State Budget Practice Report Cards and Budget Resource Guide

California began a massive fiscal turnaround in 2015, when it paid off the last of the $15 billion in bonds it issued in 2004 to help cover a $35 billion budget shortfall. The improvement helped the nation’s most-populous state achieve A or B budgetary averages in all but one category for 2015 through 2019.

In reserve funds, California was among seventeen states winning A averages. The state was first credited with linking revenue volatility to reserve fund policies in 2016, after voters approved a constitutional requirement to set aside deposits equal to 1.5 percent of general fund revenues plus any capital gains tax proceeds exceeding 8 percent of general revenues. As of fiscal 2019, the state had $21 billion in its reserve funds, equivalent to 15 percent of general fund expenditures—potentially enough to weather a recession with minimal program cuts.

California was also one of seventeen states scoring an A average in budget maneuvers. From 2015 through 2019, it avoided common measures of masking budgetary imbalances, such as deferring expenditures, shifting revenues or costs, using debt to cover operating costs, or tapping other one-time revenues to support ongoing spending.

The one exception to its high marks was the legacy costs category, in which California averaged a D despite a decade of economic recovery. In 2018–19, the state failed to pay the actuarially determined contributions for public employee pension plans and other postemployment benefits (OPEB), primarily health care. Its pension funding ratio was 69 percent in 2019, 2 percentage points below the total for all states.

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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 2021 Volcker Alliance report, Truth and Integrity in State Budgeting: Preparing for the Storm, 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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