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California State Library

State of California

BUDGET

For the Fiscal Year

July 1, 1952 to June 30, 1953

Budget Message of Governor

Letter of Transmittal of Director of Finance

Summary Statements

Budget Chart

Submitted by

EARL WARREN Governor

to the

CALIFORNIA LEGISLATURE

1952 Budget Session

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California State Library

State of California

BUDGET

For the Fiscal Year

July 1, 1952 to June 30, 1958

Budget Message of Governor

Letter of Transmittal of Director of Finance

Summary Statements

Budget Chart

Submitted by

EARL WARREN Governor

to the

CALIFORNIA LEGISLATURE

1952 Budget Session

*

Budget Message

By

GOVERNOR EARL WARREN 1952-1953 Budget

To the Senate and Assembly of the State Legislature of California:

I again welcome you to Sacramento for the Budget Session, and in accordance with Section 34, Article TV of the Constitution I submit to you the budget for our State for the Fiscal Tear ending June 30, 1953.

This is the first session at which all of us haye been housed in the new Capitol addition, and I trust that all of you will at long last be able to enjoy adequate facilities for the performance of your very important duties. It has been a matter of wonderment to me for many years how the Legislature could function in its totally inadequate and obsolete quarters. I want to say to you also that my staff and I are pleased with our new quarters and that we believe the greatly improved facilities will enable us to discharge our responsibilities to the people better than heretofore. At the outset I report to you that our State is in a sound financial condition. No new or added taxes are required. The present rates will meet the budget expenditures and leave us with an estimated 6-eneral Fund surplus of approximately $70,000,000 on June 30, 1953, after financing the budget as herein proposed. This is substantially greater than we had reason to believe it would be when I submitted our budget for the current fiscal year, the reason for this being our estimates of revenue in last year's budget were proved to be conservative because we, as did other forecasters, failed to anticipate the full extent of scare buying and other forces related to the defense program which inflated

in

sales volume, prices and income. This budget contains a thorough discussion of the revenue estimates for the coming fiscal year and the assumptions on which they are based. We have used every means at our command to develop reliable and realistic estimates. However, these are uncertain times and any major unforeseen development in world affairs could make a substantial change in either direction in our revenue yield.

The budget for the next fiscal year which I submit to you is one of minimum requirements to carry out policies and functions already established by the Legislature. In the belief that the Legislature and the people in providing for annual budget sessions, intended them for the purpose of facilitating the preparation of budgets and not for changing policies greatly except in general sessions, we have endeavored in the presentation of this budget to follow your policies as established in the 1951 Session. With the exception of the instances which I will in a moment enumerate, this has been done explicitly. Any other increase is largely a matter of meeting the greater costs occasioned by the continued growth of the State and the advances in price and wage levels. It is significant for all of us to bear in mind that according to the estimates of the Census Bureau, our State has grown by 450,000 persons in the past year, 300,000 by immigration and 150,000 by increase of births over deaths.

The expenditures in this budget are estimated at $1,185,- 397,270 for the fiscal year, an increase of $82,063,743 or 7.4 per- cent over the current fiscal year. Of this increase, $34,500,000, or 42.2 percent, will go to local governments in the form of larger payments for support of public schools, and $4,600,000 or 5.5 per- cent for other local subventions. $5,902,000, or 7.2 percent repre- sents the net increase in expenditures for capital outlay, and $37,033,000, or 45.1 percent will be used for state operations. The latter sum includes $12,550,000 for increased salaries of state employees, in accordance with Personnel Board recommendations, $5,506,000 for the University, state colleges and other educational activities, $3,290,000 for an improvement in the level of care at mental hospitals and homes, $2,518,000 for public works and high- way maintenance, and $2,038,000 for better traffic law enforcement by the Highway Patrol.

STATE OPERATIONS

Budget recommendations for the operation of the departments of the State Government have been carefully calculated to meet work loads. Every request has had a very thorough examination, and many have been sharply reduced before being presented to you. The details of the department operating requirements were released to your committees for their advance study one month ago. I follow this practice of so informing you in order that you may be thoroughly advised of the budget requests before the session is convened.

Your special attention is called to the following items which represent the major increases in this budget.

Mental Hygiene

For several years we have been endeavoring to take our State out of the Asylum Age and establish it in the Hospital Age, where a high quality of medical care working toward rapid and complete cure is substituted for mere custodial care. Improvements in the quality of treatment authorized by the Legislature are now showing substantial results in earlier discharges and shorter periods of hospitalization. Six years ago the average length of time patients remained in our state hospitals for serious mental illnesses was 6.6 months. At the present time, the average length of such hospitaliza- tion is 4.5 months. If these advances had not been made we would now have one-third more patients in our state hospitals or an addi- tion of 13,000 to the total of 40,000. This budget recommends funds for modest augmentation of medical, nursing and rehabilitation staffs so that still greater progress can be made.

Highway Patrol

Accidents continue to take a horrible toll on our highways in both lives and property. Last year 3,411 of our citizens were killed ; 2,420 of these lost their lives on rural highways. In addition, 95,000 people were injured, many thousands of them very badly injured. We are attempting to meet this problem in every possible way — through public safety programs, by driver education, by assigning additional patrolmen within our limited means to the most danger- ous areas and by sending flying squadrons into places of extreme traffic density. We have received citations from national safety organizations for good highway engineering practices, enlightened

enforcement methods and for active safety programs. Our High- way Patrol is doing its best, but all of these things are not enough. Traffic fatalities increased 15.6 percent on our rural highways last year. The fact is the Patrol is of necessity spread too thinly. We do not have enough officers to man our highways. The State must have a more adequate patrol force, and the reasons for this state- ment are plain. In 1947 the Legislature provided the 40-hour week as of July 1, 1948, instead of the 48-hour week which had been in existence prior to 1948. This represented a reduction of one-sixth of the patrolmen available for duty on the highways. Since that time the small increases in personnel authorized by the Legislature have done little more than compensate for that loss. To be specific, the increase is but 5 percent. On the other hand, the number of automobiles on our highways since 1947 has increased by 1,433,000 or 36 percent. Since that same date, the annual number of accidents investigated by the Patrol has increased 82 percent. The super- vision over the additional traffic occasioned by those 1,433,000 auto- mobiles and the investigation of this increased number of accidents have reduced the number of officers actually patrolling the high- ways to the danger point in practically every county of the State. It is a proven fact that the number of accidents on any highway depend very largely upon the number of highway patrolmen who patrol it. I am therefore again recommending to you an increase in the strength of the Highway Patrol with a very earnest plea so that there may be more effective traffic law enforcement. Without this we cannot hope to substantially reduce the appalling number of traffic deaths. The 232 officers recommended in the budget rep- resent the equivalent of 24 cents annually for each registered vehicle. This is indeed a small cost for the added protection it will buy for every man, woman and child in California.

University of California and State Colleges

In recent years you have authorized new state colleges at Los Angeles, Long Beach, and Sacramento, new campuses of the University of California at Santa Barbara and Riverside, and expanded activities at various of its other campuses. These expan- sions in the facilities for higher education have been only partly in operation in the immediate past while awaiting construction of buildings. An increase of more than $5 million will be required for the more nearly complete operation of these institutions in the coming year.

Water Resources

An appropriation of $800,000 is proposed for preliminary- plans and surveys on the Feather River Project which you author- ized at the 1951 Session. This is a large and important project. If it is to become a reality in time to help many parts of our State which are badly in need of water, there should be no delay in making the surveys and preparing the preliminary plans for its realiza- tion. There is no more basic problem to be solved in California than the conservation of water and I again urge upon you the great importance of early action on this project.

Price and Pay Increases

Provision has been made in this budget to meet further in- creases in prices, particularly for the larger items of food and clothing in the state institutions. A lump sum is recommended for allocation to the various institutions and departments supported by the General Fund if and when actual advances in prices occur. It may be interesting to point out that in our many state institu- tions we have 56,167 people who must be clothed and fed every day of the year. This means that in a year the State serves 61,500,000 meals, and an increase of one cent per meal would mean an addi- tional cost of $615,000 per year. Provision is also made for price advances in the estimated cost of highway maintenance and other activities financed from special funds.

As you know, the State Personnel Board is required by law to recommend salaries comparable to those paid in private industry and by other public agencies. The board has made its annual report and has recommended that funds be made available to allow an increase in the pay of state employees of approximately 5 percent in the fiscal year, with some further allowance for special equity adjustments including a special increase for employees caring for mental cases. The cost of this recommendation, including increases already authorized but not allocated, amounts to $14,200,000 in the next fiscal year. A proposed salary adjustment item in conformity with the Personnel Board's recommendation is included in the budget.

The requirements for the functions above enumerated and for the price and pay increases account for the greater part of the increase in the portion of the budget dealing with the operating expenses of the State Government.

CAPITAL OUTLAY

Of necessity the capital outlay items in this budget represent a very substantial amount of money. Of the $222 million recom- mended, the sum of $107 million is for highways, $35 million is for education — $17 million for the University, $17 million for the state colleges, and $1 million for other educational institutions. $22 million is for mental hygiene, $19 million for corrections, $8 million for natural resources, $5 million for office space, and $24 million for miscellaneous buildings and a fund to meet the in- creased prices. These amounts represent projects for which there is an absolute and innnediate need. It is a program which can be gotten under way within the fiscal year. We believe that national defense will have advanced to a point where materials may be available for them. Delay in beginning this work will inevitably mean that the State has failed to meet its obligation largely in the care, treatment, and education of thousands of its citizens. Except for the projects which were deferred by action in the 1951 Session, the postwar building program for which money was saved between 1943 and 1946, is practically all either completed or under contract. It has relieved some of the worst situations of over- crowding and hazardous housing, but there is still a long way to go to meet our building requirements. It must be remembered that since 1946 our State has increased in population by another 2,000,000 people. There are still hundreds of juvenile delinquents being held in local jails because of lack of space for them in the State's youth facilities. There is still a long waiting list of chil- dren— thousands of them — requiring care and treatment in state homes for the mentally defective. There is still much more to do at the new state colleges and the new campuses and graduate schools of the University. Our state hospitals for the mentally ill are still overcrowded, and we now have over 12,000 prisoners in our peni- tentiaries. We cannot stop building so long as our population is increasing at the rate of 450,000 each year, and particularly after we have been slowed down by defense programs.

LOCAL ASSISTANCE

More than half the budget— $625,000,000— comes under the general heading of local assistance.

Public Schools

The largest item is the State's contribution to the support of public schools, which will amount to more than $290,800,000 under existing law, an increase of more than $22,500,000 over the current year. This is explained largely by the fact that there are in our pub- lic schools this year 144,000 more children than last year. In addi- tion to the above sum, I have included $12 million for the Equaliza- tion Fund of the General School Fund to assist those school districts which, in spite of the efforts of the State in the past to assist them with their special financial problems, find themselves distressed by the inflation which affects all of us. In 1946 the voters of Cali- fornia approved a constitutional amendment increasing the State's support for public schools to a minimum of $120 per unit of attend- ance. Since that time the Legislature has on several occasions aug- mented this minimum. The definition of average daily attendance has been liberalized to include absences due to verified illness. Pay- ments for the excess cost of educating physically handicapped chil- dren have been increased materially, and provision has been made for the education of the mentally retarded. Apportionments have been placed on a current year basis, thus correcting an inequity and relieving pressure in the financial operation of growing school dis- tricts. Special provision has been made for greater state assistance in districts with low assessed valuations and for small high schools. State payments toward the cost of transportation of school children have been increased and special incentive has been provided for the unification of schools. The State has guaranteed the interest and redemption payments on school building bonds for distressed dis- tricts to the extent of $250,000,000. The State has granted $55 mil- lion outright to the most distressed districts of our State for build- ing purposes. Contributions for teachers' retirement have been liberalized. All told, the State, in addition to the grants made, and bond redemption payments assumed,, has provided at least $50 million annually for support of public school activities over and above the constitutional minimum since 1946. This is an impressive record, but it does not tell the full story because in 1946-47 our

IX

2—57801

budget for the public schools was $113 million. Now, because of growth and further liberalization by the Legislature, our current budget for the same purpose is $290 million. I am of the opinion, however, that it would be decidedly in the interests of better educa- tion to increase the Equalization Fund by $12 million to assist the poorer districts.

Many of these districts, also, in spite of the help the State has heretofore afforded them, are still in need of additional school buildings after reaching the statutory limits in their tax rates and bonded indebtedness. The funds from the bond issue have been exhausted and it is my belief that another such bond issue should be submitted to the people in the November election. If the Legis- lature desires to continue the policy of assisting necessitous school districts in this manner and submits such a bond issue, I recommend that $40 million be loaned to the districts pending the vote on the bond issue and providing for repayment therefrom or in the event that the bond issue should fail, from the funds of the school district on the same terms as the original bond issue for that purpose. Since our State now has a sizeable indebtedness because of this obligation, I recommend that when the $40 million is repaid, it be placed in a special fund for amortization of the State's obligation under these bond issues. It is sound business, and would accomplish the same purpose as we accomplished in 1943 and 1945 when you completely amortized the entire outstanding bonded indebtedness of the State.

Social Welfare

The State's share of aid to the aged, the blind, and needy chil- dren, while amounting to the very substantial sum of $151 million, is showing a smaller rate of increase than in previous years, due primarily to better employment opportunities.

Shared Revenues

Revenues from the automobile "in lieu" tax, gasoline tax, liquor licenses, and other shared taxes which the State collects and pays over to the counties and cities will amount to more than $148 million.

VETERANS FARM AND HOME LOAN PROGRAM

Due to accelerated activity in home purchases under the vet- erans farm and home loan program, the money from the last bond issue of $100 million for that purpose has been exhausted. Unless some provision is made by the State to provide immediate addi- tional funds for that purpose, no homes for veterans can be financed for a period of 10 months. There are still many veterans who need and are entitled to this help from the State. Many of these are wounded veterans from Korea. It is estimated by the Department of Veterans Affairs that it will be necessary to finance homes and farms to the extent of $5,500,000 per month as has been the case in recent months. I therefore recommend that we lend to the Department of Veterans Affairs for this purpose either from surplus or from such other funds as may be available the sum of $55 million to be repaid either from the bond issue to be voted on next November, or in such other manner as the Legislature may prescribe.

FISCAL POLICIES

As I stated to you at the outset, the finances of our State are in excellent condition. The budget is in balance, as it has been every year since 1943. We have amortized our general bonded in- debtedness that existed prior to that time, and with the exception of our obligation of approximately one-third of the school bond issue of $250 million, we have no outstanding debt.

In 1947 you set aside the so-called "Rainy Day Fund" as a reserve for revenue deficiency. In the last 10 years, taxes have not been raised in California and for six of those years, taxes were decreased on an average of 15 percent, representing a saving to the people of approximately $560 million. At the end of this fiscal year we will have an estimated surplus of $70 million, after making provision for financing this budget. This is a fiscal record of which the Legislature may well be proud.

