California Budget ChallengeAbout Next 10Budget Overview

Budget Basics


  • Budget Year
  • CalWORKs
  • Current Year 
  • Debt Service
  • Deficits, Debt and Shortfalls
  • Fiscal Year
  • General Fund 
  • Legislative Analyst’s Office (LAO)
  • May Revision
  • Medi-Cal
  • Next10
  • Pensions 
  • Proposition 98
  • Proposition 13
  • Recidivism
  • Retiree Health
  • Revenue
  • Spending
  • Surplus, Fund Balance
  • Tax Expenditures
  • Three Strikes
  • Trigger Cuts

Budget Year:

The next state fiscal year, beginning July 1 and ending June 30, for which the Governor’s Budget is submitted.



CalWORKs is a welfare program that gives cash aid and services to eligible needy California families. The program serves all 58 counties in the state and is operated locally by county welfare departments. If a family has little or no cash and needs housing, food, utilities, clothing or medical care, they may be eligible to receive immediate short-term help. Families that apply and qualify for ongoing assistance receive money each month to help pay for housing, food and other necessary expenses. 

The amount of a family's monthly assistance payment depends on a number of factors, including the number of people who are eligible and the special needs of any of those family members. The income of the family is considered in calculating the amount of cash aid the family receives. 

There are other programs and benefits for which a family may qualify by being on CalWORKs. 

Specific eligibility requirements take into account an applicant's citizenship, age, income, resources, assets and other factors. Generally, services are available to: 

Families that have a child(ren) in the home who has been deprived of parental support or care because of the absence, disability or death of either parent. 

Families with a child(ren) when both parents are in the home but the principal earner is unemployed. 

Needy caretaker relatives of a foster child(ren). 


Current Year:

A term used in budgeting and accounting to designate the operations of the present fiscal year in contrast to past or future periods.


Debt Service: 

The amount of money required to pay interest on outstanding bonds and the principal of maturing bonds.


Deficits, Debt and Shortfalls: 

Long-term budget planning begins with what is called a “current services" (or status quo) budget. The current services budget has estimates for each major spending and revenue categories assuming that there are no changes in current policies. However, status quo budgets do take account of expected changes in caseloads and expected changes in the level of jobs, income and tax revenues. Using these projections, plus an estimate of expected revenues, the Department of Finance estimates the projected funding gap, or shortfall, that the budget faces. This amount is often referred to as a deficit, but because the Governor and Legislature will take steps to address that shortfall, it's not actually a deficit at that point.

If projected spending levels remain above projected revenue levels for a period of years, the budget is said to have a “structural” deficit (i.e., a built-in shortfall). A structural deficit is a shortfall that will continue over time unless policy changes are made.

Debt, on the other hand, is money that has been borrowed and needs to be paid back. Generally, this is one of several kinds. Traditionally, debt refers to borrowing that the state does in order to finance a capital project, such as constructing a road or building. This type of borrowing, referred to as “bonds", is usually done over a long period of time, so that future taxpayers who will benefit from the project help pay the costs.

More recently, as the state has experienced budget shortfalls, it undertook budgetary borrowing, such as borrowing from special funds, deferring school and community college funding to the next year, or borrowing from local governments. The Department of Finance estimates that the state will have about $25 billion of outstanding budgetary borrowing at the end of 2013-14.

Lastly, the state has unfunded obligations for the cost of pensions and health care benefits for retired state workers.  Pension benefits are prefunded through a combination of employer (taxpayer) and employee contributions. Whether the funds that have been contributed over time and current contributions are sufficient depends on numerous factors. Retiree health care benefits for state employees are not currently prefunded, meaning that the state pays for the cost of this benefit on a pay-as-you-go basis. 

Fiscal Year: 

A 12-month period during which income is earned and received, obligations are incurred, encumbrances are made, appropriations are expended, and for which other fiscal transactions are recorded.  In California state government, the fiscal year begins July 1 and ends the following June 30.  If reference is made to the state’s FY 2014, this is the time period beginning July 1, 2014 and ending June 30, 2015.


General Fund: 

For legal basis accounting and budgeting purposes, the predominant fund for financing state government programs, used to account for revenues which are not specifically designated to be accounted for by any other fund.  The primary sources of revenue for the General Fund are the personal income tax, sales tax, and corporation taxes.  The major uses of the General Fund are education (K-12 and higher education), health and human service programs, and correctional programs.


Legislative Analyst’s Office (LAO): 

The Legislative Analyst's Office has been providing fiscal and policy advice to the Legislature for more than 70 years. It is known for its fiscal and programmatic expertise and nonpartisan analyses of the state budget. The office serves as the "eyes and ears" for the Legislature to ensure that the executive branch is implementing legislative policy in a cost efficient and effective manner.


May Revision:

An annual update to the Governor’s Budget containing a revised estimate of General Fund revenues for the current and ensuing fiscal years, any proposals to adjust expenditures to reflect updated revenue estimates, and all proposed adjustments to Proposition 98, presented by the Department of Finance to the Legislature by May 14 of each year.



