The State of California is expected to see billions in surplus revenues in 2016-17, according to a recent report released by the Legislative Analyst's Office.
"California's state budget is better prepared for an economic downturn than it has been at any point in decades. Under the main economic scenario in this year's LAO Fiscal Outlook, 2016-17 would end with reserves of $11.5 billion, assuming the state makes no new budget commitments through next year," states the report released Wednesday.
The report goes on to say that if the economy continues to grow through 2019-20, annual operating surpluses and larger reserves could materialize, creating an opportunity for either spending increases or tax reductions. However, the LAO also warns that an economic or stock market downturn could occur during the outlook period causing budget deficits to re-emerge.
"The more new budget commitments are made in 2016-17, the more likely it is that the state would face difficult choices—such as spending cuts and tax increases—later," stated the LAO.
Assembly Republican Leader Kristin Olsen released a response to the report, advocating for clear spending priorities and fiscal responsibility.
“For the third year in a row the state is expecting billions in surplus revenues. The LAO’s update demonstrates that there is no need to tax the health care of 24 million Californians as proposed by the Governor and legislative Democrats," said Olsen.
“Some of the additional $3.5 billion must be dedicated to increasing rates for those who serve the developmentally disabled and Medi-Cal providers. Given the LAO’s forecast, these essential services can be funded as the state continues to build its budget reserves.
“While the LAO’s revenue projections are positive, the Analyst also sounded a cautionary note that we must continue to prepare for the next economic downturn and cannot ignore the state’s debt and long-term pension obligations," continued Olsen.
The positive budget outlook is based on projected increases in General Fund revenues —principally the personal income tax—which will exceed June 2015 budget assumptions by $3.6 billion, with most of that gain to be deposited into the Proposition 2 rainy day fund.
In 2016-17, the LAO projects that revenues will exceed spending under current policies, resulting in even further improvement in the state’s fiscal situation. Of the estimated $11.5 billion in reserves, the Legislature would have control over $4.3 billion in the Special Fund for Economic Uncertainties, the state’s traditional budget reserve, with the rest of the reserves held for future budget emergencies by Proposition 2.