Wednesday, November 18, 2015

LAO's State Budget Outlook

The Legislative Analyst's Office (LAO) as a standard practice comes out with a "fiscal outlook" publication around this time of the year. The latest version has just been released. A good way to summarize it is to look at the reserves at the end of each year. There are now two reserves in the general fund, the regular reserve and Gov. Brown's rainy day fund. Below are the combined reserves at the end of the three fiscal years shown:

June 30, 2015____$2.8 billion
June 30, 2016____$7.9 billion
June 30, 2017___$11.5 billion

If you take the differences between these combined reserves from year end to year end, you get the implicit budget surplus. This current year (2015-16), the overall surplus is $5.1 billion. Next year (2016-17), the projection is for a surplus of $3.7 billion. (There is some rounding error here.) The combined reserve at the end of next fiscal year is approaching about a tenth of spending.

Obviously, the level of spending and taxing next year have yet to be enacted by the legislature and governor. (And there could be tax measures on the ballot in 2016.) There are also assumptions made about the pace of economic growth and - because we are dependents on capital gains taxation - the direction of the stock market. But the assessment is basically positive. Still, any recession could quickly erode even a 10% reserve.

As for UC, LAO projects general fund support going up at about 4%/annum through 2019-20. It might be noted that LAO projects that the pension support received from the state this year (assuming the Regents do what the legislature required) is a one-time payment. LAO doesn't assume the rest of the payments which the governor promised and the Regents seem to take for granted. (See page 28 of the report.)

You can find the report at

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