Public Safety

Adult Population Adjustment Adecrease of $21.3million GeneralFund in

201415 and $108.5million GeneralFund in 201516 for adult inmate and parole
populationchanges. Therevised average daily population projections for adult
inmates are 133,451 in the current year and 127,990 in the budget year, adecrease
of 1,535 and 5,119 inmates,respectively. Therevised average daily parolee
population projection is 44,073 in the current year and 44,570 in the budget year,
anincrease of 847 and 4,103 parolees,respectively.
Juvenile Population Adjustment Adecrease of $494,000 GeneralFund in

201415 and $2million GeneralFund in 201516 for juvenile populationadjustments.
Therevised average daily population projections for wards are 683 in the current year
and 677 in the budget year, which is a decrease of 2 wards in the current year and 32
wards in the budgetyear.
Hepatitis C Treatment Anincrease of $51.8million GeneralFund in 201415

and $60.6million GeneralFund in 201516 to treat inmates with new Hepatitis
Ctreatments. Atthe Governors Budget, thisfunding was carried in the statewide
setaside for highcost medications pending coordination of a working group on a
statewide approach to highcostmedications. TheMayRevision allocates increases
to the affectedbudgets.
Community Corrections Performance

Incentive Grant
The Community Corrections Performance Incentive Grant, Chapter608, Statutes of 2009
(SB678), wascreated to provide incentives for counties to reduce the number of felony
probationers sent to stateprison. Thisperformancebased funding has been provided to
county probation departments when they successfully reduce the number of adult felony
probationers going to stateprison. TheMayRevision proposes to update the SB678
funding formula to include all types of local felony supervision, refocus this grant on local
supervision admissions to state prison, andreward counties pastsuccess. Theintent of
this revision is to preserve past successes and encourage county probation departments
to continue to decrease the number of individuals sent to stateprison. Withthe revision
of this formula, theMayRevision proposes to augment this grant program by $1.1million
for a total of $125.8million in 201516.
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Public Safety
County probation departments oversee three types of local felonysupervision: probation,

Mandatory Supervision and Post Release CommunitySupervision. Felons on probation
that have committed a prisoneligible crime can be admitted to state prison under
twocircumstances: (1) their probation is revoked for a technical violation of the terms
of their probation or (2) theycommit a new prisoneligiblecrime. Felons on Mandatory
Supervision and Post Release Community Supervision can be sentenced to state prison
only if they commit a new prisoneligiblecrime. In2014, 10percent of all state prison
admissions were due to technical violations of probation, while 18percent of all state
prison admissions were due to new prisoneligible crimes committed by felons on
localsupervision.
The proposed formula will provide incentive funding to counties that decrease their
state prison admissions below a 2013baseline. Reductions in state prison admissions
for new crimes for individuals on felony probation, Mandatory Supervision and Post
Release Community Supervision will be funded at 50percent of the states estimated
contract bed rate per offender, while reductions in state prison admissions for technical
revocations by felony probationers will be funded at 75percent of the states estimated
contract bed rate peroffender. Additionally, counties with a state prison admission rate
50percent below the state average will receive a highperformancegrant. Thefocus on
technical revocations provides incentives to keep felons on probation in programs and
out of stateprison. Lastly, theformula adds a past performance allocation for counties
which is equal to 60percent of the average of the highest two years of pastpayments.
Providing an element of stable funding will allow counties to continue programs that
produced this past success, while also allowing counties to commit funding to ongoing
strategies to continue to reduce their admissions to stateprison.
The funding from the SB678 grant program over the past four years has been an
important component to reducing the state prisonpopulation. While Californias criminal
justice system is still undergoing systemic changes, preserving proven population
reduction programs like SB678 is key to a durable solution for the state to maintain
compliance with the courtordered population cap of 137.5percent of designcapacity.
Amnesty Program
The Governors Budget included an 18month amnesty program that authorizes
individuals with past due courtordered debt owed prior to January1, 2013, relating to
traffic infractions, topay outstanding delinquent debt at a 50percent reduction if the
individual meets specified eligibilitycriteria. Overall, theamnesty program is estimated

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Public Safety
to generate $150million, which will help avoid structural deficits within many of the eight
special funds supported by the State PenaltyFund. Approximately $12million of the
$150million is expected to be deposited in the State PenaltyFund.
The MayRevision updates the Administrations proposed amnesty program by allowing
individuals whose driver licenses have been suspended due to Failure To Appear
or Failure To Pay related to traffic offenses to reinstate their licenses as part of the
programsothey can legally get to work and make their agreed upon payments to
theCourt. These individuals would agree to either make one payment or sign up for
a payment plan, supported by a wage garnishment agreement in the event that the
individual fails to make apayment. Inaddition, the$300 courtimposed assessment fee
pursuant to the Penal Code will be waived for the purposes of the amnesty program
and replaced by a $50 amnesty administrative fee for the courts to recover their costs of
running theprogram.
Commission on Peace Officer Standards and Training

The Commission on Peace Officer Standards and Trainings main funding source is the
Peace Officers Training Fund, which receives the majority of its revenue from the State
PenaltyFund. TheCommissions budget can be categorized into three mainareas:
administration, contracts for training courses, andreimbursement of trainingcosts.
InJanuary2014, dueto declining revenues, theCommission instituted an 18month
reduction plan that relied heavily on reducing the reimbursement of training costs
provided to local law enforcement agencies that attendtraining. Thelimitedterm
reduction plan also includes smaller reductions to training course contracts, aswell as
some workshops and seminars conducted by theCommission.
Because the Commissions reduction plan was limited term and revenues from the
State Penalty Fund continued to decline, theGovernors Budget included a reduction
of $5.2million to the Commissions administrativecosts. Thisreduction, coupled with
the proposed delinquentdebt amnesty program, wasa placeholder to cover a revenue
shortfall in the Peace Officers Training Fund in 201516.
The MayRevision refines the proposal by reducing administrative costs ($800,000);
slightly increasing the current reduction of contracted, nonmandated training
courses ($1.9million); andcontinuing the suspension of reimbursements for local
law enforcement to backfill behind officers participating in training ($2.5million).
Theproposed reduction should not further impact the current training services offered,
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Public Safety
asit is a continuation of existing reductions or reduced level ofservices. Theproposed

reduction, coupled with the delinquentdebt amnesty program, willallow the
Commission to reinstate reimbursement of travel and per diem costs of approximately
$4.4millionareimbursement that has been suspended since January2014 which will
help reduce the cost of training for local law enforcementagencies.

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53
Emergency DroughtResponse
he State of California has experienced four consecutive years of belowaverage

rain and snow, andis currently facing severe drought conditions in all 58counties.
Themost recent surveys recorded the statewide average snowpack, which is the
source for onethird of the states water, atjust 2percent of the normalaverage.
Water supplies at the states largest reservoirs, aswell as groundwater aquifers,
aresignificantlydepleted. Asa result, drinking water supplies are at risk in some
communities, agricultural areas face increased unemployment, dryconditions
create higher risks for wildfires, andimportant environmental habitats have already
beendegraded.
The states emergency drought response is strategically guided by accelerating several of
the key actions in the California Water Action Plan that will provide longterm benefits for
thestate.
$1.9billion for Drought Relief

and Water Infrastructure
Since the Governor first declared a state of emergency in January2014,
theAdministration has worked with the Legislature to appropriate approximately
$1.9billion to assist droughtimpacted communities and provide additional resources for
critical water infrastructure projects,including:

pTM5Aif3Jb
55
$660million Proposition1E bond funds for the Department of Water Resources

(DWR) tosupport flood protection in urban and rural areas and to make the states
infrastructure more resilient to climate change and floodevents.
$472.5million Proposition84 bond funds for the DWR to provide infrastructure

grants for local and regional projects that increase local water supply reliability
by recapturing stormwater, expanding the use and distribution of recycled water,
enhancing the management and recharge of groundwater storage, andstrengthening
water conservationefforts.
$268million Proposition1 bond funds, recently approved by the voters in 2014,

forthe State Water Resources Control Board (WaterBoard) toprovide grants for safe
drinking water and water recyclingprojects.
$53.8million GeneralFund for the Department of Forestry and Fire Protection to

enhance the states firefighter surge capacity, retain seasonal firefighters beyond the
budgeted fire season, andenhance air attack capabilities to suppresswildfires.
$50million Cap and Trade funds for the DWR to support state and local water use
efficiency projects that save energy and reduce greenhouse gasemissions.
$47.3million GeneralFund for the Department of Social Services to provide food

assistance to those impacted by thedrought.
$35million GeneralFund and special funds for the Water Board to provide grants for
emergency drinking waterprojects.
$20million Cap and Trade funds for the California Department of Food and
Agriculture to invest in irrigation and water pumping systems that reduce water use,
energy use, andgreenhouse gasemissions.
Governors Recent Executive Order

On April1, 2015, forthe first time in state history, theGovernor ordered statewide
mandatory waterreductions. Specifically, Executive Order B2915 directs the Water
Board to reduce potable urban water use by 25percentstatewide. TheWater Board
adopted a regulation in early May which is equitable, achievable, andenforceable for
every urban water supplier, andis designed to be implemented quickly to maximize water
conservation during the upcoming summermonths.
56

pTM5Aif3Jb
In addition, theExecutive Order identifies actions to save water, increase enforcement to

prevent wasteful water use, streamline the states drought response and invest in new
technologies that will make California more droughtresilient. Specifically, theExecutive
Order does thefollowing:

Simplifies the review and approval process for voluntary water transfers and
emergency drinking waterprojects.
Prioritizes state review and decisionmaking of new water infrastructureprojects.
Requires agricultural water users to report more water use information, increasing
the state's ability to enforce against illegal diversions, waste and unreasonable use
ofwater.
Requires landscapes for new homes and developments to be highly water efficient,
andbans watering of ornamental grass on public streetmedians.
Encourages local water agencies to adjust their rate structures to implement

conservation pricing, recognized as an effective way to realize water reductions and
discourage waterwaste.
The Executive Order is the fifth order that the Governor has issued since January2014 to
direct emergency droughtresponse.
Emergency Salinity Barrier in the Delta

