State Fiscal Picture

The basic budget problem currently facing the state involves an unfunded gap of slightly over $17 billion. Most of this—$15 billion—represents an ongoing projected structural imbalance between current-law revenues and expenditures in 2004-05 and beyond. The remaining $2 billion reflects a shortfall in the current-year budget. This latter amount—which was not included in our January budget overview—takes into account the administration's January 2004 announcement regarding the maximum size of the previously authorized deficit reduction bond. The significance of this technical issue is discussed further below.

The Governor's proposed 2004-05 budget seeks to address the projected budget shortfall in 2004-05 through a combination of major and wide-ranging spending reductions, additional borrowing, and a diversion of local property taxes for the benefit of the state. The Governor's plan does not include new taxes as part of the solution. In addition, it recognizes that it only partially addresses the underlying structural budget problem projected beyond 2004-05.

A key element of the Governor's plan is the assumed approval of a $15 billion economic recovery bond on the March 2004 statewide ballot to pay off the accumulated 2002-03 budget deficit and help address the remaining budget shortfall. This bond would replace the smaller statutorily authorized deficit-financing bond assumed in the 2003-04 budget plan but currently facing a legal challenge.

LAO Bottom Line

We believe that the Governor's proposal is a solid starting point for budgetary negotiations. However, a considerable amount of work remains to be done to bring 2004-05 into balance and to fully resolve the state's chronic budget-related problems. In particular, our own evaluation of the proposal indicates that even if all of its elements were adopted, 2004-05 would end with a General Fund deficit of $0.8 billion. We further project that an ongoing General Fund structural deficit of close to $7 billion would exist beyond the budget year, absent corrective action.

For the entire text and background information, see LAO Perspective on the 2004/05 Budget

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Last modified: March 12, 2004

Disclaimer: This website is the sole responsibility of Mike McMahon. It does not represent any official opinions, statement of facts or positions of the Alameda Unified School District. Its sole purpose is to disseminate information to interested individuals in the Alameda community.