Fiscal outlook brighter — but fingers crossed

Legislative Analyst Mac Taylor, the Legislature's nonpartisan fiscal adviser, unveils the latest budget projections. (Photo: AP/Rich Pedroncelli

California, long bedeviled by daunting budget deficits, is likely to end the next fiscal year with $4.2 billion in reserve, with half that amount due to a budget-reform measure that voters approved on Nov. 4, according to the Legislature’s nonpartisan financial adviser.

The estimate by Legislative Analyst Mac Taylor said revenues were flowing to the state at some $2 billion above original projections, but that much of that amount likely would be eaten up by higher spending on public education and voter-approved requirements to retire the debt.

“The increased revenues and surpluses could  “disappear in a hypothetical scenario involving a large stock market drop and slowdown of economic growth.”

The state budget puts spending from the General Fund — the main coffer of tax money from income taxes, and sales and corporate levies — at about $107 billion, with spending from special funds and bonds pushing the total to $154 billion, according to the Department of Finance. The figures do not include federal funds.

“The Legislature has the opportunity in the coming months to develop a plan for using the $15 billion to $20 billion of future Proposition 2 debt payments. This plan could pay down several persistent state debts and save future taxpayers tens of billions of dollars,” the LAO noted.

The bottom line for schools is that they will receive more money. “Under our outlook, the resources available for Proposition 98 priorities in 2015–16 will be significantly higher than the current ongoing spending level, making the near–term outlook for schools and community colleges especially favorable,” Taylor’s office reported. Proposition 98 was approved by voters in 1988 to guarantee schools a year-to-year stable source of funding.

Two years ago, voters at Gov. Brown’s insistence approved Proposition 30, which provided the state with $6 billion annually from temporary sales and personal income taxes. But even though those taxes lapse in 2016 and 2018 — as Brown said they will — the loss of revenues to the state likely will not make much of a difference on the state’s financial outlook.

The favorable budget numbers reflect improvements in the economy, but the increased revenues and surpluses could  “disappear in a hypothetical scenario involving a large stock market drop and slowdown of economic growth.”

Cautiously, the report noted that the current economy was in the sixth year of expansion and that in the cycle of expansions since World War II the duration of the upturns typically has been about five years.

The Senate Republican leader, noting that some Democrats have suggested making the temporary taxes permanent, said the LAO report provided justification for allowing those levies to lapse.

“I think this report clearly demonstrates none of that is necessary. The Analyst pointed out that the expiration of the Proposition 30 tax increases will not have a negative impact on our budget if we act responsibly and keep the economy growing. We should keep the promises made to the people of California that Proposition 30 was a temporary measure,” said Senate GOP Leader Bob Huff in a written statement.

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