For those caught off-guard by this news, perhaps they shouldn’t have been, as it was in line with the analysis from the LAO (Legislative Analyst’s Office) back in November 2012.
They argued that the “budget situation has improved sharply.”
“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,” they wrote.
They added: “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.”
Indeed, they argued 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.”
It was this theme that Mac Taylor, Legislative Analyst at the Legislative Analyst’s Office, took on Monday when they released their analysis of the governor’s budget.
“I think we’re in a very different situation than we have been in the last 10, 12 years,” Mac Taylor said on Monday at a press conference. “When at this time we would usually be sitting around talking about 20, 25, 30 billion dollar deficits and what are the differences in the numbers between the administration and us.”
He noted that fiscal restraint, along with the addition of temporary taxes through Prop 30, had produced a budget that was on the verge of being balanced.
“The Governor’s proposed budget reflects the significant improvement in the state’s finances that our office identified in November. The state has now reached a point where its underlying expenditures and revenues are roughly in balance, meaning that – under our and the administration’s fiscal forecasts – state-supported program and service levels established in 2012-13 will generally continue ‘as is’ in 2013-14 and 2014-15,” the LAO wrote in their analysis released on Monday.
They added, “Because there are still considerable risks to revenue estimates given uncertainty surrounding federal fiscal policy and the volatility inherent in our revenue system, the Governor’s focus on fiscal restraint and paying off debts is appropriate.”
On Monday, Mr. Taylor and LAO Office signed off on the budget.
“We think that the Governor’s proposal reflects that kind of fiscal discipline,” Mr. Taylor said. “We think that he should be commended for the plan that he has put before the legislature.”
“It has very few augmentations of new policy proposals, it continues to make payments of debt, the biggest ones being on school deferrals,” he said. “It actually pays down some special fund loans, and more importantly it continues to stress the importance, over the fiscal outlook, of the next few years, that you plug in additional payments to get those budgetary obligations off the books.”
According to the LAO, “Similar to our November 2012 forecast, this latest package reflects a significant improvement in the state’s finances, due to the economic recovery, prior budgetary restraint, and voters’ approval of temporary tax increases. Specifically, the Governor proposes $138.6 billion in General Fund and special fund spending in 2013-14, up 4.5 percent from 2012-13. The administration forecasts that the state’s General Fund budgetary balance will be $1 billion at the end of 2013-14 under the Governor’s plan.”
The budget contains major proposals in education, including a new formula for financing schools and additional General Fund resources for the public university systems.
The LAO notes that this budget marks a transition from multibillion dollar annual deficits to “baseline budgets.” They wrote, “Over the past several years, each January Governor’s budget has included billions of dollars in proposed solutions-expenditure reductions, revenue increases, borrowing, and other actions-in order to close budget shortfalls. Now, however, the state has reached a point where its underlying expenditures and revenues are roughly in balance.”
“The Governor’s emphasis on fiscal discipline and paying off the state’s accumulated budgetary debts is commendable, especially in light of the risks and pressures that the state still faces,” they wrote.
They do strike a cautionary note, noting, “There are still considerable risks to revenue estimates, given uncertainty surrounding federal fiscal policy and the volatility inherent in our revenue system. In addition, under the Governor’s multiyear plan, the state would still have no sizable reserve at the end of 2016-17 and would not have begun the process of addressing huge unfunded liabilities associated with the teachers’ retirement system and state retiree health benefits.”
They wrote, “As such, the state faces daunting budget choices even in a much-improved fiscal environment.”
“This sort of approach, in our view, is really critical because we still face a lot of risk, and one of the most important ones that we identify in the report is something over which we have almost no control: What happens at the federal level,” Mr. Taylor said.
—David M. Greenwald reporting