1. California’s Fiscal Outlook
Budget Picture has improved. Mostly because of better-than-expected revenues
But state is still a long ways from resolving it’s budget problems.
Legislative Analyst’s Office

2. Tax Revenues Rising Again
Major General Fund Tax Revenues
In Billions
$90 80 70 60 50
99-00
00-01
01-02
02-03
03-04
04-05
05-06
Budget
Forecast

3. …But Structural Shortfall RemainsAn n
ual R e ve n
ues and Expenditure s $1 2 R e v e n ue s 1 1
Expenditures
But that’s not enough to dig us out of the hole that we got into in
Governor and Leg haven’t been able to agree on sufficient ongoing solutions to close gap
Have instead used one-time borrowing and deferrals to cover shortfall.
These come back to bite
Alte r
nati v
e Expenditures a 1 9 8 7
Operating
Operating
Surplus
Deficits 6 9 9 - 1 - 2 3 - 4 5 - 6 7 - 8 9 - 1 F
orecas t

4. One Key Reason—Lots Of Budget Borrowing
Repayment Of General Fund Budget-Related Debt
(In Billions) $ 4 . 5 S p e c i a l F un d s 4 . L o c a l G o v e r n m e n t / K - 1
2 Education
First, current-law spending jumps up when one-time solutions expire
Second, have to repay loans—state now has over 26 billion budget borrowing outstanding—in addition to traditional bonds
Chart shows annual costs for repaying, around 4 billion per year. Nearly ½ of structural problem. 3 . 5 B
udg e t - R e l a t e d B on d s 3 . 2 . 5 2 . 1 . 5 1 . . 5
200 4 - 5
200 5 - 6
200 6 - 7
200 7 - 8
200 8 - 9

5. Recent Productivity Growth At All-Time High
Annual Average Increase in
U.S. Nonfarm Business Productivity 4 . % 3 .
Long- T
erm A
ver a g
e 2.3 % 2 . 1 .
1950 - 5 4
1960 - 6 4
1970 - 7 4
1980 - 8 4
1990 - 9 4
2000 - 4

6. California Jobs: Pre-2004 Benchmark
Year-to-Year Percent Change, by Month - 3 2 1 4 % H ou s
eho l d S u r v e y P a o ll v e y
2001
2002
2003
2004

7. California Jobs: Post-2004 Benchmark
Year-to-Year Percent Change, by Month - 3 2 1 4 % J a n-
2005
Household Survey
Payroll Survey
2001
2002
2003
2004

8. California Home Construction To Remain Strong
Permits for New home Construction
In Thousands 25 M u l t i p l e U n i t s 20 S i ng l e U n i t s 15 10 5
199 7
199 9
200 1
200 3
200 5
200 7 F
orecas t

9. PIT Liabilities on Rebound
In Billions
PIT Liabilities From:
$60
Capital Gains and Stock Options
Other Sources 50 40 30 20 10
1999
2000
2001
2002
2003
2004
2005
2006
2007
Forecast

10. California Profits Have Been Booming
Annual Percent Change in California Taxable Corporate Profits
25% 20 15 10 5 -5
-10
-15
1999
2000
2001
2002
2003
2004
2005
2006
2007
Forecast

11. Proposed Solutions in 2005-06 Governor’s BudgetF
und S h i f ts R e v
enue s P r og r a m S a v i ng s
Loan s

12. The Legislature’s Budget Opportunity
The Building Blocks:
Healthy Revenues
$2.2 billion more than Governor
Ongoing Solution
$4 billion to $5 billion— similar in magnitude to budget

13. The Payoff of Acting Now:
Balanced, With Solid Reserve
Close, Using Remaining Bonds
Out-Year Problem Persists, But Smaller

14. The Price of Inaction: 2005-06 Precariously Balanced
Major Shortfalls in and Beyond
Close to $10 billion

15. General Fund Operating Shortfalls, Under Alternative Scenarios
(In Billions) $0 - 2 - 4 - 6 - 8 G o v e r no r ' s B
udge t - 1 W i t h
out Ongoing Solution - 1 2
2004 - 5
2005 - 6
2006 - 7
2007 - 8
2008 - 9