LAO 2006-07 Budget Perspectives and Issues: Issue-By-Issue TOC
Analysis of the 2006-07 Budget Bill
Perspectives and Issues Outline
Part
I: State Fiscal Picture
The Budget Proposal
Budget’s Economic Forecast-Moderate Growth
Budget’s Revenue Forecast-Up Substantially
Budget Overview
General Fund Condition
Key Features of the Budget Proposal
LAO Outlook
2006-07 Budget Would Have a $2.6 Billion Reserve
State Would Continue to Face Structural Shortfalls Thereafter
Projections Subject to Significant Risks
Financial Obligations Are Looming
State Still Coping With Past Budgetary Borrowing
Legislative Considerations
Part II: Perspectives on the Economy and Demographics
Summary
Recent U.S. Developments
Solid Growth In 2005
Slowdown in Fourth Quarter Likely to Be Short-Lived
Energy Prices Soared …
… But They Did Not Derail the Economy
Job and Income Growth Moderate
Profits Jumped
California Trends
State Economic Performance Better Than Expected For Most of 2005 …
… Although Residential Real Estate Softened Late In the Year
Extent of Employment Growth Remains Uncertain
All Major Industries and Regions Expanded In 2005
Export Growth Slowed in 2005
The Budget’s Economic Outlook
LAO’s Economic Outlook
National Outlook
Energy Costs to Stabilize
Inflation to Ease
U.S. Budget Deficits to Remain Large
California Outlook
Key Forecast Risks
Energy Costs
Real Estate Activity
Comparison to Other Forecasts
The Demographic Outlook
State Population to Approach 38 Million in 2007
Population Growth Components
Growth to Vary by Age Group
Overall Budgetary Implications
Part III: Perspectives on State Revenues
The Budget’s Forecast for Total State Revenues
Proposed Revenue-Related Changes
The Budget’s General Fund Revenue Outlook
The Legislative Analyst’s Office’s (LAO) General Fund Revenue Outlook
Cash Trends Have Been Positive
LAO Forecast
Outlook Subject to Significant Downside Risks
The LAO’s Forecast for Major Revenue Sources
Personal Income Tax
Background
Year-to-Year Changes In PIT Liabilities Dominated by Nonwage Income
PIT Revenue Forecast
Revenue Impact of Tax Amnesty
Sales and Use Tax
Background
SUT Rates
Taxable Sales Grew at Moderate Pace in 2005
Outlook-Continued Slowing in 2006 and 2007
SUT Revenue Forecast
Corporation Tax
Background
Profits Soared in 2005
Slower Profit Growth Expected
Baseline Audit Collections Rising
CT Revenue Forecast
Other Revenues and Transfers
The Budget’s Forecast for Special Funds Revenues
Modest Underlying Growth Expected
Part IV: Perspectives on State Expenditures
A. An Overview of State Expenditures
Proposed Total Spending in 2005-06 and 2006-07
Allocation of Total State Spending
General Fund Spending
Special Funds Spending
Local Public Safety Funds Not Included in Special Funds Total
Spending From Federal Funds and Bond Proceeds
Federal Funds
Bond Proceeds
Budgetary Borrowing
State Appropriations Limit
Cost-of-Living Adjustments in the Budget
Important Features of State COLAs
Which Programs Receive COLAs in the 2006-07 Budget?
A Historical Perspective on Spending
B.
Major Expenditure Proposals In the 2006-07 Budget
Proposition 98
Background
Governor’s Proposal
Why Is the COLA So High?
Issues for Legislative Consideration
High General Fund Revenues, But Little Additional Proposition 98 Costs
K-14 Funding Is Linked to State’s Fortunes
Proposition 98 Issues Affect Long-Term Cost of K-14 Education
K-12 Proposition 98
Governor’s Proposal
Issues for Legislative Consideration
Higher Education
Background
Governor’s Proposal
Issues for Legislative Consideration
Health Services
Background
Governor’s Proposal Increases General Fund Commitments
Issues for Legislative Consideration
Social Services
Background
Governor’s Proposal
Issues for Legislative Consideration
Judicial and Criminal Justice
Background
Governor’s Proposal
Issues for Legislative Consideration
Transportation
Background
Governor’s Proposals
Issues for Legislative Consideration
Resources
Background
Governor’s Proposal
Issues for Legislative Consideration
Employee Compensation
Background
Governor’s Proposal
Issues for Legislative Consideration
Local Government Mandates
Background
Governor’s Proposal
Issues for Legislative Consideration
Budget Begins Paying Mandate Backlog
Likely Current-Year Mandate Deficiency
Higher Cost for Mandates in 2006-07
No Proposal for AB 3632 Mandates
Provide More Information About Mandates in Budget
Part V: Major Issues Facing the Legislature
Retiree Health Care: A Growing Cost for Government
A Perspective on Emergencies and Disasters in California
Summary
Introduction
Background
California Disasters
Phases of Emergency Management
State Preparedness and Response
Emergency Services Act
Key Features of Response System
Strengths and Vulnerabilities of California’s System
Update on Recent Changes
Governor’s Proposals
Department of Health Services and the Emergency Medical Services Authority
California Department of Food and Agriculture
Office of Homeland Security
Office of Emergency Services
Other Proposals
Proposals Focused on Science are Reasonable
Many of Governor’s Proposals Are Flawed
Failure to Maximize Use of Other Fund Sources
Some Proposals Ill-Conceived
IT Projects Fail to Follow State Policy
Homeland Security and Emergency Services Overlap
Fill Vacancies Before Adding More Positions
Antiterrorism Fund Should Be Used to Fill Funding Gaps
Most Current-Year Proposals Should Wait for Budget
LAO Recommendations
Other Key Considerations
Federal Funding Trends
Reducing Risks Through Infrastructure
Reducing Risks Through Land Use Decisions
Communication During Emergencies
Considering Public Health As a Separate Department
Emergency Health and Social Services
Conclusion
Funding for Transportation: What the
New Federal Act Means For California
Reorganizing California’s Energy-Related Activities
Summary
Introduction
Status of the State’s Energy Market
Current Energy Organizational Structure
Problems With the Current Organizational Structure
Multiple Policy-Making Organizations Within the Administration
Duplicative and Overlapping Responsibilities Among Organizations
Limited Accountability for Policy Decisions
Reorganization Proposals
Issues for Legislative Consideration
Timing of Reorganization-Is it Premature?
Creating Clear Lines of Accountability
Deciding Who Should Make Policy
Deciding the Placement and Structure of Regulatory Functions
Deciding the Placement and Structure of Nonregulatory Programs
Conclusion
Mental Health Mandates Continue to Pose Challenges
Summary
Introduction
Background
Administration Still Seeking to Revise the AB 3632 Program
Budget Plan May Not Fully Fund AB 3632 Services
Existing Mandates a Poor Program Model
Weak State Mechanisms to Control Costs
A Lack of Accountability for Ensuring the Quality of Services
Weak Linkages to Education
No Services Provided in Some Instances
Issues for Legislative Consideration
Mandates Should Be Eliminated
Insist on Early Review of Administration Proposal
Options for Reform of AB 3632
Conclusion
|