Revenue Beats Expectations, Sacramento Plays the Long Game

by Brian Leubitz

In a bit of good news, tax receipts for the end of 2012 came in substantially higher than expected.  But there's a caveat:

The state is poised to finish January about $4 billion ahead of what forecasters expected in income taxes, according to the Legislative Analyst's Office - the biggest one-month overage that state fiscal experts can recall in recent memory.

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The one-month boom likely comes from a perfect storm of tax changes at the state and federal level, and budget experts urge restraint because a dollar received today could simply mean a dollar less tomorrow. This comes on top of an already volatile tax system that relies heavily on wealthy residents whose income is hard to predict. (SacBee)

The Legislative Analyst's Office expects a bit over $95 billion for the year, so this isn't exactly chump change. However, given the debacle that was the fiscal cliff negotiations, many companies paid workers and stockholders in December rather than January. A wait and see attitude is probably very reasonable at this point.

That being said, by the time we get the May revise, we'll have a lot more data about revenue to mull over. Excess revenues simply can't be ignored at that point. However, Sen Steinberg takes a more holistic view of the situation:

Senate President Pro Tem Darrell Steinberg has said earlier that any extra money the state receives should be split between a rainy-day reserve, paying off debt and expanding state programs. The Senate leader has talked specifically about restoring dental benefits for low-income adults, which were cut during the recession.

"There's no question that California is back in the black, and this is all good news," Steinberg, D-Sacramento, said. "I think the question is how good is this news? My reaction, on behalf of my caucus, is to still be relatively cautious until we get more information."  (SacBee)

I think after passing Prop 30, many will simply want to maintain status quo. The problem with that is that the status quo prior to Prop 30 was pretty desperate. We needed Prop 30 to simply maintain our schools and a semblance of a working government. Now, after the passage of Prop 30, we are able to afford a somewhat adequate level of school funding. I say somewhat adequate because it is not adequate at all, and we are still among the lowest funding levels in money spent per student.  

But even without the massive layoffs at schools that the failure of Prop 30 would have brought, we still have a social safety net that has been slashed beyond the bone.  Services to the poor and disabled are meager, if existent at all. In the end, we are only hurting ourselves with the long-term starvation of the safety net. The failure of the safety net, especially with respect to our mentally ill and disabled, simply leads to higher long term costs.

Wait and see, for the time being, but we cannot move forward without a proper balance.

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