LAO 2006-07 Budget Analysis: General Government

Analysis of the 2006-07 Budget Bill

Legislative Analyst's Office
February 2006


Total state funding for general government is proposed to decrease by about 7 percent in the budget year. This decrease primarily is due to the one-time payment of the vehicle license fee gap loan in the current year (partially offset by increases in many government programs). The largest proposed increases are for state employee compensation, health and dental benefit costs for state retirees, and mandate payments to local governments.

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, regulate businesses, provide services to state agencies, enforce fair employment practices, and collect revenue to fund state operations. The 2006-07 Governor’s Budget proposes $7.5 billion in state expenditures (combined General Fund and special funds) for these functions. The proposed budget-year funding is $531 million (6.6 percent) less than estimated 2005-06 expenditures. After adjusting for the one-time vehicle license fee (VLF) gap loan repayment of $1.2 billion in 2005-06, the year-to-year change is an increase of $656 million (10 percent).

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 2005-06 and proposed 2006-07 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.

   Note: Totals may not add due to rounding.


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 increased levels of expenditures in the budget year. Overall spending is proposed to stay roughly the same at $3.5 billion. A number of proposed augmentations offset the decrease in spending caused by one-time expenses in 2005-06 (such as costs for the special election and wildfires).

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. In a number of areas, the administration proposes increased funding:

Regulatory Activities. 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 specified 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. In cooperation with the Employment Development Department, 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 budget proposes total funding of $778 million ($712 million General Fund) for these two agencies in 2006-07, down $20 million (2.5 percent) from the current year. This decrease is due largely to a decline in FTB expenditures for the California Child Support Automation System.

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 state also makes payments to local governments for other programs, such as to reimburse local governments for state-mandated costs and to provide grants for public safety. The Governor’s budget proposes to decrease General Fund payments in this area from $2.1 billion to $1.2 billion. This large decrease is due to the one-time VLF backfill loan repayment of $1.2 billion in 2005-06. The loan repays local governments for a portion of the VLF backfill (to compensate them for rate reductions in the VLF) that they did not receive from the General Fund in 2003-04 due to budget considerations. Offsetting this reduction are increases in spending for mandate payments and public safety subventions.

State Employment and Retirement

Employment Agreements. There are about 177,000 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. The Governor’s budget proposes to appropriate $382 million ($203 million General Fund) to fund existing collective bargaining agreements with new costs in 2006-07, as well as other compensation-related costs. Among 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 $152 million, of which $114 million is from the General Fund). By July 2, 2006, contracts for 18 of the state’s 21 bargaining units will be expired. The budget does not include any funds for any potential costs associated with new agreements with these units.

Retirement Costs. The state contributes to the retirement of (1) state employees through the Public Employees’ Retirement System and (2) public school teachers through the State Teachers’ Retirement System. The state also pays for a portion of University of California (UC) retirement costs through the university’s budget. Retirement-related expenditures (from the General Fund and various special funds) account for a significant part of state spending on an annual basis. In 2006-07, General Fund expenditures for public employee retirement-related costs (including UC costs) will total $4.2 billion, as shown in Figure 2. One of the fastest growing components of state retirement costs has been for retirees‘ health and dental benefits. These costs are projected to exceed $1 billion in 2006-07. (We discuss these benefits in more detail in “Part V” of The 2006-07 Budget: Perspectives and Issues.) The 2005-06 budget package assumed the issuance of pension obligation bonds, with a net benefit to the state’s General Fund of $525 million in 2005-06. Legal challenges have delayed the issuance of the bonds, and the Governor’s budget does not assume that the bonds will be issued in the current or budget years.


Figure 2

General Fund Costs for Retirement Programs

(In Millions)



Proposed 2006-07

State Retirement Plans



Public Employees’ Retirement Fund



Teachers’ Retirement Fund



Judges’ Retirement Funds



Defined Contribution Plansa





Other Retirement Benefits



Health and Dental Benefits for Annuitants



Social Security and Medicareb






University of California (UC) Retirement Programs



UC Retirement Plan

Health and Dental Benefits for UC Annuitantsb










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

b  Legislative Analyst's Office estimates.


Return to General Government Table of Contents, 2006-07 Budget Analysis