Linear Budget

Click on image to enlarge.

Each year around this time, the Legislative Analyst's Office (LAO) comes out with an estimate about what would happen to the General Fund of the state budget if current policies were unchanged and the economy grew more or less linearly. A summary of that exercise is above. Under the linear scenario, total reserves (regular reserve plus rainy day fund) rise by about $5 billion to about 9% of spending. That's enough, LAO says, to cope with a mild recession. But it assumes no new programs or expansions of existing programs. And it assumes no downturn.

Note that spending is up over 6% in nominal dollars this year but a little over 3% next year (the linear year). Figure about 2% inflation and around 1% population growth. So this year, on a per capita basis, real spending is up about 3%. Next year, it would hardly rise at all. Not clear that is a realistic projection of what is likely to happen. Will the legislature be willing just to accumulate $5 billion in the "bank"? The governor likes to restrict spending but there still was a significant rise this year. Will he, as an increasingly lame duck, hold to a no-new-spending budget?

The LAO's report is at http://lao.ca.gov/reports/2016/3507/Fiscal-outlook-111616.pdf