california budget 2019

These amounts are determined by a series of formulas. Our outlook for the budget relies on two different scenarios: an economic growth scenario and a recession scenario. We expect each of these three demographic trends to have distinct effects on the budget. (To assess whether or not an item is one time, we use the explicit appropriation language in the budget package, although this sometimes differs with language on legislative intent.) We attribute this to the consensus expectation that corporate profits continue to grow steadily. California Budget. Correctional officers and their managers represent about 40 percent of the state’s General Fund payroll costs. In particular, an aging population means higher costs for: That said, overall, demographic trends are not the most important determinant of these programs’ costs. The Strategic Plan consists of First 5 California’s: 1) Vision, 2) Mission, 3) Values, 4) Priorities, and 5) Goals in supporting children ages 0 to 5 and their families. In HHS, the administration does not make its long‑term projections for individual programs available for Legislative review. In 2019‑20 and the years that follow, the state would be required to spend roughly $800 million per year on infrastructure. Spending in Employee Compensation and Retirement Increase $2 Billion in 2019‑20. This is occurring as a result of three distinct trends: (1) birth rates are declining, (2) baby boomers are now reaching retirement age, and (3) people are living longer. State Capitol, Room 6026 The $15 billion surplus we anticipate for 2019‑20 gives the Legislature a unique opportunity to prepare for these foreseen—and other unforeseen—challenges still to come. In our Fiscal Outlook publications, we assume the state funds schools and community colleges at their minimum level. In IHSS and Medi‑Cal, for example, policy changes—such as increases in the state minimum wage and the optional expansion of Medi‑Cal benefits to a broader group of low‑income individuals—result in much larger cost increases than those attributable to demographic shifts. The constitutional minimum level of funding for schools and community colleges is determined by a set of formulas (under the rules of Proposition 98). Consequently, we estimate that General Fund spending growth (under current law and policies) from 2018‑19 to 2019‑20 will be very low. Higher Spending on Some Caseload‑Driven Programs. More explicitly, this means under our assumptions that General Fund spending on K‑14 education declines even as the state maintains other programmatic spending using reserves. Three other—smaller—programs account for most of the remaining growth over our outlook period. By historical standards, this surplus is extraordinary. Our expectation of a slowdown in home price growth reflects the rising supply of homes for sale, tighter mortgage lending, and higher interest rates. A balanced budget is a plan to ensure that the City’s revenues equal our expenses. We do not have enough information to know whether an unexpected cost increase will occur again in 2019‑20 and our estimates do not attempt to quantify this possibility. The goal of this report is to help the Legislature begin developing the 2019‑20 budget. This decrease mainly reflects our estimate of lower community college enrollment, which reduces the cost of funding apportionments. Of the $2.4 billion increase, about half would be covered by higher property tax revenue and half by state General Fund. Read the Adopted 2019-2021 Budget Book. These are: Required Spending on Debt and Infrastructure. The administration does not display its projections of spending at a department level within the HHS area, so we do not know all of the sources of these differences. California Legislature , Economy , Politics. Under our assumption that the economy starts to recover at the start of 2021‑22, revenues grow again in 2022‑23. Spending Increases Offset by Significant One‑Time Spending. The state adjusts the minimum guarantee each year based on various factors including General Fund revenue, per capita personal income, and K‑12 student attendance. The Budget Act of 2019 made appropriations for the support of state government for the 2019–20 fiscal year and identified specified bills as other bills providing for appropriations relating to the Budget Bill within the meaning of subdivision (e) of Section 12 of Article IV of the California … To that end, for illustrative purposes, the right side of Figure 7 displays the state’s operating surpluses if additional commitments were made in 2019‑20. The pace of job growth in California has slowed consistently each year since 2015. Across these three programs, relative to the growth scenario, we estimate the state would face higher costs of roughly $1 billion in 2021‑22 in the recession scenario (and somewhat lower cost increases in other years). Gavin Newsom Governor. As the Legislature begins the 2019‑20 budget process, we recommend asking the administration for more detail on its multiyear spending estimates and assumptions in HHS. board of regents -1- may 16, 2019 . In this situation, the state would have plenty of reserves to cover its deficits. The box below describes our concerns about the