SACRAMENTO, Calif. (CN) – California Governor-elect Gavin Newsom will inherit a state with a rosy financial outlook, according to the latest analysis by the nonpartisan Legislative Analyst’s Office released Wednesday.
The agency estimates the state will have an operating surplus of about $14.5 billion for the 2019-2020 fiscal year, which could be used for one-time spending on programs or be added to the already fat cash reserve of $14.8 billion.
“It is difficult to overstate how good the budget’s condition is today,” the agency’s report stated.
Newsom will have the option to sock away the surplus for the next recession, which many economic analysts predict may arrive as soon as the beginning of 2019. Current Gov. Jerry Brown preferred to save rather than spend, which accounts for the fiscally robust condition of the state.
If Newsom does decide to save, he could have a reserve of $30 billion by the middle of 2020.
But the Democrats, who enjoy a supermajority in the Legislature and a governor fresh off a landslide victory could clamor for the funds to allocated to projects like universal health care, the homelessness crisis or addressing the striking income inequality persisting in the state.
Furthermore, two major infrastructure projects – the California Water Fix delta tunnels and the state’s effort to link the state via high-speed rail – require billions from the state to come to fruition.
The price tag for the Water Fix project, a pair of tunnels under the Sacramento-San Joaquin River Delta to bring water to the south state, is between $15 and $17 billion. The high-speed rail project is currently slated to cost $77 billion.
But lawmakers also noted the analyst’s report said the surplus is only a prediction and carries a caution that a recession could quickly erase the gains incrementally made since the economy bottomed out in 2007.
“I’m glad to see the fiscal outlook is still bright for the state, but the LAO report also warns we don’t have enough saved up to weather a recession,” said Assemblyman Phil Ting, D-San Francisco, who chairs the Assembly Budget Committee. “We must make smart investments and proceed with caution to protect programs for the long run. No one wants to relive the devastating budget cuts we were forced to make only a short time ago.”
Ting alluded to the $27 billion deficit that Brown inherited when he assumed office in 2011. Brown and the Legislature made steep cuts to a number of programs, including the redevelopment agencies that had cropped up in cities and counties during the early part of the millennium.
The analyst’s office did say the cash reserves are sufficient to weather a small recession or downturn in the economy, but anything of the magnitude of the Great Recession will require significantly more savings.
“Not only have we pulled the state from the depths of the Great Recession and made significant cuts in critical programs, we are also well prepared to withstand the next recession without major cuts or middle-class tax increases,” said California Senate President pro tem Toni Atkins, D-San Diego.
But unlike Ting who advocated for putting the surplus into savings, Atkins advises “making strong new investments in our schools, universities, infrastructure, environmental-protection efforts and poverty reduction programs.”