ORIGINAL

FREDRIC D . WOOCHER (SBN 96689) GiULiA C. S. GOOD STEFANI (SBN 262228)

HD/POORSED
MR - 5 2 1 A 02
By:
M. PURCELL
DEPUTYCLERK

2 STRUMWASSER & WOOCHER LLP

10940 Wilshire Boulevard, Suite 2000

3 Los Angeles, Califomia 90024

Telephone: (310) 576-1233

4 Facsimile: (310)319-0156
E-mail: fwoocher@strumwooch.com

5
ARTHUR G. SCOTLAND (SBN

62705)

6 P.O. Box 189206

Sacramento, CA 95818-9206

7 Telephone: (916)225-1301
E-mail: ascotland@sbcglobal.net

8
Attorneys for Plaintiffs

9
10
SUPERIOR COURT OF THE STATE OF CALIFORNIA

11
FOR THE COUNTY OF SACRAMENTO

12 13 14 15 16 17 18 19 20 21
Defendants. JOHN CHIANG, in his capacity as STATE CONTROLLER; DOES I-X,
CALIFORNL\

DARRELL STEINBERG, in his capacity as

PRESIDENT PRO TEMPORE OF THE CALIFORNIA SENATE

CASE NO. 34-2012-00117584 Exempt From Filing Fees Pursuant to Gov. Code 6103 PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR JUDGMENT ON THE PLEADINGS

; JOHN A. PEREZ, in his capacity as

SPEAKER OF THE CALIFORNIA ASSEMBLY,

Plaintiffs,

22 23 24 25 26 27 28

Date: Time: Dept.: Judge:

April 10,2012 2:00 p.m. 53 Hon. David I. Brown

Resei-vation #1675296 Action Filed: January 24, 2012

Printed on Recycled Paper

PLAINTIFFS' MEMO OF POINTS & AUTHORITIES iso MOTION FOR JUDGMENT ON PLEADINGS

CONTENTS TABLE OF AUTHORITIES INTRODUCTION 4

5 6 7 8

ii 1 3
3 5 7 9

STATEMENT OF FACTS
A. B. C. D. OVERVIEW OF THE BUDGET PROCESS PROPOSITION 58 PROPOSITION 25 BUDGET EVENTS OF JUNE 2011

9 10 11 12 13 14 15 16 17

ARGUMENT I. THE LEGISLATURE COMPLIES WITH ARTICLE IV, SECTION 12, SUBDIVISION (G), OF THE CONSTITUTION WHEN IT SENDS THE GOVERNOR A BUDGET BILL PROPOSING GENERAL FUND APPROPRIATIONS THAT, WHEN COMBINED WITH EXISTING GENERAL FUND APPROPRIATIONS AND ANY TRANSFERS TO THE BUDGET STABILIZATION ACCOUNT, DO NOT EXCEED THE LEGISLATURE'S ESTIMATE OF GENERAL FUND REVENUES FOR THE FISCAL YEAR THE CONTROLLER HAS NO AUTHORITY TO SECOND-GUESS THE LEGISLATURE'S BUDGET ESTIMATES AND TO DEEM THE LEGISLATURE'S PAY TO BE FORFEITED BASED UPON HIS OWN ANALYSIS OF WHETHER THE BUDGET BILL SATISFIES THE CONSTITUTION'S REQUIREMENTS CONCLUSION

12

13

II.

20 25

18 19 20 21 22 23 24 25 26 27 28
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

1 2 3

TABLE OF AUTHORITIES Cases Association for Retarded Citizens v. Department of Developmental Services (1985) 38 Cal.3d 384 ' Carmel Valley Fire Protection Dist. v. State ofCalifornia (2001) 25 Cal.4th 287 3 24 22, 23 13 22 17 3 23

4 5
Gilb V. Chiang (2010) 186 Cal.App.4th 444

6
Knoffv. City etc. of San Francisco (1969) 1 Cal.App.3d 184

7
McCauley v. Brooks (1860) 16 Cal. 11

8
Pacific Legal Foundation v. Brown (1981) 29 Cal.3d 168

9
Planned Parenthood Affiliates v. Swocip (1985) 173 Cal.App.3d 1187

10
Rankin v. Colgan (1891) 92 Cal. 605

11
Schabarum v. CaUfornia Legislature (1998) 60 Cal.App.4th 1205 . . . . 12, 13, 17, 18, 19, 23-24

12
Stevenson v. Colgan (1891) 91 Cal. 649 19,23 3 21, 22, 23

13
Stratton v. Green (1872) 45 Cal. 149

14
Tirapelle v. Davis (1993) 20 Cal.App.4th 1317

15
Constitution

16
Cal. Const.,

17
art. Ill, 3 24 3,4, 15 4,5 5 5, 18 7 21 3 3 4 4, 7, 9
11
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

18
art. IV, 9

19
art IV, 10, subd. (a)

20
art. IV, 10, subd. (b)

21
arLlV, 10, subd. (e)

22
art. IV, 10, subd. (f)

23
art. IV, 12

24
art. IV, 12, subd. (a)

25
art. IV, 12, subd. (c)(1)

26
art. IV, 12, subd. (c)(2)

27
art. IV, 12, subd. (c)(3)

28

art. IV, 12, subd. (c)(4)

4, 16 3, 8, 16 4, 16 3, 8 18 passim 9,13,14,22 21 6 21 21 Statutes 12 21

2 3

art. IV, 12, subd. (d) art. IV, 12, subd. (e)

4 art. IV, 12, subd. (e)(1) 5 art IV, 12, subd. (f) 6 art. IV, 12, subd. (g) 7 art. IV, 12, subd. (h) 8 art XIII, 17 9 art. XVI, 1.3
10 art XVI, 7 11
art. XVI, 8

12 art. XVI, 8.5 13 14 Code Civ. Proc, 438, subd. (d) 15 Gov. Code, 16 11200 17 12410 18 12440 19 13070 20 21
13308 13337

4 21 21 4 4 3 9-10,14,19 19,20 9, 10 15 Miscellaneous 19-20 11-12, 14, 16

22 AB No. 98 (2011-2012 Reg. Sess.) 23 ACA No. 13 24 SB 69 (2011-2012 Reg. Sess.) 25 SB 335 (2011-2012 Reg. Sess.) 26

27 Controller Jolin Chiang's Analysis of ACA 13 28 Controller John Chiang's Press Release and Proposition 25 Budget Analysis
iii
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

Governor's 2011-12 Budget Presentation Slides 2 3 4 5 6 Governor's Budget, 2011-12 (May Revision) Govemor's Budget Summary-2011-12 Govemor's Executive Order B-07-11 (May 31, 2011) Govemor's Veto Message to Assembly on AB 98 (June 16, 2011) Official Voter Information Guide, General Election (Nov. 2, 2010)

11 11 11 15 10 7-9

7 Proposition 25, 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2, subd.(2) 2, subd. (3) 2, subd.(5) 3, subd. (1) 3, subd.(2) Supplemental Official Voter Information Guide, Primaiy Election (Mar. 2, 2004) 7 7 8 8, 14 8 5,6

PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

1 2 3 4 5 6

INTRODUCTION On June 15, 2011, the California Legislature timely enacted and sent to the Governor its proposed budget bill for the 2011-12 fiscal year. On June 21, 2011, State Controller John Chiang ai-mounced that he had conducted his own review of the Legislature's budget bill and had concluded that, in his view, "the numbers simply did not add up." He therefore declared that the Members of the Legislature had forfeited their pay under Proposition 25, the "On-Time Budget Act of 2010,"

