sos2004_state_vs_local by deiney

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									State vs. Local Funding: Finding the Right Balance

Polling Questions

The best solution to solve the budget deficit is?
1. 100% Tax increases 2. 100% Expenditure Cuts 3. 25% Tax Increases, 75% Expenditure Cuts 4. 50% Tax Increases, 50% Expenditure Cuts 5. 75% Tax Increases, 25% Expenditure Cuts

In order to balance the budget, the majority of spending cuts should occur in:
1. K-12 Education 2. Health and Human Services 3. Business, Transportation and Housing 4. State and Consumer Services 5. Higher Education

Which would be your first choice if the Governor would raise taxes?
1. Property Taxes 2. Personal Income Taxes 3. Corporate Income Taxes 4. Sin Taxes (Cigarette and Alcohol) 5. Sales Taxes

The current budget deficit reflects…
1. Prior tax cuts 2. Stock market 3. Inefficient government operations 4. Weak economy 5. Inherited debt

Total Inherited Debt
California

Category Accumulated Deficit Through 2002-03 Operating Deficit in 2003-04 Total Accumulated Deficit Effect of Prior Decisions After 2003-04 Total Inherited Debt

US$ Billions 9.3 3.0 12.3 9.8 22.1

Budget Gap
California, FY 2004-05

• The State of California faces a budget gap of $17 billion. • LAO suggests that $15 billion of this gap is structural, and $2 billion is attributable to a shortfall in the FY 2003-04 Budget.

How is the Budget 2004-05 Balanced?
Total “Solutions” = $16.2 Billion
Program Reductions/ Savings, 45.2% Other Loans/ Borrowing, 16.3%

Reduced Debt Service on the Econ. Rec. Bonds, 7.7%

Cost Shifts to Local Government, 11.1% Economic Recovery Bond Proceeds, 9.7% Transfers, Fund Shifts, and Other Revenue, 9.9%

Total “Solutions” = $16.2 Billion
Program Area Legisl, Jud. & Exec. State & Cons. Svcs. Bus., Trans. & Hous. Trade & Commerce Ag. Resourse Agency CA Env. Prot. Agency Health & Human Svcs. Youth & Adult Corr. K-12 Education Higher Education Labor & Workf. Dev. Ag. General Government Total Other Solutions Economic Rec. Bonds Property Tax Shift Total Proposed 04-05 Total "Solutions" GF Spending "Solutions" as a % of Spending 2.6 0.5 0.4 0.0 0.9 0.1 24.6 5.7 30.3 8.7 0.1 2.2 76.1 0.1 0.0 1.9 0.0 0.2 0.0 3.1 0.4 4.3 0.9 0.0 2.4 13.4 0.0 1.6 1.3 16.2 4.4% 7.0% 503.0% 20.0% 13.4% 12.8% 7.6% 14.2% 10.2% 1.9% 110.7% 17.6%

Total “Solutions” = $16.2 Billion
California, Health and Human Services
Health & Proposed 04-05 Total "Solutions" Human Services GF Spending "Solutions" as a % of Spending Medi-Cal 11.6 1.1 9.7% Public Health 0.4 0.0 3.7% MRMIB 0.3 0.0 11.0% CalWORKs 2.0 0.8 39.5% SSI/SSP 3.3 0.1 4.0% IHSS 0.9 0.3 28.5% Develop. Svsc. 2.2 0.2 7.3% Mental Health 0.9 0.0 4.3% Other Health & Human Svcs. 3.0 0.6 20.0% Total 24.6 3.1 12.8%

Total State Spending Plan
California, FY 2002-03 to FY 2004-05
Category Governmental Cost Funds General Fund Special Funds Selected Bond Funds Total Fund Classif. Gov. Cost Funds Total Fund Classif. Nongov. Cost Funds Total Fund Classif. Federal Funds Total 2002-03 2003-04 2004-05 US$ Billions 77.5 18.3 11.0 106.8 59.8 54.7 221.3 78.0 19.4 10.4 107.9 64.2 58.0 230.0 76.1 21.1 1.9 99.1 71.3 55.0 225.5

California – General Fund
Revenues and Expenditures, FY 91-92 to FY 04-05
US$ Billions

90 80 70 60 50 40 30 1991

Revenues Expenditures

1992 1993

1994 1995

1996 1997

1998 1999

2000

2002 2004* 2001 2003*

*Note: FY 2003-04 and FY 2004-05 are based on the 2004 Budget Act as of 8/30/04

California – General Fund
Revenues and Expenditures, FY 91-92 to FY 04-05
US$ Billions

80
Revenues Expenditures

60

40

20

0 1954-1955

1964-1965 1974-1975

1984-1985 1994-1995

2004-2005*

*Note, FY 2004-05 is based on the 2004 Budget Act as of 8/30/2004

California – General Fund Growth
Revenues and Expenditures, FY 91-92 to FY 04-05
Percent Change, Year Ago

