The 2024-25 Budget: Proposition 2 Debt Payment Proposals

2024-25 BUDGET The 2024-25 Budget: Proposition 2 Debt Payment Proposals GABRIEL PETEK | LEGISLATIVE ANALYST | MARCH 2024 SUMMARY Governor’s Proposed Application of the Proposition 2-Related Payment to CalPERS for 2023-24 Appears Unconstitutional. This report evaluates the Governor’s Proposition 2 (2014)-related debt and liabilities payment proposals for 2023-24 and 2024-25. While we have no concerns with the Governor’s proposed allocation of the 2024-25 payment, the Governor’s proposed application of the existing 2023-24 California Public Employees’ Retirement System (CalPERS) payment appears to be unconstitutional. That is because the payment would supplant, not supplement, what the state would otherwise provide to CalPERS in 2024-25. This Report Offers Some Alternatives. Given that the Governor’s proposal appears unconstitutional, we outline some alternatives for the Legislature. All of these options involve trade-offs. The first set of options would maximize savings in the budget window, but result in lower savings for future years. The second option results in more savings in the multiyear window, but lower savings for the long term. The final option includes essentially no short-term budgetary savings, but would improve the condition of the state’s budget over the very long term. Balancing Trade-Offs. Given this year’s significant budget problem, as well as some specific conditions related to the state’s CalSTRS contributions for this year, we think there is a policy argument for the Legislature to use Proposition 2 to achieve budget savings in both 2024-25 and 2025-26. (Relative to the Governor’s budget, these alternatives would yield similar savings in 2024-25 and additional savings in 2025-26. Like the Governor’s proposal, both of these alternatives would result in less long-term savings for the state.) However, after the state emerges from this period of more acute budget problems, we would urge the Legislature to return to its longstanding policy of maximizing long-term benefits associated with Proposition 2. INTRODUCTION This report evaluates the Governor’s recent years. Second, we describe the Governor’s Proposition 2-related debt and liabilities payment Proposition 2 debt-related proposals. Third, proposals. First, we provide background on: (1) some we provide an assessment of these proposals. of the state’s pension systems and retirement-related Finally, because this proposal appears to be liabilities; (2) Proposition 2; and (3) how supplemental unconstitutional, we outline some alternatives for the pension payments work, including those that have Legislature to consider. been made under Proposition 2 requirements in www.lao.ca.gov 1 2024-25 BUDGET BACKGROUND STATE PENSION SYSTEMS generally are the state’s responsibility. One way unfunded liabilities come about is when actual CalPERS experience differs from what was assumed by CalPERS administers pension benefits for more actuaries in order for the pension plan to be than 900,000 active employees and nearly 700,000 fully funded. Actuaries spread (or amortize) retired members. As of January 2024, the system the effect of these actuarial losses (resulting has $483 billion in assets. The state represents in higher costs) over a time period specified about 30 percent of active employees in the system by CalPERS Board policy. For example, if and 35 percent of retired CalPERS members. (Local investment returns are lower than assumed, the government employees represent the rest of the actuarial loss creates a new unfunded liability membership.) that actuaries amortize over a 20-year period. The amortized cost of paying off the unfunded Three Funding Sources. CalPERS pension liability is larger than the actuarial loss itself. benefits have three main funding sources, discussed This is because the actuarial loss accrues below. “interest” over time that also must be paid. This • Investment Returns. Under the California interest reflects the gains that otherwise would Constitution, the CalPERS Board has plenary have accrued had there been no actuarial loss authority and fiduciary responsibility to invest in the first place. the pension system’s assets. The returns on Pension Board Has Full Rate Setting Authority. these invested assets constitute the largest The CalPERS Board has full rate-setting authority funding source for the system. Revenues to establish required employer contributions. As from investment returns vary significantly year we discuss later in this analysis, employers may not to year depending on market performance; pay less than the amount established by CalPERS; however, CalPERS assumes an annual return of however, employers can choose to pay more than 6.8 percent. the CalPERS Board establishes as the actuarially • Employee and Employer Contributions to determined contribution. “Normal Cost.” The normal cost is the amount actuaries determine must be contributed to California State Teachers’ Retirement the system in a given year to fund the benefit System (CalSTRS) earned by state employees in that year. Pension System Administers Pension Benefits The normal cost is developed using