the california budget: the top ten budget myths... and the truth

8/7/2019 The California Budget: The Top Ten Budget Myths... and the Truth

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1107 9th Street,

Suite 310Sacramento,

California 95814

(916) 444-0500

www.cbp.org

[email protected] PRESENTATION BY

THE CALIFORNIA BUDGET PROJECT

March 2010

The California BudgetThe Top Ten Budget Mythsand theTruth


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1

Myth : The Largest Share of the State Budget Goes ToPrisons

The Facts:

The State spends more than four times as much on K-12 education as

it does on corrections and one and one-quarter times as much onhigher education as it does on corrections.

The state spends three times as much on health and human servicesas it does on corrections.


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2

Labor and Workforce

Development

0.1%

Environmental Protection

0.1%

State and Consumer Services

0.7%

General Government

1.2%

Resources

2.1%

Health and Human Services

28.8%

K-12 Education

40.4%

Higher Education

12.2%

Corrections andRehabilitation

9.5%

Legislative, Judicial, and

Executive

2.2%

Business, Transportation,

and Housing

3.0%

Enacted 2009-10 General Fund Expenditures = $86.8 Billion

K-12 Education Accounts for the Largest Share of 2009-10 SpendingGeneral Fund Spending by Agency

Note: Does not reflect $2.184 billion expenditure reduction. Based on the 2009-10 Enacted Budget.

Source: Department of Finance


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3

Myth: State Spending Is Out of Control

The Facts: Current year spending is $16.9 billion below 2007-08 levels and

Proposed 2010-11 spending is $20.1 billion below 2007-08 levels.

2009-10 General Fund spending is $21.5 billion below the baseline

level projected by the Legislative Analysts Office in 2004.

As a share of the states economy state spending is at its lowest

levels since the early 1970s.


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4

General Fund Revenues and Spending Both Are Significantly Below Projected Levels2009-10 General Fund Revenues and Expenditures as Projected in November 2004

Compared to 2009-10 as Estimated in November 2009

($16.9)

($21.5)

-$25

-$20

-$15

-$10

-$5

$0

Revenues Expenditures

Change,

ProjectedVersusE

stimated(DollarsinBillions)

Source: Legislative Analyst's Office


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5

Growth in Corrections and Infrastructure Spending Have Exceeded Projected Levels2009-10 General Fund Expenditures as Projected in November 2004

Compared to 2009-10 Expenditures as Estimated in November 2009

-17.9% -19.0% -20.8%

-7.2%

-21.9%

-33.1%-24.2% -27.7%

-20.6%

35.7%

4.1% 3.6%

-53.7%

-38.5%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

K-14

Educ

ation CS

U UC

Student

Aid

Medi-Ca

lBenefits

CalW

ORKs

SSI/S

SP IHSS

DDS

OtherH

ealth

andS

ocialS

ervice

Program

s

Corre

ctions

Propositio

n42T

ransfer

Debt

Servi

ce/In

frastructur

eDebtS

ervice

OtherP

rogram

sand

Costs

PercentChange,

ProjectedVersu

sEstimated

Source: Legislative Analyst's Office


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6

State Spending as a Share of Personal Income Has Declined Significantly in Recent Years

and Would Drop Further Under the Governor's Proposed 2010-11 Budget

5.1%

6.6% 7.3%

8.7%

4%

5%

6%

7%

8%

9%

1970-71

1972-73

1974-75

1976-77

1978-79

1980-81

1982-83

1984-85

1986-87

1988-89

1990-91

1992-93

1994-95

1996-97

1998-99

2000-01

2002-03

2004-05

2006-07

2008-09

2010-11

ExpendituresasaPe

rcentageofCaliforniaPe

rsonalIncome

General Fund Expenditures Total State Expenditures

Note: Spending is estimated for 2009-10 and proposed for 2010-11.

Personal income is projected for 2009-10 and 2010-11.

Source: CBP analysis of Department of Finance and US Bureau of Economic Analysis data


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7

Myth: The Budget Can Be Balanced By Cutting Waste,Fraud, And Abuse

The Facts: More than two-thirds of General Fund spending goes to schools,

local governments, individuals, and health care providers.

