Stash away California’s budget surplus

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California’s Legislative Analyst’s Office predicted again this week that the state will collect far more in taxes than it had anticipated, generating a huge budget surplus. Analyst Mac Taylor’s latest report, released Wednesday, projects that the bounty will grow to nearly $10 billion by July 2018. Before lawmakers start planning new programs or tax cuts, however, they need to remember how many times Sacramento has been surprised — often painfully so — by the vagaries of state revenues, as well as the debts and liabilities the state government still faces.

Taylor argued in May that Gov. Jerry Brown’s revenue projections were too conservative, and this week he predicted an even larger overage for the current fiscal year, which runs through June 30: $4.7 billion, much of which will go to public schools and community colleges. The surge in revenues will continue at least through 2020, generating ever-growing operating surpluses, Taylor wrote.

The growth in revenue is powered in part by Proposition 30’s increases in sales and income taxes, which are only temporary. And income tax revenue is notoriously volatile, in part because so much of it depends on the stock market and capital gains. Nevertheless, these projections will tempt Democratic lawmakers to restore some of the programs and services cut during the recession or to launch new ones, while fueling Republican demands to cut the state’s highest-in-the-nation income tax rates.


But the state still faces real fiscal challenges, including the debt it amassed by issuing bonds and dipping into funds reserved for schools, mental health programs and other special purposes in order to make ends meet. Even more threatening are the huge unfunded liabilities in state pension funds such as the teacher retirement system, which holds about $70 billion less in assets than it owes to future retirees.

As Brown can attest from his first go-around as governor, Californians have little tolerance for big budget surpluses. If Taylor’s projections hold, the state should use the windfall to stabilize its boom-and-bust finances. One possibility is a constitutional amendment on next November’s ballot that would expand the state’s rainy-day fund to force lawmakers to save more money in fat years for use in the inevitable lean ones, when safety-net spending peaks. Until voters have their say on that measure, lawmakers shouldn’t do anything to fritter away the state’s growing reserves.