various for Teachers. CalSTRS is the world’s largest actuarial assumptions including assumptions educator-only pension system, administering the about investment returns on the assets and $315 billion Teachers’ Retirement Fund for more the life expectancy of members. Under the than 1 million members and beneficiaries (as of June Public Employees’ Pension Reform Act of 2023). CalSTRS’ 12-member Teachers’ Retirement 2013 (PEPRA), the state has a standard— Board (CalSTRS Board) administers the fund and implemented through collective bargaining— is constitutionally responsible for overseeing the that the state and its employees each pay system’s investment policies and ensuring that one-half of the normal cost. benefit payments are made on time and according • Employer Contributions for “Unfunded to law. An important component of this responsibility Liabilities.” An unfunded liability means that is establishing the state’s and employers’ annual the projected value of pension benefits earned contribution rates, based on actuarial requirements. to date exceeds the projected assets of the (CalSTRS Board’s contribution rate-setting authority pension system. While the state shares normal is limited by the law, which we describe in more detail cost with employees, unfunded liabilities 2 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET in later paragraphs.) Similar to CalPERS, CalSTRS creditable compensation annually. As a result of how receives employee and employer contributions CalSTRS implements the division of responsibility (along with contributions from the state) and relies for unfunded liabilities between the state and on investment returns to fund pension benefits employers, the state’s share—and consequently the through its Defined Benefit Program. However, some state’s supplemental rate—is particularly sensitive elements of CalSTRS’ funding structure are distinct to investment return volatility. (For a more detailed from CalPERS’, particularly related to unfunded overview of how unfunded liabilities are divided and liabilities, as described more in the subsequent other aspects of the funding plan, refer to our prior paragraphs. publication, Strengthening the CalSTRS Funding Funding of Pension System Dictated by Plan.) Funding Plan. Prior to 2014, contribution rates Aspects of Funding Plan Result in Years When for CalSTRS’ Defined Benefit Program were set CalSTRS Cannot Increase State Rate Quickly in statute and the CalSTRS Board had virtually no Enough… The combination of the CalSTRS Board’s authority to adjust those rates. Accordingly, even as limited ability to increase the state’s supplemental actuarially required contribution rates changed over rate and the disproportionate impact of investment the years in response to investment performance, return volatility on the state’s share of unfunded shifts in the teacher and retiree population, and other liabilities can result in years when CalSTRS is unable changes, CalSTRS rates remained essentially static. to collect what is needed from the state. In other By 2014, actuaries projected CalSTRS’ assets would words, in some years, the maximum supplemental be depleted within a few decades. The Legislature rate that the CalSTRS Board is able to set for the passed Chapter 46 of 2014 (AB 1469, Bonta), state in that year is lower than what is actuarially establishing a funding plan with the aim of reversing required to eliminate unfunded liabilities by 2046. that projection and fully eliminating the Defined This is most likely to be the case in years when Benefit Program’s unfunded liabilities by 2046. CalSTRS experiences a significant actuarial loss State, School Districts, and Members Pay from lower-than-assumed investment returns. Base Rate… Under the funding plan, the state, …And Other Years When CalSTRS Sets State employers, and members all pay annual base rates. Rate Higher Than What Otherwise Would Be The static base rates, which are calculated as Actuarially Required. In contrast, in some other percentages of annual creditable compensation, are years, the combination of funding plan factors results set in statute and are approximately equivalent to in the CalSTRS Board—based on recommendations the normal cost of benefits for the CalSTRS’ Defined from system actuaries—electing to set the state’s Benefit Program. supplemental rate higher than what would be …And State and School Districts Share actuarially required in that year to pay down Responsibility for Unfunded Liabilities. In unfunded liabilities by 2046. The CalSTRS Board addition, the funding plan divides responsibility does this to ensure the state can reach full funding for unfunded liabilities between the state and by 2046 given its limited ability to increase the state’s employers, and increases CalSTRS’ authority to supplemental rate in years of actuarial loss, and the adjust required annual contribution rates to meet outsized impact of investment return volatility on the goal of eliminating unfunded liabilities by 2046. the state’s share of unfunded liabilities. This is the Specifically, the funding plan dictates that, as long current scenario. In 2023-24, the CalSTRS Board set as