The state budget is in good shape to weather a moderate recession, and lawmakers should be able to sock away more money in reserves next year, according to projections the nonpartisan Legislative Analyst’s Office issued Wednesday.
The LAO’s outlook shows the state would finish its 2018-19 budget year with more than $19 billion in reserves – assuming lawmakers and Gov. Jerry Brown don’t make any more spending commitments. About $11 billion is obligated for the state’s rainy-day fund.
Lawmakers could spend about $7.5 billion of the surplus, although analysts recommend that they save it to prepare for a recession.
The Legislature also probably will have flexibility to spend several billion dollars in money that’s set aside for kindergarten through community college education, the report says.
The report represents a projection of how the office thinks the economy will fare next year, and what that means for the budget. It projects that the state will collect $135.5 billion in taxes and fees for the 2018-19 general fund, up from $127 billion in the current budget.
The outlook could change quickly if the federal government makes significant changes to tax policy, scraps trade pacts or withholds health insurance reimbursements, the report warned. The Trump administration and Republican members of Congress have advocated for changes to those policies this year.
“Especially in the short term, withdrawal from the (North American Free Trade Agreement) would introduce added risks to the economic outlook,” the report says.
California lawmakers are eying the favorable budget outlook and recommending ways to spend – or save – money. Sen. Steve Glazer, D-Orinda, released a statement calling for the state to use some of the surplus for a large payment on the state’s public employee pension debt.
Assembly Budget Committee Chairman Phil Ting, D-San Francisco, said the forecast suggests the state should be able to put money away for its reserves and make “responsible progressive investments to fight poverty, increase access to healthcare, improve schools and access to early education.”