LOS ANGELES -- Under current policies, California could end the 2014-15 fiscal year with a $5.6 billion reserve, according to the California Legislative Analyst’s Office.
The office is a nonpartisan government agency that has been providing fiscal and policy advice to the California Legislature since 1941.
“The state’s budgetary condition is stronger than at any point in the past decade,”
The office’s revenue forecast, released Wednesday, anticipates $6.4 billion in higher revenues for 2012-13 and 2013-14 combined, which will be offset by $5 billion in increased expenditures. The increased expenditures are mainly due to greater required spending for schools and community colleges.
These factors, a projected $3.2 billion operating surplus in 2014-15, and the assumption that there are no changes to current laws and policies, led to the office’s $5.6 billion forecast.
Assuming continued economic growth in future years, the office projects that revenues will grow faster than expenditures through 2017-18, when the state’s projected operating surpluses reach $9.6 billion.
The state’s temporary personal income tax rate increases under Proposition 30 will expire at the end of 2018, resulting in a more gradual ramping down of these revenues over the last two fiscal years. This will help prevent a “cliff effect” in the forecast, the office said.
Operating surpluses for 2018-19 and 2019-20 are projected to remain stable at just under $10 billion per year.
“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,” the office said.
The forecast assumes continued economic growth, but if there is an economic downtown within the next few years, the state could quickly return to operating deficits.
It also assumes that the state repays its liabilities according to payment schedules set in current law. Any additional payments to repay other liabilities, such as the state’s “wall of debt” and huge retirement liabilities, would result in the forecasted operating surpluses falling significantly below projections.
The office said the Legislature should be strategic in allocating its projected multi-billion dollar operating surpluses, taking into account the volatility of the revenue structure and uncertainty about the economy.
“We suggest giving high priority to building a strong reserve and paying off the budgetary liabilities accrued over recent years,” the report said. “We also believe the state should begin setting aside funds to address the growing unfunded retirement liabilities noted above.”
