LAO Says California's Finances Are Stable

The message in a report out today from the Legislative Analyst’s Office says California is in a good place financially, but lawmakers must remain cautious.

Legislative Analyst Mac Taylor says the state’s revenues will be $2 billion higher than anticipated this year, though all of the money must go toward schools. In the 2015 - 2016 fiscal year his office projects reserves could top $4 billion, if legislators hold the line on spending. About half of the budget reserve would be the result of recently-passed Proposition 2, which overhauled the state’s rainy day fund.

"I’d say we’re in a fairly stable and, yes, good situation right now," he says. "Because we’ve gotten some of our liabilities paid off. We’ve got our spending and revenue back into whack, the lines are together."

But that positive outlook assumes the economy remains steady. Taylor says if the economy slows down that $4 billion reserve would be gone within two years. He advises a cautious financial approach.

"We’re in our six year in the recovery. The average is about five," he says. "So we need to get that reserve built up quickly in my point of view if you want to take advantage of the protection it can offer you when you have a downturn. So the faster you build it up, the better."

Taylor says the expiration of Proposition 30’s tax increases will not have a dramatic affect because the taxes are phased out over several years.