LAO 2004-05 Budget Perspectives and Issues: Issue-By-Issue TOC
Analysis of the 2004-05 Budget Bill
Perspectives and Issues Outline
LAO Bottom Line
The Budget's Economic and Revenue Outlook
The Budget Proposal
Total State Spending
General Fund Condition
Prior Year
Current and Budget Years
How the Plan Addresses the Budget Shortfall
Program Reductions/Savings
Economic Recovery Bond
Other Loans and Borrowing
Local Government-Related Actions
Transfers/Other Revenues and Fund Shifts
Key Programmatic Features
The LAO's Budget Outlook
More Solutions Will Be Needed for 2004-05 to Balance
Major Threats Could Increase Shortfall to About
$4 Billion
Nearly $7 Billion Operating Shortfall to Remain in
2005-06
Considerations for the Legislature
Recent Economic Developments
National Trends
Recovery Finally Gaining Balance and Momentum
Strength Is Carrying Over Into 2004
Inflation and Interest Rates Remain Subdued
Jobs Lag
California Trends
State Also Participating in the Recovery
However, Jobs Are Also Lagging in the State
The Budget's Economic Outlook
National Outlook
California Outlook
LAO's Economic Outlook
National Outlook
California Outlook
Comparison to Other Forecasts
Risks to the Outlook
The Demographic Outlook
State Population to Hit 37 Million in 2005
Population Growth Components
Growth to Vary by Age Group
Overall Budgetary Implications
The Budget's Forecast for Total State Revenues
Recent and Proposed Tax-Related Changes
Changes in Underlying Revenues
The Budget's General Fund Revenue Outlook
The LAO's General Fund Revenue Outlook
LAO Forecast Down Modestly From Budget
The LAO's Forecast for Major Revenue Sources
Personal Income Tax
Background
PIT Liabilities
Withholding Mysteriously Outpaces Wage Growth
PIT Revenue Forecast
Sales and Use Tax
Background
SUT Rates
Taxable Sales Improved in 2003
Farmer Bros. Co. Legal Challenge
SUT Revenue Forecast
Corporation Tax
Background
Profits Rebounding
Corporation Tax Revenue Forecast
Other Revenues and Transfers
The Budget's Forecast for Special Funds Revenues
Part IV: Perspectives on State Expenditures
An Overview of State Expenditures
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—A Historical Overview
Spending by Program Area
Total State Spending
Relative Program Growth in the Budget Year
Major Expenditure Proposals in the 2004-05 Budget
Proposition 98
Proposal
Issues for Legislative Consideration
K-12 Proposition 98
Proposal
Issues for Legislative Consideration
Higher Education
California Community Colleges
Proposal
Issues for Legislative Consideration
Other Higher Education Programs
Proposal
Issues for Legislative Consideration
Health and Social Services
Proposal
Issues for Legislative Consideration
Juvenile Justice System Reform
Proposal
The Problem
Issues for Legislative Consideration
Transportation
Proposal
Issues for Legislative Consideration
Resources
Proposal
Issues for Legislative Consideration
Employee Compensation
Proposal
Issues for Legislative Consideration
Mid-Year Spending Reductions
Proposal
Issues for Legislative Consideration
Maximizing Federal Funds
Proposal
Issues for Legislative Consideration
Part V: Major Issues Facing the Legislature
Another Property Tax Shift?
Should the State Shift Property Taxes to Help Solve Its
Budget Difficulties? If So, How Could the Proposed Shift Be Modified to Reduce
Its Negative Effects on Local Governments?
Summary
Background
Administration's Proposal
LAO Assessment
Guidelines to Consider
Minimize Reductions to General Purpose Revenues
Leave Past Formulas in the Past
Allow Local Control
Be Mindful of Effects on Land Use Incentives
Consider Impact of Revenue Reductions
An Alternative Approach
Reduce Restricted Purpose Subventions First
Give Local Flexibility Over Special District Shift
Focus the Redevelopment Shift
Shift Sales Taxes and Reallocate Vehicle License Fee
(VLF)
Instead
Conclusion
Deficiencies: Rethinking How to Address Unexpected
Expenses
Summary
Introduction
Appropriation Authority and Delegated Powers
Changes to Spending After the Start of a Fiscal Year
Examples of Delegation
Concerns With Delegated Authority
Attempt to Circumvent Budget Process
Changes to the Deficiency Process in 2003-04
Addressing Past Concerns
Limiting Deficiency Requests
Use of Section 27.00 in 2003-04
Deficiency Authorizations
Transfers of Funds
Misuse of Section 27.00 for the VLF Backfill
Administration's Proposals for 2004-05
How Much Authority Should the Legislature Provide?
