California's independent legislative analyst on Wednesday offered a rosier financial forecast for the state than in the last several years, projecting annual operating surpluses approaching $10 billion a year by the 2017-18 fiscal year if current spending and revenue policies continue.
Legislative Analyst Mac Taylor said revenue is expected to grow faster than spending for at least the next five years.
"The state's budgetary condition is stronger than at any point in the last decade," he said in the report.
Taylor credits restrained spending by the Legislature and Gov. Jerry Brown, the improving economy, and temporary increases in sales and income taxes voters approved last year. He projects a $5.6 billion reserve by July 2015.
It's a dramatic turnaround from the multibillion-dollar deficits of a few years ago. Taylor warned that California's tax structure still leaves it vulnerable to swings in the stock market, so he said lawmakers should not commit extra money to new programs.
Senate Minority Leader Bob Huff, R-Diamond Bar, urged fellow lawmakers to heed Taylor's advice to devote the extra money to paying down debt, including billions of dollars owed to the state's pension funds and retiree health care. He said the state also should fulfill its promise to fund schools and invest in critical infrastructure.
"There will be other pent-up spending demands by many that can't be fulfilled," Huff said in a written statement. "But we can sustain this recovery and protect vital services all Californians care about as long as we work together to make that happen."
The analyst's report said tax revenue will start to fall in 2019 with the expiration of higher income taxes on the wealthy under Proposition 30, the Brown-sponsored initiative approved by voters last year. Revenue will continue to be strong, however, in part because of higher property tax revenue caused by a rebounding housing market.
Brown, a Democrat who is expected to seek an unprecedented fourth term as governor next year, has preached prudence in spending, forcing the Democratic-controlled Legislature to cut some social programs they typically would support. Brown's director of finance, Michael Cohen, signaled Wednesday that the governor's approach would not change despite the favorable forecast.
"We're pleased that the analyst's report shares the governor's view that discipline remains the right course of action," Cohen said in a statement. "The focus must continue to be on paying down the state's accumulated budgetary debt and maintaining a prudent reserve to ensure that we do not return to the days of $26 billion deficits."