California Is Flush With Cash But Newsom Sees Lower Growth Ahead
(Bloomberg) -- California Governor Gavin Newsom’s $147 billion general-fund budget expects more revenue from the stock market’s gains but scales back growth rates going forward as the U.S. economy surges into its 10th year of expansion.
Newsom’s revised budget released Thursday for the fiscal year that begins in July reduces the revenue projection for 2023 by $1.6 billion compared to what he estimated just four months ago.
The first-term governor is padding the state’s various reserve accounts by $5.7 billion, which would help soften the blow of a moderate downturn. Some of the Democrat’s proposals, such as exempting menstrual products and diapers from sales taxes, would sunset at the end of December 2021.
"One-time revenues need to match one-time expenditures and we need to have a structurally balanced budget because we are entering the end of the beginning of a new phase of economic reality," Newsom said during a briefing in Sacramento. "The headwinds are real."
The state’s voter-mandated rainy-day fund would reach $16.5 billion next year from $14.4 billion this year. By the end of the 2023 fiscal year, the account would hit $18.7 billion. The budget, if approved as is, would direct $4.5 billion to pay off internal debts from outstanding loans to special funds and transportation accounts that were extended when the state was in fiscal straits.
In the meantime, however, California is flush as the stock market and the technology industry lift fortunes, particularly for the wealthy, who are taxed under higher rates in the progressive system. Compared with earlier forecasts, the latest projection of personal income-tax collections is $1.8 billion higher for the coming year because of the strong stock market. Californians are expected to pocket $156 billion of capital gains this year, an increase from the earlier prediction of $138 billion.
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