BILL NUMBER: AB 2591AMENDED BILL TEXT AMENDED IN ASSEMBLY MAY 10, 2010 AMENDED IN ASSEMBLY APRIL 8, 2010 AMENDED IN ASSEMBLY MARCH 17, 2010 INTRODUCED BY Assembly Members Feuer and John A. Perez FEBRUARY 19, 2010 An act to amend Section 13337 of, and to add Sections 9143.5, 9145, 10247.5, 13335.3, and 13335.5 to , the Government Code, relating to state finance. LEGISLATIVE COUNSEL'S DIGEST AB 2591, as amended, Feuer. State finance: budget process. Under existing law, duties and responsibilities are imposed upon the Governor and the Director of Finance relating to the preparation and submission of the annual state budget to the Legislature, including, among other things, providing a complete plan of all proposed expenditures and estimated revenues for the ensuing fiscal year. Existing provisions of the California Constitution prohibit the Legislature from sending to the Governor for consideration, and prohibit the Governor from signing, a Budget Bill that would appropriate from the General Fund a total amount that, when combined with specific appropriations and transfers, exceeds the General Fund revenues for that fiscal year estimated as of the date of the Budget Bill's passage. This bill would make statutory changes to the state budget process to implement and conform to constitutional changes proposed by ACA 4 and would become operative only if ACA 4 is approved by the voters. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 9143.5 is added to the Government Code, to read: 9143.5. (a) Within one year of the operative date of the act that added this section, the Legislature shall establish a process, including the use of a new or existing joint committee, for reviewing the performance of all state programs at least once every 10 years. The process shall include a schedule with deadlines for the review of programs. It shall provide for the review of programs the expenditures for which total one-third or more of all expenditures by July 1, 2015, and for the review of programs the expenditures for which total two-thirds of all expenditures by January 1, 2018. For purposes of this section, "expenditures" includes, in addition to state program costs, statutory exemptions, deductions, credits, or exclusions from taxes or fees that would otherwise apply. (b) Six months prior to the deadline for review of each program, the joint committee shall refer the initial program review to the appropriate policy committees of each house of the Legislature. For programs with common objectives, the reviews may be combined. Within 90 days of the deadline, the policy committees shall make recommendations regarding the program to the joint committee. The joint committee's review may be based on the recommendations of the policy committees, as well as recommendations that may be made by the Milton Marks "Little Hoover" Commission on California State Government Organization and Economy, the Legislative Analyst, the Bureau of State Audits, or the public. In preparing proposed legislation for a program being reviewed, the joint committee shall propose one or more of the following: (1) Modifications to the program that will reduce costs. (2) Modifications to the program that will improve outcomes. (3) Termination of the program. (c) Proposed legislation of the joint committee shall be submitted to the committee on rules of each house for referral to the appropriate policy committee for public hearing and further action. (d) The joint committee shall post on its Internet Web site its recommendations and the results of the Legislature's action. SEC. 2. Section 9145 is added to the Government Code, to read: 9145. (a) Before a bill, or a measure that proposes to amend or revise the California Constitution, that has been referred to the fiscal committee of either house is read for a third time in either house of the Legislature, the fiscal committee of the respective house of the Legislature shall determine whether the bill or measure is subject to review by the Legislative Analyst pursuant to this section. If the committee refers the bill or measure to the Legislative Analyst for review, the Legislative Analyst shall determine whether the bill or measure would result in a net increase in qualified state costs or a net decrease in state revenue. The Legislative Analyst shall submit the analysis of the bill or measure to the fiscal committees of each house of the Legislature and shall place the analysis on his or her Internet Web site if he or she determines that the bill or measure would result in either a net increase in qualified state costs or a net decrease in state revenue in excess of twenty-five million dollars ($25,000,000) annually, as adjusted for inflation pursuant to the California Consumer Price Index. (b) (1) If the Legislative Analyst determines a bill or measure would result in either a net increase in qualified state costs or a net decrease in state revenue in excess of twenty-five million dollars ($25,000,000) annually, as adjusted for inflation pursuant to the California Consumer Price Index, the Legislative Analyst shall determine