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February 21, 2007 - We estimate that the Governor’s budget plan would result in 2007-08 expenditures exceeding revenues by $2.6 billion. This would leave the state with a $726 million year-end deficit, compared to the Governor’s January 10th estimate of a $2.1 billion positive reserve. In addition, the state would face operating deficits of $3.4 billion in 2008-09, $2.5 billion in 2009-10, and $1.4 billion in 2010-11. Thus, additional solutions will be needed to bring the budget into balance, such as budgetary savings, enhanced resources, or reduced supplemental payments toward paying off budgetary debt. It will also be important to avoid raising ongoing budget commitments without identifying alternative reductions or new revenues to pay for them.
February 21, 2007 - Based on our revenue and expenditure projections, we estimate that the adoption of the Governor’s budget plan would result in a $726 million deficit in 2007-08 (compared to the administration’s January 10th estimate of a $2.1 billion reserve). The difference in these numbers is due principally to our lower estimates of revenue in both the current and budget years, but also due to higher expenditure estimates, primarily related to Proposition 98. Adoption of the plan would also leave the state with large operating shortfalls in future years, unless additional corrective actions are taken. Thus, the Legislature will face major challenges in crafting a budget for the coming year. We believe that the primary focus should be on finding additional budget savings and/or revenues to address the near- and longer-term shortfalls. Should these solutions be insufficient to cover the full magnitude of the budget shortfall, however, the state can also achieve some near-term savings by reducing the amount of supplemental repayments on deficit-financing bonds relative to the $1.6 billion proposed in the budget.
February 21, 2007 - For 2007, like most other economists at this time, we forecast that growth will continue but be modest for the nation and California. For the year as whole, 2007 growth will be somewhat less than it was in 2006, with the first half of the year the weakest. Throughout the year, however, growth should accelerate, as the housing sector stabilizes, especially in the second half of 2007. We expect that the state’s performance will generally be similar to the nation’s.
February 21, 2007 - Following two years of major increases, it appears that revenue growth is slowing sharply in 2006-07, reflecting the impacts of a more moderate economic expansion and a dip in income from capital gains. The budget assumes that revenue growth will revive somewhat in 2007-08, led by an improving economy beginning later this year. For the current and budget years combined, we are estimating that General Fund revenues will fall below the budget forecast by $2 billion.
February 1, 2007 - In 1987, a U.S. Supreme Court decision involving two California tribes set in motion a series of federal and state actions that dramatically expanded tribal casinos here and in other states. Now, California’s casino industry outranks all but Nevada’s in size. In this report, we answer key questions, including: How much do tribes pay to California governments? Are the administration’s near-term revenue estimates related to five proposed compacts with Southern California tribes realistic? What powers does the state have to ensure that tribes meet their obligations under the compacts?
January 24, 2007 - Elizabeth Hill comments on the proposed Governor's Budget in her January 24th testimony before the Senate Budget and Fiscal Review Committee.
January 24, 2007 - Recent agreements between cities and private businesses involving diversions of millions of dollars of local sales taxes have highlighted concerns raised over the years about the present “situs-based” system for allocating local sales taxes. This report looks at these concerns and discusses options for dealing with them, including expanding restrictions on financial incentives and restricting use of buying companies to divert taxes.
January 22, 2007 - At the direction of the Legislature, we have worked with the tax agencies to identify a number of near-term steps that could be taken, short of full consolidation and technological integration, that could improve information and data collection and exchange, and thereby aid in tax enforcement and compliance.
November 15, 2006 - Following a year in which major revenue increases were allocated to education and other state programs, California policymakers will face a much tougher budget in 2007-08. According to our updated forecast, the state’s budget faces operating shortfalls in excess of $5 billion in both 2007-08 and 2008-09, which will require significant actions to eliminate.
September 14, 2006 - A graphical presentation summarizing California’s economic and budget outlook. Presented at the Masonic Family Center in Chico California.
May 2, 2006 - In 2004, California temporarily extended, from 90 days to one year, the time that recently purchased vessels, vehicles, and aircraft must be kept out of California in order to avoid the state’s use tax. This report looks at the economic and fiscal impacts of the law change. We find that (1) the law change has resulted in a sharp reduction in out-of-state usage exemptions and an increase in sales and use tax revenues, and (2) the negative economic impacts arising from the measure do not appear to be particularly large.
February 22, 2006 - California has benefited greatly from over $11 billion in unanticipated increases in state revenues. Yet, due to its allocation of these funds, the 2006-07 Governor’s Budget would still leave the state with large structural budget shortfalls and an enormous amount of outstanding financial obligations. In this regard, the budget proposal misses an important opportunity to take advantage of highly favorable revenues to get the state’s fiscal house in order. We thus recommend that the Legislature reduce the amount of ongoing spending increases proposed in this budget, and use the savings to either increase reserves or pre-pay additional budgetary debt.
February 22, 2006 - California has benefited greatly from an over $11 billion three-year revenue increase since the 2005‑06 budget was enacted; yet, the Governor’s budget plan would still leave the state with major structural budget shortfalls and a large amount of other financial obligations outstanding. In this regard, we believe the proposal misses a real opportunity to finally get the state’s fiscal house in order by meaningfully addressing what is still a formidable fiscal problem.
February 22, 2006 - Despite a slowdown in the final quarter of the year, the U.S. and California economies generally outperformed expectations in 2005, shrugging off soaring energy costs, rising interest rates, and the impacts of three major hurricanes on Gulf Coast states. Recent monthly data on spending, employment, and production suggest that the softness that occurred in late 2005 will be short-lived, and the economy will expand at a moderate pace in 2006 and 2007. This outlook is subject to significant downside risks, however, associated with the potential for further increases in energy prices and steeper-than-expected declines in the real estate market.
February 22, 2006 - The state budget continues to benefit from healthy revenue growth. After climbing by over 8 percent in 2004‑05, the 2006‑07 Governor’s Budget assumes that revenues from the state’s major taxes will increase further by 6.2 percent in 2005‑06 and 5.7 percent in 2006‑07. The administration’s current forecast is up substantially from the estimates included in the 2005‑06 Budget Act. It is also up significantly from our office’s prior forecast presented in November 2005. In addition, for the current year and budget year combined, our revised General Fund estimates are higher than the administration’s by roughly $2.3 billion.