1. State Fiscal Policy and Job Creation Laurel Lucia UC Berkeley Center for Labor Research and Education September 2011 laurel.lucia@berkeley.edu

2. Analyzed Schwarzenegger's FY 10-11 proposal ($5.4 B in health and human services cuts + $7.0 B in general spending cuts) vs. mixed approach ($5.4 B in revenue options + $7.0 B spending cuts) Mixed approach would result in half the reduction in economic output, save $1.1 billion in state and local tax revenue, and save nearly 244,000 jobs All budget solutions are not equal http://laborcenter.berkeley.edu/californiabudget/budget_impact10.pdf

3. Jobs Lost from $5.4 Billion in Budget Solutions

4. IMPLAN Analysis IMPLAN 3.0 California State Package Projects impacts on employment, economic output, and state and local taxes Direct Effects: Impacts on the Affected Industry Indirect Effects: Impacts on Suppliers Induced Effects: Effects of Changes in Household Income Multiple rounds of effects

5. Economic Impact Detail FY 10-11 $ BillionsEmployment General Fund Federal Matching Dollars Economic Output State and Local Tax RevenueJobsIncrease in unemployment Major Health and Human Services Cuts CalWORKS 1.60 3.54 7.43 0.53 61,0000.3% Child care 1.40 0.15 3.11 0.16 38,0000.2% Medi-Cal 0.90 1.44 5.04 0.26 32,0000.2% IHSS 0.64 1.57 3.28 0.23 121,0000.7% Healthy Families 0.04 0.07 0.23 0.012 1,0000.0% Mental health 0.60 - 1.20 0.060 7,0000.0% SSI 0.13 - 0.19 0.014 1,0000.0% Food stamps 0.04 - 0.08 0.005 4000.0% Subtotal 5.35 6.77 20.56 1.27 261,0001.4% General spending cuts 7.05 - 15.54 0.65 70,0000.4% Revenue Increases Tax on Upper Income Households 2.10 - 0.1513,0000.1% Oil Severance Tax 1.40 - 0.13 0.014000.0% Corporate Income Tax 1.85 - 0.59 0.044,0000.0% Subtotal 5.35 - 2.82 0.2117,0000.1% Governor's Proposal 12.40 6.77 36.10 1.92331,0001.8% Mixed Approach 12.40 - 18.36 0.8687,0000.5% Difference - 6.77 17.74 1.06244,0001.3% Source: UC Berkeley Center for Labor Research and Education, May 2010

6. Analyzing Health and Human Services Spending Cuts CalWORKs and In-Home Supportive Services: reduction in household income allocated across four income groups based on other studies. Direct employment impacts based on state-specific sources. Medi-Cal and Healthy Families: reduction in funds flowing to five IMPLAN industry sectors, weighted by their share in the CA economy. Child Care: reduction in industry sector. General Spending Cuts: reduction in state and local government spending.

7. Analyzing Revenue Increases Upper Income Taxes:  Reduction in household income for families with incomes above $150,000 a year. Corporate Taxes:  No way to directly model in IMPLAN.  Used a corporate income tax cut multiplier of 0.32 from Moody’s Economy.com to estimate the impact on economic output. Oil Severance Tax  Estimated that a 10 percent oil severance tax would generate $1.4 B in revenue, following State Assembly Budget Analysis.  Used the average one-year price elasticity of supply for oil production from Sterner (1992) of 0.052.

8. How was analysis used? Budget hearings Legislative leaders re-framed the budget debate around jobs San Francisco Chronicle Editorial “What will an ‘all cuts’ budget look like?” April 2011