whether the bill or measure, if enacted, would comply with the requirements of subdivision (e) of Section 8 of Article IV, or Section 3.5 of Article XVIII, as applicable, of the California Constitution. (2) A statute or measure shall be deemed to comply with the requirements of subdivision (e) of Section 8 of Article IV, or Section 3.5 of Article XVIII, as applicable, of the California Constitution if the Legislative Analyst determines that the net increase in qualified state costs or net decrease in state revenues that would be imposed by the bill enacting the statute or measure proposing to amend or revise the California Constitution does not exceed the amount by which state revenues exceed state expenditure obligations for the prior fiscal year, the current fiscal year, or any of the three succeeding fiscal years, whichever is least. (c) If the Legislative Analyst makes a determination pursuant to subdivision (b) that a bill, if enacted, or measure would not comply with the requirements of subdivision (e) of Section 8 of Article IV, or Section 3.5 of Article XVIII, as applicable, of the California Constitution, and the Legislature, by two-thirds vote of the membership of each house, makes a finding, based on its financial analysis, that the bill or measure would result in a net increase in qualified state costs or a net decrease in state revenue in an amount equal to, or less than, twenty-five million dollars ($25,000,000) annually, as adjusted for inflation pursuant to the California Consumer Price Index, the bill, if enacted, or measure shall be deemed to be in compliance with subdivision (e) of Section 8 of Article IV, or Section 3.5 of Article XVIII, as applicable, of the California Constitution. (d) For purposes of this section, the determination by the Legislative Analyst as to whether a bill or measure would result in a net increase in qualified state costs or a net decrease in state revenue may include consideration of the impact of program changes attributable to cost savings or changes in revenues of other state or local programs that are reasonably expected to occur as a result of the implementation of the bill or measure. The Legislative Analyst shall establish the time period for its analysis under this section. (e) For purposes of this section and Section 10247.5, and subdivision (e) of Section 8 and paragraph (2) of subdivision (a) of Section 12 of Article IV, and Section 3.5 of Article XVIII, of the California Constitution, the following terms have the following meanings: (1) "Qualified state costs" means costs to the state, whether paid from General Fund or special fund sources. "Qualified state costs" does not include the following: (A) Costs incurred for the payment of principal and interest on a general obligation bond. (B) The restoration of funding to an agency or program that was reduced in a prior fiscal year or years in order to balance the budget or address a forecasted deficit if any of the followingapplyapplies : (i) The bill or measure restores reductions in appropriations made pursuant to a declaration of fiscal emergency under subdivision (f) of Section 10 of Article IV of the California Constitution. (ii) The bill or measure restores reductions in appropriations made prior to the operative date of the act adding this section if the Legislature makes a finding that the reductions in the program's or agency's funding were necessary in order to balance the Budget or to address a mid-year deficit and that expanding the program or agency is limited to restoring the program's or agency's funding to the level that existed prior to the reductions. (iii) The bill or measure restores reductions in appropriations made on or after the operative date of the act that added this section if the Legislature makes a finding that at the time the reductions were made, the reductions in the program's or agency's funding were necessary to balance the Budget or to address a forecasted deficit, and that at the time the funding is restored, the expansion of the program or agency is limited to restoring theprogramprogram's or agency's funding to the level that existed prior to the reductions made pursuant to paragraph (4) of subdivision (f) of Section 10 of Article IV of the California Constitution: (C) Increases in a program's or agency's funding contained in the Budget Bill or in a budget implementation bill which are limited to the fiscal year for which the bill was enacted. (D) Growth in a program's or agency's funding attributable to increases in the cost of living or workload, including an increase contained in a memorandum of understanding approved by the Legislature. (E) Growth in a program's or agency's funding required by federal law or a California law that is in effect on the operative date of the act that added this section. (F) A bill or measure containing a requirement described in paragraph (5) of subdivision (b) of Section 6 of Article XIII B of the California Constitution. (2) "A net increase in qualified state costs" means ongoing expenditures for a program or agency and does not include