Posted on 02/22/2006 9:00:27 PM PST by NormsRevenge
SACRAMENTO (AP) - California can expect a tax windfall for the next budget year that is $2.3 billion more than Gov. Arnold Schwarzenegger forecast in his budget projection last month, the nonpartisan legislative analyst's office said Wednesday.
But rather than celebrate by increasing spending, the governor should instead direct the unanticipated money toward closing the state's multibillion dollar structural deficit, Legislative Analyst Elizabeth Hill said.
The Republican governor's budget plan for the fiscal year that begins July 1 provides a 7 percent boost in spending over the current fiscal year without raising taxes, thanks mostly to additional tax revenue.
Most of that revenue growth comes from "volatile sources" such as business earnings and investment income that could dry up with a sudden downturn in the economy, Hill said in her annual report "Perspectives and Issues."
In his January budget release, Schwarzenegger proposed spending $97.9 billion from the state's general fund in the 2006-2007 fiscal year that begins July 1. At the time, the state projected it would collect just $91 billion in tax revenue.
The higher spending was made possible by unexpected tax revenues of between $6 billion and $7 billion the state expects to collect over the next two years.
The legislative analyst's report offered even better financial news for the governor. California can expect an extra $1.3 billion in the fiscal year that starts July 1 and another $1 billion the following year, the legislative analyst said.
But Hill said California still faces $20 billion in debt at the end of 2006-07, most of which was incurred when the state issued bonds to close its record budget deficit. Repayment costs could reach more than $5 billion a year by 2008-09.
Vince Sollitto, a spokesman for Schwarzenegger, said the $2.3 million in extra revenue is evidence that Schwarzenegger's fiscal discipline is paying off. He said the governor inherited a $16 billion structural budget deficit - an amount that will shrink to around $4 billion if the LAO's estimate is correct.
"This budget protects the financial gains already made by this governor while increasing spending in certain key areas such as education and transportation," Sollitto said. "The wisest use of such newfound additional revenues is in continued deficit-reduction, debt repayment and building of the state's reserve, given our continued fiscal pressures in the out-years."
The structural deficit results from the state spending more money each year than it takes in - as Schwarzenegger has proposed doing this year. The state would still have a structural deficit of nearly $5 billion in 2006-07, according to the legislative analyst, but unexpected revenues carried over from this year will make up the difference.
The problem in recent years is largely the result of decisions the state made during the good economic times of the late 1990s to expand services in areas such as education and health care when revenues were expanding. The state's tax income, however, couldn't support those new programs when the economy turned sour.
Most of the increased spending in Schwarzenegger's budget goes toward an 8.7 percent increase in education funding that Hill suggested could be trimmed to a 6.6 percent increase.
"The budget proposal misses an important opportunity to take advantage of highly favorable revenues to get the state's fiscal house in order," Hill's office said in a summary. "We thus recommend that the Legislature reduce the amount of ongoing spending increases proposed in this budget and use the savings to either increase reserves or prepay additional budgetary debt."
Hill also cautioned against the state's current pay-as-you-go approach to funding pension and retiree health care costs, a $24 billion funding shortfall in the state teachers retirement plan and a possible decline in real estate sales or building that could cost the state up to $4 billion in 2006-07.
Assembly Budget Committee Vice Chair Rick Keene, R-Chico, said Wednesday's report underscores the need to repay debt and fix the state's structural deficit.
"This new money must not be seen as a surplus, but managed wisely - paying off debt and investing in critical needs like levee repairs, water storage and new freeways," Keene said.
The state's total projected spending plan for the next fiscal year is $122.9 billion, with $25 million of that coming from dedicated sources, such as a gas tax to pay for highway improvements.
"The wisest use of such newfound additional revenues is in continued deficit-reduction, debt repayment and building of the state's reserve, given our continued fiscal pressures in the out-years."
Bump!
More money coming in.....who would have thunk it!
and it's already spent or will be..
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