The California Budget

The Top Ten Budget Myths…and the

1107 9th Street,
Suite 310 Truth
Sacramento,
California 95814
(916) 444-0500
www.cbp.org A PRESENTATION BY
cbp@cbp.org THE CALIFORNIA BUDGET PROJECT
March 2010
Myth : The Largest Share of the State Budget Goes To
Prisons
The Facts:
„ The State spends more than four times as much on K-12 education as
it does on corrections and one and one-quarter times as much on
higher education as it does on corrections.
„ The state spends three times as much on health and human services
as it does on corrections.

1
 K-12 Education Accounts for the Largest Share of 2009-10 Spending
General Fund Spending by Agency
Labor and Workforce
Development
0.1% K-12 Education
Environmental Protection 40.4%
0.1%
State and Consumer Services
0.7%

General Government
1.2%
Resources
2.1%

Legislative, Judicial, and

Executive
2.2%
Health and Human Services
Business, Transportation, 28.8%
and Housing
3.0% Corrections and
Rehabilitation Higher Education
9.5% 12.2%

Enacted 2009-10 General Fund Expenditures = $86.8 Billion

Note: Does not reflect $2.184 billion expenditure reduction. Based on the 2009-10 Enacted Budget.
Source: Department of Finance

2
Myth: State Spending Is Out of Control
The Facts:
„ Current year spending is $16.9 billion below 2007-08 levels and
Proposed 2010-11 spending is $20.1 billion below 2007-08 levels.
„ 2009-10 General Fund spending is $21.5 billion below the baseline
level projected by the Legislative Analyst’s Office in 2004.
„ As a share of the state’s economy state spending is at its lowest
levels since the early 1970s.
3
 General Fund Revenues and Spending Both Are Significantly Below Projected Levels
2009-10 General Fund Revenues and Expenditures as Projected in November 2004
Compared to 2009-10 as Estimated in November 2009
$0
Change, Projected Versus Estimated (Dollars in Billions)

-$5

-$10

-$15

($16.9)

-$20

($21.5)

-$25
Revenues Expenditures

Source: Legislative Analyst's Office

4
 Growth in Corrections and Infrastructure Spending Have Exceeded Projected Levels
2009-10 General Fund Expenditures as Projected in November 2004
Compared to 2009-10 Expenditures as Estimated in November 2009
Percent Change, Projected Versus Estimated

60%
35.7%
40%

20%
4.1% 3.6%
0%

-20% -7.2%
-17.9% -19.0% -20.8% -21.9% -24.2% -27.7% -20.6%
-40% -33.1% -38.5%
-60% -53.7%
-80%

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Source: Legislative Analyst's Office

5
 State Spending as a Share of Personal Income Has Declined Significantly in Recent Years
and Would Drop Further Under the Governor's Proposed 2010-11 Budget
Expenditures as a Percentage of California Personal Income

9% 8.7%

8%

7% 6.6% 7.3%

6%

5%
5.1%

4%

9
1

93

95

97

01

1
-9

-0

-0

-0

-0
-7

-7

-7

-7

-7

-8

-8

-8

-8

-8

-9

-1
2-

4-

6-

0-
70

98

02

04

06

08

10
72

74

76

78

80

82

84

86

88

90

0
19

19

19

19

19

19

19

19

19

19

19

19

20

20

20

20

20
19

19

19

20
General Fund Expenditures Total State Expenditures

Note: Spending is estimated for 2009-10 and proposed for 2010-11.

Personal income is projected for 2009-10 and 2010-11.
Source: CBP analysis of Department of Finance and US Bureau of Economic Analysis data

6
Myth: The Budget Can Be Balanced By Cutting “Waste,
Fraud, And Abuse”
The Facts:
„ More than two-thirds of General Fund spending goes to schools,
local governments, individuals, and health care providers.
„ California’s overall spending levels are moderate in comparison to
those of other states.
„ State spending is low in major programs areas, such as health and
education, in comparison to other states.
7
 Most State Dollars Go to Local Communities and Individuals
2010-11 Proposed General Fund Spending
Capital Outlay
0.3%

State Operations
29.1%

Local Assistance
70.6%

Note: Excludes unclassified spending.

