LAO 2007-08 Budget Analysis: Perspectives and Issues Outline
Analysis of the 2007-08 Budget Bill
Perspectives and Issues Outline
Part I:
State’s Fiscal Picture
The Budget Proposal
Economic Forecast—Sluggish Growth Through Mid-2007
Revenue Forecast—Modest Growth in 2006-07, Larger Increase in 2007-08
Total Budget Spending
General Fund Condition
Key Features
LAO Outlook
2007-08 Budget Would End With Deficit
The BSA and the Budget
Background
BSA and the General Fund Condition
Structural Shortfalls Would Persist …
… As Would Other Risks and Pressures
Issues and Considerations
Part II: Perspectives on the Economy and Demographics
Summary
Recent U.S. Developments
All Major Economic Sectors Except Housing Expanded in 2006
Reduced Oil Prices Having Positive Economic Impact
How Long Will 2006 Drop in Oil Prices Last?
Inflation Eased Late in the Year
Profits Jumped Again in 2006
Economy Regained Some Momentum in Late 2006
California Trends
Economy Survived a Substantial Real Estate Decline in 2006
Is Real Estate Stabilizing?
Other Indicators Are Positive
The Budget’s Economic Outlook
LAO’s Economic Outlook
National Outlook
Inflation and Interest Rates to Decline
California Outlook
Special Factors Affecting the Outlook
California’s Minimum Wage Increase
Key Forecast Risks
Comparison to Other Forecasts
The Demographic Outlook
State Population to Exceed 38 Million in 2008
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 LAO’s General Fund Revenue Outlook
We Expect Lower Revenues—Down $2 Billion
Key Factors Underlying Our Lower Estimates
The LAO’s Forecast for Major Revenue Sources
Personal Income Tax
Background
PIT Revenue Forecast
Key Forecast Factors
Sales and Use Tax
Background
SUT Rates
SUT Revenue Forecast
Key Forecast Factors
Corporation Tax
Background
CT Revenue Forecast
Key Forecast Factors
Significant Risk—LLC Fee Litigation
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 2006-07 and 2007-08
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
COLAs in the Budget
Which Programs Receive COLAs in the 2007-08 Budget?
A Historical Perspective on Spending
B. Major Expenditure Proposals In the 2007-08 Budget
Proposition 98
Background
Governor’s Proposal
Issues for Legislative Consideration
Higher Education
Background
Governor’s Proposal
Issues for Legislative Consideration
Health Services
Background
Governor’s Proposal
Issues for Legislative Consideration
Social Services
Background
Governor’s Proposal
Issues for Legislative Consideration
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
State Employment and Retirement
Background
Governor’s Proposal
Issues for Legislative Consideration
Part V: Major Issues Facing the
Legislature
A Proposition 98 Roadmap
Many Benefits From Taking a Long-Term Perspective
Significant New Revenues in Forecast
Recent Research Efforts Could Help Inform Planning
A Roadmap Expresses Priorities, Other Program Goals
Major Components of a K-12 roadmap
Data Reveal Significant Performance Gaps
Address Needs of High School Students
Maintain School District Fiscal Health
Implementing the Roadmap’s K-12 Priorities
Early Child Development and Preschool
Augment Programs Targeting At-Risk Students
Create Fiscal Solvency Block Grants
How the LAO Plan Adds Up
Major Components of a CCC Roadmap
Major Recent Improvements in Community College Funding
Projected Slowing of CCC Enrollment
Community College Performance Challenges
Investing New Resources to Meet CCC’s Challenges
How the LAO Plan for the CCC System Adds Up
Conclusion
Potential Fiscal Risks to the State in the Governor’s Health Care Coverage Plan
Introduction
Background
Overview of the Governor’s Plan
How Would the Uninsured Be Covered?