Californias overall spending levels are moderate in comparison to

those of other states.

State spending is low in major programs areas, such as health and

education, in comparison to other states.


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8

Most State Dollars Go to Local Communities and Individuals2010-11 Proposed General Fund Spending

Local Assistance

70.6%

Capital Outlay

0.3%

State Operations

29.1%

Note: Excludes unclassified spending.



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9

California Rank California US

Total Expenditures 23 15.56% 14.37%

General Expenditures 27 13.17% 12.45%

Corrections 5 0.56% 0.41%

Highways 40 0.77% 0.89%

Hospitals 24 0.43% 0.44%

Natural Resources 12 0.31% 0.19%

Parks and Recreation 42 0.03% 0.05%

Police Protection 30 0.10% 0.11%

Source: US Bureau of Economic Analysis and US Census Bureau

Spending as a Percentage of State Personal Income, 2008-09

How Does California's Spending Compare?


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10

California's Spending Per Medi-Cal Enrollee Is Among the Lowest Nationwide

$7,491

$6,004

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Te xa s

G e o

r g i a

C a lif o

rnia

Te nn e

s s e e

In d

ia na

H a

wa i i

Mi c h

i g a n

De la w

a r e

Ala b

a ma

N e va d a

Il lino i s

F lo

rid a

S o u thC a ro lina

C o lo

ra d o

O kla h

o ma

U S

Lo u i s

i a na

Arka ns a s

Ke n t

u c ky

Ne wYo rk

Wis c o

ns in

Mis s is

s ip p i

Wa s hi n

g t o

n

A rizo na

We s tV i r

g inia

Id

a ho

U ta h

O hi o

Ne wM e

xic o

Ma s s a c h u

s e tts

No rthC a ro lina

S o u thD a

ko t a

Ve rm

o nt

Io wa

V irg ini a

Ne b ra s ka

O r e

g o n

Pe nns y lv

a nia

M

a ine

No rthD a

ko ta

Wy o m

ing

K a ns a s

C o nne c

tic u t

Mo n

ta na

Mi nn e

s o ta

Ma ry

la nd

Ne w

Ha mp s

hire

Rho d e I s

l a nd

Mis s

o u ri

Ne wJ e

rs e y

A la s ka

TotalEstimatedM

edicaidSpendingPerRecipient,2008-09

Note: Number of recipients is for December 2008. Medicaid spending for 2008-09 is estimated.

Source: Kaiser Family Foundation and National Association of State Budget Officers


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11

Myth: Californias Schools Dont Have a Money Problem

The Facts: By all measures, Californias schools rank near the bottom in terms

of per pupil spending.

Under the Governors budget proposals, 2010-11 per pupil spending

would be $1,543 less than in 2006-07, after adjusting for inflation.


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12


K-12 Per Pupil Spending (2009-10) 45 $8,825 $11,052

Percentage of High School Students Who

Graduate With a Diploma (2005-06)36 67.5% 69.2%

Source: Education Week, National Education Association, and US Bureau of Economic Analysis

Number of K-12 Students Per

Teacher (2009-10)

How Do California's Schools Compare?

$8,164 $10,557

21 34.6% 40.5%

K-12 Spending as a Percentage of

Personal Income (2008-09)

K-12 Per Pupil Spending, Adjusted for

Regional Cost Differences (2006-07)

46 3.3% 4.1%

Percentage of K-12 Students in Districts

With Adjusted Per Pupil Spending at or

Above the US Average (2006-07)

51 21.3 14.4

46


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13

Schools Would Receive Less in 2010-11 Than in 1997-98Under the Governor's Proposals, After Adjusting for Inflation

$7,503

$7,095$7,418

$8,961

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10*

2010

-11*

K-12Proposition98P

erPupilSpending(2010-11Dollars)

* 2009-10 estimated and 2010-11 proposed.

Note: Excludes one-time "settle-up" funds.

Source: Department of Finance and Legislative Analyst's Office


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14

Myth: California Has a Bloated State Bureaucracy

Facts: California ranks 48th among the 50 states with respect to the number

of state employees per 10,000 population.