If it were reasonably safe to do so, I would again recommend to you that we reduce taxes once more, but I am of the opinion that we cannot do so with safety. Our revenues come from taxes meas- ured by income and sales. The yields have increased with the recent expansion in business and incomes. The heavy wave of buying which took place after the outbreak of the Korean War greatly

increased receipts from the sales tax. Defense work and the gen- eral high level of prices, wages, and farm and industrial income, have resulted in revenues substantially in excess of previous years and of the estimates made in last year's budget.

A great part of our economy is geared to defense expendi- tures. We have no assurance that the present high level of our tax yields will continue. On the contrary, there is good reason to expect declines as defense spending begins to taper off. This is the time for careful planning of fiscal affairs. While a General Fund surplus of $70 million at the end of the next fiscal year is forecast, in a broader sense, the State does not have a surplus so long as it has outstanding debt greater than that amount. To be fully on a pay-as-you-go basis, the State should set aside a sinking fund equal to its proportionate share of the school bond obligation. Substantial installments should be paid into such a sinking fund until the State's share of this obligation is fully funded.

We cannot avoid, even with our most careful economies, an increase in the state budget in the years ahead. The combined effects of the great postwar increase in birthrate and heavy in-migration is really just beginning to have its influence on school attendance. As this wave advances through the elementary and secondary schools and then through our colleges and university, our annual outlays for schools and higher education will inevit- ably increase by many millions, even if there is no change in the unit costs. Our best estimate is that the increase will be $39 million in 1954-55 Fiscal Year over this year.

Welfare expenditures during these periods of full employ- ment have not increased as much as in previous years. Curtailment in defense activities will cause readjustments in the labor force which will make it more difficult for aged and handicapped to obtain employment, and increased welfare costs are sure to result. This would add still more millions to our budget.

More money will be needed to finance the State's share of the flood control projects which have been authorized.

The purchasing power of the dollar in public construction is diminishing year by year. In fact, we now obtain for our dollar only 37 cents of construction as compared with one hundred cents of construction in 1939. In other words, the approximately $100 million construction program recommended in this budget will produce only $37 million dollars of construction as compared with

xn

12 years ago. It is also worth remembering in this connection that in a tax reduction program comparable to that we had between 1943 and 1948, the Federal Government under present tax schedules would automatically take $38 million out of the $109 million of the state tax reduction to our citizens.

The primary responsibility of those of us who are charged with the administration of our state affairs is to maintain a solvent gov- ernment. No matter what other virtues government might have, if it is not solvent, it cannot be good government. If we were to overestimate our revenues of the future, or underestimate our expenses in a fluctuating economy such as we have at the present time, we might, by giving slight temporary relief, be the cause of permanently injuring the credit of our State and the services it renders to the people. I urge you in the interest of stability to abide by the fiscal policies which you established last year as we are doing in all other things, in the hope that when the Legislature meets next January, conditions will be more stable and the road ahead of us will be more clearly discernable.

Finally, may I remind you that the surplus we are dealing with was accumulated over prior years, with most of it credited to the Fiscal Year 1950-51 as a result of the scare buying and defense expenditures occasioned by the Korean War. Only twelve million dollars of it can be credited to the current fiscal year. In no single year since World War II have we ever accumulated a sum ap- proaching $109 million in surplus and if we should reduce our income by that amount, it is more than possible that we would end the year with a deficit.

I offer you my wholehearted cooperation in your considera- tion of this budget.

Respectfully submitted,

Governor March 3, 1952

4

Letter of Transmittal

Honorable Eael Warren, Governor of California State Capitol, Sacramento, California

Dear Governor Warren: Herewith transmitted is the state budget document for the fiscal year beginning July 1, 1952, and ending June 30, 1953, prepared in strict compliance with your policy of holding expenditures to minimum requirements for fully justified needs. State operations are on the basis of continuing the program approved for the present year, with adjustments for increased prices and wages, growing population, and current work load conditions.

The capital outlay portion of this budget is comprised of badly needed projects which should be undertaken without further delay.

Several changes have been made in the budget summary state- ments in the interest of a clearer and more concise accounting of fiscal operations. An analysis of expenditure requirements has been added, and the explanation of the revenue estimates has been revised and expanded. The increase in General Fund tax receipts and decrease in expenditures during 1950-51 and in the current year, which resulted in a substantial revision of the esti- mated state surplus, are fully explained.

I acknowledge here the splendid cooperation received from the directors of other departments and the excellent work of my own staff in the preparation of the budget.

Respectfully yours,

Director of Finance March 3, 1952

i

Summary Statements

Schedule 1. General Budget Summary.

Schedule 1TA. Reconciliation of General Fund Accumulated Surplus as of June 30, 1952, as Estimated in the 1951-52 Budget with the Amount Estimated in the 1952-53 Budget.

Explanation of Budget Revenue Estimates

Schedule 2. Comparative Statement of Revenues for the Fiscal Years 1950- 51, 1951-52 and 1952-53.

Analysis of Expenditure Requirements

Schedule 3. Comparative Statement of Expenditures by Character, Func- tion, Organization Unit and Fund for the Fiscal Years 1950-51, 1951-52 and 1952-53.

Schedule 4. General Fund, Statement of Financial Condition, June 30, 1951.

Schedule 5. Summary of Fund Condition by Funds as of June 30, 1951, June 30, 1952, and June 30, 1953.

Schedule 6. Statement of Balances in Other Treasury Funds not Included in Budget Totals as of June 30, 1951, June 30, 1952, and June 30, 1953.

Schedule 7. Comparative Statement of Contributions and Expenditures of Federal Aid Granted to the State of California for the Fiscal Years 1950-51, 1951-52, and 1952-53.

Schedule 8. Schedule of Proposed Expenditures by Method of Appropria- tion for the Fiscal Year 1952-53.

Schedule 9. Comparative Statement of Fixed Charges and Controllable Ex- penditures for the Fiscal Years 1950-51, 1951-52 and 1952-53.

Schedule 10. Reconciliation of the 1951-52 Budget with the Estimated Ex- penditures for 1951-52 as Presented in the 1952-53 Budget.

Schedule 11. Statement of Bonded Debt of the State of California as of November 30, 1951.

A-l

Charts

Chart 1. Sources and Uses of State Funds.

Chart 2. Comparative Revenues by Major Sources.

Chart 3. Budget Dollars.

Chart 4. Comparative Expenditures for State Operations.

Chart 5. Comparative Expenditures for Capital Outlay.

Chart 6. Comparative Expenditures for Local Assistance.

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Schedule 1 GENERAL BUDGET SUMMARY'

Reference schedule number

Actual 1950-51

Estimated 1951-52

Estimated 1952-53

GENERAL FUND

ACCUMULATED SURPLUS, BEGINNING OF YEAR.

Add: Revenues:

Alcoholic beverage taxes and licenses

Bank and corporation income taxes

Inheritance and gift taxes

Insurance taxes

Personal income taxes

Retail sales taxes

All other revenues

Total Revenues

Transfers from other funds -

Total available funds. Deduct: Expenditures: State Operations Budget- _

Capital Outlay Budget

Local Assistance Budget..

Total Expenditures.. Transfers to other funds.

Total Expenditures and Transfers

ACCUMULATED SURPLUS, END OF YEAR.

SPECIAL FUNDS AND RESERVES

ACCUMULATED SURPLUS, BEGINNING OF YEAR.

Add: Revenues:

Alcoholic beverage licenses

Horse racing revenues

Motor vehicle revenues

All other revenues

Total Revenues

Transfers from the General Fund-

Total Available Funds-

Deduct: Expenditures: State Operations Budget- Capital Outlay Budget

Local Assistance Budget-

Total Expenditures

Transfers to the General Fund-

ACCUMULATED SURPLUS, END OF YEAR.

CONSOLIDATED TOTALS, ALL FUNDS »

ACCUMULATED SURPLUS, BEGINNING OF YEAR. Add: Revenues

Total Available Funds. Deduct: Expenditures

ACCUMULATED SURPLUS, END OF YEAR.

Schedule 5

Schedule 2 Schedule 2 Schedule 2 Schedule 2 Schedule 2 Schedule 2 Schedule 2

Schedule 2 Schedule 5

Schedule 3 Schedule 3 Schedule 3

Schedule 3 Schedule 5

Schedule 5

Schedule 5

Schedule 2 Schedule 2 Schedule 2 Schedule 2

Schedule 2 Schedule 5

Schedule 3 Schedule 3 Schedule 3

Schedule 3 Schedule 5

Schedule 5

Schedule 5 Schedule 2

Schedule 3 Schedule 5

S36, 852,071

19,890,054 98,245,207 21,691,622 23,446,623 75,890,972 399,243,093 33,657,212

5672,064,783 437,815

$709,354,669

184,008,552

2,933,522

400,139,263

S587,081,337 1,427,439

S588,508,776

5120,845,893

S432,049,882

8,106,155

12,467,810

274,968,377

26,435,620

5321,977,962 1,427,439

5755,455,283

79,046,492 197,409,643 142,801,882

S419,258,017 437,815

5335,759,451

468,901,953 994,042,745

SI, 462,944,698 51,006,339,354

5456,605,344

5120,845,893

18,745,000 115,250,000 25,500,000 25,731,960 88,100,000 410,100,000 28,955,061

S712,382,021 159,432

5833,387,346

213,466,084

8,070,669

429,462,359

5650,999,112 50,030,014

5701,029,126

>>S132,358,220

5335,759,451

8,090,000

16,151,144

293,896,875

27,680,920

5345,818,939 50,030,014

S73 1,608,404

87,059,268 208,070,967 157,204,180

S452,334,415 159,432

5279,114,557

450,605,344 1,058,200,960

Sl,514,806,304 51,103,333,527

S411,472,777

1>S132,358,220

19,740,000 118,500,000 26,600,000 30,319,153 91,500,000 427,100,000 29,535,360

S743,294,513

5875,652,733

243,890,704

4,618,139

468,104,141

5716,612,984 89,184,908

S805,797,892

569,854,841

5279,114,557

8,115,000

14,930,571

308,056,250

28,073,749

5359,175,570 89,184,908

5727,475,035

93,667,387 217,425,295 157,691,604

S468,784,286

5258,690,749

411,472,777 1,102,470,083

51,513,942,860 51,185,397,270

S328,545,590

a The budget totals do not include revenues or expenditures of federal funds, utility funds, working capital and revolving funds, bond funds, interest redemption and sinking funds, trust and agency funds, and assessment funds. See Schedule 6 for summary of receipts and disbursement of these funds.

t> See Schedule 1-A on following page for reconciliation of surplus with amount reported in the previous budget.

A-3

Schedule 1-A

RECONCILIATION OF GENERAL FUND ACCUMULATED SURPLUS AS OF JUNE 30, 1952 AS ESTIMATED IN THE 1951-52 BUDGET WITH THE AMOUNT ESTIMATED

IN THE 1952-53 BUDGET

ACCUMULATED SURPLUS, JUNE 30, 1962, as estimated in the 1951-62

Budget , 820,736,277

Effect of Legislative Action on the Budget and Re-estimate of Revenues:

Revised estimate of revenues for 1950-51 $665,306,312

1951 Budget estimates. 620,266,892

Estimated additional revenues for 1950-51 +45,039,420

Funds were provided for price increases in cost of construction and for

additional minor construction $19,000,000

Provision was made for civil defense 12,000,000

Additional funds were provided for school apportionments 13,475,000

Action to extend the availability of construction appropriations in the Postwar Employment Reserve Fund precluded the reversion and trans- fer to the General Fund --- 4,044,693

Other changes were made in authorized expenditures 3,472,124 — 51,991,817

ACCUMULATED SURPLUS, after giving effect to revised estimate

of revenues and legislative action (as reported August 16, 1961) $13,783,880

Effect of Revised Estimates of Revenues and Expenditures as Presented in the 1962-53 Budget: Increase in Estimated Revenues: For the 1950-51 Fiscal Year:

1952 Budget estimates - $672,064,783

Previous estimates --- 665,306,312 $6,758,471

For the 1951-52 Fiscal Year:

1952 Budget estimates $712,382,021

1951 Budget estimates 641,033,620 71,348,401

TOTAL INCREASE IN REVENUE ESTIMATES +$78,106,872

Decrease in estimated expenditures for the 1950-51 and 1951-52 Fiscal Years:

Civil defense program delayed until the 1952-53 Fiscal Year $4,018,139

Old-age security, decrease in estimated cost 12,426,956

Aid to needy children, decrease in estimated cost 3,686,006

Savings in all other authorized expenditures 20,336,367

TOTAL DECREASE IN ESTIMATED EXPENDITURES +40,467,468

ACCUMULATED SURPLUS, JUNE 30, 1952, as estimated in the

1952-53 Budget - $132,358,220

A- 4

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A- 6

Budget Revenue Estimates

Under present conditions it is particularly important to preface any forecast of state revenues with an inventory of the many uncertainties in the economic outlook. Chief among these are the questions of war or truce in Korea, international friction, and the unrest in Asia, the Middle East and North Africa. Others include the national policy in matters of defense and fiscal affairs, use and effectiveness of economic controls, ability of the Nation's industrial machine to meet the demands for military and civilian goods, price trends, and consumer reactions in an abnormal market. These and many others are factors in an equation which will determine the State's revenue during the next 18 months. Conditions are changing daily and will continue to change. Since future developments cannot be known at this time, assump- tions must be made on the basis of apparent trends and prevailing opinion. These assumptions are outlined in the material which follows.

State revenues are estimated to reach $1,102,470,083 during the 1952-53 Fiscal Tear. This represents an in- crease of 4.2 percent over the revised total anticipated in the current year, and 10.9 percent more than was re- ceived during 1950-51. Of this total, $743,294,513 will accrue to the State General Fund and $359,175,570 will go to the various special funds and reserves. Each of these amounts is above the revised figure for the year in progress and is considerably greater than actual re- ceipts during the year which ended June 30, 1951. Com- parative totals are shown in the following table :

COMPARATIVE STATE REVENUES (In Thousands of Dollars)

Actual Estimated Estimated

General Fund : 1950-51 1951-52 1952-53

$399,243 $410,100 $427,100

Sales and Use Taxes__ Bank and Corporation

Franchise Tax 98,245

Personal Income Tax 75,891

Insurance Tax 23,043

Inheritance and Gift

Taxes 23,671

Alcoholic Beverage Taxes 19,890

Other Revenues 32,082

115,250 88,100 25,281

25,500 18,745 29,406

118,500 91,500 29,765

26,600 19,740 30,090

$712,382 $743,295

Total, General Fund„_ $672,065 Special Funds and Reserves:

Motor Vehicle Fuel Taxes $149,907 $160,121 $168,021

Motor Vehicle Fees 125,061 133,776 140,035

Other Revenues 47,010 51,922 51.119

Totals, Special Funds__ $321,978 ' $345,819 $359,175

Grand Totals, Revenue $994,043 $1,058,201 $1,102,470

Current Year Revenue

The estimate of revenue to be received during 1951- 52 as shown in this budget represents a substantial re- vision over the amount forecast a year ago. Economic activity has been maintained at a higher level than was anticipated for this period when the original estimates were prepared in December of 1950. To some extent this development reflects the delay in the conversion from civilian goods to war materials and to some extent it is caused by the high proportion of defense contracts negotiated in California.