relative lack of detail on these estimates provided by the administration. Somewhat Lower Tax Revenues Possible From Flat Working Age Population. General Fund Costs Increase $1.2 Billion From 2018‑19 to 2019‑20. As such, we would encourage the Legislature to allocate a significant portion of the available resources to one‑time purposes and building higher reserve levels. The 2019-20 Budget includes several key investments in healthcare coverage and affordability, including expanding full-scope Medi-Cal to young adults ages 19-25 regardless of immigration status, increased affordability assistance in Covered California, and the end of the “senior penalty” in Medi-Cal. In fact, this is precisely what occurred after we published our Fiscal Outlook at the end of 2000. By comparison, if the school‑age population instead grew at the same rate as the overall population, the state would have to spend additional billions of dollars over the outlook period. If instead the Legislature wanted to mitigate the impact on schools and spend above the minimum level, the state’s operating deficits would be larger and more reserves would be needed to cover the budget problem. Rainy Day Fund Deposits Do Not Affect School Spending. Proposition 2 also established a specific statewide school reserve account (the Public School System Stabilization Account), which is governed by a separate set of formulas. Under the rules of Proposition 2 (2014), the Constitution requires the state to: (1) spend minimum amounts on repaying certain debts, (2) deposit money into reserves, and (3) spend more on infrastructure when reserves reach a certain threshold. In addition, we estimate that the state’s costs for retirement programs (including pension and health benefits for retired state employees and pension benefits for teachers) will be about $1 billion higher in 2019‑20. SACRAMENTO — Governor Gavin Newsom submitted his 2019-20 “California for All” budget proposal to the Legislature today – a fiscal blueprint that builds a strong financial foundation by investing an unprecedented $13.6 billion in budget resiliency and paying down unfunded pension liabilities. Generally, from January to June, every other year, City staff, the Mayor and City Council work together to create a balanced budget by June 30, as required by law. In addition, from 2019‑20 to 2022‑23, the state would be required to spend an average of $1.3 billion per year to pay down certain eligible debts. By the end of the period, the state would have exhausted its reserves and would require solutions—such as spending reductions, tax increases, or cost shifts—to cover a $500 million budget problem. Similarly, future decisions by the state’s retirement systems can change state costs by billions of dollars—an area of spending that the Constitution places largely outside of the Legislature’s control. This reduction primarily reflects reduced payments to the federal government for disputed claims based on information the state received since the administration’s projections were developed. All Other Program Costs Assumed the Same in Recession Scenarios. Under our estimates of revenues and expenditures, discretionary resources at the end of 2018‑19 would grow by $5.7 billion—to $14.8 billion in 2019‑20. Proposition 2 (2014) requires the state to set aside money each year for reserve deposits and debt payments. Subcommittee Actions Taken 2019-20 Budget. There are two major reasons for this increase across 2017‑18 and 2018‑19: (1) revenues are higher by $5.3 billion and (2) General Fund spending for schools and community colleges is down by about $1.1 billion. Newsom’s budget proposal for fiscal year 2019-20 scored $257 billion in unfunded liabilities for retiree pensions and medical care. This growth rate is relatively low, reflecting slightly negative changes in attendance and modest growth in revenues over the forecast period. Subcommittee Report of 2019-20 Budget (See the Appendix for more detail on these spending estimates.). Figure 8 displays the budget’s condition assuming the recession scenario occurs. We anticipate that this trend will continue through 2020. by Judy Lin June 13, 2019 Updated June 23, 2020. First, we present our estimates of revenues, spending, and the condition of the General Fund under two different economic scenarios. The aim of this publication, however, is to show how the budget would fare assuming current policies stayed in place. If, instead, general purpose reserves were used to mitigate reductions to schools, additional reserves would be required to cover larger deficits. Lower Spending on Debt and Infrastructure. After providing these increases, about $480 million would remain for other ongoing or one‑time initiatives. We expect: (1) the population of children and young adults to decline, (2) the population of those in their prime working years to remain relatively flat, and (3) the population of seniors to increase significantly. In the coming years, the budget likely will face a variety of challenges. California State Assembly Legislature Has Unique Opportunity to Prepare for Coming Challenges. The 2019-20 Governor’s Budget proposes spending of $209 billion in total state funds, consisting of $144.2 billion from the General