unfunded liabilities remain (during the time that the state’s supplemental rate to 6.311 percent (the the funding plan is in place), the state and employers same rate the state has paid for the past few years), pay annual “supplemental rates” to pay down the while the “unconstrained” actuarially required rate— unfunded liabilities over time. The CalSTRS Board what the CalSTRS Board could set as the state’s rate may increase the state’s supplemental rate by no if it had full rate-setting authority to meet the goal more than 0.5 percent of creditable compensation of eliminating unfunded liabilities by 2046—would annually, and may increase or decrease employers’ be around 3.5 percent according to CalSTRS’ most supplemental rate by no more than 1 percent of recent actuarial valuation. www.lao.ca.gov 3 2024-25 BUDGET Supplemental Pensions Payments Two Common Motivations for Supplemental Pension Payments. There are two common Employers May Contribute Any Amount motivations for an employer to pay down pension of Money Above What Is Required. Pension unfunded liabilities faster than required: (1) reducing boards determine—either according to actuarial future budgetary costs and (2) reducing reported standards or statutory requirements—how much liabilities in annual financial statements. A money employers must contribute to the pension supplemental pension payment allows pension system each year to address any existing unfunded systems to invest more money sooner. This, in turn, liabilities. These annual employer contributions are allows for higher investment returns than otherwise the net effect of actuarial gains and losses amortized would be the case. These higher investment returns over time in order to pay off the entire unfunded reduce future required contributions from employers liability over time. For some pension plans, such as to the unfunded liability than would otherwise CalSTRS’ Defined Benefit Program and CalPERS’ be the case. Accordingly, it is not uncommon School Pool, assets and liabilities from multiple for a governmental employer to apply budgetary employers are aggregated together and employers surpluses towards pension unfunded liabilities in an pay toward the collective unfunded liabilities. Other effort to reduce future budgetary costs. In addition plans—for example the pensions earned by state to the budgetary benefits, governmental employers employees—comprise assets and liabilities accrued might be motivated to make supplemental payments by a single employer. While employers, like the to reduce their reported unfunded liabilities, state, generally are required to pay the amount improving their net position. (The Governmental specified by pension boards to address unfunded Accounting Standards Board requires public entities liabilities, in some cases employers can choose to to report their pension unfunded liabilities as part of pay more than what is required in any given year. their annual financial statements.) These supplemental payments are used to directly pay down existing unfunded liabilities above what State Law Requires Regular State otherwise would be required. Supplemental Pension Payments. The state has made fully discretionary supplemental pension Depending on Application of Supplemental payments in the past with similar motivations as Pension Payments, Short- or Long-Term discussed above. However, state law also requires Budgetary Benefits Accrue. A supplemental the state to make regular payments toward existing pension payment can benefit an employer over the unfunded liabilities. short- or long-term, depending on how the payment is applied to the employer’s unfunded liability. Often, • PEPRA Requires Limited Payments Above actuaries amortize a new unfunded liability over CalPERS Requirements. PEPRA established decades. Over the course of the amortization period, a standard that state employees contribute employers pay down the principal of the unfunded one-half of the normal cost to fund their liability as well as interest on the unfunded liability. pension benefits. Under Section 20683.2 of If an employer wants to maximize savings, given the Government Code pertaining to CalPERS, the option, a supplemental payment likely would any savings that otherwise would have been be applied to the unfunded liability with the longest realized by the state employer as a result of remaining amortization period—essentially, paying employees contributing more towards their down the principal in order to minimize the interest pensions is, instead, directed towards paying costs. This action would significantly reduce the down the unfunded liabilities. As a result of employer’s costs over decades by avoiding future this statute, the state regularly contributes a interest payments but has less of an effect on the percentage of pay above what is actuarially short-term costs. On the other hand, if an employer required and established by the CalPERS wants to reduce its short-term costs, the payment Board. In 2024-25, the state’s supplemental might be applied to a shorter amortization base. payment under this section ranges from This action would reduce near-term costs but would 0.1 percent of pay for