Transcript The State Budget and the Economy

The State Budget, Real
Estate, and Economic
Development
Jed Kolko
Public Policy Institute of California
The Perennial Budget Issues
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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
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Basic Budget Facts
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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%
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How the Budget Affects Real
Estate and Economic Development
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Very little money for housing in the General
Fund
Budget affects real estate and economic
development through
– Cost of borrowing
– Redevelopment
– Enterprise zones
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Overview: Redevelopment and
Enterprise Zones
Enterprise zones
Redevelopment areas
Job and business attraction
and retention
Combating blight
Employment growth
Property values
Primary mechanism
State income and sales tax
incentives
Local property taxincrement financing
Designation process
Selected by state
Created by localities
$500-600m
$5-6b
Costs borne by state
Nearly all (tax revenue
reduction)
Roughly one-third (through
school backfill)
Proposed changes in
May budget proposal
Reform and reduction by
~half
Elimination
Goal
Best metric
Total program size
(annual)
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Who Should Pay For Local
Economic Development?
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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
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The State Budget, Real
Estate, and Economic
Development
Jed Kolko
Public Policy Institute of California
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; [email protected]
Thank you for your interest in this work.
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