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Introduction
Origin of the Structural Deficit
For the last three decades the state's budget has swung in and out of balance. The enactment of Proposition 13 in 1978 dramatically reduced local property tax revenues, resulting in equally dramatic increases in the state's fiscal obligations to programs formerly financed mainly by local government, such as schools, social services, health and mental health care and law enforcement. This set off a round of recalibrations of the state budget during periods of strong economic growth punctuated by several recessions. By 1998, however, the state's fiscal house appeared to be in good order. Long-term projections showed spending in line with revenue for years to come.
Between 1998-99 and 1999-2000, however, revenues jumped 23 percent due to a stock market and dot-com boom that drove unprecedented increases in stock option and capital gains income. These were magnified from a state revenue perspective because the state's income tax system relies disproportionately on the very high-end earners most likely to receive such gains. In 2005, California taxpayers with incomes over $119,000, who constituted 10 percent of all taxpayers, paid 78.3 percent of the personal income tax.
The structural deficit was created when the state added new, permanent spending increases that relied on these one-time revenue gains. In addition to major new commitments, costs in many state programs have been driven up by spending formulas, caseload and population growth, wage and provider rate increases and court orders. Figure INT-01 displays the major components of General Fund spending growth since 1998. Specifically, it compares the General Fund workload budget for 2008-09 to actual spending in 1998-99. The workload budget is what it would cost the state to operate government in 2008-09 in the absence of any changes in law or policy to restrain spending growth.
CHAPTER HIGHLIGHTS for
Introduction Back to Top
BUDGET OVERVIEW Back to Top
Budget-Balancing Reductions
In order to close the $14.5 billion budget gap, the proposed Governor's Budget includes 10-percent across-the-board reductions to all General Fund departments and programs, Boards, Commissions, and elected offices-including the legislative and judicial branches-except where such a reduction is in conflict with the state constitution or impractical. This statewide across-the-board reduction approach touches nearly every General Fund program in every department within each branch of state government. While these reductions present numerous challenges to implement, this across-the-board reduction approach is designed to protect essential services by spreading reductions as evenly as possible so that no single program is singled out for severe reductions. Reductions to General Fund budgets not under the control of the Administration are proposed as unallocated reductions. The unallocated General Fund reductions apply to the judicial and legislative branches of government and other entities such as the University of California and some very small executive branch entities.
PRINTABLE BUDGET DOCUMENTS Back to Top
Budget Summary - Introduction (pdf * - 231K)
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