Despite Great Uncertanities, California Could Survive Mild Recession

The California budget is now in strong enough shape to withstand a mild recession, according to a new report out Wednesday from the state’s nonpartisan Legislative Analyst’s Office.

The LAO estimates California’s budget reserves will hold more than $11 billion by mid-2018.

“So is there room for a little bit of new spending? Perhaps, with fairly minimal consequences in a mild recession,“ says the LAO's Jason Sisney. “But if the state adds a lot more new spending, that could put the budget into a very different situation.”

However, these estimates assume no changes in state or federal programs – and that’s highly unlikely.

Gov. Jerry Brown and the Democrats who control the California Legislature have increased spending by 25 billion dollars in the last four years. And the transition of power in Washington could have major effects on the state budget.

“The state’s elected leaders are going to have to weigh the merits of additional commitments now versus the need to deal with unexpected contingencies later – be it from the economy or the federal government,” Sisney says.

Meanwhile, the Brown administration announced Wednesday that revenues in the current fiscal year are running nearly $600 million below projections.

“With what we know now, the outlook for the upcoming budget is concerning and will need to account for this declining revenue and the significant uncertainties that the Analyst has identified today,“ the governor's Finance Director, Michael Cohen, said in a statement, “including stock market performance, the potential for recession, and changes in federal policy.”