California

State Budget Practice Report Cards and Budget Resource Guide

California, the world’s eighth-biggest economy, collected mostly A and B grades in fiscal 2015 through 2017 in four of the five budgetary practices evaluated by the Volcker Alliance. The fifth category—legacy costs, covering provisions for public workers’ retirement security—was a different story. The state’s far lower marks in that area resulted partly from its struggle to cover $174 billion in unfunded pension liabilities—the highest amount of any state.

California’s fiscal 2017 budget included $4.8 billion—almost half of that from the general fund—for state contributions to pension costs. Fund actuaries recommended a $5.4 billion contribution, an increase of about $602 million from the previous year. This increase resulted mainly from the adoption of new demographic actuarial assumptions by the board of the California Public Employees’ Retirement System. The state had made its full required contribution in fiscal 2015 and 2016. The 2017 pension shortfall, along with a failure to make full actuarially determined contributions for other postemployment benefits, primarily retiree health care, gave California a D-minus—the lowest possible score—in legacy costs for the year. It received C’s in the prior two years and a three-year average of C.

The state’s increased use of one-time actions to balance the budget in 2017 lowered its grade in the budget maneuvers category from an A in 2015 and 2016 to a B in 2017. The governor’s fiscal 2017 budget included a one-time expenditure from the Budget Stabilization Account—similar to a rainy day fund—of $171 million to help pay down the unfunded liability of the University of California’s pension plan. While the transfer may have helped bridge the gap for the year, it left open the question of whether the reserve will have to be tapped again for the same purpose.

Download Printable State Report Card

To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.

The report cards presented here are taken from the 2017 Volcker Alliance report, Truth and Integrity in State Budgeting: What Is the Reality? which proposes a set of best practices for policymakers. For those wishing to gain greater insight into state fiscal issues, the accompanying budget resource guide is derived from the Alliance publication State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses (2016). 

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