State Legislative Analyst Office 2014-15 Budget – California’s Fiscal Outlook

The state's Legislative Analyst Office recently released its annual fiscal outlook for California.  Unlike the reports in the recent past, this report projected a much healthier fiscal outlook for the state. 

"California's Fiscal Outlook: The 2014-15 Budget reported the following: 


Forecast Reflects Continued Improvement in California's Finances.
In November 2012, we projected that with continued growth in the economy and restraint in new program commitments, the state budget could see multibillion-dollar operating surpluses within a few years. In 2013, the Legislature and the Governor agreed to a restrained state budget for 2013-14, and our forecast of state tax revenue collections has increased since last year. Accordingly, we now find that California’s state budget situation is even more promising than we projected one year ago.


 The Budget Outlook - Under Current Policies, $5.6 Billion Projected Reserve at End of 2014-15. 
The state’s 2013-14 budget plan assumed a year-end reserve of $1.1 billion. Our revenue forecast now anticipates $6.4 billion in higher revenues for 2012-13 and 2013-14 combined. These higher revenues are offset by $5 billion in increased expenditures, almost entirely due to greater required spending for schools and community colleges. Combined with a projected $3.2 billion operating surplus for the state in 2014-15, these factors lead us to project that, absent any changes to current laws and policies, the state would end 2014-15 with a $5.6 billion reserve.

Future Operating Surpluses Projected.
We assume continued economic growth in future years. In such a scenario, we project that, under current laws and policies, state General Fund revenues will grow faster than expenditures through 2017-18, when the state’s projected operating surpluses reach $9.6 billion. The state’s temporary personal income tax rate increases under Proposition 30 (2012) expire at the end of 2018, resulting in a more gradual ramping down of these revenues over the last two fiscal years of our forecast. This helps prevent a "cliff effect" in our forecast, as our projected operating surpluses remain stable at just under $10 billion per year in 2018-19 and 2019-20.

Healthy Local Property Tax Growth Important for State Finances. Proposition 98 funding for schools and community colleges is provided by a combination of state General Fund spending and local property tax revenues. Throughout our forecast, healthy property tax growth—a byproduct of the recovering housing market—helps moderate the growth of required California’s state General Fund spending on schools and community colleges. In addition to normal property tax growth, the state’s fiscal situation is helped by additional increases in school property taxes due to the dissolution of redevelopment agencies and the expiration of the “triple flip.” Both of these factors play a significant role in keeping annual state expenditure growth below revenue growth for much of our forecast period.

The full report is available here.