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State Budget:
Legislative Analyst Generally Supportive of Governor's Budget, but Raises Some Policy Concerns

In its review of Governor Jerry Brown's state budget proposal for 2013-14, the Legislative Analyst's Office approves the governor's emphasis on fiscal restraint and paying off debt, but raises several policy issues – including "serious concerns" with the budget's use of funds generated by Proposition 39, the single sales factor initiative approved by voters in November.

The governor's budget projects general fund revenue of $98.5 billion in 2013-14, and assumes $97.7 billion in general fund expenditures, producing an $851 million operating surplus in 2013-14 (this does not include all state spending – just the amount that comes out of the general fund). The governor estimates that the general fund will end 2013-14 with a $1 billion reserve.

The LAO's budget review, released January 14, explains the differences between the governor's budget estimates and its own, which are less rosy:

"Our November 2012 publication, The 2013–14 Budget: California's Fiscal Outlook, estimated that the Legislature and Governor would need to address a $1.9 billion budget problem by June 2013. The Governor's budget, on the other hand, produces a $1 billion reserve at the end of 2013–14." The LAO said the $2.9 billion difference between the estimates is mostly explained by:

The analyst generally praised the budget, but said the state is not out of the woods yet. The LAO wrote: "The Governor's emphasis on fiscal discipline and paying off the state's accumulated budgetary debts is commendable, especially in light of the risks and pressures that the state still faces. We note that there are still considerable risks to revenue estimates given uncertainty surrounding federal fiscal policy and the volatility inherent in our revenue system. In addition, under the Governor's multiyear plan, the state would still have no sizable reserve at the end of 2016-17 and would not have begun the process of addressing huge unfunded liabilities associated with the teachers' retirement system and state retiree health benefits. As such, the state faces daunting budget choices even in a much-improved fiscal environment."

Turning to the budget's proposed use of Proposition 39 funds, the LAO voiced "several serious concerns." Those concerns, in the LAO's words:

January 18, 2013
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