7 from June 16,2011, "until a balanced budget is sent to the Govemor" in accordance with article IV, 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 section 12, subdivision (g), of the Califomia Constitution. The Controller misinterpreted and incorrectly applied the constitutional requirements in question: Article IV, section 12, subdivision (g), requires only that designated appropriations and transfers from the General Fund as of the date of budget bill's passage cannot exceed "General Fund revenues for that fiscal year estimated as of the date of the budget bill's passage . . . [and] set forth in the budget bill passed by the Legislature" a criterion that was undeniably satisfied in the budget bill passed by the Legislature on June 15, 2011. The Legislature estimated that General Fund revenues for the 2011-12 fiscal year would be $87,803 billion, and the amount of General Fund appropriations proposed by the budget bill, when combined with General Fund appropriations previously made for the 2011-12 fiscal year as of the date of the budget bill's passage, totaled approximately $86,550 billion, leaving a budgetary "reserve" of more than $1,252 billion. The Controller nevertheless asserted that components of the Legislature's budget were "incomplete" because in some instances the Legislature's revenue estimates anticipated the passage of "trailer bills" that had not yet been enacted, and in other instances the budget did not include appropriations that, in the Controller's view, would have to be made in the future. None of the Controller's objections, however, finds any support in the veiy specific language and requirements of article IV, section 12, subdivision (g). The Controller therefore went beyond the limited terms and restrictions imposed by the Constitution by adding into his own budget calculation hundreds of millions of dollars in "appropriations" that were not proposed in the budget bill nor had been made at the time of its passage, and by reducing the Legislature's estimate of future revenues based upon his own assessment that several hundred million dollars were projected for the coming fiscal year as a result 1
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

of pending, but not yet enacted, legislation. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Even more troubling, the Controller's interjection of his executive office into the legislative budget process and his assertion of a unilateral right to withhold the Legislature's pay based upon his own analysis of the budget's compliance with the Constitution's requirements exceeded his authority and violated the separation of powers doctrine that underlies our tripartite system of government Article IV, section 12, of the Constitution assigns the exclusive responsibility for adopting a budget in compliance with its provisions to the Legislature and the Govemor, and neither the Constitution nor any statute grants the Controller any role in that process. The Controller's assertion of the right to pass judgment on the validity of the budget bill adopted by the Legislature and to enforce his opinion by unilaterally deeming legislators' pay to be forfeited not only arrogates to his executive branch office one of the core functions of the legislative branch, but does so in a manner that severely disrupts the constitutional balance of powers by holding the legislative budget process hostage to the v/hims and demands of the Controller. By insinuating himself into a process in which he constitutionally does not belongthe budget deliberations and decisionmaking of the legislative branch the Controller violated the separation of powers clause of the state Constitution. This lawsuit and these cross-motions for judgment on the pleadings therefore seek the Court's resolution of an important, ongoing dispute between the Legislature and the Controller over both the proper interpretation of the constitutional provisions goveming the Legislature's adoption of the budget and the legal authority of the Controller or, more accurately, his lack of any such authority to make his own assessment of whether the budget bill passed by the Legislature properly complies with those constitutional provisions and to unilaterally enforce his opinion by deeming the salaries and expenses of the Members of the Legislature to have been forfeited. Plaintiffs do not request any monetary relief with respect to the Controller's unauthorized withholding of legislators' salaries and expenses in 2011, but seek to have these critical constitutional questions judicially resolved as expeditiously as possible so that this recurring controversy does not disrupt and interfere with the timely enactment of a budget for the 2012-13 fiscal year or any subsequent fiscal year.

'LAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

1 2 3
A.

STATEMENT OF FACTS
OVERVIEW OFTHE BUDGET PROCESS

Article IV, section 12, of the Constitution requires the Governor to submit a proposed budget

4 to the Legislature on or before January 10th of each year. (Cal. Const., art. IV, 12, subd. (a); see 5 also Gov. Code, 13337.)' The Govemor's budget is accompanied by a budget bill that includes 6 an itemized statement of all recommended state expenditures and an estimate of state revenues for 7 the ensuing fiscal year. (Art. IV, 12, subds. (a) & (c)(1).) Each expenditure reflects the allotment 8 of an appropriation from a particular fiind,^ and a budget bill is the only bill that can contain more 9 than one item of appropriation. (Art. IV, 12, subd. (d); see generally Planned Parenthood
10 Affiliates v. Swoap (1985) 173 Cal.App.3d 1187,1197-98; Stratton v. Green (1872) 45 Cal. 149,151 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
'All citations to article IV herein refer to article IV of the California Constitution. [defining an "appropriation" as a "named sum of money [that] has been set apart in the treasury and devoted to the payment of a particular claim or demand"].) If the total appropriations proposed in the Governor's budget bill exceed estimated revenues, the Governor is required to identify the sources from which the additional revenues necessary to cover any shortfall should be provided. (Art. IV, 12, subd. (a).) Because the "single-subject rule" set forth in article IV, section 9, requires all bills, including a budget bill, to "embrace but one subject" and the one subject of the budget bill is the appropriation of funds for the annual state budget any substantive statutoiy changes necessary to implement the Govemor's proposed budget generally must be addressed in separate legislation. (See Association for Retarded Citizens v. Department of Developmental Services (1985) 38 Cal.3d 384, 394 [describing the singular puipose of the budget bill as providing "appropriations to support the annual budget'].) The attendant budget-implementing bills are referred to as "budget trailer bills." By law, the Govemor's proposed budget trailer bills must be provided to the Legislature by

"According to the Department ofFinance (DOF), there are more than 1,100 different "fiinds" in California state govemment. For budgetary purposes, these funds are classified according to the 27 following five categories: the General Fund; special funds; nongoveriunental funds; federal funds; or bonds. (See DOF, "Fund Conditions and Transfers/Loans," available at: 28 <http://www.dofca.gov/budgeting/budget_faqs/information/> [last visited March 2, 2012].) 3
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

February 1st of each year. (Gov. Code, 13308.) In addition, the Director of the Department of 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 'The comprehensive state spending plan for a fiscal year is frequently set forth in multiple bills. In recent years, this has involved one bill originating in one house of the Legislature that contains the bulk of the appropriations and an initial revenue estimate, and a second bill originating 4
PLAINTIFFS' MEMO OF POINTS &. AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

Finance, who serves as the Governor's chief fiscal policy advisor, must provide the Legislature with any proposed adjustments to the Govemor's budget by April 1 and with a revised estimate of General Fund revenues, along with any related proposals to reduce expenditures, no later than May 14. (Gov. Code, 13308, 11200, 13070.) Once submitted, the Govemor's proposed budget bill is introduced immediately in both houses of the Legislature, and the Legislature must pass a final budget bill by midnight on June 15th. (Art. IV, 12, subds. (c)(2) & (c)(3).) Until the budget bill is enacted, the Legislature is prohibited from sending to the Governor for consideration any other bill that would appropriate funds for expenditure during the upcoming fiscal year, except for emergency bills recommended by the Govemor or appropriations for the salaries and expenses of the Legislature. (Art. IV, 12, subd. (c)(4).) Again, any substantive changes in law or revisions to existing govemment programs that might be needed in order to implement the spending priorities reflected in the budget bill, as well as any tax increases or other revenue enhancements that are necessary to flind the appropriations made in the budget bill, must be addressed by the Legislature in separate legislation. (See art. IV, 9.) Since many of these bills "provid[e] for appropriations related to the budget bill" (see art. IV, 12, subd. (e)), pursuant to section 12, subdivision (c)(4)'s constitutional mandate, the Legislature cannot, on its own authority, send them to the Govemor until after the budget bill has been enacted (hence the appellation "trailer bills"). Many trailer bills are heard concurrently vvith the budget bill, but they need not be, and any such trailer bills that are not passed at the time of the budget continue to be considered and are subject to amendment by the Legislature until they are either enrolled and presented to the Governor or abandoned. (See generally DOF, "California's Budget Process," available at: <http://www.dofca.gov/fisa/bag/process.htm> [last visited March 2, 2012].) Once the Legislature's budget bill has been passed by each house, the bill is sent, or "presented," to the Govemor.^ (Art. IV, 10, subd. (a).) As with any other legislation, the Governor

then either may sign the budget bill as enacted by the Legislature, may allow it to become law without his signature, or may veto it by returning it to the Legislature with his objections (where the veto can be oven^idden by a tv/o-thirds vote). (Art. IV, 10, subds. (a) & (b).) The Governor also 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 in the other house that amends the first bill to increase, reduce, or modify the initial bill's appropriations and revenue estimate. Together, the bills are referred to as "the budget bill." 5
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

has the authority to "reduce or eliminate one or more items of appropriation while approving other portions ofa bill," commonly referred to as a "line-item" veto. (Art. IV, 10, subd. (e).) The budget bill officially becomes the Budget Act when it is signed by the Governor and filed with the Secretary of State. (Art. IV, 10, subd. (a).)
B. PROPOSITION 58

