California’s Economic and Budget Situation Legislative Analyst’s Office LAO California’s Recent Employment Woes Concentrated in High Paying Region Wage and Salary Jobs, Percent of Prerecession Peak 105%95 Rest.
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California’s Economic and Budget Situation Legislative Analyst’s Office LAO California’s Recent Employment Woes Concentrated in High Paying Region Wage and Salary Jobs, Percent of Prerecession Peak 105% 100 95 Rest of California Rest of U.S. Silicon Valley 90 85 80 2001 2002 2003 LAO …And in High Paying Sectors… Manufacturing Jobs, in Millions 2.0 1.9 1.8 1.7 1.6 1.5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 LAO Revenues From Capital Gains and Stock Options Fell Sharply… (In Billions) . $20 15 10 5 98-99 99-00 00-01 01-02 02-03 03-04 04-05 Forecast 05-06 LAO …And The State Has Yet To Resolve Resulting Imbalance General Fund (In Billions) Annual Revenues and Expenditures $120 110 100 Revenues Expenditures Expenditures With VLF Backfill Restoration 90 80 70 60 Operating Surplus Operating Deficits 50 40 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 Forecast 07-08 08-09 LAO 2004-05 Shortfall Facing California Before Proposition 57—$17 Billion • Assumed sale of $8.6 billion statutory bond with debt service costs of $2.5 billion • Absent this bond, shortfall would have been $23 billion After Proposition 57—$12 Billion • New bond contributes $5 billion to solution $3.7 billion from larger bond proceeds $1.3 billion from lower debt-service LAO Allocation of Governor’s Budget Solutions Program Savings—$7.3 Billion • Proposition 98—$2 billion • Health/Social Services—$2.5 billion • Transportation—about $0.9 billion Loans/Borrowing—$2.6 Billion Local Government-Related—$1.8 Billion Transfers/Shifts/Other—$1.6 Billion LAO Key Findings in LAO February Budget Review Budget Modestly Out of Balance In 2004-05 Major Budget Threats Could Increase Shortfall $7 Billion Operating Shortfall Projected For 2005-06 Reform Proposals Still Under Development LAO Governor’s Plan Would Eliminate About One-Half of Ongoing Shortfall General Fund (In Billions) $110 $110 105 105 100 100 95 95 Expenditures Expenditures Revenues Revenues 90 90 85 85 80 80 Operating Deficits Operating Deficits 75 75 70 70 65 65 60 60 01-02 01-02 03-04 03-04 05-06 05-06 07-08 07-08 LAO Why Structural Shortfall Reemerges in 2005-06 Expiration of One-Time Savings After 2004-05 • Economic recovery bonds • Pension Bonds • Suspension of Proposition 42 Other Obligations in 2005-06 • Transportation loan repayment • Local mandates LAO Update: Situation Has Not Improved State Facing Higher Costs in a Number of Areas • Risks became reality • Deficiencies • Mid-year savings not adopted Economy/Revenue Picture Mixed • • • • California job growth still disappointing Year-to-date collections a little soft But key current indicators positive As always, April is key LAO Key Budget Decisions Ahead How Much of Ongoing Problem Should Be Addressed in 2004-05? How Much Can Be Done on Expenditure Side? Should Taxes Play a Role? LAO