The $1,058,201,000 total revenue now estimated for the current year compares with $969,681,000 shown in the previous budget, an increase of $88,520,000, or 9.1 percent. Special fund receipts have been changed only

moderately, but General Fund revenues have been in- creased from the original estimate of $641 million a year ago to $712 million as now revised for the current year. A comparison of the original and revised esti- mates of General Fund revenue from principal sources follows :

Estimated Revenue, 1951-52 (In Millions)

Percent

Original Sales and Use Taxes.. $376.2 Bank and Corporation

Franchise 99.2

Personal Income 71.5

Inheritance and Gift __ 22.7

Alcoholic Beverages 18.0

Insurance 25.1

All Other 28.3

Total $641.0

Revised $410.1

115.3

88.1 25.5 18.7 25.3 29.4

$712.4

Increase Increase

$33.9

16.1 16.6 2.8 0.7 0.2 1.1

$71.4

9.0

16.2

23.2

12.3

3.9

0.8

3.9

11.1

Most of the $71 million increase in the estimate of General Fund revenue this year can be traced directly to the sales, bank and corporation franchise, and per- sonal income tax yields. The forecasts of receipts from other sources appear to be well within an acceptable margin of error, especially in view of the fact that most of the difference arises from collections of the unpredictable inheritance and gift tax levies.

Four developments contribute largely to the increase in sales tax collections in the current year : ( 1 ) a high level of building activity; (2) continued availability of consumers' durable goods; (3) larger consumer in- comes; and (4) higher price levels than anticipated. A year ago the volume of residential building in Cali- fornia during 1951 was expected to drop one-third below the record volume of 1950, as a result of credit controls and material shortages. Industrial, commer- cial, and public construction was expected to increase, but not sufficiently to offset the decline in residential activity. In contrast with this outlook, preliminary data on actual building last year indicate only a slight de- crease in expenditures for new dwellings, more than offset by an increase in total volume of other construc- tion.

Consumer durable goods, such as automobiles and household appliances, were assumed to become in short supply as materials were diverted to defense produc- tion. While production was reduced during the year, stocks in the hands of manufacturers and retailers proved ample to meet current demand, and taxable sales during the calendar year 1951 appear to be only slightly below the record established in 1950.

The aggregate income of California residents last year is now estimated at $20.8 billion, against the fore- cast of $19.8 billion.1 Higher federal income taxes absorbed part of the increase, but consumer spending last year is now estimated at $17.7 billion, compared with the forecast of $17.1 billion in the budget revenue statement last year.2 Judging from experience, this $600,000,000 increase would normally generate ap- proximately $14,000,000 of sales tax revenue.

Running through these other differences is the fact that the inflation spiral touched off by the Korean War continued through January, 1951, and rising prices

i State Budget, 1951-52, page A-21. 2 State Budget, 1951-52, page A-22.

A-7

characterized most of last year. Retail prices averaged 7.4 percent above the September, 1950, benchmark. This is almost half again the rate of increase used in the budget revenue projections.3

Higher Incomes

Reversal of the down trend in corporate profits be- tween 1949 and 1950 was unexpectedly sharp. For the Nation as a whole, corporate earnings rose nearly 50 percent, and the gain in taxable earnings of corpora- tions doing business in California was even larger. Against an estimated increase of 25 percent over 1949, returns filed with the State last year disclosed an actual increase of 54 percent. Since the estimate of 1950 earn- ings necessarily became the benchmark for forecasting 1951, actual receipts from this source are now expected to exceed the previous estimate for the current fiscal year by approximately 16 percent.

Changes in the composition of income received by in- dividuals have an important bearing upon state reve- nues because of the graduated tax rates on personal income. To a great extent, these changes are not known until the returns are filed, tabulated, and analyzed — more than a year after the revenue estimate must be completed. Differences in taxable income below $5,000 generate tax at a 1 percent rate, whereas changes in brackets above $25,000 produce tax at a 6 percent rate. Property income, such as dividends and rents, showed a particularly large increase during 1950, and this type of income is concentrated in the upper brackets where rates are higher. Against an estimated increase of 5 percent in the tax to be paid on account of property income and 67 percent in the tax generated by capital gains during 1950 under the projections made last year, a preliminary analysis of tax returns shows an improvement of 40 percent in the tax on prop- erty income and 97 percent for capital gains. These two factors account for most of the $16.6 million added to the revised estimate of personal income tax for the cur- rent fiscal year.

THE 1952 OUTLOOK

International developments will determine basic eco- nomic trends in this country during 1952, just as they have in the last two years. Uncertainty and the foment- ing of world unrest are twin instruments of communist foreign policy. For this reason it is almost futile to speculate on the course of world affairs, and it is im- possible to predict developments with any degree of assurance. Two conclusions appear to be warranted, however : (1) the Korean War is but one manifestation of the deep conflict between democracy and com- munism; (2) national self-interest demands a vast rearmament program which must be prosecuted along present plans for at least two more years, despite the possibility of a seeming reversal in communist policy, truce agreements, or a peace offensive.

National defense will provide a powerful sustaining force in the Nation's economy, not only because of the sums involved, but also because of the program's urgency and inflexibility. According to the federal budget, cash payments for defense and related func- tions during 1952-53 will be $62 billion, compared with $47 billion in the current year and $25 billion in fiscal 1951. For the most part, these expenditures are not

''ibid.

contingent upon budget approval. They represent pay- ments on obligations already incurred. Nearly one-fifth of the national product will be directed toward accom- plishing this goal. Total federal expenditures in the next year are estimated to reach $87.2 billion, while cash receipts from the public are expected to be $76.8 billion.4 Unless the $10 billion deficiency is narrowed by heavier tax levies or noninflationary borrowing, the outpouring of defense funds, coupled with a reduction in civilian goods, will constitute a potentially powerful inflationary force in the economy.

In addition to providing an element of strength which might otherwise be absent, defense production will have a far-reaching effect upon many segments of the economy. Productive capacity is being expanded — particularly in the metal working industries, electric power generation, chemical production, petroleum re- fining, and the manufacturing of aircraft. Employ- ment in defense and related activities will require the addition of 1-?,- million workers to the labor force, while a million others are expected to move into defense work from less essential lines.5 A relatively tight labor market undoubtedly will result in some upgrading of skills, higher wage rates, and possibly an increase in the hours of work per week. Metal shortages have al- ready required drastic limitations upon the production of motor vehicles, radios, television sets, stoves, and household appliances. Controls have been imposed on residential and commercial building in order to free both supplies and labor for the task of industrial ex- pansion. Production goals in agriculture have been established moderately above the levels of last year and support prices for agricultural products in general will be high. This general pattern, with some tapering off in plant expansion, is likely to prevail throughout the current year and well into 1953.

With increased employment, higher wage rates, and capacity output in almost every segment of the economy, the national product is expected to reach a new peak in 1952. A majority of the forecasts place the gross national production at, or near, $350 billion, com- pared with $326.8 billion in 1951. Personal incomes are estimated to increase from $251 billion in the year just ended to $267 billion in 1952. A part of this gain will be absorbed by higher taxes, but income after taxes will also advance appreciably — from approximately $223 billion last year to $235 billion in the current period.

At any time an outpouring of money unaccompanied by a parallel increase in consumer goods is inflationary. It adds to the volume of spendable income without, at the same time, expanding the volume of merchandise available for consumption. This pattern is particularly characteristic of a war period, when money is paid out for the production of material which cannot satisfy consumer needs. Unless the excess money is recaptured in the form of taxes, the economic stage is set for infla- tion, and neither artificial controls nor savings will have much long-term effect. Although increased pro- ductivity in such non-durable lines as textiles, apparel, and food may absorb a part of the excess purchasing power during 1952, and personal savings may continue at the abnormally high rate registered in most of last

' See Special Analysis A, Budget of the United States Government, Fiscal Tear Ending June 30, 1953, page 1143.

5 Council of Economic Advisors, Annual Economic Review, 1952. Economic Report of the President, 1952, page 106.

A-8

year, underlying conditions are basically inflationary. Prices may be relatively stable in the first quarter of 1952, as federal income tax payments absorb purchas- ing power. Later, however, the full effect of deficit spending will be felt, and opinion is heavily on the side of further moderate price increases during the ad- vanced phases of the defense build-up.

In general, economic activity in California should follow the national pattern. This State received 13 percent of the defense contracts negotiated through mid-1951, and although this share may decline as new defense plant facilities are completed in other parts of the Nation, California will continue to produce a disproportionate part of the Country's vital aircraft needs. "While this State has not participated in the expansion of heavy industry, there has been great activity in machinery and equipment, electrical instru- ments, and in the network of subsidiary plants which supply parts and assemblies for the construction of today's extremely complex military planes.

Population growth during the budget period is ex- pected to follow the trend of recent years. Prom a census total of 10,586,223 on April 1, 1950, the number of California residents increased to an estimated 11,100,000 on July 1, 1951. Projections to the corres- ponding July dates in 1952 and 1953 show totals of 11,460,000 and 11,800,000, respectively. Judged on the basis of partial data, natural increase (excess of births over deaths) in 1951 reached 152,000 as against a 145,000 level reported in the two previous years. Avail- able indicators point to a continuing wave of new resi- dents through migration from other areas.

Economic Indexes

In order to have meaning, revenue estimates must be derived from a foundation of consistent economic data. This implies estimates or assumptions regarding such factors as national production and income, consumer expenditures and savings, price trends, and population growth. The most widely used, as well as the most con- venient framework for these basic estimates, are the national economic accounts developed by the United States Department of Commerce. In formulating the estimates contained in the adjacent table, advice has been obtained from national economists and from ana- lysts familiar with California conditions. Amounts shown are in general agreement with predictions made elsewhere regarding probable trends in 1952. They rest on two fundamental assumptions: (1) absence of war or wide- spread police action in which the United States may be an active participant; and (2) prosecution of the defense program according to present schedule. A subordinate assumption is made that federal tax rates will not be increased during the budget period.

GENERAL FUND REVENUE

Slightly more than two-thirds of the State's total revenue during 1952-53 will accrue to the General Fund, according to the estimates presented in this budget. The $743,295,000 anticipated for support of general activities represents an increase of $30,913,000, or 4.3 percent, over the revised forecasts for the cur- rent year and $71,231,000 more than was received in the period ending June 30, 1951. Gains over the current year are expected for all principal sources. In only one respect are figures for the three years 1950-51 through

ECONOMIC INDEXES (Selected Major Items)

1950 1951 195.: Actual Preliminary Estimated

(Billions) (Billions) (Billions)

Gross National Production.., $2S2.6 $326.8 $350.0

Personal Expenditures 193.6 204.4 218.0

Durable Goods 29.2 27.1 25.0

Non-durables 102.3 110.6 121.0

Services 62.1 66.7 72.0

Private Investment 48.9 58.8 47.0

New Construction 22.1 22.2 18.0

Producers' Euipment 22.5 27.6 28.0

Change in Inventories 4.3 9.1 -

Net Foreign Investment — 2.3 0.1 1.0

Government Purchases 42.5 63.5 85.0

National Security 18.9 37.8 60.0

Other Federal 3.9 4.1 4.0

State and Local 19.7 21.6 21.0

Personal Income $224.7 $251.2 $267.0

Less : Personal Taxes 20.5 28.4 32.0

Equals: Disposable Income 204.2 222.8 235.0

Income of Californians $18.5 $20.8 $22.0

Less : Personal Income

Taxes 1.6 2.6 3.2

Equals : Disposable Income 16.9 18.2 18.8

Spendable Resources * of the

People of California $17.1 $17.7 $18.2

1950 1951 1952

Actual Preliminary Estimated Price Indexes (National Data) : Consumer Prices

(1935-39 = 100) 171.9 185.3 192.0

Retail Prices

(1935-39 = 100) 189.0 206.8 217.0

Wholesale Prices

(1926=100) 161.5 180.5 187.0

California Population, July 1

(thousands) 10,634.0 11,100.0 11,460.0

Employment in California Average for Tear

(thousands) 4,244.7 4,484.0 4,575.0

* Spendable resources include allowances for change in liquid asset holdings of indi- viduals such as money, bank accounts, and savings bonds, and change in short-term

consumer credit. Amounts are estimated by the State Department of Finance. Source: Data for 1950 and 1951 compiled by federal and state agencies. 1952 data

estimated by State Department of Finance, Division of Budgets and Accounts.

1952-53 not generally comparable : $2,000,000 of horse- racing revenue formerly going to the General Fund has been diverted to special purposes, beginning in the current year.

Under California's tax structure more than 85 per cent of the State's General Fund revenue is derived from three sources : the levy on sales of tangible per- sonal property for consumption ; the bank and corpo- ration franchise tax measured by income ; and the in- come tax on individuals. The close connection between economic conditions and yields from these sources has already been noted. Any increase or decline in retail trade is reflected in sales tax receipts within a period of four months at the most. Changes in corporate earn- ings affect tax collections within three months of the closing of corporate accounts. And fluctuations in per- sonal income during any calendar year start to influ- ence state revenues in the first few months of the suc- ceeding year. In this relationship, the income of State Government is almost abreast of current economic con- ditions. There is little buoyancy to sustain the Treasury after a turn in the business cycle. Only in the case of taxes on inheritances, insurance companies and banks,

A-9

3—57801

and in the auditing of tax returns does the receipt of revenue lag appreciably behind the taxable event.

State taxes in general are proportionate to eco- nomic activity. A given increase or decrease in trade, corporate income, or liquor sales, for example, produces a corresponding change in tax collections. Only one- sixth of the revenue is obtained from levies which em- ploy a variation in rates as the status of a specific tax- payer changes. These include the personal income, inheritance, and gift taxes, and pari-mutuel racing fees.

Sales Tax-$427,100,000

Receipts from the sales and use taxes in the coming fiscal year are estimated to be $427,100,000, compared with $410,100,000 during the current period and $399,- 243,093 in 1950-51. A comparison of these sums, how- ever, does not disclose the changes anticipated in tax- able transactions as non-durable goods remain in ample supply and consumer durables become short. Moreover, it must be noted that sales tax collections during 1950- 51 were inflated materially by the two waves of scare buying which swept the Country after the outbreak of the Korean War — first in July and August of 1950 and again in January-February, 1951. Approximately $20 million was added to the normal volume of sales tax by this rush on the part of consumers and industry to purchase goods in advance of anticipated scarcity. In some measure, the $410 million sales tax estimated for the current year represents a reaction to the earlier excesses.