After a period of high grovv^h in revenues and expenditures in the late 1990's, state tax revenues plunged in 2001 and the budget fell badly out of balance, with the state cariying over large deficits from year to year and engaging in a significant amount of borrowing. In an effort to address these issues, the voters passed Proposition 58 at the March 2,2004, primary election, making three sets of amendments to the Constitution. First, addressing a perceived infirmity in the budget process in which the Governor was required to propose a balanced budget but the state was not actually required to enact a budget bill that was balanced, the Constitution was amended so that the budget bill ultimately passed by the Legislature and signed by the Govemor would have to be balanced in accordance with the measure's prescribed formula. Proposition 58 also added a provision to the Constitution to address the need for mid-year budget adjustments in special session in the event the state found itself facing substantial revenue shortfalls or spending increases. (See Supplemental Official Voter Information Guide, Primary Election (Mar. 2, 2004), Legislative Analyst's Analysis, pp. 11-13 [attached as Exh. 4 to Plaintiffs' Request for Judicial Notice ("RJN")].) Second, in order to cushion the impact on the budget fromftituredownturns. Proposition 58 created a special reserve within the General Fund called the Budget Stabilization Account and required that a portion of annual General Fund revenues be transferred into that account each year until the balance in the account reached the greater of $8 billion or 5% of General Fund revenues; the Govemor, however, was authorized to

1 2 3 4 5 6 7 8 9 10 11 12 13

issue an executive order suspending or reducing the required transfers into the Budget Stabilization Account for any fiscal year. (Ibid.) Third, together with a companion bond measure approved by the voters at the same election (Proposition 57), Proposition 58 authorized the issuance of a $15 billion deficit-financing bond to "wipe the slate clean" and help eliminate the existing cumulative budget deficit, while simultaneously adding language to the Constitufion that would prohibit most borrowing to cover budget deficits in the future. (Ibid. ; see Cal. Const., art. XVI, 1.3.) The so-called "balanced budget' provision of Proposifion 58 is specifically at issue in the instant litigation. It provides: "For the 2004-05 fiscal year, or any subsequent fiscal year, the Legislature may not send to the Govemor for consideration, nor may the Governor sign into law, a budget bill that would appropriate from the General Fund, for that fiscal year, a total amount that, when combined with all appropriations from the General Fund for that fiscal year made as of the date of the budget bill's passage, and the amount of any General Fund moneys transferred to the Budget Stabilization Account for that fiscal year pursuant to Section 20 of Article XVI, exceeds General Fund revenues for that fiscal year estimated as of the date of the budget bill's passage. That estimate of General Fund revenues shall be set forth in the budget bill passed by the Legislature." (Art. IV, 12, subd. (g).) Under Proposition 58's fomiula, then, the Legislature must set forth in the budget bill an

14 " 15 16 17 18 19 20 21 22 23 24 25 26 27 28

estimate of General Fund revenues for the coming fiscal year, and that estimate must exceed or equal the sum of three amounts: (1) appropriations from the General Fund for the fiscal year as proposed in the budget bill; (2) other appropriations "from the General Fund for that fiscal year made as of the date of the budget bill's passage," and (3) any moneys transferred from the General Fund to the Budget Stabilization Account for that fiscal year. Significantly, Proposition 58 does not require that the Legislature's estimate of General Fund revenues be based solely upon the law already in effect at the time of the budget bill's passage. Further, the measure's formula considers only General Fund appropriations that either have been "made" under the laws in existence as of the date of the budget bill's passage or have been proposed in the budget bill itself; it gives no consideration to other General Fund appropriations that may be contained in or result from the subsequent passage of one or more trailer bills. As mentioned above. Proposition 58 also recognized that the estimates and projecfions that are used in formulating the budget before the fiscal year even begins are necessarily just that 6
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

1 2 3 4 5 6 7 8
9

estimates and projections that might not, in fact, turn out as predicted. Accordingly, the measure also provided that if, after the budget bill is enacted, the Governor determines that over the course of the fiscal year General Fund revenues will fall substanfially below the estimate of General Fund revenues upon which the budget bill was based, or that General Fund expenditures will increase substantially above that estimate of revenues, he may declare a fiscal emergency and call the Legislature into special session. If the Legislature fails to pass legislation to address the fiscal emergency by the 45th day following the Govemor's proclamation, it may not adjourn until it does so, and it may not act on any other bill in the meanfime. (Art. IV, 10, subd. (f).)
C. PROPOSITION 25

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

The voters amended article IV, section 12, again at the November 2,2010, general election, when they passed Proposifion 25, the "On-Time Budget Act of 2010." As its fifie reflects, the principal problem addressed by Proposition 25 was not that the amual budgets were not balanced Proposition 58 dealt with that issue but that the Legislature was clironically late in passing and presenting the budget bill to the Govemor. Since 1972, the Constitution had contained a requirement that the Legislature "shall pass the budget bill by midnight on June 15 of each year" (art. IV, 12, subd. (c)(3)), but the Legislature had routinely been unable to muster the two-thirds supermajority vote needed to enact a budget bill by this consfitufional deadline. The result, as set forth in the "Findings and Declarations" of Proposition 25, was that "[l]ate budget passage can have a sudden and devastating effect on individual Califomians and Califomia businesses. Individuals and families can be deprived of essential governmental services and businesses are subject to protracted delays in payments for services rendered to the State." (Proposition 25, 2, subd. (2), reprinted in Official Voter Information Guide, General Elecfion (Nov. 2, 2010), p. 113 [attached as Exh. 5 to Plaintiffs' RJN]; see also id.. Legislative Analyst's Analysis, p. 53 [Legislature had met the June 15 deadline only five times since 1980].) Proposition 25 idenfified two principal causes for the chronically late budgets. One was the two-thirds vote requirement for enactment of the budget. (See Proposition 25, 2, subd. (3) ["A major cause of the inability of the Legislature to pass a budget in afimelymatter is the supermajority two-thirds vote required to pass a budget."].) The other was that there was no effective penalty 7
PLAiN-riFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

imposed upon the Legislature for failing to meet the June 15th constitutional deadline. (See id., 2 3 4 5 6 7 8 9 10 2, subd. (5) ["A second major cause of the inability of the Legislature to pass a budget on time is that individual legislators have no incentive for doing so In order to give the Legislature an incentive

to pass the annual state budget on time, legislators should not be paid or reimbursed for living expenses if they fail to enact the budget on time."].) Proposition 25 therefore adopted a "carrot and stick" approach to address the issue of late budgets: The vote required to pass a budget bill would be lowered from two-thirds to a simple majority of each house of the Legislature, but Members of the Legislature v/ould permanenfiy forfeit their salaries and reimbursements for living expenses for each day that the budget was late. (See i d , 3, subd. (1) ["The people enact this measure to end budget delays by changing the legislative vote necessary to pass the budget from two-thirds to a majority vote and by requiring legislators to forfeit their pay if the Legislature fails to pass the budget

12 13 14 15 16 17 18 19 20 21 22 23 24

on fime."].) To accomplish the first of these objectives, Proposifion 25 amended article IV, section 12, subdivision (d), to exempt General Fund appropriafions in the budget bill and in other bills "related to the budget' from the two-thirds vote requirement.'' Proposition 25 likewise amended section 12 to pennit the budget bill /o take effect immediately pursuant to a majority vote of each house ofthe Legislature, so that an urgency clause (which would necessitate a two-thirds vote) would not be required for that purpose. (See art. IV, 12, subd. (e)(1).) At the same time, Proposifion 25 was careful to emphasize that a two-thirds vote would still be needed for the Legislature to raise taxes, even if the projected increase in tax revenues was a consideration in the budget bill's esfimate of General Fund revenues forthe coming year. (See Proposition 25, 3, subd. (2) ["This measure will not change the two-thirds vote requirement for the Legislature to raise taxes."].)

