Six Years Later, State Spending Remains Below the Pre-Recession Level

July 24, 2013

The 2013-14 budget signed by Governor Brown in June includes state spending of $138.3 billion — $96.3 billion from General Fund revenues (the primary source of funding for state services) and $42.0 billion from special fund revenues (taxes, licenses, and fees designated by law for specific purposes). These state tax dollars support a range of public systems and services, from education and health care to transportation and environmental protection. (The 2013-14 budget also includes $7.0 billion in spending from bond funds, but we exclude these dollars from the analysis below because bond funds — which come from long-term loans — are provided by investors, not the state’s taxpayers.)

Thanks in large part to voter approval of two tax measures last November — Propositions 30 and 39 — policymakers this year were able to balance California’s budget while avoiding additional major spending reductions and taking small steps toward reinvesting in key state services that were cut deeply in recent years due to the impact of the Great Recession. But despite the positive elements of this year’s budget — and there were many — looking at a single year’s spending plan tells only part of the story. Taking a broader view reveals the following:

  • State spending is down by nearly 4 percent since 2007-08, the year the Great Recession began. State spending — General Fund plus special funds — in 2013-14 is projected to be $5.3 billion (3.7 percent) below what it was in 2007-08, after accounting for inflation.

  • State spending per California resident is down by nearly 8 percent since 2007-08. State spending per capita has fallen from $3,929 in 2007-08 to $3,628 in 2013-14 — a drop of $301 (7.7 percent), after adjusting for inflation. This drop reflects a smaller state budget as well as the continued growth of California’s population. The number of Californians has increased by more than 1.5 million since 2007-08, rising from 36.6 million on July 1, 2007, to an estimated 38.1 million on July 1, 2013. In other words, state spending is lower today than in 2007-08 despite the fact that California has added well over 1 million new residents during this period.
  • State spending is substantially below the level it likely would have reached if the Great Recession had not occurred. As we explained in a blog post last week, if California’s economy hadn’t hit a steep downward slide in 2008, total state revenues — General Fund plus special funds — likely would have increased to more than $160 billion in 2013-14. State spending probably would have grown more or less in tandem, in which case it likely would have exceeded this year’s budgeted spending level ($138.3 billion) by more than $20 billion. That $20 billion-plus spending gap represents dollars that are not available to support state investments in education, child care, job training, and other public systems and services vital to California’s future.

— Scott Graves

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