Key Facts About the Governor’s Proposed Budget, Part 5: Many Californians Still Hurting in the Aftermath of the Recession

February 6, 2013

This is the latest in a CBP chart series highlighting some of the most important aspects of Governor Brown’s 2013-14 budget proposal and the context for it.

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As pointed out earlier in this chart series, the significant new revenues approved by voters in November have positioned California to turn the corner on years of severe budget shortfalls. But with the state’s fiscal situation improving, it is important that policymakers not lose sight of the fact that millions of Californians continue to suffer in the wake of the Great Recession.

California’s poverty rate is at its highest point in 15 years and has increased by more than one third — from 12.2 percent to 16.9 percent — since the year before the Great Recession began. About one in six Californians were living in poverty in 2011, according to the most recent Census figures. That means that there are more Californians living in poverty than there are residents of the cities of Los Angeles, San Diego, and San Francisco combined.

California’s child poverty rate is even higher than that of the population as a whole, with approximately one out of four children (24.3 percent) living in poverty in 2011. The long-term consequences for children raised in poverty include lower levels of educational attainment and lower earnings as adults. Childhood poverty not only can mean a life of hardship for individual children — a reason for concern in its own right — but also can impose significant costs on society as a whole through these children’s lost potential.

Meanwhile, California’s weak job market poses a serious and persistent challenge. The state’s current jobless rate of 9.8 percent is still nearly double the rate before the Great Recession began. Only recently — in November 2012 — did the jobless rate finally reach single digits after spending 45 consecutive months in double figures. Long-term unemployment remains near a record high, with more than one in three of California’s unemployed reporting that they have been searching for a job for at least one year.

Our state’s budget policy choices should reflect the fact that many Californians are still confronting the harsh aftereffects of the Great Recession. As lawmakers consider the Governor’s budget proposal and work toward a budget agreement in the coming months, priority should be given to strengthening programs and services — such as child care — that help individuals find and keep jobs and also to ensuring a strong social safety net for those struggling to make ends meet. Wise investment of state dollars can help blunt the impact of our state’s economic challenges while also speeding the state’s recovery and laying the groundwork for widely shared prosperity over the long term.

— Phaelen Parker

Key Facts About the Governor’s Proposed Budget, Part 4: Costs of Ineffective Enterprise Zones Point to Choices in the Budget

January 30, 2013

This is the latest in a CBP chart series highlighting some of the most important aspects of Governor Brown’s 2013-14 budget proposal and the context for it. This post examines the state’s Enterprise Zone Program in light of a principle that we like to apply to state budget choices: Budgets are about values and priorities.

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Facing a steep drop in tax revenues due to the Great Recession, state policymakers in recent years made deep reductions across a range of public systems and services. These cuts included ending dental care for low-income adults in Medi-Cal, reducing CalWORKs cash assistance for low-income families with children, and eliminating more than 110,000 child care and preschool slots. Policymakers also significantly scaled back the Child and Dependent Care Expenses (CDC) Credit, which provides a state tax credit of up to $1,050 per year to help working families defray the cost of child care, often one of the largest expenditures in a household budget.

Yet amid all of the painful reductions, a costly state program that is widely considered to be ineffective emerged unscathed and, in fact, doubled in size: the Enterprise Zone (EZ) Program. The EZ Program provides multiple tax breaks to corporations to promote business development and job creation in economically distressed areas. The two largest EZ tax breaks are the hiring credit and the sales and use tax credit, which cost the state $734 million in foregone tax revenues in 2011 — up by 4 percent from 2010 and twice the $366 million price tag of these credits in 2006, the year before the recession began. By contrast, the cost of the much smaller CDC credit plunged by more than 70 percent between 2010 and 2011, from $134 million to just $38.5 million, after the Legislature reduced families’ eligibility for the credit. As a result, the number of working families who received help paying for child and dependent care dropped by more than half, from 450,000 in 2010 to about 200,000 in 2011.