a one-time expenditure made by a program or agency. (3) "Additional revenue" means revenue to the state that results from specific changes made by federal or state law and that the state agency responsible for collecting the revenue has quantified and determined to be a sustained increase. SEC. 3. Section 10247.5 is added to the Government Code, to read: 10247.5. Before a bill or measure is read for a third time in either house of the Legislature, the digest of the Legislative Counsel on the bill or measure shall reflect the determination made by the Legislative Analyst pursuant to Section 9145 whenever the Legislative Analyst determines that the bill or measure would result in a net increase in qualified state costs or a net decrease in state revenue in excess of twenty-five million dollars ($25,000,000) annually, as adjusted for inflation pursuant to the California Consumer Price Index. SEC. 4. Section 13335.3 is added to the Government Code, to read: 13335.3. (a) The purpose of performance-based budgeting is to inform policy, fiscal, and oversight decisions by the Governor and Members of the Legislature; to focus managers, supervisors, and rank and file workers on achieving desired goals; and to communicate to the public the value of public programs, progress toward desired results, and the choices available to improve the expenditure of public funds. (b) Every state agency for which an appropriation has been made shall submit to the department a complete and detailed budget at the time and in the form prescribed by the department, setting forth all proposed expenditures and estimated revenues for the ensuing fiscal year. (c) The Budget submitted to the department and proposed by the Governor shall use performance-based budgeting methods that make clear to policymakers and the public the value and results of existing operations and any proposed changes. (d) A performance-based budget shall identify and update all of the following: (1) The mission and goals of the agency. (2) The activities and programs focused on achieving those goals. (3) Performance metrics that reflect desired outcomes for existing and proposed activities and a targeted performance level for the following year. (4) Prior-year performance data and an explanation of any deviation from previous-year targets. (5) Proposed changes in statute, including the creation of incentives or elimination of disincentives that could improve outcomes or hold down costs. (e) The Governor shall provide onhis or heran Internet Web site a summary of each state agency's mission, goals, prior-year performance, and future-year objectives. SEC. 5. Section 13335.5 is added to the Government Code, to read: 13335.5. (a) Not later than the 2014-15 fiscal year, and each fiscal year thereafter, the Budget submitted by the Governor to the Legislature required by Section 12 of Article IV of the California Constitution shall use performance-based budgeting methods. (b) The amount of each appropriation made in the Budget Act for the 2014-15 fiscal year, and each fiscal year thereafter, for expenditure by any state agency shall be determined after considering performance-related data. The Budget Act introduced by the Governor also shall include performance standards, which may be amended by the Legislature. These standards shall apply to each state agency and allow the public and policymakers to understand the effectiveness and efficiency of each program. (c) The Legislative Analyst shall review the adequacy of performance metrics and progress toward targeted outcomes in the Governor's budget proposal. (d) A task force consisting of the director, the Controller, and the chairpersons and vice chairpersons of the Senate Committee on Budget and Fiscal Review and the Assembly Committee on Budget shall do all of the following: (1) Review and comment on guidelines and procedures drafted by the department for use by state agencies in developing performance-based budgets pursuant to Sections 13320 and 13335.3. The guidelines shall describe how state employees will be involved in establishing and implementing performance standards. (2) Review and comment on a training program developed by the department for appropriate executive branch personnel to ensure the successful implementation of performance-based budgeting and management by state agencies. (3) Review and comment on a plan prepared by the department for systematically phasing in the requirements of Sections 13320 and 13335.3. The plan shall ensure that by the 2012-13 fiscal year performance-based budgeting methods are used in preparing, reviewing, and enacting one-third or more of the total General Fund expenditures proposed in the Governor's Budget for that fiscal year. (e) For purposes of this article, "state agency" means any agency, department, or other entity of the executive branch of the state required to submit a budget pursuant to Article 2 (commencing with Section 13320). SEC. 6. Section 13337 of the Government Code is amended to read: 13337. (a) (1) The budget required by theStateCalifornia Constitution to be submitted by