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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Transcript 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.

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