Source: Department of Finance

8
 How Does California's Spending Compare?
Spending as a Percentage of State Personal Income, 2008-09

California Rank California US

Total Expenditures 23 15.56% 14.37%

General Expenditures 27 13.17% 12.45%

Corrections 5 0.56% 0.41%

Highways 40 0.77% 0.89%

Hospitals 24 0.43% 0.44%

Natural Resources 12 0.31% 0.19%

Parks and Recreation 42 0.03% 0.05%

Police Protection 30 0.10% 0.11%

Source: US Bureau of Economic Analysis and US Census Bureau

9
 Total Estimated Medicaid Spending Per Recipient, 2008-09

$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
Texas
Georgia
California

$6,004
Tennessee
Indiana
Hawaii
Michigan
Delaware
Alabama
Nevada
Illinois
Florida
South Carolina
Colorado
Oklahoma
US
$7,491

Louisiana
Arkansas
Kentucky
New York
Wisconsin
Mississippi
Washington
Arizona
West Virginia
Idaho
Utah
Ohio
New Mexico
Massachusetts
North Carolina
South Dakota
Vermont
Iowa
Virginia
Nebraska
Oregon
Pennsylvania
Maine
California's Spending Per Medi-Cal Enrollee Is Among the Lowest Nationwide

North Dakota
Wyoming
Kansas
Connecticut
Montana
Minnesota
Maryland
New Hampshire
Rhode Island
Missouri
New Jersey
10

Alaska
Note: Number of recipients is for December 2008. Medicaid spending for 2008-09 is estimated.
Source: Kaiser Family Foundation and National Association of State Budget Officers
Myth: California’s Schools Don’t Have a “Money Problem”
The Facts:
„ By all measures, California’s schools rank near the bottom in terms
of per pupil spending.
„ Under the Governor’s budget proposals, 2010-11 per pupil spending
would be $1,543 less than in 2006-07, after adjusting for inflation.

11
 How Do California's Schools Compare?
California Rank California US

K-12 Per Pupil Spending (2009-10) 45 $8,825 $11,052

K-12 Spending as a Percentage of

46 3.3% 4.1%
Personal Income (2008-09)

Number of K-12 Students Per

51 21.3 14.4
Teacher (2009-10)

K-12 Per Pupil Spending, Adjusted for

46 $8,164 $10,557
Regional Cost Differences (2006-07)

Percentage of K-12 Students in Districts

With Adjusted Per Pupil Spending at or 21 34.6% 40.5%
Above the US Average (2006-07)

Percentage of High School Students Who

36 67.5% 69.2%
Graduate With a Diploma (2005-06)

Source: Education Week, National Education Association, and US Bureau of Economic Analysis

12
 Schools Would Receive Less in 2010-11 Than in 1997-98
Under the Governor's Proposals, After Adjusting for Inflation
$10,000
K-12 Proposition 98 Per Pupil Spending (2010-11 Dollars)

$8,961
$9,000

$8,000 $7,503 $7,418

$7,095
$7,000

$6,000

$5,000

$4,000

$3,000
90

19 1

19 2

19 3

19 4

19 5

19 6

19 7

19 8

19 9

20 0

20 1

20 2

20 3

20 4

20 5

20 6

20 7

20 8
20 09

20 0*
1*
9
-9

-9

-9

-9

-9

-9

-9

-9

-0

-0

-0

-0

-0

-0

-0

-0

-0

-1

-1
9-

0-

-
91

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08
09

10
8

9
19

19

* 2009-10 estimated and 2010-11 proposed.

Note: Excludes one-time "settle-up" funds.
Source: Department of Finance and Legislative Analyst's Office

13
Myth: California Has a “Bloated” State Bureaucracy
Facts:
„ California ranks 48th among the 50 states with respect to the number
of state employees per 10,000 population.
„ California ranks 41st with respect to the number of state and local
government employees per 10,000 population.

14
 California Has Relatively Few Public Employees
Full-Time Equivalent Government Employees Per 10,000 Population

California Rank California Rest of US

State Government
1998 50 103 154
1999 50 106 154
2000 49 105 151
2001 49 108 152
2002 50 109 153
2003 48 110 149
2004 47 111 148
2005 47 108 147
2006 46 109 147
2007 48 107 148
2008 48 108 149

State and Local Government

1998 49 474 544
1999 48 486 548
2000 46 493 539
2001 44 503 544
2002 45 510 550
2003 41 512 547
2004 45 499 544
2005 44 495 544
2006 41 505 545
2007 42 507 550
2008 41 505 553