California ranks 41st with respect to the number of state and local

government employees per 10,000 population.


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15

California Rank California Rest of US

1998 50 103 1541999 50 106 1542000 49 105 1512001 49 108 1522002 50 109 1532003 48 110 1492004 47 111 148

2005 47 108 1472006 46 109 1472007 48 107 148

2008 48 108 149

1998 49 474 5441999 48 486 5482000 46 493 5392001 44 503 5442002 45 510 550

2003 41 512 5472004 45 499 5442005 44 495 5442006 41 505 5452007 42 507 5502008 41 505 553

Source: US Census Bureau

State Government

California Has Relatively Few Public Employees

Full-Time Equivalent Government Employees Per 10,000 Population

State and Local Government


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16

Salaries and Wages Account for Less Than One-Fifth of Total State Spending2009-10 Estimated Spending, All Funds

Other Expenditures82.2%

Salaries and Wages17.8%



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17

Myth: High Taxes Are Driving Business and the WealthyOut of CaliforniaThe Facts:

Measured as a share of the states economy, California is amoderate tax state.

The number of millionaire taxpayers has increased more rapidly thanthe number of taxpayers as a whole since the passage of Proposition63, which imposed an additional tax rate on high-income individuals.

There is no empirical evidence that businesses are leavingCalifornia.


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18


Total State and Local Own Source (2006-07) 19 16.59% 16.07%

Total State and Local Taxes (2006-07) 15 11.27% 11.00%

State Taxes (2007-08) 15 7.35% 6.47%

Local Taxes (2006-07) 29 3.79% 4.45%

State Individual Income Tax (2007-08) 6 3.49% 2.30%

State Corporate Income Tax (2007-08) 5 0.74% 0.42%

State and Local General Sales Taxes (2006-07) 18 2.73% 2.58%

State General Sales Tax (2007-08) 27 2.00% 1.99%

State and Local Property Tax (2006-07) 34 2.72% 3.31%

State Motor Fuels Taxes (2007-08) 45 0.21% 0.30%

State Tobacco Tax (2007-08) 46 0.07% 0.13%

State Alcoholic Beverage Sales Taxes (2007-08) 42 0.02% 0.04%

Source: US Bureau of Economic Analysis and US Census Bureau

How Does California Compare?Revenues as a Percentage of Personal Income


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19

The Number of Millionaire Taxpayers Has Increased Since the Imposition of the Proposition 63 Surcharge

7.0%

13.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

All Taxpayers Taxpayers With Adjusted Gross Incomes of More Than $1 Million

PercentChangeinTaxReturns,

2004to2008

Source: Franchise Tax Board


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20

(T)here has been no substantial business exodus from Californiaand there has been little if any change in the rate at whichbusinesses are leaving or avoiding California(T)he negligible

role of business relocation in employment change also indicates thatany public policy focus on business relocation would be badlymisdirected(E)xamination of employment trends since the mid-

1990s suggests that California has been more or less in line with therest of the nation and other western states in terms of job growthand unemployment.

David Neumark, Junfu Zhang, and Brandon Wall

Public Policy Institute of California


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21

Myth: Californias Budget Problems are SpendingProblems, Not Revenue ProblemsThe Facts:

California is growing, aging, and becoming more diverse creating

new demands on the budget.

Tax cuts enacted over the past two decades have taken a large bite

out of the budget and recently enacted reductions further widen

state budget gaps.


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22

California's Population Continues To Increase

0

200

400

600

800

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11*

ChangeinPopulationFromP

riorYear(Thousands)

* 2010-11 projected.



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23

Californians Age 65 or Older Are Projected To Be theFastest-Growing Age Group Between 2000 and 2020

29.7%

13.5%

26.2% 27.4%

75.4%

29.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0 to 4 5 to 19 20 to 24 25 to 64 65 or Older Total Population

Age Group

ProjectedPercentCh

angeinPopulation,

2000to2020



25/34

2424

Tax Cuts Enacted Since 1993 Will Cost $11.7 Billion in 2008-09

2008-09 Drop Reflects Suspension of Net Operating Loss Deductions

$0.7$1.0

$1.9 $2.1

$3.9

$5.3

$7.2$7.8

$8.9

$11.7

$12.6

$11.3$11.9

$1.3

$7.8

$10.4

$0

$2

$4

$6

$8

$10

$12

$14

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08*

2008

-09*

AnnualCostofTaxReductionsEnactedSince1993

(DollarsinBillions)

*2007-08 and 2008-09 estimated.

