Introduction
Reducing the Operating Deficit

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

  • Reducing General Fund costs by $1.111 billion by expanding the uses of revenues sources for public transportation to:
    • Cover public transportation services currently provided by the schools ($627 million, ongoing);
    • Cover public transportation services currently provided by Regional Centers to their developmentally disabled clients ($144 million, one-time), and;
    • Shift a portion of the revenue to a special fund for debt service on general obligation bonds issued for transportation projects ($340 million, one-time).
  • Revenues of $506 million from approval of pending Indian gaming compacts.
  • Savings of $324 million related to reforms in CalWORKs-the state's welfare-to-work program.
  • Utilizing $269 million in Proposition 98 funds for Stage 2 Child Care.
  • Reimbursing $200 million in General Fund spent for flood protection and levee repair with bond funds approved for that purpose by voters in last fall's election.
  • Revenues of $165 million by repealing the Teacher Tax Credit.
  • Suspending the July 1, 2007, CalWORKs cost-of-living adjustment, resulting in savings of $140 million.
  • Savings of $100 million resulting from parole modifications for non-serious/non-violent offenders ($53 million), elimination of 90-day diagnostic evaluations in adult institutions ($4 million), the shift of certain juvenile offender populations to the counties ($33 million), and elimination of funding for the Juvenile Justice Community Reentry Challenge Grant ($10 million).
  • Budget reduction of $100 million to be allocated to departments. The Department of Finance will work with Agency Secretaries and other cabinet members to achieve additional General Fund savings of $100 million in 2007-08.
  • Savings of $75 million resulting from providing purchasing power protection for retired teachers as a vested benefit while reducing state's contribution to the State Teachers' Retirement System Supplemental Benefits Maintenance Account from 2.5 percent to 2.2 percent of teacher payroll.
  • Eliminating state funding for the Integrated Services for Homeless Adults with Serious Mental Illness program, resulting in ongoing savings of $55 million.
  • Revising the bundled reimbursement rate for intermediate care facilities for the developmentally disabled to include Day Programs and Non-Medical Transportation, in order to obtain $44 million in additional annual federal funding to replace the General Fund costs of providing those services.
  • Savings of $44 million in 2007-08 and $88 million annually thereafter by switching the basis for Medi-Cal pharmaceutical reimbursement from the Average Wholesale Price to Average Manufacturers Price, thus using the actual cost of production and minimizing any potential cost-shifting to Medi-Cal from other drug purchasers.
  • Revenues of $35 million by making permanent the use tax on vessels, vehicles, and aircraft brought into the state less than one year from purchase.
  • Savings of $25 million on a one-time basis in 2007-08 by reducing Proposition 36 funding by $60 million and using a portion of this funding to provide a net increase of $35 million to the Substance Abuse Offender Treatment Program, allowing the state to pursue reforms to drug treatment programs and services that lead to improved program performance and patient outcomes.
In addition, the Administration has exercised restraint in funding program growth. Total General Fund spending proposed in the budget is $103.1 billion, which is $1 billion, or less than one percent, more than in the current year. This represents the lowest rate of growth in General Fund spending in five years.

While these actions will bring about a balanced budget in 2007-08 with a substantial reserve and no net operating deficit, spending pressures will push the budget back into deficit in subsequent fiscal years if left unchecked.
image of backward arrow image of forward arrow
CHAPTER HIGHLIGHTS for Introduction Back to Top

 Paying Down the Debt
 Protecting Priorities
image of black pointing arrowReducing the Operating Deficit
 Budget Reform
 The California Strategic Growth Plan

BUDGET OVERVIEW Back to Top
Overview of General Fund Revenues and Expenditures
The Governor's Budget projects General Fund revenues will increase by 7.2 percent in 2007-08 compared to the revised 2006-07 revenue estimate, and General Fund expenditures to increase by only 1.0 percent compared to the revised 2006-07 expenditure estimate.

 Budget Summary Improvements
As part of the Administration's effort to improve the understanding and comparability of budget expenditure data, the 2007-08 Governor's Budget Summary will now follow a more traditional agency format. In the past, some content in the Governor's Budget Summary was arranged by major program areas rather than by agency. Budget expenditure data will be displayed in both a summary format and a new agency change table format. The change tables are intended to provide the reader a snapshot of proposed expenditure and position adjustments in each agency, why those changes are being proposed, and their dollar and position impact.
PRINTABLE BUDGET DOCUMENTS Back to Top
Budget Summary - Introduction (pdf * - 9K) -
Provides this entire Introduction Chapter in pdf format.