LAO Again Warns of Fiscal Danger Ahead Wednesday, April 27, 2022
From the Legislative Analyst's Office (LAO):
Gabriel Petek Legislative Analyst Given the persistent strength in state tax collections, it may come as a surprise that California’s General Fund likely faces a budget problem in the coming years. Yet this is the key takeaway from a recent fiscal analysis of 10,000 possible revenue scenarios conducted by our office. In 95 percent of our simulations, the state encountered a budget problem by 2025-26. Notably, the likelihood of a budget problem largely is impervious to the future trajectory of state tax revenues. That is, whether revenues trend upward or downward from here, the state likely faces budget deficits. The central implication of our findings is stark and suggests that in the interest of fiscal resilience, the Legislature should consider rejecting a substantial portion of the Governor’s January spending proposals. How Can Strong Revenue Trends Present a Budget Risk? In the brief associated with our analysis, we described how continued revenue growth could increase the state’s constitutional funding obligations enough to cause large recurring budget deficits. Having essentially reached the Proposition 4 (1979) state appropriations limit (SAL), each additional dollar of revenue must be allocated consistent with SAL requirements, generally making them unavailable to fund baseline UCLA Faculty Association Blog: 2nd Quarter 2022
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