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The State Budget, Real Estate, and Economic Development Jed Kolko Public Policy Institute of California The Perennial Budget Issues 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 2 Basic Budget Facts 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% 3 How the Budget Affects Real Estate and Economic Development Very little money for housing in the General Fund Budget affects real estate and economic development through – Cost of borrowing – Redevelopment – Enterprise zones 4 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) 5 Who Should Pay For Local Economic Development? 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 6 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. 8