25 20 15 10 5 0 -5 -10

Revenues Expenditures

1993 1995 1997 1999 2001 2003 2005* 1992 1994 1996 1998 2000 2002 2004*
*Note: FY 2003-04 and FY 2004-05 are based on the 2004 Budget Act as of 8/30/2004

California – General Fund Expenditures
As % of Revenues and Transfers, FY 91-92 to FY 04-05
Percent

110

105

100

95

90

1992 1994 1996 1998 2000 2002 2004 1991 1993 1995 1997 1999 2001 2003
*Note: Rev. & Transfers of FY 02-03 & FY 03-04 do not incl. Economic Recov. Bond

General Fund Expenditures
California, FY 2004-2005
Ed. K-12, 42.8% Health & Human Svcs., 32.0%

Environ. Prot., 0.1%

Business, Transp & Housing, 0.5% State & Cons. Svcs., 0.7% Resources, 1.3% Tax Relief, 0.8% Courts, 2.1%

Higher Ed., 11.8% Youth & Adult Corr. Agency, 8.0%

General Fund Revenues and Transfers
California, FY 2004-2005
Personal Income Tax, 50.5% Tobacco Taxes, 0.2%

Sales Tax, 32.6%

Estate Tax, 0.2% Liquor Tax, 0.4% Other, 3.5% Insurance Tax, 2.8%

Corporation Taxes, 9.8%

Total Revenues and Transfers
California, FY 2004-2005
Personal Income Tax, 39.5% Sales Tax, 29.5%

Liquor Tax, 0.3% Estate Taxes, 0.1% Tobacco Taxes, 1.0% Motor Vehicle Fees, 3.6%

Other, 12.7% Corporation Taxes, 7.7%

Highway Insurance Users Taxes, Tax, 3.4% 2.2%

Total Expenditures (Incl. Bond Funds)
California, FY 2004-05
Ed. K-12, 32.4% Health & Human Svcs., 29.1% Higher Ed., 11.6% Business, Transp. & Housing, 7.3% Other, 4.9% Resources, 3.4% Tax Relief, 0.6% Youth & Adult Corr. Agency, 6.1%

Courts, 2.7% Environm. Prot., 0.9% State & Consumer Svcs., 1.0%

2004-05 Budget - General Fund
California, US$ Millions
Year 2004-05 Prior Year Balance Revenues and Transfers Expenditures Special Fund for Economic Uncertainties Other Reserves Prop. May Budget Revision Act 2,816 76,688 77,578 998 929 3,127 77,251 78,681 768 929

1,219 76,407 76,062 635 929

Annual Revenues and Expenditures
Amounts in Billions
$120 110 100 90 80 70 60 50 40
99-00 02-03 04-05 06-07 Forecast 08-09 Operating Surplus Operating Deficits
Revenues Expenditures Expenditures with VLF Backfill Restoration

California – Closing the Gap
Revenues & Expenditures, FY 2000-01 to FY 2004-05
US$ Billions

95 90 85 80 75 70 65 FY 2000-01 FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05
Revenues with Solutions Expenditures with Solutions

CA-Capital Gains & Stock Options Rev.
As a Percent Share of Total General Fund Revenue
Percent

20 15 10 5 0

FY96-97 FY98-99 FY00-01 FY02-03 FY04-05* FFY95-96 FY97-98 FY99-00 FY01-02 FY03-04*
Note: An assumed tax rate of 9% was used to calculate the tax revenue * FY03-04, FY04-05 estimates

Annual Cost of Tax Reductions
California, FY 91-92 to FY 03-04*
US$ Millions

10000 8000 6000 4000 2000 0 1991

1992 1993

1994 1995

1996 1997

1998 1999

2000 2001

2002 2003

*Note: FY 2002-03 and FY 2003-04 are estimated

Revenue Sources
California, FY 2004-05
Taxes Personal Income Tax Sales Tax Corporation Tax Highway Users Taxes Motor Vehicle Fees Insurance Tax Estate Taxes Liquor Tax Tobacco Taxes Other Total General Special Funds Funds US$ Millions 38,974 25,146 3,972 7,573 3,322 16 3,574 2,195 135 302 118 917 2,792 9,610 77,251 21,395

California – Tax System
Average Percent Change, FY 71-72 to FY 03-04
Average Percent Change

12 10 8 6 4 2 0 -2 -4
Pers. Income Tobacco Alcohol Sales Corp. Income Insurance Prem. Motor Veh. Fuel

Total Tax Burden - CA vs. U.S. Average
Taxes as % of Income, 1982-2004
Percent

36
California United States

34 32 30 28 26
82

83 84

85 86

87 88

89 90

91 92

93 94

95 96

97 98

99 00

01 02

03 04

How Does California Compare?
Revenues as % of Personal Income, 2001-02

Categories CA Rank CA (%) US Total (%) Total State & Local Taxes (99-00) 11 11.5 10.6 State Taxes 17 6.8 6.1 Local Taxes (99-00) 32 3.5 4.0 State & Local Gen. Sales Taxes (99-00) 18 2.9 2.6 State & Local Property Taxes (99-00) 36 2.5 3.0 State General Sales Tax 27 2.1 2.0 State Individual Income Tax 9 2.9 2.1 State Corporate Income Tax 7 0.5 0.3

