California is on track to have an extra $5.6 billion in just two years, according to an updated official projection.
The state ended the fiscal year that ended in June with about $1.65 billion more in revenues than had been anticipated, thanks largely in part to greater personal income tax revenue, according to the Legislative Analyst’s Office report. Much of that will go to education, as mandated by a 25-year-old policy that guarantees education funding grows with the economy. When all is said and done, the state is expected to have ended the 2012-2013 fiscal year with a $234 million reserve—its first positive year-end reserve since the 2007-2008 fiscal year.
“The state’s budgetary condition is stronger than at any point in the past decade,” the report’s authors write. “The state’s structural deficit—in which ongoing spending commitments were greater than projected revenues—is no more.”
In other words, things are especially golden in the Golden State. Of course, there are notes of caution.
The projections assume the economy continues to grow and that stock prices enjoy a slow and steady rise. A “wall of debt” remains and the state’s “huge retirement liabilities” loom large as a potential source for concern. And what if there’s another recession? The Great Recession was so severe that the nation may see a prolonged rebound. But, the report’s authors note, the country is four years into the modest recovery and, since World War II, the average expansion has lasted just under five years.
But, at the end of the day, California’s situation “is even more promising than we projected one year ago,” they report.
And it’s not just the fiscal year that ended this summer. By the end of the 2014 to 2015 fiscal year the summer after next, the state is projected to have accumulated a $5.6 billion reserve. This fiscal year’s projected reserve is expected to more than double—from $1.1 billion to $2.4 billion—thanks to the extra capital gains taxes projected to come from stronger-than-expected stock price growth. And expect even further growth in the 2014 to 2015 fiscal year as personal income tax revenue rises, they write. In both of the next fiscal years, higher revenues will be somewhat offset by billions in increased education spending, yet there will be a $5.6 billion reserve if the estimates are right and new policies don’t affect things.
Much of the revenue growth is the result of a seven-year tax hike on Californians earning $250,000 or more that was approved by voters in 2012, the report notes. The surpluses are expected to continue in subsequent fiscal years.