Legislative Analyst's Office, August 2000

Spending Plan

Chapter 1

The Budget Act and Related Legislation

Introduction and Overview

The 2000-01 Budget Act was signed into law by Governor Davis on June 30, 2000. Together with related implementing legislation (trailer bills), the budget authorizes total spending from all funds of $99.4 billion. As indicated in Figure 1, this total includes $78.8 billion from the General Fund, $15.6 billion from special funds, and $5 billion from bond funds.

Figure 1
The 2000-01 Budget
Total State Expenditures
(Dollars in Millions)
Fund Type Actual 1998-99 Estimated 1999-00 Enacted 2000-01 Change from 1999-00
Amount Percent
General Fund $57,827 $67,186 $78,816 $11,630 17.3%
Special funds 14,736 16,156 15,560 -596 -3.7
Budget totals $72,563 $83,342 $94,376 $11,034 13.2%
Selected bond funds $2,697 $3,358 $5,048 $1,691 50.4%
Totals $75,260 $86,700 $99,424 $12,724 14.7%
Detail may not total due to rounding.

The General Fund Condition

Figure 2 (see page 2) summarizes the General Fund budget's condition for 1999-00 and 2000-01. It shows that in 1999-00, revenues were $71.2 billion (a 21 percent increase from 1998-99), while expenditures were $67.2 billion (a 16 percent increase from the prior year). After accounting for $592 million in encumbrances, 1999-00 is estimated to have ended with a reserve of $7.2 billion.

Figure 2
The 2000-01 Budget
Estimated General Fund Condition
(Dollars in Millions)
1999-00 2000-01 Percent Change
Prior-year fund balance $3,851 $7,827
Revenues and transfers 71,162 73,856 3.8%
Total resources available $75,013 $81,683
Expenditures $67,186 $78,816 17.3
Ending fund balance $7,827 $2,867
Encumbrances $592 $592
Set-aside for litigation -- $500
Reserve $7,235 $1,775
Detail may not total due to rounding.

In 2000-01, revenues are projected to be $73.9 billion (a 3.8 percent increase from 1999-00) and expenditures are estimated to be $78.8 billion (a 17 percent increase from 1999-00). The budget includes a $500 million set-aside for litigation, and $592 million for encumbrances. This leaves a 2000-01 year-end reserve of $1.8 billion, or about 2.3 percent of expenditures for the year.

It should be noted that these figures reflect the budget package signed by the Governor in late June. They do not reflect the fiscal impact of legislation that was pending in late August when this report went to press.

Spending in the Budget Year

General Fund spending in the 2000-01 budget is summarized in Figure 3, by major program area. The budget contains substantial one-time and ongoing funding increases in a variety of program areas, including education, health, and social services. The exceptionally large 48 percent increase shown for the "all other" category is due to several factors, including $1.8 billion to reimburse local governments for the accelerated vehicle license fee (VLF) reduction, one-time increases of $1.5 billion for transportation, about $570 million for housing, and a variety of other increases in resources and environmental protection programs.

Figure 3
General Fund Spending by Major Program Area
The 2000-01 Budget
(Dollars in Millions)
Actual 1998-99 Estimated 1999-00 Enacted 2000-01 Change from 1999-00
Amount Percent
K-12 Education $23,528 $27,483 $30,603 $3,120 11.4%
Higher Education
CCC 2,144 2,407 2,689 283 11.7
UC 2,518 2,718 3,206 488 17.9
CSU 2,099 2,194 2,473 279 12.7
Other 500 585 752 168 28.7
Health 9,508 10,528 12,354 1,827 17.4
Social Services 6,555 7,196 7,929 733 10.2
Corrections 4,499 4,755 5,048 293 6.2
All Other 6,476 9,320 13,761 4,440 47.6
Totals $57,827 $67,186 $78,816 $11,630 17.3%
Detail may not total due to rounding.

General Fund Spending Over The Past Decade

Figure 4 (see page 4) shows General Fund expenditures from 1989-90 through 2000-01, both in current dollars and as adjusted for population and inflation (that is, in real per-capita terms). The figure shows the decline in spending that took place in the early 1990s' recessionary period, as policymakers closed large budget shortfalls through spending cuts, funding shifts to local governments, spending deferrals, and tax increases. It also shows the subsequent spending increases that have taken place during the state's economic expansion. Total expenditures over the full decade have increased by 95 percent, while real per-capita spending has grown by 31 percent during the period.

