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LAO California’s Economic and Budget Situation Legislative Analyst’s Office.

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Presentation on theme: "LAO California’s Economic and Budget Situation Legislative Analyst’s Office."— Presentation transcript:

1 LAO California’s Economic and Budget Situation Legislative Analyst’s Office

2 LAO California’s Recent Employment Woes Concentrated in High Paying Region Wage and Salary Jobs, Percent of Prerecession Peak

3 LAO …And in High Paying Sectors… Manufacturing Jobs, in Millions 1990 1 2 3 4 5 6 7 8 92000 1 2 3 1.5 1.6 1.7 1.8 1.9 2.0

4 LAO Revenues From Capital Gains and Stock Options Fell Sharply… (In Billions). 98-9999-0000-0101-0202-0303-0404-0505-06 Forecast 5 10 15 $20

5 LAO …And The State Has Yet To Resolve Resulting Imbalance General Fund (In Billions)

6 LAO 2004-05 Shortfall Facing California  Before Proposition 57—$17 Billion Assumed sale of $8.6 billion statutory bond with debt service costs of $2.5 billion Absent this bond, shortfall would have been $23 billion  After Proposition 57—$12 Billion New bond contributes $5 billion to solution  $3.7 billion from larger bond proceeds  $1.3 billion from lower debt-service

7 LAO Allocation of Governor’s Budget Solutions  Program Savings—$7.3 Billion Proposition 98—$2 billion Health/Social Services—$2.5 billion Transportation—about $0.9 billion  Loans/Borrowing—$2.6 Billion  Local Government-Related—$1.8 Billion  Transfers/Shifts/Other—$1.6 Billion

8 LAO Key Findings in LAO February Budget Review  Budget Modestly Out of Balance In 2004-05  Major Budget Threats Could Increase Shortfall  $7 Billion Operating Shortfall Projected For 2005-06  Reform Proposals Still Under Development

9 LAO Governor’s Plan Would Eliminate About One-Half of Ongoing Shortfall General Fund (In Billions)

10 LAO Why Structural Shortfall Reemerges in 2005-06  Expiration of One-Time Savings After 2004-05 Economic recovery bonds Pension Bonds Suspension of Proposition 42  Other Obligations in 2005-06 Transportation loan repayment Local mandates

11 LAO Update: Situation Has Not Improved  State Facing Higher Costs in a Number of Areas Risks became reality Deficiencies Mid-year savings not adopted  Economy/Revenue Picture Mixed California job growth still disappointing Year-to-date collections a little soft But key current indicators positive As always, April is key

12 LAO Key Budget Decisions Ahead  How Much of Ongoing Problem Should Be Addressed in 2004-05?  How Much Can Be Done on Expenditure Side?  Should Taxes Play a Role?

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