Across state government, there is a migration going on. With the state’s general fund $24.3 billion in the hole — a number that seems to get revised upwards every few days — both state workers and agencies are trying to move away from depending on the general fund. The new goal is to tap so-called “special funds,” pots of money made up of various combinations of user fees, federal dollars and other sources.
The general fund is the state’s main coffer of income, sales and corporate taxes. It is money at least partially under the control of the Legislature – which means when times get hard, the general fund is the first place lawmakers look for cuts.
Special funds were the name of the game at a job fair for state workers held at Cal Expo last week. It’s been part of an effort to save state agencies that face the budget knife. And many of those who already rely on special funds are scrambling to protect their turf.
While it wasn’t necessarily advertised that way, the job fair that drew hundreds of people in Sacramento last week was part of this migration. Many job seekers were state workers facing layoffs—mostly within agencies with heavy general fund exposure. Many of those hiring—and definitely those the employers who were most sought-after—rely mainly on special funds such as various kinds of user fees.
“There was nothing secret or under-the-table that we were trying to accomplish with respect to moving people,” said Lynelle Jolley, a spokeswoman with the Department of Personnel Administration, which put on the job fair. “We want to do everything we can to give you [state workers] first crack at other jobs with the state that are not dependent on the general fund.”
State workers union are also involved.
“We are very much interested in protecting as many of our members as possible from layoffs,” said Jim Zamora, a spokesman for SEIU Local 1000, which represents 87,000 state workers. “To the extent that someone who has received a surplus notice or layoff notice, we are trying to help those people apply for transfers to positions in non-general fund agencies.”
The same goes for state agencies. With the Office of Environmental Health Hazard Assessment (OEHHA) targeted for elimination under the governor’s budget plan, environmentalists worked with the Senate Environmental Quality Committee to replace the agencies $8.3 million general fund money with special funds. Of course, this special fund money would be taken from other departments, such as the Department of Toxic Substances Control (see sidebar in this issue).
Many agencies rely on both general fund support and special funds. Some are trying to pump up their special fund sources in order to cover losses on the general fund side. For instance, several agencies, such as the Department of Industrial Relations, are looking at raising some fees in order to preserve jobs.
Other fee increases to pay for special funds are moving through the Legislature. One is a proposed $15 increase in the cost of registering a car in California to cover the $150 million that state parks are set to lose under the governor’s proposal. If the governor’s plan passes, the state would close 220 of the 279 state parks. Homeowners in high- fire risk areas are looking at a $20 annual per structure fee to cover the cost of Cal Fire.
The move away from the general fund is a predictable response to a pair of trends that have been chipping away at this money for years, according to Mark Paul, a senior scholar with the non-partisan New America Foundation. First is the tendency to rely less on user fees and more on the general fund for large expenditures.
A key example Paul said is roads. “In the mid-1960s, he said, gas taxes provided funds for roads at a rate of about seven cents a mile. These days we’re at half that.” But raising the gas tax to cover this difference, which would entail about a 40-cent increase in the price of the cost of a gallon of gas, is politically untenable—at least for now.
“The political calculus has changed,” Paul said. “Now the alternatives are, do you cut the school year, do you close the universities, do you let people out of prison, or do you raise the gas tax?”
Meanwhile, even as the general fund has been trying to cover more of these types of costs, it has been hollowed out by tax cuts such as the vehicle license fee, which Gov. Arnold Schwarzenegger slashed as a very popular first act in office.
“Even if the immediate crisis goes away, we still have a long term budget gap because of all the tax cuts passed in recent years,” Paul said.
While moving to special fund support could provide temporary respite, it’s not a cure-all. For one thing, all special fund revenues combined only come out to about a third of the general fund. According to the Governor’s proposed 2009-10 budget, the general fund—the part that the legislature spends the most time fighting about—comes out to about $95.5 billion available. The special funds total out at only $32 billion.
Meanwhile, Paul noted that “special funds are not immune” from the economic downturn. With businesses shipping and selling less, they’re paying less into the various pots of money that support the “user pays” mode of making state government work.
The move towards special funds also creates a system of haves and have-nots in state government—with many of the former trying to protect themselves. One reason education is so frequently cited as an area likely to be cut is it’s huge general fund exposure–$39.7 billion, compared to a mere $500 million in special fund revenue.
Corrections, also likely to face large cuts, has $9.6 billion in general fund exposure, compared to $241 million in special funds. Higher education ($12.4 billion general vs. $47 million special) and Health and Human Services ($30 billion general vs. $7.9 billion special) are in similar positions.
Agencies with lower general fund exposure include Business, Transportation and Housing ($2.3 billion general vs. $5.7 billion special), Environmental Protection ($79 million general vs. $1.2 billion special) and Labor and Workforce Development ($104 million general vs. $348 million special).
The Governor’s plan, however, seeks pay cuts across the board. This isn’t sitting well with groups representing state workers who are mainly paid out of special funds. Chris Voight, staff director of the California Association of Professional Scientists (CAPS), said his group is fighting proposed pay cuts for their members, on the grounds that 80 percent of them are paid out of special funds. They’re also looking at potential lawsuits over what he said is the governor’s plan to raid several special funds to cover general fund shortfalls.
Voight said that more state agencies should move towards the user-pays model represented by the special funds—and that the governor’s actions aren’t helping.
“To make everybody suffer equally doesn’t give people the incentive to shift their resources to special fund,” Voight said. He added, “Why would you bleed people in special funds and take away the incentive to go there. It’s just foolish.”