Capitol Alert

California Senate’s fiscal outlook hinges on complex spending formula

Paul Gann, in this 1983 file photo, was the sponsor of Proposition 4 in 1979. The measure created a state appropriations limit meant to control state spending. The formula was modified in 1990. The limit controls the rate of growth in legislative spending.
Paul Gann, in this 1983 file photo, was the sponsor of Proposition 4 in 1979. The measure created a state appropriations limit meant to control state spending. The formula was modified in 1990. The limit controls the rate of growth in legislative spending.

A major ingredient in the state Senate’s recently revealed fiscal troubles, which prompted the layoffs of more than three-dozen workers last month, is that the formula controlling legislative budget growth came in much lower than expected for the 2014-15 fiscal year.

But why? And what does it portend for next year, when Senate officials say they need the formula, known as the state appropriations limit, to be at least 3 percent in order to balance the books?

The appropriations limit, known as the SAL, reflects changes in personal income, population and school attendance. It was a creation of Proposition 4 in 1979, known as the Gann initiative, and revamped by Proposition 111 in 1990.

The 2014-15 limit was 0.48 percent, down from 5.9 percent in 2013-14. That large drop mostly stems from significant shifts in per capita personal income between late 2012 and late 2013, according to information about the SAL compiled by the nonpartisan Legislative Analyst’s Office.

Personal income jumped during the last three months of 2012, to $1.88 trillion, an increase of almost 11 percent from the fourth quarter of 2011. The increase reflected taxpayers shifting income to 2012 to avoid higher federal tax rates that took effect in 2013. Facebook’s IPO in 2012 also bumped up fourth quarter 2012 income. (See chart in photo slideshow)

In the last quarter of 2013, personal income was still high, $1.89 trillion. But after adjusting for changes in the state’s population during the ensuing year, per capita personal income went from $48,466.93 in January 2013 to $48,356.40 in January 2014. That’s a drop of 0.23 percent.

Changes in personal income dominate the SAL formula. “Therefore, the low growth rate of personal income from 4Q2012 to 4Q2013 made the 2014-15 SAL growth factor unusually low,” Chief Deputy Legislative Analyst Jason Sisney explained in an e-mail.

And for 2015-16? There have been no big IPOs or changes in federal tax law. Barring an unexpected downturn in the economy, the SAL should be in the 4 percent to 6 percent range, according to the LAO. That level of SAL would allow the Senate budgets to in crease enough for the upper house to avoid more layoffs, Senate officials have said.

A final number will be part of Gov. Jerry Brown’s revised spending plan in May.

Call Jim Miller, Bee Capitol Bureau, (916) 326-5521. Follow him on Twitter @jimmiller2.

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