LAO’s General Fund Revenue Forecast
California, FY 2002-03 to FY 2008-09
US$ Billions US$ Billions

60 50 40 30

Pers. Income Tax (L) Sales & Use Tax (L) Corp. Tax (L) Other Rev. & Trans. (L) Total Rev. & Trans. (R)

100 95 90 85 80

20 10 0 2002 2003 2004 2005 2006 2007 2008

75 70 65

Adj. Fed. Expenditures Per $ of Taxes
Western States, FY 1954-55 to FY 2004-05
Expenditures per Dollar of Taxes

2.5
FY 1992 FY 2002

2.0 1.5 1.0 0.5 0.0

Arizona Colorado Nevada Oregon Washington Alaska California Hawaii New Mexico Utah

California – Personal Income
FY 1990-91 to FY 2004-05
US$ Billions

1300 1200 1100 1000 900 800 700 600 1992 1994 1996 1998 2000 2002 2004 1991 1993 1995 1997 1999 2001 2003

California – Personal Income Growth
2002Q1-2004Q1
Percent Change, Year Ago

6 5 4 3 2 1 0 2002Q1 Q2 Q3 Q4 2003Q1 Q2 Q3 Q4 2004Q1

California – State & Local Taxes
As % of Household Income, 2002, US$ Thousands
Percent

12 10 8 6 4 2 0 <$18 $18-$30 $30-$47 $47-$80 $80-$168 $168-$567 >$567

General Fund Rev. vs. Personal Income
California, FY 91-92 to FY 04-05
Percent Change, Year Ago

25 20 15 10 5 0 -5 -10 1992

Revenue Personal Income

1993 1994

1995 1996

1997 1998

1999 2000

2001

2003 2002 2004*

*Note, FY 2003-04 and FY 2004-05 are based on the 2004 Budget as of January 04

State-Local Tax Burden vs. U.S. Average
Taxes as % of Income, FY 1982-83 to FY 04-05
Percent

11.0

California United States

10.5

10.0

9.5

9.0 82

83 84

85 86

87 88

89 90

91 92

93 94

95 96

97 98

99 00

01 02

03 04

Sales and Use Tax Revenue
CA, US$ Billions, FY 2002-03
State General, $22.62

Local Public Safety, $2.28

BradleyBurns, $5.66 Special Districts, $2.90

Local Revenue, $2.28

General Fund Spending By Program
California, FY 2004-05, US$ Millions
Program Education Programs K-12 - Prop. 98 28,055 Community Colleges - Prop. 98 2,272 UC/CSU 5,538 Other 2,708 Health and Social Services Prog. Medi-Cal 9,947 CalWORKs 2,064 SSI/SSP 3,157 Other 7,799 Youth and Adult Corrections 5,424 Vehicle License Fee Offset 2,689 Deficit Recovery Fund Transfer 2,012 All Others 5,959 Totals 77,624 2004-05 Percent 2003-04 Amount Change 30,874 3,035 5,101 4,176 11,908 1,987 3,371 7,930 6,215 -2,012 4,994 77,579 10.0 33.6 -7.9 54.2 19.7 -3.7 6.8 1.7 14.6 -100.0 -16.2 -0.1

California – General Fund Spending
Percent Change, FY 2003-04 to FY 2004-05
Percent Change, Year Ago

50 31 13 -6 -25 -44 -63 -81 -100
Higher Ed Trans & Hous Corr K-12 Health Svcs. Tax Relief Env Pro Other Res. State & Cons. Totals

*Note: FY 2004-05 is based on the 2004 Budget as of January 2004

California – Education Expenditures
As % of General Fund, FY 1981-82 to FY 2004-05
Percent

55 54 53 52 51 50 49 48
82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

Note: FY 03-04 & FY 04-05 are based on the Budget Summary '04-'05 as of Jan. '04

Proposition 98
California
Category General Fund Appropriation Local Revenue Total Funded Guarantee General Fund Reserve for P98 Base Guarantee Level Savings 2002-03 2003-04 2004-05 US$ Billions 28.9 30.4 34.0 14.8 15.8 13.0 43.7 46.2 47.0 0.3 44.2 46.7 49.3 0.5 0.5 2.0

Proposition 98 Appropriations
California
2002-03 2003-04 2004-05 US$ Billions State General Fund 28.9 30.4 34.0 K-12 -26.2 -28.0 -30.9 Other State Agencies -0.1 -0.1 -0.1 California Community Colleges -2.6 -2.3 -3.0 Local Revenue K-12 California Community Colleges Total Reserve 14.8 -12.8 -2.0 43.7 15.8 -13.7 -2.1 46.2 13.0 -11.2 -1.8 47.0 0.3 Funding/Recipient