Health Care for Undocumented Immigrants
Some Public Programs Currently Treat Undocumented Immigrants
Governor’s Plan Would Expand Benefits for Undocumented Immigrants
Fiscal Effects of the Governor’s Plan
Spending Under the Governor’s Plan
Funding Sources for the Governor’s Plan
Issues for Legislative Consideration
Potential May Exist for Legal Challenges
Federal ERISA
Some Federal and Local Funding at Risk
Some Federal Funding for Medi-Cal Program Expansion Uncertain
Modeling Health Care
Model Strengths
Model Limitations
Summary
Federal Funding for HFP Expansion Uncertain
Recapturing County Realignment Funds Uncertain
Risks and Uncertainties: Economic and Demographic
Uninsured Population Potentially Higher Than Estimated
The Issue of Long-Run Health Cost Inflation
State Coverage Costs in the Purchasing Pool
Risks and Uncertainties: Flows From Private to Public Insurance
Crowd Out
Adverse Health Selection
Some Additional Funds Available
Section 125 Revenue Losses Likely Overstated
Some Fiscal Effects Omitted From Governor’s Plan
Summary of Fiscal Risks and Uncertainties in the Governor’s Plan
Conclusion
Legislative Oversight of State Employee Compensation
The Processes for Setting Employee Pay and Benefits
The Employee Compensation Process Prior to 1982
Definitions of Employee Groups
Current Process for Unionized State Employees
Current Process for Excluded and Exempt Employees
Some MOUs Make It Difficult for Legislature to Oversee Employee Pay
Automatic Pay Raise Formulas Compromise Legislature’s Power of the Purse
Long-Term Agreements Lock in Spending
MOUs Have Given Arbitrators Enormous Power in Agreements
MOUs Are Long and Complex Documents
Administration Actions Have Undermined Legislature’s Role
Administration Claims Broad Authority to Raise Pay
An Example: How These Pay Raises Undermine Legislative Authority
Administration Needs to Pay Attention to Manager and Supervisor Pay Annually
Recommendations to Enhance Legislative Oversight of Employee Compensation
End Automatic Pay Raise Formulas
Arbitrators’ Authority to Order Unanticipated State Spending Should Be Curbed
Approve One-Year or Two-Year MOUs
Joint Hearings on Selected MOUs With Major Fiscal or Policy Impacts
More Time Before Voting on MOUs
Require Administration to Submit Excluded and Exempt Pay Proposal Annually
Administration’s Flexibility to Increase Pay Should Be Limited
Summary
Improving the Mandate Process
Concerns With the Process
Lengthy Process Poses Difficulties for State and Local Governments
Complicated Claiming Methodologies
Inherent Difficulties in Estimating Mandated Costs
Linking Payment Methodology to Legal Description of Mandate
Complexity Causes State-Local Friction and Delays
Past Legislative Action
Administration’s Proposal
Concerns With Proposal
LAO Three Part Mandate Reform Package
Amend the Reasonable Reimbursement Methodology Statute
How Would This Approach Improve the Mandate Process?
Allow Methodologies to Be Developed Through Negotiations
How Would This Improve the Mandate Process?
Create an Alternative Dispute Resolution Process
Legislative Policy Control Over Mandates
Local Governments Disagreeing With the Proposed Resolution
How Would This Approach Improve the Mandate Process?
Conclusion
The Governor’s Tax Proposals
Proposal to Eliminate the Teacher Retention Tax Credit
Background
Credit Features and Eligibility
Use of the TRTC
What Has the Credit Accomplished?
Effects on Retention Hard to Identify but Likely Are Limited
Issues Concerning Reimbursement of Classroom Expenditures
LAO Bottom Line
Proposal Involving Out-of-State Purchases of Vessels, Vehicles, and Aircraft
Background
The Key Issue—What Does “Use” Mean?
Past and Current Criteria
LAO Report Requirement
LAO Report Findings
General Approach and Considerations
Economic and Fiscal Effects Involving Vessels
Overall Fiscal and Economic Effects
Legislative Issues and Considerations
The One-Year Test Is Preferable
But Other Changes Also May Merit Consideration
A State Policy Approach: Promoting Health Information Technology in California
Common Health Information Technology Terms
|