Faced with potentially insufficient water supplies to prevent salinity intrusion into
the SacramentoSanJoaquin Delta, theDWR, inconsultation with federal and state
water and wildlife agencies, hasinitiated installation of an emergency, temporary rock
barrier across West False River in theDelta. Thetemporary barrier will physically
slow the tidal push of saltwater from the SanFrancisco Bay into the central Delta
and help prevent contamination of water quality for municipal, industrial, agricultural
and environmentalneeds. Thebarrier will also help preserve freshwater in upstream
reservoirs that otherwise would have to be released to repelsaltwater.
The barrier will help prevent saltwater contamination of water supplies for the people
who live in the Delta; ContraCosta, Alameda, andSantaClara counties; aswell as the
25million people and threemillion acres of irrigated agriculture that depend upon the
Deltabased federal and state water projects for some of their watersupplies.

pTM5Aif3Jb
57
This barrier must be removed in November to avoid the flood season and prevent harm to
migratoryfish. TheMayRevision includes $22million GeneralFund for the removal of the
temporarybarriers.
Additional Proposed BudgetActions

The MayRevision includes an additional $2.2billion of onetime resources for 201516
to continue immediate response to droughtimpacts. Thisadditional funding is proposed
in the wake of a very dry winter as the state continues to suffer from a drought of
uncertainduration. Theacceleration of spending from Proposition1 combined with
new dollars from the GeneralFund and Cap and Trade reflects the Administrations
commitment to move quickly in responding to thedrought. Thestate must remain
nimble in addressing the state ofemergency. Funds should be spent as expeditiously
as possible, while recognizing that in some cases grant recipients need sufficient time
to develop appropriate plans and local matches for the statefunds. FigureDRT01
summarizes thisfunding.
Protecting and Expanding Local Water Supplies

In November2014, thevoters approved Proposition1, which provides $7.5billion in
bonds for water storage, water quality, flood protection, andwatershed protection and
restorationprojects. Inan effort to accelerate the implementation of water infrastructure
projects statewide, theMayRevision includes $1.8billion Proposition1 funds for the
followingprograms:

$1.7billion, available over the next three years, forthe following Water
Boardprograms:
58
Groundwater Contamination $784million for projects that prevent or clean up

the contamination of groundwater that serves as a source of drinkingwater.
Water Recycling $475million for water recycling and advanced treatment
projects to enhance local water supplyresiliency.
Safe Drinking Water $180million for projects, withpriority given to small
systems in disadvantaged communities, which help to provide clean, safeand
reliable drinkingwater.
Wastewater Treatment Projects $160million for small communities to build or
upgrade their wastewater systems to meet currentstandards.

pTM5Aif3Jb
Figure DRT-01

Investment
Category
May
Revision
Fund Source
Groundwater Contamination
$784.0
Proposition 1
Water Recycling
$475.0
Proposition 1
Safe Drinking Water in

Disadvantaged Communities
$180.0
Proposition 1
$160.0
Proposition 1
$100.0
Proposition 1
Department of Water Resources* Groundwater Sustainability
$60.0
Proposition 1
Department of Water Resources* Desalination Projects
$50.0
Proposition 1
Department of Water
Urban Water Conservation
Resources*/Energy Commission
$104.0
Proposition 1/
Cap and Trade
Department of Water
Agricultural Water
Resources*/Department of Food
Conservation
and Agriculture
$75.0
Proposition 1/
Cap and Trade
Department of Water
Resources/Energy Commission
Make Water Conservation a

Way of Life
$43.0
Proposition 1/
Cap and Trade
Department of General Services
Water Conservation at State

Facilities
$23.4
General Fund/
Special Funds
Department of Forestry and Fire

Protection**
Enhanced Fire Protection
$61.8
General Fund
Office of Emergency Services
California Disaster Assistance

Act
$22.2
General Fund
Department of Water Resources
Removal of Emergency
Salinity Barriers in the Delta
$22.0
General Fund
Department of Community
Services and Development
Farmworker Assistance
$7.5
General Fund
Department of Housing and

Community Development
Rental Relocation Assistance
$6.0
General Fund
Water Board
Executive Order
Implementation
$1.4
General Fund
Department
Program
Water Board
Water Board
Water Board
Protecting and
Expanding
Water Board
Local Water
Water Board
Supplies
Water
Conservation
Emergency
Response
Wastewater Treatment
Projects
Stormwater Management
Total
$2,175
* Amounts include funding proposed in Governor's Budget and additional funding in May Revision.
** Proposed in the Governor's Budget

pTM5Aif3Jb
59
Stormwater Management $100million for multibenefit stormwater

management projects that also contribute to local watersupplies.
$110million for the following DWRprograms:
Groundwater Sustainability $60million to support local groundwater

planningefforts. Ofthis amount, $50million is available over the next three
years for technical and direct assistance and grants to local agencies for
groundwater sustainability governance andplanning. Anadditional $10million
in immediate funding will be dedicated to counties with stressed groundwater
basins to update or develop local ordinances and plans that protect basins and
their beneficial users and help facilitate basinwide sustainable groundwater
management under the Sustainable Groundwater Management Act,
incoordination with other local watermanagers.
Desalination Projects $50million, available over the next two years, toassist
local agencies to develop new local water supplies through the construction of
brackish water and ocean water desalinationprojects.
Water Conservation
The MayRevision includes $245million to fund programs and projects that save
water,including:

$104million for the following urban water conservationprograms:
60
$43million ($30million Cap and Trade funds for the Energy Commission and
$13million Proposition1 funds forDWR) toimplement consumer rebate
programs for the replacement of inefficient water consuming appliances,
including dishwashers and toilets, tosave water and energy and reduce
greenhouse gas emissions, consistent with the April1 ExecutiveOrder.
$27million Proposition1 funds to replace lawns in underserved communities
throughout the state with water efficient landscaping, consistent with the April1
ExecutiveOrder.
$20million Cap and Trade funds for the DWR Water Energy Grant Program to
reduce energy demand and greenhouse gas emissions through local projects
that also support water use efficiency andconservation.

pTM5Aif3Jb
$10million Proposition1 funds to implement the CalConserve Program, which

will enable homeowners and businesses to finance waterefficiency upgrades
through a revolvingloanprogram.
$4million GeneralFund to augment the Save Our Water campaign to target the
states largest residential water users with focused information to reduce their
waterusage.
$75million ($40million Cap and Trade funds and $35million Proposition1funds)

foragricultural water efficiencyprograms. These additional resources will enable the
Department of Food and Agriculture and DWR to provide incentives to agricultural
operations to invest in water irrigation technologies that reduce water and energy
use, andgreenhouse gasemissions. Tofacilitate implementation of the agricultural
water conservation measures, thePublic Utilities Commission will create a process
to resolve interconnection disputes and allow distributed generation projects that
save water and energy to move forward morequickly.
$43million for activities that will integrate water conservation into residents
lifestyles, consistent with the Water Action Plan,including:
$30million Cap and Trade funds to begin implementation of the Water Energy
Technology Program, consistent with April1 Executive Order, toprovide funding
for innovative technologies that (1) display significant water and energy savings,
which also reduce greenhouse gas emissions, (2) demonstrate actual operation
beyond the research and development stage, and(3) document readiness for
rapid, large scale deployment inCalifornia.
$13million Proposition1 funds for the DWR to provide technical assistance,
datacollection, andapplied research that supports longterm water use
efficiency in urban and agriculturalsectors.
$23million, including $10million GeneralFund, forwater conservation projects at

statefacilities. Asurban and agricultural water users across the state are reducing
their water use, itis critical that state facilities continue to reduce wateruse.
Thisproposal will provide additional funds to implement indoor and outdoor water
conservation measures at statefacilities.

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61
Emergency Response
The MayRevision includes $37.1million GeneralFund to assist droughtimpacted
communities and enforce water use restrictions,including:

$22.2million GeneralFund for the Office of Emergency Services to support local

jurisdictions using the California Disaster Assistance Act program for approved
droughtrelated projects, including, butnot limited to, restoring and replacing public
infrastructure that sustained droughtrelated damages, andemergency protective
measures such as delivering water to individuals without drinking or potablewater.
$7.5million GeneralFund for the Department of Community Services Development

to provide emergency assistance to unemployed farmworkers, including job training
andassistance.
$6million GeneralFund for the Department of Housing and Community

Development to assist or relocate households without potable water sources due
todrought.
$1.4million GeneralFund for the Water Board to increase enforcement of water

use restrictions and conduct additional inspections of diversion facilities to verify
compliance with water rightslaws.
Additional Local Enforcement Authority

The MayRevision proposes legislation to enhance local enforcement authority
by providing all water agencies and local governments a consistent, minimum set
of enforcement authorities to achieve required waterconservation. Local water
agencies with existing authorities to enforce against water waste can continue to use
thoseauthorities. Under this proposed legislation, anymonetary penalties from this
enforcement will be used for local conservationefforts. Specifically, itallows penalties
to be issued administratively by wholesale and retail water agencies, aswell as city and
county governments, andenables these entities to enforce local water waste restrictions
and Water Board conservationrestrictions.
62

pTM5Aif3Jb
Cap and Trade Expenditure Plan
Cap and Trade ExpenditurePlan
he California Global Warming Solutions Act of 2006 (AB32) established California as

a global leader in reducing greenhouse gas emissions (GHGs). Tomeet the goals of
AB32, thestate has adopted a threepronged approach to reducingemissions: adopting
standards and regulations, providing emission reduction incentives via grant programs,
andestablishing a marketbased compliance mechanism known as Cap andTrade.
TheCap and Trade program sets a statewide limit on the GHG sources responsible for
85percent of CaliforniaGHGs. Through an auction, itestablishes a financial incentive for
industries subject to the statewide cap to make longterm investments in cleaner fuels,
moreefficient energy use, andtransformational technological and scientificinnovations.
TheCap and Trade program provides GHG emitters the flexibility to implement the most
efficient options to reduceGHGs. Based on the first update to the Climate Change
Scoping Plan, theCap and Trade program will be responsible for approximately 30percent
of the required GHG reductions to meet the AB32 goal of reducing GHGs to 1990 levels
by 2020. Aportion of the auction proceeds generated from the sale of allowances are
available to the state forexpenditure.
2030 Greenhouse Gas Emission Reduction Goal

California is already experiencing impacts from climate change, suchas more severe
wildfires, alonger fire season, moreextreme heat days, andsealevelrise. Thestate
is also facing the fourth year of prolonged and serious drought conditions made worse
by the effects of climatechange. Californias residents, especially those in areas

pTM5Aif3Jb
63
disproportionately affected by changes in the environment, contend with higher average

temperatures exacerbated by urban heat islands, smoke from wildfires, anddiminishing
watersupply.
Understanding Californias role in reducing GHGs to mitigate climate change and
protecting the states residents and economy from a changing climate, theGovernor
issued Executive Order B3015 establishing a GHG reduction target of 40percent
below 1990 levels by 2030. Along with this target themost ambitious in North
AmericatheGovernor also required state agencies to incorporate climate resiliency
into planning and funding decisions to protect the States resources from Californias
changingclimate. Tomeet the GHG reduction target specified in the Executive Order,
theAdministration is pursuing policies that by 2030:

