Black is the new Red

According to the latest LAO report, "Budgetary Outlook Has Improved . . . But State Still Not Out of the Woods." And for the first time in recent memory the January budget to be introduced by governor Schwarenegger will be able "to keep the state’s budget in balance in 2006-07 without any new program reductions or added revenues-even though current-law projected expenditures exceed projected revenues by $4 billion during that year." The LAO's Liz Hill says that the state will still spend $4 billion more than it will take in. The budget will be balanced, however, becasuse of revenues that are "up sharply." The future beyond 2006-07 is not as bright. "Even assuming continued steady economic growth, we project that multibillion-dollar operating deficits (that is, annual shortfalls between revenues and expenditures) will persist throughout most of the forecast period," writes Hill. That means next year will be relatively easy to balance the budget, and perhaps makes it the best opportunity yet to make long-term progress on the budget shortfall. Not that the Legislature or the governor will want to make those tough choices in an election year. California is now in at least year three of solid economic growth--and at least "moderate growth" is predicted for the duration of the LAO projections. So if the state continues to have economic growth and a deficit, what (dare I say) will happen the next time revenues fall short of projections? Read the whole LAO report here. It is, in my opinion, the most imporant read of the month.