Two methods have been employed to estimate taxable sales of tangible personal property during the period covered by this budget.6 One was based upon the average relationship between taxable sales and the esti- mated spendable income of civilians in California during the 16 years 1935 through 1950. 7 Based on this relationship, estimated civilian spendable resources of $17.7 billion during 1952 should result in taxable sales of $13.1 billion. Although the procedure relies on crude relationships, the average error, excluding war years, has been approximately $175 million (equal to $5,250,000 in tax), while the net error has been $115 million (equal to $3,450,000 in tax). Chief weaknesses are to be found in the fact that approximately 30 percent of the current tax is generated by building activity and sales of industrial equipment and sup- plies. Changes in these items may not be measured by changes in the volume of consumer spending.

The second method of estimation involves an analysis of sales in the 44 trade and industrial classifications reported by the State Board of Equalization. Where population and prices are important factors, taxable sales have been reduced to per capita amounts in dollars of constant value. Trends revealed by this procedure were projected through 1952 and the first quarter of the following year. Allowance was made for an increase

6 In preparing revenue estimates, calendar year data are used almost exclusively in order to take full advantage of such re- lated material as census reports, income payments, and other economic data. All estimates include assessments of addi- tional tax, interest, and penalties as a result of the audit pro- grams of tax administering agencies. Calendar year estimates are apportioned to fiscal years on the basis of ratios during recent years.

'The correlation equation: Taxable sales equal — .885 plus .788 times spendable resources. As used in this formula, spendable resources include civilian income less federal and state in- come taxes plus or minus the increase or decrease in short- term consumer credit, minus or plus the increase or decrease in liquid assets. Civilian income is used in order to avoid as much as possible of the distortion during the war years.

in the per capita consumption of non-durables and cer- tain luxury items, for growth in population, and for a price increase of 5 percent from the 1951 average. With these data as a basis, dollar volume of sales in each group was projected for the new budget period. Where motor vehicle ownership appeared to be the determin- ing factor, the same method was used by relating taxable sales to motor vehicle registrations. Taxable sales of industrial machinery and equipment have been estimated on the basis of advice obtained from leading establishments in the field regarding the probable volume of business activity, or on the basis of informa- tion obtained from trade journals.

Three principal deviations were made from this general technique: sales of building materials were estimated to fall 14 percent below the indicated total for 1951 (sharply reduced residential and commercial building, partially offset by somewhat larger industrial construction) ; a decline of one-third was taken in sales of household appliances ; and unit sales of new motor vehicles were reduced 30 percent from 1951, in line with restricted vehicle production. The dollar volume of used vehicles, accessories, and parts was estimated to increase 12.6 percent, partly due to higher prices and partly to the fact that a larger number of vehicles will be in need of replacement parts. A summary of the estimate prepared by this method follows :

Taxable Sales (In Millions) Percent.

Principal Est. Est. change

Products Sold 1950 1951* 1952 1951-52

Non-durable goods $4,953 $5,485 $6,039 +10.1

Consumer durables t — 1,149 1,168 1,113 — 4.7

Motor vehicles— new ___ 1,300 1,104 865 —21.6 Motor vehicles — used,

supplies, and parts 1,289 1,464 1,649 +12.6

Building materials 1,511 1,631 1,400 —14.2

Producers' equipment

and supplies t 1,951 2,332 2,450 +5.1

Unallocated 106 143 151 +5.6

Total $12,259 $13,327 $13,667 +2.5

* Three quarters actual and one quarter estimated. t Other than motor vehicles and building materials.

Since the possible errors in this method are large, due to inadequate information and mistakes in judgment, the estimate of total taxable sales during calendar 1952 AYas rounded to $13.5 billion, representing a reasonable point between the results obtained under each of the two procedures. This compares with $13.3 billion esti- mated for 1951 and $12.3 billion in 1950. With allow- ance for somewhat greater supplies of durable goods and higher prices in the early months of 1953, self- assessed tax in 1952-53 was estimated at $410,000,000. Audit assessments are expected to return $15,800,000, while sales tax on refunds of gasoline tax should pro- duce $1,200,000. Permit fees are estimated at $100,000.

Franchise Tax— $118,500,000

Revenue from the bank and corporation franchise tax will depend upon profits before federal income tax during the 1951 and 1952 calendar years. Approxi- mately 58 percent of the tax liability incurred on last year's earnings will be paid before June 30, 1952, while 42 percent will fall into the 1952-53 Fiscal Year. Simi- larly, 58 percent of the tax incxtrred on 1952 operations will be received before June 30, 1953.

Bank and corporation franchise tax collections dur- ing 1952-53 are estimated at $118,500,000, compared to $115,250,000 in the current period and $98,245,207

A-10

actually received in the year ending June 30, 1951. Each of these totals includes collections under the supple- mentary levy known as the corporation income tax.

Despite shortcomings of the sampling process indi- cated in the findings last year, it is the only satisfactory method of obtaining advance information on corporate profits. While a margin of error occurred in the 1950 sample, satisfactory results were obtained in the two previous years, and the sample now used has been com- pletely revised and enlarged. Greater industrial cover- age has been obtained and there is better representation of small firms. In taking the current sample, letters were sent to 577 banks and corporations operating in California, requesting an estimate of taxable earnings in 1951. Usable replies were received from 424 of these firms representing 46.7 percent of the tax base. On the basis of this information it is estimated that earnings subject to the state tax increased from $2,655,000,000 in 1950 to $2,705,000,000 last year— a gain of 2 percent. Since national data, which are still subject to revision, indicate a gain of 8 percent over 1950, the sample re- sult may be somewhat low, but no sound basis exists for making a revision in the figure. Tax on this volume of earnings at the rate of 4 percent indicates a self -assessed tax of $108,200,000 on returns to be filed in the calendar year 1952.

The dollar value of production in the Nation during the current year is expected to increase 7 percent. How- ever, profit margins are likely to be reduced, and a proportionate gain in corporate earnings is unlikely. For this purpose, earnings of California companies have been estimated to advance 3.5 percent to reach a total of $2,800,000,000, with a tax return of $112,000,- 000 in 1953. Distribution of these two calendar year totals to fiscal years, with allowance for the additional tax on banks and financial corporations and audit as- sessments of $3,800,000, results in the totals reported above.

Personal Income Tax-$91,500,000

Revenue from the personal income tax has been esti- mated by relating tax yields to income payments during the past five years and projecting these yields, basing them on estimated income payments for 1951 and 1952.

Analysis of taxable income by types show that re- ceipts from the various sources, e.g., salaries and wages, business profits, dividends, interest, and capital gains, generally accrue to persons at different income levels, and hence are taxed at different rates.8 For this reason it was advisable to relate the tax attributable to income from a particular source to its counterpart in the income payment series. Other income payments, such as pensions and benefits received from social insurance, generally go to people with total income too small to affect the income tax base. The tax on capital gains, having no counterpart in the income payment series,

'Analysis of preliminary statistics for 1950 shows the following relative importance of each source in income payments, in- come reported for taxation, and the tax attributable to that type of income.

19S0

Civilian

Income Taxable Tax

Payments Income Assessed

Salaries and wages 63% 59% 34%

Proprietors' income 17 21 27

Property income 12 15 27

Other income 8

Net capital gains — 5 12

100% 100% 100%

must be estimated separately. Following the example of other taxing jurisdictions, the tax from this type of income has been related to changes in stock prices.

The following table presents the estimates of income payments upon which the forecast of personal income tax revenue has been based.

Civilian Income (In Millions) 1950 1951 1952

Salaries and wages $11,514 §13,522 $14,525

Proprietors' income 3,122 3,282 3,400

Property income 2,206 2,317 2,335

Other income 1,407 1,213 1,215

Total §18,249 $20,336 $21,475

That part of the tax which can be attributed to net capital gain has been estimated to increase from $8,850,000 paid last year, to $10,000,000 for the current year, largely because of the high security price levels which prevailed during 1951. These markets have shown some weakness in the last few months, and consequently the tax to be derived from capital gains was reduced to $7,500,000 for 1953.

Estimates from the various income sources have been combined with audit adjustments and converted to fiscal year collections. Revenue for 1952-53 is forecast at $91,500,000, compared to $88,100,000 estimated for 1951-52 and $75,890,972 actually collected in 1950-51.

Insurance Tax— $29,765,000

Collections under the state tax on insurance pre- miums have shown a gradual increase over a period of several years, reflecting growth in business activity, higher values, increases in some premium rates, and population gains. The budget estimate of revenue from this source is based upon information obtained from a sample of 116 insurance companies accounting for 69 percent of the tax base. Past records show a high degree of reliability in these reports.

Premiums subject to the state tax increased 17.3 per- cent last year, to reach a total of $1,312,000,000. The gross tax on this volume — to be assessed in 1952 — will be $30,830,000, and approximately $200,000 will be received from ocean marine insurance profits. Deduc- tions for local property taxes paid on principal business offices in California are estimated at $1,265,000, leaving net receipts of $29,765,000. Corresponding totals for the current year and for 1950-51 are $25,280,860 and $23,043,305, respectively.

Payment from the State Compensation Insurance Fund in lieu of tax is estimated at $554,153 in 1952-53, compared to $451,100 this year and $403,318 in 1950-51.

Inheritance and Gift Taxes— $26,600,000

The hazards of estimating inheritance tax receipts are readily apparent from the nature of this levy Amounts received by the State depend upon the num- ber of deaths, the value of property formerly held by the decedents, the location of that property, the manner in which it is distributed among the heirs or to charity, and the time required to effect a settlement. A number of large estates are now in process of liquidation. How- ever, inquiry has revealed that in each ease bequests to charity or charitable foundations are likely to be large, and these amounts may not be subject to state tax. The estimates here presented are not predicated on large or unusual tax settlements during 1952-53 in the cases now pending.

A-ll

Inheritance tax collections bear a general relation- ship to security prices. When stock quotations are high, tax receipts are likely to be relatively large. It can be reasoned, therefore, that improvement in security prices over the last three years should sustain a high tax yield. Receipts from the inheritance tax are now running at the average level of $1,900,000 per month, and this amount was increased to slightly more than $2,000,000 per month in projecting the estimate for next year — a total of $25,000,000. Revenue in the cur- rent year is expected to be $24,000,000, and actual re- ceipts in 1950-51 were $21,691,622.

Gift tax payments are forecast at $1,600,000 in 1952-53, compared with $1,500,000 in the current period and $1,979,397 during the last completed fiscal year. In this instance, the reduction is entirely a con- cession to the fact that one large gift two years ago raised the 1950-51 total substantially above the sums recorded earlier.

Alcohol Beverage Taxes-$I9,740,000

Estimates of revenue from the distilled spirits excise tax and the companion levies on beer and wine have been prepared entirely on the basis of apparent con- sumption per adult in the State 's population. Apparent consumption of distilled spirits has varied widely dur- ing recent years, due to supply problems and to tran- sient populations. During World War II the ratio rose to 3.06 gallons per adult, compared with 2.14 gallons before the war. Since 1946 the average has been 2.42, with 2.50 gallons recorded last year. This ratio has been increased to 2.52 in 1952 and 2.55 gallons in 1953, in projecting tax receipts for the current and ensuing fiscal years. Beer consumption has averaged 22.8 gal- lons per adult since the war. The ratio was 22.2 gallons last year and has been carried at 23.0 and 23.6 gallons in the current calendar year and 1953, respectively. Under legislation adopted in 1951, sale of beer on military posts is exempt from state tax. Wine consumption has shown little significant change. Utilization of dry wine last year amounted to .95 gallon per adult, sweet wine 1.73, and sparkling wine .05 gallon. The revenue esti- mates allow for a slight increase in the use of sweet and sparkling wines, and a fractional decline in dry varieties. Comparative collections are shown in the table below :

Actual Estimated Estimated 1950-51 1951-52 1952-53

Distilled spirits $16,094,404 $14,900,000 $15,700,000

Beer and wine 3,795,650 3,845,000 4,040,000

Totals $19,890,054 $18,745,000 $19,740,000

Private Car Tax— $1 ,095,000

The number of railroad cars owned by companies other than railroads and operated in this State has shown a decline during the last two years, but the tax rate has increased. A reversal of both these trends is expected next year. Revenue from this tax, which is levied in lieu of local property taxes, is expected to reach $1,095,000 next fiscal year, against a current total of $1,088,700, and $890,800 in 1950-51.

Other General Fund Revenues— $28,440,360

The principal item of miscellaneous income to the General Fund is interest on investments, which is expected to total $8,067,649 next fiscal year. This rep-

resents a gain of approximately $1.2 million over the current year, and $300,000 more than in 1950-51. A total of $2,662,750 will be transferred from motor vehi- cle license fees to meet highway bond interest and re- demption. Horseracing fees will produce $2,042,888 for general purposes, while $15,650,573 will be received in the form of fees and other charges by operating depart- ments of the State. The latter amount represents a slight decline from earlier years, chiefly as a result of a drop in college enrollments.

THE SPECIAL FUNDS9

Approximately one-third of all state governmental revenues accrue to special funds, and by provision of the State Constitution or the statutes this money may be used only for specific purposes. The largest group of special fund levies are those in connection with the own- ership and operation of motor vehicles — the fuel taxes, registration and weight fees, the motor vehicle license fee imposed in lieu of local property taxes on motor vehicles, the tax on gross receipts of companies trans- porting persons and property for hire over state high- ways, drivers' licenses, and other minor charges. In total, these are estimated to return $308 million in 1952-53, or 86 percent of the special fund total.

The second largest source of special fund income is the_ lTcehse~fee~TevieclTh connection with horseracing, measured chiefly by the volume of betting. This is fol- lowed by liguorlieeiise fees, collected by the State and returned to local governments_for ^expenditure. De- partmental revenues from special charges are esti- mated to be $21.9 million. Of these, the largest contri- butions are those made by sportsmen for fishing and hunting licenses, amounting to $5.4 million. Details on departmental revenues for special purposes are shown for the three years covered by this budget under the heading ' ' Special Funds ' ' in Schedule 2.

Almost 6,000,000 Vehicles in 1953

Fee-paid registrations of cars, trucks, motorcycles, and trailers last year reached a total of 5,303,524 units. This represented a gain of 6.6 percent over the pre- vious peak and 70 percent more than were on the high- ways at the end of World War II. Although produc- tion of new vehicles will be reduced sharply next year, the national output will be still large enough to pro- vide this State with more than the 285,000 new cars sold here in 1948. In addition, registrations will be in- creased by migration, and by a draft upon the inven- tory of vehicles on used car lots. Controls over motor vehicle production are expected to be relaxed some- what in 1953, which should bring a larger number of new units next year. For purposes of the budget esti- mates, fee-paid registrations of 5,600,000 are projected for 1952 and 5,895,000 by the end of 1953.

Current registration and weight fees were estab- lished in 1947, and averages have stabilized within a very narrow range during the last few years. Average fees of $6.38 for cars and light trucks, $35 for heavy

8 Trust funds, such as contributions to the various retirement plans ; bond funds, such as receipts from the sale of school building bonds ; sinking funds for bond interest and redemp- tion ; working revolving funds ; utility funds, such as the Veterans Farm and Home Building Fund of 1943 ; and assess- ment funds, are not government cost funds and are not in- cluded in the general category of special funds. State pay- ments to any of these non-cost funds are, of course, regarded as an expenditure and reported as such.

