On May 14, Governor Arnold Schwarzenegger released his May revision for the 2010-2011 State Budget. In this latest revision, the governor estimates a $19.1 billion general fund deficit, including a $1.2 billion reserve.

Governor Schwarzenegger proposes resolving the state budget deficit through reduced spending ($12.4 billion), additional federal funds ($3.4 billion), and new fund shifts and fees ($3.4 billion). In unveiling his proposal, the governor declared that there is “no more low-hanging fruit”, that we must “shake the tree.”

During Governor Schwarzenegger’s brief outline of the May revise he declared he will not sign a state budget until pension reform and budget reform are approved. He also mentioned looking at tax reform.

In response to the governor’s May revision, Senate President Pro Tempore Darrell Steinberg (D-Sacramento) called the proposal a “non-starter” and stated that the Senate would not pass a budget that eliminates CalWORKS-California’s social welfare program.

In place of some of the proposed budget reductions, Senator Steinberg discussed several sources of additional budget revenue, including 1) delaying previously approved business tax incentives; 2) extending temporary tax increases passed last year; 3) approving an oil excise tax; 4) increasing vehicle license fees.

Senator Steinberg focused his response on his objective to realign government services and restore revenue, declaring that, “we must use this crisis now; not next year; not another report; not another study.  We need to bring government closer to the people.” He went on to state, “the real answer here is we must restructure and realign this outdated structure that we have here in California, and we need to provide the revenue to the entity that is in the best place to provide the services.”

When asked what specific programs he was focusing on realigning, Senator Steinberg named health and human services, corrections and public safety, child welfare, and education. When asked if the California Forward reform measures should be considered, Senator Steinberg responded affirmatively.

According to State Controller John Chiang, despite the looming $19.1 billion deficit, California should not see a repeat of the cash-flow crisis that led to IOUs and other delayed payments during last year’s budget negotiations. Controller Chiang announced, “My latest financial report shows the State will have enough revenues on hand to meet all payment obligations through the end of June, including paying the Revenue Anticipation Notes on time.”

Special districts may be particularly interested in the following items from Governor Schwarzenegger’s May revise:

Local Mandate Suspension
While the January budget proposal did not do so, recent State Mandate Commission and court decisions now require the governor to fund or suspend the following mandates, which the governor proposes suspending:  Mandate Reimbursement Process I; Mandate Reimbursement Process II; Open Meeting Act/Brown Act Reform.

Water Bond and Basin Planning
If approved in the November statewide election, the governor proposes to appropriate $1.1 billion from the 2010 water bond, including $419 million for the Water Board. Additionally, the revised budget would shift $6.1 million from the general fund to the Waste Discharge Permit Fund due to Federal Clean Water Act requirements for updating basin plans used by the Water Board to develop discharge permits.

Emergency Response Initiative
Impose a 4.8 percent statewide surcharge on all residential and commercial property insurance to enhance the state’s emergency response capabilities. The governor assumes enactment of this surcharge on July 1, 2010, and his budget proposes a $124 million general fund increase to back-fill revenue lost when it was not approved by the Legislature earlier this year.

Habitat Conservation and Restoration
Reduce the general fund appropriation to Department of Fish and Game’s habitat conservation and restoration programs by $5 million, including the protection of marine ecosystems, review of timber harvest plans, and grants for fisheries restoration projects.

Eliminate California-only benefits and services in Medi-Cal and establish utilization controls for $90.2 million in cuts. Increase cost sharing, such as co-pays, for $218.8 million in savings. Impose other program changes for $213.7 million in reductions, including freezing hospital rates at the current level ($64.9 million).

For all of the details, you may read Governor Schwarzenegger’s revised state budget proposal here.

You may watch Governor Schwarzenegger and Senator Steinberg deliver their respective press conferences regarding the May budget revise here.