Source: US Census Bureau

15
Salaries and Wages Account for Less Than One-Fifth of Total State Spending
2009-10 Estimated Spending, All Funds

Salaries and Wages

17.8%

Other Expenditures
82.2%

Source: Department of Finance

16
Myth: High Taxes Are Driving Business and the Wealthy
Out of California
The Facts:
„ Measured as a share of the state’s economy, California is a
moderate tax state.
„ The number of millionaire taxpayers has increased more rapidly than
the number of taxpayers as a whole since the passage of Proposition
63, which imposed an additional tax rate on high-income individuals.
„ There is no empirical evidence that businesses are leaving
California.
17
 How Does California Compare?
Revenues as a Percentage of Personal Income

California Rank California US

Total State and Local Own Source (2006-07) 19 16.59% 16.07%

Total State and Local Taxes (2006-07) 15 11.27% 11.00%

State Taxes (2007-08) 15 7.35% 6.47%

Local Taxes (2006-07) 29 3.79% 4.45%

State Individual Income Tax (2007-08) 6 3.49% 2.30%

State Corporate Income Tax (2007-08) 5 0.74% 0.42%

State and Local General Sales Taxes (2006-07) 18 2.73% 2.58%

State General Sales Tax (2007-08) 27 2.00% 1.99%

State and Local Property Tax (2006-07) 34 2.72% 3.31%

State Motor Fuels Taxes (2007-08) 45 0.21% 0.30%

State Tobacco Tax (2007-08) 46 0.07% 0.13%

State Alcoholic Beverage Sales Taxes (2007-08) 42 0.02% 0.04%

Source: US Bureau of Economic Analysis and US Census Bureau

18
 The Number of Millionaire Taxpayers Has Increased Since the Imposition of the Proposition 63 Surcharge
16%

14% 13.5%
Percent Change in Tax Returns, 2004 to 2008

12%

10%

8%
7.0%

6%

4%

2%

0%
All Taxpayers Taxpayers With Adjusted Gross Incomes of More Than $1 Million

Source: Franchise Tax Board

19
“…(T)here has been no substantial business exodus from California
and there has been little if any change in the rate at which
businesses are leaving or avoiding California…(T)he negligible
role of business relocation in employment change also indicates that
any public policy focus on business relocation would be badly
misdirected…(E)xamination of employment trends since the mid-
1990s suggests that California has been more or less in line with the
rest of the nation and other western states in terms of job growth
and unemployment.”
David Neumark, Junfu Zhang, and Brandon Wall
Public Policy Institute of California
20
Myth: California’s Budget Problems are Spending
Problems, Not Revenue Problems
The Facts:
„ California is growing, aging, and becoming more diverse creating
new demands on the budget.
„ Tax cuts enacted over the past two decades have taken a large bite
out of the budget and recently enacted reductions further widen
state budget gaps.

21
 Change in Population From Prior Year (Thousands)

19

0
200
400
600
800
9 1-
92
19
9 2-
93
19
9 3-
94
19
9 4-
95
19
9 5-
96
19
9 6-
97
19
9 7-
98
19
9 8-
99
19
9 9-
00
20
0 0-
01
20
0 1-
02
20
0 2-
03
20
0 3-
04
20
0 4-
California's Population Continues To Increase

05
20
0 5-
06
20
0 6-
07
20
0 7-
08
20
0 8-
09
20
0 9-
10
20
1 0-
11
*
22
* 2010-11 projected.
Source: Department of Finance
 Californians Age 65 or Older Are Projected To Be the
Fastest-Growing Age Group Between 2000 and 2020
80% 75.4%
Projected Percent Change in Population, 2000 to 2020

70%

60%

50%

40%

29.7% 29.4%
30% 26.2% 27.4%

20%
13.5%

10%

0%
0 to 4 5 to 19 20 to 24 25 to 64 65 or Older Total Population

Age Group

Source: Department of Finance

23
 Tax Cuts Enacted Since 1993 Will Cost $11.7 Billion in 2008-09
2008-09 Drop Reflects Suspension of Net Operating Loss Deductions
Annual Cost of Tax Reductions Enacted Since 1993 (Dollars in Billions)

$14
$12.6
$11.9 $11.7
$12 $11.3
$10.4
$10
$8.9
$7.8 $7.8
$8 $7.2

$6 $5.3

$3.9
$4

$1.9 $2.1
$2 $1.3
$1.0
$0.7

$0

*
4

9
-9

-9

-9

-9

-9

-9

-0

-0

-0

-0

-0

-0

-0

-0

-0

-0
93

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08
19

19

19

19

19

19

19

20

20

20

20

20

20

20

20

20
*2007-08 and 2008-09 estimated.
Source: Assembly Revenue and Taxation Committee, Board of Equalization,
Department of Finance, Franchise Tax Board, and Legislative Analyst's Office