Fund, $59.5 billion from special funds, and $5.3 … This represents a moderate 3.8 percent average annual growth rate over the period. We expect the growth in the population of older Californians to result in somewhat higher costs for some programs. The Budget Is in Remarkably Good Shape. For 2018‑19, total K‑14 funding is $68 million below the level assumed in the June budget plan. Under current law and policies, we estimate 2018‑19 will end with $9.1 billion in discretionary reserves, an increase of $7.2 billion over the level assumed at the time the budget was passed in June. For example, if decisions made by the administration result in additional spending for Medi‑Cal under the provisions of Proposition 55, the likelihood that the state’s sales tax reductions were triggered would be reduced. There are three additional constitutional and statutory budget formulas that may affect spending and revenues in 2019‑20. See a list of this year's fiscal outlook material, including a fuller discussion of Proposition 98, on our fiscal outlook budget page. Figure 7 also shows that—pursuant to the rules of Proposition 2 and under current policy—the state would continue to make deposits into the state’s Budget Stabilization Account each year. However, as the state experienced in 2001, these fortunes can change quickly. In fact, the state would end the 2022‑23 fiscal year with $13.5 billion in reserves—enough to cover additional deficits if the recession were worse or to cover any remaining deficits that occurred outside the outlook period. This is consistent with an expected slowing of national job growth and a limited number of unemployed Californians looking for jobs. That is, in our scenario, general purpose reserves are used solely to maintain nonschool programs. Based on these expectations, we project continued growth of the California economy. It is difficult to overstate how good the budget’s condition is today. Complete coverage of California's budgeting process for the year 2019-2020 — from Gov. (The Appendix contains more information on our revenue outlook under both scenarios.). To date, these formulas have not resulted in any deposits being made into the school reserve. Finally, the state always faces the risk of confronting a natural disaster that could carry high costs for the people of California and their government. On January 10, Governor Newsom submitted his proposed 2019–20 budget to the legislature. Updated Floor Report of the 2019-20 Budget (October 14, 2019 Version) Updated Floor Report of the 2019-20 Budget (June 17, 2019 Version) June 17, 2019: Budget Trailer Bill Analyses. This section describes our assumptions and estimates on spending in a variety of program areas across the budget in a recession. 5 Things to Know about the Judicial Branch Budget (June 28, 2019) Chief Justice Releases Statement on Judicial Branch Budget for 2019-20 (June 28, 2019) Chief Justice Names Group to Review Pretrial Reform Efforts in California (January 15, 2019) Trial Court Funding Formula, Explained (July 27, 2018) Judicial Branch Budget Impact Snapshots by County Much of these reductions would be driven by declines in the PIT. These surplus resources would be available to increase spending, reduce taxes, or increase reserves. Under the recession scenario, revenues would decline year over year by close to $5 billion in both 2020‑21 and 2021‑22, respectively. The higher tax rates levied on high‑income earners by Propositions 30 and 55 (2012 and 2016) further buoyed state revenue from this earnings growth. If current law and policies were unchanged (left side of the chart), these surpluses would average around $4.5 billion per year, declining over time. In other areas of the budget, the Legislature often has better information about the executive branch’s assumptions, methods, and baseline multiyear projections. Highlights of Governor's Proposed 2020-21 Budget. Second, our outlook depends on a set of economic assumptions that are subject to uncertainty, particularly in the longer run. California just passed a $215 billion budget. The state can provide more funding than Proposition 98 requires, though in practice it typically sets funding close to the guarantee. California wage growth from 2012 to 2017 averaged 4 percent (adjusted for inflation), compared to an average of 2.6 percent from 1993 to 2012. General Fund Costs Down $640 Million in 2018‑19. Chapter 2 provides our longer‑term outlook—through 2022‑23—for the state budget. These unanticipated cost increases have resulted in our prior projections being too low. Some final budget highlights for fiscal year 2019-2021 are outlined below. We assume the Legislature funds schools and community colleges at this lower level (as has occurred in past recessions). Similar to other health and human services programs, Medi‑Cal recently has been growing faster than much of the rest of the budget. These formulas are unaffected by the constitutional requirements for the state to make reserve deposits into its rainy day fund (governed by Proposition 2 [2014]). The nearby figure displays our longer‑term General Fund outlook under two different scenarios and assuming current law and policies stay the same. State of California. The scenarios presented