the california budget outlook · i. california's revenues i...

:!..anuary 4, 1994

.... :.: : :

The California Budget Outlook II ::::~~

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Presented To The California Agricultural

Leadership Program

By Elizabeth G. Hill

Legislative Analyst

LEGISLATIVE ANALYST'S OFFICE

Of

....... :.:.:.:.:.:,.: .. ;::::::::.::

I. California's Revenues I ~HMf:Mnfn@[email protected]#JMn.umHnIHMmfUtHMH¥MMmMU~j[f~

~anuary 4, 1995 LEGISLATIVE ANALYST'S OFFICE

1

02

State Revenues Have Been Flat in Recent Years

(In Billions) Iill1!l Special Funds

• General Fund

State Revenues

January 4, 1995 LEGISLATIVE ANALYST'S

2

: .. : .....

• OFFICE

03

LAO 50 years if strrJia

January 4, 1995

Almost Two-Thirds of All State Revenues Come From Income and Sales Taxes

Slate Rel1enues 1994-95 Personallnoome

Taxes

Sales and Use Taxes

Bank and Corporation Taxes

AU Oth ..

Tot~

LEGISLATIVE

$18.4

Total State Revenues S54 Billion

Molor Vehicle-Related Taxes $7.3

1.6

0.5

2.7

$12.1

•

ANALYST'S OFFICE

3

04

Corporation Taxes Have Been

LAO 50 !JUlTs of serrJiu

Especially Sluggish ¥WMg@M~1UrtnWMl.%MnltgMf.11M£fgt'lMf:litJ:NWfl~Mmttt1mHt1M.tW~MifMff.UMWMf.~MMtlgtW%tl%iJt~g1I%gl¥gl

Growth in General Fund Revenue Sources 1989-90-1994-95

Personal Income Tax

Sales and Use Tax

Bank and Corporation Tax

All Other Tax Sources

Total Revenues

W~

-I 0 Annual Percent : hange 3 4 III

f:HHMHl@HMH& ')(}:':;+~~~~"'~ > ~<:},~) ~< ;-:\~ ~ "B •• <<;~' ~t?, ~ ~.;-.,.' , .. I~.," D . .).~r<;T ,~~ ?~ ., .,.f.,<}';:), n' h '( .. ',' .. ~:::B;::;;$:~:~;:::~:dHWff.HM@f@MHwM~mJII

..

~anuary 4, 1995 LEGISLATIVE ANALYST'S OFFICE

4

05

LAO 50 ytaTs t>{ suviu

~anuary 4, 1995

Taxable Corporate Profits Have Been at Historic Lows

Taxable Corporate Profits As a Percent Of PeFSOIUlI/llcome

10

9

• 7

LEGISLATIVE ANALYST'S

5

,.

OFFICE

06

Taxable Sales Have Generally Been Declining as a

LAO W.Wl 50 yuzrs of strtJice

Share of the Economy

Taxable Sales As a Percent oj Personal Income

54

52

50

48

46

44

42

78 80 82 84 86 88 90 92 94

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•

January 4, 1995 - LEGISLATIVE ANALYST'S OFFICE

6 07

~anuary 4, 1995

---- ------------------

Outlook for California's Revenues

MEtH Moderate Growth

• Revenues will reflect continued economic recovery

• Rapid increases are unlikely, but so is a sharp slowing

tHat Key Factors Affecting Growth

• Continued growth in nontaxable services

• Phase-out of temporary high-income tax brackets

• Corporate use of net operating loss carryforward deductions


7

08

LAO 50 !fUlTs 0/ strrJiu

M

l~~ II. California's Expenditures Itlf

and Budget Condition III %&@H@~gMMW%%ilim.t@d@H@Mt¥}M&%t~HMNWf:1tM@mIl1.@t@mt1H%f:@{mr:iMiliMHMl%Nt%i¥H~'i

January 4, 1995 LEGISLATIVE ANALYST'S OFFICE

8

09

January 4, 1995

Education Receives the Largest Shar~ .of State Spending

" .. ".:;: .. ::.::~:~:«::(>: :.;::~:;::: ::;:-}::i:".:;:;;:·;~~: ;': ~:.::.:::;:::;::