As amended, article IV, section 12, subdivision (d), provides: "No bill except the budget bill may contain more than one item of appropriation, and that for one certain, expressed purpose. Appropriations from the General Fund of the State, except appropriafions for the public schools, and appropriations in the budget bill and in olher bills providing for appropriaiions relaled to the budgel bill, are void unless passed in each house by rollcall vote entered in the journal, two-thirds of the membership concurring." (Art. IV, 12, subd. (d) [language added by Proposition 25's amendment in italics].) 8
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27 28

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

The "stick" portion of Proposition 25 was set forth in the addition of subdivision (h) to article IV, secfion 12, which calls for the forfeiture of legislators' pay if the budget bill is not passed by midnight on June 15, effective from that date until the day that the budget bill is presented to the Governor. Article IV, section 12, subdivision (h), provides: "Notwithstanding any other provision of lavv or ofthis Constitution,... in any year in vvhich the budget bill is not passed by the Legislature by midnight on June 15, there shall be no appropriation from the current budget or future budget to pay any salaiy or reimbursement for travel or living expenses for Members of the Legislature during any regular or special session for the period from midnight on June 15 until the day that the budget bill is presented to the Govemor. No salary or reimbursement for travel or living expenses forfeited pursuant to this subdivision shall be paid retroactively."
D. BUDGET EVENTS OF JUNE 2011

On January 10, 2011, the Govemor submitted his proposed budget forfiscalyear 2011-12 to the Legislature. That same day, the Senate Budget & Fiscal Review Con-unittee Chair introduced the Governor's budget bill in the Senate, denominated Senate Bill No. 69 ("SB 69"), and the Chair of the Assembly Committee on Budget introduced the Governor's budget bill in the Assembly, denominated Assembly Bill No. 98 ("AB 98"). The Legislature's primary budget bill, SB 69, itemized proposed state expenditures, identified a fund for each appropriation, and utilized a coding scheme and general organizational structure compatible with the Governor's Budget. (SB 69 (2011-12 Reg. Sess.) [attached as Exh. 1 to Plaintiffs' RJN].) SB 69's subject, per its title, was: "An act making appropriations for support of the govemment of the State of California and for several public purposes in accordance with the provisions ofSection 12 of Article IV of the Constitution of the State of California, to take effect immediately. Budget Bill." (Ibid.) In addition to making these appropriafions, SB 69 set forth that "[f]or purposes of subdivision (g) of Section 12 ofArticle IV of the Califomia Constitution, the esfimate of General Fund revenues for the 2011-12fiscalyear pursuant to this act, as passed by the Legislature, is $86,842,200,000." (Id., 35.50, subd. (c).) SB 69 passed the Assembly and Senate by majority vote in each house on March 17, 2011. AB 98 amended SB 69. Collectively, the two bills constituted the Legislature's budget bill

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PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

for the 2011-12 fiscal year.' (See AB 98 (2011-12 Reg. Sess.) [attached as Exh. 2 to Plainfiffs'

2 RJN].) Among other revisions, AB 98 amended the Legislature's estimate of General Fund revenues 3 for the fiscal year, setfing the esfimate at $87,803,300,000. (M, 426.) AB 98 also idenfified a list 4 of approximately one hundred Senate and Assembly bills "providing for appropriations related to 5 the Budget Bill within the meaning of subdivision (e) ofSection 12 of Article IV of the Califomia 6 Constitution." (Id., 427.) AB 98 passed the Assembly and Senate by majority votes on June 15, 7 2011. (Assem. J. (2011-12 Reg. Sess.), pp. 1946-1948; Sen. J. (2011-12 Reg. Sess.), pp. 14338 1436.) At approximately 5:00 p.m. that same day, the Legislature presented its budget bill, as set 9 forth in SB 69 as amended by AB 98, to the Govemor. (Ibid.)
10 11 12 13
On June 16, 2011, the Govemor retumed SB 69 and AB 98 to the Legislature without his signature, thereby vetoing the Legislature's budget bill. In the accompanying message, the Governor commended Democrats in the Legislature for "their tremendous efforts to balance the budget in the absence of Republican cooperation," specifically referencing their "valiant efforts to address

14 Califomia's budget crisis by enacting $11 billion in painful cuts and other solufions." (Governor's 15 16
Veto Message to Assembly on AB 98 (June 16, 2011), Assem. J. (2011-12 Reg. Sess.), p. 1984 [attached as Exh. 6 to Plaintiffs' RJN].) The Govemor expressed his concern, however, that the

17 budget submitted to him did not contain an equitable mixture of both spending cuts and revenue 18 19 20 21
' A B 98'S subject, as declared in its fitle, was: "An act to amend and supplement the Budget Act of 2011 . . . to take effect immediately. Budget Bill." The Legislative Counsel's Digest for 23 AB 98 explained that "SB 69 . . . would make appropriations for support of state govemment for the 2011-12fiscalyear," and "[AB 98] would make revisions to those appropriations." (AB 98 (2011 -12 24 Reg. Sess.).) increases what he referred to as "a balanced solution" to the state's structural deficit and that, as a result, "[i]t continues big deficits for years to come and adds billions of dollars of new debt.... [Tl] We can and must do better." (Ibid.f

22

25

^Contrary to the Controller's characterization, the Govemor's veto message did not indicate 26 that he believed that the Legislature's June 15 budget bill was not "balanced" in accordance vvith Proposition 58's formula. Rather, using the same terminology that he had consistently employed in 27 describing the "budget solutions" he proposed for addressing the state's ongoing deficits, the Governor bemoaned that due to the Republicans' continuing refusal to allow the electorate to vote 28 on extending certain temporaiy taxes, the Legislature's budget bill did not include an appropriately 10
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

Five days later, on June 21, 2011, Defendant State Controller John Chiang issued his own

2 press release in vvhich he announced that, pursuant to his office's "review of the recently-passed 3 budget," he supposedly "found components that were miscalculated, miscounted or unfinished. The 4 numbers simply did not add up, and the Legislature vvill forfeit their pay until a balanced budget is 5 sent to the Governor." (Press Release of State Controller .lohn Chiang (June 21, 2011), p. 1 6 [attached as Exh. 10 to Plaintiffs' RJN].) Despite acknowledging that "[njothing in the Consfitution 7 or state law gives the State Controller the authority to judge the honesty, legitimacy, or viability of 8 a budget," the Controller contradicted that principle in the very next sentence by asserting the right 9 to "determine vvhether the expected revenues will equal or exceed plarmed expenditures in the
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
^The Controller conceded that such "underfunding" would be permissible if Proposifion 98 budget, as required by Article 4, Section 12(g) of the Constitution." (Ibid.) Controller Chiang opined that "the recenfiy-vetoed budget committed the State to $89.75 billion in spending, but only provided $87.9 billion in revenues, leaving an imbalance of $1.85 billion." (Ibid.) In particular, the Controller objected that "[t]he June 15 budget underftinded education by more than $1.3 billion,"^ and he faulted the budget for "count[ing] on $320 million in hospital fees, $103 million in taxes on managed-care plans, and $300 million in vehicle registration charges," even though "the Legislature never passed the bills necessary to collect or spend those funds as part of the State budget." (Id., p. 2.) The Controller did not provide any detailed analysis as to how he had reached his conclusions, but his press release referenced and attached the "Controller's Proposition 25 Budget Analysis," vvhich identified four specific revenue-generating bills that were considered by the "balanced" combination of spending cuts and revenue increases, which would result in renewed deficits in future years owing to a chronic revenue shortage. (See, e.g.. Governor's Budget Summary - 2011-12, p. 5 ["the Governor proposes a balanced approach to close the budget gap," including "$26.4 billion in spending cuts, revenues and other solutions to balance the budget this year and into the future"], attached as Exh. 7 to Plaintiffs' RJN; Governor's 2011-12 Budget Presentation Slides, pp. 5-6 ["Budget Takes a Balanced Approach" with "Proposed Budget Solutions" divided into 47% "expenditure reductions" and 46% "revenues"], attached as Exh. 8 to Plaintiffs' RJN; Governor's Budget, 2011 -12 May Revision, p. 2 ["The Govemor's Budget identified a $35.4 billion gap between revenues and spending and proposed to bridge the gap through a balanced combination of spending cuts and tax extensions."], attached as Exh. 9 to Plaintiffs' RJN.)

28 were suspended, but noted that the suspension would require a tvvo-thirds vote ofthe Legislature.
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

Legislature in deriving its revenue estimate, but which had not yet been enacted as of the date of the

2 budget bill's passage.^ (Id., p. 3.) The Controller also added in an additional $1,478 billion to the 3 Legislature's "expenditures" to account for the supposed "underfunding" of education. Finally, the 4 Controller added $770.1 million in "expenditures" for something he enfitled "Liquidafion of 5 Encumbrances," without explaining what that figure was supposed to represent. The Controller 6 relied on these alleged "miscalculations" to conclude that the Legislature's June 15, 2011, budget 7 bill did not meet the requirements of Proposition 58. (Id., p. 1.) The Controller then declared the 8 legislators' pay and living expenses to have been forfeited from June 16 until "the day that the 9 budget bill is presented to the Governor." (Ibid.)
10 11 12 13 14 15 16
In the meantime, the Legislature was busy reconsidering the budget bill following its return from the Govemor. On June 28, 2011, the Senate and Assembly enrolled and presented to the Governor SB 87 a new budget bill for the 2011-12 fiscal year. On June 30, 2011, the Govemor signed the Legislature's budget bill and enacted the 2011-12 Budget Act into law. ARGUMENT In a declaratory relief action, a motion for judgment on the pleadings is an appropriate means of obtaining an adjudication of the rights of the parties when those rights can be determined as a

