SAN FRANCISCO -California is on track to end 2015-16 with $4.2 billion in total reserves, marking significant progress for the state, according
The report, released Wednesday, estimates the fiscal outlook of the state's general fund and summarized the LAO's assessment of California's economy and budget condition.
"We're in a fairly stable and good situation right now because we've gotten some our liabilities paid off, we've gotten our spending and revenue back into whack, and, as you can see from our main economic scenario, assuming that we don't have some downturn in the near future, we actually have additional funds," legislative analyst Mac Taylor said during a press conference.
The $4.2 billion of reserves includes an estimated $2 billion deposit in the rainy day fund in 2015-16, under the new rules passed by voters Nov. 4 through Proposition 2.
"That's a lot more than we've had in my memory," Taylor said. "That does assume, of course, that the legislature and governor make no new spending commitments beyond what we've assumed in our outlook."
For 2014-15, general fund revenues will be around $2 billion higher than estimated in this year's budget act, according to the report.
The increase, however, is fully offset by higher general fund spending on Prop. 98, which requires a minimum percentage of the state budget to be spent on K-12 education.
"Our outlook for 2015-16 is characterized by moderate revenue growth, which supports an underlying spending increase of about 4 percent," the report said. "Under our outlook, the resources available for Proposition 98 priorities in 2015-16 will be significantly higher than the current ongoing spending level, making the near-term outlook for schools and community colleges especially favorable."
The LAO also predicted possible economic scenarios for the state budget after 2015-16. The main scenario suggests future surpluses and growing budget reserves. However, in a scenario involving a large stock market drop and slowdown of economic growth, surpluses disappear.
Higher revenues resulting from a one-time spike in capital gains taxes could also put pressure on the budget, as higher ongoing funding requirements could make it more difficult to balance the budget after 2015-16.
"Thus, the state could see the condition of its general fund worsen in the future if (1) revenues decline sharply, or (2) revenues increase sharply, but temporarily, in 2014-15," the report said.
The LAO report advised the state legislature to keep making progress in building budget reserves, considering that the U.S. economy is six years into the current economic expansion, and given the future risk to the general fund under scenarios in which revenues are higher or lower.
"Moreover, the Legislature has the opportunity in the coming months to develop a plan for using the $15 billion to $20 billion of future Proposition 2 debt payments," the report said. "This plan could pay down several persistent state debts and save future taxpayers tens of billions of dollars."
There is pressure building to use additional revenue to boost programs.
"Especially in light of a recovery that has failed to reach so many individuals and families, California must continue to reinvest in child care and preschool, the CSU and UC systems, support for low-income seniors and people with disabilities, and the other foundations of a strong economy and healthy communities," Chris Hoene, executive director of the nonpartisan, left-leaning, California Budget Project, said in a statement.
