Congratulations California, you may soon have billions more than you expected

 Armando Cruz Ubaldo; 138740

US Government and Politics 20/11/13

Congratulations California, you may soon have billions more than you expected (Washington Post by Niraj Chokshi available in: http://www.washingtonpost.com/blogs/govbeat/wp/2013/11/20/congratulations-california-you-may-soon-have-billions-more-than-you-expected/ )

I chose this news because I think this is relevant for the future of the United States being that California is one of the most important states. 

If the estimates are right the state of California just saw its first positive year-end reserve in five years, according to an updated official projection the state is on track to have an extra $5.6 billion in just two years. These are great news to the state because the things are changing in a fast way, according to the Legislative Analyst’s Office report in largely part the greater personal income tax revenue facilitated this situation and the state ended the fiscal year in June with about $1.65 billion more in revenues than had been anticipated.

Besides, this will be good for the education because much of this money will go to that sector, moreover, there is a mandated 25-year-old policy that guarantees education funding grows with the economy. Also the state is expected to have ended the 2012-2013 fiscal year with a $234 million reserve—its first positive year-end reserve since the 2007-2008 fiscal year, making it stronger as the report’s authors write:

“The state’s budgetary condition is stronger than at any point in the past decade”. “The state’s structural deficit—in which ongoing spending commitments were greater than projected revenues—is no more.”

In other words, the things are shining as gold in the Golden State but this not means that there are not notes of caution. As it is explained the projections assume the economy continues to grow and that stock prices enjoy a slow and steady rise, but a “wall of debt” remains and the state’s ”huge retirement liabilities” loom large as a potential source for concern. Also there is a danger of another recession and the Great Recession was so severe that the nation may see a prolonged rebound. But, the report’s authors note, that the country is four years into the modest recovery and, since World War II, the average expansion has lasted just under five years.

But, at the end of the day, California’s situation “is even more promising than [they] projected one year ago”. As well, it’s not just the fiscal year that ended this summer, by the end of the 2014 to 2015 fiscal year the summer after next, the state is projected to have accumulated a $5.6 billion reserve. Also, this fiscal year’s projected reserve is expected to more than double—from $1.1 billion to $2.4 billion—thanks to the extra capital gains taxes projected to come from stronger-than-expected stock price growth. 

Moreover, there is an expectation even of a further growth in the 2014 to 2015 fiscal year as personal income tax revenue rises. As they explain, in both of the next fiscal years, higher revenues will be somewhat offset by billions in increased education spending, yet there will be a $5.6 billion reserve if the estimates are right and new policies don’t affect things. In other hand, much of the revenue growth is the result of a seven-year tax hike on Californians earning $250,000 or more that was approved by voters in 2012 and the surpluses are expected to continue in subsequent fiscal years. 

I AGREE with this report and it is interesting to see how the economy of a state can change rapidly but they have to take their cautions to be prevented in case of another recession, it will be interesting to see how the things keep changing and if the predictions are the same for the next fiscal year.