Medi-Cal is California's Medicaid health care program. This program pays for a variety of medical services for children and adults with limited income and resources. Medi-Cal is supported by federal and state taxes. You can apply for Medi-Cal benefits regardless of sex, race, religion, color, national origin, sexual orientation, marital status, age, disability, or veteran status. If you are found (or determined) eligible, you can get Medi-Cal as long as you continue to meet the eligibility requirements



Next 10 is an independent, nonpartisan organization that educates, engages, and empowers Californians to improve the state’s future.  Next 10 creates tools and provides information that fosters a deeper understanding of the state’s most critical issues. 


The California Public Employees’ Retirement System (CalPERS) manages retirement benefits for more than 1.6 million California public employees, retirees, and their families.  CalPERS is a defined benefit retirement plan.  It provides benefits based on a member’s years of service, age, and highest average compensation.  Approximately half of members pay into Social Security.  

CalSTRS is the California State Teachers’ Retirement System, and is the largest U.S. teachers' retirement fund with a membership of 856,360.


Proposition 98: 

California voters enacted Proposition 98 in 1988 as an amendment to the State Constitution. This measure, which was later amended by Proposition 111, establishes a minimum annual funding level for K-14 schools (K-12 schools and community colleges). Proposition 98 funding constitutes over 70 percent of total K-12 funding and about two-thirds of total community college funding.


Proposition 13: 

Proposition 13, passed in 1978, established the base year value concept for property tax assessments. Under Proposition 13, the 1975-76 fiscal year serves as the original base year used in determining the assessment for real property. Thereafter, annual increases to the base year value are limited to the inflation rate, as measured by the California Consumer Price Index, or two percent, whichever is less. A new base year value, however, is established whenever a property, or portion thereof, has had a change in ownership or has been newly constructed.

Under Proposition 13, the property tax rate is fixed at one percent of assessed value plus amounts required to repay any assessment bonds approved by the voters.



Recidivism is defined in California as occurring when an inmate is released from state prison and convicted of a subsequent crime within three years of release. The primary goal of rehabilitation programs in prisons to reduce the level of recidivism. Of the 36,000 inmates released in 2012-13, 16,500 were convicted of a new crime within three years (a recidivism rate of 46%). The state currently operates 114,000 rehabilitation program slots across six different categories of programs. California state prisons house nearly 130,000 inmates per year.


Retiree Health: 

When they retire, public employees in California typically receive monthly pension payments, as well as health, dental, or other benefits that are funded in part by their former employer. These health, dental, and other benefits are called "other post-employment benefits" (OPEBs) by financial experts. There is no standard pension or OPEB benefit package for retired public employees. Employees of different governmental entities (the state, universities, cities, counties, school districts, and other public entities) receive different levels of benefits. In some cases, governments offer no OPEB benefits to their retirees.

CalPERS manages health benefits for more than 1.3 million members and their families.  



State Revenues that pay for General Fund programs, including Income Tax, Sales Tax, and the Corporate Tax. The Cigarette Tax, Alcohol Tax, and Insurance Tax are also small sources of Revenue.


State Programs funded by the General Fund budget, including K-12 Education, Higher Education, Health and Human Services, and Criminal Justice.


The federal Social Security Income (SSI) program provides a monthly cash benefit to eligible aged, blind, and disable persons who meet the program's income and resource requirements. In California, the SSI payment is augmented with a State Supplement Payment (SSP) grant. These cash grants assist recipients with basic needs and living expenses. The federal Social Security Administration administers the SSI/SSP program, making eligibility determinations, computing grants, and issuing combined monthly checks to recipients. 


Surplus, Fund Balance: 

For accounting purposes, the excess of a fund’s assets over its liabilities.  For budgeting purposes, the excess of a fund’s resources over its expenditures.


Tax Expenditures: 

Subsidies provided through the taxation systems by creating deductions, credits and exclusions of certain types of income or expenditures that would otherwise be taxable.


Three Strikes: 

In 1994, California legislators and voters approved a major change in the state’s criminal sentencing law, (commonly known as Three Strikes and You’re Out). The law was enacted as Chapter 12, Statutes of 1994 (AB 971, Jones) by the Legislature and by the electorate in Proposition 184. As its name suggests, the law requires, among other things, a minimum sentence of 25 years to life for three-time repeat offenders with multiple prior serious or violent felony convictions. The Legislature and voters passed the Three Strikes law after several high profile murders committed by ex-felons raised concern that violent offenders were being released from prison only to commit new, often serious and violent, crimes in the community.

In November 2012, voters approved Proposition 36, which modifies the three strikes law by generally limiting such life sentences for third strikers to those cases where the most recent felony conviction is for a serious or violent offense. The change also allows certain third strikers already sentenced to a life term for a nonserious, non-violent offense to be resentenced to a lesser term.


Trigger Cuts:

Budget “trigger” mechanisms have been enacted in statute under which various budget programs are automatically reduced if revenues fall below expenditures by a specific amount.


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