California on track to notch a $31 billion budget surplus. Will taxpayers see a rebate?

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  • Gavin Newsom
    Gavin Newsom
    Governor of California

California lawmakers should consider ways to return cash to taxpayers next year with the state on course to bring in an estimated $31 billion budget surplus, non-partisan analysts said in an economic outlook report Wednesday.

The estimate comes from the Legislative Analyst’s Office, or the LAO, a non-partisan department that advises California lawmakers.

Analysts on Wednesday said, despite the ongoing global pandemic, revenues in California are growing at “historic rates,” and the state can expect an extra $31 billion in its coffers next year.

“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.”

California can afford new ongoing spending

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 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 in January as lawmakers start the 2022 session.

Republican sees ‘something wrong’ with huge tax surplus

H.D. Palmer, a spokesman for the administration’s Department of Finance, attributed the surplus to a strong state economy.

“A resurgent California economy and a solid performance by the financial markets are fueling revenue growth that’s outpacing projections – strength that’s reflected in both our cash receipts so far and in the Analyst’s new report out today,” Palmer said in an email. “We’re continuing to finalize our economic forecast and refine our revenue estimates, and we’ll put those forward as part of the Governor’s Budget in January.”

Republicans on Wednesday said they want to take a prudent approach to the surplus and return money to citizens where possible.

“There’s something wrong when the state is flush with extra cash - $750 for every man, woman and child – while ordinary people have to choose between putting food on the table and filling their gas tank,” said Assembly Republican Leader Marie Waldron, R-Escondido, in a statement.

“If California won’t give this money back, let’s at least spend it in a way that brings down the cost of living and improves people’s quality of life.”

Sophia Bollag contributed to this report.

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