17 matter of law from the face of the pleadings and judicially noticeable matters. (Code Civ. Proc, 18 19 20 21 22 23 24 25 26 27
^The four such bills singled out by the Controller included two pending Senate bills, one of vvhich was a budget trailer bill, and two pending Assembly bills, both of which were related to the budget. Although the Controller added the estimated revenue impact of these bills to the "expenditures" column in his analysis of the budget, the basis for his objection vvas that the addifional revenues that they were projected to produce could not reliably be counted on, so the amounts should actually have been subtracted from the "revenues" column instead. Doing so, however, would have blatantly exposed the fact that the Controller vvas doing nothing more than second-guessing the Legislature's estimate of General Fund revenues for the upcoming fiscal year. 438, subd. (d); see Schabarum v. California Legislaiure (1998) 60 Cal.App.4th 1205, 1216 ["The standard for granting a motion for judgment on the pleadings is essentially the same as that applicable to a general demun-er, that is, under the state of the pleadings, together with matters that

The Controller also identified one additional Senate bill that would, when passed, cost the state $94 million. The Controller similarty erroneously categorized this addifional projected 28 "savings" as additional "revenues" in his analysis. (Ibid.) 12
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

may be judicially noticed, it appears that a party is enfitled to judgment as a matter of law."].) Where 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 As set forth above, article IV, section 12, subdivision (g), of the Constitufion, added by 22 Proposition 58, provides that the Legislature may not send to the Govemor a budget bill that would 23 24 25 26 27 28 13
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

the answer raises no material issues of fact and states no valid defense to the acfion, the plaintiffis entified tojudgment on the pleadings. (Knoffv. Cityelc. of San Francisco (1969) 1 Cal.App.3d 184, 200.) In this case, the pleadings establish the existence of an important and ongoing legal dispute between the Legislature and the Controller regarding their respective rights and duties under the state Constitution. As exemplified by his actions with respect to the FY 2011-12 budget, the Controller asserts the right to review the Legislattire's estimate of General Fund revenues and appropriations as set forth in the annual budget bill, to make his own assessment of whether the budget bill passed by the Legislature complies vvith article IV, section 12, subdivision (g), and to unilaterally enforce his opinion by deeming the salaries and expenses of the Members of the Legislature to have been forfeited pursuant to subdivision (h) of that section. As we show below, however, the Controller is misinteipreting and incorrectly applying these constitutional requirements, and he exceeds his lawful authority and violates the separation of powers doctrine by interjecting himself in this manner into the budget process, which the Constitution declares to be the exclusive responsibility of the Legislature and the Governor. I. THE LEGISLATURE COMPLIES WITH ARTICLE IV, SECTION 12, SUBDIVISION (G), OF THE CONSTITUTION WHEN IT SENDS THE GOVERNOR A BUDGET B I L L PROPOSING GENERAL FUND APPROPRIATIONS THAT, WHEN COMBINED WITH EXISTING GENERAL FUND APPROPRIATIONS AND ANY TRANSFERS TO THE BUDGET STABILIZATION ACCOUNT, DO NOT E X C E E D THE LEGISLATURE'S ESTIMATE OF GENERAL FUND REVENUES FOR THE FISCAL YEAR

appropriate from the General Fund a total amount that, when combined with (1) all previous General Fund appropriations already made for thatfiscalyear as of the date of the budget bill's passage and (2) the amount of any General Fund moneys transferred to the Budget Stabilization Account for that fiscal year, exceeds the Legislature's estimate of General Fund revenues for that fiscal year as ofthe date of the budget bill's passage. (See pp. 5-7, supra.) Proposition 58 thus imposes a very specific

limitation on the Legislature's budgetary prerogative: The Legislature must make and set forth in the 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 'The provision upon which the Controller relied to deem the Legislature's pay to be forfeited article IV, section 12, subdivision (h) provides for the forfeiture of legislators' salary and expense reimbursements "in any year in which the budget bill is not passed by the Legislature by midnight on June 15." That provision, which was added to the Constitufion by Proposition 25 specifically in order "to end budget delays . . . by requiring legislators to forfeit their pay if the Legislature fails to pass the budget on time" (Proposition 25, 3, subd. (1) [Purpose and Intent]), contains no statement that its forfeiture penalty also applies to an asserted violation of article IV, section 12, subdivision (g)'s separate requirement that the budget bill be "balanced" in accordance vvith its prescribed formula. The Court need not resolve the issue of vvhether the Controller incorrectly applied Proposifion 25's forfeiture penalty to an asserted violation of section 12, 14
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

budget an estimate of General Fund revenues for the coming fiscal year, and the General Fund appropriations proposed by the budget bill, when combined with the two amounts noted above, cannot exceed that estimate. Pursuant to the plain meaning of the Constitution, when the Legislature passes and sends to the Govemor a budget bill that complies with this specific condifion, the requirements of article IV, secfion 12, subdivision (g), are satisfied. The Controller does not dispute that, on its face, the 2011-12 Budget Bill enacted by the Legislature on June 15, 2011, complied with Proposition 58's requirement. The Legislature estimated that General Fund revenues for the 2011-12 fiscal year would be $87,803 billion (see AB 98 (2011-12 Reg. Sess.), 426 [amending SB 69, 35.50]), and the amount of General Fund appropriations proposed by the budget bill, when combined with General Fund appropriations made by existing law for that fiscal year as of the date ofthe budget bill's passage, totaled approximately $86,550 billion leaving a budgetary "reserve" of more than $1,252 billion. (See Controller's Proposition 25 Budget Analysis [comparing estimated "expenditures" of $86,550,700,000 with "revenues" of $87,803,000,000].) Yet the Controller took it upon himself to go beyond the Legislature's calculations and conducted his own analysis of both the budget and the Constitution's requirements, "adjusting" the Legislature's estimated revenues and expenditures by some $3 billion and concluding that the Legislature's pay must be forfeited because this revised budget allegedly did not satisfy article IV, secfion 12, subdivision (g). In doing so, the Controller both misinterpreted the consfitutional requirements and unlavvfully interfered with a function exclusively assigned to the Legislature.'

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Under the express terms of article IV, section 12, subdivision (g), the "balancing" requirement of that constitutional provision is satisfied vvhen the Legislature's estimate of General Fund revenues for the coming fiscal year exceeds the combined total of three specific amounts: (1) the appropriations from the General Fund for that fiscal year proposed in the budget bill itself; (2) "all appropriations from the General Fund for that fiscal year made as of the date of the budget bill's passage"; and (3) "the amount of any General Fund moneys transferred to the Budget Stabilizafion Account for that fiscal year."'" The Legislature's June 15th budget was indisputably "balanced" according to this fonnula. The Controller nevertheless asserted that components of the Legislature's budget were "incomplete" because in some instances the Legislature's revenue estimates anticipated the passage of "trailer bills" that had not yet been enacted, and in other instances the budget did not include appropriations that, in the Controller's view, would have to be made in the future. None of the Controller's objections, however, finds any support in the very specific language and requirements of the Constitution. For example, the Controller faulted the Legislature for including $320 million in anticipated revenues from a new hospital fee proposed in SB 335, even though that legislation had not yet been enacted as of the date of the budget's adoption." But nothing in secfion 12, subdivision (g), prohibits the Legislature from including in its estimate of General Fund revenues for the coming fiscal year moneys that it believes will be generated as a result of the enactment of "trailer bills" like SB 335. Indeed, it could hardly be otherwise, for under the single-subject rule of article IV, secfion 9, the Legislature is constitutionally prohibited from including in the budget bill itself tax

subdivision (g), under the present circumstances, however, because for the reasons discussed 22 herein the Legislature unquestionably complied with the requirements of section 12, 23 subdivision (g), in timely enacting the June 15, 2011, budget bill. 24 25 26 "SB 335, introduced on Februaiy 15, 2011, imposed a "quality assurance fee" on certain 27 hospitals. The Legislature passed the bill on August 29,2011, in a form structured to generate $320 million in revenues, and it was signed into lavv by the Governor on September 16, 2011. (See 28 Plaintiffs' RJN, Exh. 3.) 15
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

'"For the 2011-12 fiscal year, the amount transferred to the Budget Stabilization Account was zero, for the Governor had suspended the transfer requirement by executive order, in accordance with article XVI, section 20, subdivision (e). (See Executive Order B-07-11 (May 31,2011) [attached as Exh. 11 to Plainfiffs' RJN].)