Proposition 98
Per Pupil Funding, FY 2000-01 to FY 2004-05
US$

7100 7000 6900 6800 6700 6600 6500
FY 2000-01 FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05

Note: FY 2004-05 is based on the 2004 Budget Act submitted in 8/30/2004

California – K-12 Funding
2004-05 Budget
US$ Billions

60 58 56 54 52 50
FY 2000-01

FY 2001-02 FY 2002-03
Note: FY 2004-05 is based on the 2004 Budget Act signed 8/30/2004

FY 2003-04 FY 2004-05

K-12 General Fund Expenditures
Increase Over Prior Year, FY 1999-00 to FY 2004-05
US$ Millions

5000 4000 3000 2000 1000 0 -1000 -2000
1999 2000 2001
Note: FY 2003-04 and FY 2004-05 as of January 2004

2002 2003

2004

K-12 Funding Sources
California, 2004

State Funds, 53%

Lottery, 1% Local Misc. Revenues, 6% Federal Government, 13%

Local Property Taxes, 27%

California – Health & Human Services
Expenditures As % of General Fund, FY 92-93 to 04-05*
Percent

36 34 32 30 28 26 24
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

*Note: FY 03-04 & FY 04-05 are based on the Budget Summary '04-'05 as of Jan. '04

Health & Human Services State Spending
CA, Percent Change FY 98-99 Actual to FY 03-04 Est.
Percent Change

350 300 250 200 150 100 50 0
MRMIB* IHSS** Medi-Cal Total General F. CalWORKs SSI/SSP*** Child Welfare Svcs. Foster Care

*Note: Managed Risk Medical Insurance Board ** In-Home Supportive Services ***Supplemental Security Income/State Supplementary Payment

Total State Health Care Expenditures
Western States, FY 2000-01 to FY 2001-02
US$ Billions

35 30 25 20 15 10 5 0
Arizona Colorado Nevada Oregon Washington Alaska California Hawaii New Mexico Utah FY 2000 FY 2001

CA – CalWORKS Caseload Decline
California’s Welfare-To-Work Program, 92-02
Percent Change in Average Annual Caseload from prior Year

10 5 0 -5 -10 -15
1992

1993 1994

1995 1996

1997 1998

1999 2000

2001 2002

CA – Assistance to Cities FY 03-04
As a % of the State General Fund
Total, 99.85% or $70.7 Billion

Cities, 0.15% or $105 Million

Does not incl. Prop 172 Local Public Safety Fund

Expenditures By Character - All Funds
CA, FY 2003-04 to FY 2004-05, US$ Millions
Year/Fund 2003-04 GF SF BF FF Total 2004-05 GF SF BF FF Total State Local Capital Not Operations Assistance Outlay Classified 16,946 9,927 611 11,565 39,050 18,463 12,042 120 10,831 41,456 57,660 8,469 6,805 44,979 117,912 60,929 8,028 147 42,069 111,173 410 1,010 3,028 846 5,294 33 1,074 1,671 1,148 3,925 3,012 582 3,594 -3,362 952 -2,410 Total

78,028 19,406 10,444 57,972 165,850 76,062 21,144 1,938 55,000 154,144

California City Spending
Public Utilities, 42% Police, 15% City Council & Mgm., 9%

Libraries, 1% Other, 3% Parks, Recreation & Culture, 7%

Plan. & Dev., 8% Streets, Drainage & Lighting, 8%

Fire & EMS, 7%

California City Revenues
Service Charges, 41% Debt Service, 1% Sales Tax, 10% State & Fed, 9% Fees, 8% Property Tax, 7% Other Gen Tax, Utility User 6% Tax, 4%

Assessments 1% Lic. & Permits, 2% Other Taxes, Other, 4% 3%

VLF, 4%

California City Revenues
Per Capita – Constant 1997-98 Dollars
Service Charges, 40% or $471 Other Rev., 16% or $191 Intergov. Transfers, 13% or $147

Property Tax, 7% or $84

Sales & Use Tax, 11% or $131

Other Taxes, 12% or $146

Leading Sources of CA City Revenues
Perspectives on City Revenues

FY 1974-75 (pre Prop 13) 1. Service Charges 2. State & Fed Aid 3. Property Tax 4. Sales & Use Tax 5. Use$/Property 6. Veh. License Fee 7. Other

% 35.2 21.2 14.8 11.4 3.7 4.1 9.6

FY 1980-81 (after Prop 13) 1. Service Charges 2. State & Fed Aid 3. Sales & Use Tax 4. Property Tax 5. Use$/Property 6. Veh. License Fee 7. Other

% 36.9 23.4 11.9 5.8 3.5 3.1 15.5

FY 2000-01 (Recent) 1. Service Charges 2. State & Fed Aid 3. Sales & Use Tax 4. Property Tax 5. Use$/Property 6. Veh. License Fee 7. Utility User Tax 8. Other

