The LAO Analysis of the California 2007-08 Budget Bill is our site of the day4 min read

The California State Budget is where the rubber meets the road. There are many ideas for what the state should be doing and new proposals are made every year on taxes and spending.

This morning, the Legislative Analyst’s Office (LAO) released its once a year report on the Governor’s proposed budget. You will be hearing a lot on what is in this report–from elected officials to organizations ranging from anti-tax groups to those advocating increased spending on particular items. Reporters and other mere mortals will be trying to encapsulate what is in this set of documents and what it means for the budget that will be adopted (hopefully) in June. But you have an opportunity to read this document for yourself and make your own judgments.

For most readers, the 20 page Highlights of the 2007-08 Analysis will be sufficient.

But for those who have a particular area of focus and inquiry, the full report running to hundreds of pages provides a detailed examination of the Governor’s Budget. It includes a treasure trove of hundreds of findings and recommendations related to education, health and social services, criminal justice, transportation, resources, capital outlay, information technology, and local government. It is divided by chapters:

Transportation Chapter
Resources Chapter
Health and Social Services Chapter
Criminal Justice Chapter
Education Chapter
General Government Chapter
Capital Outlay Chapter
Perspectives and Issues

There is an Index by Department/Program Name.

Two paragraphs from the Perspectives and Issues Report under the heading of “State’s Fiscal Picture” are quite telling:

After 2006-07, a year in which state policymakers were able to use surging revenues to significantly increase education spending and prepay budgetary debt, the state faces a challenging outlook. The Governor’s budget attempts to bridge a significant shortfall in 2007 08 through a variety of means, including a major redirection of transportation funds, significant reductions in social services, and a substantial increase in tribal gambling revenues from amended compacts.

LAO Bottom Line. Based on our revenue and expenditure projections, we estimate that the adoption of the Governor’s budget plan would result in a $726 million deficit in 2007 08 (compared to the administration’s January 10th estimate of a $2.1 billion reserve). The difference in these numbers is due principally to our lower estimates of revenue in both the current and budget years, but also due to higher expenditure estimates, primarily related to Proposition 98. Adoption of the plan would also leave the state with large operating shortfalls in future years, unless additional corrective actions are taken. Thus, the Legislature will face major challenges in crafting a budget for the coming year. We believe that the primary focus should be on finding additional budget savings and/or revenues to address the near-and longer-term shortfalls. Should these solutions be insufficient to cover the full magnitude of the budget shortfall, however, the state can also achieve some near-term savings by reducing the amount of supplemental repayments on deficit-financing bonds relative to the $1.6 billion proposed in the budget.

The2007-08 Budget: Perspectives and Issues Report may be of particular interest to many.

It is divided into five parts:

• Part I, “State’s Fiscal Picture,” provides an overall perspective on the fiscal situation currently facing the Legislature.
• Part II, “Perspectives on the Economy and Demographics,” describes the current outlook for the economy and the administration’s and our forecasts.
• Part III, “Perspectives on State Revenues,” provides a review of the revenue projections in the budget and our own assessment of revenues through 2008-09.
• Part IV, “Perspectives on State Expenditures,” provides an overview of the state spending plan for 2007-08 and evaluates the major expenditure proposals in the budget.
• Part V, “Major Issues Facing the Legislature,” (1) offers a “roadmap” for how the state could spend projected major increases in discretionary Proposition 98 monies over the next five years; (2) assesses the fiscal implications of the Governor’s health care coverage proposal; (3) reviews the Legislature’s oversight role regarding employee compensation issues; (4)the Governor’s proposal to reform the mandate reimbursement process; (5) analyzes two tax proposals the Governor proposes to eliminate in the budget year; and (6) presents steps the state should take to further the adoption of health information technology.

It looks like this will be a tough year on the budget–and you’ll know why if you take a look at any of these documents in the LAO’s yearly report.