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10 / Comparing the Debt

10 / Comparing the Debt Burdens of Ontario and California Figure 3: California revenues and expenditures (US$ billions), 2001/02–2011/12 275 60 250 50 US$ billions (nominal) 225 200 175 150 125 100 40 30 20 10 0 -10 US$ billions (nominal) 75 -20 50 2001/02 2002/03 2003/04 2004/05 2005/06 2006/06 2007/08 2008/09 2009/10 2010/11 2011/12 -30 Revenues Expenditures [left axis] Surplus (+) or deficit (-) [right axis] Notes: Data refer to Fiscal Year ending June 30 of the listed year. California budget deficit refers to CAFR differences between total expenditures and revenues, net of Internal Service Funds. Sources: California State Controller's Office (various years); calculations by authors. Figure 4: California revenues and expenditures as share of the economy, 2001/02–2011/12 15 2.5 14 2.0 13 1.5 As % of GDP 12 11 10 1.0 0.5 0 As % of GDP 9 -0.5 8 -1.0 7 2001/02 2002/03 2003/04 2004/05 2005/06 2006/06 2007/08 2008/09 2009/10 2010/11 2011/12 -1.5 Revenues Expenditures [left axis] Surplus (+) or deficit (-) [right axis] Notes: Data refer to Fiscal Year ending June 30 of the listed year. California budget deficit refers to CAFR differences between total expenditures and revenues, net of Internal Service Funds. Sources: California State Controller's Office (various years); US Department of Commerce, Bureau of Economic Analysis (various years); calculations by authors. fraserinstitute.org

Comparing the Debt Burdens of Ontario and California / 11 Figure 5: California bonded debt as share of state economy, 2001/02–2011/12 10 9 8 7 As % of GDP 6 5 4 3 2 1 0 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Notes and sources: See figure 4. In figure 5 we can see the (sluggish) impact of the changing patterns in revenues and expenditures on the level of gross California debt, as a share of the state economy. We can see again the three distinct periods in figure 5. In the first period (through 2005/06) the growth in debt turns around and begins shrinking. Then the onset of the recession causes the debt to spike sharply. Finally, the growth in debt has been stabilized by 2009/10, after which it begins to gently recede. It is worth emphasizing that California’s latter turnaround was driven (in part) by unusual spending restraint, including an actual cut in the absolute level of spending by $7.0 billion (about 2.6 percent) from 2010/11 to 2011/12.8 Moreover, our figures end in 2011/12, and thus completely miss the large tax increases in Proposition 30, which voters approved in the November 2012 elections. Proposition 30 was strongly supported by Governor Jerry Brown as a progressive measure that would solve California’s budget crisis largely through tax hikes on the wealthy. It created three new personal income tax brackets, making the top rate 12.3 percent for those earning $500,000 or more ($1 million for married couples). However, in additional to the personal income tax, California also imposes a 1 percent “surcharge” on incomes exceeding $1 million, making the true top rate 13.3 percent. At this rate, California has by 8. To reiterate, our figures for revenues and expenditures are derived from the CAFRs, and may not correspond with the popular discussion of “California’s budget” for a particular fiscal year. fraserinstitute.org

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