California is heading into the new fiscal year in unexpectedly good shape, with roughly $8 billion extra in its coffers. Yet state lawmakers are actually showing a degree of fiscal restraint. After filling the state’s rainy-day reserve fund to its constitutional limit — 10% of the state’s general fund — the Assembly’s budget writers are proposing to spend $4 billion on new initiatives, and the Senate $2.9 billion.
But as the two chambers negotiate a compromise proposal to take to Gov. Jerry Brown, they need to keep an eye first and foremost on the sustainability of any commitments they make. Not only is the state budget being lifted by an influx of volatile capital gains tax revenue that may not recur, but many of the proposals they’re advancing would be considerably more expensive in later years than they would be today.
Brown helped pull the state out of a years-long budget crisis, persuading voters to approve a tax increase in 2012 (which was renewed in part in 2016) and limiting new spending to one-time needs and programs that could be easily unwound in the event of a downturn. This combination of new tax dollars, disciplined spending and a steadily growing economy has led state revenue to exceed projections for several years in a row, while also building up the state’s new rainy-day fund faster than anticipated. (read more)