State Spending Plan for 1996-97
Chapter 2

State Expenditures --
Dollar Amounts and Trends Over Time

In this chapter, we provide aggregate expenditure information relating to the 1996-97 spending plan. Specifically, the chapter discusses (1) current state expenditures by fund, (2) General Fund and special funds expenditures over the past decade, and (3) the distribution of General Fund spending by program area.

Total State Spending

Figure 1 shows total state expenditures from all funds from 1994-95 through 1996-97. As noted in Figure 1, our figures include certain adjustments to the administration's spending amounts in order to make the figures more comparable from year to year, and to better reflect actual state spending levels.

The figure shows that, under the current budget plan, total state spending from all sources grows from $60.6 billion in 1995-96 to $65.5 billion in 1996-97, an increase of nearly $5 billion, or 8.2 percent (roughly similar to the 8 percent growth between 1994-95 and 1995-96). Excluding spending from selected bond funds, budget-related expenditures from General and special funds are up 2.4 percent. The figure also shows that the majority of total state spending is from the General Fund, which in 1996-97 accounts for about 72 percent of the total. Figure 1 also shows that:

Spending from the General Fund will increase by 3.9 percent in 1996-97, or 12 percent over the past two years. The significant two-year growth rate reflects a major increase in Proposition 98 funding between 1994-95 and 1995-96.
Expenditures from special funds in 1996-97 are 2.3 percent below 1995-96 spending. The decline reflects fluctuations in capital outlay expenditures by the California Department of Transportation for various highway projects. Over the two-year period, however, 1996-97 special fund spending is about 6 percent above the 1994-95 level.
Expenditures from bond funds will be up sharply in 1996-97, reflecting large increases in capital outlay expenditures for K-12 education and seismic safety improvements.

State Spending Over the Past Decade

To put the amount of spending in this year's budget into perspective, Figure 2 shows state spending trends over the past ten years since 1986-87. Total state spending grew relatively rapidly until 1991-92, but experienced little overall gain between 1991-92 and 1994-95 due to the impact of the recession. Spending growth rebounded sharply in 1995-96, partly reflecting the impact of revenue growth on Proposition 98 funding. The 1996-97 budget includes further modest growth. Figure 2 also shows that after removing the effects of inflation (constant dollars), total state spending in 1996-97 is slightly above the 1991-92 peak.

Over the past decade, spending from special funds has grown faster than spending from the General Fund due to two factors:

First, legislation and voter initiatives have established new programs financed by fees or dedicated tax revenues (such as Proposition 99 tobacco-related taxes). These measures have also increased gasoline taxes and other special fund revenues.
Second, in recent years the Legislature has shifted some traditional General Fund costs and revenues to special funds. For example, in 1991-92, a half-cent increase in the state sales tax was enacted, and the revenues were placed in a special fund to cover certain health and welfare costs that the state shifted to the counties.

Spending by Major Program Area

Figure 3 shows how total state spending is divided among the major program areas and how this allocation has changed over the past decade. Figure 4 shows the percent change that occurred in spending by major program area over this period. The two figures indicate:

In 1996-97, spending on K-12 and higher education will account for about 42 percent of total General Fund and special funds expenditures, making education the largest single category of state spending.
The allocation of spending has changed modestly over the past decade. In general, health, corrections, and "shared revenues" have increased more rapidly than the statewide average, resulting in an increase in their shares of the overall spending totals. Conversely, spending on education, social services, and transportation has grown more slowly than the statewide average for all programs combined, resulting in a decline in their shares of the budget totals.

Why Has Growth Differed by Program Area?

Faster-growth areas. The above-average increase in health-related spending largely reflects the combined impacts of caseload and inflation, which resulted in particularly large increases in the Medi-Cal program during the late 1980s and early 1990s. The growth in corrections-related spending reflects a major rise in inmate populations partly due to expanded prison sentencing and the increasing costs of financing and operating prisons. The increase in "shared revenues" partly reflects legislation passed in 1991 which allocated a new one-half cent increase in state sales tax revenues to counties to cover health costs shifted to local governments. It also reflects state allocation of a new one-half cent increase in sales tax to counties for public safety beginning in 1993.

Slower-growth areas. The slower-than-average increase in education spending is primarily due to the replacement of state support for K-14 education with property tax revenues shifted from local governments to schools and community colleges. Thus, the reported General Fund spending growth understates the increase in total funding to education. This property tax shift, which took place in two stages in 1992-93 and 1993-94, was done to partly offset the major budget shortfalls facing state government in the early 1990s (the property tax shift was partly mitigated by a one-half cent increase in the sales tax, noted above, which is distributed to localities to support public safety).

The comparatively low growth rate in social services spending reflects significant grant reductions and eligibility restrictions enacted in the AFDC and SSI/SSP programs during recent years. The below-average growth in transportation spending reflects the modest increases in transportation-related tax revenues, which occurred despite the gas-tax increases approved by voters in 1990.

Continue to Chapter 3 - Major Features of the 1996-97 Budget Plan, Part I

Return to LAO Home Page