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Introduction
The Fiscal Crisis of 2003-04 and the Workout Plan of 2004-05
When the revenue boom of 2000 turned to bust in the recession of 2001, the higher rates of state spending enacted during the boom years resulted in one of the worst deficits in the state's history. In response, the budget of 2003-04 borrowed money to cover the deficit of the prior year and closed the budget gap with over $5 billion in one-time solutions, leaving the state facing a $14 billion budget gap in the subsequent year.
The Governor's Budget for 2004-05 proposed a workout plan for the state's budget by proposing to refinance the borrowing begun in the previous year and restrain spending growth, thus buying time for normal revenue growth to catch up with spending demands and bring the state back to long-term fiscal balance. Had this plan been fully implemented, the state would not have a structural deficit today.
However, the plan was never fully implemented. Shortly after the workout plan was proposed, state General Fund revenues experienced another unanticipated growth spurt. The unanticipated revenues built a large reserve, which made it possible to balance the budgets for 2005-06 and 2006-07 without making major program reductions. Given the improved revenue picture and the difficulty of the choices that would have had to have been made to restrain spending growth rates in the long term, the Legislature declined to enact the statutory changes necessary to slow overall spending. In other words, the most important element of the workout plan - spending restraint - was never put in place.
While revenue growth slowed somewhat in 2006-07, spending continued to grow. This was not because of any major new commitment, but because not enough had been done to change the underlying statutory programs that were driving spending increases. While 2005-06 and 2006-07 budgets were enacted with a prudent reserve, the structural deficit remained. Our projections in both of those years showed that the deficit would re-emerge in 2007-08.
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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Provides this entire Introduction Chapter in pdf format.
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