1. The State Budget, Real Estate, and Economic Development Jed Kolko Public Policy Institute of California

2. 2 The Perennial Budget Issues Closing the current gap – Spending, taxes, borrowing Dealing with longer-term liabilities – Past budgetary borrowing, bonds, pensions Preventing future budget gaps – Revenue volatility, spending caps, reserves Rethinking the state-local relationship – Realigning programs, expanding local fiscal options

3. Basic Budget Facts California’s budget gap is less than 1% of GDP – Down from $25b (January) to $10b (May) 1/3 of state spending is outside General Fund Largest General Fund categories: – K-12 education: 43% – Health and human services: 25% – Higher education: 12% – Corrections and rehabilitation: 11% Largest revenue sources: – Personal income tax: 43% – Sales and use tax: 26% 3

4. 4 How the Budget Affects Real Estate and Economic Development Very little money for housing in the General Fund Budget affects real estate and economic development through – Cost of borrowing – Redevelopment – Enterprise zones

5. Overview: Redevelopment and Enterprise Zones Enterprise zonesRedevelopment areas GoalJob and business attraction and retention Combating blight Best metricEmployment growthProperty values Primary mechanismState income and sales tax incentives Local property tax- increment financing Designation processSelected by stateCreated by localities Total program size (annual) $500-600m$5-6b Costs borne by stateNearly all (tax revenue reduction) Roughly one-third (through school backfill) Proposed changes in May budget proposal Reform and reduction by ~half Elimination 5

6. Who Should Pay For Local Economic Development? If state pays: – Achieve state goals – Improve equity If localities pay: – Encourage fairness – Improve outcomes – Remain independent from state budget crises Constraints prevent local funding Programs’ fates intertwined with state budget debate 6

7. The State Budget, Real Estate, and Economic Development Jed Kolko Public Policy Institute of California

8. Notes on the use of these slides These slides were created to accompany a presentation. They do not include full documentation of sources, data samples, methods, and interpretations. To avoid misinterpretations, please contact: Jed Kolko: 415-291-4483; kolko@ppic.org Thank you for your interest in this work. 8