% 42 9.3 10.2 6.5 5.9 3.8 3.8 18.5

CA - General Property Tax Dollar
Average State Allocation, FY 2002-03

School Purposes, $0.52

Counties, $0.19

Other Districts, $0.18 Cities, $0.11

California – Local Property Taxes
County Revenues, FY 92-93 to FY 01-02
Property Taxes as a Percentage of Total County Revenues

25 23 21 19 18 16 14 12 10 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

California – Local Property Taxes
City Revenues, FY 92-93 to FY 01-02
Property Taxes as a Percentage of Total City Revenues

10.0

9.1

8.3

7.4

6.5 1992

1993 1994

1995 1996

1997 1998

1999 2000

2001

*Note: Prop. T. & Voter-Appr. Indebtedness, **excl. City/County of San Francisco

Budget Agreement & Prop 1A
Educational Revenue Augmentation Fund

• The State of California continues to shift local property taxes to pay for schools ("ERAF" shift - currently about $5 billion annually), but cannot shift any additional property or sales tax or vehicle license fees.

Budget Agreement & Prop 1A
State Contributions from Cities and Counties

• Cities, counties, special districts and redevelopment agencies will help the state solve its budget crisis by giving up $1.3 billion in local revenues in both FY 2004-05 and 2005-06 ($2.6 billion total). • The cities' share of this loss will be $350 million for each of the two years.

Budget Agreement & Prop 1A
Allocation of $1.3 Billion Revenue Shift
Agencies Cities - $350 Million Allocation 1/3 of the $350 Million reflects: Each city's share of statewide city VLF revenues. Each city's share of property taxes. Each city's share of sales taxes.

Budget Agreement & Prop 1A
Allocation of $1.3 Billion Revenue Shift

Agencies Counties - $350 Million

Allocation Each county's reduction reflects its proportionate share of 2003-04 county nonrealignment VLF.

Budget Agreement & Prop 1A
Allocation of $1.3 Billion Revenue Shift

Agencies Indep. Special Districts - $350 Million

Allocation Enterprise special districts shift 40% of their property taxes. Nonenterprise special districts shift 25% of their property taxes.

Budget Agreement & Prop 1A
Allocation of $1.3 Billion Revenue Shift
Agencies Allocation Redevelopment $125 million is allocated Agencies among Red. Agencies. - $250 Million $125 million is allocated based on tax increment net of rev. "passes-through" to other agencies.

Budget Agreement & Prop 1A
Vehicle License Fee (VLF) Backfill

• Eliminates current VLF backfill from the state general fund. • Instead, provides these amounts to cities and counties from the countywide ERAF fund.

Budget Agreement & Prop 1A
VLF Backfill • Vehicle license fees are statutorily capped at 0.65% of the value of a vehicle. • This revenue is dedicated to cities and counties. • If the rate falls below 0.65%, the state is constitutionally obligated to backfill cities and counties for the difference between the new rate and 0.65%.

Impacts of ERAF
California, FY 1992-93 to FY 2003-04 est.
US$ Billions

0 -10 -20 -30 -40 -50 Cities

Counties Spec. Districts

Redev't Ag. Total

ERAF Net of Proposition 172
California, FY 1992-93 to FY 2003-04 est.
US$ Millions US$ Millions

0 -400 -800

-1000

-1500

-2000 -1200 -1600 -2000 1992
Cities (L) Counties (L) Special Districts (L) Redevl. Agencies (L) Total (R)

-2500

1993 1994

1995 1996

1997 1998

1999 2000

2001 2002

2003

-3000

ERAF Shift
California, FY 1992-93 to FY 2003-04 est.
US$ Millions US$ Millions

0 -750 -1500

-1000 -2000 -3000

-2250 -4000 -3000 -3750 -4500 1992
Cities (L) Counties (L) Special Districts (L) Redevl. Agencies (L) Total (R)

-5000 -6000

1993 1994

1995 1996

1997 1998

1999 2000

2001 2002

2003

Note: Excluding the City and County of San Francisco

VLF Backfill for Property Tax Swap
City & County Est. for FY 04-05 & FY 05-06, US$ Bill.

B C=A-B VLF VLF Swapped Remaining to InLieu PropTax FY 2004-05 FY 2004-05 FY 2004-05 Current Law After Swap City/County California Cities Counties State Total

A VLF with Backfill

D City/County State Gen. Fund Contribution FY 2004-05

E=C-D PropTax Inlieu of VLF net of Contribution FY 2004-05

1.8 2.6 4.4

0.2 0.0 0.2

1.6 2.6 4.1

-0.35 -0.35 -0.70

1.2 2.2 3.4

City Contr. to State General Fund
L.A. County Cities, FY 04-05 & FY 05-06
Cities Initial Alloc. Adjust for 2% FY04-05 State % of FY02 on floor & 4% General Fund General 1/3-1/3-1/3 cap Contribution Revenues US$, Ths. Burbank 1,889.6 -41.4 1,848.2 2.3 Glendale 2,264.7 -49.6 2,215.1 2.4 Long Beach 5,193.2 -113.8 5,079.4 2.1 Los Angeles 49,421.9 -1,083.2 48,338.7 2.0 Pasadena 2,302.9 955.9 3,258.8 2.0

Allocation: 1/3 on Prop Tax, 1/3 on Sales Tax, 1/3 on VLF with cap of 4% and floor of 2% of FY01-02 General Rev.

