The LAO's outlook analysis can be considered a "workload budget," i.e., a budget that assumes no changes in basic policy whose outcome is determined by the underlying economy and the resulting revenues and expenditures.
We have been noting that cash receipts have run ahead of projections lately, largely due to income taxes - probably capital gains from the stock market and withholding due to "equity pay" (payment in stock) in the tech sector** - and corporate profits. These sources are volatile and hard to predict. The underlying economy, we have noted, seems to be functioning as forecast, as indicated by sales tax revenue close to prediction levels.
The LAO seems to agree with this analysis. It describes the state budget this year and next (again, assuming no policy changes) as roughly balanced. As can be seen from the chart below, which we have derived from LAO estimates, there is in fact a deficit projected for this fiscal year and next which are eroding reserves connected to the General Fund.
We have also noted that the state is sitting on a mountain of cash. However, much of this cash is outside the general fund and its related reserves. It can be used to deal with seasonal discrepancies between revenue receipts and outflows for spending, but not for covering deficits.
The LAO's report is not detailed down to the level of UC. But we can assume that the restrictive outlook will reflect itself in whatever the UC allocation turns out to be. As blog readers will know, the Regents have already approved a tuition hike for incoming out-of-state students.
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*The report is at https://www.lao.ca.gov/Publications/Report/4939.
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