LAO’s fiscal outlook: Good news, bad news and a modest increase in Prop. 98 funding

The nonpartisan state Legislative Analyst’s Office has issued its annual “California Fiscal Outlook,” which projects the state’s revenues and expenditures from 2006-07 through 2011-12. The good news is that, for the current 2006-07 year, higher-than-projected revenues and lower-than-budgeted expenditures will combine to increase the state’s year-end reserve from $2.1 billion to nearly $3.1 billion.

The bad news is that—absent corrective measures—expenditures will outpace revenues throughout the forecast period. The 2007-08 shortfall is projected to be $5.5 billion; even after applying the 2006-07 ending reserve, that would still leave a deficit of $2.4 billion. State Legislative Analyst Elizabeth Hill recommends that the Legislature consider a combination of revenue increases and spending cuts to correct this imbalance.

The Proposition 98 guarantee for education funding is expected to go up to $57.5 billion in 2007-08, an increase of 4.4 percent over the current year’s $55.1 billion. Hill estimates that this increase would provide about $350 million more than would be necessary to cover baseline increases in cost-of-living adjustments and enrollment. This means there would be a modest amount of money available for new purposes or to expand existing programs.

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