Source: Assembly Revenue and Taxation Committee, Board of Equalization,

Department of Finance, Franchise Tax Board, and Legislative Analyst's Office


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25

2008 and 2009 Tax Deals Will Lose Nearly $8 Billion Over Eight YearsLosses Will Continue Permanently

$1,300

$295

($685)

($1,480)($1,620)

($1,820) ($1,810) ($1,855)

($2,500)

($2,000)

($1,500)

($1,000)

($500)

$0

$500

$1,000

$1,500

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Net Cost of Business Tax Cuts in the 2008 and 2009 Budget Agreements

Doll

arsinMillions

Source: Franchise Tax Board


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26

Myth: Raising Taxes During an Economic Downturn Is Badfor the EconomyThe Facts:

Prominent economists argue that spending cuts are more harmful to

the economy than carefully targeted tax increases.

An analysis by Moodys.com for the Senate Human Services

Committee concluded that the largest bang for the buck in terms of

state spending would come from spending on food stamps and cashassistance.


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27

[E]conomic analysis suggests that tax increases would not in general be moreharmful to the economy than spending reductions... (T)he least damagingapproach in the short run involves tax increases concentrated on higher-income families. For states interested in the impact only on their own

economy rather than the national economy, the arguments made above areeven stronger. In particular, the government spending that would be reducedif direct spending programs are cut is often concentrated among local

businesses...(B)y contrast, the spending by individuals and businesses thatwould be affected by tax increases often is less concentrated among localproducers...The conclusion is that, if anything, tax increases on higher-income families are the least damaging mechanism for closing state fiscal

deficits in the short run. Nobel Prize winner Joseph Stiglitz of Columbia University, and

Peter Orszag, now Director of the Office of Management and Budget in the Obama Administration


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28

Myth: There Are No Alternatives to an All Cuts Budget

The Facts:

Budgets are about values and choices.

In 2009, 24 states including California increased taxes to help

balance their budgets. However, Californias temporary tax

increases begin to sunset.

However, California is the only state in the nation to require asupermajority vote for passing a budget and any tax increase.


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29

California Is the Only State To Require a Supermajority Vote To Pass Both a Budget and Any State Tax Increase

Supermajority vote required to pass

a budget and raise any state taxes

Supermajority vote only required to

raise any state taxes

Supermajority vote only required to

pass a budget

Majority vote required to pass a

budget and raise most or all

state taxes

Note: Arkansas, Florida, and Michigan require a supermajority vote for certain taxes.Source: National Conference of State Legislatures


31/34


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31

Myth: Rising Welfare Costs Are a Major Source of theStates Budget ProblemsThe Facts:

Welfare spending dropped $349 million between 1996-97 and 2009-

10, without adjusting for inflation. On an inflation-adjusted basis,

spending is down by $2.5 billion.

The share of Californians with incomes below the poverty level

receiving cash assistance has dropped by more than half since 1995.


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32

Welfare Spending as a Share of Total Spending in California

Has Dropped by More Than Half Since 1996-97

6.8%

3.2% 3.1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1996-97 2009-10 Enacted 2010-11 Proposed

AFDC/CalWORKsSpendingasaShareofTotalStateS

pending

Note: AFDC/CalWORKs spending includes federal, state, and county funds. Total state spending includes federal and state funds.

Source: Department of Finance and Department of Social Services


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33

Californians in Poverty Are Less Likely To Receive Cash Assistance

22.3%

50.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

AFD

C/CalWORKsRecipients

asaPercentageofCaliforniansinPoverty

Source: Department of Social Services, US Census Bureau,

and US Department of Health and Human Services

the california budget: the top ten budget myths... and the truth

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