Revenue uptick sets stage for Brown vs. Dems II

Revenue uptick sets stage for Brown vs. Dems II

(Calif.) Notice from the Department of Finance that revenues flowing into state coffers are running slightly more than $1 billion ahead of forecasts made in June should come as welcome news to school administrators still digging out of the financial hole  created by the five-year economic downturn.

The news is also likely to reignite debate between Gov. Jerry Brown and the Legislature’s Democratic majority over how much of the extra revenue can be spent in 2015-16 – a discussion in which the nonpartisan Legislative Analyst, who with today’s released of next year’s revenue forecast, may play a key role.

“The news comes on the heels of two other positive developments – the vote to strengthen California’s rainy day fund through Proposition 2 and the credit update that followed one day later,” said State Controller John Chiang in a statement.

Just two years ago, a record number of local educational agencies in California teetered on the edge of insolvency following historic erosion of employment, property values and state support.

Passage of Proposition 30 in November, 2012 provided a big boost to schools and the state itself, but steady – if not strong – economic growth during the past year has also been an important factor.

Unemployment in California fell by 0.1 percent in September to 7.3 percent – the lowest since July, 2008.

Housing enjoyed two years of double-digit price appreciation, which understandably has slowed since June. But a monthly index of confidence among builders, issued by the National Association of Home Builders and Wells Fargo, continues to rate the market favorably.

And the stock market continues its upward ascent with the S&P hitting new highs almost daily this month. Since the year's low reached in February of 1,741, the S&P is up more than 10 percent – hitting another new top Tuesday at 2,051.

Such numbers should resurrect the argument that legislative leaders and the Brown administration engaged in last summer. Although some of the same indicators suggested a bright outlook, Brown wanted to take a cautious approach to spending because of the state sensitively to swings in capital gains revenues.

At the time, lawmakers pointed to the forecast issued by the LAO – which stood $2.5 billion higher than the administration’s – as reason for the governor to loosen the purse strings.

Today’s revenue update from the LAO will likely affirm that estimate and potentially spark a new debate.

A look at October numbers show personal income tax collections were $358 million above the budget forecast at $4.2 billion. Sales and use tax receipts were $36 million higher than the $2.1 billion estimate.

Corporate tax collections are the big surprise so far this year trending more than 1,000 percent above the forecast in October at $286 million.

There are, no doubt, economists whose outlook on the economy is less than rosy. Some have noted, for instance, that the gross domestic product in the third quarter increased at an annual rate of 3.5 percent – which might sound acceptable until considering much of the rest of the world: Japan’s economy slipped into recession this week; Europe remains on the brink; while China’s growth has slowed.

That might be enough to give Gov. Brown reason to keep his hands in his pockets regardless of the numbers that the LAO might unveil Wednesday. more


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