California Budget Basics

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California Budget Basics

• Presented by Stephen Levy

www.next-ten.org
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Planning for Californias Future
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Long-Term Budget Challenges

• Planning for Growth
• Population Growth Will Continue
• State Program Caseloads Will Increase
• We Start Behind in Many Areas
• Starting with Long-Term Budget Deficit

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California Population Growth 2004-2014
15.0
32.0
26.0
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K-12 Per Pupil Spending as of United States
Average
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5 States With Largest of Roads Rated
Unacceptably Rough
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Long-Term Budget Deficits to Continue

• Prop 57 (15B Bonds) Eliminates Past Deficits
• Long-Term Deficits will Re-emerge
• What is the Structural Deficit?
• Economic Growth Alone Cannot Balance the
  Budget
• Legislature, Governor Reflect Citizens Conflict
  About Budget Choices

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LAO Estimate of State Budget Deficit (May 17,
2004)
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Basic Budget Balance Choices

• Spending Cuts Are We Spending
• Too Much?
• Cuts in Service Levels
• Elimination of Waste, Fraud Abuse
• Revenue Increases Should We Raise More Money?
• Tax Fee Increases
• Reduce Tax Breaks
• More Federal Funding
• What Helps The Economy?

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Where is State Budget Money Spent?
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State General Fund Budget
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of General Fund Spending in 2004-2005
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Resources for State Spending in 2004-2005
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State General Fund Budget
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State General Fund Budget, Contd
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State General Fund Budget, Contd
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State General Fund Budget
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Shared Responsibilities FundingThe Most Legal
Discretion

• Higher Education Tidal Wave II
• State Prisons 3 Strikes Law
• State Agency Spending

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Shared Responsibilities FundingMore Mandates
Earmarking

• K-12 Education
• Health Human Services
• Transportation Other Special Funds
• But There is Discretion
• State Sets Many Spending Rules
• Can Eliminate or Suspend Mandates

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How is K-12 Education Funded?

• State Has Major School Funding
  Responsibility After Proposition 13
• Increases in Local Property Tax Revenues Reduce
  State Funding So Schools Do Not Get More
  Money
• Per Pupil funding is Below the National Average
• Schools Pay Above-Average Salaries and have
  Above-Average Class Sizes
• Proposition 98 and Categorical Mandates Reduce
  Local Flexibility

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California General Fund Local Property Tax
Money for K-12 Education
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Where State Employees Work
State Government 317,000 Full-Time Equivalent
Employees 1 in 40 California Workers
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5 States With Fewest State Employees Per 10K
Population 2002
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5 States With Fewest State Local Government
Employees Per 10K Population 2002
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General Fund Spending Growth
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General Fund Spending Surges Levels Off
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Spending Increases
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Determinants of Spending Increases

• Caseload Growth
• K-12 vs. Higher Ed Enrollment Growth
• Growth in Poor Families vs. Elderly Disabled
• Inflation
• General Inflation vs. Healthcare Inflation
• Service Level Changes
• Why is the State Different From a Business?

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Medi-Cal Caseload Spending
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Determinants of Spending Increases

• K-12 Education
• Enrollment Increases
• Cost of Living Increases
• Program Enhancements Teacher Retention, Longer
  School Year, Child Care
• Tax Relief
• Vehicle License Fees Cut State Reimbursement

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Determinants of Spending Increases, Contd

• Health and Human Services
• Caseload and Cost of Living Increases
• Program Enhancements Expanded Coverage for
  Health Care, Child Care
• More Difficult Cases Foster Care, Older Children
  Served

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State General Fund Spending as a of Total
Personal Income
Average
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State Budget Revenues
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Distribution of General Fund Vehicle Taxes in
2004-2005
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Tax Revenue From Stock Options Capital Gains
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Long-Term Budget Gap Emerges
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State General Fund Vehicle-Related Taxes as a
of Total Personal Income
Average
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Eliminating the 1998/99-2003/04 Budget Deficits

• 9.3 Billion from 15 Billion March 2004 Bond
• 5 Billion in Spending Reductions
• 10 Billion from
• Borrowing Transportation Money
• Using One-Time Federal Money
• Reducing Payments to Local Governments
• Higher then Expected Income Tax Revenues
• Deferring Spending to Later Years

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Balancing the 2004-2005 Budget

• 3.4 Billion in Program Savings
• 3.2 Billion from March 2004 Bond
• 3.6 Billion from Fund Shifts, Borrowing
• 1.6 Billion from Higher Revenues, Transfers
• 1.3 Billion from Local Governments

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LAO Estimate of State Budget Deficit (May 17,
2004)
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Comparisons to Other States
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K-12 Per Pupil Spending as of United States
Average
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5 States With Fewest State Employees Per 10K
Population
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Undergraduate Resident Tuition Fees
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Medicaid Spending Per Beneficiary
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State Local Taxes as of Income
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Retirement Benefits at Age 65
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State Retirement Costs
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Where Do We Go From Here?
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Next Round of This Project

• Long-Term Budget Choices Web Tool
• Fall Regional Dialogues
• Incorporate Feedback Plan 2005 Activities

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Questions?
www.next-ten.org
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