increases, revenue enliancements, or other substantive changes to law that might be needed to fund

2 the bill's appropriations or to implement the spending prionties refiected in the budget.'^ Thus, in 3 arriving at its estimate of General Fund revenues for the fiscal year, the Legislature must necessarily 4 take into account the existence of "trailer bills" that have not yet been enacted at the time of the 5 budget's adoption. And as section 12, subdivision (g), recognizes, only the Legislature is 6 empowered to assess the likelihood that these pending bills will be passed and to project the impact 7 of their adoption onftiturerevenues.'^ 8
In short, pursuant to the plain meaning of the Constitution, the Controller's conclusion that

9 the June 15th budget bill violated article IV, section 12, subdivision (g), vvas erroneous as a matter
10 11 12 13 14 prohibited from sending to the Governor for consideration "any bill appropriating ftinds for 15 expenditure during the fiscal year for which the budget bill is to be enacted." (Art. IV, 12,
subd. (c)(4).) The "trailer bills" that enhance revenues, adjust program benefits, or make other '^Likewise, until the budget bill has been enacted into law, the Legislature is generally of law. The only constraint imposed by that consfitufional provision on the Legislature's discretion in adopting the budget bill is that the amount of appropriations from the General Fund proposed in the budget bill, vvhen combined with the appropriations already made from the General Fund for that

16 substanfive changes in lavv to implement the budget bill, as expressly addressed in article IV by 17 generally subject to this restriction. (See art. IV, 12, subds. (d) & (e).) 18 19 20 21 22 23 24 25 26 27 28
Proposifion 25, are "bills providing for appropriafions related to the budget bill," and thus are

''Conversely, the Controller also took the Legislature's budget bill to task for allegedly not appropriating enough money from the General Fund to cover certain state spending needs or obligations that he believed would arise in the future. (See Controller's Proposition 25 Budget Analysis, supra [June 15 budget underftinded Proposifion 98 requirement by more than $ 1.3 billion; June 15 budget assumes $209 million savings from more-efficient correcfional administration at the local level].) By its explicit temis, however, section 12, subdivision (g)'s "balanced budget' formula does not include consideration of General Fund appropriations for the fiscal year that are neither proposed in the budget bill nor "made as of the date of the budget bill's passage." Again, this is for good reason: Whether the supposedly "underfunded" spending obligations identified by the Controller would in fact require that General Fund appropriations be made in the future is entirely speculative, as it hinges upon what trailer bills may yet be passed by the Legislature (e.g., a statutory reduction of benefits under an existing state spending program) or upon any of myriad other actions that the Legislature might take to address the alleged shortfall (such as suspension of the Proposition 98 spending obligation). The critical point is that Proposition 58's formula is concemed with the amount of General Fund appropriations that the Legislature has either proposed in the budget bill or has already authorized by law to be spent on the enumerated programs as ofthe date of the budget bill's passage, not vvith vvhether the Controller or anyone else believes that additional funds should be appropriated in the future to meet the state's needs. 16
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

fiscal year as of the date of the budget bill's passage, must not exceed the Legislature's estimate of 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 '''This rule of strict construcfion applies fully to constitutional inifiatives such as Proposition 58: "The rule has so long been such an integral part of our system of constitutional adjudication that anyone drafting a proposed constitutional amendment must be presumed to act in light of it. For such a person the rule can be simply stated: To the extent you intend to restrict the Legislature's exercise ofthe legislative prerogative, you must do so by clear and unequivocal language." (Schabarum v. California Legislature, supra, 60 Cal.App.4th at p. 1218 fn. 6.) 17
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

revenues for the coming fiscal year. Such a limitation on the Legislature's law-making authority under the Constitution must be strictly construed. As the Court emphasized in Pacific Legal Foundation v. Brown (1981) 29 Cal.3d 168: "If there is any doubt as to the Legislature's povver to act in any given case, the doubt should be resolved in favor of the Legislature's action. Such restrictions and limitations [imposed by the Constitution] are to be construed strictly, and are not to be extended to include matters not covered by the language used." (Id. at p. 180 [citations omitted; emphasis in original].)''' When the General Fund appropriation amounts specified by section 12, subdivision (g), do not exceed the Legislature's estimate of General Fund revenues set forth in the budget bill as was the case with the Legislature's June 15, 2011, budget that constitutional requirement has been satisfied, plain and simple. The Controller therefore went beyond the limited terms and restrictions imposed by the Constitution by adding into his budget calculation hundreds of millions of dollars in "appropriations" that had not been made by the Legislature at the time ofthe budget bill's passage, and by removing from the Legislature's estimate of future revenues hundreds of millions of dollars of funding that was projected for the coming fiscal year as a result of pending, but not yet enacted, legislafion. More fundamentally, section 12, subdivision (g), grants the exclusive authority for determining the estimate of General Fund revenues to the Legislature, and it neither sets forth any criteria that could be said to restrict the Legislature's discretion in the preparation of that revenue estimate, nor does it assign to any other officer or agency any role in reviewing the validity of the Legislature's projection. It has long been established that "[t]he enactment of a budget bill is a legislative function; it is both a right and a duty that is expressly placed upon the Legislature and the

Governor by our state Constitution." (Schabarum v. California Legislature, supra, 60 Cal.App.4th 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 at p. 1214; see, e.g., art. IV, 12, subd. (f) ["The Legislature may control the submission, approval, and enforcement of budgets . . . ."].) The Legislature's exclusive constitutional responsibility for adopting the budget is refiected in section 12, subdivision (g)'s explicit declarafion that the "estimate of General Fund revenues shall be set forth in the budget bill passed by the Legislature." Notably absent in that subdivision or elsewhere in the Consfitution is any provision empowering the Controller to review the Legislature's exercise of its constitutional authority and to substitute his own judgment for that of the Legislature with respect to the budget bill's estimate of General Fund revenues.'^ To the contrary, the courts have steadfastly held that when the policymaking role of the Legislature necessitates that it engage in certain fact-finding processes as "an indispensable incident and auxiliary to the proper exercise of the legislative power," it is not the function of any other branch of government including even the judiciaiy to reweigh or to question the validity of the Legislature's detenninations. (Schabarum v. California Legislature, supra, 60 Cal.App.4th at p. 1219.) As the Supreme Court admonished more than a century ago: "When the right to enact a law depends upon the existence of facts, it is the duty of the legislature, before passing the bill, and of the govemor before approving it, to become satisfied in some appropriate way that the facts exist, and no authority is confeiTed upon the courts to hear evidence, and detemiine, as a question of fact, whether these co-ordinate departments of the state government have properly discharged such duty. The authority and duty to ascertain the facts which ought to control legislative action are, from the necessity of the case, devolved by the constitution upon those to whom it has given the power to legislate, and their decision that the facts exist is conclusive upon the courts, in the absence of an explicit provision in the constitution giving the judiciary the right to review such action." (Steven.son v. Colgan (1891) 91 Cal. 649, 652.) Pursuant to article IV, section 12, subdivision (g), it is the constitutional responsibility of the Legislature, before passing the budget bill, to estimate General Fund revenues for the coming fiscal year and to satisf)' itself that the aniount of the budget bill's appropriations from the General Fund, when combined with all previous appropriations made from the General Fund for that fiscal year as '^Indeed, even the Governor, who has the authority under the Constitution to veto a budget bill in its entirety or to "reduce or eliminate one or more iteins of appropriation''' (art. IV, 10, subd. (e) [emphasis added]), has no power to increase, reduce or eliminate the Legislature's estimate of General Fund revenues set forth in the budget bill. 18
PLAINTIFFS' MEMO OF POIN TS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