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trucks, $6.45 for motorcycles, and $16 for trailers were used in making the current estimates of revenue from this source. All amounts include penalties for late reg- istrations and the surcharge on out-of-state cars regis- tered for the first time in California.

Estimates of motor vehicle license fees are based upon vehicle registrations. Average fees have increased materially as a large number of new and higher priced vehicles have been added to the tax base. Vehicle li- cense fees during 1951 averaged $11.25 per unit, com- pared with $9.95 a year earlier and $8.70 in 1949. A decline in the number of new vehicles sold this year and next should result in a relatively stable average of $11.34 for the current period and $11.28 for 1953. Receipts from drivers ' licenses will decline slightly this year as a result of a periodic wave in the renewal pat- tern. Transfer fees and other charges are expected to remain relatively unchanged. A summary of amounts estimated from each source in millions of dollars is given below :

Motor Vehicle Fees 1950-51 1951-52 1952-53

actual estimated estimated

Registration and weight $52.2 $55.9 $59.4

License (in lieu) fees* 60.0 64.1 65.9

Drivers' licenses 3.2 3.0 3.0

Transfer fees and penalties 2.2 2.4 2.5

Other revenues 0.1 0.2 0.2

Totals $117.7 $125.6 $131.0

* Includes approximately $2.7 million in each year transferred to the General Fund for interest and redemption on highway bonds. See Schedule 2 for precise amounts.

Motor Vehicle Fuel Taxes— $168,000,000

Two levies contribute revenue to the Motor Vehicle Fuel Fund — the gasoline tax, which is estimated to produce $160 million during the next fiscal year, and the use fuel tax, budgeted for a total of $8 million. Consumption of motor vehicle fuel per vehicle reg- istered in California has declined moderately during recent years. One reason for this, undoubtedly, is the trend toward more than one vehicle per family. With an added car, there is not a proportionate rise in the miles traveled, and the average per vehicle declines. Other factors may be increased efficiency of engines now on the road, and better highways. Variation in the amount of tourist travel causes some change in the an- nual ratios. Just after the war, gasoline consumption amounted to 701 gallons per vehicle registered. Two years later the average declined to 653.4 gallons, and by 1950-51 it was 634.5 gallons per vehicle. Projections for 1951-52 and 1952-53 contemplate a further drop to 631 and 627 gallons, respectively.10 Diesel consumption per vehicle has followed a declining trend similar to that shown in the case of gasoline ; however, there has been a sharp increase in the number of units using this type of fuel, and a more marked growth in total revenues.

Comparative revenues in millions of dollars for the three budget years are :

Motor Vehicle Fuel Taxes 1950-51 1951-52 1952-53 actual estimated estimated

Gasoline $144.0 $153.0 $160.0

Diesel fuel 5.9 7.1 8.0

Totals $149.9 $160.1 $168.0

10 Gasoline consumption is actually estimated on the basis of car- equivalents, in which automobiles, trucks, motorcycles, and trailers are equated in terms of fuel used. Cars, trucks, motor- cycles, and trailers exempt from registrations are included in the total. Diesel units and one trailer per diesel vehicle are excluded.

Motor Transportation Tax— $11 ,735,000

Experience has shown a close correlation between the volume of spending by California civilians and the gross receipts of highway transportation companies. With spendable resources of $17.2 billion in 1951 and $17.7 billion in 1952, gross receipts of these taxpayers can be estimated at $433 million in the current fiscal year and $467 million in 1952-53. The 3 percent tax will result in gross assessments of $13 million this year and $14 million in the coming fiscal period. Against these amounts, operators will claim an offset in the amount of one-third of the motor vehicle weight fees paid in con- nection with their taxable operations, or approximately $2.1 million for 1951-52 and $2.3 million in 1952-53. Net revenues are therefore estimated at $11.7 million in the coming year, compared with $10.9 million in 1951-52. In each year approximately $35,000 will be paid in permit fees. Tax receipts in 1950-51 amounted to $10,160,033, and permit fees totalled $34,305.

Horseracing Fees— $16,973,000

Betting in the pari-mutuel pools at California horse- races during 1952-53 is estimated to total $300 million, compared with $331 million indicated this year and $289 million in 1950-51. Out of each pool operated, the State takes as its license fee 4 percent of the first $10 million, 5 percent of the next $10 million, and 6 percent of all pools in excess of $20 million. In addition, the State receives all "breakage" n in pools over $27 mil- lion, all unclaimed pari-mutuel tickets, and license fees paid by owners, jockeys and trainers. Receipts from these sources during the three years covered by this budget are shown in the table below, in thousands :

Horseracing Fees

1950-51 1951-52 1952-53 actual estimated estimated

Pari-mutuel pools $15,215 $17,081 $15,709

Breakage 890 861 897

Unclaimed pari-mutuel tiekets__ 229 387 337

License fees 22 30 30

Other receipts 12 - —

Totals $16,368 $18,359 $16,973

The decline in receipts from parimutuel pools be- tween 1951-52 and 1952-53 is due chiefly to the fact that two Western Harness meets will be conducted in the former year and none in the latter.

The sums of $3.9 million in 1950-51, $2.2 million in 1951-52, and $2 million in 1952-53, included in the above table, accrue to the General Fund.

Liquor License Fees— $8,115,000

Receipts from liquor license fees next year are esti- mated at $8,115,000, compared with $8,090,000 cur- rently and $8,106,155 in 1950-51. Variations in amounts received from this source are largely the result of differences in dollar volume of liquor sold.

RECENT TAX TRENDS

State tax revenue per $100 of income received by the people of California is lower today than during prewar years. Under the estimates presented here, tax receipts from all sources in 1951-52 will amount to $4.83 per one hundred dollars of income received by

11 Defined in the Business and Professions Code, Sec. 19485.1, as ". . . the odd cents by which the amount payable as to each dollar waged . . . exceeds a multiple of five cents . . ."

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the people of California last year, and this ratio will drop to $4.78 next fiscal year.12 This compares with an average of $4.86 in the five prewar years and a high of $5.09 in 1950-51, when two waves of scare buying in- flated the ratio at least ten cents.

Basically, the state tax structure has not been ■changed in the last 16 years. With two general excep- tions, the tax rates which now produce more than a billion dollars annually yielded only $250 million 12 years ago. This phenomenal growth without an increase in the burden of taxes in relation to income is further proof of the direct relationship between taxes and the aggregate volume of business activity in the State. The two exceptions are in opposite direc- tions, so far as burden is concerned. The state income tax at the present time is lighter than it was prewar : •exemptions are $1,000 higher for both individuals and families, and the maximum tax rate is now 6 percent on taxable income in excess of $25,000 compared to 15 percent above $250,000 prior to 1944. In contrast to this relief, motor vehicle taxes were increased substan- tially in 1947, as part of an effort to solve State and local highway problems. The motor vehicle fuel tax was raised 50 percent (from 3 cents to 4.5 cents per gallon) ; registration fees were doubled, weight fees

12 Of necessity, these comparisons are made between taxes re- ceived by the State during a fiscal year and income received by California residents in the preceding calendar year. Data on income payments to individuals are available only on a calendar year basis. Since there is a slight lag between the taxable event and receipt of tax revenue by the State, the comparison is believed to be valid.

were increased almost 100 percent and a driver 's license fee was imposed. These two changes did not offset each other, however. The added motor vehicle revenue ex- ceeded the reduction in personal income tax by a wide margin.

State tax payments for support of general govern- mental activities next year will be 5 percent below pre- war in relation to income of individuals. Receipts of $3.27 per $100 of individual income are 16 cents under the prewar average. In addition to the personal income tax reduction, this change is the result of a shifting within the tax system. Certain levies formerly used for general support are now dedicated to special activities. For example, the motor vehicle transportation tax was deposited in the General Fund until the law was changed in 1947. This money is now used for highway construction and maintenance. The State formerly re- ceived a share of liquor license fees which now goes entirely to cities and counties. There has been a similar shift in motor vehicle license fee receipts. All told, approximately $30,000,000 of current revenue which formerly went to the General Fund is now specifically earmarked for special purposes. This transfer accounts for almost the entire 16 cent drop in the ratio between General Fund taxes and citizen income.

A summary of income payments to individuals in California, state tax collections, per capita taxes, and tax payments per $100 of individual income is shown in the following table.

SUMMARY OF STATE POPULATION, INCOME OF CALIFORNIA RESIDENTS, AND STATE TAX COLLECTIONS

Excluding Departmental and Miscellaneous Revenues

	Estimated Population July 1st	Estimated Income of Individuals	Income Per	Fiscal	State Tax Collections	Taxes Per Capita	Taxes Per $10 Individual Inc	)of
	General Fund	Special Funds	Total	me
	General	Special		General	Special
Year	(Thousands)	(Millions)	Capita	Year	(Thousands)	(Thousands)	(Thousands)	Fund	Funds	Total	Fund	Funds	Total
1936__	_ 6,341	$4,730	$746	1936-37	$155,047	$63,723	$21S,770	$24.10	$9.90	$34.00	$3.2S	$1.35	$4.63
1937-	_ 6,528	5,047	773	1937-38	172,159	6S,161	240,320	26.12	10.34	36.46	3.41	1.35	4.76
1938-	_ 6,656	4,772	717	193S-39	166,S08	69,288	236,096	24.82	10.31	35.13	3.50	1.45	4.95
1939-	_ 6,7S5	5,047	744	1939-40	174,142	76,813	250,955	25.30	11.16	36.46	3.45	1.52	4.97
1940-	_ 6,980	5,606	S03	1940-41	195,796	84,553	280,349	27.41	11.84	39.25	3.49	1.51	5.00
1941*.	_ 7,125	6,922	971	1941-42	238,440	S5,768	324,208	32.74	11.78	44.52	3.44	1.24	4.68
1942*_	_ 7,441	8,964	1,205	1942-43	274,575	71,906	346,481	36.65	9.60	46.25	3.06	O.SO	3.86
1943*_	_ 7,541	11,720	1,554	1943-44	301,506	72.2S2	373.7S8	3S.71	9.28	47.99	2.57	0.62	3.19
1944*_	_ 8,036	13,048	1,624	1944-45	314,237	80.23S	394,475	38.15	9.74	47.89	2.41	0.61	3.02
1945*.	_ 8,438	13,242	1,569	1945-46	353,400	113,245	466,645	39.76	12.74	.-2.50	2.67	0.S5	3.52
1946-	_ 9,548	15.1S0	1,590	1946-47	432.S59	137,751	570,610	44.60	14.19	5S.79	2.85	0.91	3.76
1947-	_ 9,864	16,043	1,626	1947-48	457,297	228,708	6S6.005	45.66	22.84	68.50	2.85	1.43	4.28
1948-	_ 10,165	16,937	1,666	1948-49	485,36S	249,344	734,712	47.12	24.21	71.33	2.87	1.47	4.34
1949-	_ 10,434	16,731	1,604	1949-50	524.42S	268,177	792.605	49.78	25.46	75.24	3.14	1.60	4.74
1950-	_ 10,634	18,542	1,744	1950-51	647,992	295,542	943,534	59.63	27.20	86.83	3.50	1.59	5.09
1951-	_ 11,100	20.S46	1,S78	1951-52	6S9.461	318,138	1,007,599	61.12	28.20	89.33	3.31	1.52	4.83
1952-	_ 11,460	22,000	1,920	1952-53	719,560	331,102	1,050,662	61.S7	28.47	90.34	3.27	1.51	4.78

* Amounts shown during period of World War II represent civilian population, estimated income of civilians, and per capita civilian

income. Population data, 1936 through 1939, are based on United States Census Bureau estimates ; population, 1940 to date, estimated by the

State Department of Finance. (Provisional Annual Estimates of the Population of California, 1940-1958, Nov. 1951.) Income of individuals, 1936 through 1950, from United States Department of Commerce estimates. Survey of Current Business, Aug.

1951. Reported totals for 1941 through 1945 have been adjusted to exclude income of armed forces personnel. Data for 1951 and

1952 are estimates by the State Department of Finance. Income per capita computed from population and income data shown. Amounts differ somewhat from U. S. Department of Commerce

estimates. Taxes per capita computed on the basis of population January 1st, the midpoint of the fiscal year.

A-14

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A-21

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REVENUE DOLLAR

MOTOR VEHICLE TAXES 8 FEES

w/jyy^m, 28.1*

SALES TAX 38.7*

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FRANCHISE TAX

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CHART 3

A-22

Analysis of Expenditure Requirements

1952-53 Fiscal Year

Expenditures recommended in the State Budget for The detailed amounts making up these totals, classi-

the fiscal year ending June 30, 1953, total $1,185,397,- tied according to budget organization, are shown in the

000. This represents an increase of approximately $82 table on the following page and in Schedule 3.

million, or 7.4 percent, over the estimated requirements State government performs many and widely varied

for the current year and $179 million more than was functions, ranging from agricultural development to

spent in the twelve months which ended June 30, 1951. the regulation of yacht brokers. For the most part,

An executive budget is a complete financial plan for however, these fit into six general categories. The most

the operation of government, bringing together the important from the financial viewpoint is the support

expenditure needs and the resources available to meet 0f education. A little more than one-third of all expend-

these needs. 1 In California, approximately two-thirds itures recommended for the coming year relate to that

of the expenditure total represents the cost of services function. This includes the direct support of public

which are mandatory under provisions of the State schools, colleges and the University, administrative

Constitution or other existing law. The remaining one- activities of the Department of Education, and amounts

third is subject to determination by the Governor in budgeted for the construction of buildings at educa-

preparing his budget recommendations. These are the tional centers. In the second large category, accounting

expenditure items incorporated into the budget bill for one-fifth of the total, are the expenditures for

to be considered by the State Legislature. highways, roads, streets, traffic law enforcement, and

Like a great majority of the earlier budgets in their the regulation of motor vehicles. These two classes of time, the program required for 1952-53 is the largest expense — education and highways — make up more in the history of this State. It reflects governmental than 56 percent of the entire expenditure budget. Third needs in a rapidly growing area during a period of in importance are the activities in connection with price inflation. The program of services provided in social welfare and public health, accounting for 16 this document, with the population and prices of 10 percent. These are followed by payments for mental years ago could have been financed for approximately hospitals, homes and correctional facilities with 10 $507 million. The $678 million difference between this percent and by expenditures for development and con- sum and the budget total measures in rough terms the servation of natural resources, which require 5 percent impact of inflation and population growth upon the of the budget. All other expense, including the legisla- finances of California State Government. tive, judicial, executive, general administrative, regu-

State expenditures fall into three broad classes : (1) latory, and tax administering activities, combined with

the cost of operating State governmental agencies and apportionments of state-collected revenue for general

payments on debt, (2) capital outlay — the cost of build- administration of local governments, comprise 13 per-

ing the structures, highways and facilities to be used cent of the expenditure total. Amounts included for

in subsequent years, and (3) payments by the State to each of these purposes in 1952-53 and the changes from

local units of government, including the cost of the estimated requirements during the current, 1951-52,

jointly financed activities, assistance in meeting the Fiscal Tear are given in the table below :

expense of local services, and distribution of revenue Recommended Change from 1951-52 Percent

