LAO Releases California's Fiscal Outlook and Revenue Projections for the 2017-18 State Budget

With less than two months before the Brown Administration is set to release its budget proposals for the 2017-18 fiscal year, the Legislative Analyst Office (LAO) released on November 16 its own assessment of the condition of the California economy and the state budget over the 2016-17 through 2020-21 period.

As has been the case in the past, the LAO indicates the considerable uncertainty of the condition of the state’s budget since it relies on many volatile and unpredictable economic conditions, including fluctuations in the stock market. For the near term, assuming the state makes no additional budget commitments and the current economic projections materialize, the LAO estimates the state would end the 2017-18 fiscal year with $11.5 billion in total reserves, including $2.8 billion in discretionary reserves. Beyond this coming year, the report signals more uncertainty in each subsequent year. In regards to K-12 funding and Proposition 98, the LAO estimates that the minimum guarantee will grow from $71.9 billion in 2016-17 to $74.5 billion in 2017-18, a 3.6 percent increase. Of the $2.6 billion increase in Proposition 98 funding, nearly half of the increase is attributed to local property tax revenues as a result of higher assessed property values.

The report estimates that if the Legislature were to dedicate most new Proposition 98 funding to the implementation of LCFF, the funding formula could reach 99 percent of the full implementation targets. Under its growth scenario, the LAO estimates the state could fully fund the LCFF as soon as 2018-19, whereas under its recession scenario, they estimate LCFF would not be fully funded until 2020-21, which is the original timeline proposed by the Brown Administration when LCFF was adopted in 2013.

For more additional information on the LAO’s fiscal forecast, please visit http://lao.ca.gov/Publications/Report/3507?utm_source=subscription.