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Independent analyst: California's finances look rosy if state follows current spending course


SACRAMENTO, California — California could end fiscal 2016 with nearly $12 billion in its rainy day fund if the state's economic recovery continues and lawmakers don't commit to major spending increases, California's independent legislative analyst said Wednesday.

After several years of deep spending cuts and voter-approved temporary sales and income taxes, California's budget is better prepared for an economic downturn than it has been in decades, legislative analyst Mac Taylor said in his annual fiscal forecast.

His report projects that California will end the current fiscal year in June $3.6 billion above the assumption the Legislature and Gov. Jerry Brown relied on in crafting the current budget. Revenues are already $1.1 billion above projections this year.

Crucially, though, Taylor's analysis relies upon lawmakers not approving a spending spree — and there is pent-up demand among some Democratic lawmakers to expand a host of social programs.

"Our main point is there is room to make some additional commitments, those could be either spending increases or tax reductions," Taylor said in an interview. But, "we don't know what's going to happen with the economy going out several years in the future."

Taylor's report echoes the Democratic governor's repeated admonitions for the state to prepare for the next economic downturn to avoid the huge cuts in programs that lawmakers were forced to make during the last recession.

Still, some lawmakers were repeating the list of priorities for more spending Wednesday.

"We will continue to build the Rainy Day Fund, set aside funds for state costs associated with increasing the minimum wage to $15 per hour, and provide meaningful new investments in developmental disability services, education — from preschool to higher ed — infrastructure, and other critical needs," Assembly Speaker Toni Atkins, D-San Diego, said in a statement.

The report finds that personal income taxes grew by 14 percent in 2014-15, led by the booming San Francisco Bay Area technology sector, compared with an average annual growth of about 5 percent over the last 15 years. The analyst forecasts those revenues could slow next year with a less robust stock market.

The forecast also assumes the expiration of Proposition 30, the temporary sales and income tax increases voters approved in 2012. The additional tax on high-income earners is set to expire in 2018 and the one-quarter cent sales tax expires in December 2016, but union-backed groups already are floating competing initiatives to ask voters to permanently continue the taxes.

Senate Minority Leader Jean Fuller, R-Bakersfield, said the state's expected strong financial footing shows more taxes are not needed. Still, even Republicans support some spending increases, such as restoring payments to doctors who provide services for Medi-Cal patients and expanding services for the developmentally disabled.

"With California projected to have $3.5 billion more in unanticipated revenue this upcoming year, there is no excuse for failing to increase funding to stem the crisis that has overcome the developmental disability community," Assemblyman Tom Lackey, R-Palmdale, said in a statement.

Brown also called a special session of the Legislature this year to address the expiration of a $1.1 billion annual tax on health providers that helped pay for Medi-Cal, but lawmakers failed to take it up before they recessed for the year. The forecast will likely make it harder to argue for a new tax.

Taylor's analysis also includes less-rosy scenarios for the state's economy. For instance, if the state faced a recession starting in 2017, revenues would fall by $60 billion over four fiscal years, but the rainy day reserve fund would cover operating deficits well into 2019. But, Taylor said, if lawmakers added an extra $2 billion in annual spending this year, the money would run out a year earlier.

A vote Wednesday by the board of the California Public Employees' Retirement System to lower its rate of return over a 21-year period could add $1 billion in costs to fund pensions by 2019-20, the analyst said later.

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