Increase electricity derived from renewable resources to 50percent.
Reduce petroleum use in cars and trucks by up to 50percent.
Double energy efficiency achieved at existing buildings, andmake heating

fuelscleaner.
Reduce the release of shortlived climate pollutants, suchas methane and

blackcarbon.
Increase carbon sequestration on farms and rangelands, andin forests andwetlands.
The MayRevision supports the Governors 2030 GHG reduction target by including
a $2.2billion Cap and Trade Expenditure Plan that will further reduce emissions
by providing additional resources for clean transportation and mass transit, energy
efficiency and renewable energy, waste reduction, andecosystem restorationprograms.
(seeFigureCAP01). Eachadministering agency will utilize a public process to
engage stakeholders in the development and implementation of theprograms.
Theincreased resources in the plan reflect a revised auction proceed estimate, aswell
as the establishment of a prudent reserve to account for potential volatility in future
auctionproceeds.
Specifically, theincreased proceeds result in a total of $1.6billion for clean transportation,
masstransit and sustainable communitydevelopment. These resources will provide a
significant investment towards meeting the 2030goals. Seethe Transportation chapter
for moredetail.
64

pTM5Aif3Jb
Figure CAP-01
2015-16 Cap and Trade Expenditure Plan

Investment
Category
Department
Program
High-Speed Rail Authority
High-Speed Rail Project

Low Carbon Transit
Operations Program
Transit and Intercity Rail
Capital Program
Affordable Housing and
Sustainable Communities
Program
Air Resources Board
Low Carbon Transportation
Department of Community
Services and Development
Total
$250
$250
$500
$50
$50
$100
$100
$165
$265
$200
$200
$400
$200
$150
$350
Energy Efficiency
Upgrades/Weatherization
$75
$65
$140
Department of General
Services *
Energy Efficiency for Public

Buildings
$20
$20
$40
University of California/
California State University
Renewable Energy and

Energy Efficiency Projects
$0
$60
$60
Department of Water
Resources/Department of
Food and Agriculture
Water and Energy

Efficiency
($30)
$60
$60
Energy Commission/
Department of Water
Resources
Drought Executive Order Rebates for Appliances
$0
$30
$30
Energy Commission/
Department of Water
Resources
Drought Executive Order Water and Energy

Technology Program
$0
$30
$30
Department of Food and

Agriculture
Agricultural Energy and

Operational Efficiency
$5
$20
$25
Wetlands and Watershed

Restoration
$25
$40
$65
Forest Health
$42
$50
$92
Healthy Soils
$0
$20
$20
$35
$60
State Transit Assistance

Sustainable
Communities Transportation Agency
and Clean
Transportation Strategic Growth Council
Energy
Efficiency and
Clean Energy
Jan 10/
Accelerated
May
Drought
Revision
Department of Fish and

Wildlife
Department of Forestry and
Natural
Resources and Fire Protection
Waste Diversion Department of Food and
Agriculture
Cal Recycle
Total
Waste Diversion
$25
$992
$1,245 $2,237
* Shifts administration of Green Buildings and $20 million from the current year from Energy Commission to Department of
General Services.

pTM5Aif3Jb
65
The Expenditure Plan is consistent with the 2013 Cap and Trade Auction Proceeds
Investment Plan and Chapter830, Statutes of 2012 (SB535). Through investment
in the programs identified in the Expenditure Plan, thestate will meet the SB535
disadvantaged communitytargets. TheMayRevision also includes additional resources
to expand the assistance available to disadvantaged communities to increase program
awareness, access to funding, andparticipation.
In addition to reducing GHGs, theprograms and projects funded by the Cap and Trade
Expenditure Plan also support the following several other priority statewideinitiatives.
Energy and Water Conservation in the Fourth

Year of the Statewide Drought
California is experiencing the fourth consecutive year of belowaverage rain and snow,
andis currently facing severe drought conditionsstatewide. Water levels in the states
reservoirs are depleted, thestates rivers are experiencing reduced flows, andrecent
surveys have recorded Sierra Nevada snowpack at recordlows. Foradditional information
on droughtrelated expenditures, seethe Emergency Drought Responsechapter.
The Cap and Trade Expenditure Plan includes an additional $128million for the following
programs that will reduce GHGs by saving energy through waterconservation:
66
$40million for the California Department of Food and Agricultures existing State
Water Efficiency and Enhancement Program to provide incentives to agricultural
operations to invest in energyefficient irrigation technologies that reduce wateruse.
$30million for the Energy Commission to begin implementation of the Water Energy
Technology Program to provide funding for innovative technologies that (1) display
significant energy and water savings, (2) demonstrate actual operation beyond the
research and development stage, and(3) document readiness for rapid, largescale
deployment inCalifornia.
$30million for the Energy Commission to implement a consumer rebate program

for the replacement of energyinefficient waterconsuming appliances, suchas
dishwashers and washingmachines.
$20million for the Department of Water Resources existing Water Energy Grant
Program to reduce energy demand and GHGs through local projects that also
support water use efficiency andconservation.
$8million for the Department of General Services for projects that will reduce energy
use through water conservation at state prisons located in the CentralValley.

pTM5Aif3Jb
Wetland Carbon Sequestration Water Action

Plan and California EcoRestore
The Water Action Plan, acomprehensive fiveyear water infrastructure and management
strategy to support sustainable water management, includes actions to protect and
restore importantecosystems. TheWater Action Plan identified several specific action
items to achieve the coequal goals of water supply reliability and ecosystem restoration
for the Delta, including the implementation of nearterm Delta improvementprojects.
TheAdministration is implementing the California EcoRestore program to accelerate
habitat restoration projects that support the longterm health of the Deltas native fish
and wildlifespecies. Specifically, CalEcoRestore will protect and restore at least 30,000
acres of wetlands, tidal habitat and floodplains; improve fish passage in the Yolo Bypass;
andprioritize restoration projects supported by localcommunities.
In addition to these ecosystem benefits, wetland protection and restoration increases
carbonsequestration. TheCap and Trade Expenditure Plan supports these Cal
EcoRestore restoration efforts identified in the Water Action Plan with an additional
$40million for Delta wetland restorationprojects.
Energy Efficiency in Higher Education

The states universities are working towards reducing GHGs at allcampuses. Toward
that end, theCap and Trade Expenditure Plan provides $35million to the California State
University system and $25million to the University ofCalifornia. This$60million will fund
renewable energy and energy efficiency projects throughout bothsystems.
CarbonRich Healthy Soils Initiative

As the leading agricultural state in the nation, itis important for Californias soils to be
sustainable and resilient to climatechange. Increased carbon in soils is responsible for
numerous benefits including increased water holding capacity, increased crop yields and
decreased sedimenterosion. TheCap and Trade Expenditure Plan includes $20million to
support demonstration projects that increase carbon insoil.

pTM5Aif3Jb
67
Transportation
Transportation
he Transportation Agency is responsible for developing and coordinating the policies

and programs of the states transportation entities to improve the mobility, safety,
andenvironmental sustainability of Californias transportationsystem.
The Department of Transportation (Caltrans) designs and oversees the construction

of state highways, operates and maintains the highway system, funds three intercity
passenger rail routes, andprovides funding for local transportationprojects. Caltrans
maintains 50,000 highway lane miles and nearly 13,000stateowned bridges,
andinspects more than 400 publicuse and specialuse airports andheliports. California
continues to face considerable challenges in its ability to fund critical maintenance and
repair of its core transportation infrastructure state highways, local roads, andbridges.
During the last decade, transportation investments were directed primarily to decreasing
traffic congestion, expediting goods movement, funding local streets and roads projects,
andincreasing transit facilities (see FigureTRN01). Although the repair, maintenance,
andefficient operation of the states highway system is vital to Californias continued
economic growth, these aspects have largely been overlooked and current resources
do not provide enough funding to support annual maintenance and repair needs of this
vastsystem. Ofthe $8billion in annual highway repair needs, thecurrent fuel excise tax
revenues are only sufficient to fund $2.3billion, leaving $5.7billion in unfunded repairs
each year based on the latest estimate of the states deferredmaintenance.

pTM5Aif3Jb
69
Transportation
Figure TRN-01
Allocation of State Transportation Project Funding

(Dollars in Billions)
$20
Highway Repairs
$18
Trade
Corridors
& Capacity
$16
$14
$12
$10
$8
$6
$4
$2
$0
Local
Projects
Highway Repairs
Trade Corridors
& Capacity
Local
Projects*
State & Local

Transit
Highway Repairs
Local
Projects
State & Local

Transit
State & Local

Transit
State & Local

Transit*
Debt Service
Air Quality/
Other
Annual Project Funding
Proposition 1B (2006)
Proposition 1A (2008)
Federal Stimulus/One-Time
*Does not include $3.8 billion in local sales tax measure revenues.
Efforts at converting California vehicles to sustainable fuel sources, andmaking

vehicles more fuelefficient, havecontinued to reduce greenhouse gasemissions.
However, oneconsequence of this success is lower longterm fuel excise tax
revenues thestates primary source of funding for the maintenance and repair of
its transportationinfrastructure. While the state is accelerating the pilot program to
explore a potential mileagebased revenue collection system, orRoad Usage Charge,
implementation of a broader statewide program is not likely for a number ofyears.
The California Transportation Infrastructure Priorities workgroup, convened by the
Transportation Agency, continues to meet to prioritize transportation investments and
explore payasyou go funding alternatives to address the states infrastructureneeds.
TheAdministration is also working with the Legislature on its proposals in an effort to
develop a funding package by yearend.
In considering new funding sources, thestate must focus on the priorities that are the
states core responsibility maintaining and operating the states network of highways
and interstates, andimproving the highest priority freightcorridors. Funding should
70

pTM5Aif3Jb
Transportation
come from payasyougo transportation user fees, andbe sustainable as gasoline

consumptionfalls. Anysolution for addressing the longterm needs of the states highway
system must reflect the states economic development and environmental objectives,
focus on repair and maintenance, invest in trade corridors, andcomplement local
efforts that generate revenues forroads. Anynew funding generated should also have
performance objectives measured by thepercentage of pavement, bridges, andculverts
in goodcondition.
Though ongoing funding for roads and highways has not increased substantially in
recent years, Capand Trade proceeds provided for a significant investment in clean
transportation and mass transit beginning in 201415. TheCap and Trade funding plan
also provides an ongoing share of annual revenues setting aside a total of 60percent
for public transportation, active transportation, andhousing. TheMayRevision provides
a total of $1.6billion for public transit, highspeed rail, andsustainable community
development in 201516 asfollows:

Transit Operations $100million for transit operations in the Low Carbon Transit
OperationsProgram.
Transit Capital $265million for rail and transit in the Transit and Intercity Rail
CapitalProgram.
Affordable Housing, Transit, andActive Transportation $400million for projects in

the Affordable Housing and Sustainable CommunitiesProgram.
HighSpeed Rail $500million for Californias highspeed railsystem.
Low Carbon Transportation $350million for Air Resources Board clean

transportationprograms.

pTM5Aif3Jb
71
he California Environmental Protection Agency works to restore, protect,

andenhance environmentalquality. TheAgency coordinates state environmental
regulatory programs and promotes fair and consistent enforcement of environmentallaw.
The MayRevision includes total funding of $4.7billion ($72.9million GeneralFund) forall
programs included in theAgency.
State Water Resources Control Board

The State Water Resources Control Board and the nine Regional Water Quality Control
Boards preserve and enhance the quality of California water resources, andprotect the
proper allocation and effective use of statewater.

