As California’s economy continues its slow but steady recovery from the Great Recession, it will make balancing the state budget relatively easy, at least for another couple of years.
Gov. Jerry Brown and the Legislature will squabble a bit, mostly over whether to spend or save revenue in excess of current commitments. But Brown, who prefers the latter, will have the last word.
The longer-term picture – the final two years of Brown’s governorship – is much cloudier.
Both Brown and the Legislature’s budget analyst, Mac Taylor, assume that the state’s economy will continue to expand modestly through the decade, with unemployment, once 12-plus percent, declining to about 5 percent.
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But, as Brown warns in his proposed 2015-16 budget, “economic expansions do not last forever. In the post-war period, the average expansion has been about five years. The current expansion has already exceeded the average by nine months. While there are few signs of immediate contraction, another recession is inevitable.”
That cautious attitude is why Brown insists on saving and paying down debt rather than expanding public services, saying, “it is obvious the state cannot take on new ongoing spending commitments.”
Given the global economic lethargy and California’s tendency toward boom-and-bust economic cycles – one of each about once a decade – it would be a minor miracle if Brown completes his governorship without at least a mild downturn.
The reserve fund that he is building could cushion a mild one, but a major recession would quickly consume it. Legislative Analyst Taylor warns about “sudden tax revenue declines that will inevitably return with little warning.”
Another unknown, meanwhile, is whether the temporary tax increases that voters approved in 2012, accounting for about $7 billion a year, will phase out, finally disappearing just about the time Brown relinquishes the governorship.
Interest groups most dependent on the budget – educators particularly – are already beating the drums for extending the tax increases or making them permanent and probably will push a ballot measure to that effect next year.
Brown is playing it coy over whether he would oppose such a measure. Asked about it at his budget unveiling, he responded, “I said that’s a temporary tax and that’s my position.”
Superficially, that sounds as if he would oppose a 2016 tax measure. But were it to merely extend the extra taxes for a few more years, it would still be “a temporary tax” and not violate Brown’s artfully worded position.
Taylor, meanwhile, believes that if the economy does continue to grow, expiration of the temporary taxes would have only minor impact, slowing the increase of revenue a bit but not causing a “cliff effect.”
That is, however, a very big “if.”