Highlights and Analysis of the Governor's 2015-16 Budget

Thursday, January 15, 2015

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Executive Summary

Despite being precariously balanced, there are many positive elements in the Governor‘s budget plan. It builds the rainy day reserve to $2.8 billion (see Proposition 2 Rainy Day Fund Page 6), pays off about $4 billion of past budgetary debts (see State Debts and Liabilities Page 52), increases funding for K-14 education programs, and calls for a tuition freeze at California state colleges and universities (see Education Page 13). Republicans are very supportive of these policies.

The Governor‘s 2015-16 budget proposes a new record high spending level of over $265 billion ($113.3 billion General Fund, $45.5 billion Special Funds, $5.9 billion Bond Funds, and $100.4 billion Federal Funds). This exceeds the 2014 Budget Act total spending ($254 billion) by nearly $11 billion. State General Fund spending accounts for about half of the increase, growing by $5 billion from $108 billion last year to over $113 billion for 2015-16.

Looking at state spending another way, the budget proposes to spend more than $8 for every $100 of Californian‘s personal income or nearly $4,240 per person. As is well known, California‘s highly volatile tax structure ensures that those who pay to fill the treasury are generally not the ones consuming the services. The top one percent of taxpayers paid over 50 percent of the personal income taxes while more than 40 percent of tax filers did not pay any income taxes (see Appendix A – California’s Tax Rankings Page 54).

Notably Health and Human Services program spending accounts for more than half the budget at $142 billion (Medi-Cal represents $95 billion of that amount), while total education spending for both K-14 and Higher Education programs is only $80 billion (including Proposition 98 local property tax expenditures). Despite California‘s very generous social safety net (see Appendix B – California Safety Net Facts Page 60), poverty continues to be a pressing issue largely because of the exorbitant high cost of living that is driven by high housing and energy costs. Any attempt to tackle California‘s growing poverty rates should focus on the core causes, such as state and local policies that can increase housing costs by 15 to 30 percent and regulations that make life‘s basic needs more expensive for working families. Acting as if increased welfare checks are the solution to California‘s poverty problem is nonsensical. History has shown that the current welfare system yielded poor results. As Governor Brown noted, "California does more than most states to mitigate that (poverty)… We do have quite a safety net."

While the state budget appears to be balanced in the near term, the Department of Finance projects that even under current policies, California will return to operating deficits in excess of $1 billion by 2018-19. In addition, with hundreds of billions of dollars in unfunded liabilities and other debts for public employee pensions, retiree health care, and infrastructure, the term "balanced budget" is somewhat deceptive.

The bottom line is that, despite the Governor‘s call for fiscal responsibility, California is already on a path to fiscal instability. Legislative Democrats’ demands to further increase government spending by billions of dollars poses a serious threat to our state’s future.

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