Miscellaneous employees achieve lower levels of savings overall than applying to 1.65 percent of pay for employees in the the payment to a longer base. 4 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET Peace Officer and Firefighter pension and is supplemental payment to CalPERS. The state’s expected to total less than $100 million General repayments on this borrowing plan, although not Fund. technically pension payments, are also considered • Constitutionally Required Debt eligible for Proposition 2 requirements. (For more Repayments. As we discuss in greater detail information about this debt, see: The 2017-18 below, the voters approved Proposition 2 in Budget: The Governor’s CalPERS Borrowing 2014 to establish a constitutional requirement Proposal and The 2018-19 Budget: Repaying the that, among other requirements, requires CalPERS Borrowing Plan.) the state to make specified levels of debt Debt Payments Must Supplement—Not payments, including towards pension unfunded Supplant—Funding for Two Years. Proposition 2 liabilities. Accordingly, the state annually includes two requirements limiting how the state can makes supplemental pension payments from direct payments toward retiree health and pensions. the General Fund towards the state’s pension First, Proposition 2 requires these payments to be unfunded liabilities. “in excess” of “current base amounts.” The measure defines current base amounts as those amounts that are required to be paid under current law, approved PROPOSITION 2 memorandum of understanding, and benefit Proposition 2 Contains Annual Debt Payment schedules. Second, Proposition 2 requires that the Requirement. Proposition 2 created new rules payments “supplement and not supplant funding regarding: (1) deposits into the state’s rainy-day that would otherwise be made available […] for the fund and (2) accelerating payments toward certain fiscal year or the subsequent fiscal year.” eligible debts. A formula dictates these requirements State Has Focused Proposition 2 Payments on an annual basis. In general, the requirements on Unfunded Liabilities in Recent Years. Between tend to increase when revenues are growing 2020-21 and 2023-24, the state has made about more quickly and decline when revenue growth $10 billion in debt repayments pursuant to the is lower. Unlike reserve deposits, which can be requirements of Proposition 2. Of this total, about suspended in response to a budget emergency, 20 percent have been devoted to prefunding Proposition 2-related debt payments are required retiree health benefits and 65 percent, nearly every year until 2029-30. (Thereafter, these debt $7 billion, have been used for supplemental pension payments become optional, but amounts not payments to reduce the state’s unfunded liabilities spent on debt must be deposited into the rainy-day associated with CalPERS. (The remainder has been reserve.) used to repay the CalPERS borrowing plan.) For Annual Payments Required for Pension example, as part of the 2023-24 budget, the state Unfunded Liabilities or Prefunding Retiree made a $1.7 billion transfer to CalPERS to fulfill its Health Benefits. Originally, eligible debts under Proposition 2 requirements. Proposition 2 included both budgetary debts and These Payments Have Resulted in Long-Term retirement liabilities. However, the state repaid Savings. As discussed earlier, employers have all of the outstanding eligible budgetary debts in choices about how to apply supplemental pension 2019-20. The remaining eligible uses of Proposition 2 payments. In particular, they face a trade-off debt payments are related to prefunding state about whether to achieve more total savings over retiree health benefits and unfunded liabilities a longer period of time (resulting in less savings associated with state-level pension plans. In past in the short term) or more savings over a shorter practice, the state has generally interpreted the period of time (resulting in less total savings). In the latter to include the pension systems for: state and case of the state’s supplemental pension payments California State University employees (CalPERS), to CalPERS made under Proposition 2, the state teachers (CalSTRS), and the University of California has chosen to direct the recent payments toward Retirement Plan. In addition, the 2017-18 budget longer amortization bases, resulting in more total package authorized a plan to borrow $6 billion savings over a longer period, rather than maximizing from the state’s cash resources to make a one-time near-term benefits. www.lao.ca.gov 5 2024-25 BUDGET GOVERNOR’S PROPOSAL Governor Proposes Using the 2023-24 Governor Proposes Allocating the 2024-25 Payment to CalPERS to Reduce the 2024-25 Requirement to Various Other Allowable Uses. State Contribution. Although the state has As is typical, the Governor’s budget includes already transferred the $1.7 billion payment to a calculation of the state’s Proposition 2 debt CalPERS associated with the 2023-24 Proposition 2 payment requirements under the administration’s requirement, how the funds would be applied revenue estimates and a proposed allocation to the state’s unfunded liability has not yet