Bay Delta Water Quality Control Plan Anincrease of $7.8million ($3.7million

GeneralFund and $4.1 Water RightsFund) and 16positions to complete the
comprehensive update of the Bay Delta Water Quality ControlPlan. TheWater
Action Plan, acomprehensive fiveyear water infrastructure and management
strategy to support sustainable water management, identified the update of the
Bay Delta Water Quality ControlPlan. Thisproposal will develop flow criteria and an
adaptive management framework that identifies water quality objectives needed to

pTM5Aif3Jb
73
protect and balance competing uses of water, including municipal and agricultural
supply, hydropower, fishery protection, andrecreationaluses.
Department of Toxic Substances Control

The Department of Toxic Substances Control protects California residents and the
environment from the harmful effects of toxic substances by restoring contaminated
properties, enforcing hazardous waste laws, reducing hazardous waste generation,
andencouraging the manufacture of chemicallysaferproducts.
The Department continues to make progress in implementing reforms initiated in
its Fixing the Foundation initiative, which is designed to improve the efficiency
and effectiveness of cleanup, permitting, enforcement, andsafer consumer
productsprograms. Akey component of this effort is to enforce compliance with
Californias hazardous waste laws to prevent harm to public health and the environment,
particularly in disproportionally impactedcommunities. TheMayRevision proposes
additional resources to improve the Departments hazardous waste enforcementefforts.
74
Improving Hazardous Waste Enforcement Program Performance Anincrease of

$1.4million Toxic Substances Control Account annually for two years to improve
the efficiency and effectiveness of the hazardous waste enforcement program and
conduct a statewide communityassessment.
Enhanced Enforcement Initiative Anincrease of $2.1million from various special

funds annually for three years to implement and evaluate approaches to address
serious environmental violations that occur in Californias most disproportionally
impactedcommunities. Thisproposal will focus inspection and enforcement
resources on metal recycling and hazardous waste transportationactivities.

pTM5Aif3Jb
Natural Resources
Natural Resources
he Natural Resources Agency consists of 26 departments, boards, commissions,

andconservancies responsible for administering programs to conserve, protect,
restore, andenhance the natural, historical, andcultural resources ofCalifornia.
TheMayRevision includes total funding of $8.7billion ($2.5billion GeneralFund) forall
programs included in thisAgency.
California Conservation Corps

The California Conservation Corps was established in 1976 by Governor Brown to provide
young women and men the opportunity to work on conservation projects and respond to
naturaldisasters. TheCorps builds trails, plants trees, andimplements clean energy and
water conservationprojects. TheCorps currently serves approximately 1,622 members,
including over 500 who live in residentialfacilities.

Forest Health Improvement Projects TheDepartment of Forestry and Fire

Protection (CALFIRE) willpartner with the Corps on forest health projects that will
be targeted in the highest fire risk areas of thestate. These monthslong projects
will include tent camps near the projectareas. Funding is provided in the CALFIRE
budget and approximately $5million of work will be allocated to the Corps as
projects areidentified.

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75
Natural Resources
Butte County Conservation Camp Anincrease of $3.1million GeneralFund for

CALFIRE to make necessary repairs to the Butte County fire camp that was closed in
2004. Partnering with CALFIRE, theCorps will open the Butte County Conservation
Camp as a fire camp similar to the Camarillo Camp in SouthernCalifornia. Thiswill
give the corpsmembers training in fire suppression and provide important fire
protection resources in NorthernCalifornia. Itis expected that this camp will not be
available until mid2016.
LongTerm Expansion Anincrease of $200,000 GeneralFund to begin a process

of identifying sites for additional residentialcenters. TheCorps will work with the
Department of General Services to examine sites on existing state property to
determine the feasibility of either reopening old facilities or building newones.
Salton Sea Restoration

The Salton Sea is one of the most important migratory bird flyways in North America
and is threatened with reduced inflows and increasedsalinity. TheWater Action Plan
identified the protection of key habitat of the Salton Sea as a priorityaction.
California faces significant air quality and natural resources threats with the shrinking of
the SaltonSea. Prior comprehensive plans to restore the sea are no longer feasible due
to cost and decreased water availability resulting from the drought in California and in
the southwesternstates. TheAdministration is pursuing a phased strategy to restore
the SaltonSea. Working with partners and utilizing existing funds already appropriated,
theconstruction of over 1,000 acres of habitat and dust abatement projects is scheduled
to begin in 2015. Inaddition, theAdministration has formed the Salton Sea Task Force
with principals from the Natural Resources and Environmental Protection Agencies
to develop new achievable medium and longterm restorationplans. TheTask Force
will develop these plans in coordination with stakeholders, andwill be appointing a
new position using existing resources to lead the work of the Task Force and manage
expedited construction of projects that protect both wildlife habitat and air quality at
thesea.
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Local Government
Local Government
This part of the Budget includes information related to localgovernments.
Redevelopment Agencies
Since the dissolution of Redevelopment Agencies (RDAs) in 201112, $4.2billion
in general purpose property tax revenue has been returned to cities, counties,
andspecialdistricts. These funds are available to these local governments for core
publicservices. Since 201112, K14 schools have received over $4.3billion in additional
property taxrevenue. Thishas generated a roughly commensurate amount of
Proposition98 GeneralFund savings for thestate. Through 201819, annual GeneralFund
savings of over $1billion are anticipated, andthese amounts will grow steadily over the
next three decades as the former RDAs debts are steadily repaid and property taxes in
RDA project areasgrow.
As part of the Governors Budget, theAdministration introduced trailer bill language to
simplify the current RDA dissolution process by (1) providing a pathway for permanent
dissolution with limited state oversight, (2) clarifying and refining various provisions of
the dissolution statutes where there has been perceived ambiguity (thereby making them
operate more successfully for all parties without rewarding prior questionablebehavior),
and(3) minimizing the erosion of property tax residuals being returned to affected local
taxingentities.

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77
Local Government
Over the past several months, theDepartment of Finance has met with many local
government entities to discuss the proposedlegislation. Discussions focused on how the
legislation could be amended to meet the needs of the cities and counties that formerly
operated RDAs (the sponsoringentities), while maintaining the continued orderly and
expeditious winddown of the former RDAs and minimizing the fiscal impact on the state
and other affected taxingentities.
Taking into consideration input from stakeholders, theMayRevision includes the
following substantive amendments to the proposed RDA dissolutionlegislation:
78
Findings of Completion Findings of completion provide successor agencies

with increased fiscal tools and reduced stateoversight. TheMayRevision allows
successor agencies that enter into a written payment agreement with Finance
to remit their unencumbered RDA cash assets to the county auditorcontroller to
receive a finding ofcompletion.
Stranded 2011 Bond Proceeds Forsuccessor agencies with a finding of

completion, theMayRevision establishes a tiered process whereby they may
expend a portion of these strandedproceeds. Theunused portions are to be used to
defease the outstanding bonds in accordance with currentlaw.
Property Tax Override Revenues TheMayRevision clarifies that any pension

or State Water Project override revenues pledged to RDA debt service must be
used for thatpurpose. However, ifthe override revenues were not pledged to debt
service, theywill be returned in their entirety to the entity that levies theoverride.
Furthermore, ifthe override revenues were pledged to RDA debt service, butsome
of the revenues are not needed for debt service payments, theentirety of the portion
not needed for debt service payments will be returned to the levyingentity.
Highway Infrastructure Improvements TheMayRevision allows agreements

between the former RDA and its sponsoring entity that relate to state highway
infrastructure improvements to be an enforceable obligation of the successoragency.
Litigation Expenses Clarifies that a sponsoring entity can loan money to a

successor agency for litigation expenses associated with challenging dissolution
decisions and those loaned amounts may be repaid as an enforceable obligation if
the litigation issuccessful.
Reentered Agreements Clarifies, asa result of a final court decision, thatonly

reentered agreements entered into after the passage of Chapter26, Statutes of 2012

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Local Government
(AB1484) areunauthorized and unenforceable, unless they were for the purpose of
providing administrative supportactivities.
Other Local Government Changes

During the Administrations stakeholder meetings on the RDA dissolution trailer bill,
other local government issues were raised withFinance. TheMayRevision proposes
addressing several of these longstanding issues as part of a comprehensive local
government package that includes the RDA dissolution changes discussedabove.
Thesubstantive local government amendments to be includedare:

Negative Bailout Counties After Proposition13 was passed in 1978, thestate

enacted legislation to provide relief to local governments for their lost property
tax revenue by shifting property tax revenue from schools to cities, counties,
andspecial districts, andthen backfilling the lost school revenues from the state
GeneralFund. Thestate also assumed a portion of the counties health and welfare
costs, thusfreeing up county funds for otherpurposes. Ifthe health and welfare
costs that the state assumed for a county exceed the additional property tax the
county receives from the schools, statute reduces the countys property tax revenue
by the difference thissituation is termed a negativebailout. TheMayRevision
ends negative bailout, which will provide approximately $6.9million in annual relief to
fourcounties.
Newly Incorporated Cities Fourcities in Riverside County incorporated after

2004, making them ineligible to participate in the Vehicle License Fee (VLF)
Swapmechanism. TheVLF Swap provides local agencies with property tax
revenue to replace VLF revenue they lost when the previous Administration
reduced the VLF rate from 2percent to0.65percent. While the four cities
did receive an enhanced share of the0.65percent VLF rate, thatshare was
subsequently redirected in 2011 to fund public safetyrealignment. Theloss of this
revenue has made it arduous for these contract cities to pay Riverside County for
public safety services approximately $24million is owed to RiversideCounty.
TheMayRevision proposes to absolve these cities of this onetime debt by
reducing the reimbursements Riverside County must provide to the Department of
Forestry and Fire Protection (CalFIRE) forfireservices. Riverside County will then
forgive the debt to the four cities and the GeneralFund will backfill CalFIRE for its
reducedreimbursements.