of the date of the budget bill's passage, as well as any General Fund moneys transferred to the Budget Stabilization Account, do not exceed those projected revenues. This is precisely the type of "legislative factfinding" that has been held to be immune from review by one of the other branches of government. If, on its face, the budget bill complies with the requirements of article IV, section 12, subdivision (g), "the court will not go behind it, and, by a resort to evidence, undertake to ascertain vvhether the legislature, in its enactment, observed the restrictions which the constitution imposed upon it as a duty to do, and to the perfomiance of which its members were bound by their oaths of office." (Stevenson v. Colgan, supra, 91 Cal. at pp. 652-653.) If the courts have no povver to consider addifional evidence or to go behind the Legislature's determinafion that the budget bill is "balanced" in accordance with Proposifion 58's terms, a fortiori the Controller has no authority to do so, either. (See Schabarum v. California Legislature, supra, 60 Cal.App.4th at p. 1219 ["It is not the judiciary's funcfion, however, to reweigh the 'legislative facts' underlying a legislative enactment."] [citation omitted].) Significantly, although the Controller apparently found it politically expedient in June 2011 to challenge the Legislature's revenue projections and to make his own assessment of the budget bill's compliance with the Constitution's requirements, barely four months earlier his office had insisted that he had neither the competence nor the legal responsibility to undertake such tasks. In December 2010, Assembly Member Nestande introduced Assembly Constitutional Amendment No. 13 ("ACA 13"), which proposed to amend article IV, secfion 12, subdivision (g), to require that the estimate of General Fund revenues set forth in the annual budget bill be made by the Controller, rather than by the Legislature, and to require the Controller to certify, within tliree days after a budget bill was sent to the Governor for consideration, whether the bill safisfied the requirements of that subsection. (See ACA 13 [attached as Exh. 12 to Plaintiffs' RJN].) The very fact that Assembly Member Nestande recognized that a constitutional amendment was needed in order to provide the Controller with this authority only confirms, of course, that the Controller lacks such authority under existing lavv. But even more telling vvas the Controller's response to the proposal: In a February 7, 2011, transmittal to Assembly Member Nestande's office, the Controller objected that "[tjhis bill requires the State Controller's Office (Controller) to perform functions for which no expertise exists 19
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

within cuirent staffing levels, and these functions are not current responsibilities of the 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 '*ACA 13 was referred to the Assembly Committee on Budget in April 2011, but has not been scheduled for hearing by the Committee. 20
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

Controller.'" (Controller's Analysis of ACA 13, p. 1 [emphasis added] [attached as Exh. 13 to Plaintiffs' RJN, p. 1].) The Controller went on to explain that his office did not have sufficient historical data to be able to provide accurate estimates of General Fund revenues for each fiscal year, that representafives of the Controller's office would need to be included in all legislative meetings discussing bills that might have an impact on the General Fund in order to gauge their impacts on the current or upcoming budget bill, and that "[t]o accomplish these tasks, 34 full-time and 10 threeyear limited-temi positions would be required," at an estimated cost of more than $6 million per year. (M, pp. 2-3.)'^ In short, the Controller had it right in February 2011, and he got it wrong four months later in June: As demonstrated by the Controller's erroneous interpretation and application of section 12, subdivision (g), to the FY 2011-12 budget bill, he does not have either the factual basis or the necessary expertise to determine whether the budget bill passed by the Legislature complies with that section's requirements. More importantly, he does not have the legal authority to do so at least in the absence of a constitutional amendment that would give that responsibility to the Controller. II. THE CONTROLLER HAS NO AUTHORITY TO SECOND-GUESS THE LEGISLATURE'S BUDGET ESTIMATES AND TO DEEM T H E LEGISLATURE'S PAY TO BE FORFEITED BASED UPON HIS OWN ANALYSIS OF WHETHER THE BUDGET BILL SATISFIES THE CONSTITUTION'S REQUIREMENTS In addition to having misinterpreted the specific requirements imposed on the Legislature's enactment of the budget bill by the Constitution, the Controller exceeded his authority by interjecting himself into the budget-making process at all, and he violated the separation of powers doctrine by deeming the Legislature's pay to be forfeited based upon his own analysis and adjustment of the Legislature's budget calculations. As noted above, article IV, section 12, of the Constitufion assigns the responsibility for adopfing a budget in compliance vvith its provisions to the Legislature and the Governor, and neither the Consfitufion nor any statute grants the Controller's office any role in that process, much less the power to declare the Legislature's pay to be forfeited based upon the

Controller's unilateral determination that section 12, subdivision (g)'s requireinents allegedly were

2 not satisfied. 3
The Controller, like other state officers and agencies, has only those powers that have been

4 conferred on him by the Constitution or statute, either expressly or by implication. The Constitution 5 follows what has been characterized as "a minimalist approach" in defining the Controller's powers, 6 that is, "it provides for the office but primarily leaves it to the Legislature to define the duties and 7 funcfions ofthe Controller." (Tirapelle v. Davis (1993) 20 Cal.App.4th 1317, 1327.) The only 8 explicit mention of the Controller's general dufies in the Constitufion is found in article XVI, 9 section 7, vvhich provides: "Money may be drawn from the Treasury only through an appropriation
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
"The Constitution also provides that the Controller is a member of the Board of Equalization (art. XIII, 17), and it assigns him certain duties regarding the transfer and allocation of revenues 27 to the State School Fund (art. XVl, 8, 8.5.) Beyond that, however, all of the Controller's responsibilities are set by statute, and "[t]he Legislature has wide discretion in defining the duties and 28 functions of the office." (Tirapelle v. Davis, supra, 20 Cal.App.4th at p. 1327 [citations omitted].) 21 made by law and upon a Controller's duly drawn warrant."'^ The Govemment Code declares that the Controller "shall superintend the fiscal concems of the State . . . and may audit the disbursement of any state money, for correctness, legality, and for sufficient provisions of law for payment." (Gov. Code, 12410.) Govemment Code section 12440 also provides that "[t]he Controller shall draw warrants on the Treasurer for the paynient of money directed by law to be paid out of the State Treasury; but a warrant shall not be drawn unless authorized by law, and unless . . . unexhausted specific appropriafions provided by law are available to meet it." Significanfiy, neither the Constitufion nor any statute expressly assigns the Controller any role in the budget process. In particular, the Controller is given no authority to review the Legislature's estimate of General Fund revenues for the coining fiscal year as set forth in the budget bill, to make his own determination as to vvhether the budget bill passed by the Legislature complies with article IV, section 12, subdivision (g), or to unilaterally deem the salaries and expenses of the Members of the Legislature to have been forfeited pursuant to subdivision (h) of that section. Nor can any of these powers be inferred from the Controller's general constitutional and statutory authority to "superintend the fiscal concerns of the State" and to "draw warrants on the Treasurer for

26

PLAINTIFFS' MEMO OF POIN TS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

the paynient of money directed by law to be paid out of the State Treasury."

To the contrary, it has long been held that the Controller's responsibility to draw vvaiTants

3 for the expenditure of state ftinds does not include the authority to ascertain the validity of the 4 payment. Rather, "[t]he Controller's authority is generally said to be ministerial when the ainount 5 of an expenditure is set by lavv or entrusted to the discretion of another agency or branch of 6 government." (Tirapelle v. Davis, supra, 20 Cai.App.4th at p. 1329; accord, Gilb v. Chiang (20\0) 7
186 Cal.App.4th 444, 464.) In one of its earliest decisions examining the scope of the Controller's

8 authority, McCauley v. Brooks (1860) 16 Cal. 11, the Supreme Court held that a writ of mandate 9 should issue compelling the Controller to issue certain warrants to a lessee who had entered into a
10 contract vvith the state pursuant to a stattite that gave the lessee the right to demand and receive 11
warrants from the Controller for the monthly payments named in the contract. The court in Tirapelle

12 V. Dcjvis described what happened next in the McCauley case: 13 14 15 16 17 18 19 20 21 22 that the Controller had the independent authority to determine the validity of a legislative act or that 23 he could refuse to make payments to state officials based on his belief that they had not properly
performed their duties: '^As is obvious from the quoted passage, the Court in McCauley fimily rejected any notion "On petition for rehearing the Controller claimed an independent right which could not be controlled by mandate to determine the propriety of expenditures. The court issued a lengthy opinion denying the petition for rehearing in order to reject arguments of the Controller that the court regarded as 'preposterous' and 'pernicious.' (16 Cal. at pp. 57, 64.) In its discussion the court pointed out that if the Controller is vested with such independent authority then so also must be other officers such as the Treasurer, Secretary of State and the Govemor. (Id. at pp. 60-61.) There would be nothing that would preclude the Treasurer from insisting upon the right to independently review and refuse to honor the warrants of the Controller, or that would preclude the Secretary of State from reftising to perform the duties of that office, such as certifying appointments and/or elections. (16 Cal. at pp. 60-61.) . . . If this doctrine can be maintained, the government must cease to be one of law, and must sink into merited contempt for its weakness and inefficiency. (Id. at p. 61.)" (Tirapelle v. Davis, supra, 20 Cal.App.4th at pp. 1330-1331.)'^