City Contr. to State General Fund
Fresno County Cities, FY 04-05 & FY 05-06
Cities Initial Alloc. Adjust for 2% FY04-05 State % of FY02 on floor & 4% General Fund General 1/3-1/3-1/3 cap Contribution Revenues US$, Ths. 790.7 -17.3 773.3 3.5 4,883.6 -107.0 4,776.5 3.5 153.8 -3.4 150.4 3.6 151.2 -3.3 147.9 2.8 222.9 -4.9 218.0 3.3

Clovis Fresno Reedley Sanger Selma

Allocation: 1/3 on Prop Tax, 1/3 on Sales Tax, 1/3 on VLF with cap of 4% and floor of 2% of FY01-02 General Rev.

City Contr. to State General Fund
San Diego County Cities, FY 04-05 & FY 05-06
Cities Initial Alloc. Adjust for 2% FY04-05 State % of FY02 on floor & 4% General Fund General 1/3-1/3-1/3 cap Contribution Revenues US$, Ths. 1,895.7 -41.5 1,854.1 2.5 1,886.6 -41.3 1,845.2 2.8 1,190.5 -26.1 1,164.4 3.2 1,776.5 -38.9 1,737.6 2.8 17,236.5 -377.8 16,858.7 2.9

Carlsbad Chula Vista Encinitas Oceanside San Diego

Allocation: 1/3 on Prop Tax, 1/3 on Sales Tax, 1/3 on VLF with cap of 4% and floor of 2% of FY01-02 General Rev.

City Contr. to State General Fund
Santa Clara County Cities, FY 04-05 & FY 05-06
Initial Alloc. Adjust for 2% FY04-05 State % of FY02 on floor & 4% General Fund General 1/3-1/3-1/3 cap Contribution Revenues US$, Ths. Milpitas 1,023.2 -22.4 1,000.8 2.8 Mountain View 1,266.1 170.1 1,436.1 2.0 San Jose 10,545.1 553.7 11,098.8 2.0 Santa Clara 2,040.5 180.2 2,220.7 2.0 Sunnyvale 2,090.4 -45.8 2,044.6 2.4 Cities

Allocation: 1/3 on Prop Tax, 1/3 on Sales Tax, 1/3 on VLF with cap of 4% and floor of 2% of FY01-02 General Rev.

Cities - Net Donors to the State GF
California

The Squeeze:
Dollars per Resident per Month adj for Inflation
$60 50 40 30 20 10 0 1976-77 1987-88 2002-2003 City Taxes & State &Fed $

Fire Fire Police Police

Fire Police

California’s Population Growth
In Cities

L.A. County 04-05 Adopted Budget
Total Requirements $17.3 Billion
Health, 25.0% or $4.3 Billion

Social Services, 27.0% or $4.7 Billion

Special Funds/ Districts, 20.0% or $3.4 Billion

Other, 8.0% or $1.5 Billion

Public Protection, 20.0% or $3.5 Billion

L.A. County 04-05 Adopted Budget
Total Resources $17.3 Billion
Federal Assistance, 28.0% or $4.9 Billion Other, 30.0% or $5.1 Billion State Assistance, 23.0% or $4.0 Billion

Property Taxes, 19.0% or $3.3 Billion

L.A. County 04-05 Adopted Budget
Total Cost by Function $17.3 Billion
Public Assistance, 29% or $5.0 Billion Health & Sanitation, 27% or $4.7 Billion

Recreation & Cultural, 3% or $541 Million Other, 6% or $981 Million General, 10% or $1.7 Billion

Public Protection, 25% or $4.3 Billion

L.A. County 04-05 Adopted Budget
Net County Cost by Function $3.9 Billion
Public Protection, 42% or $1.6 Billion Health & Sanitation, 19% or $727 Million

Other, 2% or $91 Million Public Assistance, 17% or $661 Million

Recreation & Cultural, 3% or $116 Million

General, 17% or $656 Million

L.A. County 04-05 Adopted Budget
Total Revenue $17.3 Billion
Locally Generated Revenues, 22% or $3.9 Billion Federal Assistance, 26% or $4.4 Billion Special Funds & Districts, 20% or $3.4 Billion

Other, 13% or $2.3 Billion

State Assistance, 19% or $3.3 Billion

L.A. County 04-05 Adopted Budget
Total Revenue General Fund $12.1 Billion
Federal Assistance, 29% or $3.6 Billion Local Revenues, 32% or $3.9 Billion

State Assistance, 26% or $3.1 Billion

Other, 13% or $1.6 Billion

L.A. County 04-05 Adopted Budget
Locally Generated Revenue $3.9 Billion
Property Tax, 64% or $2.5 Billion

