Last month, the state’s Legislative Analyst’s Office issued its budget forecast for the remainder of fiscal year 2013-14 and next year, too.
“The state’s budgetary condition is stronger than at any point in the past decade,” the November report stated.
Unless something highly unexpected occurs, the report projects a surplus twice the size of Gov. Jerry Brown’s forecast of $1 billion this year. At the end of 2014-15, the LAO foresees a $5.6 billion surplus.
The improving surpluses occur because of higher revenues due to growing capital gains taxes from continued stronger stock markets.
These budget conditions will likely continue for another three to four years, according to the LAO report. State revenues will exceed expenditures until 2018 when the temporary personal income tax rate increases (approved under Proposition 30 in 2012) expire.
But the LAO cautioned readers about the forecast. “Despite the large surplus that we project over the forecast period, the state’s continued fiscal recovery is dependent on a number of assumptions that may not come to pass. For example, our forecast assumes continuing economic growth and slow, but steady, growth in stock prices.”
Other events, which could change the rosy forecast, include an economic downturn, any decision to address the state’s debt load, including its retirement liabilities, or the enactment of new state programs.
The improving revenue condition does not create a windfall for legislative action. The LAO reported that Proposition 98, which creates a formula for educational spending, will use about $3.1 billion of the new revenue and another $3.3 billion in 2014-15. The state prison problems will likely consume another $300 million before any new legislative decisions.
While the surplus offers opportunities to eliminate past debt and liabilities as well as funding new programs, the LAO cautioned state officials about short-term thinking. To avoid the drastic program reductions experienced since the recent recession, the LAO urged planning to account for the next economic downturn, too.
“Our forecast indicates that there is room in the budget for new ongoing spending commitments … committing too much too soon could create budget shortfalls in the event of an economic downturn. Further, the state has commitments that were made in the past — principally retirement liabilities and, to a lesser extent, budgetary liabilities —that have yet to be funded,” the report warned.
J.P. Crumrine can be reached at [email protected].
