Open main menu

California state finances

The budget of the U.S. state of California is made up of several funds derived from taxes.[1] The General Fund makes up 3/4th of the entire budget; it allocates monies to state operations and payments to localities.[1] The annual budget is proposed by the California State Legislature and approved by the Governor of California, who enjoys the prerogative of line-item veto.[1]

California's tax systemEdit

California levies a 9.3 percent maximum variable rate income tax, with six tax brackets, collecting about $40 billion per year (representing approximately 51% of General Fund revenue and 40% of tax revenue overall in FY2007).[2] California has a state sales tax of 8.25%, which can total up to 10.75% with local sales tax included.[3] All real property is taxable annually, the tax based on the property's fair market value at the time of purchase or completion of new construction. Property tax increases are capped at 2% per year (see Proposition 13).

One notable side effect of California's tax structure is that a substantial portion of the state's income comes from a small proportion of wealthy citizens. For example, it is estimated that in 2004 the richest 3% of state taxpayers (those with tax returns showing over $200,000 in yearly income) paid approximately 60% of state income taxes.[4]


California has been running budget surpluses since 2011.[5]

California public spendingEdit

State spending increased from $56 billion in 1998 to $131 billion in 2008, and the state was facing a budget deficit of $40 billion in 2008.[6] California is facing another budget gap for 2010,[7] with $72 billion in debt.[8] California faces a massive and still-growing debt.[9]

[needs update] In June 2009 Gov. Arnold Schwarzenegger said "Our wallet is empty, our bank is closed and our credit is dried up."[10] He called for massive budget cuts of $24 billion, about ​14 of the state's budget.[10] [11]


California faced a $26.3 billion budget deficit for the 2009–2010 budget year.[12] While the legislative bodies appeared to address the problem in 2008 with the three-month delayed passage of a budget they in fact only postponed the deficit to 2009 and due to the late 2008 decline in the economy and the credit crisis the problem became urgent in November 2008.[citation needed]

State debt and budget deficitEdit

2012 brought somewhat of an improvement to state finances, though the state still faced a $16 billion budget deficit for the year. To help alleviate this, Governor Jerry Brown introduced proposals to bring measures to voters, in order to pass tax increases. If these are not passed, more severe cuts are expected. California's unemployment rate also fell, from a high above 12.4%, to below 11%, currently standing at around 10.7%.[13]

In 2017 a miscalculation of the costs for the state's Medi-Cal program of $1.9 billion in 2016 led Governor Jerry Brown to project the state of California will face a $1.6 billion budget deficit.[14] As of January 2017, California and Kansas were the only two western states with an AA- bond credit rating [15]

Public borrowingEdit

California uses two kinds of tax anticipation notes: Revenue Anticipation Notes (RANS), which are issued and paid back within a fiscal year, and Revenue Anticipation Warrants (RAWS), which are issued on a fiscal year and paid back the following fiscal year.[1] RANS are commonly used due to the delay between expenditure and tax collection while RAWS are only used in times of crisis.[1]


  1. ^ a b c d e Mitchell, Daniel J. B. (Winter 2008). ""Duke, Is There Perhaps Something You Forgot to Tell Me?" Pete Wilson's First-Term Struggle with the California Budget". Southern California Quarterly. 90 (4): 384–386. doi:10.2307/41172444. JSTOR 41172444.
  2. ^ "California's Tax System: A Primer". Retrieved July 23, 2010.
  3. ^ Equalization California Board of (July 2009). "Publication 71, California City and County Sales and Use Tax Rates, April 1, 2009 Edition" (PDF). Archived from the original (PDF) on 2009-04-11. Retrieved September 26, 2009.
  4. ^ Pender, Kathleen (May 9, 2006). "Google's April surprise for state". San Francisco Chronicle. Hearst Communications. p. A-1. Retrieved January 29, 2010.
  5. ^ Nichols, Chris (January 1, 2018). "Does California have a budget surplus of nearly 30 billion, as Gov. Jerry Brown claimed". politifact. Poynter Institute for Media Studies. Retrieved December 18, 2018.
  6. ^ Nunes, Devin (January 10, 2009). "California's Gold Rush Has Been Reversed". The Wall Street Journal. Dow Jones & Company. p. A9. Retrieved January 29, 2010.
  7. ^ "California Makes Plea for U.S. Aid". The New York Times. The New York Times Company. Associated Press. February 6, 2010. p. A21. Retrieved February 7, 2010.
  8. ^ Christie, Jim; Linnane, Ciara; Parry, John (June 19, 2009). Editing by Leslie Adler (ed.). "Moody's warning on California debt stuns state". San Francisco: Thomson Reuters. Reuters. Retrieved February 7, 2010.
  9. ^ "State of California Debt Clock"
  10. ^ a b "California's time is running out". San Francisco Chronicle. Hearst Communications. June 4, 2009. p. A-12. Retrieved January 29, 2010.
  11. ^ "California's Greek Tragedy". The Wall Street Journal. March 13, 2012.
  12. ^ Yi, Matthew (July 2, 2009). "State's budget gap deepens $2 billion overnight". San Francisco Chronicle. Hearst Communications. p. A-1. Retrieved January 29, 2010.
  13. ^ Lopez, Ricardo (August 21, 2012), "California economy gaining momentum, Wells Fargo report says", Los Angeles Times, retrieved 2013-01-05
  14. ^ Cooper, Jonathan (January 18, 2017), "$1.9 billion error adds to California deficit projection", The Mercury News, retrieved 2017-02-01
  15. ^ "Rainy Day Funds and State Credit Ratings" (PDF). Pew Charitable Trusts. May 18, 2017. pp. 10–12. Retrieved 8 December 2018.

External linksEdit