State Sp~nding By Major Program 1994-95

LEGISLATIVE

Higher Education

Total Spending i $54.7 Billion I

ANALYST'S OFFICE

9

Total State Spending Flat Since 1991-92

(In BiUions)

Ili!ill Special Funds & '<

• General Fund ;j

State Spending

84-85 86-87 88-89 90-91

::::~:~

~" ~n .:.:.::~

I'~

92-93 94-95 I ilia

?m%.#~~$HMWilid~HHMlM~M~nY:M$~::R)lH~:f:M#?:M$MHjMMt:H:H~HtHwn8tWjm:~m@HHM:m:~Wj~jm~~MjMtjmjmj~mW~mtK~MMmMmW1H?:HIf

January 4 1995 - , LEGISLATIVE ANALYST'S OFFICE

10

11

Spending Growth Varies

LAO 50 years ofserrJia

Considerably by Program Area nnijnftrtMMHmHIHMM1tillImMlflt%[email protected]~]MMx@mmMHHmmJMfWtmrtlUWfH{t~WfiH

State Spending Growth, By Program 1983-84-1994-95

K-12 Education

Higher Education

Health

Welfare

Corrections

Transportation

Shared Revenues

All Other

January 4, 1995 LEGISLATIVE

3

Total Spending

6 9 Annual Growth Rate

ANALYST'S

11

12 15%

OFFICE

12

~anuary 4, 1994

Annual Cost Per Participant Varies . Widely Among Major Programs-1993-94

Corrections-lnmates and wards Prison Youlh Authority

Education-studentsa

K-12 UC CSU Community Colleges

Health and Welfare-beneflclarles Medi·Cal AFDC SSIISSP

0.1 0.01

5.2 0.2 0.2 0.9

5.4 2.6 1.0

$20,900 32,000

$2,534 11,816 6,014 1,054

$1,500 1,100 2,100

a Ooes not include federal funds or lottery funds.


12

$20,900 32,000

$4,217 11,816 6,014 2,811

$2,300 2,200 5,300

OFFICE

13

. . : .

General Fund Condition

~nuary 4, 1994

Past Operating Shortfalls Have Resulted in Budget Deficits

(In Billions)

.':'." .

"""" Operating .- Surplus/Deficit

Year-end Budget - Surplus/Deficit


13 14

Strategies to Address Recent Budget Gaps

Strategies to Address Budget Gaps Have Varied

Gap (In Billions)

$1

1

91-92

• Reduced Reserve and Other Actions

IiiI Cost Deferrals/Revenue Accelerations

~ Cost Shifts to Local and Federal Levels \\

• Revenue Enhancements .. , ; o Program Reductions ~

mm" .W;:;":;';:X$%':'::;:X~~HM";;;;:m.",t. *$,~Wk;¢hYfo;:.;;-;mqhi.iJf·m;m;:i~

92-93 93-94 94-95

m I H~ @

fifWM!Widd@i@WidMWiMWMi%!iWiiWWi@'I¥lMgM!MWMN!iMWiH@WMWiUP@iMi@iMtHlmII%!Wi@@IIW@NMM@mll

January 4, 1994 - LEGISLATIVE ANALYST'S OFFICE

14

15

'!.anuary 4, 1994

State Plans Balanced Budget In 1995-96

Two-Year General Fund Budget Plan

(Dollars in Millions)

Carryover deficit from prior year

Revenues and transfers Expenditures

Operating surplus

Year-end deficit or reserve

Federal immigrant funding assumed

1994-95 1995-96

-$1,971 -$1 ,019

41,892 40,940

$952

-$1,019

45,442 44,394

$1,048

$29

($763) ($2,824)


15

16

January 4, 1994

Near-Term Outlook for California's Budget

@e; Some Positive News

• Recent favorable economic trends

• Recent improvement in revenues

• Slower growth in some caseloads

• 1993-94 carryover deficit revised downward

@e;: Budget Risks and Pressures

• Ongoing economic uncertainties

• Federal funds for immigration costs

• Court cases

• Continued service demands

- Continued population growth, despite weak economy

- Corrections' budgets to double in next four years

- Health and welfare caseloads growing faster than ten years ago

- K-14 education enrollments growing faster than revenues


16

17

......

