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March 25, 2015 - Proposition 2—approved by the voters in November 2014—places formulas into the State Constitution that determine the minimum amount of debt payments and budget reserve deposits to be made in a fiscal year. This publication analyzes the administration’s Proposition 2 proposal outlined in the 2015-16 Governor’s Budget. We recommend that the Legislature develop a long-term plan for Proposition 2 and suggest that the Legislature solicit proposals from the administration, state pension systems—including CalPERS, CalSTRS, and the UC Regents—and others concerning the benefits of applying Proposition 2 debt payment funds toward eligible liabilities. In addition, we note that, as of the Governor's January budget proposal, the administration's Proposition 2 plan for 2015-16 pays down more debt than required under the measure.
March 10, 2015 - At the January 22, 2015 hearing of the Senate Committee on Budget and Fiscal Review, the LAO was asked about the trend of state spending since the beginning of the recession. This letter provides additional information concerning that trend, as a follow up to that discussion.
February 12, 2015 - This report analyzes the Governor's 2015-16 state health program budget proposals. In the report, we review trends in the major health programs since 2007-08 (the last budget developed before the most recent recession), analyze the Governor's proposed restructuring of the managed care organization (MCO) tax, and describe the uncertainty regarding continued federal funding for the Children's Health Insurance Program (CHIP). The report also includes an analysis of the Department of State Hospitals budget and an analysis of the Governor's proposals to improve quality and increase staffing for the Licensing and Certification (L&C) Program administered by the Department of Public Health.
February 12, 2015 - This report analyzes the Governor's 2015-16 human services budget proposals. First, we review major trends in human services programs since 2007-08 (the last state budget developed before the major recession) and find that total spending is up by 11 percent (in inflation-adjusted terms), with major changes in how programs are funded. Our report also analyzes the budgetary impacts and issues for the Legislature to consider given the uncertain legal status of new federal labor regulations affecting In-Home Supportive Services (IHSS) and the Department of Developmental Services. The report includes an analysis of the future of the state's developmental centers (DCs) and an analysis of the Governor's budget proposal to further reform the Community Care Licensing (CCL) program that oversees the licensing of child care, children's residential, and adult and senior care facilities. Finally, the report analyzes the Governor's budget proposal to implement 2 of 19 recommendations of a working group established by the Legislature to recommend reforms to the foster care system.
Proposed SSI/SSP figures corrected 3/11/15
February 11, 2015 - In August 2014, the Legislature approved Chapter 188, Statutes of 2014 (AB 1471, Rendon), which placed before the voters a water bond measure primarily aimed at increasing the supply of clean, safe, and reliable water and restoring habitat. On November 4, 2014, voters approved the water bond measure—Proposition 1. In this report, we (1) describe Proposition 1, (2) review the Governor’s proposals to implement the bond, (3) identify key implementation principles, and (4) recommend steps for the Legislature to ensure that the bond is implemented effectively.
February 9, 2015 - The Governor’s budget proposes $125 million from the General Fund to address deferred maintenance backlogs in state facilities managed by various departments. The budget does not identify specific projects that would be supported with the proposed funding. We find the Governor’s focus on deferred maintenance to be positive. However, we also find that the proposal lacks important details necessary to evaluate the proposed allocations to departments, and that the proposed process for allocating funds does not provide the Legislature with an adequate opportunity to review proposed deferred maintenance projects prior to passage of the budget. Additionally, the Governor’s proposal fails to identify and address the underlying causes of departments’ deferred maintenance backlogs. Accordingly, we provide recommendations to address these concerns, promote legislative oversight in this important area, and ensure that the projects that are funded align with legislative priorities.
January 13, 2015 - In the Governor's 2015-16 budget proposal, the administration raises its revenue estimates, and this results in a multibillion-dollar influx of new funds for schools and community colleges under the Proposition 98 minimum funding guarantee. The Governor's plan identifies cost pressures and budget risks in health and human services programs, and new program commitments outside of Proposition 98 are limited. The Governor's proposal to pay off the state's retiree health liabilities over the next few decades would, if funded, address the last of state government's large unaddressed liabilities. We conclude the state likely will collect more tax revenue in 2014-15 than the administration now estimates. Barring a sustained stock market drop, an additional 2014-15 revenue gain of $1 billion to $2 billion seems likely in addition to the Governor's budget projection. Even bigger gains of a few billion dollars more are possible in 2014-15. These additional 2014-15 revenues will go largely or entirely to schools and community colleges and could result in a few billion dollars of higher ongoing state payments to schools. Whether tax revenues grow further, stagnate, or, in the worst case, decline in 2015-16 will depend in large part on trends in volatile capital gains and business income.
