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No 'fiscal cliff' for California when tax hikes end, analyst says

A report Wednesday from the state legislative analyst predicted the state would see more than $4 billion in reserves in the fiscal year ending in 2016. The report also concluded that expiring tax increases
A report Wednesday from the state legislative analyst predicted the state would see more than $4 billion in reserves in the fiscal year ending in 2016. The report also concluded that expiring tax increases "will not necessarily cause a sudden revenue drop off — a 'fiscal cliff' — for the annual state budget process."
Legislative Analyst's Office

A steadily improving economy will buffer California's budget from a drop in revenue expected when temporary tax hikes begin to expire in the coming years, the state's nonpartisan Legislative Analyst's Office said Wednesday.

The report from Legislative Analyst Mac Taylor examined state revenue trends through 2019, the first year after the Proposition 30 tax hikes expire.

He said the expiring tax increases "will not necessarily cause a sudden revenue drop off — a 'fiscal cliff' — for the annual state budget process."

In 2012, voters approved Gov. Jerry Brown's proposal to raise an additional $6 billion a year through higher taxes. The statewide sales tax was raised to 7.5 percent, an increase that will expire at the end of 2016. An increase in income taxes on the wealthy will expire at the end of 2018.

Some Democratic lawmakers have suggested extending the tax hikes, but Brown has said they should remain temporary, as he promised when he persuaded voters to approve them.

When Proposition 30 passed, Brown said it made California's tax system more fair and would help prevent budget cuts to schools, colleges and universities.

The analyst's report also projects a $4.2 billion reserve for the fiscal year that will start next July. That includes a $2 billion deposit into the state's rainy-day fund, which was modified when voters approved Proposition 2 earlier this month.

Much of the extra money will go to public education, making the near-term outlook for schools and community colleges especially favorable, the report said.

Taylor, however, cautioned that the surplus depends on lawmakers and the governor proposing no new spending plans.

The report is projecting state revenue of $111.4 billion for the 2015-16 fiscal year, a 3.7 percent increase over this year's $107.4 billion general fund budget.

In the 2019-20 fiscal year, the first one without all the extra Proposition 30 tax-hike money, the analyst projects California will collect $127.4 billion in general fund revenue.