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California’s Fiscal Outlook

California’s Fiscal Outlook. Legislative Analyst’s Office. www.lao.ca.gov. Tax Revenues Rising Again. Major General Fund Tax Revenues In Billions. $90. 80. 70. 60. 50. 99-00. 00-01. 01-02. 02-03. 03-04. 04-05. 05-06. Budget. Forecast. …But Structural Shortfall Remains. An. n.

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California’s Fiscal Outlook

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  1. California’s Fiscal Outlook Legislative Analyst’s Office www.lao.ca.gov

  2. Tax Revenues Rising Again Major General Fund Tax Revenues In Billions $90 80 70 60 50 99-00 00-01 01-02 02-03 03-04 04-05 05-06 Budget Forecast

  3. …But Structural Shortfall Remains An n ual R e ve n ues and Expenditure s $1 2 0 R e v e n ue s 1 1 0 Expenditures a Alte r nati v e Expenditures 1 0 0 9 0 8 0 7 0 Operating Operating Deficits Surplus 6 0 9 9 - 0 0 0 1 - 0 2 0 3 - 0 4 0 5 - 0 6 0 7 - 0 8 0 9 - 1 0 F orecas t

  4. One Key Reason—Lots Of Budget Borrowing Repayment Of General Fund Budget-Related Debt (In Billions) $ 4 . 5 S p e c i a l F un d s L o c a l G o v e r n m e n t / 4 . 0 K - 1 2 Education 3 . 5 B udg e t - R e l a t e d B on d s 3 . 0 2 . 5 2 . 0 1 . 5 1 . 0 0 . 5 200 4 - 0 5 200 5 - 0 6 200 6 - 0 7 200 7 - 0 8 200 8 - 0 9

  5. Recent Productivity Growth At All-Time High Annual Average Increase in U.S. Nonfarm Business Productivity 4 . 0 % 3 . 0 Long- T erm A ver a g e 2.3 % 2 . 0 1 . 0 1950 - 5 4 1960 - 6 4 1970 - 7 4 1980 - 8 4 1990 - 9 4 2000 - 0 4

  6. 4 % H ou s eho l d S u r v e y 3 P a y r o ll S u r 2 1 0 - 1 - 2 - 3 California Jobs:Pre-2004 Benchmark Year-to-Year Percent Change, by Month v e y 2001 2002 2003 2004

  7. 4 % 3 Household Survey Payroll Survey 2 1 0 - 1 - 2 - 3 J a n- 2001 2002 2003 2005 California Jobs:Post-2004 Benchmark Year-to-Year Percent Change, by Month 2004

  8. California Home Construction To Remain Strong Permits for New home Construction In Thousands 25 0 M u l t i p l e U n i t s 20 0 S i ng l e U n i t s 15 0 10 0 5 0 199 7 199 9 200 1 200 3 200 5 200 7 F orecas t

  9. PIT Liabilities on Rebound In Billions PIT Liabilities From: $60 Capital Gains and Stock Options Other Sources 50 40 30 20 10 1999 2000 2001 2002 2003 2004 2005 2006 2007 Forecast

  10. California Profits Have Been Booming Annual Percent Change in California Taxable Corporate Profits 25% 20 15 10 5 0 -5 -10 -15 1999 2000 2001 2002 2003 2004 2005 2006 2007 Forecast

  11. Proposed Solutions in 2005-06 Governor’s Budget F und S h i f ts R e v enue s P r og r a m S a v i ng s Loan s

  12. The Legislature’s Budget Opportunity The Building Blocks: • Healthy Revenues • $2.2 billion more than Governor • Ongoing 2005-06 Solution • $4 billion to $5 billion—similar in magnitude to budget

  13. The Payoff of Acting Now: • 2005-06 Balanced, With Solid Reserve • 2006-07 Close, Using Remaining Bonds • Out-Year Problem Persists, But Smaller

  14. The Price of Inaction: • 2005-06 Precariously Balanced • Major Shortfalls in 2006-07 and Beyond • Close to $10 billion

  15. General Fund Operating Shortfalls, Under Alternative Scenarios (In Billions) $0 - 2 - 4 - 6 - 8 G o v e r no r ' s B udge t - 1 0 W i t h out Ongoing Solution - 1 2 2004 - 0 5 2005 - 0 6 2006 - 0 7 2007 - 0 8 2008 - 0 9

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