Transcript California’s Budget Outlook for 2010-11 Michael Cohen Legislative Analyst’s Office April 23, 2010 www.lao.ca.gov LAO Recap of the 2009-10 Budget  Addressed $60 billion problem over February and.

California’s Budget Outlook
for 2010-11
Michael Cohen
Legislative Analyst’s Office
April 23, 2010
www.lao.ca.gov
LAO
Recap of the 2009-10 Budget
 Addressed $60 billion problem over
February and July packages
• Revenue estimates reflected slow recovery
 Most solutions were short term
• Temporary taxes and budget reductions
• Heavy reliance on federal stimulus funds and
deferrals
 Some solutions had optimistic savings
estimates
LAO
Large Budget Problem Returns
 LAO, November 2009: $20.7 billion
 Department of Finance, January 2010:
$18.9 billion
 Similar assessments:
• Economy showing some improvement and
revenue forecast was in the right ballpark
• Inability to achieve budgeted solutions is the
key problem
LAO
Modest Growth Expected
During Recovery
(Percent Change From Prior Quarter [Annual Rate]
U.S. Real Gross Domestic Product)
LAO
Governor’s Budget
 Spending-Related Solutions: $7.6 billion
• Proposition 98, state employees, health, social
services, and corrections
 Fund Shifts and Other: $4.5 billion
• Gas tax swap, ballot measures
 Federal Funds and Flexibility: $7.9 billion
• “Trigger” reductions and revenues if federal
funds not received
LAO
Legislative Action to Date
 Package of Special Session bills
• Gas tax swap is key component ($1.1 billion)
• Assumption of additional revenues from sale
of EdFund and state buildings ($450 million)
• Other items ($350 million)
• Cash deferrals
 Remaining issues expected to be covered
through normal budget process
LAO
State’s Cash Situation Better Than
A Year Ago. . .
 March/April 2010 period was manageable
• December through March revenues stronger
than Governor’s budget assumed
 Treasurer was able to issue general
obligation bonds
LAO
. . . But More Cash Deferrals Will
Start in the Summer
 Deferrals put in place for schools,
universities, cities, and counties
 City and county deferrals:
• Highway Users Tax: $50 million each month
• Proposition 63 mental health: $300 million
• Other programs
 Limited
to 3 periods throughout the year
 Combined with other deferrals, can not exceed
$1 billion at any time
 State has flexibility to modestly shift timing
LAO
Challenges in Addressing 2010-11
Budget Problem
 Solutions are on top of actions already
taken
 Numerous legal risks
 Federal funds came with strings attached
LAO
Budget Problem Will Persist—
Huge Operating Shortfalls Projected
Over Next Few Years
General Fund (In Billions)
LAO
Longer-Term Budgeting:
Fiscal Liabilities Will Constrain State
 Budget-Related: About $35 Billion
 Retirement-Related: $100 Billion to
$135 Billion
 Infrastructure-Related: About $70 Billion
LAO
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Projected Debt-Service Ratio
LAO
Budget Reform Issues
 Legislature Is Considering a Wide Array of
Possible Changes in Its Operations:
•
•
•
•
Two-year budget
Performance or outcome-based budgeting
Program oversight
Reserves
LAO
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