in this chapter are two of many possible economic outcomes that could occur over the next five years. This competition typically forces employers to pay higher wages to attract new workers. Second, there are risks that we cannot anticipate. Gov. Should tariffs cover a broad portion of traded goods, businesses that sell many of their goods to China would be impacted. With More Commitments, Reserves Might Not Fully Cover the Budget Problem. We attribute this to moderate growth in personal income tax (PIT) revenues, which grow just less than 3 percent over the period (which is relatively weak by recent standards). (The economy is the key source of uncertainty in our budgetary projections.) Figure 7 displays our estimates over the outlook period of General Fund operating surpluses (the difference between incoming revenues and estimated spending). Appropriations reduced or eliminated by the Governor are shown in strike-out type. 916.319.2099 phone Our office has produced a Fiscal Outlook every year since 1995. Decisions by the federal government will affect the state budget, economy, and tax revenues. The Legislature can use these funds to build more budget reserves or make new one‑time and/or ongoing budget commitments. This raises basic questions about how the Legislature would like to build reserves for schools and the rest of the budget in anticipation of the next recession. Over the next few years, we expect attendance to decline somewhat (although not as much as the ages 5 to 17 group). Growth in General Fund Costs Declines as Growth in Population of Children Slows. 10 CalSTRS 2019–20 Annual Budget Program includes California public school employees who teach, are involved in selecting and preparing instructional materials, provide vocational or guidance counseling or are supervising people engaged in those activities. Budget (billions $) FY Reference Budget per capita (in $) S&P Credit rating in January 2017 Alabama: 32.1 2019 6,577 AA Alaska: 8.3 2020 11,254 AA+ Arizona: 43.4 2020 6,050 AA Arkansas: 31.8 2018 10,585 AA California: 214.8 2019-20 5,430 AA- Colorado: 35.5 2019-20 … In light of these budgetary uncertainties, in the next section, we consider how the budget’s multiyear outlook would fare under varying economic conditions. In the out‑years of our projections, revenues could be tens of billions of dollars lower than our recession scenario and several billions of dollars above our growth scenario. For 2019‑20, we estimate the following Proposition 2 requirements: Outlook Assumes Current Law and Policies on Budgetary Formulas. As the figure shows, with these commitments, operating surpluses would decline over the outlook period such that they would be gone by the last year of the outlook. As a result of the dot‑com bust and ensuing recession in 2001, state revenues declined precipitously. Under our assumptions, about $3.6 billion in spending commitments made in the 2018‑19 budget do not carry through to 2019‑20. A large share of estimated General Fund employee compensation cost increases in 2019‑20 are due to provisions of the one‑year agreement with correctional officers—including a 5 percent pay increase—ratified earlier this year. Three programs in particular experience quantifiable cost increases as a result of changes in the economy. However, DOF expects the population of children ages 5 to 17 to increase slightly over the period and young adults (ages 18 to 24) to remain nearly constant. On the other hand, some regions of California will not be getting what they need, even though it was already part of the budget. As noted earlier, we assume current law and policies stay in place. Our expenditure estimates for these HHS programs depend on our assumptions about policy, cost, and caseload changes. As such, school districts do not have dedicated reserves available to cushion the impact of a recession. 1 b illion, or 4 p ercent, over the revised 2018‑ 19 l evel. Earnings of major companies do not appear to support additional rapid growth in stock prices in the near term. California's Fiscal Outlook. This strong wage and salary growth is due, in large part, to record low unemployment. HHS Spending Increases $1.6 Billion From 2018‑19 to 2019‑20. Under our estimates of revenues and spending, the Legislature would have $14.8 billion in resources available to allocate in the 2019‑20 budget process. Under our estimates of revenues and spending, the state’s constitutional reserve would reach $14.5 billion by the end of 2019‑20. Commendably, the budget dedicated “all of the Proposition 2 debt payments – $1.8 billion in 2019-20 – toward paying down the state’s retiree health and unfunded pension liabilities,” including $1.1 billion in the current budget year. The very next year, looking to budget year 2002‑03, our Fiscal Outlook found the state’s surplus had disappeared, and instead, the budget faced a deficit of $12.4 billion for the upcoming year. An obvious example is the economy, which could slow. That is, under these scenarios, the Legislature would use all of the nearly $15 billion in available resources in 2019‑20 to build more reserves (reaching a total reserve level of about $30 billion by the end of 2019‑20).

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