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79
Local Government
SanBenito County Beginning in 1998, theCounty of SanBenito made a series of

errors in calculating the amounts owed by local agencies to the Countys Educational
Revenue Augmentation Fund (ERAF). While the state backfilled the $4million the
schools lost due to these errors, thelocal agencies that pay into ERAF must now
reimburse the $4million to thestate. TheMayRevision allows local agencies in
SanBenito County to participate in an ERAF repayment program for which they are
currentlyineligible. Thisresults in the state forgiving approximately $3.4million of
the $4millionowed.
Tax Equity Allocations TaxEquity Allocations (TEA) provide property tax to

cities that levied little or no property tax prior to Proposition13. Under TEAs,
ashare of the property tax otherwise payable to the county is instead provided to
thecity. Currently, fourcities in SantaClara County reimburse the County ERAF
for the revenue the ERAF loses because of the TEAallocations. Thisannual ERAF
loss, which is about $2million, results from SantaClara Countys ERAF payment
calculation, which excludes the amount it provides to the cities under theTEA.
TheMayRevision ends the requirement for the cities to reimburse the County ERAF
for the TEA allocations over a fiveyearperiod.
Prior Years Insufficient ERAF Since 201112, thestate has provided backfills
to cities and counties when there is insufficient revenue in the County ERAF
to reimburse the cities and counties for their VLF Swap and TripleFlipcosts.
Backfills are generally provided two years inarrears. TheMayRevision provides
$5.8million in backfills, which includes $700,000 for shortfalls incurred in 200910
and 201112.
State Mandate Reimbursements

The Commission on State Mandates is a quasijudicial body that determines whether
local agencies and school districts are entitled to reimbursement by the state for costs
related to new or higher levels of service mandated by thestate. TheConstitution was
amended in 2004 to require the Legislature to either fund or suspend specified mandates
in the annual BudgetAct. Currently, thestate owes counties, cities, andspecial districts
$765million in mandate reimbursements for costs incurred prior to 2004 that must be
repaid by 202021 under currentlaw. Thisis down from the $800million estimated in the
Governors Budget due to updated interestcalculations.
80

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Local Government

Trigger Mechanism Update The2014 BudgetAct includes a trigger mechanism

that makes additional payments for the remaining pre2004 mandate debt if
the estimated GeneralFund revenues for 201314 and 201415 fiscal years
at the 2015 MayRevision exceed the 2014 BudgetActs estimate for those
samerevenues. Current estimates indicate the trigger mechanism calculation
will result in a total of $765million, which will fully satisfy the remaining pre2004
mandatedebt. Thisamount is $232million more than what was estimated in
the GovernorsBudget. Ofthe $765million, approximately 77percent will go
to counties, 22percent to cities, and 1percent to specialdistricts. These funds
will provide counties, cities, andspecial districts with general purposerevenue.
Itremains the Administrations expectation that local governments use these funds
for core services such as public safety, particularly to improve the implementation of
2011 Realignment and address mental health issues of localoffenders.

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81
Statewide Issues and Various Departments
Statewide Issues and

VariousDepartments
his Chapter describes items in the Budget that are statewide issues or related to
variousdepartments.
Sustaining State Health Care Benefits

The Administration continues to pursue important changes to the states health care
program for state employees and retirees through both the collective bargaining process
and legislation to address the continued escalation of premium costs and liabilities,
including a $72billion unfunded liability for retiree health care that grows every year and
will reach more than $90billion over the next fiveyears.
Recognizing the inherent unsustainability of these rising costs, which include the
pending Affordable Care Act penalty, known as the Cadillac Tax, theGovernors
Budget presented a comprehensive plan to make health care costs more affordable to
the state and, ultimately, itsemployees. Athreepronged approach was introduced to
accomplish the goal of sustaining both the affordability of state health care benefits and
the benefitsthemselves.
First, theGovernors Budget proposed partnering with state employees to share in the
prefunding of retiree benefits goingforward. Byholding these contributions in a trust
fund that earns investment income, thestate can eliminate the large unfunded liability
in about 30 years and avoid significant costs in thefuture. FigureSWE01 shows that
once the state switches from a payasyougo funding model to one that uses prefunding

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83
Figure SWE-01
$25
Annual Retiree Health Costs: Long-Term Savings

No Action
Governor's Plan
Dollars in Billions
$20
$15
$10
Long-Term
Savings
$5
$0
contributions and investment income similar to how pensions have been funded for
decades thestates annual payment for retiree health care benefits is reduced by more
than $8billion.
Second, theGovernors Budget proposed controlling costs by reducing the employer
subsidy for retiree health care for future state employees and requiring them to work
longer to qualify for retiree health carebenefits. FigureSWE01 illustrates that these
benefit changes, whencombined with the prefunding strategy, willgenerate almost
$240billion in cumulative savings over the next 50years.
Third, theAdministration has requested additional reporting requirements and
informationsharing about state employee and retiree health plans to increase oversight
of the states health care administrator theCalifornia Public Employees Retirement
System (CalPERS) andmore health plan choices for employees through adding
lowercost plans to the benefitmenu. TheAdministrations trailer bill proposal requires
state departments and CalPERS to regularly review the eligibility of dependents enrolling
in the states health care program and ensure that retirees enroll in federally subsidized
Medicare plans when they turn 65. Additionally, thetrailer bill establishes a statutory
84

pTM5Aif3Jb
standard to share prefunding costs with state employees and creates a mechanism to
hold investment income gained from prefunding contributions in a trust fund until the
retiree health care plan is fullyfunded.
Health care benefits remain an important part of the recruitment and retention strategy
for the stateworkforce. TheAdministration recognizes that employees place a high
value on these benefits as part of their total compensation package, andis discussing
these issues through the collective bargainingprocess. Asecond trailer bill concerning
retiree health benefit changes has been introduced as a placeholder pending collective
bargainingnegotiations.
Employee Compensation
The MayRevision reflects a $57million ($43million GeneralFund) increase in employee
compensation and retiree health care costs relative to the GovernorsBudget. These
additional costs are driven primarily by increases in health care premiums andenrollment.
The Administration has begun collective bargaining negotiations with four of the states
bargaining units representing correctional peace officers, engineers, scientists, andcraft
and maintenanceworkers. Eachof these units contracts with the state will expire in early
July2015.
Retirement Contributions
The MayRevision reflects the following adjustments for retirementcosts:

The expected rise in state contributions to CalPERS for pension costs has decreased
by $110million ($56million GeneralFund) relative to the GovernorsBudget.
Ofthis incremental decrease, $19million (GeneralFund) isestimated for California
StateUniversity. Thereduction reflects the impact of employees entering the
system under the reduced benefit formula, pursuant to the Public Employees
Pension Reform Act of 2013, strong investment performance, andgreater than
expected contributions to thesystem. Overall, state contributions will increase by
$338million ($204 GeneralFund) over 201415levels.
State contributions to the California State Teachers Retirement System (CalSTRS)

increased by $6.8million GeneralFund due to revised compensation figures for K12
and community collegeteachers.

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85
FigureSWE02 below provides a historical overview of contributions to CalPERS,

CalSTRS, theJudges Retirement System (JRS), theJudges Retirement System
II (JRSII), andthe Legislators Retirement System (LRS) forpension and health
carebenefits.
Figure SWE-02
State Retirement and Healthcare Contributions1

(dollars in millions)
CSU
CalPERS
CalPERS2
2006-07
CalSTRS
2,765
JRS
959
4
JRS II
LRS
Active
Health &
Retiree
Health &
Dental
Dental3
129
27
1,792
1,006
162
37
1,948
1,114
CSU
Retiree
Health
2007-08
2,999
1,623.
2008-09
3,063
1,133
189
40
2,127
1,183
2009-10
2,861
1,191
184
32
2,101
1,182
2010-11
3,230
1,200
166
54
2,277
1,387
2011-12
3,174
1,259
195
58
2,439
1,505
1,303
160
51
2,567
1,365. 5
222. 5
2012-13
2,948.
2013-14
3,269
474
1,360
188
52
2,697
1,383
225
2014-156
4,042
543
1,486
179
63
2,786
1,521
263
4,338
585
1,935
190
67
2,954
1,622
267
2015-16
449.
1/
The chart does not include contributions for University of California pension or retiree healthcare costs.
2/
In addition to the Executive Branch, this includes Judicial and Legislative Branch employees. Contributions for judges and
elected officials are included in JRS, JRS II, and LRS.
These amounts include health, dental, and vision contributions for employees within state civil service, the Judicial and
Legislative Branches, and CSU.
Includes repayment of $500 million from 2003-04 Supplemental Benefit Maintenance Account withholding/lawsuit loss
(interest payments not included).
Beginning in 2012-13, CSU pension and healthcare costs are displayed separately.
3/
4/
5/
6/
Estimated as of the 2015-16 May Revision. 2015-16 General Fund costs are estimated to be $2,281 million for CalPERS,
$584 million for CSU CalPERS, $1,617 million for Retiree Health & Dental, and $1,385 million for Active Health and Dental.
The remaining totals are all General Fund.
Civil Service System

The Administration continues to make progress in its efforts to improve the states civil
servicesystem. Currently, over 28 different teams (including state employees, public
employee representatives, andotherstakeholders) arereviewing components of the civil
service system to recommend statutory changes and practical administrative solutions to
86

pTM5Aif3Jb
streamline, improve flexibility, andmodernize programs, processes andpolicies. Several

such proposals are describedbelow.

