February 5, 2019 - This report considers the overall structure of the Governor’s budget to evaluate how well it prepares the state to address a future budget problem. We begin with background to explain the state budget structure, budget problems, and options for addressing budget problems. We also provide background on the state’s existing reserves and debts and liabilities. We then present some key considerations as the Legislature considers its overall budget structure. Finally, we present and assess each of the Governor’s major budget reserve and debt and liability proposals and offer some alternatives for legislative consideration.
2/5/19: Corrected total of state spending deferrals in Figure 5.
January 11, 2016 - This publication is our office’s initial response to the 2016-17 Governor’s Budget proposal. Estimates of state personal income taxes and required school funding are up significantly. In allocating discretionary resources in the 2016-17 budget, the Governor prioritizes growing state budget reserves. Specifically, he increases total reserves to more than $10 billion and also allocates a sizable portion of discretionary resources to one-time infrastructure spending. We encourage the Legislature, as it crafts this year’s budget in line with its own priorities, to begin with a robust target for reserves for the end of 2016-17 and to concentrate spending on one-time purposes. This would still leave some funds available for targeted ongoing commitments—particularly if the Legislature extends the managed care organization (MCO) tax. Such a measured approach would better position the state for any near-term economic downturn.
March 19, 2009 - The Davis-Dolwig Act is a 47-year-old state law that specifies that the state, not water ratepayers, should fund the recreation component of the the State Water Project (SWP). The budget proposes a number of statutory reforms to the act, in part to provide a dedicated funding source for its implementation. We find that the Governor’s proposal does not address a number of major problems with the implementation of the act and that the administration’s approach improperly limits the Legislature’s oversight role. We also find that, over many years, the Department of Water Resources has been allocating costs to the state under Davis-Dolwig that are significantly in excess of the direct costs to SWP for recreation. In our report, we offer the Legislature a package of statutory reforms to address problems that we have identified with the implementation of Davis-Dolwig. These include clarifying the role of public funding for recreation in SWP. We also recommend that the state evaluate the potential to divest itself of SWP reservoirs that are used mainly for recreation.
January 14, 2019 - This report presents our office’s initial assessment of the Governor’s Budget. The budget’s position continues to be positive. With $20.6 billion in discretionary resources available, the Governor’s budget proposal reflects a budget situation that is even better than the one our office estimated in the November Fiscal Outlook. The Governor’s Budget allocates nearly half of these discretionary resources to repaying state liabilities. Then, the Governor allocates $5.1 billion to one-time programmatic spending, $3 billion to reserves, and $2.7 billion to ongoing spending. Although the Governor’s allocation to discretionary reserves represents a smaller share of resources than recent budgets, the Governor’s decision to use a significant share of resources to pay down state debts is prudent. The Governor’s ongoing spending proposal is roughly in line with our November estimate of the ongoing capacity of the budget under an economic growth scenario. This was just one scenario, however. Recent financial market volatility indicates revenues could be somewhat lower than either we or the administration estimated.
January 13, 2017 - This publication is our office’s initial response to the Governor's 2017-18 budget proposal. The administration's estimates anticipate slow growth in the personal income tax (PIT), the state’s dominant revenue source. The Governor’s estimate of PIT growth in 2017-18 is probably too low. As a result, by the May Revision, the state could have more General Fund revenue than the Governor now projects, but much of that revenue would be required to go to schools and Proposition 2 reserves and debt payments. Facing uncertainties we have long discussed about the economy and new uncertainties about changes to federal policy, the Legislature may want to set a target for total state reserves at—or preferably above—the level the Governor now proposes.
May 17, 2019 - This report presents our office’s independent assessment of the condition of the state General Fund budget through 2022-23 assuming the economy continues to grow and all of the Governor’s May Revision spending proposals are adopted.
May 12, 2018 - On May 11, 2018 the Governor presented his 2018-19 May Revision budget proposal to the Legislature. This post describes the major features of the Governor’s May Revision and our office’s initial comments on it.
February 24, 2016 - In this report, we analyze the administration’s proposal for meeting Proposition 2 debt payment requirements in 2016-17 and beyond. We find the administration’s proposal focuses on paying down low-interest debts that benefit schools and potentially benefit special fund fee payers. We suggest an alternative approach that could save taxpayers billions of dollars more over the long run. It would also allow the state to begin addressing more of its retirement liabilities sooner. Our approach focuses on high-interest debts that the state is otherwise not addressing. Specifically, we suggest the Legislature prioritize: (1) the state’s pension system for judges and (2) retiree health benefits for state and California State University employees.
May 17, 2013 - In the May Revision, the administration forecasts that weaker tax collections in the coming months will erode the vast majority of the $4.5 billion of unexpected tax revenues collected since January. We do not agree with the administration's view of the state's revenue situation. As a result, our forecast now is $3.2 billion higher than the administration's May Revision total for 2011-12, 2012-13, and 2013-14 combined. While the state's fiscal condition has improved, there are many good reasons for the Legislature to adopt a cautious budgetary posture. After years of "boom and bust" budgeting, California's leaders now have the opportunity to build a budget for future years that gives the state more choices about how to build reserves in times of healthy revenue growth, prioritize future state spending, and pay off past debts. Given the improved fiscal forecast, we believe this is an ideal time for the Legislature to begin addressing its huge budgetary and retirement liabilities. In addition, given various risks to the economic outlook and the state's budgetary volatility, building larger state budget reserves in the coming years is an important priority, as doing so means there will be less necessity during future downturns to cut public spending, as occurred in recent years.
February 22, 2017 - Proposition 56 was approved by voters in November 2016 to increase taxes on cigarettes and other tobacco products. Questions have been raised as to whether the Governor’s proposals for allocating Proposition 56 revenues meet the initiative’s requirement to supplement—and not supplant—existing spending in several areas. To examine these questions, we begin by reviewing the provisions of Proposition 56 and the Governor’s budget proposals. We then discuss whether the Governor’s proposals for Medi‑Cal could be viewed as supplanting General Fund resources and identify the relevant case law. We conclude by describing some trade‑offs for the Legislature to consider in allocating the Proposition 56 revenues.