The state’s economic recovery, prior budget cuts, and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges says the state Legislative Analyst’s office.
Our economic and budgetary forecast indicates that California’s leaders face a dramatically
smaller budget problem in 2013-14 compared to recent years. Furthermore, assuming steady
economic growth and restraint in augmenting current program funding levels, there is a strong
possibility of multibillion-dollar operating surpluses within a few years.
The Budget Forecast
Projected $1.9 Billion Budget Problem to Be Addressed by June 2013. The 2012-13 budget
assumed a year-end reserve of $948 million. Our forecast now projects the General Fund ending
2012-13 with a $943 million deficit, due to the net impact of (1) $625 million of lower revenues
in 2011-12 and 2012-13 combined, (2) $2.7 billion in higher expenditures (including $1.8 billion
in lower-than-budgeted savings related to the dissolution of redevelopment agencies), and (3) an
assumed $1.4 billion positive adjustment in the 2010-11 ending budgetary fund balance. We also
expect that the state faces a $936 million operating deficit under current policies in 2013-14. These
estimates mean that the new Legislature and the Governor will need to address a $1.9 billion
budget problem in order to pass a balanced budget by June 2013 for the next fiscal year.
Surpluses Projected Over the Next Few Years. Based on current law and our economic
forecast, expenditures are projected to grow less rapidly than revenues. Beyond 2013-14, we
therefore project growing operating surpluses through 2017-18—the end of our forecast period.
Our projections show that there could be an over $1 billion operating surplus in 2014-15,
growing thereafter to an over $9 billion surplus in 2017-18. This outlook differs dramatically
from the severe operating deficits we have forecast in November Fiscal Outlook reports over the
past decade.