Rethinking How to Address Unanticipated Expenses
When in Session—Affirmative Approval
When Out of Session—Use Only Appropriated Funds
Other Recommendations
Conclusion
"Remodeling" the Drug
Medi-Cal Program
How Could the Drug
Medi-Cal Program Be Restructured To
Hold Down Administrative Costs, Draw Down More Federal Support, and Improve
Participation?
Summary
Introduction
Background
What Is Drug
Medi-Cal?
Program Administration and Funding
A Patchwork of Services
Significant Inconsistencies in Resources
Disproportionately Small Share of Program for Children and
Women
Variations in Services From County to County
State Not Taking Full Advantage of Federal Assistance
A Difficult and Costly Program to Administer
Lack of Treatment May Be Adding to State Costs
Drug
Medi-Cal Could be "Remodeled"
Shifting Funding and Programs to Local Control
Implementing Cost Containment For Methadone
Conclusion
Integrating Buprenorphine Into Drug
Medi-Cal
Better Care Reduces Health Care Costs for Aged and
Disabled Persons
How Can the State Better Coordinate Care for the Aged
and Disabled in Medi-Cal and Save Money?
Summary
Introduction
The
Medi-Cal Health Care Delivery System
Medi-Cal Fee-for-Service System
Medi-Cal Managed Care
Mandatory and Voluntary Participation in Managed Care
Managed Care has Proven Advantages Over the
Fee-for-Service System
Coordination of Services to Improve Health Outcomes
Quality of Care
Access to Providers
Cost Containment
Additional Persons Could Be Enrolled in Managed Care
Who Could Shift to Managed Care?
Focus Initially on Certain Aged or Disabled Persons
Shift to Managed Care Problematic for Some
Medi-Cal Managed Care Administrative Problems
Some Services Best Excluded From Managed Care
Shift to Managed Care Would Result in State Savings
Key Assumptions
LAO Estimate of Net Savings
A Blueprint for Expanding Aged or Disabled Enrollment in
Managed Care
Implement Gradual Shift of Some Aged or Disabled Into
Managed Care
Maximizing the Chances for a Successful Expansion
Strengthen the Existing Managed Care System
County Organized Health System
(COHS) Offers a Model
Conclusion
Mandates: Mounting Liabilities and Need for Reform
How Much Does the State Owe Local Agencies for
Mandates? What Problems Should Mandate Reform Correct?
Summary
Introduction
How Much Does the State Owe?
What Does the Administration Propose?
LAO Assessment of Mandate Proposals
Need for reform
Lack of Payments Undermines Credibility of Mandate
Requirement
Little Confidence in Mandate Determination Process
Claiming System Invites Problems
Legislature Needs Better Information
Delays Decrease Legislative Oversight
Mandate Determinations Get Stuck in the Past
Conclusion
The Problem of Abusive Tax Shelters
What Steps Should the Legislature Take to Curb the
Increasing Use of Tax Avoidance Schemes and the Large and Growing State Revenue
Losses They Produce?
Summary
Introduction
Field of Schemes
Historical Perspective and Recent ATS Trends
What Constitutes an
ATS?
Gimme Shelter: The Recent Growth of ATSs
Illustrative Examples of Abusive Tax Shelters
Implications for California's Revenue System
Revenue Losses From ATSs
A Fundamental Threat to the Tax System?
What Is Being Done About the ATS Problem?
Federal ATS Efforts
California's ATS Efforts
Considerations for the Legislature
LAO Recommendations
Additional Options for Addressing the State's Fiscal
Problem
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