Vacant Positions Current law includes a provision that requires the elimination
of positions, thatat the end of a fiscal year, havebeen vacant for six consecutive
months ormore. Intended as a mechanism to maintain accurate numbers of
authorized personnel, reviews by both the Legislative Analysts Office and the
Department of Finance in recent years have recommended its repeal due to its
ineffectiveness and overly bureaucraticapproach. TheMayRevision proposes
abolishing this law and replacing it with a better mechanism to provide monitoring
of and greater transparency into departmentsbudgets. Neither existing law nor
the proposed new mechanism affect how much funding a departmentreceives.
Theoverall goal is to more accurately reflect how departments spend their funds on
personnel versus operationexpenses. Tothis end, Finance will develop a biannual
process for reconciling department budgets, specifically for positions and operating
expenses andequipment. Thisreconciliation process will first take place in the
201516 budget year and the results will be utilized to build departments baseline
budgets in the 201617 GovernorsBudget. Theappropriate mix of funding between
positions and operating budgets will be based on a departments past three years of
expenditures in specifiedcategories.
LimitedTerm Positions Under current practice, whena departments new

work is temporary in nature, itmay receive limitedterm positions along with
temporaryfunding. Inmany cases, these positions are difficult to fill because
applicants know they will need to look for a new jobshortly. Oncefilled, workers
often transfer to a different permanent job as soon aspossible. Consequently,
froman operational standpoint, limitedterm positions make completing the
necessary work even moredifficult. TheMayRevision proposes to eliminate the
use of limitedterm positions goingforward. Instead, Finance and the Legislature can
approve limitedterm spending authority that will act as a control on the number of
positions a department can fill in any givenyear. Whencombined with the biannual
reconciliation process described above, departments will be able to manage their
personnel levels within budgeted funds to meet operational needs more efficiently
andeffectively.
Hiring Process TheMayRevision proposes eliminating several archaic statutes

that impose unnecessary restrictions on departments, preventing them from hiring
eligiblecandidates. Eliminating these restrictions will assist departments in hiring the
best candidates for positions in a more timelymanner.

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87
Together, these proposals allow departments greater flexibility in hiring, managing,

andultimately running their programs, while also maintaining proper control agency
and legislative oversight allimportant characteristics of a nimble and improved civil
servicesystem.
Many other efforts are currently underway to review and improve the states recruitment,
hiring, training and development/retention, performance management, andstrategic
planning, among otherareas. Someof these effortsare:
88
Streamline Job Classifications TheCalifornia Department of Human Resources

(CalHR) isworking with a team to abolish over 400 classifications identified as
unused. Another team is working on recommendations to consolidate similar
classifications, clarify classification descriptions, andassess the use of deep classes,
ultimately to assist people looking for state jobs to find the opportunities that best
suit their education andexperience.
Broaden Recruitment Efforts Teams are reviewing the statewide recruitment plan
and reaching out to various groups, including veterans, midcareer professionals,
andthe newest generation of employees (those designated millennials), tobetter
understand how to attract and retain a diverse, multigenerational workforce that
reflects Californiaspopulation. Teams are reviewing the use of social media
and other online career tools to more effectively recruit and communicate with
potentialemployees.
Strengthen Training Opportunities and Aligning Curriculum Toensure a welltrained

workforce, teams are looking for ways to better leverage and expand on internships,
fellowships, andapprenticeships. Teams are also working with a variety of education
stakeholders to consider ways to align college curriculum with the states current and
anticipated talent needs in order to prepare students for careers in state civilservice.
Revamp Job Examinations Teams are reviewing examrelated processes for

practical ways to help departments conduct job analyses and share resources to
conduct consortium exams for multiple departmentsuse.
Expand Department Delegation Authority Inthe past several years, CalHR has
delegated authority to departments for multiple tasks, including resolving unlawful
appointments and approving exceptional allocations (which allow individuals to
perform duties different from their assignedclassification). Thisgives departments
greater flexibility to address their management and personnelneeds. Ateam is

pTM5Aif3Jb
identifying further opportunities for departments to exercise greater flexibility

through delegatedauthority.

Enhance Performance Evaluations Ateam is reviewing the states current

evaluation tools and practices in attempts to align them with current trends in
effective performancemanagement. Theteam is exploring various coaching
and mentoring programs to create work environments that encourage more
employeeengagement.
California Arts Council

The California Arts Council develops partnerships with the public and private sectors to
provide support to the states nonprofit arts and cultural community and enhance the
cultural, educational, social, andeconomic development ofCalifornia.

Permanent Funding Increase $5million ongoing GeneralFund to provide additional

grants to local artsorganizations. These funds will be used to further the arts in the
program areas of Economic and Community Development, ArtsEducation, Cultural
and Community Engagement, andthe CreativeEconomy.
Judicial Branch
The Judicial Branch consists of the Supreme Court, courts of appeal, trial courts and
the JudicialCouncil. Thetrial courts are funded with a combination of resources from
the GeneralFund, county maintenanceofeffort requirements, fees, andothercharges.
Allother portions of the Judicial Branch primarily receive funding from the GeneralFund.
TheMayRevision includes total funding of $3.8billion ($1.7billion GeneralFund) forthe
JudicialBranch.

Trial Court Trust Fund Revenues TheMayRevision includes an additional

$15.5million GeneralFund to reflect a further reduction of fines and penalty
revenues estimated to be collected in 201516, fora total of $66.2million that is
available for transfer to the Trial Court TrustFund.

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89
Debt Service
The MayRevision reflects the following adjustments for debt servicecosts:

Current Year Debt Service GeneralFund debt service expenditures have increased
by $35.3million compared to the Governors Budget, fora total of $5.2billion.
Thisreflects increased General Obligation debt service costs ($4.7billiontotal)
andno change for lease revenue bond debt service costs ($505.3milliontotal).
Theminor increase in General Obligation debt service cost is a result of bond
issuances over the previous years increasing debt service costs at a faster pace than
bonds beingretired.
Budget Year Debt Service GeneralFund debt service expenditures will

decrease by $161.7million compared to the Governors Budget, toa total of
$5.4billion. Thisadjustment reflects reduced General Obligation debt service costs
($4.8billiontotal) andlease revenue bond debt service costs ($535.8milliontotal).
Thedecrease in General Obligation debt service is primarily attributableto: (1)a
smaller spring 2015 bond sale than projected, (2)increased estimated premium
on future bond sales, and(3)savings related to bond refinancings thisspring.
Thedecrease in lease revenue bond debt service costs is attributable to savings
related to bond refinancings thisspring. TheDepartment of Finance continues to
work with departments to manage bond cash and ensure bonds are issued only
whennecessary.
State Appropriations Limit Calculation

201516 State Appropriations Limit (SAL) Calculation Pursuant to Article XIIIB of the
California Constitution, the 201516 SAL is estimated to be $94.042billion. Thisamount
is used for various calculations related to statebudgeting. Therevised limit is the result
of applying the growth factor of 4.55percent. Therevised 201516 limit is $899million
above the $93.1billion estimated inJanuary. Thisincrease is due to changes in the
followingfactors:

90
Per Capita Personal Income
JanuaryPercentageGrowth:2.91%
MayRevisionPercentageGrowth:3.82%
State Civilian Population

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K14 Average Daily Attendance

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91
Economic Outlook
Economic Outlook
conomic growth was strong in 2014, resulting in an improved overall outlook

forCalifornia. Jobsare being added faster than anticipated and the unemployment
rate is falling both nationally and in thestate. Meanwhile, thefalling price of crude oil
has kept inflation low and supported higher consumerspending. Although California is
experiencing an exceptional drought in 2015, theeconomy is the most diverse in the
UnitedStates, andgrowth in other sectors is expected to keep the overall impactssmall.
The outlook assumes that global growth remains slow butsteady. Risks to the economy
continue to include a correction in the stock market or a weaker globaleconomy.
The Nation Solid Growth

The nations economy continues to grow at a steady pace, withlower unemployment
and more jobs beingadded. RealGross Domestic Product (GDP) growth in 2014 was
2.4percent, andis expected to maintain momentum in 2015 and 2016 in spite of the
slow growth in the first quarter of 2015 (see FigureECO01). Theslow growth in the first
quarter was largely due to poor weather in the East and other temporaryfactors.
Real GDP growth is supported by stronger consumption growth as people find jobs
and spend less ongasoline. Asof April2015, thenational unemployment rate fell to
5.4percent. Thedecrease in unemployment is due partially to slower growth in the labor
force as more workers born during the baby boom reach retirementage. However, payroll
job growth has been solid at 3.1million in 2014 and is expected tocontinue.

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93
Economic Outlook
Figure ECO-01
U.S. Real Gross Domestic Product

Quarter-to-Quarter growth, annualized
6.0%
5.0%
5.0%
4.0%
3.0%
Forecast
4.6%
4.5%
3.5%
3.4%
2.7%
2.2%
1.8%
2.0%
3.0%
2.8%
2.2%
3.1%
2.6% 2.5%
1.0%
0.2%
0.0%
-1.0%
-2.0%
-2.1%
2016:Q4
2016:Q3
2016:Q2
2016:Q1
2015:Q4
2015:Q3
2015:Q2
2015:Q1
2014:Q4
2014:Q3
2014:Q2
2014:Q1
2013:Q4
2013:Q3
2013:Q2
2013:Q1
-3.0%
Source: U.S. Bureau of Economic Analysis; CA Department of Finance May Revision Forecast
After the Governors Budget forecast was finalized, oilprices fell by more than 30percent
before rebounding slightly in April2015. Prices are now expected to rise gradually over
the forecast, butare still lower than the previousforecast. Lower gasoline prices allow
consumers to buy other goods, supportinggrowth. Besides the growth in personal
consumption, investment is also beginning to pick up, bothin the housing sector and
bybusinesses. However, exports are expected to grow more slowly in coming years
due to weaker globalgrowth. TheFederal Reserve has not specified when it will raise
the interest rate, andthe forecast assumes this will begin in the second half of 2015 and
gradually thereafter as the economyimproves.
California Balanced Growth

Californias employment in 2014 grew at a stronger pace than previouslyestimated.
Theunemployment rate dropped to 6.5percent in March2015. California is expected
to continue to add jobs at a steady pace, andMarch marked the states 56th consecutive
month of nonfarm job growth since August2010 (see FigureECO02). However,
theunemployment rate is not expected to fall below 6percent until near the end of
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pTM5Aif3Jb
Economic Outlook
Figure ECO-02
California and U.S. Nonfarm Employment