24
 2008 and 2009 Tax Deals Will Lose Nearly $8 Billion Over Eight Years
Losses Will Continue Permanently
$1,500 $1,300

$1,000

$500 $295

$0
Dollars in Millions

($500)

($685)
($1,000)

($1,500)
($1,480)
($1,620)
($2,000) ($1,820) ($1,810) ($1,855)

($2,500)
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Net Cost of Business Tax Cuts in the 2008 and 2009 Budget Agreements

Source: Franchise Tax Board

25
Myth: Raising Taxes During an Economic Downturn Is Bad
for the Economy
The Facts:
„ Prominent economists argue that spending cuts are more harmful to
the economy than carefully targeted tax increases.
„ An analysis by Moody’s.com for the Senate Human Services
Committee concluded that the largest “bang for the buck” in terms of
state spending would come from spending on food stamps and cash
assistance.
26
“[E]conomic analysis suggests that tax increases would not in general be more
harmful to the economy than spending reductions... (T)he least damaging
approach in the short run involves tax increases concentrated on higher-
income families. For states interested in the impact only on their own
economy rather than the national economy, the arguments made above are
even stronger. In particular, the government spending that would be reduced
if direct spending programs are cut is often concentrated among local
businesses...(B)y contrast, the spending by individuals and businesses that
would be affected by tax increases often is less concentrated among local
producers...The conclusion is that, if anything, tax increases on higher-
income families are the least damaging mechanism for closing state fiscal
deficits in the short run. “
Nobel Prize winner Joseph Stiglitz of Columbia University, and
Peter Orszag, now Director of the Office of Management and Budget in the Obama Administration

27
Myth: There Are No Alternatives to an “All Cuts” Budget
The Facts:
„ Budgets are about values and choices.

„ In 2009, 24 states – including California – increased taxes to help

balance their budgets. However, California’s temporary tax
increases begin to sunset.
„ However, California is the only state in the nation to require a
supermajority vote for passing a budget and any tax increase.
28
California Is the Only State To Require a Supermajority Vote To Pass Both a Budget and Any State Tax Increase

Supermajority vote required to pass

a budget and raise any state taxes
Supermajority vote only required to
raise any state taxes
Supermajority vote only required to
pass a budget
Majority vote required to pass a
budget and raise most or all
state taxes

Note: Arkansas, Florida, and Michigan require a supermajority vote for certain taxes.
Source: National Conference of State Legislatures

29
 Total Elimination of Programs Republican Voters Would Cut Still Leaves a $4.5 Billion Gap
Dollars in Millions
Remaining Gap
$4,492

Public Transportation Department of Corrections

$1 and Rehabilitation
$8,056
Environmental Protection
Agency
$70

CalWORKS
$1,927

Natural Resources Agency Child Care Programs

$1,865 $2,490

Total Budget Gap= $18.9 Billion

Note: Based on 2009-10 estimated expenditures.

Source: Department of Finance, Department of Social Services and the Field Poll.

30
Myth: Rising Welfare Costs Are a Major Source of the
State’s Budget Problems
The Facts:
„ Welfare spending dropped $349 million between 1996-97 and 2009-
10, without adjusting for inflation. On an inflation-adjusted basis,
spending is down by $2.5 billion.
„ The share of Californians with incomes below the poverty level
receiving cash assistance has dropped by more than half since 1995.

31
 Welfare Spending as a Share of Total Spending in California
Has Dropped by More Than Half Since 1996-97
8%
AFDC/CalWORKs Spending as a Share of Total State Spending

7% 6.8%

6%

5%

4%
3.2% 3.1%
3%

2%

1%

0%
1996-97 2009-10 Enacted 2010-11 Proposed

Note: AFDC/CalWORKs spending includes federal, state, and county funds. Total state spending includes federal and state funds.
Source: Department of Finance and Department of Social Services

32
 Californians in Poverty Are Less Likely To Receive Cash Assistance
55%
50.0%
AFDC/CalWORKs Recipients as a Percentage of Californians in Poverty

50%

45%

40%

35%

30%

25% 22.3%

20%

15%

10%

5%

0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Department of Social Services, US Census Bureau,

and US Department of Health and Human Services

33