The 2016-17 Budget

California Spending Plan


Each year, the Legislative Analyst’s Office publishes the California Spending Plan to summarize the annual state budget. This publication discusses the 2016–17 Budget Act and other major budget actions approved during 2016. Unless indicated otherwise, figures and dollar amounts generally refer to budget actions passed as part of the June 2016 budget package, as signed into law on June 27 and July 1, 2016. In some cases, as noted, we discuss later budget actions approved during August 2016 by the Legislature. During August, for example, the Legislature and the Governor agreed to spend certain cap–and–trade funds. The budget totals include $400 million (General Fund) for affordable housing even though the Legislature and Governor have not reached agreement on this spending.

Budget Overview

State Spending

Figure 1 displays total state and federal spending in the 2016–17 budget package as of June 2016. As shown in the figure, the budget at that time assumed total state spending of $167.1 billion (not including federal and bond funds), an increase of 3.2 percent over revised totals for 2015–16. General Fund spending in the budget package is $122.5 billion—an increase of $6.9 billion, or 6 percent, over the revised 2015–16 level.

Figure 1

Total State and Federal Fund Expendituresa

(Dollars in Millions)

Revised

Enacted
2016–17

Change From 2015–16

2014–15

2015–16

Amount

Percent

Fund Type

General Fundb

$113,448

$115,571

$122,468

$6,897

6.0%

Special funds

41,702

46,408

44,629

–1,779

–3.8

Budget Totals

$155,149

$161,979

$167,097

$5,118

3.2%

Selected bond funds

$5,145

$7,786

$3,766

–$4,020

–51.6%

Federal funds

90,049

96,129

95,908

–221

–0.2

aDoes not reflect budgetary actions after June 2016, such as spending legislation related to the cap–and–trade program. The budget totals include $400 million (General Fund) for affordable housing even though the Legislature and Governor have not reached agreement on this spending.

bIncludes Proposition 30 Education Protection Account.

General Fund Revenues

Figure 2 displays the revenue assumptions incorporated into the June 2016 budget package. The budget assumes $120.3 billion in revenues and transfers in 2016–17, a 2.8 percent increase over 2015–16. The state’s “Big Three” General Fund taxes—the personal income tax, sales and use tax, and corporation tax—are assumed to increase at a slightly higher rate (4.2 percent). The difference between these growth rates is attributable to a decline in other revenues. This includes more sizeable “negative transfers” in 2016–17 (the result of a larger deposit into the state’s rainy day fund) and a decline in proceeds from the insurance tax (which falls as a result of the managed care organization tax package adopted this year).

Figure 2

General Fund Revenue Assumptionsa

(Dollars in Millions)

Revised

Enacted
2016–17

Change From 2015–16

2014–15

2015–16

Amount

Percent

Personal income tax

$76,169

$79,962

$83,393

$3,431

4.3%

Sales and use tax

23,682

25,028

25,727

699

2.8

Corporation tax

9,417

10,309

10,992

683

6.6

Subtotals, “Big Three” Taxes

($109,268)

($115,299)

($120,113)

($4,814)

(4.2%)

Insurance tax

$2,445

$2,486

$2,345

–$141

–5.7%

Other revenues

2,057

2,190

1,702

–488

–22.3

Transfer to BSA

–1,606

–1,814

–3,294

–1,479

Other transfers and loans

–374

–1,159

–556

603

Totals, Revenues and Transfers

$111,789

$117,001

$120,310

$3,308

2.8%

aIncludes Proposition 30 Education Protection Account revenues.

BSA = Budget Stabilization Account (Proposition 2 rainy day fund).

Reserves

Figure 3 displays a breakdown of the total reserves assumed in the 2016–17 budget package, as of June 2016. This figure includes both reserves in the Special Fund for Economic Uncertainties (SFEU), the state’s discretionary reserve, and the Budget Stabilization Account (BSA), the state’s rainy day reserve created by Proposition 2 (2014). As shown in the figure, the June 2016 budget package assumed that 2016–17 will end with $8.5 billion in reserves. This total included required reserve deposits of $1.3 billion, an optional deposit of $2 billion in the BSA, and a discretionary increase in the SFEU of $0.6 billion. As noted above, the budget numbers, including the reserve estimates in Figure 3, assume the expenditure of $400 million from the General Fund on affordable housing. Absent an agreement to spend this amount, reserves may be higher at the end of 2016–17 by a corresponding amount.

Figure 3

$8.5 Billion in Reserves in June 2016 Budget Packagea

(In Billions)

Reserves Assumed in 2015–16 Budget

$4.6

Required Reserves

BSA true up deposit for 2015–16

b

BSA initial deposit for 2016–17

1.3

Subtotal, Required Deposits

($1.3)

Optional Reserves

2016–17 proposed increase in SFEUc

$0.6

2016–17 additional BSA deposit

2.0

Subtotal, Optional Reserves

($2.6)

Total Reserve Balances

$8.5

aReflects reserves assumed in June 2016 budget package. As described in the text, SFEU balance may be $400 million higher as the Legislature and the Governor have not reached agreement to spend $400 million on affordable housing, as had been assumed in June 2016 budget package.

bBudget act estimates a “true down,” resulting in a reduction of $39 million.

cAmount by which SFEU grows relative to the 2015–16 budget plan.

BSA = Budget Stabilization Account and SFEU = Special Fund for Economic Uncertainties.

The Condition of the General Fund

Figure 4 displays the condition of the General Fund under the revenue and spending assumptions in the June 2016 budget package, as estimated by the Department of Finance. As described above, 2016–17 ends with $8.5 billion in total estimated reserves—up by $1.1 billion from the amount now estimated at the end of 2015–16. This shows that estimated state General Fund revenues ($124.2 billion) exceed total General Fund expenditures ($122.5 billion). Spending includes both ongoing program costs and one–time items, such as $1 billion in state office building replacements. To the extent that revenues and spending differ from the June 2016 budget estimates—for example, if 2016–17 revenues are higher or lower than the assumed level in Figure 2—reserves will differ from this total.

Figure 4

General Fund Condition as of June 2016 Budget Packagea

(In Millions)

Revised
2015–16

Enacted
2016–17

General Fund Condition

Prior–year fund balance

$3,444

$4,875

Revenues and transfers

117,001

120,310

Expenditures

115,571

122,468

Ending fund balance

$4,875

$2,717

Encumbrances

966

966

SFEU balance

3,909

1,751

Reserve Balances

SFEU balance

$3,909

$1,751

BSA balance

3,420

6,714

Total Reserves

$7,329

$8,465

Revenues and Transfers

Personal income taxes

$79,962

$83,393

Sales and use taxes

25,028

25,727

Corporation taxes

10,309

10,992

Other revenues

4,676

4,047

Subtotals, Revenues

($119,976)

($124,159)

Transfers to BSA

–$1,814

–$3,294

Other transfers (net)

–1,159

–556

Totals

$117,001

$120,310

Spending

Proposition 98 (General Fund)

$49,722

$51,050

Non–Proposition 98

65,849

71,418

Totals

$115,571

$122,468

aReflects Department of Finance estimates as of June 2016. Assumes the expenditure of $400 million (General Fund) for affordable housing even though the Legislature and Governor have not reached agreement on this spending. Includes Education Protection Account created by Proposition 30 (2012).

BSA = Budget Stabilization Account and SFEU = Special Fund for Economic Uncertainties.