Property Tax Relief, 1% or $20 Million

Fund Balance, 14% or $535 Million State Realignment VLF, 11% or $428 Million

Sales Tax, 1% or $34 Million Other Taxes, 3% or $126 Million Cancelled Reserves, 3% or $105 Million

Other Nondepart. Rev., 3% or $135 Million

L.A. County 04-05 Adopted Budget
$17.3 Billion Mandated vs. Discretionary Costs
Program Specific Revenue/ Fixed Costs 77.6% or $13.4 Billion

Net County Cost: Non-Flexible Costs 14.0% or $2.4 Billion

Net County Cost: Flexible Costs 8.4% or $1.5 Billion

L.A. County 04-05 Adopted Budget
$17.3 Billion Mandated vs. Discretionary Costs
Fixed Costs ($13.4 Billion or 77.6%) Category US$ Million Debt Service Funds 44.2 Health/Social Services 7,580.60 Property Tax Administration 74.9 Proposition 172 - Public Safety Augmention Fund 541.7 Sheriff 458.9 District Attorney 82.8 Special Funds/Districts 3,384.30 Subv./Rev. That Offset Costs 1,645.50 Trial Court Funding 166.6

L.A. County 04-05 Adopted Budget
$17.3 Billion Mandated vs. Discretionary Costs
Net County Cost ($3.9 Billion or 22.4%) Flexible Costs ($1.5 Billion or 8.4%) Public Protection $557.8 Mill. or 3.2% US$ Million Community-Based Contracts 3.1 Coroner 19.1 District Attorney-Criminal 67.8 Emergency Preparedness 4.2 Fire-Lifeguards 19.4 Office of Public Safety 10.4 Other Public Protection 20 Probation-Camps/Support Svcs. 106.7 Sheriff 307.1

L.A. County 04-05 Adopted Budget
$17.3 Billion Mandated vs. Discretionary Costs
Net County Cost ($3.9 Billion or 22.4%) Flexible Costs ($1.5 Billion or 8.4%) All Other Costs $893.5 Mill. or 5.2% US$ Million Agric. Commissioner 5.8 Animal Care & Control 7.2 Capital Projects 134.8 Consumer Affairs 2.3 Countywide Servises 10.3 Extraord. Maintenance 30.7 General Government 327.7 Health - Drug Court 1.8 Health - GF Contribution 40.0 Health/Mental Health 2.0 Health - Tobacco 101.8 HR Commission 2.2 Ombudsman 0.9 Other Public Svcs. 40.5 Parks & Recreation 63.6 Other Recr. & Cultural 22.8 Regional Planning 8.3 Reserves/Designation 90.8

L.A. County 04-05 Adopted Budget
$17.3 Billion Mandated vs. Discretionary Costs
Net County Cost ($3.9 Billion or 22.4%) Non-Flexible Costs ($2.4 Billion or 14.0%) MOE & Mandatory Costs/Svcs. $2.4 Bill. or 13.6% US$ Million Alternate Public Defender 34.9 Assessor 71.1 Other Court Related 231.6 District Attorney - Criminal 59.8 Health/Mental Health 597.2 Probation - Other 205.3 Public Defender 130.6 Social Svcs. 602.2 Sheriff 424.2

L.A. County 04-05 Adopted Budget
$17.3 Billion Mandated vs. Discretionary Costs
Net County Cost ($3.9 Billion or 22.4%) Non-Flexible Costs ($2.4 Billion or 14.0%) Other Non-Flexibel Costs $68.3 Million or 0.4% US$ Million Capital Project-Seismic Retrofit 6.9 Grand Jury 1.3 Judgments & Damages/Insurance 21.7 Museums Obligation 29.9 Social Services 8.5

1983-84 California Budget
General Fund Revenues
Personal Income Tax, 39.8% Sales and Use Tax, 37.0%

Alcohol Tax, 0.6% Cigarette Tax, 0.8% Estate Tax, 1.0% Insurance Tax, 2.0%

Minor Revenues, 4.9%

Bank and Corporation Tax, 13.8%

1983-84 California Budget
General Fund Expenditures

K-12, 39.5%

Health Svcs., 30.7%

Resources, 2.0%

Higher Ed., 14.5% Tax Relief, 4.8%

Corr. Agency, 3.8% Other, 4.6%

How the 2003-04 Budget Gap Was Closed
Mostly Closed by Borrowing and Other One Time Measures
Borrowing, 41.0% Cuts/Savings 24.0%

Accounting Changes, 2.0%

Fees and Taxes, 9.0%

Fund Shifts, 7.0%

Deferrals, 8.0%

Other Resources, 9.0%
Total Solutions = $38.2 Billion

Credit Ratings Comparisons
California Has the Lowest Ratings
MOODY’S
Effective Rating California Illinois Massachusetts New Jersey New York A3 / Positive Aa3 / Stable Aa2 / Neg Aa3 / Stable A2 / Stable Date May-04 Mar-04 Mar-04 Jul-04 Dec-02 Rating BBB / Creditwatch+ AA / Neg AA- / Stable AA- / Stable AA / Neg

