Legislative Analyst Offers Rosy Economic Forecast

More Californians have jobs, fewer are on welfare and the state’s economy is surging--a rosy picture that should last at least for the next couple of years, the Legislature’s top fiscal advisor said Thursday.

Legislative analyst Elizabeth Hill said California’s budget will remain in balance, despite tax cuts and the boost in spending that will probably accompany the expanding revenues.

“The bottom line is our fiscal outlook is very positive,” Hill said, noting that strong economic conditions and federal changes in welfare laws are contributing to the good news.

Gov. Pete Wilson’s decision to pay back $1.2 billion in one lump to the public workers’ retirement system--money the state borrowed to balance an earlier budget--will help budget writers as they begin work during the next few weeks, Hill said.

Her forecast did not look beyond mid-2000, but it did note that state reserves will begin shrinking under current projections as the end of the 1999-2000 fiscal year approaches.

She said the state’s strong economy is expected to produce $507 million more in tax revenues during the current fiscal year than projected in the $68-billion budget bill enacted three months ago.

“The favorable economic outlook has resulted in healthy underlying revenue increases. As the result of the stronger-than-expected economy and recent federal law changes affecting capital gains taxation, we estimate that revenues will exceed the 1997-98 budget act amount by over $500 million. During the next two years, revenues are forecast to increase by about 5%--despite the phase-in of the recently enacted tax reduction,” she said in her report.

Hill said the aerospace industry and home construction, among other segments of the economy, are exceeding the rosy forecasts of last summer, and that the growth will be sustained through the foreseeable future.

“We forecast that wage and salary employment will increase by 3.1% next year--up significantly from the budget’s estimate of 2.3%--before moderating to 2.6% in 1999 and 2.3% in 2000,” Hill said.

The only potential red flag in Hill’s report was a narrowing of the gap between revenues and expenditures near the end of the 2 1/2-year period.