Sunday, May 13, 2018

Revenue Forecast: LAO vs. Governor

A previous post discussed the governor's May Revise budget proposal.* The Legislative Analyst's Office (LAO) has now released its own revenue projections for 2018-19 which differ from the governor's. LAO actually put out two documents. One was for calendar years and contains general economic projections for 2018 for the U.S. and for California. The former should be a driver for the latter.

Oddly, the LAO's projections for the U.S. are somewhat less robust than the governor's, but its projections for California are somewhat stronger. For example, payroll employment in the U.S. grows faster in 2019 in the governor's scenario relative to the LAO's (1.7% vs. 0.7%) and unemployment is lower in the governor's scenario than in the LAO's (3.6% vs. 3.8%). At the state level, however, LAO has the same projection for payroll employment as the governor (1.4% for both) and has the unemployment rate lower (4.4% vs. 4.2%). Note, again, that these are calendar - not fiscal - years, which complicates the understanding of the link between the two types of time periods. See:

The LAO assumes about $1.5 billion more revenue than the governor for 2018-19, and it assumes the legislature will put less money than the governor proposes into the rainy-day fund. See: It might be noted that the LAO assumes a stock market "correction" (drop) in calendar 2019, which one might expect to be a negative for revenue from the income tax.

Neither the governor nor the LAO has an outright recession in the forecast although the governor - in his news conference - made the point that recessions are never put into such numbers. See:

Whatever the reconciliation of these numbers may be, the legislature is likely to see mainly the projection of more revenue than the governor predicts for next fiscal year. Thus, it may yet add some money for UC. Of course, the governor has a line-item veto. But, although his regime is ending in January, he may still need some goodwill in the legislature for his twin-tunnel water project and perhaps other matters as well. We will see...

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