January 1, 2015 - Reports on the 2015-16 budget.
December 4, 2014 - With a state as big, as populous, and as complex as California, it would be impossible to quickly summarize how its economy or state budget works. The purpose of Cal Facts is more modest. By providing various "snapshot" pieces of information, we hope to provide the reader with a broad overview of public finance and program trends in the state. Cal Facts consists of a series of charts and tables which address questions frequently asked of our office.
November 19, 2014 - The 20th annual edition of the LAO's Fiscal Outlook—a look at possible state revenue and spending trends over the next five years—reflects anticipated progress in building budget reserves under the recently approved Proposition 2. Specifically, absent new budget commitments, we estimate the state would end 2015-16 with $4.2 billion in total reserves, $2 billion of which would result from Proposition 2's new reserve rules. A $4 billion reserve would mark significant progress for the state, but maintaining such a reserve in 2015-16 would mean little or no new spending commitments outside of Proposition 98, the funding formula for schools and community colleges. Our higher General Fund revenue estimates translate to $6.4 billion available in 2015-16 for the state's Proposition 98 priorities. The report also discusses choices facing the state in implementing Proposition 2, such as choices about which budgetary and retirement debts to repay with dedicated Proposition 2 funds over the next 15 years.
October 24, 2014 - This infographic presents information about the current state budget (2014-15) and compares the level of spending and revenues assumed in the current budget to historical levels since 1950-51. As a share of personal income—one broad measure of the size of the California economy—state spending has been relatively flat since the late 1970s. Spending on health and human services and corrections programs has generally increased over the period, while spending on higher education and transportation programs has generally decreased. Since 1950-51, the personal income tax has replaced the sales and use tax as the predominant source of General Fund revenue.
October 13, 2014 - The LAO’s annual California Spending Plan publication details the 2014-15 budget package, including legislative and gubernatorial actions through October 2014. (An initial version of this publication was released in early August 2014. This final version of the publication also reflects later legislative and gubernatorial actions concerning the budget.) The 2014-15 state spending plan includes large funding increases for schools and community colleges, makes targeted augmentations in other areas of the budget, and pays down several billion dollars in key liabilities. In particular, the budget package includes a plan to fully fund the teachers’ pension system within about 30 years.
September 4, 2014 - Statements of legislative intent and requests for studies adopted during deliberations on the 2014-15 budget package.
May 16, 2014 - On May 13, 2014, the Governor released the 2014-15 May Revision to his annual budget proposal. The package continues to build reserves and pay down debts, including a new proposal to fund the teachers' pension system over about 30 years. Our May revenue forecast projects $2.5 billion higher revenues compared with that of the administration—not substantially different given the size of the state budget. In addition, we project over $700 million more in local property taxes for school districts. If the Legislature were to adopt our office's higher revenue forecast and property tax estimates, General Fund spending under Proposition 98 would increase $2.7 billion, relative to the administration's May forecast. Assuming that the administration's non-Proposition 98 spending estimates are accurate, this would leave around $500 million available for building reserves, paying down more debts, and/or other state priorities.
May 7, 2014 - This report categorizes and provides information about $340 billion in California's key retirement, infrastructure, and budgetary liabilities. In addition, this report provides a framework for the Legislature to consider in prioritizing repayment of these liabilities and makes recommendations on which liabilities to pay down first and how the state could address such costs in the future. In general, we suggest that the Legislature prioritize actions to pay down those liabilities (1) with relatively high interest rates or (2) that result in benefits for groups or entities other than the state government. Due to its massive unfunded liability and relatively high growth rate, we recommend that the Legislature make a full funding plan for the California State Teachers' Retirement System a top priority in addressing the state's key liabilities.