Tough Budget Times in California: How Did We 1107 9th Street, 1107 9th Street, Suite 310 Suite 310 Sacramento, Sacramento, Get Here? California 95814 California 95814 (916) 444-0500 (916) 444-0500 www.cbp.org www.cbp.org A PRESENTATION BY cbp@cbp.org cbp@cbp.org SCOTT GRAVES, SENIOR POLICY ANALYST September 2011
Budgets Express Values and Priorities. State Budget Choices Affect All Californians. 2
Why Are Budgets Important? Budgets: – Express our values and priorities as a society. – Provide the framework and funding for public programs and services. State budget choices affect: – The quality of our schools and highways; – The cost of a college education; – Children’s access to health care; – Seniors’ ability to live safely in their own homes; – And more. In other words, the state budget affects all Californians. 3
Support for K-12 Schools and Community Colleges Will Be $6.6 Billion Lower in 2011-12 Than in 2007-08 $60 $55.2 $6.1 $48.6 $50 $5.4 Proposition 98 Funding (Dollars in Billions) $40 $30 $49.0 $43.2 $20 $10 $0 2007-08 2011-12 Enacted K-12 Education* California Community Colleges * Includes funding for the state preschool program. Note: Subtotals may not sum to totals due to rounding. Source: Legislative Analyst's Office 4
Inflation-Adjusted UC and CSU Fees Have More Than Tripled Since 1990-91 $12,000 Systemwide Fees for Undergraduates Who Are California Residents $10,302 $10,000 $8,000 (2010-11 Dollars) $6,000 $4,335 $2,545 $2,686 $4,000 $2,000 $611 $1,290 $0 UC CSU Source: California Postsecondary Education Commission 5
SSI/SSP Grants for Low-Income Seniors and People With Disabilities Have Lost Nearly One-Third of Their Purchasing Power Since 1990 Due to State Budget Cuts 100% Disabilities as a Percentage of Inflation-Adjusted June 1990 Grant SSI/SSP Monthly Grant for Individuals Who Are Elderly or Have 90% 85.2% 80% 72.7% 68.9% 70% 60% 50% 40% 30% 20% 10% 0% Source: CBP analysis of Department of Finance and Department of Social Services data 6
Corrections Spending Has Grown at More Than Four Times the Rate of General Fund Spending as a Whole Since 1980-81 Percent Change in General Fund Expenditures, 1980-81 to 2010-11 Estimated 1600% 1488.4% 1400% 1200% 1000% 800% 600% 381.4% 400% 333.5% 279.0% 261.4% 177.6% 200% 0% Corrections and K-12 Education Total Spending Health and Human Higher Education Other Spending Rehabilitation Spending Services Spending Spending Spending Source: Department of Finance 7
Spending on Corrections Has More Than Tripled as a Share of Total General Fund Spending Since 1980-81 45% 39.2% 40% 35.3% 35% 33.2% Percentage of General Fund Expenditures 29.0% 30% 25% 20% 15.2% 15% 13.5% 12.7% 10.5% 8.6% 10% 5% 2.9% 0% K-12 Education Health and Human Higher Education Corrections and Other Services Rehabilitation 1980-81 2010-11 Estimated Source: Department of Finance 8
California Budget Basics 9
The State General Fund Accounts for More Than 40 Cents Out of Every Dollar Spent Through California's Budget Bond Funds 4.5% State Special Funds 16.4% State General Fund 41.2% Federal Funds 37.9% Enacted 2011-12 Expenditures = $208.7 Billion Source: Department of Finance 10
K-12 Education Accounts for the Largest Share of State General Fund Spending in 2011-12 Other 9.9% Corrections and Rehabilitation 11.4% K-12 Education 39.9% Health and Human Services 26.8% Higher Education 11.9% Enacted 2011-12 General Fund Expenditures = $85.9 Billion Source: Department of Finance 11
The Personal Income Tax Is Projected To Provide More Than Half of General Fund Revenues in 2011-12 Cigarette Tax 0.1% Alcohol Tax Personal Income Tax 0.4% 57.0% Insurance Tax 2.1% Other 8.7% Corporation Tax 10.2% Sales and Use Tax 21.5% Projected 2011-12 General Fund Revenues and Transfers = $88.5 Billion Source: Department of Finance 12
Californians Lack Basic Knowledge of State Spending and Revenues. 13
Only About One-Fifth of Likely Voters in California Know That K-12 Education Makes Up the Largest Share of State Spending 45% 41.0% Percentage of Likely California Voters Surveyed in January 2011 40% 35% 29.0% 30% 25% 22.0% 20% 15% 10% 5% 3.0% 0% K-12 Education Higher Education Health and Human Services Prisons and Corrections Responses to the Question: Which Represents the Largest Amount of Spending in the State Budget? Source: Public Policy Institute of California 14
