LAO 2002-03 Budget Perspectives and Issues: Issue-By-Issue TOC Analysis of the 2002-03 Budget Bill
Perspectives and Issues Outline
Part I: State Fiscal Picture

Overview of the Governor's Budget

Total State Spending

General Fund Condition

How the Budget Addresses the Shortfall

Economic and Revenue Assumptions

Key Features of the Governor's Expenditure Plan

Total Spending by Program Area

Programmatic Features

The LAO's Budget Outlook

Additional Solutions of $5 Billion Likely Needed

Additional Risks Exist Related to Federal Funds Shortfalls

Budget Shortfall Would Persist in Future

Considerations for the Legislature

Out-Year Implications Are Important

Part II: Perspectives on the Economy and Demographics

The Economic Outlook

2001 in Retrospect

U.S. Economy

California's Economy

Slowdown Concentrated in Manufacturing And Business Services

Regional Impact of Downturn

Recent Positive Signs

Budget's Outlook in Brief

LAO's Economic Outlook

National Outlook

California Outlook

Current Downturn Mild Compared to Previous Recessions

Employment and Income in the Current Economic Cycle

Mild Cycle for Residential Construction

But Steeper Declines in Nonresidential Building

Comparisons of Recent Economic Forecasts

Risks and Uncertainties

Census Results and the Undercount

Census Results and the Undercount (continued)

California's Demographic Outlook

State Population Exceeds 35 Million

California's Population Characteristics

Overall Budgetary Implications

Part III: Perspectives on State Revenues

Revenue Volatility

What's Behind the Increased Volatility?

What About Future Volatility?

The Budget's Forecast for State Revenues

The Budget's General Fund Revenue Outlook

Proposed Tax Relief and Recent Tax Changes

The LAO's General Fund Revenue Outlook

Recent Revenue Developments

Cash Down Over $1 Billion

LAO Revenues Down $3.9 Billion From Budget Forecast

The LAO's Forecast for Major Revenue Sources

Personal Income Tax

Background

PIT Liabilities

PIT Revenue Forecast

Sales and Use Tax

Background

SUT Rates

Taxable Sales Fell in 2001 . . .

. . . But Recovery Is Expected Beginning in Mid-2002

SUT Revenue Forecast

Bank and Corporation Tax

Background

Profits Plunged in 2001

Earnings Turnaround Expected in 2002

BCT Revenue Forecast

Other Revenues and Transfers

The Budget Forecast for Special Funds Revenues

Part IV: Perspectives on State Expenditures

An Overview of State Expenditures

Proposed Total Spending in 2001-02 and 2002-03

General Fund Spending

Special Funds Spending

Spending From Federal Funds and Bond Proceeds

Federal Funds

Spending of Bond Proceeds

State Appropriations Limit

State Spending—A Historical Overview

Spending by Program Area

Distribution of Total State Spending

Relative Growth Over Time and in the Budget Year

Key General Fund Spending Developments

K-12 Education

Higher Education

State Retirement Contributions

Other Programs

Major Expenditure Proposals in the 2002-03 Budget

Education

Proposal—K-12

Proposal—Higher Education

Issues for Legislative Consideration

CalWORKs Program

Proposal

Issues for Legislative Consideration

Criminal Justice and Judiciary

Proposal

Issues for Legislative Consideration

Transportation

Proposal

Issues for Legislative Consideration

Resources

Proposal

Issues for Legislative Consideration

Energy-Related Activities

Budget Proposal

Reorganizing the State's Energy-Related Activities

State Retirement Contributions

Proposal

Issues for Legislative Consideration

Capital Outlay

Proposal

Issues for Legislative Consideration

Part V: Major Issues Facing the Legislature
Using Borrowing to Help Address the Budget Problem

Summary

Introduction

Traditional Versus Budget-Balancing Borrowing

Types and Amount of Budget-Balancing Borrowing

Governor's Borrowing Proposals

Overall Fiscal Effect—About $4.8 Billion

Other Borrowing-Related Options

Discussion of the Governor's Borrowing Proposals

Partial Tobacco Securitization—$2.4 Billion

Deferral of Retirement Fund Contributions—$1 Billion

Transportation Loan—$672 Million

Using Bonds Instead of Direct Appropriations—$115 Million

Discussion of Other Borrowing Options

Additional Tobacco Securitization—$1.6 Billion

Refinance Existing Bond Debt ($1.1 Billion)

Considerations for the Legislature

Trade-Offs Must Be Weighed

Reorganizing California's Energy-Related Activities

Summary

Introduction

Characteristics and Organization of California's Current Energy-Related Entities

California Energy Commission

California Public Utilities Commission (Energy Division)

Electricity Oversight Board

California Power Authority

Department of Water Resources, California Energy Resources Scheduling Division

Department of Conservation, Division of Oil, Gas, and Geothermal Resources

Problems With the Current System

Difficulties in Coordinating Efforts

Excessive Duplication and Overlaps

Potential Conflicts of Interest

Difficulty in Speaking With "One Voice"

Unnecessary Costs

Staffing Issues

Interagency Differences in Accountability

Current and Past Reform Proposals

So—What Should the Legislature Do?

Step One—Inventory the State's Needs and Objectives

Step Two—Identify Specific Problem Areas That Need Fixing

Step Three—Uncover the Underlying Reasons for Why These Performance Problems Exist

Step Four—See What Has and Has Not Worked Elsewhere

Basic Principles to Incorporate

Welfare-to-Work Participation in the CalWORKs Program

Summary

Background

Federal Participation Requirement

Caseload Reduction Credit

What Counts as Participation?

Federal Penalties for Noncompliance

California's Past Performance

Shift to a Separate State Program

California's FFY 2000 Participation

How Does California Compare to Other States?

CalWORKs Participation Requirements

Exemptions

Penalties for Noncompliance

Are Able-Bodied Recipients Meeting Their Participation Requirement?

Summary

What Explains California's Participation Rates?

Budget and Policy Implications

Focus on Increasing Participation

Prioritize Welfare-to-Work Resources

Wait and See

Conclusion

The Vehicle License Fee and The 2002-03 Budget

Summary

What Is the VLF?

How Is the VLF Calculated?

How Has the VLF Been Cut in Recent Years?

How Does the Backfill Work?

How Is the VLF Allocated?

What Is the Average VLF Paid?

What Determines Growth in VLF Revenues?

Text of the Insufficient Moneys Provision

What About the Insufficient Moneys Provision?

Are Local Government Revenues Protected?