California's Projected Fiscal Outlook
As 2014 nears to a close, a number of finance and fiscal reports are being released in anticipation of the Governor’s announcement of his January 2015-16 proposed budget. In general, the economy is reflecting recovery and revenues are looking better than previous years. This of course means that there will be additional pressures on spending in the Legislature, but the Governor has been steadfast to spend prudently. Further, with the passage of Proposition 2, the “Rainy Day Budget Stabilization Fund Act,” the State will be required to put aside at least 1.5 percent of the general fund each fiscal year. This proposition was a constitutional amendment put on the ballot with bipartisan support and is intended to use half of the money in a “rainy day” account to mitigate economic downturns with the other half reserved for paying debts and other obligations (e.g. retirement benefits).
The California Department of Finance’s November Finance Bulletin reflects steady improvements in state revenue. They reported year-to-date revenues that exceed projections by $1 billion, with General Fund cash for October $719 million higher than the 2014-15 Budget Act forecasted.
Wednesday, the Legislative Analyst’s Office (LAO) released The 2015-16 Budget: California’s Fiscal Outlook. They project California will close the 2015-2016 budget year with $4.2 billion in reserves, which includes $1.6 billion in pre-Proposition 2 rainy day funds, $641 million in the state’s traditional budget reserve - both possibly accessible to the Legislature by a simple majority vote - and $2 billion deposited in 2015-16 rainy day funds under the new Proposition 2 reserve rules, accessible to the Legislature only by a Governor declared budgetary emergency that meets specified criteria. The LAO notes maintaining this reserve demands no or little new budgetary commitments in this fiscal year aside from Proposition 98 minimum guarantee funding.
KEY PROJECTIONS FROM THE LAO REPORT:
$111 billion – estimated 2015-16 General Fund (GF) Revenue. This reflects a $6 billion dollar growth in GF revenue over projections in the 2014-25 Budget Act, largely resulting from increases in personal income tax;
$4 billion – The projected amount of Proposition 2 requirements in 2015-16: $2 billion in a rainy day fund and $2 billion to pay down state debt;
4% - projected growth in programmatic spending in 2015-16;
$170 million – the amount cities, counties, and special districts are projected to receive under the 2014-2015 Budget Act’s “mandate trigger.”
ESTIMATED GF SPENDING FOR 2014-15 AND 2015-16 PROJECTIONS FOR MAJOR EXPINDITURE AREAS
$9.1 billion – estimated spending for the California Department of Corrections and Rehabilitation (CDCR) in fiscal year 2014-15, reflecting a 2% net increase over 2013-14 spending
$9.1 billion - 2015-16 CDCR spending is projected to remain flat due – while increased costs are expected, the LAO anticipates cost savings from reductions in the prison and parole population as a result of Realignment and the new voter approved Proposition 47.
$63.2 billion – updated 2014-15 Proposition 98 minimum guarantee;
$65.8 billion - 2015-16 minimum guarantee estimate, reflecting a $2.6 billion growth.
$29.5 billion – GF spending allocated to Health and Human Services in the 2014-15 Budget Act;
$19.7 billion – projected 2015-16 spending for HHS programs.
The Legislative Analyst’s projections are predicated on specific budgetary scenarios and are subject to change depending on the policy and fiscal decisions made by the Legislature over this coming legislative year.