*Fiscal Effects of the Recession Will Likely Span More Than One Budget Year
- Historic reserve balances are very helpful, but likely not enough to cover revenue losses.
- In the near term, judicious use of budget reserves is warranted.
*Lacking Solid Basis for Revenue Estimates, Adoption of a Cautious Budget in June Is Justified
- A prudent “baseline” budget will make addressing the potential budget problem easier.
- Baseline (or “workload”) budget is cost to maintain existing service levels.
*We are updating our November Fiscal Outlook to estimate cost of baseline.
- What constitutes a “baseline budget” is open to some interpretation.
- Therefore, our office is also developing an alternative “baseline-low.”
Full report at https://lao.ca.gov/handouts/FO/2020/Preliminary-Assessment-of-the-Economic-Impact-of-COVID-19-041620.pdf
From the Sacramento Bee: [excerpt]
...Legislative Analyst Gabe Petek said it’s unclear how long the economic devastation will last, but proposed three scenarios for how California could emerge from the recession. The first offers an “optimistic” view that economic activity will remain “depressed” until the threat of the coronavirus subsides, and stay-at-home orders are lifted. This best-case scenario would likely happen later this year or early next.
The second scenario presents a more “sluggish” reversal of economic inactivity, Petek said. That’s when restrictions remain in place longer due to prolonged worry over the coronavirus and businesses have to stay shuttered through this prolonged period.
The third more dire, worst-case model suggests the virus dissipates this summer, restrictions lift, the virus returns later this year and stay-at-home orders resume through another cycle of the pandemic.
“We don’t know how deep the downturn will be, how long it will last or the shape of the recovery will look like,” Petek said. “The economic outcome depends on evolution of virus itself.” ...
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