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November 15, 2002 Issue #41-2002 STATE BUDGET SHORTFALL GROWS TO $21.1 BILLION The Legislative Analyst's Office (LAO), an independent research arm that supports the Legislature, has projected a cumulative year-end deficit in the 2003-04 budget of $21.1 B. This includes updated pro~ections of a $6.1B budget shortfall in the current budget year with an additional $15B shortfall projected for the 2003-04 budget year. Going forward through the 2007-08 budget year, and barring any corrective actions, the LAO estimates annual operating deficits of $12- $16B per year, or about 14% of the state's annual General Fund budgets over the same period. These estimates, based on current-law spending requirements and tax provisions, represent a significant increase over earlier projections. The reasons cited for the drastic changes since the last estimate are primarily two-fold. First, while the 2002-03 budget was balanced when enacted, it did not address the large underlying mismatch between current-law expenditures and revenues. Second, the outlook for revenues has deteriorated substantially from earlier estimates. What does this mean? The state is expected to consider a wide array of potential revenue enhancement and expense cut options for closin~ a gap of this significance. It's likely that every cost saving or.revenue-enhancing measure that was considered during the 2002-03 budget debate will be on the table again, plus more. In addition, the politics will likely be more challenging: the Republicans, who were the hold-outs in this year's budget debate, have gained seats in both the Assembly and the Senate, increasing the number of "cross-over" votes necessary to reach the 2/3 vote majority to pass a state budget. For more, see page 2. eeeeeeeeeele eeeeeeeeeee HOUSING BOND FUNDS: WHERE AND HOW CAN CITIES SIGN IJP?. As the largest dedication of state funds to help solve the state's housing crisis, Proposition 46 (the Housing and Emergency Shelter Trust Fund Act of 2002) has generated intense interest on the part of cities concerned with moving forward on projects that will alleviate their pressing local housing needs. As approved by Califomia voters earlier th~s month, Proposition 46 will provide $2.1 billion in funding for various existing programs administered by the state Department of Housing and Community Development (HCD) and the California Housing Finance Agency (CalHFA). The agencies plan to release Notices of Funding Availability in January and July 2003. HCD plans to provide additional information about how to access Proposition 46 funds as January approaches. The League will keep city officials updated about funding availability and application processes through Priority Focus and the League Web site. For more, see page 2. Page4 · Strengthening Cities' Retail Opportunities Page 5 · Is Your City Performing State Mandated Activities? · Grant Funding for Energy, Pollution Prevention Projects