LAO 2003-04 Budget Perspectives and Issues: Issue-By-Issue TOC
Analysis of the 2003-04 Budget Bill
Perspectives and Issues Outline
The Budget's Economic and Revenue Outlook
The Budget Proposal
Total State Spending
General Fund Condition
How the Budget Addresses the Shortfall
Programmatic Features
The LAO's Budget Outlook
Budget Plan Would Balance
Many Threats Exist
Governor's Plan Would Also Address State's Structural
Imbalance . . .
. . . But Only if Major Actions Are Taken
Considerations for the Legislature
Conclusion
The Economic Outlook—Summary
2002 in Retrospect
U.S. Economy
Unbalanced Growth
Jobless Recovery Thus Far
California's Economy
Divergence Among Industries
Divergence Among Regions
Softness Persists Into Early 2003
The Governor's Economic Forecast in Brief
The LAO's Economic Outlook
U.S. Outlook
Consumer Spending
Business Investment
California Outlook
California's Income Growth to Eventually Overtake Nation
Residential Construction to Remain Relatively Strong . . .
. . . But Nonresidential Construction to Lag
Comparison to Other Recent Economic Forecasts
Risks and Uncertainties
The Demographic Outlook
State Population to Approach 37 Million by 2005
Population Growth Components
Growth to Vary by Age Group
Overall Budgetary Implications
Recent Revenue Deterioration Has Been Unprecedented
Revenue Outlook Is Key Factor in Addressing the Budget
Shortfall
The Budget's Forecast for Total State Revenues
The Budget's General Fund Revenue Outlook
Revenue-Related Changes and Proposals
The LAO's General Fund Revenue Outlook
2002-03 Revenues
2003-04 Revenues
2004-05 Revenues
The LAO's Forecast for Major Revenue Sources
Personal Income Tax
Background
PIT Liabilities
PIT Stock Market-Related Bubble Gone
PIT Revenue Forecast
Sales and Use Tax
Background
SUT Rates
Recent Taxable Sales Held in Check by Weak Business
Spending
SUT Revenue Forecast
Corporation Tax
Background
Profits Have Bottomed Out …
... and Should Accelerate in 2003 and 2004
Corporation Tax Revenue Forecast
Other Revenues and Transfers
The Budget's Forecast for Special Funds Revenues
Key Revenue Risks and Uncertainties
Proposed Total Spending in 2002-03 and 2003-04
General Fund Spending
Special Funds Spending
Spending in Relation to the State's Economy
Spending From Federal Funds and Bond Proceeds
Federal Funds
Spending of Bond Proceeds
State Appropriations Limit
State Spending—An Historical Overview
Spending by Program Area
Total State Spending
Relative Program Area Growth in the Budget Year
Proposition 98
Proposal—K-12 Proposition 98
K -12 Education Issues for Legislative Consideration
California Community Colleges (CCC)
Proposal
Issues for Legislative Consideration
Other Higher Education Programs
Proposal
Issues for Legislative Consideration
Health and Social Services
Proposal
Issues for Legislative Consideration
Judiciary and Criminal Justice
Proposal
Issues for Legislative Consideration
Transportation
Proposal
Issues for Legislative Consideration
Resources
Proposal
Issues for Legislative Consideration
Employee Compensation and
Retirement
Proposal
Issues for Legislative Consideration
The Governor's Tax Proposal:
Evaluation and Alternatives
What Are the Major Considerations for the Legislature
in Assessing the Governor's Proposal to Increase Tax Rates, And What
Alternatives Should it Consider?
Introduction
What Is the Tax Proposal?
Revenue Impacts of the Tax Proposal
LAO's Evaluation of the Tax Proposal
SUT Proposal
Overall Performance of the SUT and Its Base—Relatively
Steady
The SUT Possesses Some Fundamental Weaknesses
How Would the Increase Affect Taxpayers?
PIT Proposal
Growth In PIT Has Been Strong . . .
. . . But Revenues Can Be Quite Volatile
How Will Taxpayers Be Affected by the Proposal?
Cigarette Excise Tax Proposal
Cigarette Smoking Has Been Trending Down
Why Has Per Capita Smoking Fallen?
Tax Evasion Has Also Played a Role in the Decline
Downside Risks to the Revenue Estimate Exist
How Much Should Cigarettes Be Taxed?
Will a Cigarette Tax Increase Hurt Tobacco Securitization?
Outside Influences on Cigarette Tax Revenues
The Realignment Tax "Portfolio"
Characteristics of the Revenue Portfolio
Characteristics of the Realigned Programs
Other Tax Issues for Consideration
Tax Administration
Federal Interaction
Economic Climate
Other Revenue Options
Various PIT Options
Selected Business Tax Alternatives
Expanding the SUT Base
Conclusion
Realignment and the 2003-04 Budget
What Role Could Realignment Play in Improving Service
Delivery and Addressing the State's Budget Difficulties?
Introduction
Overview of Administration Proposal
What Program Changes Are Proposed?
What Taxes Would Support Realignment?
How Would the New Revenues Be Distributed?
Does the Plan Affect Proposition 98?
Overarching Considerations
Realigning Some State-County Programs Makes Sense
Programs, Not Taxes, Should Be the Focus of Realignment
Realignment Plans Are Not Easily Changed
Counties Need Control Over Realigned Programs
Roughly Match Revenues and Expenditure Expectations
Details Matter in Designing Structure of Realignment
Achieving General Consensus Will be Critical
What Factors Should the Legislature Weigh In Assigning
Program Responsibilities?
Programs to Realign: An Initial LAO Assessment
Health Programs
Medi-Cal Administration, Not Benefits, Suited for
Realignment
Alternative Long-Term Care Proposal Merits Consideration
Realignment of Public Health Programs Generally Sound
Additional Mental Health Programs Merit Realignment
Drug Treatment Realignment Makes Sense, But Faces Major
Obstacles
Social Services
Realign Full System of Children's Programs
CalWORKs: Some Costs Appropriate to Realign
Food Stamps Administration—Sharing Costs Makes Sense
Immigrant Programs Are Inappropriate to Realign
In-Home Supportive Services: Partial Realignment Makes
Sense
Adult Protective Services Makes Sense to Realign
Automation Projects: Align State and County Interests
Child Care
Program Improvements Possible through Realignment
Criminal Justice
Court Security Fund Swap Is Not Realignment
Realign Adult and Juvenile Offender Programs
Mandates
Realignment Plan Is Well Suited for Funding Mandates
Conclusion
Additional Options for Reducing
State Spending
Introduction
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