Legislative Analyst's Office, December 1998

State Revenues Anchored by Income and Sales Taxes

1998-99

• General Fund revenues account for over three-quarters of total state revenues.
• Personal income taxes are the largest single revenue source--over half of General Fund revenues and almost 40 percent of total revenues.
• Sales and use taxes are the next largest revenue contributor, comprising one-third of General Fund and one-quarter of special fund revenues.
• Special funds are used for specific purposes, with motor vehicle-related taxes the largest component.

Underlying General Fund Revenue Base Has Resumed Growth

(In Billions)

• The figure shows total General Fund revenues and the contribution from both underlying trends and tax and revenue law changes.
• The underlying General Fund revenue base (the base with law changes eliminated) was stagnant throughout the early 1990s, but then began to recover in 1994-95.
• By 1997-98, tax and revenue law changes were a small part of total General Fund revenues.

California's Income Tax Structure Is Highly Progressive

1996

• California has a highly progressive income tax structure--that is, taxes as a percent of income rise as one's income increases.



• In 1998, personal marginal income tax rates ranged from 1 percent to 9.3 percent, with an alternative minimum tax (AMT) rate of 7 percent.



• The top 4 percent of taxpayers--those with annual incomes in excess of $150,000accounted for 30 percent of taxable income and about half of total tax liabilities.

Capital Gains--An Increasingly Important Revenue Source

Capital Gains Realizations (In Billions)

• Capital gains account for approximately 11 to 12 percent of personal income tax liabilities.
• Capital gains realizations have increased every year since 1994. However, capital gains grew especially rapidly in 1996 and 1997--by 57 percent and 45 percent, respectively.

• This strong growth was a key factor in causing higher-than-expected revenues in 1996-97 and 1997-98.

• The year-to-year growth of capital gains can be quite erratic and is very sensitive to economic conditions.

Sales Tax Rates Vary by County

• Sales tax rates vary by county because of the optional sales taxes which counties can choose to levy.



• Existing sales tax rates range from a low of 7.25 percent in counties with no local option taxes, to a high of
  8.5 percent in the City and County of San Francisco.

State Spending Has Recovered Following Recession

Real, Per-Capita Spending (1998 Dollars)

• For 1998-99, total real per capita spending will be $1,627.



• Between 1988-89 and 1998-99, this spending grew at a 1.1 percent annual rate. Real General Fund spending per person grew at a 0.3 percent rate.



• Real per capita spending fell between 1991-92 and 1993-94, due to the emergence of severe budgetary problems associated with the recession. With the resumption of economic growth following the recession, spending growth resumed.

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Education, Health, and Social Services Dominate Spending

• Education's share of total spending is about 44 percent ($32.1 billion). Education's share of General Fund spending is higher--55 percent.



• Together, education, health and social services, and corrections account for 75 percent of total state spending in 1998-99.

Annual Cost Per Participant Varies Widely Among Major Programs

1998-99

• The costs shown are averages. The range of individual costs is especially large in the Medi-Cal program. On average, each Medi-Cal beneficiary costs $2,738, but nursing home patients cost about $32,700 annually.

Spending Growth Varies By Program Area

1988-89 Through 1998-99

• Total state spending has increased at an average annual rate of 5.8 percent over the last ten years.



• However, spending growth varied from a low of 2.7 percent for social services programs to a high of 8.8 percent for corrections.



• The growth rate of state spending for K-12 education (which is just below the state average) reflects budget actions that shifted a larger share of local property taxes to schools in order to reduce state spending dictated by Proposition 98. Including these property tax shifts would increase the K-12 growth rate to 7 percent.

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Most Federal Spending Occurs Outside the State Budget

• Of total federal spending in California in 1996-97 (roughly $161 billion), only about 20 percent ($31 billion) flowed through the state budget to support state programs.



• Health and social services spending comprises roughly two-thirds of the federal spending that passes through the state budget. Education accounts for another 23 percent.

Continue to 1998 Cal Facts Program Trends Part I

Return to 1998 Cal Facts California's State Fiscal Structure

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