CA’s Unreliable Revenue Forecasts

24 months ago, California’s Department of Finance forecast $151.8 billion of revenues in 2022–23 from the three largest sources:

Just 12 months later, DOF revised that forecast down $30 billion:

Just 12 months after that revision, DOF revised it up $53 billion.

Neither DOF nor anyone else has any idea what California’s tax revenues will be in 2022–23 or any other future year. That’s because tax revenues are correlated with inherently unpredictable stock markets. That’s why the state needs huge levels of reserves. While DOF can’t see the future with any reliability, it can reliably look back, and as it wrote in January when extrapolating the consequences of another 2001–2 or 2008–9 recession: ”Revenue losses . . . would total over $100 billion (an average of over $30 billion per year) for three years [and] continue with more years of revenue declines in the range of $30 billion, . ..” Yet the May Revised Budget proposes only $24 billion of reserves, and according to the Legislative Analyst’s Office, $12 billion of reserves are already drawn down. That’s why the Legislature should save surge state revenues. With the federal government providing $25 billion of one-time funds, there has never been a better time to save state monies. Any new state programs requiring recurring state spending should be funded with cost savings from reforming existing programs.

Lecturer at Stanford University and president of Govern For California