Dear Legislators,
24 months ago, California’s Department of Finance forecast $151.8 billion of revenues in 2022-23 from the three largest sources:
12 months later, DOF revised that forecast down $30 billion:
12 months later, DOF revised it up $53 billion.
The reality is that neither DOF nor anyone else has any idea what California’s tax revenues will be in 2022-23 or any other future year. That’s because CA’s tax revenues are correlated with inherently unpredictable stock markets. That’s why the state needs at least $50 billion in reserves. While DOF can’t see the future with any reliability, it can reliably look back, and as it wrote last January when extrapolating the consequences of another 2001-2 or 2008-9 recession:
“Revenue losses would total close to $50 billion (an average of $25 billion per year) for two years, continue with more years of revenue declines in the range of $15 to $20 billion, and lead to a permanently lower revenue base . . ..”
Yet the May Revised Budget proposes only $20 billion of reserves, and according to the Legislative Analyst’s Office, $12 billion of those reserves are already drawn down. That’s why you should save surge state revenues. With the federal government providing $25 billion of one-time funds, there has never been a better time to save state monies. Any new state programs requiring recurring state spending should be funded with cost savings from reforming existing programs.
