California will have a $31 billion budget surplus next year as revenues continue to climb despite the pandemic, according to a new forecast from the state’s independent Legislative Analyst’s Office.
The predicted surplus is so large the office estimates California will surge past a constitutional limit on state spending by more than $14 billion. That could require Gov. Gavin Newsom and state lawmakers to either cut taxes, spend more money on schools and infrastructure or — perhaps the more popular choice in an election year — give rebates to taxpayers.
The major driver of our estimate of the #CABudget $31 billion surplus is revenue. In recent months, revenue collections have grown rapidly, consistent with a meteoric rise in several measures of economic activity. [1/4] pic.twitter.com/Fv2rT0XISo
— Legislative Analyst (@LAO_CA) November 17, 2021
Tax Collections Soar to Record Highs
California’s tax collections have continued to soar despite the pandemic. From April to June of this year, California businesses reported a record high $216.8 billion in taxable sales — a 38.8% increase over 2020 and a 17.4% increase over pre-pandemic 2019. This comes as some economists worry about rising prices because of inflation.
This would be the fourth year in a row of increasing revenue. But the LAO said it’s “impossible” to know whether California’s revenue gains are sustainable.
“Recognizing this, our main revenue forecast takes a middle ground of possibilities, assuming neither that the gains are entirely sustainable nor that they are entirely unsustainable,” the LAO wrote in its annual Fiscal Outlook.