LAO Counsels Legislature to Save Added Revenue

As blog readers will know, Gov. Newsom's January budget proposal was based on more optimistic revenue forecasts than the Legislative Analyst Office was providing. But then current revenue seemed to be outpacing both the governor and the LAO forecast.

The LAO has not retreated from the idea that the outyears still contain a structural deficit, but it concedes that there is likely to be more revenue by the time of the May Revise than forecast. So it now is counseling the Legislature to put away the above-forecast revenue into reserves, i.e., save for a rainy day.* Note that some of the above-forecast revenue automatically ends up in K-14 due to Prop 98.

Whether saving for a rainy day will appeal to the legislature is another matter. As we have noted in prior postings on this blog, UC should be pushing to get its share.

One thing to note in that regard is that the LAO takes the view that paying down debt is an alternative to saving for a rainy day. And, in listing various debts the state has, it includes the deferral of a payment due under the "compact" with UC to 2027-28. Translated: The legislature could consider not deferring the payment and allocating the money now. That appears to be the position taken by UC President Milliken we noted yesterday.

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*https://lao.ca.gov/Publications/Report/5133.