The Budget's Evolution

In this section, we discuss the development of the budget beginning with the introduction of the Governor's budgetary proposal in January, and continuing through the budget's enactment in late June.

Background--Revenue Increases Dominate Budget Story

Once again, a dominant factor affecting the 2000-01 budget negotiations was the extraordinary performance of California's economy and the resulting dramatic growth in state General Fund revenues. Figure 5 shows the magnitude of the revenue revisions for 1999-00 and 2000-01 made during the 12-month period leading up to the enactment of this year's budget. It shows that:

These increases--and particularly the over $12 billion two-year revision between January and June of 2000--provided a dramatic increase in the amount of resources available for tax reductions, education, transportation, and other budgetary priorities.

Governor's January Proposal

The January budget proposal devoted significant new resources to education and a relatively modest number of changes in other areas. It included $900 million for new K-12 spending initiatives--targeting student achievement, teacher recruitment/retention/training, and new technology. Funding increases in higher education were targeted for a new partnership agreement, acceleration of the opening of University of California, Merced, and increases in financial aid. In other areas, the budget proposal included new spending and a tax credit aimed at improving senior care. It also included a variety of targeted tax provisions, including increases in net operating loss deductions, expansion of the research and development credit, and a one-time credit for land donations.

One-Time Expenditures. The January budget also included $2.9 billion in funds for one-time purposes, including a rebate of smog impact fees that the courts ruled had been illegally collected, a set-aside for legal contingencies, an increase in the budgetary reserve, and direct appropriations for capital outlay.

Developments Following the January Proposal

Immediately following the release of the January budget proposal, it became clear that revenues were significantly outpacing projections and that dramatically more resources would be available in 1999-00 and 2000-01. Year-end personal income tax payments received in late December and early January far surpassed the budget's projections, and economic revisions indicated that both the U.S. and California economies were performing at a stronger level than previously thought. Based on these developments, our office projected in February that receipts in 1999-00 and 2000-01 would exceed the budget forecast by a combined total of $4.2 billion. In subsequent months, revenues continued to outpace the January projections, and exceeded even our February forecast, by substantial margins. For example, final personal income tax payments exceeded their budget forecast by about $2 billion in the month of April alone.

The May Revision

In May, reflecting the extraordinary improvement in revenues, the administration raised its revenue forecast for 1999-00 by $5.8 billion and for 2000-01 by $6.5 billion, for a combined two-year total of $12.3 billion. The administration proposed that over two-thirds of the new funds be used for three main purposes:

Other program areas proposed for funding increases in the May Revision included health and social services programs--where the Governor proposed about $1.2 billion for provider rate increases, In-Home Supportive Services wage increases, and expansions for various mental health programs. The May Revision also included funding for new housing programs, resources, higher education, a one-time subvention of $250 million for local governments, and about a $500 million augmentation to the reserve.

Legislative Versions of the Budget

In general, the Assembly and Senate versions of the budget included the same major program priorities as the administration, although they differed in many of their details. For example:

Conference Committee Actions

The Assembly and Senate versions of the budget were sent to the legislative Budget Conference Committee for reconciliation in early June. Following two weeks of negotiations, the Conference Committee passed a compromise version of the budget on June 12. The key elements of the compromise plan included:

Post-Conference Committee Negotiations

Following approval by the Conference Committee of its budget version, negotiations continued between legislative leaders and the Governor on a number of items involving trailer bill legislation to accompany the budget bill. The main area of negotiation involved the tax package, for which several alternative measures were proposed. A  related issue that emerged was the extent to which the VLF trigger reductions provided for in 1998 legislation were to be reduced by other tax relief measures enacted in 1999-00 and 2000-01.

After several days of negotiations, the Governor and Legislature reached a new tax agreement. Under this agreement, the one-time sales tax rebate adopted by the Conference Committee and the proposed personal credit increase were both dropped and replaced by an acceleration of the full 67.5 percent VLF rate reduction (with no offsets for other tax reductions).

