The Budget Flashcards
Define Boom-bust budget cycle
In some years we have a surplus and in some a deficit, no other state goes from surplus to deficit that quickly. A big reason for this is the fact that California has relatively low property tax and instead higher income tax which is more volatile.
How do the state’s revenue sources contribute to a volatile budget? What are ways to limit volatility?
Factors contributing to volatility:
-Progressive tax structure: California’s income tax system is highly progressive, meaning that higher earners pay a larger share of their income in taxes. While this can generate substantial revenue in times of economic prosperity, it also makes the state vulnerable to downturns in the economy. When the economy slows down or enters a recession, the income of high earners can drop significantly, leading to a sharp decline in revenue.
-Sales Taxes: alifornia also relies on sales taxes, particularly from consumer goods, which can be volatile depending on economic conditions. When consumer spending is strong, the state benefits from higher sales tax revenue, but during recessions or periods of economic uncertainty, consumers may cut back on purchases, leading to a drop in sales tax revenue.
Ways to limit volatility:
-California has taken steps to address volatility by creating a rainy day fund to help smooth out revenue swings during economic downturns. Proposition 2, passed in 2014, requires the state to set aside a portion of annual revenue into a Budget Stabilization Account (rainy day fund) during good economic times.
- diversifying revenue sources: expanding the sales tax base, especially to account for consumer economy (lawyers, hairdressers, etc). Current sales tax does not account for this sector and if it did the state would have billions of more dollars a year (abt 70-80bil).
Define Progressive Tax vs. Regressive Tax
A Progressive tax rate increases according to ones ability to pay (i.e. income tax). Meanwhile, a regressive tac is one where the effective tax rate falls as taxable income rises; it imposes a greater burden to lower-income rather than upper-income groups (i.e. property tax).
In what ways is passing the budget a collaborative process between the Governor and Legislature?
Passing the budget is a collaborative effort. The Governor first proposes the budget by January 10th to the California Legislature for the upcoming fiscal year, which starts on July 1. he Governor’s budget proposal must outline anticipated revenues, expenditures, and the allocation of funds across various programs and agencies. Before the Governor submits the budget, there are typically discussions between the Governor’s office and key legislative leaders—especially the Assembly Speaker and the Senate President Pro Tempore—to ensure the budget proposal aligns with the political climate and priorities of the Legislature. Once the Governor submits the budget, the Legislature begins its review process. Both the California State Assembly and the California State Senate have budget committees that scrutinize the proposal in detail. The budget is then reviewed in subcommittees focused on specific areas like health, education, transportation, and public safety. The Governor’s Office often engages in ongoing negotiations with legislative leaders during this phase, especially when it comes to potential changes or compromises regarding the size and allocation of spending. Throughout the legislative process, there are frequent discussions and negotiations between the Governor and legislative leaders to agree on key funding priorities. The Assembly Speaker and Senate President Pro Tempore will usually work closely with the Governor to finalize details of the budget. nce the budget committees and subcommittees have reviewed and revised the proposal, the Legislature votes on the final version of the budget. he budget must then be sent to the Governor for approval by June 15 each year.
Has
the change from a 2/3 majority to a simple majority for budget passage changed this aforementioned dynamic?
The shift to a simple majority has made it easier to pass the state budget, as it no longer requires cross-party cooperation for passage. This change has enabled the Democratic Party (which holds a supermajority in the Legislature) to pass the budget without significant Republican support. The change from a 2/3 majority to a simple majority for passing the budget in California has made the process more efficient and less prone to gridlock. Collaboration between the Governor and the Legislature remains crucial, as both sides still need to work together to ensure that the budget is balanced, aligns with state priorities, and addresses the needs of Californians.
Define May Revise
The revised version of the Governors propose budget that is presented in mid-May each year. It incorporates updated economic forecasts, revenue projections, and any changes in policy or priorities that have emerged since January.
What reforms have been suggested to reduce Californias propensity for deficits? (Def Ballot-Box budgeting)
-Prop 25 (2010): changed 2/3 voting requirement to majority vote. Also, if budget not done on time, legislators don’t get paid. This puts responsibility on majority party and now budgets are on time.
-Two year budgets: Once every 2 years rather every year, however this would not account for ongoing changes in economy.
-Zero-based budgeting: Instead of basing budget on last years, now they start from scratch every year.
- Ballot-box budgeting: Occurs when measures are placed on the ballot, either through the initiative process or by the legislature, that modify the budget process, change the tax system, or redirect spending. Voters have passed measures limiting how government can raise money, such as Prop 13.
-Federal Budget: California historically at a disadvantage as the state sends more money to the federal government than It receives because of the higher incomes in California.
Define Prop 13 (1978)
Mandates a property tax rate of one percent and limits all property taxes (residential and commercial) to be based on the value at time of purchase, with a maximum increase of 2% a year, even if the value of property and/or inflation grows faster. Businesses have tended to benefit more than residential people, but it is still a huge impact to the state because residential homes make up much of California.
How did Proposition 13 change local government and education tax revenue?
Prior to Proposition 13, local governments had significant freedom to set property tax rates, and property taxes were often a major source of revenue for local governments, especially for schools, cities, and counties. After the passage of Proposition 13, property tax revenue became much more stable and predictable but at a significantly lower level. Local governments had far less flexibility in generating revenue from property taxes. Proposition 13’s most immediate effect was on local school districts. Schools had relied heavily on property taxes as their primary funding source. With the reduction in local property tax revenue, schools faced sharp declines in funding. In response he state took on a larger role in funding education. The state began to provide more general revenue to local school districts through statewide education funding formulas.
How did Prop 13 impact local government services?
Local governments (cities and counties) also suffered from reduced property tax revenue, which impacted their ability to fund essential services like public safety (police, fire), health services, and public infrastructure (e.g., roads, parks, public buildings). The loss of this revenue stream led to deep budget cuts. One of the most visible impacts of Proposition 13 was in the area of public safety. Local police and fire departments often faced budget shortfalls, leading to staff cuts, reductions in services, and slower response times in some areas.
How did Prop 13 impact local government and education’s their relationship to the state?
With the state assuming a larger role in funding schools, state control over education funding increased. This change created tensions, as local school districts lost their ability to determine their own budgets and were forced to rely on state allocations. While the state made efforts to provide more equitable funding across school districts, the shift also reduced local autonomy in managing education systems.
Local governments, now financially constrained due to Proposition 13, became much more dependent on the state for funding.