The EZ Program has survived – and thrived – during hard budget times despite substantial evidence that the program does not work. A rigorous study by the Public Policy Institute of California (PPIC), for example, found that “on average, enterprise zones have no effect on business creation or job growth.” This finding, according to the PPIC, “clearly calls into question whether the state should continue to grant enterprise zone tax incentives.” In fact, the Legislative Analyst’s Office (LAO) has recommended for years that the state eliminate or restructure the EZ Program. According to the LAO, most research shows that EZs and similar programs “have little if any impact on the creation of new employment.” Governor Brown two years ago proposed to eliminate all EZ tax incentives, arguing that “because the primary benefit of these zones is to shift economic activity” from one part of the state to another, “they are not of statewide interest,” particularly at a time when “all spending must be scrutinized.” This proposal, however, went nowhere in the Legislature.

The Governor’s proposed 2013-14 budget places a renewed focus on the EZ Program, but this time with a far narrower approach. He proposes regulatory reforms that would modestly reduce the cost of EZs by $50 million in 2013-14 — dollars that would flow to the state rather than boost the bottom lines of the very large corporations that claim most EZ tax breaks. The Governor also intends to pursue “further Enterprise Zone reform through legislation.” While these efforts are welcome, it remains unclear why California should continue to provide any state support for an expensive program that provides no statewide benefit — particularly at a time when so many vital public services have been hollowed out by state budget cuts. Eliminating EZs, as the Governor proposed two years ago, would boost state revenues by more than $700 million per year — funds that could be used to restore the CDC credit, increase the number of child care slots for working families, and invest in other public systems and services that prepare California for the future and help lay the groundwork for broadly shared prosperity.

— Scott Graves

Key Facts About the Governor’s Proposed Budget, Part 3: Spending Per Student Rises Due to New Revenues, But Still Faces a Long Climb Back

January 28, 2013

This is the latest in a CBP chart series highlighting some of the most important aspects of Governor Brown’s 2013-14 budget proposal and the context for it.

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State spending per K-12 student will rise in the current (2012-13) fiscal year and in 2013-14 due to voter approval of two revenue measures – Proposition 30 and Proposition 39 – last November, according to the Governor’s proposed 2013-14 budget. Yet even with this increase, per student state support for public schools will remain much lower than the 2007-08 level, after adjusting for inflation.

Why is last November’s voter approval of major revenue measures – while crucial in reversing years of declining support for public schools – not enough to return state spending per student to the level it was when the Great Recession began? As we blogged about recently, state finance officials project that Propositions 30 and 39 together will increase state General Fund revenues by nearly $6 billion in 2012-13 and by $7.2 billion in 2013-14. Because increases in General Fund revenues tend to boost the state’s minimum funding guarantee for K-12 schools and community colleges – required by Proposition 98 of 1988 – California voters’ actions in November increased state support for schools in the proposed 2013-14 budget. The Governor’s proposal estimates that state spending will go up by $1,000 per student between 2011-12 and 2013-14, after adjusting for inflation. However, even with the increased taxes from Propositions 30 and 39, General Fund revenues are projected to be $2.8 billion lower in 2013-14 than in 2007-08, without adjusting for inflation. The drop in revenues compared with six years ago, which is partially due to declining incomes during the Great Recession and several corporate tax cuts passed in recent years, helps explain why state spending per student in 2013-14 will remain so far below the 2007-08 level.

The substantial new revenues approved by voters last November help stabilize the budget and allow the state to begin reinvesting in education. Still, state K-12 spending per student is unlikely to return to pre-recession levels until General Fund revenues fully recover lost ground.

— Jonathan Kaplan

Key Facts About the Governor’s Proposed Budget, Part 2: Proposed State Spending Remains Below 2007-08 Level

January 24, 2013

This is the latest in a CBP chart series highlighting some of the most important aspects of Governor Brown’s 2013-14 budget proposal and the context for it.

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Last week, we described the role voters played in approving new revenues to put California back on the path to fiscal stability. Thanks in large part to the passage of Propositions 30 and 39, California’s budget is roughly in balance, after many years of severe budget shortfalls.