been for these requirements. (These calculations and determined. (Typically, each April the Board adopts proposals will be adjusted in response to changed final rates, which reflects the application of these budget estimates at the time of the May Revision.) supplemental payments.) The Governor proposes Under the administration’s revenue forecast, the applying the state’s 2023-24 CalPERS payment state has a roughly $2 billion Proposition 2 debt to reduce the state’s payments toward unfunded payment requirement in 2024-25. Of this total, the liabilities in 2024-25. This results in $1.3 billion Governor proposes the state allocate: $375 million in budgetary savings for the General Fund (the to prefunding retiree health benefits, $836 million to remainder of the $1.7 billion in payments would repay the CalPERS borrowing plan, and $885 million accrue to other state funds) in 2024-25. to pay down CalPERS’ unfunded liabilities. ASSESSMENT No Significant Concerns With the 2024-25 Governor’s proposed application of the 2023-24 Allocation Plan. We do not have any concerns with payment would mean the state does not yield any the Governor’s proposal for allocating the 2024-25 future savings (after 2024-25) from this payment. Proposition 2 requirements. As always, the precise That is, all of the savings associated with the amounts of these allocations will change in response payment would accrue to 2024-25 with zero benefit to updated revenue estimates later this year. to future years. Proposed Application of 2023-24 Payment Proposed Use of 2023-24 Payment Appears Assumed to Reduce State Costs in 2024-25 by to Violate Constitution by Supplanting State $1.3 Billion General Fund… The administration’s Contribution in 2024-25. The CalPERS Board plan to apply the state’s 2023-24 payment toward has full rate setting authority to establish required unfunded liability payments in 2024-25 results employer contributions, which means that the final in $1.3 billion in savings for the General Fund in rates adopted by the CalPERS Board for 2024-25 that year, helping the state to address the budget would be required under law. The Governor also problem by that amount. These are amounts that proposes to use the 2023-24 payment to supplant the state otherwise would have been required to pay the state’s actuarially required contributions to through the state’s annual required contributions CalPERS in 2024-25. This appears to violate under CalPERS policy. In short, savings are achieved the constitution’s requirement that the payment because, under the proposal, the state is offsetting supplement, and not supplant, the amounts the amount the state otherwise would have paid in otherwise provided for the fiscal year and following that year. fiscal year. …And Provides No Benefit to Future Years. While previous CalPERS payments under Proposition 2 resulted in savings over time, the 6 LEGISLATIVE ANALYST’S OFFICE 2024-25 BUDGET ALTERNATIVES Given that the Governor’s proposal appears to be Use 2024-25 Requirement to Pay for CalPERS unconstitutional, we outline some alternatives for the Contributions Above Actuarial Requirements Legislature that would also achieve budget savings Mandated by PEPRA. As we discussed above, the while adhering to the constitutional requirements of state makes regular supplemental pension payments Proposition 2. All of these options involve trade-offs. required under PEPRA. The Legislature could use a The first set of options would maximize savings in portion of the state’s Proposition 2 debt repayment the budget window—potentially at a similar level as to pay for these supplemental pension payments in the Governor’s proposal—but result in lower savings 2024-25. Specifically, the Legislature could adopt for future years. The second option results in more budget bill language that suspends Section 20683.2 savings in the multiyear window, but lower savings of the Government Code for 2024-25 and directs for the long term. The final option includes essentially that a portion of the 2024-25 Proposition 2 debt no short-term budgetary savings, but would improve repayment be applied towards the General Fund the condition of the state’s budget over the very long payment that otherwise would be paid pursuant term. Ultimately, the Legislature will need to balance to Section 20683.2. This would have the effect the trade-offs of any potential option with the need of reducing state General Fund costs by about to address the significant budget problem facing the $90 million to $100 million in 2024-25. state. Maximizing Savings in the Multiyear Maximize Savings in the Budget Window The main benefit of this alternative is that it would The main benefit of the combination of these help address the state’s multiyear deficits. The main alternatives is that it would result in approximately trade-off is that it would mean the state pays less the same General Fund savings as assumed in toward unfunded liabilities in aggregate compared to the Governor’s budget. The main trade-off is recent Proposition 2 related actions. that it would mean the state pays less toward Apply 2023-24 and 2024-25 Proposition 2 unfunded liabilities in aggregate