24 25 26 27 28
"[The Controller's] duties are enumerated and defined by the law, and they are, as we have said, generally ofa purely ministerial character. He has no discretion as to the issuance of warrants for appropriations for the public service. He cannot refuse his warrants for the salaries of the Govemor and Judges, upon any notions that such matters rest in his discretion, and that in his judgment those officers have not performed their duties. . . . But ifhe cannot do this in the cases supposed, he cannot do it in any case where a specific ministerial duty is enjoined." (16 Cal. at p. 55.) 22
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

Similarly, in Stevenson v. Colgan, supra, 91 Cal. 649, and Rankin v. Colgan (1891) 92 Cal. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 605, the Court reaffirmed that the Controller could not second-guess the validity of the Legislature's actions and reftise to make paynients for sums appropriated by the Legislature on the asserted ground that the Legislature had acted unlavvfully in appropriating the ftinds. The Court emphasized that neither the Controller nor the courts had the authority to determine "vvhether the legislature, in passing the statute, properly discharged its duty by the preliminary ascertainment of facts which alone would jusfify such legislafive acfion." (Stevenson v. Colgan, supra, 91 Cal. at p. 652; accord, Rankin v. Colgan, supra, 92 Cal. at pp. 606-607 ["We must presume that the legislature before passing the act, and the govemor before approving it, made inquiry as to the nature of the services for which the petitioner claimed conipensation, and found that the claim was legal and just."]; cf Gilb V. Chang, supra, 186 Cal.App.4th 444 [Controller has no authority to disregard Department of Personnel Administration's pay directive based upon his belief that it was contrary to law]; Tirapelle V. Davis, supra, 20 Cal.App.4th 1317 [same].) So, too, in the present context, the Controller's largely ministerial duties in no way authorize him to conduct his own review of the budget bill passed by the Legislature, to take issue with the revenue and appropriation estimates made therein by the Legislature, and to make his own determinafion that the budget bill is not properly "balanced" in accordance with article IV, section 12, subdivision (g) much less to refuse to issue warrants for the Legislature's pay based upon his belief that it did not properly perform its duties under that constitutional provision. As is discussed in the previous section, the responsibility for enacting the budget bill is expressly committed by the Constitution to the Legislature and the Govemor, and vvith that responsibility the Constitution likewise confers upon them not upon the Controller the exclusive responsibility and duty to engage in the "legislative factfinding" regarding estimated revenues and appropriations that supports enactment of the budget. (See Schabarum v. California Legislature, supra, 60 Cal.App.4th at p. 1219 ["[t]he povver to determine the facts upon vvhich appropnations are based rests exclusively in the legislative and executive branches of the govemment' and "[i]f the validity of a statute depends on the existence of a certain state of facts, it will be presumed that the Legislature has investigated and ascertained the existence of that state of facts before passing the 23
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1 2

law"] [citations omitted].) Indeed, because the passage of a budget bill is a quintessential legislative function, the

3 Controller's uninvited intrusion into the budgetary process asserting a right to review and to 4 unilaterally decide whether the Legislature's budgetary detenninations are valid constitutes an 5 unconsfitutional usurpation of legislafive authority in violafion of the separation of powers clause 6 of the state Constitution. Article III, section 3, declares: "The powers of state govemment are 7 legislative, executive, and judicial. Persons charged with the exercise of one power may not exercise 8 either of the others except as permitted by this Constitution." In its most fundamental application, 9 "[t]he separation of powers doctrine limits the authority of one of the three branches of government
10 11 12 13 14 15 16
to an-ogate to itself the core functions of another branch." (Carmel Valley Fire Protection Dist. v. State of California (2001) 25 Cal.4th 287, 297.) But the doctrine also prohibits the intermeddling by one branch of govemment in the constitutional responsibilities of another: "usurpation includes unwan-anted intmsion into the roles of those [other] branches." (Schabarum v. California Legislature, supra, 60 Cal.App.4th at p. 1213.) Here, the Controller's assertion ofthe right to pass judgment on the validity of the budget bill passed by the Legislature and to enforce his opinion by deeming legislators' pay to be forfeited

17 not only arrogates to his executive branch office one of the core functions, if not the core 18 function, of the legislative branch, but it does so in a manner that severely disrupts the constitutional 19 20 21 22 23 24 25 26 27 28
balance of povvers by holding the legislative budget process hostage to the whims and demands of the Controller. A future Controller could threaten to find the budget bill to be "unbalanced" and to withhold legislators' pay on that basis unless the Legislature agreed to revise its revenue estimate or to limit appropriations in the budget to a certain aniount demanded by the Controller, or worse yet unless the Legislature agreed to include or exclude an appropriation for a particular prograni that the Controller either favored or opposed; armed with the asserted authority to impose the drastic sanction of forfeiting the legislators' salary and expenses until they passed a budget that he found acceptable, the Controller would wield tremendous leverage in the budget process. Whether mofivated by partisan or self-serving political interests, or whether acting in a good-faith belief that the Legislature's budget projections were unduly opfimistic, the bottom line is that the Controller 24
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

would be insinuating himself into a proces s in which he constitutionally does not belong the 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Attorneys for Plaintiffs 28 25
PLAINTIFFS' MEMO OF POINTS & AUTHORITIES ISO MOTION FOR JUDGMENT ON PLEADINGS

budget deliberations and decisionmaking of the legislative branch. The separation of powers clause ofthe state Constitution flatly prohibits such an unwarranted intrusion into the legislative function. CONCLUSION For the reasons and upon the authorities cited above, this Court should enter judgment in favor of Plaintiffs, declaring that (1) the Legislature complies with article IV, section 12, subdivision (g), of the Constitution when it sends the Govemor a budget bill that, on its face, proposes General Fund appropriations that, in combination with all previous General Fund appropriations made for that fiscal year as of the date of the budget bill's passage and any General Fund moneys transferred to the Budget Stabilization Account for that fiscal year, do not exceed the Legislature's estimate of General Fund revenues for the fiscal year as of the date of the budget bill's passage; and (2) the Constitution assigns the responsibility for adopting a budget in compliance with its provisions to the Legislature and the Govemor, and the Controller has no authority to review the Legislature's estimate of General Fund revenues and appropriations for the coming fiscal year as set forth in the budget bill, to make his own assessment of whether the budget bill passed by the Legislature complies vvith article IV, secfion 12, subdivision (g), and to unilaterally enforce his opinion by deeming the salaries and expenses of the Members of the Legislature to have been forfeited pursuant to subdivision (h) of that section.

Date: March 5, 2012

Respectfully Submitted, ARTHUR G. SCOTLAND STRUMWASSER & WOOCHER LLP Fredric D. Woocher Giulia C. S. Good Stefani

By

-t.<^<^ Fredric D. Woocher

PROOF OF SERVICE STATE OF CALIFORNIA COUNTY OF LOS ANGELES Re: Darrell Steinberg, et al. v. John Chiang Sacrainento Super. Ct. Case No. 34-2012-00117584

I am employed in the County of Los Angeles, State of Califomia. I am over the age of 18 and not a party to the within action. My business address is 10940 Wilshire Boulevard, Suite 2000, Los Angeles, Califomia 90024.
PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORTOFMOTION FOR JUDGMENTON THE PLEADINGS on all appropriate parties in this action, as listed below, by the method stated.

On March 5, 2012, I served the foregoing document(s) descnbed as

Kamaia D. Harris, Attoiney General of Califomia Peter A. Krause, Supervising Deputy Attomey General Ross C. Moody, Deputy Attomey General 455 Golden Gate Avenue, Suite 1100 San Francisco, CA 94102 Tel: (415) 703-1234 Fax: (415) 703-1234 E-mail: Ross.Moody@doj.ca.gov Attorneys for Defendant California State Controller John Chiang IS I f electronic-mail service is indicated, by causing a true copy to be sent via electronic transmission from Strumwasser & Woocher LLP's computer network in Portable Document Format (PDF) this date to the e-mail address(es) stated, to the attention of the person(s) named. If fax service is indicated, by facsiinile transmission this date to the fax nuniber stated, to the attention of the person named, pursuant to Code ofCivil Procedure section 1013(f). la If ovemight service is indicated, by placing this date for collection by sending true copies in sealed envelopes, addressed to each person as indicated, pursuant to Code of Civil Procedure, section 1013(d). I am readily familiar with this firm's practice of collecting and processing correspondence. Under that practice, it would be deposited vvith an overnight service in Los Angeles County on that same day with an active account number shovvn for paynient, in the ordinary course of business. 1 declare under penalty of perjuiy under the laws ofthe State of California that the above is true and correct. Executed on March 5, 2012, at Los Angeles, California.

Paula M. Klein