, , . n ■, ,, 0, A ,1 , n, s ■,■ j expenditures Amount Per- of total

collected by the State for the benent ot cities and (millions) (millions) cent budget

counties. During 1952-53, less than one-third of the Education __„______ $418.6 $58.6 16.3 35.3

expenditure total will be used for the current opera- HishrI,?uiation *--—-- 248 4 —21 —08 210

tion of State Government. Approximately one-fifth Social welfare and

will be spent to construct buildings, highways, and herailt:^- a — 187'3 3'1 1-7 15'8

other facilities needed to meet the problems of obso- ^correS"" 117.7 12.9 12.9 9.9

lescence and population growth. A little more than half Conservation of natural

the total represents assistance to local governments. Ml Jther".!!_~~~I 155!§ s!6 iJ llil

Amounts budgeted for each purpose, together with the

increase over the current year and the percent of the Totals $1,185.4 $82.1 7.4 100.0

total, are shown in the following table : 2 r-n-rr- ^nmiT.^wo

Recommended STATE OPERATIONS

expenditures Increase over 1951-52 Percent

1952-53 Amount Per- of total Expenditures for the operation of State Government

(millions) (millions) cent budget * r _ _

State operations $337.6 $37.0 12.3 28.5 include the cost of legislative, judicial and executive

Capital outlay 222.0 5.9 2.7 18.7 activities, the expenses of nineteen administrative de- Local assistance 625.8 39.1 6.7 52.8 , ' ... x „ .. . , , &.

partments, the support of all independent offices,

Total $1,185.4 $82.1 7.4 100.0 boards, and commissions, and debt service. Budget

> section 34 of Article iv of the Constitution provides in part :_ recommendations for these agencies represent the esti-

"The Governor shall, at each regular session of the Legisla- .... ,

ture, submit to the Legislature, with an explanatory message, mated expense of continuing the program approved

a budget containing a complete plan and itemized statement x -.i • ^

of all proposed expenditures of the state provided by existing for the current nscal year without major changes.

law or recommended by him . . . and of all estimated revenues a i • ^ _li i n-c* — jj

for the ensuing fiscal year . . ." Adjustments have been made for increases and de-

2 In all of the text tables amounts have been rounded to the near- nT.aot!ae! in +lio ™rvrli- lnnrl nf nrlmi'nistrnti-ue rmit« nnrl n +

est thousand dollars. In some instances this results in an ap- Creases in tfte WOrk load OI aCimilllST.rai.lve UniLS, ana az

?oataeif ar^corac^to'th" nearest" thousand. a" cases' however' certain points, such as traffic law enforcement, clearer

A- 23

COMPARATIVE SUMMARY OF EXPENDITURES (In Thousands of Dollars)

Change from

Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Percent STATE OPERATIONS:

Legislative $3,361 $2,638 $3,002 $364 13.8

Judicial 1,098 1,262 1,304 43 3.4

Executive and Civil Defense 954 1,989 1,836 —153 —7.7

General Administrative 1,894 1,945 2,070 124 6.4

Agriculture 8,279 9,424 9,307 —117 —1.2

Corrections 15,827, 18,259 19,347 1,087 6.0

Education 56,800 64,615 70,121 , 5,506 8.5

Employment 30 66 64 —2 —3.0

Fiscal Affairs 25,500 28,481 29,651 1,170 4.1

Highway Patrol 10,397 12,001 14,039 2,038 17.0

Industrial Relations 4,091 4,669 4,960 291 6.2

Investment 2,600 2,933 3,048 115 3.9

Justice 2,058 2,555 2,803 248 9.7

Mental Hygiene 37,663 44,736 4,8,026 3,290 7.4

Military Affairs 2,184 2,712 2,926 214 7.9

Motor Vehicles 10,094 11,777 12,956 1,179 10.0

Natural Resources 18,071 20,116 21,319 1,203 6.0

Professional, Vocational Standards 2,421 2,679 2,795 116 4.3

Public Health 4,171 4,951 4,821 —130 —2.6

Public Utilities ^ 2,737 3,056 3,136 80 2.6

Public Works 31,790 34,724 37,242 2,518 7.2

Social Welfare 1,834 1,915 2,034 119 6.2

Veterans Affairs 6,323 6,306 6,072 —234 —3.7

Miscellaneous 10,427 11,470 14,615 3,146 27.4

Salary Increase a 1,694 14,244 12,550 740.9

Contingency Reserves'1 - 1,100 3,500 2,400 218.2

Adjustments* —1,355 —1,254 —1,287 —33 —2.6

Totals, Current Expense + $259,248 $296,817 $333,950 $37,133 12.5

Debt Service 3,808 3,708 3,608 —100 —2.7

Totals, State Operations $263,056 $300,525 $337,558 $37,033 12.3

CAPITAL OUTLAY:

Corrections $9,792 $14,284 $19,499 $5,215 36.5

Education 39,476 21,891 35,412- 13,521 61.8

Fiscal Affairs 6,531 3,788 7,188 3,400 89.8

Mental Hygiene 11,900 23,136 22,035 —1,101 —4.8

Natural Resources 6,183 8,701 7,883 —818 —9.4

Public Works 116,456 119,357 108,117 —11,240 —9.4

AllOther 10,005 24,985 21,909 —3,075 —12.3

Totals, Capital Outlay $200,343 $216,142 $222,043 $5,902 2.7

LOCAL ASSISTANCE:

For Education $242,093 $268,333 $302,863 $34,530 12.9

For Social Welfare 150,154 150,334 151,669 1,335 0.9

For Public Health 10,663 12,635 13,942 . 1,307 10.3

For Public Works 11,062 6,242 4,659 —1,583 —25.4

For Other Purposes 3,969 5,054 4,643 —411 —8.1

Shared Revenues 125,000 144,068 148,019 3,951 2.7

Totals, Local Assistance $542,941 $586,667 $625,796 $39,129 6.7

GRAND TOTALS, EXPENDITURES— $1,006,339 $1,103,333 $1,185,397 $82,064 7.4

a Amounts are not comparable, since the sums shown for 1951-52 represent only the * Credits to the General Fund for overhead'services charged to agencies supported from

unallocated balance of similar provisions made for salary adjustments and price special funds. The adjustment is necessary to avoid duplication of the amounts

increases approved in connection with the current budget. shown. Totals may not add, due to rounding to the nearest thousand.

A- 24

recognition is given to some of the most pressing prob- lems of government, but the basic scope of state service remains unchanged.

The program of state operations recommended in this budget involves expenditures of $337,558,000, an increase of $37,033,000, or 12.3 percent, over the esti- mated requirements for the current year. Of this amount $333,950,000 represents the current expenses of state agencies and $3,608,000 is required to meet interest and redemption of state bonds. Expenditures for debt service on these obligations will be paid from the reserve created in 1943 and from motor vehicle license fees specifically earmarked for highway bonds.3

The current expense total includes funds for a pro- posed increase in the salaries of state employees effec- tive July 1, 1952, in accordance with findings and recommendations of the Personnel Board that adjust- ments are necessary to maintain state salary schedules parallel with those of private industry and other gov- ernmental jurisdictions. The sum of $2,000,000 is in- cluded to meet probable increases in the prices of food and clothing, to be purchased for inmates of state insti- tutions, and in the cost of equipment and supplies, while provision is made for a general emergency fund of $1,500,000. All three of these amounts had their counterparts in the approved budget for the current fiscal year.

Principal Items of Expense

Five adjustments of the data presented in the accom- panying summary table have been made in analyzing the operating expense of state agencies for purposes of this presentation. (1) The $14.2 million proposed for salary adjustments has been distributed to the vari- ous agencies by increasing- salary and wage expendi- tures by 5 percent. (2) The $2.0 million provided to meet price rises has been allocated on the basis of budget allowances for food, clothing, equipment, and supplies. (3) Contributions from the General Fund for em- ployees' retirement, normally reported in lump sum, have been allotted among the departments in accord- ance with salary and wage payments from the General Fund. (4) Payments for debt service have been charged to the function for which the obligations were in- curred, such as highways or natural resources. And (5) in some instances combinations of expenditures by different agencies have been made in terms of broad governmental functions. As a result of these changes, amounts given below differ substantially from the ex- penditures reported in the summary table and in the budget schedules, but in many respects the adjusted data give a more complete picture of state operations than can be obtained on the strict organizational basis used for budgetary control. Two points must be em- phasized: first, the distribution of the price increase fund is purely an estimate of the possible utilization of this money and is not an additional appropriation for the support of any agency. Second, the total of all expenditures for state operations, $337,558,000 is iden- tical with the amount shown for this purpose in the budget summaries.

3 Interest and redemption payments on school building bonds issued for the benefit of distressed school districts are shown as assistance to local governments.

Education-$80,340,000

The largest item of expense in State operations is incurred in connection with support of educational institutions, administrative activities of the Depart- ment of Education, and operation of the State Library. Expenditures for this purpose during 1952-53 are budgeted at $80,340,000, compared with $69,761,000 currently and $60,472,000 in 1950-51. Among the im- portant factors contributing to this increase have been the new state colleges and special schools established during recent years, expansion in the courses of study available at several institutions, and emphasis upon graduate work and research, particularly at the Uni- versity of California.

More than one-half of all payments in this field concern state support of the university, and half of the increase shown for next year are reflected in this appropriation. Expenditures for the university in the coming year are expected to reach $52,675,000 or $6,516,000 above the estimated total for 1951-52. Although enrollment is expected to decline moderately, corresponding reductions cannot be made in the uni- versity's expenditures without diluting the quality of the educational program provided. In most phases of this work, a drop in number of students may be re- flected in proportionately smaller classes, but not in a proportionately smaller number of courses offered in the established curriculum. With the new medical school on the Los Angeles campus, new colleges of let- ters and science at Riverside and Davis, and extensions in other professional fields, actually the reverse will be true next year. Roughly, one-third of the increase shown for the university is attributable to new and extended activities. The remainder may be traced to merit increases and promotions of personnel, increased cost of maintaining plant and equipment, and a pro- posed augmenting of state support to compensate for a decline of approximately $517,000 in other income available to the university.

Support of state colleges in the amount of $16,972,- 000 is proposed for next year, an increase of $2,237,000 over the current period. Expanding enrollments at the two new educational centers in the Los Angeles area and one in Sacramento contribute heavily to this growth, while continued emphasis on the training of teachers to fill critical shortages in the public school system necessitates increases in the expenditure pro- grams of the older institutions. Expenses in connection with a shift to the new campuses at Fresno and San Francisco temporarily inflate the expenses of these col- leges. Completion of new dormitories at California Polytechnic College will allow a return to capacity enrollment, after a year of shortage in student hous- ing when the army resumed control of accommodations at Camp San Luis Obispo.

Among the chief developments at the special schools are the provision for the initial enrollment at the new residential institution for the deaf at Riverside and completion of additional facilities at the School for the Deaf in Berkeley. An increase in expenses of the Oak- land Orientation Center for the Adult Blind — a resi- dential institution — is offset by a decline in activities at the Blind Center in Oakland, under legislation adopted last year.

A- 25

A summary of all current expense for education is given in the following table :

(In thousands of dollars)

Change from Actual Estimated Proposed 1051-52

1950-51 1951-52 1952-53 Amount Pet.

Department of Education. $3,612 $3,963 $4,765 $802 20.2

State colleges 14,103 14,735 16,972 2,237 15.2

Technical colleges 2,332 2,402 2,970 568 23.7

Special schools * 2,151 2,343 2,779 435 18.6

University 38,121 40,159 52,675 6,516 14.1

Other 153 159 180 20 12.7

Totals $60,472 $69,761 $80,340 $10,579 15.2

* Including centers for the blind.

Mental Hygiene and Corrections, $75,427,000

Payments for support of mental hygiene and correc- tional activities constitute the second important class of state expenditures. The aggregate for these purposes in 1952-53 is $75,427,000— an increase of $8,743,000 over the estimated amount for the present fiscal year. More than two-thirds of the total will be used for support of mental hospitals and other work in the field of mental hygiene. Less than one-third will be expended for cor- rections, including the maintenance of prisons, correc- tional schools, and parole supervision.

The impact of higher salaries and price inflation is particularly heavy in the budgets for institutions Of the $14,244,000 provided for salary increases, $3,794,- 000 will go into the expenditure totals for these agen- cies next year, while almost one-half of the $2,000,000 requested to protect the State in the event of further inflation may ultimately be allotted to institutional budgets. The two factors of higher salaries and price emergency fund account for more than half the $8,743,- 000 increase in expenditures for mental hygiene and corrections shown in the table below.

The Department of Mental Hygiene is the largest operating agency of the State Government in point of current expense, with total expenditures of $54,034,000 proposed for next year, a gain of $6,681,000 over the current year total. Since the close of "World War II, pri- mary emphasis has been placed upon the prevention of mental disorders and the rehabilitation of patients in the State's mental hospitals. Trends in this direction have been particularly apparent during recent years, with the creation of additional local clinics, the adop- tion of new treatments, and medical research into the causes and treatment of mental illness. The results of these activities are clearly reflected in the proposed budget for the coming year. For the first time in more than two decades the current increase in mental pa- tients is only nominal, and an even smaller growth is anticipated next year.

Evidence of success in this basic attack upon such a deep-seated social problem has prompted a further moderate expansion in the program for mental hy- giene. Provision is made for an improved level of care through the addition of 1,029 new positions, chiefly in professional and technical capacities. New units sched- uled to open next year include receiving and treatment buildings at the Napa and Stockton hospitals. A new diagnostic and preadmission service is proposed at Pa- cific Colony and Sonoma State Home for the mentally defective. An alcoholic research project is to be under- taken at Agnews, and a survey of the outpatient clinic program is recommended.

The increase of $2,062,000 in expenditures for cor- rectional institutions, to reach a total of $21,393,000 during 1952-53, reflects primarily the growth in the number of inmates and a more complete schedule of operations in the new facilities now being placed in service. Population of penal and reform institutions is estimated to average 14,383 during the coming fiscal year, an increase of 568 over the present total. Except for the shifting of population and increase in staff which arises largely from the occupancy of new quar- ters, the budget for corrections in 1952-53 represents a continuation of the current approved program and a consolidation of the improvements effected during re- cent years.

State expenditures for mental hygiene and correc- tions are summarized in the table below.

(In thousands of dollars)

Actual 1950-51

Mental hygiene $39,356

Corrections 16,511

Totals $55,868

Estimated

1951-52

$47,354

19,330

Proposed

1952-53

$54,034

21,393

Change from 1951-52 Amount Pet. $6,681 14.1 2,062 10.7

1,684 $75,427

!,743 13.1

Highways, Traffic Law Enforcement and

Regulation of Motor Vehicles, $62,516,000

During the coming fiscal year the State Government will spend $62,516,000 for services to motorists. This total includes the planning, administering, and main- taining of highways, enforcement of traffic laws, and the regulation of motor vehicles. It does not include highway construction, for which a sum almost twice as large is scheduled for expenditure.