Year-over-Year Percent Change
4.0%
3.0%
California
U.S.
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
Source: California Employment Development Department, Labor Market Information Division
2016 as younger workers join the labor force in largenumbers. Inaddition, although the
drought will affect the farm sector in 2015, theforecast assumes the drought does not
continue into 2016. Theimpact on other sectors is expected to be limited, withsmall
overall impacts given Californias diversifiedeconomy.
Personal income also increased in 2014 more than previously estimated, andis consistent
with more people finding work and business profitsrising. Alleleven major industry
sectors added jobs in 2014 thefirst time this has happened since the recovery began
in 2009. Theincrease in wages is offset in part by slower growth in interest and other
investment income, given a more gradual increase in interestrates.
The number of housing permits issued remained unchanged in 2014 compared with
2013. Issuance began to increase in early 2015, andthe forecast expects this trend
tocontinue. Housing prices, asmeasured by the median sales price of existing
singlefamily homes, continue toincrease. Nonresidential permits grew strongly, by
13.4percent on average in 2014, andare expected to maintain solidgrowth.

pTM5Aif3Jb
95
Economic Outlook
Consumer inflation, asmeasured by the Consumer Price Index (CPI), hasbeen

relatively low throughout therecovery. Itis expected to be around 1percent in
2015 due to the drop in oil prices before rebounding to around 2percent over the
remaining forecastperiod. However, housing prices have been rising faster than the
overall index, particularly in the SanFrancisco area, andare expected to keep inflation
somewhathigher.
See FigureECO03 for highlights of the national and Californiaforecasts.
Risks to Consider
There are a few key risks in the economy in the shortterm. Forinstance, onepotential
risk is that there could be a correction in the stockmarket. 2014marked the sixth year
of positive growth in the stockmarket. Annual growth averaged more than 12percent in
both the Dow Jones Industrial Average and S&P 500 Indices over these six years, amuch
faster rate of increase than in the overalleconomy. Pessimism about economic growth
prospects could lead to a correction in the stockmarket.
In addition, manyof the UnitedStates major trade partners, including China and
European Union countries, haverecently experienced economicslowdowns. Onedirect
impact of global economic slowdowns is that these trade partners purchase fewer
products from the UnitedStates, which could lead to slower economic growth for the
UnitedStates. Thisglobal slowdown could directly impact Californias corporate profits,
employment, andpersonalincome.
96

pTM5Aif3Jb
Economic Outlook
Figure ECO-03
Selected Economic Indicators

United States
Nominal gross domestic product, $ billions
2010
$ 14,964
Real gross domestic product, percent change
2011
$
2013
2012
15,518
16,163
2014
16,768
17,419
2015
Projected
2016
Projected
$ 18,964
18,117
2.5%
1.6%
2.3%
2.2%
2.4%
2.8%
2.7%
Personal consumption expenditures
1.3%
1.6%
1.3%
1.6%
1.7%
2.2%
2.1%
Gross private domestic investment
1.7%
0.7%
1.3%
0.8%
0.9%
0.7%
1.2%
-0.5%
0.0%
0.0%
0.2%
-0.2%
-0.3%
-0.7%
Contributions to real GDP growth
Net exports
Government purchases of goods and services
Personal income, $ billions
0.0%
$ 12,429
Corporate profits, percent change
-0.7%
$
13,202
-0.3%
$
13,888
-0.4%
$
14,167
0.0%
$
14,729
25.0%
4.0%
11.4%
4.2%
-0.8%
Housing permits, thousands
605
624
830
991
1,040
Housing starts, thousands
586
612
784
930
1,001
$ 173,100
$ 166,200
$ 177,200
$ 197,400
$ 208,900
Median sales price of existing homes
0.2%
$
15,302
0.1%
$ 15,983
8.0%
6.5%
--
--
1,121
1,308
--
--
Federal funds rate, percent
0.2%
0.1%
0.1%
0.1%
0.1%
0.3%
1.2%
Consumer price index, percent change
1.6%
3.2%
2.1%
1.5%
1.6%
0.0%
2.2%
Unemployment rate, percent
9.6%
8.9%
8.1%
7.4%
6.2%
5.5%
5.2%
Civilian labor force, millions
153.9
153.6
155.0
155.4
155.9
157.9
160.1
Nonfarm employment, millions
130.3
131.8
134.1
136.4
139.0
141.9
144.0
California
Personal income, $ billions
Made-in-California exports, percent change

Housing permits, thousands
44
Housing unit change, thousands

Median sales price of existing homes
1,579
19.3%
1,686
11.3%
47
1,805
1,857
1,944
2,038
2,144
3.9%
3.6%
--
--
59
86
86
99
111
--
36
36
45
59
69
--
$ 305,010
$ 286,040
$ 319,310
$ 407,150
$ 447,010
--
Consumer price index, percent change
1.5%
--
1.3%
2.6%
2.2%
1.5%
1.8%
1.0%
2.3%
Unemployment rate, percent
12.1%
11.6%
10.2%
8.8%
7.5%
6.5%
6.0%
Civilian labor force, millions
18.3
18.4
18.5
18.6
18.8
19.0
19.1
Nonfarm employment, millions
14.2
14.4
14.7
15.2
15.7
16.1
16.5
Mining and logging
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
Construction
3.9%
3.9%
4.0%
4.2%
4.3%
4.5%
4.7%
Manufacturing
8.8%
8.7%
8.5%
8.3%
8.1%
7.9%
7.7%
2.4%
2.4%
2.3%
2.2%
2.1%
2.1%
2.0%
18.5%
18.6%
18.6%
18.4%
18.4%
18.4%
18.3%
Information
3.0%
3.0%
3.0%
3.0%
2.9%
2.9%
2.9%
Financial activities
5.3%
5.3%
5.3%
5.2%
5.0%
5.0%
5.0%
14.6%
14.9%
15.2%
15.4%
15.6%
15.7%
15.8%
Percent of total nonfarm employment
High technology
Trade, transportation, and utilities
Professional and business services
2.2%
2.3%
2.4%
2.4%
2.6%
2.7%
2.9%
Educational and health services
High technology
14.5%
14.5%
14.8%
15.3%
15.3%
15.3%
15.3%
Leisure and hospitality
10.6%
10.7%
10.9%
11.0%
11.2%
11.3%
11.4%
3.4%
3.4%
3.4%
3.4%
3.5%
3.6%
3.6%
17.2%
16.7%
16.2%
15.6%
15.4%
15.3%
15.1%
Other services
Government
Forecast based on data available as of April 2015
Percent changes calculated from unrounded data.

pTM5Aif3Jb
97
Revenue Estimates
Revenue Estimates
fter accounting for transfers such as to the Rainy Day Fund, GeneralFund revenues
under the MayRevision forecast are higher than at the Governors Budget by
$700million in 201314, $3.3billion in 201415, and$1.7billion in 201516. Excluding
transfers and the revenue loss associated with the proposed Earned Income Tax Credit,
revenues are $6.7billion higher over theseyears. FigureREV01 compares the revenue
forecasts, bysource, inthe Governors Budget and the MayRevision. Total MayRevision
revenue, including transfers, isprojected to be $111.3billion in 201415 and $115billion in
201516.
The economic forecast has improved somewhat since the GovernorsBudget.
Theimproved economic forecast, along with the strong cash trends through April support
the significant increase inrevenues. Onnet, cashtax receipts are up about $3.2billion
over the forecast through the end ofApril. Cashdata through April suggest that personal
income tax receipts are up about $2.7billion, corporation tax receipts are up almost
$250million, andsales and use tax (salestax) receipts are up $230million.
A cash surplus or shortfall can have different effects on the revenue forecast for all
three open revenue years, depending on the source of the cash and other factors such
asaccruals.

pTM5Aif3Jb
99
Revenue Estimates
B 798
Figure REV-01
2015-16 May Revision

General Fund Revenue Forecast
Governor's
Budget
Source
Fiscal 13-14: Final
Personal Income Tax
$66,560
Sales and Use Tax
22,263
Corporation Tax
8,858
Insurance Tax
2,363
Alcoholic Beverage
354
Cigarette
86
Other Revenues
1,813
Subtotal
$102,298
Transfers
376
Total
$102,675
Fiscal 14-15
Personal Income Tax
$71,699
Sales and Use Tax
23,438
Corporation Tax
9,618
Insurance Tax
2,490
Alcoholic Beverage
367
Cigarette
84
Other Revenues
1,954
College Access Transfer
600
Subtotal
$110,250
Other Transfers /1
-2,208
Total
$108,042
Fiscal 15-16
Personal Income Tax
$75,213
Sales and Use Tax
25,166
Corporation Tax
10,173
Insurance Tax
2,531
Alcoholic Beverage
374
Cigarette
82
Other Revenues
1,594
College Access Transfer
350
Subtotal
$115,482
Other Transfers /1
-2,102
Total
$113,380
Three-Year Total (including BSA transfer)
May
Revision
Change
$67,025
22,263
9,093
2,363
354
86
1,814
$102,998
376
$103,375
$466
0
234
0
0
0
0
$700
0
$700
0.7%
0.0%
2.6%
0.0%
0.0%
0.0%
0.0%
0.7%
0.0%
0.7%
$75,384
23,684
9,809
2,486
353
84
1,556
4
$113,361
-2,054
$111,307
$3,686
246
191
-4
-14
0
-398
-596
$3,110
154
$3,265
5.1%
1.0%
2.0%
-0.2%
-3.7%
0.0%
-20.4%
$77,700
25,240
10,342
2,556
360
82
1,652
100
$118,031
-2,999
$115,033
$2,487
74
168
26
-14
0
59
-250
$2,549
-897
$1,653
$5,617
3.3%
0.3%
1.7%
1.0%
-3.7%
0.0%
3.7%
-7.0%
3.0%
2.2%
42.7%
1.5%

/1
Includes transfers to Budget Stabilization Account for 2014-15 and 2015-16.
100

pTM5Aif3Jb
Revenue Estimates
Personal income taxes are higher by $466million in 201314, $3.3billion in 201415,

and$2.3billion in 201516 due to strong withholding growth, aswell as growth in
capital gains and partnershipincome.
Corporation taxes are higher by $234million in 201314, $60million in 201415,

and$100million in 201516 due to strong cashtrends.
In addition to the changes described above, lower utilization of the College