S&P
Effective Date Mar-04 Mar-04 Mar-04 Jul-04 May-03

FITCH
Effective Rating BBB / Neg AA AAAAAADate Dec-03 Mar-04 Mar-04 Jul-04 Jun-03

Credit Quality Comparisons
Economic Indicators, 2003

Annual GSP Growth (%) Annual Personal Income Growth (%) CY04 CY05 CY04 CY05 California 5.0 4.1 4.7 5.8 Illinois 4.2 3.1 3.6 5.3 Massachusetts 4.7 3.3 3.2 4.7 New Jersey 4.2 3.2 3.9 5 New York 4.2 3.5 4.1 5.4

Economic

Credit Quality Comparisons
Debt, 2003

Net Tax-Supported Net Tax-Supported Debt Debt Per Capita ($) as a % of 2002 Personal Income California 1,060 3.2% Illinois 1,943 5.8% Massachusetts 3,333 8.5% New Jersey 2,332 5.8% New York 2,420 0.1%

Debt

Credit Quality Comparisons
State Pension System Funding, 2004

State Pension System Funding California Illinois Massachusetts New Jersey New York

Unfunded Liabilities/ Budget Expenditure 33% 197% 69% 9% 72%

National Ranking by Funding Ratio (Assets/Liabilities) 8 50 46 6 12

I. The Inherited Budget Crisis

I. The Inherited Budget Crisis

I. The Inherited Budget Crisis

I. The Inherited Budget Crisis
Last January, the Governor revealed a four-part economic recovery plan:
n

Approval of the Economic Recovery Bond Act to refinance a portion of the inherited debt; Approval of a constitutional amendment to require balanced budgets with prudent reserves in the future; Improve California’s business and jobs climate in order to revitalize the State’s economy and improve revenue growth; Approval of a State Budget for 2004-05 that moves toward structural balance.

n

n

n

I. The Inherited Budget Crisis

II. Economic Outlook

II. Economic Outlook

II. Economic Outlook

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

III. California’s Tax System

IV. Budget Outlook

Economic Diversification
Comparison of California and U.S., 2002
Sectoral Distribution of California’s GSP*
Agriculture, forestry, and fishing 2% Mining 1% Construction 4% Manufacturing 12% Transportation and public utilities 7%
Services 22%

Sectoral Distribution of U.S. GDP*
Agriculture, forestry, and fishing Government 1% 13% Mining 1% Construction 4%

Government 11%

Manufacturing 16%

Services 24%

Wholesale Trade 7%

Transportation and public utilities 8%

Wholesale Trade 7% Finance, insurance, and real estate 19% Retail Trade 9%

Finance, insurance, and real estate 23%

Retail Trade 9%

Taxable Sales Trends, FY 1968 to 2005
Taxable Sales Performance shows strong, stable Growth
$ Billion
500 450

Historical Growth Rates
Compounded 5-Year (FY ‘99-’03) 4.84% 5.05% 4.14% 5.28% Average 4.96% 5.12% 4.22% 5.38%

400

10-Year (FY ‘94-’03)
350 300 250 200 150 100 50 0

15-Year (FY ‘89-’03) 20-Year (FY ‘84-’03)

'68 '69 '70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05

Taxable Sales

Projected Taxable Sales*

Taxable Sales Trends, FY 1968 to 2005
Taxable Sales and Economic Cycles
$ Billion
500 450 400 350 300 250

Loma Prieta Earthquake, taxable sales show positive growth Early 1980s Recession, taxable sales increase average of 6.83%, FY 1980-1983

Early 1990s recession, taxable sales decline 3.11%, FY 1990-1993

Tech Boom, growth of 12.7%, FY 1999FY2000 Northridge Earthquake, taxable sales show positive growth

Energy Crisis, Tech downturn & 9/11, decline of 2.3%, FY 2001-2002

200 Stagflation, taxable

sales increase average of 15.24%, FY 1977-1980 100
150 50 0

Fiscal '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 '78 '79 '80 '81 '82 '83 '84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 Year Taxable Sales Projected Taxable Sales*

Historical Taxable Sales Growth Rates
• Taxable sales growth rates have been stable. • While annual growth rates have fluctuated year-to-year, over 2/3rds of the time annual growth rates have ranged between 4 to 12% since 1969. • Taxable sales have increased more than 8% 13 times and have declined only 4 times in the past 34 years.

Taxable Sales Growth Rates
California
Category Mean Median Maximum Minimum Standard Deviation 5-Year Average (1999-2003) 10-Year Average (1994-2003) 15-Year Average (1989-2003) 20-Year Average (1094-2003) 30-Year Average (1974-2003) Taxable Sales Growth Rate FY 1969 to 2003 7.26% 6.52% 16.61% -2.34% 5.05% 4.96% 5.12% 4.22% 5.38% 7.11%


								
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