By far the major item of interest in highway expen- ditures is the proposal to expand the highway patrol as one approach to the problem of traffic accidents. Until congestion of traffic arteries can be eliminated and safety facilities provided, reliance must be placed upon greater vigilance and stricter law enforcement. The budget proposes the addition of 232 positions to the strength of the highway patrol to provide a more adequate degree of traffic regulation. The cost of this improvement will be approximately $1,300,000.

Changes in the budget of the Department of Motor Vehicles arise primarily as a result of the anticipated move into new and larger quarters. Expenditures for maintenance and operation of buildings account for approximately one-quarter of the increase in the cur- rent expense of this department. Other changes reflect the greater work load anticipated as a result of further growth in both the number of vehicles and the number of vehicle operators.

Virtually all of the increase in current expense for state highways relates to maintenance, which must be increased as the program of new and modern highways is pressed forward.

Operating expense by the three agencies involved in serving highway needs may be summarized as follows :

(In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Traffic law enforcement.. $10,397 $12,011 $14,461 $2,450 20.4

Regulation of motor

vehicles 10,094 11.788 13,409 1,621 13.8

State highways 31,103 33,244 34,646 1,401 4.2

Totals $51,594 $57,043 $62,516 $5,472 9.6

A- 26

Conservation and Development of Natural Resources, $42,939,000

This classification brings under one heading the activities carried on in several governmental agencies all directed toward improved utilization of the State's natural resources. It embraces the work of the Depart- ments of Agriculture, Fish and Game, and Natural Resources, the Division of Water Resources and related sections in the Department of Public Works, the Reclamation Board, and the Division of Fairs and Expositions in the Department of Finance. In the aggregate, these agencies will expend $42,939,000 on various phases of resource conservation and develop- ment during the coming year — $3,969,000, or 10.2 per- cent, more than will be spent in these activities during 1951-52.

The largest and most diversified of these operating units is the Department of Natural Resources which administers state beaches and parks, protects forest and brush areas, supervises mining and oil field activ- ity, and assists in the formation of soil conservation districts. In total, more than $16,257,000 will be spent on this work during 1952-53. Except for minor addi- tions to personnel in forestry, beach and park operations, and rising payments to counties and the United States Forest Service for fire protection on lands of state responsibility, the proposed budget provides merely for a continuation of present approved programs.

Legislation adopted last year established the former Division of Fish and Game as an independent depart- ment of State Government. This agency is charged with the responsibility of formulating policies, pre- serving wild life, controlling predatory animals, con- ducting research, and enforcing fish and game laws, including the regulation of commercial fisheries. Main- tenance of the present level of operations during the next fiscal period will involve expenditures of $6,801,- 000. Virtually all of the $399,000 increase over the current total represents the proposed higher salary level and State's share of expenses incurred in con- nection with game management projects conducted jointly with the Federal Government.

A parallel situation exists in the budget of the State Department of Agriculture. Expenditures proposed have been held strictly within the limits of the program approved for the current year. Totals are shown in the table below.

The major change in expenditures for the develop- ment of water resources is the provision of $800,000 to finance necessary preliminary work in connection with the development of the Feather River Project, author- ized by Chapter 1441, Statutes of 1951.

Expenditures for agricultural fairs and expositions under jurisdiction of the State are budgeted at $5,624,- 000 next year, an increase of 7.8 percent over the cur- rent total. Additional funds are provided for district agricultural associations, under provisions of law gov- erning the distribution of horse racing revenue.

The following data summarize the current expense for conservation and development of natural resources.

(In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Agriculture $8,501 $9,695 $10,027 $331 3.4

Fish and game 5.143 6.403 6,801 399 6.2

Beaches and parks 2,322 2,555 2,777 222 8.7

Forestry 10,351 10,864 12,218 1,355 12.5

Mining, gas, and oil 788 860 911 51 5.9

Water resources 2,548 3,100 4,229 1,129 36.4

Fairs and expositions 4,893 5,219 5,624 405 7.8

Other 216 274 351 77 28.1

Totals $34,762 $38,970 $42,939 $3,969 10.2

Social Welfare and Public Health, $19,417,000

Activities brought together under the heading of welfare and health include administration of public assistance, regulation of health, aid to veterans and promotion of welfare among the workers in industry. With the exception of the last two functions, this is a field in which most of the expenditures are made through cities and counties and are reported as local assistance. Amounts shown as current expense repre- sent only the cost of State supervision of jointly financed programs.

Here, again, the program of expenditures totaling $19,417,000 for next year contains no important devia- tions from that now in operation. The increase of 4 percent represents almost entirely salary adjustments and the accompanying increase in contributions to the employees ' retirement plan. Assistance to veterans who are completing their education is expected to continue the moderate decline shown for the first time this fiscal year. An apparent decline in expenditures by the Department of Public Health for crippled children is, in fact, the result of transferring certain therapist positions to the local assistance classification. The work will actually go on as now established.

In some aspects, operations of the Department of Industrial Relations must parallel changes in economic activity and employment. For this reason adjustments are proposed to intensify the work on accident preven- tion and safety, and the adjudication of cases arising under the workmen 's compensation insurance law.

Expenditures recommended for support of State agencies during 1952-53 are summarized below :

(In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Industrial relations $4,307 $4,933 $5,523 $590 12.0

Public health 4.316 5,167 5,282 115 2.2

Social welfare 1,920 2,015 2.255 240 11.9

Veterans affairs 6,406 6,440 6,294 —146 — 2.3

Other 30 66 64 — 2 —3.0

Totals $16,978 $18,620 $19,417 $797 4.3

Fiscal Affairs, $26,324,000

Financial affairs, involving the collection of state revenue, auditing of tax returns, business management, control over and auditing of expenditures, and the cus- tody of state funds are divided among six state agen- cies.4 Total expenditures of $26,324,000 are recom-

4 The Department of Motor Vehicles, classified in the broad group of highways and motor vehicles, collects registration and weight fees, license (in lieu) fees, drivers' license fees and other motor vehicle charges. The Department of Insurance receives reports essential to the administration of the insur- ance premiums tax, and virtually all of the regulatory agencies collect fees incidental to their other activities. Expenditures for these purposes are excluded from the totals shown for fiscal affairs.

A- 27

mended for 1952-53, an increase of $2,242,000 over the corresponding amount required in the current year.

Minor changes, both increases and decreases, are shown in the recommendations for these agencies, most of which are generated by improved business practices. There are, however, three factors contributing to a net increase : (1) Expenditures for support of the Division of Building and Grounds will increase as new state- owned office space becomes available. This item alone accounts for approximately $400,000 of the increase shown for the Department of Finance. (2) Additional emphasis upon auditing and further expansion of cen- tralized disbursements will add $180,000 to the current expense of operating the State Controller's Office. (3) Leases and equipment obtained in connection with state administration of aged and blind aid, under the short-lived constitutional amendment of 1948, are being liquidated by the Finance Department. A decline in revenue from sales of equipment, which is an offset against this expense, has the effect of contributing $115,000 to the budget increase.

A summary of current expense for fiscal affairs fol- lows : (In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet. Control and Management :

Board of Control S17 $22 $23 $1 7.7

Controller » 1,360 1,473 1,674 201 13.6

Department of Finance >> 4,574 5,415 6,287 872 16.1

Treasurer 261 295 301 6 2.0

Subtotal $6,212 $7,205 $8,285 $1,080 15.0

Tax Collection:

Board of Equalization— $11,970 $13,161 $14,051 $890 6.8

Controller = 982 1,058 1,145 87 8.3

Franchise Tax Board— 2,580 3,201 3,400 199 6.2

Subtotal $15,532 $17,420 $18,596 $1,176 6.8

Total, Fiscal Affairs $21,744 $24,625 $26,882 $2,256 al

Less: Adjustments*— 675 544 558 14 2.6

Net Totals $21,069 $24,081 $26,324 $2,242 8.9

n Excluding tax collection divisions of the Controller's Office.

b Excluding the Division of Fairs and Expositions (see Conservation of Natural Re- sources).

0 Tax collection divisions only.

* Credits to the General Fund for overhead services charged to agencies supported from special funds. The adjustment is necessary to avoid duplication of the amounts shown.

Other Expense, $30,596,000

Legislative, judicial, executive, general administra- tive,5 and regulatory activities are grouped under the heading of miscellaneous expense for purposes of this analysis. Principal contributions to the total are made by the regulatory bodies, such as the Public Utili- ties Commission, the six offices dealing with the general subjects of banking and investment,6 and the 28 boards, bureaus, and commissions regulating the pro- fessions and vocations.7 Expenditures of these regu- latory agencies are estimated to be $9,561,000 during 1952-53, under the budget recommendations — almost one-third of the miscellaneous expense total.

The principal increase involved is the provision for augmentation of revolving funds in the amount of $2,000,000. This sum is required to operate at current high price levels such activities as purchasing, manu- facturing operations of the blind, prison industries, and purchase of ballot paper. Although classified as an ex-

5 General administrative agencies include the State Employees'

Retirement System, the Commission on Interstate Cooperation, the Personnel Board, and the Secretary of State's Office.

6 Divisions of Banking, Building and Loan, Corporations, and Real

Estate ; the Department of Insurance ; and the District Secu- rities Commission. Regulatory expense incurred by other de- partments incidental to their principal functions are not included in the totals presented here. ' See Budget Schedule 3 for a list of these agencies.

penditure, the addition is actually a transfer to special accounts to finance expenditures elsewhere reported. It should also be noted that legislative expense in 1952-53 is not strictly comparable with the present year. Allow- ance is made for the longer regular session next year, as compared with the short budget session to be held in March, 1952.

A summary of the principal items comprising other expense is given in the following table :

(In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Legislative $3,381 $2,661 $3,051 $391 14.7

Judicial 1,164 1,344 1,467 124 9.2

Executive and civil defense 9S9 2,061 2,014 — 47 — 2.3

General administrative — 2,002 2,074 2,340 267 12.9

Regulative : 7,921 8.S68 9,561 693 7.8

Other • 7,535 8.668 11,391 2,723 31.4

Reserve for contingencies " — 400 1,500 1,100 275.0

Totals $22,993 $26,075 $31,325 $5,249 20.1

Less: Adjustments * 680 710 728 18 2.5

Net Totals $22,312 $25,365 $30,596 $5,232 20.6

a Including the Departments of Justice and Military Affairs, Public Works other than

expenditures for highways and water resources, and miscellaneous expenses. b The amount shown for 1951-52 represents the unallocated balance of the $1,500,000

emergency fund provided for the current year. The $1,500,000 given for 1952-53

is the total emergency fund requested for the coming fiscal year. * Credits to the General Fund for overhead services charged to agencies supported from

special funds. The adjustment is necessary to avoid duplication of the amounts

shown.

CAPITAL OUTLAY

With the exception of projects deferred by legisla- tive action, the State's postwar building program, as now authorized, is drawing to completion. As a result of a sharp increase in building costs and continued population growth, the original program fails to sat- isfy current needs despite modifications during recent years.8 In order to meet these problems of inflation and growth, the 1952-53 Budget contains recommen- dations for a substantial amount of construction at mental hospitals, homes, correctional institutions, edu- cational centers, and other sites of concentrated gov- ernmental activity. In contrast with the original pro- gram which necessarily was pointed toward meeting the deficiencies of the past occasioned by a depression and war, the budget proposals are directed at the present and toward sound planning for the future. Funds are included in the budgets of each department for preparation of preliminary plans for new major construction projects so that the scope and better esti- mates of costs can be determined prior to the appropri- ation of funds for working drawings and construction.

Capital outlay expenditures budgeted for 1952-53 total $222,043,000, or an increase of $5,902,000 over estimated expenditures of the current fiscal year. Of this total, $108,117,000 relates to the construction of highway facilities, flood control, and reclamation. These are continuing projects, carried on essentially to the limit of available resources and, for the most part, fixed by statute. Highway construction alone will involve expenditures of $107 million, approximately $11 million less than during the current year, due to a reduction in unexpended balances carried forward from earlier periods. The remainder, $113,926,000, is the program for property acquisition, structures, and equipment which is subject to the determination of the Governor and the Legislature. The proposed program

' The index of construction costs in California has increased 102 percent since 1943 ; 53 percent since 1946 : and 16 percent since 1948. Population on July 1, 1953, is estimated to be 11,800,000, an increase of 40 percent since 1943 and 23.6 percent since 1946.

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for these purposes in the ensuing year represents an increase of $17 million, or 17.6 percent from the cur- rent year and $30 million more than was expended in 1950-51.

A summary is shown below.

(In thousands of dollars)

Change from

Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet. Highways and vehicle

regulation $115,789 $118,868 $107,699 —$11,169 —9.4

Mental hygiene and

corrections 21,692 37,420 41,534 4,114 11.0

Education 39,476 21,891 35,412 13,521 61.8

Conservation of natural

resources 9,695 12,059 10,908 —1,151 —9.5

Social welfare and health. 7,608 2,957 2,642 — 315 — 10.7

AU other 6,083 22,947 23,849 902 3.9

Totals $200,343 $216,142 $222,043 $5,902 2.7

For the most part the new building construction contemplated in this program will be financed by util- izing a part of the existing General Fund surplus. A transfer of $86,574,000 to the Capital Outlay and Sav- ings Fund, together with unappropriated balances in this fund, will provide $97,701,000 of the total required. Capital outlay for civilian defense and acquisition of certain forest lands, totaling $4,618,000, will be met by direct General Fund appropriation, while $119,- 724,000 will be paid from special funds, chiefly for highway construction, fairs, and projects relating to the colleges of agriculture at the University, California Polytechnic, and Fresno State.

Mental Hygiene and Corrections, $41 ,534,000

"With the exception of highways, the principal budget items for capital outlay relate to expansion of facilities at state mental hospitals, prisons, and correctional schools. Major projects at the mental institutions in- clude a juvenile unit at Camarillo, replacement of wards at Mendocino, Napa, Patton, Stockton, and Sonoma, and additions at Pacific Colony, Porterville and the Napa tubercular ward. In the field of correc- tions, the budget provides more than $5 million for the new medical facility at Vacaville, plus other amounts for additional cell buildings at Chino, development of the Deuel Vocational Institution, and improvements at Folsom, San Quentin, and Soledad. The program rec- ommended for the Youth Authority will expand school capacity at Paso Robles, Los Guilucos, and the Southern California Reception Center, rebuild the Ventura School at a new location, and replace inferior struc- tures at Preston, and the Fred C. Nelles School.

Amounts budgeted for construction at mental and correctional institutions are shown below.

(In thousands of dollars)

Actual 1950-51

Mental hygiene $11,900

Corrections:

Adult facilities 6,693

Youth Authority 3,099

Totals $21,692

Estimated 1951-52

Proposed 1952-53

$23,136 $22,035

Change from

1951-52

Amount Pet.