III. Long-Term Challenges I [email protected]¥f.·@MMf.MMMHJ:tMMniWf*4Jf.*Hf:f#f.}@f.~l¥~H¥MH}tM&i#X;;Wf.~?f.@?#®hd%f.@~}t*tH@Jt

~nuary 4, 1994 LEGISLATIVE ANALYST'S OFFICE

17 18

January 4, 1994

California Has Nearly 7,000 Local Entities-1991-92

Counties C~ies

Special districts Redevelopment agencies K-12 school districts Community college districts

Total

. " .. " .. " .

58 466

4,857 381

1,067 71

6,900

~ Special districts account for the overwhelming number of local entities.

~ The number of cities, special districts, and redevelopment agencies is growning over time.


18

19

State's Involvement in Most Program Areas is Extensive-1993-94

'.: ..

;.:-;-: ... -' Program Policy Control Operation Funding

;;:_m:.:::r::s:::::·]9~: ; :;EPjJ ,,2 :m:m:: . w.t=.$.%l-.... ::;..,.::r~"*

AFDC Fede .. USlate Counties () )l'i, «;:

SS/ISSP FederaUSlate Federal f) General AssIstance Slate Counties • Mental Health Counties Counties • tit ':p.;

Medi-Cal FederaUSlate SlatelCounties () · ~ .. ~ ., Indigent Health Core State/Counties Counties '~w.'

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Public Health State Counties ~ W.-x:«

Courts State Counties t! ., M?

CustodylSupervision State/Counties Countie&lState «» , ': " .'-

ProsecutionlOefense State Counties • Public Safety State CountieS/Cities • Transportation Statellocai Siatellocal ~ I 0 Federal J[jj State • Local.

;m;:,.*~;:;;«Wh.;~«-.V";:'-;~~~ .. •• *;.. .•• * .. ;*;.; .•... ~:;:» ~~~::**;,<.,:::::::«*x':"*=«*;.~,,:::':i. ?i~~

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OFFICE January 4, 1994 LEG I S L A T I V E A N A L Y ST' S ----------------------------------------------------------19

20

January 4, 1994

---- -------------------

Local Governments Raise More Revenue Than the State-1990-91

Counties .:'

Total Revenue • ~ $105 Billion •

~

~ The figure shows state and local own-source revenue, which includes tax and fee revenues but excludes funds received from another government entity. Local revenues include income of publicly owned utilities and other local government enterprises.

~ More than half of the state's revenues were aIlocated to local schools and other local agencies.


20 21

~anuary 4, 1994

Taxes Remain Below Pre-Proposition 13 Levels As a Share of Revenues

. : : . :. : : : : .

Composition of Own-Sourt:f!

100%

80

60

40

20

• MIscellaneous m Taxes m D Charges/Feel l

78 83 88 92

State & Local


21

OFFICE

22

The Problems in California's State-Local Relationship

~] 50 ~~errJiu :Yf&Iftlf~fHlttU~111tHlliMtftff1[~@bl?Int~HtMflmt®t\li~ttllttWMrlff.*ID]UHff~lfrtrtMi[Mf.lllUMllHfi1fwtlWtl~~

January 4, 1994

Jumbled assignment of responsibilities.

Counterproductive fiscal incentives.

t~ :,::;:; ;?:~~

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fU ;:""~: :"'«'

11 ~ Lack of accountability for program outcomes. II %:i

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Unproductive competition for resources.

Erosion of local control.


22

23

Reform Principles _ 50 y!:n~9ert1iu M!l~tl]tlU1tUnultf]n:w:rt~~tmflmHrtffHtHWH~fm1r.ililmR~f~1.JlliU~UnmIHtltHm1I~tM1mrmtW#~,utttft.t~lEtj;UitH

'!.anuary 4, 1994

Maximize separation of state and local government duties.

Match redistributive programs with redistributive revenue sources.

Recognize program linkages to promote coordination of service delivery.

Rely on financial incentives to promote prevention and coordination.


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the california budget outlook · i. california's revenues i...

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