the Governor at each regular session of the Legislature shall be submitted within the first 10 days thereof and shall contain a complete plan and itemized statement of all proposed expenditures of the state provided by existing law or recommended by him or her, and all of its institutions, departments, boards, bureaus, commissions, officers, employees, and other agencies, and of all estimated revenues, for the ensuing fiscal year, together with a comparison, as to each item of revenues and expenditures, with the actual revenues and expenditures for the last completed fiscal year, the estimated revenues, and expenditures for the existing fiscal year and the budgeted revenue and expenditures for the next fiscal year. (2) The budget also shall contain a projection of anticipated state expenditures and anticipated state revenues for the three fiscal years following the fiscal year succeeding the budget year, and budget-related plans and proposals for those three fiscal years. For the succeeding fiscal year the Governor's budget shall identify the fiscal condition of the General Fund based on proposals contained in the proposed budget for the budget year. The budget submitted shall include the following: (A) An estimate of the long-term impact of expenditure and revenue proposals will have on the economy of California. (B) The five-year capital infrastructure plan as required in Section 13100. (b) The budget shall, in accordance with Chapter 2 (commencing with Section 41200) of Part 24 of Division 3 of Title 2 of the Education Code, include a section that specifies the percentages and amounts of General Fund revenues that must be set aside and applied for the support of school districts, as defined in Section 41302.5 of the Education Code , and community college districts, as required by subdivision (b) of Section 8 of Article XVI of the California Constitution. (c) The Governor, or the Department of Finance acting on his or her behalf, shall make appropriate changes in the budget request to reflect any modification in the organization or functions of state government proposed under Article 7.5 (commencing with Section 12080) of Chapter 1 prior to the passage of the budget. (d) The Governor's Budget shall be prepared in accordance with guidelines and instructions adopted by the Department of Finance. (e) In order to provide meaningful comparisons, the Governor's Budget shall be prepared in such a manner that the information presented provides for such comparisons between the fiscal years. (f) The Department of Finance shall submit to the committee in each house which considers appropriations and to the Joint Legislative Budget Committee copies of budget material submitted to it by agencies pursuant to the provisions of Article 2 (commencing with Section 13320). (g) The Governor's Budget shall also include a coding structure which indicates for each budget entity the categorization of expenditures and revenues. (h) Prior to the submission of the Governor's Budget to the Legislature, the Department of Finance may conduct public hearings regarding any portion of any budget. (i) The Governor, or the Department of Finance acting on his or her behalf, shall, at the same time the Governor's Budget is submitted to the Legislature, submit to the Legislature copies of the material for the purposes of subdivision (j). (j) The Department of Finance shall develop a fiscal information system which will provide timely and uniform fiscal data needed to formulate and monitor the budget, including, but not limited to,on-lineonline inquiry capacity and the ability to simulate budget expenditures and forecast revenues. This system may include, among other things, data on encumbrances and expenditures by line item, governmental unit, and fund source. The system shall also include expenditures and encumbrances by program, as required. This system shall also include a coding structure which indicates the categorization of expenditures and revenues. This system and the data shall be available to both the legislative and executive branches. The system may contain separate programs accessible by only one branch, designed to provide for distinct application of the data, but the basic system data shall be available on an equal basis to both the legislative and executive branches of government. (k) After submitting a budget for the budget year and the succeeding fiscal year, the Governor shall submit to the Legislature updated projections of state revenue and state expenditures for each of those fiscal years according to the following schedule: (1) January 10 of each year, as part of the Governor's budget introduction. (2) May 15 of each year. (B) Immediately following the report of recommendations by the joint committee pursuant to paragraph (3) of subdivision (c) of Section 12 of Article IV of the California Constitution. (C) October 15 of each year.SEC. 6.Sections 1 to 5SEC. 7. Sections 1 to 6 , inclusive, of this act shall become operative only if ACA 4 is approved by the voters, and they shall become operative upon the operative date of that measure.