Governor's Vetoes

Before signing the budget, the Governor used his line-item veto authority to eliminate about $1.1 billion in 2000-01 budget spending, of which about $1 billion was from the General Fund. The General Fund vetoes included:

Major Features of the Final Budget

The 2000-01 budget's main priorities are in three major areas: education, tax reduction, and transportation. Specifically:

Other Programs. The budget also provides $570 million for various housing-related programs, with an emphasis on multifamily housing. In the health and social services area, the budget provides provider rate increases for physicians, hospitals, and other health care providers. It includes funding increases for a variety of mental health services. With regard to local governments, the budget sets aside $200 million in one-time funds for local government financial reform.

State Appropriations Limit

Background. Article XIII B of the State Constitution places limits on the appropriation of taxes for the state and each of its local entities. Certain appropriations, such as capital outlay and subventions to local governments, are specifically exempted from the state's limit. As modified by Proposition 111 in 1990, Article XIII B requires that any revenues in excess of the limit that are received over a two-year period be split evenly between taxpayer rebates and increased school spending.

State's Position Relative to Its Limit. As a result of several years of strong revenue growth, the state moved near its appropriations limit for the first time in nearly a decade in 1999-00. The actual position of the state relative to the limit will be determined in fall 2000, when the state Controller closes the books on 1999-00.

Based on the budget as enacted in June, the state will be several billion dollars below the limit in 2000-01. As a result, there will be no excess revenues accumulated over the two-year (1999-00 and 2000-01) period. One of the key factors holding down appropriations subject to the limit in 2000-01 is the large amount of spending in the budget for capital outlay, school subventions, and tax reduction--all of which are exempt from the spending limit.

Budget Trailer Bills

In addition to the 2000-01 Budget Act, the budget package includes a number of related measures enacted to implement and carry out the budget's provisions. Figure 6 lists these budget trailer bills.

Figure 6
2000-01 Budget-Related Legislation
-- Chaptered --
Bill Number Chapter Number Author Subject
AB 480


Ducheny Child care tax credit.
AB 511 107 Alquist Rural investment credit, net operating loss carryover, long-term care credit, graduate student expenses, vehicle license fee, research and development credit.
AB 858 106 Kuehl Vehicle license fee reduction.
AB 1509 74 Machado New tax-deferred retirement benefit for State Teachers' Retirement System members.
AB 2864 80 Torlakson Jobs-Housing Balance and Interregional Partnership Program.
AB 2865 81 Alquist California Housing Finance Agency Downpayment Assistance Program.
AB 2866 127 Migden General government omnibus bill.
AB 2867 82 Lowenthal Building code enforcement.
AB 2870 83 Cedillo Downtown Rebound.
AB 2872 144 Shelley Environmental protection omnibus bill.
AB 2875 99 Cedillo Community health clinics.
AB 2876 108 Aroner Social services omnibus bill.
AB 2877 93 Thomson Health omnibus bill.
AB 2878 94 Wayne Breast cancer treatment.
AB 2879 75 Jackson Credentialed teacher tax credit.
AB 2880 76 Calderon School finance: deficit reduction.
AB 2881 77 Wright Teacher professional development institutes.
AB 2882 78 Reyes Educational technology.
AB 2883 79 Villaraigosa University of California Institutes.
AB 2884 196 Kuehl Judges' salaries.
AB 2885 100 Cardenas Juvenile justice/Citizens' Option for Public Safety (COPS).
AB 2928 91 Torlakson/Florez Transportation omnibus bill.
SB 406 92 Ortiz Transportation--follow up to omnibus bill.
SB 1643 69 O'Connell/McPherson Beginning teacher salaries.
SB 1647 113 O'Connell Land conservation credit.
SB 1656 84 Alarcon CalHome and Housing Trust Fund.
SB 1664 60 Karnette/Leslie Senior citizens' property tax assistance.
SB 1666 70 Alarcon/Johannessen Teacher recruitment and retention incentives.
SB 1667 71 Alpert Education omnibus bill.
SB 1679 87 Sher Resources omnibus bill.
SB 1683 72 Escutia Supplemental remedial instruction.
SB 1689 73 Escutia/Monteith Advanced placement courses.

-- Enrolled --
Bill Number Author Subject
AB 1913 Cardenas Juvenile justice/COPS.
SB 1644 Ortiz/Poochigian Cal Grants.
SB 1688 Polanco/Rainey Merit scholarships and algebra academies.
-- Pending --
Bill Number Author Subject
AB 1255 Wright California Work Opportunity and Responsibility to Kids--drug offenders.

Continue to California Spending Plan 2000-01 Chapter 2--Tax Relief Provisions

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