SACRAMENTO, Calif. (CN) - Buoyed by a growing economy and billions in additional tax revenues, California's 2016-2017 budget outlook is "decidedly positive," according to an annual report by the Legislative Analyst's Office.
The analyst said Wednesday that general-fund revenues for 2015 should surpass Gov. Jerry Brown's budget predictions by $3.6 billion, and that billions could be deposited into the state's rainy-day fund to protect taxpayers against future recessions.
"The state budget is better prepared for an economic downturn than it has been at any point in decades," the nonpartisan report said.
The state's "Big Three" revenues - personal income tax, sales tax and corporation tax - are predicted to far exceed Brown's 2015-16 budget package and could possibly line the state's rainy-day coffers with an additional $7.2 billion by June 2017.
The 56-page report says the bright budget outlook is proof of California's economic progress following a colossal recession several years ago that left the state's finances in shambles.
"The $11.5 billion in total reserves projected under our main scenario for the end of 2016-17 reflects the steady, significant progress that the state has made in improving its budget situation," the report states.
State lawmakers immediately reacted to the analyst's report, with Democrats applauding Brown's "balanced budget" and promoting new social programs while Republicans advocated caution against increased spending.
Assembly Speaker Toni Atkins, D-San Diego, said the report highlights California's recovery from the "Great Recession" but more progress must be made.
"As the Assembly looks ahead to crafting the next year's budget, 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 education-infrastructure, and other critical needs," Atkins said in a statement.
Minority Leader Kristin Olsen, R-Modesto, said the increased revenues should eliminate the need for a recent proposal that would increase taxes and improve the Medi-Cal program.
"For the third year in a row the state is expecting billions in surplus revenues," Olsen said in a statement. "The LAO's update demonstrates that there is no need to tax the health care of 24 million Californians as proposed by the governor and legislative Democrats."
The analysis says the state's growth could continue through 2020, pointing to the nation's current economic expansion since July 2009. The report mentions National Bureau of Economic Research data showing that the United States is in the middle of its fifth-longest economic expansion on record, with 77 straight months of economic growth.
Along with its rosy budget scenario, the report details damaging alternative scenarios that would dampen the state's economic prospects.
If economic growth slowed in 2017, the report says the state's rainy-day fund would cover presumed deficits despite the sudden elimination of budget surpluses and additional budget commitments.
"The budget, therefore, appears to be in a position to withstand an economic slowdown even if some additional budget commitments are made next year," the report said.
The analyst warned that under a scenario similar to the dot.com recession in the early 2000s, spending the 2015-16 surplus would cause the state to face a "roughly $7 billion budget problem with no reserves" by 2019-20.
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