Gov. Jerry Brown’s parting gift to Gov. elect Gavin Newsom is a state budget so flush with unrestricted tax revenue that top fiscal analysts struggled to find the right words to describe it.
“The budget is in remarkably good shape,” reads the annual fiscal outlook by the Legislative Analyst’s Office. “It is difficult to overstate how good the budget’s condition is today.”
Economic trends are so sunny that the analyst’s office projects a state budget surplus of $14.8 billion next year, unless the Legislature chooses to spend the money or cut taxes.
The Legislature and Newsom could follow Brown’s lead and use that money to continue preparing for a recession. If so, the state would have about $30 billion in reserves to weather a recession by the summer of 2020.
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Or lawmakers could use the money to seed some of the proposals that Brown repeatedly nixed in his last years in offices, such as expanding health care coverage to undocumented immigrants or putting more funds into programs aimed at helping low-income Californians.
The analyst’s report sounds one significant note of caution. It warns that California government finances can change suddenly because it is dependent on income taxes from high-earners, which can plummet in a downturn.
For instance, the same office in November 2000 projected that state government would accumulate a $10.3 billion surplus in the 2001-2002 budget years.
Instead, the dot com recession hit and lawmakers faced a $12.4 billion recession.
That history weighs on Democratic lawmakers, who so far are not revealing whether they’re ready to fund new programs.
“We have to be very, very careful about ongoing spending,” said Assembly Budget Committee Chairman Phil Ting of San Francisco. “My takeaway is clearly we need to save more money.”
The forecast looks at two scenarios for the state’s economy over the next few years. In one, the economy continues to grow. In the other, a recession begins. The difference in potential revenue for government programs is $46 billion.
If the Legislature and Newsom choose to save the surplus, the Legislative Analyst’s Office projects that the state probably would have enough money in reserves to weather a mild recession without serious deficits and cutbacks.
“For eight years we have worked tirelessly to end the era of perennial budget deficits and bring about responsible budgeting. Not only have we pulled the state from the depths of the Great Recession and made significant improvements in critical programs, we are also well prepared to withstand the next recession without major cuts or middle class tax increases,” said Senate President Pro Tem Toni Atkins, D-San Diego.
State leaders, most prominently Brown, have been warning that a recession is on the horizon. His office reports that the state’s longest economic expansion took place between 1991 and 2001.
The current one, dating back to the lowest point of the most recent recession, is heading into its 10th year.
Brown took office in 2011 facing a $27 billion deficit. He’s leaving office with almost a $9 billion surplus.
Brown signed a $201 billion state budget in July. It’s general fund approached $139 billion, or $70 billion more than the state spent from that fund in 2011-12.
“This is a time to save for our future, not to make pricey promises we can’t keep. I said it before and I’ll say it again: Let’s not blow it now,” Brown said at a May news conference on the budget.