Turning to the other side of the ledger — state spending — under the Governor’s proposed 2013-14 budget, General Fund spending would be $4.7 billion higher than in 2012-13. Yet this year-over-year increase, while notable in light of recent years’ budget gaps, is highly targeted, with much of the additional funding channeled toward K-12 schools and higher education. Beyond these targeted increases in spending — which are largely attributable to the state’s increased minimum funding obligation for schools and community colleges due to new revenues from Propositions 30 and 39 — General Fund spending for most state programs and services would remain at or near current levels.

In fact, total state spending in the Governor’s proposed budget remains approximately 4 percent below what it was in 2007-08, the year the Great Recession began, after accounting for inflation. To help put this number in context, over the same period of time, California’s population has grown by more than 1 million.

Unfortunately, many of the state programs and services that aren’t slated for significant funding increases are currently operating at reduced levels, having been hollowed out by repeated cuts in recent years. Some of them — like subsidized child care and the state preschool program, which have been cut by nearly $1 billion, or 110,000 “slots” since 2008 — are the very services that could provide the biggest boost to low- and middle-income Californians struggling to find and keep work. While the Governor’s proposal does include a small funding increase for CalWORKs welfare-to-work services, county agencies must use these funds to implement sweeping programmatic changes made to CalWORKs as part of prior rounds of budget cuts. A reduction of the CalWORKs time limit for adults from 60 months to 24 months means that participants now face a challenging job market with less time to access resources for securing long-term employment.

As the state begins to recover from years of serious budget challenges, policymakers should seek to reinvest in the vital public services that foster economic growth, contribute to broadly shared prosperity, and ensure support for those most affected by the Great Recession and its aftermath. California’s child poverty rate — nearly one in four — and high long-term unemployment rate are sobering reminders that many Californians are still living every day with the consequences of this difficult chapter in our state’s economic and fiscal history.

— Hope Richardson

Key Facts About the Governor’s Proposed Budget, Part 1: Voters Boost Revenues by More Than $7 Billion in 2013-14

January 17, 2013

Last week, we published our initial analysis of Governor Jerry Brown’s proposed 2013-14 budget. To highlight some of the most important aspects of this proposal — and the context for it — today we’re launching a brief chart series, Key Facts About the Governor’s Proposed Budget. This first post looks at the impact of the new revenues approved by California’s voters this past November.

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The Governor’s proposed 2013-14 budget shows that California is poised to turn the corner on years of severe budget shortfalls. One of the biggest factors contributing to this positive trajectory is voters’ approval of two revenue measures — Propositions 30 and 39 — last November. Proposition 30 increased personal income tax rates on very-high-income Californians for seven years and raised the state’s sales tax rate by one-quarter cent for four years. Proposition 39 ended a corporate tax break that primarily benefited a relatively small number of (mostly large) multistate firms.

State finance officials project that the two measures combined will raise $7.2 billion in 2013-14 (the fiscal year that begins July 1), accounting for more than 7 percent of total General Fund tax collections. In other words, had Propositions 30 and 39 not passed, 2013-14 tax collections would fall from $97 billion to less than $90 billion.

In addition to significantly lowering revenues for 2013-14, defeat of both ballot measures would have caused revenues in the current fiscal year (2012-13) to drop by nearly $6 billion. What would have been the impact of such a large revenue decline? The 2012-13 budget agreement passed last June provides an answer: Lawmakers approved roughly $6 billion in spending reductions to be implemented on January 1 of this year if voters had rejected Proposition 30, with public schools, community colleges, and universities bearing the brunt of these “trigger” cuts. (Proposition 30’s revenues were assumed in the 2012-13 spending plan; Proposition 39’s were not.) Moreover, it’s reasonable to assume that, in the absence of other revenue options, a comparable level of reductions would have been carried over to the 2013-14 fiscal year — and perhaps beyond.

Much work remains to be done in rebuilding the foundations of a strong California economy and healthy communities in the wake of the Great Recession and years of state spending cuts. But for now, thanks to California voters, the state budget has been stabilized and provides a platform for reinvesting in education and other public systems and services that are essential to all Californians.

— Scott Graves