The State Budget, Real Estate, and Economic Development

1
The State Budget, Real Estate, and Economic
Development

• Jed Kolko
• Public Policy Institute of California

2
The Perennial Budget Issues

• Closing the current gap
• Spending, taxes, borrowing
• Dealing with longer-term liabilities
• Past budgetary borrowing, bonds, pensions
• Preventing future budget gaps
• Revenue volatility, spending caps, reserves
• Rethinking the state-local relationship
• Realigning programs, expanding local fiscal
  options

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Basic Budget Facts

• Californias budget gap is less than 1 of GDP
• Down from 25b (January) to 10b (May)
• 1/3 of state spending is outside General Fund
• Largest General Fund categories
• K-12 education 43
• Health and human services 25
• Higher education 12
• Corrections and rehabilitation 11
• Largest revenue sources
• Personal income tax 43
• Sales and use tax 26

4
How the Budget Affects Real Estate and Economic
Development

• Very little money for housing in the General Fund
• Budget affects real estate and economic
  development through
• Cost of borrowing
• Redevelopment
• Enterprise zones

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Overview Redevelopment and Enterprise Zones
Enterprise zones Redevelopment areas
Goal Job and business attraction and retention Combating blight
Best metric Employment growth Property values
Primary mechanism State income and sales tax incentives Local property tax-increment financing
Designation process Selected by state Created by localities
Total program size (annual) 500-600m 5-6b
Costs borne by state Nearly all (tax revenue reduction) Roughly one-third (through school backfill)
Proposed changes in May budget proposal Reform and reduction by half Elimination
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Who Should Pay For Local Economic Development?

• If state pays
• Achieve state goals
• Improve equity
• If localities pay
• Encourage fairness
• Improve outcomes
• Remain independent from state budget crises
• Constraints prevent local funding
• Programs fates intertwined with state budget
  debate

7
The State Budget, Real Estate, and Economic
Development

• Jed Kolko
• Public Policy Institute of California

8
Notes on the use of these slides

• These slides were created to accompany a
  presentation. They do not include full
  documentation of sources, data samples, methods,
  and interpretations. To avoid misinterpretations,
  please contact
• Jed Kolko 415-291-4483 kolko_at_ppic.org
• Thank you for your interest in this work.