According to the 2022-2023 California state budget Fiscal Outlook report compiled by the Legislative Analyst’s Office (LAO) on Wednesday, California will have a $31 billion surplus next year.
This marks the second budget year in a row where a large eleven-figure surplus was announced. Last budget year, California had a $76 billion budget surplus, although that figure was later knocked down to $38 billion by the LAO.
Should the $31 billion surplus figure hold, California would go over a constitutional limit on spending surplus funds, forcing the state to give back some of the money back to the people of the state. This year, California spent much of the surplus on housing and homeless programs, with $12 billion in new funding alone going to homeless programs. But, due to spending limits, $12 billion alone was spent on Golden State Stimulus payments to most Californians, with another $1.5 billion going to small business relief.
For the upcoming budget, the LAO named multiple ways that the state would give back part of the surplus to the people, including more direct payments, tax cuts, infrastructure projects, or public school spending. By state law, 40% of all state taxes must go to public education each year, meaning, if the surplus remains on track, public schools and universities could see as much as $11 billion be divested down to them next year.
At a press conference in Long Beach on Wednesday, Governor Gavin Newsom said that while it was still too early to say for sure how much the surplus would be, he was supportive of giving money back to the taxpayers, similar to the Golden State Stimulus program this year. He also highlighted infrastructure projects, one-time only projects, and more money going into a rainy day fund as being likely recipients of the surplus.
“How we framed that historic surplus last year, similarly, we will frame our approach this year,” said Governor Newsom on Wednesday. “I’m very proud of the historic tax rebate last year, and I look forward to making the decision that I think is in the best interests of 40 million Californians. We are going to substantially increase our one-time investments in infrastructure. That’s one budget preview you can count on.”
A combination of high taxes on Californian businesses, large post-pandemic increases in business, a rising stock market, a hot housing market, and rapidly increasing income taxes as more people return to jobs after the pandemic all contributed to the projected surplus. According to the California Department of Tax and Fee Administration, businesses brought in a record $216.8 billion in sales from April through July this year. Compared to the same three months last year, that’s an increase of 38.8%. It’s also higher than pre-pandemic levels, with April-June sales in 2021 being 17.4% higher than April-June 2019 sales.
A projected $31 billion surplus
While the LAO is warning that these gains may not hold for long, especially since prices for goods, services, and gasoline are rising quickly due to inflation and supply-line issues, many remain optimistic that California can hold the line and bring about another surplus.
“Many Californians are struggling,” Paris Hill, a fiscal planning consultant told the Globe on Thursday. “While another rebate check is nice, taxation is the huge issue here for many. A lot of people are thinking of leaving the state or moving to a cheaper place in-state because of how high taxes are, and yet here is California coming in way under budget. The state government is trying to downplay this and trying to excite people on what it can be spent on, but the real issue is why there is such a high surplus now, and a big part of the answer is high taxes.”
“And since rebates can come out at opportune times, like, say, next year during an election year, similar to how Newsom announced the stimulus program this year right when he wasn’t doing so good in the recall polls, this can prove to be important politically, not just fiscally.”
Lawmakers also noted issues with having a large surplus during a tougher economic time right now, with Assemblywoman Marie Waldron (R-Escondido) noting on Wednesday, “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.”
Currently, while the projected figure is $31 billion, the LAO is also giving a range of between $10 billion and $60 billion in projected stimulus earnings based on multiple factors. Newsom’s first 2022-2023 budget proposal, expected early next year, will likely include his plans for the projected surplus.
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