Not All Spending Decisions Spelled Out in Budget

Trying to make sense of the billions of General Fund dollars spent in the annual budget? Given all the consideration and time devoted to preparing and passing the budget, it would seem the budget would reflect California's spending priorities. In some ways, General Fund allocations do provide a rough ranking of public priorities. Programs receiving more state assistance – especially in light of the competition for scarce resources – can be said to take precedence over other programs. In this light, funding for education – from preschool to university – is the State's highest priority. It comprises more than 50 percent of General Fund spending. K-12 spending is the largest category, with the May Revision proposing expenditures of roughly $40 billion in 2013-14.

But not all spending decisions are listed in the Budget Act. For example, decisions to provide preferential tax treatment to certain taxpayers provide a kind of public expenditure which does not typically get displayed in the budget because the tax assistance is provided as a statutory treatment. Tax preferences, known as tax expenditures in this context, may be reductions in the tax base or reductions in tax rates.

The Department of Finance each year identifies the cost of the major tax expenditures, primarily available through the sales and income tax laws. Taken together, these major tax expenditures reduce tax revenues by $45 billion. Tax expenditures, in this light, are the single largest category of General Fund spending, about one-eighth more than K-12 education.

Figure 2: General Fund Spending by Program

May Revision (Proposed)

(Dollars in Billions 2013-14)