State Has $7 Billion Operating Surplus and $26 Billion in Reserves, Legislative Analyst Reports

The California state budget has an estimated $7 billion surplus available in 2020-21, and nearly $26 billion in reserve accounts, the nonpartisan Legislative Analyst’s Office (LAO) reported November 20.

“California’s budget continues to be in a good position,” the analyst stated. “We estimate the Legislature will have a $7 billion surplus available to allocate in the upcoming budget process, and in addition, will build an $18.3 billion balance in the state’s rainy day fund by the end of 2020-21. With more than a decade of economic expansion, coupled with deliberate legislative action to put the budget on better footing, the California budget is in good condition.”

In addition to the rainy day fund, the state has a “safety net” reserve and the “state fund for economic uncertainties” that bring total reserves to nearly $26 billion, the analyst reported. Without significant new spending, “California could weather a typical post-WWII recession” with these reserves, the analyst stated.

The report defines the budget surplus as the amount of revenue that exceeds spending under current law and policy. The figure was calculated on the assumption that the federal government will approve California’s extension of a $1.5 billion managed care organization tax (AB 115, Assembly Budget Committee, signed into law in late September).

Revenue from California’s three largest taxes – the personal income tax, sales tax and corporation tax – increased 30 percent from 2012-13 to 2018-19 (in 2018-19 dollars), the analyst noted. “PIT revenues --driven by higher than average wage and asset price growth – have increased 33 percent over the same period,” the analyst reported.

The analyst estimated that the state constitution’s minimum guarantee for education funding in 2020-21 will be $84.3 billion, an increase of $3.4 billion (4.2 percent) over the revised 2019-20 level. “The majority of this increase is attributable to growth in General Fund revenue, with the remainder attributable to growth in local property tax revenue,” the analyst stated.

“These reports show that the existing tax structure continues to provide surplus revenue to the state, and will pay for a substantial increase in education funding next year,” CalTax President Robert Gutierrez said. “With the minimum education guarantee projected to reach $84.3 billion and Californians already paying billions of dollars in surplus taxes every year, it is clear that tax increases – including proposals to erode Proposition 13 and those proposed under the guise of ‘tax reform’ – are unnecessary. In fact, tax hikes would impede the economic growth that is responsible for the state’s windfall.”

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