LAO 2005-06 Budget Analysis: General Government

Analysis of the 2005-06 Budget Bill

Legislative Analyst's Office
February 2005


Total state funding for general government is proposed to decrease by about 17 percent in the budget year. This decrease primarily is due to proposed reductions in employee compensation and senior citizens property tax assistance.

The "General Government" section of the budget contains a number of programs and departments with a wide range of responsibilities and functions. For instance, these programs and departments provide financial assistance to local governments, protect consumers, provide services to state agencies, ensure fair employment practices, and collect revenue to fund state operations. The 2005-06 Governor's Budget proposes $5.4 billion in state expenditures (combined General Fund and special funds) for these functions. The proposed budget-year funding is $1.1 billion (17 percent) less than estimated 2004-05 expenditures.

Spending by Major Program

There are three major program areas within general government:

We describe these program areas below, and Figure 1 shows the estimated 2004-05 and proposed 2005-06 expenditures by program area.

Figure 1

General Government Spending by Program Area

(All Funds, In Millions)







State administration





Tax relief/local governments





State employee compensationa










a  Costs not reflected in departments' budgets.

State Administration

Within general government, there are about 50 departments and agencies that serve a wide range of functions. Departments provide services to the public, regulate businesses, collect tax revenues, and serve other state entities. For many state departments, the Governor has proposed levels of expenditures in the budget year which are comparable to 2004-05. Spending from all funds, however, is proposed to increase about 3 percent to $3.3 billion, with General Fund spending remaining about the same as in 2004-05.

Government Services. A number of departments provide government services to the public. These services include housing assistance, coordination of emergency responses, and assistance to veterans. While most proposed budgets are similar to their 2004-05 levels, the administration proposes a $4 million (10 percent) reduction to General Fund grants administered by the Office of Emergency Services for public safety.

Regulatory. Many departments are responsible for providing regulatory oversight of various consumer and business activities. These agencies protect the consumer and promote business development while regulating various aspects of licensee, business, and employment practices. The groups regulated range from individuals licensed to practice speci fied occupations to large corporations licensed to conduct business in the state. Most of these departments are funded from special funds that receive revenues from regulatory and license fees. Among the Governor's proposals in this area are:

Tax Collection. The Franchise Tax Board (FTB) and the Board of Equalization (BOE) are the state's two major revenue collection agencies. The FTB is responsible primarily for collection and administration of the state's personal income tax and the corporation tax. In addition, it assists in the collection of various types of nontax delinquencies, including child support payments and vehicle-related assessments. The BOE is responsible primarily for administration and collection of the sales and use tax, as well as excise taxes on fuel, cigarettes, and alcoholic beverages. The bud get proposes total funding of $785 million ($722 million General Fund) for these two agencies in 2005-06, up roughly $38 million (5 percent) from the current year.

Services to Other Departments. Some state departments exist primarily to provide support for other departments. For instance, the Department of General Services provides guidance to state departments on purchasing and real estate decisions. The Department of Finance acts as the state's fiscal oversight agency. Among the Governor's proposals are:

Tax Relief and Local Government Payments

The state provides tax relief—both as subventions to local governments and as direct payments to eligible taxpayers—through a number of different programs. The major programs in this area are homeowners' property tax relief, various tax assistance programs for senior citizens, and open space property tax subventions. The Governor's budget proposes to decrease General Fund payments in this area from $668 million to $539 billion. This decrease is due to the elimination or reduction of certain tax assistance programs for seniors. The amount of tax relief in the current and budget years is well below the amount for 2003-04 due to the elimination of the Vehicle License Fee (VLF) General Fund backfill payments to local governments. Effective for 2004-05, the General Fund backfill was eliminated and the resulting local government losses replaced with increased property tax revenues. This requires additional General Fund expenditures for K-12 education. Thus, the state obligation has not changed, it instead is reflected in another program in the state budget.

State Employment and Retirement

Employment Agreements. There are about 165,000 rank-and-file state employees (not including those in higher education) covered under state collective bargaining law. The pay, benefits, and working conditions for these employees are typically spelled out in memoranda of understanding negotiated between employee unions and the state.

Funding Proposed for Increased Costs, But Savings Counted Too. The Governor's budget proposes to appropriate $261 million ($198 million General Fund) to fund existing collective bargaining agreements with costs in 2005-06. The largest component of these costs is for the final year of multiyear agreements with the California Highway Patrol and California Correctional Peace Officers Association, as well as their supervisors and managers (total costs of $198 million, of which $146 million is from the General Fund). Most other bargaining units will begin negotiating for new contracts in the spring. In negotiating new agreements, the administration seeks overall savings of $741 million ($408 million General Fund). As described in more detail below, the largest proposal would reduce the state's annual retirement payments to the Public Employees' Retirement System (PERS). The other components of the savings include:

Retirement Payments. The state contributes to the retirement of (1) state employees through PERS and (2) public school teachers through the State Teachers' Retirement System (STRS). Retirement-related expenditures (from the General Fund and various special funds) account for a significant part of state spending on an annual basis. In 2005-06, General Fund expenditures for public employee retirement-related costs (excluding University of California costs) will total $3.9 billion, as shown in Figure 2. As discussed below, the Governor proposes to reduce these General Fund costs in 2005-06 by $1.5 billion.

Figure 2

General Fund Costs for Retirement Programsa

(In Millions)



Proposed 2005-06

State Retirement Plans



Public Employees’ Retirement



State Teachers’ Retirement



Judges’ Retirement



Defined Contribution Plansb






Other Retirement Benefits



Health and Dental Benefits for Annuitants



Social Security and Medicarec









Proposed Budget Savings



Proposed pension bond savings


Proposed shift of state teachers retirement contribution to school districts


Proposed PERS opt-out/cost-sharing for existing state employees


Net General Fund Cost



a  Excludes costs for University of California employees.

b  State's contribution to supplemental retirement plan for correctional officers and their supervisors and managers.

c  Legislative Analyst's Office estimates.

Governor's Retirement Proposal. The administration is proposing major changes in retirement payments:

Return to General Government Table of Contents, 2005-06 Budget Analysis