New State Surplus Estimated at $31 Billion

The Legislative Analyst’s Office (LAO) released its 2022-23 Budget Fiscal Outlook with an estimated surplus of $31 billion. The LAO is the non-partisan department that advises California lawmakers.

As reported in the Sacramento Bee, “Underlying this growth is a meteoric rise in several measures of economic activity,” the office wrote in its report, such as income and sales tax. It’s a similar story to last year’s budget, when California saw nearly $80 billion in surplus funds despite a period of global financial tumult.

The surplus estimate is welcome news for lawmakers, who say the it will help build an equitable economy and strengthen the middle class. But lawmakers don’t have total discretion over how the funds are spent. Californian voters in 1979 adopted a spending cap known as the Gann limit that compels the state to return money to taxpayers in some circumstances. The analyst’s office projects the state is on track to exceed that limit in the 2022-23 budget year.

Lawmakers could comply with the law by reducing taxes, spending more on excluded purposes like infrastructure, issuing tax rebates or providing extra money to schools to schools.

Last year, Newsom and lawmakers sent out $12 billion in tax rebates, which Gov. Gavin Newsom branded as “Golden State Stimulus” checks.” The Newsom administration had argued it didn’t need to send out the checks, yet, because it hadn’t yet reached the Gann Limit, but that the stimulus checks would help satisfy the requirements should the state hit the limit in the future

Newsom, speaking to reporters in Los Angeles on Wednesday, said he would use the surplus to “substantially” increase infrastructure spending next year. He also indicated he wanted to approach the surplus similarly to last year, when he and lawmakers used excess cash for stimulus checks, building reserves, paying down pension debt, and expanding the Earned Income Tax Credit.

“We have the highest reserves of any state in US history,” Newsom said. “We paid down an unprecedented amount, committed over a three-year period $11.3 billion paid on pension obligations. We used money for grant programs for small businesses. We doubled our Earned Income Tax Credit, expanded supports and services like childcare, addressed the social safety net. I think that’s the approach: fiscally disciplined, recognizing this is not a permanent state, recognizing the one-time nature of most of these dollars and continuing to bank dollars in a disciplined manner.”

The LAO said it’s impossible to predict how long the economic growth will continue. However, the office said there is room for new, ongoing commitments in the state budget, and expects operating costs to go down, contributing to a $3 billion to $8 billion (annual) surplus through 2026.

State Senate President pro Tem Toni G. Atkins, D-San Diego, said California’s fiscal health is the result of a “decade of responsible budgeting by Democratic legislators and governors” that helped the state weather the pandemic.

“As economically wealthy as our state is, we see every day that too many have been left behind and too many families struggle just to get by,” Atkins said in a statement. “The fiscal outlook provides valuable guidance to the Senate’s ongoing budget work to craft transformative priorities that put California’s wealth to work building a more equitable economy and a stronger middle class.”

Newsom will deliver his own budget outlook and priorities by January 10 as lawmakers start the 2022 session.

This new surplus could provide additional opportunities to augment funding for behavioral health purposes in 2022-23 and beyond. While, as stated by the LAO, much of the State’s new spending must be one-time in nature, it appears that there will still be billions of dollars that the Legislature and the Governor can program for ongoing spending. 

What or who could be in line to benefit from this surplus? Call it an educated guess: SYASL believes one thing in the mix could be more state resources to address workforce issues in health, mental health, substance abuse, etc.