Only One-Third of Likely Voters in California Know That the Personal Income Tax Provides the Most Revenue for the State Budget 35% 33.0% 32.0% Percentage of Likely California Voters Surveyed in January 2011 30% 25% 20% 18.0% 15% 12.0% 10% 5% 0% Personal Income Tax Sales Tax Corporate Tax Motor Vehicle Fees Responses to the Question: Which Provides the Most Revenue for the State Budget? Source: Public Policy Institute of California 15
California Has Consistently Faced Multi-Billion Dollar Budget Shortfalls in Recent Years. How Did We Get Here? 16
Do We Have a “Spending Problem”? No. 17
Total Annual State Spending Has Declined by Nearly $10 Billion Since 2007-08 Due to Budget Cuts $140 $129.7 $120.1 $120 $26.7 $34.2 $100 Dollars in Billions $80 $60 $103.0 $85.9 $40 $20 $0 2007-08 2011-12 Enacted General Fund Special Funds Source: Department of Finance 18
The Great Recession Led to a Steep Decline in State Revenues. Yes, We Have a Revenue Problem. 19
General Fund Revenues Plunged by Nearly $20 Billion Between 2007-08 and 2008-09 $110 $102.5 $100 General Fund Revenues and Transfers (Dollars in Billions) $94.8 $88.5 $90 $82.8 $80 $70 $60 $50 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11* 2011-12* * 2010-11 estimated and 2011-12 enacted. Source: Legislative Analyst's Office 20
Total State Revenues Have Dropped Significantly as a Share of the California Economy Since 2005-06 8.5% Total State Revenues and Transfers as a Percentage of California Personal Income 8.2% 8.1% 8.0% 8.0% 7.5% 7.0% 7.0% 6.8% 6.5% 6.0% 1999-00 2002-03 2005-06 2008-09 2011-12* * Projected. Source: CBP analysis of Department of Finance and US Bureau of Economic Analysis data 21
In California, Cutting Taxes Is Relatively Easy. It Requires a Simple Majority Vote of the Legislature and the Governor’s Signature. 22
Years of Tax Cuts Have Undermined California’s Revenue Base. Why? Tax Cuts Don’t “Pay for Themselves.” 23
Tax Cuts Enacted Since 1993 Will Cost an Estimated $13.0 Billion in 2011-12 $14 Drop reflects temporary VLF $13.0 Annual Cost of Tax Reductions Enacted Since 1993 (Dollars in Billions) increase and $12.1 caps on $12 business tax $11.3 $10.9 credit use $10.2 $10.0 $10 $8.6 $8.6 $7.6 $8 $7.6 $7.5 $7.2 $6 $5.3 $3.8 $4 $2.1 $1.9 $2 $1.3 $1.0 $0.7 $0 * 2009-10 and 2010-11 estimated; 2011-12 projected. Source: Assembly Revenue and Taxation Committee, Board of Equalization, Department of Finance, Franchise Tax Board, and Legislative Analyst's Office 24
In Contrast, Raising Taxes Is Extremely Difficult in California. It Requires a Two-Thirds Vote of the Legislature and the Governor’s Signature. 25
California Is the Only Large State To Require a Supermajority Vote of Its Legislature for Any State Tax Increase Supermajority vote required to raise a n y st ate taxes. Le g isl a ture m a y pass most tax increases b y a majority vote , but voters must r a tify the increase . Le g isl a ture m a y raise at least some state taxes by a majority . vote. Source: National Conference of State Legislatures and Wisconsin State Legislature 26
Corporations Doing Business in California Are Paying a Smaller Share of Their Profits in Taxes, Even as Their Profits Have Soared. 27
The Share of Corporate Income Paid in Taxes Has Fallen Substantially 12% Corporate Taxes as a Percentage of Income for Corporations Reporting Net Income 9.7% 10% 8.3% 8% 7.4% 6.1% 6.1% 6% 5.3% 4% 2% 0% 1961 1971 1981 1991 2001 2009 Note: 2009 data are preliminary. Source: Franchise Tax Board 28
Recent Growth in Corporate Profits Has Outpaced Growth in Corporate Tax Payments 225% 200% 192.0% 175% 150% Percent Change, 2001 to 2009 125% 100% 75% 68.6% 50% 24.2% 25% 16.5% 0% Total State Net Income of State Corporate Tax Liability Total Adjusted Gross Income of Personal Income Tax Liability Corporations Personal Income Taxpayers Source: Franchise Tax Board 29
Voters Have Passed Many Ballot Measures, Mainly Bonds, That Impose New Spending Obligations Without Providing the Revenues To Pay for Them. 30
Debt Service on Bonds Has More Than Doubled as a Share of General Fund Revenues Since 1999-00 9% 7.8% 8% Debt Service as a Percentage of General Fund Revenues 7.1% 7% 6% 5% 4% 3.5% 3% 2% 1% 0% 1999-00 2010-11 2011-12 Estimated Note: Excludes debt service for Economic Recovery Bonds, Enterprise Fund Self-Liquidating Bonds, and General Obligation Commercial Paper. Source: State Treasurer's Office 31
The Economy Has Shifted Toward Services and Internet Sales, Which Has Limited the Growth of Sales Tax Revenues. 32
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