Access Tax Credit increases personal income tax and corporation tax
receipts by severalhundredmillion dollars (offset by a similar decrease to
GeneralFundtransfers).
Sales tax receipts are higher by $246million in 201415 and $74million in 201516.
Muchof the currentyear revenue gain is attributable to lower utilization of the recent
manufacturing sales tax exemption in the first two quarters of 201415.
LongTerm Forecast
The MayRevision economic forecast reflects steady growth over the next fouryears.
Theprojected average growth rate inU.S. realgross domestic product over the next
four years is 2.6percent. While the forecast does not project a recession, thecurrent
expansion has already exceeded the average postwar expansion by over ayear.
FigureREV02 shows the forecast for the largest three GeneralFund revenues from
201314 through 201819. Total GeneralFund revenue from these sources is expected to
grow from $98.4billion in 201314 to $123.5billion in 201819. Theaverage yearoveryear
growth rate over this period is 4.8percent.
Figure REV-02
Long-Term Revenue Forecast - Three Largest Sources

(General Fund Revenue - Dollars in Billions)
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Average
Year-Over-Year
Growth
Personal Income Tax
$67.0
$75.4
$77.7
$81.7
$84.7
$84.2
4.7%
Sales and Use Tax
$22.3
$23.7
$25.2
$25.8
$25.9
$27.1
4.0%
Corporation Tax
$9.1
$9.8
$10.3
$11.1
$11.7
$12.2
6.1%
#NUM!
Total
$98.4
$108.9
$113.3
$118.5
$122.2
$123.5
4.8%
Growth
6.1%
10.7%
4.0%
4.6%
3.2%
1.0%

pTM5Aif3Jb
101
Revenue Estimates
Earned Income Tax Credit

The MayRevision proposes an Earned Income Tax Credit to help the poorest
working families inCalifornia. Thistargeted Earned Income Tax Credit would provide
a refundable tax credit for wage income, andwould focus on the lowest income
Californians households with income less than $6,580 if there are no dependents or
less than $13,870 if there are three or moredependents. Theproposed state program
complements the existing federal Earned Income TaxCredit. Theproposed state credit
would match 85percent of the federal credits up to half of the federal phasein range and
then begin to taper off relative to these maximum wageamounts. Thistargeted approach
will allow a greater benefit perhousehold. Thecredit will be available beginning with tax
returns filed for wages earned in 2015. Thetax credit is expected to reduce revenues by
$380million annually beginning in 201516. Itwill benefit an estimated 825,000 families
and 2millionindividuals. Theestimated average household benefit is $460 per year,
witha maximum credit of $2,653.
Personal Income Tax

Compared to the Governors Budget, thepersonal income tax forecast is higher by
$466million in 201314, $3.3billion in 201415, and$2.3billion in 201516. Overthe
threeyear period, thepersonal income tax forecast reflects a total increase of $6.1billion.
Inaddition, thelower utilization of the College Access Tax Credit increases personal
income tax receipts and reduces the GeneralFundtransfer.
The forecast reflects an increase in wages based on withholding levels that continue
to be verystrong. Through April, withholding is up nearly 6percent from 2014 a year
when withholding growth was near 10percent. Withholding growth significantly
outpaced wage growth in 2014, suggesting that a higher share of the wage gains have
gone to highincome earners who pay higher taxrates.
Based on 2013 tax return data, partnership income was stronger than had been
anticipated and is expected to grow over the next fewyears. Inaddition, lower interest
rates have decreased mortgage interestdeductions. Since deductions reduce taxable
income, alower forecast for deductions increases the revenueforecast.
Capital gains increased in 2014 due to strong cash receipts related to 2014 taxliability.
Thesustained strong performance of the stock market over the past several years is
expected to lead to continued abovenormal capital gains through 2016 because some of
102

pTM5Aif3Jb
Revenue Estimates
the gains that individual taxpayers accrued during these years will be realized in 2015 and
2016. Specifically, capital gains income was revised up from $115billion to $120billion
in 2014, $103billion to $116billion in 2015, and$98billion to $109billion in 2016.
Theforecast assumes capital gains return to normal levels in relation to personal income
by 2017 oneyear later than was previouslyestimated. Preliminary actual capital gains
income in 2013 was $79billion compared to the $80billionforecast.
The personal income tax forecast includes Proposition30 revenues, which are estimated
at $6.6billion in 201415 and $6.7billion in 201516.
Sales and Use Tax

The sales tax forecast reflects an increase of $246million in 201415 and $74million
in 201516. Thisincludes Proposition30 revenues totaling $1.5billion in 201415 and
$1.6billion in 201516.
The increase in the sales tax forecast is largely due to lower than estimated utilization of
the manufacturing exemption credit and higherwages.
Corporation Tax
The corporation tax forecast reflects an increase of $234million in 201314, $60million in
201415, and$100million in 201516. Lower utilization of the College Access Tax Credit
increases corporation tax receipts and reduces the GeneralFundtransfer.
Compared to the Governors Budget, therevenue increase in 201314 and 201415 can be
attributed mainly to higher cash receipts through April2015.
Insurance Tax
The insurance tax forecast reflects a decrease of $4million in 201415 and an increase
of $26million in 201516. Therevenue changes are primarily due to a lower refund
estimate related to a Board of Equalization decision in the California Automobile Insurance
Companycase.

pTM5Aif3Jb
103
Revenue Estimates
Loan Repayments to Special Funds

The Governors Budget reflected repayment of loans based on the operational needs of
various special fund programs and Proposition2s dedicated funding stream for reducing
debts andliabilities. TheMayRevision includes an increase of $537million in loan
repayments to special funds in 201516. Thisis a result of the increased debt payment
requirement imposed by Proposition2 reflecting an increase in forecasted revenues and
capital gains since the GovernorsBudget.
Property Tax
The MayRevision estimates statewide property tax revenues will increase 6.14percent
in 201415 and 5.52percent in 201516, which is slightly higher than the respective
6.1percent and 5.25percent growth rates estimated at GovernorsBudget. Roughly
41percent ($16.7billion) willgo to K14 schools in 201516. While this includes $1billion
that schools are expected to receive pursuant to the dissolution of the redevelopment
agencies, itexcludes $409million shifted from schools to cities and counties to replace
sales and use tax revenues redirected from those entities to repay the Economic
RecoveryBonds. Italso excludes the $7.2billion shifted to cities and counties to
replace Vehicle License Fee (VLF) revenue losses stemming from the reduced VLF rate
of0.65percent.
104

pTM5Aif3Jb
Staff Assignments
Executive Office
Michael Cohen
Director of Finance
(916)445-4141

Keely Bosler
Chief Deputy Director, Budget
(916) 445-9862
Todd Jerue
Chief Operating Officer
(916)445-4923
Eraina Ortega
Chief Deputy Director, Policy
(916) 445-8582
Kari Krogseng
Chief Counsel
(916) 322-0971
H.D. Palmer
Jacqueline Wong-Hernandez
Deputy Director, External Affairs
Legislative Director
(916) 323-0648 (916) 445-8610

Amy Costa
Diane Cummins
Advisor to the Director on
Special Advisor to the Governor,
Higher Education
State and Local Realignment
(916) 445-4141 (916) 445-4141
Budget Program Areas

Budget Planning and Preparation,
Cash Management, Statewide Issues,
CALSTARS, FSCU
Veronica Chung-Ng, PBM* . . (916)445-5332
Corrections and Rehabilitation, Judicial,

Justice, General Government,
Business and Consumer Services
Chris Ryan, PBM . . . . . . . . . . . (916)445-8913
Education
Jeff Bell, PBM . . . . . . . . . . . . . (916)445-0328
Employee Relations, State Pension Systems,

Local Government, Housing, Local Mandates,
Information Technology Consulting Unit
Justyn Howard, PBM . . . . . . . (916)445-3274
Matt Paulin, PBM . . . . . . . . . . (916)445-6423
Audits and Evaluations,

Departmental Administration
David Botelho, PBM . . . . . . . . (916)445-1546
Natural Resources, Energy, Environment,

Capital Outlay
Karen Finn, PBM . . . . . . . . . . . (916)324-0043
Revenue Forecasting, Economic Projections,

Demographic Data, Transportation,
Kristin Shelton, PBM . . . . . . . (916)322-2263
*Program Budget Manager

May Revise 2015

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Introduction

Proposition98 increases GeneralFund spending by $5.5billion for K12 schools and

The MayRevision continues to focus on the key elements of the January

Fiscal Balance Is an Ongoing Challenge

May Revision 2015-16

Balanced Budgets Have Been Quickly

1/ Budget shortfalls or surplus, measured by the annual Governor's Budget.

May Revision 2015-16

Debts and Liabilities Eligible for Accelerated Payments Under Proposition 2

Unpaid Mandate Claims for Local Governments

More Money for Schools

May Revision 2015-16

Proposition 98 Funding under May Revision

May Revision 2015-16

Counteracting the Effects of Poverty

May Revision 2015-16

The Local Control Funding Formula is concentrating the greatest school

Despite these steps,millions of Californians remain below the federal povertyline.

May Revision 2015-16

Provide $1.4billion ($150million more than the GovernorsBudget) infunding to

Emergency Drought Response

May Revision 2015-16

This section provides various statewide budget charts andtables.

May Revision 2015-16

2015-16 May Revision

Revenues and Transfers

Total Resources Available

Special Fund for Economic Uncertainties

Budget Stabilization Account/Rainy Day Fund

May Revision 2015-16

2015-16 Total State Expenditures by Agency

Legislative, Judicial, Executive

Business, Consumer Services & Housing

Health and Human Services

Corrections and Rehabilitation

Labor and Workforce Development

General Fund Expenditures by Agency

Change from 2014-15

Note: Numbers may not add due to rounding.

May Revision 2015-16

General Fund Revenue Sources

Motor Vehicle Fees

Sales and Use Tax

Alcoholic Beverage Taxes and Fees

2015-16 Revenue Sources

Personal Income Tax

Note: Numbers may not add due to rounding.

May Revision 2015-16

alifornia provides instruction and support services to roughly sixmillion students

May Revision 2015-16

201516 relative to the GovernorsBudget. Specifically, Proposition98 Guarantee

K12 Funding Priorities

May Revision 2015-16

funding, schools will be able to continue to make the necessary investments in

Increase Opportunities for Infants and Toddlers to Receive Early

May Revision 2015-16

Thisinvestment will allow for new participation in the program, andprovide an

Increase Opportunities for Children with Exceptional Needs in State

Establish Statewide Resources to Encourage and Assist Local Educational Agencies

Increase Dispute Resolution Resources TheMayRevision proposes an increase

Increase State Systemic Improvement Plan Resources TheMayRevision proposes

May Revision 2015-16

Eliminate Allocation Boards within Each Consortium Eachconsortium will be

Require More Robust, butLess Frequent, Planning Eachconsortium will develop a