—$1,101 — 4.8

8,167 6,117

11,651 7,848

3,484 1,731

42.7 28.3

$37,420 $41,534

$4,114 11.0

the new campus at Santa Barbara. Among the colleges, particular attention is given to the new institutions at Long Beach and Sacramento, and the transfer of Fresno State College to its new location. Replacement of tempo- rary buildings is scheduled at the San Luis Obispo campus of California Polytechnic College, and develop- ment will start on the Kellogg campus. A new gym- nasium and swimming pool is planned at the School for the Deaf in Berkeley.

Expenditures are classified by principal types of in- stitutions in the following table.

(In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet.

State colleges $20,141 $9,016 $12,944 $3,927 43.6

Technical colleges 1,880 1,079 4,525 3,446 319.2

Special schools » 4,608 425 741 317 74.6

University 12,848 11,371 16,955 5,584 49.1

Other — — 247 247 —

Totals $39,476 $21,891 $35,412 $13,521 61.8

* Including centers for the blind.

Conservation and Development of Natural Resources, $10,908,000

Conservation and development of natural resources has received increasing attention during recent years. "Wildlife conservation, development of beach and park areas, and the protection of forests and watersheds have taken on added importance as the population of the State has grown. Programs comprising this long- term development are continued in the budget recom- mendations for 1952-53.

In the field of fish and game conservation expendi- tures totalling $4 million are proposed for the acquisi- tion of waterfowl feeding areas and the construction of fish hatcheries. Purchases of new beach and park areas are budgeted at $880,000, and $1,300,000 is requested for improvements in these recreational areas. Acquisi- tion of forest lands, construction of fire control stations, and improvement at forestry work camps make up the $1,400,000 proposed for forest conservation.

Expenditures for agricultural fairs and expositions in the amount of $1,600,000 relate entirely to the capital outlay allocations provided by law in the dis- tribution of horseracing license fees. Requests totalling $638,000 are made for plant quarantine stations and laboratories operated by the Department of Agricul- ture and minor construction at the poultry improve- ment project.

Expenditures classified by principal functions are given below.

(In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Agriculture $444 $243 $638 $395 162,4

Fish and game 1,412 2,733 4,301 1,567 57.3

Beaches and parks 2,320 4,570 2,217 —2,353 —51.5

Forestry 2,448 1,398 1,361 —37 —2.6

Water resources 1,304 1,223 750 —473 —38.7

Fairs and expositions 1,764 1,891 1,637 —254 —13.4

Other 3 — 4 4 —

Totals $9,695 $12,059 $10,908 —$1,151 —9.5

Education, $35,412,000

The thirty -five million dollars budgeted for construc- tion at educational centers in 1952-53 is almost equally divided between the university and the colleges. The university program includes major projects on all of its sites, with emphasis upon buildings in Los Angeles and

Social Welfare and Health, $2,642,000

Items falling into this category are $1,034,000 for the purchase of sites and construction of buildings to be occupied by the Department of Employment at various locations throughout the State, and $1,608,000 for improvements at the Veterans Home — a total of

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$2,642,000. Comparable amounts in the current year and during 1950-51 are $2,957,000 and $7,608,000, respectively.

All Other, $23,849,000

Totals for all other capital outlay items are seriously distorted by unallocated sums of $13,230,000 in the current year and $13,000,000 in 1952-53. These amounts are necessary to meet differences between esti- mated and contract prices of projects in the program as a whole and to cover unforeseen contingencies. Other major amounts included in the miscellaneous total are the $2,000,000 for construction of an office building at Sacramento, $800,000 for purchase of building sites in San Jose, Santa Barbara, and San Diego, and $2,600,- 000 for the renovation of existing state buildings, espe- cially in connection with removals to new quarters. A summary of miscellaneous outlay requirements is tabu- lated below.

(In thousands of dollars)

Change from Actual Estimated Proposed 1951-52

1950-51 1951-52 1952-53 Amount Pet.

General government * $4,767 $1,897 $5,551 $3,654 192.7

Military affairs 1,313 — 161 1.080 1,242 —

Civil defense — 7.9S2 4,218 — 3,764 — 47.2

Other 2 — — — —

Unallocated t — 13,230 13,000 — 230 — 1.7

Totals $6,083 $22,947 $23,S49 $902 3.9

* Primarily general office buildings, appropriation to be made to Department of Finance. t Chiefly amounts necessary to meet increased prices of construction projects shown under other classifications.

LOCAL ASSISTANCE

State assistance to local units of government is pro- vided in the form of subventions and allocations of revenue from taxes levied wholly or partly for the benefit of cities and counties. Of the $625,800,000 esti- mated for local assistance next year, 76 percent repre- sents subventions and 24 percent is shared revenue. Payments fall into the six broad functional categories discussed above, with education of primary importance, followed by social welfare and public health; roads and streets, and support of general government. Pay- ments for conservation of natural resources are of relatively minor importance. Subventions for mental hygiene and corrections are negligible in relation to the total. Amounts budgeted for each purpose in 1952- 53 are shown below :

Budgeted Change from 1951-52 Percent

expenditures Amount Per- of total

(millions) (millions) cent assistance

Education $302.9 $34.5 12.9 48.4

Social welfare 151.3 1.3 0.9 24.2

Public health 13.9 1.3 10.3 2.2

Roads and streets 78.2 3.6 4.8 12.5

Conservation of resources 4.0 — 1.9 — 31.5 0.7

Corrections 0.7 — — 0.1

All other 74.7 0.2 0.3 11.9

Totals $625.S $39.1 6.7 100.0

Subventions for Education, $302,900,000

State payments for the support of public schools and related activities are estimated to reach a new record of $302,863,000 during 1952-53, an increase of $34,530,- 000 over the amount required in the current year, which in its turn is a new peak, by a margin of $26,- 000,000. The underlying cause of such rapid growth is the entrance into the public school systems of the children born in 1946. This wave of youngsters entered kindergarten classes in 1951, producing a 35 percent increase over the previous year. It will roll on through

the school system for more than a decade, followed in a year or two by slightly smaller classes, but destined to reach another peak when the 250,000 babies born last year enter school in 1956.

Total enrollment in elementary schools, high schools, and junior colleges on October 31, 1951, was 2,259,160, of which 341,471 were in classes for adults and 13,651 were special students in regular classes. This repre- sented an increase of 6.6 percent over the corresponding date of the previous year. Graded enrollment in regular classes, kindergarten through grade 14, totaled 1,875,- 138 — an increase of 144,035 or 8.3 percent over 1950. Details of average daily attendance, which determines the State's payments for school support, are shown in the local assistance section of the budget.

Apportionments for school support, required by ex- isting law, are estimated to total $258,638,000 in 1952- 53. A special appropriation of $12,000,000 is recom- mended to augment this sum, to be distributed to the less wealthy districts as part of the program for equal- izing school costs.

Legislation enacted in 1951, placing school appor- tionments on a current basis, is a second factor con- tributing to the $26,000,000 additional cost of schools during 1951-52. Heretofore an increase in state support lagged a year behind an increase in attendance, except in the most rapidly growing districts.

Another element adding to the State 's total payment for education is the debt service charge on school build- ing bonds approved by the voters in 1949. Interest and redemption on these obligations during 1952-53 will amount to $8,330,000. Receipts from local districts are estimated at $2,881,000, leaving a net expense of $5,- 449,000 to be carried by State Government.

Contributions to the Teachers ' Retirement System in the next fiscal year will require approximately $18,- 522,000— an increase of $2,132,000 over the total for 1951-52. The expense of providing free textbooks is expected to decline slightly, occasioned chiefly by the large expenditure for this purpose in the current year, while fractional declines are anticipated in subventions for child care centers and vocational education. Federal grants for vocational education are expected to increase $228,000.9

Comparative subventions for education are :

(In thousands of dollars)

Change from Actual Estimated Estimated 1951-52

1950-51 1951-52 1952-53 Amount Pet.

School support $215,256 $241,090 $270,638 $29,549 12.3

Teachers' retirement 16,650 16,390 18,522 2,132 13.0

Child care centers 4,540 5,370 5,361 —9 — 0.2

Vocational education 363 331 306 —25 —7.4

Free textbooks 2,336 2,782 2,587 —195 —7.0

Cerebral palsied* 198 14 — —14 —100.0

School buildings t 1,933 —440 — 440 —

Debt service 818 2,797 5,449 2,652 94.8

Totals $242,093 $268,333 $302,863 $34,530 12.9

* Special appropriation approved in 1949 to provide necessary housing and equipment for the education of cerebral palsied children.

t Special appropriations enacted in 1947 and 1948 to provide for school building con- struction in distressed districts. It is estimated that returns from allotments previously made will exceed new allocations during 1952-53.

Social Welfare, $151,329,000

After many years of continued growth, subven- tions for social welfare, including payments for old age security, assistance to the blind, and aid to needy children, are expected to show a remarkable

0 Expenditures from federal funds are not included in the budget totals.

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degree of stability in the period covered by this budget. An improved labor market which keeps older workers painfully employed and provides work opportunities for responsible relatives is the chief reason for this change. Additional factors, so far as state expenditures are concerned, are the increase in average payments under the federal old age and survivors insurance law and the legislation adopted in 1951 with respect to the payment of aid to needy children.

Kecent trends in the case loads under the aged, blind, and children 's aid programs have been similar to those shown in the early months of World "War II. At that time a stability in number of cases during the early months of the war was followed by a moderate decline in aged aid and a sharp drop in the program of as- sistance to children. Since the present defense effort is far less pressing than the intense war activity of the earlier period, aged and blind case loads have been estimated to remain relatively unchanged during 1952-53. The number of children's aid cases is expected to decline, but allowance has been made for a slight increase in average payments in the coming fiscal year. Estimates of case loads in 1952-53 show an average of 276,575 recipients of old age security, 12,125 receiving blind aid, and 131,300 in the program of aid to needy children. The latter amount represents a decrease of 6,016 from the estimated average for the current year. Expenditure requirements are summarized in the fol- lowing tabulation.

(In thousands of dollars)

Change from Actual Estimated Estimated 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Old age security $109,626 $106,672 $107,134 $462 0.4

Security for the blind 5,350 5,590 5,867 277 5.0

Aid to needy children 32,361 34,591 34,893 303 0.9

Institution care t 1,166 1,227 1,246 19 1.5

Subtotals $148,503 $148,080 $149,141 $1,060 0.7

Inspections * 519 635 731 96 15.2

Adoptions * 442 929 1,107 178 19.2

Veterans service 322 342 350 8 2.4

Veterans housing — 239 — — ■ — • —

Totals $149,546 $149,986 $151,329 $1,343 0.9

t Medical care of aged and blind after the first two months of confinement in county hospitals. Payments are in lieu of assistance to the individuals.

* State reimbursement to counties for the expense of licensing and inspecting boarding

homes for aged and children, and for administrative expense of the adoption pro- gram and cost of caring for the children.

Public Health, $13,942,000

Historically, subventions for public health have been among the most rapidly growing of state expenditure items. Less than a decade ago payments were limited to the program of tuberculosis subsidies at a cost of ap- proximately $500,000 annually. In the coming fiscal year, provision is made for assistance in the operation of five programs, costing $13,942,000. The principal items of increase next year are aid to crippled children, payments for support of local health departments, and assistance in the care and treatment of persons suffer- ing from tuberculosis. Amounts are as follows :

(In thousands of dollars)

Change from Actual Estimated Estimated 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Local health departments. $2,712 $2,751 $3,094 $343 12.5

Tuberculosis subsidies 4,801 4,937 5,188 251 5.1

Crippled children 1,248 2,252 3,390 • 1,138 5.0

Mosquito and gnat control 399 400 400 — —

Hospital construction ___ 1,504 2,295 1.870 —425 — 18.5

Totals $10,663 $12,635 $13,942 $1,307 10.3

* Including $302,694 shown under the State Operations in previous years.

Roads and Streets, $78,208,000

State apportionments to local governments for roads and streets represent city and county shares of the motor vehicle fuel tax and the counties' share of regis- tration fees. By statutory provision, cities receive an amount equal to five-eighths of a cent per gallon of fuel taxed, while the allotment to counties is equal to one and three-eighths cents per gallon. In addition, county governments receive a share of motor vehicle registra- tion and weight fees. Amounts to be apportioned during 1952-53 are expected to increase moderately, as a result of the higher tax collections anticipated next year. The following data summarize the estimated changes dur- ing the budget period.

(In thousands of dollars)

Change from Actual Estimated Estimated 1951-52

1950-51 1951-52 1952-53 Amount Pet.

For County Roads:

Fuel tax $42,525 $45,934 $48,025 $2,091 4.6

Registration fees 7,086 7,804 8,354 550 7.0

Subtotals $49,612 $53,738 $56,379 $2,641 4.9

For City Streets:

Fuel tax 19,330 20,879 21,829 951 4.6

Totals $68,941 $74,616 $78,208 $3,592 4.8

Conservation of Natural Resources, $4,046,000

Principal item of expenditure in this classification is the aid to county agricultural fairs provided by the statute governing distribution of horse racing revenue. Apportionments during 1952-53 are estimated to be $2,470,000, a decrease of $528,000 from the current year, due to a reduction in accumulated balances available for capital outlay. State assistance to counties for agri- cultural commissioner salaries and allocations for flood control comprise the other payments in this group.

(In thousands of dollars)

Change from Actual Estimated Estimated 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Aid to fairs $2,287 $2,998 $2,470 — $528 — 17.6

Flood control 2,732 2,788 1,352 —1,436 —51.5

Agricultural commissioners 96 114 117 4 3.3

Other 72 4 106 102 *

Totals $5,187 $5,904 $4,046 —$1,857 —31.5

* 2,550 percent.

Other Assistance, $74,717,000

This miscellaneous group of subventions and shared revenues comprises payments by the State for the gen- eral support of local government. It includes appor- tionments of motor vehicle license fee receipts, collected in lieu of local property taxes, liquor license fees, minor amounts of unrefunded aircraft fuel tax available for airports, and a number of general purpose subventions. Vehicle license fee apportionments of $61,401,000 will be divided equally between cities and counties. Liquor license fee apportionments, estimated at $8,110,000, will be divided $6,508,000 to cities and $1,602,000 to county governments. Apportionments for public works represent essentially the final expenditures from the postwar construction fund established for the benefit of local governments in 1946.

(In thousands of dollars)

Change from Actual Estimated Estimated 1951-52

1950-51 1951-52 1952-53 Amount Pet.

Vehicle license fees $47,277 $61,363 $61,401 $38 0.1

Liquor license fees 8,557 7,772 8,110 338 4.3

Postwar public works 8,497 3,450 3,200 —250 — 7.2

Judges' salaries and

retirement 1,260 1,586 1,681 95 6.0

All other 229 331 325 —6 —1.8

Totals $65,820 $74,503 $74,717 $214 0.3

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