Analysts: California budget surplus will test spending limit

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California lawmakers are expected to take early action next year on how to implement the constitutional limit on state spending, an analysts report recommended Wednesday, noting that long-standing law will dictate how to allocate the quasi -total fiscal surplus of $ 31 billion.

The spending limit, approved by voters in 1979, was a key consideration during state budget negotiations last spring after having largely remained dormant for the past four decades. Successive years of higher than expected tax revenues, even during the economic disruption of the COVID-19 pandemic, have allowed Gov. Gavin Newsom and Democratic legislative leaders to expand government services while paying off long-term debts and by increasing the state treasury. reservations.

When state officials draw up a new budget next spring, according to plans from the independent office of legislative analysts, they may find that the spending limit controls the use of anything but a few billion dollars of the surplus over a year. period from now until early summer 2023.

“We believe this will be a fairly important issue for the Legislature to consider in the upcoming budget process,” said legislative analyst Gabriel Petek.

In their annual report published on Wednesday, Petek and his analysts found that excess tax revenue would be accrued in multiple fiscal years. But the bulk of the windfall – over $ 22 billion – is paid in taxes collected in the current fiscal year, which began July 1 and ends June 30 of next year. Substantial portions of the overall fiscal windfall will go to fund K-12 schools and community colleges. Analysts predict that guaranteed funding for schools will have increased by about $ 11 billion between mid-2020 and next summer, with higher spending being needed after that.

Petek said California’s strong tax revenues appear to be widespread and its economy has likely been bolstered by extensive pandemic assistance efforts from federal and state governments. Even so, the state budget is highly dependent on high incomes and the successes or failures they experience with their investments in the stock market. The report finds that tax collections from all industries combined grew at an annual rate of 30% over a 12-month period ending in September – the fastest rate since at least the early 1980s.

The sustained growth in tax revenues has given lawmakers the opportunity this year to make significant investments in a variety of education, health care and social service programs. One-off decisions to provide stimulus checks, along with tenant and business relief, have also been made possible by excess dollars not otherwise committed to mandatory spending or cash reserve requirements. The state has also paid retirement pensions to public employees above minimum levels and has committed billions of dollars to new efforts to tackle homelessness in California.

But when lawmakers return to Sacramento in January to consider Newsom’s budget plan for the coming year, they will face what analysts say are new challenges in how to interpret the 1979 spending limit. This law, enacted by voters following the implementation of the historic property tax limitations of Proposition 13, requires that certain excess tax revenues be spent on special state spending or distributed between granting extra money for schools and taxpayer refunds.

Newsom did not directly respond to whether he would recommend adopting the spending limit provisions related to education and tax breaks when asked about the analysts report during a press conference Wednesday in Los Angeles regarding the state’s role in addressing global supply chain issues.

“I look forward to making the decision that I believe is in the best interests of 40 million Californians in January with the support, the critical support of our legislative leaders,” he said.

Times editor Taryn Luna contributed to this report.



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