compared to recent Payments to Supplant State CalPERS Proposition 2-related actions. Contributions in 2024-25 and 2025-26. Use 2024-25 Requirement to Pay for Proposition 2 prevents the state from using a Portion of State’s CalSTRS Contribution. As required debt repayment from supplanting funding described above, to help ensure CalSTRS is able that would otherwise be made available in the “fiscal to meet its statutory goal of fully eliminating the year or the subsequent fiscal year.” In this case, the unfunded liability by 2046 within the limitations of 2023-24 Proposition 2 payment cannot supplant the funding plan, in 2023-24 the CalSTRS Board the state’s payments in 2023-24 or 2024-25. has set the supplemental portion of the state’s However, we think there is an argument that the rate to 6.311 percent. There is an argument that state could apply the 2023-24 Proposition 2 payment some amount of the state’s 2024-25 contribution to supplant—meaning directly offset—the state’s to CalSTRS could count toward Proposition 2 2025-26 CalPERS contributions. Similarly, the state debt requirements, depending on interpretations could use the 2024-25 Proposition 2 payment to and actions by the Legislature. Given this unique supplant the state’s 2026-27 CalPERS contributions. situation, the state could explore using Proposition 2 While this action could help address the multiyear debt payment funding to pay for a portion of its deficits that both our office and Department of required contribution to CalSTRS in 2024-25. Finance project for the coming years, it would not Depending on how the Legislature implemented (1) help the state address the significant budget this option, the state could offset around $1 billion problem the state faces in 2024-25 or (2) pay down General Fund in 2024-25 by using Proposition 2 unfunded liabilities faster than otherwise would be funds for this purpose. the case. www.lao.ca.gov 7 2024-25 BUDGET Maximize Savings Across the Long base can create the greatest savings for the state Horizon over a multi-decade period. In broad terms, policies like these achieve a 2-to-1 savings ratio for the state The main benefit of this alternative is that the state over the long term. While such action produces would pay down the most unfunded liabilities over the greatest savings to the state over a long period the long term. The main trade-off is that additional of time, it does not necessarily create budgetary budget solutions would be required in 2024-25 and savings in the short term. Rather than looking to beyond. Proposition 2 requirements for a budget solution Keep Policy Consistent With Recent Past. to help address short-term budget problems, the Unfunded liabilities affect the state’s finances for Legislature could use Proposition 2 debt repayments decades. Past supplemental pension payments to to reduce the state’s costs the most over the next CalPERS have been used with the goal of having the few decades. greatest long-term benefit for the state. For example, applying the payment to the longest amortization BALANCING TRADE-OFFS Rejecting the Governor’s Proposition 2 debt systems, the policy rationale for using Proposition 2 proposal—without adopting an alternative to fund the state’s otherwise required contributions solution—would mean $1.3 billion in additional to CalSTRS would be less clear. Nonetheless, the budget solutions would be required in other areas state is expected to face significant budget problems of the budget. As a result, we think there is a policy in the coming years, which means the Legislature argument for the Legislature to deviate from its prior might wish to prioritize short-term savings over approach—that is, maximizing long-term budget long-term benefit on a temporary basis. If that is the savings—this year given the budget’s condition. case, the Legislature could also choose to apply In particular, this year, the CalSTRS Board has the 2023-24 CalPERS payments to supplant state approved a rate for the state that is somewhat contributions in 2025-26 (the second option among above the actuarially required contribution. This, in the three we list above). In addition to the $1 billion effect, could be considered a supplemental pension in savings for 2024-25 associated with the CalSTRS payment that the state would be making to CalSTRS payment, this would generate additional savings, for 2024-25. As such, it would be reasonable for the likely of around $1.3 billion, in 2025-26. Legislature to choose to fund this difference using That said, after the state emerges from this Proposition 2 requirements. This could achieve period of more acute budget problems, we would about $1 billion in savings for the state, depending urge the Legislature return to its longstanding policy on how it is implemented. of maximizing long-term benefit associated with In future years, when the state is paying the Proposition 2. actuarially required contributions for both pension LAO PUBLICATIONS This report was prepared by Ann Hollingshead, Nick Schroeder, and Angela Short and reviewed by Carolyn Chu and Ginni Bella Navarre. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 8 LEGISLATIVE ANALYST’S OFFICE